Plymouth Industrial REIT Q1 2025 Earnings Call Transcript

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May 2, 2025

There are 10 speakers on the call.

Operator

Please note today's event is also being recorded. I would now like to turn the conference call over to John Wilfong, Investor Relations.

Operator

Sir, please go ahead.

Speaker 1

Thank you, and good morning. Welcome to the Plymouth Industrial REIT conference call to review the company's results for the first quarter of twenty twenty five. 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 our 10 Q can be found on the SEC filings of our IR site. Our supplemental deck includes our full year 2025 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.

Speaker 1

We will reference this information in our remarks. With me today is Jeff Witherell, Chairman and Chief Executive Officer Anthony Saladino, President and Chief Financial Officer Jim Connolly, Executive Vice President of Asset Management and Ann Hayward, General Counsel. I would like to point everyone to our forward looking statements on Page three 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.

Speaker 2

Thanks, John. 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. First, I will hit a few highlights, and then we'll go to Q and A. The first quarter of twenty twenty five marked a strong start to the year, highlighted by record leasing activity, positive acquisition momentum and stable core financial performance.

Speaker 2

We continue to be well positioned to scale our platform with ample strategic capital and nearly 30% of annual rents rolling in 2025 and 2026 in markets benefiting from sequential rent growth, limited Class B supply and favorable reshoring dynamics. We see a path for sustained internal growth and long term value creation. On a macro level, as global supply chains adjust to the shifting geopolitical and trade landscape, we will continue to actively monitor the impact across our tenant base in target markets. We have yet to see any material interruptions across our portfolio, but we have observed an increase in short term space requirements, primarily driven by tenants responding to inventory adjustments and shifting trade flows. Our strategic focus continues to be on acquiring footprint, infill industrial properties in dense supply constrained submarkets, areas where speculative development has primarily targeted large scale bulk assets.

Speaker 2

In contrast to larger warehouses, which often face longer lease up periods and a narrower tenant base, our properties feature modular layouts and multi tenant configurations that help mitigate binary vacancy risk and support more resilient cash flows. This flexibility enables us to adapt quickly to evolving tenant demands, including those driven by reshoring, inventory realignment and supply chain diversification. Our acquisition strategy remains focused on expanding within our existing markets. Our deal activity in the first quarter and at the end of twenty twenty four was funded largely by the proceeds of the Sixth Street transaction. These acquisitions were located in key distribution hubs within our target markets located across the Golden Triangle.

Speaker 2

As of today, we have approximately $2.00 $5,000,000 of acquisitions under agreement, representing roughly 2,000,000 square feet at a targeted initial NOI yield of 6.5% to 6.75%. Since our June 2017 IPO, we have acquired over 32,000,000 square feet at an average cost under $50 per square foot, well below replacement cost, which not only provides a meaningful margin of safety, but also enhances cash flow returns and highlights our disciplined approach to capital deployment and value creation. Moving to our balance sheet. We continue to have strong liquidity with over 88% of our debt being fixed, no debt maturities in 2025 and expect to operate in the six times range for the balance of the year. With the upsizing of our credit facility in last year's fourth quarter, we have $415,000,000 of availability there.

Speaker 2

And with the capital secured through the Sixth Street transaction, we are well positioned and have the critical financial flexibility to scale our platform and support long term value creation for our shareholders. Finally, we have affirmed our previously issued full year 2025 guidance for core FFO. We anticipated a bit of a muted start to the year with a stronger second half driven by the stabilization of transitory vacancies in Cleveland and St. Louis along with the full contribution from acquisitions expected to close in the second and third quarters. I look forward to providing further updates in the coming months as we execute on our leasing and capital deployment strategies.

Speaker 2

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

Operator

Ladies and gentlemen, at this time, we'll begin the question and answer

Speaker 3

session.

Operator

Our first question today comes from Todd Thomas from KeyBanc Capital Markets. Please go ahead with your question.

Speaker 4

Hi, thanks. Good morning. First question in the prepared commentary, you noted the potential three year renewal at the 624,000 square foot asset in St. Louis and the backfill prospects you're negotiating with at ODW, the 772,000 square footer in Columbus. Just in light of the current environment, how confident are you that those deals get done?

Speaker 4

Have conversations changed at all over the last few weeks in light of the current environment here?

Speaker 3

Yes. Regarding St. Louis, that's we've come to terms with on the renewal. It's been signed right now. So any day, three year deal.

Speaker 3

And ODW, they have agreed to take anywhere from 280,000 square feet to 400,000 square feet back for a period of time. And that two sixty five of it is out for Signature right now.

Speaker 4

Okay. And then in terms of the acceleration in growth in the back half of the year, so really strong second half terms of increase in total NOI and portfolio occupancy. The larger St. Louis asset, I guess, a contributor of that. You backfilled and signed the lease there, the 769,000 square foot facility, but that was removed from the same store.

Speaker 4

Can you just walk through the key drivers behind the acceleration in the same store growth rate later in the year, what the primary drivers are there?

Speaker 5

Yes. Happily and Todd, as a point of correction, that St. Louis asset is in same store. So that is a key contributor to the growth. But as Jeff mentioned, we experienced a fairly moderate start to the year in the pool.

Speaker 5

That said, about 70% of 1,600,000 square feet of speculative space greater than 100,000 square feet included in our guidance has now been leased. So the cadence of occupancy is the best way to illustrate the path to the full year growth starting back to Q4 twenty twenty four for this pool, occupancy was 92.2%. The lease up of this larger format space, which we just discussed, adds approximately six forty basis points of occupancy. This is going to be partially offset by a temporary 130 basis point vacancy expected in Q4, which results in a projected year end same store occupancy of about 97.3%.

Speaker 4

Okay. That's really helpful. Thanks. And sorry about that. I appreciate the clarification on St.

Speaker 4

Louis. And then last question, just in terms of the $2.00 $5,000,000 of acquisitions under agreement, can you just remind us and run through the funding sources for those investments from here, the timing of the remaining drawdown of the $79,000,000 preferreds, what you're anticipating there? And I guess in terms of funding the balance, how we should think about that?

Speaker 5

Sure. So the funding mechanism is the line of credit. To your point, we have another $79,000,000 to draw from the Series C preferred, which we will do so in May. Thinking about the impact of that drawdown, compared to current rates, there's about 125 basis point premium relative to our line. So there'll be an uptick in interest expense post draw.

Speaker 5

With respect to cadence of deployment, we identified the $200 plus million. There's probably another $150 right behind that. So there could be some chunky deployments in the middle of the year with tapering as we arrive at year end.

Speaker 4

Okay. All right. Thank you.

Operator

Our next question comes from Rich Anderson from Wedbush. Please go ahead with your question.

Speaker 6

Thank you. Good morning. Where does the buyback stack up with you on your priorities from a capital deployment standpoint today?

Speaker 5

So to be clear, did not repurchase shares during Q1. Our view is that a balanced approach, deploying capital into both acquisitions and opportunistic repurchases is the best way to optimize long term shareholder value. The repurchase math is compelling given the current market dislocation, but expanding the platform remains our priority.

Speaker 6

Right. So and the buyback also can just be disruptive from a balance sheet perspective. I assume if you did go that direction, it would be on a balance sheet neutral way. Is that taking again taking capital from the Sixth Street transaction and just instead of portfolio expansion buyback and it would still be a balance sheet neutral transaction in your mind? Is that correct?

Speaker 5

It would be. And that's in part the motivation for a balanced approach to the deployment of the remaining capital.

Speaker 6

Okay. On ODW, you said $280,000,000 to 400,000,000 and some amount is being signed now or sort of it's sort of was that $280,000,000 that's being close to being signed? Is that what you said? I missed that. I apologize.

Speaker 3

Yes.

Speaker 6

Two eighty million And you said period of time. Is that like another one of those short term six months type situations or longer or shorter? How could you

Speaker 3

describe It's through the end of the year plus into 2026 with an undefined end date at this point.

Speaker 6

And the mentality there generally and maybe specifically for that is just we don't know what's going on in front of us with tariffs etcetera and the economy and so we're just wanting don't want to make an overcommitment. Is that basically the commentary from your tenants?

Speaker 2

On that particular one, Rich, that's not the case.

Speaker 6

So they

Speaker 2

occupy the entire building. They have built out a newer campus. And so they're going through a flux of new contract, expiring contracts and moving to new to other space. So that's not a tariff issue.

Speaker 6

As I recall, they have some presence in that area. Generally speaking, is that sort of the mentality that you're hearing?

Speaker 2

So yes. So in our remarks and in the commentary here, we have mentioned that there is some short term thought process going on from tenants to secure additional space, additional stocking material. So there is some dislocation. Again, we've said in here, we haven't really seen it in a significant manner across our portfolio yet.

Speaker 6

Yes. Okay. And last for me, you reiterated guidance. You got some acquisitions coming, maybe some more after that. Some of your peers are saying we would have raised guidance had it not been for some of these uncertainties ahead.

Speaker 6

Do you would you make the same comment? Or would you say guidance is good sort of it sort of captures whatever might happen in the future as stands, so it's not something that you would have raised if not for some of the questions that are out there right now, broadly speaking?

Speaker 5

Yes. I mean, I think our view is that that's a good range. And to Jeff's point, there hasn't been a lot of static. And just given the momentum around leasing and the success in pursuing and ultimately deploying this capital, I think we're in a good position to achieve within the range that we've previously reported and recently affirmed.

Speaker 6

Okay. Fair enough. Thanks very much.

Operator

Thank you. Our next question comes from Nick Tillman from Baird. Please go ahead with your question.

Speaker 7

Good morning. Appreciate all the commentary on some of the larger tenants. Anthony, think you mentioned 140 basis points occupancy loss in fourth quarter. Is that related to any specific tenants? Or I know like as we look through the schedule, that's like the next tenant that we didn't touch on was like communications test design.

Speaker 7

Any updates there?

Speaker 5

I'll let Jim fill you in on that. But it is not that tenant. It is a single tenant that we anticipate it is more likely than not to vacate now in November.

Speaker 3

For our CTDI, we have reached out to them about extending their lease. They as you know, they only did a one year renewal last time because they had a buyout in their contract, which just passed. So we're looking for them to extend longer this time. The plant is very busy and they're very good tenant.

Speaker 7

And maybe following up, Jeff, you kind of talked a lot about sort of the smaller tenant or smaller building, multi tenant assets and kind of the focus there on the acquisition standpoint. Is there any appetite from like a disposition side to maybe derisk on some of these individual tenants and sell some of those assets given where the stock is trading today?

Speaker 2

Mean, Nick, we look at that all the time. But I don't think there's a situation of derisking. I think we've been very clear that if you look at the St. Louis property, I mean, if you look at our basis, we bought a Class A building at $72 a square foot. Unilever probably should have renewed there.

Speaker 2

They did a global reorganization of their supply chain. You can see that we backfilled it with a Fortune 500 global tenant and they may take some more space in there. And what we're going through right now is again is a lot of like one year extensions or six month extensions until they figure out their supply lines. I don't really think it's a lot of the stuff that we've talked about is tariff related. It's really just an inflection point of groups like Unilever.

Speaker 2

You see Amazon has just made some major changes. FedEx is making some major changes. Again, don't think a lot of that's tariff related quite frankly. It just seems to be that now is the time that a lot of these groups are starting to reorganize. So we always look at assets that we believe if we can sell them and reposition them into something better, we're always looking at that.

Speaker 2

So we'll see how it goes.

Speaker 7

No, that's very helpful. And then maybe just one last question quickly for Anthony. Any changes to sort of what you're seeing on collections or bad debt within the portfolio or changes to the watch list?

Speaker 5

No. The composition in terms of count on the watch list hasn't really changed. We have 35 bps of bad debt embedded in our guidance, none of which was utilized in Q1. This compares favorably to our historical run of about 10 bps. For context, 2024 was an anomaly due to the Cleveland bankruptcies, which pushed bad debt above 100 bps.

Speaker 5

But

Speaker 5

twenty basis points. As of quarter end, watch list includes five tenants. They occupy a combined two ninety square feet. Their total ABR is less than 1%. And in all but one of those tenants is current on rent.

Speaker 5

And so when we zoom back and make these assessments in terms of our watch list, today we think there's a 90 plus percent likelihood that those tenants will stay current or make full term payments over the remaining life of their lease, which across those five tenants is about one point five years.

Speaker 7

Very helpful. Thank you, guys.

Speaker 2

Thanks, Nick.

Operator

Our next question comes from Mike Mueller from JPMorgan. Please go ahead with your question.

Speaker 8

Yes, hi. So I think you said you expect at year end about 97.3% occupancy. And I guess how much of that 97.3% is this short term leasing like $170,000 in St. Louis or something that could be thirty, sixty, ninety days or something that could go away pretty quickly? So how much of that 97,300,000.0 could kind of go away within a couple of months or something?

Speaker 5

Mike, I would say about 25 bps of that. But here's the caveat. With respect to the temp fill, there's prospects that will likely absorb that space on a longer term basis. And so we're not thinking about that space as being all that disruptive to the occupancy ramp.

Speaker 8

Got it.

Speaker 3

The ninety day out was actually added for benefit for us because we do have interest in the space longer term. So it's for us to be able to replace them with a longer term tenant.

Speaker 8

Got it. Okay. And then just to clarify that 97.3% that does reflect 140 basis points of recapture I think that you were talking about in November?

Speaker 5

It does.

Speaker 9

It does. Okay.

Speaker 7

It does.

Speaker 3

And then I guess

Speaker 5

It's 130 bps just

Speaker 8

Sounds good. And then one other question. I guess how much capacity and you talked about $200,000,000 under contract, I think another 150,000,000 behind it. I guess, what's the capacity for acquisitions after that before you get to the point where you need to start thinking about the next round of equity as being critical to fund the acquisitions? And I guess if the stock doesn't re rate, what how do you approach the next batch of acquisitions once you need to start thinking about equity?

Speaker 5

Yes. I think beyond those tranches, there remains ample capacity. That to fund that kind of next iteration, there could be an uptick in recycling. We'll evaluate that as we deploy through the balance of this year. But we do think post that deployment, specifically as it relates to the articulation of deployment and guidance, there's still a couple of hundred million of capacity before we'd have to go back to the market.

Speaker 8

Got it. Okay. Appreciate it. Thank you.

Operator

Thanks, Mike. Our next question comes from Eric Borden from BMO Capital Markets. Please go ahead with your question.

Speaker 9

Hey, good morning. Just going back to ODW, on the space that is being leased about the one third, can you talk about any frictional vacancy? Is there any downtime associated? And do you plan or intend to split up the box and if there's any CapEx involved there?

Speaker 3

There may be depending on the term of the tenancy, some cost is demise, but we've had agreements with the prospects that we have in hand where we're just going to fence off the different areas.

Speaker 9

Okay. So it would be a minimal downtime in terms of occupancy Or would they immediately just pay rent and the fence would go up rather quickly?

Speaker 3

The latter. We would demise it very quickly and they would pay rent immediately.

Speaker 9

Okay. That's helpful. And then just following up on that, when would ODW be added back to the same store pool?

Speaker 5

Once the space is restabilized. So it's more likely than not that they'd be added back in 2026.

Speaker 9

Okay. Okay. You talked about acquisitions being your priority focus, maybe with some stock buybacks, but just curious where new development starts fit into the capital outlay. Understand that you started a smaller investment during the quarter. Just curious on your thoughts going forward for the development pool.

Speaker 2

Yes, Eric. So we did start the last remaining parcel in our one of our parks in Jacksonville. So it's 42,000 square feet. There's a lot of demand down there. So we feel that that was a build it and no com situation and it's not a lot of money.

Speaker 2

So it's not a big issue for us. But we have this deal contracted. It just made a lot of sense to finalize construction in that park and stabilize it. So that's what we're doing. Aside from there, I mean, we've mentioned in the past that we have 200,000 square feet ready to go in Cincinnati.

Speaker 2

We have, I think, 115,000 square feet ready to go in the new acquisition in Memphis, that portfolio. They're being set up as built to suits right now. So unless someone comes today and wants us to build them a building at a high single digit yield to us, we're not going to build spec. I don't think you're going to see us build spec the next couple of quarters.

Speaker 9

Great. Thanks for the time guys.

Operator

All right. Thank you. And ladies and gentlemen, I'm showing no additional questions. We'll conclude today's question and answer session as well as today's conference call. We do thank everyone for joining.

Operator

You may now disconnect your lines.

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Plymouth Industrial REIT Q1 2025
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