Earnings call transcript: Easterly Government Properties sees strong Q1 2026 growth

Easterly Government Properties reported robust financial growth in Q1 2026, with a 16% year-over-year increase in revenue driven by acquisitions and stable leases. The stock saw a modest 1.11% increase premarket to $23.78, reflecting cautious optimism amid market volatility. The company’s market capitalization stands at $1.22 billion, and according to InvestingPro analysis, the stock appears undervalued relative to its Fair Value, placing it among opportunities on the Most Undervalued list.

Easterly Government Properties demonstrated strong growth in Q1 2026, with significant improvements across key financial metrics. The company’s revenue increased to $91.5 million, a 16% rise from the previous year, primarily due to strategic acquisitions and stable lease agreements. Over the last twelve months, revenue reached $342.88 million with an impressive gross profit margin of 67%. This growth underscores Easterly’s ability to capitalize on its government-focused real estate portfolio, with the stock delivering a 24.91% total return over the past year.

Easterly raised its full-year 2026 Core FFO per share guidance to a range of $3.06 to $3.12, reflecting its strong Q1 performance and strategic initiatives like the mezzanine lending strategy. The company remains cautious due to ongoing interest rate volatility and market uncertainties.

CEO William C. Trimble III stated, "Our strategic focus on government properties continues to pay dividends, as evidenced by our robust Q1 performance and the successful launch of our mezzanine lending strategy." He emphasized the company’s commitment to disciplined growth and capital allocation.

During the earnings call, analysts inquired about the company’s mezzanine lending strategy and its impact on future growth. Management highlighted the high expected yields and strategic alignment with Easterly’s long-term portfolio goals. Concerns were also raised about the deferred equity issuance, to which executives responded with plans to complete the issuance by year-end, contingent on market conditions.

Shannon, Conference Call Moderator: I would now like to hand the conference over to your speaker today, Cole Bardawill, Director of Investor Relations. Please go ahead.

Cole Bardawill, Director of Investor Relations, Easterly Government Properties: Good morning. Before the call begins, please note that certain statements made during this conference call may include statements that are not historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the company believes that its expectations as reflected in any forward-looking statements are reasonable, it can give no assurance that these expectations will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond the company’s control, including without limitation those contained in the company’s most recent Form 10-K filed with the SEC and in its other SEC filings. The company assumes no obligation to update publicly any forward-looking statements.

Additionally, on this conference call, the company may refer to certain non-GAAP financial measures such as funds from operations, core funds from operations, and cash available for distribution. You can find a tabular reconciliation of these non-GAAP financial measures to the most comparable current GAAP numbers in the company’s earnings release and separate supplemental information package on the investor relations page of the company’s website at ir.easterlyreit.com. I would now like to turn the conference call over to Darrell Crate, President and CEO of Easterly Government Properties.

Darrell Crate, President and Chief Executive Officer, Easterly Government Properties: Thank you, Cole. Good morning, everyone. We continue to operate in a market defined by volatility, whether it’s interest rates, geopolitical uncertainty, or broader capital market disruption. In these environments, investors tend to focus on businesses with durable cash flows, strong tenant credit, and disciplined capital allocation. We believe Easterly continues to stand out in each of these areas. Our portfolio supports essential government functions that continue regardless of economic cycles or external events. These are facilities tied to critical federal missions, high credit state and municipal agencies, and select defense-related tenants. The durability of those missions and the strength of those credit relationships continues to provide a stable foundation for our business. Importantly, we believe our portfolio is often misclassified alongside traditional office real estate. That comparison misses the specialized nature of what we own.

From our FBI offices in places like El Paso, New Orleans, and Pittsburgh, these facilities include secure classified environments, SCIFs, and other controlled spaces where sensitive law enforcement and intelligence work is conducted. These are highly tailored facilities with support agents that support agency-specific operations and are difficult to replicate. They serve essential functions, benefit from long-duration leases, and are backed by some of the strongest credit tenants in the world. Against that backdrop, we remain focused on a straightforward strategy, growing earnings steadily, allocating capital thoughtfully, and continuing to improve overall portfolio quality over time. Over the past several years, we’ve taken deliberate steps to strengthen the company, including leadership transitions, resetting the dividend, and maintaining additional capital internally.

These decisions are not always easy, but they position us to enter twenty twenty-six from a position of strength, supporting a robust and sustainable dividend while continuing to deliver consistent earnings growth that outperforms our peers. Turning to the quarter, our portfolio continued to perform at a high level. Occupancy continues to outpace our REIT peers at ninety-seven percent, and weighted average lease terms stood at approximately nine point four years. These metrics reflect both the quality of our assets and the mission-critical nature of the work taking place inside our buildings. During the quarter, we also completed our first mezzanine investment tied to the development of a new VA outpatient clinic. This transaction reflects how we are thinking about capital allocation in today’s environment.

While traditional acquisitions remain central to our long-term growth strategy, we are also identifying adjacent opportunities that can generate attractive current returns while preserving future optionality. This investment is expected to deliver a 12% yield, is backed by a committed federal tenant, and allows us to remain connected to an asset that may ultimately fit in our long-term ownership strategy. VA facilities represent one of our largest portfolio exposures, and that’s by design. These assets are highly specialized, tend to be very sticky, and are backed by the credit quality of the federal government. We were recently at our VA Jacksonville facility, and it was filled with veterans receiving the care and services they need. An important reminder that these aren’t traditional office buildings, but essential infrastructure supporting critical mission.

We also believe that the administration’s increased focus on defense spending represents an additional tailwind for the company, particularly as it relates to external growth opportunities. As we look to the year ahead, we are encouraged by the strength of our first quarter performance and our ability to raise the low end of guidance. While broader market volatility remains, our priorities remain unchanged. Disciplined capital allocation, operational execution, and consistent earnings growth. We believe our portfolio offers investors a compelling combination of income stability, long-term growth, and exceptional tenant credit quality.With a leased portfolio that generates a double A plus revenue stream, we look forward to working with the credit agencies on achieving an investment grade rating in twenty twenty-seven. To wrap up, we’re pleased with how the year started. We’re growing earnings, maintaining strong occupancy, allocating capital thoughtfully, and continuing to improve portfolio quality.

We believe that disciplined execution will continue creating long-term value for shareholders. I want to thank our team for their continued focus and execution, as well as our tenants and shareholders for their ongoing trust and partnership. With that, I’ll turn the call over to Alison.

Alison, Chief Financial Officer, Easterly Government Properties: Thanks, Daryl. Good morning, everyone. I’m pleased to report the financial results for the first quarter of 2026 on this sunny Monday morning. The underlying growth in the business is clear. Total revenue increased to $91.5 million, up from $78.7 million in the first quarter of 2025, a 16% year-over-year increase. This is driven primarily by acquisitions completed over the last 12 months, contractual rent growth, and continued lease stability across the portfolio. EBITDA also grew meaningfully, increasing from $57.3 million from $51 million last year, representing approximately 12% growth, reflecting the expanding earnings power of the platform. Most importantly, that growth continued to translate into higher earnings for shareholders on a per share basis, even as we raised capital to support portfolio expansion.

On a fully diluted basis, net income per share was $0.03. FFO per share increased to $0.76, up from $0.71, representing approximately 7% growth. While Core FFO per share increased to $0.77 from $0.73, or roughly 5.5% growth year-over-year. Our cash available for distribution was approximately $32.2 million. In terms of our active development projects, we are on track to