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Real Estate - REIT - Industrial - NYSE - US
$ 18.38
-1.29 %
$ 834 M
Market Cap
919.0
P/E
EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2019 - Q4
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Operator

Good morning, welcome to Plymouth Industrial REIT Fourth Quarter 2019 Conference Call. . After today's presentation there will be an opportunity to ask questions. Please note, this event is being recorded. I now would like to turn the conference over to Tripp Sullivan of Investor Relations. Go ahead..

Tripp Sullivan

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

On the call today 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..

Jeff Witherell Co-Founder, Chairman & Chief Executive Officer

Thanks, Tripp. Good afternoon, everyone. Thanks for joining us today. In addition to Pen, Dan and Jim, Ann Haywood, our General Counsel is here with us. As expected, 2019 was another transformational year for Plymouth and we have continued that momentum into early 2020.

We're doing all of the things we should as a relatively smaller, faster-growing company. Specifically, we are working hard at sourcing new opportunities and staying true to a proven strategy that works in well-defined markets backed by strong fundamentals.

We are securing the lease renewals we targeted in our underwriting with high single-digit to double-digit cash rent increases and aggressively leasing vacancy that is now showing up in our occupancy in same-store NOI.

We are improving our balance sheet with disciplined access to debt and the equity capital markets, and we are protecting our culture with an emphasis on recruiting and training our people to deliver outstanding service to our customers.

Our professionals in our regional offices in Columbus and Jacksonville and here in Boston are highly motivated to be part of a growing company with a differentiated strategy. Additionally, as I've mentioned in the past, all of our people receive common stock grants as part of their overall compensation.

This practice reinforces our philosophy of employees as shareholders..

Pen White

Thanks Jeff. Good morning, everyone. During the fourth quarter, we completed 102 million of acquisitions, totaling 2.9 million square feet, with a weighted average initial yield of 8.5%. To date in the first quarter, we've completed another $78 million of acquisitions totaling 2.1 million square feet, with a weighted average initial yields of 8%.

These industrial acquisitions were a mix of single and multi tenant buildings, and were a balance of one off and portfolio transactions as well. We were able to add to our existing presence in markets such as Cleveland, Indianapolis, Chicago, St. Louis, and Atlanta.

We also entered a new market in Savannah, Georgia that gives us exposure to a strong port industrial market that plays a key role in the southeast economy.

With the exception of a few properties where immediate lease up is required the vast majority of these acquisitions were very stable in nature with respect to current tenancy and stability of cash flows.

Further the majority of rents are under current market rates, thereby providing us with a high probability to increase rents in these properties over the next several years.

As you look across these markets, you will see properties that are centered in locations with access to large pools of skilled blue collar labor, with strong sub market characteristics.

Our expanding presence in these markets also continues to provide efficiencies of scale pertaining to the management of these assets, and also exposes us to additional acquisition opportunities. Looking back in 2019, and to date in early 2020, we've acquired nearly $300 million in assets.

That's an amazing accomplishment that we continue to push hard on new opportunities. We have another property that is under contract that is baked into our guidance assumptions for the first quarter and our pipeline is strong at ingoing yields consistent with our past projections of 7.5% to 8.5%.

We see future opportunities to be more in line with what we've achieved to date with a focus primarily on expansion and existing markets with one off acquisitions and small portfolios. However, we have also seen a number of opportunities with Capital Partners interested in pursuing joint venture transactions outside the REIT.

Transactions that may not have the stability of consistent property cash flows that the REIT typically requires, but incorporate other property level and lease up characteristics that made such transactions favorable from a risk adjusted return standpoint, and would allow us to leverage releasing an asset management expertise of our REIT platform..

Jim Connolly

Thanks Pen. Good morning. As Jeff previously mentioned we finished the year on a strong note with our leasing activity. During the fourth quarter 16 leases commenced totaling 660,000 square feet of lease space.

These leases were all six months or longer, and the lease space was comprised of 288,000 square feet of renewal leases and 372,000 square feet of new leases.

Significant leases included a conversion of 123,000 square foot with first logistics at our South Pulaski building in Chicago from a month-to-month lease to a five year lease and two new leases signed for 300,000 square feet to take over the Volvo lease that expired at the end of the third quarter.

These leases were referenced on our Q3 earnings call. Overall, we had an 8.6% increase in rental rates on a cash basis over prior leases with a duration of over six months, bringing us to an 11.6% increase in rent for 2019 or commence leases over prior leases.

Portfolio wide occupancy at December 31 was 96.6%, down 20 basis points from Q3 mainly due to a known Great Western multi lease expiration of 98,000 square feet at our 350, Amelie location in Chicago. This building was purchased in August. This vacancy was partially offset by a higher occupancy rate of the Q4 acquisitions.

We were within our expectations for the full year occupancy target and excluding the Q4 acquisitions, we would've have been at 96.1% at year end due to the expirations I just mentioned. We noted in results and again in our earnings release this morning that we are well ahead of leasing up our leases scheduled to expire in 2020.

We have already addressed approximately 70% of our initial expirations of $1.9 million square feet in total, that leasing has been showing double-digit increases in cash rent increases. This is above the high single-digit target increases, we have previously expected across our portfolio.

I'd like to point out that, we have already leased-up over 100,000 square feet of the year-end 2019 vacancy so far on the first quarter. This activity gives us the confidence to continue sourcing acquisitions and have some initial leasing to achieve without significantly impacting our overall portfolio occupancy.

While the earlier than anticipated activity to-date in 2020 will cause the timing of leasing commissions and TIAs to fluctuate a bit quarter-to-quarter, the overall trend is clear. We are creating value in our portfolio and generating NOI growth through leasing..

Dan Wright

Thank you, Jim. The fourth quarter operating results brought us in above what we had projected for the year with all of our operating metrics, up on a year-over-year and sequential basis, with contributions from new acquisitions as well as strong same-store NOI growth, leasing spreads and inline occupancy, dividend covers also remained strong.

We have provided a lot of detail on the fourth quarter results in our earnings release and supplemental. So, I'll focus my remarks on a few highlights and walk through our guidance. A few items of note that I would like to call out. Significant year-over-year acquisition activity drove revenues, NOI, EBITDAre, FFO and AFFO.

We had a full quarter contribution from the $96 million in acquisitions completed during quarter two and three. For the fourth quarter nearly 80% of the 101 million of acquisitions completed came during the last six weeks of that quarter.

On our last call, we have projected $82 million to be completed during the quarter, so we were right on the money here. FFO and AFFO available per share in unitholders for 2019 we're $1.98 and $1.64 respectively. For NOI there a couple of items to note.

First, we added a new disclosure on page nine of our supplemental for same store NOI on a cash basis. For the quarter, same store NOI was up year over year on a GAAP basis by 6.4% and 4.3% on a cash basis.

Second, you will recall that the third quarter had the onetime benefits from the Volvo lease termination, which was subsequently leased, but that's skewed to sequential comparisons.

G&A in the fourth quarter was in line with our previous guidance and includes approximately $330,000 of non cash expense representing amortization of stock compensation that is an adjustment to AFFO.

Regarding our balance sheet at year end, we had 80% of our debt in place with fixed interest rates for the next two to eight years at approximately 4.15% on a weighted average basis, but the other 20% representing borrowings outstanding on our credit facility.

Our debt outstanding reflected the acquisitions we completed offset by $10.2 million in net proceeds we raised during the quarter through our ATM. We continue to utilize the ATM during the first quarter by raising an additional $10 million in net proceeds completing the remaining capacity of our previous program.

As expected, we continue to bring our leverage down year over year. We were 48.3% levered on gross asset value at year end and our total debt to annualized fourth quarter EBITDAre was 8.1 times. .

Operator

. Our first question is from Craig Mailman from KeyBank Capital Markets. Go ahead..

Craig Mailman

Hey, good morning guys. Just curious, Pen you kind of said the pipeline here is robust. Could you put any kind of goalposts around kind of how big it is at this point? Or stuff that maybe you guys are, are closer to LOI on..

Pen White

Yeah. I mean, the pipeline as you might imagine does fluctuate from week-to-week if not day-to-day. So, right now we are looking at a kind of a broad spectrum of deals if you, kind of add them up they're kind of $430 million to $450 million range.

Those are levels of analysis, whether they're in LOI stage or pre LOI stage or post LOI stage or pre-PSA, but that's like kind of all the color I can kind of provide at this point..

Craig Mailman

That's helpful. And then, you guys entered Savannah during the fourth quarter or first quarter actually.

How many new markets are in that, 430 to 450 and kind of what's the ultimate magic number of markets to be in that makes sense given kind of your platform today?.

Pen White

Well, first question, the majority of the deals we're looking at are in interesting markets. We do want to expand our footprint in the markets that we're in. We are looking at some additional markets, mostly kind of on the eastern half of the country, which is consistent with what we've been doing in the past.

That's not to say that we won't go west somewhere down the line, but that's down the line. So, but yes we entered Savannah as you mentioned we entered St. Louis this past year or 2019. There are other markets, mostly in the southeast that we're looking at right now. But that's kind of all the, all the information I can kind of share at this time. .

Craig Mailman

And then you did mention joint venture opportunities there.

How do you guys weigh maybe the benefits of leveraging your capital versus the complexity that can come along with those two adventures given that company of your size?.

Jeff Witherell Co-Founder, Chairman & Chief Executive Officer

Hey Craig, this is Jeff. So, we've been conditioned I think since the IPO that we have kind of a differentiated strategy. Okay, so we are in markets like Ohio for instance, we have an office in Columbus, we have five people there who are in our property management arm if you will.

And so covering Cincinnati and Indianapolis and Columbus and Cleveland from that location is very efficient for us to do so and we're delivering much better services we think to our tenant and potential tenants.

So, when we have a showing going on for space, we usually have one of, a Plymouth person on the ground with that showing, and I know a lot of companies don't have that ability to do that and it value adds, how to quantify that, I don't know, but we know it.

And so, to us it's really a situation of probably say something it doesn't make a lot of sense, but again we probably wouldn't go into a new market and try to go do a JV with somebody unless it was a market we had additional deals coming in or something like that.

So, we want to have the ability to add value to net JV and so that's the second part of your question is the resources, we have the resources, we have the personnel, we have the knowledge base, we've been doing this a long time prior to the IPO. So, that's one part of it.

And then the other part of it is how do we differentiate is these are the deals that the REIT wouldn't necessarily do, heavy CapEx, it was a small cap rate, I think you've probably seen some of our fluctuations when it comes to CapEx and things like that.

Heavy leasing conditions and CapEx up front and then also, if there's a value add component to it that's something the REIT wouldn't do. But we see these deals constantly, they're deals that we would want in the REIT. So again, we're not we wouldn't be doing a deal that is a product that we wouldn't want in the REIT.

So, we will be product that this is it's kind of like some of your other retail they're that lend money end up owning the deal, right. So for us the JV would be really just an entry point into that deal so it eventually can come into the REIT..

Craig Mailman

Got you. And then just one last one for Dan, to get to the mid 50s kind of debt to JV pro forma this the 70 million you guys have done. I'm getting closer like 50, 60 million left of that capacity outside of tapping the new ATM.

Is that about right?.

Dan Wright

It's about right. Yes, it's in that range for sure..

Operator

Our next question is from Gaurav Mehta from National Securities. Go ahead. .

Gaurav Mehta

Following up on your comments in the pipeline the 430 million to 450 million was hoping if you could maybe comment on are there any large portfolios you're looking at within that pipeline or is it mostly runoff smaller assets?.

Jeff Witherell Co-Founder, Chairman & Chief Executive Officer

Yeah. They're mostly a smaller kind of one-off deals or some small portfolios, that are kind of incorporated in that range that I provided. We are looking at some quiet sizable, large, i.e. greater than $100 million if you will, that would be in addition to what I described. But, most of our working time is devoted to the deals within that pipeline..

Gaurav Mehta

Okay.

And then second question on the new market I mean you entered Savannah in the first quarter 2020, maybe provide some more color on how much you want to expand into Savannah as a percent of revenues coming from that market?.

Jeff Witherell Co-Founder, Chairman & Chief Executive Officer

Yeah. We've been looking at trying to get into Savannah for some time as well as other markets in the Southeast. Jacksonville, we're looking there for almost three years before we were able to find the right type of deal that we closed on 14 months ago. Savannah falls into that bucket.

It's a great vibrant economy, vacancy rates are very, very low, being a port city, the economic drivers there are quite strong and consistent. It's fair to say that we're looking at other nearby markets in the Southeast that would complement our assets in Savannah and Jacksonville. And we're going to kind of continue to pursue those as we see fit..

Gaurav Mehta

Okay.

And last one on the JV, just want to clarify, did you say that, you may end up owning these assets in the long run or you just buying these assets to get at the shared JV fee?.

Dan Wright

Well, I mean, I think it's both, right? I mean, if we entered into a JV, we'd only do it to A, make money. And B, there would be the type of assets that, we would bring into the REIT. Obviously, we'd have right of first refusal in that type of scenario.

It doesn't mean we would bring them into the REIT, maybe somebody would want to pay more than we would want to pay for it. But we'll see how that plays out..

Gaurav Mehta

Okay. That's all from me. Thank you..

Operator

Our next question is from Barry Oxford from D.A. Davidson. Please go ahead..

Barry Oxford

Great. Thanks guys. I think this is either for Jeff or Pen. When you gave the cap rate in the fourth quarter at 8.5% and then cap rate at 8% so far in the first quarter.

Is that a function of pricing getting tighter or is that just a function of the MSA mix or something like that? Not necessarily, don't read into the fact that pricing is getting tougher..

Jeff Witherell Co-Founder, Chairman & Chief Executive Officer

No. I think it's always going to be in that range Barry as you know and I've often said we're typically over all the deals that we've looked at are somewhere between kind of 7.5% to 8.5% in going yields. And as you know, the cap rates only tell part of the story..

Barry Oxford

Right..

Jeff Witherell Co-Founder, Chairman & Chief Executive Officer

But, a lot of times, we'll be buying deals that we see the current tenants paying significantly below market rates, and we might be able to justify paying a lower cap rate for all the right reasons conversely, if we see tenants that are paying at market, there might be a needle might start to sway more towards a higher cap rate range.

So, that's always been the case, always will. I think we're still finding deals in the markets that we're in, FX in that type of range and I think I think we're going to kind of continue seeing the velocity of deals this year that were consistent with what we found in 2019 and 2018.

So, I don't see any material significant changes in the cap rate ranges for the type of products and in the markets that we're at..

Barry Oxford

Great, now that that makes a lot of sense. Also when you look out over the horizon, as far as known move outs for '20 and '21.

Have you had any big tenants come back to you that you know of?.

Unidentified Company Representative

At this moment, no there is other than the Walton company roughly 100,000 thousand square feet but we also do have a deal there was vacant at the end of last year, we're working on a deal that is still 100,000 with a vacancy. So it balances out..

Barry Oxford

And then last one for me.

When you guys are signing leases, what is the average term rate right now?.

Unidentified Company Representative

It ranges from 3 to 5 years. .

Barry Oxford

Yes. So, you're signing 3 or 5 year deals, mostly..

Operator

Our next question is from Alexander Goldfarb from Piper Sandler. Go ahead..

Alexander Goldfarb

Just a few questions. First, Dan on the numbers. You guys printed $0.48 in the quarter obviously was your typical quarter of ATM and acquisitions. So, I don't know if you have offhand.

But if everything had been done at the beginning of the quarter for the fourth quarter, can you tell us what the FFO in the quarter would have been and where I'm going with this is that way we can make sure that we're lining up our starting point for 2020 at this sort of right starting point from a quarterly basis?.

Dan Wright

Alex I'd be more than glad to provide that information for you offline to make sure that we're in sync going forward. Because at the moment we have not done that to recast the fourth quarter. So what that represents is the actual results..

Alexander Goldfarb

And then second, on the guidance for the year. It sounds like from what you said, it only includes the additional 10 million acquisition that hasn't yet closed, but it sounds like it does not include any equity to Craig's question on the debt side capacity. It sounds like there's no equity issuance in there.

So, as we think about that 2.05 to 2.09 that is a number without equity. So, as we're modeling whatever assumptions we would make would then factor in.

Is that correct?.

Dan Wright

That is correct..

Alexander Goldfarb

Okay. And then on the JV side Jeff, if I understand the way you're approaching this, it sounds like you're trying to be prudent with your capital be sort of asset light, but also take advantage of your leasing and your property management abilities to collect fees.

So, it's really a way to sort of garner additional fees without having to commit a lot of capital, you may end up with some assets, but ultimately, you may want to buy in, but it may be assets that you don't want to own.

But is that sort of the right way to think about it and if that is from a shareholder perspective, how long would you be locking up the fee stream for like, would it be a multiyear contract on these or would they be more shorter term fee contract deals?.

Jeff Witherell Co-Founder, Chairman & Chief Executive Officer

Well, we don't have a term sheet to work-off of. So, I can't, we can't answer it. It's going to depend. So again, part of that is fee, but again, part of it would be deals that we couldn't bring into the REIT, and one that we've looked at in the past that is still out there is about 86% occupied.

So, that's a deal that probably doesn't quite fit into the REIT. It got some leasing. It's got some heavy duty CapEx, that's something that would be right up our alley to be able to handle. And so, it's an asset we would like to bring into the REIT, but it may require too much.

So, that's probably a one to two year deal because we'll get at least up and make the repairs to the property and it'll be time to move it on. .

Alexander Goldfarb

Okay. And then just finally, on moving to an unsecured line of credit.

Where are you now with regards to your metrics for that and where would they have to go to as far as like percent unencumbered NOI or what have you, where would you have to be in order to qualify for the unsecured line of credit?.

Dan Wright

I think, if you look at over the last year and a half, what we accomplished in terms of bringing down the overall debt leverage. We're moving rapidly in continued growth I think to start getting up close to the $500 million market cap, which is absolutely attainable, and the metrics that get you there overall.

So, you've got less than 50% debt, right around that 50% in terms of getting into that unsecured, that's why we talked in terms of 18 to 24 months moving into that kind of a format for debt coverage..

Alexander Goldfarb

Dan, thank you..

Operator

Our next question is from Henry Coffey from Wedbush. Go ahead..

Henry Coffey

Yes. Good morning everyone. A lot of my questions have been asked, but I'm just trying to keep it simple for myself. So, on the JVs, we'd be looking at either fees, management fees or perhaps a loan where you would collect interest income, some form of mortgage or preferred or something.

Is that correct?.

Dan Wright

Yeah. So, those are all possibilities, but the primary one is that, we would be asset managing it and property managing it within our markets. So, we would be receiving those types of fees and obviously there would be some sort of promote structure on the back end.

So, we haven't really looked at it from a lending perspective to lend into something like that. But....

Henry Coffey

And you'd be putting equity out, you'll be bringing an equity check. You'd be absorbing all the noise..

Dan Wright

Yeah. 10% to 20% equity and then this is not on our, on our balance sheet. The entire deal is not on our balance sheet. We don't get into a lot of the CapEx and the heavy duty leasing commissions and stuff like that affecting our numbers..

Henry Coffey

And then this is, obviously, you are going to buy more properties than you propose. We'll assume, I assume it's safe that, they'll be the same set of debt equity mix we've always seen, we'll build, you add a nickel by putting a new property and you take that nickel away by creating equity issuance.

But, in the past, you've done some pretty big deals that have then taken earnings guidance down, not in a negative way. I think everybody anticipated it. Are we going to see any like that in 2020 or should we assume that the FFO guidance figures pretty much where we're going to end up next year..

Dan Wright

I think you know as stated the FFO guidance and AFFO guidance that we've set forth is on for lack of a better description steady state, including the $10 million acquisition we expect to close by the end of the quarter.

Clearly historically we have been aggressive on our acquisition strategy and are dependent upon the capital markets and I think to the extent that we were able, in a position to continue to raise capital is we've affected with the new perspective supplements for the hundred million dollar ATM and we're able to utilize that and who knows what's going to happen in the overall equity markets.

So, yes we'll continue as that transpires we will update guidance on a quarterly basis to reflect the impact of that. I think everybody knows that as we've raised capital, we have deployed it rapidly to mitigate any dilutive effect of additional shares being issued. .

Henry Coffey

And that could be a big equity issuance on your horizon if the right opportunity were there or the market were set in the way that would make that attractive that's still a possibility?.

Jeff Witherell Co-Founder, Chairman & Chief Executive Officer

It certainly is and we were I mean, you just. We're in the industrial space, right you all know that. We've executed I think, right on target from since the day of our IPO, we've done everything we said we're going to do, we've done it ahead of schedule. So, if you're an investor out there, I really think you'd want to give Plymouth capital.

I think we've done a good job of it and we happen to be in the best asset class. .

Henry Coffey

So, I assume you all the future is so bright, you have to wear shades right now. I mean, you're I think you're the only stock on my screen that's up today. This is very a very kind of juvenile sophomoric question, but how does the equation work we've got supply line problems in China.

We get people now thinking, maybe I need to go back to South America/Mexico. We've got some concerns about economic growth from the corona virus.

I mean, how do you see it all playing out for yourselves with your properties as things kind of shift around the globe back and forth?.

Jeff Witherell Co-Founder, Chairman & Chief Executive Officer

That's a pretty big question for a couple of real estate guys Henry, but I am now educated I was at a conference in Miami last week the industrial select conference and listened to quite a few companies present. The Railways were there, JB Hunt was there.

So, it was very interesting, as far as corona virus is concerned the line was it was too early to know from a supply chain, supply line at least in the United States and those type of companies, the logistics firms that I listened to as well as us I mean we talked to our tenants every day. There's no effect as of right now.

What I did pick up at the conference and it's something that we've seen on the ground the last five years and it's subtle but I maybe it's coming back in a big way which is there's a lot of companies seem to regret all the outsourcing to Asia never mind people stealing your IP.

We have a company that makes wrenches that their IP gets stolen by the Chinese and there're knockoff products in the market. So, that's ongoing issue and now you see the corona virus so maybe we should be manufacturing in Memphis and Cleveland, Ohio there's skilled blue collar workers in St. Louis.

So, I think that's the theme, that we've been on since day one since our IPO is that skilled blue-collar labor, where can that exist, and it's in the markets we're in. So we actually think that, outside of the coronavirus that, the wave was moving back to the United States anyways. For more, more skilled blue collar type workers, heavier products.

We're not talking about plastic widgets anymore. We're talking about more skilled products..

Henry Coffey

So, that's very helpful. I think what you said makes a lot of sense. Thank you..

Operator

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

Jeff Witherell Co-Founder, Chairman & Chief Executive Officer

Thank you. Thank you all for joining us this morning. As always, we're available for followup questions and look to talk to you in another quarter. Thanks..

Operator

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

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