Easterly Government Properties, Inc. Q1 FY2024 Earnings Call

Greetings. Welcome to the Easterly Government Properties First Quarter 2024 Earnings Conference Call. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lindsay Winterhalter, Head of Investor Relations. Please go ahead.

Good morning. Before the call begins, please note that certain statements made during this conference call may include statements that are not historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the company believes that its expectations as reflected in any forward-looking statements are reasonable, it can give no assurance that these expectations will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond the company's control, including, without limitation, those contained in the company's most recent Form 10-K filed with the SEC and in its other SEC filings. The company assumes no obligation to update publicly any forward-looking statements. Additionally, on this conference call, the company may refer to certain non-GAAP financial measures, such as funds from operations, core funds from operations, and cash available for distribution. You can find a tabular reconciliation of these non-GAAP financial measures to the most comparable current GAAP numbers in the company's earnings release and separate supplemental information package on the Investor Relations page of the company's website at ir.easterlyreit.com. I'd now like to turn the conference call over to Darrell Crate, CEO of Easterly Government Properties.

Thanks, Lindsay, and thank you to everyone for joining us. We are pleased with our progress this quarter as we work through opportunities. I'll keep it brief so we can get to Q&A, but I have 3 important messages I'd like you all to take away from this call. First, we believe there's a path towards material earnings growth for shareholders, and we're on it. Meghan and Allison will talk to you about the numerous drivers shortly. Second, we know the payout ratio of our dividend is high, but we also believe there is a growth path we can pursue that helps materially close that gap. We are also actively reassessing and managing our expenses. Further, we currently sit with just under $3 billion in rent coming from the U.S. government with the leases that we own today. And if that portfolio is renewed up 10% for 10 years, which are modest assumptions, we'd be collecting nearly $6 billion, full faith and credit rent from the U.S. government. We believe we should do as much for our shareholders. And given the creditworthiness and duration of the cash flows backing our dividends, we remain very comfortable with periods of higher payout ratios. Third, we occupy a unique place in the broader real estate industry, owning and designing essential infrastructure for the U.S. government's mission-critical agencies. For example, our DEA drug labs enable Homeland Security to trace and stop Sinaloa cartel activities amid an ongoing increase in drug trafficking crimes. In 2022, fentanyl was responsible for 200 deaths every single day, and over 0.25 million Americans have died from fentanyl overdose since 2018. Let that sink in for a minute. Our facilities bolster the special agents actively combating those figures. We're not an office REIT, and this year, we're going to continue ensuring that the market understands the breadth of what Easterly offers. This may be boring, but these are the stats that I know you're going to ask. We beat the street and reported $0.29 in core FFO per share, and we sit comfortably at the midpoint of our target leverage of 6.5 to 7.5x. We continue to acquire and develop new facilities in our portfolio. These facilities are not offices for transient commercial use by focusing on properties leased to government agencies. We've maintained the stability of our cash flows at favorable renewal spreads and seen a robust pipeline of growth opportunities. Earlier this month, we announced the acquisition of an Immigration and Customs Enforcement information technology facility near Dallas, Texas, which enables ICE's Office of Human Capital to modernize its IT systems and bolster its technological capabilities. The rationale behind this deal is clear. The facility is 95% leased, has a 16.2-year weighted average initial lease term for all 3 tenancies and maintains an additional 6,154 square feet available for future leasing as a value-add opportunity. All 3 factors enhance our cash flows, maintain significant occupancy upside and strengthen our definable edge as specialists in mission-critical real estate. This acquisition is in line with the existing properties in our portfolio, such as the Federal Emergency Management Agency's Tracy, California warehouse. FEMA - Tracy is 1 of 8 distribution centers within the United States for emergency response preparedness. Amid the ongoing threats of wildfire and other natural disasters in California, the property helps provide on-the-ground support and crucial supplies capable of mobilizing between 3 million to 4 million meals and liters of water that are stored at the facility within 30 minutes. Our Drug Enforcement Administration laboratory in Pleasanton, California serves a similar mission-critical purpose, providing scientific and forensic support to the DEA special agents and other law enforcement personnel, who prevent the distribution of deadly drugs, like fentanyl, into our society, and we store over 35,000 pieces of illegal and oftentimes deadly evidence in that facility each year. Meanwhile, the DEA's approved funding increased over 6% between 2022 and 2023 and its total headcount rose over 4% during the same period to combat the increased manufacture and distribution of controlled substances. As the government strengthens its agencies maintaining the safety of our country, we continue to fortify their abilities through mission-critical real estate. These purpose-built facilities serve as Easterly's definable edge in commercial real estate and continue to be the bedrock of the shareholder value, which we deliver. We will continue to pursue accretive deals, and we have no plans to sell buildings in the near future as we work to continue to expand the portfolio with high creditworthy state and local government agencies and U.S. government adjacent partners. Frankly, we believe Easterly is well positioned to continue to provide value to our stockholders by developing and buying more grade mission-critical buildings, continuing our strong partnership with the government and protecting our balance sheet. We are in constant dialogue with the Board and in forward planning mode. In addition to delivering external growth, we are laser-focused on cutting operating costs this year, both of which we believe will aid in our ability to meet or exceed our 2% to 3% core FFO growth trajectory. We're excited to continue delivering shareholder value and enhancing our portfolio with a foundation of cash flows backed by the full faith and credit of the U.S. government. The future remains bright for Easterly in 2024. And now I'll turn the call over to Meghan Baivier, the company's President and COO.

Thanks, Darrell, and good morning. We started off our 2024 by establishing clearly defined goals for the company, and we are on pace to deliver. We believe our government-backed cash flows have been undervalued in the public markets these past few years, and we attribute that to our recent periods of low growth. 2024 is the start of that change. We have launched our growth trajectory with the acquisition of ICE Dallas, delivering strong, predictable cash flows and run rate accretion to our shareholders. We see a pipeline of opportunities that we believe will further our ability to meet our stated goals of delivering 2% to 3% core FFO growth year-over-year for years to come. For example, we are pursuing a unique opportunity to serve as buyers of mission-critical assets that we believe will further change the growth trajectory of this organization. We look forward to keeping you apprised as this develops. In the meantime, we secured a brand-new build-to-suit Federal courthouse development project in Flagstaff, Arizona, for an inaugural 20-year lease term. This important courthouse is expected to have the nation's first-ever Native American female Federal judge and is expected to be the company's first-ever LEED Silver net zero development project. Our in-place portfolio continues to perform as we achieve renewals at meaningful spreads. We renewed DEA Albany for another 17 years, marking the third renewal of this asset while owned by Easterly. You are probably sick of hearing me say it, but once again, this highlights just how far from the office sector we are. As Darrell mentioned, the importance of the work being performed in our buildings cannot be replicated at home and such a dynamic is apparent in our ongoing renewal discussions. Allison will go into greater detail, but we believe we are in a period where the duration and creditworthiness of our cash flows, the importance of our real estate and our defined edge in serving mission-critical assets will accrue to our benefit and separate us from our peers. As we have seen notable names take down their earnings guidance, our beat and hold should stand apart from the crowd. We are excited about the opportunities for growth in Easterly. We see the growth trajectory filling in with new projects that further our mission of serving the government while also delivering attractive returns for shareholders. With that, I will turn the call to Allison.

Thank you, Meghan. Good morning, everyone. I'm pleased to report the financial results for the first quarter. Both on a fully diluted basis, net income per share was $0.05, and core FFO per share grew to $0.29. Our cash available for distribution was $25.9 million. Interest rates have certainly been a headwind for the broader real estate market, Easterly included. We seek to minimize interest expense at a time of high underlying rates, whether with a focus towards strategic treasury management or more recently, our ESG goals. We achieved a reduction in the margin spreads under the company's amended senior unsecured credit facility as a result of hitting a predetermined sustainability metric. Easterly also continues to sit comfortably at the midpoint of our target leverage range of 6.5 to 7.5x and maintains ample capacity on our revolver while limiting floating-rate debt exposure. As Darrell and Meghan mentioned, external growth for mission-critical real estate is our primary focus, and we see a market full of opportunities ahead. Our ability to manage our upcoming debt maturities, plan for capital needs and access certain equity markets is integral to harvesting this growth. At Easterly, we pride ourselves on a portfolio of purpose-built buildings, and we manage that portfolio with a purpose-built team. Our organization is committed to finding operational efficiencies throughout the portfolio, managing expense creep and re-leasing at positive spreads. Everyone at the company contributes to furthering the mission of driving value for shareholders. Today, we are maintaining our full-year core FFO per share guidance for 2024 in a range of $1.14 to $1.16, all on a fully diluted basis. This guidance assumes the closing of VA Jacksonville through the joint venture at its pro-rata acquisition price of $40.9 million later this year, and that we will have $100 million to $110 million of gross development-related investment during 2024. At its midpoint, this sets a path for Easterly to deliver strong core FFO per share earnings growth to shareholders this year. We believe this represents a market-leading risk-adjusted return and charts a course for delivering long-standing growth opportunities for our investors. With that, we thank you for your time this morning and appreciate your partnership.

Our first question comes from John Kim with BMO Capital Markets.

In your press release, you talked about earnings growth of 2% to 3%. I think that's a little bit lower than what you were targeting back in January. So I was wondering if there was anything that's a headwind to earnings in the near term, whether that's asset sales or known move-outs that you have? Or is it simply just the spread investing has become more difficult?

Yes, thanks for the question. I appreciate it. At our Analyst Day, I mentioned that we're aiming for a 4% growth for the company, which is what we're striving for every day. However, it became clear in our discussions post-Analyst Day that given the current environment, pursuing 4% felt unrealistic, especially as office guidance continued to decline. Therefore, we adjusted our expectations to 2% to 3%, which seems like a more reasonable approach. Considering the initiatives we're working on, I believe we'll meet, and possibly exceed, those targets, and we're committed to making that happen. Our perspective on the business remains the same as at the start of the year. We will cut costs to achieve our goals. We have a strong pipeline that keeps growing, and we're developing properties into the ACE with excellent facilities that I think will serve the government for many years. As everything aligns, we're very enthusiastic about the upcoming quarters and excited to share more about it, which is also why we feel optimistic about our dividend.

Just following up on that, Darrell. I mean, the interest rate environment has changed since January. I wondered if that played into your outlook at all as well as there have been recent reports, I think there was one by the PBRB earlier, I guess it was last month on federal agencies only using 12% of the headquarter space. Is that leading to any pressure to reduce costs among government agencies? I was just wondering what change...

Again, not specifically on our term outlook. You're absolutely right. Interestingly, the interest rate curve has increased slightly. The model we're developing is exciting for us, and we frequently review a 5-year model. It's frustrating for the yield curve to rise because it means we need to exert more effort or cut expenses to achieve our goals, as we're committed to creating value for shareholders. However, this doesn't alter our approach. We will need to put in more effort to ensure success, and that remains entirely under our control. Nothing seems out of reach. Regarding space utilization, we are not observing this as a challenge in our buildings.

Appreciate the color.

Thank you. I really appreciate it. The more questions you ask on this call help address any business skepticism or news concerns. It feels like we're constantly addressing misconceptions, such as when the Department of Education is perceived to be shrinking, leading people to believe the same about the FBI. This is a recurring topic in our investor calls and meetings regarding remote work and government size, alongside what's happening in our buildings. I wish we had a direct competitor to showcase our accomplishments because I've been actively touring buildings and receiving consistent feedback. It's important to note that the government doesn't typically offer compliments easily, but we have been receiving positive feedback about our efforts and focus on facilitating their missions. We observe their activities in the facilities and suggest modifications that can often be made at little cost to them. When we create a solid plan and present it to headquarters with clear reasoning, those projects can progress. This illustrates how we support them as a partner. The more our investors and portfolio holders comprehend our daily operations, the more they will recognize what sets us apart from others. I believe they will take pride in their investments and what we are building.

Our next question comes from Michael Griffin of Citi.

I just wanted to go back to the full-year guidance for a second and maybe run through kind of some additional puts and takes. So as I see it, $0.29 in the quarter, a slight beat, maybe you get some accretion from the ICE deal. How should we think about kind of the cadence of earnings throughout the year? And then also, if you could provide some more color on that ICE deal in terms of overall valuation per square foot? And anything on the cap rate would be helpful.

Okay. I can start with what our guidance entails and what it comprises. So our guidance reflects $0.02 to $0.03 of same-store improvement and growth in margins of 2% to 3%, $0.02 to $0.03 of G&A savings, and that is offset by $0.03 to $0.04 of interest rate headwinds from the 2023 swap reprice. And then Meghan will touch a little bit on Dallas.

Yes. So Dallas was a little under $26 million, Griff, but it's a mid-8 cap. At that size and that level of cap rate, we're expecting sort of run rate accretion of about $0.033. And so it is absolutely a piece of our ability to continue to build on our initial guidance and continue, as Darrell said, right, to grow from that a 2% to 3% to the higher mid-range or above that range. It's a building block in that. And as we continue through the year with strong performance in the portfolio, continuing to meet or beat that expectation is also laid out on the same-store NOI as we look at cost structure is also a place where we could see some upside.

Great. That's helpful. And Meghan, maybe sticking with you. Obviously, external growth is going to be a big part of the story in order to drive earnings going forward. What would you say your weighted average cost of capital is today? And what's the minimum spread you'd need to justify investing in a property? And is it correct to think about DEA as a spread investor today?

Yes. So Griff, we look at our cost of capital today, given an understanding of where we can finance in multiple avenues of the debt market, as being in the mid-7s. And of course, we are looking to be a spread investor to that level. And so acquiring assets in the high 7s to mid-8 is very much what we're looking to do, and ICE Dallas is an example of that.

Our next question is from Peter Abramowitz of Jefferies.

Yes. Just to dig a little bit more into some of the comments on guidance there. That was helpful. But just trying to square that with some of your comments about revisiting your expense structure. Just wondering if you could provide some brackets around kind of expense reduction, the impact that has to earnings, whether it's kind of an absolute dollar number or just from a margin perspective, what you're sort of targeting?

Yes, that's a great question. We are currently a few months into evaluating the workflow of all our systems and processes, as our operations differ from other REITs. We focus on the relationship between value and excellence and aim to be an exceptional partner to the government while minimizing our cost structure. I anticipate some cost savings starting in 2025 and beyond. While we don't have a specific target yet, we are committed to finding efficiencies in all areas, including property management, financing, lease structuring, and renewals. We believe there's potential for improvement in each aspect we examine. This is an excellent opportunity for us to reassess our strategies, particularly with interest rates changing, especially considering our strong growth over nearly a decade since going public. We continue to expand our infrastructure and leverage scale advantages, but I believe there is still more to discover. We will be actively pursuing this process while also seeking high-quality buildings that fit our portfolio, particularly those yielding in the high 7s to mid-8s. If our cost of capital were 60 basis points lower, it wouldn’t be unrealistic to pursue over $1 billion in acquisitions given the current pressures on sellers’ balance sheets and refinancing activities, which are making more buildings available.

That's helpful. And then just to touch on, I think you have 3 expirations remaining to address this year in the portfolio. So Allison lauded out, I think, some parameters around what you're expecting from NOI growth for the full year. Just curious if you could touch on potentially the rent roll up or roll down there and kind of how you budgeted that into your guidance and what sort of rent assumptions you're assuming to get to your midpoint?

Yes. So Peter, we successfully renewed the Albany this quarter, and we will discuss the portfolio again at the end of the year. Looking back at the expectations mentioned during the fourth quarter call regarding the 32 leases renewed, regardless of whether the tenant improvements have been completed, the expected 18% spread and a duration of 17.2 years remains consistent with Albany's performance. As we look into 2024, we are very optimistic about the ongoing process at FBI, Omaha. We expect the FBI leases in Portland to be extended through a renewal auction, while the remaining leases have fallen to more manageable levels. Overall, we remain positive about our renewal success and maintaining high occupancy levels within our portfolio.

Our next question comes from Aditi Balachandran of RBC.

Congrats on the Flagstaff development announcement. Just wondering if we could get a little more information about that, if you could provide it. So I guess, what is your expected yield? The budget, when you're expecting to break ground things like that?

Sure. The new award we received is the court federal project in Flagstaff, Arizona, with an estimated cost of nearly $35 million. As we mentioned, we are developing into the ACE there. The project is currently in design and is expected to begin in early third or fourth quarter of this year.

Our next question comes from the line of Harvey Poppel with Poptech, L.P.

You haven't discussed much about the new initiative you mentioned around 6 to 9 months ago regarding entering the state property market. Do you have any updates on that?

Yes. The key points are that we are actively exploring numerous opportunities and have a strong pipeline. We acquired a building in Anaheim, California, which deals with adjudicated workers' compensation claims and is located in an excellent area. We're excited about the developments that will occur there by the time the lease ends. We're continuously working across states and uncovering a range of opportunities weekly, which will likely contribute to our earnings in 2025. We might see some beneficial deals in 2024, but those will probably be realized later and won't impact this year's guidance. There is a significant total addressable market, and we anticipate finding valuable long-term opportunities. Additionally, we have discussed government adjacencies, where we can develop buildings for high-credit corporations that are establishing new operations in the U.S. We're constructing buildings similar to those we have for many U.S. government agencies, making it easier for clients with government contracts to navigate their obligations effectively.

One would think that there's got to be pockets in some of the states of small property owners, whether they're structured as REITs or others that might be acquirable in certain states. Have you seen any opportunities to just acquire a business that might hold several properties in the states?

We are actively engaging with various portfolios, particularly in the federal sector, where we have spent the last ten years building relationships with significant portfolio holders. We take the time to understand which buildings excite us and develop connections that can yield results anywhere from six to nine months to several years down the line. We are focused on familiarizing ourselves with the developers of these buildings and their portfolio dynamics to identify the right fit for us. While we are cautious about entering this space, we recognize it as a robust opportunity, as we can pinpoint high-quality buildings that align with state missions, which also come with lease escalators. Consequently, as we approach 2026 to 2028, it would be encouraging for us to start the year with an expected growth rate between 1% and 2%. And one of the challenges that we found is that when we exercised a lot of discipline. It was the right thing to do when the market changed abruptly, we found ourselves in a place where we weren't growing. And the equity markets don't like that. And so we sort of called it early. I think probably 3 or 4 months, we stopped buying before other office REITs, which we get bunched with. We're talking about it, and I think you're finding us today maybe being a harbinger of good news for some of those folks because we're sorting through lots of opportunities. If we're picky about it, we can find things that are accretive, and that's our job. And as we look forward to the end of the year, beginning of the year, I think we're going to be in a healthy space to announce acquisitions as part of our guidance again and doing all of those things. So we're meeting with lots of folks who own portfolios. If you know of any, send them our way. And we're executing on each of these lanes of opportunity, and I very much hope in the next 36 months, almost 1/3 of the company is comprised both of adjacent properties, 15% adjacent properties, 15% state and local.

Our next question is from Travis Turpin.

I know you guys have talked about the dividend a little bit. But my question was, I know the payout ratio was kind of high right now. Did you guys have a target range that you would target in and a timeframe for it?

Yes. No, great question because we obviously look at the dividend each and every day, Travis. And we look out and clearly our dividend below that 100% payout ratio, which is always our goal and even a little bit lower is where we want to get to. We may be just to be very clear about it, we are not interested in cutting our dividend because even though that may create some other pennies of growth in the future, the plans that we have more than offset it, and we're on a path to in the next 24 to 36 months to be in a place where we're covering our dividend. I hope it's sooner than that. And we've had periods like this, where we've had a high payout ratio relative to what the strategy is delivering. But we believe, given the stability of our cash flows, delivering that consistent dividend is something we're capable of doing. So as we look out the next 2 to 3 years, we should get that sold totally sooner and getting a payout ratio of below 100%, certainly is the goal.

Okay. And my next question is, since you talked about in the next 24 to 36 months with the payout ratio below 100%. I know you guys have talked about buybacks before. Is that something else you're looking at once you get the payout ratio solved and making accretive acquisitions and things like that?

Yes, I think that's correct. We really aim to approach what we're doing from a corporate finance perspective. Given the current stock price in relation to our opportunities, we see significant potential. We believe it will take some time for investors to recognize this, but if it doesn't happen, we should definitely focus on generating capital, including long-term capital that could be used to repurchase shares at favorable prices.

Our next question is from Michael Lewis of Truist Securities.

You mentioned the 18% rent spreads. You talked a lot about the importance of the work that's happening in your buildings and the way the government is complimenting you on that. And you just mentioned escalators in the leases. What's the portfolio occupancy and the same-store NOI and the specific rent spreads. And I think as you talk about some of the organic growth potential, I think reporting that now might be helpful to help us track where you are and how you're doing on those goals.

The points taken from a same-store perspective. And I think as we continue to pull in our goals around sort of cost realignment, that's a nice opportunity. I think we've historically given the structure of our leases. We've always talked about how over the arc of time, same-store NOI growth sitting in that sort of 50 to 100 basis point range. But as that had the potential to step out in that range. The communication to the market of how that is driving outcomes is something we can give or shying further light on.

Maybe stepping back gives a bit more perspective on our current situation. We are not comfortable providing a specific number right now because that might imply false precision. For those who may not be as familiar with our operations, our leases remain flat until they are renewed. We have done a decent job of staggering the maturities of these leases. If you project the company forward for 5, 6, or 7 years, we can be optimistic about same-store NOI growth being a couple of points, which should align with inflation. However, there are specific scenarios where one building may experience significant increases, sometimes up to 30% or 40%, while others may remain flat. These fluctuations lead to volatility in same-store growth. As we reviewed this at the end of last year, we realized it was challenging to explain to the market, which tends to judge us based on our most recent renewal. Therefore, it makes sense to incorporate some leases into the portfolio that include escalators. While it might be disappointing to anticipate same-store NOI growth of only 0.5% to 1% or 2% to 3%, it will always be positive. We believe this is something equity markets will come to understand better. During our Analyst Day, I mentioned that when we started our private equity business in 2010, the goal was to earn a premium in the market due to our strong credit rating. While that was almost true, we have not been able to take on the level of leverage that the ratings agencies think we could, given the stability of our cash flows. As a result, on the leverage front, we appear as outliers compared to our peers in the REIT sector. We have leverage that fits within the REIT range, but we deliver much higher stability and reliable cash flow. Consequently, we aim to make our cash flow resemble that of other REITs while focusing on our competitive advantage—being a strong partner to government entities and creating facilities that support their missions. If we can identify that optimal position, and ensure it is accretive, it gives us motivation to keep pushing forward. I know that was a lot, but that’s where we want to go regarding store sales.

No, that's good. You talked a lot about fighting this perception battle. And whether it's trailing 4 quarters or trailing 8 quarters even something to kind of show proof of concept, I think would be helpful at this point. And so that has asked about the same-store NOI. I understand with the flat leases, and they only mark on exploration and all of that.

Yes, I completely agree. We're putting in a lot of effort to demonstrate a proof-of-concept by linking together several quarters. We recognize that showing additional growth will be easier as we expand our total addressable market. We aim to maintain the best credit tenancy among all REITs, while also enhancing our cash flow profile so that it’s clearer for investors looking at the sector as a whole. We understand that our market cap is very small compared to the overall REIT market, so we want to present ourselves more like our peers without losing what makes us unique. It’s important to take substantial actions that highlight our integrity and ensure that our story is easy to understand. Additionally, we want to present numbers that don’t require extensive explanations compared to other investment opportunities in real estate.

I have a question regarding internal growth and another regarding external growth. Specifically, it pertains to your cost of capital, particularly the cost of equity. You mentioned a potential buyback and earlier indicated that you’d likely pursue deals with about 50% equity and 50% debt. Considering the forward contracts you've entered into, can you currently execute your plans? With the stock trading below $11.50 per share, is it feasible to make acquisitions that would be accretive if the stock price remains stagnant?

Yes, the answer is yes. It's definitely more challenging, which is why developing in the 8s is important for us. We refer to the 8s, not just 8.01, as very beneficial at these levels. The downside is that it takes 24 months to construct the building, but we are optimistic about our medium-term outlook. For instance, ICE Dallas is a positive example, and we anticipate finding other similar opportunities. I am hopeful that as we execute these, my colleague Allison will raise your expectations slightly, putting us on the right track. Additionally, we plan to demonstrate proof of concept, ideally in a future conference call where we discuss how we've adjusted our target addressable market based on our research and what we aim to achieve by 2025. That timeframe is when we expect to start presenting our results, although we prefer not to divulge everything right now. If our stock price were $13, this would be an easy decision for us, which is only a small increment from our current position. We need to convince people that we merit a stock price of $13 or $14. Once we do that, we can illustrate the types of buildings we can acquire and our growth strategy. We are fundamentally laying the groundwork for this narrative, working on it each day, and while it's frustrating that progress isn’t faster, all we can do is remain transparent and encourage others to follow our journey. We believe that at some point, we will be recognized and rewarded for our efforts.

Is it fair to say you would issue equity at $11.50 to if you match it up with an acquisition with an 8.5% cap rate?

Yes, if it's accretive, we would consider it. When I talk about stock buybacks, if we achieve all this growth and find our stock still at $11.48, we have to reassess the situation. We know the quality of what we are bringing forward and the internal rates of return we have, and we can compare it to other opportunities out there. We believe we can make a strong case for our position. We're always open to different perspectives on this. Our goal is to be very transparent about our execution. We are now putting together results quarter by quarter and are pleased with our progress. We aim to manage expectations, which is why we're discussing a growth path of 2% to 3% instead of 4% as we've indicated to others. We are in a transition period and see great opportunities ahead. We have a clear advantage, can acquire unique real estate, and believe we can develop a cash flow profile that will be significantly valued.

I was not thinking about buybacks, but maybe something in the future, we could talk about that.

There you go. I appreciate it. Yes. No, look, and I appreciate the conversation. I think these transcripts are a terrific opportunity for folks to get to know us who don't have time to get on the conference call because we are a smaller cap REIT and maybe they'll pick up the paper here in 6 months and read this transcript and learn a little bit about what we've been doing and working very hard to achieve. And we wouldn't do it if we didn't think we could do it well.

Thank you. I would now like to turn the conference back to Darrell Crate, Chief Executive Officer of Easterly Government Properties for closing remarks.

Well, great. Thank you, everyone, for joining the Easterly Government Properties First Quarter 2024 Conference Call. We look forward to sharing meaningful updates in the coming quarters as we continue to focus on our growth trajectory and set of course, to deliver premium risk-adjusted returns for our shareholders. Again, thanks for joining today, and we again, stay tuned.

This concludes today's conference call. Thank you for participating. You may now disconnect.