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Good day, and welcome to the Plymouth Industrial REIT Second Quarter 2023 Earnings Conference Call. Today, all participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that today's event is being recorded. At this time, I would like to turn the conference over to Tripp Sullivan of Investor Relations. Please go ahead, sir.

Thank you. Good morning. Welcome to the Plymouth Industrial REIT conference call to review the company's results for the second quarter of 2023. On the call today will be Jeff Witherell, Chairman and Chief Executive Officer; Anthony Saladino, Executive Vice President and Chief Financial Officer; 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 August 10, 2023. The numbers to access the replay are provided in the earnings press release. For those who listen to the replay of this call, we remind you that the remarks made herein are as of today, August 3, 2023, 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, core FFO, AFFO, and adjusted EBITDA. 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.

Thanks, Tripp. Good morning, everyone, and thank you for joining us today. We are more than halfway through the year, and our team continues to execute across the objectives we outlined for 2023. Fundamentals continue to be strong with positive absorption, better than expected leasing volumes and rent increases along with market rent growth. Achieving our objectives through the balance of the year will position us for even better growth in 2024. Let's turn to growth first. Our organic growth is right on track with a 6% increase in cash same-store NOI this quarter and a 7.5% increase through the first half of the year. Occupancy in the same-store pool is still around 99%, and our portfolio continues to be among the top performers in the sector. Leasing results demonstrate the attention we are providing the portfolio, as well as the strong fundamentals in our specific markets. We have addressed 88% of our 2023 expirations and 24% of our 2024 expiration. Both are at a pace and rent increase ahead of where we were this time a year ago. We saw a 19.3% increase in rental rates on a cash basis for the quarter and through July 31 we have achieved a 23.1% increase on leases commencing in the second half of the year. That's in line with our commentary last quarter that we might be trending ahead of the 18% to 20% portfolio mark-to-market we have previously estimated. In our development program, we have three more projects left to deliver by year-end. The two buildings in Jacksonville are fully leased with deliveries in Q3 and Q4, and our second Atlanta project is coming online in Q3. We still have work to do on leasing up this Atlanta building and the one in Cincinnati that was delivered in Q2. Both of these properties are well located and I'm confident we'll get these leased up within underwriting. Across the entire $61 million that we have in our development program, we're expecting initial returns in the range of 7% to 9%. Based on the success of this program, we will continue to explore additional opportunities if the returns meet our threshold, and we have a clear line of sight on pre-leasing. The other major initiative is to continue improving our capital structure. We have now lowered our net debt plus preferred metric for five straight quarters and on a path to get to 7x by year-end and further delevering in 2024. While leasing up our new developments are part of this equation, another big piece is the elimination of our 7.5% Series A preferred stock. We announced last night that we will redeem the $49 million that's still outstanding. Anthony will get into more of the details later, but I want to highlight two of the main sources of capital for this redemption. First, we activated the ATM program during the quarter and for part of July and executed at prices that, in combination with sale proceeds from the sale of a property anticipated to occur within the next 60 days, will allow us to eliminate the secured debt on that property and redeploy the proceeds towards the Series A redemption on an accretive basis. I've talked about this before and it bears repeating now, we have a handful of properties that we would sell for real estate reasons, meaning it makes more sense to be owned by a user and/or it's a property where we might have little to no scale in that market as opposed to a strategy of capital recycling. This potential disposition fits that description perfectly. I want to thank a couple of people who have made big contributions to Plymouth over the years. First, I'd like to thank Martin Barber, who many of you know from his decades of experience in the REIT sector. He retired from our Board effective with June's Annual Meeting after many years of service to Plymouth and its shareholders. Second, I'd like to recognize Pen White, who co-founded Plymouth with me and retired from his position as President and CIO last month. He'll continue to serve on the Board of Directors as well as advise the company on acquisitions and strategy. We are fortunate to have benefited over the years from Pen's contributions as well as the investment team he helped put in place. We have a deep experienced team at Plymouth, and that gives us the luxury of not having to backfill those roles. Before I turn it over to Jim, I'd like to highlight that last month we published our first ESG report. We are proud of the effort our team went through to document all of the different activities, initiatives and investments we've made throughout our company and our portfolio. You can find it on the dedicated ESG page on our website. Jim, why don't you provide some color on the leasing activity?

Thanks Jeff. Good morning. I want to first touch on the leases we previously signed that commenced during the second quarter. We had a 19.3% rental weight increase on a cash basis on leases commencing in Q2. That's on an aggregate basis. You'll note from the release in the supplemental that the new leases experienced a 36% increase while renewal leases experienced an 11.2% increase. We had a 75% renewal rate, during the quarter. Of the leases that were renewed, 21% were associated with contractual rent increases, which impacts the overall renewal rate increase. Through the first half of the year on the leases that were renewed 14.2% of the renewals were contractual increases. While during current market conditions, fixed rate renewals tend to have lower rental weight increases in market renewals, they do potentially increase renewal probability and usually have lower leasing costs. In many cases, there are no commissions or tenant improvements. Related to the development program, in Georgia, we have agreed to terms on a 72,000 square foot lease in our 180,000 square foot facility with active tenants pursuing the balance. In Cincinnati, we have closed on numerous deals with full and partial building users. We have addressed over 88% of the total square footage scheduled to expire in 2023. When we add up all these leases signed commencing in 2023, we will experience an aggregate increase of 20.3% on a cash basis. Lease renewal rate so far for 2023 leasing is 67%. With total portfolio occupancy at 98% and the same-store occupancy at 98.9%, and both of which are essentially flat from Q1, we continue to benefit from strong leasing activity with rental wage still accelerating at a record pace. Turning to 2024, we have already leased over 24% of the initial 2024 expirations. We will experience an aggregate 14.6% increase on a cash basis on these rents, 8.7% for renewals and 43.7% for new tenants. This rental increase compares favorably to this time last year when our earliest batch of 2023 leases were up 11.1% on a blended basis. The renewal percentage for these transactions was 79% with 53% of the renewal leases associated with contractual renewals. Consistent with nearly every quarter since the pandemic, we have collected over 99% of our rents billed during Q2 and there are currently no active rent deferral agreements. At this point, I'll turn it over to Anthony to discuss our financial results

Thank you, Jim. The second quarter unfolded as we projected, and we have exited the quarter with a slightly more accelerated time line on delevering. Before we get into that, let's walk through some of the key metrics. As we noted last quarter, we anticipated a Q2 same-store NOI below the full year trend line with the second half of the year trending back up. This was only a timing of expected spend. associated with scheduled repairs and maintenance occurring midyear, coupled with the impact of real estate tax assessments that will be substantially recovered by year-end. With the 6% cash same-store NOI increase this quarter, we are at 7.5% through the first half of the year. That's right at the midpoint of our same-store NOI guidance. G&A for the quarter was down year-over-year on an absolute basis and down 210 basis points as a percentage of revenues, primarily due to the timing of certain professional fees and other expenses. The main drivers of the year-over-year increase in interest expense by the increase on the borrowings of our revolver associated with completing our development program and the approximately 400 basis point increase in SOFR year-over-year. The revolver is our only debt that is not hedged or fixed. And our only contemplated use of the revolver at this time is to fund the Jackson build development buildings. As noted in the release, we have funded 87% of the $23.9 million of the development program that remains, which includes the two pre-leased Jacksonville buildings and the second Atlanta building, that are all delivering in the second half of the year. The weighted average share and unit count was up year-over-year with a full quarter of the higher share count from the conversion of Madison's remaining shares of the Series B and two tranches last year. The utilization of the ATM that Jeff mentioned earlier, will have a prospective impact on the weighted average share count in the second half of the year, the impact of which will be more than offset by the accretive execution of the Series A redemption. Turning to our balance sheet, we ended Q2 with net debt to adjusted EBITDA at 7.06 times, and net debt plus preferred to adjusted EBITDA at 7.45 times and our fifth consecutive quarter of delevering. One of the big opportunities to continue improving the balance sheet that we've talked about for some time is the elimination of our Series A preferred stock. As you saw last night, we announced the redemption of a 7.5% Series A at par or $25 per share. It will be redeemed on September 6 for the final dividend paid at that time. After that point, the shares will no longer be deemed outstanding and will delist from the exchange. We have $48.8 million of the security outstanding and we intend to utilize the $27 million of ATM proceeds raised in Q2 and to-date in Q3, along with expected proceeds from the sale of a property that should close in the third quarter. The redemption of the Series A is a significant de-levering event, that upon execution is expected to be accretive to core FFO and brings us closer to sustaining below seven times, while creating strategic capacity as we evaluate internal and external growth opportunities. As of June 30, 95% of our debt carried a fixed rate or was fixed through interest rate swaps with a total weighted average cost of debt of 3.96%, with 58% of total debt on an unsecured basis. Our liquidity position remains strong. is presently, we have $12.4 million of cash on hand, plus an additional $6.7 million in operating escrows and $287.5 million of capacity, on the revolving line of credit. The November maturity of the AIG loan for $110 million is our next opportunity to ladder debt maturities, and we will provide a substantive update on the execution next quarter. Based on the first half results, we once again affirmed our core FFO guidance for the year. We made a slight change in the net loss range to reflect additional depreciation, amortization and interest expense and a shift in the timing of the lease-up on the remaining Phase 1 development buildings. As I've said all year, we don't have much variability in our ranges this year with the stability and growth in our same-store pool, the rental rate increases and the volume of leasing we continue to accomplish and few variables that remain, which would cover the high and low-end of the ranges. Operator, we are now ready to take questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Todd Thomas with KeyBanc Capital Markets. Please proceed.

Hi. Thanks. Good morning. First question, I was just wondering if you could talk a little bit more about your plans to permanently finance the remaining $21 million of preferred redemption. It sounds like you have a disposition teed up. Can you just provide a little bit more detail on the expected proceeds and that you expect to generate and maybe book and sort of the pricing on that asset sale?

Hey, Todd, thanks for the question. We're not getting into a lot of detail on that asset sale. It is the contract, still subject to some final due diligence. So we're not identifying it or kind of getting into that. We did put basically the priorities almost $20 million. We have -- I talked about in the past of a handful of assets. We have another -- LOY [ph] per sale. And we're selling these are pretty much real estate season. So we're not telling this -- us to pay out the Series A. So we're working on it.

Okay. And should we assume I know deleveraging was an important initiative beyond the Series A redemption, should we assume additional equity issuance is on the table to the extent that the stock remains in sort of a similar range to where it's trading to where you issued in the second quarter and through July?

I think the easy answer is yes, but I think -- we -- needs to be. And so when you put the -- in line with the -- the Series A coupled that with disposition. It's very accretive -- and so that's what -- we're on. So we're not going to issue -- equity. We're going to issue equity that's accretive.

Okay. Got it. And then just one question around occupancy and the guidance. You ended June, you ended the quarter at 98.9%. You maintained the 98.4% to 98.8% range for guidance. Can you just talk about the trajectory of occupancy from here in that range? And if there are any known move-outs or anything specific that you can sort of point to as you look out towards the second half of the year?

During the second half of the year, same-store occupancy -- flat. On the overall portfolio -- operating -- prior year was to flow between 97% and 99%, which we've got true -- we do have one move out of 50,000 feet, Michael or in Atlanta, but that is in the budget to be vacant there, and we have a lease that we're -- that is going to study the 9/1 or 10/1. So we're going to be on that, for sure. Other than that, there's really minimum turnover for the months of the year.

Okay. All right. Thank you.

Our next question comes from John Kim with BMO Capital Markets.

Hey, good mornings. I think the connection is not great. So we couldn't hear some of the answers just provided to Todd's question. But I wanted to ask about the preferred redeeming that. Your stock is up 18% year-to-date. It's prudent to reduce leverage -- but Jeff, I think you indicated before at NAREIT that you thought raising equity in the $25 to $27 range would be appropriate. It looks like today, you're more comfortable raising a little bit below that. I just wanted to ask I want to ask how you got there.

So can you hear?

It's a little bit choppy, so we can hear like every other word, but – okay, we test early, but when we got on it works. So I apologize for the. Yeah. Todd's question was that. And as I said, we've been very consistent we were not going to dilutive acquisition. So we took advantage of the ATM to raise capital to the Series A. So remember, that's a stat coupon -- so that with this position as it out in the remarks, what was just done was accretive to FFO. So I wouldn't draw any conclusions that we're happy it at this price. It's really all going to be deal specific. If it's -- to issue equity. If it's dilutive, we won't do it.

Okay. Got it. In his prepared remarks, Jim mentioned the difference, again, that you have between new and renewal spreads -- and we renewal options having an impact on that. I think last quarter, you guys had mentioned that 10% of the remaining expiries in past that we no option. So going forward, should we expect that gap to narrow?

As it relates to fixed rate renewals, the component of rate renewals in the portfolio will bleed out over the next two or so years. And just remember, John, this is not distiller from the blended results that we accomplished as we were addressing 23 expirations. We're about 400 bps ahead relative to last year's performance and are confident we're on the track to achieve blended cash billed at or in excess of 20% on 20 expirations.

Okay. Great. We'll follow up with other questions and the time

The next question comes from Nick Thillman with Baird. Please proceed.

Hey. Good morning. Maybe following up a little bit on the renewal of renewal 52% of renewal activity with fixed renewals. I guess what percentage of the stuff that's remaining in 2024, as that fixed renewal option embedded in it?

2024 of the total is about 8% left. This is a phenomenon that comes every year. So our numbers are always low, looking at the forward year, because the fixed renewals come in sooner and as we move into -- we start filling up with new leases and market rate results, and that's how that break from 2014 up to 20%.

Okay. That's helpful. And then maybe there's been a decent amount of comments on like bigger box demand being a little softer, your three largest tenants that spaces over 500,000 square feet expiring in St. Louis through 2025. Maybe could you provide a little commentary on that specific market and those spaces and then, maybe early indications for FedEx in 2024? Thanks.

Yeah those properties, I saw the quite low is in the properties and its --. FedEx is not a lot of money in the building their lease expires 731. They have two renewal options and notification periods in February. So we haven't heard from them the attention to the build -- it's quite and we certainly expect.

That's helpful. Thanks.

[Operator Instructions] Hello. The next question comes from Nikita Bely with JPMorgan. Please proceed.

Yeah. Good morning. Can you talk a little bit about the pipeline for additional development starts, maybe what your yield expectation on the new deals would be? And also, any color at all on potential acquisitions, given the market environment? Anything would be appreciated?

Yes. So we do have a significant amount of hand available for development. I think we've talked in the past where we've outlined. We have additional capacity in Baltimore, additional capacity in Charlotte, also in Cincinnati. And until we have a line of sight on leasing, we're probably not -- any more new development. We're going to finish up what we're having and get that leased out. That -- we do have several prospects that they're looking for to suit. So if those come to fruition, we will build those. Those will be -- we said between 7% and 10%. I think we're achieving between 9% and -- and those development yield accretive and very attractive for us. On acquisitions, we continue to have a very pipeline. The market is still bifurcated where we're seeing most offers on some properties, limited offers on others. We're still seeing deals get to finance in cap rates are somewhat spread out a fairly wide range. And I think we're in agreement with several of the large houses, I know CBC came out. We don't really see any clarity on cap dates until the end of the year, and it gets being driven by the cost of debt. that continues to develop.

And then as it relates to AFP, the base case addressing that maturity to utilize some of the capacity on the long time until we put it out or originated an alternative instrument with a 5- to 7-year. So as Jeff mentioned, interest rates continue to rise and will likely stay elevated longer and our sensitivity pricing led us to widen our options, including exploring a incumbent lender and other lines. The line currently is 6.9% term bank debt is around 7 private end market, while stable is not overly receptive to outgrow issuers at this time and the convertible debt market, which has seen a recent tick in activity remains opaque in terms of an option for us. So on a relative basis, LifeCos are offering really compelling terms starting in the low to mid-5s depending on TV and term. We've received actionable dates from our banking partners. But we look forward to heading some update on our call.

The next question comes from Anthony Hau with SunTrust.

Good morning, guys. Thanks for taking my question. Maybe I missed this, but Anthony, can you talk about what drove the 11% same-store expense growth this quarter?

Anthony, a lot of timing of spend more than anything, I think we mentioned -- in Q2, we saw a bit of a pop. And we always anticipated this sort of ramp to Q4. So we're at the point today, if you will, 7.5% anticipate that spend recovery will normalize the balance of the year to get us at or maybe even slightly above the midpoint.

Okay. And for 2024 leasing, if we exclude the renewal options, what was the renewal lease spread be

That would be 20.6%.

Okay. Thanks, guys.

Thank you

The next question comes from Mitch Germain with JMP Securities. Please proceed. Sir, your line is live.

Sorry about that. Nice quarter, Jeff, I know I ask you this every couple of quarters, but just curious in terms of your willingness to entertain a joint venture discussion or another joint venture, clearly, now that you've cleaned up the capital stack. Is that something that is still under discussion?

Sure, Mitch. Yes, it is. I keep things back to the – transaction that we did several years ago, where we were able to buy $75 million portfolio. And we bought it – because about $7 million or $8 million of CapEx, leasing commissions that we could just not make our balance sheet. I mean it was just our numbers each quarter. And so we did it as – we bought it back last year, and that portfolio is performing exceptionally well. And so I thought that's a win-win. And we'll continue to do that -- we're doing that because we believe we're adding – shareholders. As I set the time, everybody that's in this room is a substantial shareholder on this call. And so we're not going to do in silly to –ourselves – so as we do – we're building the value. And that's the entry point. If it's going to how're going to do it. And I think it's a great complement to us. And so we actively have discussions will come across – the full – and they don't – in our markets we're picking up the management fees, keep the asset management fees when we do that. So I think we did great business. So we will continue to explore that.

That's helpful. Now that your development exposure is thinning out a little and industrial fundamentals are still kind of extending this run to the positive. Is there any desire to maybe look toward executing on some of your land positions or is it going to take some either pre-lease or significant interest to move forward on a new project?

Yes. The last -- as I think we are in active discussions on build-to-suit to speak on – so I think that's where we're going to focus our pension not a spec development.

Got you. Thank you so much. Great quarter.

Thank you.

At this time, we are showing no further questioners in the queue, and this does conclude the question-and-answer session. I would now like to turn the conference over to Mr. Jeff Witherell for any closing remarks.

Thank you for joining us this morning. As always, we are available for follow-up questions. Thanks again.