Q1 2025 Peakstone Realty Trust Earnings Call
Greetings.
Come to peak Stone Realty trusts first quarter 2025 earnings webcast conference call.
At this time, all participants are in listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance. Please press Star then zero on your telephone keypad.
As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host Mr. Steve Swett Investor Relations. Please go ahead Sir.
Speaker Change: Good afternoon, and thank you for joining us for Pizza Stone Realty Trust's first quarter 2025 earnings call and webcast.
Operator: Good afternoon, and thank you for joining us for Peakstone Realty Trust's first quarter 2025 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.pkst.com.
Speaker Change: Today, we posted the earnings release supplemental and updated investor presentation to the investors page on our website at Www Dot Pks T Dot com.
Operator: Please reach out to our investor relations team at irpkst.com with any questions.
Speaker Change: Please reach out to our Investor relations team at IR at <unk> Dot com with any questions.
Operator: The company will be making forward-looking statements, which include any statements that are not historical facts, on today's webcast. Such forward-looking statements are based on expectations that involve risks and uncertainties. It could cause actual results to differ materially.
Speaker Change: The company will be making forward looking statements, which include any statements that are not historical facts on today's webcast.
Speaker Change: Such forward looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially.
Operator: For a further discussion of risks related to our business, please see our annual report on Form 10-K and subsequent filings with the SEC.
Speaker Change: For further discussion of risks related to our business. Please see our annual report on Form 10-K.
Speaker Change: Subsequent filings with the SEC.
Operator: Additionally, on this call, the company may refer to certain non-GAAP financial measures, such as funds from operations, core funds from operations, adjusted funds from operations, EBDIRE, and adjusted EBDIRE. You can find a tabular reconciliation of these non-GAAP financial measures comparable to the most currently GAAP numbers in the company's earnings release and filings with the SEC.
Speaker Change: Additionally, on this call the company may refer to certain non-GAAP financial measures such as funds from operations core funds from operations adjusted funds from operations EBITDA and adjusted EBITDA.
Speaker Change: A tabular reconciliation of these non-GAAP financial measures.
Speaker Change: The most currently get.
Operator: On the call today are Mike Escalante, CEO and President, and Javier Bitar, CFO.
Michael Escalante: With that, I'll hand the call over to Mike.
Mike: CEO and President, and Javier Bitar CSO. With that, I'll hand the call over to Mike.
Michael Escalante: Good afternoon, and thank you for joining our call today. We continue to make meaningful progress on our strategic transition to an industrial REIT with growth in the industrial outdoor storage or iOS subsector serving as the cornerstone of this transformation. As part of this strategy, we are actively reshaping the portfolio through the targeted iOS growth initiatives and strategic asset sales, primarily focused on the office segment. This quarter, we increased industrial segment ABR by $2.4 million quarter over quarter, driven by a 10% rise in ABR from our iOS properties, underscoring the strong fundamentals and the compelling growth trajectory of our high-quality iOS assets.
Speaker Change: Good afternoon and thank you for joining our call today. We continue to make meaningful progress on our strategic transition to an industrial week with growth in the industrial outdoor storage or iOS sub-sector, serving as the cornerstone of this transformation.
Speaker Change: As part of this strategy, we are actively reshaping the portfolio through the targeted iOS growth initiatives and strategic asset sales, primarily focused on the office segment.
Speaker Change: This quarter, we increase industrial segment ABR by $2.4 million quarter over quarter, driven by a 10% rise in ABR from our iOS properties, underscoring the strong fundamentals and the compelling growth trajectory of our high quality iOS assets.
Michael Escalante: On the disposition front, we've closed $144 million of office asset sales year-to-date, advancing our efforts to better align the portfolio with our long-term strategic goals. Thanks to strong leasing across our iOS portfolio and the continued execution of these office sales, industrial segment ABR represented 41% of total ABR at quarter end and 43% on a pro forma basis after giving effect to office dispositions completed subsequent to quarter end. Leasing activity related to our iOS assets played a central role in this quarter's industrial ABR growth, and we'd like to provide more detail on the transactions that drove this performance.
Speaker Change: On the disposition front we've closed $144 million of office asset sales year today, advancing our efforts to better align the portfolio with our long-term strategic goals.
Speaker Change: Thanks to strong leasing across our iOS portfolio and the continued execution of these office sales, industrial segment ABR represented 41% of total ABR at quarter end.
Speaker Change: and 43% on a pro-forma basis after giving effect to office dispositions completed subsequent
Speaker Change: Leasing activity related to our iOS assets played a central role in this quarter's industrial ABR growth and we'd like to provide more detail on the transactions that drove this performance.
Michael Escalante: Most notably, we fully leased our largest iOS redevelopment property, 37 usable acres in Everett, Washington, largely on a no cost basis to a local lumber mill operator. This full site 9.8 year lease contributed approximately $1.7 million of incremental AVR to our industrial segment and contains 8% annual rent escalations on average. While the initial rent is below market, completing this lease without the anticipated redevelopment spend enabled us to drive a meaningful increase in our iOS AVR and quickly achieve in-place yields of 5.9% on a cash basis and 8.8% on a GAAP basis. This lease provides a path to higher rent and enhances the internal growth profile of our iOS portfolio.
Most notably, we fully leased our largest iOS redevelopment property.
37 Usable Acres in Everett, Washington
Speaker Change: largely on a no-cost basis to a local lumber mill operator. This full-site 9.8-year lease contributed approximately $1.7 million of incremental ABR to our industrial segment and contains 8% annual rent escalations on average.
Speaker Change: While the initial rent is below market, completeness lease without the anticipated redevelopment spend enabled us to drive a meaningful increase in our iOS, AVR, and quickly achieve in place yield to 5.9% on a cash basis and 8.8% on a gap basis.
Speaker Change: This lease provides a path to higher rent and enhances the internal growth profile of our iOS portfolio.
Michael Escalante: Additional leasing activity, highlighting the strong market-to-market opportunities in our iOS portfolio, included the commencement of a new 6.5-year lease for 3.3 usable acres at our Mableton, Georgia property, which added $0.3 million in ABR during the quarter. This lease includes 3.5% annual escalations and resulted in weighted average releasing spreads of 185% on a cash basis and 218% on a GAAP basis. Moving on to dispositions, as I mentioned earlier, year-to-date, we've closed approximately $144 million of office asset sales, underscoring both the successful execution of our office disposition strategy and the continued investor demand for the office assets in our portfolio.
Speaker Change: Additional leasing activity highlighting the strong market opportunities in our iOS portfolio.
Speaker Change: included the commencement of a new 6.5-year lease for 3.3 useful acres at our Mabelton, Georgia property, which added $0.3 million in ABR during the quarter.
Speaker Change: This lease includes 3.5% annual escalations and resulted in weighted average releasing spreads of 105% on a cash basis and 218% on a gap basis.
Speaker Change: Moving on to dispositions, as I mentioned earlier, year to date we've closed approximately $144 million of office assets sales, underscoring both the successful execution of our office disposition strategy and the continued investor demand for the office assets in our portfolio.
Michael Escalante: During the first quarter, we completed the sale of two properties totaling 251,000 sq. ft. for approximately $34 million. These included our 40-white property in Baltimore and our Heritage III property in Dallas-Fort Worth. Subsequent to Quarter End, we closed on the sale of three additional properties totaling 520,000 square feet for approximately $110 million. These sales consisted of our LPL properties in Charlotte and our Cigna property in Pittsburgh.
Speaker Change: During the first quarter, we completed the sale of two properties totaling 251,000 square feet for approximately $34 million. These included our 40 white property in Baltimore and our Heritage 3 property in Dallas-Fort Worth.
Speaker Change: Subsequent to quarter end, we closed on the sale of three additional properties, totaling 520,000 square feet for approximately $110 million. These sales consisted of our LPL properties in Charlotte and our Signa property in Pittsburgh.
Michael Escalante: All three assets were classified as held for sale at quarter end.
Speaker Change: All three assets were classified as Health for Sale at Quarter End.
Michael Escalante: Now I'd like to take a moment to provide some additional detail on what we're seeing in the market as it relates to our office disposition. We've been highly effective in generating strong outcomes for the sale of our office assets. Over the past three years, we've completed over $2 billion in office sales across more than 30 markets, with buyers including both third-party investors and existing tenants. These sales have provided greater clarity around market pricing expectations and transaction timing. While we don't provide formal guidance on cap rates or pricing, closed transaction data suggests that depending on tenancy, market, and asset characteristics, our office assets with more than five years remaining term have generally been priced on a cap rate basis in the range of 7.5% to 12.5% on in-place NOI.
Speaker Change: Now I'd like to take a moment to provide some additional detail on what we're seeing in the market as it relates to our office dispositions.
[inaudible] I'm sorry. I'm sorry. I'm sorry
Speaker Change: We've been highly effective in generating strong outcomes for the sale of our office assets. Over the past three years, we've completed over $2 billion in office sales across more than 30 markets with buyers including both third-party investors and existing tenants.
Speaker Change: These sales have provided greater clarity around market pricing expectations and transaction timing.
Speaker Change: While we don't provide formal guidance on cap rates or pricing.
Speaker Change: Close transaction data suggests that, depending on tenancy, market, and asset characteristics, our office assets with more than five years of remaining term have generally been priced on a capric basis in the range of 7.5% to 12.5% on in place in O.I.
Michael Escalante: Office assets with shorter lease terms have generally been priced on a per square foot basis ranging from $50 to $175. The pricing reflects a combination of estimated vacant building value and the net present value of the remaining rental stream.
Speaker Change: Office assets with shorter lease terms have generally been priced on a per-square-foot basis ranging from $50 to $175. The pricing reflects a combination of estimated vacant building value and the net present value of the remaining rental stream.
Michael Escalante: We continue to see solid interest in our office properties and remain committed to maintaining, or potentially accelerating, the pace of our office disposition through year-end. While we recognize the capital markets environment may evolve, we're well positioned to adapt and continue executing thoughtfully on these sales.
Speaker Change: We continue to see solid interest in our office properties and remain committed to maintaining or potentially accelerating the pace of our office disposition through year end. While we recognize the capital markets environment may evolve, we're well positioned to adapt and continue executing thoughtfully on these sales.
Javier Bitar: With that, I will turn the call over to Javier to review our financial results and capital markets activity. Javier?
Speaker Change: With that, I will turn the call over to Javier to review our financial results and capital market activity. Javier?
Javier Bitar: Thanks, Mike.
Javier Bitar: I'd like to take a moment to highlight two reporting metrics that we are introducing in our financial materials beginning this quarter, Core FFO and Adjusted EBITDA RE. These metrics are intended to enhance comparability and consistency in evaluating the ongoing performance of our business. Definitions and calculations can be found in our supplemental materials and quarterly filing.
Thanks, mate.
Speaker Change: I'd like to take a moment to highlight two reporting metrics that we are introducing in our financial materials beginning this quarter, coreFFO and adjusted EBITDA RE.
Speaker Change: These metrics are intended to enhance comparability and consistency in evaluating the ongoing performance of our business.
Speaker Change: Definitions and calculations can be found in our supplemental materials and quarterly filings.
Javier Bitar: With that, I'd like to share a few highlights of our financial results for the quarter ended March 31st. Total revenue was approximately $57 million and cash NOI was approximately $46 million. Net loss attributable to common shareholders was approximately $49.4 million or $1.35 per share, inclusive of an approximately $52 million non-cash impairment related to potential sales of assets in our office sector. Each FFO and core FFO were approximately $24.6 million or $0.62 per share on a fully diluted basis. AFFO was approximately $24.8 million or coincidentally also $0.62 per share on a fully diluted basis. Same store cash NOI increased 5.8% for our industrial segment and 3.1% in our office segment for an overall increase of 4% compared to the same quarter last year.
Speaker Change: With that, I'd like to share a few highlights of our financial results for the quarter-ended March 31st.
Speaker Change: Total revenue was approximately $57 million and cash NOI was approximately $46 million.
Speaker Change: net loss attributable to comment shareholders was approximately $49.4 million or $1.35 per share inclusive of an approximately $52 million non-cash impairment related to potential sales of assets in our office segment.
Speaker Change: Each FFO and core FFO were approximately $24.6 million or $62 cents per share on a fully
Speaker Change: AFFO was approximately $24.8 million or coincidentally, also 62 cents per share on a fully-deleted basis.
Speaker Change: Same-store cash and OI increased by 0.8% for our industrial segment and 3.1% in our office segment for an overall increase of 4% compared to the same quarter last year.
Javier Bitar: Moving on to our balance sheet. Our quarter-end metrics can be found in our Q and in our supplemental. Given the $110 million of office dispositions after quarter-end, I would like to provide quarter-end metrics on a pro forma basis reflecting these sales and the use of proceeds. We used $100 million to pay down our revolver, resulting in the following. Total liquidity of approximately $336 million consisting of cash and available revolver capacity. a cash balance excluding restricted cash of approximately $213 million and available revolver capacity of approximately $123 million. We now have approximately $1.26 billion in total debt outstanding, including $900 million of unsecured debt on our credit facility, reflecting the $100 million paydown subsequent to quarter end.
Speaker Change: Moving on to our balance sheet. Our quarter end metrics can be found in our Q and in our supplemental.
Speaker Change: Given the $110 million of office dispositions after quarter end, I would like to provide quarter end metrics on a performance basis, reflecting these sales and the use of proceeds.
Speaker Change: We used $100 million to pay down our revolver resulting in the following. Total liquidity of approximately $336 million consisting of cash and available revolver capacity.
Speaker Change: A cash balance excluding restricted cash of approximately $213 million and available revolver capacity of approximately $123 million.
Speaker Change: We now have approximately $1.26 billion in total debt outstanding, including $900 million of unsecured debt on our credit facility, reflecting the $100 million pay down subsequent to quarter
Javier Bitar: The remaining approximately $360 million of debt is non-recourse secured debt. After deducting cash, our net debt would be approximately $1.048 billion and our net debt to adjusted EBITDA RE would be 6.8 times. 88% of our debt is fixed including the effect of our existing $750 million of interest rate swaps which mature on July 1, 2025. The weighted average interest rate for all debt, both secured and unsecured, remains at 4.4%. As a reminder, we previously entered into forward starting floating to fixed interest rate swaps with a notional amount of $550 million. These swaps will take effect on the day our existing swaps mature.
Speaker Change: The remaining approximately $360 million of debt is non-recourse secured debt.
Speaker Change: After deducting cash, our net debt would be approximately $1.048 billion and our net debt to adjust to the EBITDA RE would be 6.8 times.
Speaker Change: 88% of our debt is fixed, including the effects of our existing $750 million of interest rate swaps, which mature on July 1, 2025. The weighted average interest rate for all of that both secured and unsecured remains at 4.4%.
Speaker Change: As a reminder, we previously entered into forward-starting floating-to-fix interest rate swaps with a devotional amount of $550 million.
Javier Bitar: The new swaps will convert SOFR to a weighted average fix rate of 3.58% and are set to mature on July 1, 2029.
Speaker Change: These swaps will take effect on the day our existing swaps mature. The new swaps will convert so far to a weighted average fixed rate of 3.58% and are set to mature on July 1, 2029.
Javier Bitar: For the first quarter, as previously announced, we paid a dividend of 22.5 cents per common share on April 17. And the Board of Trustees approved a dividend for the second quarter in the amount of 22.5 cents per common share that is payable on July 17th to holders of record on June 30th. While the company expects to continue paying dividends on a quarterly basis, all future dividend decisions will be made by the Board of Trustees.
Speaker Change: For the first quarter, as previously announced, we paid a dividend of 22.5 cents per common share on April 17th, and the Board of Trustees approved a dividend for the second quarter in the amount of 22.5 cents per common share that is payable on July 17th to holders of the record on June 30th.
Speaker Change: While the company expects to continue paying dividends on a quarterly basis, all future dividend decisions will be made by the Board of Trustees.
Michael Escalante: With that, I will pass the call back to Mike. Thank you, Javier. As we look ahead, our primary focus remains on advancing our strategic shift to an industrial REIT, with particular emphasis on the iOS subsector. We believe that high-quality iOS properties in supply-constrained markets present significant long-term growth opportunities regardless of broader economic fluctuations. In line with our strategy, we will continue to divest office assets, allowing us to reallocate capital to higher growth opportunities within the iOS space and further reduce our leverage. We expect these actions to drive sustainable growth and enhance shareholder value over the long term.
with that I will pass the call back to Mike.
Mike: Thank you, Javier. As we look ahead, our primary focus remains on advancing our strategic shifts to an industrial reach, with particular emphasis on the iOS sub-sector.
Mike: We believe that high-quality iOS properties in supply constrained markets present significant long-term growth opportunities, regardless of broader economic fluctuations.
Mike: In line with our strategy, we will continue to divest office assets, allowing us to reallocate capital to higher growth opportunities within the iOS space and further reduce our leverage.
Mike: We expect these actions to drive sustainable growth and enhance shareholder value over the long term.
Operator: We will now turn the call over to the operator to take a few questions from analysts.
Mike: We will now turn the call over to the operator to take a few questions from Alice. Operator?
Operator: Operator? Thank you, sir.
Operator: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star. Thank you.
Speaker Change: Thank you, sir. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove your question from the queue.
Mike: Again, if you would like to ask a question, please press star and then one, now.
Mike: The first question that we have comes from Yana Golan of Bank of America. Please go ahead.
Operator: Good afternoon.
Gianna: Congrats on leasing the Everett site. I was hoping if you could help us think about the ABR opportunity at the remaining five iOS sites, kind of, you know, how should we think about the ranges in rent per acre in that segment?
Yana Galan: Thank you. Good afternoon. Congrats on leasing the Everett site. I was hoping if you could help us think about the ABR opportunity at the remaining five iOS sites, kind of, you know, how should we think about the ranges in rent per acre in that segment.
Michael Escalante: Good to have you on the call, Gianna.
Michael Escalante: So we're not really providing guidance of that level. I would, and I think it's a little bit difficult given the variety of locations that we that we have there but I would say The one thing I would leave you with is that relative to the returns on costs that we've Previously indicated and included in this go-around. I mean, you know, we're comfortable In essence with the ranges that we provided. Uh, not Some of them will be a little bit below some of them are going to be higher than our Anticipated numbers our our spend is typically been a little bit lower than we originally anticipated At least at the outset.
Did they have you on the call, you know?
Yana Galan: Locations that we that we have there, but I would say
Yana Galan: The one thing I would leave you with is that relative to the returns on cost that we've...
Yana Galan: previously indicated and included in this go-around. You know we're comfortable.
Yana Galan: Some of them will be a little bit below. Some of them are going to be higher than our anticipated numbers. Our spend is typically been a little bit lower than we originally anticipated, at least at the outset. We do have a considerable amount of activity underway, so we're fingers crossed.
Michael Escalante: Uh, we do have a considerable amount of activity Underway, so we're fingers crossed. We don't like jinxing ourselves, but fingers crossed that we should be able to have some announcements forthcoming, provided we can get through the details on those leases or prospective leases.
Yana Galan: They don't like Junction ourselves, but fingers crossed that we should be able to have some announcements.
Yana Galan: You know, forthcoming provided we can get through the details on those leases or prospective leases.
Gianna: Great, thank you.
Unnamed Speaker: And then maybe if you could just kind of comment on, you know, additional acquisition opportunities, kind of what you're seeing in the market. Seems like, you know, you have the liquidity to kind of move forward on more opportunities. Yeah, for sure. I mean, that's going to be a balancing act. I think we said strategically, we've got to balance two things, growth, which is, you know, pretty important for us to catch or capture, you know, a good cost of capital. And the second part is making sure that our leverage is within line. So, that's going to be a balancing act as we recycle capital out of our, you know, strategic disposition program.
Speaker Change: Great. Thank you. And then maybe if you could just kind of comment on, you know, additional acquisition opportunities kind of what you're seeing in the market seems like, you know, you have the liquidity to kind of move forward on more opportunities.
Javier Bitar, Javier Bitar, Michael Escalante, Michael Escalante
Speaker Change: Yeah, for sure. I mean, that's going to be a balancing act. I think we've said strategically, we've got a balance.
Two things, growth, which is, you know,
Pretty important for us to catch.
Speaker Change: for Capture, a good cost to capital, and the second part is making sure that our leverage is within line, so that's going to be a balancing act as we recycle capital out of our strategic disposition program, and what that looks like going forward. I would tell you that are...
Michael Escalante: And, you know, what that looks like going forward. I would tell you that our pipeline is good. It's full. We are seeing a lot of individual one off deals, both marketed and through our relationships. We're also continuing to see portfolios. You know, I guess it's no surprise that, you know, in taking on the assets that we took on, you know, we have been concentrating and focusing on making sure that we hit our numbers on those pieces. And at the same time, you know, we're out and active in the market looking at additional transactions. So, stay tuned again in that regard.
Speaker Change: Our pipeline is gold, but it's good, it's full. We are seeing a lot of individual one-off deals both marketed and through our relationships.
We're also continuing to see portfolios.
Um.
Speaker Change: You know, I guess it's no surprise that, you know, in taking on
Speaker Change: The assets that we took on, we have been concentrating and focusing on making sure that we hit our numbers on those pieces.
Speaker Change: and at the same time, you know, we're out in active in the market looking at additional transactions. So stay tuned again in that regard. Very much a balanced approach. We're not gonna, you know, run out the door.
Michael Escalante: Very much a balanced approach. We're not going to, you know, run out the door. but we do have liquidity to pursue things as we see a risk-adjusted return that is compelling for us.
Speaker Change: But we do have liquidity to pursue things as we see a risk adjusted return that that is compelling for us.
Gianna: Great, thank you for taking my questions. Thanks, Shiana.
I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Great. Thank you for taking my questions.
Thanks, Yana.
The next question we have comes from Katherine Goods
Catherine Graves of UBS [inaudible]
Catherine: Hi, good afternoon. Thank you for taking my questions. My first. Can you hear me?
Yes, please go ahead.
Speaker Change: Hi, good afternoon. Thank you for taking my question. My first. So can you hear me?
Catherine: Yeah, hi Catherine. Oh, great. Hi. So as I remember, I think your leverage was about 7.9 times after the iOS acquisition brought down to I think 7.5 times at the end of 2024. And I believe you said you're at 6.8 times now. So can you just maybe remind us what your sort of target leverage is? And then maybe I know you don't get guidance, but just sort of what you're thinking about the timeline of bringing your leverage down to a comfortable level.
Yeah, hi, Captain.
Oh, great. Hi.
Speaker Change: So as I remember, I think your leverage was about 7.9 times after the iOS acquisition brought down to I think 7.5 times.
Speaker Change: at the end of 2024. And I believe you said you're at 6.8 times now. So can you just remind us what your sort of target leverage is and then maybe I know you don't get guidance, but just sort of what you're thinking about the timeline of thinking your leverage down to a comfortable level.
Javier Bitar: Hi, Catherine, this is Javier. Thanks for being on the call. The, yeah, the pro forma numbers that we presented after the acquisition was at 7.9, but the actual quarter end, as you noted, there was 7.5. the uh and and six eight now that we've completed these 110 million dollars of additional um sales uh subsequent to quarter end we've we've said uh publicly that you know our target has been to be somewhere in the uh in the six uh times range or below um and that continues to be our uh our current um you know target um uh leverage at the moment.
Speaker Change: Hi Catherine, this is Javier. Thanks for being on the call. The, you know, the pro forma numbers that we presented after the acquisition was at seven nine, but the actual
Quaterran, as you'd noted, there was 7.5. 5.
The N-6-8 now that we've completed these.
$110 million of additional sales subsequent to quarter-end.
Speaker Change: We've said publicly that our target has been to be somewhere in the six times range or below and that continues to be our current target leverage at this point.
Michael Escalante: Catherine, I would just add that we've shown an ability to be at a fairly high number historically and through the recycling of capital and rejiggering our balance sheets, specifically the debt side of the equation. We've been able to do that. I think it was second quarter of last year, we actually clipped six to one debt to EBITDA. in a rough, in a rough sense. Got it. Thank you. That's helpful.
and Javier Bitar. Thank you. Thank you.
Speaker Change: I would just add that we've shown an ability to be at a fairly high number historically and through the recycling and capital and rejiggering our balance sheet, specifically the debt side of the equation, we've been able to do that. I think it was second quarter of last year we actually clipped 6-to-1 debt to you.
in a rough sense.
Catherine: And then my second question, you mentioned sort of either maintaining or accelerating the rate of office dispositions this year. And I'm just wondering what will determine sort of how much you push the gas on on those dispositions. Is there anything in the macro that you're paying attention to or what, what sort of the thought process there? Yeah, so I think it's a case by case basis, we take what we can get from the marketplace in terms of disposition activity. I think we've had a I think in the public market, you have to always... You know, look at things and say, you know, your portfolio is for sale every day, one way or another.
Speaker Change: Got it. Thank you. That's helpful. And then my second question, you mentioned sort of either maintaining or accelerating the rate of office dispositions this year, and I'm just wondering what will determine sort of how much you push the gas on on those dispositions or do anything in the lack of that you're paying attention to or what sort of the thought process there.
Speaker Change: Yeah, so I think it's a case-by-case basis. We take what we can get from the marketplace in terms of disposition activity. I think we've had a...
I think in the public market, you have to always...
Speaker Change: You know, look at things and say, you know, your portfolios for sale every day, one way or another.
Michael Escalante: So we're not attached to anything. We're just trying to maximize shareholder value as best we can.
Speaker Change: So we're not a task to anything. We're just trying to maximize shareholder value as best we can. We are excited it's probably too big of a word but we're...
Michael Escalante: We are excited is probably too big of a word, but we're We have been able to achieve numbers that I think are far in excess of what the market's giving us credit for. The pricing of our stock sort of indicates that we should continue to do these types of things until the market understands exactly how we're underwritten. The bottom line is that, you know, we think we've got a portfolio of properties that are desirable to investors, and specifically to our tenants. We've said from the very beginning that we own assets that are important to our underlying tenants, for whatever reason that might be, headquarters, regional headquarters, national headquarters, R&D facilities, key distribution facilities, whatever the heck it is.
Speaker Change: We have been able to achieve numbers that I think are far in excess of what the market is giving us credit for.
Speaker Change: You know, the pricing of our stock sort of indicates that we should continue to do these types of things until the market understands exactly, you know, how we're how we're underwritten and you know
The bottom line is that...
Speaker Change: You know, we think we've got a portfolio properties that are desirable, two investors.
Speaker Change: and specifically to our tenants. We've we've said from the very beginning that we
Speaker Change: Own Assets Center, and are important to our underlying tenants for whatever reason that might be Headquarters, Regional Headquarters, National Headquarters, R&D Facilities
Michael Escalante: We've long considered our properties to be desirable in that sense. And so, you know, looking at the percentage of transactions that have gone to our tenants, I think that original investment thesis has proven itself. And so we're seeing a fair amount of interest from our existing tenant base as well. So we'll see how that all goes. And what is interesting at the moment is that the cost of capital for the corporates, and we have a pretty high, still high percentage of S&P 500 oriented tenants, if you will, their cost of capital on the debt side.
Speaker Change: you know, key distribution facilities, whatever the heck it is, we've
Speaker Change: Long, considered our properties to be desirable in that sense, and so...
Speaker Change: You know, looking at the percentage of transactions that have gone to our tenants. I think that
Speaker Change: original investment thesis has proven itself and so we're seeing a fair amount of interest from our existing tenant base as well. So we'll see how that all goes and what is interesting at the moment is.
Speaker Change: that the cost of capital for the corporates and we have a pretty high still high.
Speaker Change: percentage of S&P 500 or, you know, oriented tenants, if you will, their cost of capital on the debt side.
Michael Escalante: is advantageous as compared to the real estate investment side.
Michael Escalante: So all of that sets up pretty well for the comment as to, you know, why we think there might be a possible acceleration.
Speaker Change: is advantageous as compared to the real estate investment side. So all of that sets up pretty well for the comment as to why we think there might be a possible acceleration.
Unnamed Speaker: Prada. Thanks so much for the color.
Thank you.
I'd like to thank Mr. McCulloch for the color.
Unnamed Speaker: The next question... Hey guys, congrats on the quarter. Thanks. Anyway, in your prepared remarks, you mentioned that for office properties with more than five-year term are trading at 7.5 to 12.5 cap rate on in-place NOI. So what are... with characteristics for assets at the lower end of the range versus the higher end.
Speaker Change: Hey guys, congrats on the quarter. Mike, you know, in your preparing marks, you mentioned that for office properties with more than five year term are trading at 7.5 to 12.5 cap rate on in place and why. So what are...
Michael Escalante: And also, is this range a reference to Peakstone portfolio specifically or not? Yeah, so we gave two metrics that really what we're seeing in the marketplace and I think relative to our own portfolio and success. And we were trying to give you some, I don't know, I guess goalposts by which to look at our portfolio through a lens that might provide you a little more clarity without giving you an individual deal by deal guidance. So, the line of demarcation generally is around five years. the, you know, the shorter, the seven and a half cap. versus the 12.5 cap is generally going to come down to, you know, greater duration.
Speaker Change: Real Characteristic for assets at the lower end or the range versus the higher end. And also is this range a reference to Peakstone portfolio specifically or in general?
Speaker Change: Yeah, so I gave two metrics that really what we're seeing in the marketplace and I think relative to our own portfolio and success, so...
and Javier Bitar. Thank you.
Speaker Change: And we were trying to give you some, I don't know, I guess, goalpost by which to look at our portfolio through a lens that might provide you a little more clarity without giving you an individual deal by deal guidance.
Speaker Change: The line of demarcation generally is around five years, the, you know, the shorter, the seven-and-a-half caps.
Speaker Change: versus the 12.5 cap is generally going to come down to greater duration.
Michael Escalante: You know, you probably would be safe looking, you know, at a midpoint might might be a way to look at it And then the other part of the guidance we gave you was to say that if you have less than five years a cap rate Really doesn't apply it's really a You know, it's really looking at the NPV of the remaining cash flow plus a residual value number. And that even then provides a pretty wide range on a per square foot basis. But, you know, you can do a little bit of math in that sense.
Speaker Change: You know, you probably would be safe looking at a midpoint might be a way to look at it.
Speaker Change: and then the other part of the guidance we gave you was to say that if you have less than five years, a capric really doesn't apply. It's really a...
Speaker Change: You know, it's really looking at the MPV of the remaining cash plus a residual value number and that even then provides a pretty wide range on a per square foot basis.
Michael Escalante: And if you're closer to five years and have a very high rent, you know, at least you're going to get paid for that. And then the residual values are, you know, arranged depending on.
Speaker Change: But you can do a little bit of math in that sense, and if you're closer to five years and have a very high rent, you're least going to get paid for that, and then the residual values are arranged depending on
Michael Escalante: the specific property, the specific market, the age of the asset, you know, those types of things.
Speaker Change: The specific property, the specific market, the age of the asset, those types of things.
Unnamed Speaker: um What's currently in the pipeline in terms of signed PSA or LOIs? Has the buyer pool for office assets thinned, or are you still seeing reasonably deep I mean, reasonably deep enough to get it done. I mean, we've sold now over $2 billion worth of property, I think, since listing went on. I don't know what that date is, but, you know, I think we've been one of the more active sellers of Office. I think we've been one of the more successful sellers of Office. I think people are, you know, surprised from time to time on some of the pricing that we get.
Knockout.
Thank you.
Speaker Change: Got it? Yeah, that's very helpful. And what's currently in the pipeline in terms of sign PFA or like NLIs? Has the buyer pulled up or off the side of the thin or are you still seeing reasonably deep interests?
For more information visit www.FEMA.gov
Speaker Change: I mean, reasonably deep enough to get it done. I mean, we've sold now over $2 billion worth of property, I think since listing what that date is. But, you know, I think we've been one of the more active sellers of office. I think we've been one of the more successful sellers of office, I think people are...
Speaker Change: You know, surprised from time to time on some of the pricing that we get.
Michael Escalante: Well, I'm not going to tell you exactly what we have under PSA, but I would tell you that you know. It has. I would tell you there's more and more people talking about office investment. But I think, as I've said previously in previous quarters, this really comes down to finding the right buyer for the right asset at the right time. We tend to look for people that are sharpshooters, have banking relationships on a local level, have existing balance sheets where they don't need to borrow, they can borrow after closing, things of that nature. So you've got that in combination with tenants that have very deep pockets, and that's a pretty good reliable – it's been reliable so far in going with them and their ability to close.
Speaker Change: I'm not going to tell you exactly what we have on the PSA, but I would tell you that
You know...
It has.
Speaker Change: I would tell you there's more and more people talking about office investment.
Speaker Change: But I think as I've said previously in previous, you know in previous quarters
Speaker Change: This really comes down to finding the right buyer for the right asset at the right time. We tend to look for people that are sharpshooters, have banking relationships on a local level, have existing balance sheets where they don't need to borrow, they can borrow after closing.
Speaker Change: You know, things of that nature. So you got that in combination with, you know, tenants that have a very deep pockets.
Speaker Change: and that's a pretty good reliable, it's been reliable so far in going with them and their ability to close. So reliability is key in terms of how we're looking at
Michael Escalante: So reliability is key in terms of how we're looking at buyers these days.
Michael Escalante: And then in terms of IOS, how would you characterize tenant demand today? Are there any shifts in terms of, you know, users such as logistics or construction or equipment storage? Yeah, I mean, I think, you know, we have the vacancy that we have is related to, you know, the, what was the six redevelopment assets, we moved As a result of fully leasing the Everett property, our largest property, we will be effectively moving that out of... our redevelopment to our operating portfolios as part of that process. And then we're actively in discussions with a variety of tenants.
Speaker Change: And then, just for ILS, how will your characterized tenant demand today? Are there any ships in terms of, you know, users, such as logistics, construction, or equipment storage?
Thank you.
Speaker Change: Yeah, I mean, I think, you know, we have the vacancy that we have is related to what was the six redevelopment assets we moved.
Speaker Change: as a result of fully leasing the ever-at-property or largest property, we will be effectively moving that out of.
Speaker Change: Our redevelopment to our operating portfolio as part of that process and then we're actively in discussions with a variety of tenants so demand has not really changed from the time that we...
Michael Escalante: So demand has not really changed from the time that we. took the properties over. We've changed a little bit of what we're doing on some of the properties, but I think we've benefited. Just like we benefited at Everett from not having to spend capital that we originally performed, at least on the first go-around. And that is playing out. We are actually finding some demand from tenants who are willing to take the properties as is, or virtually as is, relative to what we could have spent in a particular situation. So we've got a couple of others that have had a little more work going on to them, and the interest level in what we're going to bring to market for those deals seems to be spot on.
Speaker Change: to the properties over. We've changed a little bit of what we're doing on some of the properties, but I think we've benefited.
Speaker Change: Just like we benefited at Everett from not having to spend.
Speaker Change: Capital that we originally performed, at least on the first go-around and that that is playing out we are actually finding some some demand from tenants who are willing to take the properties as is or you know virtually as is relative to what we
You know, could have spent...
Speaker Change: in a particular situation. So, we've got a couple of others that have had a little more work going on to them and the interest level in what we're going to bring to market for those deals seems to be spot on.
Michael Escalante: to what we anticipated originally. So, so far, fingers crossed, knock on wood, we haven't really seen any change.
Speaker Change: to what we anticipated originally. So far, fingers crossed, knock on wood, we haven't really seen any change.
Unnamed Speaker: Okay.
Unnamed Speaker: Thank you, Mike. Really appreciate it. Yeah, no worries. Thank you for your time.
Okay, thank you Mike, really appreciate it.
and Javier Bitar. Thank you. Thank you.
and the Warriors, thank you for your time.
Speaker Change: apologies. Thank you. Ladies and gentlemen, we have reached the end of our question and answer session and I would now like to turn the call back over to Michael Escalante for closing comments. Please go ahead [inaudible]
Operator: Thank you, operator. Appreciate everyone joining the call today. And of course, all the time and effort in in following us. Appreciate your patience as we work through this transformation. We, we keep. looking at what we're doing is trying to make sure that we message a a succinct story and we are trying to make sure that we're delivering on that story as well. So stay tuned. We're very, very active in the marketplace on all fronts and we're excited about our future as we move through this transition. Thanks for your time today. Thank you, sir.
Michael Escalante: Thank you, operator. Appreciate everyone joining the call today and of course all the time and effort in following us. Appreciate your patience as we work through this transformation. We keep.
Michael Escalante: Looking at what we're doing is trying to make sure that we message it a...
Michael Escalante: It's a sync story and we are trying to make sure that we're delivering on that story as well. So stay tuned. We're very, very active in the marketplace on all fronts and we're excited about our future as we move through this transition. Thanks for your time today.
Operator: Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines. Thank you for joining us.
Speaker Change: Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Speaker Change: [music].