KBRA Comments on Easterly in the Wake of Government Downsizing

The Trump administration has proposed or implemented executive actions focused on headcount reductions and real estate downsizing by various government agencies and the General Services Administration (GSA), which are highlighted further in this release. These actions have potentially negative but still uncertain impacts on property owners with related leasing exposure—including Easterly Government Properties, LP, (Easterly) which primarily owns properties leased to the federal government. Easterly has BBB issuer and senior unsecured note ratings with a Stable Outlook.

Easterly mitigants against the impact of federal tenant downsizing include:

• Historical lease renewal ratio in the mid-90% range.
• Weighted average remaining lease term (WALT) of 10 years.
• Low 6% of revenues are subject to lease expiration in 2025.
• Only 5% of rental income (eight leases) is currently “open” to termination.
• Zero exposure to Washington D.C., which has the federal government’s highest rate of remote work and risk of downsizing.
• A portfolio comprising of mainly mission-critical properties and government agencies. Easterly’s largest federal government agency concentrations include the Veteran’s Administration (24% of revenue), FBI (16% of revenue), Drug Enforcement Administration (8% of revenue), and Judiciary (5% of revenue).
• Easterly owns many buildings in which the federal government has made significant capital investment in special-purpose improvements—a significant deterrent to relocation to another property.

Uncertain outcomes of recent initiatives by the administration include:

• Potential impact of market perceptions on values of government-leased properties.
• Potential for increased GSA relocation and consolidate agencies into other buildings under lease to the GSA.
• Potential negative impact of market perceptions on Easterly’s share price and resulting disincentive to issue equity to fund external growth that has accelerated in recent quarters.
• Whether Easterly accelerates its strategy to increase allocation to “government-adjacent” buildings leased to private sector tenants under longer-term government contracts, and to state and local government agencies—targeted by Easterly to increase to a combined 30% of rental income.

Potential for increased Easterly investment opportunities because of new administration policies could include:

• Proposals by the new administration and the GSA to sell government-owned properties.
• Easterly could participate in bids for newly constructed properties that could result in government cost savings.
• Easterly recently issued commentaries and provided interviews regarding potential partnerships with government agencies to reduce federal government occupancy costs.

A brief summary of recent executive and legislative actions include:

• Return to office (RTO) Order: On January 20, President Trump issued an executive order terminating remote work and requiring all federal employees to return to office. KBRA considers RTO the most impactful executive action with respect to federal government agency space requirements, with anticipated positive short- and long-term impacts on utilization and space requirements.
• Buyout Offers: As part of the White House’s plan to reduce the size of the federal workforce, employees were offered eight months of salary to resign.
• Downsizing: On February 11, the president signed an executive order requiring government agencies to hire no more than one new employee for every four employees that were terminated or resigned.
• Thomas Carper Water Resources Development Act: Signed into law by former President Biden in January 2025, the Act grants additional oversight to the Public Buildings Reform Board, an independent agency that works alongside the GSA, allowing for a more strategic approach to real estate management. Newly appointed Commissioner of the Public Buildings Service, Michael Peters, announced a significant shift in federal real estate policy, including a reduction in the federal real estate portfolio by up to 50% in the coming years, with a “disproportionate amount” of these reductions expected to come from properties in Washington, D.C.
• Lease Cancellations: In early February, the Department of Government Efficiency (DOGE) announced that 22 federal leases had been cancelled. While associated cost savings were reported at $45 million, it is uncertain whether the respective leases were open to termination, were terminated prior to scheduled lease expiration, and/or whether the GSA would pay lease termination penalties.

KBRA will continue to monitor Easterly’s leasing activity for potential nonrenewal, downsizing, and/or rent declines. KBRA will also monitor the extent to which newly issued equity or other capital sources (asset sales, government reimbursement of building improvements previously funded by Easterly) contribute toward funding of future acquisitions and developments, which represented $113 million as of September 30, 2024.

Related Publication

• Easterly Government Properties LP Surveillance Report

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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