Peakstone Realty Trust

are at pqst.com with any questions. 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. 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. 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 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 earnings release and filings with the SEC. On the call today are Mike Escalante, CEO of Presidents, and Javier Bitter, CFO. With that, I'll hand the call over to Mike.

Good afternoon. Thank you for joining our call today. We continue to advance our strategic transformation into an industrial RE. Growth in the industrial outdoor storage, or iOS subsector, remains central to this strategy. Our focus is on scaling our iOS platform through acquisitions and leasing, divesting our remaining office assets, and reducing leverage. During and subsequent to quarter end, we made meaningful progress across each of these focus areas. Let me start with the recent activity across our iOS platform, where we continue to drive both external and internal growth. We expanded our iOS portfolio with two acquisitions, totaling approximately $52 million. First, we acquired a 27 usable acre property in an infill sub-market in Atlanta for approximately $42 million. This site is located along one of Atlanta's most active and established industrial corridors and features upgraded yard space and a combination of renovated and newly constructed buildings to support yard operations. It is fully leased to two tenants, each having long-term contracts in the logistics or municipal services sectors. On a combined basis, the leases have a weighted average term of five years and include .8% average annual rent escalations. Second, we acquired a 9.2 usable acre property in Port Charlotte, Florida for approximately $10.4 million. The property is located within the growth corridor, stretching from Tampa through Fort Myers, an area experiencing strong economic and demographic momentum. It is fully leased to three tenants, including a national equipment rental company as the anchor. On a combined basis, the leases have a weighted average term of 6.8 years and include 3% average annual escalations. In addition to acquisitions, we continue to demonstrate execution across our iOS redevelopment program. Shortly after quarter end, we completed the redevelopment of another iOS property. We executed a full-site -half-year lease at our property in Savannah, which commenced in July. The lease delivers over $0.5 million of incremental ABR with 4% annual rent escalations. It is also notable that this was one of the largest iOS leases in the Savannah market year to date. The transaction reflects our continued ability to execute on redevelopment and drive growth across the iOS platform. As a result of this activity, we have increased our iOS ABR by over 25% since the beginning of the year. Turning to Office, we have taken meaningful steps towards monetizing our Office portfolio, a priority we expect to execute at an even more accelerated pace. Through quarter end, we sold seven Office properties for $158 million. Subsequent to quarter end, we closed on two additional sales located in Platteville, Colorado and Andover, Massachusetts, totaling $24 million, bringing our -to-date Office sales to 11 properties totaling $216 million. We also took steps to further align book values with expected sale outcomes. During the quarter, we recognized a non-cash impairment of approximately $286 million, primarily related to 18 Office properties. These non-cash impairments reflect shortened, anticipated hold periods and updated expectations for sale pricing, consistent with our strategy to sell all of our Office assets in the coming quarters. As a result, the Office segment now represents just 35% of the net book value of our real estate assets or approximately $615 million, while the Industrial segment accounts for approximately 65%, reflecting the ongoing success, transforming our portfolio. With that, I'll turn the call over to Javier to walk you through our financial results and capital markets activity. Javier?

Thanks, Mike. To begin, I'll cover several key financial highlights for the quarter end of June 30 before turning to a few pro forma metrics that reflect activity completed after quarter end. For the quarter end of June 30, total revenue was approximately $54 million, and cash in OI was approximately $43 million. Net loss attributable to common shareholders was approximately $265 million, or $7.22 per share, inclusive of non-cash impairments of approximately $286 million recorded during the quarter. As Mike explained, the vast majority of these non-cash impairments related to 18 Office segment properties. FFO was approximately $23.9 million, or $0.60 per share on a fully diluted basis. Fore FFO was approximately $23.8 million, or $0.60 per share on a fully diluted basis, and AFFO was approximately $24.3 million, or $0.61 per share on a fully diluted basis. Same store cash in OI increased 9.3 percent in our industrial segment and 4.7 percent in our office segment, or an overall increase of 6.3 percent compared to the same quarter last year. Moving on to our balance sheet. At quarter end, total liquidity was approximately $356 million consisting of cash in available revolver capacity. Our cash balance, excluding restricted cash, was approximately $264 million, and available revolver capacity was approximately $92 million. We had approximately $1.26 billion of total debt outstanding, including $900 million of unsecured debt on our credit facility with the remainder and non-report secured mortgage debt. After deducting cash, our net debt was approximately $1 billion. Next, I would like to mention the impact of certain post-quarter activity. As we had previously disclosed, our forward-starting -to-fixed interest rate swaps totaling $550 million took effect on July 1st, converting so far on our credit facility After giving effect to these swaps, our weighted average interest rates on all debt, both secured and unsecured, is approximately 5.47 percent. Also, following the post-quarter leasing, acquisition, and disposition activity that Mike described, our net debt to adjusted EBIT RE increased modestly, from 6.4 times at quarter end to 6.6 times on a pro forma basis, but remains below our first quarter level of seven times. We remain focused on reducing leverage over time and expect to continue making progress as we execute on our plan. In light of the continued execution of our office dispositions and the resulting evolution of our earnings profile, the board has approved a dividend of $0.10 per common share for the third quarter. This dividend is payable on October 17th to holders of record as of September 30th. The updated dividend level reflects the ongoing transition of our portfolio to an exclusively industrial strategy and is designed to align with the cash flow characteristics of that portfolio. It also provides a foundation as we continue to scale the iOS platform. With that, I'll turn the call back over to Mike.

Thanks, Javier. As we look ahead, we remain confident in our strategy and our ability to execute. We're reshaping the portfolio with intention, simplifying the platform, reallocating capital to higher growth iOS opportunities, and strengthening the balance sheet. We believe this positions the company to maximize value for its shareholders. With that, we'll now open the call for questions.

Operator. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. First question we have is from Jaina Galan of Bank of America. Please go ahead.

Thank you. Good afternoon. Just wanted to get a little bit more color on the board's thinking around the dividend and when you kind of mention a line with the cash flow characteristics of industrial outdoor storage. Can you just help us better understand what that means? And maybe at what scale would they go back to something of more of like a stabilized ASFO payout ratio or something of the sort?

Well, Jaina, appreciate you joining the call. You know, I think it's much more straightforward than I think that, that, you know, your question implies. I mean, we're basically just looking forward to a post office environment. And looking at our industrial sector segment overall, which includes traditional and in iOS. So looking at how that's been established is really in keeping with the fact that we've made an announcement that we're accelerating our ship to an industrial rate and monetizing fully the office segment.

Thank you. And I guess maybe just on the looking at the 2026 lease expiration schedule. And just if you could help us understand more a little bit about like iOS. When do those kind of renewal discussions begin? What historically has kind of been the renewal percentage for this product type? Any color there?

Yeah, no worries. So, you know, the great news is that we've had very little rollover. We have very little vacancy in the operating portfolio. I think it's 0.4%. It's two of 12 acres in our Philadelphia location. And we're involved in doing a minor redo at that site and have interest in that particular property as well. If you look forward, we only have one more lease that expires in 2025. And we think that the tenant in that location is interested in staying as well for a at least for an abbreviated period. They're trying to figure out their long term needs. And then looking forward to 2026, we have eight leases that expire. And it's about 9% of our AVR. And I think the majority of those leases have fixed rate renewals at tenant favorable rates. So our expectation in that situation is based on their operations to the extent that they're happy with the location, we anticipate that they would, you know, more than likely be incentivized to renew. Thank you. You're welcome.

The next question we have is from Michael Goldsmith of UBS. Please go ahead.

Good afternoon. Thanks a lot for taking my questions. Can you provide the cap rates of where you've been buying the iOS during the quarter and where you've been selling the office?

Yeah, so we don't provide them on an individual basis, but on an aggregated basis, you have in our, you have in our, you know, what you call it, in our IT, excuse me, the data to be able to calculate that if you want to on an aggregated basis. You know, we've, so that's relative to the acquisitions. And then relative to our office, we've identified again on an aggregate basis and then an individual property by property basis in our IP and in our supplement, the very specific properties that were sold. So you can sort of piece that all together relative to the aggregate numbers that we give you. And we just haven't done that on an individual basis. But I think the last quarter, we gave you some guidelines relative to the makeup of, you know, leases that are less than five years in terms of, you know, what those sales will look like. And then we also gave you some direction on leases that had more than five years. And we've been sitting right in between the goalposts that we provided you in that instance.

Thanks for that. And as we think about, right, like you've got continued visibility into selling down the office. So, you know, how are you thinking about the using those proceeds for, you know, and you've gotten the leverage down to about six and a half times. And I know you want to kind of want to get a little bit lower. So can you just, you know, kind of outline how you're thinking about using that for either paying down debt or acquiring and, yeah, just kind of a framework as you continue to evolve the portfolio?

Yeah, Michael, I think we've been very consistent in how we approach that. It's a very balanced approach for us. As you can see, we were able to do some acquisitions after the quarter. So in our past, we've been very direct in saying that we're looking to get to below six times debt. The EBITDA. And in this instance, you know, last quarter we were at seven. If you look how we ended the quarter, I think we were at six, four. And then we popped back up to six, six as a result of our acquisitions. I think in those numbers, you'll find somewhat of a microcosm of everything that we're trying to accomplish by balancing a further reduction in our leverage. And by the same time, show that we are active in the acquisition market and looking at, you know, continuing to do that. We do have an accurate pipeline. I would say that we have a greater pipeline than the, which allows us to be, you know, it's a significant pipeline, which allows us to be picky, if you will.

One last one for me. We've heard throughout TripleNet reporting to you, Jim, about how there's been increased competition for deals. Recognizing you've been buying out of the iOS space. So I was curious if you've seen competition evolve, you know, or pick up in any way within the space that you've now been acquiring.

Thanks. Yeah, I think, I mean, yes. The market is active. I mean, there's quite a bit of capital that is increasingly being raised for iOS. I think it's largely with private entities, by and large. I think there is actually more debt capital that is coming into the market. It's not cheap still. So it keeps pricing sort of elevated. I think we have, you know, we have a construct that allows us to be much more fluid than I think our private competitors in that regard. So yeah, I would say the market is definitely active. But we, by virtue of our experience, our long timeframe of being in the marketplace overall, our specific iOS contact, and the fact that we have a, you know, pretty fairly national portfolio, we get a lot of play from many people who are interested in discussing dispositions with us.

Thank you very much. Good luck in the back half.

Thank you, Michael.

The next question we have is from Anthony Howe of True Securities. Please go ahead.

Good afternoon, guys. Hello, Mike. Hey, Javier and Mike. Just curious, what specific variables changed that triggered the $206 million impairment this quarter? Was it really, was it driven by actual bids coming below the book value, or is it third party appraisal, or just market comps?

I'll let Javier take the shot of that one, and I'll fill in behind him.

Yeah, no, I think it's really driven by the acceleration of our sales and really taking the shorter hold period and really looking at, you know, our controls and accounting processes with respect to that. So, as you, from a gap standpoint, when you look at the, you know, the acceleration of sales, you've got to look at the fur value calculation, you know, at the time. So, that's really what drove the, you know, the acceleration of these impairments.

Okay, gotcha. And I think you guys mentioned that expectation of acceleration and office disposition. Can you elaborate on what's driving the confidence? Is it improved buyer demand, better pricing picture, or something else?

No, I mean, we've, you know, we've been hinting to the fact that we're leaning towards industrial. We've said that we're going to be recycling capital. We've come out very, very front, forward facing today and, you know, highlighted the fact that we're going to accelerate our shift to industrial week. I mean, I think this is just a continuing evolution of our transition. And, you know, I think the market generally is impatient with transitions. And so, we believe that the faster we can get to the other side and start showing growth, and specifically the embedded growth in our portfolio on the iOS side, you know, from the fact that we've got, you know, increasing escalations built in. We've got a mark to market. And then, you know, we've got the redevelopment portion of our portfolio that's starting to, you know, complete and open itself up to leasing. We've shown that we've been successful already in bringing some of those into the operating portfolio. And then lastly, you know, the piece that we're doing relative to the acquisition. So, all of that, you know, would sort of go to waste if it was sitting around mired in the office side of the results. So, we're trying to get to the other side as quickly as we can so that the market can look at us, you know, more on a go-forward basis.

Fair enough. Yeah, that makes sense. And last question for me, can you share about what's currently in your iOS pipeline in terms of volume, maybe geography, or even the deal stages?

Yeah, we're not going to…we're not at that stage. I mean, we're, you know, we're operating typically right now in a market that we're competing with private buyers. And so, in that sense, we would be giving away the secret recipe. So, I'll just tell you that we are…our pipeline is sufficient and it is, you know, we've got a great, you know, opportunity to look at, you know, a variety of things in terms of making out a portfolio. I mean, I think we're going to be…you know, the market fundamentals are going to drive what we're looking at. We can continue to look at markets with persistent supply constraints, strong demand growth from tenants, rent growth potentials. We're looking for, you know, zoning compatibility for the uses in relative to our physical characteristics. We're looking for properties that provide us adaptable improvements that we can have in terms of building and support their yard operations. And then we're looking across, you know, to maintain our tenant industry diversification. And we're looking to expand our relationship with our existing tenants. So, we're going to do, you know, core infill, growth corridors, strategic growth and MSAs where certain of our tenants have a desire to grow, you know, things of that nature. So, all of that is playing into how we're picking our spots, if you will. And again, I think I said it earlier, when you look at what we own, leveraging off of that portfolio and platform and the relationships that we have as a result of that reach is really what's going to allow us to continue to drive this business forward and really accelerate growth as well.

Thank

you. You're welcome.

At this time, we have no further questions and I would like to turn the floor back over to management for any closing remarks.

Thank you, operator. I want to thank everybody, the analysts and investors as well for joining us today. We appreciate your support and we continue to work our tails off on behalf of the shareholders and really looking to maximize value and we think we've got a great, great foundation to move forward in that regard. Thank you again.

Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.