PLYM - Plymouth Industrial: Value O' Plenty In Secondary Markets

Summary

• Plymouth Industrial REIT has experienced management, local presence, and strategic exposure to attractive markets.
• Recent investor update showed improving occupancy and higher rental rates on new 2022 leases.
• I also highlight the dividend, balance sheet, valuation, and other important points.

As with most other REIT sectors, the industrial segment is dominated by the likes of Prologis ( PLD ) which captures outsized attention from investors. While PLD is by all means a fine REIT, value-seeking investors may want to consider lesser-followed industrial names that also demonstrate strong attributes at a much better price.

This brings me to Plymouth Industrial REIT ( PLYM ), which has seen a slight rebound in recent months, but still remains far below its 52-week high of $29, as shown below. In this article, I highlight why PLYM remains a bargain basement pick for potentially strong returns, so let's get started.

Why PLYM?

Plymouth Industrial REIT owns and operates warehouses and distribution centers across primary and secondary markets in the U.S. It owns 207 buildings totaling 34 million square feet in the main industrial, distribution, and logistics corridors of the U.S., and has a track record of purchasing properties well below replacement cost, giving the business a margin of safety.

PLYM benefits from an experienced management team who brings decades of real estate investment experience. This includes the CEO and CIO Jeff Witherell and Pen White, who have a combined 65 years of experience in real estate, development, and banking experience between them. It also has a "boots on the ground" strategy, with team members in local offices who are able to quickly respond to tenant needs.

While secondary markets may give investors some pause, it's worth noting that these markets can be vibrant and growing places with less competition for deals from big institutional buyers. This results in more attractive cap rates on new property acquisitions compared to the competitive Tier 1 markets. As shown below, PLYM has strategic exposure to the growing Sunbelt region as well as the industrial corridor across the Midwest.

Meanwhile, PLYM recently provided a key 2022 update earlier this month, noting that its occupancy improved to 99% at the end of the year, up 160 basis from 97.4% at the end of 2021. Also encouraging, as of January 5th, PLYM has already leased more than 40% of the 5.2 million square feet of leases set to expire this year, and rental rates on leases executed in 2022 jumped 18.5% from the prior year, signaling very strong tenant demand for its properties.

The promising preview of Q4 results should help PLYM's net debt to EBITDA ratio trend down towards the 7x level from 7.3x at the end of September. Over time, I'd like to see leverage trend closer to 6.5x, which would be safer for a growing REIT. In the meantime, PLYM yields a respectable 4.1% and the dividend is well-protected by a 48% payout ratio, based on the $1.83 expected FFO per share for 2022.

Turning to valuation, PLYM remains attractive at the current price of $21.65 with a forward P/FFO of 11.8, sitting materially below that of its larger industrial REIT counterparts. Analysts have a conservative price target of $23.17, which still implies potential double-digit total return potential in the low teens. Lastly, Hoya Capital recently initiated a position in PLYM, noting as follows in a recent report this month:

We view STAG and PLYM as the most attractive "value-oriented" names in the sector with P/FFO valuations in the mid-to-low teens while paying well-supported dividend yields of above 4%.

We've initiated a position in Plymouth Industrial REIT ( PLYM ) in the REIT Dividend Growth Portfolio - a maturing small-cap industrial REIT with a hearty 4.2% dividend yield - swapping it in for First Industrial ( FR ) - which has been one of the best-performing industrial REITs over the past eighteen months and now appears to be nearly fully-valued.

We believe that PLYM - which trades with a Price-to-FFO multiple of just 11x compared to FR's 21x multiple - is poised to resume its ascent towards the "middle tier" of the REIT sector this year after a rate-driven setback last year resulting from its higher leverage profile.

Investor Takeaway

Plymouth Industrial REIT has a solid combination of value and income for investors looking for exposure to industrial real estate. The company benefits from an experienced management team, local presence near properties, and strategic exposure to higher-growth markets in the Sunbelt. Lastly, it continues to demonstrate strong fundamentals in its recent investor update, and remains attractively valued for income and growth.

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