Plymouth Industrial REIT, Inc. (PLYM - Free Report) recently shelled out $51.2 million for the acquisition of three industrial properties in St. Louis and Jacksonville. The move comes as part of the company’s effort to boost its presence in key industrial markets.
The buyouts, funded with working capital and borrowings under the company’s credit facilities, included two industrial properties in St. Louis, MO, aggregating 566,408 square feet and one industrial property in Jacksonville, FL encompassing 289,850 square feet.
The acquisitions seem a strategic fit as the properties were acquired well below replacement costs. Moreover, with near-term lease expirations, Plymouth has scope to drive rental growth. The properties are in markets where there is solid demand for industrial real estates and the assets are in close proximity to its existing portfolios. The company can also benefit from the presence of highly-skilled blue-collar labor pool in the region.
The properties acquired include Commerce Center I & II, which comprises two Class A- industrial in-fill buildings, totaling 487,150 square feet of space, in the downtown St. Louis market. The property is 100% leased to five tenants, reflecting its decent demand. Further, with the buildings being acquired at $27 million and projected to provide an initial yield of 7.2%, the buyout seems a strategic one.
The other property at 2326 Grissom Drive in St. Louis comprises two Class B industrial buildings, aggregating 79,258 square feet of space. It is positioned close to St. Louis Lambert International Airport and is currently fully occupied by a single tenant. The property, acquired for $3.7 million, is expected to offer an initial yield of 7.5%.
The third property is at 8451 Western Way in Jacksonville, FL, and comprises a Class B industrial building, totaling 289,850 square feet. This property is presently fully leased to five tenants. Being positioned off I-95 and near Plymouth’s Centerpoint Business Park and Liberty Business Park, it is poised to see healthy demand over the long term. It was acquired for $20.5 million and is projected to offer an initial yield of 8.8%.
Admittedly, the industrial asset class has grabbed limelight for showing resilience amid the coronavirus pandemic with low vacancy rates, high asking rents and robust rent collections. There has been a notable increase in e-commerce’s share of total retail sales, spurring demand for warehouse and distribution spaces. Apart from the fast adoption of e-commerce, the industrial real estate space is anticipated to gain traction over the long run from a likely rise in the inventory levels of companies as a precaution for any supply-chain disruptions.
This, in turn, will likely keep supporting industrial landlords like Plymouth, Prologis (PLD - Free Report) , Duke Realty Corp. (DRE - Free Report) and Terreno Realty Corporation (TRNO - Free Report) to enjoy a favorable market environment.
However, the pandemic’s adverse impact on the economy might thwart demand for space to some extent in the near term. Rent relief and deferrals for tenants are likely to be concerns. Also, surplus supply is a concern for the industrial real estate market.
Plymouth currently carries a Zacks Rank #4 (Sell). The company’s shares have gained 2.4%, outperforming the industry’s growth of 2.2% quarter to date.
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