Plymouth Industrial REIT Inc (PLYM) 2024 Q4 法說會逐字稿

Good morning and welcome to the Plymouth Industrial REIT conference call to review the company's results for the fourth quarter of 2024. (Operator Instructions) Please note this event is being recorded.

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

Thank you. Good morning. Welcome to the Plymouth Industrial REIT conference call to review the company's results for the fourth quarter of 2024.

Yesterday afternoon, we issued our earnings release and posted a copy of our prepared commentary and a supplemental deck on the quarterly results section of our Investor Relations page. In addition to these earnings documents, a copy of our 10-K, when filed, can be found on the SEC filings page of the IR site.

Our supplemental deck includes our full-year 2025 guidance, assumptions, detailed information on our operations, portfolio and balance sheets, and definitions of non-GAAP measures, and reconciliations to the most comparable GAAP measures. We will reference this information in our remarks.

With me today is Jeff Witherell, Chairman and Chief Executive Officer; Anthony Saladino, President and Chief Financial Officer; Jim Connolly, Executive Vice President of Asset Management; and Anne Hayward, General Counsel.

I would like to point out everyone to our forward-looking statements on page 1 of our supplemental presentation and encourage you to read them carefully. They apply to the statements made in this call, our press release, our prepared commentary, and in our supplemental financial information.

And now I'd like to turn the call over to Jeff.

Thanks, John. Good morning and thank you for joining us today. I'll hit a few highlights first and then we'll go to Q&A.

We've made some big announcements this past few months relating to securing capital that can propel our accretive growth. In late August, we announced the strategic transaction with Sixth Street. I view this as transformative for us in several respects. Most notably, we put a valuation marker on our largest portfolio with the Chicago recap JV and sourced capital for up to $500 million in acquisitions. We secured a tremendous partner in Sixth Street who has continued to build out their real estate platform.

We also significantly enhanced our borrowing capacity with the refinancing and upsizing of our unsecured credit facilities to $1.5 billion. With this increase in the revolver and recasting one of the term loans, we've extended our maturities and enhanced the ability to pursue other unsecured debt. The combination of Sixth Street's investment and expanded borrowing capacity fully addresses our current capital needs.

Our focus for 2025 will be on leasing opportunities and capital deployment, both of which will be key themes in the coming quarters. Our earnings release and prepared commentary also discussed leasing and deployment as well as some tenant challenges we faced in the prior quarter that we didn't anticipate. However, we are confident in our ability to navigate these challenges and lease the remaining spaces.

Market conditions remain favorable, particularly in buildings under 250,000 square feet, where over 95% of our leases and 67% of our wholly owned portfolio's rentable square footage is concentrated. As we address our remaining lease expirations, we expect a tightening supply in this segment to support our mark-to-market leasing efforts. Historically, we've maintained high occupancy across our portfolio and we anticipate strong momentum as we take care of the balance of 2025 explorations.

We've also made solid progress on capital deployment. The Cincinnati acquisitions totaled approximately 762,000 square feet for $61.3 million and we continue to unlock value through recycling and value-added activities in our newly acquired Memphis portfolio.

Our pipeline now exceeds 11 million square feet and $1 billion in potential acquisitions with nearly all of these opportunities located in our existing markets. We know these markets well and with the capital now in place, we are strategically positioned to expand our scale.

I look forward to providing further updates in the coming months as we execute on our leasing and capital deployment strategies.

I would now like to turn it over to the operator for questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions)

Eric Borden, BMO Capital Markets.

Jeff, just on the last comment around the $1 billion of potential acquisitions, it sounds like based on your guidance, up to about half of that could be on balance sheet. Could you talk about the other $500 million or so, whether that would be a potential balance sheet acquisition or would that be under the JV?

Hey, Eric, thanks for the question. I mean, that's just our total pipeline, right? So are we going to be able to execute all billion dollars? Probably not. I mean, we're focused on balance sheet. I will say that there's $150 million portfolio within that $1 billion that would most likely be JV material. So we're working it -- we're in the bid process on it right now. We'll see how that develops, but the majority is on balance sheet. The majority of it is in two or three of our top markets.

Okay, that's helpful. And then with the acquisitions in guidance, how are you thinking about the timing of acquisitions and the cap -- the initial cap rates on those?

At the midpoint, Eric, we assume $360 million of acquisitions, of which about $70 million is already banked with the remainder to be deployed somewhat evenly over the coming quarters. In terms of going in yield, I would strike that at about [6.75%%]. It could tighten up a bit as we continue to navigate the bid process, but I think those are good parameters in terms of how to view deployment and initial yields.

Appreciate that. And then one more, if I may, just on the guidance bridge on page 10 of the prepared remarks. I appreciate all the detailed color there, but I was just hoping that you could talk about the puts and takes to get to the low end of your guidance and to reach the high end of your guidance.

Well, listen, at the midpoint, we have reset the same store portfolio. It's now 168 buildings encompassing about 26 million square feet, which now represents, I think, 89% of the total in-place portfolio as of February. So if we think about the same store driver, we do have to look back to Q4 2024 occupancy, which I believe stood at about 92% for this particular subset of the portfolio.

So at the midpoint, we're assuming about 380 bps of occupancy improvement which equates to a lease up of just over 1 million square feet. And a lot of that is comprised of the three buildings that we've been talking a lot about: the two in Cleveland and the one in St. Louis.

And so if you think beyond the midpoint to the extent that we have accelerated deployment or some surprises to the upside on some of the transitory vacancy, we can realize a result better than midpoint to the extent that we don't deploy as anticipated. There could be a little drag and then to the extent that some of the leasing is a bit more protracted, you'll have a bit of a muting with respect to the outcome.

Todd Thomas, KeyBanc Capital Markets.

I just wanted to follow up on that a little bit as it pertains to the guidance and some of the leasing. And I wanted to ask about the timing, specifically of the 740,000 square feet of leases signed which includes 600,000 of the former FedEx logistics site in St. Louis. So that's $0.07 per share impact on the full year FFO.

What's the timing like for that? What's commenced versus what is still to commence going forward? And can you talk a little bit about the leasing environment as it pertains to the remaining vacancies and whether there is any speculative leasing for vacant space included in the guidance?

Yeah, all of that carry over vacant space that has been leased up, it's all commenced already, so all 700,000 is already commenced. As far as our projections on leasing, we are focused on the vacancy that came in for the year. You'll see that vacancy has gone up from 92.5 -- I mean, occupancy has gone up from 92.5 up to 94.3 already this year, which shows the space has been leased.

We do have a lot of prospects for our existing vacancy. There's been a big pick up and leasing activity towards the end of January and through February. So we expect -- including big lease -- big bulk leasing space as well.

Okay, does -- is there any additional or any speculative leasing for vacant space included in the guidance at the high end of the range?

Yeah, so of the 1 million that I just spoke of, to Jim's point, call about 700,000 is already addressed, so there's the balance of that that is speculative.

Okay, and then can you provide a little bit more detail on the remaining 25 expirations? Appreciate some of the notes around that, including the other big box, the 625,000 in St. Louis. It sounds like you expect that tenant to renew, but can you provide a little bit more detail there and also discuss the Columbus downsize or vacate that you noted the timeline and what's embedded around those assumptions within the guidance?

Sure, a little bit of an overall market analysis for us. So basically, in our markets as shown in our prepared comments, rental growth rate is normalized between 3% and 4%, but we still expect to see mid-to-low 20% growth on rent spreads on a small- to mid-size space, anything under 150,000 square feet. And on the larger spaces, we're getting -- tenants looking to take space as is to keep the rents down and so no TI, but so from a net effective point, that's still pretty high.

Now in St. Louis, that lease, it's fairly short term, but the tenant has expressed interest in expanding in the rest of the space and continuing that lease on afterwards as well as exploring vacancy in our other locations as well.

In Columbus, yeah, ODW is planning on leaving. They have expressed some interest in potentially staying on under a contract extension. And part of the building, we have two prospects that would fill the entire building that we're working with at the moment and they would -- it would be immediately after ODW left so that we can see little to minimal downtime.

Rich Anderson, Wedbush.

So on the St. Louis lease, I guess I want to understand why you're optimistic if it's going from 600,000 square feet to 450,000 the following year. I'm wondering why the tenant is -- got a funny cadence to it in terms of the space it's taking, even though you have a feeling that it's going to commit longer term. Can you give the back story there a little bit on that transaction?

Yeah, so that space, the current configuration, at least, is based off of like one contract. This is a large international distributor, headquartered in Europe. And they told us when they -- as soon as they signed the lease that we usually stay on -- like we usually -- we plan on finding additional contracts and move them into this building. The feedback so far from the tenant has been really like the building and they're looking for more space to come in.

Okay. Turning to Cleveland, I don't know if you said this, I apologize, but what's the expectation to putting those situations to bed and if you can give also the back story because I thought, a quarter or two -- or a quarter ago, you thought it would be a faster turnaround than it's turning out to be. Can you give me some color on that as well? Thanks.

Yes, we had one potential candidate lined up to take one of the buildings right away, but that is just slowed down a little bit, but Cleveland is a very tight market. I mean, the vacancy rate is 3% or less. And there's really nothing in the market over 100,000 square feet.

So we feel really good about leasing this up. We've already leased up 120,000 of the vacancy, and we expect over the next couple of months to have deals in on the balance.

Okay. And then lastly for me, I know the guidance has you at $360 million in terms of acquisitions midpoint. Would that -- I'm trying to do the math, but would that fully address the redeployment of the entire $500 million from the Sixth Street transaction or would there still be more meat on the bone to address?

Rich, it gets us close because remember, we deployed $100 million when we acquired the Memphis portfolio in mid-year of 2024.

Nick Thillman, Baird.

Maybe just points of clarification, the 2.2 million square feet of availability in the core portfolio, that includes the St. Louis and Cleveland around like --over half of that space is spoken for or not spoken for, but in that bucket. And then Anthony, if you could just elaborate on changes to the same-store pool. It sounds like that St. Louis asset that was the former FedEx space is moving into the pool. Just wondering if ODW or [GEODIS], if any of those are moved in or out of the pool for '25.

Right, so yeah, the additional space (multiple speakers) has been taken off -- the space that it's been leased up is taken off of the available pool. So just to note, at the end of the year and this was unusual for us, there was only 71.4 of the 24 expirations were addressed, but that number is already up to 80 over 80, and if you include the transactions that occurred between the end of the year and February '24. So we expect that to be 90s in like a month or two.

With respect to the same store, Nick, the composition has changed, as we said, and provided for in the materials. To your point, FedEx is in the same-store pool as is GEODIS, ODW is not. And the other key driver in that pool is the reintroduction of the Latty building. It's 142,000-square-foot building in St. Louis that was previously in the repositioning pool, so that has come into the same-store portfolio in 2025, and I believe that's contributing approximately 7 bps to the year-over-year growth.

That's helpful. Maybe for Jeff, I mean, I guess what do you think the disconnect is between your guys' view of the Sixth Street transaction and the market's view? And as the Board, you guys obviously announced the buyback, but I guess how patient are you guys going to be if the stock continues to linger at these levels? Like are you guys -- are you going to pursue alternative strategies? Just your views there.

I mean, yeah -- I mean, nobody likes complication. I think that's the biggest feedback we have. I think the biggest thing that we look at is our equity in '23 and '24. I mean, the Street telling us we're not going to give you any more equity because they're not pricing your stock correctly. So we did what we thought was in the best interests of shareholders, and that's a transformative transaction, plenty of capital to put -- we can get into all the details on Chicago which we've talked about ad nauseam of why that was a good move to take that entire 6-million square feet and put it into a JV.

I mean, we've been patient for seven years, Nick. We continue to do our blocking and tackling. I guess, we look at -- where our stock price is versus where we believe the value -- where our NAV is, and I think your NAV is around in the mid-to-high 20s, and we're in the market everyday bidding on our type property.

So property -- in Columbus, we're bidding right now on a building across the street from our property, so it's identical. And there's 10 bidders on it and I can tell you we're not going to be the winning bidder on it. So if somebody's using a cap rate to value Plymouth and it's anything north of 6.75, they're totally off the mark.

We're getting out bid in all of our markets, 10, 11, 12 bids. So what we need to do is we need to find a good property, the shorter walls like we did in Cincinnati, and we've got some deals that are teed up that are going to work out really well for Plymouth. So we have a lot of patience. And I think the Sixth Street deal is going to work out fantastic. I think everything's priced correctly for us.

So we're going to get this money deployed. We did put a buyback in, as you mentioned. I'm glad you brought that up. We'll see how the stock performs over the next few months. But I think if you look at where our stock price is and what we can buy it back at, it's a no-brainer for us to do that, but that's going to be based on whether we can put the capital to work in properties that we believe in. So right now, the pipeline looks good, so we feel good about that, but it's just another option for us.

That's helpful. Just last one, Anthony, with the new title; and Jeff, you could speak to this as well. Is there any additional areas of focus you're looking on as President or areas that are different than your current responsibilities as CFO?

Oh, I'll speak to that. No, it's really just -- I mean, Anthony's expertise obviously as CFO has proven out over the last couple of years. But beyond that, he's got to handle on acquisitions, processes that go into making the company better overall. So I think it's a great move for us and it's a great move for him.

Mitch Germain, Citizens JMP.

Maybe Jeff, since you were just mentioning the Sixth Street relationship, I'm curious how engaged are they with you to grow their relationship with you guys?

Hey, Mitch. Yeah, so across our platform, different levels are engaged with Sixth Street somewhat on a daily basis. I am engaged with their lead on this and we talk regularly.

So this is supposed to be transformative. It's going to take time. As you know, we've done several JVs that have worked out really well for Plymouth, and so I think we're pretty smart about that. And we are looking at some JVs with them. And I think that's probably the real basis of the relationship is the Sixth Street deal as a JV. They're very focused on us growing the REIT balance sheet because they're going to win on their warrant position, which is why we did the deal. So if the stock moves as they anticipate and we anticipate, they'll make some money and we'll do well as well.

So outside of that, I can't speculate on it. They're a growing platform. They have announced some core money, $17 billion of core money just came into Sixth Street. So we're talking to them about industrial on a daily basis, and I think that's going to prove out really well for Plymouth shareholders long term.

Okay, that's super helpful. I'm curious about some of the pricing trends in the market today. I think you talked about how cap rates 6.75 or maybe even lower. Obviously, Memphis was acquired and one of the more recent deals were a little bit higher. So I mean, is it safe to say that we're seeing contraction across the board?

I think that's correct. As we sit here today, we are seeing -- we're still seeing negative leverage in the marketplace, which again baffles us. I've never been a negative leverage person on how that works, but we're seeing a lot of capital into industrial. We're starting to see it in our markets.

That being said -- and I said this before about the Memphis transaction -- there were a lot of moving parts on Memphis and there was $100 million portfolio, 80-plus tenants. You have an office building that needs to be sold, a small one. We have a call center that -- our construction team is in the process of converting back to industrial as we speak, and then there's a vacant parcel of land that we can build 120,000 square feet, let's say, on.

So all of those are components that need people that know what they're doing. We can do all that in-house, which is what we're doing, and we think that's going to add a lot of value to the Memphis portfolio. So that's why there weren't as many bidders and that's why if you have an office in Memphis with people on the ground, you can attack a portfolio like that and get those changes accomplished very accretively. And I think that's why we were the winning bidder on it.

So what I don't want people to take away is, A, that Memphis is an eight-cap market because that's not the case. There's a special situation and Cincinnati is the same thing. We have work to do in Cincinnati. We've got some small tenants. We're going to renew them. We'll move some of them out. We'll expand tenants. Again, we have an eight-person office in Ohio. So for us to do that, it doesn't cost us much time and money to do it. Like we're equipped to do it. Others aren't.

So I think that's where you get into it. And as I mentioned, in Columbus, there's a building with -- it's a 1-asset deal, 3 tenants, but there's 10 bidders on it, and the pricing is going to get out of whack on that. So we have to continue to fight for deals which are good for Plymouth, and we'll do it, but it is -- I don't think anybody's going to sit here and think that cap rates are going to continue to rise in the industrial space. So it's tough, but we've proven that we can buy and we will continue to execute.

Thank you for that. One more for me if I might. Just there's clearly situations that on the leasing front that you guys have discussed. And it just seems based on that commentary that, there's a preference to do more of these strategic or co-value enhancing value-add type of investment. So talk about, maybe Jeff, if you can just talk about factoring in the -- weighing the existing situations versus doing more value-add and you guys have the capabilities to handle all of that all at once.

Yeah, I mean, look, the acquisition, we didn't put a lot of information out on it yet, but we just closed on a deal in Cincinnati this year, a single-asset deal, 260,000 square feet. That doesn't need a lot of value-add component work to it, but the portfolio that we bought for $20 million and then the other balance that's going to close in the next couple of weeks. There's a lot of small tenants and I said we will do the Plymouth work on that.

So we're built for it. We should do more value add. I mean, we're real estate people. We have been for 30 years, and we understand how to buy real estate correctly at the right basis. We're not afraid of short walls. I don't think we missed too many things when it comes to buying a piece of real estate. So we should be doing more of it. You got to balance that with FFO, right? We're in the cash flow growth business as a public REIT, but as a real estate group, we should be buying more value add.

So that's the balance that we try to look at on each acquisition, so it's not an easy answer for it. We should be doing more value add. That's how you create value in real estate. We've said 100 times we're not a net lease REIT. But I think a lot of times, we're looked at as you've just got to smooth out your FFO, so there's a balance there.

Brendan Lynch, Barclays.

Jeff, you mentioned that there's a lot of capital coming into your markets. Is that specifically for acquisitions? Are you also seeing an increase in development spending?

No, we're seeing it mostly, Brendan, just in acquisitions. It's coming from all sides. Like I said, there will be 10 bidders and it's going to run the gamut of who those buyers are. I mean, there's still a lot of money out there. I think they would get into development, but I think that that's been -- we're starting to see a lot of absorption. I mean, I think if you look at a market like Cleveland that we continue to focus on, there's a -- I think it's about a 1.2 million square feet of product under construction and 90% of it's leased.

So I think we're at that point where someone's going to start to go into Cleveland and start to build spec. Because there's only 100,000 square feet available of new product. Now the places like Dallas and there's some parts of Columbus that are severely overbuilt. I mean, if you look at Columbus, Class A is 17% vacancy and obviously, by definition, a new 32-feet clear building would be designated Class A, but the balance outside of Class A, it's a 5.2% vacancy.

So I don't think in Columbus, you could be building any new product anytime soon. There's just a lot of vacancy. So I think it depends on the market, but I think there's a lot of capital and I think once -- in certain markets, I think you start to see some spec development.

That's helpful. Maybe also just talking high level, any impact that you're seeing from the tariffs or potential for tariffs and reshoring initiatives? Obviously, you have more heartland exposure than a lot of your peers with more coastal exposure. Maybe anything that you're seeing in terms of your customer base and conversations you're having with them?

Yeah, as we got to tariffs, we're seeing a significant increase from various CPL companies for bulk storage requirements, both short- and mid-term. Some of these, that we have actively in negotiations. But it seems to be like a rush to get product into the country and in warehouses as soon as possible, so there's definitely built-up demand.

(Operator Instructions) Mike Mueller, JPMorgan.

Apologize if I missed this, but what is the, I guess, Columbus rent on the two new prospects compared to the move out rent and what's the timing during the year on that?

Well, we're talking -- the move out is at the end of June and the timing on the leases would be July or August, and then the other one would be between July and probably September. The actual -- the rents -- the rents because we're subdividing the building, they may go to a gross lease versus a triple net lease, but the net effect of rent would be slightly higher.

Okay. And then last question, when you're looking at the '26 expirations, are there any similar chunky known move-outs at this point?

No, '26 seems fine. There's no projections for move-outs at this point.

And ladies and gentlemen, this concludes our question-and-answer session and thus concludes today's call. We thank you very much for attending today's presentation. At this time, you may disconnect your lines. Take care.