Peakstone Realty Trust

Greetings and welcome to the Peakstone Realty Trust third quarter 2023 earnings webcast and 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 during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to the investor relations team. Thank you. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Seat Zone Realty Trust's third quarter 2023 earnings call webcast. Earlier today, we posted an earnings release, supplemental, and updated investment presentation to the investors' page on our website at www.ksp.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 may cause 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 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 these non-GAAP financial measures to the most currently comparable GAAP numbers in the company's filings with the SEC. On the call today are Mike Escalante, Chief Executive Officer, and Javier Batar, Chief Financial Officer. With that, I'll hand the call over to Mike. Mike.

Thank you and welcome to Peakstone Realty Trust's third quarter 2023 earnings call and webcast. I'll begin by providing an overview of our key achievements during the third quarter. Javier will follow with a review of our financial results and our balance sheet. And finally, I'll return with closing comments. and some general commentary on the market as we look to the future. 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 18.1 million square feet, with an annualized base rent, or AVR, of approximately $203 million. It is worth noting that 60.1% of our tenants, their guarantors or non-guarantor parent entities, as applicable, have an investment grade rating. At quarter end, we had total liquidity of approximately $517 million, affording us maximum flexibility to prudently allocate capital for uses aligned with our go-forward strategy. Leverage for our consolidated portfolio improved to 6.4 times. This result is an improvement of 0.2 turns from the second quarter and, importantly, an improvement of 1.3 turns since the start of the year. We are pleased that we continue to move closer to our near-term leverage target of six times through strategic asset sales and free cash flow generation. Our consolidated portfolio was 96.4% leased up from 96.0% last quarter and had a remaining weighted average lease term of 6.3 years. During the quarter, we improved the asset composition of our other segment by executing lease renewals totaling approximately 117,000 square feet and selling one vacant office property for gross disposition proceeds of $8.3 million. This activity brings year-to-date gross disposition proceeds to approximately $309 million and an average cash cap rate of 7.6% for the stabilized assets. Using cash on hand, we paid off our Samsonite mortgage loan, which had an outstanding principal balance of $17.1 million and carried an interest rate of 6.08%. I'll turn now to our portfolio 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 vault of 6.3 years. We continue to see sound fundamentals in our industrial markets, and we expect to capture favorable rental rate increases on future renewals given the market trends we've experienced over the past few years. We have 21% of ABR expiring in this segment prior to year-end 2026, with approximately half of that rollover occurring in 2026. Our sole 2024 industrial segment expiration, roughly 8.4% of ABR, is scheduled to occur in the fourth quarter of 2024 at our Samsonite asset in Jacksonville. As we mentioned last quarter, we are in an active dialogue with this tenant regarding a potential lease renewal. Now turning to our office segment, which consists of 36 properties totaling approximately 5.7 million square feet, we ended the quarter with 97% economic occupancy and a waltz of 7.7 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 one percent of segment avr and leases expiring in 2025 account for only 2.9 percent of segment avr largely due to the following attributes We believe that our differentiated office assets are well positioned to provide ongoing stability moving forward. Our average office building is only 11 years of age, and many of our properties offer market-leading specifications and amenities which offer a competitive advantage. Over 81% of our office segment AVR is generated from coastal and sunbelt markets, which are generally experiencing strong net migration and superior leasing fundamentals. And finally, over 55% of our office buildings contain essential functions such as corporate headquarters, critical R&D, labs, or data center slash command center operations, which are difficult and costly to replicate. Turning to our other segment, which consists of 18 properties totaling approximately 3.4 million square feet, We ended the quarter with 83% economic occupancy and a walk of 2.7 years. 14 of these properties are encumbered by non-recourse loans that provide downside protection. We continue to evaluate the remaining four properties on a case-by-case basis to determine the best way to maximize value. That is, whether to invest additional capital or sell them as is. To that point, we disposed of one vacant property in this segment during the quarter, and we extended two leases, totaling roughly 117,000 square feet, consisting of a 7.5-year lease extension, totaling 56.6,000 square feet at our AOPC building in Mechanicsburg, Pennsylvania. This property is a mission-critical operations and data center facility for the Pennsylvania court system, and the extension commences July 1, 2024. We also completed a four-month lease extension totaling 60,000 square feet at our KBR building in Huntsville, Alabama. This short-term extension was executed on 50% of the building to provide KBR additional time to vacate its space. In addition to the above three segments, we have a 49% interest in an office joint venture, which owns 46 office buildings. This quarter, We recorded an impairment of our joint venture interest of approximately $129.3 million, which represents a complete write-off of our remaining investment balance. This impairment resulted from the expected decline in fair value of this investment due to, among other factors, the increased future loan extension risk. Since our investment balance in the JV is now zero, we will stop recording any losses or equity income from the JV as of September 30th. With that, let me turn the call over to Javier to review our financial results. Javier? Thanks, Mike.