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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      To                     

Commission file number 001-36834

 

EASTERLY GOVERNMENT PROPERTIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Maryland

 

47-2047728

(State of Incorporation)

 

(IRS Employer Identification No.)

 

 

 

2101 L Street NW, Suite 650, Washington, D.C.

 

20037

(Address of Principal Executive Offices)

 

(Zip Code)

(202) 595-9500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock

DEA

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

 

Accelerated Filer

 

 

 

 

 

 

Non-Accelerated Filer

 

 

 

Smaller Reporting Company

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  

   As of April 30, 2020, the registrant had 75,116,657 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

 


 

INDEX TO FINANCIAL STATEMENTS

 

 

Page

Part I: Financial Information

 

 

 

   Item 1: Financial Statements:

 

Consolidated Financial Statements

 

 

 

Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (unaudited)

1

 

 

Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019 (unaudited)

2

 

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019 (unaudited)

3

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (unaudited)

4

 

 

Notes to the Consolidated Financial Statements

6

 

 

   Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

   Item 3: Quantitative and Qualitative Disclosures About Market Risk

30

 

 

   Item 4: Controls and Procedures

30

 

 

Part II: Other Information

 

 

 

   Item 1: Legal Proceedings

31

 

 

   Item 1A: Risk Factors

31

 

 

   Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

32

 

 

   Item 3: Defaults Upon Senior Securities

32

 

 

   Item 4: Mine Safety Disclosures

32

 

 

   Item 5: Other Information

32

 

 

   Item 6: Exhibits

33

 

 

Signatures

 

 

 

 

 

 

 

 

 

 

 

 


 

Easterly Government Properties, Inc.

Consolidated Balance Sheets (unaudited)

(Amounts in thousands, except share amounts)

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Real estate properties, net

 

$

2,040,468

 

 

$

1,988,726

 

Cash and cash equivalents

 

 

14,519

 

 

 

12,012

 

Restricted cash

 

 

4,088

 

 

 

3,537

 

Deposits on acquisitions

 

 

1,800

 

 

 

1,800

 

Rents receivable

 

 

27,219

 

 

 

27,788

 

Accounts receivable

 

 

14,750

 

 

 

15,820

 

Deferred financing, net

 

 

1,571

 

 

 

1,749

 

Intangible assets, net

 

 

171,883

 

 

 

168,625

 

Interest rate swaps

 

 

 

 

 

541

 

Prepaid expenses and other assets

 

 

31,027

 

 

 

13,991

 

Total assets

 

$

2,307,325

 

 

$

2,234,589

 

Liabilities

 

 

 

 

 

 

 

 

Revolving credit facility

 

 

36,000

 

 

 

 

Term loan facilities, net

 

 

248,693

 

 

 

248,602

 

Notes payable, net

 

 

446,987

 

 

 

446,927

 

Mortgage notes payable, net

 

 

205,471

 

 

 

206,312

 

Intangible liabilities, net

 

 

31,219

 

 

 

24,578

 

Deferred revenue

 

 

74,608

 

 

 

54,659

 

Interest rate swaps

 

 

15,142

 

 

 

5,837

 

Accounts payable, accrued expenses and other liabilities

 

 

52,003

 

 

 

47,833

 

Total liabilities

 

 

1,110,123

 

 

 

1,034,748

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Common stock, par value $0.01, 200,000,000 shares authorized,

   75,077,197 and 74,832,292 shares issued and outstanding at

   March 31, 2020 and December 31, 2019, respectively

 

 

751

 

 

 

748

 

Additional paid-in capital

 

 

1,270,758

 

 

 

1,257,319

 

Retained earnings

 

 

21,701

 

 

 

20,004

 

Cumulative dividends

 

 

(230,276

)

 

 

(210,760

)

Accumulated other comprehensive loss

 

 

(13,276

)

 

 

(4,690

)

Total stockholders’ equity

 

 

1,049,658

 

 

 

1,062,621

 

Non-controlling interest in Operating Partnership

 

 

147,544

 

 

 

137,220

 

Total equity

 

 

1,197,202

 

 

 

1,199,841

 

Total liabilities and equity

 

$

2,307,325

 

 

$

2,234,589

 

 

The accompanying notes are an integral part of these consolidated financial statements.

1

 


 

Easterly Government Properties, Inc.

Consolidated Statements of Operations (unaudited)

(Amounts in thousands, except share and per share amounts)

 

 

 

For the three months ended March 31,

 

 

 

2020

 

 

2019

 

Revenues

 

 

 

 

 

 

 

 

Rental income

 

$

56,583

 

 

$

48,488

 

Tenant reimbursements

 

 

1,152

 

 

 

1,584

 

Other income

 

 

483

 

 

 

535

 

Total revenues

 

 

58,218

 

 

 

50,607

 

Expenses

 

 

 

 

 

 

 

 

Property operating

 

 

11,258

 

 

 

9,963

 

Real estate taxes

 

 

6,562

 

 

 

5,755

 

Depreciation and amortization

 

 

23,556

 

 

 

22,451

 

Acquisition costs

 

 

538

 

 

 

470

 

Corporate general and administrative

 

 

5,483

 

 

 

4,317

 

Total expenses

 

 

47,397

 

 

 

42,956

 

Other expense

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(8,903

)

 

 

(8,132

)

Net income (loss)

 

 

1,918

 

 

 

(481

)

Non-controlling interest in Operating Partnership

 

 

(221

)

 

 

65

 

Net income (loss) available to Easterly Government

   Properties, Inc.

 

$

1,697

 

 

$

(416

)

Net income (loss) available to Easterly Government

   Properties, Inc. per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.02

 

 

$

(0.01

)

Diluted

 

$

0.02

 

 

$

(0.01

)

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

74,892,711

 

 

 

61,225,926

 

Diluted

 

 

75,616,233

 

 

 

61,225,926

 

Dividends declared per common share

 

$

0.26

 

 

$

0.26

 

 

The accompanying notes are an integral part of these consolidated financial statements.

2

 


 

Easterly Government Properties, Inc.

Consolidated Statements of Comprehensive Income (unaudited)

(Amounts in thousands)

 

 

 

For the three months ended March 31,

 

 

 

2020

 

 

2019

 

Net income (loss)

 

$

1,918

 

 

$

(481

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Unrealized loss on interest rate swaps, net

 

 

(9,846

)

 

 

(3,017

)

Other comprehensive loss

 

 

(9,846

)

 

 

(3,017

)

Comprehensive loss

 

 

(7,928

)

 

 

(3,498

)

Non-controlling interest in Operating Partnership

 

 

(221

)

 

 

65

 

Other comprehensive income attributable to

   non-controlling interest

 

 

1,260

 

 

 

386

 

Comprehensive loss attributable to

   Easterly Government Properties, Inc.

 

$

(6,889

)

 

$

(3,047

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3

 


 

Easterly Government Properties, Inc.

Consolidated Statements of Cash Flows (unaudited)

(Amounts in thousands)

 

 

 

For the three months ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,918

 

 

$

(481

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

23,556

 

 

 

22,451

 

Straight line rent

 

 

(709

)

 

 

(974

)

Amortization of above- / below-market leases

 

 

(1,521

)

 

 

(1,729

)

Amortization of unearned revenue

 

 

(697

)

 

 

(67

)

Amortization of loan premium / discount

 

 

(20

)

 

 

(20

)

Amortization of deferred financing costs

 

 

378

 

 

 

342

 

Amortization of lease inducements

 

 

207

 

 

 

 

Non-cash compensation

 

 

1,000

 

 

 

734

 

Net change in:

 

 

 

 

 

 

 

 

Rents receivable

 

 

1,252

 

 

 

(1,361

)

Accounts receivable

 

 

1,069

 

 

 

(1,960

)

Prepaid expenses and other assets

 

 

(17,336

)

 

 

(4,443

)

Deferred revenue associated with operating leases

 

 

20,646

 

 

 

6

 

Accounts payable, accrued expenses and other liabilities

 

 

8,802

 

 

 

1,478

 

Net cash provided by operating activities

 

 

38,545

 

 

 

13,976

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Real estate acquisitions and deposits

 

 

(30,305

)

 

 

(148,251

)

Additions to operating properties

 

 

(4,570

)

 

 

(895

)

Additions to development properties

 

 

(18,417

)

 

 

(18,808

)

Net cash used in investing activities

 

 

(53,292

)

 

 

(167,954

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Issuance of common shares

 

 

4,883

 

 

 

131,171

 

Credit facility draws

 

 

56,500

 

 

 

178,750

 

Credit facility repayments

 

 

(20,500

)

 

 

(129,000

)

Repayments of mortgage notes payable

 

 

(870

)

 

 

(836

)

Dividends and distributions paid

 

 

(22,086

)

 

 

(18,433

)

Payment of offering costs

 

 

(122

)

 

 

(5,454

)

Net cash provided by financing activities

 

 

17,805

 

 

 

156,198

 

Net increase in Cash and cash equivalents and Restricted cash

 

 

3,058

 

 

 

2,220

 

Cash and cash equivalents and Restricted cash, beginning of period

 

 

15,549

 

 

 

11,105

 

Cash and cash equivalents and Restricted cash, end of period

 

$

18,607

 

 

$

13,325

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4

 


 

Easterly Government Properties, Inc.

Consolidated Statements of Cash Flows (unaudited)

(Amounts in thousands)

 

Supplemental disclosure of cash flow information is as follows:

 

 

 

For the three months ended March 31,

 

 

 

2020

 

 

2019

 

Cash paid for interest, net of capitalized interest

 

$

9,358

 

 

$

6,083

 

Supplemental disclosure of non-cash information

 

 

 

 

 

 

 

 

Additions to operating properties accrued, not paid

 

$

1,784

 

 

$

505

 

Additions to development properties accrued, not paid

 

 

8,411

 

 

 

10,862

 

Offering costs accrued, not paid

 

 

1

 

 

 

2

 

Deferred asset acquisition costs accrued, not paid

 

 

151

 

 

 

70

 

Unrealized loss on interest rate swaps, net

 

 

(9,846

)

 

 

(3,017

)

Properties acquired for Common Units

 

 

21,550

 

 

 

 

Exchange of Common Units for Shares of Common Stock

 

 

 

 

 

 

 

 

Non-controlling interest in Operating Partnership

 

$

(597

)

 

$

(493

)

Common stock

 

 

1

 

 

 

 

Additional paid-in capital

 

 

596

 

 

 

493

 

Total

 

$

 

 

$

 

 

The accompanying notes are an integral part of these consolidated financial statements.

5

 


 

Easterly Government Properties, Inc.

Notes to the Consolidated Financial Statements (unaudited)

1. Organization and Basis of Presentation

The information contained in the following notes to the consolidated financial statements is condensed from that which would appear in the annual consolidated financial statements; accordingly, the consolidated financial statements included herein should be reviewed in conjunction with the consolidated financial statements for the fiscal year ended December 31, 2019, and related notes thereto, included in the Annual Report on Form 10-K of Easterly Government Properties, Inc. (the “Company”) for the year ended  December 31, 2019 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 25, 2020.

The Company is a Maryland corporation that has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2015. The operations of the Company are carried on primarily through Easterly Government Properties LP (the “Operating Partnership”) and the wholly owned subsidiaries of the Operating Partnership. As used herein, the “Company,” “we,” “us,” or “our” refer to Easterly Government Properties, Inc. and its consolidated subsidiaries and partnerships, including the Operating Partnership, except where context otherwise requires.

We are an internally managed REIT, focused primarily on the acquisition, development, and management of Class A commercial properties that are leased to U.S. Government agencies that serve essential functions. We generate substantially all of our revenue by leasing our properties to such agencies, either directly or through the U.S. General Services Administration (“GSA”). Our objective is to generate attractive risk-adjusted returns for our stockholders over the long term through dividends and capital appreciation.

We focus on acquiring, developing and managing U.S. Government leased properties that are essential to supporting the mission of the tenant agency and strive to be a partner of choice for the U.S. Government, working closely with the tenant agency to meet its needs and objectives. As of March 31, 2020, we wholly owned 72 operating properties in the United States that were 100% leased, including 70 operating properties that were leased primarily to U.S. Government tenant agencies and two operating properties that were entirely leased to private tenants, encompassing approximately 6.8 million square feet in the aggregate. In addition, we wholly owned two properties under development that we expect will encompass approximately 0.2 million square feet upon completion. For purposes of calculating our percent leased, 15,215 square feet at DHA – Aurora were excluded from total rentable square feet as the Company attributed no value to this space at acquisition.

The Operating Partnership holds substantially all of our assets and conducts substantially all of our business. The Company is the sole general partner of the Operating Partnership. The Company owned approximately 87.7% of the aggregate limited partnership interests in the Operating Partnership (“common units”) at March 31, 2020. We believe that we have operated and have been organized in conformity with the requirements for qualification and taxation as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2015.

Principles of Consolidation

The accompanying consolidated financial statements are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company, Easterly Government Properties TRS, LLC, Easterly Government Services, LLC, the Operating Partnership and its other subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The condensed consolidated financial statements included herein are unaudited; however, they include all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to state fairly the consolidated financial position of the Company at March 31, 2020, and the consolidated results of operations for the three months ended March 31, 2020 and 2019 and the consolidated cash flows for the three months ended March 31, 2020 and 2019. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including the impact of extraordinary events such as the novel coronavirus (COVID-19) pandemic, the results of which form the basis for making judgements about carrying values of assets

6

 


 

and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

 

2. Summary of Significant Accounting Policies

The significant accounting policies used in the preparation of the Company’s condensed consolidated financial statements are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Recently Adopted Accounting Pronouncements

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326):  Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).  The purpose of this updated guidance is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  In November 2018, the Financial Accounting Standards Board issued ASU 2018-19, Codification Improvements to (Topic 326), Financial Instruments – Credit Losses.  ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of Accounting Standards Codification (“ASC”) 326-20, “Financial Instruments – Credit Losses – Measured at Amortized Costs,” which addresses financial assets measured at amortized cost basis, including net investments in leases arising from sales-type and direct financing leases.  Impairment of receivables arising from operating leases should be accounted for in accordance with ASC Topic 842, Leases (“ASC 842”).  The Company adopted ASU 2016-13 using the modified retrospective method and the adoption did not have a material impact on our consolidated financial statements.

On January 1, 2020, the Company adopted ASU 2020-04 (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”).  ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur.  Unlike most other ASU’s, the guidance in ASU 2020-04 will generally no longer be available to apply after December 31, 2022.  As of January 1, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives.  Application of these expedients was applied prospectively and preserves the presentation of the Company’s derivatives consistent with past presentation, therefore, the adoption did not have a material impact on our consolidated financial statements.

3. Real Estate and Intangibles 

Acquisitions

During the three months ended March 31, 2020, we acquired two operating properties in asset acquisitions, consisting of DHA – Aurora and FBI / DEA – El Paso for an aggregate purchase price of $51.6 million. We allocated the aggregate purchase price of these acquisitions based on the estimated fair values of the acquired assets and assumed liabilities as follows (amounts in thousands):

 

 

 

Total

 

Real estate

 

 

 

 

Land

 

$

4,215

 

Building

 

 

38,705

 

Acquired tenant improvements

 

 

4,394

 

Total real estate

 

 

47,314

 

Intangible assets

 

 

 

 

In-place leases

 

 

4,384

 

Acquired leasing commissions

 

 

2,138

 

Above-market leases

 

 

6,553

 

Total intangible assets

 

 

13,075

 

Intangible liabilities

 

 

 

 

Below-market leases

 

 

(8,491

)

Total intangible liabilities

 

 

(8,491

)

Accounts payable, accrued expenses and other liabilities

 

 

 

 

Contingent consideration

 

 

(336

)

Purchase price

 

$

51,562

 

7

 


 

 

We did not assume any debt upon acquisition of these properties. The intangible assets and liabilities of operating properties acquired during the three months ended March 31, 2020 have a weighted average amortization period of 8.93 years as of March 31, 2020. During the three months ended March 31, 2020, we included $0.6 million of revenues and $0.1 million of net income in our Consolidated Statements of Operations related to the operating properties acquired.

During the three months ended March 31, 2020, we incurred $0.5 million of acquisition-related expenses mainly consisting of internal costs associated with property acquisitions.

Consolidated Real Estate and Intangibles

Real estate and intangibles consisted of the following as of March 31, 2020 (amounts in thousands):

 

 

 

Total

 

Real estate properties, net

 

 

 

 

Land

 

$

197,383

 

Building and improvements

 

 

1,868,593

 

Acquired tenant improvements

 

 

73,248

 

Construction in progress

 

 

71,329

 

Accumulated depreciation

 

 

(170,085

)

Total Real estate properties, net

 

 

2,040,468

 

Intangible assets, net

 

 

 

 

In-place leases

 

 

244,607

 

Acquired leasing commissions

 

 

54,825

 

Above market leases

 

 

17,607

 

Accumulated amortization

 

 

(145,156

)

Total Intangible assets, net

 

 

171,883

 

Intangible liabilities, net

 

 

 

 

Below market leases

 

 

(73,950

)

Accumulated amortization

 

 

42,731

 

Total Intangible liabilities, net

 

$

(31,219

)

 

The following table summarizes the scheduled amortization of the Company’s acquired above- and below-market lease intangibles for each of the five succeeding years as of March 31, 2020 (amounts in thousands):

 

 

 

Acquired Above-Market Lease Intangibles

 

 

Acquired Below-Market Lease Intangibles

 

2020

 

$

1,439

 

 

$

(5,813

)

2021

 

 

1,514

 

 

 

(5,832

)

2022

 

 

1,424

 

 

 

(4,223

)

2023

 

 

1,400

 

 

 

(4,024

)

2024

 

 

1,314

 

 

 

(2,877

)

Above-market lease amortization reduces Rental income on our Consolidated Statements of Operations and below-market lease amortization increases Rental income on our Consolidated Statements of Operations.

 

 

8

 


 

4. Debt

At March 31, 2020, our consolidated borrowings consisted of the following (amounts in thousands):

 

 

 

Principal Outstanding

 

 

Interest

 

 

Current

 

Loan

 

March 31, 2020

 

 

Rate (1)

 

 

Maturity

 

Revolving credit facility:

 

 

 

 

 

 

 

 

 

 

 

Revolving credit facility (2)

 

$

36,000

 

 

L + 130bps

 

 

June 2022 (3)

 

Total revolving credit facility

 

 

36,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term loan facilities:

 

 

 

 

 

 

 

 

 

 

 

2016 term loan facility

 

 

100,000

 

 

2.67% (4)

 

 

March 2024

 

2018 term loan facility

 

 

150,000

 

 

3.96% (5)

 

 

June 2023

 

Total term loan facilities

 

 

250,000

 

 

 

 

 

 

 

 

Less: Total unamortized deferred financing fees

 

 

(1,307

)

 

 

 

 

 

 

 

Total term loan facilities, net

 

 

248,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured notes payable:

 

 

 

 

 

 

 

 

 

 

 

2017 series A senior notes

 

 

95,000

 

 

4.05%

 

 

May 2027

 

2017 series B senior notes

 

 

50,000

 

 

4.15%

 

 

May 2029

 

2017 series C senior notes

 

 

30,000

 

 

4.30%

 

 

May 2032

 

2019 series A senior notes

 

 

85,000

 

 

3.73%

 

 

September 2029

 

2019 series B senior notes

 

 

100,000

 

 

3.83%

 

 

September 2031

 

2019 series C senior notes

 

 

90,000

 

 

3.98%

 

 

September 2034

 

Total notes payable

 

 

450,000

 

 

 

 

 

 

 

 

Less: Total unamortized deferred financing fees

 

 

(3,013

)

 

 

 

 

 

 

 

Total notes payable, net

 

 

446,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage notes payable:

 

 

 

 

 

 

 

 

 

 

 

DEA – Pleasanton

 

 

15,700

 

 

L + 150bps (6)

 

 

October 2023

 

VA – Golden

 

 

9,137

 

 

5.00% (6)

 

 

April 2024

 

MEPCOM – Jacksonville

 

 

8,703

 

 

4.41% (6)

 

 

October 2025

 

USFS II – Albuquerque

 

 

16,171

 

 

4.46% (6)

 

 

July 2026

 

ICE – Charleston

 

 

17,107

 

 

4.21% (6)

 

 

January 2027

 

VA – Loma Linda

 

 

127,500

 

 

3.59% (6)

 

 

July 2027

 

CBP – Savannah

 

 

12,566

 

 

3.40% (6)

 

 

July 2033

 

Total mortgage notes payable

 

 

206,884

 

 

 

 

 

 

 

 

Less: Total unamortized deferred financing fees

 

 

(1,592

)

 

 

 

 

 

 

 

Less: Total unamortized premium/discount

 

 

179

 

 

 

 

 

 

 

 

Total mortgage notes payable, net

 

 

205,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total debt

 

$

937,151

 

 

 

 

 

 

 

 

 

(1)

At March 31, 2020, the one-month LIBOR (“L”) was 0.99%. The current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums. The spread over the applicable rate for each of the $450.0 million senior unsecured revolving credit facility (our “revolving credit facility”), the $150.0 million senior unsecured term loan facility (our “2018 term loan facility”) and the $100.0 million senior unsecured term loan facility (our “2016 term loan facility”) is based on the Company’s consolidated leverage ratio, as defined in the respective loan agreements.

 

(2)

Our revolving credit facility had available capacity of $414.0 million at March 31, 2020 pursuant to a credit agreement that has an accordion feature that permits us to request additional lender commitments for an additional capacity of up to $250.0 million, subject to the satisfaction of customary terms and conditions.

 

(3)

Our revolving credit facility has two six-month as-of-right extension options subject to certain conditions and the payment of an extension fee.

 

(4)

Entered into two interest rate swaps with an effective date of March 29, 2017 with an aggregate notional value of $100.0 million to effectively fix the interest rate at 2.67% annually, based on the Company’s consolidated leverage ratio, as defined in our 2016 term loan facility agreement.

9

 


 

 

(5)

Entered into four interest rate swaps with an effective date of December 13, 2018 with an aggregate notional value of $150.0 million to effectively fix the interest rate at 3.96% annually, based on the Company’s consolidated leverage ratio, as defined in our 2018 term loan facility agreement.

 

(6)

Effective interest rates are as follows: DEA – Pleasanton 1.80%, VA – Golden 5.03%, MEPCOM – Jacksonville 3.89%, USFS II Albuquerque 3.92%, ICE – Charleston 3.93%, VA – Loma Linda 3.78%, CBP – Savannah 4.12%.

Financial Covenant Considerations

As of March 31, 2020, we were in compliance with all financial and other covenants related to our revolving credit facility, 2016 term loan facility, 2018 term loan facility, senior unsecured notes payable and mortgage notes payable.

Fair Value of Debt

As of March 31, 2020, the carrying value of our revolving credit facility approximated fair value. In determining the fair value, we considered the short term maturity, variable interest rate and credit spreads. We deem the fair value of our revolving credit facility as a Level 3 measurement.

As of March 31, 2020, the carrying value of our 2016 term loan facility approximated fair value. In determining the fair value, we considered the variable interest rate and credit spreads. We deem the fair value of our 2016 term loan facility as a Level 3 measurement.

As of March 31, 2020, the carrying value of our 2018 term loan facility approximated fair value. In determining the fair value, we considered the variable interest rate and credit spreads. We deem the fair value of our 2018 term loan facility as a Level 3 measurement.

As of March 31, 2020, the fair value of our senior unsecured notes payable was determined by discounting future contractual principal and interest payments using prevailing market rates. We deem the fair value measurement of our senior unsecured notes payable instruments as a Level 3 measurement. At March 31, 2020, the fair value of our senior unsecured notes payable was $456.5 million.

As of March 31, 2020, the fair value of our mortgage notes payable was determined by discounting future contractual principal and interest payments using prevailing market rates. We deem the fair value measurement of our mortgage notes payable instruments as a Level 3 measurement. At March 31, 2020, the fair value of our mortgage notes payable was $225.9 million.

5. Derivatives and Hedging Activities  

The following table sets forth the key terms and fair values of our interest rate swap derivatives, each of which was designated as a cash flow hedge as of March 31, 2020 (amounts in thousands):

 

Notional Amount

 

 

Fixed Rate

 

 

Floating Rate Index

 

Effective Date

 

Expiration Date

 

Fair Value

 

$

100,000

 

 

 

1.41

%

 

One-Month LIBOR

 

March 29, 2017

 

September 29, 2023

 

$

(3,734

)

$

150,000

 

 

 

2.71

%

 

One-Month LIBOR

 

December 13, 2018

 

June 19, 2023

 

$

(11,408

)

 

The table below sets forth the fair value of our interest rate derivatives as well as their classification on our Consolidated Balance Sheet (amounts in thousands):

 

 

Balance Sheet Line Item

 

As of March 31, 2020

 

Interest rate swaps - Asset

 

$

 

Interest rate swaps - Liability

 

$

(15,142

)

Cash Flow Hedges of Interest Rate Risk

The gains or losses on derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income (loss) (“AOCI”) and will be reclassified to interest expense in the period that the hedged forecasted transactions affect earnings on the Company’s variable rate debt. 

10

 


 

Amounts reported in Accumulated other comprehensive income (loss) related to derivatives designated as qualifying cash flow hedges will be reclassified to interest expense as interest payments are made on the Company's variable rate debt. The Company estimates that $4.7 million will be reclassified from Accumulated other comprehensive income (loss) as an increase to interest expense over the next 12 months.

The table below presents the effects of our interest rate derivatives on our Consolidated Statements of Operations and Comprehensive Income (amounts in thousands):

 

 

For the three months ended March 31,

 

 

 

2020

 

 

2019

 

Unrealized loss recognized in AOCI

 

$

(10,241

)