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May 4, 2022, 7:12 a.m. EDT

10-Q: PLYMOUTH INDUSTRIAL REIT, INC.

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(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

We make statements in this Quarterly Report on Form 10-Q that are forward-looking statements, which are usually identified by the use of words such as "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "seeks," "should," "will," and variations of such words or similar expressions. Our forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by our forward-looking statements are reasonable, we can give no assurance that our plans, intentions, expectations, strategies or prospects will be attained or achieved and you should not place undue reliance on these forward-looking statements. Additionally, unforeseen factors emerge from time to time, and we cannot predict which factors will arise or their ultimate impact on our business or the extent to which any such factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Furthermore, actual results may differ materially from those described in the forward-looking statements and may be affected by a variety of risks and factors including, without limitation:

the uncertainty and economic impact of pandemics, epidemics or other public health emergencies or fear of such events, such as the outbreak of COVID-19, including, without limited, its impact on the Company's ability to pay common stock dividends and/or the amount and frequency of the dividends;

Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The following discussion and analysis is based on, and should be read in conjunction with our unaudited financial statements and notes thereto for the periods ended March 31, 2022 and 2021 included elsewhere in this Quarterly Report, as well as information contained in our Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 10-K") filed with the United States Securities and Exchange Commission (the "SEC") on February 23, 2022, including the audited historical financial statements and related notes thereto as of and for the years ended December 31, 2021 and 2020 contained therein, which is accessible on the SEC's website at www.sec.gov .

Overview

The Company is a real estate investment trust strategically focused on the acquisition, ownership and management of single and multi-tenant industrial properties, including distribution centers, warehouses, light industrial and small bay industrial properties, located in primary and secondary markets within the main industrial, distribution and logistics corridors of the United States. As of March 31, 2022, the Company, through its subsidiaries, owned 151 industrial properties comprising 201 buildings with an aggregate of approximately 33.1 million square feet, and our property management office building located in Columbus, Ohio, totaling approximately 17,260 square feet.

We are also evaluating diversifying our portfolio of real estate assets to include the origination or acquisition of mortgage, bridge or mezzanine loans, all of which would be collateralized by properties that meet investment criteria that are substantially the same as our real estate portfolio or that are complementary to our existing assets. The Company believes expanding its investment strategy to include these types of real estate-related assets will enable it to deploy its capital efficiently to continue to grow at times when acquisitions of industrial properties are limited due either to availability or cost.

We seek to generate attractive risk-adjusted returns for our stockholders through a combination of dividends and capital appreciation.

Factors That May Influence Future Results of Operations

Business and Strategy

Our core investment strategy is to acquire industrial properties located in primary and secondary markets across the U.S, as well as select sub-markets across the U.S. We expect to acquire these properties through third-party purchases and structured sale-leasebacks where we believe we can achieve high initial yields and strong ongoing cash-on-cash returns.

Our target markets are located in primary and secondary markets, as well as select sub-markets, because we believe these markets tend to have less occupancy and rental rate volatility and less buyer competition relative to gateway markets. We also believe that the systematic aggregation of such properties will result in a diversified portfolio that will produce sustainable risk-adjusted returns. Future results of operations may be affected, either positively or negatively, by our ability to effectively execute this strategy.

We also intend to continue pursuing joint venture arrangements with institutional partners which could provide management fee income as well as residual profit-sharing income. Such joint ventures may involve investing in industrial assets that would be characterized as opportunistic or value-add investments. These may involve development or redevelopment strategies that may require significant up-front capital expenditures, lengthy lease-up periods and result in inconsistent cash flows. As such, these properties' risk profiles and return metrics would likely differ from the non-joint venture properties that we target for acquisition.

Rental Revenue and Tenant Recoveries

We receive income primarily from rental revenue from our properties. The amount of rental revenue generated by the Company's portfolio depends principally on the occupancy levels and lease rates at our properties, our ability to lease currently available space and space that becomes available as a result of lease expirations and on the rental rates at our properties. As of March 31, 2022, the Company's portfolio was approximately 97.0% occupied. Our occupancy rate is impacted by general market conditions in the geographic areas which our properties are located and the financial condition of tenants in our target markets.

Scheduled Lease Expirations

Our ability to re-lease space subject to expiring leases will impact our results of operations and will be affected by economic and competitive conditions in the markets in which we operate and by the desirability of our individual properties. During the period from January 1, 2022 through to December 31, 2024, an aggregate of 40.8% of the annualized base rent leases in the Company's portfolio are scheduled to expire, which we believe will provide us an opportunity to adjust below market rates as market conditions continue to improve.

The table below reflects certain data about our new and renewed leases with terms of greater than six months executed in the three months ended March 31, 2022.







                                                            % of
                                                            Total                                                     Tenant             Lease
                                              Square       Square       Expiring                                   Improvements       Commissions
        Period               Type             Footage      Footage        Rent         New Rent      % Change        $/SF/YR            $/SF/YR
        Three Months Ended March 31, 2022
                    Renewals                   955,416       73.0%     $     4.36     $     4.91        12.6%     $         0.22     $        0.17
                    New Leases                 353,869       27.0%     $     3.87     $     5.02        29.7%     $         0.65     $        0.22
                    Total/weighted average   1,309,285        100%     $     4.23     $     4.94        16.8%     $         0.33     $        0.18
        


Conditions in Our Markets

The Company's portfolio is located in various primary and secondary markets within the main industrial distribution and logistics corridors of the United States. Positive or negative changes in economic or other conditions, adverse weather conditions and natural disasters in these markets are likely to affect our overall performance.

Property Expenses

Our rental expenses generally consist of utilities, real estate taxes, insurance and repair and maintenance costs. For the majority of the Company's portfolio, property expenses are controlled, in part, by either the triple net provisions or modified gross lease expense reimbursement provisions in tenant leases. However, the terms of our tenant leases vary and in some instances the leases may provide that we are responsible for certain property expenses. Accordingly, our overall financial results will be impacted by the extent to which we are able to pass-through property expenses to our tenants.

General and Administrative Expenses

We expect to incur increased general and administrative expenses, including legal, accounting and other expenses related to corporate governance and public reporting and compliance. In addition, we anticipate that our staffing levels will increase from current levels as of March 31, 2022 during the subsequent 12 to 24 months and, as a result, our general and administrative expenses will increase further.

Critical Accounting Policies

Our financial statements are prepared in accordance with GAAP. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes significant estimates regarding the allocation of tangible and intangible assets or business acquisitions, impairments of long-lived assets, stock-based compensation and its common stock warrants liability. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Management adjusts such estimates when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from those estimates and assumptions.

During the three months ended March 31, 2022, we added an additional critical accounting policy to account for our interest rate swaps as follows:

Derivative Instruments and Hedging Activities

We record all derivatives on the accompanying consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply, or we elect not to apply hedge accounting.

In accordance with fair value measurement guidance, we made an accounting policy election to measure the credit risk of our derivative financial instruments that are subject to master netting arrangements on a net basis by counterparty portfolio. Credit risk is the risk of failure of the counterparty to perform under the terms of the contract. We minimize the credit risk in our derivative financial instruments by entering into transactions with various high-quality counterparties. Our exposure to credit risk at any point is generally limited to amounts recorded as assets on the accompanying condensed consolidated balance sheets.

Our other critical accounting policies are described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" in our Annual Report on Form 10-K filed with the SEC on February 23, 2022 and the notes to the financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. We believe that the following critical accounting policies involve the most judgment and complexity:

Investments in Real Estate

Accordingly, we believe the policies set forth in our 2021 10-K are critical to fully understand and evaluate our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected.

Results of Operations (amounts in thousands)

Our consolidated results of operations are often not comparable from period to period due to the effect of property acquisitions and dispositions completed during the comparative reporting periods. Our Total Portfolio represents all of the properties owned during the reported periods. To eliminate the effect of changes in our Total Portfolio due to acquisitions, dispositions and other, and to highlight the operating results of our on-going business, we have separately presented the results of our Same Store Properties Portfolio and Acquisitions, Dispositions and Other.

For the three months ended March 31, 2022 and 2021, we define the Same Store Portfolio as a subset of our Total Portfolio and includes properties that were wholly-owned by us for the entire period presented. We define Acquisitions, Dispositions and Other as any properties that were acquired, sold or held for development or repurposing during the period from January 1, 2021 through March 31, 2022.







        Three Months Ended March 31, 2022 Compared to March 31, 2021
        The following table summarizes the results of operations for our Same Store
        Portfolio, our acquisitions, dispositions and other and total portfolio for the
        three months ended March 31, 2022 and 2021 (dollars in thousands):
                                              Same Store Portfolio                 Acquisitions, Dispositions and Other                       Total Portfolio
                                       Three Months Ended                         Three Months Ended                             Three Months Ended
                                           March 31,              Change               March 31,                 Change              March 31,                 Change
                                        2022         2021        $       %        2022           2021          $        %         2022         2021         $           %
        Revenue:
        Rental revenue               $    31,132   $ 29,470   $ 1,662   5.6%   $    11,588    $    2,363    $ 9,225   390.4%   $    42,720   $ 31,833    $ 10,887      34.2%
        Management fee revenue and
        other income                           -          -         -      -            86            83          3     3.6%            86         83           3       3.6%
        Total revenues                    31,132     29,470     1,662   5.6%        11,674         2,446      9,228   377.3%        42,806     31,916      10,890      34.1%
        Property expenses                 10,820     10,178       642   6.3%         3,255         1,248      2,007   160.8%        14,075     11,426       2,649      23.2%
        Depreciation and
        amortization                                                                                                                22,691     15,777       6,914      43.8%
        General and administrative                                                                                                   3,552      3,009         543      18.0%
        Total operating expenses                                                                                                    40,318     30,212      10,106      33.5%
        Other income (expense):
        Interest expense                                                                                                            (6,395 )   (4,758 )    (1,637 )    34.4%
        Earnings (loss) in
        investment of
        unconsolidated joint
        venture                                                                                                                       (147 )     (273 )       126    (46.2%)
        Loss on extinguishment of
        debt                                                                                                                        (2,176 )        -      (2,176 )        -
        Gain on sale of real
        estate                                                                                                                           -        590        (590 )    (100% )
        Unrealized (appreciation)
        depreciation of warrants                                                                                                     1,760       (247 )     2,007    (812.6% )
        Total other income
        (expense)                                                                                                                   (6,958 )   (4,688 )    (2,270 )    48.4%
        Net loss                                                                                                               $    (4,470 ) $ (2,984 )  $ (1,486 )    49.8%
        


Rental revenue: Rental revenue increased by $10,887 to $42,720 for the three months ended March 31, 2022 as compared to $31,833 for the three months ended March 31, 2021. This was primarily related to a net increase of $9,225 within acquisitions, dispositions and other primarily due to an increase in rental revenue from acquisitions, an increase of $1,662 from same store properties primarily from an increase in rent income of $385 due to scheduled rent steps, leasing activities, an increase of $1,181 in tenant reimbursements, and an increase in non-cash rent adjustments of $95 for the three months ended March 31, 2022.

Management fee revenue and other income: Management fee revenue and other income represents management fee income earned from the unconsolidated joint venture and other miscellaneous income.

Property expenses: Property expenses increased $2,649 for the three months ended March 31, 2022 to $14,075 as compared to $11,426 for the three months ended March 31, 2021. This was primarily due to a net increase of $2,007 within acquisitions, dispositions and other due to property expenses related to acquisitions. Property expenses for the same store properties increased approximately $642 driven by an increase in real estate taxes and operating expenses.

Depreciation and amortization: Depreciation and amortization expense increased by $6,914 to $22,691 for the three months ended March 31, 2022 as compared to $15,777 for the three months ended March 31, 2021, primarily due to a net increase of $8,171 within acquisitions, dispositions and other, partially offset by a decrease of $1,257 for the same store properties.

General and administrative: General and administrative expenses increased approximately $543 to $3,552 for the three months ended March 31, 2022 as compared to $3,009 for the three months ended March 31, 2021. The increase is attributable primarily to increased compensation expense of $370 due to increased head count, an increase in non-cash stock compensation of $25 and an increase in professional fees of $41.

Interest expense: Interest expense increased by approximately $1,637 to $6,395 for the three months ended March 31, 2022, as compared to $4,758 for the three months ended March 31, 2021. The increase is primarily due to additional borrowings associated with our acquisition activity during the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The schedule below is a comparative analysis of the components of interest expense for the three months March 31, 2022 and 2021.







                                                                      Three Months Ended March 31,
                                                                        2022                2021
        Changes in accrued interest                                 $         644       $         (43 )
        Amortization of debt related costs                                    505                 369
        Total change in accrued interest and amortization of debt
        related costs                                                       1,149                 326
        Cash interest paid                                                  5,310               4,432
        Capitalized interest                                                  (64 )                 -
        Total interest expense                                      $       6,395       $       4,758
        


Earnings (loss) in investment of unconsolidated joint venture: Earnings (loss) in investment of unconsolidated joint venture represents the Company's pro-rata share of the net loss recognized by the MIR JV.

Loss on extinguishment of debt: Loss on extinguishment of debt of $2,176 for the three months ended March 31, 2022, was due to the repayment of the JPMorgan Chase Loan.

Gain on sale of real estate: Gain on sale of real estate of $590 represents the gain realized on the sale of real estate for the three months year ended March 31, 2021. There were no sales of real estate during the three months ended March 31, 2022.

Unrealized (appreciation) depreciation of warrants: Unrealized appreciation of warrants represents the change in the fair market value of our common stock warrants. The fair value of warrant derivative adjustment decreased by approximately $1,760 for the three months ended March 31, 2022, as compared to an increase of $247 for the three months ended March 31, 2021.

Supplemental Earnings Measures (dollars in thousands)

Investors in and industry analysts following the real estate industry utilize supplemental earnings measures such as net operating income ("NOI), earnings before interest, taxes, depreciation and amortization for real estate ("EBITDAre"), funds from operations ("FFO"), core funds from operations ("Core FFO") and adjusted funds from operations ("AFFO") as supplemental operating performance measures of an equity REIT. Historical cost accounting for real estate assets in accordance with accounting principles generally accepted in the United States of America ("GAAP") implicitly assumes that the value of real estate assets diminishes predictably over time through depreciation. Since real estate values instead have historically risen or fallen with market conditions, many industry analysts and investors prefer to supplement operating results that use historical cost accounting with measures such as NOI, EBITDAre, FFO, Core FFO and AFFO, among others. We provide information related to NOI, EBITDAre, FFO, Core FFO and AFFO both because such industry analysts are interested in such information, and because our management believes NOI, EBITDAre, FFO, Core FFO and AFFO are important performance measures. NOI, EBITDAre, FFO, Core FFO and AFFO are factors used by management in measuring our performance. Neither NOI, EBITDAre, FFO, Core FFO or AFFO should be considered as a substitute for net income, or any other measures derived in accordance with GAAP. Neither NOI, EBITDAre, FFO, Core FFO or AFFO represents cash generated from operating activities in accordance with GAAP and neither should be considered as an alternative to cash flow from operating activities as a measure of our liquidity, nor is either indicative of funds available for our cash needs, including our ability to make cash distributions.

NOI

We consider net operating income, or NOI, to be an appropriate supplemental measure to net income in that it helps both investors and management understand the core operations of our properties. We define NOI as total revenue (including rental revenue and tenant reimbursements) less property-level operating expenses. NOI excludes depreciation and amortization, general and administrative expenses, impairments, gain/loss on sale of real estate, interest expense, and other non-operating items.

The following is a reconciliation from historical reported net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to NOI:







                                                                           For the Three Months
                                                                              Ended March 31,
        NOI:                                                               2022             2021
        Net loss                                                        $    (4,470 )    $   (2,984 )
        General and administrative                                            3,552           3,009
        Depreciation and amortization                                        22,691          15,777
        Interest expense                                                      6,395           4,758
        (Earnings) loss in investment of unconsolidated joint venture           147             273
        Loss on extinguishment of debt                                        2,176               -
        Gain on sale of real estate                                               -            (590 )
        Unrealized appreciation (depreciation) of warrants                   (1,760 )           247
        Management fee revenue and other income                                 (86 )           (83 )
        NOI                                                             $    28,645      $   20,407
        


EBITDAre

. . .

May 04, 2022

COMTEX_406677602/2041/2022-05-04T07:12:15

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