Plymouth Industrial REIT, Inc. (NYSE:PLYM) Q4 2023 Earnings Call Transcript

Plymouth Industrial REIT, Inc. (NYSE:PLYM) Q4 2023 Earnings Call Transcript February 22, 2024

Plymouth Industrial REIT, Inc. misses on earnings expectations. Reported EPS is $0.2 EPS, expectations were $0.47. PLYM 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 Fourth Quarter 2023 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 fourth quarter of 2023. Yesterday afternoon, 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 prior Form 10-K when filed can be found on the SEC filings page of the IR site. The change in timing of our disclosures to yesterday afternoon was in response to previous feedback we received to allow more time to digest the earnings results and supplemental. We also thought it might be even more beneficial for you to read through our prepared commentary ahead of time.

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.

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. We believe this will provide for an efficient use of time during a busy earnings week. Our intent is to adopt this practice going forward. And as always, we’re open to input on how we can improve. There are several themes I want to highlight this morning from our reported results and 2024 outlook. First, the Golden Triangle is a region that we believe can continue to benefit from onshoring and near-shoring of manufacturing to the U.S., Mexico and Canada as well as the complementary wave of suppliers and distributors. The data we’ve gleaned from a number of independent sources indicates that our markets are in front of a trend that could be measured in terms of decades, not years.

Second, our balance sheet is the strongest it’s been in the history of the company, that’s 7 straight quarters of reducing leverage to 6.5x and a half turn ahead of where we thought we could be at year-end. With a long-term target of 5 to 7x net debt to EBITDA, we anticipate operating in the 6x range during 2024. Third, we’re focused on accretive growth in 2024 that translates into FFO growth. We’re projecting a 3-plus percent increase in FFO per share at the midpoint, primarily driven by improved portfolio operations, leasing and same-store NOI growth. With the transaction market starting to come to life, we will look to be more active as the year progresses. We expect to fund growth with a combination of asset sales, use of the credit facility, potentially tapping the investment-grade unsecured notes market and/or selective ATM usage.

And lastly, I’d like to highlight the Board’s decision to increase our dividend by 6.7% effective with the first quarter. Together with a better recognition of the value we’ve created in our portfolio, we anticipate this could help provide an attractive total return to our investors while maintaining an FFO payout ratio of 50% to 51% based on our 2024 guidance. I would now like to turn it over to the operator for questions.

See also 15 Best Side Hustles for Women Over 50 and 11 Best Electric Utility Stocks To Buy Right Now.

Q&A Session

Operator: [Operator Instructions] And our first question will be from Todd Thomas from KeyBanc Capital Markets.

Anthony Peak: This is AJ on for Todd. We appreciate the detail provided last night ahead of the call. Just — first one for me. As I understand, the FedEx facility at the low end of the guide is assumed to be vacant beginning August 1, and the midpoint of the range assumes they’ll renew. Just what other factors are embedded in the guidance range around development leasing and other non-same-store leasing? And what gets you to the high end of the range?

Jeff Witherell: At the midpoint, we assume, as you mentioned, St. Louis property remains tenanted. In addition, there’s about 25 bps of nonspecific portfolio vacancy and credit loss assumed on top of the drag associated with spaces in Chicago and the other St. Louis property, which we are confident will be leased up in the second half of the year. And the upper bound, that captures accelerated lease-up of Chicago and the other St. Louis property coupled with savings in interest and general expenses. And then just a clarification on the lower bound, AJ. The lower end reflects vacancy at the St. Louis property, but this outcome is buffered by about 125 bp improvement in portfolio expense recovery.

Anthony Peak: That’s helpful. Well — and then just as it pertains not only to the FedEx facility, but also the other St. Louis facility in Chicago. Would you just discuss about the interest that you’re seeing in those facilities and your leasing strategy going forward?

Jim Connolly: Yes. I’ll take on the FedEx property first. So that’s 3919 Lakeview Corporate Drive. Our plan is — obviously, we’d like to have a single user. But as we laid out in our prepared document that there are other options where potentially they could renew or take a portion of the space. Ideally, it’s 1 or 2 tenants. And we’re on that and there has been some interest to date, even though it’s not vacant until August. In Chicago, at 16801 Exchange, we’ve been marking that for a while. We do have a long list of prospects. And we expect RFPs out of that very shortly. Our other property in St. Louis, the 9150 Latty Ave, we have a prospect that we’re negotiating a lease on right now. They’re working with the city on some incentives. And they’re pretty much committed to this building. And we expect that to be signed very soon.

Anthony Peak: Okay. That’s helpful. And then last one for me. Just what was the exact timing of the Chicago asset? And how much NOI was included in the fourth quarter for that asset just as we think about the run rate heading into 2024?

Anthony Saladino: About 300 per quarter.

Operator: And the next question is from Eric Borden from BMO Capital Markets.

Eric Borden: I appreciate the change in reporting style. I guess my first question for you is on the transaction market. You noted a $500 million pipeline and a pure-play, potential opportunities, but also noted you’re also seeing an increase in JV opportunities. Do you have a preference between the 2? What is more attractive today between traditional acquisitions and potential JV solutions?

Jeff Witherell: Eric, its Jeff. I think we’re agnostic, as we always have been. So it’s really just going to be about the opportunity set. And as you know, the JV we did in Memphis a few years back has worked out significantly for us. So again, it really comes down to if the asset needs significant CapEx and leasing and it’s a true value add, something like that would sit outside the REIT inside of a JV. So what we’re focused on for REIT acquisitions are going to be more than likely small one-off deals. And that’s how we built the company. We get the higher cap deals when we do that. We put them into the portfolio, drop them into our property management platform. We pick up the recoveries on that. So I don’t really have a preference as we sit here today. But the transaction market, as we put in the prepared remarks, there are a lot of things opening up. In fact, we’re tracking 2 or 3 portfolios that we haven’t seen in a while.

Eric Borden: Okay. That’s helpful. And is there any new market opportunities within that potential pool?

Jeff Witherell: We’ve identified that Texas would be a place we’d like to be at some point in the future. But we’re very focused on the markets we’re in, primarily within the Golden Triangle. I think you saw that we sold off New Jersey. We had one asset there. I think we’ve indicated to the marketplace that we might sell a few other assets where we don’t have scale. So I think that’s really — we’re going to focus on the markets we’re in. And eventually, someday, we’ll probably be in Texas.

Eric Borden: Okay. That’s helpful. And then last one for me. I understand we’re only 2 months into 2024 and you still have some wood left to chop on the ’24 expirations. But kind of looking a little bit into ’25, you have a couple of larger lease expirations coming due. Have you had any initial conversations with these tenants about potentially either renewing their lease or vacating?

Jim Connolly: Yes, we have discussions with all of our tenants. The larger ones that you’re talking about, we’ve had direct conversations with. And we expect them to stay. But we expect them to try to negotiate as hard as they can, and we’ll negotiate back.

Operator: And the next question is from Nick Thillman from Baird.