Jefferies downgrades Easterly Government Properties stock rating to Hold on growth concerns

Investing.com - Jefferies downgraded Easterly Government Properties (NYSE:DEA) from Buy to Hold and lowered its price target to $20.00 from $26.00 on Monday. According to InvestingPro data, the stock’s RSI indicates oversold conditions, while trading at a P/E ratio of 56.5x.

The research firm cited limited growth potential for the real estate investment trust due to its high cost of capital and a portfolio that is approximately 97% leased, leaving little room for expansion. Despite these concerns, the REIT maintains an attractive 8.4% dividend yield and achieved revenue growth of 7.9% in the last twelve months.

Jefferies noted that DEA is heavily leveraged to federal tenants, which constrains its growth prospects despite management’s focus on expanding relationships with state and local governments.

The firm expressed concern that achieving accretive growth will be challenging at current multiples, creating a significant headwind for the REIT’s performance.

For investors seeking exposure to government-focused office REITs, Jefferies indicated a preference for Corporate Office Properties Trust (CDP), which it believes benefits from defense budget tailwinds and growth opportunities in Huntsville.

In other recent news, Easterly Government Properties reported a robust second-quarter performance, exceeding earnings expectations with an earnings per share (EPS) of $0.09, compared to the projected $0.06. This performance highlights the company’s strong financial standing. Furthermore, Easterly announced the acquisition of a 138,125 square foot satellite facility in Greenwood Village, Colorado, which is fully leased to York Space Systems. The lease includes annual escalations and extends through 2031, with an option for York to extend for an additional ten years.

In another development, Easterly Government Properties has amended and increased its senior unsecured term loan to $200 million, extending the maturity date to August 2028. The company has secured two optional one-year extensions, potentially extending the maturity to August 2030. Additionally, a new $100 million accordion feature has been added to provide further financial capacity. These strategic moves reflect Easterly’s ongoing efforts to strengthen its financial framework and expand its property portfolio.

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