Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Peakstone Realty Trust (PKST, Financial) successfully amended and extended its unsecured credit facility, providing a solid foundation for growth and increased flexibility for industrial investments.
- The company's portfolio boasts a high economic occupancy rate of 99.5% with minimal near-term rollover, enhancing stability.
- PKST achieved positive leasing activity with strong re-leasing spreads, including a 28% GAAP and 7% cash re-leasing spread for a significant lease extension in Jacksonville, Florida.
- The company reported a 1.7% increase in same-store cash NOI compared to the same quarter last year, indicating operational growth.
- PKST maintains a strong balance sheet with a proforma net debt to normalized EBITDAre ratio of 6.4x, reflecting financial stability and flexibility.
Negative Points
- Peakstone Realty Trust (PKST) reported a net loss attributable to common shareholders of approximately $3.8 million, including a $6.5 million noncash impairment.
- The company's net debt to normalized EBITDAre ratio increased to 6.4x due to the utilization of cash paydown, slightly above their long-term target.
- PKST experienced a decrease in investment-grade tenancy percentage in its industrial segment, dropping from 74% to 59%.
- The company incurred $13 million in one-time transaction costs related to the credit facility extension.
- PKST's office segment faces a higher capitalization rate of 8%, up from 7%, potentially impacting asset valuations.
Q & A Highlights
Q: Can you remind me what your target leverage is, and how does the new financing play into your targeting or looking forward into how you're thinking about leverage?
A: Javier Bitar, CFO: Over the long term, we're targeting a 6 times debt-to-EBITDA. Currently, we're at 6.4 times due to the lost interest income from cash paydown. We'll continue focusing on our strong balance sheet and aim to reach a sensible debt-to-EBITDA ratio.
Q: When thinking about lease expirations, how do you consider the strategy for the Other segment versus the industrial and office segments?
A: Michael Escalante, CEO: We have minimal rollover in our core segments, with only 5% in office over the next three years. The Other segment has more exposure, but we've been able to secure renewals, which should enhance recovery and facilitate asset sales.
Q: Regarding the sale of one property, was it a vacant asset, and what are you seeing in terms of cap rates?
A: Javier Bitar, CFO: We sold one asset this quarter, which had a near-term expiration. Cap rates are tracked on a rolling basis, and we continue to monitor market conditions.
Q: What was the reason behind reducing the maximum commitment amount on the revolver?
A: Javier Bitar, CFO: The reduction resulted from a change in capitalization rates, improving our cap rate for industrial assets. We can increase the facility using an accordion feature as we execute our growth plan, avoiding non-utilization fees for excess capacity.
Q: Can you provide any color on the investment-grade tenancy for the portfolio, as it dropped this quarter?
A: Michael Escalante, CEO: The fluctuation is partly due to sales in the Other segment and changes in tenant ratings. Some tenants fluctuate between investment grades, affecting the overall percentage.
Q: How does your tenant watch list compare today versus a year ago?
A: Michael Escalante, CEO: We continuously monitor our credit tenancy, maintaining 100% collections. We don't have a formal watch list but keep a close eye on all tenants, with receivables being minimal.
Q: What are you seeing in terms of buyer's appetite for single-tenant office assets?
A: Michael Escalante, CEO: There's significant interest in properties generally, not just net leased assets. Bid lists are larger compared to the past couple of years, indicating increased buyer interest.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
