Good day and welcome to the Plymouth Industrial REIT first quarter 2019 earnings conference call and webcast. All participants will be in a listen-only mode. . After today’s presentation there will be an opportunity to ask questions. . Please note, this event is being recorded. I would now like to turn the conference over to Mr.

Tripp Sullivan with Investor Relations. Mr. Sullivan, please go ahead..

Thank you. Good afternoon. Welcome to the Plymouth Industrial REIT conference call to review the company's results for the first quarter of 2019. 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..

Thanks Tripp. Good afternoon everyone. In addition to Pen and Dan, Jim Connolly, who heads up our Asset Management and Anne Hayward, our General Counsel, are here with us. Having issued our outlook for 2019 only 62 days ago, our Q1 confirms that we are on track with our original outlook for the portfolio.

Strong leasing reinforces the value in our properties and our belief that our occupancy should pick up over the next several months as projected. Additionally, some opportunistic capital markets activity has led to funding additional acquisition activity. I want to cover each of those and our updated guidance in my comments this afternoon.

First, I want to highlight our people. We have some very talented real estate professionals here at Plymouth and they have been responsible for the outsized results in leasing, asset management, property management, acquisitions and of course the support of all that activity.

In addition to our people here in Boston, our property management office in Columbus is performing exceptionally well. We are excited to announce that we opened a new office in Jacksonville, Florida, led by Dan Santinga, who's an industry veteran that has held prior positions with two other industrial REITs..

Thanks Jeff. Good afternoon everyone. We picked up right where we left off in the fourth quarter, a strong pace of leasing and disciplined activity on our acquisition pipeline. For the first quarter, we signed a total of 823,000 square feet of leases.

269,000 square feet of that was a short term master lease at one of our Chicago properties that bridged the vacancy period for our new five-year lease that commenced in April. The balance of the leasing completed during the quarter included 546,000 square feet of renewal leases and 8,000 square feet of new leases.

Overall, we had a 14% increase in rental rates on a cash basis from these leases. Occupancy at March 31 was 94.5%, down slightly from year-end, but we still expect occupancy to be between 95% and 96% for the year. In fact, we already have leases expected to commence in the second quarter that will get us there.

We are also having a number of discussions on the 340,000 square foot vacancy at our Creekside property in Columbus, both short and long term in nature that could push the percentage even higher in the second half.

Year-to-date, we have had approximately 1.6 million square feet of leases due to expire, of which 1.3 million square feet have been renewed making our tenant retention run rate a healthy 81.3% so far this year.

In addition, of the nearly two million square feet rolling in 2020, 120,000 square feet has been renewed with another 640,000 square feet close to being finalized. So we feel very confident about the pace of our leasing in 2019 and 2020 and expect that we will be able to continue to push rental rates this year and next, thereby driving NOI growth.

We are seeing similar results with our acquisitions. The pipeline as it stands today is approximately $420 million with cap rates between 7% and 9% in properties primarily comprised of Class B warehouse, light manufacturing or flex type properties.

They are located in markets where we already have a presence and that have access to large pools of highly skilled labor such as Jacksonville, Chicago, Indianapolis and Atlanta, among others.

We continue to pursue one-off transactions similar to the one we completed in early January in Chicago as well as larger portfolios such as the 20-property portfolio acquisition we completed in Jacksonville last December..

Thank you Pen. Just as a note, I apologize for my voice being slightly off and a little bit scratchy, the tail end of a cold and the impacts of the late spring here in Boston with the pollen starting to come out. So I apologize for any inconvenience or a lack of clarity as I continue to speak.

The first quarter operating results were consistent with our full year guidance, as outlined on March 8. We experienced strong sequential and year-over-year growth in all our financial results, in line with where we expected to be. We also had strong dividend coverage for the quarter on both an FFO and AFFO basis.

The first quarter earnings release and supplemental outlined our results and provide additional details. This morning, I will focus on the color behind those results and the activity that we have taken into account to our full year guidance.

For the first quarter, the primary factors driving our results were significant year-over-year acquisition activity that drove revenues, NOI, EBITDA, FFO and AFFO and consequently as part of that activity increased depreciation and amortization that increased net loss.

We saw full benefit of the Jacksonville portfolio acquisition in this quarter and to a lesser extent, the contribution from the acquisition for Chicago. That quarterly progression should continue during the year as we originally outlined in our guidance.

G&A expenses in the first quarter is in line with our previous guidance and includes approximately $367,000 of non-cash expenses, representing amortization of stock compensation and an adjustment to the fair value of the outstanding stock warrants of $79,000.

The higher weighted average share count from the offering last July was included in our prior guidance, but as stated at that time we did not include an incremental increase in the share count related to utilization of the ATM..

The first question today comes from Alexander Goldfarb with Sandler O'Neill. Please go ahead..

Hi. Good morning or I should say, good afternoon. Just a few questions from us. First, can you just go through the CapEx again? I think you said that you are increasing and I am sorry, I don't have the press release in front of me, but I think you said you are increasing in the CapEx budget, but yet your AFFO stays the same.

Can you just walk through that?.

Alex, Dan Wright. In our prior year guidance, we had said that the recurring CapEx would be between $3.2 million to $3.7 million on the high and low ranges. We have adjusted that to $3.5 million to $3.7 million. So we have not adjusted the top end of that, but we have increased the bottom end from $3.2 million to $3.5 million, but in real dollars..

Okay.

But wouldn't that decrease AFFO, if everything else was the same? Or was there another offset that's causing the AFFO to increase at the bottom end by $0.05?.

I think what you are looking at is what I referred to earlier in my comments, possibly relative to the change. But the change on that is, overall, we are saying that we think $1.95 to $2 is the appropriate guidance, given the increased share counts..

Okay. And then on the stock price, clearly, you guys have had up 15% year-to-date, which is quite strong. Jeff, as you guys think about the balance sheet, your leverage, obviously you felt more comfortable to hit the ATM with where the stock is.

Does this change your timeline as you guys think about reducing the leverage and getting the balance sheet to, I guess, the stronger position on the leverage side?.

I think we are going to hold the same line, Alex, that we have had for a while now. As we have discussions with investors and what have you, they don't see any issues with our leverage ratios. Now, they understand the size of our company and we have maintained that as the company grows, we will continue to delever methodically down.

But for us to do anything drastic at this point, we don't see a need to do that. I think what the investors, the feedback we have from investors are, if you look at the Jacksonville property, we bought that at 8.25% cap and we have locked in a seven-year debt at 4.07%.

So you have got over a 400 basis point spread on that and the investors seem to really like that spread. And so that spread should increase as we roll leases and we increase rents over the next several years. So we like the fact of taking our debt and locking it in right now. But as we grow, our goal is to keep delevering down..

Okay. Thank you..

Thanks..

The next question comes from Henry Coffey with Wedbush. Please go ahead..

Yes. Good morning. We are hearing a lot of excitement about what's going on in the industrial REIT sector.

When you look at the general market, is that expanding the buying opportunity set? Or is that, in your view, making the market more crowded in terms of potential buyers?.

Hi Henry. It certainly is crowded out there. I mean, it's a favorite asset class. But I think Pen already mentioned that our pipeline was robust and I think he will have a comment on that.

I think my comment to that is that there really isn't any other public REIT that does what we do, right? I mean, if you look at our peer group out there and most of them are into construction. They are building Class A facilities. A lot of people are heading to just the bigger markets, L.A., Phoenix and some coastal ports, if you will.

And so a lot of times, I think we have discussed in the past, several of our acquisitions, we have gone through it in detail, where we are really the opportunistic buyer in this space for that property, Class B facility, some tenant roll coming up in three or four years, it's not in that lease deal. It's kind of our perfect fit.

So there's still a lot of product out there for us. And if the property is ideal for a REIT to buy it, we are probably one of the only two REITs that, there's only a handful of REITs that could buy that. And then that's us. I will give it to Pen to provide some color..

I mean, Jeff's spot on. I think our pipeline has been pretty full for some time. We do see a lot of deals in the markets that we are in and I think our competition typically is not with large global or national institutional types.

It's mostly with local or regional potential buyers that perhaps may not be as well-capitalized as a public company can be. But we are very happy with the deals that we have done in the last few quarters and very optimistic about what we see in the pipeline..

I mean, niche is an overused term, so I won't use it, but what you do is very interesting in that you, if I get it right, you are looking at sort of B-quality space that's going to need some operational handholding, either to make the property better or to get occupancy up or some other factors and that's what you go in and do.

And given that as a thought process and with your stock up a little bit, are there more UPREIT opportunities today than there were six months ago? Or as the market evolves, the owners of these assets that need a little handholding getting more and more interested in essentially, well, I would use the word merger, because that's really what UPREIT is, merging with you all?.

Yes. Henry, you are spot on. We definitely see more UPREIT opportunities. I am going to avoid giving too much guidance here. But we are talking to some parties that are very interested in that type of structure for all the right reasons, as you might assume.

And I think, for us, with our size and our capacity to source deals, it becomes a win-win situation, if you will, from both seller and buyer. So yes, to your question, that is definitely something that we continue to pursue..

And then, on the capital structure front, as you exercise the ATM, is there also thought about making sure that there's a component of long term mortgage debt in the acquisition equation? Or is your view today that maybe we should put more equity into the overall element of a new acquisition to operate on your own leverage?.

Well, Henry, as you probably know, we have a very good credit facility with KeyBanc. They have been a good partner for us.

They provided the bridge for us to take down the Jacksonville property and they also were the ones that provided the takeout with Allianz, right? So between our credit facility, the ability to bridge with people like KeyBanc on an acquisition, we are, say, fortunate to have that.

And I think that goes back to what Pen's point was before, which was our structure affords us to maybe perform where a local operator needs to make something subject to finance where we don't need to, right? So we make somewhat of a better buyer on that.

But as far as how our debt is concerned, we are less concerned now with rates rising, but we still think being conservative and locking in long term mortgage debt right now makes sense and that's probably our lowest. Our lowest cost of capital is Allianz loans at 4.07%.

But I think back to the previous question, as we have new acquisitions on the lines that we take out with maybe more permanent financing, our goal would be to slowly reduce leverage..

Is your best opportunity for the rest of the year new acquisitions or working on both your occupancy levels overall as well as the Columbus, Ohio facility to sort of better integrate and manage and massage the existing book of business?.

Well, I think, to answer the latter part of that any other way, besides what I am about to say, would infer that we can't do both. So we can do both..

I am highly confident you can do both. I have watched you for the last six months..

Right. So I think we have done both since we went public in 2017. I think we performed and I will take myself out of the equation. So I think everybody else's departments has performed exceptionally well and our asset management team is on it.

I think, you are going to see, I don't know if you will see it, but we can see and hopefully you will feel it, is when we have three new individuals in Jacksonville that have been managing these properties for the last five years and now they have joined Plymouth.

I am thinking Columbus has proven out that we are delivering better services to our tenants through direct Plymouth personnel and we are also saving the company money by doing that. So I think we are going to do both.

We are working on, Pen's working on some UPREIT, as we discussed and we have got a good team of people and I think we are going to be able to do both exceptionally well. And as far as Creekside is concerned, we are on it. They are letters of intent out. There's always letters of intent out, right. But we are seeing a lot of activity on there.

In the last call that we have had, we have mentioned our activity and it continues to be strong. A lot of robust people going through there. Some Fortune 500 companies as well as others and that Creekside property doesn't cause us any consternation..

Well, congratulations on a great quarter and the future looks pretty bright. So, thank you..

Thank you, Henry..

The next question comes from Barry Oxford with D.A. Davidson. Please go ahead..

Great. Thanks guys.

Jeff, so just building on kind of the capital scene here, I know you guys did the Madison International deal, but would you look at joint ventures? Or are you kind of like, look, I kind of got that part of the equation settled and so no, I wouldn't be?.

So Barry, I can kind of answer, I guess, the same way we answered Henry's question, which was we can do three things at once, not just two..

Okay..

So the answer really becomes, I think you are seeing in the last week, we are getting a lot of support in the market. Institutional investors are really paying attention now and so we think things are good. I mean, fundamentally, we are in the hard asset class. So what we know, we all know it individually for the last 20-plus years.

So we are experiencing it. And we think we are in this niche, as Henry mentioned, that this kind of Class B niche that just has a huge fragmented market and a lot of growth.

So with that being said, there may be an asset which I think we have alluded to all along that if there was an asset or a portfolio that didn't quite fit into the REIT's metrics today, it might be something we want to do a joint venture in and bring it into the REIT in the future. And that's what we would do. We are not developers.

We are not going to go out and start developing on a joint venture basis for the most part. We do have vacant lands. Should somebody want a build-to-suit, we are certainly capable of doing it. But the joint venture is really just an extension of what Plymouth does right now with our infrastructure and our personnel. So we are always talking to people.

That's kind of the beauty of being in this business. We have a lot of interest and we have a lot of deals that we see and many of them we just can't do..

Right.

Jeff, looking at your cap rate and risk adjusted kind of returns, for lack of a better word, what markets are kind of appealing right now that you guys are currently in that you would say, look, Barry, I really like these two markets the best?.

So as much as I am the smartest guy in the room, I am going to let Pen answer that one, Barry. Because that was a lot, Barry..

I know this ebbs and flows, but I am just kind of thinking about today, where might you be seeing your best value when you are looking at the markets that you are in?.

I will make a general comment is that we are very happy with every market that we are in right now. We want to continue to expand our footprint in markets like Chicago and Jacksonville, Atlanta, Indianapolis and others.

So I don't mean to break away from the question, but it's not that we have a favorite per se, we see, like anytime in this business, you are going to see good deals in bad markets and bad deals in good markets. We try to like minimize that.

And again, going back to our pipeline, I think we are in an enviable position to have the type of pipeline that we do that we can kind of pick and choose the deals that we want to pursue..

Right.

Of that pipeline, how much on a percentage basis over the next 12 to 18 months do you think you can close on?.

Really, it's a function of where we decide to get our capital from. But in terms of the demand, we can close on a good chunk of that, again, given where our capital sources come from. But I am not concerned about, from that standpoint, I am not concerned just because we do have an abundance of deals or potential transactions to choose from.

And I think that's one of the things that we do pretty well here is that we keep the throttle in the on position at all times and we are ready to close on any given transaction given the right opportunity..

Okay. That sounds terrific. I appreciate it, guys..

Thank you Barry..

Okay. Have a good one, guys..

Thank you..

Thank you..

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

Thank you. Thank you all for joining us this afternoon. As always, we are available for follow-up questions. Thanks again. We will talk to you next quarter..

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