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Easterly Eyes Government Properties

04/11/2017 2:50 am EST

Focus: REITS

Tim Plaehn

Investment Research Analyst, Investors Alley

Easterly Government Properties (DEA) is a relatively new public REIT that owns properties that are leased to federal government agencies, explains Tim Plaehn, income expert and editor of The Dividend Hunter.

Easterly plans to aggressively grow its portfolio of facilities, and this growth should lead to a rewarding combination of attractive current yield, dividend growth, and share appreciation.

Easterly Government Properties was formed in 2011 by a group of executives with an average of 25 years of commercial real estate management experience.

The company went public with a February 2015 IPO. At the time of the IPO, Easterly owned 29 properties that were 100% leased, with 26 leased by federal agencies. The portfolio now is up to 44 facilities. The company's goal is to acquire properties to lease to government agencies.

The General Services Administration (GSA) sets up almost all government leases and is moving the federal government away from owned facilities.

GSA leased square footage has grown by 29% since 1998 with owned asset size staying flat over the same period. Leasing to the GSA takes a high level of expertise to work through the government contracting process. 

Easterly currently carries a low debt balance that equals 24% of enterprise value. The fact that Easterly has its long-term leases with the world’s most financially safe client allows the use of moderate to high debt levels while still maintaining a secure balance sheet.

The Easterly management team is forecasting that annual FFO per share will grow by 7% from $1.17 per share for 2016. I am looking for the current $0.22 quarterly dividend to be increased by at least 5% this year. The DEA shares now yield 4.9%.

My expectations are that the combination of long-term government guaranteed leases with an attractive growth profile will catch the investing markets attention as Easterly Government Properties continues to build a track record.

This level of growth plus safety could result in the market pushing the share price up and the yield down. If the yield goes to less than 4% we would see a mid-$20's share price.

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