PLYM - NYSE

Good morning, and welcome to the Plymouth Industrial REIT Conference Call to review the company's results for the Fourth Quarter of 2024. All participants will be in listen-only mode. 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.

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. The supplemental deck includes our full year 2025 guidance assumptions, detailed information on our operations, portfolio and balance sheet, 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 Jeffrey 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 one of our supplemental presentation and encourage you to read them carefully. They apply to statements made in this call, our press release, our prepared commentary, and in our supplemental financial information. 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. 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 debt. 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 address 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 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 effort. Historically, we've maintained high occupancy across our portfolio, and we anticipate strong momentum as we take care of the balance of 2025 expiration. 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. 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. At this time, we will pause momentarily to assemble our roster. And the first question is from Eric Bordon from BMO Capital Markets. Please go ahead.

Hey, good morning everyone.

Jeff, just on the last comment around the $1 billion 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 $1 billion? Probably not. We are focused on on-balance sheet. I will say that there's a $150 million portfolio within that $1 billion that would most likely be JV material. So we are working it, we are 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 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. Going in yield, I would strike that at about six and three-quarters. 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 ten of the prepared remarks, 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 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. Alright. Well, thank you very much. I'll leave it there.

Thanks. And the next question is from Todd Thomas from KeyBanc Capital Markets. Please go ahead.

Hi. Thanks. Good morning. I just wanted to follow-up on that a little bit. As it pertains to sort of 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. That's a seven cent per share impact on the full year FFO. What's the timing like for that? What's commenced versus what is set 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?

All of that carryover 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 into 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 existing vacancy. There's been a big pickup in leasing activity towards the end of January and through February. So we expect including big lease big bulk leasing base as well.

Okay. Is there any additional or any speculative leasing for vacant space included in the guidance at the high end of the range?

Yes. 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 2025 expirations? Appreciate some of the notes around that, including the other big box, the 625,000 in St. Louis. 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 sort of what's embedded around those assumptions within the guidance?

Sure. Little bit of 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-teens to low 20% growth on rent spreads on a small to midsize space. Anything under 150,000 square feet. And on the larger spaces, we're kind of getting 10 if it's looking to take space as is to keep the rents down and so no TI. But so from a net effective point that it'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, the ODW is planning on leaving. They have expressed some interest in potentially staying on if they under a contract extension in 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 could see little to minimal downtime.

Okay. Alright. Thank you.

Thanks, Todd. And the next question will be from Rich Anderson from Wedbush. Please go ahead.

Thanks. Good morning. 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 the following year. Yeah. I'm wondering why the tenant is sort of got a funny cadence to it in terms of space it's taking even though you have a feeling that it's going to sort of commit longer term. Can you kind of give the backstory there a little bit on that transaction?

Yes. So that space the current configuration at least is based off of 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, you know, we usually stay on. Like, we usually we plan on finding additional contracts and move them into this building. 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 the also the backstory because I thought a quarter or two or a quarter ago, you kind of thought it would be a faster turnaround than it's turning out to be. Can you sort of 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 has 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 inked 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 sort of 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 mid-year of 2024.

Okay. Sounds good. Thanks very much.

Thanks, Rich. The next question is from Nicholas Thillman from Baird. Please go ahead.

Hey, good morning guys. 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 kind of spoken for. They're 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 a 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 2025.

Right. So, yeah, the additional space has been taken off the space that has been leased up has 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 2024 expirations were addressed, but that number's already up to over 80%. And if you include the transactions that occurred between the end of the year and February 2024. So we expect that to be in the 90s in like a month or two.

With respect to 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 JEOTIS, ODW is not. And the other kind of key driver in that pool is the reintroduction of the Lattie building. A 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 seven 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 kind of 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 kind of linger at these levels? Like, are you guys considering alternative strategies? Just kind of 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, you know, our equity in 2023 and 2024, I mean, the street's telling us we're not gonna give you any more equity because we're not pricing your stock correctly. So we did what we thought was in the best interest of shareholders and that's a transformative transaction. Plenty of capital, to put you know, 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 six 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, you know, where our stock price is versus where we believe the value where NAV is. And I think your NAV is around and then you know, mid to high twenties, and we're in the market every day bidding on our tight 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 ten bidders on it, I can tell you we're not gonna be the winning bidder on it. So if somebody is using a cap rate to value Plymouth, and it's anything north of six and three-quarters, they're totally off the mark. We're getting outbid in all of our markets. You know, ten, eleven, twelve bids. So we need to do is we need to find good property, the shorter waltz, like we did in Cincinnati, and we've got some deals that are teed up that are gonna 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 is priced correctly for us. So we're gonna get this money deployed. We did put a buyback in, as you mentioned. I'm glad you brought that up. You know, we will 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 kind of a no-brainer for us to do that. That's gonna 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. And 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 kind of 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 a 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.

Helpful. That's it for me. Thanks, guys.

Thank you.

Next question is from Mitch Germain from Citizens JMP. Please go ahead.

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

Hey, Mitch. Yeah. So across our platform, you know, 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 you know, this was supposed to be transformative. It's gonna 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 are looking at some JVs with them. And I think that's probably the real basis of the relationship is the Sixth Street deal is the JV. They're very focused on us growing the REIT balance sheet because they're gonna 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 expect. They're a growing platform. They have announced some core money, $17 billion of core money just came into Sixth Street. So you know, we're talking to them about industrial on a daily basis. And I think that's gonna 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 six and three-quarters or maybe even lower obviously, Memphis was acquired, and one of the more recent deals were a little bit higher. So 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 starting to see it in our markets. You know, that being said, and I said this before about the Memphis transaction, there were a lot of moving parts on Memphis. And, you know, there was a $100 million portfolio, eighty plus tenants, you have an office building that needed 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. 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, hey, there's 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 gonna 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, you know, there's a building with, you know, it's a one asset one asset deal, three tenants, there's ten bidders on and the pricing's gonna 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 you know, I don't think anybody's gonna sit here and think that cap rates are gonna continue to rise in the industrial space. So that's helpful. It's tough. But, you know, we've proven that we can buy, and we will continue to execute.

Thank you for that. One more for me, if I might. There's clearly situations that, you know, on the leasing front that you guys have discussed. And it just seems based on that commentary that, you know, there's a preference to do more of these kind of strategic or value-enhancing, value-add type of investment. So talk about, you know, maybe, Jeff, if you can just talk about, you know, factoring in, you know, weighing the existing situations versus doing more value-add and, you know, you guys have the capabilities to handle all of that, you know, 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. You're kind of 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, you know, for $20 million and then the other balance of that's gonna close in the next couple 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 thirty years. We understand how to buy real estate correctly at the right basis. We're not afraid of short walls. I don't think we miss too many things when it comes to buying a piece of real estate. So we should be doing more of it. You gotta 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 tried to look at on each acquisition. You know? So it is not an easy answer for it. We should be doing more value-add. That's how you create value in real estate. I've said a hundred times, we're not a net lease REIT. But I think a lot of times we're looked at as, you know, you've just gotta smooth out your FFO. So there's a balance there.

Thank you.

Thank you, Mitch.

And the next question is from Brendan Lynch from Barclays. Please go ahead.

Great. Thanks for taking my questions. 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 spend?

No. We're seeing it mostly, Brendan, just in acquisitions. And it's coming from all sides. I said there'll be ten 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, you know, 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 I think it's about 1.2 million square feet of product under construction and 90% of it's leased. So you know, I think we're at that point where someone's gonna 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, you know, are severely overbuilt. I mean, if you look at Columbus, Class A is 17% vacancy. And obviously, by definition, a new 32-foot 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. I think it depends on the market. But I think there's a lot of capital and I think once, you know, in certain markets, I think you start to see some spec develop.

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 midterm. Some of these that we have actively in negotiations, it seems to be like a rush to get product into the country and in warehouses as soon as possible. So there's definitely a built-up demand.

Great. Thank you.

Thank you.

Next question is from Mike Mueller from JPMorgan. Please go ahead.

Yeah. Hi. I 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, you know, 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 rents, because we subdivide the building, they may go to a gross lease versus a triple net lease, but the net effective rent would be slightly higher.

Okay. And then last question, when you're looking at the 2026 expirations, are there any similar chunky known move-outs at this point?

No. 2026 seems fine. There's no projections for move-outs at this point.

Okay. Thank you.

Thanks.