Good morning and welcome to the Plymouth Industrial REIT First Quarter 2021 Earnings Call. . I would now like to turn the conference over to Tripp Sullivan of SCR Partners. 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 2021.

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; and Anne Hayward, General Counsel..

Thanks, Tripp. Good morning, everyone, and thank you for joining us today. Our first quarter was a great start to 2021. And as we are 5 weeks into the second quarter, we are seeing a continuation of those results with strong leasing, rent collections, acquisition pipeline and an improving balance sheet.

I would like to once again thank the entire Plymouth team for their many contributions to these results. Let's start with our portfolio stats at quarter end. Our occupancy was at 96.6% and cash re-leasing spreads of 12.1%. We've collected 99% plus of our rents and core FFO and AFFO per share above our forecast.

Based on this performance and the adjustments we've made to our full year assumptions for an increased level of acquisition and capital markets activity, we affirmed our full year 2021 core FFO and AFFO per share guidance.

With this strength in operations and continued strong dividend coverage, the Board also decided to increase our quarterly common stock dividend by 5% with the second quarter dividend. We're pleased to provide this additional return to our shareholders after navigating through the pandemic year of 2020..

Good morning. You'll hear a similar refrain from most of us this morning. We're right where we expected to be for the year, if not slightly ahead of our expectations. On our fourth quarter call, we outlined our plans for completing slightly less than $150 million of wholly owned acquisitions for 2021.

And based on the level of activity we've seen so far, we've increased that target up to nearly $200 million by year-end. We completed our first transaction for the quarter in mid-February in Kansas City for $8.6 million, an initial yield of 8.8% and price per square foot of $39, which equated to an approximate 58% discount to replacement cost.

With a shorter weighted average lease term, we've taken some leasing risk on the 2 tenants renewing, but we're confident in our underwriting..

Good morning. Through the end of April, we had released 76% of our leases that were scheduled to expire during the year. Leases comprised of 4.6 million square feet were scheduled to expire in 2021, including adjustments for acquisitions and early terminations.

Of that amount, 2.3 million square feet has been renewed, 1.2 million square feet was leased to new tenants and 95,000 square feet was vacated. This leaves 1 million square feet that will expire later this year, and we expect to have leases on shortly. Additionally, we leased 125,000 square feet of space that had been vacant at the start of 2021..

Thank you, Jim. I would echo Jeff's earlier encouragement to thoroughly review our supplemental. We've continued to expand on our disclosures there, and I will reference several of those this morning. Turning to our first quarter results.

Our core FFO and AFFO results of $0.40 and $0.32 per weighted average common share in units, respectively, were ahead of the $0.38 core FFO midpoint and the $0.29 AFFO midpoint we previously projected.

The outperformance in these metrics was primarily related to lower-than-anticipated interest expense and greater NOI contribution from the non-same-store property pool, offset by a decrease in same-store NOI due to the impacts of the winter storms. AFFO was also impacted favorably by lower-than-expected recurring capital costs.

Going into this quarter, we had expected we would see a 1% increase in same-store property NOI on a cash basis for Q1. Unfortunately, the 11.9% increase in same-store operating expenses related to the extreme winter this year compared to the mild weather the prior year resulted in a decline of 1.8%.

Consistent with other reports in this sector we've seen so far this quarter with similar market exposure, the increase in operating expenses more than offset the benefit of our strong leasing results.

As we look at the balance sheet, we continue to make progress on more closely match funding our acquisition and capital markets activity as well as staying on track with our full year leverage target. Our net debt-to-EBITDA at quarter end was 6.7x.

This ratio is in line with our original expectations of staying below 7x net debt to adjusted EBITDA at year-end 2021, with the start to the year a bit below that level, slightly above it in the 2 middle quarters and settling in less than 7x for Q4.

The composition of our balance sheet continues to improve as well, with nearly 37.5% of our debt unsecured, thanks to the utilization of our unsecured line of credit, and 62.5% of our debt with fixed interest rates.

At this time, we have ample liquidity, with $9.9 million of cash on hand, plus an additional $4.8 million in operating expense escrows and $110 million of capacity on the line, with another $200 million available under the accordion provision if needed.

As noted in our earnings release, we affirmed our previously issued full year 2021 guidance ranges for core FFO of $1.70 to $1.74 and AFFO of $1.43 to $1.48 while adjusting slightly our net loss range as well as each of the underlying assumptions.

The main drivers for these changes are the increased acquisition volume expected, higher share count from the ATM activity in the first quarter and to date in the second quarter and the adjustment to our same-store NOI based on those higher expenses related to weather in Q1. I'll briefly touch on several of these assumptions.

Same-store property NOI growth on a cash basis is now expected to be in a range of 2.5% to 3%, with same-store occupancy remaining unchanged at 95.5% to 97% for the year. This 40 to 60 basis point adjustment is entirely related to the higher expenses incurred in Q1.

Acquisition timing will be a primary factor in the quarterly cadence once again as we expect the second quarter to look much like the first quarter, with the contribution from Q1 acquisitions and anticipated Q2 and Q3 acquisitions being offset by higher share count from the Q1 and Q2 to date ATM activity.

We expect to see the second half of the year benefit from the sequential ramp-up of transactions. The higher weighted average share and unit count now assumes we'll be at 29.5 million on a weighted average basis for the year. As of today, we have a total of 29.9 million common shares and units outstanding.

We have been able to support our investment activities for the past several quarters with moves we've made to increase the flexibility on our balance sheet and have the liquidity to take advantage of a growing number of opportunities available in existing markets as well as additional markets to fit our target profile.

We've also been able to minimize the short-term impact from activity by gradually lowering our cost of both debt and equity capital and provide a platform to continue creating value for the longer term. Operator, we're now ready to take questions..

. Our first question today comes from Dave Rodgers with Baird..

Jeff and Pen, maybe to start with you on the acquisition pipeline, I think when you gave guidance last quarter, you had pretty much indicated that you were only giving guidance to the extent that you have the capital to pursue that. So maybe I'd ask you that same question again.

And also, can you talk maybe more about the broader acquisition pipeline, the depth of what you're looking at today, the ability to kind of grow that as the year progresses? And a second on that was -- is can you talk more about maybe B versus A cap rate compression, the actual cap rate compression you're seeing as you're out there in the markets today?.

Yes. Thanks, Dave. This is Jeff. Yes, I mean, I think what you've seen is we had some decent activity on the ATM in the first quarter and in the second quarter a little bit as well. So we have been able to bring some more acquisitions to the table, which we're working on. So that's where the increase comes from.

We've got plenty of capital available in the joint venture. We've got capital. Our line is paid down. We get capacity there..

Yes. Just to add to that, Dave. Pen here. Our -- you mentioned our pipeline. Right now, we're -- our pipeline is just under about $700 million worth of deals that we're analyzing. And as you know, we've always maintained a fairly strong and robust pipeline. That has not differed at all.

We have seen some cap rate compression even in the last 90 to 120 days. I think you see that across the board. So we're still being very particular and prudent about which deals we pursue..

Okay. And then maybe Jeff or Dan, on the same-store change, you were really clear about the weather impact. So I appreciate that component of it. I guess I wanted to ask a little bit further about, I think, you're 70% net leased. So wondering if you get some of that back if this just hit in markets where you tend to be gross or modified gross.

And you didn't change the occupancy, so it just seems like it's really coming back to this kind of one issue. So maybe any additional thoughts you can provide around kind of the ability to re-collect some of that or how that just hit the income statement overall..

Dave, I think -- I appreciate the question. I think you've hit it right on the head. Some of -- with the mix of our lease structure between triple net and gross, we've got a recovery factor that is potential for sure. We took a hit of about $500,000 in the first quarter relative to snow removal and other costs directly related to weather.

Some of that, we expect, definitely, we will be able to recover. The final number of recoverability won't be determined until year-end as you balance out all of the various CAM adjustments..

Our next question comes from Connor Siversky with Berenberg..

A quick question on Kansas City. I'm just wondering if you could provide some color on what you see in terms of supply growth there. And just maybe a little bit more on the competitive dynamics in that market specifically..

Connor, it's Pen here. We see similar characteristics in Kansas City as we do in all of our markets. Supplies or new supply is still relatively constrained, whether it's Kansas City or St. Louis or other nearby markets. So the supply/demand balance is still in place.

Across the board, I think you're going to see about -- of all the new construction coming out of the ground, about 1/2 of it is already pre-leased. So I think that applies to Kansas City as well as other markets where -- we entered nearby St. Louis just over a year ago. That has proven to be a wonderful market for us. We're still buying deals there.

We're still expanding our footprint. We're looking at additional deals in Kansas City. As I mentioned earlier, we like everything that there is in Kansas City. The fact that it's on the largest inland waterway, the largest rail center by tonnage, and we just think that it's going to be a great place to buy and operate assets for the long term..

Our next question comes from Alexander Goldfarb with Piper Sandler..

First, Jeff, Portland, Maine, certainly a great city, good seafood. But development, just curious if you could talk a little bit more about the decision to develop there. And then just broadly, you guys have a successful track record on buying existing assets, and that's been a hallmark of the platform since the IPO.

But maybe just comment a little bit more on how you see development fitting in there.

And sort of your thoughts on is this going to be purely on-spec basis? Or do you envision being able to do build-to-suits?.

Alex, yes, thanks for the question. Something we do want to highlight. So yes, I mean, I can get specific -- a little more specific on Portland, Maine. So we are in an established industrial park in the actual city limits of Portland. It is a great city. It's fairly built out. There's very little land available, very land constrained.

So we own a 200,000 square-foot facility there now, at least 2 good tenants. One of the tenants is looking to expand. So this is additional land that we've owned, I think, and we learned this -- Pen and I have learned this over the years where we can make these acquisitions with additional land -- you don't really pay for that land.

Maybe in today's market, you'll start to see that happen. But you go back 2, 3, 4, 5 years ago, the land didn't have -- had very little value to it. So we're able to put up a 70,000 square-foot building. Development in New England as you know is very difficult.

I mean we had to go to the Army Corps of Engineers, which most parts of the country don't even know who those people are. And we got that approved. We broke ground about 2 weeks ago. We have -- it is on-spec as we sit here today, but the axiom of, "Build it and they shall come" is -- you couldn't script a better deal than Portland for us to do that.

So we have several people interested in the building. And although there's no guarantees, I feel very comfortable by the end of this year, when we deliver that building, we will have -- it will be leased. As it equates to Atlanta, it's another scenario where we can build about 250,000 square feet.

We have been in discussion with one of our tenants to do a build-to-suit. We're ramping that up pretty quick. There's additional demand in the marketplace according to our brokers. So this is not so much a broad-based development strategy as it's simply additional land that we own. Tenants are asking us for additional space.

And if they're located in the general proximity and there's no additional space for them, then they'll move to new construction. As to why we look at that, we're projecting high single-digit yields on our construction. So I think that blends in very well with our mid- to high single-digit returns on acquisitions. So I think that's why we do it.

There's demand for it, we own the land, we have the expertise, and we're building to good yields. In some other markets, the development yields are quite low compared to where we're seeing ours..

Our next question comes from Craig Mailman with KeyBanc Capital Markets..

Jeff, just a follow-up.

Did I miss -- did you actually give a development yield of what you could get in Portland and maybe the 250,000 square-foot other location you're looking to build?.

We didn't, Craig, simply because construction is not finished. I mean these contracts are -- would be basically gross contract, right? So we know what we're getting into, and cost overruns are borne by the builder. But it's not leased yet either. But our -- as I said, high single digits is what our returns are penciling out to as far as yields..

Okay.

So like 100 to 200 basis points above where you guys are buying?.

Exactly..

Okay.

And I guess how much of this would you want to do a year? If you're looking at $200 million of acquisitions, you guys have additional land to develop, but how much would you guys want on your plate from that standpoint? Do you guys have a development capacity in-house? Or you're doing everything kind of third party?.

Well, there's a lot of questions in there, Craig. We are -- no, it's fine. I just wanted to make sure I get them answered for you. We have development experience in-house. I mean my background is civil engineering, land surveying in my early days and then worked for a developer for a number of years. So we have development experience. That's just me.

If you go across the room, Pen has built plenty of things. And then we've got a pretty deep bench here that you probably haven't seen, but some of our other people, we've got 3 or 4 other people here that have a ton of experience.

I mean Jim comes in at the table and he's been -- he spent 15 years at Nortel, globally building out all of their properties. So we have the experience from that level, but we're not hiring the concrete, the steel and that -- we basically have a general contractor that's working with us on the design build and have that done.

So we have the experience, again, as I've already said 3 times, I apologize for that. I feel very comfortable with it. If you look at our Board, our Board has a tremendous amount of experience in construction and development as well so we're covered there.

And how much we want to do of it, it's opportunistic for us, right? We're not out trying to assemble land and acreage to become a big development industrial player, but these opportunities are coming right at us. We don't see much risk in it, quite frankly. So I don't know if we have a dollar figure really.

We've got quite a bit of -- in Cincinnati, we've got 35-plus acres there we could build on. The demand -- it's one of the hottest markets in the country for industrial. So if the right opportunity comes along, we're going to do it..

All right. That's helpful. And then just on the decision, the Board's decision for the dividend, I mean, we thought it was a good idea that you guys cut it, retained the capital.

Was the dividend increase, I know, on a nominal basis, it's not a tremendous amount of money, but was that driven by the need to do it because you guys are bumping up against taxable net income? Or was it a -- the Board felt like it was a nice thing to do for shareholders?.

I think it was a combination. We didn't have to do it this quarter for the taxable, but we are bumping up against that. And I think it's a good policy. I remember, our -- again, our Board is made up of a lot of people that have a lot of REIT experience, right, decades of REIT experience.

And so I think we wanted to get back on track and put that dividend raise in place. And if we could do it each year as the cash flow keeps growing and the rents keep going up, 4%, 5%, 6% a year, we think it makes sense..

All right. But I guess from a dividend policy, you guys are a little bit capital constrained here or have been historically.

Is the Board going to continue to do kind of what's necessary? Or are you guys going to forgo that retention to maintain a 4.5% to 5% dividend yield? Just trying to get a sense of the dividend policy here being tied to taxable versus tied to getting on a dividend treadmill that is more tied to the payout per se..

I think as we evaluate it, while we're moving in the direction of the taxable income thresholds, the conversations tend to be directed predominantly towards the payout ratios and maintaining that on a positive balance for what we're seeing in the marketplace..

And then just one last one. You guys have really done a nice job of being able to source assets in markets where the public guys have kind of shied away from.

But could you just talk a little bit about the growing competition from private players in your markets now that cap rates on the coast are really difficult to make pencil for a lot of guys given their cost of capital?.

Yes. Craig, Pen here. We've always seen competition in all of our markets from private companies or partnerships or kind of more of what I would call local or regional buyers. I think that's kind of where we shine a bit being a public REIT, well capitalized and have a good cost of capital.

We're -- oftentimes, when we're bidding for a property and there's some competition, more often than not, sellers like to deal with someone like ourselves that can close quickly, all cash with very few, if any, contingencies like a financing contingency, which a lot of these private guys have to deal with.

So to your point, I think there has -- that competition has ramped up moderately in the last 3 to 6 months. I think, as I mentioned earlier, and you read the same research reports that we all do, we're seeing some cap rate compression in our end markets.

A lot of buyers that were once in Tier 1 or primary markets are now kind of looking to the Tier 2 or secondary markets for yield. So there's that constant balance, if you will, that we're -- we always take a hard look at when we're thinking about acquiring properties in our markets. But our strategy is no different today than it was 4 or 5 years ago.

So we're very happy with our results and look forward to continuing to do more of the same..

Our next question comes from Gaurav Mehta with National Securities..

In your prepared remarks, you talked about a portfolio being marketed for sale, a comparable portfolio and comparable market at sub-6% cap rate.

Are you guys able to provide more color on that portfolio? And then as a follow-up, your ability to keep acquiring properties at a higher cap rate if your comparable product type is selling at sub-6% cap rates?.

Yes. Sure. I did mention that one specific portfolio. There are a number of portfolios that we're aware of, either we're involved in, in terms of bidding on them or we're just plain aware of. This particular one is quite sizable, over $100 million in our markets. That will most likely trade below a 6 cap, as I mentioned earlier.

Again, there are others as well. It just kind of goes to what we're seeing in the market.

It also relates to the assets that we currently own in our own portfolio, those that we have acquired over the last 4 or 5 years at much higher cap rates and now have seen a significant uptick in valuation as a result of cap rate compression and premiums on portfolios, as you probably know.

So we look at small to midsized portfolios as well as one-off deals, what we call hitting singles and doubles, where, yes, you're more apt to find deals that are a little bit higher cap rates, some kind of in the 7%, 7.5% cap rate range. And obviously, we don't just look at cap rates per se.

There are obviously many other moving parts that go into analyzing our transactions. But in general, that's kind of what -- where we are today given today's market..

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

Yes. Thank you, everyone, for joining us today. As usual, we are available for follow-up questions. So please get in touch. Thank you..

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