Plymouth Industrial REIT, Inc. (NYSE:PLYM) Q1 2024 Earnings Call Transcript

Plymouth Industrial REIT, Inc. (NYSE:PLYM) Q1 2024 Earnings Call Transcript May 2, 2024

Plymouth Industrial REIT, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the Plymouth Industrial REIT First Quarter 2024 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Tripp Sullivan. Please go ahead.

Tripp Sullivan: 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-K can be found on the SEC filings page of the IR site. Our supplemental deck includes our full-year 2024 guidance assumptions, 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 would 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 to 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.

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. Second, our balance sheet and liquidity remains strong. We fixed rates for well over 90% of our debt and we’re on track to operate in the six times range during 2024. Lastly, we are seeing the transaction market unlock a little earlier than we’d anticipated, but I’ll reiterate what I said last quarter. 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.

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Q&A Session

Operator: We will now begin the question and answer session. [Operator Instructions] Our first question will come from Todd Thomas with KeyBanc Capital Markets. You may now go ahead.

Todd Thomas: Hi, thanks. Good morning. 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?

Jeff Witherell: 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 one 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 one, two, three 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.

Todd Thomas: 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?

Jeff Witherell: You know, 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’s counting on some significant rent growth to 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.

Todd Thomas: 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 the second question is, to the extent that they do, how should we think about the timeline 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.

Jim Connolly: 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 can see if you watch the video. It’s a large building. There are only really two 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 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. They would get in right away and cash, which that faster.

Todd Thomas: Okay. All right. Thank you.

Jeff Witherell: Thanks, Todd.

Operator: Our next question will come from Nick Thillman with Baird. You may now go ahead.

Nick Thillman: Hey, good morning, guys. 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, and 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 three to four years. So are we going to start to see that come down as we go into 2025?

Jim Connolly: Sure. The differential between Class A and B and in some cases is at least a dollar square foot, maybe more, especially if they — whether it includes pavements or not. As far as our tenants are concerned, we recently, just in this last few weeks, we’re working with about 2 million 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 bid in 2025, 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.

Nick Thillman: 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.