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Plymouth Industrial REIT, Inc. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 30, 2021

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: 001-38106

PLYMOUTH INDUSTRIAL REIT, INC.

(Exact name of registrant as specified in its charter)

 

Maryland   27-5466153
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
20 Custom House Street, 11th Floor, Boston, MA 02110   (617) 340-3814
(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
Common Stock, par value $0.01 per share PLYM New York Stock Exchange
7.50% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share PLYM-PrA NYSE American

 

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. Yes    No 

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). Yes    No 

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       Non-accelerated Filer       Smaller reporting company       Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes    No 

As of November 1, 2021, the Registrant had outstanding 34,605,459 shares of common stock.

 

 

Plymouth Industrial REIT, Inc.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

 

PART I. FINANCIAL INFORMATION PAGE
     
ITEM 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020 1
     
  Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 2
     
  Condensed Consolidated Statements of Changes in Preferred Stock and Equity for the Three and Nine Months Ended September 30, 2021 and 2020 3
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 5
     
  Notes to Condensed Consolidated Financial Statements 6
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 29
     
ITEM 4. Controls and Procedures 29
     
PART II. OTHER INFORMATION 31
     
SIGNATURES 32

 

 

 

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   $1,062,748   $886,681 
    Less accumulated depreciation    (129,910)   (98,283)
    Real estate properties, net    932,838    788,398 
           
    Cash    63,712    15,668 
    Cash held in escrow    10,488    11,939 
    Restricted cash    4,743    4,447 
    Deferred lease intangibles, net    68,703    66,116 
    Investment in unconsolidated joint venture    6,008    6,683 
    Other assets    35,948    27,019 
Total assets   $1,122,440   $920,270 
           
Liabilities, Preferred Stock and Equity          
Liabilities:          
    Secured debt, net   $336,225   $328,908 
    Unsecured debt, net    247,729    99,254 
    Borrowings under line of credit        90,000 
    Accounts payable, accrued expenses and other liabilities    61,074    49,335 
    Deferred lease intangibles, net    9,679    11,350 
    Financing lease liability    2,221    2,207 
Total liabilities    656,928    581,054 
 Commitments and contingencies (Note 12)          
           
Preferred stock, par value $0.01 per share, 100,000,000 shares authorized,          
Series A: 2,023,551 and 2,023,999 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively (aggregate liquidation preference of $50,589 and $50,600 at September 30, 2021 and December 31, 2020, respectively)    48,473    48,485 
Series B: 4,411,764 shares issued and outstanding at September 30, 2021 and December 31, 2020, (aggregate liquidation preference of $97,277 and $97,230 at September 30, 2021 and December 31, 2020, respectively)    92,630    87,209 
           
Equity:          
Common stock, $0.01 par value: 900,000,000 shares authorized; 34,273,244 and 25,344,161 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively    343    253 
Additional paid in capital    492,003    360,752 
Accumulated deficit    (172,671)   (162,250)
Total stockholders' equity    319,675    198,755 
Non-controlling interest    4,734    4,767 
Total equity    324,409    203,522 
Total liabilities, preferred stock and equity   $1,122,440   $920,270 

 

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   $35,877   $27,518   $100,468   $79,884 
Management fee revenue and other income    85        265     
Total revenues    35,962    27,518    100,733    79,884 
                     
Operating expenses:                    
   Property    12,032    10,064    34,398    28,101 
   Depreciation and amortization    18,305    13,985    50,984    41,602 
   General and administrative    3,264    2,280    9,582    7,378 
Total operating expenses    33,601    26,329    94,964    77,081 
                     
Other income (expense):                    
   Interest expense    (4,906)   (4,538)   (14,489)   (14,309)
   Impairment on real estate lease        (311)       (311)
   Earnings (loss) in investment of unconsolidated joint venture   (178)       (675)    
   Gain on sale of real estate            590     
   Unrealized (appreciation) depreciation of warrants    (926)   (103)   (1,809)   (103)
Total other income (expense)    (6,010)   (4,952)   (16,383)   (14,723)
                     
Net loss    (3,649)   (3,763)   (10,614)   (11,920)
Less: Loss attributable to non-controlling interest    (57)   (130)   (193)   (584)
Net loss attributable to Plymouth Industrial REIT, Inc.    (3,592)   (3,633)   (10,421)   (11,336)
Less: Preferred stock dividends    1,652    1,613    4,956    4,839 
Less: Series B preferred stock accretion to redemption value    1,807    1,854    5,421    5,562 
Less: Amount allocated to participating securities    48    38    153    144 
Net loss attributable to common stockholders   $(7,099)  $(7,138)  $(20,951)  $(21,881)
Net loss basic and diluted per share attributable to common stockholders   $(0.22)  $(0.36)  $(0.71)  $(1.35)
                     
Weighted-average common shares outstanding basic and diluted    32,301,693    19,631,443    29,636,996    16,232,420 

 

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    2,023,999   $48,485    4,411,764   $87,209    25,344,161   $253   $360,752   $(162,250)  $198,755   $4,767   $203,522 
Repurchase and extinguishment of Series A Preferred stock    (448)   (12)                                    
Series B Preferred stock accretion to redemption value                1,807            (1,807)       (1,807)       (1,807)
Net proceeds from common stock                    2,883,794    30    42,480        42,510        42,510 
Stock based compensation                            418        418        418 
Restricted shares issued                    110,000                         
Dividends and distributions                            (7,320)       (7,320)   (121)   (7,441)
Net loss                                (2,919)   (2,919)   (65)   (2,984)
Balance, March 31, 2021    2,023,551   $48,473    4,411,764   $89,016    28,337,955   $283   $394,523   $(165,169)  $229,637   $4,581   $234,218 
Series B Preferred stock accretion to redemption value                1,807            (1,807)       (1,807)       (1,807)
Net proceeds from common stock                    2,646,854    26    48,558        48,584        48,584 
Stock based compensation                            461        461        461 
Restricted shares issued                    5,000                         
Redemption of partnership units                    99,118    1    1,684        1,685    (1,685)    
Reallocation of non-controlling interest                            (1,078)       (1,078)   1,078     
Dividends and distributions                            (8,180)       (8,180)   (106)   (8,286)
Net loss                                (3,910)   (3,910)   (71)   (3,981)
Balance, June 30, 2021    2,023,551   $48,473    4,411,764   $90,823    31,088,927   $310   $434,161   $(169,079)  $265,392   $3,797   $269,189 
Series B Preferred stock accretion to redemption value                1,807            (1,807)       (1,807)       (1,807)
Net proceeds from common stock                    3,173,883    32    69,258        69,290        69,290 
Stock based compensation                            340        340        340 
Restricted shares issued                    10,434    1            1        1 
Redemption of partnership units                                             
Reallocation of non-controlling interest                            (1,100)       (1,100)   1,100     
Dividends and distributions                            (8,849)       (8,849)   (106)   (8,955)
Net loss                                (3,592)   (3,592)   (57)   (3,649)
Balance, September 30, 2021    2,023,551   $48,473    4,411,764   $92,630    34,273,244   $343   $492,003   $(172,671)  $319,675   $4,734   $324,409 

 

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    2,040,000   $48,868    4,411,764   $79,793    14,141,355   $141   $256,259   $(148,403)  $107,997   $6,767   $114,764 
Series B Preferred stock accretion to redemption value                1,854            (1,854)       (1,854)       (1,854)
Net proceeds from common stock                    593,705    6    10,808        10,814        10,814 
Stock based compensation                            349        349        349 
Restricted shares issued                    44,900                         
Redemption of partnership units                    11,477    1    194        195    (195)    
Reallocation of non-controlling interest                            (193)       (193)   193     
Dividends and distributions                            (7,159)       (7,159)   (324)   (7,483)
Net loss                                (4,027)   (4,027)   (245)   (4,272)
Balance March 31, 2020    2,040,000   $48,868    4,411,764   $81,647    14,791,437   $148   $258,404   $(152,430)  $106,122   $6,196   $112,318 
Series B Preferred stock accretion to redemption value                1,854            (1,854)       (1,854)       (1,854)
Net proceeds from common stock                    1,060,300    11    12,525        12,536        12,536 
Stock based compensation                            383        383        383 
Redemption of partnership units                    45,907        780        780    (780)    
Reallocation of non-controlling interest                            328        328    (328)    
Dividends and distributions                            (4,792)       (4,792)   (164)   (4,956)
Net loss                                (3,676)   (3,676)   (209)   (3,885)
Balance June 30, 2020    2,040,000   $48,868    4,411,764   $83,501    15,897,644   $159   $265,774   $(156,106)  $109,827   $4,715   $114,542 
Series B Preferred stock accretion to redemption value                1,854            (1,854)       (1,854)       (1,854)
Net proceeds from common stock                    8,625,000    86    104,402        104,488        104,488 
Stock based compensation                            324        324        324 
Restricted shares issued                    51,337                         
Redemption of partnership units                    140,852    2    2,392        2,394    (2,394)    
Reallocation of non-controlling interest                            77        77    (77)    
Dividends and distributions                            (6,555)       (6,555)   (135)   (6,690)
Net loss                                (3,633)   (3,633)   (130)   (3,763)
Balance September 30, 2020    2,040,000   $48,868    4,411,764   $85,355    24,714,833   $247   $364,560   $(159,739)  $205,068   $1,979   $207,047 

 

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   $(10,614)  $(11,920)
Adjustments to reconcile net loss to net cash provided by operating activities:          
   Depreciation and amortization    50,984    41,602 
   Straight line rent adjustment    (2,726)   (1,453)
   Intangible amortization in rental revenue, net    (1,589)   (1,435)
   Amortization of debt related costs    1,163    1,051 
   Unrealized (appreciation) depreciation of warrants    1,809    103 
   Impairment on real estate lease        311 
   Stock based compensation    1,219    1,056 
   (Earnings) loss in investment of unconsolidated joint venture    675     
   Gain on sale of real estate    (590)    
Changes in operating assets and liabilities:          
   Other assets    (6,720)   (6,138)
   Deferred leasing costs    (3,363)   (1,424)
   Accounts payable, accrued expenses and other liabilities    4,299    9,020 
Net cash provided by operating activities    34,547    30,773 
           
Investing activities          
   Acquisition of real estate properties    (166,374)   (140,498)
   Real estate improvements    (15,630)   (4,578)
   Proceeds from sale of real estate, net    2,204     
   Net cash used in investing activities    (179,800)   (145,076)
           
Financing activities          
   Proceeds from issuance of common stock, net    160,386    127,839 
   Proceeds from issuance of secured debt        96,000 
   Proceeds from issuance of unsecured debt    150,000     
   Repayment of secured debt    (4,019)   (3,854)
   Proceeds from line of credit facility    51,000    41,500 
   Repayment of line of credit facility    (141,000)   (120,400)
   Repurchase of Series A Preferred Stock    (12)    
   Debt issuance costs    (1,691)   (510)
   Dividends and distributions paid    (22,522)   (19,027)
Net cash provided by financing activities    192,142    121,548 
Net (decrease) increase in cash, cash held in escrow, and restricted cash    46,889    7,245 
Cash, cash held in escrow, and restricted cash at beginning of period    32,054    22,398 
Cash, cash held in escrow, and restricted cash at end of period   $78,943   $29,643 
           
Supplemental Cash Flow Disclosures:          
   Cash paid for interest   $13,357   $13,337 
           
Supplemental Non-Cash Investing and Financing Activities:          
   Dividends declared included in dividends payable   $7,900   $5,586 
   Distribution payable to non-controlling interest holder   $106   $135 
   Series B accretion to redemption value   $5,421   $5,562 
   Real estate improvements included in accounts payable, accrued expenses and other liabilities  $3,497   $423 
   Deferred leasing costs included in accounts payable, accrued expenses and other liabilities  $1,373   $182 
   Assumption of secured debt   $10,820     

 

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 98.5% and 97.7%, respectively, equity interest in the Operating Partnership.

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 117 industrial properties comprising 152 buildings with an aggregate of approximately 26.6 million square feet.

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   $63,712   $15,668 
Cash held in escrow    10,488    11,939 
Restricted cash    4,743    4,447 
Cash, cash held in escrow, and restricted cash   $78,943   $32,054 

 

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 $2,205 and $396 at September 30, 2021 and December 31, 2020, respectively, discussed in Note 7.

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   $338,812   $357,047   $332,011   $351,744 
Unsecured debt    250,000    250,000    100,000    100,000 
Borrowings under line of credit, net            90,000    90,000 
   Total    588,812   $607,047    522,011   $541,744 
    Unamortized debt issuance cost, net    (5,357)        (4,507)     
    Unamortized premium/(discount), net    499         658      
Total carrying value   $583,954        $518,162      

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 $9,709 and $8,018 at September 30, 2021 and December 31, 2020, respectively, and related accumulated amortization amounted to $4,352 and $3,511 at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021 and December 31, 2020, the Company has classified net unamortized debt issuance costs of $2,573 and $2,371, respectively, related to borrowings under the revolving line of credit to other assets in the condensed consolidated balance sheets.

8 

 

Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)

Stock Based Compensation

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.

Earnings (Loss) per Share

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   $183,852   $159,681 
Buildings and improvements    778,103    652,191 
Site improvements    87,606    74,129 
Construction in progress    13,187    680 
    1,062,748    886,681 
Less: accumulated depreciation    (129,910)   (98,283)
Real estate properties, net   $932,838   $788,398 

 

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 $11,466 and $8,607 for the three months ended September 30, 2021 and 2020, respectively, and $32,368 and $25,182 for the nine months ended September 30, 2021 and 2020, respectively.

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   February 12, 2021  221,911  1  $8,600 
St. Louis, MO   March 23, 2021  142,364  1   7,800 
Chicago, IL   March 25, 2021  149,474  1   7,900 
Cleveland, OH   March 29, 2021  100,150  1   7,700 
Columbus, OH   March 29, 2021  772,450  1   29,000 
Memphis, TN   June 29, 2021  74,665  1   5,250 
St. Louis, MO   June 30, 2021  155,434  1   8,800 
Memphis, TN   July 9, 2021  232,375  1   9,200 
Memphis, TN   July 30, 2021  316,935  1   6,277 
Chicago, IL   August 12, 2021  513,512  1   30,100 
St. Louis, MO   August 24, 2021  769,500  1   55,200(2) 
Total      3,448,770  11  $175,827 

_______________

(1) Purchase price does not include capitalized acquisition costs.
(2) The purchase price of $55,200 included the assumption of $10,820 of existing debt secured by the property.

 

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   $175,827   N/A
Acquisition costs    1,367   N/A
Total   $177,194    
         
Allocation of Purchase Price        
Land   $24,855   N/A
Building    121,741   N/A
Site improvements    13,708   N/A
Total real estate properties    160,304    
         
Deferred Lease Intangibles        
Tenant relationships    3,002   3.7
Leasing commissions    2,585   3.6
Above market lease value    160   11.0
Below market lease value    (742)  7.3
Lease in place value    11,885   4.2
Net deferred lease intangibles    16,890    
         
Totals   $177,194    

 

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, 98,340 square foot property located in Chicago, IL for approximately $2,037, recognizing a net gain of $590. The Company also completed the sale of a small piece of land located in Memphis, TN for $167. No gain or loss was recognized on the sale of the land. There were no sales of real estate during the nine months ended September 30, 2020.

4. Investment in Unconsolidated Joint Venture

On October 23, 2020, a wholly owned subsidiary of the Operating Partnership entered into a $150,000 equity joint venture agreement (the “MIR JV”) with an unrelated third-party partner (the “MIR JV Partner”). The purpose of the MIR JV agreement is to acquire value-add/opportunistic industrial properties that meet certain criteria as outlined within the MIR JV agreement. The Operating Partnership owns a 20% interest in the MIR JV. The Operating Partnership is responsible for the day-to-day oversight of the MIR JV, its subsidiaries and properties and is entitled to an annual asset management fee equal to 1% of total equity contributed to the MIR JV by the partners paid quarterly as well as a promote based on return thresholds as set forth in the MIR JV agreement. The MIR JV completed its initial investment of a 28-property portfolio of industrial properties totaling approximately 2.3 million square feet in metropolitan Memphis, Tennessee on December 17, 2020 for $86,000. The initial investment was funded by the MIR JV via $30,000 cash equity contributions to the MIR JV on a 20%/80% pro-rata basis and a 7-year secured mortgage for $56,000.

For the nine months ended September 30, 2021, we recognized fees of $248 from the MIR JV related to asset management services we provided to the MIR JV and other cost recoveries in the amount of $85.

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   $26,008   $20,191   $73,320   $58,968 
Straight-line rent adjustments    966    492    2,726    1,453 
Tenant recoveries    8,423    6,387    22,833    18,028 
Amortization of above market leases    (237)   (204)   (824)   (605)
Amortization of below market leases    717    652    2,413    2,040 
Total   $35,877   $27,518   $100,468   $79,884 

 

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 five office space operating leases and a single ground operating sublease. The office lease agreements do not contain residual value guarantees or an option to renew. The ground sublease agreement does not contain residual value guarantees and includes multiple options to extend the sublease between nineteen and twenty years for each respective option. The operating leases have remaining lease terms ranging from 2.7 years to 34.3 years, which includes the exercise of a single twenty-year renewal option pertaining to the ground sublease. As of September 30, 2021, total operating right of use assets and lease liabilities were approximately $6,761 and $8,066, respectively. The operating lease liability as of September 30, 2021 represents a weighted-average incremental borrowing rate of 4.1% over the weighted-average remaining lease term of 9.4 years. The incremental borrowing rate is our estimated borrowing rate on a fully-collateralized basis for the term of the respective leases.

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   $216   $283   $586   $791 
Operating lease expense included in property expense attributable to ground sublease    9        38     
Non-cash adjustment due to straight-line rent adjustments    18    (154)   122    (416)
Cash paid for amounts included in the measurement of lease liabilities (operating cash flows)   $243   $129   $746   $375 

 

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   $317 
2022   1,286 
2023   1,311 
2024   1,280 
2025   894 
Thereafter    5,111 
Total minimum operating lease payments   $10,199 
Less imputed interest    (2,133)
Total operating lease liability   $8,066 

 

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 34.3 years, which includes the exercise of a single twenty-year renewal options. The financing lease liability as of September 30, 2021 represents a weighted-average incremental borrowing rate of 7.8% over the weighted-average remaining lease term of 34.3 years. The incremental borrowing rate is our estimated borrowing rate on a fully-collateralized basis for the term of the respective lease.

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   $6   $19 
Interest expense for financing lease liability    43    130 
Total financing lease cost   $49   $149 

 

The following table summarizes the maturity analysis of our financing lease (in thousands):

      
October 1, 2021 – December 31, 2021   $39 
2022   155 
2023   155 
2024   155 
2025   170 
Thereafter    6,707 
Total minimum financing lease payments   $7,381 
Less imputed interest    (5,160)
Total financing lease liability   $2,221 

 

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   $115,139   $117,087   4.08%  November 1, 2023
Transamerica Loan    71,983    72,960   4.35%  August 1, 2028
Allianz Loan    63,115    63,115   4.07%  April 10, 2026
Minnesota Life Loan    20,558    20,870   3.78%  May 1, 2028
JPMorgan Chase Loan    13,266    13,440   5.23%  January 1, 2027
Lincoln Life Mortgage    9,121    9,289   3.41%  January 10, 2022
Ohio National Life Mortgage    19,810    20,250   4.14%  August 1, 2024
Nationwide Loan    15,000    15,000   2.97%  October 1, 2027
Midland National Life Insurance Mortgage (3)    10,820       3.50%  March 10, 2028
Total secured loans  $338,812   $332,011       
Unamortized debt issuance costs, net    (3,086)   (3,761)      
Unamortized premium/(discount), net    499    658       
Total secured loans, net   $336,225   $328,908       
                 
Unsecured loans:                
$100m KeyBank unsecured term loan (1)    100,000    100,000   1.58%(2)  August 11, 2026
$200m KeyBank unsecured term loan (1)    150,000       1.58%(2)  February 11, 2027
Total unsecured loans  $250,000   $100,000       
Unamortized debt issuance costs, net    (2,271)   (746)      
Total unsecured loans, net   $247,729   $99,254       
                 
Borrowings under line of credit facility:                
KeyBank unsecured line of credit (1)        90,000   1.63%(2)  August 11, 2025
Total borrowings under line of credit   $   $90,000       

 

13 

 

Plymouth Industrial REIT, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(all dollar amounts in thousands, except share and per share data)

_______________

(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.

 

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 $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.

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. As of September 30, 2021, the Company has approximately $27,976 available for issuance under the 2021 Amended ATM Program.

Common Stock Warrants

The Company has warrants outstanding to acquire 354,230 shares of the Company’s common stock at an exercise price of $16.24 per share, which expire in 2022. The warrants are accounted for as a liability within accounts payable, accrued expenses and other liabilities on the accompanying condensed consolidated balance sheet as they contain provisions that are considered outside of the Company’s control, such as the holders’ option to receive cash in lieu and other securities in the event of a reorganization of the Company’s common stock underlying such warrants. The fair value of these warrants is re-measured at each financial reporting period with any changes in fair value recognized as an unrealized appreciation/depreciation of warrants in the accompanying condensed consolidated statements of operations. The warrants are not included in the computation of diluted net loss per share as they are anti-dilutive for the periods presented since the Company recorded a net loss during the nine months ended September 30, 2021 and 2020.

A roll-forward of the warrants is as follows:

         
Balance at January 1, 2021   $ 396  
Unrealized appreciation (depreciation)     1,809  
Balance at September 30, 2021   $ 2,205  

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 $2,205 at September 30, 2021 represent their fair value determined using a Binomial Valuation Model applying Level 3 inputs as described in Note 2. The significant inputs into the model were: exercise price of $16.24, volatility of 15.7%, an expected annual dividend of $0.84, a term of 0.71 years and an annual risk-free interest rate of 0.05%. The warrants in the amount of $396 at December 31, 2020 represent their fair value determined using a Binomial Valuation Model applying Level 3 inputs as described in Note 2. The significant inputs into the model were: exercise price of $16.39, volatility of 27.4%, an expected annual dividend of $0.80, a term of 1.45 years and an annual risk-free interest rate of 0.13%.

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   $0.2000   $5,668 
Second quarter   $0.2100   $6,528 
Third quarter   $0.2100   $7,197 
           
2020          
First quarter   $0.3750   $5,545 
Second quarter   $0.2000   $3,179 
Third quarter   $0.2000   $4,943 
Fourth quarter   $0.2000   $5,069 

 

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   10/25/2017   2,023,551     $ 25.00     7.5%

 

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   $0.4688   $949 
Second quarter   $0.4688   $949 
Third quarter   $0.4688   $949 
           
2020          
First quarter   $0.4688   $956 
Second quarter   $0.4688   $956 
Third quarter   $0.4688   $956 
Fourth quarter   $0.4688   $949 

 

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
  12/14/2018   4,411,764     $ 22.05     3.75%

 

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   $0.159375   $703 
Second quarter   $0.159375   $703 
Third quarter   $0.159375   $703 
           
2020          
First quarter   $0.148750   $657 
Second quarter   $0.148750   $657 
Third quarter   $0.148750   $657 
Fourth quarter   $0.148750   $656 

 

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 507,514 and 606,632, respectively.

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   $0.200   $121 
Second quarter   $0.210   $106 
Third quarter   $0.210   $106 
           
2020          
First quarter   $0.375   $324 
Second quarter   $0.200   $164 
Third quarter   $0.200   $135 
Fourth quarter   $0.200   $121 

 

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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 $57 and $130 for the three months ended September 30, 2021 and 2020, respectively, and $193 and $584 for the nine months ended September 30, 2021 and 2020, respectively.

10. Incentive Award Plan

The following table is a summary of the total restricted shares granted, forfeited and vested for the nine months ended September 30, 2021:

   Shares 
Unvested restricted stock at January 1, 2021    190,225 
    Granted    126,434 
    Forfeited    (1,000)
    Vested    (87,251)
Unvested restricted stock at September 30, 2021    228,408 

 

The Company recorded equity-based compensation expense in the amount of $1,219 and $1,056 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 $3,168 and is expected to be recognized over a weighted average period of approximately 3.0 years. The fair value of the 126,434 restricted shares granted during the nine months ended September 30, 2021 was approximately $1,982 with a weighted average fair value of $15.80 per share.

11. Earnings per Share

Net loss per Common Share

Basic and diluted net loss per share attributable to common stockholders was calculated as follows:

                 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2021   2020   2021   2020 
Numerator                
Net loss   $(3,649)  $(3,763)  $(10,614)  $(11,920)
Less: Loss attributable to non-controlling interest    (57)   (130)   (193)   (584)
Net loss attributable to Plymouth Industrial REIT, Inc.    (3,592)   (3,633)   (10,421)   (11,336)
Less: Preferred stock dividends    1,652    1,613    4,956    4,839 
Less: Series B Preferred stock accretion to redemption value    1,807    1,854    5,421    5,562 
Less: Amount allocated to participating securities    48    38    153    144 
Net loss attributable to common stockholders   $(7,099)  $(7,138)  $(20,951)  $(21,881)
Denominator                    
Weighted-average common shares outstanding basic and diluted    32,301,693    19,631,443    29,636,996    16,232,420 
Net loss per share attributable to common stockholders – basic and diluted   $(0.22)  $(0.36)  $(0.71)  $(1.35)

 

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 354,230 shares of common stock warrants and 228,408 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.

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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. As approved by the compensation committee of the Board of Directors the agreements provide for base salaries ranging from $300 to $550 annually with discretionary cash performance awards. The agreements contain provisions for equity awards, general benefits, and termination and severance provisions, consistent with similar positions and companies.

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 100,021 square feet, located in St. Louis, Missouri for an aggregate purchase price of $11,100 and a single-building, multi-tenant industrial property, consisting of approximately 76,042 square feet, located in St. Louis, Missouri for an aggregate price of $7,700.

On October 7, 2021, the Company acquired a multi-building, multi-tenant industrial property, consisting of approximately 1,145,330 square feet, located in St. Louis, Missouri for an aggregate purchase price of $75,100. The purchase price included the assumption of existing mortgage debt secured by the property of $28,800.

On October 12, 2021, the Company repaid in full, the outstanding principal and interest balance of approximately $9,149 on the Lincoln Life Mortgage.

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.

 

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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.

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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.

20 

 

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.

21 

 

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.

26 

 

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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