Hello, and welcome to the Plymouth Industrial REIT Third Quarter 2019 Earnings Call. . Please note, this event is being recorded. I now would like to turn the conference over to your host today, Tripp Sullivan of Investor Relations. Please go ahead..

will be Jeff Witherell, Chairman and Chief Executive Officer; Pen White, President and Chief Investment Officer; Dan Wright, Executive Vice President and Chief Financial Officer; and Jim Connolly, Executive Vice President of Asset Management..

Thanks, Tripp. Good afternoon, everyone. Thank you for joining us today. In addition to Pen White, Dan Wright and Jim Connelly, Anne Hayward, our General Counsel is here with us. The third quarter was an active one across all segments of our company. We continue to focus on the fundamentals that are important to us as a real estate operating company.

Our portfolio had strong rental spreads. We have been successful in sourcing and closing attractive acquisitions, and our capital markets activity continue to fuel our growth and improve the balance sheet. And as we move to the fourth quarter, we expect to finish strong and that should set us well up for 2020.

With leasing, we are demonstrating the value built in the portfolio for well-located properties and markets with strong fundamentals. To date, in 2019, we've completed 1.7 million square feet of leases with average rental spreads on a cash basis of 12.6%.

Jim will walk you through the activity in the third quarter and where we are on getting ahead of 2020 and 2021 renewals..

Good afternoon. We completed $115 million of acquisitions in the third quarter and to date in the fourth quarter. Our 16 properties, totaled 2.7 million square feet, and were a mixture of one-off and smaller portfolios in new and existing markets with initial yields in the range of 8.1% to 8.6%.

On our last call, we touched on a 560,000 square-foot property in Memphis, that was under contract as well as portfolios in Chicago, Cincinnati and Columbus, that were also under contract. We subsequently closed on all of these transactions ahead of schedule and saw some of the benefit from each of these in our third quarter results.

These are all great additions that expand our scale in these existing markets with a single multi-tenant buildings, that we know well. We had actually worked on a couple of these opportunities over a year ago, and were able to revisit them at more favorable pricing and terms.

These new tenants provide significant diversity to our rent rolls across industries and asset type..

Good afternoon. Leasing activity during the third quarter continued at a strong pace. During the third quarter, 12 leases commenced comprised of 580,000 square feet. The leases commencing during the quarter that were six months or longer, included 294,000 square feet of renewals leases and 282,000 square feet of new leases.

Significant leases included 260,000 square-foot lease at our Creekside property in Columbus to spot logistics and a 148,000 square-foot renewal with the Popcorn factory at two locations in Chicago. Overall, we had a 16.5% increase in rental rates on a cash basis over prior leases with a duration over 6 months.

Year-to-date, we have seen a 12.6% increase in rent on commenced leases over prior leases. So far this year, we have executed additional leases totaling 586,000 square feet that will commence during Q4, of which 215,000 square feet was related to lease renewals and 371,000 square feet associated with leases to new tenants.

The renewals included a conversion of 123,000 square feet with first logistics from a month-to-month lease to a five year lease. The new tenants included 3,000 square feet with two existing subtenants that took over for the Volvo lease that terminated September 30.

We have been working with Volvo and negotiating their restoration and exit agreement as well as with that subtenants, Worthington and Eagle Logistics for the past years, securing these agreements.

Portfolio wide, occupancy at September 30 was 96.8%, up 70 basis points from Q2, which puts us squarely in the occupancy range we had projected for our full year guidance..

Thank you, Jim. The third quarter operating results were in line with what we were expecting as we factored in the impact from the last two equity offerings. Our operating metrics were up, once again, on a year-over-year and sequential basis, with the same-store NOI growth, strong leasing spreads and improvements in our occupancy.

Dividend coverage remain strong, and will continue to be for the year, based on our forecast. The third quarter earnings release and supplemental outline our results and provide additional details.

For the third quarter, the primary factors driving our results were significant year-over-year acquisition activity that drove revenues, NOI, EBITDAre, FFO and AFFO.

We had a full quarter contribution from our second quarter acquisitions and as planned, one month of contribution from the $91 million worth of acquisitions completed at the end of August. With one more transaction closed last week, and others projected to close by year-end, we expect this to continue.

The quarterly progression we've experienced thus far this year. G&A in the third quarter was in line with our expectations in previous full year guidance and includes approximately $282,000 of noncash expense, representing amortization of stock compensation that is an adjustment to AFFO.

The ATM activity in August and the follow-on offering in September increased our weighted average share count and unit count by 110% compared with a year ago and by 29% compared with the second quarter.

That was a $0.03 per share, in unit, impact to FFO in the quarter and a $0.02 per share impact to AFFO, which is in line with what we expected when we completed the offering. We have factored the higher share count into our current guidance. A few other items worth highlighted in the quarter results were in our NOI.

As Jeff and Jim both noted earlier, we received a one-time termination fee on the Volvo lease of approximately $450,000..

. And our question comes from Gaurav Mehta with National Securities..

First question on your guidance.

So your same-store portfolio guidance of 95% to 96% has been unchanged, and as far as I recall, it did not include any impact of Creekside lever? And now that you have leased up Creekside, I was wondering why the guidance did not change on the occupancy side?.

Look I'm not sure I completely understood the question.

You're wondering why our guidance didn't change regarding what?.

On the occupancy side. So I just like, recall that on the last call, you had said that Creekside lease up is not included in the occupancy guidance. And now that's leased up, the guidance is still unchanged for occupancy.

So I'm assuming that means the current guidance includes the lease up of Creekside, right?.

The guidance for the rest of the year on the same-store should be 96% to 97%, which is up a bit. It was 95% before..

Okay. All right.

And I guess, on the capital markets side, I was hoping if you could, maybe, talk about how you're viewing issuing shares under ATM versus follow-on offering?.

Yes. I mean, we can't comment on future of market activity as far as that's concerned. We have used the ATM as disclosed in the queue. For us, that's - it's a very attractive cost of capital. It's increasing our liquidity. And as you can see across, pretty much, all the REITs out there, it's a very efficient way of doing business.

So we are - we're happy at the way that the ATMs work so far. And in the future, we would anticipate continuing that. As far as additional capital markets activity in the future, we can't comment on that. Thank you..

And our next question comes from Barry Oxford with D.A. Davidson..

Jeff and Pen, are you guys are still seeing enough stuff when you look at over the horizon in the marketplace with the 8-plus-percent cap rate? Or do you think as we move into 2020, we might see some cap rate compression. Although your cost of capital is going down, so your spread would still be good.

But do you think we're going to, kind of, dip more into 7.75% or not necessarily?.

Barry, it's Pen here. We're - our pipeline is full of properties that are in the cap rates - cap rate range that we have experienced over the last year or so. I don't see really too much change from that standpoint. As you know cap rates when we acquire properties, cap rates only tell a part of the story.

So there's more that goes into the acquisitions or NOI's in the acquisition in addition to initial yield. But by and large, for the most part, our - as we look out in the horizon, we do anticipate pursuing acquisitions at cap rates on average, kind of, between 7.5% and 8.5%, in that range. But again, there's always some anomalies to that..

Right. Exactly. Exactly. Jeff, when you look at your 2020 acquisition plans, let's say, the capital markets window gets a little tight. I'm not talking about, like, OA or anything, but just get a little tighter and stuff.

Would you still be able to maneuver to, kind of, achieve what you want to achieve in 2020? Or would you have to, kind of, dial it back maybe?.

Well, Barry, I think that's - I mean you've answered your own question..

Right. Yes, of course..

So I think, we're at a point - you look at the yield that we've achieved, you look at the NOI growth that we've demonstrated. We think that continues. I mean, every other Industrial REIT is saying the same thing. But specifically not portfolio. We think that continues. The spreads are there. Our rates have come down significantly on the debt side.

The debt markets are wide open. So again, we are at a point now, we're covering our dividends substantially. If we achieve the embedded NOI growth that we have over the last couple of years, we are in great shape. I wouldn't listen to all the fake news, headlines that have been put out this morning on Plymouth's demise.

But we are excited about next year, and you're going to see it. I think, you're really going to see it. We have - I think if you look at the last offering - I didn't bring the stats with me this morning so - I was focused on the news.

But we - in it's last offering, which I probably should have put it in the opening remarks, we brought - it was 87% institutionally subscribed, the offering. We added three new, what we would consider, long-term significant institutional investors that came in that transaction. We've met with these investors. We have listened to them.

They like the story. They - I think will continue to be there for us. They see our opportunity to grow. The fragmented market, all the things that we've talked about that have gotten certain other REITs to scale and size profitably. There's no reason that doesn't apply to us..

Right. Okay..

So that's a long way to answer..

No. But I appreciate that. And in a way, Jeff, it was hidden agenda to, kind of, pull that out of you. I appreciate it..

We appreciate that..

Yes. And then one more for Dan.

Dan, when you look at the G&A going into 2020, are you guys set from a personnel - I'm not talking about, maybe, adding another accountant, but as your looking in - or you're going to have to hire some, kind of, higher level people to, kind of, keep up with your all growth or are you, kind of, set?.

So Dan had to step out. He's....

Okay. Go ahead. I apologize..

We put in a poll this week. So now he just stepped back in, so I'm going to let him answer your question he didn't hear. We can answer that question for you. So we have added - we filled in some holes, if you will, on some certain positions that are more at the operating level, the property level.

And the holes are really for these new properties that are coming in, if you heard through the prepared remarks that Pen put out there, we've got a significant number of properties under contract. And where we have existing - mostly, in existing markets.

So in our never Columbus office and even in our Jacksonville office, we've added some people there to support beyond the ground operations, the property management and the repairs and things that we do. But it's a fancier question for high-level that's not needed.

I think we've outlined out of the last couple of years since our IPO, that we've got a great executive team. We don't really need to add to that. And most of the growth will come at the operating side. But as we add properties, yes, we're adding a property accountant, we just recruited just the other day.

So we're very excited about the team we're putting together. And our G&A numbers, we're right in; on; track. We continue to - as G&A may go up, as we get bigger, the percentage to revenue is coming down..

Right. That's really - that's my question. That's what I'm driving at Jeff, yes..

Yes. And we're right on plan. So we are - we feel good about it..

Perfect. Great. That's - yes, that's what I was driving at as a percentage of revenue..

. And the next question comes from Alexander Goldfarb with Sandler O'Neill..

Dan, appreciate the quarterly guidance comments for the fourth quarter. Just going through the Volvo lease, appreciate that the $450,000 benefit to the third quarter. But just as you think about - and for us who are modeling you and you can see consensus, there's a variety of estimates.

What would you say is the run rate quarterly FFO estimate? So not including anything other than what you guys have talked. So you closed the $82 million, all the activities go on. So you talked about a $0.46 to $0.47 range for the fourth quarter. That's sort of a partial.

What would be sort of a run rate if everything in the fourth quarter closes and sort of, a steady state, as we think about our 2022 to build from?.

Well, I think, the first thing, Alex, is the fact that we're going to continue to work off of FFO forecast on an annualized basis. Obviously, the - as you get at the end of the third quarter, the fourth quarter becomes the one quarter that is left in the annual statement.

So that's probably the first time you're actually going to be to calculate, if you will, a quarterly guidance figure. We will probably - we'll continue to see, at this point in time, given the accelerated growth, to literally triple the size of the capital base of this company in just over a year.

Makes it very, very difficult to have solid program on a quarter-to-quarter basis and be hamstrung accordingly. Particularly before reporting on a weighted-average basis versus a math basis of quarter.

One quarter plus second quarter plus third quarter, you end up with a different result, which is what we've tried to explain during the course of this - of the earnings call..

And the next question comes from Daniel Santos with Sandler O'Neill..

It's Alex. I don't know what happened, my line cut off when you were answering. So I heard the response from Dan's line. So then the next question is, I think, Pen, you've talked a lot in the past about the embedded NOI growth in the portfolio.

And just, what would you say is the, sort of, expected growth from either side but not yet commenced leases or your expected roll over that you should - that we should think about as far as growing NOI from the core portfolio, not simply from the additions..

Yes. This is Jim. I'll address that question. Right now, the leases we've signed to date have a 16.5% increase over what was in place before. So that's going to continue into next year. That number will come down a bit. But we're going to have that NOI growth that we built up this year, carry on into next year..

The net result of the....

Okay. And then....

The net result off of that cash basis, your results, flow through - strictly onto the NOI, probably of an embedded number, that's somewhere right around 2% in the existing portfolio. That you think you're going to see....

Okay. That's helpful. Okay, Dan, I mean sorry, yes, yes, Dan, that's helpful. And then a final question is - maybe Jim. As we look at your new lease versus your renewals. Your new lease, you guys are getting great spreads, the renewals they were a lot lower.

Is it something about the nature of the tenants who are replacing - like maybe, when you're buying it, you're noticing, hey, there are bunch of older tenants that we know are going to go out and therefore, we're going to get big rent bumps or is there some different dynamic that's going on, where the renewals are in the single digit, but the new ones are up sharply? Just trying to understand the drivers of that..

So there are several things there that influence those numbers on a quarter-to-quarter basis. For instance, the renewals were down slightly this quarter, but they included one lease that was going from a one year lease that was expiring to a five year lease. So the rent was much higher on the one year lease, so it came down like 6% or 7%.

And then additionally, there was another deal that was a one year lease, and it went to a seven year lease and that came down 3%. So there's some of that. So each quarter because you don't have entire portfolio yield, only looking at a small sample, the percentages could be skewed..

Yes. I was actually referring to the year-to-date because as we all know quarter-to-quarter can be quite volatile. I was just looking at the year-to-date. But okay....

Wait, what we're saying is similar to the same, but there's some - again, the new leases, there might be some space that wasn't previously leased before that might drive the number up a little higher..

And at this time, I would like to return the floor to Jeff Witherell for any closing comments..

Yes. Thank you. So thank you, everyone, for joining us this afternoon. We look forward to seeing many of you next weekend in NAREIT in LA. And as always, we'll be available for follow-up questions. Thanks again..

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