Greetings and welcome to Peakstone Realty Trust fourth-quarter 2023 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. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mikayla Lynch, Head of Investor Relations. Thank you, Ms. Lynch. You may begin.

Thank you. Good afternoon and thank you for joining us for Peakstone Realty Trust fourth-quarter 2023 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.pkst.com. Please reach out to our Investor Relations team at ir@pkst.com with any questions. Please note that the use of forward-looking statements by the company on this webcast. Statements made on this call may include statements which are not historical facts and are considered forward-looking. The company intends for all these forward looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are making these statements for purposes of complying with those Safe Harbor provisions. Furthermore, the forward-looking statements 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 actual results to differ significantly from those expressed in any forward-looking statement and will be affected by a variety of risks and factors that are beyond the company's control, including without limitation, those contained in our most recent annual report on Form 10-K or quarterly report on Form 10-Q, filed with the SEC. We disclaim any obligation to publicly update or revise any forward-looking statements to reflect changes in the underlying assumptions or factors of new information, data or methods, future events or other changes after the date of this call, except as required by applicable law. Additionally, on this call, the company may refer to certain non-GAAP financial measures, such as funds from operations, adjusted funds from operations, EBITDA RE, and adjusted EBITDA RE. 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 over to Mike. Mike?

I'd like to welcome you for joining our call today. Throughout 2023, we continued optimizing our portfolio and balance sheet. Despite challenging market conditions, we made meaningful progress on our strategic disposition program, selling 11 assets for over $336 million of gross proceeds. Through these asset sales, we significantly reduced leverage and began to evolve our portfolio for our industrial segment. Ongoing proactive engagement with our high-quality tenant base grow significant leasing activity, which virtually eliminated all near-term rollover. I wanted to spend a few minutes sharing highlights from the quarter and our full year. We ended the year with a portfolio that is 96.4% leased and with a WALT of 6.5 years. During the quarter, we executed four leases totaling over 1 million square feet, at weighted average GAAP and cash re-leasing spreads of 26% and 9%, respectively. Our leasing activity in the fourth quarter included two lease extensions in our industrial segment and two new leases in our office segment. In the industrial segment, our sole 2024 exploration with Samsonite, which leases the entirety of our Jacksonville, Florida asset accounting for 8% of segment ABR. This key facility for Samsonite is located proximate to the port of Jacksonville, for primary point of entry for Samsonite products. During the quarter, Samsonite exercised the first of its two 5-year renewal option. The rent for the renewal term is a to be negotiated fair market rent, with a floor of the expiring rent. As we work through negotiating the fair market rental increase with the tenant, for GAAP purposes, we recorded the rent for the extension period equal to the expiring rent, resulting in a 14% GAAP and 0% cash re-leasing spread. We will provide additional detail on the fair market rents in the coming quarters. We also completed an early…

Thanks, Mike. Leverage for our consolidated portfolio improved 1.5 turns from 7.7 times net debt to normalized EBITDA RE at the start of last year to 6.2 times at year end. We ended the year with ample liquidity and balance sheet flexibility as we advance our business plan. Turning to financial performance in the quarter, total revenue was $63.1 million and NOI was $50.3 million, inclusive of approximately $1 million of lease termination fee. Net loss attributable to common shareholders was approximately $19.9 million or $0.55 per share, inclusive of two non-cash impairments, relating to the now sold Corteva property Mike mentioned earlier, and $16 million relating to goodwill, associated with our other reporting segment. Same-store cash NOI was approximately $48.2 million, a 4.5% increase compared to the same quarter of last year. FFO, as defined by NAREIT, was approximately $11.3 million, or $0.29 per share on a fully diluted basis. Excluding the noncash goodwill impairment, FFO for the quarter would have been $0.69 per share on a fully diluted basis. AFFO was approximately $31.7 million or $0.8 per share on a fully diluted basis. And exclusive of $1.7 million of employee severance, G&A was approximately $10 million, which is consistent with our quarterly run rate for the year. For full year 2023, AFFO was approximately $118.1 million or $2.99 per share on a fully diluted basis. And same-store cash NOI was approximately $189.4 million, a 3.6% increase compared to the prior year. Moving on to our balance sheet. As of December 31, 2023, we had approximately $392 million in cash and $159 million of available undrawn capacity on our revolver. For total liquidity of approximately $551 million. A significant portion of our cash is being held in money market accounts earning interest in the 5% range. Regarding our consolidated…

Thanks, Javier. Our fourth quarter and full-year activity demonstrates our team's ability to execute our go forward strategy. Our high-quality assets and our collective expertise continue to be positive differentiators, as we position our portfolio for growth and maximize value for our shareholders. Our outlook on the industrial market remains positive. As demonstrated by our leasing activity in the quarter, our portfolio is well positioned to capture past and future rent growth and realize strong re-leasing spreads. We have strategically located industrial assets that are essential to the business operations of our tenants. And many of our tenants continue to invest significant new capital in their operations at our properties. On the office side, companies are more frequently making longer-term decisions about their office occupancy requirements. The two new office leases we signed in the quarter illustrate this point. We believe the quality of our tenants and the assets in our office segment are attributes that will provide stable cash flow with limited near-term rollover exposure. As I mentioned in the release, we ended 2023 on a high note, with a materially stronger cash position, an enhanced portfolio composition, and continued operational excellence across our industrial and office segments. We have entered the new year on solid footing and leasing momentum remains positive. Thank you for your time today, and we look forward to seeing many of you at the upcoming conferences. We will now turn it over to the operator to take a few questions from analysts. Operator?

[Operator Instructions]. The first question comes from the line of Carol Grant with Bank of America.

Hi, this is on behalf of Josh. Great to hear about you guys again. My first question is about the 2024 lease maturities in the other segment. Just curious if you had any thoughts on how those may be playing out? Are the expirations going forward or you've been having active conversations in that area?

Yeah, thanks, Carol, and please give our best to Josh. So a significant amount of our rollover actually does tie to our other category. We don't spend a lot of time talking about what it is that we're doing in those specific areas. But suffice to say that we are spending significant time with those properties. And as you know, we just effected an agreement with AIG to facilitate the sale of all of the other properties associated with the AIG loans.

Great, thank you. And I guess also in terms of appetite that you're seeing for these office assets. I know that you're -- holding a few for sale right now. Can you give a little bit more color on like the landscape that you're seeing?

Yeah, so we had a great year, right? We sold 11 properties over the year, with $336 million of proceeds -- or the cap rate for our stabilized assets for 7.6%. We're clearly selling, opportunistically, properties that don't align with our go-forward plan. And when you look at what we're seeing in the marketplace, it's obviously becoming much more dependent on the ability to get credit. So we're somewhat of the winds of the marketplace. Clearly, at the end of the year, and we have some relief as a result of the Fed's input. A little bit of that's been given back. But what we're hearing from people is that there's quite a few people who are willing to be active in the marketplace, specifically from the equity side, and we'll see how things unfold as the Fed's picture becomes clearer over the next couple of quarters.

The next question comes from the line of Anthony Hau with Truist Securities.

Good afternoon. Thanks for taking my question. You guys have around like $400 million of cash on hand. What type of acquisition opportunities have you guys identified in the pipeline today and what's stopping you guys from acquiring assets?

Sure. We like where we sit in terms of our total cash position and affords us great flexibility on our balance sheet. We continue to focus on -- strengthening our balance sheet. At the appropriate time, we'll be looking at opportunities in the investment side.

Is there like a target leverage metric that you guys looking to achieve before you start looking at acquisitions?

In terms of leverage, we've indicated that we've made significant headway from the beginning of last year through this year. We're going to continue to allocate and look at putting strengthening our balance sheet in that regard. I think, to Javier's point, is that we've got great optionality, relative to keeping the cash on our balance sheet. We're going to continue to actively monitor the market. We're going to continue to weigh our position over time and weigh our options. But as we've told you, our strategy is to evolve our portfolio towards our industrial segment, which we believe has favorable growth prospects and away from the office segment.

So in terms of like industrial acquisition opportunities that you guys are potentially looking at, will these mostly be like infill locations in the coastal markets or more the middle America, let's say the Midwest. Are they big box assets?

Well, as you know, our own core portfolio as it stands today is significantly geared toward the coastal markets, which are predominantly geared towards those properties that have our access to the porch. I think it's all you have to do is look at what we did relative to the Samsonite renewal and the TransDigm renewals in terms of our performance there. And in terms of the re-leasing spreads that we were able to achieve. So clearly, those have performed quite well for us, and so I think that we'll continue to look to add those types of properties for sure.

Okay, and can you provide any color on the upcoming expiration of that tech data corp lease in San Antonio?

We're not really providing guidance, relative to our specific properties. So no real guidance for you there.

Okay, but you guys are in active discussion with a tenant like a potentially renewing the lease, right? I'm just curious what those discussions are? How are they going?

Yeah, I think we're very pleased with all of our tenants and all of our buildings. I think if you look at the 1 million square feet that we were able to achieve in terms of new leases and extensions, our team has been very creative in being able to fulfill the order, if you will, meet our needs along with our tenant needs. We're very proactive in that regard. And I think you can see that relative to the TransDigm transaction, we were able to do an early extension almost two years in advance of what would have been a natural exploration there and meet their needs and our needs and increase our rent almost two years in advance than it would have naturally expired at. So I really am proud of our team's ability to go out there and nurture their relationships with the tenants, be very active operators of our real estate, and push our leasing forward.

And just last one for me. For the Tyler, Texas asset, what was the termination income associated from the sale? The value amount?

The value of the termination?

Yeah.

I don't think we've disclosed that. I think the best thing that I can tell you is that we sold that for a combined -- $21.4 million, and that was inclusive of lease termination, yeah.

Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to management for closing comment.

Thank you, everyone, for joining our call. Again, we look forward to being in touch with you. And very, very happy with the quarter, and we look forward to a really fruitful 2024. Thank you, operator.

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