Griffin Realty Trust, Inc. Reports 2022 Third Quarter Results

EL SEGUNDO, Calif.–(BUSINESS WIRE)–Griffin Realty Trust, Inc. (“GRT” or the “Company”) announced its results for the quarter ended September 30, 2022.

Highlights for the Quarter Ended September 30, 2022

• Revenue of approximately $101.3 million, compared to $120.6 million for the same quarter last year.
• Net (loss) income attributable to common stockholders of $(111.2) million, compared to $2.5 million for the same quarter last year.
• Adjusted Funds from Operations (“AFFO”)¹ available to common stockholders and limited partners of $0.12 per basic and diluted share.
• Completed the sale of a majority interest in a 41-property portfolio (the “Office Portfolio Sale”), which had a total portfolio value of approximately $1.1 billion, on August 26, 2022.
• In connection with the Office Portfolio Sale, the Company invested $159.9 million for a 49% membership interest in an unconsolidated joint venture (the “Office Joint Venture”) that indirectly owns the 41-property portfolio.
• Paid down approximately $1.0 billion of outstanding debt primarily from the proceeds of the sales during the quarter.
• Extended the maturity date of the $750.0 million credit facility (the “Revolving Credit Facility”) to June 30, 2024, including three three-month extension options.
• Completed the sale of one property on September 23, 2022 for approximately $93.0 million.
• Collected approximately 100% of contractual rent for the quarter and the last two years.
• Portfolio economic occupancy stood at 95.1% at quarter-end.
• Signed five new leases totaling approximately 67,000 square feet.

Highlights Subsequent to September 30, 2022

• Collected approximately 100% of contractual rent due in October.
• Signed one lease renewal with a lease term of ten years.

Management Commentary

Michael J. Escalante, GRT’s Chief Executive Officer commented, “Our team and our portfolio continue to demonstrate resilience amidst challenging conditions. During the quarter, the persistent headwinds of rising interest rates, inflation, global economic uncertainty and unaccommodating capital markets were formidable. Also, remaining concerns about a permanent secular increase in work-from-home patterns are negatively impacting demand for office space. The negative sentiment regarding office property values is as pervasive as I have seen in my three decade plus career. Fundamentals in the industrial property sector are cooling somewhat, but strong e-commerce and on-shoring trends underpin solid prospects for those assets.”

Mr. Escalante added, “Against this backdrop, our team was able to consummate the sale of a 41-property office portfolio for more than $1 billion and deploy most of the proceeds to pay down debt. We retained a minority interest in that portfolio. In addition, we were able to extend the maturity date of our credit facility to June 30, 2024, including three three-month extension options. Together with our Board and advisors, we continue to execute on our recently announced strategic monetization plan, which we believe is the optimal way to achieve the dual objectives of providing the Company and stockholders as much liquidity as possible amid the current capital markets environment, while also maximizing stockholder value.”

Results for the Quarter Ended September 30, 2022

Revenue

Total revenue decreased 15.9% to approximately $101.3 million for the quarter ended September 30, 2022, a decrease of $19.3 million compared to the same quarter last year, primarily driven by a $14.3 million decrease in rental income due to the Office Portfolio Sale.

Net Income (Loss)

Net income (loss) attributable to common stockholders was approximately $(111.2) million, or $(0.34) per basic and diluted share, for the quarter ended September 30, 2022, compared to net income (loss) attributable to common stockholders of approximately $2.5 million, or $0.01 per basic and diluted share, for the quarter ended September 30, 2021. The change in net income (loss) attributable to common stockholders was driven by the net loss on disposition of assets of $95.5 million, primarily driven by the Office Portfolio Sale.

AFFO

AFFO was approximately $41.9 million and $55.2 million, or $0.12 and $0.15 per basic and diluted share, for the quarters ended September 30, 2022 and September 30, 2021, respectively. The decrease was primarily attributable to a $10.6 million decrease in rental income due to the Office Portfolio sale.

Adjusted EBITDA

Adjusted EBITDA, as defined per the Company’s credit facility agreement, was approximately $68.0 million for the quarter ended September 30, 2022. This resulted in fixed charge and interest coverage ratios of 2.2x and 2.7x, respectively, for the quarter.

Leasing Activity

The Company signed five new leases totaling approximately 67,000 square feet.

Consolidated Financial Statistics

The Company’s Net Debt (pro rata share) was approximately $1.9 billion. Our Net Debt (pro rata share) to Normalized EBITDAre and Net Debt (pro rata share) plus Preferred to Normalized EBITDAre were 7.3x and 7.8x, respectively. The ratio of consolidated debt, less cash and cash equivalents, to total real estate, was 36.7%.

As of September 30, 2022, the Company’s weighted average loan maturity was 3.2 years with 87% of the loan balance having a fixed interest rate, including the effect of interest rate swaps. Approximately 37% of the Company’s consolidated debt was secured and approximately 63% was unsecured.

Dispositions

On August 26, 2022, the Company completed the Office Portfolio Sale, which resulted in a loss of approximately $105.9 million. On September 23, 2022, the Company sold one property located in Phoenix, Arizona for total proceeds of $93.0 million. The sale resulted in a gain of approximately $10.4 million.

Joint Venture

In connection with the Office Portfolio Sale, the Company entered into the Office Joint Venture. Our obligation to the Office Joint Venture is generally limited to our initial contribution. The Company is not obligated to make any capital contributions beyond the initial contribution. The Office Joint Venture obtained acquisition financing for the portfolio comprised of (a) a $736 million mortgage loan (the “Mortgage Loan”), and (b) a $194.765 million mezzanine loan (the “Mezzanine Loan”, and together with the Mortgage Loan, the “Office JV Loans”). We have no obligation for payments under the Office JV Loans, have not guaranteed any debt obligations and have not otherwise committed to providing financial support in respect of the debt. In addition, we do not anticipate receiving any near-term cash flow distributions. Considering our limited economic exposure to the Office Joint Venture, we exclude our interests in the assets in the Office Joint Venture from our operating data (including annualized base rents and leasing and occupancy percentages).

Debt

The Company used part of the proceeds from the above dispositions to reduce debt by approximately $1.0 billion. Specifically, the Company paid off the $375.0 million Bank of America Loan, the $200.0 million 2023 Term Loan, and the $94.5 million Midland Mortgage Loan. In addition, the Company paid down $373.5 million of the Revolving Credit Facility. As part of the payoff for Bank of America and Midland, we incurred $13.2 million of debt breakage costs.

Fifth Amendment to the Second Amended and Restated Credit Agreement

Through the Fifth Amendment to the Second Amended and Restated Credit Agreement, the Company extended the maturity date of the Revolving Credit Facility from September 28, 2022 to September 30, 2023. The maturity date of the Revolving Credit Facility may be further extended pursuant to three, three-month extension options (i.e., to December 30, 2023, March 30, 2024, and June 30, 2024, respectively) if certain conditions are met and the Company pays an extension fee for each extension.

Net Asset Value

On August 5, 2022, the Company published an updated estimate of its NAV as of June 30, 2022. The Company’s average NAV across all share classes decreased by $1.68 to $7.42 per share compared to $9.10 per share as of June 30, 2021. The decrease was primarily driven by changes in the fair value of certain office assets.

Portfolio Overview as of September 30, 2022

• Enterprise value was approximately $4.6 billion.²
• Weighted average remaining lease term was approximately 7.0 years with approximately 2.0% average annual contractual rent growth for the remainder of the existing term.
• The portfolio was 95.6% leased, and the economic occupancy was 95.1%.
• Economic occupancy for the industrial and office portfolios was 100% and 89.9%, respectively.
• 87.3% of the Company’s annualized base rents³ are subject to annual escalations that average approximately 2.2%, and over 98.6% of the Company’s annualized base rents is subject to periodic increases.
• Approximately 59.9% of the portfolio’s annualized base rents were generated by investment grade companies.⁴

An overview of GRT’s portfolio is provided in the accompanying Portfolio Snapshot.

About Griffin Realty Trust, Inc.

Griffin Realty Trust, Inc. – America’s Blue-Chip Landlord^TM – is an internally managed, publicly-registered, non-traded REIT. The Company owns and operates a geographically-diversified portfolio of strategically-located, high-quality, corporate office and industrial properties that are primarily net leased to single tenants that the Company has determined to be creditworthy. As of September 30, 2022, the Company’s wholly-owned real estate portfolio consisted of 79 properties, in 24 states consisting substantially of office, warehouse, and manufacturing facilities.

Additional information is available at www.grtreit.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains statements that constitute forward-looking statements within the meaning of 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”). The Company intends 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 press release reflect the Company’s current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause the Company’s 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; the impact of the COVID-19 pandemic and resulting economic disruption on the markets in which we operate and on work-from-home trends, occupancy, rent deferrals and the financial condition of GRT’s tenants; whether any easing of the pandemic 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 and the availability and attractiveness of the terms of any such financing; anticipated asset dispositions, the availability of suitable disposition opportunities; legislative and regulatory changes that could adversely affect our business; whether we will continue to publish our net asset value on an annual basis, more frequently or at all; our future capital expenditures, operating expenses, net income, operating income, cash flow and developments and trends of the real estate industry; whether the strategic monetization process will maximize stockholder value; whether the spin off will be completed on the anticipated timing or at all; whether we will be successful in liquidating our remaining assets after the spin off; whether we will effect the strategic monetization process at the time and in a manner that maximizes value for the Company’s stockholders; when stockholders will receive any net proceeds in connection with the disposition of our remaining assets after the spin off; whether we will succeed in our investment objectives; whether the combination of net proceeds from the ultimate sale of your shares of the spin off company and the distribution of the net proceeds by the Company from the sale of the remaining assets will equal our current NAV; our ability to find purchasers for the remaining assets on such terms as our Board of Directors determines to be in the best interests of our stockholders; unanticipated difficulties or expenditures relating to the strategic monetization process or the pursuit of sales of our remaining assets; the response of stockholders, tenants, business partners and competitors to the announcement of the strategic monetization process; legal proceedings that may be instituted against us and others related to the strategic monetization process; risks associated with our dependence on key personnel whose continued service is not guaranteed; risks related to the disruption of management’s attention from ongoing business operations due to pursuit of the strategic monetization process and other factors, including those risks disclosed in Part I, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s most recent Annual Report on Form 10-K and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” of the Company’s Quarterly Reports on Form 10-Q filed with the U.S. Securities and Exchange Commission. The Company cautions investors not to place undue reliance on these forward-looking statements and urge you to carefully review the disclosures it makes concerning risks. While forward-looking statements reflect the Company’s 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 press release. Furthermore, the Company disclaims 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.

Additional Information and Where to Find It

In connection with GRT’s 2022 annual meeting of stockholders (“Annual Meeting”), GRT filed a definitive proxy statement on Schedule 14A on August 29, 2022, with the Securities and Exchange Commission (the “SEC”). The definitive proxy statement was first mailed to GRT stockholders entitled to vote at the Annual Meeting on or about August 29, 2022. INVESTORS AND SECURITY HOLDERS OF GRT ARE URGED TO READ THE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS IN CONNECTION WITH THE ANNUAL MEETING THAT GRT FILES WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE BUSINESS TO BE CONDUCTED AT THE ANNUAL MEETING. The definitive proxy statement and any other documents filed by GRT with the SEC may be obtained free of charge at the SEC’s website at www.sec.gov or at the “Investors” section of our website at www.grtreit.com or by writing to Griffin Realty Trust, Inc., Attention: Secretary, 1520 E. Grand Avenue, El Segundo, California 90245. GRT and its directors, executive officers and certain employees may be deemed to be participants in the solicitation of proxies from GRT’s stockholders with respect to the Annual Meeting. Information about GRT’s directors and executive officers and their ownership of GRT securities is set forth in GRT’s definitive proxy statement for the Annual Meeting on Schedule 14A filed with the SEC on August 29, 2022. You can obtain free copies of the definitive proxy statement as described in the preceding paragraph.

______________________________

¹ FFO, as described by the National Association of Real Estate Investment Trusts (“NAREIT”), is adjusted for redeemable preferred distributions. Additionally, the Company uses AFFO as a non-GAAP financial measure to evaluate its operating performance. FFO and AFFO have been revised to include amounts available to both common stockholders and limited partners for all periods presented.

² Enterprise value includes the outstanding debt balance (net of cash and cash equivalents) (excluding deferred financing costs and premium/discounts), plus unconsolidated debt – pro rata share, plus preferred equity, plus total outstanding shares multiplied by the NAV per share. Total outstanding shares includes limited partnership units issued and shares issued pursuant to the Company’s distribution reinvestment plan, net of redemptions.

³ Annualized base rents or “ABR” means the annualized contractual base rents before abatements and base year operating expenses as of September 30, 2022, unless otherwise specified, multiplied by 12 months. For properties in our portfolio that had rent abatements as of September 30, 2022, we used the monthly contractual base rent payable following expiration of the abatement. For our gross modified leases, we deduct base year operating expenses to arrive at ABR.

⁴ Investment-grade companies means companies (e.g., a tenant or a guarantor or non-guarantor parent of a tenant) that have received an investment grade credit rating from a Nationally Recognized Statistical Rating Organization (“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 company with 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; moreover, because GRT provides credit ratings for some companies that are non-guarantor parents of Company’s tenants, such credit ratings may not be indicative of the creditworthiness of the relevant tenants. Approximately 59.9% of the portfolio’s ABR was generated by investment-grade companies; 56.1% generated from companies with a NRSRO credit rating; and the remaining 3.8% from companies with a non-NRSRO credit rating that the Company believes is generally equivalent to an NRSRO investment grade rating. Bloomberg’s default risk rating is an example of a non-NRSRO rating.

Contacts

Investor Services
800-679-2112

Media Contact:
Joele Frank, Wilkinson Brimmer Katcher

Meaghan Repko/Jack Kelleher/Kara Sperry

212-355-4449

Read full story here