Sixth Street Transaction Will Fund Significant Acquisitions In Industrial Real Estate

Key Takeaways

• The strategic transaction with Sixth Street and enhanced borrowing capacity enable significant acquisitions and investments to drive revenue growth and earnings.
  
• Focus on leasing and strategic acquisitions in established markets boosts occupancy, efficiency, and net margins through diverse, scaled asset portfolios.
  
• Tenant vacancies, legal disputes, and market volatility pose challenges to occupancy rates, revenue growth, and net margins for Plymouth Industrial REIT.

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.

• The strategic transaction with Sixth Street secures up to $500 million for acquisitions, which can drive revenue growth through expansion.
  
• Enhanced borrowing capacity with a $1.5 billion unsecured credit facility can boost earnings by enabling more significant investments in high-yield properties.
  
• Focus on leasing opportunities and using additional capital throughout 2025 can improve occupancy rates and enhance net margins.
  
• Strategic acquisitions in established markets like Cincinnati and Memphis may provide cost efficiencies and contribute to higher net margins.
  
• Aggressively pursuing a pipeline of over 11 million square feet, with a mix of portfolios and one-off deals, can significantly increase revenue through greater asset diversity and scale.

Plymouth Industrial REIT Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Plymouth Industrial REIT's revenue will grow by 9.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.4% today to 2.3% in 3 years time.
• Analysts expect earnings to reach $6.2 million (and earnings per share of $0.26) by about December 2027, up from $846.0 thousand today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $18.9 million in earnings, and the most bearish expecting $-1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 114.2x on those 2027 earnings, down from 1024.7x today. This future PE is greater than the current PE for the US Industrial REITs industry at 34.5x.
• Analysts expect the number of shares outstanding to decline by 19.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.04%, as per the Simply Wall St company report.

Plymouth Industrial REIT Future Earnings Per Share Growth

Risks

• Tenant vacancies and legal disputes in Cleveland presented unanticipated challenges, which could lead to lower occupancy rates and decreased revenue in the short term.
  
• Legal disputes and eviction processes with tenants in Cleveland have resulted in additional costs, such as the $500,000 cleanup expense, which can negatively impact net margins.
  
• The need to renegotiate tenant leases at potentially lower rents to maintain occupancy may affect future revenue growth and net operating income.
  
• The high competition for acquisitions and need to secure financing, including potential dependence on joint ventures, may constrain revenue growth and investment returns.
  
• Economic volatility, such as the fluctuating absorption rates in industrial real estate markets, could slow leasing activity and affect earnings projections.

Valuation

• The analysts have a consensus price target of $23.45 for Plymouth Industrial REIT based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $27.0, and the most bearish reporting a price target of just $20.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $264.9 million, earnings will come to $6.2 million, and it would be trading on a PE ratio of 114.2x, assuming you use a discount rate of 8.0%.
• Given the current share price of $19.1, the analyst's price target of $23.45 is 18.6% higher.
• 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.