Peakstone Realty Trust

Greetings and welcome to the Peakstone Realty Trust second quarter 2023 earnings call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your cell phone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to Investor Relations to begin.

Thank you. Good morning, everyone, and welcome to Peekstone Realty Trust's second quarter 2023 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.pksp.com. 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 and are considered forward-looking. The company intends for all these forward-looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are 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 make those actual results to differ significantly than those expressed in any forward-looking statement. and will 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, or quarterly report on Form 10-Q, filed with the SEC. We disclaim any obligation to publicly update or revise any forward-looking statements to reflect changes in underlying assumptions or factors of 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 adjusted EBITDA RE. You can find a tabular reconciliation of non-cap financial measures to the most currently comparable gap numbers in a company's filings with the SEC. On the call today are Mike Lascolante, Chief Executive Officer, and Javier Batar, Chief Financial Officer. With that, I'll hand the call over to Mike.

Thank you, and welcome to Peakstone Realty Trust's second quarter 2023 earnings call and webcast. I'll begin by providing an overview of our key achievements during and subsequent to the second quarter. Javier will then follow with a review of our financial results and our balance sheet. And finally, I'll return with closing comments as we look to the future. We had a very active quarter. We listed our shares on the NYSE, redeemed our preferred shares, and made meaningful progress in executing our disposition and deleveraging strategy. However, our financial results for the quarter were impacted by non-cast charges primarily related to office asset impairments and non-recurring expenses related to the listing. Overall, our high-quality, newer vintage industrial and office portfolio continues to deliver consistent performance. At the end of the quarter, our wholly-owned portfolio consisted of 73 properties, totaling approximately 18.2 million square feet, with annualized base rents, or ABR, of approximately $202 million. 63% of our tenants, their guarantors or non-guarantor parent entities, as applicable, have an investment grade rating. The portfolio had a weighted average lease term of 6.5 years and was 96% leased, up from 95.3% last quarter. During the quarter, we strengthened our balance sheet by continuing to successfully execute our business plan. As previously disclosed, we used cash on hand to redeem our $125 million Series A preferred shares at par. These shares were issued to and held by a third-party international investor. The redemption generates annual savings of approximately $10 million in preferred distributions. We sold five office properties for gross proceeds totaling $131 million, bringing the year-to-date gross disposition proceeds to approximately $300 million and an average cash cap rate of 7.6% for the stabilized asset. Following the redemption and the property sales this quarter, leverage for our consolidated portfolio improved to 6.6 times, improving by one-half of a turn during the quarter. The cash we're holding as a result of these dispositions afford us maximum flexibility to prudently allocate capital for uses aligned with our go-forward strategy. Since the start of the year, we have reduced our office concentration and improved our leverage by over one turn from 7.7 times to 6.6 times, and we are moving closer to our near-term target of six times for our net debt to EBITDA. Turning to our segments, In our industrial segment, which consists of 19 properties totaling approximately 9 million square feet, we ended the quarter with 100% economic occupancy and a waltz of 6.6 years. We continue to see sound fundamentals in our industrial markets. As an example, approximately 49% of our segment ABR is generated by properties proximate to top U.S. ports. Many of these port markets in which we own properties are exhibiting robust economic activity, and the ports are realizing growth in container volumes, notably the East Coast ports of Savannah, Norfolk, New York and New Jersey, and Charleston. Container volume growth is an important demand driver for industrial space in these markets, and we believe our properties will continue to benefit from strong fundamentals stemming from this activity. Our nearest expiration in this segment is the Samsonite lease in Jacksonville, which expires in the fourth quarter of 2024. This asset accounts for 8% of our industrial segment AVR, and we continue to have an active dialogue with the tenant regarding a potential lease renewal. It's worth noting the Jacksonville market has experienced meaningful leasing activity of late. Our team is actively evaluating industrial investment opportunities, and when appropriate, we intend to acquire additional high-quality industrial assets to further enhance our portfolio composition. Now turning to our office segment, which consists of 35 properties, totaling approximately 5.7 million square feet, we ended the second quarter with 97% economic occupancy and a wealth of 7.9 years. This segment continues to provide stability with limited near-term rollover exposure. We have no remaining lease expirations in 2023. Leases expiring in 2024 account for less than 1% of office segment ABR, and leases expiring in 2025 only account for 2.9%. Economic occupancy in the office segment declined by 1.2% from the prior quarter due to the expiration of a 60,000 square foot lease at our terraces at Copley Point property in San Diego. This Class A building contains modern specifications and is prominently located at a key highway intersection with excellent visibility. We like the fundamentals and demand prospects in this market, and currently we are optimistic about our releasing prospects. Across our office markets, we're starting to see some green shoots on the demand side with increases in tour activity and RFPs. We're also encouraged by continued upticks in daily physical occupancy as tenants prioritize in office work. Largely due to the following attributes, we believe our differentiated office assets are well positioned to provide ongoing stability moving forward. Our average office building age is 11 years and many of our properties offer market leading specifications and amenities which offer a competitive advantage. Over 81% of our office segment ABR is generated from coastal or Sunbelt markets, which are generally experiencing strong net migration and superior leasing fundamentals. And finally, over 55% of our buildings contain essential functions such as corporate headquarters, critical R&D, labs, or data center command center operations, which are difficult and costly to replicate. Turning to our other segment, we own 19 properties totaling approximately 3.6 million square feet. 14 of these properties are encumbered by non-recourse loans that provide downside protection. We continue to evaluate the remaining five properties on a case-by-case basis to determine the best way to maximize value, whether to invest additional capital or sell them as is. To that point, we disposed of two vacant properties in the segment during the quarter. Finally, in addition to the three segments, we also own a 49% interest in a joint venture which contains 46 office properties or 59 buildings. It's worth mentioning that subsequent to quarter end, the Board of Trustees approved a $200 million at-the-market program to provide additional flexibility to manage our balance sheet diversify our capital sourcing options, and offer an efficient mechanism to access capital in the future. With that, let me turn the call over to Javier to review our financial results. Javier?