Q3 2025 Peakstone Realty Trust Earnings Call
Speaker #3: Good day . And welcome to Peakstone Realty Trust . S third quarter of 2025 Earnings Call and Webcast . All participants will be in a listen only mode .
Speaker #3: And should you need any assistance , please signal a conference specialist by pressing the star key , followed by zero . After today's presentation , there will be an opportunity to ask questions , to ask a question , you may press star then one on your telephone keypad .
Speaker #3: And to withdraw your question , please press star . Then two . Also , please be aware that today's call is being recorded .
Speaker #3: I would now like to turn the call over to Steve . Investor Relations . Please go ahead . Good afternoon and thank you for joining us for Peakstone Realty Trust third Quarter 2025 Earnings Call and Webcast .
Speaker #3: Earlier today , we posted an earnings release , supplemental and updated investor presentation to the investors page on our website at . Please reach out to our Investor Relations team at the IR at com with any questions .
Speaker #3: 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 that could cause actual results to differ materially .
Speaker #3: 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 #3: Additionally , on this call , the company may refer to certain non-GAAP financial measures , such as funds from operations or funds from operations , adjusted funds from operations , EBITDA , adjusted EBITDA and same store cash , net operating income .
Speaker #3: You can find a tabular reconciliation of these non-GAAP financial measures to the most comparable GAAP numbers in the company's earnings release and filings with the SEC .
Speaker #3: On the call today are Michael Escalante CEO and president and Javier Bitar CFO . With that , I'll hand the call over to Mike .
Speaker #4: Good afternoon , and thank you for joining our call today . Our strategic transformation into an industrial only REIT focused on growth in the industrial outdoor storage sector continues to advance .
Speaker #4: As of October 31st, our industrial portfolio generates more than 60% of our ABR through disciplined office sales, strong IOS leasing, and targeted IOS acquisitions.
Speaker #4: We have strengthened our balance sheet , reducing debt by approximately $450 million and improving total leverage to 5.4 times on a pro forma basis with solid liquidity and a growing EOS investment pipeline .
Speaker #4: We remain confident in our strategy and our ability to continue creating value for shareholders during and after the third quarter , we continued making progress on our office dispositions .
Speaker #4: As of October 31st , we sold 12 office properties totaling approximately $363 million , leaving just 12 remaining office properties in our portfolio .
Speaker #4: Buyer interest , including from existing tenants , has been strong and we expect to complete the sale of a majority of these properties by the end of this year .
Speaker #4: With a few transactions potentially closing in the first quarter of 2026 . Let me now turn to our EOS portfolio , where market fundamentals remain solid , characterised by strong tenant demand and persistent supply constraints .
Speaker #4: These dynamics continue to keep vacancies low and support healthy rent growth . Against that backdrop , we continue to deliver strong results across both our EOS operating and redevelopment portfolios .
Speaker #4: During the quarter , we executed new leases , renewals and proactive lease modifications across our EOS portfolio , generating more than $1 million of incremental EOS , ABR .
Speaker #4: These transactions brought the EOS operating portfolio to 100% leased and overall achieved weighted average releasing spreads of 116% on a cash basis and 120% on a GAAP basis .
Speaker #4: Let me provide more detail on the transactions that drove these results in Philadelphia . We signed a new eight year lease for 1.6 usable acres .
Speaker #4: That is expected to commence in the first quarter of 2026 . Following the completion of landlord improvements , the lease includes 7.7% average annual rent escalations and filled what had been our only vacancy in the EOS operating portfolio .
Speaker #4: In Houston , we executed a new 5.1 year lease for ten usable acres . The prior lease was set to expire in 2028 and included a below market fixed rate renewal option .
Speaker #4: The capture embedded value . We proactively terminated that lease and simultaneously replaced it with a new lease at releasing spreads of 9% on a cash basis and 7% on a GAAP basis .
Speaker #4: The new lease includes 3.5% annual rent escalations , and in Norcross , Georgia , we proactively downsized the existing tenant , renewing them for two years and simultaneously signed a new two year lease for the remaining acreage , keeping the 8.7 usable acres fully leased .
Speaker #4: Together , these transactions produce strong releasing spreads of 239% on a cash basis , and 251% on a GAAP basis , with weighted average annual escalations of 3.3% .
Speaker #4: In our EOS redevelopment portfolio . We executed a full site lease at our property in Savannah , Georgia , which commenced in July .
Speaker #4: The lease , which delivers over $500,000 of incremental ABR with 4% annual rent escalations , was previously disclosed . Overall , this performance highlights our ability to drive internal growth and capture the mark to market opportunity within our EOS portfolio .
Speaker #4: We intend to build on this progress as we advance our strategy . Turning now to acquisitions , let me briefly describe the three EOS properties we acquired this quarter for a total of approximately $58 million .
Speaker #4: The Atlanta property is a 27 acre site acquired for approximately $42 million at closing . It was 100% leased by two tenants with a five year Walt and 3.8% weighted average annual rent escalations .
Speaker #4: The Port Charlotte property is a 9.2 acre site acquired for approximately $10.4 million at closing . It was 100% leased by three tenants , with a 6.8 year .
Speaker #4: Wall and a 3% weighted average annual rent escalations . Both of these latter acquisitions were previously disclosed . Our third acquisition was a 2.5 acre site in Fort Pierce , along Florida's east coast .
Speaker #4: We acquired the property for $5.3 million . It includes upgraded yard space and a newly renovated building that supports yard operations . The site is fully leased by a single tenant that utilizes it to store and distribute HVAC and plumbing supplies .
Speaker #4: The lease has a remaining term of approximately ten years , and includes 2.5% annual rent escalations . Now , turning to our traditional industrial portfolio .
Speaker #4: This quarter , as part of our ongoing portfolio optimization , we sold three properties for approximately $72 million . These assets , two flex properties and one manufacturing facility are located in Baltimore , Detroit and Cleveland markets and were sold at a combined cap rate of 6.9% .
Speaker #4: Each . Asset was sold to a long term net lease focused buyer . These transactions reflect our continued effort to enhance the overall quality of our traditional industrial portfolio .
Speaker #4: We remain disciplined and opportunistic in managing these assets , consistent with our approach across all of our real estate . Going forward . We do not anticipate broad sales activity within our traditional industrial portfolio .
Speaker #4: And with that , I'll turn the call over to Javier to walk through our financial results and capital markets activity . Javier . Thanks , Mike .
Speaker #5: To begin , I'd like to explain a nuance to our reporting . This quarter . The 16 remaining office properties we owned as of September 30th , all of which were classified as held for sale and 11 of the office properties we sold prior to that date were classified as discontinued operations .
Speaker #5: As a result , these assets and related results are reported separately on our financial statements for all periods presented . Now , I'll cover several key financial highlights for the quarter before turning to a few proforma metrics that reflect activity completed after quarter end .
Speaker #5: For the quarter , total revenue was approximately $25.8 million from continuing operations , which excludes revenue from office . Discontinued operations of approximately $25.2 million .
Speaker #5: Net income attributable to common shareholders was approximately $3.5 million , or $0.09 per share . FFO was approximately $18.3 million , or $0.46 per share , on a fully diluted basis , core FFO was approximately $19.1 million , or $0.48 per share , on a fully diluted basis , AFFO was approximately $18.6 million , or $0.47 per share , on a fully diluted basis , and same store cash , NOI increased 3.7% .
Speaker #5: Compared to the same quarter last year . Moving on to our balance sheet at quarter end , total liquidity was approximately $438 million , consisting of cash and available revolver capacity .
Speaker #5: Our cash balance , excluding restricted cash , was approximately $326 million and available revolver capacity was approximately $112 million . We had approximately $1.5 billion of total debt outstanding , consisting of $800 million of unsecured debt on our credit facility and the remainder being non-recourse secured mortgage debt .
Speaker #5: After deducting cash , our net debt was approximately $725 million as of quarter end , 76% of our debt was fixed , including the effect of our forward starting floating to fixed interest rate swaps totaling $550 million , which converts Sofr on our unsecured debt to a fixed rate of 3.58% .
Speaker #5: These swaps took effect July 1st of this year and will remain in place through July 1st , 2029 . Unless we choose to terminate them in connection with future debt .
Speaker #5: Paydowns . After giving effect to these swaps , our weighted average interest rate for all debt , both secured and unsecured , was approximately 5.46% .
Speaker #5: Next , I'd like to mention the impact of certain post quarter activity . Subsequent to quarter end , we utilized proceeds from office dispositions to pay down an additional $240 million on our unsecured credit facility .
Speaker #5: On a pro forma basis . After giving effect to this Paydown and other post quarter activity , our total debt outstanding is $811 million .
Speaker #5: Our net debt is $615 million . Our total liquidity is $420 million , and our net debt to adjusted EBITDA ratio is approximately 5.4 times , which is below our target level of six times .
Speaker #5: Additionally , we want to provide some clarity around the timing amount and use of proceeds from our remaining office sales . As Mike mentioned , we expect to complete a majority of these sales by the end of this year , with a few transactions potentially closing in the first quarter of 2026 .
Speaker #5: Total proceeds from these transactions are expected to range from 300 to $350 million , and we intend to further strengthen our balance sheet by using approximately 250 to $300 million of those proceeds to pay down debt .
Speaker #5: Finally , for the third quarter , as previously announced , we paid a dividend of $0.10 per common share on October 17th , the Board of Trustees also approved a fourth quarter dividend in the amount of $0.10 per common share that is payable on January 19th to shareholders of record on December 31st .
Speaker #5: With that , I'll turn the call back over to Mike .
Speaker #4: Thanks , Javier . This quarter marks another milestone for Pinkstone with industrial assets . Now generating 60% of our ABR . Our strategy remains focused on growth in the EOS sector , supported by strong supply and demand fundamentals .
Speaker #4: Our EOS market Insight tenant relationships and execution capabilities position us to capture opportunity , drive growth and create value for our shareholders . With that , we'll now open the call for questions .
Speaker #4: Operator .
Speaker #3: We will now begin the question and answer session . To ask a question , you may press star , then one on your telephone keypad .
Speaker #3: If you're using a speakerphone , please pick up your handset before pressing the key's . And to withdraw a question , please press star then two .
Speaker #3: At this time , we will pause just momentarily to assemble our roster . And our first question will come from Dan Byun with Bank of America .
Speaker #3: Please go ahead .
Speaker #6: Hey guys . Thanks for taking my question . From the prepared remarks , it sounds like you will pay down an additional 250 to 300 $300 million of debt .
Speaker #6: When should we expect an acceleration ? EOS acquisitions or our current levels of good run rate for that ?
Speaker #4: Yeah . So , Dan , thanks for joining the call . I think that the reality of what we have right now is , as you can tell and mentioned , we've got ample liquidity and our debt ratios , you know , are are below long term targets .
Speaker #4: So you know , we'll continue to do disciplined managed . We're going to be disciplined in our management of our growth . And the strengthening of our balance sheet .
Speaker #4: So as you know there's not a straight line in the way we've conducted that . But if you look all the way back to first quarter of of this year , we were as high as 7 to 1 .
Speaker #4: So we're pretty pleased with the fact that we've been able to reduce it down to a 5.4% ratio, which gives us a little bit of leeway.
Speaker #4: There .
Speaker #6: Got it . Thank you . And congrats on bringing down your leverage below . Your goal here . I guess just going back to the acquisitions , have you seen any increased competition for the EOS assets ?
Speaker #6: And if so , like are you seeing the same private buyers or maybe even re players potentially .
Speaker #4: Yeah , I don't I don't know that I would call it increased competition . I just think there's more acceptance . And I think the other way to look at it is that the lender community has been more accepting .
Speaker #4: I think I mentioned that last quarter as well . That's that seems to be perpetuating itself . So , you know , one of the things that we have in terms of our abilities to address these matters is the fact that we've got a very , you know , flexible balance sheet with which to respond .
Speaker #4: We've shown that we can take down something that was relatively large , not that we're aiming to do that necessarily , but that in combination , those factors in combination with really our platform being national in scope allows us to see a lot of activity across the country and really take a very disciplined approach to that .
Speaker #6: Got it . Thank you very much .
Speaker #4: Sure .
Speaker #3: And our next question will come from Michael Goldsmith with UBS . Please go ahead .
Speaker #7: Good afternoon . Thanks a lot for taking my question . Another quarter of strong same store NOI growth as you implement your portfolio optimization , what do you see as the sustainable same store growth for the portfolio ?
Speaker #7: And when do you think you could you'd have enough visibility where you could start guiding around that ? Thanks .
Speaker #4: Yeah . Michael I you know , we could appreciate that your looking for that information . As you know , our business has been going on .
Speaker #4: You know , undergoing significant change . And we are not providing guidance at this time . But I think we do provide a fair amount of , you know , information .
Speaker #4: We're very transparent . And so I think we provide you a fair amount of metrics . And if you look across our supplement and our IP to try and get you as as much information as as we can provide in that regard .
Speaker #4: We we laid out in our IP , you know , the growth that we have seen and I think you've got the tools in essence , to sort of put that together .
Speaker #7: Got it . Thanks for that . And you know , another quarter of solid leasing with some nice lease spreads and strong escalations .
Speaker #7: But it also looks like , you know , you had to put a little bit of money in whether when property was under redevelopment , another required a little bit of landlord work .
Speaker #7: So just trying to understand kind of like the , you know , if there is like tenant improvement dollars or just think about the return on the money that you're putting in and and then in turn , the , the lease terms that you get out of that .
Speaker #4: Yeah . I think I think on balance , honestly , we've been surprised at how little money we've had to spend outside of our redevelopment opportunities and even inside of our redevelopment opportunities .
Speaker #4: So thus far , you know , we've been able to achieve in some of our things , in some of our leases , a fair number of deals was , frankly , no tie and very little downtime .
Speaker #4: So all said and done , the attributes that people have been mentioning about EOS in our opinion , are frankly , you know , meeting the test of time and certainly that's proven out with our ability to to operate the portfolio over the course of a , a really a full year now .
Speaker #4: And so overall , I would tell you that we're quite happy with the , the really what we've been able to achieve all the way across the board in terms of upticks in rents , lack of downtime , the interest in our sites and , and what we've been able to do on a proactive management basis .
Speaker #4: I could I could probably go on and on about that , but for now , I'll just leave it at that .
Speaker #7: Thank you very much . Good luck in the fourth quarter .
Speaker #4: Thanks a lot, Michael.
Speaker #3: And again , if you have a question , you may press star , the one to join the queue . Our next question will come from Anthony .
Speaker #3: Hall with Truist . Please go ahead .
Speaker #8: Hey .
Speaker #3: , Mike .
Speaker #8: Hey , guys . Congrats on the quarter . Mike . I might have misheard this earlier , but I think you mentioned that you guys have around .
Speaker #8: You guys are gonna have around 300 to 300 to $350 million from sales to pay down the debt . Is that additional 333 , 330 , 300 million , 3300 million .
Speaker #8: Of asset sales in the fourth quarter . Is that what you guys are gauging ?
Speaker #4: Yeah , I'll so yes , you heard that . You heard that that's the net proceeds from the remaining 12 assets that we're selling .
Speaker #5: And in the range of $300 million to $350 million, Anthony, and with that, we said we would plan to pay down debt by somewhere in the range of $250 million to $300 million.
Speaker #5: So that is a future sales .
Speaker #8: Okay . So that's on top of the 160 million you guys already announced , right ?
Speaker #5: That's correct . Yes .
Speaker #8: Okay . So and how confident are you guys are in achieving that pricing range . Are these are there like any active lease or notable tenant interests that are supporting that valuation .
Speaker #4: Yeah , we're feeling pretty good about that . Anthony . Virtually every asset is engaged at this point in time . And I think officially under control .
Speaker #4: We'd say that half of them are officially under control . But all of them are engaged .
Speaker #8: Okay . Thank you so much .
Speaker #4: You're welcome .
Speaker #5: Thank you .
Speaker #3: And this will conclude our question and answer session . I'd like to turn the conference back over to management for any closing remarks .
Speaker #4: Thank you very much . Appreciate all your time today . It's it's a very exciting quarter for us to be able to tell you and regale you with all of our successes , you know , across the board , really disciplined office sales , strong execution across our EOS leasing and the ability to put some targeted acquisitions to work in the EOS subsector .
Speaker #4: So all of that for us is has really rewarded the investors with great third quarter results . So thank you . And we're we're looking forward to our future .
Speaker #9: Thanks .