Peakstone Realty Trust Reports 2023 Second Quarter Results

Peakstone Realty Trust ("PKST" or the "Company") (NYSE: PKST), a real estate investment trust focused on owning and operating a high-quality, newer-vintage portfolio of predominantly single-tenant industrial and office properties, today announced its financial results for the quarter ended June 30, 2023.

Second Quarter 2023 Highlights

• Revenue of approximately $62.5 million.
• Net loss of approximately $(452.4) million; net loss attributable to common shareholders of approximately $(416.5) million, or $(11.59) per basic and diluted share. Net loss for the quarter was impacted primarily due to non-cash impairments, property dispositions, and non-recurring expenses.
• Funds from Operations (“FFO”) ¹ of $(0.27) per basic and diluted share/unit. FFO for the quarter was impacted primarily due to property dispositions and non-recurring expenses.
• Adjusted Funds from Operation ("AFFO")¹ of $0.73 per basic and diluted share/unit.
• Same Store Cash Net Operating Income (“Same Store Cash NOI”)² of approximately $48.0 million.
• Portfolio occupancy increased to 96% based on rentable square feet.
• Board of Trustees declared a dividend of $0.225 per common share for the second quarter.
• Subsequent to quarter-end, the Board of Trustees approved a $200 million ATM offering program.

“We continue to successfully execute our disposition and deleveraging strategy” stated Michael J. Escalante, PKST's Chief Executive Officer. “Due to our cycle-tested team’s experience and capital markets proficiency, we have enhanced our balance sheet through the sale of non-core assets. These sales have enabled us to further improve our leverage metrics, refine our asset composition, and strengthen the financial profile of the Company. Our high-quality, resilient portfolio is delivering consistent performance, and we remain focused on working towards achieving an investment-grade rating.”

Portfolio

As of June 30, 2023, the Company’s wholly-owned portfolio (i) consisted of 73 properties located in 24 states with a weighted average remaining lease term of approximately 6.5 years, (ii) was 96.0% leased based on rentable square feet with an average economic occupancy of 95.4% comprised of Industrial (100%), Office (97.0%), and Other (81.2%), and (iii) generated approximately 63.5% of annualized base rent³ pursuant to leases with respect to which the tenant, the guarantor or a non-guarantor parent of the tenant has an investment grade credit rating or what management believes is a generally equivalent rating⁴.

Transaction Activity

During the second quarter, the Company sold five office properties for gross disposition proceeds of $130.8 million. The Company recognized a net loss of approximately $9.7 million as a result of these sales. For the six months ended June 30, 2023, the Company sold eight properties for gross disposition proceeds of $300.4 million. The Company recognized a net gain of approximately $20.9 million as a result of these sales.

Financial/Operating Results

Revenue

In the second quarter, total revenue was approximately $62.5 million compared to $123.1 million for the same quarter last year. This $60.6 million change in revenue is primarily due to the disposition of 48 properties in 2022 and 8 properties in the first half of 2023.

Net (Loss) Income Attributable to Common Shareholders

In the second quarter, net loss attributable to common shareholders was approximately $(416.5) million, or $(11.59) per basic and diluted share, compared to net loss attributable to common shareholders of approximately $(72.2) million, or $(2.00) per basic and diluted share, for the same quarter last year. The change is primarily due to (i) the $60.6 million change in revenue resulting from property dispositions in 2022 and 2023, (ii) non-cash real estate impairments of office assets of $397.4 million, and (iii) non-recurring expenses of $28.3 million ($0.72 per basic and diluted share) consisting of $21.3 million ($0.54 per basic and diluted share) for transaction expenses related to listing of the Company’s shares on the NYSE, approximately $5.0 million ($0.13 per basic and diluted share) non-cash expense from the initial issuance of the now redeemed Series A Preferred Shares (as defined below), and $2.0 million ($0.05 per basic and diluted share) relating to employee severance.

FFO

In the second quarter, FFO was approximately $(10.7) million, or $(0.27) per basic and diluted share/unit, compared to $56.5 million, or $1.43 per basic and diluted share/unit, for the same quarter last year. The change in FFO is primarily due to (i) the $60.6 million change in revenue resulting from property dispositions in 2022 and 2023, (ii) non-recurring expenses of $28.3 million ($0.72 per basic and diluted share/unit) consisting of $21.3 million ($0.54 per basic and diluted share/unit) for transaction expenses related to the listing of the Company’s shares on the NYSE, approximately $5.0 million ($0.13 per basic and diluted share/unit) non-cash expense from the initial issuance of the now redeemed Series A Preferred Shares, and $2.0 million ($0.05 per basic and diluted share/unit) relating to employee severance. Excluding the $28.3 million of non-recurring expenses, FFO for the second quarter would have been approximately $17.6 million, or $0.45 per basic and diluted share/unit.

AFFO

In the second quarter, AFFO was approximately $28.7 million, or $0.73 per basic and diluted share/unit, compared to $62.0 million, or $1.57 per basic and diluted share/unit, for the same quarter last year. The difference in AFFO is primarily due to the change in revenue resulting from property dispositions in 2022 and 2023.

Same Store Cash NOI

In the second quarter, Same Store Cash NOI was approximately $48.0 million compared to $55.0 million in the same quarter last year. The change in Same Store Cash NOI is primarily due to $8.2 million of non-recurring termination income recognized in the prior year. Excluding this termination income from the same quarter in 2022, Same Store Cash NOI for the second quarter would have increased $1.2 million, or 2.5%, compared to the same quarter last year.

Balance Sheet

As of June 30, 2023, the Company had $360.6 million in cash on hand and $34.0 million of available capacity on the Revolver, for total liquidity of $394.6 million. The Company’s total consolidated debt was approximately $1.5 billion. Including the effect of the Company’s interest rate swap agreements with a total notional amount of $750.0 million, the Company’s weighted average interest rate as of June 30, 2023 was 4.16% for both the Company’s fixed-rate and variable-rate debt combined. During the second quarter, the Company incurred a $397.4 million non-cash real estate impairment resulting from changes related to anticipated hold periods, estimated selling prices, and potential vacancies that impacted the recoverability of these assets.

On April 10, 2023, the Company redeemed all 5,000,000 shares of Series A Preferred Cumulative Perpetual Convertible Preferred Stock (the “Series A Preferred Shares”) which were issued to and held by a third-party international investor) by making (i) a redemption payment of $125 million (with a redemption fee of approximately $1.9 million being waived) and (ii) paying accrued preferred distributions of approximately $2.4 million. Additionally, the Company had $5.0 million of capitalized offering costs from the initial issuance of the Series A Preferred Shares which were written off during the quarter as a non-cash expense.

ATM Offering Program

On August 2, 2023, the Board of Trustees approved a $200 million ATM offering program to provide the Company additional flexibility to manage its balance sheet, diversify its capital sourcing options, and offer an efficient mechanism to access capital in the future.

Dividends

On June 20, 2023, the Board declared a distribution for the second quarter in the amount of $0.225 per common share. The Company paid such distributions on July 17, 2023 to shareholders of record as of June 30, 2023.

Second Quarter 2023 Earnings Webcast

PKST will host a webcast to present the second quarter results on Tuesday, August 8, 2023 at 5:00 p.m. Eastern Time. To access the webcast, please visit https://investors.pkst.com/investors/events-and-presentations/events/event-details/2023/Second-Quarter-2023-Earnings-Call/default.aspx at least ten minutes prior to the scheduled start time to register and install any necessary software. A replay of the webcast will be available on the Company’s website shortly after the initial presentation. To access by phone, please use the following dial-in numbers. For domestic callers, please dial 1-877-407-9716; for international callers, please dial 1-201-493-6779.

About Peakstone Realty Trust

Peakstone Realty Trust (NYSE: PKST) is an internally managed, real estate investment trust (REIT) that owns and operates a high-quality, newer-vintage portfolio of predominantly single-tenant industrial and office properties. These assets are generally leased to creditworthy tenants under long-term net lease agreements with contractual rent escalations. As of June 30, 2023, Peakstone’s wholly-owned portfolio consists of 18.2 million square feet across 24 states in primarily high-growth, strategic coastal and sunbelt markets.

Additional information is available at www.pkst.com.

Cautionary Statement Regarding Forward-Looking Statements

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

The forward-looking statements contained in this document 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 our actual results to differ significantly from those expressed in any forward-looking statement. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: general economic and financial conditions; market volatility; inflation; any potential recession or threat of recession; interest rates; recent and ongoing disruption in the debt and banking markets; occupancy, rent deferrals and the financial condition of our tenants; whether work-from-home trends or other factors will impact the attractiveness of industrial and/or office assets; whether we will be successful in renewing leases as they expire; future financial and operating results, plans, objectives, expectations and intentions; expected sources of financing, including the ability to maintain the commitments under our revolving credit facility, and the availability and attractiveness of the terms of any such financing; legislative and regulatory changes that could adversely affect our business; our future capital expenditures, operating expenses, net income, operating income, cash flow and developments and trends of the real estate industry; whether we will be successful in the pursuit of our business plan, including any dispositions; whether we will succeed in our investment objectives; any fluctuation and/or volatility of the trading price of our common shares; risks associated with our dependence on key personnel whose continued service is not guaranteed; and other factors, including those risks disclosed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission.

While forward-looking statements reflect our good faith beliefs, assumptions and expectations, they are not guarantees of future performance. The forward-looking statements speak only as of the date of this document. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes after the date of this document, except as required by applicable law. We caution investors not to place undue reliance on any forward-looking statements, which are based only on information currently available to us.

Notice Regarding Non-GAAP Financial Measures. In addition to U.S. GAAP financial measures, this document contains and may refer to certain non-GAAP financial measures. These non-GAAP financial measures are in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP financial measures should not be considered replacements for, and should be read together with, the most comparable GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures and statements of why management believes these measures are useful to investors are included in this Appendix if the reconciliation is not presented on the page in which the measure is published.

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¹ See below for the definitions of FFO and AFFO and for a reconciliation of FFO and AFFO to the most directly comparable GAAP financial measure.
² Same Store Cash Net Operating Income is a non-GAAP financial measure. See below for the definition of Same Store Cash Net Operating Income and for a reconciliation of Same Store Cash Net Operating Income.
³ “Annualized base rent” or “ABR” means the contractual base rent excluding abatement periods and deducting base year operating expenses for gross and modified gross leases as of June 30, 2023, unless otherwise specified, multiplied by 12 months. For properties in the Company's portfolio that had rent abatement periods as of June 30, 2023, we used the monthly contractual base rent payable following expiration of the abatement.
⁴ “Investment grade” means an investment grade credit rating from a NRSRO approved by the U.S. Securities and Exchange Commission (e.g., Moody’s Investors Service, Inc., S&P Global Ratings and/or Fitch Ratings Inc.) or a non-NRSRO credit rating (e.g., Bloomberg’s default risk rating) that management believes is generally equivalent to an NRSRO investment grade rating; management can provide no assurance as to the comparability of these ratings methodologies or that any particular rating for a company is indicative of the rating that a single NRSRO would provide in the event that it rated all companies for which the Company provides credit ratings; to the extent such companies are rated only by non-NRSRO ratings providers, such ratings providers may use methodologies that are different and less rigorous than those applied by NRSROs. In the context of Peakstone’s portfolio, references to “investment grade” include, and credit ratings provided by Peakstone may refer to, tenants, guarantors, and non-guarantor parent entities. There can be no assurance that such guarantors or parent entities will satisfy the tenant’s lease obligations, and accordingly, any such credit rating may not be indicative of the creditworthiness of the Company's tenants.