Peakstone Realty Trust Q4 FY2023 earnings call

• Throughout 2023, the company optimized its portfolio and balance sheet, selling 11 assets for over $336 million in gross proceeds. - The portfolio ended the year 96.4% leased with a WALT of 6.5 years. - In the fourth quarter, they executed four leases totaling over 1 million square feet with weighted average GAAP and cash re-leasing spreads of 26% and 9% respectively. - For the year, they sold 11 properties for gross disposition proceeds of $336 million at an average cash cap rate of 7.6%. - Leverage for the consolidated portfolio improved 1.5 turns from 7.7 times net debt to normalized EBITDA RE at the start of the year to 6.2 times at year end. - As of December 31, 2023, they had approximately $392 million in cash and $159 million of available undrawn capacity on their revolver.

The company has two main segments: Industrial and Office. In the Industrial segment, they had a lease extension with Samsonite (accounting for 8% of segment ABR) with a 14% GAAP re-leasing spread, and an early 10-year lease extension with TransDigm (accounting for 2% of segment ABR) with a 91% GAAP re-leasing spread. In the Office segment, they completed a 7.7-year lease with Spectrum and a 9.4-year lease with a subtenant at their Pima road asset. Total revenue for the quarter was $63.1 million, NOI was $50.3 million, same-store cash NOI increased 4.5% compared to the same quarter of the prior year.

• The company intends to continue evolving its portfolio towards the industrial segment which is believed to have favorable growth prospects. - They will continue to monitor the market and balance sheet flexibility. - Dividend decisions will be made by the Board of Trustees, but they expect to continue paying dividends on a quarterly basis.

• Market conditions that could impact asset sales and acquisitions. - Interest rate volatility given that 86% of their debt has fixed rates but interest rate swaps mature in July 2025. - Uncertainty in the office segment regarding near-term rollover exposure.

Q: Thoughts on 2024 lease maturities in the other segment?

A: A significant amount of rollover ties to the other category, and they have an agreement with AIG to facilitate the sale of other properties associated with AIG loans.

Q: Appetite for office assets?

A: They are selling properties not aligning with their go-forward plan, and the market is dependent on credit availability with the Fed's picture affecting the landscape.

Q: Acquisition opportunities, industrial?

A: They focus on coastal markets with infill locations similar to the properties that have performed well like those related to Samsonite and TransDigm renewals.

Q: Tech Data Corp lease expiration in San Antonio?

A: No specific guidance provided, but they are in active discussions with the tenant.

Q: Termination income from Tyler, Texas asset sale?

A: The property was sold for $21.4 million inclusive of lease termination, but the specific value of the termination income wasn't disclosed.