Peakstone Realty Trust(PKST) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements For the nine months ended September 30, 2021, total assets increased to $5.31 billion and liabilities to $2.79 billion, with net income attributable to common stockholders at $0.6 million, primarily due to the CCIT II Merger Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $5,311,403 | $4,151,850 | | Total real estate, net | $4,624,826 | $3,492,529 | | Cash and cash equivalents | $164,127 | $168,954 | | Total Liabilities | $2,791,554 | $2,411,933 | | Debt, net | $2,534,003 | $2,140,427 | | Total Equity | $2,390,147 | $1,608,269 | - The significant increase in total real estate and total assets is primarily attributable to the CCIT II Merger completed on March 1, 2021[34][54] Consolidated Statements of Operations Statement of Operations Summary (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Rental income | $340,747 | $301,157 | | Total expenses | $269,105 | $241,526 | | Net income | $7,894 | $1,347 | | Net income (loss) attributable to common stockholders | $616 | $(4,569) | | Net income (loss) per share, basic and diluted | $0.00 | $(0.02) | - Rental income for the nine months ended September 30, 2021 increased by 13.1% year-over-year, driven by the CCIT II Merger. Total expenses also rose, primarily due to higher depreciation and amortization associated with the newly acquired properties[20][193] Consolidated Statements of Cash Flows Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $155,777 | $128,953 | | Net cash used in investing activities | $(58,876) | $(34,459) | | Net cash (used in) provided by financing activities | $(115,709) | $9,809 | | Net (decrease) increase in cash | $(18,808) | $104,303 | - Investing activities in 2021 included $36.7 million in cash used for the CCIT II Merger. Financing activities included drawing $400 million from a term loan and paying off $415.5 million of CCIT II's credit facility[29] Notes to Consolidated Financial Statements The notes detail significant corporate actions and accounting policies, including the $1.3 billion CCIT II Merger, the company's name change, debt structure, and the suspension of the DRP and SRP - On March 1, 2021, the company completed its acquisition of Cole Office & Industrial REIT (CCIT II), Inc. for approximately $1.3 billion in a stock-for-stock transaction. The merger was accounted for as an asset acquisition[34][54] - The company changed its name from Griffin Capital Essential Asset REIT, Inc. to Griffin Realty Trust, Inc. on July 1, 2021[35] - As of September 30, 2021, the company's real estate portfolio consisted of 121 properties with a combined acquisition value of approximately $5.3 billion[52] - The company utilizes a $1.9 billion credit facility and has entered into interest rate swap agreements with a total notional amount of $750.0 million to hedge against variable interest rate risk[79][90] - On October 1, 2021, the Board approved the temporary suspension of both the Distribution Reinvestment Plan (DRP) and the Share Redemption Program (SRP), effective October 11, 2021 and Q4 2021, respectively[110][118] Management's Discussion and Analysis of Financial Condition and Results of Operations The $1.3 billion CCIT II Merger expanded the portfolio to 121 properties (95.1% leased), driving Q3 2021 rental income up 21% to $120.6 million and AFFO to $0.15 per share, with DRP/SRP suspended for strategic initiatives Overview and Portfolio - On March 1, 2021, the company completed its acquisition of Cole Office & Industrial REIT (CCIT II), Inc. for approximately $1.3 billion in a stock-for-stock transaction[157] - As of September 30, 2021, the portfolio consisted of 121 properties in 26 states, was 95.1% leased, and had a weighted average remaining lease term of 6.5 years[158] Top 5 States by Contractual Net Rent | State | Percentage of Contractual Net Rent | | :--- | :--- | | Texas | 11.7% | | California | 10.9% | | Arizona | 9.5% | | Ohio | 8.0% | | Georgia | 6.8% | - The top tenant, Amazon.com Inc, accounts for 3.8% of contractual net rent[169] Results of Operations Comparison of Three Months Ended September 30, 2021 and 2020 (in thousands) | Account | Q3 2021 | Q3 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Rental income | $120,568 | $100,002 | 21% | | Total Expenses | $93,892 | $82,949 | 13% | | Net income (loss) | $5,207 | $(7,475) | N/A | - The $20.6 million increase in Q3 2021 rental income was primarily driven by $23.0 million from the CCIT II Merger[185] FFO and AFFO Reconciliation (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | FFO attributable to common stockholders and limited partners | $58,103 | $39,833 | | AFFO available to common stockholders and limited partners | $55,223 | $39,667 | | AFFO per share, basic and diluted | $0.15 | $0.15 | Liquidity and Capital Resources - The company's primary source of operating cash flow is property rental income. As of September 30, 2021, the company had a $1.9 billion credit facility with $376.5 million of remaining capacity[212][213] - On March 1, 2021, the company drew $400 million on its term loan to repay CCIT II's existing debt in connection with the merger[215] - The Distribution Reinvestment Plan (DRP) and Share Redemption Program (SRP) were suspended in October 2021[221][226] Contractual Obligations Summary as of September 30, 2021 (in thousands) | Obligation | Total | Remaining 2021 | 2022-2023 | 2024-2025 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Outstanding debt obligations | $2,544,057 | $2,170 | $346,484 | $954,032 | $1,241,371 | | Interest on outstanding debt | $304,556 | $17,294 | $126,132 | $93,107 | $68,023 | | Total | $3,204,662 | $23,784 | $505,489 | $1,074,487 | $1,600,902 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with $773.5 million in variable-rate debt as of September 30, 2021, and a 100 basis point increase would decrease annual earnings by approximately $8.3 million - The company's primary market risk exposure is to interest rate changes on its variable rate debt[249] - As of September 30, 2021, total debt included approximately $773.5 million in variable rate debt. The company utilizes interest rate swap agreements to manage this exposure[251] - A hypothetical 100 basis point increase in interest rates would decrease annual earnings and cash flows by approximately $8.3 million, after considering the effect of interest rate swap agreements[252] Controls and Procedures Management concluded that the company's disclosure controls and procedures, as well as internal control over financial reporting, were effective as of September 30, 2021, with no material changes during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report (September 30, 2021)[254] - Management concluded that the company's internal control over financial reporting was effective as of September 30, 2021. No material changes occurred during the quarter[256] PART II. OTHER INFORMATION Legal Proceedings The company reports no material legal proceedings - The company is not a party to any material legal proceedings[257] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - There have been no material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[258] Unregistered Sales of Equity Securities and Use of Proceeds The company's Share Redemption Program (SRP) was partially reinstated on August 17, 2020, leading to the redemption of 588,662 shares during the quarter ended September 30, 2021 Share Repurchases for the Quarter Ended September 30, 2021 | Month Ended | Total Shares Repurchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 31, 2021 | 2,408 | $9.07 | | August 31, 2021 | — | $— | | September 30, 2021 | 586,254 | $9.09 | Other Information All required Form 8-K information was disclosed, and no material changes were made to procedures for security holders to recommend Board nominees during the quarter ended September 30, 2021 - No material changes were made to the procedures by which security holders may recommend nominees to the Board during the quarter[264] Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to the credit agreement, partnership agreement, and required certifications from the Principal Executive Officer and Principal Financial Officer - Key exhibits filed include the Third Amendment to the Second Amended and Restated Credit Agreement and certifications by the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002[266]