Q4 2023 Plymouth Industrial REIT Inc Earnings Call
Participants
Tripp Sullivan; Investor Relations; Plymouth Industrial REIT Inc
Jeffrey Witherell; Chairman of the Board, Chief Executive Officer; Plymouth Industrial REIT Inc
Anthony Saladino; Executive Vice President, Chief Financial Officer; Plymouth Industrial REIT Inc
Eric Borden; Analyst; BMO Capital Markets
Nick Thillman; Analyst; Robert W. Baird & Co.
Presentation
Operator
Good day, and welcome to the Plymouth Industrial read Q4 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 read 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 on 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 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, our 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 applied 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.
Jeffrey Witherell
Thanks, Tripp, and 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 in near shoring of manufacturing to the U.S., Mexico and Canada, as well as the complementary wave of suppliers and distributors. The data we glean 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 seven straight quarters of reducing leverage to 6.5 times and a half turn ahead of where we thought we could be at year end with a long-term target of five to seven times net debt to EBITDA. We anticipate operating in the six times range during 2024.
Third, we're focused on accretive growth in 2024. That translates into FFO growth. We're projecting a three 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.
Question and Answer Session
Operator
(Operator Instructions) Todd Thomas, KeyBanc Capital Markets.
Hi, good morning. This is Ajay on for Todd. We appreciate the detail provided last night ahead of the call on Just first one for me. As I as I understand, the FedEx facility at the low end of the guide is assumed to be vacant beginning August first. And the midpoint of the range assumes they renew will 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?
Jeffrey Witherell
Thanks for the question. At the midpoint, we assume, as you mentioned, a St. Louis property remains tenanted. In addition, there's about 25 bps of non-specific 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 of the upper bound and that captures Accelerade 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. A.j., the lower end reflects vacancy at the St. Louis property, but this outcome is buffered by about 125 bps improvement in portfolio expense recovery.
That's helpful. And then just as it pertains, not only to the Phoenix facility, but also the other St. Louis facility in Chicago. Would you just discuss about the entrance interest that you're seeing in those facilities and your leasing strategy going forward?
Yes, I'll take on the Phoenix property first. So that term 39, 19, likely they view Corporate Drive. Our plan is obviously, we'd like to have a single user. But as we laid out in our in our prepared document that give our other options where potentially they could pay could renew or we take a portion of the space. Ideally, it's one or two tenants in them. We're slow on that. And there has been some interest to date, even though it's not begin until August and in Chicago at 1681 exchange, we've been marketing 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 and 91 50, Larry have we have a prospect that would 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.
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 and 2024
Jeffrey Witherell
about 300 per quarter.
Perfect. That's that's it for me. Thanks, guys.
Jeffrey Witherell
Thank you.
Operator
Eric Borden, BMO Capital Markets.
Eric Borden
Hey, good morning out there and appreciate the change in reporting style. I guess my first question for you is on the transaction market. You noted a $500 million pipeline in a pure play potential opportunities, but also noted, you're also seeing an increase in JV opportunities. Do you have a preference between the two? What is more attractive today between traditional acquisitions and potential JV solutions?
Jeffrey Witherell
Hey, Eric, it's 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 the asset need a significant CapEx and leasing and it's true value add something like that would sit outside the reach inside of a JV. So what we're focused on and for Reed acquisitions are going to be more than likely small one-off deals. And that's how we built the company we get we get the of 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. And so we don't really have a preference as we sit here today, but of the transaction market as we as we but in the prepared remarks, there are a lot of things opening up. In fact, we're tracking of note two or three portfolios that we haven't seen in a while.
And that's helpful. And is there any new market opportunities within that potential call we've identified that Texas would be in 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
That's helpful. And then last one for me is I understand we're only two months into 2024, and you still have some wood to chop on the 24 expirations, but kind of looking a little bit in my 25, you have a couple of larger lease expirations coming due or have you had any cost initial conversations with these tenants are potentially either renewing their lease or PKD?
Yes, we have discussions with all of our tenants, the larger ones that you're talking about. We've had direct conversations with them. We expect them to stay, but we expect them to kind of negotiate as hard as they can and will negotiate back.
Okay.
Eric Borden
Thanks. I'll leave it there.
Jeffrey Witherell
Thank you.
Operator
Nick Selman, Baird.
Nick Thillman
Good morning. Maybe touching a little bit more on kind of your markets and the Golden Triangle in the onshoring near-shoring trends on. Does this change the type of product that you're willing to own? Like I know like 25% has some specific part of like like manufacturing. Is that a product type that you guys would like to own more of going forward? Or is that included like this acquisition pipeline? Are you more looking at the distribution like supporting these type of onshoring at these facilities kind of coming back to the States?
Jeffrey Witherell
Hey, Nick, it's kind of the same story. We're not really making a pivot, if you will. So are the buildings we own are rectangles, right? The very utilitarian and so the manufacturing that you can do in them, it is conducive to warehousing and other things. So as you know, there's a variety of type of building. Some are more conducive with cross-dock for high throughput distribution. A lot of our buildings are warehousing, not logistics centers, which is a little different. And so it really just depends on on the property that's in front of us, the opportunities in front of us. So we want to make money at each building. We buy, as you know. So what we're not going to do is we're not going to own pure manufacturing facilities, right buildings that have that are specifically built for manufacturing and because that limited use, right? So what we what we what we are interested in. I think you can see this in Memphis and Jackson, Tennessee were afforded set up Blue Oval city. We're not going to benefit from Ford's manufacturing facilities, but we are going to benefit from all the ancillary services that are provided to Ford. So that build-out is we own a large facility in Jacksonville with additional land I'm sorry, Jackson, Jacksonville, Jackson, Tennessee, and we've and we're starting to see some benefits in Jackson as well. So it runs the course.
Nick Thillman
That's helpful. And then maybe as we're looking at deployment here in 2024 based on like development versus acquisitions? Are you seeing more opportunity one bucket or the other? And maybe what markets are most interesting today?
Jeffrey Witherell
Yes.
So I from our standpoint, we're not we're not seeing a lot of development activity. We continue to have a full array of built-to-suit across our properties. So we've got packages out on every piece of vacant land. So we certainly will entertain a build to suit at the right yield. I think we've proven out that we can build buildings of on budget and on time. So I think development will really just be driven by build-to-suit scenario. So acquisitions are really the key. And again, really within our markets, we're seeing opportunities starting to percolate across all of our markets. So again, as I sit here today, I don't think we would say, well, we're not going to buy here, but we will buy there. It's really just going to be driven by the opportunity set and the and the variety of of deals that are out there are really starting to open up. I mean, is this value add on you've got some short term walls. You've got some long term product that that's now priced, right? So the world has changed, and we're looking forward to the opportunities coming up here at the end of this year and into 25.
Nick Thillman
That's helpful, Jeff. And then maybe last one for me, Anthony, any changes or maybe give us an update on what the tenant watch list is and then what is kind of baked in for bad debt expectations for the same-store guide this year?
Anthony Saladino
Certainly the of the assumptions about 25 bps, some guidance in 23, I think we realized above maybe maybe 12 bps. The watch list. It hasn't materially changed in terms of its composition or size. Some. There's a handful of tenants there's been a trade out of one or two, but if all of those did not come to fruition, we're talking about less than 10 bps in terms of write-off.
Nick Thillman
Thanks for that.
Operator
Mitch Germain from Citizens JMP.
Tripp Sullivan
Thank you and thanks again for all the information last night. Jeff, you talk a lot about onshoring trends and the Golden Triangle. I'm curious if you're seeing how this is having an impact on demand in your leasing pipeline.
Hamish, thanks.
Thanks for the question of as we sit here today, I would say results have been limited as to we've leased to this company based on onshoring. But if we go back over the last two years, especially in Atlanta. We had quite a bit of activity on the newbuilding that we the two buildings that we built that are now fully leased. We had quite a bit of activity with foreign companies that are our manufacturing oriented asset light manufacturing oriented. So we had quite a few RFPs out on foreign companies. We have one from Belgium and a few other ones that were interested in setting up shop in it. That part of Atlanta is a magnet for us for light manufacturing opportunities. I think you know, the American nitrile story in Grove City, Ohio, that was quite a few years back, and we lease that up to a from a nitrile basically latex glove manufacturer. The first one in the United States in 50 years. So we've seen it and we're starting to see more of that. I know in Chicago, we're starting to see some of it, but to say that we've leased a building to this particular company and it hasn't has happened in our portfolio yet.
Great.
Tripp Sullivan
That's super helpful. And you mentioned dispositions. I know, obviously, Jersey was a market where you didn't really have much size and scale. Is there any sort of region that stands out to you as one that might have properties that you're looking to queue up for disposition?
No, I wouldn't say it's regional based. I mean, I think we've messaged to the market that we might be interested in getting ready Milwaukee and Kansas City on And then anything other than that, I mean we have scale in the market. So it's really just for real estate reasons. I think if you look back in on the Chicago asset we sold last year that was to a owner user. So some buildings are more conducive to an owner user, owning them, whether there's parking restrictions or or whatever it might be so only users tend to pay a little bit more. I mean, we're not really in the business of selling decent real estate that we want to own. But if an owner user wants to come in and pay for it because they want it needed, then we certainly entertain that. But we don't have a we don't have a region that we're looking to unload.
Great. And last one for me. I know you just did some development leasing, Atlanta, I believe from Cincinnati's either executed or soon to be executed some others in the than the prior quarters from a cadence in terms of how the impact is on 2024, it seems to be somewhat back-weighted. Is that the way to think about it here?
Yes, that is that is how we've reflected it in our guidance. And as I mentioned at the upper bound, to the extent that there's some acceleration around the remaining a development square footage, there could be an incremental pickup above the midpoint scotch.
And Anthony, while I have you, I guess one more question on last year. There were some cadence issues with regards to same property growth. Obviously, I think there were some expenses that hit in 3Q than then you were able to collect in 4Q and had an acceleration. How should we think about the cadence, is there anything that you want to point out and rhetoric with regards to the results that know kind of make some impact on our analysis of your earnings or your same-property results?
Yes, it's a good question. We do anticipate the quarterly cadence to trend very similarly to 2023 with Q1 being a bit more muted as a result of weather related impacts and the timing of professional fees then ramping up during the second half of the year as the balance of Phase one developments stabilize and we continue to execute on the remainder of 2024 lease expirations.
Thank you.
Operator
And again, as a final reminder, if you wish to ask a question, please press star then one.
The next question is from Bryan Maher from B. Riley Securities. Please go ahead.
Tripp Sullivan
Brian.
Thank you and good morning. I'm most my questions have already been asked and answered, but maybe as we sit here, Jeff, and you've laid out in your prepared information last night, which was appreciated kind of the parameters upon which you would transact. But can you maybe talk a little bit in your view as you sit here today, what the probability is that you think you transact and what the sweet spot would be of what it is in the 500 you're looking for that would really compel you to move.
Hey, Brian?
Yes, I mean, we're tracking some some smaller one-off deals in our markets on that for a variety of reasons, our trading at some pretty high cap rates. I think what we're starting to see now is with debts coming due or you're starting to see leases burn off and someone's going to have to, you know, refinance in conjunction with finding new tenants that that's going to be something people that have held these properties for a while are probably not going to want to get involved. And so we're really starting to see a lot of opportunities where we're starting to see I mean Class A. big box stuff that we don't play in, but we're starting to see people who bought properties two, three years ago, selling them at what they paid for them or even or even at a loss so I think it's going to be very interesting for us to be able to take advantage of our prop the properties we buy in our markets and that at fairly attractive cap rates and I said dropped them into our property management and get right after it. So that's probably what we're going to be interested in buying. We are monitoring the portfolios it's going to be very interesting to see where those trade has been a few years since we see decent trades on that on. And then again, anything high heavy value add we are starting to see some value-add deals, maybe small portfolios pop up that could be very attractive in a JV for us. We like the fee income. I think we look back, I keep talking about Memphis all the time that you're aware of, which was a heavy value add portfolio that we bought. We put our property management team on it right away. And within a couple of years, we bought it back into the REIT., and that is paying dividends to us to this day, still a lot of mark-to-market left on there. We continue to improve the quality of the buildings as we go forward. And so either one of those works well, I do think it can be small deals and I think will be a JV at some point.
Perfect. Thank you. That's helpful.
Thank you.
Operator
And the next question is from Mike Mueller from JPMorgan. Please go ahead.
Tripp Sullivan
Yes, hi, I guess going back to St. Louis of the guidance range. When I think of our guidance midpoint, I tend to think of the most likely outcome and then you kind of deviate up and down from there. So I guess with St. Louis of staying in place and having no disruption being the midpoint, is it safe to say that you think that's kind of the most likely outcome at this point because it is and I guess in the transcript, it just didn't read that way.
Yes.
Tripp Sullivan
I think at the midpoint specifically, as it relates to Fed X, we don't have any further clarity beyond what we articulated as a range of outcomes. And so we held the midpoint because there there could be the possibility that that is less disruptive than we accounted for on on the downside, Mike.
Okay. And then I guess just a quick same-store question. I know you that's not included in the same-store range. But if it was in there, do you have a sense as to what the sensitivity would have been by, say, aesthetics move out?
Certainly, yes. So if if that St. Louis property was included in the same-store pool. The range would have been six to 6.5.
Okay. That's helpful. Thank you.
Certainly.
Operator
And ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Jeff, whether well for any closing remarks.
Tripp Sullivan
Thank you all for joining us today, and we look forward to talking to you next quarter.
Operator
Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. We are yes.
