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) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
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 accelerated filer ☐ Accelerated
filer ☐
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
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As of November 1, 2021, 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, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Real estate properties | $ | $ | ||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Real estate properties, net | ||||||||
| Cash | ||||||||
| Cash held in escrow | ||||||||
| Restricted cash | ||||||||
| Deferred lease intangibles, net | ||||||||
| Investment in unconsolidated joint venture | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, Preferred Stock and Equity | ||||||||
| Liabilities: | ||||||||
| Secured debt, net | $ | $ | ||||||
| Unsecured debt, net | ||||||||
| Borrowings under line of credit | ||||||||
| Accounts payable, accrued expenses and other liabilities | ||||||||
| Deferred lease intangibles, net | ||||||||
| Financing lease liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 12) | ||||||||
| Preferred stock, par value $ per share, shares authorized, | ||||||||
| Series A: and shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively (aggregate liquidation preference of $ | ||||||||
| Series B: shares issued and outstanding at September 30, 2021 and December 31, 2020, (aggregate liquidation preference of $ | ||||||||
| Equity: | ||||||||
| Common stock, $ par value: shares authorized; and shares issued and outstanding at September 30, 2021 and December 31, 2020, 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 Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Rental revenue | $ | $ | $ | $ | ||||||||||||
| Management fee revenue and other income | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Property | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Impairment on real estate lease | ( | ) | ( | ) | ||||||||||||
| Earnings (loss) in investment of unconsolidated joint venture | ( | ) | ( | ) | ||||||||||||
| Gain on sale of real estate | ||||||||||||||||
| Unrealized (appreciation) depreciation of warrants | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 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
UNAUDITED
(In thousands, except share and per share amounts)
| Preferred Stock Series A $0.01 Par Value | Preferred Stock Series B $0.01 Par Value | Common Stock, $0.01 Par Value | Additional Paid in | Accumulated | Stockholders’ Equity | Non- controlling | Total Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | Interest | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance January 1, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Repurchase and extinguishment of Series A Preferred stock | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||||
| 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, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| 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, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| 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, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||
3
PLYMOUTH INDUSTRIAL REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PREFERRED STOCK AND EQUITY
UNAUDITED
(In thousands, except share and per share amounts)
| Preferred Stock Series A $0.01 Par Value | Preferred Stock Series B $0.01 Par Value | Common Stock, $0.01 Par Value | Additional Paid in | Accumulated | Stockholders’ Equity | Non- controlling | Total 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 | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
PLYMOUTH INDUSTRIAL REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
| For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| 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 | ||||||||
| (Earnings) loss in investment of unconsolidated joint venture | ||||||||
| Gain on sale of real estate | ( | ) | ||||||
| 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 | ( | ) | ( | ) | ||||
| Proceeds from sale of real estate, net | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Proceeds from issuance of common stock, net | ||||||||
| Proceeds from issuance of secured debt | ||||||||
| Proceeds from issuance of unsecured debt | ||||||||
| Repayment of secured debt | ( | ) | ( | ) | ||||
| Proceeds from line of credit facility | ||||||||
| Repayment of line of credit facility | ( | ) | ( | ) | ||||
| Repurchase of Series A Preferred Stock | ( | ) | ||||||
| Debt issuance costs | ( | ) | ( | ) | ||||
| Dividends and distributions paid | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) 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 | $ | $ | ||||||
| Real estate improvements included in accounts payable, accrued expenses and other liabilities | $ | $ | ||||||
| Deferred leasing costs included in accounts payable, accrued expenses and other liabilities | $ | $ | ||||||
| Assumption of secured debt | $ | |||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
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, 2021, and December
31, 2020, the Company owned a
The Company is a real estate investment
trust focused on the acquisition, ownership and management of single and multi-tenant industrial properties, including distribution centers,
warehouses, light industrial and small bay industrial properties, located in primary and secondary markets within the main industrial,
distribution and logistics corridors of the United States. As of September 30, 2021, the Company, through its subsidiaries, owned
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, 2020 and 2019. 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, 2020 and 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the United States Securities and Exchange Commission on February 26, 2021.
Consolidation
We consolidate all entities that are wholly owned and those in which we own less than 100% but control, as well as any variable interest entities (“VIEs”) in which we are the primary beneficiary. We evaluate our ability to control an entity and whether the entity is a variable interest entity and we are the primary beneficiary through consideration of the substantive terms of the arrangement to identify which enterprise has the power to direct the activities of a variable interest entity that most significantly impacts the entity’s economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Investments in entities in which we do not control but over which we have the ability to exercise significant influence over operating and financial policies are presented under the equity method. Investments in entities that we do not control and over which we do not exercise significant influence are carried at the lower of cost or fair value, as appropriate. Our ability to correctly assess our influence and/or control over an entity affects the presentation of these investments in our condensed consolidated financial statements.
Consolidated VIEs are those for which the Company is considered to be the primary beneficiary of a VIE. The primary beneficiary is the entity that has a controlling financial interest in the VIE, which is defined by the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance and (2) the obligation to absorb losses or the right to receive the returns from the VIE that could potentially be significant to the VIE. The Company has determined that the Operating Partnership is a VIE and the Company is the primary beneficiary. The Company's only significant asset is its investment in the Operating Partnership, therefore, substantially all of the Company’s assets and liabilities are the assets and liabilities of the Operating Partnership.
6
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
Risks and Uncertainties
The COVID-19 pandemic continues to be a potential significant risk facing the Company and its tenants. While the Company did not incur any significant disruptions during the three and nine months ended September 30, 2021, it will continue to monitor rent collections and evaluate any tenant rent relief requests on an individual basis. Given the continued uncertainty surrounding the COVID-19 pandemic and the emergence of variants of the virus, the Company is unable to predict the future impacts from the COVID-19 pandemic. As such, our future operating results may be adversely impacted by future developments that impact our tenants’ ability to generate revenue and pay their rent as due.
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 of real estate 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.
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
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. Management fee revenue represents management fees earned from the unconsolidated joint venture. Management fee revenue related to partially owned entities are recognized to the extent attributable to the unaffiliated interest.
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, 2021 and December 31, 2020. The Company maintains cash and restricted cash, which includes tenant security deposits and cash collateral for its borrowings discussed in Note 6, cash held in escrow for real estate tax, insurance, tenant capital improvements and leasing commissions, in bank deposit accounts, which at times may exceed federally insured limits. As of September 30, 2021, the Company has not realized any losses in such cash accounts and believes it mitigates its risk of loss by depositing its cash and restricted cash in highly rated financial institutions.
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, | |||||||
| 2021 | 2020 | |||||||
| Cash | $ | $ | ||||||
| Cash held in escrow | ||||||||
| Restricted cash | ||||||||
| Cash, cash held in escrow, and restricted cash | $ | $ | ||||||
7
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
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 $
Financial instruments include cash, restricted cash, cash held in escrow and reserves, accounts receivable, accounts payable and accrued expenses and other current liabilities, which 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 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 indebtedness and the corresponding estimate of fair value as of September 30, 2021 and December 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||||||||||||
| Indebtedness (in thousands) | Principal Outstanding | Fair Value | Principal Outstanding | Fair Value | ||||||||||||
| Secured debt | $ | $ | $ | $ | ||||||||||||
| Unsecured debt | ||||||||||||||||
| Borrowings under line of credit, net | ||||||||||||||||
| Total | $ | $ | ||||||||||||||
| Unamortized debt issuance cost, net | ( | ) | ( | ) | ||||||||||||
| Unamortized premium/(discount), 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 $
8
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
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.
Investment in Unconsolidated Joint Venture
Investment in unconsolidated joint venture represents a non-controlling equity interest in a joint venture we entered into during October 2020. The Company determined that the venture is not a VIE in accordance with the accounting standard for the consolidation of VIEs. As a result, the Company used the voting interest model under the accounting standard for consolidation in order to determine whether to consolidate the investment in unconsolidated joint ventures. We have concluded that we have the ability to exercise significant influence; however, we do not have control or kick out rights and therefore the investment in the unconsolidated joint venture is accounted for under the equity method of accounting. Accordingly, we initially record our investment at cost, and subsequently adjust for equity in earnings or losses and cash contributions and distributions. Any difference between the carrying amount of these investments on the balance sheet and the underlying equity in net assets will be amortized as an adjustment to equity in income (loss) from unconsolidated real estate over the life of the related asset. Our net equity investment in the joint venture is reflected within the condensed consolidated balance sheets, and our share of net income or loss from the joint venture is included within the condensed consolidated statements of operations.
New Accounting Standards Recently Adopted
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.
New Accounting Pronouncements Issued but Not Yet Adopted
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.
3. Real Estate Properties
Real estate properties consisted of the following at September 30, 2021 and December 31, 2020:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Land | $ | $ | ||||||
| Buildings and improvements | ||||||||
| Site improvements | ||||||||
| Construction in progress | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Real estate properties, net | $ | $ | ||||||
9
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
Depreciation expense was $
Acquisition of Properties
The Company made the following acquisitions of properties during the nine months ended September 30, 2021:
| Location | Date Acquired | Square Feet | Properties | Purchase Price (in thousands) (1) | ||||||
| Kansas City, MO | $ | |||||||||
| St. Louis, MO | ||||||||||
| Chicago, IL | ||||||||||
| Cleveland, OH | ||||||||||
| Columbus, OH | ||||||||||
| Memphis, TN | ||||||||||
| St. Louis, MO | ||||||||||
| Memphis, TN | ||||||||||
| Memphis, TN | ||||||||||
| Chicago, IL | ||||||||||
| St. Louis, MO | (2) | |||||||||
| Total | $ | |||||||||
_______________
| (1) | |
| (2) |
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:
| Nine Months Ended September 30, 2021 | ||||||
| Purchase price allocation | Purchase Price | Weighted Average Amortization Period (years) of Intangibles at Acquisition | ||||
| Total Purchase Price | ||||||
| Purchase price | $ | N/A | ||||
| Acquisition costs | N/A | |||||
| Total | $ | |||||
| Allocation of Purchase Price | ||||||
| Land | $ | N/A | ||||
| Building | N/A | |||||
| Site improvements | N/A | |||||
| 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 | ||||||
| Totals | $ | |||||
All acquisitions completed during the nine months ended September 30, 2021 were considered asset acquisitions under ASC 805.
10
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
Sale of Real Estate
During the nine months ended September
30, 2021, the Company sold a single,
4. Investment in Unconsolidated Joint Venture
On October 23, 2020, a wholly owned
subsidiary of the Operating Partnership entered into a $
For the nine months ended September
30, 2021, we recognized fees of $
5. 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 are subject to changes in the Consumer Price Index (“CPI”).
The Company includes accounts receivable and straight-line rent receivables within other assets in the condensed consolidated balance sheets. For the nine months ended September 30, 2021 and 2020, 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.
Rental revenue is comprised of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| 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 nine months ended September 30, 2021 and 2020 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. For the three months ended September 30, 2021, the Company did not enter into any COVID-19 related concessions. For the nine months ended September 30, 2021, the Company entered into a single COVID-19 related rent deferral concession and concluded that such concession was not a modification of the respective lease.
11
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
As a Lessee
Operating Leases
At September 30, 2021, we have
The following table summarizes the operating lease expense recognized during the three and nine months ended September 30, 2021 included in the Company’s condensed consolidated statements of operations.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating lease expense included in general and administrative expense attributable to office leases | $ | $ | $ | $ | ||||||||||||
| Operating lease expense included in property expense attributable to ground sublease | ||||||||||||||||
| 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 as included in Accounts payable, accrued expenses and other liabilities in the Company’s condensed consolidated balance sheets for the operating leases in which we are the lessee (in thousands):
| October 1, 2021 – December 31, 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total minimum operating lease payments | $ | |||
| Less imputed interest | ( | ) | ||
| Total operating lease liability | $ |
Financing Leases
As of September 30, 2021, we have
a single finance lease in which we are the sublessee for a ground lease. The Company includes the financing lease right of use asset within
real estate properties and the corresponding liability within financing lease liability in the condensed consolidated balance sheet. The
ground sublease agreement does not contain a residual value guarantee and includes multiple options to extend the sublease between nineteen
and twenty years for each respective option. The lease has a remaining lease term of approximately
12
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 summarizes the financing lease expense recognized during the three and nine months ended September 30, 2021 included in the Company’s condensed consolidated statements of operations. There were no financing leases for the three and nine months ended September 30, 2020.
| Three Months Ended | Nine Months Ended | |||||||
| September 30, 2021 | September 30, 2021 | |||||||
| Depreciation/amortization of financing lease right-of-use assets | $ | $ | ||||||
| Interest expense for financing lease liability | ||||||||
| Total financing lease cost | $ | $ | ||||||
The following table summarizes the maturity analysis of our financing lease (in thousands):
| October 1, 2021 – December 31, 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total minimum financing lease payments | $ | |||
| Less imputed interest | ( | ) | ||
| Total financing lease liability | $ |
6. Indebtedness
The following table sets forth a summary of the Company’s borrowings outstanding under its secured and unsecured loans and unsecured line of credit as of September 30, 2021 and December 31, 2020.
| Outstanding Balance at | ||||||||||||
| Loan | September 30, 2021 | December 31, 2020 | Interest rate at September 30, 2021 | Final Maturity Date | ||||||||
| Secured loans: | ||||||||||||
| AIG Loan | $ | $ | November 1, 2023 | |||||||||
| Transamerica Loan | August 1, 2028 | |||||||||||
| Allianz Loan | April 10, 2026 | |||||||||||
| Minnesota Life Loan | May 1, 2028 | |||||||||||
| JPMorgan Chase Loan | January 1, 2027 | |||||||||||
| Lincoln Life Mortgage | January 10, 2022 | |||||||||||
| Ohio National Life Mortgage | August 1, 2024 | |||||||||||
| Nationwide Loan | October 1, 2027 | |||||||||||
| Midland National Life Insurance Mortgage (3) | March 10, 2028 | |||||||||||
| Total secured loans | $ | $ | ||||||||||
| Unamortized debt issuance costs, net | ( | ) | ( | ) | ||||||||
| Unamortized premium/(discount), net | ||||||||||||
| Total secured loans, net | $ | $ | ||||||||||
| Unsecured loans: | ||||||||||||
| $100m KeyBank unsecured term loan (1) | (2) | August 11, 2026 | ||||||||||
| $200m KeyBank unsecured term loan (1) | (2) | February 11, 2027 | ||||||||||
| Total unsecured loans | $ | $ | ||||||||||
| Unamortized debt issuance costs, net | ( | ) | ( | ) | ||||||||
| Total unsecured loans, net | $ | $ | ||||||||||
| Borrowings under line of credit facility: | ||||||||||||
| KeyBank unsecured line of credit (1) | (2) | August 11, 2025 | ||||||||||
| Total borrowings under line of credit | $ | $ | ||||||||||
13
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
_______________
| (1) | |
| (2) | |
| (3) |
Financial Covenant Considerations
The Company is in compliance with all respective financial covenants for our secured and unsecured debt and revolving line of credit facility as of September 30, 2021.
7. Common Stock
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 $
On May 26, 2021, the Company entered
into a distribution agreement with KeyBanc Capital Markets Inc., Robert W. Baird & Co. Incorporated, Barclays Capital Inc., Berenberg
Capital Markets LLC, BMO Capital Markets Corp., Capital One Securities Inc., JMP Securities LLC, J.P. Morgan Securities, LLC, National
Securities Corporation and Wedbush Securities Inc 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 $
On August 10, 2021, the Company
entered into an amendment to the 2021 $125 Million ATM Program (the “2021 Amended ATM Program”) to reference the
Company’s shelf registration statement on Form S-3 that was filed with the Securities and Exchange
Commission on June 11, 2021. The Company, under the 2021 Amended ATM Program, 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, 2021, the Company issued shares of its common stock under the 2020 $100 Million ATM Program, 2021 $125 Million ATM Program,
and the 2021 Amended ATM Program for aggregate 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, 2021 | $ | |||
| Unrealized appreciation (depreciation) | ||||
| Balance at September 30, 2021 | $ |
14
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
The warrants in the amount of $
Common Stock Dividends
The following table sets forth the common stock distributions that were declared during the nine months ended September 30, 2021 and the year ended December 31, 2020.
| Cash Dividends Declared per Share | Aggregate Amount | |||||||
| 2021 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| 2020 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| Fourth quarter | $ | $ | ||||||
8. Preferred Stock
Series A Preferred Stock
The table below sets forth the Company’s outstanding Series A Preferred Stock as of September 30, 2021:
| 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, 2021 and the year ended December 31, 2020.
| Cash Dividends Declared per Share | Aggregate Amount | |||||||
| 2021 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| 2020 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| Fourth quarter | $ | $ | ||||||
15
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
Series B Preferred Stock
The table below sets forth the Company’s outstanding Series B Convertible Redeemable Preferred Stock as of September 30, 2021.
| Preferred Stock Issuance | Issuance Date |
Number of Shares |
Liquidation Value per Share |
Current Dividend Rate | |||||||
| Series B Convertible Redeemable Preferred Stock |
$ | ||||||||||
The following table sets forth the Series B preferred stock dividends for the nine months ended September 30, 2021 and the year ended December 31, 2020.
| Cash Dividends Declared per Share | Aggregate Amount | |||||||
| 2021 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| 2020 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| Fourth quarter | $ | $ | ||||||
9. Non-Controlling Interests
Operating Partnership Units
In connection with prior acquisitions
of real estate property, the Company, through its Operating Partnership, had issued Operating Partnership Units (“OP Units”)
to the former owners as part of the acquisition price. The holders of the OP Units are entitled to receive distributions concurrent with
the dividends paid on our common stock. The holders of the OP Units can also convert their respective OP Units for the Company’s
common stock on a 1-to-1 basis. Upon conversion, the Company adjusts the carrying value of noncontrolling interest to reflect its modified
share of the book value of the Operating Partnership. Such adjustments are recorded to additional paid-in capital as a reallocation of
noncontrolling interest on the accompanying condensed consolidated statements of changes in preferred stock and equity. OP Units outstanding
as of September 30, 2021 and December 31, 2020, were
The following table sets forth the OP Unit distributions that were declared during the nine months ended September 30, 2021 and the year ended December 31, 2020.
| Cash Distributions Declared per OP Unit | Aggregate Amount | |||||||
| 2021 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| 2020 | ||||||||
| First quarter | $ | $ | ||||||
| Second quarter | $ | $ | ||||||
| Third quarter | $ | $ | ||||||
| Fourth quarter | $ | $ | ||||||
16
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
The proportionate share of the
loss attributed to the partnership units was $
| Shares | ||||
| Unvested restricted stock at January 1, 2021 | ||||
| Granted | ||||
| Forfeited | ( | ) | ||
| Vested | ( | ) | ||
| Unvested restricted stock at September 30, 2021 | ||||
The Company recorded equity-based compensation expense in the amount of $ and $ for the nine months ended September 30, 2021 and 2020, 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, 2021 was approximately $ and is expected to be recognized over a weighted average period of approximately years. The fair value of the restricted shares granted during the nine months ended September 30, 2021 was approximately $ with a weighted average fair value of $ per share.
Net loss per Common Share
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| 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 nonforfeitable 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, 2021 include the 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.
17
Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)
12. Commitments and Contingencies
Employment Agreements
The Company has entered into employment
agreements with the Company’s Chief Executive Officer, President and Chief Investment Officer, 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.
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.
13. Subsequent Events
On October 5, 2021, the Company acquired
a single-building, single-tenant industrial property, consisting of approximately
On October 7, 2021, the Company
acquired a multi-building, multi-tenant industrial property, consisting of approximately
On October 12, 2021, the Company
repaid in full, the outstanding principal and interest balance of approximately $
On October 26, 2021, the Company acquired a single-building, multi-tenant industrial property, consisting of approximately 294,730 square feet, located in Indianapolis, Indiana for an aggregate purchase price of $23,100.
18
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, continued 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, 2021 and 2020 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, 2020 (the “2020 10-K“) filed with the United States Securities and Exchange Commission (the “SEC”) on February 26, 2021, including the audited historical financial statements and related notes thereto as of and for the years ended December 31, 2020 and 2019 contained therein, which is accessible on the SEC’s website at www.sec.gov.
Overview
The Company is a real estate investment trust strategically focused on the acquisition, ownership and management of single and multi-tenant industrial properties, including distribution centers, warehouses, light industrial and small bay industrial properties, located in primary and secondary markets within the main industrial, distribution and logistics corridors of the United States. As of September 30, 2021, the Company, through its subsidiaries, owned 117 industrial properties comprising 152 buildings with an aggregate of approximately 26.6 million square feet.
19
We are also evaluating diversifying our portfolio of real estate assets to include the origination or acquisition of mortgage, bridge or mezzanine loans, all of which would be collateralized by properties that meet investment criteria that are substantially the same as our real estate portfolio or that are complementary to our existing assets. The Company believes expanding its investment strategy to include these types of real estate-related assets will enable it to deploy its capital efficiently to continue to grow at times when acquisitions of industrial properties are limited due either to availability or cost.
We seek to generate attractive risk-adjusted returns for our stockholders through a combination of dividends and capital appreciation.
Factors That May Influence Future Results of Operations
Business and Strategy
Our core investment strategy is to acquire industrial properties located in primary and secondary markets across the U.S. We expect to acquire these properties through third-party purchases and structured sale-leasebacks where we believe we can achieve high initial yields and strong ongoing cash-on-cash returns.
Our target markets are located in primary and secondary markets because we believe these markets tend to have less occupancy and rental rate volatility and less buyer competition relative to gateway markets. We also believe that the systematic aggregation of such properties will result in a diversified portfolio that will produce sustainable risk-adjusted returns. Future results of operations may be affected, either positively or negatively, by our ability to effectively execute this strategy.
We also intend to continue pursuing joint venture arrangements with institutional partners which could provide management fee income as well as residual profit-sharing income. Such joint ventures may involve investing in industrial assets that would be characterized as opportunistic or value-add investments. These may involve development or redevelopment strategies that may require significant up-front capital expenditures, lengthy lease-up periods and result in inconsistent cash flows. As such, these properties’ risk profiles and return metrics would likely differ from the non-joint venture properties that we target for acquisition.
Impact of COVID-19
The Company did not incur any significant disruptions during the three and nine months ended September 30, 2021 related to the COVID-19 pandemic. While our results for the third quarter of 2021 were in line with our expectations, the continuation of the COVID-19 pandemic and the significant and wide-ranging efforts of federal, state, and local public health and governmental authorities in regions across the United States to combat the spread of the virus and provide stimulus to their respective economies has increased volatility within the financial markets.
As a result of the continued uncertainty surrounding the economic environment due to the COVID-19 pandemic, we expect that such statistical and other information provided below may 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 future periods.
| • | As of September 30, 2021, we have collected approximately 99.3% of recurring base rents and tenant recoveries billed for the third quarter of 2021; however, collections to-date may not be indicative of collections in any future period. | |
| • | As of September 30, 2021, we entered into a single COVID-19 related rent deferral representing 0.1% of $106.7 million of annualized base rent (“ABR”). ABR is defined/calculated as the annualized monthly contractual base rent per the lease, excluding any rent abatements, as of September 30, 2021. All deferred rent concessions the Company granted during 2020 were fully repaid. |
In an effort to stabilize our operations and manage the impact of COVID-19, we continue to take 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 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 $63.7 million in cash and cash equivalents and approximately $99.4 million of borrowing capacity on our KeyBank unsecured line of credit as of September 30, 2021 to address near-term working capital and other liquidity needs. |
Rental Revenue and Tenant Recoveries
We receive income primarily from rental revenue from our properties. The amount of rental revenue generated by the Company’s portfolio depends principally on the occupancy levels and lease rates at our properties, our ability to lease currently available space and space that becomes available as a result of lease expirations and on the rental rates at our properties. As of September 30, 2021, the Company’s portfolio was approximately 96.3% 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.
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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, 2021 through to December 31, 2023, an aggregate of 27.3% of the annualized base rent leases in the Company’s portfolio are scheduled to expire, which we believe will provide us an opportunity to adjust below market rates as market conditions continue to improve.
The table below reflects certain data about our new and renewed leases with terms of greater than six months executed in the nine months ended September 30, 2021.
| Period | Type | Square Footage |
% of Total Square Footage |
Expiring Rent |
New Rent | % Change | Tenant Improvements $/SF/YR |
Lease Commissions $/SF/YR |
||||||||||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||
| Renewals | 2,284,695 | 51.3% | $ | 4.11 | $ | 4.36 | 6.1% | $ | 0.19 | $ | 0.09 | |||||||||||||||||
| New Leases | 2,169,348 | 48.7% | $ | 3.83 | $ | 4.36 | 13.8% | $ | 0.22 | $ | 0.22 | |||||||||||||||||
| Total/weighted average | 4,454,043 | 100% | $ | 3.98 | $ | 4.36 | 9.5% | $ | 0.20 | $ | 0.14 | |||||||||||||||||
Conditions in Our Markets
The Company’s portfolio is located in various primary and secondary markets within the main industrial distribution and logistics corridors of the United States. Positive or negative changes in economic or other conditions, adverse weather conditions and natural disasters in these markets are likely to affect our overall performance.
Property Expenses
Our rental expenses generally consist of utilities, real estate taxes, insurance and repair and maintenance costs. For the majority of the Company’s portfolio, property expenses are controlled, in part, by either the triple net provisions or modified gross lease expense reimbursement provisions in tenant leases. However, the terms of our tenant leases vary and in some instances the leases may provide that we are responsible for certain property expenses. Accordingly, our overall financial results will be impacted by the extent to which we are able to pass-through property expenses to our tenants.
General and Administrative Expenses
We expect to incur increased general and administrative expenses, including legal, accounting and other expenses related to corporate governance and public reporting and compliance. In addition, we anticipate that our staffing levels will increase from current levels as of September 30, 2021 during the subsequent 12 to 24 months and, as a result, our general and administrative expenses will increase further.
Critical Accounting Policies
Our financial statements are prepared in accordance with GAAP. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes significant estimates regarding the allocation of tangible and intangible assets or business acquisitions, impairments of long-lived assets, stock-based compensation and its common stock warrants liability. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Management adjusts such estimates when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from those estimates and assumptions.
During the nine months ended September 30, 2021, 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 26, 2021 and the notes to the financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. We believe that the following critical accounting policies involve the most judgment and complexity:
| • | Investments in Real Estate | |
| • | Impairment of Long-lived assets | |
| • | Consolidation |
Accordingly, we believe the policies set forth in our 2020 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.
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Results of Operations (amounts in thousands)
Our consolidated results of operations are often not comparable from period to period due to the effect of property acquisitions and dispositions completed during the comparative reporting periods. Our Total Portfolio represents all of the properties owned during the reported periods. To eliminate the effect of changes in our Total Portfolio due to acquisitions, dispositions and other, and to highlight the operating results of our on-going business, we have separately presented the results of our Same Store Properties Portfolio and Acquisitions, Dispositions and Other.
For the three and nine months ended September 30, 2021 and 2020, we define the Same Store Portfolio as a subset of our Total Portfolio and includes properties that were wholly-owned by us for the entire period presented. We define Acquisitions, Dispositions and Other as any properties that were acquired, sold or held for development or repurposing during the period from January 1, 2020 through September 30, 2021.
Three Months Ended September 30, 2021 Compared to September 30, 2020
The following table summarizes the results of operations for our Same Store Portfolio, our acquisitions, dispositions and other and total portfolio for the three months ended September 30, 2021 and 2020 (dollars in thousands):
| Same Store Portfolio | Acquisitions, Dispositions and Other | Total Portfolio | |||||||||||||||||||||||||||||||||||||||||||
| Three
Months Ended September 30, |
Change | Three
Months Ended September 30, |
Change | Three
Months Ended September 30, |
Change | ||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | $ | % | 2021 | 2020 | $ | % | 2021 | 2020 | $ | % | ||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||
| Rental revenue | $ | 24,778 | $ | 23,986 | $ | 792 | 3.3% | $ | 11,099 | $ | 3,532 | $ | 7,567 | 214.2% | $ | 35,877 | $ | 27,518 | $ | 8,359 | 30.4% | ||||||||||||||||||||||||
| Management fee revenue and other income | — | — | — | — | 85 | — | 85 | — | 85 | — | 85 | — | |||||||||||||||||||||||||||||||||
| Total revenues | 24,778 | 23,986 | 792 | 3.3% | 11,184 | 3,532 | 7,652 | 216.6% | 35,962 | 27,518 | 8,444 | 30.7% | |||||||||||||||||||||||||||||||||
| Property expenses | 9,363 | 9,015 | 348 | 3.9% | 2,669 | 1,049 | 1,620 | 154.4% | 12,032 | 10,064 | 1,968 | 19.6% | |||||||||||||||||||||||||||||||||
| Depreciation and amortization | 18,305 | 13,985 | 4,320 | 30.9% | |||||||||||||||||||||||||||||||||||||||||
| General and administrative | 3,264 | 2,280 | 984 | 43.2% | |||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 33,601 | 26,329 | 7,272 | 27.6% | |||||||||||||||||||||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | (4,906 | ) | (4,538 | ) | (368 | ) | 8.1% | ||||||||||||||||||||||||||||||||||||||
| Impairment on real estate lease | — | (311 | ) | 311 | 100.0% | ||||||||||||||||||||||||||||||||||||||||
| Earnings (loss) in investment of unconsolidated joint venture | (178 | ) | — | (178 | ) | — | |||||||||||||||||||||||||||||||||||||||
| Unrealized (appreciation) depreciation of warrants | (926 | ) | (103 | ) | (823 | ) | 799.0% | ||||||||||||||||||||||||||||||||||||||
| Total other income (expense) | (6,010 | ) | (4,952 | ) | (1,058 | ) | 21.4% | ||||||||||||||||||||||||||||||||||||||
| Net loss | $ | (3,649 | ) | $ | (3,763 | ) | $ | 114 | (3.0% | ) | |||||||||||||||||||||||||||||||||||
Rental revenue: Rental revenue increased by $8,359 to $35,877 for the three months ended September 30, 2021 as compared to $27,518 for the three months ended September 30, 2020. This was primarily related to a net increase of $7,567 within acquisitions, dispositions and other due to an increase in rental revenue from acquisitions, an increase of $792 from same store properties primarily from an increase in rent income of $105 due to scheduled rent steps, leasing activities, and an increase of $691 in tenant reimbursements partially offset by a decrease in non-cash rent adjustments of $4 for the three months ended September 30, 2021.
Property expenses: Property expenses increased $1,968 for the three months ended September 30, 2021 to $12,032 as compared to $10,064 for the three months ended September 30, 2020. This was primarily due to a net increase of $1,620 within acquisitions, dispositions and other due to property expenses related to acquisitions. Property expenses for the same store properties increased approximately $348 driven by an increase in real estate taxes and operating expenses.
Depreciation and amortization: Depreciation and amortization expense increased by $4,320 to $18,305 for the three months ended September 30, 2021 as compared to $13,985 for the three months ended September 30, 2020, primarily due to a net increase of $5,831 within acquisitions, dispositions and other, partially offset by a decrease of $1,511 for the same store properties.
General and administrative: General and administrative expenses increased approximately $984 to $3,264 for the three months ended September 30, 2021 as compared to $2,280 for the three months ended September 30, 2020. The increase is attributable primarily to increased compensation expense of $396 due to increased head count, an increase in non-cash stock compensation of $16 and an increase in director’s fees of $50.
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Interest expense: Interest expense increased by approximately $368 to $4,906 for the three months ended September 30, 2021, as compared to $4,538 for the three months ended September 30, 2020. The increase is primarily due to additional borrowings associated with our acquisition activity during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The schedule below is a comparative analysis of the components of interest expense for the three months ended September 30, 2021 and 2020.
| Three Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Changes in accrued interest | $ | 41 | $ | (169 | ) | |||
| Amortization of debt related costs | 424 | 386 | ||||||
| Total change in accrued interest and amortization of debt related costs | 465 | 217 | ||||||
| Cash interest paid | 4,441 | 4,321 | ||||||
| Total interest expense | $ | 4,906 | $ | 4,538 | ||||
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 recorded during the three months ending September 30, 2020. There were no impairment on real estate leases during the three months ending September 30, 2021.
Earnings (loss) in investment of unconsolidated joint venture: Earnings (loss) in investment of unconsolidated joint venture represents the Company’s pro-rata share of the net loss recognized by the MIR JV of $178 during the three months ending September 30, 2021. There was no pro-rata share of net loss recognized for the MIR JV during the three months ended September 30, 2020.
Unrealized (appreciation) depreciation of warrants: Unrealized appreciation of warrants represents the change in the fair market value of our common stock warrants. The fair value of warrant derivative adjustment increased by approximately $823 to $926 for the three months ended September 30, 2021, as compared to $103 for the three months ended September 30, 2020. The increase was due to an increase in the common stock warrant liability during the third quarter of 2021.
Nine Months Ended September 30, 2021 Compared to September 30, 2020
The following table summarizes the results of operations for our Same Store Portfolio, our acquisitions, dispositions and other and total portfolio for the nine months ended September 30, 2021 and 2020 (dollars in thousands):
| Same Store Portfolio | Acquisitions, Dispositions and Other | Total Portfolio | |||||||||||||||||||||||||||||||||||||||||||
| Nine
Months Ended September 30, |
Change | Nine
Months Ended September 30, |
Change | Nine
Months Ended September 30, |
Change | ||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | $ | % | 2021 | 2020 | $ | % | 2021 | 2020 | $ | % | ||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||
| Rental revenue | $ | 73,099 | $ | 71,048 | $ | 2,051 | 2.9% | $ | 27,369 | $ | 8,836 | $ | 18,533 | 209.7% | $ | 100,468 | $ | 79,884 | $ | 20,584 | 25.8% | ||||||||||||||||||||||||
| Management fee revenue and other income | — | — | — | — | 265 | — | 265 | — | 265 | — | 265 | — | |||||||||||||||||||||||||||||||||
| Total revenues | 73,099 | 71,048 | 2,051 | 2.9% | 27,634 | 8,836 | 18,798 | 212.7% | 100,733 | 79,884 | 20,849 | 26.1% | |||||||||||||||||||||||||||||||||
| Property expenses | 27,633 | 25,454 | 2,179 | 8.6% | 6,765 | 2,647 | 4,118 | 155.6% | 34,398 | 28,101 | 6,297 | 22.4% | |||||||||||||||||||||||||||||||||
| Depreciation and amortization | 50,984 | 41,602 | 9,382 | 22.6% | |||||||||||||||||||||||||||||||||||||||||
| General and administrative | 9,582 | 7,378 | 2,204 | 29.9% | |||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 94,964 | 77,081 | 17,883 | 23.2% | |||||||||||||||||||||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | (14,489 | ) | (14,309 | ) | (180 | ) | 1.3% | ||||||||||||||||||||||||||||||||||||||
| Impairment on real estate lease | — | (311 | ) | 311 | 100.0% | ||||||||||||||||||||||||||||||||||||||||
| Earnings (loss) in investment of unconsolidated joint venture | (675 | ) | — | (675 | ) | — | |||||||||||||||||||||||||||||||||||||||
| Unrealized (appreciation) depreciation of warrants | (1,809 | ) | (103 | ) | (1,706 | ) | 1,656.3% | ||||||||||||||||||||||||||||||||||||||
| Gain on sale of real estate | 590 | — | 590 | — | |||||||||||||||||||||||||||||||||||||||||
| Total other income (expense) | (16,383 | ) | (14,723 | ) | (1,660 | ) | 11.3% | ||||||||||||||||||||||||||||||||||||||
| Net loss | $ | (10,614 | ) | $ | (11,920 | ) | $ | 1,306 | (11.0% | ) | |||||||||||||||||||||||||||||||||||
Rental revenue: Rental revenue increased by $20,584 to $100,468 for the nine months ended September 30, 2021 as compared to $79,884 for the nine months ended September 30, 2020. This was primarily related to a net increase of $18,533 within acquisitions, dispositions and other due to an increase in rental revenue from acquisitions, an increase of $2,051 from same store properties primarily from an increase in rent income of $431 due to scheduled rent steps and leasing activities, an increase of $1,252 in tenant reimbursements, and an increase in non-cash rent adjustments of $367 for the nine months ended September 30, 2021.
Property expenses: Property expenses increased $6,297 for the nine months ended September 30, 2021 to $34,398 as compared to $28,101 for the nine months ended September 30, 2020. This was primarily due to a net increase of $4,118 within acquisitions, dispositions and other due to property expenses related to acquisitions. Property expenses for the same store properties increased approximately $2,179 driven by an increase in real estate taxes and operating expenses.
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Depreciation and amortization: Depreciation and amortization expense increased by $9,382 to $50,984 for the nine months ended September 30, 2021 as compared to $41,602 for the nine months ended September 30, 2020, primarily due to a net increase of $13,237 within acquisitions, dispositions and other, partially offset by a decrease of $3,852 for the same store properties.
General and administrative: General and administrative expenses increased approximately $2,204 to $9,582 for the nine months ended September 30, 2021 as compared to $7,378 for the nine months ended September 30, 2020. The increase is attributable primarily to increased compensation expense of $1,140 due to increased head count, an increase in non-cash stock compensation of $162 and an increase in director’s fees of $139.
Interest expense: Interest expense increased by approximately $180 to $14,489 for the nine months ended September 30, 2021, as compared to $14,309 for the nine months ended September 30, 2020. The increase is primarily due to additional borrowings associated with our acquisition activity during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The schedule below is a comparative analysis of the components of interest expense for the nine months ended September 30, 2021 and 2020.
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Change in accrued interest | $ | (31 | ) | $ | (79 | ) | ||
| Amortization of debt related costs | 1,163 | 1,051 | ||||||
| Total change in accrued interest and amortization of debt related costs | 1,132 | 972 | ||||||
| Cash interest paid | 13,357 | 13,337 | ||||||
| Total interest expense | $ | 14,489 | $ | 14,309 | ||||
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 recorded during the nine months ending September 30, 2020. There were no impairment on real estate leases during the nine months ending September 30, 2021.
Earnings (loss) in investment of unconsolidated joint venture: Earnings (loss) in investment of unconsolidated joint venture represents the Company’s pro-rata share of the net loss recognized by the MIR JV of $675 during the nine months ending September 30, 2021. There was no pro-rata share of net loss recognized for the MIR JV during the nine months ended September 30, 2020.
Unrealized (appreciation) depreciation of warrants: Unrealized appreciation of warrants represents the change in the fair market value of our common stock warrants. The fair value of warrant derivative adjustment increased by approximately $1,706 to $1,809 for the nine months ended September 30, 2021, as compared to $103 for the nine months ended September 30, 2020. The increase was due to an increase in the common stock warrant liability during the first three quarters of 2021.
Gain on sale of real estate: Gain on sale of real estate of $590 represents the gain realized on the sale of real estate during the nine months ended September 30, 2021. There were no sales of real estate during the nine months ended September 30, 2020.
Supplemental Earnings Measures (dollars in thousands)
Investors in and industry analysts following the real estate industry utilize supplemental earnings measures such as net operating income (“NOI), earnings before interest, taxes, depreciation and amortization for real estate (“EBITDAre”), funds from operations (“FFO”), core funds from operations (“Core FFO”) and adjusted funds from operations (“AFFO”) as supplemental operating performance measures of an equity REIT. Historical cost accounting for real estate assets in accordance with accounting principles generally accepted in the United States of America ("GAAP") implicitly assumes that the value of real estate assets diminishes predictably over time through depreciation. Since real estate values instead have historically risen or fallen with market conditions, many industry analysts and investors prefer to supplement operating results that use historical cost accounting with measures such as NOI, EBITDAre, FFO, Core FFO and AFFO, among others. We provide information related to NOI, EBITDAre, FFO, Core FFO and AFFO both because such industry analysts are interested in such information, and because our management believes NOI, EBITDAre, FFO, Core FFO and AFFO are important performance measures. NOI, EBITDAre, FFO, Core FFO and AFFO are factors used by management in measuring our performance. Neither NOI, EBITDAre, FFO, Core FFO or AFFO should be considered as a substitute for net income, or any other measures derived in accordance with GAAP. Neither NOI, EBITDAre, FFO, Core FFO or AFFO represents cash generated from operating activities in accordance with GAAP and neither should be considered as an alternative to cash flow from operating activities as a measure of our liquidity, nor is either indicative of funds available for our cash needs, including our ability to make cash distributions.
NOI
We consider net operating income, or NOI, to be an appropriate supplemental measure to net income in that it helps both investors and management understand the core operations of our properties. We define NOI as total revenue (including rental revenue and tenant reimbursements) less property-level operating expenses. NOI excludes depreciation and amortization, general and administrative expenses, impairments, gain/loss on sale of real estate, interest expense, and other non-operating items.
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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: | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net loss | $ | (3,649 | ) | $ | (3,763 | ) | $ | (10,614 | ) | $ | (11,920 | ) | ||||
| General and administrative | 3,264 | 2,280 | 9,582 | 7,378 | ||||||||||||
| Depreciation and amortization | 18,305 | 13,985 | 50,984 | 41,602 | ||||||||||||
| Interest expense | 4,906 | 4,538 | 14,489 | 14,309 | ||||||||||||
| Impairment on real estate lease | — | 311 | — | 311 | ||||||||||||
| Gain on sale of real estate | — | — | (590 | ) | — | |||||||||||
| Unrealized appreciation (depreciation) of warrants | 926 | 103 | 1,809 | 103 | ||||||||||||
| (Earnings) loss in investment of unconsolidated joint venture | 178 | — | 675 | — | ||||||||||||
| Management fee revenue and other income | (85 | ) | — | (265 | ) | — | ||||||||||
| NOI | $ | 23,845 | $ | 17,454 | $ | 66,070 | $ | 51,783 | ||||||||
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: | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net loss | $ | (3,649 | ) | $ | (3,763 | ) | $ | (10,614 | ) | $ | (11,920 | ) | ||||
| Depreciation and amortization | 18,305 | 13,985 | 50,984 | 41,602 | ||||||||||||
| Interest expense | 4,906 | 4,538 | 14,489 | 14,309 | ||||||||||||
| Unrealized appreciation (depreciation) of warrants | 926 | 103 | 1,809 | 103 | ||||||||||||
| Gain on sale of real estate | — | — | (590 | ) | — | |||||||||||
| EBITDAre | $ | 20,488 | $ | 14,863 | $ | 56,078 | $ | 44,094 | ||||||||
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.
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. Core FFO represents FFO reduced by dividends paid (or declared) to holders of our preferred stock and excludes certain non-cash operating expenses such as impairment on real estate lease, unrealized appreciation/(depreciation) of warrants and loss on extinguishment of debt. As with FFO, our reported Core FFO may not be comparable to other REITs’ Core FFO, 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.
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The following table sets forth a reconciliation of our historical net loss to FFO and Core FFO for the periods presented:
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| FFO: | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net loss | $ | (3,649 | ) | $ | (3,763 | ) | $ | (10,614 | ) | $ | (11,920 | ) | ||||
| Gain on sale of real estate | — | — | (590 | ) | — | |||||||||||
| Depreciation and amortization | 18,305 | 13,985 | 50,984 | 41,602 | ||||||||||||
| Depreciation and amortization from unconsolidated joint venture | 374 | — | 1,176 | — | ||||||||||||
| FFO: | $ | 15,030 | $ | 10,222 | $ | 40,956 | $ | 29,682 | ||||||||
| Preferred stock dividends | (1,652 | ) | (1,613 | ) | (4,956 | ) | (4,839 | ) | ||||||||
| Unrealized appreciation (depreciation) of warrants | 926 | 103 | 1,809 | 103 | ||||||||||||
| Core FFO | $ | 14,304 | $ | 8,712 | $ | 37,809 | $ | 24,946 | ||||||||
AFFO
Adjusted funds from operations, or AFFO, is presented in addition to Core FFO. AFFO is defined as Core 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 Core 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, 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 Core 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: | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Core FFO | $ | 14,304 | $ | 8,712 | 37,809 | $ | 24,946 | |||||||||
| Amortization of debt related costs | 424 | 386 | 1,163 | 1,051 | ||||||||||||
| Non-cash interest expense | 41 | (169 | ) | (31 | ) | (79 | ) | |||||||||
| Stock compensation | 340 | 324 | 1,219 | 1,056 | ||||||||||||
| Impairment on real estate lease | — | 311 | — | 311 | ||||||||||||
| Straight line rent | (966 | ) | (492 | ) | (2,726 | ) | (1,453 | ) | ||||||||
| Above/below market lease rents | (480 | ) | (449 | ) | (1,589 | ) | (1,435 | ) | ||||||||
| Recurring capital expenditures (1) | (3,312 | ) | (749 | ) | (6,727 | ) | (2,504 | ) | ||||||||
| AFFO: | $ | 10,351 | $ | 7,874 | $ | 29,118 | $ | 21,893 | ||||||||
_______________
| (1) | Excludes non-recurring capital expenditures of $8,524 and $1,327 for the three months ended September 30, 2021 and 2020, respectively, and $16,109 and $3,478 for the nine months ended September 30, 2021 and 2020 respectively. |
Cash Flow (dollars in thousands)
A summary of our cash flows for the nine months ended September 30, 2021 and 2020 are as follows:
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash provided by operating activities | $ | 34,547 | $ | 30,773 | ||||
| Net cash used in investing activities | $ | (179,800 | ) | $ | (145,076 | ) | ||
| Net cash provided by financing activities | $ | 192,142 | $ | 121,548 | ||||
Operating activities: Net cash provided by operating activities for the nine months ended September 30, 2021 increased approximately $3,774 compared to the nine months ended September 30, 2020. The increase was primarily attributable to incremental operating cash flows from acquisitions completed between Q3 2020 and Q2 2021 and same store properties.
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Investing activities: Net cash used in investing activities for the nine months ended September 30, 2021 increased approximately $34,724 compared to the nine months ended September 30, 2020 primarily due to property acquisitions completed during the first nine months in 2021 totaling $166,374 as opposed to $140,498 during the first nine months of 2020, an increase in capital expenditures of $11,052, and proceeds from the sale of real estate property and land parcel of $2,204 during the first nine months of 2021. There were no sales of real estate property for the first nine months of 2020.
Financing activities: Net cash provided by financing activities for the nine months ended September 30, 2021 increased $70,594 compared to the nine months ended September 30, 2020. The change was predominantly driven by an increase of $32,547 in net proceeds from the issuance of common stock, an increase of $42,735 in net proceeds from secured and unsecured debt and the line of credit, offset by an increase in debt offering costs of $1,181 and an increase of $3,495 in dividends paid.
Liquidity and Capital Resources
We intend to make reserve contributions as necessary to aid our objective of preserving capital for our investors by supporting the maintenance and viability of 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 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 that does not impact the safety or ability to lease and/or renew space and maintaining sufficient availability under our revolving line of credit.
As of September 30, 2021, we had available liquidity of approximately $163.1 million, comprised of $63.7 million in cash and cash equivalents and $99.4 million of borrowing capacity on our KeyBank unsecured 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, 2021
The following is a schedule of our indebtedness as of September 30, 2021:
| Outstanding Balance | Interest rate at September 30, 2021 | Final Maturity Date | ||||||
| Secured debt: | ||||||||
| AIG Loan | $ | 115,139 | 4.08% | November 1, 2023 | ||||
| Transamerica Loan | 71,983 | 4.35% | August 1, 2028 | |||||
| Allianz Loan | 63,115 | 4.07% | April 10, 2026 | |||||
| Minnesota Life Loan | 20,558 | 3.78% | May 1, 2028 | |||||
| JPMorgan Chase Loan | 13,266 | 5.23% | January 1, 2027 | |||||
| Lincoln Life Mortgage | 9,121 | 3.41% | January 10, 2022 | |||||
| Ohio National Life Mortgage | 19,810 | 4.14% | August 1, 2024 | |||||
| Nationwide Loan | 15,000 | 2.97% | October 1, 2027 | |||||
| Midland National Life Insurance Mortgage(3) | 10,820 | 3.50% | March 10, 2028 | |||||
| Total secured debt | 338,812 | |||||||
| Unamortized debt issuance costs, net | (3,086 | ) | ||||||
| Unamortized premium/(discount), net | 499 | |||||||
| Secured debt, net | 336,225 | |||||||
| Unsecured debt: | ||||||||
| $100m KeyBank Term Loan (1) | 100,000 | 1.58% (2) | August 11, 2026 | |||||
| $200m KeyBank Term Loan (1) | 150,000 | 1.58% (2) | February 11, 2027 | |||||
| Total unsecured debt | 250,000 | |||||||
| Unamortized debt issuance costs, net | (2,271 | ) | ||||||
| Unsecured debt, net | 247,729 | |||||||
_______________
| (1) | On August 11, 2021, the Company entered into a combined $500 million unsecured credit facility, which is comprised of an amended $200 million revolving credit facility (the “KeyBank unsecured line of credit”), an amended $100 million term loan (the “$100m KeyBank unsecured term loan”), and a new $200 million term loan (“the $200m KeyBank unsecured term loan”). The combined unsecured credit facility has an accordion feature enabling the Company to increase the total borrowing capacity under the credit facility up to an aggregate of $1 billion, subject to certain conditions. The amended KeyBank unsecured line of credit matures in August 2025 and has two, six-month extension options, subject to certain conditions, the amended $100m KeyBank unsecured term loan matures in August 2026, and the new $200m KeyBank unsecured term loan matures in February 2027. Amounts outstanding under the KeyBank unsecured line of credit bear interest at LIBOR plus a margin between 135 to 190 basis points with no LIBOR floor and amounts outstanding under the $100m KeyBank unsecured term loan and $200m KeyBank unsecured term loan term facilities bear interest at LIBOR plus a margin between 130 and 185 basis points, in either case depending on the Company’s leverage. |
| (2) | The 1-month LIBOR rate as of September 30, 2021 was 0.08%. The spread over the applicable rate for the $100m and $200m KeyBank unsecured term loans and the KeyBank unsecured line of credit is based on the Company’s total leverage ratio. |
| (3) | On August 12, 2021, a wholly-owned subsidiary of the Operating Partnership assumed a mortgage (the “Midland Mortgage”) with a balance of $10,820 as part of our acquisition of the property in Chicago, Illinois. The Midland Mortgage, held by Midland National Life Insurance Company, matures on March 10, 2028, bears interest at 3.5% and is secured by the property. The Midland Mortgage requires monthly installments of interest only through March 10, 2023 and afterwards, monthly installments of principal plus accrued interest through March 10, 2028, at which time a balloon payment is required. The Company has the right to prepay the borrowings outstanding, subject to a prepayment penalty in effect until the loan approaches maturity. |
Stock Issuances
Universal Shelf S-3 Registration Statement
On June 11, 2021, the Company and Operating Partnership filed a shelf registration statement on Form S-3 (“2021 $750 Million S3 Filing”) with the U.S. Securities and Exchange Commission (“SEC”) registering an aggregate of $750,000 of securities, consisting of an indeterminate amount of common stock, preferred stock, depository shares, warrants, rights to purchase our common stock and debt securities. As of September 30, 2021, the Company has $750,000 available for issuance under the 2021 $750 Million S3 Filing.
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 “2020 $100 Million ATM Program”).
On May 26, 2021, the Company entered into a distribution agreement with KeyBanc Capital Markets Inc., Robert W. Baird & Co. Incorporated, Barclays Capital Inc., Berenberg Capital Markets LLC, BMO Capital Markets Corp., Capital One Securities Inc., JMP Securities LLC, J.P. Morgan Securities, LLC, National Securities Corporation and Wedbush Securities Inc 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 $125,000 through an “at-the-market” equity offering program (the “2021 $125 Million ATM Program”).
On August 10, 2021, the Company entered into an amendment to the 2021 $125 Million ATM Program (the “2021 Amended ATM Program”) to reference the Company’s shelf registration statement on Form S-3 that was filed with the Securities and Exchange Commission on June 11, 2021. The Company, under the 2021 Amended ATM Program may issue and sell, from time to time, shares of its common stock, with aggregate gross sales proceeds of up to $82,288 through an “at-the-market” equity offering program.
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During the nine months ended September 30, 2021, the Company issued 8,704,531 shares of its common stock under the 2020 $100 Million ATM Program, 2021 $125 Million ATM Program, and the 2021 Amended ATM Program for aggregate net proceeds of approximately $160,386. The Company has approximately $27,976 available for issuance under the 2021 Amended ATM Program.
Off-Balance Sheet Arrangements
At September 30, 2021, we have an investment in the MIR JV with our ownership percentage at 20%. We exercise significant influence over, but do not control, the entity. As a result, we account for this investment using the equity method of accounting. As of September 30, 2021 and December 31, 2020, the aggregate carrying amount of non-recourse debt including both our and our partners’ share incurred by the MIR JV was approximately $56,000 and $56,000, respectively, (of which our proportionate share is approximately $11,200 and $11,200 at September 30, 2021 and December 31, 2020, respectively). The table below summarizes the outstanding debt of the MIR JV properties at September 30, 2021.
| Venture Ownership % |
Stated Interest Rate |
Stated Principal Amount |
Deferred Financing Costs, Net | Carrying Amount | Carrying Amount (Our Share) | Maturity Date | ||||||||||||||||||||
| Memphis Industrial Portfolio | 20% | 3.15% | $ | 56,000 | $ | (565 | ) | $ | 55,435 | $ | 11,088 | 1/1/2028 | ||||||||||||||
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.
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 the $100m and $200m KeyBank unsecured term loans and the KeyBank unsecured line of credit, which bear interest at a variable rate.
At September 30, 2021, we had $250,000 of outstanding variable rate debt, which was subject to a weighted average interest rate of 1.58% during the nine months ended September 30, 2021. Based on the variable rate borrowings outstanding during the nine months ended September 30, 2021, we estimate that had the average interest rate on our weighted average borrowings increased by 100 basis points for the nine months ended September 30, 2021, our interest expense for the quarter would have increased by approximately $544. 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, 2021, 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, 2021. Our CEO and CFO concluded that our disclosure controls and procedures were not effective as of September 30, 2021 because of a material weakness in our internal control over financial reporting as described below.
Additionally, at the time that our Annual Report on Form 10-K for the year ended December 31, 2020 was filed on February 26, 2021, and at the time that our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021 were filed on May 7, 2021 and August 6, 2021, respectively, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2020, March 31, 2021 and June 30, 2021. Subsequent to these evaluations, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of December 31, 2020, March 31, 2021 and June 30, 2021, because of a material weakness in our internal control over financial reporting as described below.
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Notwithstanding this material weakness, the Company has concluded that no material misstatements exist in the consolidated financial statements as previously filed and included in this Form 10-Q and such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and the results of its operations and its cash flows for the year then ended, as of March 31, 2021, June 30, 2021 and September 30, 2021, and the results of its operations and its cash flows for the three-month period, three and six-month periods and three and nine-month periods then ended, respectively in conformity with accounting principles generally accepted in the United States of America.
Material Weakness in Internal Control over Financial Reporting
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
We have determined that we did not design and maintain effective controls related to user access controls to adequately restrict user access and the ability to modify financial data within certain financial applications, including ensuring appropriate segregation of duties relating to the preparation and review of journal entries in these financial applications. This control deficiency did not result in a misstatement of the Company’s consolidated financial statements. However, this control deficiency could result in misstatements of interim or annual consolidated financial statements and disclosures that would result in a material misstatement that would not be prevented or detected. Therefore, management has concluded that this control deficiency constitutes a material weakness.
Plan for Remediation of Material Weakness
The Company and its Board of Directors are committed to maintaining a strong internal control environment. Management has evaluated the material weakness described above and has made significant progress updating its design and implementation of internal control over financial reporting to remediate the aforementioned material weakness and enhance the Company’s internal control environment. The remediation plan is being developed and implemented and includes reviewing and adjusting the access permissions to its financial applications to more appropriately segregate access, in particular, for those individuals who are also responsible for the review and approval of new or modified financial data, coupled with additional controls and procedures over the review of journal entries. We are committed to continuing to improve our internal control processes and will continue to review, optimize and enhance our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify, or in appropriate circumstances not complete, certain of the remediation measures described above.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2021, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
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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.
Item 6. Exhibits
| 3.1 | Third Amended and Restated Bylaws of Plymouth Industrial REIT, Inc., Plymouth Industrial OP, LP and the Sales Agents named therein (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (File No, 001-38106) filed on September 9, 2021) |
| 10.1 | First Amendment to Credit Agreement, dated as of August 11, 2021, by and among Plymouth Industrial OP, LP, the Guarantors named therein, KeyBank National Association and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 001-38106) filed on August 17, 2021. |
| 10.2 | Term Loan Credit Agreement, dated as of August 11, 2021, by and among Plymouth Industrial OP, LP, the Guarantors named therein, KeyBank National Association and the other lenders party thereto (incorporated by referenced to Exhibit 10.2 to the Company's Current Report on Form 8-K (File No. 001-38106) filed on August 17, 2021. |
| 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, 2021 formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (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 C. Wright
Chief Financial Officer
Dated: November 4, 2021
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