Q2 2023 Plymouth Industrial REIT Inc Earnings Call
Good day and welcome to the <unk> industrial reached second quarter 2000, twenty-three earnings conference call today.
Today, all participants will be in a listen only milk.
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At this time I would like to turn the conference over to trip Sullivan of Investor Relations. Please go ahead Sir.
Good morning, welcome to the <unk> Conference call.
The company is resolved in the second quarter of 2023.
On the call today will be Jeff with Ralph Chairman and Chief Executive Officer, Anthony <unk> Executive Vice President and Chief Financial Officer, Jim Currently Executive Vice President of asset management, and and Hayward Castle.
Ah results were released this morning, and the earnings press release, which can be.
Best Relations section of our website, along with their Form 10-Q, and supplemental filed with the S. E C.
A replay of this call will be available shortly after the conclusion of the call through August 10th 2023.
The numbers to access the replay are provided in the earnings press release.
Listen to the replay of this call. We remind you that the remarks made here in or as of today August 3rd 2023, and will that be updated subsequent to this call during.
During this call certain comments and statements make maybe team sport looking statements within the prescribed by the securities laws, including statements related to the teacher performance of our portfolio.
Pipeline and potential acquisitions, and other investments future dividends in financing activities.
All forward looking statements represent judgment as of the date of this conference call.
Risk and uncertainty that can cause the actual results to differ materially from our current expectation <unk>.
Investors are urged to carefully review various disclosures made by the company, including the risks and other information disclosed in the company's filings with the S. C C.
We also will discuss certain non-GAAP measures.
<unk>, but not limited to core F F O F F and adjusted EBITDA.
Finish and said these non-GAAP measures and reconciliation to the most comparable GAAP measures are included in our filings with the S. E C. A.
Now I'll turn the call over to check with your please go ahead.
Thanks, <unk> good morning, everyone and thank you for joining us today.
We are more than halfway through the year and our team continues to execute across the objectives, we outlined for 20 twenty-three funding.
Fundamentals continued to be strong with positive absorption.
Better than expected leasing volumes and rent increases along with market rent growth.
Retrieving our objectives through the balance of the year will position us for even better growth in 2024.
Let's turn to growth first.
Our organic growth is right on track with a 6% increase in cash Same-store NOI this quarter and a 7.5% increase through the first half of the year.
Occupancy in the same store pool is still around 99% in our portfolio continues to be among the top performers in the sector.
Leasing results demonstrate the attention we are providing the portfolio as well as the strong fundamentals in our specific markets. We have addressed 88% of our 2000 and twenty-three explorations and 24% of our 2024 expiration.
Both erratic pace and rent increase ahead of where we were at this time a year ago.
We saw a 19.3% increase in rental rates on a cash basis for the quarter into July 31st we have achieved a 23.1% increase on leases commencing in the second half of the year.
That's in line with our commentary last quarter that we might be training ahead of the 18 to 20 per cent portfolio Mark to market. We have previously estimated.
The two buildings in Jacksonville are fully leased with deliveries in Q3, and Q4 and our second Atlanta project is coming online in Q3.
We still have work to do on leasing up this Atlanta building and the one in Cincinnati that was delivered in Q2.
Both of these properties were well located and I'm confident we'll get these least up within underwriting.
Across the entire $61 million that we have in our development program. We're expecting initially turns in the range of 79%.
Based on the success of this program, we will continue to explore additional opportunities if the returns meet our threshold and we have a clear line of sight on preleasing.
The other major initiative is to continue improving our capital structure, we have now lowered our net debt plus preferred metric for five straight quarters and on a path to get to seven X by year and and further delevering in 2024.
While leasing up our new developments are part of this equation. Another big pieces. The elimination of are 7.5% series a preferred stock we announced last night that we will redeem the $49 million that's still outstanding.
First we activate at the a T M program during the quarter and for part of July and executed at prices that in combination with the sale proceeds from the sale of a property anticipated to occur within the next 60 days will allow us to eliminate the secured debt on that property and redeploy the proceeds towards the series a redemption.
<unk> on a creative basis.
I've talked about this before and it bears repeating now we have a handful of properties that we would sell for real estate reasons meeting it makes more sense to be owned by a user and or it's a property, where we might have little to no skill in that market as opposed to a strategy of capital recycling this potential disposition fits that description.
Perfectly.
I want to thank a couple of people who have made big contributions to Plymouth over the years first I'd like to thank Martin Barber, who many of you know from his decades of experience in the <unk> sector. He retired from our board effective with June's annual meeting after many is that service to Plymouth and its shareholders.
Second I'd like to recognize pen white, who cofounder Plymouth with me and retired from his position as President and C. I O last month he'll.
He'll continue to serve on the board of directors as well as advised the company on acquisitions and strategy. We're fortunate to have benefited over the years from penns contributions as well as the investment team. He helped put in place we have a deep experienced team at Plymouth and that gave us the luxury of not having to backfill those roles.
Before I turn it over to Jim I'd like to highlight that last month, we published our first E. S. G report.
We are proud of the effort our team went through to document all of the different activities initiatives and investments we've made throughout our company and our portfolio you can find it on the dedicated ESG page on our website.
Jim why don't you provide some color on the leasing activity.
Thanks, Jeff Good morning.
One of the first touch on the leases, we previously sign to convince during the second quarter.
We had a 19.3% right away to increase on a cash basis at least it's gonna take a cue too that's why the aggregate basis.
You'll note from the beliefs and the supplemental that the new leases experienced at 36% increase well, we knew leashes experienced 11.2 per cent increase.
We had a 75 per cent renewal rate during the quarter.
The leases that were renewed 21% were associated with contractual rent increases which impacts the overall, we lose weight increase.
Through the first half of the year the leases that were renewed 14.2% of the windows were a contractual increases.
Well during the current market conditions fixed rate renewals tend to have lower right. The weight increases been market renewals, they do potentially increase renewal probability and usually have a lower leasing cost.
In many cases, there are no conditions or tenant improvements.
Related to the development program in Georgia, We have agreed to terms or 72000 square foot, Please and 180000 square foot facility with the active tenants for sending the balance.
The Cincinnati, we have closer numerous deals with full and partial building users.
You have addressed over 88% of the total square footage scheduled to expire in 2023, when we add up all these Lisa side can missing in 2023, we will experience an aggregate increase of 20.3 per cent on a cash basis.
Police renewal rate so far off of 2023 leasing is 67 per cent.
With total portfolio occupancy at 98% the same store octopus at 98.9% both of which are essentially flat from Q1.
We continue to benefit from strong leasing activity with rental wage still accelerating at a record pace.
Turning to 2024, we have already leased over 24 per cent of the initial 2024 explorations.
We will experience an aggregate, 14.6% increase on a cash basis on these.
Ranch.
8.7 per cent for renewables and 43.7 per cent for new tenants.
This rental increase compares favorably to this time last year when our earliest batch of 2023 leases were up 11.1% on a blended basis.
So we knew percentage for these transactions was 79% with 53% of the renewal leases associated with contractual renewals.
Consistent with nearly every quarter since the pandemic, we have collected over 99% of our branch Bill during Q too and there are currently no active rent control agreements.
At this point I'll turn it over to Anthony to discuss financial results.
Thank you Jim.
The second quarter unfold as we projected and we have exited the quarter with a slightly more accelerated timeline on delevering.
Before we get into that let's walk through some of the key metrics.
As we know the last quarter, we anticipated a Q2 same store NOI below the four year trend line with the second half of the year trending backup.
This was only the timing of expected to spend.
Associated with scheduled repairs and maintenance occurring mid year, coupled with the impact of real estate tax assessments that will be substantially recovered by your at.
With a 6% cash same store N O Y increase this quarter.
You are at 7.5% through the first half of the year.
<unk> for the quarter was down year over year on an absolute basis and down 210 basis points as a percentage of revenues, primarily due to the timing of certain professional fees and other expenses.
The main drivers of the year over year increase in interest expense or.
The increase on the bar rooms of our revolver associated with completing our development program, maybe approximately 400 basis point increase in silver you're over here.
The revolvers are only that that does not hedged or fixed and.
And are only contemplated use a revolver at this time is the funds to Jacksonville development buildings.
The wind avid sure and unit count was up year over year with a full quarter of the higher share count from the conversion of Madison's remaining chairs of the series B in two tranches last year.
Utilization of the a T M. The Jeff mentioned earlier will have a prospective impact on the weighted average share count the second half of the year.
The impact of which will be more than offset by the accretive execution the series a redemption.
Turning to our balance sheet, we ended Q too with net debt to adjusted EBITDA at 7.06 times and net debt plus prefer to adjusted EBITDA at 7.45 times.
Our fifth consecutive quarter Delevering.
One of the big opportunities to continue improving the balance sheet that we've talked about for some time does the elimination of our series a preferred stock.
Cause you saw last night, we announce the redemption of 7.5% series, a at par or $25 per share.
You'll be redeemed on September 6th.
The final dividend paid at that time.
After that point the shares will no longer be deemed outstanding and will be list from the exchange.
We have 48.8 million of the security outstanding.
And we tend to utilize the 27 million <unk> raised in queue to date in Q3.
Along with expected proceeds from the sale of a property that should close in the third quarter.
The redemption of the series as a significant delevering event that upon execution is expected to be accretive decor at the phone.
And brings us closer to sustain below seven times well.
Creating strategic capacity as we evaluate internal and external growth opportunities.
As of June 30, 95 per cent of our debt carried a fixed rate or was fixed through interest rate swaps with a total weighted average cost of that a 3.96%.
58% of total debt on an unsecured basis.
Our liquidity position remains strong.
Presently we have 12.4 million of cash on hand, plus an additional 6.7 million in operating mass grows.
And $287.5 million of capacity on the <unk>.
Revolving line of credit.
So November maturity of the AIG loan for 110 million is our next opportunity to ladder debt maturities and we will provide a substantive update on the execution next quarter.
Based on the first half results, we once again affirmed our core F F L guidance for the year.
We made a slight change in the net loss range to reflect additional depreciation.
As I've said all year, we don't have much variability in outrageous this year with the stability and growth in our same store pool, but rental rate increases in the volume of leasing we continued to accomplish and.
And few variables that remained which would govern the high and low end of the Rangers.
Operator, we are now ready to take questions.
Thank you we will now begin the question and answer session. As a reminder to ask a question you May Press Star then one on your touch Johnson.
If you're using your speaker phone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw it. Please press star then too.
In the interest of time, please limit yourself to a question and I'll follow up at this time, we will pause momentarily to assemble our roster.
Today's first question comes from Todd Thomas with Keybanc capital markets. Please proceed.
Hi, Thanks. Good morning first question I was just wondering if you could talk a little bit more about your plans to you know permanently finance the remaining 20 $21 million a preferred redemption. It sounds like you have a disposition teed up can you just provide a little bit more detail on the expect.
Proceeds and that you expect to generate and maybe book and you know sort of the pricing on that as as Hell.
Hey, Todd.
Thanks for the question.
<unk> not getting into a lot of detail on that asset sale. It is the contract still sucks to some final diligence. So we're not identifying it kind of getting into that we did put that basically the proceeds.
Almost almost $1 billion.
We have.
I talked about the past of a handful of it that's.
We have another senator L O R Piper sale.
Selling these are pretty much real seasons. So we're not telling me that that is.
Lay off the series.
Got it.
Okay.
And you know it.
Should we assume you know I know deleveraging was you know an important initiative.
You know beyond the the series a redemption you know should we assume additional equity issuances is on the table to the extent that the stock remains you know sort of a similar range you know to where it's Ah where it's trading to were you issued in the in the second quarter and through July .
I think the the <unk>, yeah, but <unk>.
And so when you when you put the <unk> twins in.
In line with the paying off the series at.
Couple that with the disposition.
It's a it's basically decretive <unk>. So that's what we're so we're we're not gonna issued evacuate we're going to issue activate thats accretive.
Okay got it and then just just one question around.
And see and and the guidance you know you ended June he ended the quarter at at at 98.9%. You know you you maintained for 98 four to 98 eight range for guidance can you just talk about the trajectory of occupancy from here you know in that range and and if there are any you know.
Move out or anything specific that you you can sort of 0.2 as you look out towards the second half of the year.
During the second half of the year.
[noise] store arguments much flat.
According to clarify alright, yeah. It was the was the flow between 97, and 99%, which we.
Gotcha.
We do have one move out.
50000 feet.
Michael's put in Atlanta, but that in the budget to be.
They can play and we have at least that would be anything that is going to study. The nine 110, one so we're gonna beat it on that.
Ah for sure.
Other than that.
<unk> turnover.
Most of the year.
Our next question comes from John and Ken with B M O capital markets. Please proceed.
Hey, good morning, I think the connection is not great. So.
Tough question, but I wanted to ask you about the preferred we're getting that uhm your stock is up 18% year to date.
Put into what is leverage.
Yes, I think you indicated before it <unk>, so that you thought raising equity and the 25 to 27 dollar range would be appropriate it looks like today, you're more comfortable raising a little bit below that just wanted to ask wanted to ask how you got there.
So.
Can you hear me.
It's a little bit choppy, so they could hear like every other word but.
Okay.
Test early on when we got on on at work, So I apologize for that.
Yep Todd.
Todd's question was that and as I said.
We've been very consistent that we were not getting looted.
So we took advantage.
Advantage of the a T M to raise capital to the series at.
Remember that this staff coupons, so that with the disposition.
As.
And the remarks.
What was just done was accretive F O C.
So I wouldn't draw any conclusions that we're we're so happy to 40 at this price.
It's really it's really going to be deal prolific if it's F F a issue equity.
If it's dilutive won't do it.
Okay.
Got it.
In.
And his prepared remarks, you mentioned the difference again that you had between new one vanilla spread and we know the options having an impact on that I think last quarter. You guys had mentioned that 10% of the remaining <unk> option.
Going forward should we expect that gap two tomorrow.
Yeah as it relates to <unk>.
The the component of this rate renewal in the portfolio will bleed out over the next two or so years and just remember John This is not displeasure from the blended results that we accomplished as we were addressing twenty-three explorations.
For about 400 bps, the head relative to last year's performance and.
Or confident we're on the act to achieve.
Blended cash fueled.
At four in excess of 20% on 20th.
Explorations.
Okay.
Left.
Looking at the forward year because of the fixed three newest coming sooner.
Okay. That's helpful. And then maybe there's been a decent amount of comments on like bigger box to ban being a little softer your three largest tenants have spaces over 500000 square feet expiring in St. Louis There 2025, maybe could you provide a little commentary on that specific market and those spaces and then maybe early.
Patience for Fedex in 2024.
Those properties.
The the.
Quite well.
Well <unk>.
In the properties and it's it's gotta gills with some food.
<unk> is this like a lotta money the building.
They at least 657 31.
Have to renewal options.
Notification period February so we haven't heard from them, but their attention.
Go to the Bill it's.
It's quite <unk>.
Certainly expect you know.
That's helpful. Thanks.
As a reminder, if you do have a question. Please press Star then one on your Touchtone phone.
Hello to the next question comes from Nikita belly with J P. Morgan. Please proceed.
Good morning can you talk a little bit about the pipeline for additional development starts maybe with your yield expectation on the new deals would be and also any color at all on potential acquisition was given the market environment I think.
It will be appreciated.
Yes so.
You have.
A significant amount of land.
[noise] available for development.
We've talked in the past, where we've outline we have additional.
Capacity and <unk> <unk>.
In Charlotte also natty and until we have a line of sight on leasing.
We're probably not.
<unk> <unk>.
<unk> new development.
Finish up and get at least out that we do have several.
Those comfort tuition, we will build those those will be.
Those those development.
Development.
Creative and.
Very attractive for us.
Very.
<unk>.
The market is still bifurcate wherewith team <unk> offers on some properties limited offers on others wished.
We're still seeing deals.
Finance.
Are are somewhat.
Fairly wide range.
I think we're in agreement with several of the large houses.
Two more questions Anthony you mentioned, the $110 million Jamal the mature so what's the plan.
So that wasn't mature is how you're gonna take it out what's the go forward on that one and the last one is just.
Wanted to hear the overall tone from the tenants like what have you heard from the towns now we've heard it.
Folks are taking longer to sign leases decision, making process is a little slower businesses not 10 out of 10 anymore. It's just good it's great, but it's not 2020 2021, and just overall color conversations that you're having lieutenants like what are they telling you.
What why don't you start with tenant restoring with Jim and then follow up with a response to your question on.
Yep.
Set in the past yeah tennis this year of taking a little longer decided that because I think I think they just want to see.
The economy and how it's gone.
<unk>.
It's not really indicative of the Prince's day at all.
Still doing well the scale business doing great. It's just a matter of you know is there gonna be a session.
A recession said holding off to the the latest one was to sign a lease.
She'll get in the house rent increases is just agreeing to today.
Stand that uhm.
A little long to make sure that.
The macro issues.
Just before they say.
And then relates to the base case dressing that maturity utilize some of the pass you on the line until we put it out or originated.
An alternative instrument with a five seven year.
Now as Jeff mentioned interest rates rise and will likely stay elevate your longer and our sense of security the pricing let.
Let us do.
Why not options, including exploring Ah Fi.
Cumbent, Linda and other lives.
The line currently is 6.9% return banked it is around seven.
Private.
Spent market while table is not.
<unk>.
Roll issue at this time.
The convertible desk at which has been a recent chicken activity.
Offer really complaining terms starting in the low to mid Fi depending on T V.
We received actual put it is from only or banking Parker's.
But we.
We look forward to meeting her.
Substantive update on it at all.
Thank you.
Thanks.
The next question.
<unk> comes from Anthony how with Suntrust. Please proceed.
Good morning, guys. Thanks for taking my question, maybe I missed this but Anthony can you talk about what you were up the 11% seems our expense grew up this quarter.
And a lot of timing of fans more than anything I think we mentioned.
You too we saw a bit of a up and.
And we always anticipated this kind of ramp two Q.
So we're at the point.
If you will a seven and a half.
Anticipate at.
Band Recovery Ward no lies the balance of the year.
To get us at <unk>.
Maybe even slightly above the myths.
Okay.
And for 2024 leasing it we exclude the renewal options, what what the renewal will be spread b.
B.
[noise] excuse.
20th 2.6%.
Okay. Thanks, guys.
The next question comes from next your main with J M. P. Securities. Please proceed.
Hello, Sir your line is life.
I know I ask you. This every couple of quarters, but just curious in terms of.
Your willingness to entertain a joint venture a discussion or another joint venture you'll clearly now that you cleaned up the capital stack is that something that is still under discussion.
Sure Mitch Yeah. It is I I I keep going back to.
Memphis transaction that we did several years ago.
Where we were able to buy or.
Seven 5 million dollar.
So.
And and we bought Johnny because at about seven.
Seven or $8 billion no Capex policing commission that we could just like.
Our balance sheet ketamine, it would just a scar or numbers.
Each quarter and so we did it.
We bought it back last year.
And that.
Portfolio is performing exceptionally well.
And so that's a win win.
We'll continue to to do that.
They're doing that because we believe we're adding to the shareholders you know as the time.
This room is a substantial shareholder on this call and so we're not gonna do anything silly to delude ourselves.
So as we do Davies, we're building the value.
And that that that's the.
Entry point, if you were gonna do it.
And I think I think it's a great compliment us.
We actively discussions with come across.
And there's that don't read and if they.
T V in our market.
Picking up the pretty management.
Asked me if he's when we do that I think we didn't eight business. So we will continue to explore.
That's helpful. Yeah that your development exposure is thinning out a little and.
Fun in the industrial fundamental still are still you know kind of extending this run to the positive is there any desire to maybe look toward.
You know executing on some of your land positions or is it going to take some sick either prelease or significant interests to move forward on a new project.
Yes, the ladder.
As as they think we are in discussions.
Build to suit so to speak on our on our.
So I think that's where that's where we're going to focus our attention.
Not affect development.
Gotcha. Thank you so much thanks. Thank you.
Now like to turn the conference over to Mister, Jeff with a rail for any closing remarks.
Thanks for joining us. This morning is always we are available follow up questions. Thanks.
Get.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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