Easterly Government Properties, Inc. 10-Q

10-Q 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 June 30, 2023 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.) 2001 K Street NW , Suite 775 North , Washington , D.C. 20006 (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 Exchange Act). Yes ☐ No ☒ As of August 1, 2023, the registrant had 93,415,706 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 June 30, 2023 and December 31, 2022 (unaudited) 1 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited) 2 Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited) 3 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (unaudited) 4 Notes to the Consolidated Financial Statements 6 Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 21 Item 3: Quantitative and Qualitative Disclosures About Market Risk 38 Item 4: Controls and Procedures 38 Part II: Other Information Item 1: Legal Proceedings 38 Item 1A: Risk Factors 38 Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 38 Item 3: Defaults Upon Senior Securities 38 Item 4: Mine Safety Disclosures 39 Item 5: Other Information 39 Item 6: Exhibits 40 Signatures Easterly Government Properties, Inc. C onsolidated Balance Sheets (unaudited) (Amounts in thousands, except share amounts) June 30, 2023 December 31, 2022 Assets Real estate properties, net $ 2,270,435 $ 2,285,308 Cash and cash equivalents 9,816 7,578 Restricted cash 11,970 9,696 Tenant accounts receivable 60,862 58,835 Investment in unconsolidated real estate venture 268,594 271,644 Intangible assets, net 145,837 157,282 Interest rate swaps 5,114 4,020 Prepaid expenses and other assets 35,335 35,022 Total assets $ 2,807,963 $ 2,829,385 Liabilities Revolving credit facility 53,000 65,500 Term loan facilities, net 249,179 248,972 Notes payable, net 696,290 696,052 Mortgage notes payable, net 222,711 240,847 Intangible liabilities, net 14,421 16,387 Deferred revenue 85,932 83,309 Accounts payable, accrued expenses and other liabilities 64,363 67,336 Total liabilities 1,385,896 1,418,403 Equity Common stock, par value $ 0.01 , 200,000,000 shares authorized, 93,415,706 and 90,814,021 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively 934 908 Additional paid-in capital 1,673,399 1,622,913 Retained earnings 102,491 93,497 Cumulative dividends ( 524,806 ) ( 475,983 ) Accumulated other comprehensive income (loss) 4,518 3,546 Total stockholders’ equity 1,256,536 1,244,881 Non-controlling interest in Operating Partnership 165,531 166,101 Total equity 1,422,067 1,410,982 Total liabilities and equity $ 2,807,963 $ 2,829,385 The accompanying notes are an integral part of these consolidated financial statements. 1 Easterly Government Properties, Inc. Consolidated Statements of Oper ations (unaudited) (Amounts in thousands, except share and per share amounts) For the three months ended June 30, For the six months ended June 30, 2023 2022 2023 2022 Revenues Rental income $ 67,758 $ 71,156 $ 135,906 $ 141,595 Tenant reimbursements 2,500 916 4,575 2,060 Asset management income 517 317 1,034 565 Other income 598 368 1,078 839 Total revenues 71,373 72,757 142,593 145,059 Expenses Property operating 17,629 15,551 35,517 31,009 Real estate taxes 7,619 7,851 15,087 15,677 Depreciation and amortization 22,619 24,343 45,700 48,502 Acquisition costs 444 302 905 664 Corporate general and administrative 7,024 5,966 14,319 11,949 Total expenses 55,335 54,013 111,528 107,801 Other income (expense) Income from unconsolidated real estate venture 1,418 825 2,820 1,456 Interest expense, net ( 11,678 ) ( 11,439 ) ( 23,693 ) ( 22,321 ) Net income 5,778 8,130 10,192 16,393 Non-controlling interest in Operating Partnership ( 675 ) ( 933 ) ( 1,198 ) ( 1,855 ) Net income available to Easterly Government Properties, Inc. $ 5,103 $ 7,197 $ 8,994 $ 14,538 Net income available to Easterly Government Properties, Inc. per share: Basic $ 0.05 $ 0.08 $ 0.09 $ 0.16 Diluted $ 0.05 $ 0.08 $ 0.09 $ 0.16 Weighted-average common shares outstanding Basic 93,358,851 90,751,351 92,235,346 90,452,594 Diluted 93,641,382 91,083,980 92,508,651 90,799,647 Dividends declared per common share $ 0.265 $ 0.265 $ 0.530 $ 0.530 The accompanying notes are an integral part of these consolidated financial statements. 2 Easterly Government Properties, Inc. Consolidated Stateme nts of Comprehensive Income (unaudited) (Amounts in thousands) For the three months ended June 30, For the six months ended June 30, 2023 2022 2023 2022 Net income $ 5,778 $ 8,130 $ 10,192 $ 16,393 Other comprehensive income: Unrealized gain on interest rate swaps, net 3,107 2,903 1,094 8,410 Other comprehensive income 3,107 2,903 1,094 8,410 Comprehensive income 8,885 11,033 11,286 24,803 Non-controlling interest in Operating Partnership ( 675 ) ( 933 ) ( 1,198 ) ( 1,855 ) Other comprehensive income attributable to non-controlling interest ( 362 ) ( 338 ) ( 122 ) ( 945 ) Comprehensive income attributable to Easterly Government Properties, Inc. $ 7,848 $ 9,762 $ 9,966 $ 22,003 The accompanying notes are an integral part of these consolidated financial statements. 3 Easterly Government Properties, Inc. C onsolidated Statements of Cash Flows (unaudited) (Amounts in thousands) For the six months ended June 30, 2023 2022 Cash flows from operating activities Net income $ 10,192 $ 16,393 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 45,700 48,502 Straight line rent ( 1,365 ) ( 531 ) Income from unconsolidated real estate venture ( 2,820 ) ( 1,456 ) Amortization of above- / below-market leases ( 1,376 ) ( 1,604 ) Amortization of unearned revenue ( 3,106 ) ( 2,841 ) Amortization of loan premium / discount ( 543 ) ( 563 ) Amortization of deferred financing costs 1,031 1,022 Amortization of lease inducements 431 428 Distributions from investment in unconsolidated real estate venture 5,870 3,369 Non-cash compensation 2,967 3,266 Net change in: Tenant accounts receivable ( 754 ) 2,712 Prepaid expenses and other assets ( 1,598 ) ( 1,510 ) Deferred revenue associated with operating leases 5,730 1,464 Principal payments on operating lease obligations ( 218 ) ( 195 ) Accounts payable, accrued expenses and other liabilities ( 1,089 ) ( 4,102 ) Net cash provided by operating activities 59,052 64,354 Cash flows from investing activities Real estate acquisitions and deposits 107 ( 78,771 ) Additions to operating properties ( 12,105 ) ( 10,891 ) Additions to development properties ( 8,969 ) ( 4,949 ) Distributions from investment in unconsolidated real estate venture — 304 Investment in unconsolidated real estate venture — ( 52,721 ) Net cash used in investing activities ( 20,967 ) ( 147,028 ) Cash flows from financing activities Issuance of common shares 52,414 9,504 Credit facility draws 53,750 157,250 Credit facility repayments ( 66,250 ) ( 29,000 ) Repayments of mortgage notes payable ( 17,812 ) ( 2,628 ) Dividends and distributions paid ( 55,619 ) ( 54,415 ) Payment of offering costs ( 56 ) ( 136 ) Net cash (used in) provided by financing activities ( 33,573 ) 80,575 Net increase (decrease) in Cash and cash equivalents and Restricted cash 4,512 ( 2,099 ) Cash and cash equivalents and Restricted cash, beginning of period 17,274 20,143 Cash and cash equivalents and Restricted cash, end of period $ 21,786 $ 18,044 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 six months ended June 30, 2023 2022 Cash paid for interest (net of capitalized interest of $ 665 and $ 531 in 2023 and 2022, respectively) $ 23,555 $ 21,766 Supplemental disclosure of non-cash information Additions to operating properties accrued, not paid $ 5,404 $ 1,207 Additions to development properties accrued, not paid 2,350 2,534 Offering costs accrued, not paid 10 — Deferred asset acquisition costs accrued, not paid 18 128 Unrealized gain on interest rate swaps, net 1,094 8,410 Properties acquired for Common Units 219 17,361 Recognition of operating lease right-of-use assets — 101 Recognition of liabilities related to operating lease right-of-use assets — 101 Exchange of Common Units for Shares of Common Stock Non-controlling interest in Operating Partnership $ ( 140 ) $ ( 2,911 ) Common stock — 2 Additional paid-in capital 140 2,909 Total $ — $ — The accompanying notes are an integral part of these consolidated financial statements. 5 Easterly Government Properties, Inc. N otes 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, 2022, 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, 2022 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 28, 2023. 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 June 30, 2023, we wholly owned 78 operating properties and eight operating properties through an unconsolidated joint venture (the “JV”) in the United States, encompassing approximately 8.6 million leased square feet, including 85 operating properties that were leased primarily to U.S. Government tenant agencies and one operating property that was entirely leased to a private tenant. As of June 30, 2023, our operating properties were 98 % leased. For purposes of calculating percentage leased, we exclude from the denominator total square feet that was unleased and to which we attributed no value at the time of acquisition. In addition, we wholly owned one property under development that we expect will encompass approximately 0.2 million leased square feet upon completion. The Operating Partnership holds substantially all of our assets and conducts substantially all of our business. We are the sole general partner of the Operating Partnership. We owned approximately 88.4 % of the aggregate limited partnership interests in the Operating Partnership (“common units”) at June 30, 2023. 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 June 30, 2023 and December 31, 2022, the consolidated results of operations for the three and six months ended June 30, 2023 and 2022, and the consolidated cash flows for the six months ended June 30, 2023 and 2022. 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, disclosures of contingent assets and liabilities at the date of the balance sheet, and the 6 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, the results of which form the basis for making judgments about carrying values of assets 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 our condensed consolidated financial statements are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 . 3. Real Estate and Intangibles Consolidated Real Estate and Intangibles Real estate and intangibles consisted of the following as of June 30, 2023 (amounts in thousands): Total Real estate properties, net Land $ 213,592 Building and improvements 2,292,532 Acquired tenant improvements 81,666 Construction in progress 38,254 Accumulated depreciation ( 355,609 ) Total Real estate properties, net 2,270,435 Intangible assets, net In-place leases 271,066 Acquired leasing commissions 68,642 Above market leases 14,620 Payment in lieu of taxes 6,394 Accumulated amortization ( 214,885 ) Total Intangible assets, net 145,837 Intangible liabilities, net Below market leases ( 72,037 ) Accumulated amortization 57,616 Total Intangible liabilities, net ( 14,421 ) No operating properties were acquired or disposed of during the six months ended June 30, 2023. During the three and six months ended June 30, 2023, we incurred $ 0.4 million and $ 0.9 million of acquisition-related expenses, respectively, mainly consisting of internal costs associated with future property acquisitions . The following table summarizes the scheduled amortization of our acquired above- and below-market lease intangibles for each of the five succeeding years as of June 30, 2023 (amounts in thousands): Acquired Above-Market Lease Intangibles Acquired Below-Market Lease Intangibles 2023 (1) $ 586 $ ( 1,941 ) 2024 1,129 ( 2,938 ) 2025 1,097 ( 2,246 ) 2026 1,096 ( 2,008 ) 2027 1,096 ( 1,783 ) (1) Represents the six months ending December 31, 2023. 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. 7 4. Investment in Unconsolidated Real Estate Venture The following is a summary of our investment in the JV (dollars in thousands): As of June 30, Joint Venture Ownership Interest 2023 MedBase Venture 53.0 % $ 268,594 On October 13, 2021, we formed an unconsolidated real estate venture, which we refer to as the JV, with a global investor to fund the acquisition of a portfolio of ten properties anticipated to encompass 1,214,165 leased square feet (the "VA Portfolio"). We own a 53.0 % interest in the JV, subject to preferred allocations as provided in the JV agreement. No operating properties were acquired by the JV during the six months ended June 30, 2023. As of June 30, 2023 , eight of the ten properties in the VA Portfolio had been acquired by the JV. We provide asset management services to the JV. During the three and six months ended June 30, 2023, we recognized asset management service revenue of $ 0.5 million and $ 1.0 million, respectively. During the three and six months ended June 30, 2022 we recognized asset management service revenue of $ 0.3 million and $ 0.6 million, respectively. The following is a summary of financial information for the JV (amounts in thousands): As of June 30, Balance sheet information: 2023 Real estate, net $ 425,696 Other assets, net (1) 90,734 Total assets $ 516,430 Total liabilities (2) $ 10,296 Total equity 506,134 Total liabilities and equity $ 516,430 Company’s share of equity $ 268,219 Basis differential (3) 375 Carrying value of the Company’s investment in the unconsolidated venture $ 268,594 (1) At June 30, 2023 , this amount included right-of-use assets - finance leases totaling approximately $ 4.9 million representing a ground lease at VA – Lubbock. (2) At June 30, 2023 , this amount included lease liabilities - finance leases totaling approximately $ 5.0 million representing a ground lease at VA – Lubbock. (3) This amount represents the aggregate difference between our historical cost basis and the basis reflected at the joint venture level. For the three months ended June 30, For the six months ended June 30, Income statement information: 2023 2022 2023 2022 Total revenue $ 10,076 $ 5,965 $ 19,856 $ 10,663 Operating income 2,716 1,597 5,403 2,828 Net income 2,675 1,556 5,321 2,746 Company’s share of net income $ 1,418 $ 825 $ 2,820 $ 1,456 8 5. Debt At June 30, 2023, our consolidated borrowings consisted of the following (amounts in thousands): Principal Outstanding Interest Current Loan June 30, 2023 Rate (1) Maturity Revolving credit facility: Revolving credit facility (2) $ 53,000 S + 135 bps (3) July 2025 (4) Total revolving credit facility 53,000 Term loan facilities: 2016 term loan facility 100,000 2.72 % (6) March 2024 2018 term loan facility (5) 150,000 5.42 % (7) July 2026 Total term loan facilities 250,000 Less: Total unamortized deferred financing fees ( 821 ) Total term loan facilities, net 249,179 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 2021 series A senior notes 50,000 2.62 % October 2028 2021 series B senior notes 200,000 2.89 % October 2030 Total notes payable 700,000 Less: Total unamortized deferred financing fees ( 3,710 ) Total notes payable, net 696,290 Mortgage notes payable: VA – Golden 8,546 5.00 % (8) April 2024 USFS II – Albuquerque 12,541 4.46 % (8) July 2026 ICE – Charleston 12,727 4.21 % (8) January 2027 VA – Loma Linda 127,500 3.59 % (8) July 2027 CBP – Savannah 9,972 3.40 % (8) July 2033 USCIS – Kansas City 51,500 3.68 % (8) August 2024 Total mortgage notes payable 222,786 Less: Total unamortized deferred financing fees ( 1,172 ) Less: Total unamortized premium/discount 1,097 Total mortgage notes payable, net 222,711 Total debt $ 1,221,180 (1) At June 30, 2023, the USD SOFR with a five day lookback (“S”) was 5.06 %. 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 our $ 450.0 million senior unsecured revolving credit facility (our “revolving credit facility”), our $ 200.0 million senior unsecured term loan facility (as amended, our “2018 term loan facility”) and our $ 100.0 million senior unsecured term loan facility (our “2016 term loan facility”) is based on our consolidated leverage ratio, as set forth in the respective loan agreements. (2) Our revolving credit facility had available capacity of $ 396.9 million at June 30, 2023 with an accordion feature that permits us to request additional lender commitments for up to $ 250.0 million of additional capacity, subject to the satisfaction of customary terms and conditions. (3) Entered into one interest rate swap with an effective date of June 23, 2023 with a notional value of $ 100.0 million, of which $ 50.0 million is associated with our revolving credit facility, to effectively fix the interest rate at 5.36 % annually, based on our consolidated leverage ratio, as defined in our revolving credit facility agreement. (4) Our revolving credit facility has two six-month as-of-right extension options subject to certain conditions and the payment of an extension fee . (5) Our 2018 term loan facility has undrawn capacity up to $ 50.0 million of which is available during a delayed draw period. 9 (6) 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 2.72 % annually, based on our consolidated leverage ratio, as defined in our 2016 term loan facility agreement. We transitioned the two interest rate swaps from LIBOR to SOFR effective November 29, 2022. (7) Entered into two interest rate swaps with an effective date of June 23, 2023 with an aggregate notional value of $ 200.0 million, of which $ 150.0 million is associated with our 2018 term loan facility, to effectively fix the interest rate at 5.42 % annually, based on our consolidated leverage ratio, as defined in our 2018 term loan facility agreement. (8) Effective interest rates are as follows: VA – Golden 5.03 %, USFS II – Albuquerque 3.92 %, ICE – Charleston 3.93 %, VA – Loma Linda 3.78 %, CBP – Savannah 4.12 %, USCIS – Kansas City 2.05 %. As of June 30, 2023, the net carrying value of real estate collateralizing our mortgages payable totaled $ 330.0 million. See Note 7 for the fair value of our debt instruments. On January 26, 2023, we used $ 15.7 million of available cash to extinguish the mortgage note obligation on DEA – Pleasanton. On February 3, 2023, we entered into three SOFR-based interest rate swaps each with a notional value of $ 100.0 million that were designated as cash flow hedges of interest rate risk. Two of the interest rate swaps, with an aggregate notional value of $ 200.0 million, became effective in June 2023 . The third swap, with a notional value of $100.0 million, will become effective when our existing swaps mature in September 2023. See Note 6 for more information on our interest rate swaps. On May 30, 2023, we entered into the third amendment to our second amended and restated credit agreement, dated as of July 23, 2021 and into the sixth amendment to our senior unsecured term loan agreement, dated as of September 29, 2016. These amendments added a daily simple SOFR-based option to the term SOFR-based floating interest rate option as a benchmark rate for borrowings denominated in U.S. dollars for all purposes under the credit and term loan agreements, including, in each case, a credit spread adjustment of 0.10 %. On July 20, 2023, we drew the full $ 50.0 million delayed draw on our 2018 term loan facility and transferred $ 50.0 million of our interest rate swap with a notional value of $ 100.0 million, from our revolving credit facility to the $ 50.0 million delayed draw. Financial Covenant Considerations As of June 30, 2023, we were in compliance with all financial and other covenants related to our debt. 6. 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 June 30, 2023 (amounts in thousands): Notional Amount Fixed Rate Floating Rate Index Effective Date Expiration Date Fair Value $ 37,000 1.36 % One Month USD-SOFR CME Term November 29, 2022 September 29, 2023 $ 355 $ 63,000 1.38 % One Month USD-SOFR CME Term November 29, 2022 September 29, 2023 $ 601 $ 100,000 4.01 % USD-SOFR with -5 Day Lookback June 23, 2023 March 23, 2025 $ 1,418 $ 100,000 4.18 % USD-SOFR with -5 Day Lookback June 23, 2023 December 23, 2024 $ 1,176 $ 100,000 3.70 % USD-SOFR with -5 Day Lookback September 29, 2023 June 29, 2025 $ 1,564 10 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 June 30, 2023 Interest rate swaps - Asset $ 5,114 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 our variable rate debt. We estimate that $ 4.3 million will be reclassified from AOCI as a decrease 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 June 30, For the six months ended June 30, 2023 2022 2023 2022 Unrealized gain recognized in AOCI $ 4,842 $ 2,005 $ 4,336 $ 6,244 Gain (loss) reclassified from AOCI into interest expense 1,735 ( 898 ) 3,242 ( 2,166 ) Credit-Risk-Related Contingent Features We have agreements with each of our derivative counterparties that contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on such indebtedness. As of June 30, 2023, we were no t in a net liability position with any derivative counterparty. As of June 30, 2023, we were in compliance with these agreements and had not posted any collateral related to these agreements. 7. Fair Value Measurements Accounting standards define fair value as the exit price, or the amount that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standards also establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy of these inputs is broken down into three levels: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Categorization within the valuation hierarchy is based upon the lowest level of input that is most significant to the fair value measurement. Recurring fair value measurements The fair values of our interest rate swaps are determined using widely accepted valuation techniques, including discounted cash flow analysis, on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities in such interest rates. While we determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. We have determined that the significance of the impact of the credit valuation adjustments made to our derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of our derivatives held as of June 30, 2023 were classified as Level 2 of the fair value hierarchy. 11 The carrying values of cash and cash equivalents, restricted cash, accounts receivable, other assets and accounts payable and accrued expenses are reasonable estimates of fair values because of the short maturities of these instruments. The table below presents our assets measured at fair value on a recurring basis as of June 30, 2023, aggregated by the level in the fair value hierarchy within which those measurements fall (amounts in thousands): As of June 30, 2023 Balance Sheet Line Item Level 1 Level 2 Level 3 Interest rate swaps - Asset $ — $ 5,114 $ — For our disclosure of debt fair values, we estimated the fair value of our 2016 term loan facility and our 2018 term loan facility based on the variable interest rate and credit spreads (categorized within Level 3 of the fair value hierarchy) and estimated the fair value of our other debt based on the discounted estimated future cash payments to be made on such debt (categorized within Level 3 of the fair value hierarchy); the discount rates used approximate current market rates for loans, or groups of loans, with similar maturities and credit quality, and the estimated future payments included scheduled principal and interest payments. Fair value estimates are made as of a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment. Settlement at such fair value amounts may not be possible and may not be a prudent management decision. Financial assets and liabilities not measured at fair value As of June 30, 2023, all financial instruments and liabilities were reflected in our balance sheets at amounts which, in our estimation, reasonably approximated their fair values, except for the following: As of June 30, 2023 Financial liabilities Carrying Amount (1) Fair Value (2) Revolving credit facility $ 53,000 $ 53,000 2016 term loan facility $ 100,000 $ 100,000 2018 term loan facility $ 150,000 $ 150,000 Notes payable $ 700,000 $ 591,010 Mortgages payable $ 222,786 $ 206,596 (1) The carrying amount consists of principal only. (2) We deem the fair value measurement of the financial liability instrument a Level 3 measurement. 8. Equity Incentive Plan Restricted Shares We award restricted stock to certain members of management and non‑employee directors. Management awards generally vest over a range of two to four years. Non‑employee director awards vest upon the earlier of the anniversary of the date of the grant or the next annual stockholder meeting, as long as the grantee remains a director or employee on such date. Restricted stock awards issued under the 2015 Equity Incentive Plan, as amended (the “2015 Equity Incentive Plan”), may not be sold or otherwise transferred until restrictions have lapsed, as established by the compensation committee. We value our non-vested restricted share awards at the grant date fair value, which was the market price of our common stock as of the applicable grant date. Compensation expense related to restricted common stock awards was $ 0.2 million and $ 0.2 million for the three months ended June 30, 2023 and 2022 , respectively, and $ 0.3 million and $ 0.4 million for the six months ended June 30, 2023 and 2022, respectively. The fair value of restricted stock that vested was $ 0.3 million and $ 1.5 million during the six months ended June 30, 2023 and 2022, respectively, based on the market price at the vesting date. The balance of unamortized restricted stock expense as of June 30, 2023 was $ 0.5 million, which is expected to be recognized over a weighted‑average period of 1.1 years. 12 A summary of the status of our restricted shares as of June 30, 2023 and changes during the six months ended June 30, 2023 is presented below: Restricted Shares Restricted Shares Weighted Average Grant Date Fair Value Per Share Outstanding, December 31, 2022 41,315 $ 19.94 Vested ( 24,347 ) 18.57 Granted 32,486 14.18 Forfeited — — Outstanding, June 30, 2023 49,454 $ 16.83 LTIP Units We grant LTIP units to certain members of management and non‑employee directors. Management awards generally vest immediately or over a range of two to four years. Non‑employee director shares vest upon the earlier of the anniversary of the date of the grant or the next annual stockholder meeting, as long as the grantee remains a director or employee on such date. Performance-based LTIP units are earned subject to us achieving certain thresholds, including absolute total shareholder returns, relative total shareholder returns, or operational hurdles through the performance period. Service-based LTIP units vest over time, subject to continued employment and other terms of the awards. The following is a summary of our granted LTIP unit awards during the six months ended June 30, 2023: Award Type Grant Date Performance Period End Date Vest Date Units Granted Service January 3, 2023 — December 31, 2025 219,859 Operational January 3, 2023 December 31, 2025 1 127,291 Performance January 3, 2023 December 31, 2025 1 148,633 Service March 2, 2023 — March 2, 2026 3,438 Service May 9, 2023 — 2 16,244 2023 LTIP Grant 515,465 (1) Earned units will vest on the date of compensation committee determination of performance. (2) Units will vest on the earlier of the anniversary of the grant date or the 2024 stockholder meeting. We value our operational LTIP unit awards that are subject to us achieving certain performance conditions at the grant date fair value, which is the market price of our common stock as of the applicable grant date. We value our service-based LTIP unit awards at the grant date fair value, which is the market price of our common stock as of the applicable grant date, discounted by the risk related to the timing of book-up events. For the performance LTIP unit awards granted that are subject to us achieving certain total shareholder return thresholds, we used a Monte Carlo Simulation (risk-neutral approach) to determine the grant date fair value. The following is a summary of the significant assumptions used to value the total shareholder return for performance-based LTIP units during the six months ended June 30, 2023: Expected volatility 29.0 % Dividend yield 5.6 % Risk-free interest rate 4.2 % Expected life 3 years The fair value of LTIP units that vested were $ 4.0 million and $ 5.5 million during the six months ended June 30, 2023 and 2022 , respectively, based on the market price at the vesting date. Compensation expense related to LTIP unit awards was $ 1.2 million and $ 1.5 million for the three months ended June 30, 2023 and 2022 , respectively, and $ 2.7 million and $ 2.9 million for the six months ended June 30, 2023 and 2022, respectively. The balance of unamortized LTIP expense as of June 30, 2023 was $ 9.9 million, which is expected to be recognized over a weighted‑average period of 1.9 years. As of June 30, 2023, management considers it probable that the operational performance conditions on our unvested grants will be achieved. 13 A summary of the status of our LTIP units as of June 30, 2023 and changes during the six months ended June 30, 2023 are presented below: LTIP Units (1) LTIP Units Weighted Average Grant Date Fair Value Per Share Outstanding, December 31, 2022 896,665 $ 19.90 Vested ( 204,570 ) 21.50 Granted 515,465 12.25 Forfeited ( 85,352 ) 18.30 Outstanding, June 30, 2023 1,122,208 $ 16.21 (1) Reflects the number of LTIP units issued to the grantee on the date which may be different from the number of LTIP units actually earned in the case of performance-based LTIP units. 9. Equity The following table summarizes the changes in our stockholders’ equity for the three months ended June 30, 2023 and 2022 (amounts in thousands, except share amounts): Shares Common Stock Par Value Additional Paid-in Capital Retained Earnings Cumulative Dividends Accumulated Other Comprehensive Income (Loss) Non- controlling Interest in Operating Partnership Total Equity Three months ended June 30, 2023 Balance at March 31, 2023 93,389,906 $ 934 $ 1,672,467 $ 97,388 $ ( 500,051 ) $ 1,773 $ 167,528 $ 1,440,039 Stock based compensation — — 148 — — — 1,151 1,299 Dividends and distributions paid ($ 0.265 per share) — — — — ( 24,755 ) — ( 3,401 ) ( 28,156 ) Grant of unvested restricted stock 25,800 — — — — — — — Unrealized gain on interest rate swaps — — — — — 2,745 362 3,107 Net income — — — 5,103 — — 675 5,778 Allocation of non-controlling interest in Operating Partnership — — 784 — — — ( 784 ) — Balance at June 30, 2023 93,415,706 $ 934 $ 1,673,399 $ 102,491 $ ( 524,806 ) $ 4,518 $ 165,531 $ 1,422,067 Three months ended June 30, 2022 Balance at March 31, 2022 90,779,897 $ 908 $ 1,614,798 $ 69,364 $ ( 403,788 ) $ ( 172 ) $ 158,235 $ 1,439,345 Stock based compensation — — 169 — — — 1,468 1,637 Dividends and distributions paid ($ 0.265 per share) — — — — ( 24,063 ) — ( 3,318 ) ( 27,381 ) Grant of unvested restricted stock 21,725 — — — — — — — Redemption of common units for shares of common stock 15,000 — 211 — — — ( 211 ) — Contribution of property for common units — — — — — — 17,361 17,361 Unrealized gain on interest rate swaps, net — — — — — 2,565 338 2,903 Net income — — — 7,197 — — 933 8,130 Allocation of non-controlling interest in Operating Partnership — — 6,110 — — — ( 6,110 ) — Balance at June 30, 2022 90,816,622 $ 908 $ 1,621,288 $ 76,561 $ ( 427,851 ) $ 2,393 $ 168,696 $ 1,441,995 14 The following table summarizes the changes in our stockholders’ equity for the six months ended June 30, 2023 and 2022 (amounts in thousands, except share amounts): Shares Common Stock Par Value Additional Paid-in Capital Retained Earnings Cumulative Dividends Accumulated Other Comprehensive Income (Loss) Non- controlling Interest in Operating Partnership Total Equity Six months ended June 30, 2023 Balance at December 31, 2022 90,814,021 $ 908 $ 1,622,913 $ 93,497 $ ( 475,983 ) $ 3,546 $ 166,101 $ 1,410,982 Stock based compensation — — 293 — — — 2,674 2,967 Dividends and distributions paid ($ 0.530 per share) — — — — ( 48,823 ) — ( 6,796 ) ( 55,619 ) Grant of unvested restricted stock 32,486 — — — — — — — Redemption of common units for shares of common stock 10,199 — 140 — — — ( 140 ) — Issuance of common stock, net 2,559,000 26 52,206 — — — — 52,232 Contribution of property for common units — — — — — — 219 219 Unrealized gain on interest rate swaps — — — — — 972 122 1,094 Net income — — — 8,994 — — 1,198 10,192 Allocation of non-controlling interest in Operating Partnership — — ( 2,153 ) — — — 2,153 — Balance at June 30, 2023 93,415,706 $ 934 $ 1,673,399 $ 102,491 $ ( 524,806 ) $ 4,518 $ 165,531 $ 1,422,067 Six months ended June 30, 2022 Balance at December 31, 2021 90,147,868 $ 901 $ 1,604,712 $ 62,023 $ ( 379,895 ) $ ( 5,072 ) $ 158,912 $ 1,441,581 Stock based compensation — — 352 — — — 2,914 3,266 Dividends and distributions paid ($ 0.530 per share) — — — — ( 47,956 ) — ( 6,459 ) ( 54,415 ) Grant of unvested restricted stock 29,078 — — — — — — — Redemption of common units for shares of common stock 204,751 2 2,909 — — — ( 2,911 ) — Issuance of common stock, net 434,925 5 9,394 — — — — 9,399 Contribution of property for common units — — — — — — 17,361 17,361 Unrealized gain on interest rate swaps, net — — — — — 7,465 945 8,410 Net income — — — 14,538 — — 1,855 16,393 Allocation of non-controlling interest in Operating Partnership — — 3,921 — — — ( 3,921 ) — Balance at June 30, 2022 90,816,622 $ 908 $ 1,621,288 $ 76,561 $ ( 427,851 ) $ 2,393 $ 168,696 $ 1,441,995 A summary of dividends declared by our board of directors per share of common stock and per common unit at the date of record is as follows: Quarter Declaration Date Record Date Payment Date Dividend (1) Q1 2023 April 26, 2023 May 11, 2023 May 23, 2023 $ 0.265 Q2 2023 August 2, 2023 August 17, 2023 August 29, 2023 $ 0.265 (1) Prior to the end of the performance period as set forth in the applicable LTIP unit award, holders of performance-based LTIP units are entitled to receive dividends per LTIP unit equal to 10 % of the dividend paid per common unit. After the end of the performance period, the number of LTIP units, both vested and unvested, that LTIP award recipients have earned, if any, are entitled to receive dividends in an amount per LTIP unit equal to dividends, both regular and special, payable per common unit. Holders of LTIP units that are not subject to the attainment of performance goals are entitled to receive dividends per LTIP unit equal to 100 % of the dividend paid per common unit beginning on the grant date. Offering of Common Stock on a Forward Basis On August 11, 2021, we completed an underwritten public offering of 6,300,000 shares of common stock offered on a forward basis. In connection with the offering, we also entered into separate forward sale agreements with each of the forward purchasers (the “Forward Sales Agreements”), pursuant to which the forward purchasers borrowed and sold to the underwriters an aggregate of 6,300,000 shares of our common stock. On December 28, 2021, we issued 3,991,000 shares of our common stock for net proceeds of $ 85.0 million, which shares were issued in partial settlement of the Forward Sales Agreements entered into in connection with the underwritten public offering. During the three months ended March 31, 2023, we issued 2,309,000 shares of common stock under the Forward Sale Agreements and received net cash proceeds of approximately $ 46.8 million. As of June 30, 2023, all shares of common stock under the Forward Sales Agreements had been issued and settled. 15 ATM Programs We entered into separate equity distribution agreements on each of December 20, 2019 (the “2019 ATM Program”) and June 22, 2021 (the “2021 ATM Program” and, together with the 2019 ATM Program, the “ATM Programs”) with various financial institutions pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $ 300.0 million under each ATM Program from time to time in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”). Under each of the ATM Programs, we may enter into one or more forward transactions (each, a “forward sale transaction”) under separate master forward sale confirmations and related supplemental confirmations with each of the various financial institutions party to the respective ATM Program for the sale of shares of our common stock on a forward basis. The following table sets forth certain information with respect to issuances under the 2019 ATM Program during the six months ended June 30, 2023 (amounts in thousands except share amounts): 2019 ATM Program For the three months ended Number of Shares Issued (1) Net Proceeds (1) March 31, 2023 250,000 $ 5,562 June 30, 2023 — — Total 250,000 $ 5,562 (1) Shares were all issued in settlement of forward sales transactions. Additionally, as of June 30, 2023 , we had entered into forward sales transactions under the 2019 ATM Program for the sale of an additional 1,700,000 shares of our common stock that have not yet been settled. Subject to our right to elect net share settlement, we expect to physically settle the forward sales transactions by the maturity dates set forth in each applicable forward sale transaction placement notice, which dates range from August 2023 to July 2024. Assuming the forward sales transactions are physically settled in full utilizing a net weighted average initial forward sales price of $ 21.61 per share, we expect to receive net proceeds of approximately $ 36.7 million, after deducting offering costs, subject to adjustments in accordance with the applicable forward sale transaction. We accounted for the forward sale transactions as equity. No sales of shares of our common stock were made under the 2021 ATM Program during the six months ended June 30, 2023. We used the net proceeds received from such sales for general corporate purposes. As of June 30, 2023, we had approximately $ 300.0 million of gross sales of our common stock available under the 2021 ATM Program and $ 87.4 million of gross sales of common stock available under the 2019 ATM Program. Share Repurchase Program On April 28, 2022, our Board of Directors authorized a share repurchase program whereby we may repurchase up to 4,538,994 shares of our common stock, or approximately 5 % of our outstanding shares as of the authorization date. We are not required to purchase shares under the share repurchase program, but may choose to do so in the open market or through privately negotiated transactions at times and amounts based on our evaluation of market conditions and other factors. No repurchases of shares of our common stock were made under the share repurchase program during the six months ended June 30, 2023. Contribution of Property for Common Units On January 25, 2023, the Operating Partnership issued 12,391 common units and fully settled a contingent earn-out liability in connection with our acquisition of FBI / DEA - El Paso on May 26, 2020. The issuance of the common units was effected in reliance upon an exemption from registration provided by Section 4(a)(2) under the Securities Act. 10. Earnings Per Share Basic earnings or loss per share of common stock (“EPS”) is calculated by dividing net income attributable to common stockholders by the weighted average shares of common stock outstanding for the periods presented. Diluted EPS is computed after adjusting the basic EPS computation for the effect of dilutive common equivalent shares outstanding during the periods presented. Unvested restricted shares of common stock and unvested LTIP units are considered participating securities, which require the use of the two-class method for the computation of basic and diluted earnings per share. 16 The following table sets forth the computation of our basic and diluted earnings per share of common stock for the three and six months ended June 30, 2023 and 2022 (amounts in thousands, except per share amounts): For the three months ended June 30, For the six months ended June 30, 2023 2022 2023 2022 Numerator Net income $ 5,778 $ 8,130 $ 10,192 $ 16,393 Less: Non-controlling interest in Operating Partnership ( 675 ) ( 933 ) ( 1,198 ) ( 1,855 ) Net income available to Easterly Government Properties, Inc. 5,103 7,197 8,994 14,538 Less: Dividends on participating securities ( 151 ) ( 137 ) ( 299 ) ( 272 ) Net income available to common stockholders $ 4,952 $ 7,060 $ 8,695 $ 14,266 Denominator for basic EPS 93,358,851 90,751,351 92,235,346 90,452,594 Dilutive effect of share-based compensation awards 16,689 13,666 20,448 25,683 Dilutive effect of LTIP units (1) 265,842 318,963 252,857 309,067 Dilutive effect of shares issuable under forward sale agreements (2) — — — 12,303 Denominator for diluted EPS 93,641,382 91,083,980 92,508,651 90,799,647 Basic EPS $ 0.05 $ 0.08 $ 0.09 $ 0.16 Diluted EPS $ 0.05 $ 0.08 $ 0.09 $ 0.16 (1) During both the three and six months ended June 30, 2023 , there were 314,844 unvested performance-based LTIP units that were not included in the computation of diluted EPS because to do so would have been antidilutive for the period. During both the three and six months ended June 30, 2022 , there were 338,569 unvested performance-based LTIP units that were not included in the computation of diluted EPS because to do so would have been antidilutive for the period. (2) During both the three and six months ended June 30, 2023 , there were 1,700,000 shares of underlying unsettled forward sales transactions that were not included in the computation of diluted EPS because to do so would have been antidilutive for the period. During the three and six months ended June 30, 2022 , there were 4,259,000 and 2,809,000 shares, respectively, of underlying unsettled forward sales transactions that were not included in the computation of diluted EPS because to do so would have been antidilutive for the period. 11. Leases Lessor We lease commercial space to the U.S. Government through the GSA or other federal agencies or nongovernmental tenants. These leases may contain extension options that are predominately at the sole discretion of the tenant. Certain of our leases contain a “soft-term” period of the lease, meaning that the U.S. Government tenant agency has the right to terminate the lease prior to its stated lease end date. While certain of our leases are contractually subject to early termination, we do not believe that our tenant agencies are likely to terminate these leases early given the build-to-suit features at the properties subject to the leases, the weighted average age of these properties based on the date the property was built or renovated-to-suit, where applicable (approximately 19.1 years as of June 30, 2023), the mission-critical focus of the properties subject to the leases and the current level of operations at such properties. Certain lease agreements include variable lease payments that, in the future, will vary based on changes in inflationary measures, real estate tax rates, usage, or share of expenditures of the leased premises. The following table summarizes the maturity of fixed lease payments under our leases as of June 30, 2023 (amounts in thousands): Payments due by period Total 2023 (1) 2024 2025 2026 2027 Thereafter Fixed lease payments $ 2,047,912 108,413 208,581 199,864 193,031 181,497 1,156,526 (1) Represents the six months ending December 31, 2023 . 17 The table below sets forth our composition of lease revenue recognized between fixed and variable components (amounts in thousands): For the three months ended June 30, For the six months ended June 30, 2023 2022 2023 2022 Fixed $ 62,969 $ 65,931 $ 125,893 $ 131,378 Variable 4,789 5,225 10,013 10,217 Rental income 67,758 71,156 135,906 141,595 Lessee We lease corporate office space under operating lease arrangements in Washington, D.C. and San Diego, CA. The leases include variable lease payments that, in the future, will vary based on changes in real estate tax rates, usage, or share of expenditures of the leased premises. We have elected not to separate lease and non-lease components for our corporate office leases. As of June 30, 2023 , the unamortized balances associated with our right-of-use operating lease asset and operating lease liability were both $ 3.3 million. We used our incremental borrowing rate, which was arrived at utilizing prevailing market rates and the spread on our revolving credit facility, in order to determine the net present value of the minimum lease payments. The following table provides quantitative information for our commenced operating leases (amounts in thousands): For the three months ended June 30, For the six months ended June 30, 2023 2022 2023 2022 Cash flows from operating lease costs $ 130 $ 102 $ 261 $ 204 In addition, the maturity of fixed lease payments under our commenced corporate office leases as of June 30, 2023 is summarized in the table below (amounts in thousands): Corporate office leases Payments due by period 2023 (1) 324 2024 768 2025 793 2026 661 2027 368 Thereafter 718 Total future minimum lease payments $ 3,632 Imputed interest ( 375 ) Total $ 3,257 (1) Represents the six months ending December 31, 2023 . 18 12. Revenue The table below sets forth revenue from tenant construction projects and the associated project management income disaggregated by tenant agency for the three and six months ended June 30, 2023 and 2022 (amounts in thousands): For the three months ended June 30, For the six months ended June 30, Tenant 2023 2022 2023 2022 Department of Veteran Affairs (“VA”) $ 1,699 $ 203 $ 2,632 $ 302 U.S. Joint Staff Command (“JSC”) 651 164 1,253 456 Federal Bureau of Investigation (“FBI”) 55 619 378 845 U.S. Coast Guard (“USCG”) 62 — 209 33 Department of Transportation (“DOT”) 16 — 136 — Immigration and Customs Enforcement (“ICE”) 40 — 111 — The Judiciary of the U.S. Government (“JUD”) 106 — 110 4 Federal Emergency Management Agency (“FEMA”) 70 — 89 — Customs and Border Protection (“CBP”) 3 35 82 155 U.S. Citizenship and Immigration Services (“USCIS”) 30 — 30 110 Bonneville Power Administration (“BPA”) 14 — 14 — National Archives and Records Administration (“NARA”) 13 — 13 — Food and Drug Administration (“FDA”) 2 — 11 204 Internal Revenue Service (“IRS”) 1 — 4 33 Department of Labor (“DOL”) 3 — 3 — General Services Administration - Other — 6 — 6 National Park Services (“NPS”) — 1 — 100 Drug Enforcement Agency (“DEA”) — 40 — 40 Occupational Safety and Health Administration (“OSHA”) — 22 — 68 Patent and Trademark Office (“PTO”) — 12 — 14 Health Resources and Services Administration (“HRSA”) — — — 4 $ 2,765 $ 1,102 $ 5,075 $ 2,374 As June 30, 2023 and December 31, 2022 , the balance in Accounts receivable related to tenant construction projects and the associated project management income was $ 8.2 million and $ 6.8 million, respectively. The duration of the majority of tenant construction project reimbursement arrangements is less than a year and payment is typically due once a project is complete and work has been accepted by the tenant. There were no projects on-going as of June 30, 2023 with a duration of greater than one year. During the three and six months ended June 30, 2023 , we recognized $ 0.1 million and $ 0.2 million, respectively, in parking garage income generated from the operations of parking garages situated on the Various GSA – Buffalo property and on the Various GSA – Portland property. During both the three and six months ended June 30, 2022 , we recognized $ 0.1 million in parking garage income generated from the operations of parking garages situated on the Various GSA – Buffalo property and on the Various GSA – Portland property. The monthly and transient daily parking revenue falls within the scope of Revenue from Contracts with Customers (“ASC 606”) and is accounted for at the point in time when control of the goods or services transfers to the customer and our performance obligation is satisfied. As of both June 30, 2023 and December 31, 2022 , the balance in Accounts receivable related to parking garage income was less than $ 0.1 million. During both the three and six months ended June 30, 2023 , we recognized less than $ 0.1 million in income for providing COVID-19 related cleaning services to certain tenants. During the three and six months ended June 30, 2022 , we recognized less than $ 0.1 million and $ 0.1 million, respectively, in income for providing COVID-19 related cleaning services to certain tenants. The income falls within the scope of ASC 606 and is recognized over time as the performance obligation is satisfied. The balance in Accounts receivable related to these services was less than $ 0.1 million as of both June 30, 2023 and December 31, 2022. 19 There were no contract assets or liabilities as of June 30, 2023 or December 31, 2022 . 13. Concentrations Risk Concentrations of credit risk arise for us when multiple of our tenants are engaged in similar business activities, are located in the same geographic region or have similar economic features that impact in a similar manner their ability to meet contractual obligations, including obligations owed to us. We regularly monitor our tenant base to assess potential concentrations of credit risk. As stated in Note 1 above, we lease commercial space to the U.S. Government or non-governmental tenants. At June 30, 2023 , the U.S. Government accounted for approximately 98.5 % of our total annualized lease income and non-governmental tenants accounted for the remaining approximately 1.5 %. Seventeen of our 86 wholly-owned and unconsolidated operating properties are located in California, accounting for approximately 15.0 % of our total leased square feet and approximately 20.0 % of our total annualized lease income as of June 30, 2023 . To the extent that weak economic or real estate conditions or natural disasters affect California more severely than other areas of the country, our business, financial condition and results of operations could be significantly impacted. 14. Related Parties We provide asset management services to properties owned by the JV. For the three and six months ended June 30, 2023, we recognized Asset management income of $ 0.5 million and $ 1.0 million, respectively. For the three and six months ended June 30, 2022, we recognized Asset management income of $ 0.3 million and $ 0.6 million, respectively. 15. Subsequent Events For our consolidated financial statements as of June 30, 2023, we evaluated subsequent events and noted no significant events. 20 I tem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We caution investors that forward-looking statements are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “might”, “plan”, “potential”, “project”, “result”, “seek”, “should”, “target”, “will”, and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, investors should use caution in relying on forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends. Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: • the factors included under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and the factors included under the heading “Risk Factors” in our other public filings; • risks associated with our dependence on the U.S. Government and its agencies for substantially all of our revenues, including credit risk and risk that the U.S. Government reduces its spending on real estate or that it changes its preference away from leased properties; • risks associated with ownership and development of real estate; • the risk of decreased rental rates or increased vacancy rates; • the loss of key personnel; • general volatility of the capital and credit markets and the market price of our common stock; • the risk we may lose one or more major tenants; • difficulties in completing and successfully integrating acquisitions; • failure of acquisitions or development projects to occur at anticipated levels or yield anticipated results; • risks associated with actual or threatened terrorist attacks; • risks associated with our joint venture activities; • intense competition in the real estate market that may limit our ability to attract or retain tenants or re-lease space; • insufficient amounts of insurance or exposure to events that are either uninsured or underinsured; • uncertainties and risks related to adverse weather conditions, natural disasters and climate change; • exposure to liability relating to environmental and health and safety matters; • limited ability to dispose of assets because of the relative illiquidity of real estate investments and the nature of our assets; • exposure to litigation or other claims; • risks associated with breaches of our data security; • risks associated with our indebtedness, including failure to refinance current or future indebtedness on favorable terms, or at all; failure to meet the restrictive covenants and requirements in our existing and new debt agreements, fluctuations in interest rates and increased costs to refinance or issue new debt; • risks associated with derivatives or hedging activity; • risks associated with mortgage debt or unsecured financing or the unavailability thereof, which could make it difficult to finance or refinance properties and could subject us to foreclosure; and 21 • adverse impacts from any future pandemic, epidemic or outbreak of any highly infectious disease on the U.S., regional and global economies and our financial condition and results of operations. For a further discussion of these and other factors that could affect us and the statements contained herein, see the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, as may be supplemented or amended from time to time. Overview References to “we,” “our,” “us” and “the Company” refer to Easterly Government Properties, Inc., a Maryland corporation, together with our consolidated subsidiaries, including Easterly Government Properties LP, a Delaware limited partnership, which we refer to herein as the “operating partnership.” We present certain financial information and metrics “at Easterly Share,” which is calculated on an entity-by-entity basis. “At Easterly Share” information, which we also refer to as being “at share,” “pro rata,” “our pro rata share” or “our share” is not, and is not intended to be, a presentation in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We are an internally managed real estate investment trust (“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. We may also consider other potential opportunities to add properties to our portfolio, including acquiring properties leased to states and local governments with strong creditworthiness. As of June 30, 2023, we wholly owned 78 operating properties and eight operating properties through an unconsolidated joint venture (the “JV”) in the United States encompassing approximately 8.6 million leased square feet (8.1 million pro rata), including 85 operating properties that were leased primarily to U.S. Government tenant agencies and one operating property that was entirely leased to a private tenant. As of June 30, 2023, our operating properties were 98% leased. For purposes of calculating percentage leased, we exclude from the denominator total square feet that was unleased and to which we attributed no value at the time of acquisition. In addition, we wholly owned one property under development that we expect will encompass approximately 0.2 million leased square feet upon completion. The operating partnership holds substantially all of our assets and conducts substantially all of our business. We are the sole general partner of the operating partnership and owned approximately 88.4% of the aggregate limited partnership interests in the operating partnership, which we refer to herein as common units, as of June 30, 2023. We have elected to be taxed as a REIT and 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. 22 Operating Properties As of June 30, 2023, our operating properties were 98% leased with a weighted average annualized lease income per leased square foot of $35.45 ($35.12 pro rata) and a weighted average age of approximately 14.4 years based on the date the property was built or renovated-to-suit, where applicable. We calculate annualized lease income as annualized contractual base rent for the last month in a specified period, plus the annualized straight line rent adjustments for the last month in such period and the annualized net expense reimbursements earned by us for the last month in such period. The table set forth below shows information relating to the properties we owned, or in which we had an ownership interest, at June 30, 2023, and it includes properties held by the JV: Property Name Location Property Type (1) Tenant Lease Expiration Year (2) Leased Square Feet Annualized Lease Income Percentage of Total Annualized Lease Income Annualized Lease Income per Leased Square Foot Wholly Owned U.S. Government Leased Properties VA - Loma Linda Loma Linda, CA OC 2036 327,614 $ 16,592,268 5.6 % $ 50.65 USCIS - Kansas City (3) Lee's Summit, MO O/W 2024 - 2042 417,033 10,351,371 3.4 % 24.82 JSC - Suffolk Suffolk, VA O 2028 403,737 8,413,625 2.8 % 20.84 Various GSA - Portland (4) Portland, OR O 2023 - 2039 211,955 7,046,661 2.3 % 33.25 Various GSA - Chicago Des Plaines, IL O 2023 202,185 6,971,858 2.3 % 34.48 FBI - Salt Lake Salt Lake City, UT O 2032 169,542 6,897,893 2.3 % 40.69 IRS - Fresno Fresno, CA O 2033 180,481 6,845,720 2.3 % 37.93 Various GSA - Buffalo (5) Buffalo, NY O 2025 - 2039 273,678 6,732,092 2.2 % 24.60 VA - San Jose San Jose, CA OC 2038 90,085 5,765,363 1.9 % 64.00 EPA - Lenexa Lenexa, KS O 2027 169,585 5,684,120 1.9 % 33.52 PTO - Arlington Arlington, VA O 2035 190,546 5,339,380 1.8 % 28.02 FBI - San Antonio San Antonio, TX O 2025 148,584 5,232,467 1.7 % 35.22 FBI - Tampa Tampa, FL O 2040 138,000 5,177,074 1.7 % 37.52 FDA - Alameda Alameda, CA L 2039 69,624 4,840,290 1.6 % 69.52 FBI / DEA - El Paso El Paso, TX O/W 2028 203,683 4,647,160 1.5 % 22.82 FEMA - Tracy Tracy, CA W 2038 210,373 4,646,120 1.5 % 22.09 FBI - Omaha Omaha, NE O 2024 112,196 4,451,732 1.5 % 39.68 TREAS - Parkersburg Parkersburg, WV O 2041 182,500 4,340,447 1.4 % 23.78 DOT - Lakewood Lakewood, CO O 2039 122,225 4,141,796 1.4 % 33.89 VA - South Bend Mishakawa, IN OC 2032 86,363 4,136,462 1.4 % 47.90 FDA - Lenexa Lenexa, KS L 2040 59,690 4,091,806 1.3 % 68.55 FBI - Pittsburgh Pittsburgh, PA O 2027 100,054 4,037,239 1.3 % 40.35 VA - Mobile Mobile, AL OC 2033 79,212 3,947,470 1.3 % 49.83 FBI - New Orleans New Orleans, LA O 2029 137,679 3,926,093 1.3 % 28.52 USCIS - Lincoln Lincoln, NE O 2025 137,671 3,901,870 1.3 % 28.34 FBI - Knoxville Knoxville, TN O 2025 99,130 3,577,235 1.2 % 36.09 FBI - Birmingham Birmingham, AL O 2042 96,278 3,535,446 1.2 % 36.72 EPA - Kansas City Kansas City, KS L 2043 55,833 3,493,954 1.1 % 62.58 ICE - Charleston North Charleston, SC O 2027 65,124 3,334,548 1.1 % 51.20 VA - Chico Chico, CA OC 2034 51,647 3,310,590 1.1 % 64.10 FBI - Richmond Richmond, VA O 2041 96,607 3,310,029 1.1 % 34.26 USFS II - Albuquerque Albuquerque, NM O 2026 98,720 3,249,945 1.1 % 32.92 DEA - Sterling Sterling, VA L 2038 57,692 3,209,041 1.1 % 55.62 23 Property Name Location Property Type (1) Tenant Lease Expiration Year (2) Leased Square Feet Annualized Lease Income Percentage of Total Annualized Lease Income Annualized Lease Income per Leased Square Foot Wholly Owned U.S. Government Leased Properties (Cont.) FBI - Little Rock Little Rock, AR O 2041 102,377 3,189,062 1.0 % 31.15 USFS I - Albuquerque Albuquerque, NM O 2026 92,455 3,180,431 1.0 % 34.40 USCIS - Tustin Tustin, CA O 2034 66,818 3,148,124 1.0 % 47.11 DEA - Vista Vista, CA L 2035 52,293 3,110,917 1.0 % 59.49 VA - Orange Orange, CT OC 2034 56,330 2,968,191 1.0 % 52.69 VA - Indianapolis Brownsburg, IN OC 2041 80,000 2,954,619 1.0 % 36.93 JUD - Del Rio Del Rio, TX C/O 2024 89,880 2,887,088 0.9 % 32.12 ICE - Albuquerque Albuquerque, NM O 2027 71,100 2,822,205 0.9 % 39.69 FBI - Mobile Mobile, AL O 2029 76,112 2,797,577 0.9 % 36.76 DEA - Dallas Lab Dallas, TX L 2038 49,723 2,774,089 0.9 % 55.79 JUD - El Centro El Centro, CA C/O 2034 43,345 2,765,592 0.9 % 63.80 DEA - Pleasanton Pleasanton, CA L 2035 42,480 2,743,024 0.9 % 64.57 DEA - Upper Marlboro Upper Marlboro, MD L 2037 50,978 2,723,146 0.9 % 53.42 SSA - Charleston Charleston, WV O 2024 110,000 2,692,983 0.9 % 24.48 FBI - Albany Albany, NY O 2036 69,476 2,680,474 0.9 % 38.58 USAO - Louisville Louisville, KY O 2031 60,000 2,538,338 0.8 % 42.31 TREAS - Birmingham Birmingham, AL O 2029 83,676 2,527,605 0.8 % 30.21 NARA - Broomfield Broomfield, CO O/W 2032 161,730 2,373,591 0.8 % 14.68 JUD - Charleston Charleston, SC C/O 2040 52,339 2,337,677 0.8 % 44.66 DEA - Dallas Dallas, TX O 2041 71,827 2,253,537 0.7 % 31.37 Various GSA - Cleveland (6) Brooklyn Heights, OH O 2028 - 2040 61,384 2,250,294 0.7 % 36.66 CBP - Savannah Savannah, GA L 2033 35,000 2,249,163 0.7 % 64.26 NWS - Kansas City Kansas City, MO O 2033 94,378 2,142,661 0.7 % 22.70 JUD - Jackson Jackson, TN C/O 2043 73,397 2,065,187 0.7 % 28.14 DEA - Santa Ana Santa Ana, CA O 2029 39,905 1,996,277 0.7 % 50.03 DEA - North Highlands Sacramento, CA O 2033 37,975 1,913,404 0.6 % 50.39 NPS - Omaha Omaha, NE O 2024 62,772 1,836,520 0.6 % 29.26 VA - Golden Golden, CO O/W 2026 56,753 1,722,618 0.6 % 30.35 USCG - Martinsburg Martinsburg, WV O 2027 59,547 1,583,893 0.5 % 26.60 JUD - Aberdeen Aberdeen, MS C/O 2025 46,979 1,572,610 0.5 % 33.47 GSA - Clarksburg Clarksburg, WV O 2024 63,750 1,521,309 0.5 % 23.86 VA - Charleston North Charleston, SC W 2040 97,718 1,472,208 0.5 % 15.07 DEA - Birmingham Birmingham, AL O 2023 35,616 1,442,564 0.5 % 40.50 DEA - Albany Albany, NY O 2025 31,976 1,398,185 0.5 % 43.73 USAO - Springfield Springfield, IL O 2038 43,600 1,381,505 0.5 % 31.69 DEA - Riverside Riverside, CA O 2032 34,354 1,305,270 0.4 % 37.99 24 Property Name Location Property Type (1) Tenant Lease Expiration Year (2) Leased Square Feet Annualized Lease Income Percentage of Total Annualized Lease Income Annualized Lease Income per Leased Square Foot Wholly Owned U.S. Government Leased Properties (Cont.) JUD - Council Bluffs Council Bluffs, IA C/O 2041 28,900 1,283,504 0.4 % 44.41 SSA - Dallas Dallas, TX O 2035 27,200 1,056,391 0.3 % 38.84 JUD - South Bend South Bend, IN C/O 2027 30,119 790,363 0.3 % 26.24 ICE - Louisville Louisville, KY O 2036 17,420 655,365 0.2 % 37.62 DEA - San Diego San Diego, CA W 2032 16,100 555,773 0.2 % 34.52 DEA - Bakersfield Bakersfield, CA O 2038 9,800 486,103 0.2 % 49.60 SSA - San Diego San Diego, CA O 2032 10,059 442,607 0.1 % 44.00 ICE - Otay San Diego, CA O 2027 7,434 258,761 0.1 % 34.81 Subtotal 7,550,401 $ 264,029,970 87.0 % $ 34.97 Wholly Owned Privately Leased Property 501 East Hunter Street - Lummus Corporation Lubbock, TX W/D 2028 70,078 411,124 0.1 % 5.87 Subtotal 70,078 $ 411,124 0.1 % $ 5.87 Wholly Owned Properties Total / Weighted Average 7,620,479 $ 264,441,094 87.1 % $ 34.70 Unconsolidated Real Estate Venture U.S. Government Leased Properties VA - Phoenix (7) Phoenix, AZ OC 2042 257,294 10,649,799 3.5 % 41.39 VA - San Antonio (7) San Antonio, TX OC 2041 226,148 9,212,310 3.0 % 40.74 VA - Chattanooga (7) Chattanooga, TN OC 2035 94,566 4,334,944 1.4 % 45.84 VA - Lubbock (7) (8) Lubbock, TX OC 2040 120,916 4,030,913 1.3 % 33.34 VA - Marietta (7) Marietta, GA OC 2041 76,882 3,895,813 1.3 % 50.67 VA - Birmingham (7) Irondale, AL OC 2041 77,128 3,154,679 1.0 % 40.90 VA - Columbus (7) Columbus, GA OC 2042 67,793 2,898,223 1.0 % 42.75 VA - Lenexa (7) Lenexa, KS OC 2041 31,062 1,309,621 0.4 % 42.16 Subtotal 951,789 $ 39,486,302 12.9 % $ 41.49 Total / Weighted Average 8,572,268 $ 303,927,396 100.0 % $ 35.45 Total / Weighted Average at Easterly's Share 8,124,926 $ 285,368,833 $ 35.12 (1) OC=Outpatient Clinic; O=Office; C=Courthouse; L=Laboratory; W=Warehouse; D=Distribution. (2) The year of lease expiration does not include renewal options. (3) Private tenants occupy 100,715 leased square feet. (4) Private tenants occupy 36,610 leased square feet. (5) Private tenants occupy 14,274 leased square feet. (6) A private tenant occupies 11,402 leased square feet. (7) We own 53.0% of the property through an unconsolidated joint venture. (8) Asset is subject to a ground lease where we are the lessee. 25 Certain of our leases are currently in the “soft-term” period of the lease, meaning that the U.S. Government tenant agency has the right to terminate the lease prior to its stated lease end date. We believe that, from the U.S. Government’s perspective, leases with such provisions are helpful for budgetary purposes. While some of our leases are contractually subject to early termination, we do not believe that our tenant agencies are likely to terminate these leases early given the build-to-suit features at the properties subject to the leases, the weighted average age of these properties based on the date the property was built or renovated-to-suit, where applicable (approximately 19.1 years as of June 30, 2023), the mission-critical focus of the properties subject to the leases and the current level of operations at such properties. The following table sets forth a schedule of lease expirations for leases in place (including for wholly owned properties and properties held by the JV) as of June 30, 2023: Year of Lease Expiration (1) Number of Leases Expiring Leased Square Footage Expiring Percentage of Portfolio Leased Square Footage Expiring Annualized Lease Income Expiring Percentage of Total Annualized Lease Income Expiring Annualized Lease Income per Leased Square Foot Expiring 2023 6 268,201 3.1 % $ 9,618,413 3.2 % $ 35.86 2024 7 473,465 5.5 % 14,289,502 4.7 % 30.18 2025 15 631,326 7.4 % 20,631,405 6.8 % 32.68 2026 5 294,245 3.4 % 9,490,733 3.1 % 32.25 2027 9 506,510 5.9 % 18,639,271 6.1 % 36.80 2028 10 778,474 9.1 % 16,490,650 5.4 % 21.18 2029 4 337,372 3.9 % 11,247,552 3.7 % 33.34 2030 — — 0.0 % — 0.0 % — 2031 2 100,502 1.2 % 4,068,460 1.3 % 40.48 2032 7 531,001 6.2 % 16,792,015 5.5 % 31.62 Thereafter 52 4,651,172 54.3 % 182,659,395 60.2 % 39.27 Total / Weighted Average 117 8,572,268 100.0 % $ 303,927,396 100.0 % $ 35.45 (1) The year of lease expiration is pursuant to current contract terms. Some tenants have the right to vacate their space during a specified period, or “soft term,” before the stated terms of their leases expire. As of June 30, 2023, 19 tenants occupying approximately 6.6% of our leased square feet and contributing approximately 6.5% of our annualized lease income have exercisable rights to terminate their lease before the stated term of their respective lease expires. Information about our development property as of June 30, 2023 is set forth in the table below: Property Name Location Tenant Property Type (1) Lease Term Estimated Leased Square Feet FDA - Atlanta Atlanta, GA Food and Drug Administration L 20-year 162,000 (1) L=Laboratory. 26 Results of Operations Comparison of Results of Operations for the three months ended June 30, 2023 and 2022 The financial information presented below summarizes our results of operations for the three months ended June 30, 2023 and 2022 (amounts in thousands). For the three months ended June 30, 2023 2022 Change Revenues Rental income $ 67,758 $ 71,156 $ (3,398 ) Tenant reimbursements 2,500 916 1,584 Asset management income 517 317 200 Other income 598 368 230 Total revenues 71,373 72,757 (1,384 ) Expenses Property operating 17,629 15,551 2,078 Real estate taxes 7,619 7,851 (232 ) Depreciation and amortization 22,619 24,343 (1,724 ) Acquisition costs 444 302 142 Corporate general and administrative 7,024 5,966 1,058 Total expenses 55,335 54,013 1,322 Other income (expense) Income from unconsolidated real estate venture 1,418 825 593 Interest expense, net (11,678 ) (11,439 ) (239 ) Net income $ 5,778 $ 8,130 $ (2,352 ) Revenues Total revenues decreased $1.4 million to $71.4 million for the three months ended June 30, 2023 compared to $72.8 million for the three months ended June 30, 2022. The $3.4 million decrease in Rental income is primarily attributable to a decrease in revenues from the ten properties disposed of since June 30, 2022, offset by the one operating property acquired since June 30, 2022, as well as a full period of operations from the two operating properties acquired during the three months ended June 30, 2022. The $1.6 million increase in Tenant reimbursements is primarily attributable to an increase in tenant project reimbursements. The $0.2 million increase in Asset management income is attributable to the fee we earned for asset management on two operating properties acquired by the JV since June 30, 2022, as well as a full period of operations from two operating properties acquired during the three months ended June 30, 2022. The $0.2 million increase in Other income is primarily attributable to an increase in project overhead income from our tenant reimbursable projects. Expenses Total expenses increased $1.3 million to $55.3 million for the three months ended June 30, 2023 compared to $54.0 million for the three months ended June 30, 2022. The $2.1 million increase in Property operating expenses is primarily attributable to an increase in reimbursable projects. The $0.2 million decrease in Real estate taxes is primarily attributable to the ten properties disposed of since June 30, 2022, offset by the one operating property acquired since June 30, 2022, as well as a full period of operations from the two operating properties acquired during the three months ended June 30, 2022. The $1.7 million decrease in Depreciation and amortization is also primarily attributable to the ten properties disposed of since June 30, 2022, offset by the one operating property acquired since June 30, 2022, as well as a full period of operations from the two operating properties acquired during the three months ended June 30, 2022. 27 The $1.1 million increase in Corporate general and administrative was primarily due to an increase in employee costs. Income from unconsolidated real estate venture The $0.6 million increase in Income from unconsolidated real estate venture is primarily attributable to our pro rata share of operations from two operating properties acquired by the JV since June 30, 2022, as well as a full period of operations from two operating properties acquired during the three months ended June 30, 2022. Interest expense, net The $0.2 million increase in Interest expense, net is primarily related to higher interest rates on our revolving credit facility. Comparison of Results of Operations for the six months ended June 30, 2023 and 2022 The financial information presented below summarizes our results of operations for the six months ended June 30, 2023 and 2022 (amounts in thousands). For the six months ended June 30, 2023 2022 Change Revenues Rental income $ 135,906 $ 141,595 $ (5,689 ) Tenant reimbursements 4,575 2,060 2,515 Asset management income 1,034 565 469 Other income 1,078 839 239 Total revenues 142,593 145,059 (2,466 ) Expenses Property operating 35,517 31,009 4,508 Real estate taxes 15,087 15,677 (590 ) Depreciation and amortization 45,700 48,502 (2,802 ) Acquisition costs 905 664 241 Corporate general and administrative 14,319 11,949 2,370 Total expenses 111,528 107,801 3,727 Other income (expense) Income from unconsolidated real estate venture 2,820 1,456 1,364 Interest expense, net (23,693 ) (22,321 ) (1,372 ) Net income $ 10,192 $ 16,393 $ (6,201 ) Revenues Total revenues decreased $2.5 million to $142.6 million for the six months ended June 30, 2023 compared to $145.1 million for the six months ended June 30, 2022. The $5.7 million decrease in Rental income is primarily attributable to a decrease in revenues from the ten properties disposed of since June 30, 2022, offset by the one operating property acquired since June 30, 2022, as well as a full period of operations from the two operating properties acquired during the six months ended June 30, 2022. The $2.5 million increase in Tenant reimbursements is primarily attributable to an increase in tenant project reimbursements. The $0.5 million increase in Asset management income is attributable to the fee we earned for asset management on two operating properties acquired by the JV since June 30, 2022, as well as a full period of operations from two operating properties acquired during the six months ended June 30, 2022. The $0.2 million increase in Other income is primarily attributable to an increase in project overhead income from our tenant reimbursable projects. 28 Expenses Total expenses increased $3.7 million to $111.5 million for the six months ended June 30, 2023 compared to $107.8 million for the six months ended June 30, 2022. The $4.5 million increase in Property operating expenses is primarily attributable to an increase in reimbursable projects and an increase in utility costs across the portfolio. The $0.6 million decrease in Real estate taxes is primarily attributable to the ten properties disposed of since June 30, 2022, offset by the one operating property acquired since June 30, 2022, as well as a full period of operations from the two operating properties acquired during the six months ended June 30, 2022. The $2.8 million decrease in Depreciation and amortization is also primarily attributable to the ten properties disposed of since June 30, 2022, offset by the one operating property acquired since June 30, 2022, as well as a full period of operations from the two operating properties acquired during the six months ended June 30, 2022. The $2.4 million increase in Corporate general and administrative was primarily due to an increase in employee costs. Income from unconsolidated real estate venture The $1.4 million increase in Income from unconsolidated real estate venture is primarily attributable to our pro rata share of operations from two operating properties acquired by the JV since June 30, 2022, as well as a full period of operations from two operating properties acquired during the six months ended June 30, 2022. Interest expense, net The $1.4 million increase in Interest expense, net is primarily related to higher interest rates on our revolving credit facility. Liquidity and Capital Resources We anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months for all anticipated uses, including all scheduled principal and interest payments on our outstanding indebtedness, current and anticipated tenant improvements, planned and possible acquisitions of properties, including the two remaining properties in the portfolio of ten properties anticipated to be acquired through the JV (the “VA Portfolio”), stockholder distributions to maintain our qualification as a REIT, repurchases of common stock under our share repurchase program and other capital obligations associated with conducting our business. At June 30, 2023, we had $21.8 million available in cash and cash equivalents and there was $396.9 million available under our revolving credit facility. Our primary expected sources of capital are as follows: • cash and cash equivalents; • operating cash flow; • distribution of cash flows from the JV; • available borrowings under our revolving credit facility; • issuance of long-term debt; • issuance of equity, including under our ATM Programs (as described below); and • asset sales. Our short-term liquidity requirements consist primarily of funds to pay for the following: • development and redevelopment activities, including major redevelopment, renovation or expansion programs at individual properties; • property acquisitions under contract, including our pro rata share of the two remaining VA Portfolio properties; • tenant improvements, allowances and leasing costs; 29 • recurring maintenance and capital expenditures; • debt repayment requirements; • corporate and administrative costs; • interest payments on our outstanding indebtedness; • interest swap payments; • distribution payments; and • repurchases of common stock under our share repurchase program. Our long-term liquidity needs, in addition to recurring short-term liquidity needs as discussed above, consist primarily of funds necessary to pay for acquisitions, non-recurring capital expenditures, and scheduled debt maturities. Although we may be able to anticipate and plan for certain of our liquidity needs, unexpected increases in uses of cash that are beyond our control and which affect our financial condition and results of operations may arise, or our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or required. As of the date of this filing, there were no known commitments or events that would have a material impact on our liquidity. Equity Offering of Common Stock on a Forward Basis On August 11, 2021, we completed an underwritten public offering of 6,300,000 shares of common stock offered on a forward basis. In connection with the offering, we also entered into separate forward sale agreements with each of the forward purchasers (the “Forward Sales Agreements”), pursuant to which the forward purchasers borrowed and sold to the underwriters an aggregate of 6,300,000 shares of our common stock. On December 28, 2021, we issued 3,991,000 shares of our common stock for net proceeds of $85.0 million, which shares were issued in partial settlement of the Forward Sales Agreements entered into in connection with the underwritten public offering. During the three months ended March 31, 2023, we issued 2,309,000 shares of common stock under the Forward Sale Agreements and received net cash proceeds of approximately $46.8 million. As of June 30, 2023, all shares of common stock under the Forward Sales Agreements had been issued and settled. ATM Programs We entered into separate equity distribution agreements on each of December 20, 2019 (the “2019 ATM Program”) and June 22, 2021 (the “2021 ATM Program” and, together with the 2019 ATM Program, the “ATM Programs”) with various financial institutions pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $300.0 million under each ATM Program from time to time in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act. Under each of the ATM Programs, we may enter into one or more forward transactions (each, a “forward sale transaction”) under separate master forward sale confirmations and related supplemental confirmations with each of the various financial institutions party to the respective ATM Program for the sale of shares of our common stock on a forward basis. The following table sets forth certain information with respect to issuances under the 2019 ATM Program during the six months ended June 30, 2023 (amounts in thousands, except share amounts): 2019 ATM Program For the three months ended Number of Shares Issued (1) Net Proceeds (1) March 31, 2023 250,000 $ 5,562 June 30, 2023 — — Total 250,000 $ 5,562 (1) Shares issued by us, which were all issued in settlement of forward sales transactions. Additionally, as of June 30, 2023, we had entered into forward sales transactions under the 2019 ATM Program for the sale of an additional 1,700,000 shares of our common stock that have not yet been settled. Subject to our right to elect net share settlement, we expect to physically settle the forward sales transactions by the maturity dates set forth in each applicable forward sale transaction placement notice, which dates range from August 2023 to July 2024. Assuming the forward sales transactions are physically settled in full utilizing a net weighted average initial forward sales price of $21.61 per share, we expect to receive net proceeds of 30 approximately $36.7 million, after deducting offering costs, subject to adjustments in accordance with the applicable forward sale transaction. We accounted for the forward sale transactions as equity. No sales of shares of our common stock were made under the 2021 ATM Program during the six months ended June 30, 2023. We used the net proceeds received from such sales for general corporate purposes. As of June 30, 2023, we had approximately $300.0 million of gross sales of our common stock available under the 2021 ATM Program and $87.4 million of gross sales of our common stock available under the 2019 ATM Program. Share Repurchase Program On April 28, 2022, our Board of Directors authorized a share repurchase program whereby we may repurchase up to 4,538,994 shares of our common stock, or approximately 5% of our outstanding shares as of the authorization date. We are not required to purchase shares under the share repurchase program but may choose to do so in the open market or through privately negotiated transactions at times and amounts based on our evaluation of market conditions and other factors. No repurchases of shares of our common stock were made under the share repurchase program during the six months ended June 30, 2023. 31 Debt Indebtedness Outstanding The following table sets forth certain information with respect to our outstanding indebtedness as of June 30, 2023 (amounts in thousands): Principal Outstanding Interest Current Loan June 30, 2023 Rate (1) Maturity Revolving credit facility: Revolving credit facility (2) $ 53,000 S + 135 bps (3) July 2025 (4) Total revolving credit facility 53,000 Term loan facilities: 2016 term loan facility 100,000 2.72% (6) March 2024 2018 term loan facility (5) 150,000 5.42% (7) July 2026 Total term loan facilities 250,000 Less: Total unamortized deferred financing fees (821 ) Total term loan facilities, net 249,179 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 2021 series A senior notes 50,000 2.62% October 2028 2021 series B senior notes 200,000 2.89% October 2030 Total notes payable 700,000 Less: Total unamortized deferred financing fees (3,710 ) Total notes payable, net 696,290 Mortgage notes payable: VA – Golden 8,546 5.00% (8) April 2024 USFS II – Albuquerque 12,541 4.46% (8) July 2026 ICE – Charleston 12,727 4.21% (8) January 2027 VA – Loma Linda 127,500 3.59% (8) July 2027 CBP – Savannah 9,972 3.40% (8) July 2033 USCIS – Kansas City 51,500 3.68% (8) August 2024 Total mortgage notes payable 222,786 Less: Total unamortized deferred financing fees (1,172 ) Less: Total unamortized premium/discount 1,097 Total mortgage notes payable, net 222,711 Total debt $ 1,221,180 (1) At June 30, 2023, the USD SOFR with a five day lookback (“S”) was 5.06%. 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 our $450.0 million senior unsecured revolving credit facility (our “revolving credit facility”), our $200.0 million senior unsecured term loan facility (as amended, our “2018 term loan facility”) and our $100.0 million senior unsecured term loan facility (our “2016 term loan facility”) is based on our consolidated leverage ratio, as defined in the respective loan agreements. (2) Our revolving credit facility had available capacity of $396.9 million at June 30, 2023 with an accordion feature that permits us to request additional lender commitments for up to $250.0 million of additional capacity, subject to the satisfaction of customary terms and conditions. (3) Entered into one interest rate swap with an effective date of June 23, 2023 with a notional value of $100.0 million, of which $50.0 million is associated with our revolving credit facility, to effectively fix the interest rate at 5.36% annually, based on our consolidated leverage ratio, as defined in our revolving credit facility agreement. 32 (4) Our revolving credit facility has two six-month as-of-right extension options subject to certain conditions and the payment of an extension fee. (5) Our 2018 term loan facility has undrawn capacity up to $50.0 million of which is available during a delayed draw period. (6) 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 2.72% annually, based on our consolidated leverage ratio, as defined in our 2016 term loan facility agreement. We transitioned the two interest rate swaps from LIBOR to SOFR effective November 29, 2022. (7) Entered into two interest rate swaps with an effective date of June 23, 2023 with an aggregate notional value of $200.0 million, of which $150.0 million is associated with our 2018 term loan facility, to effectively fix the interest rate at 5.42% annually, based on our consolidated leverage ratio, as defined in our 2018 term loan facility agreement. (8) Effective interest rates are as follows: VA – Golden 5.03%, USFS II – Albuquerque 3.92%, ICE – Charleston 3.93%, VA – Loma Linda 3.78%, CBP – Savannah 4.12%, USCIS – Kansas City 2.05%. On January 26, 2023, we used $15.7 million of available cash to extinguish the mortgage note obligation on DEA – Pleasanton. On February 3, 2023, we entered into three SOFR-based interest rate swaps each with a notional value of $100.0 million that were designated as cash flow hedges of interest rate risk. Two of the interest rate swaps, with an aggregate notional value of $200.0 million, became effective in June 2023. The third swap, with a notional value of $100.0 million, will become effective when our existing swaps mature in September 2023. For more information on our interest rate swaps, see Note 6 to the Consolidated Financial Statements. On May 30, 2023, we entered into the third amendment to our second amended and restated credit agreement, dated as of July 23, 2021 and into the sixth amendment to our senior unsecured term loan agreement, dated as of September 29, 2016. These amendments added a daily simple SOFR-based option to the term SOFR-based floating interest rate option as a benchmark rate for borrowings denominated in U.S. dollars for all purposes under the credit and term loan agreements, including, in each case, a credit spread adjustment of 0.10%. On July 20, 2023, we drew the full $50.0 million delayed draw on our 2018 term loan facility and transferred $50.0 million of our interest rate swap with a notional value of $100.0 million, from our revolving credit facility to the $50.0 million delayed draw. Our revolving credit facility, term loan facilities, notes payable, and mortgage notes payable are subject to ongoing compliance with a number of financial and other covenants. As of June 30, 2023, we were in compliance with all applicable financial covenants. The chart below details our debt capital structure as of June 30, 2023 (dollar amounts in thousands): Debt Capital Structure June 30, 2023 Total principal outstanding $ 1,225,786 Weighted average maturity 5.2 years Weighted average interest rate 3.8 % % Variable debt 0.2 % % Fixed debt (1) 99.8 % % Secured debt 18.2 % (1) Our 2016 term loan facility, 2018 term loan facility and $50 million of our revolving credit facility are swapped to be fixed and as such are included as fixed rate debt in the table above. Material Cash Commitments During the six months ended June 30, 2023, there were no material changes to the cash commitment information presented in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2022. Unconsolidated Real Estate Venture We consolidate entities in which we have a controlling interest or are the primary beneficiary in a variable interest entity. From time to time, we may have off-balance sheet unconsolidated real estate ventures and other unconsolidated arrangements with varying structures. 33 As of June 30, 2023, we have invested $268.6 million in the JV. As of June 30, 2023, we committed capital, net of return of over committed capital, to the JV totaling $274.1 million and have a remaining capital commitment of $64.2 million. None of the properties owned by the JV are encumbered by mortgage indebtedness. For a more complete description of the JV, see Note 4 to the Consolidated Financial Statements. Dividend Policy In order to qualify as a REIT, we are required to distribute to our stockholders, on an annual basis, at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. We anticipate distributing all of our taxable income. We expect to make quarterly distributions to our stockholders in a manner intended to satisfy this requirement. Prior to making any distributions for U.S. federal tax purposes or otherwise, we must first satisfy our operating and debt service obligations. It is possible that it would be necessary to utilize cash reserves, liquidate assets at unfavorable prices or incur additional indebtedness in order to make required distributions. It is also possible that our board of directors could decide to make required distributions in part by using shares of our common stock. A summary of dividends declared by the board of directors per share of common stock and per common unit at the date of record is as follows: Quarter Declaration Date Record Date Payment Date Dividend (1) Q1 2023 April 26, 2023 May 11, 2023 May 23, 2023 $ 0.265 Q2 2023 August 2, 2023 August 17, 2023 August 29, 2023 $ 0.265 (1) Prior to the end of the performance period as set forth in the applicable LTIP unit award, holders of performance-based LTIP units are entitled to receive dividends per LTIP unit equal to 10% of the dividend paid per common unit. After the end of the performance period, the number of LTIP units, both vested and unvested, that LTIP award recipients have earned, if any, are entitled to receive dividends in an amount per LTIP unit equal to dividends, both regular and special, payable per common unit. Holders of LTIP units that are not subject to the attainment of performance goals are entitled to receive dividends per LTIP unit equal to 100% of the dividend paid per common unit beginning on the grant date. Inflation Substantially all of our leases provide for operating expense escalations. We believe inflationary increases in expenses may be at least partially offset by the operating expenses that are passed through to our tenants and by contractual rent increases. We do not believe inflation has had a material impact on our historical financial position or results of operations. Cash Flows The following table sets forth a summary of cash flows for the six months ended June 30, 2023 and 2022 (amounts in thousands): For the six months ended June 30, 2023 2022 Net cash provided by (used in): Operating activities $ 59,052 $ 64,354 Investing activities (20,967 ) (147,028 ) Financing activities (33,573 ) 80,575 Operating Activities We generated $59.1 million and $64.4 million of cash from operating activities during the six months ended June 30, 2023 and 2022, respectively. Net cash provided by operating activities for the six months ended June 30, 2023 includes $51.1 million in net cash from rental activities net of expenses, $5.9 million related to distributions from investment in unconsolidated real estate venture and $2.1 million related to the change in tenant accounts receivable, prepaid expenses and other assets, deferred revenue associated with operating leases, principal payments on operating lease obligations, and accounts payable, accrued expenses and other liabilities. Net cash provided by operating activities for the six months ended June 30, 2022 includes $62.6 million in net cash from rental activities net of expenses and $3.4 million related to distributions from investment in unconsolidated real estate venture, offset by $1.6 million related to the change in tenant accounts receivable, prepaid expenses and other assets, deferred revenue associated with operating leases, principal payments on operating lease obligations, and accounts payable, accrued expenses and other liabilities. 34 Investing Activities We used $21.0 million and $147.0 million in cash for investing activities during the six months ended June 30, 2023 and 2022, respectively. Net cash used in investing activities for the six months ended June 30, 2023 includes $12.1 million in additions to operating properties and $9.0 million in additions to development properties, offset by $0.1 million in real estate acquisitions and deposits. Net cash used in investing activities for the six months ended June 30, 2022 includes $78.8 million in real estate acquisitions and deposits, $52.7 million in investment in unconsolidated real estate venture, $10.9 million in additions to operating properties and $4.9 million in additions to development properties, offset by $0.3 million in distributions of capital from unconsolidated real estate venture. Financing Activities We used $33.6 million and generated $80.6 million in cash from financing activities during the six months ended June 30, 2023 and 2022, respectively. Net cash used in financing activities for the six months ended June 30, 2023 includes $55.6 million in dividend payments, $17.8 million in mortgage notes payable repayment, $12.5 million in net pay downs under our revolving credit facility and $0.1 million in the payment of offering costs, offset by $52.4 million in gross proceeds from issuance of shares of our common stock. Net cash generated by financing activities for the six months ended June 30, 2022 includes $128.3 million in net draws under our revolving credit facility and $9.5 million in gross proceeds from issuances of shares of our common stock, offset by $54.4 million in dividend payments, $2.6 million in mortgage notes payable repayment and $0.1 million in the payment of offering costs. Non-GAAP Financial Measures We use and present Funds From Operations (“FFO”), Core FFO and FFO, as Adjusted as supplemental measures of our performance. The summary below describes our use of FFO, Core FFO and FFO, as Adjusted, provides information regarding why we believe these measures are meaningful supplemental measures of our performance and reconciles these measures from net income, presented in accordance with GAAP. 35 Funds From Operations and Funds From Operations, as Adjusted FFO is a supplemental measure of our performance. We present FFO calculated in accordance with the current National Association of Real Estate Investment Trusts (“Nareit”) definition set forth in the Nareit FFO White Paper – Restatement 2018. FFO includes the REIT’s share of FFO generated by unconsolidated affiliates. In addition, we present Core FFO and FFO, as Adjusted for certain other adjustments that we believe enhance the comparability of our FFO across periods and to the FFO reported by other publicly traded REITs. FFO is a supplemental performance measure that is commonly used in the real estate industry to assist investors and analysts in comparing results of REITs. FFO is defined by Nareit as net income (calculated in accordance with GAAP), excluding: • Depreciation and amortization related to real estate. • Gains and losses from the sale of certain real estate assets. • Gains and losses from change in control. • Impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. We present FFO because we consider it an important supplemental measure of our operating performance, and we believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting results. We adjust FFO to present Core FFO as an alternative measure of our operating performance, which, when applicable, excludes items which we believe are not representative of ongoing operating results, such as liability management related costs (including losses on extinguishment of debt and modification costs), catastrophic event charges, depreciation of non-real estate assets, and the unconsolidated real estate venture's allocated share of these adjustments. In future periods, we may also exclude other items from Core FFO that we believe may help investors compare our results. We believe Core FFO more accurately reflects the ongoing operational and financial performance of our core business. We adjust FFO to present FFO, as Adjusted as an alternative measure of our operating performance, which, when applicable, excludes the impact of losses on extinguishment of debt, depreciation of non-real estate assets, acquisition costs, straight-line rent and other non-cash adjustments, amortization of deferred revenue (which results from landlord assets funded by tenants), non-cash interest expense, non-cash compensation, amortization of above-/below-market leases, and the unconsolidated real estate venture’s allocated share of these adjustments. By excluding these income and expense items from FFO, as Adjusted, we believe we provide useful information as these items have no cash impact. In addition, by excluding acquisition related costs, we believe FFO, as Adjusted provides useful information that is comparable across periods and more accurately reflects the operating performance of our properties. FFO, Core FFO and FFO, as Adjusted are presented as supplemental financial measures and do not fully represent our operating performance. Other REITs may use different methodologies for calculating FFO, Core FFO and FFO, as Adjusted or use other definitions of FFO, Core FFO and FFO, as Adjusted and, accordingly, our presentation of these measures may not be comparable to other REITs. Neither FFO, Core FFO nor FFO, as Adjusted are intended to be a measure of cash flow or liquidity. Please refer to our financial statements, prepared in accordance with GAAP, for purposes of evaluating our financial condition, results of operations and cash flows. 36 The following table sets forth a reconciliation of our net income to FFO, Core FFO and FFO, as Adjusted for the three and six months ended June 30, 2023 and 2022 (amounts in thousands): For the three months ended June 30, For the six months ended June 30, 2023 2022 2023 2022 Net income $ 5,778 $ 8,130 $ 10,192 $ 16,393 Depreciation of real estate assets 22,368 24,096 45,199 48,008 Unconsolidated real estate venture allocated share of above adjustments 1,875 1,127 3,750 2,005 FFO 30,021 33,353 59,141 66,406 Adjustments to FFO: Loss on extinguishment of debt — — 14 — Natural disaster event expense, net of recovery (22 ) 4 78 9 Depreciation of non-real estate assets 251 247 501 494 Unconsolidated real estate venture allocated share of above adjustments 17 16 33 32 Core FFO 30,267 33,620 59,767 66,941 Adjustments to Core FFO: Acquisition costs 444 302 905 664 Straight-line rent and other non-cash adjustments (902 ) 451 (1,365 ) (531 ) Amortization of above-/below-market leases (676 ) (743 ) (1,376 ) (1,604 ) Amortization of deferred revenue (1,622 ) (1,443 ) (3,106 ) (2,841 ) Non-cash interest expense 244 235 488 460 Non-cash compensation 1,299 1,637 2,967 3,266 Natural disaster event expense, net of recovery 22 (4 ) (78 ) (9 ) Unconsolidated real estate venture allocated share of above adjustments 43 (394 ) (70 ) (709 ) FFO, as Adjusted $ 29,119 $ 33,661 $ 58,132 $ 65,637 Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base these estimates, judgments, and assumptions on historical experience, current trends, and various other factors that we believe to be reasonable under the circumstances. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or a different presentation of our financial statements. Our Annual Report on Form 10-K for the year ended December 31, 2022 contains a discussion of our significant accounting policies, which utilize relevant critical accounting estimates. During the six months ended June 30, 2023, there were no material changes to the discussion of our significant accounting policies included in our Annual Report on Form 10-K for the year ended December 31, 2022. 37 I tem 3. Quantitative and Qualitative Disclosures About Market Risk Market risk is the risk of loss from adverse changes in market prices and interest rates. Our future earnings, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Our primary market risk results from our indebtedness, which bears interest at both fixed and variable rates. We manage and may continue to manage our market risk on variable rate debt by entering into swap arrangements to, in effect, fix the rate on all or a portion of the debt for varying periods up to maturity. This in turn, reduces the risks of variability of cash flows created by variable rate debt and mitigates the risk of increases in interest rates. Our objective when undertaking such arrangements is to reduce our floating rate exposure and we do not intend to enter into hedging arrangements for speculative purposes. For more information on our interest rate swaps, see Note 6 to the Consolidated Financial Statements. As of June 30, 2023, $1.2 billion, or 99.8% of our debt, excluding unamortized premiums and discounts, had fixed interest rates and $3.0 million, or 0.2% had variable interest rates. If market rates of interest on our variable rate debt fluctuate by 25 basis points, interest expense would increase or decrease, depending on rate movement, future earnings and cash flows, by less than $0.1 million annually. As of June 30, 2023, each of the agreements governing our variable rate debt have been transitioned to SOFR. I tem 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures We carried out an evaluation required by the Exchange Act, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a -15(e) and Rule 15d-15 of the Exchange Act, as of June 30, 2023. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. P art II I tem 1. Legal Proceedings We are not currently involved in any material litigation nor, to our knowledge, is any material litigation currently threatened against us. I tem 1A. Risk Factors Except to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters discussed in Part I, “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there were no material changes to the risk factors disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022. I tem 2. Unregistered Sales of Equity Securities and Use of Proceeds None. I tem 3. Defaults Upon Senior Securities Not applicable. 38 I tem 4. Mine Safety Disclosures Not applicable. I tem 5. Other Information During the three months ended June 30, 2023 , none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K). 39 I tem 6. Exhibits The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q: Exhibit Exhibit Description 3.1 Amended and Restated Articles of Amendment and Restatement of Easterly Government Properties, Inc. (previously filed as Exhibit 3.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-11 on January 30, 2015 and incorporated herein by reference) 3.2 Amended and Restated Bylaws of Easterly Government Properties, Inc. (previously filed as Exhibit 3.2 to Amendment No. 2 to the Company’s Registration Statement on Form S-11 on January 30, 2015 and incorporated herein by reference) 3.3 First Amendment to Amended and Restated Bylaws of Easterly Government Properties, Inc. (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K on February 27, 2019 and incorporated herein by reference) 3.4 Second Amendment to Amended and Restated Bylaws of Easterly Government Properties, Inc. (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K on May 20, 2021 and incorporated herein by reference) 4.1 Specimen Certificate of Common Stock of Easterly Government Properties, Inc. (previously filed as Exhibit 4.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-11 on January 30, 2015 and incorporated herein by reference) 10.1 Third Amendment to Second Amended and Restated Credit Agreement, dated as of May 30, 2023, by and among Easterly Government Properties, Inc., Easterly Government Properties LP, the Guarantors named therein, the Initial Lenders and Initial Issuing Banks named therein, and Citibank, N.A., as Administrative Agent, Wells Fargo Bank, N.A. and PNC Bank, National Association, as Co-Syndication Agents, BMO Harris Bank, N.A., Raymond James Bank, Royal Bank of Canada and Truist Bank, as Co-Documentation Agents, and Citibank, N.A., Wells Fargo Securities, LLC and PNC Capital Markets LLC, as Joint Lead Arrangers and Joint Book Running Managers (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on June 2, 2023 and incorporated herein by reference) 10.2 Sixth Amendment to Term Loan Agreement, dated as of May 30, 2023, by and among Easterly Government Properties, Inc., Easterly Government Properties LP, the Guarantors named therein, PNC Bank, National Association, as Administrative Agent and a Lender, and U.S. Bank National Association and Truist Bank, as Lenders (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K on June 2, 2023 and incorporated herein by reference) 31.1* Certification of Chief Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 31.2* Certification of Chief Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 32.1** Certification of Chief Executive Officer and Chief Financial Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended 101.INS* Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104* Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*) * Filed herewith ** Furnished herewith 40 S IGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Easterly Government Properties, Inc. Date: August 8, 2023 /s/ William C. Trimble, III William C. Trimble, III Chief Executive Officer and President (Principal Executive Officer) Date: August 8, 2023 /s/ Meghan G. Baivier Meghan G. Baivier Executive Vice President, Chief Financial Officer and Chief Operating Officer (Principal Financial Officer)