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Peakstone Realty Trust (PKST) Q1 2024 Earnings Call Transcript Highlights: Strategic Moves and ...

  • Total Revenue: $59.2 million for the quarter.

  • Net Operating Income (NOI): $47.6 million.

  • Net Income: Attributable to common shareholders approximately $5 million, or $0.14 per share.

  • Funds from Operations (FFO): $21.2 million or $0.54 per share on a fully diluted basis.

  • Adjusted Funds from Operations (AFFO): Approximately $27.8 million or $0.70 per share on a fully diluted basis.

  • Same-Store Cash NOI: Approximately $44.8 million, a 0.7% increase year-over-year.

  • General & Administrative Expenses (G&A): Approximately $9.7 million, a 3% improvement from the previous year.

  • Cash and Liquidity: $436 million in cash and $160 million of available undrawn capacity on the revolver, totaling nearly $600 million in liquidity.

  • Net Debt to Normalized EBITDA: 6.2 times.

  • Dividend: Paid a dividend of $0.225 per common share on April 18.

Release Date: May 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Peakstone Realty Trust successfully executed strategic plans to optimize the portfolio and align with long-term growth objectives, reducing the 'other' segment to 13% of ABR.

  • The company reported strong lease execution with three lease extensions totaling approximately 241,000 square feet, achieving significant GAAP and cash re-leasing spreads.

  • Successful dispositions of four assets in the quarter generated nearly $80 million, improving overall portfolio metrics and reducing the size of the 'other' segment.

  • Peakstone Realty Trust maintained a healthy liquidity position with $436 million in cash and $160 million in undrawn capacity on their credit facility, totaling nearly $600 million in liquidity.

  • The company's industrial and office segments provide stability with minimal near-term rollover and properties that are central to the business operations of tenants, positioning them well to capture future rent growth.

Negative Points

  • Net income attributable to common shareholders was relatively low at approximately $5 million, or $0.14 per share, including impacts from non-cash impairments.

  • The company reported a $1.4 million impairment related to a pending sale and a $4.6 million impairment related to goodwill, indicating potential overvaluation issues in the past.

  • Same-store cash NOI showed minimal growth of 0.7% year-over-year, which could indicate stagnating income from properties held over comparable periods.

  • The company's net debt to normalized EBITDA RE ratio stood at 6.2 times, suggesting a relatively high level of leverage that could pose risks if economic conditions deteriorate.

  • Despite successful asset dispositions, the company still holds a significant portion of non-investment grade assets in its 'other' segment, which could potentially affect the attractiveness and valuation of these assets in future sales.

Q & A Highlights

Q: Could you provide more details on the rent abatement in the industrial portfolio? A: Javier Bitar, CFO of Peakstone Realty Trust, explained that the rent abatement occurred in the 11th year of one of their industrial leases, which coincided with the last quarter. The tenant has opted for a five-year extension beyond the original term.

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Q: Can you discuss the cap rates for the dispositions that closed last quarter? A: Michael Escalante, CEO of Peakstone Realty Trust, noted that they generally do not comment on cap rates on a one-off basis. However, he mentioned that the weighted average cap rate for stabilized assets sold since the beginning of the previous year is now 7.8%.

Q: How does the split between investment grade and sub-investment grade assets affect your strategy for selling properties at stronger cap rates? A: Michael Escalante explained that their core holdings in the industrial and office segments are heavily weighted towards investment-grade tenancy, with percentages around 70%. The 'other' segment, more active in sales, has only 42% investment-grade tenancy. This segmentation assists potential buyers in securing financing from community and regional banks.

Q: What was the financial impact of the rent abatement on this quarter's results? A: Javier Bitar mentioned that the rent abatement affected the same-store cash NOI, which could have grown by 1.5% instead of the reported 0.7% if not for the rent abatement.

Q: Could you provide insights into the company's future dividend strategy? A: Javier Bitar stated that while Peakstone Realty Trust expects to continue paying quarterly dividends, all future decisions regarding dividends will be made by the Board of Trustees.

Q: How has the company's debt management strategy evolved this quarter? A: Javier Bitar highlighted the reduction in mortgage debt and the improvement in the net debt to gross real estate ratio, which has decreased by 200 basis points. This reduction in leverage has strengthened the company's balance sheet flexibility.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.