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Operator: Good afternoon, and welcome to Peakstone Realty Trust’s Third Quarter 2024 Earnings Webcast. All participant lines are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Senior Vice President of Corporate Finance and Strategy, Mikayla Lynch. Please go ahead, ma’am.

Mikayla Lynch: Thank you. Good afternoon, and thank you for joining us for Peakstone Realty Trust third quarter 2024 earnings call and webcast. Earlier today, we posted an earnings release, supplemental and an updated investor presentation to the Investors page on our website at www.pkst.com. Please reach out to our Investor Relations team at ir@pkst.com with any questions. Please note the use of forward-looking statements by the company on this webcast. Statements made on this call may include statements which are not historical facts and are considered forward-looking. The company intends for all forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, and is making these statements for purposes of complying with those safe harbor provisions.

Furthermore, the forward-looking statements reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ significantly than those expressed in any forward-looking statement and could be affected by a variety of risks and factors that are beyond the company’s control, including, without limitation, those contained in our most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q filed with the SEC. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes after the date of this call, except as required by applicable law.

Additionally, on this call, the company may refer to certain non-GAAP financial measures such as funds from operations, adjusted funds from operations, EBITDAre and normalized EBITDAre. You can find a tabular reconciliation of these non-GAAP financial measures to the most currently comparable GAAP numbers in the company’s filings with the SEC. On the call today are Mike Escalante, CEO and President; and Javier Bitar, CFO. With that, I’ll hand the call over to Mike.

Mike Escalante : Good afternoon, and thank you for joining our call today. The company had a very productive third quarter. We successfully amended and extended our credit facility, generated positive leasing outcomes, continued to sell office assets and fully exited our office joint venture. These accomplishments are the direct result of our team’s exceptional ability to navigate the complex market environment. With a firm foundation established, we are excited to explore areas for industrial expansion. As I announced last quarter, in July, we achieved a key milestone, successfully amending our unsecured credit facility. As a result of this amendment, we extended our debt maturities and lowered our borrowing costs. And most importantly, we have a sustainable capital structure that positions us well for future growth.

At the end of the quarter, our high-quality, well-located industrial segment had a WALT of 6.3 years, 100% economic occupancy, 58% investment-grade tenancy and a potential 24% mark-to-market opportunity. Our high-quality newer vintage office segment had a WALT of 7.2 years, 99% economic occupancy, 60% investment-grade tenancy, minimal near-term rollover in the next 2 years with only 4% of ABR expiring through 2026 and newer buildings with minimal near-term capital requirements. We have nearly completed the disposition of our other segment assets. The other segment now accounts for approximately 10% of our portfolio ABR and only 8% of our portfolio NOI. All remaining other segments are in the market for sale, and we are still aiming to close on the sales of these properties by year-end.

However, we do not fully control the timing. In the quarter, we sold 4 properties totaling 338,000 square feet for approximately $40 million. We sold three assets from our other segment for $32.2 million, and we sold one asset from our Office segment for $7.6 million. With this sale, we have eliminated our 2024 lease expirations in this segment. In addition to these closed sales, at quarter end, we had four other segment assets classified as held for sale. Now turning to leasing. We continue to showcase our strategic expertise by achieving strong, positive leasing activity this quarter. The resulting favorable re-leasing spreads are a testament to the demand for our properties in the market. In the Industrial segment, we addressed our sole 2025 lease expiration by executing a 10-year 121,000 square foot lease extension at our property in Auburn Hills, Michigan.

This extension takes effect October 1, 2025. The terms result in a 41% GAAP and 20% cash re-leasing spread. As part of the extension, the rent escalations were increased to 3% annually from 1.75% previously. And in the other segment, we executed a two-year 27,000 square foot new lease, which commenced in September 2024 at one of our properties in Las Vegas, Nevada at a 75% GAAP and 71% cash re-leasing spread. With that, I’ll turn over the call to Javier to review our financial results. Javier?

Javier Bitar : Thanks, Mike. I’d like to begin by sharing a few highlights of our financial results for the quarter. Total revenue was approximately $55 million and NOI was approximately $44 million. Net loss attributable to common shareholders was approximately $24.4 million or $0.67 per share, inclusive of an approximately $43 million non-cash impairment related to potential sales of assets in our other segment. Same-store cash NOI was approximately $42 million, a 0.9% decrease compared to the same quarter last year. But for a continuing rent abatement in the 11th year of a pre-existing lease in our Industrial segment, same-store cash NOI would have grown by 1.6%. The abatement period for this lease continues through November 2024.

FFO as defined by NAREIT was approximately $23.1 million or $0.58 per share on a fully diluted basis, and AFFO was approximately $25.7 million or $0.65 per share on a fully diluted basis. Moving on to our balance sheet. At quarter end, our cash balance was approximately $242 million. Most of this cash was invested in money market accounts, which generated approximately $3.1 million of interest income in the quarter. Available revolver capacity was approximately $157 million. Total liquidity was approximately $399 million, providing us with ample liquidity and flexibility to support our industrial growth initiatives. We had approximately $1.2 billion of total debt outstanding comprised of $750 million on our credit facility with the balance being non-recourse secured mortgage debt.

Our total debt outstanding decreased by $231 million quarter-over-quarter as a result of the following activity. As part of the amendment and extension of our credit facility, we paid down $200 million, including a paydown of $190 million on one of our term loans and a reduction of $10 million on our revolver balance. We fully paid off our $17 million Pepsi Bottling Ventures mortgage loan and the AIG loans in our other segment were paid down by $14 million with proceeds from asset sales. After deducting for cash, our net debt was approximately $941 million. Including the effect of our interest rate swaps, 100% of our debt has fixed rates and our weighted average interest rate for all debt, secured and unsecured, was 3.95%. And our net debt to normalized EBITDAre ratio was 6.2 times.

During the quarter, we transferred our interest in our Office joint venture and fully exited this investment. If you recall, in the third quarter 2023, we took a complete write-off of this investment, and therefore, there was no gain or loss on this transaction. For the third quarter, we paid a dividend of $0.225 per common share on October 17. And the Board of Trustees approved a dividend for the fourth quarter in the amount of $0.225 per common share that is payable on January 17 to holders of record on December 31. While the company expects to continue paying dividends on a quarterly basis, all future dividend decisions will continue to be made by the Board of Trustees. With that, I will pass the call back to Mike.

Mike Escalante : Thank you, Javier. Building on our past successes, we are strategically positioned to capitalize on opportunities in the industrial real estate market. We are optimistic about the future of the industrial sector, projecting that longer-term favorable tailwinds will persist. We will now turn the call over to the operator to take a few questions from analysts. Operator?

Operator: Thank you, sir. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Joshua Dennerlein of Bank of America. Please go ahead.

Farrell Granath : Hey, this is Farrell Granath on behalf of Josh. I wanted to ask, you made a comment about the industrial expansion and how that would be a kind of plan going forward. So I was wondering if you could characterize maybe some of the hurdles that you would be looking to overcome or different benchmarks to reach before you turn to be offensive and entering more into an expansionary process into more industrial.

Mike Escalante : Thanks, Farrell. So relative to that, I think we’ve been messaging that for quite some time now. But the truth of the matter is that we’ve been looking at doing all the things that we’ve been doing since listing, right, so we’ve identified that we wanted to reach a deleveraging marker that was 6:1 debt to EBITDA, and we were able to affect that, obviously, starting in second quarter or — not starting, but we effectively got to a 5.9 times ratio as of second quarter of this last year. We are continuing to create positive cash flow out of the portfolio. And we keep looking for opportunities to, in essence, outperform the market relative to what people are thinking relative to Office valuations. I think the performance that we’ve been able to achieve both on the leasing and the sales side on the Office has been quite good and far in excess of the valuation that people are giving us.

So all of this is sort of setting up the portfolio for our purposes to eventually make the — to lean in the direction of industrial, which, again, as we’ve stated, as far as we’re concerned, in spite of some minor headwinds that are occurring right now on the supply side in some specific markets. Overall, we think the fundamentals associated with industrial going forward are quite good. I think we’re also quite happy with the fact that the market has given us back an opportunity, if you will. Cap rates have moderated over time. In 2021, they were quite low, maybe extremely low, overly low and are much more normalized today. So we fixed our cost of debt capital. We’ve got some longevity there. The portfolio has really a sustainable capital structure for the foreseeable future.

We like our cost of debt capital relative to what we think we’re seeing in the marketplace in terms of our ability to buy, in terms of going in cap rates and then ultimately, what the stabilized values will be — or yields would be as a result of sort of the below-market rent rolls that you see sort of predominantly in the industrial marketplace. So we’re quite active in looking, and we’re — we’ve created a lot of dry powder and taking care of our — of everything that we think we need to do. And so we’re looking through the front of the vehicle now instead of out of the back of the vehicle.

Farrell Granath : Definitely. Great. Thank you. And just one more. So you had strong re-leasing spreads coming into for your industrial segment. I was curious to know how are you seeing those conversations play out? I think there was a slight decrease at the top end of your escalators just from last quarter. I was just curious if that’s either a trend or if you’re seeing kind of more strength in kind of the resigning of these leases.

Mike Escalante : I mean, as you know, we don’t have a lot of data points because our portfolio is extremely strong in terms of its occupancy and the lack of rollover in any of our — really in our — any of our core segments, if you will, industrial and Office. So not a lot of data points to work off. But I think, frankly, we’ve been very pleased with what we’ve been able to achieve. And the numbers that we got in terms of rent escalators on the executed 10-year deal that we did in Auburn Hills, Michigan. I think our annual escalators went up from what was a 1.75% number to 3% in that lease. So it’s a pretty dramatic increase in terms of our ability to increase rents there. And so I don’t know what you were specifically referring to, but I feel like the one thing we did do was quite positive.

Farrell Granath : Great. Thank you very much. That’s it for me.

Operator: Thank you. Ladies and gentlemen, that concludes our Q&A session. I will now hand over to the CEO, Michael Escalante, for closing remarks.

Mike Escalante : Thank you once again for your support and interest in our firm. I think we’re continuing to do everything that we said we would do at the time of listing. We’re quite pleased — excuse us, Brad, you’re coming through. So sorry for that interruption. So I’ll just restate thank you for joining us today. I appreciate your interest in our organization and very, very pleased with the performance of the organization from listening through today and very excited about the future for the company as we lean into industrial. Thank you for that. Operator, conclude the call.

Operator: Thank you, sir. Thank you. That concludes today’s event. Thank you for attending, and you may now disconnect your lines.