Peakstone Realty Trust(US:PKST)2025-08-07 20:28PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited consolidated financial statements reflect a significant net loss driven by real estate impairments and a strategic portfolio shift Consolidated Balance Sheets Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $264,392 | $146,514 | $117,878 | | Total real estate, net | $1,706,264 | $2,264,048 | ($557,784) | | Total assets | $2,190,570 | $2,676,232 | ($485,662) | | Debt, net | $1,246,767 | $1,344,619 | ($97,852) | | Total liabilities | $1,414,333 | $1,524,210 | ($109,877) | | Total equity | $776,237 | $1,152,022 | ($375,785) | - The significant decrease in total assets and equity is primarily driven by property dispositions and real estate impairment charges, reflecting the company's strategic shift away from office properties16 Consolidated Statements of Operations Consolidated Statements of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Rental income | $54,026 | $55,952 | $110,997 | $115,179 | | Real estate impairment provision | $286,126 | $6,505 | $338,083 | $7,881 | | Net (loss) income | ($286,760) | ($4,101) | ($340,162) | $1,369 | | Net (loss) income attributable to common shareholders | ($265,300) | ($3,768) | ($314,683) | $1,257 | | Net (loss) income per share, basic and diluted | ($7.22) | ($0.11) | ($8.57) | $0.03 | - The company reported a substantial net loss for the three and six months ended June 30, 2025, primarily due to a significant increase in real estate impairment provisions, which rose to $338.1 million for the six-month period compared to just $7.9 million in the prior year period19 Consolidated Statements of Cash Flows Consolidated Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $39,740 | $40,728 | | Net cash provided by investing activities | $197,206 | $67,870 | | Net cash used in financing activities | ($118,444) | ($48,312) | - Investing activities provided a significant source of cash ($197.2 million) in the first six months of 2025, largely from $187.0 million in proceeds from property dispositions2930 - This cash was partly used for financing activities, including a $100.0 million paydown of the credit facility2930 Notes to Consolidated Financial Statements Detailed notes cover the strategic transition to an industrial-only REIT, significant impairments, and segment performance shifts - The Company is executing a strategic transition to become an industrial-only REIT, focusing on growth in the industrial outdoor storage (IOS) sector while actively divesting its office properties32 Real Estate Dispositions - Six Months Ended June 30, 2025 | Segment | Number of Properties | Gross Sales Price | Gain (Loss) | | :--- | :--- | :--- | :--- | | Office | 9 | $192,431 | ($1,545) | Real Estate Impairments - Six Months Ended June 30, 2025 | Segment | Number of Properties | Impairment Amount | | :--- | :--- | :--- | | Office | 24 | $334,924 | | Industrial | 1 | $3,159 | | Total | 25 | $338,083 | - Subsequent to quarter-end, the company acquired two IOS properties for $52.4 million and sold two Office segment properties for $23.6 million, continuing its strategic portfolio reshaping140141 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift to an industrial REIT, portfolio performance, non-GAAP measures, and capital resources Overview and Business Environment - The company is strategically transitioning to become an industrial-only REIT, targeting growth in the Industrial Outdoor Storage (IOS) sector while divesting office properties144164 - Management believes long-term demand for industrial real estate will remain strong due to onshoring trends, e-commerce growth, and supply constraints166167 Top 5 Tenants by Annualized Base Rent (ABR) as of June 30, 2025 | Tenant | ABR (in thousands) | % of Total ABR | | :--- | :--- | :--- | | Keurig Dr. Pepper | $11,897 | 7.1% | | Amazon | $10,003 | 6.0% | | Southern Company Services | $9,597 | 5.7% | | Maxar | $7,916 | 4.7% | | Freeport McMoRan | $7,867 | 4.7% | Results of Operations Same Store NOI Change - Q2 2025 vs Q2 2024 (in thousands) | Segment | Q2 2025 Same Store NOI | Q2 2024 Same Store NOI | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Industrial | $12,918 | $12,854 | $64 | 0% | | Office | $22,447 | $22,018 | $429 | 2% | | Total | $35,365 | $34,872 | $493 | 1% | Total Portfolio NOI Change - Six Months Ended June 30 (in thousands) | Segment | H1 2025 NOI | H1 2024 NOI | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Industrial | $41,887 | $25,369 | $16,518 | 65% | | Office | $51,704 | $54,843 | ($3,139) | (6)% | | Other | $0 | $12,838 | ($12,838) | (100)% | | Total | $93,591 | $93,050 | $541 | 1% | - The net loss of $340.2 million for H1 2025 was primarily driven by a $330.2 million year-over-year increase in real estate impairment charges related to the planned disposition of office properties192198 - The significant 65% increase in Industrial NOI for H1 2025 was driven by the acquisition of the IOS Portfolio in late 2024, while the decrease in Office and Other NOI reflects the impact of property dispositions193194195 Non-GAAP Financial Measures FFO, Core FFO, and AFFO per Share/Unit | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | FFO per share/unit | $0.60 | $0.65 | $1.22 | $1.18 | | Core FFO per share/unit | $0.60 | $0.65 | $1.22 | $1.30 | | AFFO per share/unit | $0.61 | $0.70 | $1.24 | $1.40 | - FFO is significantly higher than net income primarily due to the exclusion of large non-cash charges for real estate impairment ($286.1M in Q2 2025) and depreciation213 Total Cash NOI (in thousands) | Period | 2025 | 2024 | | :--- | :--- | :--- | | Three Months Ended June 30 | $43,196 | $44,002 | | Six Months Ended June 30 | $88,798 | $91,333 | Liquidity and Capital Resources - As of June 30, 2025, the company had $264.4 million in cash and cash equivalents and $91.4 million of available undrawn capacity under its Revolving Credit Facility219220 Consolidated Debt Summary as of June 30, 2025 (in thousands) | Debt Type | Amount | | :--- | :--- | | Total Secured Debt | $360,326 | | Total Unsecured Debt | $900,000 | | Total Debt | $1,260,326 | | Unamortized Costs & Discounts, net | ($13,559) | | Total Debt, net | $1,246,767 | - In April 2025, the company made a $100.0 million paydown of its Revolving Loan and was in compliance with all debt covenants as of June 30, 2025233232 - On August 5, 2025, the Board declared a quarterly dividend of $0.10 per common share, a reduction from the previous quarter's $0.225 per share dividend139226 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk from variable-rate debt, which is managed through interest rate swaps - The company's primary market risk exposure is to interest rate changes on its variable-rate debt238 - As of June 30, 2025, the company's debt consisted of approximately $1.1 billion in fixed-rate debt (including swaps) and $150.0 million in variable-rate debt241 - A hypothetical 100 basis point increase in interest rates would decrease annual earnings and cash flows by approximately $3.3 million, after accounting for interest rate swaps241 Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report243 - No changes occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting244 PART II. OTHER INFORMATION Legal Proceedings The company reports that there are no material pending legal proceedings to which it is a party - The company reported no material legal proceedings245 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - There were no material changes to the risk factors from the company's most recent Form 10-K246 Unregistered Sales of Equity Securities and Use of Proceeds The company reports no sales of unregistered securities or repurchases of its equity securities during the relevant periods - During the six months ended June 30, 2025, there were no sales of unregistered securities247 - The Company did not repurchase any of its shares during the three months ended June 30, 2025248 Defaults Upon Senior Securities The company reports no defaults upon senior securities - None reported249 Other Information No trustee or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - No trustee or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter251 Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including officer certifications and interactive data files