Q2 2024 Peakstone Realty Trust Earnings Call
Greetings and welcome to Big Stone Realty Trust, second quarter 2020-24 earnings and webcast conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.
Operator: At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keyboard.
If anyone should require operator assistance to in the conference, please press star 0 on a telephone keypad.
Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Mikayla Lynch, Senior Vice President, Corporate Finance & Strategy. Thank you, Ms. Lynch. You may begin.
Speaker Change: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Mikayla Lynch, Senior Vice President, Corporate Finance and Strategy. Thank you, Ms. Lynch. You may begin.
Mikayla Lynch: Thank you. Good afternoon, and thank you for joining us for Peakstone Realty Trust's second quarter 2024 earnings call and webcast. Earlier today, we posted an earnings release, supplemental, and updated investor presentation to the investors page on our website at www.ptst.com. Please reach out to our Investor Relations Team at irpkst.com with any questions. Please note the use of forward-looking statements by the company on this webcast. Statements made on this call may include statements that are not historical facts and are considered forward-looking.
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Mikayla Lynch: Thank you. Good afternoon, and thank you for joining us for Peak Stone Real T-Trust, second quarter 2024 earnings call and webcast.
Speaker Change: Earlier today, we posted an earnings release, supplemental, and updated investor presentation to the investors page on our website at www.pkst.com.
Please reach out to our investor relations team at irpkst.com with any questions.
Speaker Change: Please note the use of forward-looking statements by the company on this webcast.
Speaker Change: Statements made on this call may include statements which are not historical facts.
Mikayla Lynch: The company intends for all forward-looking statements to be covered by the applicable Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended, and is making these statements for purposes of complying 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 statement and could 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 and any subsequent quarterly reports on Form 10-Q filed with the S
Speaker Change: and are considered forward-looking.
Speaker Change: The company intends for all forward-looking statements to be covered by the applicable Safe Harbor provisions.
Mikayla Lynch: We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data, or methods, future events, or other changes after the date of this call, except 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 normalized EBITDA RE. 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, CEO and President, and Javier Bitar, CFO. With that, I'll hand the call over to Mike. Good afternoon, and thank you.
Speaker Change: for Forward Looking Statements contained in the private securities litigation reform act of 1995.
Speaker Change: Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is making these statements for purposes of complying with those safe harbor provisions.
Speaker Change: Furthermore...
Speaker Change: The forward-looking statements reflect our current views about future events and our subject to numerous known and unknown risks.
Speaker Change: uncertainties, assumptions, and changes in circumstances that may cause actual results to differ significantly than those expressed in any forward-looking statement and could 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 and any subsequent quarterly reports on Form 10-Q filed with the SEC.
Speaker Change: We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes after the date of this call, except as required by applicable law.
Speaker Change: Additionally, on this call, the company may refer to certain non-GAAP financial measures
Speaker Change: such as slums from operations, adjusted funds from operations.
Speaker Change: EBITDA RE and Normalized EBITDA RE, 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.
Speaker Change: On the call today, our Mike Escalante, CEO and President, and Javier Bitar CFO, with that I'll hand the call over to Mike.
Michael Escalante: Good afternoon, and thank you for joining our call today. Over the past several quarters, we have executed on our strategic plan by strengthening our balance sheet and optimizing our portfolio composition while accumulating a substantial cash balance to provide optionality. As a testament to these operational successes and our well-diversified portfolio, we are pleased to have successfully amended and extended our unsecured credit facility. This amendment is a key milestone that provides us with a solid foundation for growth and increased flexibility to make industrial investments, which we believe will build long-term shareholder value over time.
Mike Escalante: Good afternoon and thank you for joining our call today.
Mike Escalante: Over the past several quarters, we had executed on our strategic plan by strengthening our balance sheet and optimizing our portfolio composition while accumulating a substantial cash balance to provide optionality.
Mike Escalante: as a testament to these operational successes in our well-eased, diversified portfolio. We are pleased to have successfully amended and extended our unssecured credit facility.
Mike Escalante: This amendment is a key milestone that provides us with a solid foundation for growth and increased flexibility to make industrial investments, which we believe will build long-term shareholder value over time.
Michael Escalante: At a high level, this amendment reflects the bank group's endorsement of our business plan and does several important things for us. It pushes our revolver and 2025 term loan maturity out four years from closing to 2028. It lowers our borrowing costs, and it provides us with increased flexibility to grow. Javier will provide additional details on the amendment along with pro forma balance sheet metrics in his later remarks.
Mike Escalante: At a high level, this amendment reflects the bank group's endorsement of our business plan and does several important things for us.
Mike Escalante: It pushes our revolver and 2025 turn-in-low maturity out four years from closing to 2028.
Mike Escalante: It lowers our borrowing costs and it provides us with increased flexibility to grow.
Speaker Change: will provide additional details on the amendment along with proponent balance sheet metrics in his later remarks.
Michael Escalante: Turning to our portfolio, our high-quality industrial and office segments continue to provide stability with a combined wealth of seven years, 99.5% economic occupancy, and minimal near-term rollover in the next three years, representing 7.5% of the ABR for these two segments. Significant Credit Town Sea and newer buildings with minimal capital requirements. Disposition of our other segment assets continued this quarter with the sale of one property located in Mechanicsburg, Pennsylvania, totaling approximately 57,000 square feet for $8.7 million. Importantly, for the first half of the year, other segment sales totaled approximately $58.2 million.
Speaker Change: Turning to our portfolio, our high-quality industrial and office segments continue to provide stability with a combined wealth of seven years,
Speaker Change: 99.5% economic occupancy.
Will: Minimal near-term rollover in the next three years, representing 7.5% of the ABR for these two segments.
Speaker Change: Significant credit tenancy and newer buildings with minimal capital requirements.
Speaker Change: This position of our other segment assets continued this quarter with the sale of one property located in mechanics for Pennsylvania, totaling approximately 57,000 square feet for 8.7 million dollars. Importantly, for the first half of the year, other segment sales total approximately 58.2 million dollars.
Michael Escalante: In addition, we significantly advanced the sales of several other segment properties, and we will continue to progress dispositions in this segment for the balance of the year. This quarter, we continue to demonstrate our ability to achieve positive leasing activity and strong release spreads. In our industrial segment, we finalized the fair market rental rate increase in annual escalations for a five-year, 818,000 square foot extension we executed and announced in the fourth quarter of 23 at our Samsonite property in Jacksonville, Florida.
Speaker Change: In addition, we significantly advance the sales of several other segment properties and we will continue to progress dispositions in this segment for the balance of the year.
Speaker Change: This quarter, we continue to demonstrate our ability to achieve positive leasing activity and strong releasing spreads.
Speaker Change: In our industrial segment, we finalized the fair market, rental rate increase, and annual escalations for a five-year
Speaker Change: 818,000 square foot extension, we executed and announced in the fourth quarter of 23 at our Samsonite property in Jacksonville, Florida.
Speaker Change: This extension takes effect December 1.
Speaker Change: 2024.
Speaker Change: and includes 3.75% annual rent escalations, resulting in a 28% gap and 7% cash releasing spread.
Speaker Change: Given the fair market rent was not finalized when this lease extension was executed, we previously recorded base rent for the extension period equal to the expiring rent, which was the floor value for the lease.
Speaker Change: Clearly, this is a solid, no-cost lease transaction that will generate further strong internal growth.
Michael Escalante: A previously executed 7.7-year, 83,000-square-foot new lease with Spectrum commenced June 1st at our property in Largo, Florida. In the other segment, we executed a 305,000-square-foot, one-year lease extension at an industrial property in Columbus, Ohio, at a 40% gap and 63% cash-releasing spread, which will enhance the value of this asset. With that, I will turn the call over to Javier to review our financial results. Okay, Javier?
Speaker Change: In the office segment, a previously executed 7.7-year, 83,000 square foot newlies with spectrum commenced June 1st at our property in Largo, Florida.
Speaker Change: In the other segment, we executed a 305,000 square foot, one-year lease extension at an industrial property in Columbus, Ohio, at a 40% gap and 63% cash-releasing spread, which will enhance the value of this asset.
Speaker Change: With that, I will turn the call over to Javier to review our financial results. Javier?
Javier Bitar: I'd like to begin by sharing a few highlights of our financial results for the quarter. Total revenue was approximately $56 million, and NOI was approximately $45.4 million. Net loss attributable to common shareholders was approximately $3.8 million, or $0.11 per share, inclusive of a $6.5 million non-cash impairment related to a pending other segment sale.
Javier Bitar: Thanks, Mike. I'd like to begin by sharing a few highlights of our financial results for the quarter.
Javier Bitar: Total revenue was approximately $56 million and NOI was approximately $45.4 million.
Javier Bitar: Net loss attributable to common shareholders was approximately $3.8 million or $11 per share, inclusive of a $6.5 million non-cash impairment related to a pending other segment sale.
Javier Bitar: Bankstore cash NOI was approximately $44.2 million, a 1.7% increase compared to the same quarter last year. However, for a renovation in the 11th year of a pre-existing lease in our industrial segment, same-store cash NOI would have grown by 4.2%. The abatement period for this lease continues through November 2024. FFO, as defined by NAREAP, was approximately $25.6 million, or $0.65 per share, on a fully diluted basis, and AFFO was approximately $27.6 million, or $0.70 per share, on a fully diluted basis.
Javier Bitar: Bankstore cash NOI was approximately $44.2 million, a 1.7% increase compared to the same quarter last year.
Javier Bitar: But for a renovatement in the 11th year of a pre-existing lease in our industrial segment, same-store cash NOI would have grown by 4.2%.
Javier Bitar: The abatement period for this lease continues through November 2024.
Speaker Change: FFO is defined by Navery was approximately $25.6 million or $65 per share on a fully-deleted basis.
Speaker Change: and AFFO was approximately $27.6 million or $70 per share on a fully-deleted basis.
Javier Bitar: Moving on to our balance sheet. As Mike mentioned, at quarter end, we were in a great position to execute on our credit facility extension given our strong balance sheet and high quality portfolio. Subsequent to quarter end, we used a portion of our cash to pay down the credit facility and simultaneously completed this amendment and extension, which leaves us with ample liquidity and flexibility to support our industrial growth initiatives. The key terms of the amended facility are as follows.
Javier Bitar: Moving on to our balance sheet. As Mike mentioned, at quarter end we were in a great position to execute on our credit facility extension given our strong balance sheet and high quality portfolio.
Speaker Change: Subsequent to quarter end, we used a portion of our cash to pay down the credit facility and simultaneously completed this amendment and extension, which leaves us with ample liquidity and flexibility to support our industrial growth initiatives.
Javier Bitar: We now have a total facility of $907 million, comprised of a $547 million revolver, a $210 million term loan, and a $150 million term loan. The maturity dates of the Revolver and the $210 million term loan were extended four years from closing to July 2028. The maturity date of the $150 million term loan remains April 2026. The weighted average term loan immaturity for the credit facility is now 3.6 years.
Speaker Change: Key terms of the amended facility are as follows.
Speaker Change: We now have a total facility of $907 million, comprised of a $547 million revolver, a $210 million term loan, and a $150 million term loan.
Speaker Change: The maturity dates of the Revolver and the $210 million term loan were extended four years from closing to July 2028.
Javier Bitar: The maturity date of the $150 million term loan remains April 2026.
Speaker Change: The weighted average term to maturity for the credit facility is now 3.6 years.
Javier Bitar: The rates are SOFR-based with applicable spreads ranging from 125 to 165 basis points, given our $750 million of interest rate swaps at a weighted average rate of 1.97%. 100% of our current outstanding debt is now fixed through July 1, 2025. Based on our current consolidated leverage ratio, our weighted average effective interest rate for the entire facility is 3.67% inclusive of our current swap. Subsequent to quarter end, we purchased $550 million of four-year forward interest rate swaps, effective July 1st, 2025, when our current swaps expire through July 1st, 2029, at a weighted average rate of 3.58%.
Javier Bitar: The rates are so far based with applicable spreads ranging from 125 to 165 basis points.
Javier Bitar: given our $750 million of interest rate swaps at a weighted average rate of 1.97%.
Javier Bitar: 100% of our current outstanding debt is now fixed through July 1, 2025.
Javier Bitar: Based on our current consolidated leverage ratio, our weighted average effective interest rate for the entire facility is 3.67% inclusive of our current swaps.
Javier Bitar: Subsequent to quarter end, we purchased 550 million dollars of four-year forward interest rate swaps, effective July 1st, 2025, when our current swaps expire through July 1st, 2029, at a weighted average rate of 3.58 percent.
Javier Bitar: We are pleased that we were able to swap $550 million of our variable rate debt for an additional four-year period at 3.58%. When we purchased these forward swaps, the current one-month term SOFR was approximately 5.33%. The amended facility also provides an improved valuation for our industrial assets included in the borrowing base calculation. These assets are now valued at a 6% cap rate rather than 7% previously.
Javier Bitar: We are pleased that we were able to swap $550 million of our variable rate debt for an additional four year period of 3.58 percent.
Javier Bitar: When we purchase these forward swaps, the current one month term so far was approximately 5.33%.
Javier Bitar: The amended facility also provides an improved valuation for our industrial assets included in the borrowing base calculation.
Javier Bitar: These assets are now valued at a 6% cap rate rather than 7% previously.
Javier Bitar: I would now like to discuss certain financial impacts as a result of closing the extension. As of 6-30, prior to the extension, we had cash of $447 million, with the majority of our cash earning interest in the 5% range for approximately $4.6 million of interest income in the second quarter. Accordingly, at quarter end, our net debt to normalized EBITDA RE ratio was 5.9 times. In connection with the closing of the extension, we used $200 million to pay down the unhedged portion of the credit facility and incurred $13 million of one-time transaction costs.
Javier Bitar: I would now like to discuss certain financial impacts as a result of closing the extension.
Javier Bitar: As of 630 prior to the expansion, we had cash of $447 million with the majority of our cash earning interest in the 5% range for approximately $4.6 million of interest income in the second quarter.
Javier Bitar: Accordingly, at quarter end, our net debt to normalized EBITDA RE ratio was 5.9 times.
Javier Bitar: In connection with the closing of the extension, we used $200 million to pay down the unhedged portion of the credit facility and incurred $13 million of one-time transaction costs.
Javier Bitar: The $213 million of cash generated approximately $2.7 million of interest income in the second quarter. It's important to note that in the near term, the prospective interest expense savings more than offsets the interest income earned previously on this cap. With that said, our pro forma metrics reflecting the closing of the amended facility are as follows: cash of approximately $234 million, available revolver capacity of approximately $157 million, total liquidity of approximately $391 million, and a consolidated net debt balance of approximately $980 million.
Javier Bitar: The $213 million of cash generated approximately $2.7 million of interest income in the second quarter.
Javier Bitar: It's important to note that in the near term, the prospective interest expense savings, more than offset the interest income earned previously on this cash.
Javier Bitar: Consolidated Weighted Average Interest Rate for All Debt, Secured and Unsecured, of 3.96%, and Pro Forma Net Debt to Normalized EBITDA RE Ratio of 6.4 times, reflecting the $213 million cash utilization and associated reduction in interest income. For the second quarter, we paid a dividend of 22.5 cents per common share in July, and the Board of Trustees approved a third quarter dividend of 22.5 cents per share, payable on October 17th to holders of record on September 30th.
Javier Bitar: With that said, our pro-forma metrics reflecting the closing of the minute facility are as follows. Cash of approximately $234 million.
Javier Bitar: available revolver capacity of approximately 157 million dollars.
Javier Bitar: total liquidity of approximately $391 million.
Javier Bitar: consolidated net debt balance of approximately 980 million dollars.
Javier Bitar: Consolidated Weighted Average Interest Rate for All Debt, Secured and Unsecured, of 3.96%, and Pro Forma Net Debt to Normalized EBITDA RE Ratio of 6.4 times.
Javier Bitar: reflecting the 213 million dollar cash utilization and associated reduction of interest income.
Javier Bitar: For the second quarter, we paid a dividend of 22.5 cents per comment share in July .
Javier Bitar: and the Board of Trustees approved a third quarter dividend of $0.225 per share, payable on October 17th to holders of record on September 30th.
Javier Bitar: While the company expects to continue paying dividends on a quarterly basis, all future dividend decisions will continue to be made by the Board of Trustees. With that, I will pass the call back to Mike. Thank you, Javier.
Javier Bitar: While the company expects to continue paying dividends on a quarter of the basis, all future dividend decisions will continue to be made by the Board of Trustees.
Javier Bitar: With that, I will pass the call back to Mike.
Michael Escalante: We are excited about our growth opportunities as we seek to build on the momentum achieved with our amended credit facility. Overall, we will continue to execute on the plan that we laid out, strengthening the balance sheet, evolving the portfolio towards industrial, eliminating our other segments, and providing the company with the financial flexibility to grow. The amended credit facility is a key aspect of growth and reflects our relentless pursuit to maximize shareholder value. We will now turn the call over to the operator to take a few questions from analysts.
Mike Escalante: Thank you, Javier.
Mike Escalante: We are excited about our growth opportunities as we seek to build on the momentum achieved with our amended credit facility.
Mike Escalante: Overall, we will continue to execute on the plan that we laid out, strengthening the balance sheet, evolving the portfolio towards industrial, eliminating our other segment and providing the company with the financial flexibility to grow.
Javier Bitar: The amended credit facility in the key aspect for growth and reflects our relentless pursuit to maximize shareholder value.
Speaker Change: We will now turn the call over to the operator to take a few questions from analysts.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question area. You may press star 2 if you would like to remove your questions from the chat. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for questions. The first question comes from the line of Josh Denneleen with Bank of America.
Javier Bitar: Operator
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press start to if you would like to remove your questions from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up a hand set before pressing the star keys.
Speaker Change: One moment please, early poll for questions.
Javier Bitar: The first question comes from the line of Josh Denneleen with Bank of America, please go ahead.
Unknown Analyst: Hi. This is Farrell Graneth on behalf of Josh. Hope everyone is well. I just had a few questions. And I guess to start off, can you remind me what your target leverage is, and how does the new financing kind of play into your targeting or looking forward to how you're thinking about leverage?
Javier Bitar: Hi, this is Farrell Granite, on behalf of Josh, of everyone as well.
Farrell Granite: I just had a few questions and I just started off, can you remind me what your target leverage is and how does the the new financing kind of play into your targeting or looking forward into how you're thinking about leverage?
Javier Bitar: Javier? Hi Farrell.
Javier Bitar: Javier? Hi, Carol. Yeah, in the long term, over the long term, you know, we've mentioned we're targeting a six-time set to EBITDA on a pro forma basis, as I mentioned in our remarks. We're up a bit on that to 6.4 times as a result of
Javier Bitar: Yeah, in the long term, over the long term, you know, we've mentioned we're targeting the six times that EBITDA on a pro forma basis, as I mentioned in our remarks, we're up a bit on that to 6.4 times as a result of the lost interest income with the utilization of the cash pay down. We'll continue to execute on our sales program with respect to the other segment. So we'll continue to focus on, you know, our strong balance sheet and, over the long term, reach a debt to EBITDA ratio that makes sense.
Speaker Change: the lost interest income with the utilization of the cash pay down. We'll continue to execute on our
Speaker Change: Bill's program was effect of the other segment, so we'll continue to focus on, you know, our strong balance sheet and over the long-term, you know, reaching a depth-aid with a ratio that makes sense.
Michael Escalante: Great. And also, when thinking about the extensions or the release in the different segments, I noticed that there was also the release in the other segment. I was wondering if you could comment on, I guess, either the strategy when thinking about lease expirations coming up, and how you consider a bucket the other segment versus the industrial and office.
Speaker Change: Great. And also...
Speaker Change: When thinking about the extensions or the releasing in the different segments
Speaker Change: I noticed that there was also the releasing in the other segment. That's one of your comments on, I guess either of the strategy when thinking about...
Speaker Change: Lease expirations coming up and how you consider or bucket the other segment versus the industrial and office.
Michael Escalante: You know, the good news is we have very little rollover in both of our core segments, right, both on the industrial and the office side, and specifically, office only has, I think, 5% rollover in the next three years. So there's not a lot of activity there.
Speaker Change: You know the good news is we have very little rollover in both of our
Michael Escalante: As you might expect, the way we set it up was that our other segment was going to have the most exposure, and we identified that we were hopeful that we would be able to effectuate some renewals, which we've been able to do. And all of that, we believe, is going to translate into higher recovery for the other segments and facilitate on a much more rapid basis the sale of those assets.
Speaker Change: core segments, right? Both on the industrial and the office side, and specifically office only has, I think, 5% rollover in the next three years. So there's not a lot of activity there. As you might expect, the way we set it up was that other.
Speaker Change: Our other segment was going to have the most exposure, and we identified...
Speaker Change: that we were hopeful that we would be able to effectuate some renewals, which happily we've been able to do. And all of that, we believe, is going to translate into a higher recovery.
Speaker Change: for the other segment and facilitate on a much more rapid basis the sale of those of those assets.
Unknown Analyst: Great. And then there is one last one for me.
Speaker Change: Great. And then one last one for me. When you mentioned about the sale of the one property, was that a vacant asset and also could you either, if it wasn't, update what you were seeing in terms of cap rates?
Unknown Analyst: When you mentioned the sale of the one property, was that a vacant asset? And also, could you either, if it wasn't, update what you were seeing in terms of cap rates? I guess I believe last quarter, you mentioned that you guys keep track of it on a rolling basis.
Speaker Change: I believe last quarter you mentioned that you guys keep track of it on a rolling basis.
Unknown Analyst: I'm sorry. You said we only sold one asset in the quarter? Yep. Sorry.
Speaker Change: So...
Unknown Analyst: Sorry, the or the property.
Speaker Change: I'm sorry, you said we only sold one asset in the quarter.
Unknown Analyst: Yeah, we did have one sale during the during the quarter in April of this year. And, correct, it was an asset that had a near-term expiration, and others.
Speaker Change: Yeah, we we did have one one sale during the
Speaker Change: that had a near-term expiration.
Unknown Analyst: Okay, thank you. That's it for me.
Speaker Change: Okay, thank you. That's it for me.
Operator: The final question comes from the line of Anthony Hau with True Securities. Please go ahead.
Farrell Granite: Thank you, Farrell.
Farrell Granite: Thank you.
Speaker Change: The final question comes from the line of Anthony Hau with True Securities. Please go ahead.
Anthony Hau: Good afternoon, guys. Thanks for taking my question.
Javier Bitar: I'm just curious, what was the reason behind reducing the maximum commitment amount on the revolver? Was it the change in capitalization rate? And do they use the last 12 months' NOI or for the 12 months' NOI to calculate the portfolio on days?
Javier Bitar: Good afternoon, guys. Thanks for taking my question. Just curious, what was the reason behind reducing the maximum commitment amount on the revolver? Was it the change in capitalization rate? And do they use like last 12 months NOI or for 12 months NOI to calculate the
Javier Bitar: Anthony, yeah, we use in the facility we use prior quarter annualized, and it did result from a change in the capitalization rate. We improved our cap rate on the valuations for industrial, which will serve us well on a go-forward basis as we transition toward industrial, and on the office side, we went from a seven percent cap rate to an eight percent cap rate. Also, as you'll note in the 8k that was filed, the leverage percentage for the office side was at 50 percent, and we have a leverage capacity on the industrial side that's at 60 percent.
Speaker Change: Hi, Anthony. Yeah, we use, in the facility, we use prior quarter annualized.
Speaker Change: and it did result from a change in the capitalization rate.
Speaker Change: We improved our cap rate on the valuations for industrial, which will serve us well on a go-forward basis as we transition.
Javier Bitar: toward industrial. And on the office side, we went from a 7% cap rate to an 8% cap rate.
Javier Bitar: Also, as you'll note in the 8k that was filed, the leverage percentage for the office side was at 50% and we have a leverage capacity on the industrial side at 60%.
Javier Bitar: We do have the ability to accordion back up to the 1.3 billion dollars, and we'll utilize the accordion as we execute on our strategic growth plan. At this point, it didn't make sense to continue to pay a non-utilization fee for access capacity.
Javier Bitar: We do have the ability to accordion up
Javier Bitar: Back up to the $1.3 billion, and we'll utilize the accordion as we execute on our strategic growth plan.
Speaker Change: and this point, it didn't make sense to continue to pay a non-utilization fee for access capacity.
Javier Bitar: And for the accordion, like, can you just exercise the option and just upsize the facility any time you want, or are there certain conditions that you have to meet to exercise the option? And we'll see you in the next video!
Speaker Change: And for the accordion, can you just exercise the option and just upsize the facility any time you want, or are there certain conditions that you have to meet to exercise the option?
Javier Bitar: Well, obviously, we have to be in compliance, and then the member banks would have to approve.
Javier Bitar: Well, obviously, we have to be in compliance, and then the member banks would have to approve.
Michael Escalante: And, Mike, maybe this is for you. Can you provide any color on the investment-grade tenancy for the portfolio? I saw that it dropped meaningfully this quarter. Just curious which tenant caused that.
Mike: Thank you.
Michael Escalante: and Mike, maybe this is for you. Can you provide some any color on it, investing great Tennessee for the portfolio? Stop that, drop me fully this quarter, just curious which content that I caused that.
Michael Escalante: Yeah, I don't know what you mean by meaningfully, but I think part of that is happening as a result of some of the sales on the other side of the segment. We do tend to fluctuate a little bit back and forth relative to certain tenants, inside the core, a portfolio, depending on whether their ratings are somewhere on the cusp of triple B minus.
Michael Escalante: But I think part of that is happening as a result of some of the sales on the other side of the segment. We do tend to fluctuate a little bit back and forth relative to certain tenants.
Michael Escalante: inside the core portfolio depending on their ratings are somewhere on the cusp of triple B minus
Michael Escalante: Yeah, so I was referring to the fact that, like, I think it went from, say, for industrial, right, it went from 74% to 59% this quarter. Yeah, so that could be, that could be, that could be related to restoration hardware coming and going. I think this is the first time that it happened actually at a quarter's end, but they tend to move in and out within the quarter, depending on what's going on in the marketplace. And how does your tenant watch list compare today versus a year ago?
Michael Escalante: as an example.
Michael Escalante: Yeah, so I was referring to the fact that like I think it went from say for industrial right it went from 74% to 50
Michael Escalante: 9% this quarter. Yeah, so that could be, that could be, that could be related to, I think that could be related to restoration hardware coming and going.
Michael Escalante: within the quarter depending on what's going on in the marketplace.
Michael Escalante: Okay.
Speaker Change: and and how does your like tenant watch list compare today versus like a year ago?
Michael Escalante: Well, again, I, you know... We spend an awful lot of time, um, looking, managing, and monitoring our credit tenancy. And I think, as you know, we've had 100% collections for quite some time.
Michael Escalante: Well, again, I, you know...
Michael Escalante: We spend a lot of time, we spend a lot of time.
Michael Escalante: Looking and Managing and...
Michael Escalante: monitoring our credit tenancy.
Michael Escalante: So we don't really call it a watch list. We just call it as part of our policies and procedures. We look at every single tenant all the time, making sure that we understand what's going on there, and our receivables are quite small, almost to minimus, I think at this point.
Michael Escalante: So we don't really call it a watch list. We just call it as part of our policies and procedures. We look at every single tenant all the time, making sure that we understand what's going on there. And I, you know, our receivables are quite small almost to minimus, I think at this point, so.
Michael Escalante: I don't want to go so far as to jinx us either by saying anything, either, but I believe that putting words into the universe is not a good thing.
Michael Escalante: and this last question. I don't want to go so far as to jinx us either by saying anything. I believe that putting words in the universe is not a good thing.
Michael Escalante: What are you guys seeing on the ground today in terms of buyer's appetite for single-tenant office assets? Last time we spoke, you mentioned that you're seeing the buyer pool increase a bit compared to like six months ago. Is that still the same? You know, has that changed at all? Yeah, well, you've
Speaker Change: I believe that too.
Michael Escalante: This last question for me, what are you guys seeing on the ground today in terms of, like, guys, appetite for the single ten-off assets? Last time we spoke on an area, you mentioned that you're seeing, you know, the powerful increase of it compared to, like, six months ago.
Michael Escalante: The way you describe the question is interesting. I guess I would say that my statement was a broader statement, which was that I believe that there is a significant amount of interest in properties in the marketplace generally, not necessarily net leased assets. And I think that's just across the board. I think what I said the last time was that we had had very few buyers showing up, and that our bid lists were burgeoning out, if you will, getting larger. And I still believe that they're on the larger side, certainly relative to the last couple years.
Speaker Change: Is that still the same? Has that changed at all?
Speaker Change: Yeah, well, you've sort of you've
Michael Escalante: The way you describe the question is interesting I guess I would say that my statement was a broader statement was that I believe that there is a significant amount of interest for properties in the marketplace generally.
Michael Escalante: not necessarily net leased assets.
Michael Escalante: And I think that's just across the board. I think what I said the last time was that we had had very few buyers showing up and that our bid lists were
Michael Escalante: you know, burgeoning and out if you will getting larger and I still believe that they're on the larger side certainly relative to the last couple years.
Michael Escalante: Let me make one correction to Farrell on the asset that we did sell. That was a longer-term asset, seven plus years of term. We did have one asset held for sale that was a shorter-term asset, so just wanted to clarify that.
Speaker Change: Okay, thank you.
Michael Escalante: Let me make one correction back to Feral on the asset that we did sell. That was a longer term asset 7 plus years of...
Michael Escalante: of Term, and we did have one help for sale asset that was a shorter term, so just want it to clarify them.
Michael Escalante: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I would now like to turn the floor over to the management for closing comments.
Michael Escalante: Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to the management for closing comments.
Michael Escalante: Thank you, everyone, for joining this quarter. Again, very happy with what we've been able to achieve. Very excited about the achievement, specifically on the credit side, and looking forward to, you know, moving the portfolio forward as we've been suggesting for just over the last year since we listed the company in April. So stay tuned, and we think we have good news in our future.
Michael Escalante: Thank you everyone for joining this quarter. Again, very happy with what we've been able to achieve. Very excited about the achievement, specifically on the credit side.
Michael Escalante: and looking forward to, you know, moving the portfolio forward as we've been suggesting just over the last year since we listed the company in April . So, stay tuned and...
Michael Escalante: We think we have good news in our future. Thank you for your time.
Operator: Thank you. This concludes our teleconference today. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you. This concludes our today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Michael Escalante: This extension takes effect December 1, 2024 and includes 3.75% annual rent escalations resulting in a 28% gap and 7% cash release spread. Given the fair market rent was not finalized when this lease extension was executed, we previously recorded base rent for the extension period equal to the expiring rent, which was the floor value for the lease. Clearly, this is a solid, no-cost lease transaction that will generate further strong internal growth in the office segment.