Peakstone Realty Trust(PKST) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for the quarter was approximately $57 million, with cash NOI around $46 million [12] - Net loss attributable to common shareholders was approximately $49.4 million, or $1.35 per share, including a noncash impairment of about $52 million related to potential asset sales in the office segment [12] - Same store cash NOI increased by 5.8% in the industrial segment and 3.1% in the office segment, resulting in an overall increase of 4% compared to the same quarter last year [12] - Core FFO and AFFO were both approximately $24.6 million, or $0.62 per share on a fully diluted basis [12] Business Line Data and Key Metrics Changes - The industrial segment's ABR increased by $2.4 million quarter over quarter, driven by a 10% rise in AVR from iOS properties [4] - Industrial segment ABR represented 41% of total ABR at quarter end and 43% on a pro forma basis after accounting for office dispositions [5] - Significant leasing activity included a fully leased iOS redevelopment property in Everett, Washington, contributing approximately $1.7 million in incremental ABR [5][6] Market Data and Key Metrics Changes - The company has closed approximately $144 million in office asset sales year to date, with strong investor demand for office assets [5][9] - Office properties with more than five years of remaining term are generally priced on a cap rate basis between 7.5% and 12.5% on in-place NOI [10] - The company has completed over $2 billion in office sales across more than 30 markets over the past three years [9] Company Strategy and Development Direction - The company is transitioning to an industrial REIT, focusing on growth in the industrial outdoor storage (iOS) subsector [4] - The strategy includes reshaping the portfolio through targeted iOS growth initiatives and strategic asset sales, primarily in the office segment [4] - The company aims to divest office assets to reallocate capital to higher growth opportunities within the iOS space and reduce leverage [18] Management's Comments on Operating Environment and Future Outlook - Management believes high-quality iOS properties in supply-constrained markets present significant long-term growth opportunities [18] - The company expects to continue paying dividends quarterly, with future decisions made by the board of trustees [17] - Management is optimistic about the future and is actively engaged in the marketplace during the transition [56][57] Other Important Information - The company introduced two new reporting metrics: core FFO and adjusted EBITDAre to enhance comparability in evaluating ongoing performance [11] - Total liquidity at quarter end was approximately $336 million, consisting of cash and available revolver capacity [13] - The weighted average interest rate for all debt remains at 4.4%, with 88% of the debt fixed [16] Q&A Session Summary Question: Can you help us think about the ABR at the remaining five iOS sites? - Management indicated that they are not providing specific guidance on ABR ranges due to the variety of locations but are comfortable with the ranges previously indicated [20][21] Question: What are you seeing in the market regarding additional acquisition opportunities? - Management noted a balanced approach to growth and leverage, with a good pipeline of individual deals and portfolios being evaluated [22][24][25] Question: What is your target leverage and timeline for bringing it down to a comfortable level? - Management's target leverage is in the six times range or below, and they are currently at 6.8 times after recent asset sales [32][33] Question: What will determine how much you push the gas on office dispositions? - Management stated that dispositions are evaluated on a case-by-case basis, focusing on maximizing shareholder value and achieving favorable pricing [36][38] Question: What characteristics differentiate office assets at the lower end of the cap rate range versus the higher end? - Management explained that the differentiation generally comes down to lease duration and specific property characteristics [42][43] Question: How would you characterize tenant demand in the IOS segment? - Management reported stable demand, with interest from tenants willing to take properties as is, and no significant changes in demand since acquiring the properties [49][51]