Plymouth Industrial REIT Inc (PLYM) 2020 Q3 法說會逐字稿

Good morning. Welcome to Plymouth Industrial REIT Third Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note that this event is being recorded.

I would now like to turn the conference over to Tripp Sullivan of Investor Relations. Please go ahead.

Thank you, Kaye. Good morning. Welcome to the Plymouth Industrial REIT conference call to review the company's results for the third quarter of 2020. On the call today will be Jeff Witherell, Chairman and Chief Executive Officer; Pen White, President and Chief Investment Officer; Dan Wright, Executive Vice President and Chief Financial Officer; and Jim Connolly, Executive Vice President of Asset Management; and Anne Hayward, General Counsel.

Our results were released this morning in our earnings press release, which can be found on the Investor Relations section of our website, along with our Form 10-Q and supplemental filed with the SEC. A replay of this call will be available shortly after the conclusion of the call through November 13, 2020. The numbers to access the replay are provided in the earnings press release. For those who'll listen to the replay of this call, we remind you that the remarks made herein are as of today, November 6, 2020, and will not be updated subsequent to this call.

During this call, certain comments and statements we make may be deemed forward-looking statements within the meaning prescribed by the securities laws, including statements related to the future performance of our portfolio, our pipeline of potential acquisitions and other investments, future dividends and financing activities. All forward-looking statements represent Plymouth's judgment as of the date of this conference call and are subject to risks and uncertainties that can cause actual results to differ materially from our current expectations. Investors are urged to carefully review various disclosures made by the company, including the risk and other information disclosed in the company's filings with the SEC.

We also will discuss certain non-GAAP measures, including, but not limited to, FFO, AFFO and adjusted EBITDAre. Definitions of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in our filings with the SEC.

I'll now turn the call over to Jeff Witherell. Please go ahead.

Thank you, Tripp. Good morning, everyone. Thanks for joining us here today. While our second quarter was primarily defensive in nature, our third quarter was one where we were continually active on offense, and our results reflect that work. Rental collections and leasing activity have both continued on the positive trajectory we had coming out of the second quarter. Also, during the third quarter, we completed another overnight common equity offering, which we are actively deploying the proceeds of.

Continuing along with the sports metaphor, I'm often saying that we here at Plymouth are playing a team sport. And as such, we need to field the best team we can. We have worked hard at building a strong foundation in each area of our business, and our results over the past several months are a direct result of that effort. I want to thank every one of my team members who continue to put in the work to make this happen.

Our asset management and property management teams have done an outstanding job of staying close to our tenants and be responsive to their needs. This shows up in our leasing results and occupancy but also in how strong our rental collections have been. With 99% of our rent collected for all 3 quarters this year so far and October already at 97%, we believe that speaks volumes for the quality of our tenants and our portfolio in general.

The strong leasing momentum we are seeing backs up that statement as well. We achieved a 14% cash increase on the leases that commenced this quarter, which brings us to 12% for all of the leases that have commenced through the first 9 months. Our portfolio occupancy remained stable around 95% to 96%. With our 2020 renewals largely taken care of, our focus is turning to 2021 and beyond.

Turning to our balance sheet. Our priorities have been to ensure that our dividend is well covered, that our leverage profile continues to improve and that we are able to access multiple sources of capital to grow the portfolio. We are well ahead of plans on each initiative. With our reinstated guidance for the year, we are projecting dividend coverage for the year below 60% on both FFO and AFFO and below 50% for quarter 2 to quarter 4. That was an important consideration in the Board's deliberations earlier this year and has allowed us to continue to pay a dividend throughout the pandemic.

Our common equity offering that we completed in August brought in $105 million of new capital. It was rewarding to see that the deal was upsized to accommodate several new quality institutional REIT investors. We made the decision to deploy these proceeds with a lower leverage profile than we have in the past. Assuming we use only 40% leverage on the net proceeds, we are targeting completing approximately $165 million in acquisitions. We believe this is striking the proper balance between growth and the path to lower leverage. When we look at where we need to be over the long term for industrial REITs who are significantly much larger than we are, I think this offering has us on the right path and, in our opinion, much farther along than our larger peers were in their early years.

Outside of the quarter, we completed 2 major accomplishments, which should have a profound impact on the company. In October, we closed on a $300 million unsecured credit facility with our bank group led by KeyBanc, which included Barclays, JPMorgan, Capital One, and was joined by BMO. Dan will give you some details on this in a moment.

Also, in October, we took another step in the right direction with the joint venture we entered into with Madison International Realty. We have come to know them well since our preferred stock investment with them in 2018. They are also one of our largest common stockholders. We will have a 20% ownership interest in the venture. They'll have an 80% interest in the targeted initial equity investment between the partners of $150 million, which we expect the leverage profile to be between 60% and 65%. This should give us buying power of approximately $430 million.

We see this joint venture as a complementary source of growth capital for us. It gives us options that we otherwise would not have to pursue opportunities that are not a good initial fit for the REIT. We were very intentional in how we structured this venture from the 1% asset management fee we will earn on the equity invested to the promote that we're going to earn above certain return hurdles and the right of first offer to purchase the properties, also included is our day-to-day controls. We took our time to do this right, and we believe we chose the right partner.

We will utilize this JV to acquire properties under 2 conditions: one, they are more value-add or opportunistic in nature due to heavy lease-up and CapEx investments that would affect the short-term cash flow; and two, the REIT doesn't have enough capital to take on the acquisition. The first acquisition we have under our agreement with the venture fits both of these qualifications.

Our pipeline is active and continues to be driven by the incremental demand we're seeing for industrial space in the country. It's worth repeating that we and many others in this industry believe that there currently isn't enough space to serve the demand that is coming, particularly in infill locations where a majority of Class B properties are located. This riding tide is benefiting all of us, but we believe it will have just as much of an impact on our markets and our portfolio as anyone else.

The growth of e-commerce continues unabated. The rationalization of the international supply chain around the protection of intellectual property, the protection of the supply chain itself and the environmental impact of global shipping is continuing as well, and that's not heavily influenced one way or another by which administration is in the White House. The economics associated with this supply-demand imbalance are creating unique opportunities for us, and we will continue to find the right way to pursue them at the right time.

With that, I'll ask Pen to take you through the acquisition and update on the joint venture.

Good morning. Since hitting the pause button on a number of acquisition opportunities we were pursuing back in March and April, our focus has been enhancing our pipeline with transactions from motivated sellers. We also wanted to replicate what we've done in the past: source attractive entry points to new markets, find select opportunities to acquire B+ or A- properties at Class B pricing and target new deals in infill locations near major urban areas. We have been successful on each initiative during the quarter, and that momentum has continued.

With proceeds from our August equity offering, we were able to deploy our capital efficiently and prudently, completing 3 separate transactions in September, totaling $51 million in St. Louis and Jacksonville markets where we have a growing presence. We now have over 750,000 square feet in St. Louis and over 1.4 million square feet in Jacksonville. In October, we purchased another property in Ohio for $10.5 million and completed the $150 million equity joint venture agreement with Madison. These additions in our existing markets in St. Louis, Jacksonville and Ohio extend our scale in each market with well-tenanted properties that provide the opportunity to drive rental rates on renewal and generate incremental value. They are a mixture of Class A- and Class B properties, and they are positioned to benefit from the strong fundamentals in these markets. There are new markets we are pursuing as well where we believe we can attain attractive entry points that look similar to our existing asset base.

Regarding the Madison JV, Jeff had some comments earlier on this, but I want to reinforce how we are approaching this venture from an investment standpoint and briefly mention the first acquisition we have under agreement. For the last few years, we have seen a number of large portfolio transactions trade in our target markets and seeing deals that are more value-add or opportunistic in nature, i.e., not a good fit for the REIT at that time. Now with Madison as a committed partner, we have the opportunity to push scale in our target markets to an extent we have not been able to do in the past.

For instance, our first opportunity is in Memphis, a market we're very familiar with. There, we have under agreement a 28-building, 2.3 million square foot portfolio for approximately $86 million. We know these properties very well, and many of them are in close proximity to our existing assets in the market. And Memphis is a top industrial market with multiple demand drivers tied to logistics and distribution, along with a strong manufacturing base. This is more of a value-add play in general as there are several properties within this portfolio that have some vacancy and will require some initial CapEx. We expect this to close by year-end, subject to customary closing conditions.

As we look forward, our pipeline is robust. It's comprised of similar opportunities in Class B, B+ and some A- properties in both existing markets as well as new ones. For the most part, they share the common theme of being in locations where having access to a skilled labor pool is important and where e-commerce is creating demand for infill space close to urban markets. Conversation with sellers is the same as it's always been. And with the overall industrial environment still fairly positive and leading to pricing stability and even some tightening in some situations, we have patiently taken advantage of the fragmented nature of the ownership of our type of product.

This is a good time to be invested in industrial. The fundamentals are strong and enduring for a multitude of reasons. We have a number of opportunities to continue to grow the company in existing and new markets as well as opportunities to increase our scale with more value-add and opportunistic situations with a great partner in Madison. We look forward to reporting on our continued progress in the coming months.

So now I'll turn it over to Jim Connolly to walk through the leasing activity and portfolio operations.

Good morning. As of September 30, we had addressed 82% of our leases that were due to expire in 2020. In addition, we have already addressed 29% of the forecasted 2021 expirations. During the third quarter, 16 leases commenced totaling 408,000 square feet. Of this amount, 342,000 square feet was for leases 6 months or longer, which was comprised of 102,000 square feet of renewal leases and 240,000 square feet of new leases. Overall, we had a 14% increase in rental rates on a cash basis over prior leases with duration over 6 months.

During the 9 months ended September 30, leases for space totaling 2.5 million square feet was either subject to renewal or expiring. Of this space, 1.6 million square feet or 62% was renewed and 400,000 square feet or 18% was leased to new tenants. Additionally, 200,000 square feet of previously vacant space was leased to new tenants. Overall, for the first 3 quarters of 2020, we had a 12.1% increase in rental rates on a cash basis over prior leases with a duration of over 6 months.

Portfolio-wide occupancy at September 30 was 95.5%, up 40 basis points from Q2, mainly due to filling vacant space at our Creekside facility in Columbus, 20 basis points; and the impact of the Q3 acquisitions, another 20 basis points. Overall, we had seen a net negative 360,000 square foot absorption during the year through Q3, resulting in a 1.7% increase in our vacancy rate for properties we owned at the end of last year.

Factoring in the 2020 acquisitions, the overall vacancy dropped to 1.1%, the current vacancy includes 340,000 square feet that is being repositioned at 4 locations that are going through major renovations. Excluding that space would bring our occupancy rate up to 97.2%, which would be 60 basis points higher than it was at the end of last year. Included in the repositioned space is 80,000 square feet for which we received $565,000 in lease termination fees related to move-outs in Q1 and Q3. The majority of our remaining 2020 scheduled expirations, which is down to less than 1% of our space, are expected to renew. We are forecasting positive absorption during Q4 with 60,000 square feet of leases commencing in the space that was vacant during Q3.

We continue to have minimal impact on the core operations of our portfolio related to COVID-19, and the feedback from our tenants has been positive on maintaining their business plans at our facilities. Through 10/31, we have collected 99.1% of our rents billed during Q3. And if you factor in our executed rent deferrals, our expected rent collection is at 99.4% for the quarter. October has seen a 97.4% rent collection rate at month end, and there is -- there were no deferral agreements for the month.

Our focus now turns to the upcoming 2021 expirations. Initially, we had 4.1 million square feet or 19.2% of the current portfolio slated to expire in 2021. To date, we have already addressed 1.2 million square feet or 29% of the scheduled expirations. We have a lot of activity in the works, including extensive marketing efforts at 3500 Southwest Boulevard facility in Columbus where Stonecrop will be vacating in April. We have been working with several interested parties and have worked out plans with Stonecrop to provide early access to prospective tenants if required.

In an effort to continue to refine our disclosures related to our properties, I want to highlight that we've added a few statistics to our quarterly supplemental about composition of our portfolio. We now have a breakdown of our leased square footage by lease and tenant type as well as tenant size. What these schedules show is how concentrated we are in net leases and also in multi-tenant buildings. And as we look at our lease -- leases segmented by size, we see that leases smaller than 10,000 square feet, which seem to be the size most investors are concerned about, only account for 5.5% of our total in place plus uncommenced annualized base rent. Overall, we have a very strong well-tenanted portfolio with great diversification.

At this point, I'll turn it over to Dan to discuss our financial results.

Thank you, Jim. We posted strong third quarter results despite the near-term headwind on same-store NOI that we discussed last quarter. We're making progress on the re-leasing of some vacancy in the same-store portfolio and burning off the free rent from some of those leases. Consistently high rent collections within the portfolio and the recent momentum we've sustained, not to mention the continued execution on our acquisition opportunities, gave us the visibility and the confidence to reinstate our full year guidance. We also made significant progress on our balance sheet, and I'll discuss each of those in more detail.

First, let me cover a few items of note for the quarter. Significant year-over-year acquisition activity drove revenues, NOI, EBITDAre, FFO and AFFO. We had only a partial month contribution from the $51 million of acquisitions completed in Q3 that impacted the quarter. FFO and AFFO available per share and unitholder were $0.42 and $0.38, respectively, after the impact of the additional shares and a decline in same-store NOI offset the impact from the acquisitions. We were also required to report a $311,000 noncash impairment related to the carrying value of the right-of-use asset associated with primary lease on our primary headquarters office. We have more detail on this impairment in the footnotes on our -- of our 10-Q, and there are already -- several of these have already been in the reporting season. But there's a classic GAAP requirement leading to some headline confusion. Adding back the $0.02 of noncash charge to reflect actual operations for the quarter, we get a yield of $0.44 in FFO for the quarter.

While down sequentially from Q2, G&A in the quarter increased year-over-year due to additional professional fees and also for occupancy costs as we were delaying completing the transition to our new office at 20 Custom House Street and the sublet agreement that was to be executed for our prior space was delayed due to the coronavirus concerns of the subtenant. G&A includes approximately $324,000 of noncash expense, representing amortization of stock compensation that is an adjustment to AFFO and approximately $154,000 of noncash expense related to the occupancy timing.

During the quarter, we raised approximately $104.5 million in net proceeds from our equity offering. And with this offering, we were able to make substantial reductions in our leverage and expect that we'll be able to operate with a lower assumption of leverage than in years' past when applying those proceeds to acquisitions. We are assuming we will deploy these proceeds with 40% leverage compared with 50% to 55% leverage from previous offerings.

At quarter end, we had nearly 80% of our debt in place with fixed interest rates at approximately 4.1% for the next 2 to 8 years. Balance represents borrowings outstanding on our term loan with an applicable interest rate at September 30 of 2.41%. There were no borrowings on our credit facility at quarter end as we used $70 million of our offering proceeds to pay it down to 0. The leverage as of September 30 was 40.8% based on debt-to-gross asset value compared to 49.7% at the end of the second quarter.

Our net debt to annualized adjusted EBITDAre was 5.9x and 8.2x when you include debt and preferred stock. These are down from 6.3x and 9.5x, respectively, from a year ago. This is a meaningful reduction in leverage. Our goal is to bring our net debt plus preferred down by 2 to 3 turns of leverage over the next few years. And this recent offering gives us the opportunity to take a turn or 2 off leverage over the next year or so.

As of November 5, we had approximately $12.6 million in operating cash, plus operating expense escrows for real estate taxes and insurance, totaling approximately $7.7 million. In addition, we had availability under our line of credit of $111 million. Consistent with our previous statements, we took care of our only material debt maturity until 2023, subsequent to quarter end. We closed on a new $300 million of unsecured credit facility led by KeyBanc. These were comprised of a new $200 million revolving credit facility and a new $100 million term loan that mature in 2024 and 2025, respectively. In addition to substantial increases in availability, we continue to bring down our borrowing costs with a 50 to 55 basis point reduction in our pricing matrix. We were also able to renegotiate these facilities on an unsecured basis. The unsecured structure gives us greater flexibility and efficiency going forward and is a major achievement in strengthening our balance sheet.

Jim noted earlier that we've done a great job on collecting our rents, with occupancy remaining stable and leasing momentum continuing. With the ability to collect 99% of our rents the last 3 quarters and the improved visibility of our acquisitions and capital markets, we have decided to reinstate our full year 2020 guidance. For the year, we are now expecting FFO to be in the range of $1.83 to $1.85 per share in unit outstanding. If we add back the $0.02 associated with the lease impairment I noted earlier, that would be $1.85 to $1.87. For AFFO, we are now anticipating $1.65 to $1.67 for an annualized dividend payout of only 48%.

We have provided non-GAAP reconciliation in our earnings release and supplemental, along with accompanying assumptions. The major assumptions include the completion of $105 million of acquisitions before year-end, which obviously will only have a small impact on the fourth quarter; higher G&A associated with increased head count to support our continued growth and professional fees and expense with compliance and reporting, along with lower recurring capital expenditures. We are in good shape to execute on the opportunities Jeff and Pen have described earlier, and we've made substantial progress on reducing our leverage while ensuring access to capital to support growth.

As Jeff mentioned in his remarks, this has been a team effort as we have adjusted to working both remotely and on site. The effort of our staff and the coordination of the various professionals is to be commended. I'll be happy to answer any additional questions on this commentary during Q&A.

And operator, we are now ready to take questions.

(Operator Instructions) Our first question is from Craig Mailman from KeyBanc Capital Market.

Just one clarification. The April move-out, I think you said Stonecreek, how big is that?

Stonecrop is 528,000 square feet.

So that's going completely dark. How -- what's kind of the underwriting assumption there on the backfill?

We only expect -- like, our assumption is if 3 months' vacant, we're already marketing the space. We actually have -- we're waiting on an RFP right now. Stonecrop is working with us. They're basically shutting down operations this month, and allowing us access to the building. So if we have a tenant sooner, we'll just terminate their lease and move the new tenant in.

Okay. Great. And then just moving to the joint venture. Jeff, could you maybe just provide a little bit more detail about what type of threshold there is for the promote, timing of when you come into that opportunity? And just -- also just kind of, I guess, bridge the gap here. You guys are trying to lower leverage to 40% of incremental, but you guys are using about 65% of debt in the JV. Can you kind of just reconcile that for us, the threshold?

Sure. I mean I didn't -- the first part of it you talked about timing. I don't know what you're referring to.

Oh, sorry, of the promote. Like when you guys would -- what triggers the promote? Kind of what's the threshold from a return perspective? Just a little bit more detail on just how easy that hurdle or difficult may be for you guys to hit.

Right. So I mean, obviously, we don't really envision too much of the promote on a cash flow basis, right? I mean if the cash flow gets up to 15% on our equity, we'll be in the promote. But we're not underwriting that necessarily for us in our model. But Pen, do you have a...

No, that's right. That's accurate. Not to go into a whole lot of detail, but we're -- the timing is a little bit unknown because we don't know until we actually sell the properties. So we're just in the beginning stages of this.

On that. But the thresholds are -- the first promote kicks in at 12% for us. And we'll -- not to be cryptic here, we just -- we prefer to get the details out when we actually close on the property in case anything changes. You've got to structure the JV which allows for the asset management fee. It allows for a promote structure to us. Now that could be tweaked, right, as the deals come up and we close on a deal. So we just -- on purpose, we just didn't put out a lot of detail on the Memphis property. There are things that we could be working on behind the scenes that would affect that deal after we close. Hypothetically, you could sell off a building. There's things that could go on that could change it right up until closing. So we just didn't want to get out ahead of ourselves and give out all these details that could change. We really don't think much it's going to change, but we just trying to be conservative, if that's helpful.

So there's no blanket promote. It's deal by deal, the promotes can change?

No. What I'm saying is that the JV has been negotiated so that we have our asset management fee, and we do have a promote that's staggered based on return metrics. What I'm saying is that that's in writing. That's solid. That's there. It's been negotiated. But depending on a deal, if the deal comes in, we need to change it a little bit and tweak it, we're certainly happy to do that and be flexible. We don't envision that to happen, but it certainly could. I mean Madison is that type of a partner.

Okay. And then just on the leverage in the JV versus kind of on balance sheet, the decision there to use the higher LTVs.

Yes. We believe that the slightly higher leverage on the JV level is beneficial. And at the time, if we ever got to the point where we exercise a right of first offer that is built into the JV agreement, we would revisit the leverage basis for that particular property based on the value at the time of the transaction.

Okay. On a look-through basis, if the JV gets to the full $430 million, kind of what do you think the impact could be if you guys can do every deal at 40%? Kind of what's the net impact of that, higher leverage on that? Because it's significant relative to the size of the company today at full investment, right?

Yes. I mean it's 20% of the equity, right? So when we have 20% -- it would take 20% of the debt.

Correct. We're -- our position is 20%. And obviously, looking at down the road, it doesn't automatically mean that -- if the investment were to be liquidated and sold, it doesn't automatically flow back to Plymouth. It could be going to an independent third party, and therefore, your returns are completely separate.

Okay. And then just one last one for me. As you guys think about the 2 buckets of value-add or too big for on balance sheet, is there any difference in return thresholds that you guys would want to go into the JV versus keeping on balance sheet?

Yes. I mean I think by definition, these deals are going to be higher IRRs, right? I mean the goal is to sell it in cash or IRR. I mean that's what all the private equity partners want, right? So by definition, the value-add, anything that's kind of opportunistic that the REIT can't do, this particular deal in Memphis is there's a lot of CapEx and that CapEx needs to be managed correctly over time. And there is some leasing to do, there's some role, there's -- as I said, there's potential to rejigger the portfolio a little bit. And that's all going to create pretty good returns, good IRRs that are different than what's in the REIT necessarily.

Is there like a target, like 200, 300 basis point premium for taking on that value-add risk at that scale? Or is it just higher CapEx just goes into the JV automatically?

Yes. Craig, Pen here. Very general, our target IRRs and the JV are kind of in the mid-teens whereas, in the REIT, you'd expect that to be a little bit less.

Our next question is from Gaurav Mehta from National Securities.

Following up on JV, I was hoping if you are able to provide any color on the Memphis acquisition that's under contract. How is that deal sourced? And what kind of vacancy are you guys looking at? And what's the initial cap rate on that acquisition?

Yes. We haven't closed on this deal yet. We expect to -- within the next 30 days. So at that time, we can provide more specific information.

Yes, Gaurav, we just don't want to get out of ourselves and start modeling things, have you guys spend all the time on it but the deal might get tweaked, right? We just don't seem to -- we're not really superstitious around here, but we just don't think -- we're still tweaking some things, making some changes. And as I said, something could happen right after closing that might change the dynamics. I don't really want to get into it on an open call.

Understood. That's fair. And I guess as you guys are sourcing the acquisitions for this JV, how involved is Madison in sourcing those deals?

I didn't hear the last part, but I just heard about sourcing or how involved. We work together.

But that's why they have us. I mean that's -- they're an international capital provider. And I think if you look at the press release, Ron Dickerman is the President of the firm and has expressed to the world that he believes in the Plymouth platform. As I mentioned on the prepared remarks, they're one of our largest common stockholders as well. So we don't think we could have found a better joint venture partner whose interests are aligned with the REIT across the spectrum. So we look at this as a win-win. But yes, that's why we're doing this and, hopefully, does not get lost. These deals are in our markets, they come to us, they had been coming to us. We've got people on the ground in some markets, and we want to take advantage of that and provide opportunities for the REIT. Think about bringing this particular portfolio into the REIT in the future, there's no transaction cost, we've already been managing it. I mean if we -- if the REIT decides to bring in a joint venture property, I think you can rest assure that we're 110% onboard on that property, if we bring it in.

Our next question is from Barry Oxford from D.A. Davidson.

Dan, I think this is for you. How should we think about your bad debt expense going forward?

Say that again, Barry, couldn't hear you.

Bad debt expense going forward.

Okay. We think we've got it relatively under -- really under control. I think our experience on bad debt has been minimal.

Right. We just don't have much at all. I mean that's as of right now. And I think we touched on it -- any of these deferrals, I mean we're collecting 99-plus percent of our rent.

Right. Jeff, when would those deferrals be fully collected, by 3/31 or 6/30?

At this point, we've already collected well over 50% of the deferrals, and we expect to have significant portions of that collected by year-end with only a handful sliding into January and February of next year.

Okay. Okay. So you'll have full collection fairly quickly over the next few months?

Absolutely.

Yes. Great. Great. And then just a big picture question from an acquisition/pricing, over the last few months, have there been any real changes in cap rate? My guess is, if anything, they've gone down. And then second, the volume of inventory that you guys are seeing for sale, has that changed over the last couple of months?

Yes, Barry, look, I'll answer your first question first regarding cap rates. We have seen cap rate compression in the last few months, and not just in the primary markets, but we're seeing some in the secondary markets and kind of anywhere from 10 to 50 basis points. I think we see that more in single-asset properties versus multi-tenant where there's been minimal change in the cap rates. But naturally, each market is different. And that's why we do what we do. We're working in a very fragmented marketplace, as you know. But as a general comment, we have seen some compression. There's a lot of capital chased in industrial these days for all the reasons that you know. So volume of deals, it was a bit of a lull, I guess, in the summertime and the COVID didn't help that. But since Labor Day, we've definitely seen a tick-up on the amount of deals that have surfaced on the market. So it's still -- it's quite active. I can tell you right now, I and our team are -- we're busy 24/7 culling through a fair amount of deals, and our pipeline is over $360 million right now, and we're busy. So that's a good sign.

No, great. I just want to make sure there's enough for you guys to look at.

Yes.

Our next question is from Connor Siversky from Berenberg.

First question, a little high level. I'm seeing some reports showing a restriction in shipping capacity as we approach the end of the year into 2021. I'm just wondering if there are any conversations with your tenants related to that. And do you think this could affect leasing going into next year?

Jim, you got any insight to that?

We have not had any conversation about restrictions with our tenants. And we do not see any slowdown in leasing going into next year. We're already working on the majority of the first half expirations with tenants.

Okay. Okay. And then one other, just on disposition. I'm wondering if you're seeing any opportunities out there to engage in some capital recycling into 2021, maybe use that as a way to bring down leverage incrementally.

Yes. I mean I think, first off, we're bringing down leverage. We're a $300-plus million market cap REIT, and I don't think there's another REIT in our universe that has the leverage profile we have. We have a significant spread between the cap rates we buy and where our leverage is sub-3% on our facilities. We look at where our net debt-to-EBITDA projections are, sub-7, could be low 6s. That -- we don't see any issues with that. Look at where our growth assets are worth and look at where our leverage is, sub-50% on that, and we'll continue to drive that down over time. And because of the spread, that works.

Selectively, there are certain dispositions. We'll -- there's a track record out there in the REIT space that is very bifurcated where you have people that have tried to go out and sell their higher cap properties, they go buy low cap properties. Sometimes it works, a lot of times it doesn't work. Our focus is -- we've got capital to deploy. So recycling capital I don't think is really a big issue. We could -- there's a lot of things we could do. You may see some select sales of properties. We review that all the time. Our -- a lot of our properties are generating 14%, 15% on cash. So I'm not so sure anybody in the real estate business is going to be able to do that in the next 3 or 4 years just to recycle that into that type of property. So we've got good properties. They're not obsolete. Good tenants, we think they're going to renew. That's part of our business. That's one of our strong points is the ability to forecast for the most part who's going to renew, who isn't. And we think that, that's going to work out really well for us.

So we're at 15% on cash. We think we'll be going up to 16% to 17% of cash. So it's kind of long-winded answer that, we think the leverage is great and you certainly could see some select sales. What happens a lot of times is owner-user would kind of approach us and want to buy out a facility. Their return thresholds are a lot different than other people, so they'll pay a lot more money for a property, especially if they're using it or if they're going to put significant capital into the property or what have you. So you might see some of that happen with us.

Our next question is from Dave Rodgers from Baird.

It's Nick on for Dave. I just have one quick question. Thanks for the clarity on the Stonecrop property. But I think we've talked in the past about [Masterson Caine]. It's a June 2021 expiration. I think you guys mentioned that it's been like subleased and you guys are hoping to go direct with one of the tenants there. I was just wondering if you guys have any updates there.

So the [Masterson Caine] space is roughly 350,000 square feet, and it expires in June. They have the space fully sublet to 2 tenants, one of which we've already done a 7-year deal with once Masterson Caine expires for 172,000 square feet. And the remaining square feet is with a tenant that wants to do a lease with us, and they -- but they want to wait until the beginning of the year. They also -- because they're not sure exactly what size they want. They may take on 2 -- another piece of the building as well. So they could be in 170,000 to 300,000 square feet. So we've got half of it done. And the other half is still in the works.

This concludes our question-and-answer session. I would now like to turn the conference back over to Jeff Witherell for closing remarks. Go ahead.

Thank you, Kaye. Thank you all for joining us this morning. As always, we're available for follow-up questions throughout the day, and we'll talk to you again soon. Thanks.

The conference has now concluded. Thank you for today's presentation. You may now disconnect.