E-commerce And Reshoring Will Spur Infill Demand Despite Supply Risks

Key Takeaways

• Strategic focus on supply-constrained submarkets and flexible assets positions Plymouth to benefit from e-commerce growth and evolving supply chain needs.
  
• Disciplined acquisitions and efficient capital use underpin sustained earnings growth and margin expansion despite economic and market changes.
  
• Structural reliance on traditional warehouses, exposure to weaker markets, short lease cycles, elevated leverage, and oversupplied conditions threaten long-term earnings stability and growth.

Catalysts

Plymouth Industrial REIT, Inc. (NYSE: PLYM) is a full service, vertically integrated real estate investment company focused on the acquisition, ownership and management of single and multi-tenant industrial properties.

• Plymouth’s strategic positioning in supply-constrained, infill submarkets and focus on smaller footprint industrial assets aligns it to benefit from the continued growth of e-commerce as well as the accelerating trend toward faster delivery expectations. This is expected to drive ongoing high occupancy and robust rent growth, providing a durable tailwind to revenue and net operating income.
  
• The company’s portfolio is well-placed to capture surging demand stemming from ongoing reshoring and nearshoring of supply chains, as evidenced by tenant interest in flexible, modular spaces and more short-term leasing for inventory management. This dynamic is likely to support above-market rent increases and an improved earnings trajectory over the coming years.
  
• With nearly 30% of annual rents rolling in 2025 and 2026 and markets exhibiting sequential rent growth, limited new Class B supply, and strong tenant demand, Plymouth can mark leases to higher market rents, unlocking embedded internal growth and increasing net margins.
  
• Plymouth’s disciplined value-add acquisition strategy—targeting assets well below replacement cost and in key distribution hubs—translates to higher going-in yields, enhanced cash flow returns, and a meaningful margin of safety, all of which increase portfolio earnings power as new acquisitions are integrated and stabilized.
  
• Scaling the portfolio through acquisitions and prudent capital deployment, while maintaining ample liquidity and fixed-rate debt, enhances operational leverage and supports greater consistency and growth in earnings per share, even through economic cycles and market fluctuations.

Plymouth Industrial REIT Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Plymouth Industrial REIT compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Plymouth Industrial REIT's revenue will grow by 13.4% annually over the next 3 years.
• Even the bullish analysts are not forecasting that Plymouth Industrial REIT will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Plymouth Industrial REIT's profit margin will increase from 76.2% to the average US Industrial REITs industry of 31.3% in 3 years.
• If Plymouth Industrial REIT's profit margin were to converge on the industry average, you could expect earnings to reach $82.4 million (and earnings per share of $1.79) by about July 2028, down from $137.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.6x on those 2028 earnings, up from 5.2x today. This future PE is lower than the current PE for the US Industrial REITs industry at 28.2x.
• Analysts expect the number of shares outstanding to grow by 0.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.19%, as per the Simply Wall St company report.

Plymouth Industrial REIT Future Earnings Per Share Growth

Risks

• Plymouth’s focus on traditional smaller-footprint infill industrial properties exposes it to risk from long-term technological shifts in logistics, such as automation and robotics, which could reduce demand for conventional warehouse layouts and require costly property upgrades, negatively impacting leasing momentum and future capital expenditure requirements and thus compressing net margins.
  
• The heavy concentration in secondary and tertiary U.S. markets leaves Plymouth vulnerable to weaker long-run economic and population growth, which may result in below-average rental rate appreciation and muted same-store net operating income, ultimately impairing long-term revenue growth.
  
• A high proportion of shorter-term leases, as highlighted by numerous one-year and six-month extensions discussed on the call, subjects Plymouth to greater tenant turnover and expense volatility, leading to heightened re-leasing costs, increased downtime, and more unpredictable net operating income.
  
• Elevated leverage and reliance on variable-rate funding for acquisitions, together with higher interest expense premiums mentioned in connection with drawdowns, restrict Plymouth's flexibility to pursue accretive investments or respond to downturns, resulting in potential downward pressure on net earnings and distributable funds.
  
• Ongoing waves of speculative industrial supply and the normalization of e-commerce warehouse demand increase the possibility of market-wide overcapacity, which may drive lower occupancy levels and reduced rent growth, putting sustained pressure on Plymouth’s top-line revenue and operating margins.

Valuation

• The assumed bullish price target for Plymouth Industrial REIT is $22.77, which represents two standard deviations above the consensus price target of $18.61. This valuation is based on what can be assumed as the expectations of Plymouth Industrial REIT's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.0, and the most bearish reporting a price target of just $17.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $263.3 million, earnings will come to $82.4 million, and it would be trading on a PE ratio of 16.6x, assuming you use a discount rate of 9.2%.
• Given the current share price of $15.73, the bullish analyst price target of $22.77 is 30.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.