Q3 2024 Peakstone Realty Trust Earnings Call

Good afternoon and welcome to Peakstone Realty Trust, third quarter, 2021 earnings webcast.

Speaker Change: Or participants are English and only MED. A Christian and Arthur Session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference, please press the star key and the zero on each elephant keypad.

These notes that the event is being recorded.

I would now like to turn the conference over to Senior Vice President of Corporate Finance and Strategy, Becalate Lynch. Please go ahead, Ma'am.

Thank you. Good afternoon and thank you for joining us for Peak Stone Realty Trust 3rd Quarter, 2024 earnings call and webcast.

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

Please reach out to our investor relations team at IR at pkst.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 which are not historical facts.

Speaker Change: and our considered forward-looking.

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 Security 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 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 10K.

and any subsequent quarterly reports on Form 10G filed with the SEC.

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-gap financial measures, such as funds from operations, adjusted funds from operations, EBITDA RE and normalize EBITDA RE. You can find a tabular reconciliation of these non-gap financial measures to the most currently comparable gap numbers in the company's filings with the SEC.

On the call today, our Mike Escalante, CEO and President, and Javier Bitar CFO with that, I'll hand the call over to Mike.

Good afternoon and thank you for joining our call today.

The company had a very productive third quarter. We successfully amended and extended our credit facility, generated positive leasing outcomes, continued to sell office assets, and fully active are office joint venture.

These accomplishments are the direct results of our team's exceptional ability to navigate the complex market environment.

With a firm foundation established, we are excited to explore areas for industrial expansion.

Speaker Change: As I announced last quarter in July we achieved the key milestone.

Speaker Change: successfully amending our unsaciracredit facility. As a result of this amendment, we extended our debt maturities and lowered our barring costs. And most importantly, we have a sustainable capital structure that positions us well for future growth.

At the end of the quarter, our high quality, well-located industrial segment.

at the loss of 6.3 years, 100% economic occupancy, 58% investment grade tenancy, and a potential 24% market opportunity.

Our high quality, newer vintage office segment had a wealth of 7.2 years, 99% economic occupancy.

Speaker Change: 60% investment, great Tennessee.

Minimal near-term roll over in the next two years, with only 4% of AVR expiring through 2026, and newer buildings with minimal near-term capital requirements.

We have nearly completed the disposition of our other segment assets.

The other segment now counts for approximately 10% of our portfolio ABR and only 8% of our portfolio in Hawaii.

All remaining other segments are in the market for sale, and we are still aiming to close on the sales of these properties by your end. However, we do not fully control the timing.

In the quarter, we sold four properties totaling $338,000 square feet for approximately $40 million.

We sold three assets from our other segment for $32.2 million and we sold one asset from our office segment for $7.6 million. With this sale we have eliminated our 2024 lease expiration in this segment.

In addition to these closed sales, at Quarter-End, we had four other segments assets classified as health for sale.

Speaker Change: Attorney for Leasing. We continue to showcase our strategic expertise by achieving strong, positive leasing activity this quarter. The resulting favorable, releasing spreads are a testament to the demand for our properties in the market.

Speaker Change: In the Industrial segment, we addressed our soul, 2025 lease expiration by executing a 10-year, 121,000 square foot lease extension at our property in Auburn Hills, Michigan.

This extension takes effect October 1, 2025.

The terms result in a 41% gap and 20% cash releasing spread. As part of the extension, the red escalations were increased to 3% annually from 1.75% previously.

Speaker Change: and in the other segment we executed the two-year.

27,000 square foot new lease, which commence in September 2024 at one of our properties in Las Vegas, Nevada, at a 75% gap, and 71% cash releasing spread.

Speaker Change: With that, I'll turn over the call to Havir, the review our financial results. Havir?

Thanks, Mike. I'd like to begin by sharing a few highlights of Ruffin Angela results for the quarter.

Havir: Total revenue was approximately $55 million, and N.O.I. was approximately $44 million.

Net loss attributable to common shareholders was approximately $24.4 million for $67 per share. Inclusive of an approximately $43 million in on-cash impairment related to potential sales of assets in our other segment.

St. St. Cache and O'I was approximately $42 million, a .9% decrease compared to the same quarter last year. But for a continuing renovation in the 11th year of a pre-existing lease in our industrial segment, St. St. Cache and O'I would have grown by 1.6%.

The excitement period for this release continues through November 2024.

FFO is defined by Nae Reath was approximately $23.1 million or 50 cents per share on a fully deleted basis.

Moving on to our balance sheet at Porterend. Our cash balance was approximately $242 million. Most of this cash was invested in money market accounts, which generated approximately $3.1 million of interesting income in the quarter.

Available revolver capacity was approximately $157 million.

Havir: Total liquidity was approximately $399 million, providing that with ample liquidity and flexibility to support our industrial growth initiatives.

We had approximately $1.2 billion of total debt outstanding comprised of $750 million on our credit facility with a balance being non-recourse secured mortgage debt.

Havir: are totaled that outstanding decrease by $231 million, quarter over quarter as a result of the following activity.

Havir: As part of the amendment and extension of our credit facility, we paid down $200 million, including a pay then of $190 million on one of our term loans and a reduction of $10 million on our revolver balance.

We fully paid off our $17 million Pepsi bottle, lean ventures mortgage loan, and the adge loans in our other segment were paid down by $14 million with proceeds from asset sales.

Havir: After deducting for cash, our net debt was approximately $941 million.

including the effect of our interest rate swaps 100% of our death has fixed rates and our weighted average interest rate for all death. The cure in unsickered was 3.95%.

and our net depth and normalized D-Bidda, our E-Racial with 6.2 times.

Havir: During the quarter we transferred our interest in our office-dryng venture and fully exited this investment. If you recall in the third quarter, 2023 we took a complete right off of this investment and therefore there was no gain or loss on this transaction.

For the third quarter we've paid a dividend of 22 and a half cents for common share on October 17.

and the Board of Trustees approved a dividend for the fourth quarter in the amount of 22 1.5 cents per common share that is payable on January 17th to holders of record on December 31st.

While the company expects to continue paying dividends on accordingly basis of future dividend decisions will continue to be made by the Board of Trustees.

Speaker Change: With that, I will pass the call back to Mike.

Mike: Thank you, Javier.

Mike: Building on our past successes, we are strategically positioned to capitalize on opportunities in the Industrial Real Estate Market.

Mike: We are optimistic about the future of the Industrial sector, projecting that longer-term favorable tailwinds will persist.

We will now turn the call over the operator to take a few questions from analysts.

Havir: Operator.

Thank you sir. Ladies and gentlemen, we will not be conducting the question in all the session. If you would like to ask questions please rest all in one on its telephone keypad.

The confirmation turn will indicate that Iran is in the question queue.

He may press star 2 to leave the question queue.

Havir: For participants making use of speaking equipment, it may be necessary to be kept a handset before pressing the star keys.

Alpha Escalante comes from Joshua Dinole of Bank of America. Please come ahead.

Speaker Change: Good evening, this is Farrell Granab on behalf of Josh

I wanted to ask you to comment about the Industrial Expansion and how that would be a...

Speaker Change: Kind of warm.

Speaker Change: Plan going forward. So I was wondering if you would characterize maybe some of the hurdles that you would be looking to overcome or different benchmarks to reach before you turn to the offensive and entering or into an expansionary process to more industrial.

Speaker Change: Thanks, Meryl. So, relative to that, I think we've been messaging that for quite some time now. But the truth of the matter is that, you know, we've been looking at doing all the things that we've been doing since listing, right? So,

Speaker Change: We've identified that we wanted to reach a D-Levriging marker that was 6-1 get to Yvita and we were able to affect that obviously starting in a second quarter.

or not starting, but we effectively got to a 5.9 time ratio as of 2nd quarter of this last year.

We are continuing to create positive castle out of the portfolio and we keep looking for opportunities to, in essence, outperform the market relative to

what people are thinking relative to office valuations.

I think the performance that we've been able to achieve both on a leasing and a sales side on the office has been quite good and far in excess of the valuation that people are giving us. All of this is sort of setting up.

Speaker Change: the portfolio for our purposes to eventually make the interlead in the direction of Industrial, which again, as we've stated.

Havir: As far as we're concerned, in spite of some minor headwinds that are occurring right now on the supply side of some specific markets. Overall, we think the...

Havir: The fundamentals associated with industrial going forward are quite good. I think we're pretty all we're awesome, quite happy.

with the fact that the market has given us back an opportunity if you will, cap rates have moderated.

Overtime in 2021, they were quite low.

Maybe extremely low and are much more normalized today. We fixed our cost of debt capital. We've got some longevity there. The portfolio has...

Realist Sustainable Capital Structure for the foreseeable future.

We like our cost of that capital relative to what we think we're seeing in the marketplace in terms of our ability to buy.

in terms of going in cap rates and then ultimately what the stabilize values.

will be in our yields would be as result of.

sort of the below markets.

Havir: Rent rolls that you see sort of predominantly in the industrial marketplace.

We're quite active in looking and we know we've created a lot of drive powder and taken care of our, of everything that we think we need to do and so we're looking through the, the front of the vehicle now instead of out of the back of the vehicle.

Speaker Change: Definitely, great, thank you. And this one more, so you had strong releasing spreads coming into for your industrial segment. I was curious to know how are you seeing those conversations play out? I think there was a slight...

Speaker Change: [inaudible]

I mean, as you know, we don't have a lot of data points because our portfolio is extremely strong in terms of its occupancy and the lack of role over in any of our, in really in our, any of our.

Coors, segments, if you will, industrial and office, so not a lot of data, data points to work off. But I think, frankly, we've been very pleased with what we've been able to achieve. And the numbers.

that we got in terms of renaiscalators on the one executed 10-year deal that we did in Auburn Hills, Michigan.

Speaker Change: I think our annual escalators went up from what was a 1.75% number to 3% in that least. So as a pretty dramatic increase in terms of our ability to increase rents there.

Speaker Change: So...

I don't know what you were specifically referring to but I feel like the one thing we did do was quite positive.

Great, yes, thank you very much, I'll touch it for a moment.

Speaker Change: Ok.

Speaker Change: Thank you again for operator.

Thank you. Ladies and gentlemen, that concludes our Q&A session. I will now hand over to the CEO, Michael Escalante for closing remarks.

Thank you once again for your support and interest in our firm. I think we're continuing to do everything that we said we would do at the time of listing. More questions.

Michael Escalante: We're gonna...

and excuse us, please, Brad, Brad, you're coming through.

So sorry for that interruption.

So I'll just restate. Thank you for joining us today. I appreciate your interest in our organization.

and very, very pleased with the performance of the organizations from listening through today. I'm very excited about the future for the company as we lean into Industrial.

Thank you for that. Operator, conclude the call. Thank you, sir.

Thank you. That concludes today's event. Thank you for attending. Any Bernardes Connection Line.