Q3 2023 Peakstone Realty Trust Earnings Call

November 9, 2023

Greetings and welcome to the Peakstone Realty Trust third quarter 2023 earnings webcast and conference call. At this time all participants are in

Greetings and welcome to the peak Stone Realty Trust third quarter, 2023 earnings webcast and conference call.

At this time, all participants are in listen only mode.

A brief question and answer session will follow the formal presentation.

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I would now like to turn the call over to the investor relations team. Thank you. Please go ahead. Thank you. Good afternoon, everyone, and welcome to the use of forward-looking statements by the company on this webcast.

I would now like to turn the call over to the Investor Relations team. Thank you. Please go ahead. Thank you good afternoon, everyone and welcome to become Realty Trust's third quarter 2023 earnings call and webcast.

Earlier today, we posted an earnings release supplemental and updated investor presentation. The investors page on our website at www.

S T a.

Carl.

Please note the use of forward looking statements by the company on this webcast.

Statements made on this call may include statements which are not historical facts and are considered forward-looking.

Statements made on this call may include statements, which are not historical facts and are considered forward looking.

The company intends for all these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are making these statements for purposes of complying with the safe harbor provisions.

The company intends or all these forward looking statements be covered by the safe Harbor provisions for forward looking statements contained in the private Securities Litigation Reform Act of 1995 and are making the statements for purposes of funding with those safe Harbor provisions.

Furthermore, the forward looking statements reflect our current views about future events and are subject to numerous known and unknown risks uncertainties assumptions and changes in circumstances that may cause actual results to differ significantly from those expressed in any forward looking statements and will be affected.

The forward-looking statements reflect our current views about future events and are subject to numerous down and unknown risks.

uncertainties, assumptions, and changes in circumstances that may cause actual results to differ significantly than those expressed in any forward-looking statement and will be affected by a variety of risks and factors that are beyond the company's control, including, without limitation, those contained in our most recent annual report on Form 10-K or quarterly report on Form 10-Q filed with the SEC.

By a variety of risks and factors that are beyond the company's control, including without limitation those contained in our most recent annual report on Form 10-K or quarterly report on Form 10-Q filed with the SEC.

We disclaim any obligation publicly updated or revised, only looking statements to reflect changes in underlying assumptions or factors of new information, data or methods, future events or other changes after the date of this call, except as required by applicable law.

We disclaim any obligation to publicly update or revise forward looking statements to reflect changes in underlying assumptions or factors, new information data or methods future events or other changes after the date of this call.

As required by applicable law.

Additionally on this call, the company may refer to certain non-GAAP financial measures, such as funds from operations, adjusted funds from operations, EBITDA RE, and adjusted EBITDA RE. You can find a tabular reconciliation of the non-GAAP financial measures to the most currently comparable GAAP numbers in the company's filings with the SEC.

Additionally, on this call the company may refer to certain non-GAAP financial measures such as funds from operations adjusted funds from operations EBITDA and adjusted EBITDA already.

You can find a tabular reconciliation of these non-GAAP financial measures to the most currently comparable GAAP numbers in the company's filings with the SEC.

On the call today are Mike Escalante, Chief Executive Officer, and Javier guitar, Chief Financial Officer.

With that I'll hand, the call over to Mike.

Mike.

Thank you and welcome to peak Zone Realty Trust's third quarter 2023 earnings call and webcast.

I'll begin by providing an overview of our key achievements during the third quarter.

Javier will follow with a review of our financial results and our balance sheet and finally I'll return with closing comments.

And some general commentary on the market as we look to the future.

Overall, our high quality newer vintage industrial and office portfolio continues to deliver consistent performance.

At the end of the quarter, our wholly-owned portfolio consisted of 73 properties holding approximately 18.1 million square feet with an annualized base rent, or ABR, of approximately $203 million.

At the end of the quarter, our wholly owned portfolio consisted of 73 properties totaling approximately $18 1 million square feet.

With an annualized base rents or ABR of approximately $203 million.

It is worth noting that 60.1% of our tenants, their guarantors or non-guarantor parent entities, as applicable, have an investment grade rating.

It is worth noting that 61% of our tenants their guarantors or non guarantor parent entities as applicable have an investment grade rating.

At quarter-end, we had total liquidity of approximately $517 million, affording us maximum flexibility to prudently allocate capital for uses aligned with our go-forward strategy.

At quarter end, we had total liquidity of approximately $517 million affording us maximum flexibility to prudently allocate capital for uses align with our go forward strategy.

Leverage for our consolidated portfolio improved to 6.4x.

Leverage for our consolidated portfolio improved to six four times.

This result is an improvement of 0.2 turns from the second quarter, and importantly, an improvement of 1.3 turns since the start of the year.

This result is an improvement of 0.2 turns from the second quarter and importantly, an improvement of 1.3 turns since the start of the year.

We are pleased that we continue to move closer to our near-term leverage target of six times through strategic asset sales and free cash flow generation.

We are pleased that we continue to move closer to our near term leverage target of six times.

The strategic asset sales and free cash flow generation.

Our consolidated portfolio was 96.4% leased up from 96.0% last quarter and had a remaining weighted average lease term of 6.3 years.

Our consolidated portfolio was 96, 4% leased up from $96 zero percent last quarter and had a remaining weighted average lease term of six three years.

During the quarter, we improved the asset composition of our other segment by executing lease renewals, totaling approximately 117,000 square feet and selling one vacant office property for gross disposition proceeds of $8.3 million.

During the quarter, we improved the asset composition of our other segment by executing lease renewals totaling approximately 170000 square feet.

Selling one vacant office property for gross disposition proceeds of $8 3 million.

This activity brings year-to-date growth disposition proceeds to approximately $309 million and an average cash cap rate of 7.6% for the stabilized assets.

This activity brings year to date gross disposition proceeds to approximately $309 million at.

At an average cash cap rate of seven 6% for the stabilized assets.

Using cash on hand, we paid off our Samsonite mortgage loan, which had an outstanding principal balance of $17.1 million and carried an interest rate of 6.08%.

Using cash on hand, we paid off our samsonite mortgage loan.

Which had an outstanding principal balance of $17 1 million.

And carried an interest rate of 6.08%.

I'll turn now to our portfolio of segments.

In our industrial segment, which consists of 19 properties totaling approximately 9 million square feet, we ended the quarter with 100% economic occupancy.

In our industrial segment, which consists of 19 properties.

Totaling approximately 9 million square feet, we ended the quarter with 100% economic occupancy.

and a vault of 6.3 years. We continue to see sound fundamentals in our industrial markets, and we expect to capture favorable rental rate increases on future renewals, given the market trends we've experienced over the past few years.

And Walter of six three years.

We continue to see sound fundamentals in our industrial markets and we expect to capture favorable rental rate increases on future renewals given the market trends we've experienced over the past few years.

We have 21% of ABR expiring in this segment prior to year end 2026.

with approximately half of that rollover occurring in 2026.

With approximately half of that rollover occurring in 2026.

Our sole 2024 industrial segment expiration, roughly 8.4% of ABR, is scheduled to occur in the fourth quarter of 2024 at our Samsonite asset in Jacksonville.

Our soul 2024 industrial segment exploration roughly eight 4% of ABR is scheduled to occur in the fourth quarter of 2024 at our samsonite asset in Jacksonville as.

As we mentioned last quarter, we are in an active dialogue with this tenant regarding a potential lease renewal.

Now turning to our office segment, which consists of 36 properties totaling approximately 5.7 million square feet. We ended the quarter with 97% economic occupancy and a waltz of 7.7 years.

Now turning to our office segment, which consists of 36 properties totaling approximately $5 7 million square feet. We ended the quarter with 97% economic occupancy at a Walt of seven seven years.

This segment continues to provide stability with limited near-term rollover exposure.

This segment continues to provide stability with limited near term rollover exposure.

We have no remaining lease expirations in 2023. Leases expiring in 2024, account for less than 1% of segment ABR. And leases expiring in 2025, account for only 2.9% of segment ABR.

We have no remaining lease expirations in 2023.

Leases expiring in 2024 account for less than 1% of segment ABR and leases expiring in 2025 account for only two 9% of segment AVR.

Largely due to the following attributes, we believe that our differentiated office assets are well positioned to provide ongoing stability moving forward.

Largely due to the following attributes we believe that our differentiated office assets are well positioned to provide ongoing stability moving forward.

Our average office building is only 11 years of age.

and many of our properties offer market-leading specifications and amenities which offer a competitive advantage.

And many of our properties offer market, leading specifications and amenities, which offer a competitive advantage.

Over 81% of our office segment ABR is generated from coastal and sunbed markets, which are generally experiencing strong net migration and superior leasing fundamentals.

Over 81% of our office segment ABR is generated from coastal and sunbelt markets, which are generally experiencing strong net migration in superior leasing fundamentals.

And finally, over 55% of our office buildings contain essential functions such as corporate headquarters.

And finally over 55% of our office buildings contain essential.

<unk> such as corporate headquarters critical.

critical R&D, labs, or data centers slash command center operations, which are difficult and costly to replicate.

Critical R&D labs, or data Center Slash Command center operations, which are difficult and costly to replicate.

Turning to our other segment, which consists of 18 properties totaling approximately 3.4 million square feet. We ended the quarter with 83% economic occupancy and a waltz of 2.7 years.

Turning to our other segment, which consists of 18 properties totaling approximately $3 4 million square feet.

We ended the quarter with 83% economic occupancy and a wealth of two seven years.

14 of these properties are encumbered by non-recourse loans that provide downside protection.

14 of these properties are encumbered by nonrecourse loans that provide downside protection.

We continue to evaluate the remaining four properties on a case-by-case basis to determine the best way to maximize value. That is, whether to invest additional capital or sell them as is.

We continue to evaluate the remaining four properties on a case by case basis to determine the best way to maximize value.

That is whether to invest additional capital or sell them as is.

At that point, we disposed of one vacant property in the segment during the quarter, and we extended two leases totaling roughly 117,000 square feet, consisting of a 7.5-year lease extension totaling 56.6 thousand square feet at our AOPC building in Mechanicsburg, Pennsylvania.

To that point, we disposed of one vacant property in this segment during the quarter and we extended two leases totaling roughly 117000 square feet.

Consisting of a seven five year lease extension.

<unk> $56 6000 square feet at our LPC building in Mechanicsburg, Pennsylvania.

This property is a mission critical operations and data center facility for the Pennsylvania court system. And the extension commences July 1, 2024.

This property is a mission critical operations and data center facility for the Pennsylvania Court system and the extension commences July one 2024.

We also completed a four-month lease extension totaling 60,000 square feet at our KBR building in Huntsville, Alabama.

We also completed a four month lease extension totaling 60000 square feet at our KBR building in Huntsville, Alabama.

This short-term extension was executed on 50% of the building to provide KBR additional time to vacated space.

This short term extension was executed on 50% of the building to provide KBR additional time the vacated space.

In addition to the above three segments, we have a 49% interest in an office joint venture, which owns 46 office buildings.

This quarter, we recorded an impairment of our joint venture interest of approximately $129.3 million, which represents a complete write-off of our remaining investment balance.

This quarter, we recorded an impairment of our joint venture interest of approximately $129 3 million.

Which represents a complete write off of our remaining investment balance.

This impairment resulted from the expected decline in fair value of this investment due to, among other factors, the increased future loan...

This impairment resulted from the expected decline in fair value of this investment.

Due to among other factors.

The increased future loan extension risk.

Since our investment balance in the JV is now zero, we will stop recording any losses or equity income from the JV as of September 30th. With that, let me turn the call over to Javier to review our financial results.

Since our investment balance in the JV is now zero, we will stop recording any losses or equity income from the JV as of September 30.

With that let me turn the call over to Javier to review our financial results.

Javier.

Thanks, Mike. In the quarter, total revenue was $61.7 million and NOI was $48.4 million.

Thanks, Mike in the quarter total revenue was $61 7 million in NOI was $48 4 million.

Net loss attributable to common shareholders was approximately $127.6 million or negative $3.55 per share, inclusive of the $129.3 million non-cash impairment to our investment in the joint venture.

Net loss attributable to common shareholders was approximately $127 6 million or negative $3 55 per share inclusive of the $129 $3 million.

Noncash impairment to our investment in the joint venture.

FFO was negative $110.2 million, or negative $2.79 per share on a fully diluted basis, which includes OP units outstanding, also impacted by the $129.3 million non-cash impairment of our interest in the office JV.

<unk> was negative $110 2 million or negative $2 79 per share on a fully diluted basis, which includes the op units outstanding.

Also impacted by the $129 $3 million.

Noncash impairment of our interest in the office JV.

excluding this impairment FFO for the quarter would have been approximately $19.1 million or 48 cents per share on a fully diluted basis.

Excluding this impairment <unk> for the quarter would have been approximately $19 1 million or <unk> 48 per share on a fully diluted basis.

AFFO was approximately $30.7 million or $0.78 per share on a fully diluted basis and same store cash NOI was approximately $48.1 million, which represents a 3% increase compared to the third quarter last year.

<unk> was approximately $37 million or <unk> 78.

Per share on a fully diluted basis and.

And same store cash NOI was approximately $48 1 million, which represents a 3% increase compared to the third quarter of last year.

Moving on to our balance sheet, as of September 30, 2023, we have $364 million in cash and $152 million of available capacity on our revolving credit facility, an increase over the prior quarter.

Moving onto our balance sheet.

As of September 32023, we have $364 million in cash and $152 million of available capacity on our revolving credit facility an increase over the prior quarter.

for total liquidity of approximately $517 million.

Our total liquidity of approximately $517 million.

A significant portion of our cash is in money market accounts earning interest in the 5% range.

A significant portion of our cash is in money market accounts, earning interest in the 5% range.

and the $118 million increase in available revolver capacity compared to the prior quarter was primarily due to the addition of fixed properties to the borrowing base of our credit facility.

And the $118 million increase in available revolver capacity compared to the prior quarter was primarily due to the addition of six properties to the borrowing base of our credit facility.

In regard to our consolidated debt, we had approximately $1.45 billion outstanding, with $950 million on our credit facility and the balance consisting of secured debt.

In regard to our consolidated debt.

We had approximately $1 $4 $5 billion outstanding with $950 million on our credit facility and the balance consisting of secured debt.

inclusive of cash, net debt was approximately $1.08 billion.

Inclusive of cash net debt was approximately $1 8 billion.

Weighted average term to maturity was nearly three years, assuming all available extensions are exercised.

Approximately 86% of our total consolidated debt has fixed rates, inclusive of our interest rate swaps, limiting our near-term exposure to interest rate volatility.

Approximately 86% of our total consolidated debt at fixed rates inclusive of our interest rate swaps limiting our near term exposure to interest rate volatility.

The interest rate swaps have a maturity date of July 2025.

including the effect of interest rate swaps, the weighted average interest rate was 4.16% for total outstanding consolidated debt.

Including the effect of interest rate swaps the weighted average interest rate was four 6% for total outstanding consolidated debt.

During the quarter, we used available cash to pay off one secured property loan in our industrial segment, which had an outstanding balance of $17.1 million and an interest rate of 6.08%.

During the quarter, we used available cash to pay off one secured property loan in our industrial segment, which had an outstanding balance of $17 1 million.

And an interest rate of six 8%.

As a result of this activity, at the end of the quarter, our net deaths normalized DBA.re for our consolidated portfolio was 6.4 times, an improvement of 0.2 turns over the prior quarter.

As a result of this activity at the end of the quarter, our net debt to normalized EBITDA already.

For our consolidated portfolio was six four times and.

An improvement of <unk> two turns over the prior quarter.

Our first material debt maturities occur at the end of 2025, consisting of our $400 million term loan and our AIG-II mortgage loan. The AIG-II loan is non-recourse and secured by properties in our other segment and will have a balance of approximately $115 million at maturity.

Our first material debt maturities occur at the end of 2025, consisting of our $400 million term loan and our AIG two mortgage loan.

AIG two loan is nonrecourse and secured by properties in our other segment and we will have a balance of approximately $115 million at maturity.

Finally, for the third quarter, we paid a distribution in the amount of 22.5 cents per common share on October 17, 2023, to shareholders of record as of September 30, 2023.

Finally for the third quarter, we paid a distribution in the amount of $22.05 per common share on October 17, 2023 to shareholders of record as of September 32023.

While the company expects to continue paying dividends on a quarterly basis, all dividend decisions will be made by the Board of Trustees.

While the company expects to continue paying dividends on a quarterly basis, all dividend decisions will be made by the board of trustees.

Now, I will turn the call back over to Mike for closing remarks.

Now I will turn the call back over to Mike for closing remarks.

Thanks, Javier. The consistent cash flow generated by our high quality assets and the collective expertise of our team continue to be positive differentiators as we execute our business strategy in this market environment.

Thanks, Javier the consistent cash flow generated by our high quality assets and.

And the collective expertise of our team continued to be positive differentiators as we execute our business strategy in this market environment.

Looking forward, we are focused on optimizing our portfolio composition and strengthening our balance sheet.

or some office market color, we're encouraged by continued upticks in daily tenant utilization and an increase in RFPs from prospective tenants touring our available space.

Or some office market color. We are encouraged by continued upticks in daily tenant utilization and an increase in rfps from prospective tenants touring our available space.

We believe this positive activity is driven by several factors, including reprioritization of in-office work.

We believe this positive activity is driven by several factors, including <unk>.

<unk> prioritization of in office work.

company's willingness to make decisions about longer-term occupancy, and of course the quality and location of our assets.

Company's willingness to make decisions about longer term occupancy and of course, the quality and location of our assets.

Our longer-term outlook on the industrial market remains positive.

Our longer term outlook on the industrial market remains positive.

Given the low vacancy rates in our markets, we anticipate existing inventory will benefit from the continuous steep decline in construction starts.

Given the low vacancy rates in our markets, we anticipate existing inventory will benefit from the continued steep decline in construction starts.

Our portfolio is well positioned to capture past and future rent growth and benefit from the steady, Senate demand in our port-oriented market.

Our portfolio is well positioned to capture past and future rent growth and benefit from the steady tenant demand in our port oriented market.

Although the continued uncertainty around interest rates and decline in capital availability are having an impact on capital markets, these factors also present the potential for attractive future external growth opportunities.

Although the continued uncertainty around interest rates and decline in capital availability or having an impact on capital markets.

These factors also presents the potential for attractive future external growth opportunities.

Our team is continually assessing accretive investment options, and we remain committed to a disciplined capital allocation strategy.

Our team is continually assessing accretive investment options and we remain committed to a disciplined capital allocation strategy.

When appropriate, we intend to deploy capital, further shift our portfolio composition towards our industrial segment.

When appropriate we intend to deploy capital further shift our portfolio composition towards our industrial segment.

Despite the current macroeconomic climate, we believe our stable, high-quality portfolio is resilient and positions us well to navigate risks and maximize value for our shareholders.

Despite the current macroeconomic climate, we believe our stable high quality portfolio is resilient and positions us well to navigate risks and maximize value for our shareholders.

Please reach out to our investor relations team at irpkst.com with any questions or visit the investor section of our website at pkst.com.

Please reach out to our Investor relations team at IR at <unk> Dot com with any questions or visit the investors section of our website at <unk> Dot com.

We'll now turn it over to the operator to take a few questions from analysts.

I will now turn it over to the operator to take a few questions from analysts.

Operator.

Thank you, Phil. You will now be conducting a question and answer session.

Thank you. So you will now be conducting a question and answer session.

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Hey, Chris.

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for participants using speaker equipment, it may be necessary to pick up your handsets before pressing the start.

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Again, if you would like to ask a question, please press star and then one.

Again, if you would like to ask a question. Please press star and then one tomorrow.

The first question we have comes from Josh Denerman from Bank of America. Please go ahead.

Last question, we have comes from Josh <unk> from Bank of America. Please go ahead.

Yeah, hey guys, appreciate all the color just looking over the stop focus on the lease expiration schedule. Just could you go over what's up for renewal in 2024 and then just kind of any outcomes or inspection? Are there any known move out?

Yeah, Hey, guys I appreciate all the color just looking out over to stop job focus on the lease expiration schedule just.

Could you go over what's.

Up for renewal in 2024, and then just kind of any outcomes youre expecting are there any known move outs.

Yeah, Josh, how are you? Thanks for joining.

Yes, Josh salaries.

Thanks for joining.

So we, you know, we really haven't given a lot of detail other than sort of the rough numbers. Most of our rollover, as you know, is coming in the other segment. And most of that rollover is attached to the AIG portfolio. So when you look at 2024, on the industrial side, we have the Samsonite transaction or lease that expires in November of 2024. And as we indicated, we're in active discussions with that tenant. And we're hoping to be able to talk to you a little more.

So we really haven't given a lot of detail other than sort of the rough numbers most of our rollover as you know is coming in the other segment and most of that rollover is attached to.

The AIG portfolio so when.

When you look at <unk>.

2024 on the industrial side, we help these samsonite transaction or lease that expires in November of 2024, and as we indicated we're in active discussions with that tenant and we're hoping to be able to talk to you a little more fully next quarter about that.

Yeah.

Okay, appreciate that. And then just me thinking about the comments you made about capital recycling and rotating more into industrial just know what, what's kind of appetite to just put more office assets up. And then, yeah, how should we kind of think about like the timing?

Okay I appreciate that and then just maybe thinking about the comments you made about capital recycling and rotating more into industrial.

What's kind of the appetite to just have more office assets.

And then how.

How should we kind of think about like the timing to get more.

Industrial heavy.

I think, you know, fundamentally, we're still looking at, you know, a relatively

Yes.

Fundamentally we're still looking at.

Relatively.

I guess, a relatively active disposition program. We're being impacted, obviously, by the capital markets in terms of what buyers are able to get in the way of financing. I think we've been fairly successful, given the 7.6%

I guess, a relatively active disposition program.

We are being impacted obviously by the capital markets in terms of what buyers are able to get in the way of financing I think we've been.

Fairly successful given.

Seven 6%.

cap rate on the stabilized assets we've been able to get out of and actually looking at the, I think there's four other, four assets that we sold vacant in our other category as well. So we're clearly moving away from office net on those transactions.

Cap rate on these stabilized assets, we've been able to get out of and and actually looking at the I.

And that goes for other four assets that we sold vacant in there and our other.

Category as well so we're clearly moving.

Away from office net net on those transactions.

and looking to pay down our debt, so there's not a lot of guidance that we're going to give you in terms of our go-forward activity other than to say to you it's interesting to be active in the market and looking behind from behind the scenes at what is becoming available due to, you know, the constraints that are happening in the debt markets.

And looking to pay down our debt so.

Theres not a lot of guidance that we're going to give you in terms of.

Our go forward activity other than to say to you.

Interesting to be active in the market and looking behind from behind the scenes at what is becoming available.

Due to the constraints that are happening in the debt markets.

Got it thanks.

Thanks, Sean.

you. Ladies and gentlemen just another reminder if you would like to ask a question please press star and then 1.

Thank you ladies and gentlemen, just another reminder, if you would like to ask a question.

And then one now.

Next question we have comes from Anthony Howe of Trisecurities. Please go ahead.

The next question, we have comes from Anthony Hau.

<unk> Securities. Please go ahead.

Hi guys, thanks for taking my question. You guys provided pretty positive commentary on the Office Fundamentals, right, such as higher RFP and et cetera, but you guys also rolled off the JV portfolio.

Hi, guys. Thanks for taking my question.

You guys provided pretty positive commentary on office fundamentals, such as Hyatt and et cetera, but you guys also go off the JV portfolio.

But is there something specific to your JV portfolio that is different from your office segment? Like, is it because it's capital structure of JV portfolio about why you got to throw it off, or it's because for the market there is?

Was this something specific to the JV portfolio.

It's different from the office segment is it because of the capital structure of the JV portfolio about why you've got to write off or is the hub.

Market share yes.

Yeah, thanks again, Anthony, for joining and your question. I think a key element.

Yes, I think.

Thanks again, Anthony for joining and your question.

I think the key element there.

The two portfolios are pretty significantly different. I think you're probably trying to look through to our office portfolio and see if there's anything that pops up in that regard. We've got a lot more duration.

The two portfolios are pretty significantly different I think youre probably.

Trying to look through to our office portfolio and see if theres anything that.

That pops up in that regard, we've got a lot more duration.

I think we, in terms of what we've got in our wall for that, for our portion of the portfolio, I think what really sticks out is the context of what's going to happen relative to the, you know, the increased future loan extension risk that is only 10 months away relative to what's going to happen in the future. So I think that's a really good point. I think that's a really good point. I think that's a really good point.

Okay.

In terms of what we've got in our wall for that for.

For a portion of the portfolio and I think what really sticks out is the context of what's going to happen.

Relative to the.

The increase future loan extension risk.

That is only 10 months away relative to the.

JV portfolio. That was really the demonstrative differential.

The JV portfolio that was really the demonstrative.

Differential piece.

This is Javier. The other thing to focus on if you look at our queue is the leverage level as well right there.

Okay.

The other thing to focus on if you look at our at our Q.

Average level as well right there.

portfolio is just based on the balance sheet. So that's taking a look at value. The balance sheet shows an 80 plus percent leverage level there. That's the balance sheet.

Portfolio initiatives based on the balance sheet, but taken up in value of the on balance sheet shows that 80% leverage level there.

That's quite different than where we are.

Yes.

But in terms of fundamentals for that portfolio, is it also declining pretty rapidly as well?

But in terms of fundamental for that portfolio as it is also declining pretty rapidly as well.

I think you have to remember when we did the transaction over a year ago, we did so because we had very low vault.

And I think you have to remember when we did the transaction over a year ago. We did so because we had very little.

And I think that's continued to be in place and

And I think that's continued to be in place and.

a significant amount of capital expenditures relative to the age of the assets and where they stood in their marketplace. So, demonstrative differential between our office portfolio.

And a significant amount of capital expenditures relative to the age of the assets and where they stood in their marketplace. So demonstrative differential between our office portfolio in that portfolio.

Gotcha. And just one last question, um, what's the plan for, um,

Gotcha and just one last question whats the plan for.

KBR building after they move out next year. So we're still continuing to evaluate what we're going to do there. As we've told you in the past, every single asset...

The KBR.

Building after they move out.

Sure.

So we're still continuing to evaluate what we're going to do there.

As we've told you in the past every single asset really takes out.

Our unique approach.

But we're assessing that transaction on a go.

But we are assessing that transaction on a go forward basis.

And if, let's say KBR moves out and also West, I think it's Westwood also moves out next year, does that trigger a technical default for your AIG loan?

And let's.

Let's say KBR moves out and also west Westwood also moves out next year does that trigger.

Default for Ya AIG alone.

No, Anthony, we're, um, what it triggers is, and what we're in currently is, uh, uh, cash flow sweep, um, to build up, uh, reserves for, um,

No Anthony were what the triggers.

We're in currently is.

Cash flow sweep.

<unk> built up reserves for.

For future Ti and leasing commissions.

Okay. Thank you.

Thank you. Ladies and gentlemen, that was our final question for today's conference. I would now like to turn the floor back over to Mike Escalante for closing comments. Please go ahead, sir.

Thank you.

Ladies and gentlemen that was our final question quickly concrete.

Now I'd like to turn the floor back over to Mike.

<unk> comments. Please go ahead Sir.

Thank you everyone for joining us today. It's our pleasure to serve you and appreciate the questions from the analysts and we look forward to a productive fourth quarter and a

Thank you everyone for joining us today, it's our pleasure to serve you and.

Appreciate the questions from the analysts.

We look forward to.

A productive fourth quarter.

And a bright 2024, so thank you for your time today.

Thank you both. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now.

Thank you Paul.

Ladies and gentlemen that does conclude today's conference. Thank you for joining US you may now disconnect your lines.

[music].

Yeah.

[music].

Yeah.

Q3 2023 Peakstone Realty Trust Earnings Call

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