Greetings, and welcome to Peakstone Realty Trust's Fourth Quarter 2024 Earnings Webcast Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr. Steve Swett, Investor Relations. Thank you, Mr. Swett. You may begin.

Good afternoon, and thank you for joining us for Peakstone Realty Trust Fourth 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 [email protected] 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 that 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-K 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, 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 to Mike.

Good afternoon, and thank you for joining our call today. The company had an extremely successful fourth quarter and full year, significantly advancing our strategic plan to shift our portfolio towards industrial. With our industrial ABR now comprising nearly 40% of total ABR. Over the course of the year, we acquired a premier 51-property infill industrial outdoor storage or IOS portfolio for $490 million. We divested $317 million of non-core assets, including the elimination of the entire other segment. We achieved strong leasing activity with favorable leasing spreads, highlighting the strength of our operational capabilities. And we took another pivotal step in strengthening our capital structure with the amendment and extension of our credit facility. We are excited to enter the IOS sub-sector. IOS properties have a low building-to-land ratio or low coverage, which maximizes yard space for the display, movement, and storage of materials and equipment. This sub-sector is characterized by fragmented ownership, significant supply constraints, compelling operating fundamentals, and minimal CapEx requirements. Importantly, IOS assets complement our traditional industrial assets, which include distribution warehouse and light manufacturing properties. These asset types share similar market dynamics, tenant profiles, lease structures, and asset management responsibilities. The Premier infill IOS portfolio we acquired in the fourth quarter has a 70% mark-to-market opportunity with the potential to achieve incremental yields as we stabilize the six redevelopment properties. This portfolio significantly enhances the company's growth profile. With substantial opportunities for sustained growth in the IOS sub-sector and our team's unique IOS expertise, we plan to concentrate our investment strategy on these types of assets, which we believe will drive long-term shareholder value. Turning to our dispositions, I'm very pleased that we achieved our stated goal of disposing of our other segment assets by year-end 2024. In the fourth quarter, we sold the remaining 10 assets in that segment, completing this important milestone. For the year, we sold a total of 19 assets for $317 million, including 17 other segment properties and two office segment properties. One of the key reasons our office property dispositions have been so successful is that our office buildings are generally newer vintage and contain functions that are central to tenant operations. Given these attributes, many of our tenants have expressed interest in purchasing the properties they lease, and we have been successful in closing these types of transactions. In 2024, tenant purchases accounted for approximately 44% of our gross disposition proceeds. As we continue to divest non-core assets in 2025, we will maintain a strong focus on engaging with tenants as potential buyers of our properties. Moving to leasing activity, we had a successful year marked by strong results. We leased a total of approximately 837,000 square feet with a weighted average lease term of 4.5 years and achieved favorable re-leasing spreads, 32% on a GAAP basis and 23% on a cash basis. Several of these leases were for other segment assets that were sold shortly after the leases were completed. In these cases, we strategically structured the leases to maximize potential sales proceeds and minimize out-of-pocket leasing costs incurred prior to the anticipated sale date. Our solid leasing activity for the year highlights our operational expertise and reflects the continued strong demand for our properties in the market. As a result of our acquisition disposition and leasing activities in 2024, our portfolio had the following key characteristics at year-end. We owned a total of 103 properties reported in two segments, industrial and office. Our portfolio consisted of 97 operating properties and six redevelopment properties, which are properties we have designated for redevelopment or repositioning. Our operating portfolio includes 64 industrial segment properties made up of 45 IOS locations and 19 traditional industrial assets. These properties span 18 states, 31 markets, and are roughly 58% concentrated in coastal and Sunbelt markets. Our Industrial segment ABR now accounts for nearly 40% of our total ABR, up from 25% at the beginning of 2024. Looking at our IOS assets specifically, the 45 IOS properties are approximately 100% leased with 47% investment-grade tenancy, a WALT of 4.4 years, and a potential 70% mark-to-market opportunity. Our traditional industrial assets are 100% leased with 58% investment-grade tenancy, a WALT of six years, and a potential 24% mark-to-market opportunity. Our operating portfolio also includes 33 office segment properties, which are 99% leased with 60% investment-grade tenancy and a WALT of 6.9 years. These buildings are generally newer with an average age of 12 years and have minimal near-term capital requirements. This segment has limited near-term rollover with only 1% of the Office segment ABR expiring in 2025 and 18% expiring over the next three years. Our redevelopment portfolio consists of six industrial segment IOS assets, encompassing 82 usable acres across four states with targeted stabilized yields in the 7.5% to 8% range. Additional details about our redevelopment properties are provided in our quarterly supplemental. With that, I will turn the call over to Javier, who will review our financial results and capital markets activity.

Thanks, Mike. I'd like to begin by sharing a few highlights of our financial results for the quarter. Total revenue was approximately $58 million and cash NOI was approximately $48 million. Net income attributable to common shareholders was approximately $12.7 million or $0.35 per share. FFO was approximately $29.2 million or $0.74 per share on a fully diluted basis. AFFO was approximately $25.6 million or $0.65 per share on a fully diluted basis. And same-store cash NOI was approximately $39 million, a 0.4% increase compared to the same quarter last year. Same-store NOI for our Industrial segment was primarily impacted by continuing rent abatement in the 11th year of a pre-existing Industrial segment lease, which ended in November 2024, and a one-time reversal of non-tenant reimbursement income. But for these items, same-store cash NOI would have grown by 2.8%. For full year 2024, AFFO was approximately $106.6 million, or $2.69 per share on a fully diluted basis and same-store cash NOI for the overall portfolio was approximately $154.9 million. Moving on to our balance sheet. As of December 31, total liquidity was approximately $229 million, consisting of cash and available revolver capacity. Our cash balance, excluding restricted cash, was approximately $147 million, and we earned approximately $1.5 million of interest income in the quarter. Available revolver capacity was approximately $82 million. Before reviewing further debt metrics, let me first walk you through the evolution of our debt structure throughout the year. As we began 2024, we focused on strengthening our capital structure with a key initiative being the successful amendment and extension of our credit facility. During the first half of the year, we further reduced our net debt to normalized EBITDAre from 6.2 times at the start of the year to 5.9 times at the end of the second quarter, and we retained excess cash to manage our operational needs and continue our strategic engagement with our banking partners. In the third quarter, with the assistance of our highly supportive bank group, we executed a beneficial amendment and extension. Through this amendment, among other things, we extended over $750 million of near-term maturities to 2028 and incorporated updated covenants, which facilitate asset dispositions and enable IOS properties to be added to our borrowing base. In connection with this amendment, we entered into new forward-starting floating to fixed interest rate swaps with a notional amount of $550 million. These swaps will take effect on the maturity date of our existing $750 million of swaps, which is July 1, 2025. They mature on July 1, 2029, and have the effect of converting SOFR to a weighted average fixed rate of 3.58%. The amendment also resulted in a more favorable valuation of the industrial assets, including IOS, in our borrowing base. And the new swaps assured a competitive interest rate, making this financing both cost-effective and essential for executing our growth and deleveraging strategies. In the fourth quarter, our lenders continued to support our growth plan, allowing us to utilize the accordion feature in our credit facility to secure a new $175 million term loan. The term loan matures in 2028, inclusive of the extension option and is priced at SOFR plus 175 basis points based on our consolidated leverage at the end of the year. Proceeds from the term loan were utilized to acquire the IOS portfolio Mike mentioned earlier. On the secured debt side, following the sales of the other segment assets, we extinguished all associated AIG debt, which had a remaining balance of $183 million. Additionally, we added three separate mortgage loans totaling $110 million at a weighted average interest rate of 5.64%. These loans are secured by our traditional industrial properties with two maturing in 2029 and one maturing in 2032. As a result of these actions, our year-end debt metrics were as follows: $1.36 billion in total debt outstanding with $1 billion of unsecured debt on our credit facility and the remainder in nonrecourse secured mortgage debt. After deducting cash, our net debt was approximately $1.2 billion and our net debt to normalized EBITDAre ratio was 7.5 times. Including the effect of our interest rate swaps, 82% of our debt was fixed and our weighted average interest rate for all debt secured and unsecured at year-end was 4.4%. For the fourth quarter, as previously announced, we paid a dividend of $0.225 per common share on January 17, and the Board of Trustees approved a dividend for the first quarter in the amount of $0.225 per common share that is payable on April 17 to holders of record on March 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.

Thank you, Javier. Looking ahead, we remain focused on maintaining a disciplined approach to our debt levels. Our revolving credit facility provides the flexibility to adjust debt as needed, and we are well-positioned to pay it down through proceeds from non-core asset sales. Additionally, we have the capital flexibility to pursue strategic IOS acquisitions, providing us with a competitive advantage as we seek to expand our portfolio and further improve our growth trajectory. We are confident in our ability to continue driving long-term growth and value creation and we look forward to another successful year ahead. We will now turn the call over to the operator to take a few questions from analysts.

Thank you. We will now begin the question-and-answer session. The first question comes from Farrell Granath with Bank of America. Please go ahead.

Hi, good evening. Thank you for taking my questions. I first wanted to get a few comments on your appetite when looking forward at acquisitions in either having a mix of the IOS or traditional industrial type properties that you already have in your portfolio. Is there one way that you're leaning? And also what type of price differential or competition are you also seeing in the market?

Thanks for joining us, Farrell. It's great to hear from you. As we discuss our current position, we find the IOS mix to be the most appealing. While IOS cap rates have approached those of traditional industrial properties, there is still a notable difference. Additionally, when we examine the growth potential within the IOS portfolios, we see a more favorable environment. For now, we are focusing our investments on industrial properties, with a primary emphasis on the IOS assets.

Okay. Thank you. And also just following up on your comment about capital recycling and the focus on the office portfolio, I was curious if you are receiving any direct inbounds. You're seeing any further appetite, especially as news around the office has turned a little bit lighter.

By lighter, you mean better?

Yes.

Okay. I think one of the things we're noticing is that there are two key points. First, at the local level, specialists who already have a presence in the market find current prices very appealing. Secondly, looking at our performance over the past year, 44% of our gross proceeds came from existing tenants or new tenants entering to take over properties. There is a noticeable difference in the financing costs for our tenants, who are mainly Fortune 500 companies or larger creditworthy tenants, compared to traditional investors. This gives them an advantage in financing projects. Overall, I believe these are the two main themes, and there is a hopeful sentiment regarding a return to office which should bolster demand.

Great. And just one more for me. Just thinking more on the internal growth side, I noticed that you made a few comments about lease expirations coming up more in 2026 and further out years. Is the key focus more on being able to push the rates on lease escalators going forward and any new lease renewals? And how are those negotiations going?

So as we identified in our acquisition of the IOS portfolio, we have five opportunities in the redevelopment sub-segment, if you will, where we are actively out repositioning those assets in some way, shape, or form, and the leasing activity has been quite good. The sixth asset is a ground-up redevelopment, so that's sort of a different animal. But I think that, along with some of the discussions that we have with our existing tenants who have some lease expirations coming up in the next couple of years. I think we're pretty excited about what we're seeing on both ends just in terms of the uplift in rents nominally and then also the embedded growth rate within the lease term itself. So stay tuned. We've got a lot of work ahead of us, but most of our projects are underway and definitely in the marketplace and a lot of interest for those properties.

Great. Thank you so much, and congratulations on the quarter.

Thanks, Farrell.

Thank you. Next question comes from the line of Michael Goldsmith with UBS. Please go ahead.

Good afternoon. Thanks for all for taking my question. First question relates to the proceeds from the sale of the Other segment. Like how should we think about how you're going to be using this? It seems like the comments from the press release indicate you could be using it to pay down debt or to make targeted IOS investments? Just trying to get a little bit more color on how we think about debt repayment versus continued investment. Thanks.

Hi, Michael, it's Javier. The majority or almost two-thirds of the proceeds from the sales were dedicated to pay off the AIG debt. So we're fully extinguished there. And there was also one smaller loan of approximately $11 million that got paid off as part of the sales proceeds there. The balance did go to increase our cash balance over the year. And really on a net-net debt basis improved our leverage slightly. Even though we – as you saw in the filings, we levered up a bit for the acquisition itself. But we'll continue to focus on leverage. We did complete the second quarter down to 5.9 times. We're up to 7.5 times as a result of the acquisition. So we'll be – we'll really look at proceeds from sales going forward on a balanced approach, looking at leverage and strengthening the balance sheet and also focused on growth.

Thanks for that. And as a follow-up, it sounds like you're continuing to look at divesting non-core assets. Do you define non-core assets as the office assets? Or does that also include some of the traditional industrial assets as well?

Yes. I think – by the way thanks for joining us Michael and I appreciate you picking us up in coverage. I think from our perspective, certainly really our approach is maximizing value. And if I think in today's world, when you look at the returns that are coming out of office, the rollover exposure and the CapEx exposure those sorts of things put a pretty heavy weight on office. So from that perspective, I think that that would be the larger component of our non-core asset pool, if you will.

Got it. And maybe just one last one for me. 10% of your industrial ABR is set to expire in 2026. Do you just have a sense of how likely tenants are to renew? Are you starting to have those conversations? And what are the conversations like with your current tenants? Thanks.

Yes. We don't really have – we probably don't have enough rollover but to get the growth that we want to see, but we have been in discussion relative to the exposure there. And so far everything we're hearing has been positive, but it's still a little bit early.

Okay.

We're not quite there in terms of timing.

Great. Thank you very much. Good luck in 2025.

Thanks, Michael.

Thank you, Michael.

Thank you. Next question comes from the line of Anthony Hau with Truist Securities. Please go ahead.

Hey guys. Congratulations on the sale of the other segment; you've done a fantastic job in 2024. I have a quick question for you, Javier. You mentioned that about two-thirds of the proceeds from the sale went towards paying down the AIG loan, right? However, when I looked at the supplemental report in the third quarter, the outstanding balance on the AIG loan was $183 million. I'm just curious if you could help clarify that discrepancy.

I mentioned that generally two-thirds went towards the loan repayment. The outstanding balance was $183 million at the end of the third quarter. At the beginning of the year, I believe we were around $200 million, starting in the $212 million range.

Got you. But you mentioned that two-thirds of the $190 million went towards paying down the AIG loan. So how do they account for that?

I'm sorry. It was up to $317 million total sales proceeds for the year. That's what I meant to say.

Got you. Okay. That makes a lot more sense. Okay.

Yes. Yes. Sorry about that.

No worries. I think your net debt to EBITDA right now is in the mid-sevens. Where would you like it to be by year-end?

I think we've quoted since the time that we listed that we would be aiming for a 6:1 ratio. And last year as evidence of that, we got down to 5:9, I think if you look back, Anthony, at everything that we've done really before listing and leading right up to the end of this year, we've sold over $2 billion of assets in the last two years. We exited the joint venture, the office joint venture, and then we completed the sale of the other segments. We've really pushed at the same time we've moved the percentage of the ABR that's attached to industrial, as we indicated. So I think we have a proven track record of reducing leverage. Nothing is going to be linear. But we have our eyes on the ball to balance continued growth with deleveraging. And I think we have all the tools in the toolbox to do it. And you've seen us have a commitment to deliver on that type of number.

Okay. And just one last question, have you guys started marketing the office portfolio? And just curious, like what are you seeing in terms of buyer demand or interest in those assets?

We have properties currently on the market and others receiving inquiries. We feel more positive about this year compared to the past, although it's uncertain what it will bring. While we may not see portfolio buyers, the debt markets are improving slightly. Last year, a standard offering in the CMBS conduit market was around 10%, but recent comments suggest it might be rising to 20%. This indicates some loosening in the debt market, which could increase buyer demand if this trend continues.

Got it. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.