Good morning, and welcome to the Plymouth Industrial REIT First Quarter 2024 Earnings Conference Call. [Operator Instructions] 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 Tripp Sullivan. 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 2024. Last night, we issued our earnings release and posted a copy of our prepared commentary and a supplemental deck on the Quarterly Results section of our Investor Relations page.

In addition to these earnings documents, a copy of our 10-Q can be found on the SEC filings page of the IR site. .

Our supplemental deck includes our full year 2024 guidance assumption, detailed information on our operations, portfolio and balance sheet and definitions of non-GAAP measures and reconciliations to the most comparable GAAP measures. We will reference this information in our remarks. .

With me today is Jeff Witherell, Chairman and Chief Executive Officer; Anthony Saladino, Executive Vice President and Chief Financial Officer; Jim Connolly, Executive Vice President of Asset Management; and Anne Hayward, General Counsel. .

I'd like to point everyone to our forward-looking statements on Page 1 of our supplemental presentation and encourage you to read them carefully. They apply the statements made in this call, our press release, our prepared commentary and in our supplemental financial information. .

I'll now turn the call over to Jeff Witherell. .

Thanks, Tripp. Good morning, and thank you for joining us today. I hope that everyone had a chance to review the commentary and supplemental information we posted last night. There are a few points that I'd like to make about the results, and then we'll get right to Q&A. .

First, we continue to see several announcements made for new investments that companies are making in the Golden Triangle. We've highlighted a couple of substantial ones from Toyota and Honda just last month. .

I'm also pleased to see that our friend, Harry Moser, from the Reshoring Initiative is becoming more of a household name in our industry. He was highlighted in a recent Stifel report and will be speaking at the BMO Conference next week, along with Anthony. He's been leading this charge long before any of us, and I strongly encourage you to follow him.

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Second, our balance sheet and liquidity remained strong. We fixed rates for well over 90% of our debt, and we're on track to operate in the 6x range during 2024. .

we're focused on accretive growth in 2024 that translates into FFO growth. We intend to fund any potential new growth opportunities with a combination of asset sales and use of the credit facility. .

I would now like to turn it over to the operator for questions. .

[Operator Instructions] Our first question will come from Todd Thomas with KeyBanc Capital Markets. .

First question, I just wanted to stick with investments, which you just touched on. It sounds like you're starting to see more and more opportunities.

Can you just elaborate a little bit on the pipeline today?.

And then based on the commentary, some of these, they sound like sort of core plus or value add with some occupancy and rent upside.

Is there a way to kind of bookend the cap rates or the IRRs that you're looking to achieve?.

Hey, Todd, it's Jeff. Thanks for the question. So the basis for all of our investments, they need to be accretive, right, going in. So we are looking for cash flow starting on day 1.

But the product that we continue to look at and have has been kind of the shorter walls, where we're going to realize some significant growth in cash flow over the next 1, 2, 3 years. .

There's some value-add components to some of the stuff we're looking at, but we really don't underwrite to IRRs necessarily. I think if you have that growing cash flow and you start at the right basis, the IRR takes care of itself. I mean, we are looking at assets like we always are, both for the REIT, also for JV.

Really can't give you much more than that, but we are active in the market. .

To answer the first part of your question, there are several portfolios in the market. And there also are several single-asset deals that are popping up. So we are seeing much more activity on the for-sale side. .

Okay.

And in terms of pricing, have you seen seller expectations adjust or change at all in recent months just given the higher rate environment?.

It depends on where you are. So I would say yes to some of that, but in some markets, we're still seeing negative leverage deals get done. So somebody is counting on some significant rent growth and mark-to-market to get to their hurdles.

But in our markets, I think the way we buy and the things that we buy, we're able to get some pretty attractive cap rates, so it's accretive going in for us. .

Okay. And then I wanted to ask about the 769,000-square foot facility in the St. Louis market. It sounds like there's some interest there. You've been active marketing that. .

Two questions.

Has FedEx officially provided notice that they are moving out?.

And then a second question is, to the extent that they do, how should we think about the time line to get a tenant in the door and for rent to commence for a facility like this? It sounds like you're talking to some manufacturer groups.

I'm just curious if there could be some additional time required for them to sort of fit out their space and maybe also in terms of concessions. Just curious what we should be thinking about there. .

Yes. This is Jim. So as far as FedEx is concerned, they're moving out. They wanted to keep a small group back in the space, but it just wouldn't work for us because we would be giving them the office and would have to build out a second office. So it really didn't work. .

The building is a very good building, as you could see, if you watch the video. It's a large building. There's only really 2 buildings of that size available in the market right now, which is creating some of the interest that we're getting. The video is also generating a lot of phone calls. .

As far as your point about the -- what to expect. Yes, some of the manufacturing would have a bit of a time to get their space set up. We've addressed that with giving them early access, which gives us gap rent right away and then some free rent with cash rent starting next year, that's been a proposal.

There's also logistics companies that are interested, that would be quicker that we get in right away and cash, which starts faster. .

Our next question will come from Nick Thillman with Baird. .

We've heard commentary from some of your peers on just tenants being a little bit more deliberate to commit to new space. So as we kind of look through like 2025, you guys do have some like larger expirations.

I guess remind us what the rent differential is between like the Class A new product that's being delivered and kind of the rents that you're at?.

And then as we're looking at just like fixed rate renewals, I know that's weighed on the first half, your lease term is around 3 to 4 years.

So are we going to start to see that come down as we go into '25?.

Sure. The differential between Class A and B, in some cases, it's at least $1 a square foot, maybe more, especially if -- whether it includes abatements or not. .

As far as our tenants are concerned, we've recently -- just in this last few weeks, we're working with about 2 million square feet of renewals on '25 expirations with some large tenants. .

And as far as the fixed rate renewals are concerned, I mean, mostly, that limits our growth side. We do have a bit in '25. However, in one case, one of our larger tenants has one and it's probably good assurance that they're going to renew. So it's not always a bad thing. But they start really to burn off next year. .

Okay. And then maybe just a general commentary on leasing. Have you noticed any shift in kind of tenant behavior, maybe they're delaying kind of renewal discussions? Or are they a little bit more reluctant to kind of engage in conversation? Any commentary there would be helpful. .

Nick, this is Jeff. I think we talked about this last year as well where what we were seeing were tenants, yes, taking their time on actually signing the lease, right? So they negotiate the terms and then it's out for signature and they're sitting on it for 30, 45 days.

And what we believe that to be is once they have that negotiated, they go out into the marketplace and try to find a better deal, let's say, or test the market to see where things are. .

And so when you're talking about our size space, if you need 50,000 square feet in one of our markets, there's probably not 10 availabilities for that. And so what we've just seen is people taking their time on that. I don't know if Jim can add to that. .

Yes. That's been a trend that's been going on for the past year. Another thing that's going on is the larger logistics companies are all doing studies on where they want to be in the future. .

And it's across the board. Like for instance, Maersk won't sign leases longer than 4 months right now, but we got them to sign a 9-month lease, which is great. And it's just because they're trying to gauge what their business is going to be like in the future. .

So it's not just it's efficient for better deals. They were also trying to maximize and get it in the right spot. .

Our next question will come from Mitch Germain with Citizens JMP. .

Jeff, I know you talked about match funding or at least match only a portion of potential acquisitions.

But I'm curious if you talked about some sellers -- or some buyers emerging and some activity in the investment sales market, is there a potential for you to do some just opportunistic dispositions, assets that may not fit the long-term growth profile or may have some sort of leasing issues to address in the future?.

Yes, Mitch. I think we've kind of covered some of these things in the past. We have 2 or 3 buildings right now that are ready for sale. I think we've mentioned we want to exit the Kansas City market. I don't want to talk about our 50,000-square foot building in Milwaukee anymore, so we're selling that as well.

And I think you see this -- the sale that's being put to us by the tenant is going to bring in some proceeds. So on top of that, we're always evaluating buildings that don't quite fit. .

I hate to say too much on an open line about it because buyers are listening potentially. But we're always looking to prune assets that don't fit kind of a round building. When the markets are hot, you want to sell a round building and keep the rectangles. .

Got you. That's helpful.

Are there any other purchase options in the portfolio? Or is this kind of like a one-off item?.

We would consider this a one-off item. There are a diminutive amount of purchase options in in-place leases that based on our valuation are unlikely to be exercised. .

Okay. That's super helpful. Last for me, I'm curious about lease structure. I know you've talked a little bit about -- a little bit longer to execute. But I'm curious about structure.

Are you getting any pushback on term or escalators kind of in this new environment? Or are you still kind of able to push some of the kind of [ wants ] when you're discussing leases with tenants. .

So at the start of the year, it seemed like it was going to go that way, that there was going to be a lot of pushback. But it seems to have changed over the last 1.5 months, where we're seeing significant rent increases term 5-plus years, and a lot of people want to renew early. It's just changed over the last month. .

Our next question will come from Bryan Maher with B. Riley FBR. .

Great. I was wondering if you could comment a little bit more on your thoughts on the Golden Triangle. And you put front and center on your prepared comments released last night the Honda and Toyota announcements.

Can you give us maybe a little bit more color on how you think that and maybe other opportunities over the next year or 2 are going to impact the Golden Triangle and kind of more specifically you. .

Hey, Bryan. We've put so much detail out there on the Golden Triangle and we try to add a lot more to it. I mean, those are the markets that we're primarily in. That's the markets we're going to continue to focus on. And based on all the data that we've put out there, we believe this phenomenon is here to stay. .

Basically, every week, there's new announcements. There's been some fantastic information put out for Harry Moser as we referenced in the prepared documentation. .

So how we benefit is being in markets like Memphis, St. Louis, I mean, Chicago. I mean, I think one of the big things we pointed out was Honda in Canada really getting set up for -- setting up in Canada and being able to bring their product down into the United States. .

So if they're going to come down into the United States, they're probably going to come right down into Chicago and distribute. And a big part of Memphis is bringing the product up from Texas into places like St. Louis and getting it distributed. You need infrastructure for that. .

So how we benefit is being in places like Chicago, where you have the lowest transportation cost in the country because you have the infrastructure and you have the employment base. So all of these things are really what is going to drive the future of onshoring and reshoring is going to be the infrastructure. .

I mean, I think we talked about it last time, in order to secure a fairly significant lease in our new building in Georgia, we needed to negotiate a contract with Georgia Power, which we did. We're also negotiating power in places like St. Louis and other markets.

But that's going to be one of the prohibiting factors of reshoring, is going to be infrastructure and then obviously labor. .

If you can get those things figured out, this phenomenon is not going to stop. So I think we benefit by being in these markets that have the infrastructure. .

And is it too early to -- I mean, look, we're analysts, right, and we like to quantify everything. Is there -- is it too early to kind of really put pen to paper and quantify the impact on demand from a warehousing space in these markets? And this is just a bigger picture shot across the bow, hey, it's coming.

We're going to have demand, but we don't exactly know what that demand level is going to be?.

Yes. I mean, I think if you look at just investment in manufacturing, and I'll get these numbers wrong, but between 2020 and 2023, I mean, you had an increase of about $180 billion of investment, right, in new manufacturing. And they think that, that level of investment is going to carry for the next 10 years. So these are all data points.

And so again, where are you going to build, where are you going to put this new manufacturing that's coming in?.

I think -- I don't know if we'll get to this, but this building in Grove City, Ohio that we're selling, I mean, this has been really the -- what we've been talking about, I think, one-on-one for 2 years now is that building is occupied by American Nitrile, which is the first manufacturer of Nitrile gloves, is basically gloves for medical use and so on and so forth.

They're the first manufacturer in the United States in 50 years, and they're in that building. .

So they came in and put in $15 million to $20 million of improvements in the building. And in order to do that, we needed to give them a purchase option, right? And so that's why that was done. And now they're going to take that building and they're going to expand. So this is happening on the ground, and it's pretty exciting to see. .

Our next question will come from Anthony Hau with SunTrust. .

Just curious, were you guys able to extend the lease at 3650 Distriplex in Memphis?.

Yes. That's the Maersk lease that we extended. .

Yes. So that's the lease that Jim mentioned extended for 9 months. Maersk is exploring the option to extend beyond that. In the event that they don't, we have another prospect already lined up, interested to start in January '25. .

Got you.

And I know it might be too early, but have you guys had any conversation with GEODIS and Royal Canin about renewal?.

Yes. Royal Canin contacted us about extending their lease another year. And then GEODIS, we've talked to them. They were one of the first tenants last year, the last time that they renewed that they held on to the lease till the last minute.

So I expect they're going to take us to the last date, but the building is full and we're positive they're going to renew. .

Got you. And then just one last question. I know you guys are currently in negotiation with Communications Test Design to extend the lease.

Would this be like a 1-year extension or like a multiyear renewal?.

They asked for several different options. They looked for a 5-year option, 7-year option. .

[Operator Instructions] Our next question will come from Brendan Lynch with Barclays. .

You have a little less than 1/4 of leases expiring in 2025.

How soon can you start addressing those? And where might that come down to as a percentage of leases to address by year-end?.

Yes. I would estimate that, that number is going to be around 50%. We've got several large tenants that have already approached us about renewing. So I think it's going to come down quite a bit. .

Okay. That's helpful.

And then on development, maybe you could give a little bit of color on the prospect of leasing up the one facility in Cincinnati and also your interest in commencing the next phase of development at some point in the near future?.

I'll take the first part. The current space, the 53,000 square feet that's available at Fisher Park -- Fisher Industrial Park, both tenants that are in the building now are asking about it whether they -- to take some of that space. Plus another tenant that's over in the main building in Fisher Industrial Park is looking to expand in that as well.

Plus we have a few other prospects that are there. So we think it's going to lease up very soon. .

Yes. As far as new development is concerned, I mean, we do outline in the supplement the available land that we have, another 1.5 million square feet, plus or minus, to build. We have identified several parcels there where the buildings are designed and we could pull permits momentarily. .

But we're not going to do it on a spec basis like we did in the past. So we're going to wait until the build-to-suit shows up before we break ground. We think that's prudent. .

It appears there are no further questions. This concludes our question-and-answer session as well as the conference. Thank you for attending today's presentation. You may now disconnect..