Plymouth Industrial REIT (PLYM) just released their Q1 2024 earnings transcript [Source: PLYM Q1 2024 Earnings Call Transcript] (https://seekingalpha.com/symbol/PLYM), and amidst the talk of the Golden Triangle's reshoring boom and a robust balance sheet, something unsettling lurks beneath the surface. While analysts are busy crunching cap rates and IRRs, a potential ticking time bomb sits in PLYM's lease expirations, particularly those clustered around 2025.

The transcript paints a picture of tenants becoming increasingly deliberate, delaying lease signings and testing the market before committing. This cautious behavior is understandable in a volatile economic climate. However, it raises a critical question: with almost a quarter of PLYM's leases expiring in 2025, is the company positioned to weather a potential tenant exodus, particularly amidst the arrival of shiny new Class A facilities offering lower rents?

While PLYM boasts a 3% increase in projected FFO per share for 2024, primarily driven by improved portfolio operations and same-store NOI growth, 2025 presents a different picture. The looming lease expirations, coupled with a potential downturn in tenant demand, could significantly impact the company's FFO, potentially leading to a substantial decline.

The transcript reveals a significant rent differential between PLYM's existing properties and newly delivered Class A facilities, sometimes exceeding $1 per square foot. This gap presents a compelling incentive for tenants to explore options in newer developments, especially if economic conditions worsen and cost-cutting becomes paramount.

Furthermore, PLYM's strategy of fixed-rate renewals, while providing stability in the short-term, limits rent growth and could exacerbate the impact of tenant turnover. As these fixed-rate renewals begin to "burn off" in 2025, the company's ability to maintain rent levels becomes increasingly uncertain.

Adding fuel to the fire is the 769,000 square foot FedEx facility in St. Louis. While PLYM is actively marketing the property and has identified potential replacements, the sheer size of the building poses a significant challenge. Securing a single tenant for such a large facility is no easy feat, even in a booming market. A prolonged vacancy, or the need to divide the space among multiple tenants at potentially lower rents, could significantly impact the company's bottom line.

Looking beyond 2025, the uncertainty surrounding tenant renewals continues. While PLYM has engaged in preliminary conversations with some major tenants, their behavior in recent renewals suggests they will likely wait until the last moment to commit, leaving PLYM in a precarious position.

Hypothetical Scenario: Potential Impact of Tenant Exodus in 2025

Let's consider a hypothetical scenario to illustrate the potential impact of tenant turnover on PLYM:

Hypothesis:

25% of tenants with 2025 expirations opt for newer Class A facilities at a 10% discount to PLYM's current rents. The FedEx facility remains vacant for 6 months before being leased to two tenants at a combined 5% discount to FedEx's previous rent. Fixed-rate renewals continue to limit rent growth for the remaining leases.

Potential Impact:

A substantial decline in rental income in 2025, potentially impacting FFO per share by 5% or more. Increased pressure on PLYM's dividend payout ratio, potentially leading to a dividend cut or a slower pace of increases. A downward revaluation of the company's portfolio, reflecting the perceived risk associated with lease rollovers.

This hypothesis is not intended to be a prediction but rather a scenario analysis highlighting the potential risks embedded in PLYM's lease expiration schedule. While the company's strong balance sheet provides a buffer, the potential magnitude of the impact warrants careful consideration by investors.

Lease Expirations and Potential Rent Discount

This table summarizes PLYM's major lease expirations in 2025 and the potential impact of a 10% rent discount on FFO:

Note: Rent figures are hypothetical for illustrative purposes only.

Chart: Projected FFO Per Share Impact

This chart visualizes the potential impact of the tenant exodus scenario on PLYM's FFO per share:

While the reshoring wave and PLYM's strategic positioning in the Golden Triangle offer promising long-term prospects, the concentration of lease expirations in 2025 presents a potential near-term challenge. The clock is ticking, and PLYM needs to address this risk proactively to maintain its growth trajectory and deliver value for its investors.

"Fun Fact: PLYM owns a 1.2 million square foot facility in Memphis, Tennessee, that used to be a distribution center for Nike. Now, it's home to a variety of tenants, including a company that manufactures custom furniture for hotels and restaurants. [Source: Plymouth Industrial REIT Website] (https://www.plymouthreit.com)"

Tenant Lease Expiration Square Footage Current Rent (psf) Potential Rent (psf) Potential FFO Impact

Geodis 2025 1,200,000 $6.00 (Hypothetical) $5.40 -$720,000

Royal Canin 2025 500,000 $5.50 (Hypothetical) $4.95 -$275,000

Other Tenants (25%) 2025 2,000,000 (Hypothetical) $5.00 (Hypothetical) $4.50 -$1,000,000

FedEx 2025 769,000 $6.50 (Hypothetical) $6.18 (5% Discount) -$250,000 (6 Month Vacancy)

Total Potential FFO Impact: -$2,245,000