And welcome to Peakstone Realty Trust First Quarter twenty twenty five Earnings Webcast Conference Call. At this time, all participants are in listen only mode. A brief question and answer session will follow the formal presentation. This conference is being recorded. It is now my pleasure to introduce your host, [indiscernible] Investor Relations. Please go ahead, sir.

Good afternoon, and thank you for joining us for Peakstone Realty Trust First Quarter twenty twenty five Earnings Call and Webcast. Earlier today, we posted an earnings release, supplemental and updated investor presentation to the Investors page on our website at www.pkft.com. Please reach out to our Investor Relations team at ir@pkst.com with any questions. The company will be making forward looking statements, which include any statements that are not historical facts on today's webcast. Such forward looking statements are based on expectations that involve risks and uncertainties it could cause actual results to differ materially. For a further discussion of risks related to our business, please see our annual report on Form 10 ks and subsequent filings with the SEC. Additionally, on this call, the company may refer to certain non GAAP financial measures. Such as funds from operations, core funds from operations, adjusted funds from operations, EBITDAre and adjusted EBITDAre. You can find a tabular reconciliation of these non GAAP financial measures comparable to the most currently GAAP numbers in the company's earnings release and filings with the SEC. On the call today are Mike Escalante, CEO and President and Javier Bittara, CFO. With that, I'll hand the call over to Mike.

Good afternoon, and thank you for joining our call today.

We continue to make meaningful progress on our strategic transition to an industrial REIT, with growth in the industrial outdoor storage or iOS subsector serving as the cornerstone of this transformation. As part of this strategy, we are actively reshaping the portfolio through the targeted iOS growth initiatives and strategic asset sales. Primarily focused on the office segment. This quarter, we increased industrial segment ABR $2,400,000 quarter over quarter driven by a 10% rise in AVR from our iOS properties, underscoring the strong fundamentals and the compelling growth trajectory of our high quality iOS assets. On the disposition front, we've closed $144,000,000 of office asset sales year to date. Advancing our efforts to better align the portfolio with our long term strategic goals. Thanks to strong leasing across our iOS portfolio, and the continued execution of these office sales, industrial segment ABR represented 41% of total ABR at quarter end and 43% on a pro form a basis after giving effect to office dispositions completed subsequent to quarter end. Leasing activity related to our iOS assets played a central role in this quarter's industrial ABR growth. And we'd like to provide more detail on the transactions that drove this performance.

Most notably, we fully leased our largest iOS redevelopment property, 37 usable acres in Everett, Washington. Largely on a no cost basis to a local lumber mill operator. This full site nine point eight year lease contributed approximately $1,700,000 of incremental ABR to our industrial segment and contains 8% annual rent escalations on average. While the initial rent is below market, completing this lease without the anticipated redevelopment spend enabled us to drive a meaningful increase in our iOS AVR and quickly achieve in place yields of 5.9% on a cash basis and 8.8% on a GAAP basis. This lease provides a path to higher rent and enhances the internal growth profile of our iOS portfolio. Additional leasing activity highlighting the strong mark to market opportunities in our iOS portfolio, included the commencement of a new six point five year lease for 3.3 usable acres at our Mableton, Georgia property which added $300,000 in ABR during the quarter. This lease includes 3.5% annual escalations and resulted in weighted average re leasing spreads of 1085% on a cash basis and 218% on a GAAP basis. Moving on to dispositions. As I mentioned earlier, year to date, we've closed approximately a hundred and $44,000,000 of office asset sales, underscoring both the successful execution of our office disposition strategy and the continued investor demand for the office assets in our portfolio.

During the first quarter, we completed the sale of two properties totaling two and fifty one thousand square feet for approximately $34,000,000. These included our 40 white property in Baltimore, and our Heritage III property in Dallas Fort Worth. Subsequent to quarter end, we closed on the sale of three additional properties totaling 520,000 square feet for approximately a hundred and $10,000,000. These sales consisted of our LPL Properties In Charlotte, and our Cigna property in Pittsburgh. All three assets were classified as held for sale at quarter end. Now I'd like to take a moment to provide some additional detail on what we're seeing in the market as it relates to our office dispositions. We've been highly effective in generating strong outcomes from the sale of our office assets. Over the past three years, we've completed over $2,000,000,000 in office sales across more than 30 markets, with buyers including both third party investors, and existing tenants. These sales have provided greater clarity around market pricing expectations and transaction timing. While we don't provide formal guidance on cap rates or pricing, closed transaction data suggests that depending on tenancy, market, and asset characteristics, our office assets with more than five years of remaining term have generally been priced on a cap rate basis in the range of seven and a half percent to 12.5% on in place NOI.

Office assets with shorter lease terms have generally been priced on a per square foot basis ranging from 50 to $175. The pricing reflects a combination of estimated vacant billing value and the net present value of the remaining rental stream. We continue to see solid interest in our office and remain committed to maintaining or potentially accelerating the pace of our office disposition through year end. While we recognize the capital markets environment may evolve, we're well positioned to adapt and continue executing thoughtfully. On these sales.

With that, I will turn the call over to Javier to review our financial results and capital markets activity. Javier?

Thanks, Mike. I'd like to take a moment to highlight two reporting metrics that we are introducing in our financial materials beginning this quarter. Core FFO and adjusted EBITDAre. These metrics are intended to enhance comparability and consistency in evaluating the ongoing performance of our business. Definitions and calculations can be found in our supplemental materials and quarterly filings. With that, I'd like to share a few highlights of our financial results for the quarter ended March 31. Total revenue was approximately $57,000,000 and cash NOI approximately $46,000,000. Net loss attributable to common shareholders was $49,400,000 or a dollar 35 per share inclusive of an approximately $52,000,000 noncash impairment related to potential sales of assets in our office segment. Each FFO and core FFO were approximately $24,600,000 or 62¢ per share on a fully diluted basis. AFFO was approximately $24,800,000 or coincidentally also 62¢ per share on a fully diluted basis. Same store cash NOI increased 5.8% for our industrial segment and 3.1% in our office segment for an overall increase of 4% compared to the same quarter last year. Moving on to our balance sheet. Our quarter end metrics can be found in our queue and in our supplemental.

Given the hundred and $10,000,000 of office dispositions after quarter end, I would like to provide quarter end metrics on a pro form a basis, reflecting these sales, and the use of proceeds. We used a hundred million dollars to pay down our revolver resulting in the following. Total liquidity of approximately $336,000,000 consisting of cash and available revolver capacity. A cash balance excluding restricted cash of approximately $213,000,000 and available revolver capacity of approximately $123,000,000. We now have approximately $1,260,000,000 in total debt outstanding, including $900,000,000 of unsecured debt on our credit facility, reflecting the 100,000,000 pay down subsequent to quarter end. The remaining approximately $360,000,000 of debt is nonrecourse secured debt. After deducting cash, our net debt would be approximately $1,048,000,000 and our net debt to adjusted EBITDAre would be 6.8 times. 88% of our debt is fixed, including the effect of our existing $750,000,000 of interest rate swaps mature on 07/01/2025. The weighted average interest rate for all debt both secured and unsecured, remains at 4.4%. As a reminder, we previously entered into forward starting floating to fixed interest rate swaps with a notional amount of $550,000,000 These swaps will take effect on the day our existing swaps mature.

The new swaps will convert sulfur to a weighted average fixed rate of 3.58% and are set to mature on 07/01/2029. For the first quarter, as previously announced, we paid a dividend of 22 and a half cents per common share on April 17, And the board of trustees approved a dividend for the second quarter in the amount of 22 and a half cents per common share that is payable on July 17 to holders of record on June 30. While the company expects to continue paying dividends on a quarterly basis, all future dividend decisions will be made by the board of trustees.

With that, I will pass the call back to Mike.

Thank you, Javier. As we look ahead, our primary focus remains on advancing our strategic [indiscernible] To an industrial REIT. With particular emphasis on the iOS subsector. We believe that high quality iOS properties in supply constrained markets present significant long term growth opportunities regardless of broader economic fluctuations. In line with our strategy, we will continue to divest office assets allowing us to reallocate capital to higher growth opportunities within the iOS space, and further reduce our leverage. We expect these actions to drive sustainable growth and enhance shareholder value over the long term. We will now turn the call over to the operator to take a few from analysts. Operator?

Thank you, So At this time, we will be conducting a question question and answer session. Now. The first question that we have comes from Yana Galan of of America. Please go ahead. Thank you. Good afternoon. Congrats on leasing the Everett site. Was hoping if you could help us think about the ABR opportunity. At the remaining five iOS sites, kind of how should we think about the ranges in rent per acre in that segment?

To have you on the call, Fiona.

So we're not really providing guidance of that level. I would and and and I think it's a little bit difficult given the variety of locations that we that we have there. But I would say the the one thing I would leave you with is that relative to the returns on cost that we've previously indicated and included in this go around. I mean, you know, we're comfortable in essence with the ranges that we provided. Not some of them will be a little bit below. Some of them are gonna be higher than our end anticipated numbers. Our our spend is typically been a little bit lower than we originally anticipated. At least at the outset. We do have a considerable amount of activity underway, so we're fingers crossed. We don't like jinxing ourselves, but fingers crossed that we should be able to have some announcements you know, forthcoming, provided we can get through the details, on those leases. Or prospective leases.

Great. Thank you. And then maybe if you could just kinda comment on additional acquisition opportunities, of what you're seeing in the market Seems like, you know, you have the liquidity to kinda move forward on more opportunities.

Yeah. For sure. I mean, that's gonna be a balancing act. I think we've said strategically we've gotta balance two things, growth, which is, you know, pretty important for us to catch or capture you know, a a a good cost of capital. And the second part is making sure that our leverage is within line. So that's gonna be a balancing act as we recycle capital out of our know, strategic disposition program.

And, know, what that looks looks like going forward. I would tell you that our our pipeline is there's good. Full. We are seeing a lot of individual one off deals both marketed and, through our relationships. We're also continuing to see portfolios. I guess it's no surprise that you know, in taking on the assets that we took on, know, we we have been, concentrating and focusing on making sure that we hit our numbers on those pieces. And at the same time, you know, we're out and active in the market, looking at additional transactions. So, stay tuned again in that regard. Very much a balanced approach. We're not gonna know, run run out the door but we do have liquidity to pursue things, as we see a risk adjusted return that that is compelling for us.

Great. Thank you for taking my questions.

Thanks, Shyana.

The next question we have comes from Catherine Catherine Graves of UBS. Please go ahead.

Good afternoon. Thank you for taking my questions. My first oh, can you hear me?

Yeah. Hi, Catherine.

Oh, great. Hi. So as I remember, I think their leverage was about 7.9 times after the iOS acquisition brought down to, I think, 7.5 times at the end of twenty twenty four. And I believe you said you're at 6.8 times now. So can you just maybe remind us what your sort of target leverage is? And then maybe, I know you don't give guidance, but just sort of what you're thinking about the timeline of bringing your leverage down to a comfortable level?

Hi, Catherine. This is Javier. Thanks for, being on the call. The yeah, the pro form a numbers that we presented after the acquisition was at $7.09, but the actual quarter end, as you'd noted there, was $7.05. The, and and $6.08 now that we've completed these hundred and $10,000,000 of additional, sales, subsequent to quarter end, We've we've said publicly that, you know, our target has been to be somewhere in the, in the six, times range. Or below, and that continues to be our, our current you know, target. Leverage at this point.

Got it.

Thank you. Would just I would just add, Cath, I would just add that, you know, we've shown an ability to be at a fairly high number. Historically and through the recycling of capital and, you know, rejiggering our our balance sheet, specifically the debt side of the equation. You know, we've we've been able to do that. I think it was second quarter of last year, we actually clipped six of six to one, debt to EBITDA. In a rough sense.

Got it. Thank you. That's helpful. And then my second question you mentioned sort of either maintaining or accelerating the rate of office to dispositions this year. And I'm just wondering what will determine sort of how much you push the gas on those dispositions? Is there anything in the macro that you're paying attention to? Or what what what sort of the the thought process there?

So I think it's a case by case basis. We take what we can get, from the marketplace. In terms of disposition activity. I think we've had a think in the public market, you have to always, you know, look at things and say, you know, your portfolio is for sale every day one way or another. So we're not attached to anything. We're just trying to maximize shareholder value as best we can. We we're excited. It's probably too big of a word, but we're we we we have been able to achieve numbers that I think are far in excess of what the market's giving us credit for. You know, the pricing of ours stock sort of indicates that we should continue to do these types of things until the the market understands exactly, you know, how we're how we're underwritten. And, you know, the the bottom line is that, you know, we think we've got a a portfolio of properties that are [indiscernible] To investors. And specifically to our tenants. We've we've said from the very beginning that we own assets that are important to our underlying tenants for, you know, whatever reason that might be. Headquarters, regional headquarters, national headquarters, r and d facilities.

Know, key distribution facilities, whatever the whatever the heck it is, we've we've long considered our properties to be desirable in that sense. And so you know, looking at the percentage of transactions that have gone to our tenants, I think that original investment thesis has proven itself. And so we're we're seeing a a fair amount of interest from our existing tenant base as well. So we'll see how that all goes. And what is interesting at the moment is that the cost of capital for the corporates and we have a a a a pretty high still high percentage of s and p 500 or, you know, oriented tenants, if you will. Their cost of capital on the debt side is at is advantageous as compared to the real estate investment side. So all all of that sets up pretty well for the comment as to know, why we think there there might be a a possible acceleration.

It. Thank you for the color.

Thank you.

Ladies and gentlemen, just a final reminder, The next question we have comes from Anthony Howe of Truist Securities. Please go ahead.

Hey guys, congrats on the quarter. [indiscernible] hey, Mike. In your prepared remarks, you mentioned that for office properties with more than five year term are trading at 7 and a half to 12 and a half cap rate on in place NOI. So what are the characteristics for assets at the lower end? Of the range versus the higher end? And, also, is this range a reference to Peakstone portfolio specifically or in general?

Yeah. So I I we gave two metrics. That really what we're seeing in in the marketplace And I think relative to our own portfolio and success. So and we were trying to give you some I don't know, I guess, goalpost by which to look at our portfolio through a lens that might provide you a little more clarity without giving you individual deal by deal guidance. So the line of demarcation generally is around five years.

The you know, the shorter the the seven and a half caps versus the twelve and a half cap is generally gonna come down to, you know, greater duration. You know, you probably would be safe looking a midpoint might might be a a way to look at it. And then the other part of the guidance we gave you was to say that if you have less than five years, a cap rate really doesn't apply. It's really a know, it's it's really looking at the NPV of the remaining cash flow plus a residual value number and and and that even even then provides a a pretty wide range on a per square foot basis. But, you know, you can can do a little bit of math in that sense. And if you if you're closer to five, years and have a very high rent, you know, you're least gonna get paid for that. And then the the residual values are know, arranged depending on the specific property, the specific market, the age of the asset, you know, those types of things. So [indiscernible] Got it?

No.

That's very helpful.

And, like, what's currently in the pipeline in terms of signed TSA or, like, an l LIs? Has the buyer pooled for office assets been, or are you still seeing reasonably deep interest?

I mean, reasonably deep enough to get it done. I mean, we've sold now over $2,000,000,000 worth of property, I think, since listing with know what what that date is, but you know, I think we've been one of the more active sellers of Office. I think we've been one of the more successful sellers of Office. I think people are know, surprised from time to time on some of the pricing that we get.

The well, I'm not gonna tell you exactly what we have under PSA, but I, you know, I would tell you that you know, it has I I would tell you there's more and more people talking about office investment. I think as I've said previously in previous, you know, in previous quarters, really comes down to find the right buyer for the right asset at the right time. We tend to to look for people that are sharpshooters, have banking relationships on a local level, have have have existing balance sheets where they don't need to borrow. They can borrow after closing. You know, things of that nature. So, you got that in combination with know, tenants that have a very deep pockets. And that's a that's a pretty good reliable it's been reliable so far. In going with them and their ability to close. So reliability is key, in in terms of how we're we're looking at buyers these days.

And then in terms of ILS, How will you characterize tenant demand today?

Are there any shifts in terms of, you know, users such as logistics or construction or equipment storage?

I mean, I think, you know, we we have the vacancy that we have is related to you know, the what was the six redevelopment assets we moved as a result of fully leasing the Everett property, our largest property, we'll move that We will be effectively, you know, moving that out of our redevelopment to our operating portfolios as part that process. And then we're actively in discussions with a variety of tenants. So demand has not really changed from the time that we took the properties over. We we've changed a little bit of what we're doing on some of the some of the properties, but I think we've benefited, just like we benefited Everett from not having to spend capital that we originally pro form a, at least, on the on the first go around. And that that is playing out. We are actually finding some some demand from tenants who are willing to take the properties as is or, you know, virtually as is relative to what we you know, could have spent in a particular situation. So we've got a couple of others that have had a little more work going on to them.

And the the interest level in what we're gonna bring to market for those deals seems to be, you know, spot on to what we anticipated originally. So so far, fingers crossed, knock on wood, we haven't really seen any change.

Okay. Thank you, Mike. Really appreciate it. No worries. Thank you, for your time.

Bondages. Thank you. Ladies and gentlemen, we have reached the end of our question and answer session. I would now like to turn the call back over to Michael Escuante for closing comments. Please go ahead, sir.

Thank you, operator. I appreciate everyone joining the call today. And, of course, all the time and effort in, in following us. Appreciate your patience as we work through this transformation. We we keep looking at what we're doing as trying to make sure that we, message a it's a sync story, and we are trying to make sure that we're delivering on that story as well. So stay tuned. We're very, very active in the marketplace on all fronts, and we're excited about our future as we move through this transition. Thanks for your time today.

Thank you, So Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.