UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarter Ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From _______to ________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Registrant’s telephone number) |
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the Registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is
a shell company (as defined in Exchange Act Rule 12b-2). YES ☐
| Securities registered pursuant to Section 12(b) of the Act: | ||
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
As of October 31, 2020, the Registrant had outstanding shares of common stock.
Plymouth Industrial REIT, Inc.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PLYMOUTH INDUSTRIAL REIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
(In thousands, except share and per share amounts)
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Assets | ||||||||
| Real estate properties | $ | $ | ||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Real estate properties, net | ||||||||
| Cash | ||||||||
| Cash held in escrow | ||||||||
| Restricted cash | ||||||||
| Deferred lease intangibles, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, Preferred stock and Equity | ||||||||
| Liabilities: | ||||||||
| Secured debt, net | $ | $ | ||||||
| Borrowings under line of credit | ||||||||
| Accounts payable, accrued expenses and other liabilities | ||||||||
| Deferred lease intangibles, net | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 11) | ||||||||
| Preferred stock, par value $ per share, shares authorized, | ||||||||
| Series A: shares issued and outstanding at September
30, 2020 and December 31, 2019 (aggregate liquidation preference of $ | ||||||||
| Series B: shares issued and outstanding at September
30, 2020 and December 31, 2019, (aggregate liquidation preference of $ | ||||||||
| Equity: | ||||||||
| Common stock, $ par value: shares authorized; and shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Non-controlling interest | ||||||||
| Total equity | ||||||||
| Total liabilities, preferred stock and equity | $ | $ | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
1
PLYMOUTH INDUSTRIAL REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(In thousands, except share and per share amounts)
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Rental revenue | $ | $ | $ | $ | ||||||||||||
| Total revenues | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Property | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Impairment on real estate lease | ( | ) | ( | ) | ||||||||||||
| Unrealized appreciation/(depreciation) of warrants | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to Plymouth Industrial REIT, Inc. | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Preferred stock dividends | ||||||||||||||||
| Less: Series B preferred stock accretion to redemption value | ||||||||||||||||
| Less: amount allocated to participating securities | ||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss basic and diluted per share attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted-average common shares outstanding basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
2
PLYMOUTH INDUSTRIAL REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PREFERRED STOCK AND EQUITY (DEFICIT)
UNAUDITED
(In thousands, except share and per share amounts)
| Preferred Stock | Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Additional | Stockholders' | Non- | Total | |||||||||||||||||||||||||||||||||||
| $0.01 Par Value | $0.01 Par Value | $0.01 Par Value | Paid in | Accumulated | Equity | controlling | Equity | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | Interest | (Deficit) | |||||||||||||||||||||||||||||||
| Balance, January 1, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
| Series B Preferred stock accretion to redemption value | — | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net proceeds from common stock | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Restricted shares issued | — | — | |||||||||||||||||||||||||||||||||||||||
| Redemption of partnership units | — | — | ( | ) | |||||||||||||||||||||||||||||||||||||
| Reallocation of non-controlling interest | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Dividends and distributions | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
| Series B Preferred stock accretion to redemption value | — | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net proceeds from common stock | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Restricted shares issued | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Redemption of partnership units | — | — | ( | ) | |||||||||||||||||||||||||||||||||||||
| Reallocation of non-controlling interest | — | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Dividends and distributions | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
| Series B Preferred stock accretion to redemption value | — | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net proceeds from common stock | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Restricted shares issued | — | — | |||||||||||||||||||||||||||||||||||||||
| Redemption of partnership units | — | — | ( | ) | |||||||||||||||||||||||||||||||||||||
| Reallocation of non-controlling interest | — | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Dividends and distributions | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Additional | Stockholders’ | Non- | Total | |||||||||||||||||||||||||||||||||||
| $0.01 Par Value | $0.01 Par Value | $0.01 Par Value | Paid in | Accumulated | Equity | controlling | Equity | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | Interest | (Deficit) | |||||||||||||||||||||||||||||||
| Balance, January 1, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
| Series B Preferred stock accretion to redemption value | — | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net proceeds from common stock | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Restricted shares issued | — | — | |||||||||||||||||||||||||||||||||||||||
| Dividends and distributions | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||||||
| Series B Preferred stock accretion to redemption value | — | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net proceeds from common stock | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Restricted shares issued | — | — | |||||||||||||||||||||||||||||||||||||||
| Dividends and distributions | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, June 30, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
| Series B Preferred stock accretion to redemption value | — | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net proceeds from common stock | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Restricted shares issued | — | — | |||||||||||||||||||||||||||||||||||||||
| Dividends and distributions | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
PLYMOUTH INDUSTRIAL REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
| For the Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Straight line rent adjustment | ( | ) | ( | ) | ||||
| Intangible amortization in rental revenue, net | ( | ) | ( | ) | ||||
| Amortization of debt related costs | ||||||||
| Unrealized appreciation/(depreciation) of warrants | ||||||||
| Impairment on real estate lease | ||||||||
| Stock based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Other assets | ( | ) | ( | ) | ||||
| Deferred leasing costs | ( | ) | ( | ) | ||||
| Accounts payable, accrued expenses and other liabilities | ||||||||
| Net cash provided by operating activities | ||||||||
| Investing activities | ||||||||
| Acquisition of real estate properties | ( | ) | ( | ) | ||||
| Real estate improvements | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Proceeds from issuance of common stock, net | ||||||||
| Proceeds from issuance of secured debt | ||||||||
| Repayment of secured debt | ( | ) | ( | ) | ||||
| Proceeds from line of credit facility | ||||||||
| Repayment of line of credit facility | ( | ) | ( | ) | ||||
| Debt issuance costs | ( | ) | ( | ) | ||||
| Dividends paid | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash, cash held in escrow, and restricted cash | ||||||||
| Cash, cash held in escrow, and restricted cash at beginning of period | ||||||||
| Cash, cash held in escrow, and restricted cash at end of period | $ | $ | ||||||
| Supplemental Cash Flow Disclosures: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental Non-Cash Investing and Financing Activities: | ||||||||
| Dividends declared included in dividends payable | $ | $ | ||||||
| Distribution payable to non-controlling interest holder | $ | $ | ||||||
| Series B accretion to redemption value | $ | $ | ||||||
| Fixed asset acquisitions included in accounts payable, accrued expenses and other liabilities | $ | $ | ||||||
| Deferred leasing costs included in accounts payable, accrued expenses and other liabilities | $ | $ | ||||||
| Assumption of mortgage notes | $ | $ | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
1. Nature of the Business and Basis of Presentation
Business
Plymouth Industrial REIT,
Inc., (the “Company”, “we” or the “REIT”) is a Maryland corporation formed on March 7, 2011.
The Company is structured as an umbrella partnership REIT, commonly called an UPREIT, and owns substantially all of its assets
and conducts substantially all of its business through its operating partnership, Plymouth Industrial Operating Partnership, L.P.,
a Delaware limited partnership (the “Operating Partnership”). The Company, as general partner of the Operating Partnership,
controls the Operating Partnership and consolidates the assets, liabilities, and results of operations of the Operating Partnership.
As of September 30, 2020, and December 31, 2019, the Company owned a
The Company is a full service,
vertically integrated, self-administered and self-managed organization. The Company focuses on the acquisition, ownership and
management of single and multi-tenant Class B industrial properties, including distribution centers, warehouses and light industrial
properties, primarily located in secondary and select primary markets across the U.S. As of September 30, 2020, the Company,
through its subsidiaries, owns
2. Summary of Significant Accounting Policies
The accounting policies underlying the accompanying unaudited condensed consolidated financial statements are those set forth in the Company's audited financial statements for the years ended December 31, 2019 and 2018. Additional information regarding the Company’s significant accounting policies related to the accompanying interim financial statements is as follows:
Basis of Presentation
The Company’s interim condensed consolidated financial statements include the accounts of the Company, the Operating Partnership and their subsidiaries. The interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). All significant intercompany transactions have been eliminated in consolidation. These interim condensed consolidated financial statements include adjustments of a normal and recurring nature considered necessary by management to fairly present the Company's financial position and results of operations. These interim condensed consolidated financial statements may not be indicative of financial results for the full year. These interim condensed consolidated financial statements and notes thereto should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto for the years ended December 31, 2019 and 2018 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the United States Securities and Exchange Commission on February 27, 2020.
Consolidation
The Company’s condensed consolidated financial statements include its financial statements, and those of its wholly-owned subsidiaries and controlling interests. Interests in the Operating Partnership held by unrelated 3rd parties are identified as the “Non-controlling interest”. All intercompany accounts and transactions have been eliminated in consolidation for all periods presented.
Risks and Uncertainties
As a result of the ongoing COVID-19 pandemic, public health officials have recommended and mandated precautions to mitigate the spread of COVID-19, including prohibitions on congregating in heavily populated areas and shelter-in-place orders or similar measures. A number of our tenants have been impacted by such measures as they either temporarily closed down their operations or are scaling back activity in order to comply, causing a strain on their ability to generate revenue. As such, our future operating results may be adversely impacted by our tenants’ inability to generate revenue and pay their rent due as a result of the shut-downs and other actions taken to contain or treat the impact of COVID-19. The extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted.
The state of the overall economy beyond the current impacts of the COVID-19 pandemic can also significantly impact the Company’s operational performance and thus impact its financial position. Should the Company experience a significant decline in operational performance, it may affect the Company’s ability to make distributions to its stockholders, service debt, or meet other financial obligations.
Use of Estimates
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 for real estate acquisitions, impairments of long-lived assets and its common stock warrant 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.
5
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
Segments
The Company has one reportable segment–industrial properties. These properties have similar economic characteristics and also meet the other criteria that permit the properties to be aggregated into one reportable segment.
Revenue Recognition and Tenant Receivables and Rental Revenue Components
Minimum rental revenue from real estate operations is recognized on a straight-line basis. The straight-line rent calculation on leases includes the effects of rent concessions and scheduled rent increases, and the calculated straight-line rent income is recognized over the lives of the individual leases. In accordance to ASC 842, we assess the collectability of lease receivables (including future minimum rental payments) both at commencement and throughout the lease term. If our assessment of collectability changes during the lease term, any difference between the revenue that would have been received under the straight-line method and the lease payments that have been collected will be recognized as a current period adjustment to rental revenue. Rental revenue associated with leases where collectability has been deemed less than probable is recognized on a cash basis in accordance with ASC 842.
Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at September 30, 2020 and December 31, 2019. The Company maintains cash and restricted cash, which includes tenant security deposits and cash collateral for its borrowings discussed in Note 5, cash held in escrow for real estate tax, insurance and tenant capital improvements and leasing commissions, in bank deposit accounts, which at times may exceed federally insured limits. As of September 30, 2020, the Company has not realized any losses in such cash accounts and believes it is not exposed to any significant risk of loss.
The following table presents a reconciliation of cash, cash held in escrow and restricted cash reported within our condensed consolidated balance sheet to amounts reported within our condensed consolidated statement of cash flows:
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Cash as presented on balance sheet | $ | $ | ||||||
| Cash held in escrow as presented on balance sheet | ||||||||
| Restricted cash as presented on balance sheet | ||||||||
| Cash and cash held in escrow and restricted cash as presented on cash flow statement | $ | $ | ||||||
Fair Value of Financial Instruments
The Company applies various valuation approaches in determining the fair value of its financial assets and liabilities within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:
Level 1— Quoted prices for identical instruments in active markets.
Level 2— Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3— Significant inputs to the valuation model are unobservable.
The availability of observable
inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models
or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain
cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial
statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is
based on the lowest level input that is significant to the overall fair value measurement. Level 3 inputs are applied in determining
the fair value of warrants to purchase common stock in the amount of $
6
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
Financial instruments include cash, restricted cash, cash held in escrow and reserves, accounts receivable, accounts payable and accrued expenses and other current liabilities and are considered Level 1 in the fair value hierarchy. The amounts reported on the balance sheet for these financial instruments approximate their fair value due to their relatively short maturities and prevailing interest rates.
The fair value of our secured debt and borrowings under line of credit was estimated using Level 3 inputs by calculating the present value of principal and interest payments, using discount rates that best reflect current market interest rates for financings with similar characteristics and credit quality, and assuming each loan is outstanding through its maturity.
The following table summarizes the aggregate principal outstanding under the Company’s secured debt and borrowings under line of credit and the corresponding estimate of fair value as of September 30, 2020 and December 31, 2019:
| September 30, 2020 | December 31, 2019 | |||||||||||||||
| Indebtedness (in thousands) | Principal Outstanding | Fair Value | Principal Outstanding | Fair Value | ||||||||||||
| Secured debt | $ | $ | $ | $ | ||||||||||||
| Borrowings under line of credit | ||||||||||||||||
| Total | $ | $ | ||||||||||||||
| Unamortized premium/(discount), net | ( | ) | ( | ) | ||||||||||||
| Unamortized debt issuance cost, net | ||||||||||||||||
| Total carrying value | $ | $ | ||||||||||||||
Debt Issuance Costs
Debt issuance costs other than those associated with the revolving line of credit facility are reflected as a reduction to the respective loan amounts in the form of a debt discount. Amortization of this expense is included in interest expense in the condensed consolidated statements of operations.
Debt issuance costs amounted
to $
The Company grants stock-based compensation awards to our employees and directors typically in the form of restricted shares of common stock. The Company measures stock-based compensation expense based on the fair value of the awards on the grant date and recognizes the expense ratably over the vesting period. Forfeitures of unvested shares are recognized in the period the forfeiture occurs.
The Company follows the two-class method when computing net earnings (loss) per common share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net earnings (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. Diluted net loss per share is the same as basic net loss per share since the Company does not have any common stock equivalents such as stock options. The warrants are not included in the computation of diluted net loss per share as they are anti-dilutive for the periods presented.
7
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
New Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASU 2018-13 is intended to improve the effectiveness of disclosures required by entities regarding recurring and nonrecurring fair value measurements. ASU 2018-13 was effective for the Company for reporting periods beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-13 on January 1, 2020 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2020-04 Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform-related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company is in the process of evaluating the impact of the guidance and may apply certain elections as applicable as additional changes in the market occur.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements.
3. Real Estate Properties
Real estate properties consisted of the following at September 30, 2020 and December 31, 2019:
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Land | $ | $ | ||||||
| Buildings, building improvements and tenant improvements | ||||||||
| Site improvements | ||||||||
| Construction in progress | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Real estate properties | $ | $ | ||||||
Depreciation expense was
$
Acquisition of Properties
The Company made the following acquisitions of properties during the nine months ended September 30, 2020:
| Location | Date Acquired | Square Feet | Properties | Purchase Price (in thousands) (1) | ||||||||||
| Chicago, IL | $ | |||||||||||||
| Indianapolis, IN | ||||||||||||||
| Atlanta/Savannah, GA | ||||||||||||||
| Avon, OH | ||||||||||||||
| Atlanta, GA | ||||||||||||||
| St Louis, MO | ||||||||||||||
| St Louis, MO | ||||||||||||||
| Jacksonville, FL | ||||||||||||||
| Total | $ | |||||||||||||
_______________
| (1) |
8
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
The allocation of the aggregate purchase price in accordance with Financial Accounting Standards Board, (FASB), ASU 2017-01 (Topic 805) “Business Combinations,” of the assets and liabilities acquired at their relative fair values as of their acquisition date, is as follows:
| Purchase Price (in thousands) | ||||
| Total Purchase Price | ||||
| Purchase price | $ | |||
| Acquisition costs | ||||
| Total | $ | |||
| Allocation of Purchase Price | ||||
| Land | $ | |||
| Building | ||||
| Site improvements | ||||
| Total real estate properties | ||||
| Deferred lease intangibles | ||||
| Tenant relationships | ||||
| Leasing commissions | ||||
| Above market lease value | ||||
| Below market lease value | ( | ) | ||
| Lease in place value | ||||
| Net deferred lease intangibles | ||||
| Total | $ | |||
4. Leases
As a Lessor
We lease our properties to tenants under agreements classified as operating leases. We recognize the total minimum lease payments provided for under the leases on a straight-line basis over the lease term. Many of our leases include the recovery of certain operating expenses such as common area maintenance, insurance, real estate taxes and utilities from our tenants. The recovery of such operating expenses is recognized in rental revenue in the condensed consolidated statements of operations. Some of our tenant leases contain options to extend leases at a fair market rate and may also include options to terminate. Some of our tenants’ leases are subject to changes in the Consumer Price Index (“CPI”).
As of September 30, 2020, undiscounted future minimum fixed rental receipts due under non-cancellable operating leases for each of the next five years and total thereafter were as follows (in thousands):
| Future Minimum Fixed Rental Receipts | ||||
| 2020 | $ | |||
| 2021 | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Thereafter | ||||
| Total minimum rental receipts | $ | |||
These amounts do not reflect future rental revenue from the renewal or replacement of existing leases and excludes tenant recoveries and rental increases that are not fixed or indexed to CPI.
The Company includes accounts receivable and straight-line rent receivables within other assets in the condensed consolidated balance sheet. For the nine months ended September 30, 2020 and 2019, rental revenue was derived from various tenants. As such, future receipts are dependent upon the financial strength of the lessees and their ability to perform under the lease agreements.
9
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
Rental revenue is comprised of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Income from leases | $ | $ | $ | $ | ||||||||||||
| Straight-line rent adjustments | ||||||||||||||||
| Tenant recoveries | ||||||||||||||||
| Amortization of above market leases | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of below market leases | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Tenant recoveries included within rental revenue for the three and nine months ending September 30, 2020 and 2019 are variable in nature.
On April 8, 2020, the FASB provided feedback on technical inquires received from stakeholders regarding certain accounting topics affected by the COVID-19 pandemic, including guidance as to whether any concessions granted by a landlord to tenants results in a modification of a lease in accordance to ASC 842. The FASB concluded that a company can, as a policy election, treat any COVID-19 related rent concessions as a provision included within the pre-concession lease arrangement, and therefore, not be classified as a lease modification per ASC 842. In order to be considered a COVID-19 related concession, cash flows may be less than or equal to those prior to the concession, but not substantially greater. As of September 30, 2020, the Company has entered into a small number of such COVID-19 related rent deferral concessions and has elected not to treat such concessions as a modification of the respective lease.
As a Lessee
At September 30, 2020,
we have
On September 10, 2020,
the Company entered into a sublease agreement related to the space previously occupied as its headquarters. The Company's
decision to re-locate its headquarters was identified as a triggering event requiring the reassessment of the recoverability
of the associated right of use asset which is recorded in other assets. As the Company would not be utilizing this space in
the subsequent period, the right of use asset was de-linked from the previously accrued operating lease liability. Following
the Company's analysis, it was determined that a fair value assessment was necessary. The Company utilized a discounted cash
flow model to determine the net present value of the remaining right of use asset related to the Company’s previously
occupied headquarters. The Company concluded that the fair market value of the right of use asset was not fully recoverable
and recorded an impairment charge of $
The following table summarizes the operating lease expense recognized during the three and nine months ended September 30, 2020 included in the Company’s condensed consolidated statements of operations:
| Three Months Ended | Nine Months Ended | |||||||
| September 30, | September 30, | |||||||
| 2020 | 2020 | |||||||
| Operating lease expense included in general and administrative expense attributable to office leases | $ | $ | ||||||
| Non-cash adjustment due to straight-line rent adjustments | ( | ) | ( | ) | ||||
| Cash paid for amounts included in the measurement of lease liabilities (operating cash flows) | $ | $ | ||||||
The following table summarizes the maturity analysis of our operating leases, which is discounted by our incremental borrowing rate to calculate the lease liability for the operating leases in which we are the lessee (in thousands):
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| 2020 | $ | $ | ||||||
| 2021 | ||||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| Thereafter | ||||||||
| Total undiscounted rental commitments | $ | $ | ||||||
| Present value adjustment using incremental borrowing rate | ||||||||
| Total lease liability | $ | $ | ||||||
As of September 30, 2020, and December 31, 2019, the Company had no finance leases.
10
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
5. Borrowing Arrangements
Secured Debt
The following table sets forth a summary of the Company’s secured debt outstanding at September 30, 2020 and December 31, 2019:
| Outstanding Balance at | ||||||||||||||
| September 30, 2020 | December 31, 2019 | Interest rate at September 30, 2020 | Final Maturity Date | |||||||||||
| AIG Loan | $ | $ | ||||||||||||
| Transamerica Loan | ||||||||||||||
| Allianz Loan | ||||||||||||||
| Minnesota Life Loan | ||||||||||||||
| JPMorgan Chase Loan | ||||||||||||||
| Lincoln Life Mortgage | ||||||||||||||
| Ohio National Life Mortgage | ||||||||||||||
| KeyBank Term Loan (1) | | |||||||||||||
| Nationwide Loan (3) | ||||||||||||||
| $ | $ | |||||||||||||
| Unamortized debt issuance costs, net | ( | ) | ( | ) | ||||||||||
| Unamortized premium/(discount), net | ||||||||||||||
| Secured debt, net | $ | $ | ||||||||||||
_______________
| (1) | |
| (2) | |
| (3) |
Revolving Line of Credit Facility
On August 21, 2020, the Company fully repaid the outstanding balance on the revolving line of credit with KeyBank with proceeds from the follow-on offering (see Note 6). The following table sets forth a summary of the Company’s borrowings outstanding under its line of credit at September 30, 2020 and December 31, 2019:
| Outstanding Balance at | ||||||||||||
| September 30, 2020 |
December 31, 2019 |
Interest rate at September 30, 2020 |
Final Maturity Date | |||||||||
| Borrowings under line of credit(1) | $ | $ | ||||||||||
_______________
| (1) | ||
| (2) |
11
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
Financial Covenant Considerations
The Company is in compliance with all respective financial covenants for our secured debt and revolving line of credit facility as of September 30, 2020 and December 31, 2019.
6. Common Stock
Follow-on Offerings
On August 28, 2020,
the Company completed a follow-on public offering of shares of common stock, including shares of common
stock issued upon exercise of the underwriters’ overallotment option at $ per share resulting in net proceeds of approximately
$
ATM Program
On July 30, 2018, the Company
and the Operating Partnership filed a shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission
(“SEC”) registering an aggregate of $
On August 24, 2018, the
Company entered into a distribution agreement with D.A. Davidson & Co., KeyBanc Capital Markets and National Securities Corporation
(the “Agents”), pursuant to which the Company may issue and sell, from time to time, shares of its common stock having
an aggregate offering price of up to $
On February 27, 2020, the
Company entered into a distribution agreement with KeyBanc Capital Markets Inc., Barclays Capital Inc., J.P. Morgan Securities,
LLC, Capital One Securities, Inc., Robert W. Baird & Co. Incorporated, BMO Capital Markets Corp., D.A. Davidson & Co. and
National Securities Corporation pursuant to which the Company may issue and sell, from time to time, shares of its common stock,
with aggregate gross sales proceeds of up to $
During the nine months ended
September 30, 2020, the Company issued shares of its common stock under both ATM programs at a weighted average share
price of $, resulting in net proceeds of approximately $
Common Stock Warrants
The Company has warrants
outstanding to acquire
A roll-forward of the warrants is as follows:
| Balance at January 1, 2020 | $ | |||
| Change in fair value | ||||
| Balance at September 30, 2020 | $ |
The warrants in the amount
of $
The fair value of these warrants is re-measured at each financial reporting period with any changes in fair value recognized as a change in fair value of warrant liability in the accompanying condensed consolidated statements of operations. The warrants are not included in the computation of diluted net loss per share as they are anti-dilutive for the periods presented since the Company recorded a net loss during the three and nine months ended September 30, 2020 and 2019.
12
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
Common Stock Dividends
The following table sets forth the common stock distributions that were declared during the nine months ended September 30, 2020 and the year ended December 31, 2019:
| Cash Dividends Declared per Share | Aggregate Amount | |||||||
| 2020 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| 2019 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| Fourth quarter | $ | $ | ||||||
7. Preferred Stock
Series A Preferred Stock
The table below sets forth the Company’s outstanding Series A Preferred Stock issuance as of September 30, 2020:
| Preferred Stock Issuance | Issuance Date |
Number of Shares |
Liquidation Value per Share |
Dividend Rate | ||||
| 7.5% Series A Preferred Stock | $ |
The following table sets forth the 7.5% Series A preferred stock distributions that were declared during the nine months ended September 30, 2020 and the year ended December 31, 2019:
| Cash Dividends Declared per Share | Aggregate Amount | |||||||
| 2020 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| 2019 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| Fourth quarter | $ | $ | ||||||
Series B Preferred Stock
The table below sets forth the Company’s outstanding Series B Convertible Redeemable Preferred Stock issuance as of September 30, 2020:
| Preferred Stock Issuance | Issuance Date |
Number of Shares |
Liquidation Value per Share |
Current Dividend Rate | ||||
| Series B Convertible Redeemable Preferred Stock | $ |
13
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
The following table sets forth the Series B preferred stock dividends that were declared during the nine months ended September 30, 2020 and the year ended December 31, 2019:
| Cash Dividends Declared per Share | Aggregate Amount | |||||||
| 2020 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| 2019 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| Fourth quarter | $ | $ | ||||||
8. Non-Controlling Interests
Operating Partnership Unit Acquisitions
In connection with the acquisition
of the Shadeland Portfolio on August 11, 2017, the Company, through its Operating Partnership issued
The following table sets forth the OP Unit distributions that were declared during the nine months ended September 30, 2020 and the year ended December 31, 2019:
| Cash Distributions Declared per OP Unit | Aggregate Amount | |||||||
| 2020 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| 2019 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| Fourth quarter | $ | $ | ||||||
The proportionate share of
the loss attributed to the OP Units was $
| Shares | ||||
| Unvested restricted stock at January 1, 2020 | ||||
| Granted | ||||
| Forfeited | ( | ) | ||
| Vested | ( | ) | ||
| Unvested restricted stock at September 30, 2020 | ||||
14
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
The Company recorded equity-based compensation in the amount of $ and $ for the nine months ended September 30, 2020 and 2019, respectively, which is included in general and administrative expenses in the accompanying condensed consolidated statements of operations. Equity-based compensation expense for shares issued to employees and directors is based on the grant-date fair value of the award and recognized on a straight-line basis over the requisite period of the award. The unrecognized compensation expense associated with the Company’s restricted shares of common stock at September 30, 2020 was approximately $ and is expected to be recognized over a weighted average period of approximately years.
Net loss per Common Share
| Three months Ended September 30, | Nine months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Numerator | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less: loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to Plymouth Industrial REIT, Inc. | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Preferred stock dividends | ||||||||||||||||
| Less: Series B Preferred stock accretion to redemption value | ||||||||||||||||
| Less: amount allocated to participating securities | ||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator | ||||||||||||||||
| Weighted-average common shares outstanding basic and diluted | ||||||||||||||||
| Net loss per share attributable to common stockholders – basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The Company uses the two-class method of computing earnings per common share in which participating securities are included within the basic earnings per share (“EPS”) calculation. The amount allocated to participating securities is according to dividends declared (whether paid or unpaid). The restricted stock does not have any participatory rights in undistributed earnings. The unvested shares of restricted stock are accounted for as participating securities as they contain non-forfeitable rights to dividends.
In periods where there is a net loss, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company’s potential dilutive securities at September 30, 2020 include shares of common stock warrants and shares of restricted common stock. The stock warrants and restricted common stock have been excluded from the computation of diluted net loss per share attributable to common stockholders as the effect of including them would reduce the net loss per share.
11. Commitments and Contingencies
Employment Agreements
The Company has entered
into employment agreements with the Company’s Chief Executive Officer, President and Chief Investment Officer, Executive
Vice President and Chief Financial Officer and Executive Vice President Asset Management.
Legal Proceedings
The Company is not currently party to any significant legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred, the costs related to such legal proceedings.
15
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
Contingent Liability
In conjunction with the issuance of the OP Units for acquisitions, the agreements contain a provision for the Company to provide tax protection to the holders if the acquired properties are sold in a transaction that would result in the recognition of taxable income or gain prior to the sixth anniversary of the acquisition. The Company intends to hold these investments and has no plans to sell or transfer any interest that would give rise to a taxable transaction.
12. Subsequent Events
Subsequent to September 30, 2020, the United States continues to be severely impacted by the COVID-19 pandemic and by the economic effects of government responses, such as “stay-at-home” and “phased-reopening” orders and continued restrictions on certain business activities. Through the date of this filing we have not provided any additional rent deferrals or other rent concessions for rents due during Q4 2020. The extent that the pandemic impacts the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted including the scope, severity and duration of the pandemic, the actions taken to contain the virus and to mitigate the personal and financial impacts.
On October 8, 2020,
the Company entered into a new $
On October 23, 2020, the
Company formed a $
16
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. One of these factors is the outbreak of the novel coronavirus (COVID-19), the impact of which is difficult to fully assess at this time due to, among other factors, uncertainty regarding the severity and duration of the outbreak domestically and internationally and the effectiveness of efforts to contain the spread of the virus and its resulting direct and indirect impact on the U.S. economy and economic activity. 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:
| • | uncertainty surrounding the social and economic impacts of the current COVID-19 pandemic, including, without limitation, its impact on the Company’s ability to pay common stock dividends and/or the amount and frequency of those dividends; | |
| • | the competitive environment in which we operate; | |
| • | real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for tenants in such markets; | |
| • | decreased rental rates or increasing vacancy rates; | |
| • | potential defaults on or non-renewal of leases by tenants; | |
| • | potential bankruptcy or insolvency of tenants; | |
| • | acquisition risks, including failure of such acquisitions to perform in accordance with projections; | |
| • | the timing of acquisitions and dispositions; | |
| • | potential natural disasters such as earthquakes, wildfires or floods; | |
| • | national, international, regional and local economic conditions; | |
| • | the general level of interest rates; | |
| • | potential changes in the law or governmental regulations that affect us and interpretations of those laws and regulations, including changes in real estate and zoning or REIT tax laws, and potential increases in real property tax rates; | |
| • | financing risks, including the risks that our cash flows from operations may be insufficient to meet required payments of principal and interest and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all; | |
| • | lack of or insufficient amounts of insurance; | |
| • | our ability to maintain our qualification as a REIT; | |
| • | litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and | |
| • | possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us. |
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 September 30, 2020 and 2019 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, 2019 (the “2019 10-K“) filed with the United States Securities and Exchange Commission (the “SEC”) on February 27, 2020, including the audited historical financial statements and related notes thereto as of and for the years ended December 31, 2019 and 2018 contained therein, which is accessible on the SEC’s website at www.sec.gov.
Overview
We are a full service, vertically integrated, self-administered and self-managed REIT focused on the acquisition, ownership and management of single and multi-tenant Class B industrial properties, including distribution centers, warehouses and light industrial properties. The Company’s portfolio at September 30, 2020 consists of 99 industrial properties (the “Company Portfolio”) comprising of 130 buildings located in eleven states with an aggregate of approximately 20.8 million rentable square feet leased to 331 different tenants.
17
Our strategy is to acquire, own and manage single and multi-tenant Class B industrial properties located primarily in secondary markets across the U.S.; however, we may make opportunistic acquisitions of Class A industrial properties or industrial properties located in primary markets. 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 primarily Class B industrial properties predominantly in secondary 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. In addition, we may make opportunistic acquisitions of Class A industrial properties or industrial properties in primary markets that offer similar return characteristics.
Our target markets are comprised primarily of secondary markets because we believe these markets tend to have less occupancy and rental rate volatility and less buyer competition relative to primary 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 pursue 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 re-development 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.
Impact of COVID-19
While we are not able to estimate the ultimate impact of the COVID-19 pandemic on our operating results at this time, the following discussion provides certain information regarding the impacts of the COVID-19 pandemic on our business and an overview of management’s efforts to respond to anticipated impacts. While our results for the first three quarters of 2020 were in line with our expectations, the COVID-19 pandemic and the significant and wide-ranging efforts of international, federal, state and local public health and governmental authorities in regions across the United States and the world to combat the spread of the virus, including substantial restrictions on the daily activities of individuals and the operations of many businesses, have significantly reduced economic activity throughout the country and increased volatility in the financial markets, which could negatively impact our results of operations during the remainder of 2020 and in future periods.
As a result of the uncertainty surrounding the economic environment, we expect that such statistical and other information provided below will change, potentially significantly, going forward and may not be indicative of the actual impact of the COVID-19 pandemic on our business, operations, cash flows and financial condition for the third quarter of 2020 and future periods.
| · | As of September 30, 2020, we have collected approximately 97% of recurring base rents and tenant recoveries billed for the third quarter of 2020; however, collections to-date may not be indicative of collections in any future period. | |
| · | We have received some rent relief requests from tenants at our properties, most often in the form of rent deferral requests, including some from tenants that we believe are being opportunistic. During the second quarter of 2020, the Company has entered into a small number of such COVID-19 related rent deferral concessions representing 1.5% or $1.25 million of ABR. ABR is defined/calculated as the annualized monthly contractual base rent per the leases, excluding any rent abatements, as of September 30, 2020. The majority of the deferred balances are scheduled to be paid by December 31, 2020. Through the date of this filing, we have not provided any additional rent deferrals or other rent concessions. |
In an effort to stabilize our operations and attempt to manage the impact of COVID-19, we have taken a number of proactive measures to maintain the strength of our business, including the following:
| · | The health and safety of our employees and their families is a top priority. We have adapted our operations to protect employees, including by implementing a work from home policy, and our systems have enabled our team to work seamlessly. | |
| · | We are in frequent communication with our tenants and we are assisting them in identifying state and federal resources that may be available to support their businesses and employees during the pandemic, including stimulus funds that may be available under the Coronavirus Aid, Relief, and Economic Security Act of 2020. | |
| · | We have approximately $25.4 million in cash and cash equivalents and approximately $100 million available on our line of credit as of September 30, 2020 to address near-term working capital and other liquidity needs. | |
| · | We have delayed non-essential capital and operating expenses that do not impact the safety of our tenants or our ability to lease and/or renew leasing space. |
18
Rental Revenue and Tenant Recoveries
We receive income primarily from rental revenue from our properties. The amount of rental revenue generated by the Company 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 September 30, 2020, the Company Portfolio was approximately 95.5% 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 October 1, 2020 through to December 31, 2022, an aggregate of 33.3% of the annualized base rent leases in the Company Portfolio are scheduled to expire, which we believe will provide us an opportunity to adjust below market rates as market conditions continue to improve.
During the nine months ended September 30, 2020, leases for space totaling 2,516,939 square feet (12.1% of the Company Portfolio) either was subject to renewal or expired. Of this space 1,556,608 square feet was renewed (61.8%), 397,830 square feet was leased to new tenants (15.8%) and 562,501 square feet went vacant (22.4%). Additionally, 191,090 square feet of previously vacant square feet was leased to new tenants. As of September 30, 2020, the vacancy rate of the Company Portfolio was 4.5%.
During the year ended December 31, 2019 and nine months ended September 30, 2020, lease negotiation efforts resulted in 100 leases commencing with durations in excess of six months encompassing 4,450,431 square feet and 10 leases commencing with a duration of less than 6 months encompassing 529,542 square feet. Renewed leases made up 64.7% of the square footage covered by the 100 leases in excess of 6 months, and the rent under the renewed leases increased an average of 6.9% over the prior leases. Leases to new tenants comprised the other 35.3% of the square footage covered by the 100 leases in excess of 6 months, and the rent under the new leases increased an average of 22.6% over the prior leases. The rental rates under all of the 100 leases in excess of 6 months entered into during 2019 and 2020, increased by an average of 11.8% over the rates of the prior leases.
The table below reflects certain data about our new and renewed leases with terms of greater than six months executed in the year ended December 31, 2019 and the nine months ended September 30, 2020.
| Year | Type | Square Footage |
% of Total Square Footage |
Expiring Rent |
New Rent |
% Change |
Tenant Improvements $/SF/YR |
Lease Commissions $/SF/YR |
|||||||||||||||||||
| 2019 | Renewals | 1,380,839 | 58.4% | $ | 4.17 | $ | 4.51 | 7.9% | $ | 0.19 | $ | 0.14 | |||||||||||||||
| New Leases | 982,116 | 41.6% | $ | 2.88 | $ | 3.43 | 19.1% | $ | 0.27 | $ | 0.23 | ||||||||||||||||
| Total | 2,362,955 | 100.0% | $ | 3.64 | $ | 4.06 | 11.6% | $ | 0.22 | $ | 0.17 | ||||||||||||||||
| 2020 | Renewals | 1,498,556 | 71.8% | $ | 3.63 | $ | 3.84 | 5.8% | $ | 0.09 | $ | 0.08 | |||||||||||||||
| New Leases | 588,920 | 28.2% | $ | 3.71 | $ | 4.72 | 27.2% | $ | 0.21 | $ | 0.12 | ||||||||||||||||
| Total | 2,087,476 | 100.0% | $ | 3.65 | $ | 4.09 | 12.1% | $ | 0.12 | $ | 0.09 | ||||||||||||||||
| Total | Renewals | 2,879,395 | 64.7% | $ | 3.89 | $ | 4.16 | 6.9% | $ | 0.14 | $ | 0.11 | |||||||||||||||
| New Leases | 1,571,036 | 35.3% | $ | 3.19 | $ | 3.91 | 22.6% | $ | 0.25 | $ | 0.19 | ||||||||||||||||
| Total | 4,450,431 | 100.0% | $ | 3.64 | $ | 4.07 | 11.8% | $ | 0.18 | $ | 0.14 | ||||||||||||||||
Conditions in Our Markets
The Company Portfolio is located primarily in various secondary markets in the eastern half of the U.S. 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 site repair and maintenance costs. For the majority of the Company 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 September 30, 2020 during the subsequent 12 to 24 months and, as a result, our general and administrative expenses will increase further.
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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 nine months ended September 30, 2020, there were no material changes to our critical accounting policies. Our 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 27, 2020 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:
| · | Real estate property acquisitions, capitalization and depreciation | |
| · | Income taxes | |
| · | Amortization of deferred lease intangibles – assets and liabilities | |
| · | Impairment of Long-lived assets | |
| · | Consolidation |
Accordingly, we believe the policies set forth in our 2019 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.
Update on Dividend Policy
Given the Company’s continued focus on its balance sheet and liquidity position, effective with the second quarter dividend declared in June 2020 our Board of Directors revised the common stock dividend policy to adjust the quarterly dividend, if declared, to $0.20 per diluted share, or an annualized rate of $0.80 per diluted share. The Board of Directors and management will continue to assess the Company’s common stock dividend policy in light of the uncertainty resulting from COVID-19 and the requirements to maintain the Company’s REIT compliance. Accordingly, there can be no assurances as to the timing or amount of dividends for future periods.
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 and dispositions and to highlight the operating results of our on-going business, we have separately presented the results of our Same Properties Portfolio and Acquisitions/Dispositions.
For the three months ended September 30, 2020 and 2019, 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 as any properties that were acquired or sold during the period from July 1, 2019 through September 30, 2020. For the nine months ended September 30, 2020 and 2019, 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 as any properties that were acquired or sold during the period from January 1, 2019 through September 30, 2020.
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Three Months Ended September 30, 2020 Compared to September 30, 2019
The following table summarizes the results of operations for our Same Store Portfolio, our acquisitions and dispositions and total portfolio for the three months ended September 30, 2020 and 2019 (dollars in thousands):
| Same Store Portfolio | Acquisitions/Dispositions | Total Portfolio | |||||||||||||||||||||||||||||||||||||||||||
| Three
Months Ended September 30, |
Change | Three
Months Ended September 30, |
Change | Three
Months Ended September 30, |
Change | ||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | $ | % | 2020 | 2019 | $ | % | 2020 | 2019 | $ | % | ||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||
| Rental revenue | $ | 18,075 | $ | 17,721 | $ | 354 | 2.0% | $ | 9,443 | $ | 1,402 | $ | 8,041 | 574% | $ | 27,518 | $ | 19,123 | $ | 8,395 | 43.9% | ||||||||||||||||||||||||
| Property expenses | 6,998 | 6,487 | 511 | 7.9% | 3,066 | 433 | 2,633 | 608% | 10,064 | 6,920 | 3,144 | 45.4% | |||||||||||||||||||||||||||||||||
| Depreciation and amortization | 13,985 | 9,399 | 4,586 | 48.8% | |||||||||||||||||||||||||||||||||||||||||
| General and administrative | 2,280 | 2,135 | 145 | 6.8% | |||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 26,329 | 18,454 | 7,875 | 42.7% | |||||||||||||||||||||||||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | (4,538 | ) | (3,643 | ) | (895 | ) | 24.6% | ||||||||||||||||||||||||||||||||||||||
| Impairment on real estate lease | (311 | ) | — | (311 | ) | 0.0% | |||||||||||||||||||||||||||||||||||||||
| Unrealized appreciation/(depreciation) of warrants | (103 | ) | — | (103 | ) | 0.0% | |||||||||||||||||||||||||||||||||||||||
| Total other expense | (4,952 | ) | (3,643 | ) | (1,309 | ) | 35.9% | ||||||||||||||||||||||||||||||||||||||
| Net loss | $ | (3,763 | ) | $ | (2,974 | ) | $ | (789 | ) | 26.5% | |||||||||||||||||||||||||||||||||||
Rental revenue: Rental revenue increased by approximately $8,395 to $27,518 for the three months ended September 30, 2020 as compared to $19,123 for the three months ended September 30, 2019. The increase was primarily related to an increase in rental revenue from acquisitions of $8,041 and an increase of $354 from same store properties primarily from an increase of $485 due to scheduled rent steps, leasing activities, and tenant reimbursements, and a decrease in non-cash rent adjustments of $131 for the three months ended September 30, 2020.
Property expenses: Property expenses increased $3,144 for the three months ended September 30, 2020 to $10,064 as compared to $6,920 for the three months ended September 30, 2019 primarily due to an increase in expenses related to acquisitions of $2,633. Property expenses for the same store properties increased approximately $511 primarily due to increases in real estate taxes.
Depreciation and amortization: Depreciation and amortization expense increased by approximately $4,586 to approximately $13,985 for the three months ended September 30, 2020 as compared to $9,399 for the three months ended September 30, 2019, primarily due to an increase from acquisitions of $5,487 and a decrease of $901 for the same store properties.
General and administrative: General and administrative expenses increased approximately $145 to $2,280 for the three months ended September 30, 2020 as compared to $2,135 for the three months ended September 30, 2019. The increase is attributable primarily an increase in non-cash stock compensation of $42 and an increase of $143 due to non-cash rent expense, offset by a decrease in professional fees of $32.
Interest expense: Interest expense increased by approximately $895 to $4,538 for the three months ended September 30, 2020, as compared to $3,643 for the three months ended September 30, 2019. The increase is primarily due to additional borrowings associated with our acquisition activity. The schedule below is a comparative analysis of the components of interest expense for the three months ended September 30, 2020 and 2019.
| Three Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Accrued interest | $ | (169 | ) | $ | 325 | |||
| Amortization of debt related costs | 386 | 274 | ||||||
| Total accretion of interest and deferred interest | 217 | 599 | ||||||
| Cash interest paid | 4,321 | 3,044 | ||||||
| Total interest expense | $ | 4,538 | $ | 3,643 | ||||
Impairment on real estate lease: Change in impairment on real estate lease represents a non-cash impairment against the carrying value of the right of use asset associated with the primary lease for our prior head-quarters.
Unrealized appreciation/(depreciation) of warrants: Change in fair value of warrant derivative represents the change in the fair market value of our common stock warrants. The fair value of warrant derivative adjustment of $103 for the three months ended September 30, 2020 was due to an increase in the common stock warrant liability during the third quarter of 2020. There was no adjustment to the fair value of the warrant derivative during the three months ended September 30, 2019.
21
Nine Months Ended September 30, 2020 Compared to September 30, 2019
The following table summarizes the results of operations for our Same Store Portfolio, our acquisitions and dispositions and total portfolio for the nine months ended September 30, 2020 and 2019 (dollars in thousands):
| Same Store Portfolio | Acquisitions/Dispositions | Total Portfolio | |||||||||||||||||||||||||||||||||||||||||||
| Nine
Months Ended September 30, |
Change | Nine
Months Ended September 30, |
Change | Nine
Months Ended September 30, |
Change | ||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | $ | % | 2020 | 2019 | $ | % | 2020 | 2019 | $ | % | ||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||
| Rental revenue | $ | 53,153 | $ | 51,405 | $ | 1,748 | 3.4% | $ | 26,731 | $ | 1,402 | $ | 25,329 | 1,806% | $ | 79,884 | $ | 52,807 | $ | 27,077 | 51.3% | ||||||||||||||||||||||||
| Property expenses | 19,338 | 18,740 | 598 | 3.2% | 8,763 | 476 | 8,287 | 1,741% | 28,101 | 19,216 | 8,885 | 46.2% | |||||||||||||||||||||||||||||||||
| Depreciation and amortization | 41,602 | 26,307 | 15,295 | 58.1% | |||||||||||||||||||||||||||||||||||||||||
| General and administrative | 7,378 | 5,472 | 1,906 | 34.8% | |||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 77,081 | 50,995 | 26,086 | 51.2% | |||||||||||||||||||||||||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | (14,309 | ) | (11,061 | ) | (3,248 | ) | 29.4% | ||||||||||||||||||||||||||||||||||||||
| Impairment on real estate lease | (311 | ) | — | (311 | ) | 0.0% | |||||||||||||||||||||||||||||||||||||||
| Unrealized appreciation/(depreciation) of warrants | (103 | ) | (181 | ) | 78 | -43.1% | |||||||||||||||||||||||||||||||||||||||
| Total other expense | (14,723 | ) | (11,242 | ) | (3,481 | ) | 31.0% | ||||||||||||||||||||||||||||||||||||||
| Net loss | $ | (11,920 | ) | $ | (9,430 | ) | $ | (2,490 | ) | 26.4% | |||||||||||||||||||||||||||||||||||
Rental revenue: Rental revenue increased by approximately $27,077 to $79,884 for the nine months ended September 30, 2020 as compared to $52,807 for the nine months ended September 30, 2019. The increase was primarily related to an increase in rental revenue from acquisitions of $25,329 and an increase of $1,748 from same store properties primarily from an increase in rent income of $1,194 due to scheduled rent steps and leasing activities and an increase of $867 in tenant reimbursements, offset by a decrease in non-cash rent adjustments of $313 for the nine months ended September 30, 2020.
Property expenses: Property expenses increased $8,885 for the nine months ended September 30, 2020 to $28,101 as compared to $19,216 for the nine months ended September 30, 2019 primarily due to an increase in expenses related to acquisitions of $8,287. Property expenses for the same store properties increased approximately $598 primarily due to increases in real estate taxes.
Depreciation and amortization: Depreciation and amortization expense increased by approximately $15,295 to approximately $41,602 for the nine months ended September 30, 2020 as compared to $26,307 for the nine months ended September 30, 2019, primarily due to an increase from acquisitions of $16,388 and a decrease of $1,093 for the same store properties.
General and administrative: General and administrative expenses increased approximately $1,906 to $7,378 for the nine months ended September 30, 2020 as compared to $5,472 for the nine months ended September 30, 2019. The increase is attributable primarily to increased professional fees of $495 due to compliance, increased compensation expense of $669 due to increased head count and compensation increases, an increase in non-cash stock compensation of $182 and an increase of $393 due to non-cash rent expense.
Interest expense: Interest expense increased by approximately $3,248 to $14,309 for the nine months ended September 30, 2020, as compared to $11,061 for the nine months ended September 30, 2019. The increase is primarily due to additional borrowings associated with our acquisition activity. The schedule below is a comparative analysis of the components of interest expense for the nine months ended September 30, 2020 and 2019.
| Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Accrued interest | $ | (79 | ) | $ | 232 | |||
| Amortization of debt related costs | 1,051 | 783 | ||||||
| Total accretion of interest and deferred interest | 972 | 1,015 | ||||||
| Cash interest paid | 13,337 | 10,046 | ||||||
| Total interest expense | $ | 14,309 | $ | 11,061 | ||||
Impairment on real estate lease: Change in impairment on real estate lease represents a non-cash impairment against the carrying value of the right of use asset associated with the primary lease for our prior head-quarters.
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Unrealized appreciation/(depreciation) of warrants: Change in fair value of warrant derivative represents the change in the fair market value of our common stock warrants. The fair value of warrant derivative adjustment of $103 and $181 for the nine months ended September 30, 2020 and 2019, respectively, was due to an increase in the common stock warrant liability during the first nine months of 2020 and 2019.
Non-GAAP Financial Measures (dollars in thousands)
In this quarterly report on Form 10-Q, we disclose NOI, EBITDAre, FFO and AFFO, each of which meet the definition of “non-GAAP financial measure” set forth in Item 10(e) of Regulation S-K promulgated by the SEC. As a result, we are required to include in this report a statement of why management believes that presentation of these measures provides useful information to investors.
None of NOI, EBITDAre, FFO or AFFO should be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, and we believe that to understand our performance further NOI, EBITDAre, FFO, and AFFO should be compared with our reported net income or net loss and considered in addition to cash flows in accordance with GAAP, as presented in our condensed consolidated financial statements.
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, tenant reimbursements, and other income) 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 | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| NOI: | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Net loss | $ | (3,763 | ) | $ | (2,974 | ) | $ | (11,920 | ) | $ | (9,430 | ) | ||||
| General and administrative | 2,280 | 2,135 | 7,378 | 5,472 | ||||||||||||
| Depreciation and amortization | 13,985 | 9,399 | 41,602 | 26,307 | ||||||||||||
| Interest expense | 4,538 | 3,643 | 14,309 | 11,061 | ||||||||||||
| Impairment on real estate lease | 311 | — | 311 | — | ||||||||||||
| Unrealized appreciation/(depreciation) of warrants | 103 | — | 103 | 181 | ||||||||||||
| NOI | $ | 17,454 | $ | 12,203 | $ | 51,783 | $ | 33,591 | ||||||||
EBITDAre
We define earnings before interest, taxes, depreciation and amortization for real estate in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). EBITDAre represents net income (loss), computed in accordance with GAAP, before interest expense, tax, depreciation and amortization, gains or losses on the sale of rental property, and loss on impairments. We believe that EBITDAre is helpful to investors as a supplemental measure of our operating performance as a real estate company as it is a direct measure of the actual operating results of our industrial properties. The following table sets forth a reconciliation of our historical net loss to EBITDAre for the periods presented:
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| EBITDAre: | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Net loss | $ | (3,763 | ) | $ | (2,974 | ) | $ | (11,920 | ) | $ | (9,430 | ) | ||||
| Depreciation and amortization | 13,985 | 9,399 | 41,602 | 26,307 | ||||||||||||
| Interest expense | 4,538 | 3,643 | 14,309 | 11,061 | ||||||||||||
| Unrealized appreciation/(depreciation) of warrants | 103 | — | 103 | — | ||||||||||||
| EBITDAre | $ | 14,863 | $ | 10,068 | $ | 44,094 | $ | 27,938 | ||||||||
FFO
Funds from operations, or FFO, is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance. We consider FFO to be an appropriate supplemental measure of our operating performance as it is based on a net income analysis of property portfolio performance that excludes non-cash items such as depreciation. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. In December 2018, NAREIT issued a white paper restating the definition of FFO. The purpose of the restatement was not to change the fundamental definition of FFO, but to clarify existing NAREIT guidance. The restated definition of FFO is as follows: Net Income (calculated in accordance with GAAP), excluding: (i) Depreciation and amortization related to real estate, (ii) Gains and losses from the sale of certain real estate assets, (iii) Gain and losses from change in control, and (iv) Impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.
23
We define FFO, consistent with the NAREIT definition. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis. Other equity REITs may not calculate FFO as we do, and, accordingly, our FFO may not be comparable to such other REITs’ FFO. FFO should not be used as a measure of our liquidity, and is not indicative of funds available for our cash needs, including our ability to pay dividends. FFO attributable to common stockholders and unit holders represents FFO reduced by dividends paid (or declared) to holders of our preferred stock.
The following table sets forth a reconciliation of our historical net loss to FFO attributable to common stockholders and unit holders for the periods presented:
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| FFO: | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Net loss | $ | (3,763 | ) | $ | (2,974 | ) | $ | (11,920 | ) | $ | (9,430 | ) | ||||
| Depreciation and amortization | 13,985 | 9,399 | 41,602 | 26,307 | ||||||||||||
| FFO: | $ | 10,222 | $ | 6,425 | $ | 29,682 | $ | 16,877 | ||||||||
| Preferred stock dividends | (1,613 | ) | (1,566 | ) | (4,839 | ) | (4,698 | ) | ||||||||
| FFO attributable to common stockholders and unit holders | $ | 8,609 | $ | 4,859 | $ | 24,843 | $ | 12,179 | ||||||||
AFFO
Adjusted funds from operations, or AFFO, is presented in addition to FFO. AFFO is defined as FFO, excluding certain non-cash operating revenues and expenses, acquisition and transaction related costs for transactions not completed and recurring capitalized expenditures. Recurring capitalized expenditures include expenditures required to maintain and re-tenant our properties, tenant improvements and leasing commissions. AFFO further adjusts FFO for certain other non-cash items, including the amortization or accretion of above or below market rents included in revenues, straight line rent adjustments, impairment losses, non-cash equity compensation and non-cash interest expense.
We believe AFFO provides a useful supplemental measure of our operating performance because it provides a consistent comparison of our operating performance across time periods that is comparable for each type of real estate investment and is consistent with management’s analysis of the operating performance of our properties. As a result, we believe that the use of AFFO, together with the required GAAP presentations, provide a more complete understanding of our operating performance.
As with FFO, our reported AFFO may not be comparable to other REITs’ AFFO, should not be used as a measure of our liquidity, and is not indicative of our funds available for our cash needs, including our ability to pay dividends.
The following table sets forth a reconciliation of FFO attributable to common stockholders and unit holders to AFFO.
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| AFFO: | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| FFO attributable to common stockholders and unit holders | $ | 8,609 | $ | 4,859 | 24,843 | $ | 12,179 | |||||||||
| Amortization of debt related costs | 386 | 274 | 1,051 | 783 | ||||||||||||
| Non-cash interest expense | (169 | ) | 325 | (79 | ) | 232 | ||||||||||
| Stock compensation | 324 | 282 | 1,056 | 875 | ||||||||||||
| Unrealized appreciation/(depreciation) of warrants | 103 | — | 103 | 181 | ||||||||||||
| Impairment on real estate lease | 311 | — | 311 | — | ||||||||||||
| Straight line rent | (492 | ) | (298 | ) | (1,453 | ) | (778 | ) | ||||||||
| Above/below market lease rents | (449 | ) | (373 | ) | (1,435 | ) | (1,059 | ) | ||||||||
| Recurring capital expenditures (1) | (749 | ) | (976 | ) | (2,504 | ) | (2,222 | ) | ||||||||
| AFFO: | $ | 7,874 | $ | 4,093 | $ | 21,893 | $ | 10,191 | ||||||||
_______________
| (1) | Excludes non-recurring capital expenditures of $1,327 and $1,542 for the three months ended September 30, 2020 and 2019, respectively, and $3,478 and $3,230 for the nine months ended September 30, 2020 and 2019 respectively. |
24
Cash Flow (dollars in thousands)
A summary of our cash flows for the nine months ended September 30, 2020 and 2019 are as follows:
| Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Net cash provided by operating activities | $ | 30,773 | $ | 17,702 | ||||
| Net cash used in investing activities | $ | (145,076 | ) | $ | (95,598 | ) | ||
| Net cash provided by financing activities | $ | 121,548 | $ | 99,736 | ||||
Operating activities: Net cash provided by operating activities for the nine months ended September 30, 2020 increased approximately $13,071 compared to the nine months ended September 30, 2019. The increase was primarily attributable to incremental operating cash flows from acquisitions completed between Q3 2019 and Q3 2020 and same store properties.
Investing activities: Net cash used in investing activities for the nine months ended September 30, 2020 increased approximately $49,478 compared to the nine months ended September 30, 2019 primarily due to property acquisitions completed during the first nine months in 2020 totaling $140,498 as opposed to $92,327 during the first nine months of 2019 and an increase in capital expenditures as a result of our expanded portfolio totaling $1,307.
Financing activities: Net cash provided by financing activities for the nine months ended September 30, 2020 increased $21,812 compared to the nine months ended September 30, 2019. The change was predominantly driven by an increase of $42,187 in net proceeds from secured debt and the line of credit and a decrease in debt issuance costs of $1,794, offset by an increase of $6,693 in dividends paid and a decrease in net proceeds from the issuance of common stock of $15,476.
Liquidity and Capital Resources
We intend to make reserve allocations as necessary to aid our objective of preserving capital for our investors by supporting the maintenance and viability of our properties we acquire in the future. If reserves and any other available income become insufficient to cover our operating expenses and liabilities, it may be necessary to obtain additional funds by borrowing, refinancing properties or liquidating our investments.
Our short-term liquidity requirements consist primarily of funds to pay for operating expenses and other expenditures directly associated with our properties, including:
| · | property expenses that are not borne by our tenants under our leases; | |
| · | principal and interest expense on outstanding indebtedness; | |
| · | general and administrative expenses; and | |
| · | capital expenditures for tenant improvements and leasing commissions. |
In addition, we will require funds for future dividends required to be paid on our Series A and Series B Preferred Stock.
We intend to satisfy our short-term liquidity requirements through our existing cash, cash flow from operating activities and the net proceeds of any potential future offerings.
Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, recurring and non-recurring capital expenditures and scheduled debt maturities. We intend to satisfy our long-term liquidity needs through cash flow from operations, long-term secured and unsecured borrowings, future issuances of equity and debt securities, property dispositions and joint venture transactions, and, in connection with acquisitions of additional properties, the issuance of OP units.
The COVID-19 pandemic continues to create social and economic uncertainty for the Company, its tenants and stakeholders. Given the wide-ranging impacts of the pandemic, coupled with external factors that are outside the control of the Company, the extent of such impacts from the COVID-19 pandemic continues to be dependent on various future developments, which are highly uncertain and cannot be readily predicted. The Company continues to monitor potential liquidity restraints resulting from the COVID-19 pandemic, including the evaluation and potential of delayed non-essential capital and operating expenditures that do not impact the safety or ability to lease and/or renew space, and maintaining sufficient availability under our revolving line of credit. The updated dividend policy effective with the second quarter of 2020 has provided the Company with additional liquidity to fund its short and long-term needs.
As of September 30, 2020, we had available liquidity of approximately $125.4 million, comprised of $25.4 million in cash and cash equivalents and $100 million available on our line of credit. The Company anticipates it will have sufficient liquidity and access to capital resources to meet its current obligations and to meet any scheduled debt maturities.
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Existing Indebtedness as of September 30, 2020
The following is a schedule of our indebtedness as of September 30, 2020 (dollars in thousands):
| Outstanding Balance | Interest rate at September 30, 2020 | Final Maturity Date | ||||||
| Secured debt: | ||||||||
| AIG Loan | $ | 117,723 | 4.08% | November 1, 2023 | ||||
| Transamerica Loan | 73,278 | 4.35% | August 1, 2028 | |||||
| Allianz Loan | 63,115 | 4.07% | April 10, 2026 | |||||
| Minnesota Life Loan | 20,972 | 3.78% | May 1, 2028 | |||||
| JPMorgan Chase Loan | 13,498 | 5.23% | January 1, 2027 | |||||
| Lincoln Life Mortgage | 9,344 | 3.41% | January 10, 2022 | |||||
| Ohio National Life Mortgage | 20,394 | 4.14% | August 1, 2024 | |||||
| KeyBank Term Loan | 81,000 | 2.41%(1) | October 22, 2020 | |||||
| Nationwide Loan | 15,000 | 2.97% | October 1, 2027 | |||||
| Total secured debt | $ | 414,324 | ||||||
| Unamortized debt issuance costs, net | (4,032 | ) | ||||||
| Unamortized premium/(discount), net | 711 | |||||||
| Secured debt, net | 411,003 | |||||||
| Revolving line of credit facility: | ||||||||
| Borrowings under line of credit | — | 2.41%(1) | August 7, 2023 | |||||
| Borrowings under line of credit, net | $ | — | ||||||
_______________
| (1) | The 1-month LIBOR rate as of September 30, 2020 was 0.15%. The spread over the applicable rate for the KeyBank Term Loan and the revolving line of credit with KeyBank is based on the Company’s total leverage ratio. |
Stock Issuances
Universal Shelf S-3 Registration Statement
The Company has approximately $203,534 available for issuance under its Registration Statement on Form S-3 filed on July 30, 2018 with the SEC. The registration statement allows the Company to offer debt or equity securities (or a combination thereof) from time to time.
On August 28, 2020, the Company completed a follow-on public offering of 8,625,000 shares of common stock, including 1,125,000 shares of common stock issued upon exercise of the underwriters’ overallotment option, resulting in net proceeds of approximately $104,488
ATM Program
On August 24, 2018, the Company filed a prospectus supplement to its registration statement on Form S-3, which enabled the Company, at its discretion from time to time, to sell up to $50,000 worth of shares of its common stock by way of an “at-the-market” offering (the “Prior ATM program”).
On February 27, 2020, the Company entered into a distribution agreement with KeyBanc Capital Markets Inc., Barclays Capital Inc., J.P. Morgan Securities, LLC, Capital One Securities, Inc., Robert W. Baird & Co. Incorporated, BMO Capital Markets Corp., D.A. Davidson & Co. and National Securities Corporation pursuant to which the Company may issue and sell, from time to time, shares of its common stock, with aggregate gross sales proceeds of up to $100,000, through an “at-the-market” equity offering program. (the “$100 Million ATM Program”). All $50,000 of common shares available under the Prior ATM Program were issued prior to establishing the $100 Million ATM Program.
For the nine months ending September 30, 2020, the Company has issued 1,654,005 shares of its common stock under both ATM programs for aggregate net proceeds of approximately $23,350. The Company has approximately $86,403 available for issuance under the $100 Million ATM program.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Inflation
The majority of our leases are either triple net or provide for tenant reimbursement for costs related to real estate taxes and operating expenses. In addition, most of the leases provide for fixed rent increases. We believe that inflationary increases may be at least partially offset by the contractual rent increases and tenant payment of taxes and expenses described above. We do not believe that inflation has had a material impact on our historical financial position or results of operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (amounts in thousands)
We are exposed to market risk from changes in interest rates. Interest rate exposure relates primarily to the effect of interest rate changes on borrowings outstanding under our Line of Credit Agreement, which bear interest at a variable rate.
At September 30, 2020, we had $81,000 of outstanding variable rate debt, which was subject to a weighted average interest rate of 2.42% during the three months ended September 30, 2020. Based on the variable rate borrowings outstanding during the three months ended September 30, 2020, we estimate that had the average interest rate on our weighted average borrowings increased by 100 basis points for the three months ended September 30, 2020, our interest expense for the quarter would have increased by approximately $283. This estimate assumes the interest rate of each borrowing is raised by 100 basis points. The impact on future interest expense as a result of future changes in interest rates will depend largely on the gross amount of our borrowings at that time.
Interest Rate Risk (amounts in thousands)
ASC 815, Derivatives and Hedging requires us to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value and the changes in fair value must be reflected as income or expense. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income, which is a component of stockholders’ equity. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. As of September 30, 2020, the Company has no derivative or hedging contracts.
No assurance can be given that any future hedging activities by us will have the desired beneficial effect on our results of operations or financial condition.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2020. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that for the period ending September 30, 2020, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting or in other factors during the quarter ended September 30, 2020, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The nature of our business exposes our properties, us and our Operating Partnership to the risk of claims and litigation in the normal course of business. Other than routine litigation arising out of the ordinary course of business, we are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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Item 6. Exhibits
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101 | The financial information from the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2020 formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheet, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Changes in Preferred Stock and Equity (Deficit), (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. |
| 104 | Cover Page Interactive Data File formatted in Inline XBRL and contained in Exhibit 101. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on our behalf by the undersigned, hereunto duly authorized.
PLYMOUTH INDUSTRIAL REIT, INC.
By: /s/ Jeffrey E. Witherell
Jeffrey E. Witherell,
Chief Executive Officer and
Chairman of the Board of Directors
By: /s/ Daniel C. Wright
Daniel Wright,
Chief Financial Officer
Dated: November 5, 2020
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