8%-Yielding Easterly Government Properties, Uncle Sam’s Landlord
July 11, 2025
A Solid Q1 for This REIT Pick
It’s time to take another look at Easterly Government Properties Inc (NYSE:DEA).
Real estate investment trusts (REITs) have performed poorly in the high-interest-rate environment. That’s because REITs have to borrow a lot of money to grow their businesses. And higher borrowing costs cut into profitability. Then there’s the fear that tenants may not be able to pay their rent.
None of these factors was, or is, an issue for Easterly Government Properties.
Why?
Easterly Government Properties can generate reliable cash flow, regardless of where we are in the economic cycle, because the U.S. government is its biggest tenant. And if there’s one tenant that is never low on cash or late with their rent, it’s Uncle Sam.
Easterly Government Properties Inc acquires, develops, and manages commercial properties that are leased to various U.S. government agencies. In fact, according to the most recent data, a whopping 97% of Easterly Government Properties’ lease income is backed by the U.S. government. (Source: “Investor Presentation, June 2025,” Easterly Government Properties Inc, last accessed June 25, 2025.)
The REIT’s 102 total operating properties are located in 27 different states and cover 10.2 million square feet, the equivalent of more than 177 NFL football fields. Of its properties, 97% are fully leased with an annual lease income per square foot of $35.59.
The weighted average remaining lease term is 9.8 years. Having tenants that are willing to sign long-term leases adds stability to the company’s business.
It’s always expanding, too. In May, Easterly acquired a 74,549-square-foot facility that is 100%-leased to the U.S. Department of Homeland Security near Burlington, Vermont. The 10-year, non-cancelable lease does not expire until May 2031. (Source: “Easterly Government Properties Acquires 74,549 SF U.S. Department of Homeland Security Law Enforcement Support Center, 100% Leased, and Located Near Burlington, Vermont,” Easterly Government Properties Inc, May 8, 2025.)
The REIT’s portfolio also includes more than one type of real estate, but Veterans Affairs (VA) outpatient clinics account for the bulk of Easterly Government Properties’ current portfolio (27%).
The company also owns FBI regional headquarters (17), built-to-suit specialized U.S. government spaces (12%), labs (9%), courthouses, (5%), Department of Defense Secure Command Center (3%), and National Weather Service Control Center and satellite field (1%) properties.
While there have been concerns that a growing portion of the workforce, both private and public, can work from home, the reality is that Easterly’s government tenants provide mission-critical services located in dedicated facilities. According to the REIT, the electric usage at its properties is in line with pre-2020 health crisis levels.
Moreover, leasing to the U.S. government has a high barrier to entry. The Department of Defense and the FBI aren’t going to lease from just anybody. Easterly is still growing too. It’s currently trading an estimated $1.5 billion worth in properties and actively evaluating around $500.0 million.
Core FFO Grows to $0.73/Share
For the first quarter ended March 31, 2025, Easterly Government Properties announced that total revenue increased eight percent to $78.6 million. (Source: “Easterly Government Properties Reports First Quarter 2025 Results,” Easterly Government Properties Inc, April 29, 2025.)
The REIT’s net income came in at $3.3 million, or $0.07 per share. Core funds from operations (FFO), a measure that REITs use to represents cash flow, grew three percent to $0.73 per share.
Commenting on the results, Darrell Crate, Easterly’s president and chief executive officer, said, “We took strong steps to position the company for future growth opportunity during the quarter. With the DOGE initiative we have observed the U.S. Government to be more receptive to cost saving efforts than in the past.”
“We believe this provides an opportunity for us to add more value as a public private partner as the U.S. Government has stated their intent for greater reliance on leased versus owned real estate.”
Easterly Government Properties: Monthly Payout of $0.45/Unit
Income investors like REITs because they have to legally distribute at least 90% of all taxable income to shareholders in the form of a dividend. When it comes to the health of a REIT, it’s important to look at core FFO, as it provides a better picture of a REIT’s recurring income than net income does.
In the first quarter, Easterly announced core FFO of $0.73 per share. In the first quarter, it also declared a quarterly dividend of $0.45 per share, or $1.80 per share on an annual basis, for a current forward yield of eight percent.
The quarterly payout of $0.45 per share might look like a big improvement over the $0.26 per share in the previous quarter, but, the company announced the dividend on April 9, and on April 28, it executed a 1-for-2.5 reverse stock split. (Source: “Easterly Government Properties Announces Reduction of Quarterly Dividend, Reverse Stock Split to Enhance Long-Term Growth Strategy and Reaffirms 2025 Guidance,” Easterly Government Properties Inc, April 9, 2025.)
In this transaction, for every 2.5 shares of DEA stock an investor held, they received one share. The reverse stock split adjusted Easterly’s capital structure and should make the stock more attractive to institutional investors.
At the same time, the REIT announced that it was reducing its quarterly payout by $0.085 from $0.265 per share to $0.18 per share. When the 1-for-2.5 reverse split took affect, this resulted in a quarterly dividend of $0.45 per share (0.18 x 2.5= 0.45).
Does DEA Stock Have 11% Upside Potential?
Easterly reported solid financial results throughout 2024, with DEA stock hitting a new 52-week high of $14.52 on October 18. Despite the REIT reporting decent third-quarter results and solid fourth-quarter and full-year 2024 results, DEA trended lower.
The stock took an oversized hit in early April after President Donald Trump announced his global tariff policy. DEA has been clawing its way back since then. It may be down 17.5% year to date, but it’s also up approximately 17% since early April.
Wall Street sees more upside for DEA stock over the coming quarters, with analysts proving a 12-month share price target range of $23.25 to $25.00. This points to potential upside of approximately four percent to 11.5%.
Chart courtesy of StockCharts.com
The Lowdown on Easterly Government Properties
Easterly Government Properties is a great REIT with a rock-solid tenant base; 97% of its lease income is backed by the U.S. government. As a result, it clearly doesn’t have an issue with tenants paying their rent.
This helps the REIT generate reliable cash flow, which allows it to make accretive acquisitions and pay a reliable dividend.
Now, Easterly did announce that it was reducing its quarterly dividend, but it’s now aligning its strategy with other net lease REITs, targeting a core FFO payout ratio in the range of 55% to 65%.
The new payout ratio should provide meaningful capital for the company to expand its growing pipeline.
This also bodes well for DEA shareholders, including the 389 institutions that hold 79.9% of all outstanding shares. The three top holders are BlackRock Inc, The Vanguard Group, and State Street Corp. (Source: “Easterly Government Properties, Inc. (DEA),” Yahoo! Finance, last accessed February 25, 2025.)
