Easterly Government Properties, Inc. (DEA) stock intrinsic value fair value estimate & owner earnings analysis

Easterly Government Properties owns office, courthouse, laboratory and similar buildings leased mostly to U.S. Government agencies (GSA and agencies acting under GSA authority). At the end of 2025 it had 143 leases producing about $381 million of annualized lease income, with a weighted average remaining lease term of about 9.5 years. Roughly 88% of that income comes from government tenants, and more than half of lease income (52%) runs beyond 2035. How we measure earnings. We start from operating cash flow, then remove the swings in working capital and subtract stock compensation as a real cost. The largest adjustment is deferred revenue: tenants prepaid $106 million in 2025 and $45 million in 2024, which inflated operating cash flow (2025 operating cash flow was $259 million) without being recurring earnings, so it is stripped out. Only spending on existing buildings (about $34 million in 2025) is charged as maintenance. Acquisitions ($180 million in 2025) and new development ($77 million) are treated as discretionary growth spending funded largely by new shares and debt. After these adjustments, owner earnings were about $103.6 million in 2025, or $2.30 per share. The per-share series since 2016 (all adjusted for the 1-for-2.5 reverse split in April 2025) ran roughly $2.5 to $3.4 through 2022, then fell to $2.06 in 2023 and $1.94 in 2024 before recovering to $2.30. The step down came as borrowing costs rose and the share count grew from 37.8 million in 2023 to 45.1 million in 2025. Base level. We use $2.06 per share, the median of 2023 to 2025, and deliberately do not use the pre-2023 years, which reflect a lower-interest-rate period that has reversed. We also do not treat 2025's $2.30 as the new normal. Owner earnings rose about 18.5% in 2025, but our starting point for the first forecast year assumes no growth, below that trailing rate. A partial check of the first half of 2026 supports caution: revenue rose about 13% ($184 million versus $163 million) and operating cash flow was $71.9 million, but most of the gain over the first half of 2025 came from a $14.3 million deferred-revenue inflow; excluding it and other identified working-capital items, cash earnings per share were flat to lower. Base case, about $29 per share. Owner earnings stay at $2.06 per share for 15 years, then decline about 3% a year afterwards. We credit no growth: development and acquisitions are funded by issuing shares and taking on debt and are not proven to add per-share earnings. What we do credit is persistence: government leases have long terms, the filing describes historically high renewal rates, only about 3.6% of lease income expires in 2026 and 5.5% in 2027, and the buildings remain earning assets after maintenance spending is charged. The slow decline after year 15 reflects aging buildings and leases that must be renewed. Bear case, about $19 per share. Debt totals about $1.67 billion, with maturities of $550 million in 2028, $136 million in 2029 and $226 million in 2030, some of it at fixed coupons well below current market levels (for example, effective rates near 4.15% on the 2017 Series A senior notes). Refinancing at higher rates, plus early exits by tenants (seven leases, about 3.9% of lease income, can be terminated early) and non-renewal of some 2026-2028 expirations (about 14.7% of lease income in total), lowers owner earnings to about $1.40 per share by 2030, held for six years and then declining 4% a year. This is not a collapse case: it assumes the government keeps paying rent but interest and vacancy eat into what remains. Bull case, about $36 per share. Development properties already under construction, which the company has been funding for several years, start paying rent, and renewals occur on the terms already visible. Owner earnings return to the 2025 level of $2.30 in 2026 and rise to $2.60 by 2029, then hold for 11 more years before declining 3% a year. What would make this wrong. Federal leasing policy changes or agency space reductions beyond the stated expirations would push the outcome toward the bear case. A large lease loss at a single property could hit harder than our averages. The estimate is also sensitive to how many shares are issued to fund growth: if issued below intrinsic value, per-share value shrinks. Our calculation does not deduct debt separately because interest is already paid out of cash flow; operating partnership unit holders also share in cash flow, which means per-share owner earnings are somewhat overstated for common shareholders. We could not verify from the annual filing which specific debt tranches mature in 2026 and 2027, so refinancing exposure in those years is not separately modeled. Margin-of-safety price. The margin-of-safety price is set well below the bear value because leverage and refinancing make the downside real, even with reliable rent: about $17 per share.