Large hangar warehouse industrial and logistics companies. Warehousing on the floor and called the high shelves.
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Note: The original interview was published in the September issue of Forbes Real Estate Investor. Brad believes the information shared below is well worth spreading around, and he hopes you get a valuable perspective out of it to put into practice.
It wasn’t that long ago that we initiated coverage on Plymouth Industrial REIT (PLYM) with a Strong Buy recommendation. With that said, we’re more than willing to talk about it some more today.
Plymouth, which owns and operates single and multi-tenant industrial properties, only went public in June 2017. But in the short time since, it’s increased its returns at a pretty pace… repeatedly adding access to new sources of capital, including preferred equity.
We’ve got to admit: We remain impressed with what we see. All the same, we don’t want to fail in doing our due diligence. That’s why, as with most new REITs we cover, we reached out to management.
Our goal was to gain insights into Plymouth’s risk and reward thesis, and Jeffrey Witherell graciously accepted the invitation.
As cofounder and CEO, he oversees all aspects of the REIT’s business activities. This includes the acquisition, management, and disposition of assets. Plus, he’s been involved in real estate investment, development, and banking activities for more than 25 years.
Witherell previously worked as an investment executive at publicly traded REIT Franklin Street Properties and its subsidiary, FSP Investments LLC. He graduated from Emmanuel College in Boston with a B.S. in business… earned his MBA at Endicott College… and is a member of several real estate organizations, including NAIOP, the National Association of Industrial and Office Properties.
In short, he’s more than qualified to answer our questions.
A Worthwhile Conversation With Plymouth’s Boss
Brad Thomas: Plymouth’s portfolio consists of about 12.6 million square feet spread across 10 states in key markets – including Chicago, Jacksonville, Cincinnati, Memphis, Indianapolis, and Columbus. What can you tell me regarding the overweight exposure in Chicago?
Jeffrey Witherell: We’re big fans of Chicago. It’s one of the stronger and larger industrial markets in the country. We have a small portfolio that’s expected to close in September.
The Class B assets in the submarkets we have targeted aren’t seeing much, if any, new supply to compete with. And the tenants in our buildings want and need access to the large, highly-skilled labor pool that exists in Chicago.
As we continue to diversify across other key industrial markets, Chicago’s percentage of revenue and square footage will continue to decrease.
Thomas: What can you tell me regarding your leverage and currently liquidity?
Witherell: We believe we’ve made a lot of progress on our balance sheet since the IPO with some strategic financings and capital raises – especially the May 2019 overnight offering that brought in a large number of institutional investors.
At the end of the second quarter, we were at 47% leverage based on net debt to gross assets, which was down from 57% at the end of the first quarter. This obviously reflected the influx of equity from the offering prior to us putting the capital to work. But we believe that, with each capital raise, we can gradually bring down our leverage over time.
From the May offering, we projected that those proceeds and borrowings on the credit facility would produce about $120 to $125 million of dry powder for acquisitions. We have roughly $90 million of that committed so far.
We’ve also recently upgraded our credit facility to $100 million with an incremental accordion feature for another $100 million and lower pricing.
Thomas: What is your company’s typical deal size? What range of cap rates are you seeing today?
Witherell: We don’t really have a typical deal size. They’ve ranged in size from $5 million to nearly $100 million so far, based on whether it’s a one-off deal or a small portfolio.
We’ve looked at larger portfolios in the past and will continue to do so. But the classic Plymouth type of property will be a Class B industrial property in one of our targeted markets, or a Class A property that we can purchase for Class B pricing.
We’ve said our targeted going-in yields are in the range of 7% to 9% on acquisitions; and we continue to see a wealth of opportunities in that range in our pipeline.
Thomas: What can you tell me about your dividend policy? The current annualized dividend payout is $1.50 per share.
Witherell: The board sets the dividend policy, and we believe the dividend is well-covered on a funds from operations (FFO) and adjusted funds from operations (AFFO) basis based on the full-year projections we gave with our second-quarter results.
Thomas: Tell us about your management team’s experience in sourcing new deals.
Witherell: Pen White, our president and chief investment officer, runs that team. He has more than 25 years of experience – as do I – in commercial real estate and has relationships with brokers that go back to his earliest days in this business.
We get a lot of first looks and off-market opportunities that come from these relationships, as well as our reputation in our markets for being able to conduct due diligence, close quickly, and note retrade deals.
We have a competitive advantage in pursuing Class B opportunities because we’re frequently up against private equity with reputations for re-trading or smaller partnerships that can’t close quickly and/or don’t have access to financing.
Thomas: How is Plymouth preparing for the next recession?
Witherell: We think about that a lot. I’m not sure you can ever truly prepare for a recession, but Class B assets have performed well in the past.
Our tenants usually have one to three shifts running in their buildings. What we’ve seen in the past is that they might cut a shift down but keep running.
The tenants in our buildings are a vital part of the economy. Or, as we like to say, where industrial America works.
The industrial fundamentals have been strong for a long time in the U.S. Every cycle always ends. [But] we’ve purposefully tried to minimize our exposure to properties we believe are more susceptible to prolonged downturns.
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