Peakstone Realty Trust(PKST) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements based on current expectations, subject to known and unknown risks that could cause material differences in actual results - Forward-looking statements are identified by terminology such as "may," "will," "should," "expects," etc., and are covered by the safe harbor provisions of the Securities Act and the Exchange Act[9] - Key factors that could cause results to differ include general economic conditions, market volatility, inflation, interest rates, the impact of the COVID-19 pandemic on office and industrial assets, lease renewal success, and other risks detailed in the company's SEC filings[10] Financial Statements This section presents unaudited consolidated financial statements for the period ended June 30, 2022, including balance sheets, operations, and cash flows, highlighting a $75.6 million impairment provision Consolidated Balance Sheets As of June 30, 2022, total assets decreased to $5.15 billion from $5.27 billion at year-end 2021, with total liabilities and equity also declining Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $5,149,016 | $5,273,017 | | Total real estate, net | $4,395,081 | $4,576,837 | | Cash and cash equivalents | $202,655 | $168,618 | | Total Liabilities | $2,741,892 | $2,771,586 | | Debt, net | $2,529,228 | $2,532,377 | | Total Equity | $2,277,453 | $2,371,663 | | Total stockholders' equity | $2,067,234 | $2,153,010 | Consolidated Statements of Operations The company reported a net loss of $76.6 million for Q2 2022, primarily due to a $75.6 million impairment provision, contrasting with net income in the prior year Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Rental income | $123,073 | $118,824 | $239,262 | $220,179 | | Total expenses | $171,707 | $91,434 | $260,718 | $175,213 | | Impairment provision | $75,557 | $— | $75,557 | $4,242 | | Net (loss) income | $(76,599) | $5,678 | $(73,869) | $2,687 | | Net (loss) income per share | $(0.22) | $0.01 | $(0.22) | $(0.01) | Consolidated Statements of Cash Flows Net cash from operating activities increased to $115.4 million for the six months ended June 30, 2022, while cash used in investing significantly decreased to $6.2 million Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $115,409 | $94,873 | | Net cash used in investing activities | $(6,212) | $(53,968) | | Net cash used in financing activities | $(73,044) | $(77,984) | | Net increase (decrease) in cash | $36,153 | $(37,079) | Notes to Consolidated Financial Statements Notes detail the company's REIT structure, a $75.6 million impairment in Q2 2022, $2.53 billion debt, and the suspension of DRP and limited resumption of SRP - The company is an internally managed, publicly registered non-traded REIT owning a diversified portfolio of corporate office and industrial properties[32] - During the six months ended June 30, 2022, the company recorded an impairment provision of approximately $75.6 million on four properties in the Midwest and Southwest, concluding their carrying value was not recoverable due to longer absorption periods and lower market rents[61] - The Board approved a suspension of the Distribution Reinvestment Plan (DRP) effective October 11, 2021[102] - The Share Redemption Program (SRP) was also suspended for the fourth quarter of 2021 but is scheduled to resume on August 5, 2022, limited to redemptions for death, disability, or incompetence[106] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, including a 93% leased portfolio, a decrease in NAV per share to $7.42, a $75.6 million impairment, and adequate liquidity from operating cash flow and a $1.9 billion credit facility Overview Griffin Realty Trust is an internally managed REIT with 121 properties, 93.0% leased, and a 6.1-year weighted average lease term, monitoring COVID-19 impacts on office demand - As of June 30, 2022, the portfolio consisted of 121 properties and one land parcel, was 93.0% leased, and generated approximately $360.6 million in Annualized Base Rents[159] - Management expects the decline in demand for office space due to the pandemic and economic conditions to negatively impact its ability to renew and replace office leases, with over 8.7% of leases (by Annualized Base Rent) expiring by the end of 2023[160] NAV and NAV per Share Calculation The consolidated NAV per share decreased to $7.42 as of June 30, 2022, from $9.10 in 2021, primarily due to declining office property valuations NAV per Share Comparison | Metric | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Consolidated NAV (in thousands) | $2,641,172 | $3,242,106 | | Total Shares and OP Units Outstanding | 355,905,189 | 356,167,456 | | Consolidated NAV per share | $7.42 | $9.10 | - Due to market volatility and divergent prospects between industrial and office assets, the company adopted the lower end of the real estate value range calculated by its independent valuation firm for its NAV calculation[170] Results of Operations Q2 2022 rental income increased 4% to $123.1 million, but a $75.6 million impairment provision significantly raised expenses, while general and administrative expenses decreased Comparison of Operations (in thousands) | Account | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Rental income | $123,073 | $118,824 | 4% | | Impairment provision | $75,557 | $— | 100% | | General and administrative expenses | $8,892 | $10,198 | (13)% | - The $75.6 million impairment provision in Q2 2022 was the primary reason for the significant increase in total expenses and the resulting net loss[199] - The increase in rental income for the six months ended June 30, 2022 was primarily due to the CCIT II Merger ($15.8 million) and an increase in termination income ($6.5 million)[202] Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) Q2 2022 FFO per share was $0.16 and AFFO per share was $0.17, with six-month figures at $0.31 and $0.33 respectively, used to evaluate operating performance FFO and AFFO per Share | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | FFO per share, basic and diluted | $0.16 | $0.17 | $0.31 | $0.31 | | AFFO per share, basic and diluted | $0.17 | $0.16 | $0.33 | $0.31 | Liquidity and Capital Resources The company's liquidity is supported by operating cash flow and a $1.9 billion credit facility with $363.7 million available, deemed adequate for future requirements, with total contractual obligations of $3.15 billion - The company's primary sources of operating cash flow are property rental income and its credit facility, which are expected to meet cash needs for the next 12 months[222] - As of June 30, 2022, the company had $363.7 million of undrawn capacity under its Revolving Credit Facility[225] Material Cash Requirements (in thousands) | Obligation | Total | Remaining 2022 | Thereafter | | :--- | :--- | :--- | :--- | | Outstanding debt obligations | $2,536,910 | $4,896 | $2,532,014 | | Interest on outstanding debt | $287,160 | $40,054 | $247,106 | | Ground lease obligations | $299,879 | $1,202 | $298,677 | | Total | $3,145,003 | $49,568 | $3,095,435 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on its $773.5 million variable-rate debt, managed with swaps, where a 100 basis point increase would reduce annual earnings by $7.9 million - The company's primary market risk exposure is to interest rate changes on its variable rate debt[262] - As of June 30, 2022, total debt included approximately $1.8 billion at fixed rates (including swaps) and $773.5 million at variable rates[264] - A hypothetical 100 basis point increase in interest rates would decrease annual earnings and cash flows by approximately $7.9 million, after considering the effect of interest rate swap agreements[265] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of June 30, 2022, with no material changes during the quarter - 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[267] - Management concluded that the company's internal control over financial reporting was effective as of June 30, 2022, and no material changes occurred during the quarter[269] PART II. OTHER INFORMATION Legal Proceedings The company is not a party to any material legal proceedings - None[270] Risk Factors No material changes have occurred to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes have occurred to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[271] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered securities were sold, and no common shares were redeemed due to the suspension of the Share Redemption Program during the six months ended June 30, 2022 - There were no sales of unregistered securities during the six months ended June 30, 2022[272] - The Share Redemption Program (SRP) was suspended, resulting in no redemptions of common shares during the quarter ended June 30, 2022[273] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[274] Other Information No Form 8-K required information was omitted, and no material changes occurred to procedures for security holder Board nominee recommendations during the quarter - No information required to be disclosed on a Form 8-K was omitted during the quarter[277] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance amendments, a credit agreement amendment, and officer certifications - The exhibits filed with this report include amendments to corporate governance documents, a credit agreement amendment, and required officer certifications[278]