Good morning, and welcome to the Plymouth Industrial REIT First Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. .

I would now like to turn the conference over to Tripp Sullivan, 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 first quarter of 2018. On the call today will be Jeff Witherell, Chairman and Chief Executive Officer; Pen White, President and Chief Investment Officer; and Dan Wright, Executive Vice President and Chief Financial Officer..

Our results were released yesterday afternoon 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 May 11, 2018. .

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, May 4, 2018, 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 risk 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 will also discuss certain non-GAAP measures, including but not limited to, 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. In addition to Pen and Dan, Jim Connolly, who heads up our Asset Management and Anne Hayward, our General Counsel are also with us today. .

This quarter was relatively quiet for us in terms of announced transactions, especially compared with the number of transactions completed in the third and fourth quarters, but it was an important quarter, nonetheless. We made great strides in leasing, putting in place long-term financing at attractive rates and building out our acquisition pipeline.

With the acquisitions completed last month, we were also able to raise our 2018 guidance..

So let's first talk about leasing. We had a total of 174,000 square feet of leases commenced in the first quarter that were greater than 6 months in duration. Those leases, on average, had an 11.3% increase in rental rates and that's on a cash basis. Of this amount, a 147,000 square feet were renewal leases and 27,000 square feet were new leases.

At quarter-end, our occupancy was just over 91%, which, obviously, reflects the fact that 3500 Southwest Boulevard in Columbus was vacant on an economic basis, as of March 31. That Columbus lease was about 527,000 square feet leased to Stonecrop Technologies that commenced on April 23, and brings the occupancy back up to 96%.

We talked about that lease signing on the last call, but that was a major accomplishment by our team to get that space re-leased so quickly and minimize the downtime ahead of our original mid-2018 target.

Looking across the balance of the portfolio though, it's worth recalling that several of the properties we added in the past few quarters, were acquired to be able to lease up and increase their value. On a stabilized basis, you would expect our occupancy percentage to regularly be in the high 90s..

Another major accomplishment for us in the quarter was the work we did on the capital structure. Earlier in the year, we have locked up the rate on a new $21.5 million mortgage with Minnesota Life Insurance. The 10-year loan has an attractive fixed rate of 3.78%, and it's secured by 7 of our industrial properties.

Earlier this week, we closed on this loan and we used the loan proceeds to pay down the outstanding borrowings on the KeyBank credit facility.

We also have a commitment in a rate lock from another life lender to refinance the short-term $79.8 million loan, secured by the 15-property Goldman Sachs portfolio, with a longer fixed-rate mortgage with a spread of about 140 basis points over the 10-year treasury..

But when you add in the fact that we expanded our KeyBank credit facility to $45 million during the quarter, we believe we've accomplished quite a lot to improve our access to a debt capital and lock in attractive long-term rates..

On the acquisition front, we closed on 2 properties in Chicago that expanded our presence in that market, and Pen will give you some color on those deals..

And I'd like to note that this work on the capital structure in the recent acquisitions, we raised our NOI guidance to $28.9 million to $29.8 million for 2018. We are still on target to begin giving FFO guidance later in the year and more importantly, being in a position to have our FFO cover to the quarterly dividend in the fourth quarter. .

I'm pleased with what the team has accomplished so far, and putting the capital to work in an expeditious manner. Our growth trajectory is fairly evident. We're working hard to translate that growth into better recognition by The Street and better returns for all of our shareholders. This is a tremendous time for industrial product.

I think we've seen that enthusiasm lately here with the Prologis-DCT deal. With the economy continue to grow and very little in the way of new construction with competing properties coming online in our targeted markets, we believe we are well positioned..

Now I'll turn the call over to Pen who can talk a little bit about our acquisition activity in the pipeline. .

Thanks, Jeff. Good morning, everybody. We followed up a very busy fourth quarter with continued activity on our pipeline and taking care of our largest lease expirations.

The 2 are intertwined for us, as we have actively sought to acquire properties with only a few years remaining on respective lease terms in order to substantially roll up the rents, providing both solid current cash flows and additional growth..

We saw a strategy play out in the first quarter as we experienced 11.3% increase on a cash basis for leases that commenced in the quarter. The Stonecrop Technology lease, that Jeff just mentioned, was signed in March, but it did not commence until April 23.

As that was a slight roll-down due to the nature of that lease and its size, it will have a positive outsized impact on the second quarter leasing results as that was a major win for us to get that space re-leased as quickly as we did.

Overall, we believe the mark-to-market on our entire portfolio, on average, is in the range of 6% to 8%, providing a nice cushion of embedded growth for future years. Our activity also led to sourcing another attractive expansion of our presence in Chicago.

In mid-April, we acquired a 237,000 square foot single tenant Class B industrial building in North Kane County submarket, and a 33,000 square-foot industrial building in Northwest Cook County submarket. The former is leased to a global packaging company until April 2027.

It not only provides a measure of stability to our cash flows, but also comes with additional land, enabling us to expand the building. And the building in Northwest Cook County is leased to a single tenant as well with the term that expires in April 2022.

But both of these submarkets are strong with low current vacancy and, similar to others we have targeted, with strong tenant demand, access to skilled labor and near desirable suburbs..

There are few properties in these submarkets that can offer the extra land that is coveted by last mile tenants. And that was another added benefit we saw in adding these to our portfolio..

As it stands today, our pipeline is currently about $240 million in size. We remain focused on our existing markets with one-off transactions and small portfolios, such as the 2 we just closed in Chicago.

So Chicago, Atlanta, Cincinnati, Columbus and Indianapolis, continue to be our tough targets with Class B as well as Class A industrial and some flex properties, comprising most of the pipeline..

Cap rates for new deals have remained fairly consistent with our targeted ranges, and we continue to have a number of discussions with potential sellers about UPREIT transactions.

The move in interest rates has yet to cause any inflection in sellers' expectations, one way or the other, but our outlook on sourcing the type of industrial product in the markets we've targeted and at the initial returns we want, is as bullish as it's ever been. .

So at this point, I'm going to turn it over to Dan, to discuss our financial results. .

Thank you, Pen. The first quarter results put us squarely on track for our full year outlook and reflect the impact on our financial performance from putting the capital to work. Prior year comparisons are still not very meaningful due to the vastly different capital structure.

So I will focus my comments on the current period and sequential comparisons where appropriate. .

Turning to the first quarter performance. I would note that our net loss was $1.38 per weighted average share, down slightly from the fourth quarter and up from the prior year.

The year-over-year increase in net loss was primarily due to an increase in depreciation and amortization expense of $3.8 million, due to the substantial acquisition activity, a $1.0 million increase in interest expense also associated with debt incurred as part of those acquisitions and an increase in property operating expenses for same-store properties of approximately $400,000, that was primarily due to the 3500 Southwest Boulevard, that Pen and Jeff had both commented on, now recently back in the lease structure..

Increased general and administrative expenses of $200,000 for noncash compensation cost and slightly higher professional fees related to public company requirements of approximately $200,000.

NOI increased to $7 million compared with $5.3 million in the fourth quarter and $3.5 million in the prior year period, as anticipated, due to the acquisitions offset partially by higher property expenses..

EBITDA was $6.1 million compared with $3.2 million in the fourth quarter and $2.8 million in the prior year period as a result of the acquisitions, again, partially offset by higher G&A costs and property expenses..

FFO, attributable to common stock and operating partnership unit holders, was $0.27 for the quarter compared with the loss of $0.17 in the fourth quarter and negative $0.40 per share in the prior year period..

AFFO was $0.05 per share consistent with the fourth quarter and down from $1.48 per share in the prior year as we incurred planned higher nonrecurring capital expenditures and incurred the leasing commissions through the 500,000 square-foot lease executed to replace Pier One at the 3500 Southwest Boulevard..

Turning to our guidance. We've raised our outlook for 2018 to account for the 2 acquisitions in Chicago as well as reflecting some higher fees and ongoing compliance as a public reporting company.

Total revenues from 2018 are now estimated to be in the range of $44.8 million to $45.6 million, and NOI is estimated to be in the range of $28.9 million to $29.8 million..

G&A expenses, for the year, are estimated to be in the range of $4.6 million to $5.4 million, including noncash expenses of approximately $800,000 to $1 million to account for stock-based compensation and any changes in the fair value of issued warrants..

Depreciation and amortization will increase due to the addition of $189 million of acquisitions that we completed since mid-2017..

As we noted last quarter, we plan to begin providing FFO guidance toward the end of the year, and expect that FFO will begin to cover our dividend in the fourth quarter and AFFO will follow accordingly, in terms of dividend coverage..

I'll be happy to answer any additional questions just on this commentary during the questions-and-answer period. We're now ready to take questions, operator. Thank you. .

[Operator Instructions] At this time, we'll take a question from Barry Oxford with D.A. Davidson. .

Couple of questions. When I'm looking at your AFFO, and I'm looking at your straight line in CapEx, those numbers jumped up. Is that -- I'm going to assume that, that's a function of the Stonecrop lease and fact that you probably had TIs and commissions and straight line adjustments with that lease.

But should that moderate back down in 2Q and 3Q? How should I think about the forward quarters when I'm thinking about AFFO?.

This is Dan Wright. Barry, to address your question, I think if you're looking at the recurring CapEx expenses of some $992,000, included in that number is approximately $433,000 of leasing commissions for 3500 Southwest. Obviously, that was not something that -- that's an unusual event.

The good news is that it occurred in the first quarter instead of the second quarter as we had originally anticipated. But going forward, I would not expect to see that. There were also additional tenant improvements of some $260,000 across the portfolio that would also be related strictly to ongoing leasing.

There will be some of that going forward but not to that degree, much like the commissions, a lot of that will go back down to more ongoing normal levels, if you will, just given the nature of the buildings. .

Okay. Perfect, perfect. That makes sense. And then, I guess, a bigger picture question from the $240 million pipeline.

Could you give me a little color about how close maybe some of those are to closing -- where are you in the time frame? And then, Jeff, if you could speak a little bit to the financing of this pipeline for modeling purposes?.

Barry, Pen here. I actually gave you a lot of guidance on the future acquisitions.

We're, obviously, working on a number of different acquisitions, as you might suspect, and obviously, when it comes to financing, talking to the usual suspects, usual banks, not unlike the ones we are -- we just were talking to in relation to the financing deal that we just closed.

But needless to say, we are being quite active and we'll remain active throughout this quarter and the rest of the year. .

Great, great. I appreciate it. Really, really good quarter. Hope the stock price reacts positively here. .

Same here. Thanks, Barry. .

The next question comes from John Benda with National Securities Corp. .

So quickly, in the prepared comments, you offered some commentary around mark-to-market value for the portfolio was around 8% to 12%.

Can you just speak a little bit more on how you arrived at that figure?.

John, Pen here.

I think that we talked about 6% to 8% of embedded growth, is that what you're referring to? On average?.

Yes. .

Yes, that's on average. That's on what we would -- some people call it same-store sales, but we call it embedded growth. And that's an average based on what we expect looking at our entire portfolio.

And I think we feel very comfortable with that range, especially, given the fact that the first quarter saw that 11% -- 11.3%, to be specific, jump in rental rates. .

Okay, and then on some... .

John, I'm just going to say, on a portfolio of this size, right, I mean, so [ we get a contract that's ] at 10 million square feet versus the 100 million square feet, the lines are going to bounce around, probably a little bit more, like Pen mentioned 11%, we're now doing better at 6% to 8%.

But all those numbers are really good numbers, right? So just that -- it's not as smooth as you would have it in a much bigger portfolio, as you probably know. .

Yes. That makes sense. And then on the rest of the expirations for 2018. I see that -- what came up about 175,000 so far, and there's about a 1 million left.

I mean, can offer some commentary on those renewals that are underway? And maybe even, has any tenant from 2019 approached you?.

What was the last comment?.

I'm just curious, if you could just offer some commentary on the rest of the 2018 lease expirations, how they are shaping up? And if anyone from 2019 has approached you for renewal since we're 5 months into the year now?.

Okay, yes. The answer is yes, in the 2019, we're working with a couple of tenants and renewals already. In addition, I would say, most of the expirations will be dealt with this year and there'll be no -- very minor impact on vacancy in the late part of the year. .

All right.

So you're seeing -- so most are going to choose to renew and maybe 1 or 2 are going to exit the lease, is that what's you're saying?.

Correct. And those properties that -- they may exit we've already got replacement tenants lined up and working on leases. .

It's a lot of activity, John, as you can imagine. I mean, just to give you some color, I mean, we -- the way we look at ourselves as we've talked about since the IPO is a true real estate operating company, right? Our asset managers are heavily involved with our property managers. Some of which are in-house now.

And we have a very active structure, I guess, it's best way to say it, when it comes to lease renewals, working with new tenants and what have you, working with the brokers. Pen, myself and Jim Connolly were in Columbus last week. We were all at separate properties working on different things. So we're very active in that.

Sometimes, it's a little bit of a game of chess, who we want to move around, how we want to do things. But we're very active on that, and we'll tell you that right now everything is very positive. .

All right, great. And then just quickly, if I can on the pipeline.

Can you talk about the geographic dispersion -- distribution of the pipeline?.

Yes, it's not going to waiver too much from what I've said in the past, John. But, typically, it's, what we call, the eastern half of the country. More specifically, it's in the markets that we're already in, as I mentioned earlier, Chicago, the 3 markets in Ohio, Memphis, Atlanta.

I think we're going to be looking at some acquisition potential, acquisition activity in the Southeast quadrant of the country where we see some economic drivers that are quite appealing. But as I mentioned earlier, and not to be redundant here, but we are -- we're very busy on the acquisition front. So I see some positive signs ahead for us. .

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

Thank you. Thank you all for joining us this morning. We're going to be at Nareit beginning of June, which is next month. So we look forward to seeing you folks there. And if anybody has any questions that they would like to have us follow up on later today, we're available. Thanks, again, and we'll talk to you next quarter. .

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