424B4 1 eps7539.htm

 

Filed pursuant to Rule 424(b)(4)

Registration No. 333-220927 

PROSPECTUS

1,800,000 Shares

 

7.50% Series A Cumulative Redeemable Preferred Stock
______________________

 

We are offering 1,800,000 shares of our 7.50% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share, of our Series A Preferred Stock.

Dividends. We will pay cumulative cash dividends on the Series A Preferred Stock from, and including, the date of original issue to, but excluding, December 31, 2024, at a rate of 7.50% per annum of the $25.00 liquidation preference per share (equivalent to the fixed annual amount of $1.875 per share) (the “Initial Rate”). Dividends on the Series A Preferred Stock will be payable quarterly in arrears on the last day of March, June, September and December of each year, commencing on December 31, 2017, when, as and if authorized by our board of directors. Holders of shares of Series A Preferred Stock will not be entitled to receive dividends paid on any dividend payment date if such shares were not issued and outstanding on the record date for such dividend. On and after December 31, 2024, if any shares of Series A Preferred Stock are outstanding, we will pay cumulative cash dividends on each then-outstanding share of Series A Preferred Stock at an annual dividend rate equal to the Initial Rate plus an additional 1.5% of the liquidation preference per annum, which will increase by an additional 1.5% of the liquidation preference per annum on each subsequent December 31 thereafter, subject to a maximum annual dividend rate of 11.5% while the Series A Preferred Stock remains outstanding.

Liquidation Preference. Upon any Liquidation Event (as defined herein), before any distribution or payment shall be made to holders of shares of our common stock or any other class or series of capital stock ranking, as to rights upon any Liquidation Event, junior to the Series A Preferred Stock, holders of shares of Series A Preferred Stock will be entitled to be paid out of our assets legally available for distribution to our stockholders, after payment of or provision for our debts and other liabilities, a liquidation preference of $25.00 per share of Series A Preferred Stock, plus an amount per share equal to all accrued but unpaid dividends (whether or not authorized or declared) to, and including, the date of payment.

Redemption at Our Option. Generally, we are not permitted to redeem the Series A Preferred Stock prior to December 31, 2022, except in limited circumstances relating to our ability to qualify as a real estate investment trust, or REIT, for U.S. federal income tax purposes or in connection with a Change of Control/Delisting (as defined herein). On or after December 31, 2022, we may, at our option, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus an amount equal to all accrued but unpaid dividends on such Series A Preferred Stock to, and including, the redemption date.

Change of Control/Delisting. In the event of a Change of Control/Delisting, each holder of Series A Preferred Stock may, at its sole option, elect to cause us to redeem any or all of such holder’s shares of Series A Preferred Stock in cash at a redemption price of $25.00 per share, plus an amount equal to all accrued but unpaid dividends to, and including, the redemption date, no earlier than 30 days and no later than 60 days following the date on which we notify holders of the Change of Control/Delisting. In addition, in the event a Change of Control/Delisting should occur we may, at our option, redeem the Series A Preferred Stock, in whole or in part, within 120 days after the first date on which such Change of Control/Delisting occurred, by paying cash in an amount equal to $25.00 per share, plus an amount equal to all accrued but unpaid dividends to, and including, the redemption date.

We are organized and conduct our operations in a manner that will allow us to maintain our qualification as a REIT. To assist us in qualifying as a REIT, among other purposes, our charter contains certain restrictions relating to the ownership and transfer of our capital stock. See “Description of Series A Preferred Stock — Restrictions on Ownership and Transfer.”

No current market exists for the Series A Preferred Stock. We have filed an application to list the Series A Preferred Stock on the NYSE American under the symbol “PLYM-PrA.” If the application is approved, trading of the Series A Preferred Stock is expected to commence within 30 days after the date of initial issuance of the shares of Series A Preferred Stock in this offering.

We are an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and are subject to reduced public company reporting requirements. Investing in our Series A Preferred Stock involves significant risks, and our Series A Preferred Stock has not been rated and is subject to the risks associated with non-rated securities. You should read the section entitled “Risk Factors” beginning on page 23 of this prospectus for a discussion of certain risk factors that you should consider before investing in our Series A Preferred Stock.

    Per share     Total  
Public offering price   $ 25.00     $ 45,000,000  
Underwriting discount (1)   $ 0.7875     $ 1,417,500  
Proceeds, before expenses, to us   $ 24.2125     $ 43,582,500  
(1)See “Underwriting” for additional disclosure regarding the compensation payable to the underwriters.

We have also granted the underwriters an option to purchase up to an additional 270,000 shares of Series A Preferred Stock from us, at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus to cover overallotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Delivery of the shares of our Series A Preferred Stock in book-entry form is expected to be made on or about October 25, 2017, which is the fifth trading day following the date of this prospectus.

 

D.A. Davidson & Co.
     
BB&T Capital Markets Ladenburg Thalmann National Securities Corporation

 

 

The date of this prospectus is October 18, 2017.

 

 

TABLE OF CONTENTS

 

  PAGE
PROSPECTUS SUMMARY 1
RISK FACTORS 23
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 48
USE OF PROCEEDS 49
CAPITALIZATION 51
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 52
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 57
MARKET OVERVIEW 71
BUSINESS 88
MANAGEMENT 104
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 119
STRUCTURE OF OUR COMPANY 120
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES 121
PRINCIPAL STOCKHOLDERS 126
DESCRIPTION OF CAPITAL STOCK 127
DESCRIPTION OF THE SERIES A PREFERRED STOCK 132
MATERIAL PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS 144
DESCRIPTION OF THE PARTNERSHIP AGREEMENT OF PLYMOUTH INDUSTRIAL OP, LP. 149
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS 152
UNDERWRITING 173
LEGAL MATTERS 175
EXPERTS 175
WHERE YOU CAN FIND MORE INFORMATION 175
INDEX TO FINANCIAL STATEMENTS F-1

You should rely only on the information contained in this prospectus, any free writing prospectus prepared by us or any information to which we have referred you. We have not, and the underwriters have not, authorized any other person to provide you with different or additional information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus, in any free writing prospectus prepared by us and in any information to which we have referred you is accurate only as of their respective dates or on the date or dates which are specified in those documents. Our business, financial condition, results of operations and prospects may have changed since those dates.

 

 i

 

Industry and Market Data

We use market data and industry forecasts and projections throughout this prospectus, including data from publicly available information and industry publications. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information are not guaranteed. The forecasts and projections are based on industry surveys and the preparers’ experience in the industry, and there is no assurance that any of the projections or forecasts will be achieved. We believe that the surveys and market research others have performed are reliable, but we have not independently investigated or verified this information. Any forecasts prepared by REIS, Inc., or REIS, and CB Richard Ellis, or CBRE, are based on data (including third-party data), models and experience of various professionals, and are based on various assumptions, all of which are subject to change without notice. In addition, the projections obtained from REIS or CBRE that we have included in this prospectus have not been expertized and are, therefore, solely our responsibility. As a result, REIS and CBRE do not and will not have any liability or responsibility whatsoever for any market data and industry forecasts and projections that are contained in this prospectus or otherwise disseminated in connection with the offer or sale of our Series A Preferred Stock. If you purchase our Series A Preferred Stock, your sole recourse for any alleged or actual inaccuracies in the forecasts and projections used in this prospectus will be against us. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements contained in this prospectus.

Glossary

In this prospectus:

  “annualized rent” means the monthly base rent for the applicable property or properties as of June 30, 2017, multiplied by 12 and then multiplied by our percentage ownership interest for such property, where applicable, and “total annualized rent” means the annualized rent for the applicable group of properties;
  “capitalization rate” means the ratio of a property’s annual net operating income to its purchase price;
  “Class A industrial properties” means industrial properties that typically possess most of the following characteristics: 15 years old or newer, square footage in excess of 300,000 square feet, concrete tilt-up construction, clear height in excess of 26 feet, a ratio of dock doors to floor area that is more than one door per 10,000 square feet and energy efficient design characteristics suitable for current and future tenants;
  “Class B industrial properties” means industrial properties that typically possess most of the following characteristics: more than 15 years old, square footage between 50,000 and 300,000 square feet, clear heights between 18 and 26 feet, and adequate building systems (mechanical, HVAC and utility) to deliver services currently required by tenants but which may need upgrades for future tenants;
  “Company Portfolio” means the 29 distribution centers, warehouse and light industrial properties which we own as of the date of this prospectus, including, unless otherwise indicated, the Recent Acquisitions;
  “net operating income” or “NOI” means total revenue (including rental revenue, tenant reimbursements, management, leasing and development services revenue and other income) less property-level operating expenses including allocated overhead. NOI excludes depreciation and amortization, general and administrative expenses, impairments, gain/loss on sale of real estate, interest expense and other non-operating expenses;
  “OP units” means units of limited partnership interest in our operating partnership;
  “our operating partnership” means Plymouth Industrial OP, LP, a Delaware limited partnership, and the subsidiaries through which we conduct substantially all of our business;
  “Plymouth,” “our company,” “we,” “us” and “our” refer to Plymouth Industrial REIT, Inc., a Maryland corporation, and its consolidated subsidiaries, except where it is clear from the context that the term only means Plymouth Industrial REIT, Inc., the issuer of the shares of Series A Preferred Stock, in this offering;  
  “primary markets” means gateway cities and the following six largest metropolitan areas in the U.S., each generally consisting of more than 300 million square feet of industrial space: Los Angeles, San Francisco, New York, Chicago, Washington, DC and Boston;
  “Recent Acquisitions” means the nine industrial properties that we have acquired since the completion of our initial listed public offering;

 ii

 
  “secondary markets” means for our purposes non-gateway markets, each generally consisting of between 100 million and 300 million square feet of industrial space, including the following metropolitan areas in the U.S.: Atlanta, Austin, Baltimore, Charlotte, Cincinnati, Cleveland, Columbus, Dallas, Detroit, Houston, Indianapolis, Jacksonville, Kansas City, Memphis, Milwaukee, Nashville, Norfolk, Orlando, Philadelphia, Pittsburgh, Raleigh/Durham, San Antonio, South Florida, St. Louis and Tampa;
  “Torchlight” means Torchlight Investors, LLC and the Torchlight Entities, as applicable;
  “Torchlight Entities” means DOF IV REIT Holdings, LLC, which is the lender under our mezzanine loan facility, and DOF IV Plymouth PM, LLC, both of which are managed by Torchlight Investors, LLC; and
  “Torchlight Transactions” means the redemption of certain preferred equity interests held by Torchlight for $25.0 million, which was paid by a combination of $20.0 million in cash with a portion of the net proceeds from our initial listed public offering and 263,158 shares of common stock issued to Torchlight in a private placement, and the private issuance of warrants to Torchlight to acquire 250,000 shares of common stock, in each case concurrently with the closing of our initial listed public offering.

Our definitions of Class A industrial properties, Class B industrial properties, primary markets and secondary markets may vary from the definitions of these terms used by investors, analysts or other industrial REITs.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more detailed explanations of NOI as well as Earnings Before Interest, Taxes, Depreciation and Amortization, or EBITDA, Funds from Operations, or FFO, and Adjusted FFO, or AFFO, and reconciliations of NOI, EBITDA, FFO and AFFO to net loss computed in accordance with U.S. generally accepted accounting principles, or GAAP.

 iii

 

PROSPECTUS SUMMARY

The following summary highlights information contained elsewhere in this prospectus. You should read carefully the entire prospectus, including “Risk Factors,” our financial statements, including the pro forma financial information and related notes appearing elsewhere in this prospectus, before making a decision to invest in our Series A Preferred Stock.

Unless indicated otherwise, the information included in this prospectus assumes no exercise of the underwriters’ option to purchase up to 270,000 additional shares of our Series A Preferred Stock to cover overallotments, if any.

Overview

We are a full service, vertically integrated, self-administered and self-managed Maryland corporation focused on the acquisition, ownership and management of single and multi-tenant Class B industrial properties, including distribution centers, warehouses and light industrial properties, primarily located in secondary and select primary markets across the U.S. For our definition of Class B industrial properties, see “—Our Investment and Growth Strategies—Investment Strategy.” As of the date of this prospectus, the Company Portfolio consists of 29 industrial properties located in eight states. The Company Portfolio was 96.5% leased to 55 different tenants across 17 industry types as of September 30, 2017.

We intend to continue to focus on the acquisition of Class B industrial properties primarily in secondary markets with net rentable square footage ranging between approximately 100 million and 300 million square feet, which we refer to as our target markets. We believe industrial properties in such target markets will provide superior and consistent cash flow returns at generally lower acquisition costs relative to industrial properties in primary markets. Further, we believe there is a greater potential for higher rates of appreciation in the value of industrial properties in our target markets relative to industrial properties in primary markets.

We believe our target markets provide us with opportunities to acquire both stabilized properties generating favorable cash flows, as well as properties where we can enhance returns through value-add renovations and redevelopment. We focus primarily on the following investments:

  single-tenant industrial properties where tenants are paying below-market rents with near-term lease expirations that we believe have a high likelihood of renewal at market rents; and
  multi-tenant industrial properties that we believe would benefit from our value-add management approach to create attractive leasing options for our tenants, and as a result of the presence of smaller tenants, obtain higher per-square-foot rents.

We believe there are a significant number of attractive acquisition opportunities available to us in our target markets and that the fragmented and complex nature of our target markets generally make it difficult for less-experienced or less-focused investors to access comparable opportunities on a consistent basis. See “Market Overview.”

Our company, which was formerly known as Plymouth Opportunity REIT, Inc., was founded in March 2011 by two of our executive officers, Jeffrey Witherell and Pendleton White, Jr., each of whom has at least 25 years of experience acquiring, owning and operating commercial real estate properties. Specifically, both were members of a team of senior investment executives that was responsible for the acquisition and capital formation of commercial properties for Franklin Street Properties (NYSE: FSP), or Franklin Street, a REIT based in Boston, MA, from 2000 to 2007, during which time Franklin Street listed its stock on the American Stock Exchange. Following their time at Franklin Street, our founders recognized a growing opportunity in the Class B industrial space, particularly in secondary markets and select primary markets, following the 2008-2010 recession, and founded our company to participate in the cyclical recovery of the U.S. economy. Between March 2011 to April 2014, we prepared for and engaged in a non-listed public offering of our common stock. We used the proceeds from that offering to acquire equity interests in five industrial properties. In 2014, we used the proceeds of a senior secured loan to acquire 100% fee ownership in three of these properties and 100% fee ownership in the remaining 17 properties that comprise the Company Portfolio. In July 2015 and January 2017, we sold our equity interests in the two properties in which we did not have 100% fee ownership.

Recent Developments

Completion of our IPO

On June 14, 2017, we completed our initial listed public offering of 2,900,000 shares of our common stock. The net proceeds of our initial listed public offering, inclusive of the additional 160,000 shares of common stock sold pursuant to the partial exercise of the overallotment option by the underwriters, were approximately $54.1 million after deducting underwriting discounts and commissions and estimated offering costs.  The offering of the shares of common stock was registered with the Securities and Exchange Commission, or the SEC, pursuant to a registration statement on Form S-11 declared effective on June 8, 2017.  We used approximately $20.0 million of the net proceeds of the offering to redeem Torchlight’s preferred equity interests in one of our subsidiaries and substantially all of the remaining net proceeds to acquire the industrial properties described below under “—Recent Acquisitions.”

 1

 

Recent Acquisitions

We have acquired nine industrial properties with an aggregate of approximately 1.8 million rentable square feet since the completion of our initial listed public offering. We refer to these nine properties as the Recent Acquisitions. The properties comprising the Recent Acquisitions are located in Indiana, Ohio and Tennessee and have a weighted average occupancy of 92.0% as of September 30, 2017. The aggregate purchase price of these properties was $58.1 million, consisting of a portion of the net proceeds from our initial listed public offering, borrowings under our KeyBank Credit Agreement (described below) and 421,438 OP units. Except as set forth in the footnotes below, the following table provides certain information with respect to the Recent Acquisitions as of September 30, 2017. All of the Recent Acquisitions were completed subsequent to June 30, 2017.

Metro  Address  Property Type  Year Built/
Renovated (1)
  Square
Footage
  Occupancy  Annualized
Rent (2)
   Percent of
Total
Annualized
Rent(3)
  Annualized
Rent/Square
Foot (4)
  Purchase
Price
 
Columbus, OH  2120 New World Drive  Warehouse/Distribution  1971  121,440  99.8%  $327,060   4.8%  $2.70  $3,700,000 
Memphis, TN  3635 Knight Road  Warehouse/Distribution  1986  131,904  100.0%  $319,980   4.7%  $2.43  $3,700,000 
Memphis, TN  2815, 2828, 2842, 2847, 2864, 2869, 2890 Business Park Drive  Office/Distribution  1985-1989  235,006  51.8%  $1,973,389   29.0%  $16.21  $7,825,000 
Indianapolis, IN  3165, 3169 North Shadeland Ave  Warehouse/Distribution  1962/2004
1979/1993
  606,871  95%  $1,781,468   26.2%  $3.07  $16,875,000(5)
South Bend, IN  5861 W Cleveland Road  Warehouse/Distribution  1994  62,550  100%  $187,650   2.8%  $3.00  $2,030,337 
South Bend, IN  West Brick Road  Warehouse/Distribution  1998  101,450  100%  $304,350   4.5%  $3.00  $3,293,009 
South Bend, IN  4491 N Mayflower Road  Warehouse/Distribution  2000  77,000  100%  $231,000   3.4%  $3.00  $2,499,376 
South Bend, IN  5855 West Carbonmill Road  Warehouse/Distribution  2002  198,000  100%  $792,000   11.6%  $4.00  $8,569,288 
South Bend, IN  4955 Ameritech Drive  Warehouse/Distribution  2004  228,000  100%  $888,000   13.0%  $3.89  $9,607,990 
Industrial Properties -- Total/Weighted Average        1,762,221  92.0%  $6,804,897   100%  $4.20  $58,100,000 

 

  (1) Renovation means significant upgrades, alterations or additions to building areas, interiors, exteriors and/or systems.
  (2) Annualized rent is calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended September 30, 2017 by (ii) 12. On September 30, 2017, there were no rental abatements or concessions in effect that would impact cash rent.
(3) Represents the percentage of total annualized rent solely for the Recent Acquisitions. Assuming that the Recent Acquisitions had been consummated as of June 30, 2017 at the rental rates in place as of September 30, 2017, the Recent Acquisitions collectively would have represented approximately 32.5% of total annualized rent for the entire Company Portfolio.
  (4) Calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended September 30, 2017, by (ii) 12, and then dividing by leased square feet for such property as of September 30, 2017.
(5) Purchase price consisted of approximately $8.8 million in cash and 421,438 OP units valued at $19.00 per unit.

KeyBank Credit Agreement

In August 2017, our operating partnership entered into a credit agreement with KeyBank National Association, or KeyBank, and the other lenders that are parties thereto, or the KeyBank Credit Agreement. The KeyBank Credit Agreement provides us with a $35 million revolving credit facility with an accordion feature that allows the total borrowing capacity under the KeyBank Credit Agreement to be increased up to $75 million, subject to certain conditions. The KeyBank Credit Agreement matures in August 2020 and has one, 12-month extension option, subject to certain conditions. Borrowings under the KeyBank Credit Agreement bear interest at either (1) the base rate (determined as the highest of (a) KeyBank’s prime rate, (b) the federal funds rate plus 0.50% and (c) the one month LIBOR rate plus 1.0%) or (2) LIBOR, plus, in either case, a spread between 250 and 300 basis points depending on our total leverage ratio. The KeyBank Credit Agreement is secured by certain assets of our operating partnership and certain of its subsidiaries and the Company has guaranteed the payment of all indebtedness under the KeyBank Credit Agreement. We used approximately $23.8 million in borrowings under the KeyBank Credit Agreement to complete certain of the Recent Acquisitions, all of which remains outstanding as of the date of this prospectus.

The KeyBank Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, distributions, mergers and acquisitions, dispositions of assets and transactions with affiliates. The covenants limit our use of proceeds to, among other things, funding acquisitions of additional properties, funding capital and construction expenditures, tenant improvements, leasing commissions and property and equipment acquisitions and for general working capital purposes. The KeyBank Credit Agreement also contains financial covenants that require us to maintain a minimum fixed charge coverage ratio of 1.5 to 1.0, a maximum total indebtedness to total asset value of 65% and a minimum net worth of $32,819,000.

In the event of a default, the agent may, and at the request of the requisite number of lenders, declare all obligations under the KeyBank Credit Agreement immediately due and payable, terminate the lenders’ commitments to make loans under the KeyBank Credit Agreement and enforce any and all rights of the lenders or the agent under the KeyBank Credit Agreement and related documents.

 2

 

Dividends

On June 26, 2017, our board of directors authorized and declared a quarterly cash dividend for the quarter ended June 30, 2017 of $0.375 per share of common stock, or an annualized dividend of $1.50 per share of common stock. This dividend was pro-rated to $0.0650 per share to reflect the period commencing on June 14, 2017, the date we completed our initial listed public offering, and ended on June 30, 2017. The dividend was paid on July 31, 2017 to holders of record on July 7, 2017. On September 14, 2017, our board of directors declared a regular quarterly cash dividend of $0.375 per share payable to stockholders of record on September 30, 2017.

Competitive Strengths

We believe that our investment strategy and operating model distinguish us from other owners, operators and acquirers of industrial real estate in several important ways, including the following:

High-Quality Portfolio with Strong Fundamentals:  Since 2014, we have acquired a portfolio of 29 industrial properties with an aggregate of approximately 5.8 million square feet of rentable space. As of the date of this prospectus, the Company Portfolio was 96.5% leased to 55 different tenants across 17 diversified industries, which we believe reduces our exposure to tenant default risk and earnings volatility. We have realized consistent increases in rental rates since the acquisition of the properties comprising the Company Portfolio. Rental rates on new leases signed in 2016 were approximately 57.1% higher than rental rates on prior leases, and rental rates for renewing tenants increased 3.8%. In addition, our tenant retention rate increased from 17.3% in 2015 to 73.7% in 2016. We believe that high occupancy rates across the Company Portfolio, as well as strong rental growth, are indicative of the consistent execution of our business strategy.

Strategic Focus on Class B Industrial Properties in Secondary Markets with Stable and Predictable Cash Flows:    We focus on Class B distribution centers, warehouses and light industrial properties rather than Class A industrial or other commercial properties for the following reasons, among others: fewer capital expenditure requirements, generally greater investment yields, overall greater tenant retention, generally higher current returns and lower earnings volatility. We believe the Company Portfolio is, and our future acquisitions will be, attractively positioned to participate in the recovering rental rates in our target markets while providing our stockholders with consistent, stable cash flows. For further discussion of our target markets, see “Market Overview—Our Target Markets.”

We intend to continue to focus on the acquisition of Class B distribution centers, warehouses and light industrial properties in our target markets across the U.S. We believe that our target markets have exhibited, or will exhibit in the near future, positive demographic trends (i.e., population growth, decreasing unemployment rates, personal income growth and/or favorable tax climates), scarcity of available industrial space and favorable rental growth projections, which should help create superior long-term risk-adjusted returns.

Superior Access to Deal Flow:    We believe our management team’s extensive personal relationships and research-driven origination methods will provide us access to off-market and lightly marketed acquisition opportunities, many of which may not be available to our competitors. Off-market and lightly marketed transactions are characterized by a lack of a formal marketing process and a lack of widely disseminated marketing materials. Our executive management and acquisition teams maintain a deep, broad network of relationships among key market participants, including property brokers, lenders, owners and tenants, and greater than 50% of the Company Portfolio was sourced in off-market or lightly marketed transactions. We believe that our sourcing approach will provide us access to a significant number of attractive investment opportunities.

Experienced Management Team:    Each of the three senior members of our executive management team has over 25 years of significant real estate industry experience, with each member having previous public REIT or public real estate company experience. Led by Mr. Witherell, our Chairman and Chief Executive Officer, Mr. White, our President and Chief Investment Officer, and Mr. Wright, our Chief Financial Officer, our management team has significant experience in acquiring, owning, operating and managing commercial real estate, with a particular emphasis on industrial assets. Throughout their careers, Messrs. Witherell and White have had primary responsibility for overseeing the acquisition, financing, ownership and management of more than ten million square feet of office and industrial properties in our target markets, while over the past 18 years Mr. Wright has served as the Chief Financial Officer of two real estate companies, one of which had approximately $8 billion in assets.

Our Investment and Growth Strategies

Our primary objective is to generate attractive risk-adjusted returns for our stockholders through dividends and capital appreciation primarily through the acquisition of Class B industrial properties located in secondary markets. We intend to focus our acquisition activities on our core property types, which include warehouse/distribution facilities and light manufacturing facilities, because we believe they generate higher tenant retention rates and require lower tenant improvement and re-leasing costs. To a lesser extent, we intend to focus on flex/office facilities (light assembly and research and development). We believe that pursuing the following strategies will enable us to achieve our investment objectives.

 3

 

Our investment strategy will also focus on the burgeoning e-commerce industry by acquiring industrial properties that may service tenants’ e-commerce fulfillment needs, or “last mile” delivery requirements. These properties, termed “in-fill” properties, are typically located in highly populated areas, near city centers or populous suburban areas.

Investment Strategy

Our primary investment strategy is to acquire and own Class B industrial properties predominantly in secondary markets across the U.S. We generally define Class B industrial properties as industrial properties that are typically more than 15 years old, have clear heights between 18 and 26 feet and square footage between 50,000 and 300,000 square feet, with building systems that have adequate capacities to deliver the services currently needed by existing tenants, but may need upgrades for future tenants. In contrast, we define Class A industrial properties as industrial properties that typically are 15 years old or newer, have clear heights in excess of 26 feet and square footage in excess of 300,000 square feet, with energy efficient design characteristics suitable for current and future tenants.

We intend to own and acquire properties that we believe can achieve high initial yields and strong ongoing cash-on-cash returns and that exhibit the potential for increased rental growth in the near future. In addition, we may acquire Class A industrial properties that offer similar attractive return characteristics if the cost basis for such properties are comparable to those of Class B industrial properties in a given market or sub-market. While we will focus on investment opportunities in our target markets, we may make opportunistic acquisitions of Class A industrial properties or industrial properties in primary markets when we believe we can achieve attractive risk-adjusted returns.

We also intend to pursue joint venture arrangements with institutional partners which could provide management fee income as well as residual profit-sharing income. Such joint ventures may involve investing in industrial assets that would be characterized as opportunistic or value-add investments. These may involve development or re-development strategies that may require significant up-front capital expenditures, lengthy lease-up periods and result in inconsistent cash flows. As such, these properties’ risk profiles and return metrics would likely differ from the non-joint venture properties that we target for acquisition.

We believe we have a competitive advantage in sourcing attractive acquisitions because the competition for our target assets is primarily from local investors who are not likely to have ready access to debt or equity capital. In addition, our umbrella partnership real estate investment trust, or UPREIT, structure may enable us to acquire industrial properties on a non-cash basis in a tax efficient manner through the issuance of OP units as consideration for the transaction. We will also continue to develop our large existing network of relationships with real estate and financial intermediaries. These individuals and companies give us access to significant deal flow—both those broadly marketed and those exposed through only limited marketing. These properties will be acquired primarily from third-party owners of existing leased buildings and secondarily from owner-occupiers through sale-leaseback transactions.

Growth Strategies

We seek to maximize our cash flows through proactive asset management. Our asset management team actively manages our properties in an effort to maintain high retention rates, lease vacant space, manage operating expenses and maintain our properties to an appropriate standard. In doing so, we have developed strong tenant relationships. We intend to leverage those relationships and market knowledge to increase renewals, properly prepare tenants for rent increases, obtain early notification of departures to provide longer re-leasing periods and work with tenants to properly maintain the quality and attractiveness of our properties. Our asset management team also collaborates with our internal credit function to actively monitor the credit profile of each of our tenants and prospective tenants on an ongoing basis.

Our asset management team functions include strategic planning and decision-making, centralized leasing activities and management of third-party leasing companies. Our asset management/credit team oversees property management activities relating to our properties which include controlling capital expenditures and expenses that are not reimbursable by tenants, making regular property inspections, overseeing rent collections and cost control and planning and budgeting activities. Tenant relations matters, including monitoring of tenant compliance with their property maintenance obligations and other lease provisions, will be handled by in-house personnel for most of our properties.

Financing Strategy

We intend to maintain a flexible and growth-oriented capital structure. We intend to use the net proceeds from this offering along with additional secured and unsecured indebtedness to acquire industrial properties. See “Use of Proceeds.” Our additional indebtedness may include arrangements such as revolving credit facility or term loan. We believe that we will have the ability to leverage newly-acquired properties up to a 65% debt-to-value ratio, though our long-term target debt-to-value ratio is less than 50%. We also anticipate using OP units to acquire properties from existing owners interested in tax-deferred transactions.

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Investment Criteria

We believe that our market knowledge, operations systems and internal processes allow us to efficiently analyze the risks associated with an asset’s ability to produce cash flow going forward. We blend fundamental real estate analysis with corporate credit analysis to make a probabilistic assessment of cash flows that will be realized in future periods. We also use data-driven and event-driven analytics and primary research to identify and pursue emerging investment opportunities. See “Business—Our Investment and Growth Strategies—Investment Criteria.”

Our investment strategy focuses on Class B industrial properties in secondary markets for the following reasons:

  Class B industrial properties generally require less capital expenditures than both Class A industrial properties and other commercial property types;
  investment yields for Class B industrial properties are often greater than investment yields on both Class A industrial properties and other commercial property types;
  Class B industrial tenants tend to retain their current space more frequently than Class A industrial tenants;
  Class B industrial properties tend to have higher current returns and lower volatility than Class A industrial properties;
  we believe there is less competition for Class B industrial properties from institutional real estate buyers; our typical competitors are local investors who often do not have ready access to debt or equity capital;
  the Class B industrial real estate market is highly fragmented and complex, which we believe makes it difficult for less-experienced or less-focused investors to access comparable opportunities on a consistent basis;
  we believe that there is a limited new supply of Class B industrial space in our target markets;
  secondary markets generally have less occupancy and rental rate volatility than primary markets;
  Class B industrial properties and secondary markets are typically “cycle agnostic”; i.e., less prone to overall real estate cycle fluctuations;
  we believe secondary markets generally have more growth potential at a lower cost basis than primary markets; and
  we believe that the demand for e-commerce-related properties, or e-fulfillment facilities, will continue to grow and play a significant role in our investing strategy.

Market Overview

Market Opportunity

A key component of our business strategy is to tap into forecasted U.S. economic growth by investing in industrial real estate that we believe will benefit from rental growth and increased tenant demand. We believe that in some cases there has already been significant growth and capitalization rate compression in primary markets in the Class A industrial sector, but that there still exists an opportunity to take advantage of capitalization rate compression, favorable pricing, limited supply and competition in secondary growth markets and in Class B industrial properties. While we will focus on the acquisition of Class B industrial properties in secondary markets, we may also make opportunistic acquisitions of Class A industrial properties and industrial properties in primary markets.

Our acquisition pipeline focuses on a select group of target markets, including, among others, Atlanta, Chicago, Cincinnati, Columbus and Memphis, which we believe possess certain characteristics that we believe are beneficial to industrial real estate investment. These characteristic include, but are not limited to, employment growth, recent and forecasted rent growth, a shortage of industrial development, and falling vacancy rates. We believe that these characteristics will allow us to increase rental rates, increase occupancy and drive value. For a more detailed overview of these markets, refer to the “Market Overview” section of this prospectus.

Industrial Real Estate Fundamentals

According to CBRE, industrial real estate demand going into 2017 is strong. In many of our target markets vacancy rates are steadily dropping, construction is starting to slowly pick up and rent growth remains healthy. New construction has lagged leasing demand for 25 consecutive quarters. We believe that while construction starts continue to remain limited and economic demand drivers continue to power absorption, industrial fundamentals will continue to strengthen. We believe that, as a result of the lack of new construction and overall demand for industrial properties in many U.S. markets, vacancy rates will continue to fall until rent growth increases to a point where developers can justify undergoing more speculative projects.

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Accelerating U.S. Economic Growth

According to forecasts by the United States Congressional Budget Office, or the CBO, inflation-adjusted U.S. GDP grew by 1.6% in 2016 and is expected to grow 2.1% in 2017, 2.2% in 2018, and 1.6% in 2019. The CBO expects that these increases in U.S. GDP will spur businesses to maintain and/or grow hiring rates, which will continue to push down the unemployment rate and raise the rate of participation in the labor force. In particular, the CBO projects that the unemployment rate will maintain a range of 4.5% to 5.0% over the next 11 years. Overall, the CBO anticipates that over the next decade, inflation-adjusted U.S. GDP will increase at an average annual pace of 1.9%. We expect that increased employment will lead to increased consumer spending, further enhancing the demand for warehouse properties, particularly in an e-commerce retail environment.

Industrial Trade

Industrial trade is one of the most important drivers of industrial real estate demand as import and export volume greatly determine the amount of space that is needed in order to store goods. Since the recession of 2008 - 2010, exports have been one of the key drivers of the recovery in trade, with export levels up now more than 19.9% from pre-recession levels. While import rates have not grown as quickly as export rates since the recession, import rates (excluding oil) have risen 6.4% over pre-recession levels, which have resulted in further increased demand for industrial real estate space. We believe that this recovery to import and export rates should continue during 2017 and beyond, which should help drive demand for industrial space.

Manufacturing and Production

We believe that manufacturing and production is another key component of industrial real estate performance as the level of goods that are manufactured and produced has a positive correlation with the amount of space needed to store such goods. The productivity of U.S. mines and factories, as measured by the industrial production index, picked up pace in 2013 and has maintained its momentum to date. Due in large part to the surge in domestic energy production, the U.S. is enjoying lower energy costs, which, combined with more competitive labor costs, should allow industrial production to continue to expand in 2017.

In 2015, the U.S. industrial capacity utilization rate stood just above its historical average, with some sectors running well above their long-run averages. We believe that this suggests that more investment in industrial capacity will be needed for industrial production to continue growing. The CBO is forecasting that business investment will grow by 2.0% annually over the next ten years. Likewise, the CBO also forecasts total output to grow closer to 2.0% per year rather than the 1.4% increase realized between 2008 and 2016.

Consumer Consumption

Consumer consumption, which accounts for two-thirds of U.S. GDP, declined during the recession, as high unemployment and stagnating wages forced people to cut back on non-essential spending. However, since 2009, real consumer spending has grown at an annual rate of 2.3%.

 
Figure 3 (Source: US Department of Commerce — Bureau of Economic Analysis)

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Industrial Real Estate Fundamentals

Overview

According to CBRE, industrial real estate demand in first quarter of 2017 remains strong, though net absorption is down from prior quarters. In many of our target markets vacancy rates are steadily dropping, construction is continuing to pick up and rent growth remains healthy. The industrial real estate market has seen 29 consecutive quarters of positive demand. We believe that while construction starts continue to remain limited and economic demand drivers continue to power absorption, industrial fundamentals will continue to strengthen. We believe that, as a result of the lack of new construction and overall demand for industrial properties in many U.S. markets, vacancy rates will continue to fall until rent growth increases to a point where developers can justify undergoing more speculative projects. The following graph illustrates this on a historical basis.

 
Figure 4 (Source: CBRE)

Limited new construction and growing demand for industrial properties will cause vacancy rates to fall and rental rates to rise as confirmed by REIS, Inc.’s, or REIS, data and projections on occupancy and effective rental forecasts for both the 6.4 billion square foot warehouse/distribution and 1.2 billion square foot U.S. Flex/R&D markets, which, as illustrated in the two graphs below, show an increase in effective rents since 2011 and a declining vacancy rate through 2021.

   
Figure 5 (Source: REIS) Figure 6 (Source: REIS)

 

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In the longer term, industrial real estate fundamentals are expected to continue to be strong, as the sector is uniquely positioned to benefit from current economic trends, including increased trade growth, inventory rebuilding, and increased industrial output. Additionally, developing trends point to a strong near-to medium-term outlook for the sector. For example, the growth of big-box warehouses serving large online retailers close to population centers is forecasted to gain popularity, which we believe could potentially influence smaller e-retailers to do the same.

Increased e-commerce has a positive impact on warehouse demand, as it tends to transfer retail tenants to warehouses. According to CBRE, U.S. e-commerce sales now comprise 8% of all US retail sales, up from 5.8% in 2013 and 1.5% in 2003. With massive increases in online sales over the past 15 years, e-commerce companies have had to make major investments in infrastructure and facilities to keep pace with demand. This is expected to continue, as online sales keep growing with traditional brick and mortar retailers employing multi-channel sale strategies. Additionally, this emergence of e-commerce and the growth of internet retailers and wholesalers are expanding the universe of tenants seeking industrial space in our target markets, which should drive demand and rent growth into the future.

Manufacturing is also likely to play an increased role in the industrial sector’s recovery. With energy prices and labor costs down, we believe that the fundamentals support a sustained resurgence in domestic manufacturing. Lack of supply may be a hurdle for continued demand growth, as some markets are already reporting shortages of space in certain asset types.

The Company Portfolio

As of the date of this prospectus, we own and operate 29 industrial buildings, with an aggregate of approximately 5.8 million square feet of rentable space. The following table provides certain information with respect to the Company Portfolio as of June 30, 2017, other than the Recent Acquisitions. For information regarding the Recent Acquisitions, see “—Recent Developments—Recent Acquisitions.”

Metro  Address  Property Type  Percent Ownership  Year Built/
Renovated (1)
  Square
Footage
  Occupancy  Annualized
Rent (2)
   Percent of
Total
Annualized
Rent(3)
  Annualized Rent/Square
Foot (4)
Chicago, IL  3940 Stern Avenue  Warehouse/Light Manufacturing  100%  1987  146,798  100%  $623,891   4.4%  $4.25
Chicago, IL  1875 Holmes Road  Warehouse/Light Manufacturing  100%  1989  134,415  100%  $641,706   4.5%  $4.77
Chicago, IL  1355 Holmes Road  Warehouse/Distribution  100%  1975/1998  82,456  100%  $391,589   2.8%  $4.75
Chicago, IL  2401 Commerce Drive  Warehouse/Flex  100%  1994/2009  78,574  100%  $584,663   4.1%  $7.44
Chicago, IL  189 Seegers Road  Warehouse/Light Manufacturing  100%  1972  25,000  100%  $162,365   1.1%  $6.49
Chicago, IL  11351 W. 183rd Street  Warehouse/Distribution  100%  2000  18,768  100%  $186,889   1.3%  $9.96
Cincinnati, OH  Mostellar Distribution Center I & II  Warehouse/Light Manufacturing  100%  1959  358,386  100%  $1,053,038   7.5%  $2.94
Cincinnati, OH  4115 Thunderbird Lane  Warehouse/Light Manufacturing  100%  1991  70,000  100%  $239,190   1.7%  $3.42
Florence, KY  7585 Empire Drive  Warehouse/Light Manufacturing  100%  1973  148,415  100%  $412,785   2.9%  $2.78
Columbus, OH  3500 Southwest Boulevard  Warehouse/Distribution  100%  1992  527,127  100%  $1,782,634   12.6%  $3.38
Columbus, OH  3100 Creekside Parkway  Warehouse/Distribution  100%  1999  340,000  100%  $1,003,000   7.1%  $2.95
Columbus, OH  8288 Green Meadows Dr.  Warehouse/Distribution  100%  1988  300,000  100%  $927,000   6.6%  $3.09
Columbus, OH  8273 Green Meadows Dr.  Warehouse/Distribution  100%  1996/2007  77,271  100%  $355,765   2.5%  $4.60
Columbus, OH  7001 American Pkwy  Warehouse/Distribution  100%  1986/2007 & 2012  54,100  100%  $175,824   1.2%  $3.25
Memphis, TN  6005, 6045 & 6075 Shelby Dr.  Warehouse/Distribution  100%  1989  202,303  69.3%  $424,078   3.0%  $3.03
Jackson, TN  210 American Dr.  Warehouse/Distribution  100%  1967/1981 & 2013  638,400  100%  $1,404,480   10.0%  $2.20
Altanta, GA  32 Dart Road  Warehouse/Light Manufacturing  100%  1988/2014  194,800  100%  $516,228   3.7%  $2.65
Portland, ME  56 Milliken Road  Warehouse/Light Manufacturing  100%  1966/1995, 2005, 2013  200,625  100%  $1,052,694   7.5%  $5.25
Marlton, NJ  4 East Stow Road  Warehouse/Distribution  100%  1986  156,279  100%  $834,900   5.9%  $5.34
Cleveland, OH  1755 Enterprise Parkway  Warehouse/Light Manufacturing  100%  1979/2005  255,570  100%  $1,354,762   9.6%  $5.30
Existing Portfolio – Industrial Properties -- Total/Weighted Average        4,009,287  98.4%  $14,127,481   100.0%(3)  $3.58

_______________

  (1) Renovation means significant upgrades, alterations or additions to building areas, interiors, exteriors and/or systems.
  (2) Annualized rent is calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended June 30, 2017 by (ii) 12. On June 30, 2017, there were no rental abatements or concessions in effect that would impact cash rent.
(3) Represents the percentage of total annualized rent for properties owned as of June 30, 2017, but does not reflect the annualized rent attributable to the Recent Acquisitions, none of which had been consummated as of June 30, 2017.
  (4) Calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended June 30, 2017, by (ii) 12, and then dividing by leased square feet for such property as of June 30, 2017.

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Acquisition Pipeline

Our executive management and acquisition teams maintain a deep, broad network of relationships among key market participants, including property brokers, lenders, owners and tenants. We believe these relationships and our research-driven origination methods provide us access to off-market and lightly marketed acquisition opportunities, many of which may not be available to our competitors. Furthermore, we believe that a significant portion of the approximately 15.4 billion square feet of industrial space in the U.S. falls within our target investment criteria and that there will be ample supply of attractive acquisition opportunities in the future.

In the normal course of our business, we regularly evaluate the market for industrial properties to identify potential acquisition targets. As of the date of this prospectus, we are evaluating approximately $400 million of potential acquisitions in our target markets that we have identified as warranting further investment consideration after an initial review. We do not have any relationship with the sellers of the properties we are evaluating. As of the date of this prospectus, we have neither entered into any letters of intent or purchase agreements with respect to any potential acquisitions, nor have we begun a comprehensive due diligence review with respect to any of these properties. Accordingly, we do not believe that the acquisition of any of the properties under evaluation is probable as of the date of this prospectus.

Stockholders Agreement with Torchlight

Upon completion of our initial listed public offering, we entered into a stockholders agreement with Torchlight, or the Stockholders Agreement, in order to establish various arrangements and restrictions with respect to governance of our company and certain rights granted to Torchlight while Torchlight maintains beneficial ownership of at least 2.5% of our common stock. These rights and restrictions include a board nomination right and certain customary registration and preemptive rights. We are also prohibited from issuing preferred stock until Torchlight falls below the ownership threshold described above, unless Torchlight consents to such issuance. In September 2017, Torchlight consented to the offer and sale of the Series A Preferred Stock in this offering. See “Management—Torchlight Stockholders Agreement.” We intend to use approximately $5.0 million of the net proceeds of this offering to repurchase the 263,158 shares of our common stock that we issued to Torchlight in the Torchlight Transactions. See “Use of Proceeds.” After giving effect to the expected use of proceeds, Torchlight’s beneficial ownership of our common stock will remain in excess of 2.5%, and as a result, Torchlight will retain its rights under the Stockholders Agreement after the completion of this offering.

Existing Debt Structure

AIG Loan

On October 17, 2016, certain indirect subsidiaries of our operating partnership entered into a senior secured loan agreement with investment entities managed by AIG Asset Management, or the AIG Loan Agreement, which provides for a loan, or the AIG Loan, of $120 million, bearing interest at 4.08% per annum, and a seven-year term. As of June 30, 2017, there was $120 million outstanding under the AIG Loan Agreement. The AIG Loan Agreement provides for monthly payments of interest only for the first three years of the term and thereafter monthly principal and interest payments based on a 27-year amortization period. Our operating partnership used the net proceeds of the AIG Loan to partially repay the outstanding principal and accrued interest under our then-existing senior secured loan agreement with Torchlight. As of the date of this prospectus, we are in compliance with all covenants under the AIG Loan Agreement.

The borrowings under the AIG Loan Agreement are secured by first lien mortgages on all of the properties in the Company Portfolio other than the Recent Acquisitions. The obligations under the AIG Loan Agreement are also guaranteed by our company and each of our operating partnership’s wholly-owned subsidiaries.

Torchlight Mezzanine Loan

On October 17, 2016, Plymouth Industrial 20, a subsidiary of our operating partnership, entered into a mezzanine loan agreement, or the Torchlight Mezzanine Loan Agreement, with Torchlight, which provides for a loan of $30 million, or the Torchlight Mezzanine Loan. The Torchlight Mezzanine Loan has a seven-year term and bears interest at 15% per annum, of which 7% percent is paid currently during the first four years of the term and 10% is paid for the remainder of the term. The Torchlight Mezzanine Loan requires Plymouth Industrial 20 to pay a repayment premium equal to the difference between (x) the sum of 150% of the principal being repaid (excluding accrued interest) and (y) the sum of the actual principal amount being repaid and current and accrued interest paid through the date of repayment. This repayment feature operates as a prepayment feature since the difference will be zero at maturity. The borrowings under the Torchlight Mezzanine Loan are secured by, among other things, pledges of the equity interest in Plymouth Industrial 20 and each of its property-owning subsidiaries. The proceeds of the Torchlight Mezzanine Loan were used to partially repay the outstanding principal and accrued interest under our then-existing senior secured loan agreement.

KeyBank Credit Agreement

On August 14, 2017, we entered into a $35 million senior secured revolving credit facility with KeyBank National Association. See “— Recent Developments.”

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Summary Risk Factors

An investment in our Series A Preferred Stock involves material risks. You should consider carefully the risks described below and under “Risk Factors” before purchasing shares of our Series A Preferred Stock in this offering:

  The Series A Preferred Stock is subordinate to our existing and future debt and other liabilities, and your interests could be diluted by the issuance of additional preferred stock and by other transactions.
  The shares of Series A Preferred Stock to be issued in this offering are newly issued securities with no established trading market, which may negatively affect their market value and your ability to transfer or sell your shares. We have applied to list the Series A Preferred Stock on the NYSE American but we cannot assure you that the listing will be approved or that a trading market will develop or be sustained.
  The Series A Preferred Stock has not been rated.
  As a holder of Series A Preferred Stock, you have extremely limited voting rights.
  Holders of shares of our Series A Preferred Stock should not expect us to redeem the Series A Preferred Stock on or after the date they become redeemable at our option.
  We may not have sufficient funds to redeem our Series A Preferred Stock upon a Change of Control/Delisting.
  If you own shares of our Series A Preferred Stock, you will not be entitled to any rights with respect to our common stock, but you will be subject to all changes made with respect to our common stock.
  The market price of our common stock received in a redemption of our Series A Preferred Stock may decrease between the date received and the date such shares of our common stock are sold.
  Future offerings of debt securities, which would be senior to our Series A Preferred Stock upon liquidation, and/or preferred equity securities which may be senior to our Series A Preferred Stock for purposes of dividend distributions or upon liquidation, may adversely affect the per share trading price of our Series A Preferred Stock.
  The market price and trading volume of the Series A Preferred Stock may fluctuate significantly and be volatile due to numerous circumstances beyond our control.

Structure and Formation of Our Company

Our Company

We were formed as a Maryland corporation in March 2011 and previously conducted business as Plymouth Opportunity REIT, Inc. We conduct our business through an UPREIT structure in which our properties are owned by our operating partnership directly or through subsidiaries, as described below under “—Our Operating Partnership.” We are the sole general partner of our operating partnership and indirectly own 90% of the OP units in our operating partnership and all of the membership interests in its subsidiaries. Our board of directors oversees our business and affairs.

Our Operating Partnership

Our operating partnership was formed as a Delaware limited partnership in March 2011. Substantially all of our assets are held by, and our operations are conducted through, our operating partnership. We will contribute the net proceeds from this offering to our operating partnership in exchange for preferred OP units. Our interest in our operating partnership will generally entitle us to share in cash distributions from, and in the profits and losses of, our operating partnership in proportion to our percentage ownership. As the sole general partner of our operating partnership, we generally have the exclusive power under the partnership agreement to manage and conduct its business and affairs, subject to certain limited approval and voting rights of the limited partners, which are described more fully below in “Description of the Partnership Agreement of Plymouth Industrial OP, LP.”

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Corporate Structure

The chart below reflects our organizational structure as of the date of this prospectus.

 

Conflicts of Interest

Each of our executive officers entered into an employment agreement with us in April 2017. See “Executive Compensation—Executive Compensation Arrangements.” We may choose not to enforce, or to enforce less vigorously, our rights under these agreements because of our desire to maintain our ongoing relationships with members of our senior management, with possible negative impact on stockholders. Moreover, these agreements were not negotiated at arm’s length and certain of our executive officers had the ability to influence the types and level of benefits that they will receive from us under these agreements.

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Conflicts of interest may exist or could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and our operating partnership or any partner thereof, on the other. Our directors and officers have duties to our company under Maryland law in connection with their management of our company. At the same time, we, as the general partner of our operating partnership, have fiduciary duties and obligations to our operating partnership and its limited partners under Maryland law and the partnership agreement of our operating partnership in connection with the management of our operating partnership. Our fiduciary duties and obligations as the general partner of our operating partnership may come into conflict with the duties of our directors and officers to our company. We have adopted policies that are designed to eliminate or minimize certain potential conflicts of interests, and the partnership agreement of our operating partnership provides that, in the event of a conflict between the interests of us or our stockholders and the interests of our operating partnership or any of its limited partners, we may give priority to the separate interests of our company or our stockholders, including with respect to tax consequences to limited partners, assignees or our stockholders. See “Policies With Respect to Certain Activities—Conflict of Interest Policy” and “Description of the Partnership Agreement of Plymouth Industrial OP, LP.”

Tax Status

We elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2012 and we believe that our organization and method of operation enable us to meet the requirements for qualification and taxation as a REIT. To maintain REIT qualification, we must meet a number of organizational and operational requirements, including a requirement that we annually distribute at least 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and any net capital gain) to our stockholders. As a REIT, we generally will not be subject to federal income tax on our taxable income we currently distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax at regular corporate rates. Even if we qualify for taxation as a REIT, we may be subject to some federal, state and local taxes on our income or property. In addition, the income of any taxable REIT subsidiary that we own will be subject to taxation at regular corporate rates. See “Material U.S. Federal Income Tax Considerations.”

Restrictions on Ownership

Due to limitations on the concentration of ownership of REIT stock imposed by the Internal Revenue Code of 1986, as amended, or the Code, our charter generally prohibits any person from actually, beneficially or constructively owning more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock. Our charter permits our board of directors, in its sole and absolute discretion, to exempt a person, prospectively or retroactively, from one or both of the ownership limits if, among other conditions, the person’s ownership of our stock in excess of the ownership limits would not cause us to fail to qualify as a REIT. Our board of directors must waive the ownership limit with respect to a particular person if it: (i) determines that such ownership will not cause any individual’s beneficial ownership of shares of our stock to violate the ownership limit and that any exemption from the ownership limit will not jeopardize our status as a REIT and (ii) determines that such stockholder does not and will not own, actually or constructively, an interest in a tenant of ours (or a tenant of any entity whose operations are attributed in whole or in part to us) that would cause us to own, actually or constructively, more than a 9.8% interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant or that any such ownership would not cause us to fail to qualify as a REIT under the Code.

Emerging Growth Company

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Although these exemptions will be available to us, they will not have a material impact on our public reporting and disclosure.

We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier. We will remain an “emerging growth company” until the earliest to occur of (i) the last day of the fiscal year during which our total annual revenues equal or exceed $1.07 billion (subject to adjustment for inflation), (ii) the last day of the fiscal year ending December 31, 2017, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt, or (iv) the date on which we are deemed a “large accelerated filer” under the Securities Act of 1933, as amended, or the Securities Act, or the Securities Exchange Act of 1934, as amended, or the Exchange Act.

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Under the JOBS Act, emerging growth companies can take advantage of the extended transition period provided in Section 7(a)(2)(13) of the Securities Act for complying with new or revised accounting standards. However, we are choosing to “opt out” of such extended transition period and, as a result, we will comply with any such new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

Our Corporate Information

Our principal executive offices are located at 260 Franklin Street, 6th Floor, Boston, Massachusetts 02110. Our telephone number is (617) 340-3814. Our website is www.plymouthreit.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this prospectus or any other report or document we file with or furnish to you.

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THE OFFERING

The offering terms are summarized below solely for your convenience. For a more complete description of the terms of the Series A Preferred Stock, see “Description of Series A Preferred Stock” elsewhere in this prospectus.

Issuer Plymouth Industrial REIT, Inc., a Maryland corporation.
Securities offered by us 1,800,000 shares of 7.50% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share, or the Series A Preferred Stock (plus up to an additional 270,000 shares of Series A Preferred Stock if the underwriters exercise their option to purchase additional shares in full). We reserve the right to reopen this series and issue additional shares of Series A Preferred Stock at any time either through public or private sales.
Ranking The Series A Preferred Stock will rank, with respect to priority of payment of dividends and distributions and rights upon voluntary or involuntary liquidation, dissolution or winding up of our affairs:
·senior to all classes or series of our common stock, and to any other class or series of our capital stock issued in the future, unless the terms of that capital stock expressly provide that it ranks senior to, or on parity with, the Series A Preferred Stock;
·on parity with any class or series of our capital stock, the terms of which expressly provide that such capital stock will rank on parity with the Series A Preferred Stock; and
·junior to our existing and future indebtedness and any other class or series of our capital stock, the terms of which expressly provide that such capital stock will rank senior to the Series A Preferred Stock, none of which exists as of the date of this prospectus.

The term “capital stock” does not include convertible or exchangeable debt securities, which, prior or subsequent to conversion or exchange, will rank senior in right of payment to the Series A Preferred Stock.

In connection with this offering, we, in accordance with the terms of the partnership agreement of our operating partnership, will contribute the net proceeds from the sale of the Series A Preferred Stock in this offering to our operating partnership, and our operating partnership will issue to us a number of 7.50 % Series A cumulative redeemable preferred units of limited partnership interest, or Series A Preferred Units, equal to the number of shares of Series A Preferred Stock sold in this offering. Our operating partnership will be required to make all required distributions on the Series A Preferred Units after any distribution of cash or assets to the holders of any preferred units ranking senior to the Series A Preferred Units as to distributions and liquidation that we may issue and prior to any distribution of cash or assets to the holders of common units of limited partnership interest in our operating partnership or to the holders of any other equity interest of our operating partnership, except for any other series of preferred units ranking on a parity with the Series A Preferred Units as to distributions and liquidation, in which case distributions will be made pro rata with the Series A Preferred Units; provided, however, that our operating partnership may make such distributions as are necessary to enable us to maintain our qualification as a REIT. See “Description of Series A Preferred Stock—Ranking.”

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Dividends When, as and if authorized by our board of directors, holders of shares of the Series A Preferred Stock will be entitled to receive cumulative cash dividends from, and including, the issue date, payable quarterly in arrears on the last day of March, June, September and December of each year, beginning on December 31, 2017 until December 31, 2024, at the rate of 7.50% per annum on the $25.00 liquidation preference per share (equivalent to a fixed annual rate of $1.875 per share), or the Initial Rate. On and after December 31, 2024, if any shares of Series A Preferred Stock are outstanding, we will pay cumulative cash dividends on each then-outstanding share of Series A Preferred Stock at an annual dividend rate equal to the Initial Rate plus an additional 1.5% of the liquidation preference per annum, which will increase by an additional 1.5% of the liquidation preference per annum on each subsequent December 31 thereafter, subject to a maximum annual dividend rate of 11.5% while the Series A Preferred Stock remains outstanding. See “Description of Series A Preferred Stock—Dividends.”
Liquidation Preference Upon any voluntary or involuntary liquidation, dissolution or winding up of our company, or a Liquidation Event, before any distribution or payment shall be made to holders of shares of our common stock or any other class or series of capital stock ranking, as to rights upon any Liquidation Event, junior to the Series A Preferred Stock, holders of shares of Series A Preferred Stock will be entitled to be paid out of our assets legally available for distribution to our stockholders, after payment of or provision for our debts and other liabilities, a liquidation preference of $25.00 per share of Series A Preferred Stock, plus an amount per share equal to all accrued but unpaid dividends (whether or not authorized or declared) to, and including, the date of payment. The rights of holders of Series A Preferred Stock to receive the liquidating distribution described above will be subject to the proportionate rights of any other class or series of our equity securities ranking on parity with the Series A Preferred Stock as to rights upon liquidation, dissolution or winding up, and junior to the rights of any class or series of our equity securities expressly designated as ranking senior to the Series A Preferred Stock. If, upon a Liquidation Event, our available assets are insufficient to pay the full amount of the liquidating distributions on all outstanding shares of Series A Preferred Stock and the corresponding amounts payable on any then-outstanding shares of any class or series of parity capital stock, then holders of shares of Series A Preferred Stock and such parity capital stock will share ratably in any distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.  See “Description of Series A Preferred Stock—Liquidation Preference.”
Redemption at Our Option Except with respect to our special optional redemption right described under “Description of Series A Preferred Stock—Special Optional Redemption” and maintaining our qualification as a REIT as described in “Description of Series A Preferred Stock— Restrictions on Ownership and Transfer,” we may not redeem the Series A Preferred Stock prior to December 31, 2022. On and after December 31, 2022, we may, at our option, upon not fewer than 30 and not more than 60 days’ written notice, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, solely for cash at a redemption price of $25.00 per share, plus an amount equal to all accrued but unpaid dividends (whether or not authorized or declared) to, and including, the date fixed for redemption, without interest, to the extent we have funds legally available for that purpose. See “Description of Series A Preferred Stock—Redemption at Our Option”

 15

 
Special Optional Redemption

Upon the occurrence of a Change of Control/Delisting (as defined below), we may, at our option, redeem the Series A Preferred Stock, in whole or in part within 120 days after the first date on which such Change of Control/Delisting occurred, solely in cash at a redemption price of $25.00 per share, plus an amount equal to any accrued but unpaid dividends to, and including, the redemption date.

A “Change of Control/Delisting” is when, after the original issuance of the Series A Preferred Stock, any of the following has occurred and is continuing:

·a “person” or “group” within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, other than our company, its subsidiaries and its and their employee benefit plans, has become the direct or indirect “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of our common equity representing more than 50% of the total voting power of all outstanding shares of our capital stock entitled to vote generally in the election of directors, or Voting Stock; provided, that notwithstanding the foregoing, such a transaction will not be deemed to involve a Change of Control/Delisting if (i) we become a direct or indirect wholly-owned subsidiary of a holding company and (ii) more than 50% of the direct or indirect holders of the Voting Stock of such holding company immediately following such transaction are the same as the holders of our Voting Stock immediately prior to such transaction;
·the consummation of any share exchange, consolidation or merger of our company or any other transaction or series of transactions pursuant to which our common stock will be converted into cash, securities or other property, other than any such transaction in which the shares of our common stock outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, more than 50% of the common stock of the surviving person or any direct or indirect parent company of the surviving person immediately after giving effect to such transaction;
·any sale, lease or other transfer in one transaction or a series of transactions of all or substantially all of the consolidated assets of our company and its subsidiaries, taken as a whole, to any person other than one of our subsidiaries;
·our stockholders approve any plan or proposal for the liquidation or dissolution of our company;
·our common stock ceases to be listed or quoted on a national securities exchange in the United States; or
·the Continuing Directors cease to constitute at least a majority of our board of directors.

“Continuing Director” means a director who either was a member of our board of directors on October 25, 2017 or who becomes a member of our board of directors subsequent to that date and whose appointment, election or nomination for election by our stockholders was duly approved by a majority of the continuing directors on our board of directors at the time of such approval, either by a specific vote or by approval of the proxy statement issued by our company on behalf of our board of directors in which such individual is named as a nominee for director.

See “Description of Series A Preferred Stock—Special Optional Redemption.”

 16

 
Redemption at Option of
Holders Upon a Change of
Control/Delisting
If a Change of Control/Delisting occurs at any time the Series A Preferred Stock is outstanding, then each holder of then-outstanding shares of Series A Preferred Stock shall have the right, at such holder’s option, to require us to redeem for cash, out of funds legally available therefor, any or all of such holder’s shares of Series A Preferred Stock, on a date specified by us that can be no earlier than 30 days and no later than 60 days following the date of delivery of the Company Change of Control/Delisting Notice (as defined herein), or the Company Change of Control/Delisting Redemption Date, at a redemption price equal to the $25.00 liquidation preference per share plus an amount equal to all accrued but unpaid dividends (whether or not authorized or declared) to, and including, the Change of Control/Delisting Redemption Date, or the Change of Control/Delisting Redemption Price; provided, a holder shall not have any redemption right with respect to any shares of Series A Preferred Stock that have been called for redemption pursuant to our optional redemption right as described under “Description of Series A Preferred Stock—Redemption at Our Option” or our special optional redemption right as described under “Description of Series A Preferred Stock—Special Optional Redemption,” to the extent we have delivered notice of our intent to redeem on or prior to the date of delivery of the Company Change of Control/Delisting Notice. See “Description of Series A Preferred Stock—Redemption at Option of Holders Upon a Change of Control/Delisting.”
No Maturity, Sinking Fund
or Mandatory Redemption
The Series A Preferred Stock has no stated maturity date, is not subject to any sinking fund, and (except as described above under “—Redemption at Option of Holders upon a Change of Control/Delisting,”) is not subject to mandatory redemption. We are not required to set aside funds to redeem the Series A Preferred Stock. See “Description of Series A Preferred Stock—No Maturity, Sinking Fund or Mandatory Redemption.”
Limited Voting Rights Holders of shares of the Series A Preferred Stock generally do not have any voting rights, except as set forth below. However, if dividends on the Series A Preferred Stock are in arrears for six or more quarterly periods (whether or not consecutive), the number of directors then constituting our board of directors will automatically be increased by two and holders of shares of Series A Preferred Stock, voting together as a single class with the holders of any other then-outstanding class or series of capital stock ranking on parity with the Series A Preferred Stock upon which like voting rights have been conferred and are exercisable, or collectively, any Voting Preferred Stock, will be entitled to vote for the election of two additional directors to serve on our board of directors, or the Preferred Directors, until all unpaid dividends for past dividend periods shall have been paid in full or a sum sufficient for such payment in full is set apart for payment with respect to the Series A Preferred Stock and any then-outstanding class or series of capital stock ranking on parity with the Series A Preferred Stock. The nomination procedures with respect to the Preferred Directors will be established by us, as necessary. The Preferred Directors will be elected by a plurality of the votes cast in the election and each of the Preferred Directors will serve until the next annual meeting of stockholders and until his successor is duly elected and qualifies or until the director’s right to hold the office terminates, whichever occurs earlier.

 17

 
  In addition, so long as any shares of Series A Preferred Stock remain outstanding, we will not, without the affirmative vote or consent of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, amend, alter or repeal our charter, including the terms of the Series A Preferred Stock, whether by merger, consolidation, transfer or conveyance of substantially all of our assets or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series A Preferred Stock, except that with respect to the occurrence of any of the events set forth above, so long as the Series A Preferred Stock remains outstanding with the terms of the Series A Preferred Stock materially unchanged, taking into account that, upon the occurrence of an event set forth above, we may not be the surviving entity, the occurrence of such event will not be deemed to materially and adversely affect the rights, preferences, privileges or voting power of the Series A Preferred Stock, and in such case such holders shall not have any voting rights with respect to the events set forth above; provided, further, that with respect to any such amendment, alteration or repeal that equally affects the terms of the Series A Preferred Stock and any Voting Preferred Stock, the affirmative vote or consent of the holders of two-thirds of the shares of Series A Preferred Stock and any Voting Preferred Stock (voting together as a single class) shall be required. Furthermore, if holders of shares of the Series A Preferred Stock will receive the greater of the full trading price of the Series A Preferred Stock on the date of an event set forth above or the $25.00 per share liquidation preference pursuant to the occurrence of any of the events set forth above or pursuant to a special optional redemption by us or a redemption at the option of the holder upon a Change of Control/Delisting, then such holders shall not have any voting rights with respect to the events set forth above. See “Description of Series A Preferred Stock—Limited Voting Rights.”
Restrictions on Ownership
and Transfer
To help us to maintain our qualification as a REIT, among other purposes, our charter, subject to certain exceptions, contains, and the articles supplementary establishing the Series A Preferred Stock will contain, restrictions on the number of shares of our common stock, our preferred stock, and our capital stock that a person may own. Our charter generally restricts any person from acquiring beneficial or constructive ownership of more than 9.8% (in value or in number of shares, whichever is more restrictive) of the outstanding shares of any class or series of our capital stock. The articles supplementary establishing the Series A Preferred Stock will provide that generally no person may own, or be deemed to own by virtue of the attribution provisions of the Code, either more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding Series A Preferred Stock.
Use of Proceeds We estimate that the net proceeds to us from the sale of the shares of our Series A Preferred Stock in this offering will be approximately $43,102,500 million (or approximately $49,639,875 million if the underwriters exercise their overallotment option to purchase additional shares of Series A Preferred Stock in full), after deducting underwriting discounts and estimated offering expenses payable by us. We will contribute the net proceeds we receive from this offering to our operating partnership in exchange for a number of Series A Preferred Units equal to the number of shares of Series A Preferred Stock sold in this offering. Our operating partnership will use $5.0 million the net proceeds from this offering to repurchase, in a privately negotiated transaction, the 263,158 shares of our common stock issued to Torchlight concurrently with the closing of our initial listed public offering as part of the Torchlight Transactions. Our operating partnership is expected to use the remaining net proceeds to fund future acquisitions of industrial properties in accordance with our investment strategy and for general corporate purposes. See “Use of Proceeds.”

 18

 
Listing We have applied to list the Series A Preferred Stock on the NYSE American under the symbol “PLYM-PrA.” If the application is approved, trading of the Series A Preferred Stock is expected to commence within 30 days after the initial delivery of the shares of Series A Preferred Stock sold in this offering. The underwriters have advised us that they may make a market in the Series A Preferred Stock, but they are not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Series A Preferred Stock.
Transfer Agent and Registrar The transfer agent and registrar for the Series A Preferred Stock is Continental Stock Transfer & Trust Company.
Settlement Date Delivery of shares of the Series A Preferred Stock will be made against payment therefor on or about October 25, 2017, which is the fifth trading day following the date of this prospectus.
Risk Factors Investing in our Series A Preferred Stock involves a high degree of risk. You should carefully read and consider the information set forth under the heading “Risk Factors” beginning on page 23 and the other information included in this prospectus before investing in our Series A Preferred Stock.

 

 19

 

SUMMARY SELECTED FINANCIAL INFORMATION

You should read the following summary financial and operating data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” our unaudited pro forma consolidated financial statements and related notes and the historical consolidated financial statements and related notes included elsewhere in this prospectus.

The summary unaudited historical condensed consolidated balance sheet information as of June 30, 2017 and 2016 and the statement of operations data for the six months ended June 30, 2017 and June 30, 2016 have been derived from our financial statements included elsewhere in this prospectus. The summary historical consolidated balance sheet information as of December 31, 2016 and 2015, and the historical consolidated statement of operations data for the years ended December 31, 2016 and 2015 have been derived from the company’s consolidated financial statements, which were audited by Marcum LLP, our independent registered public accounting firm, and are included elsewhere in this prospectus. The following tables do not include the unaudited pro forma information included in elsewhere in this prospectus.

($ in thousands)  As of June 30,   As of December 31, 
   Historical   Historical 
   2017   2016   2016   2015 
   (Unaudited)         
                 
Balance Sheet Data:                    
Rental property, net of accumulated depreciation   $119,510   $126,663   $123,059   $129,714 
Investment in real estate joint venture        2,927        2,987 
Cash and other assets    35,622    3,293    12,154    2,577 
Deferred lease intangibles, net    8,680    12,592    10,533    14,773 
Total assets    163,812    145,475    145,746    150,051 
Accounts payable, accrued expenses and other liabilities    5,363    7,244    5,352    4,268 
Deferred lease intangibles, net    1,150    1,674    1,405    1,941 
Senior secured debt, net    116,402    202,134    116,053    196,800 
Secured revolving line of credit                 
Deferred interest    200    20,938    207    8,081 
Mezzanine debt to investor, net    29,319        29,262     
Redeemable preferred member interest            31,043     
Total liabilities    152,434    231,990    183,322    211,090 
Plymouth Industrial REIT, Inc. stockholders’ equity (deficit)    11,378    (86,515)   (98,026)   (61,039)
Non-controlling interest            60,450     
Total equity (deficit)   $11,378   $(86,515)  $(37,576)  $(61,039)

 

 20

 

 

(In thousands)  Six Months Ended June 30,   Year Ended December 31, 
   Historical Consolidated   Historical Consolidated 
   2017   2016   2016   2015 
Statement of Operations:  (Unaudited)         
Rental revenue   $9,964   $9,680   $19,658   $19,290 
Equity investment income (loss)    1    5    230    (85)
Total revenues    9,965    9,685    19,888    19,205 
                     
Operating expenses:                    
Property   2,925    2,868    5,927    5,751 
Depreciation and amortization    5,557    5,911    11,674    12,136 
General and administrative    1,933    1,721    3,742    4,688 
Acquisition costs    82    33        1,061 
Offering costs                938 
Total operating expenses    10,497    10,533    21,343    24,574 
                     
Operating income (loss)    (532)   (848)   (1,455)   (5,369)
                     
Other income (expense):                    
Gain on disposition of equity investment            2,846    1,380 
Interest expense    (5,743)   (24,627)   (40,679)   (44,676)
Total other income (expense)    (5,743)   (24,627)   (37,833)   (43,296)
Net (loss)    (6,275)   (25,475)  $(39,288)  $(48,665)
Net loss attributable to non-controlling interest    (4,674)       (2,301)    
Net loss attributable to Plymouth Industrial REIT, Inc. common stockholders   $(1,601)  $(25,475)  $(36,987)  $(48,665)

 

 21

 

 

(In thousands)  Six Months Ended June 30,   Year Ended December 31, 
   Historical Consolidated   Historical Consolidated 
   2017   2016   2016   2015 
Other Data:  (Unaudited)         
Total in service Properties    20    20    20    20 
NOI: (1)                    
                     
Net loss   $(6,275)  $(25,475)  $(39,288)  $(48,665)
General and administrative    1,933    1,721    3,742    4,688 
Acquisition expense    82    33        1,061 
Interest expense    5,743    24,627    40,679    44,676 
Depreciation and amortization    5,557    5,911    11,674    12,136 
Offering costs                938 
Other (income) expense    (1)   (5)   (3,076)   (1,295)
                     
NOI   $7,039   $6,812   $13,731   $13,539 
                     
EBITDA: (1)                    
                     
Net loss   $(6,275)  $(25,475)  $(39,288)  $(48,665)
Depreciation and amortization    5,557    5,911    11,674    12,136 
Interest expense    5,743    24,627    40,679    44,676 
                     
EBITDA   $5,025   $5,063   $13,065   $8,147 
                     
FFO: (1)                    
                     
Net loss   $(6,275)  $(25,475)  $(39,288)  $(48,665)
Depreciation and amortization    5,557    5,911    11,674    12,136 
Gain on disposition of equity investment        (3)   (2,846)   (1,380)
Adjustment for unconsolidated joint ventures        241    452    1,363 
                     
FFO   $(718)  $(19,326)  $(30,008)  $(36,546)
                     
AFFO: (1)                    
                     
FFO   $(718)  $(19,326)  $(30,008)  $(36,546)
Amortization of above or accretion of below market lease rents    (166)   (178)   (355)   (351)
Acquisition costs    82    33        1,061 
Offering Costs                938 
Stock based compensation                 
Distributions        61    337    2,030 
Straight line rent    (76)   (158)   (287)   (404)
                     
AFFO   $(878)  $(19,568)  $(30,313)  $(33,272)

____________________

  (1) For definitions and reconciliations of net income to NOI, EBITDA, FFO and AFFO, as well as a statement disclosing the reasons why our management believes that NOI, EBITDA, FFO and AFFO provide useful information to investors as to the financial performance of our company, and, to the extent material, any additional purposes for which our management uses NOI, EBITDA, FFO and AFFO, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

 22

 

RISK FACTORS

An investment in our Series A Preferred Stock involves risks. In addition to other information in this prospectus, you should carefully consider the following risks before investing in the Series A Preferred Stock. The occurrence of any of the following risks could materially and adversely affect our business, prospects, financial condition, results of operations and our ability to make cash distributions to our stockholders, including holders of the Series A Preferred Stock, which could cause you to lose all or a significant portion of your investment in the Series A Preferred Stock. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”

Risks Related to our Series A Preferred Stock and this Offering

The Series A Preferred Stock is subordinate to our existing and future debt and other liabilities, and your interests could be diluted by the issuance of additional preferred stock and by other transactions.

As of June 30, 2017, our total indebtedness was approximately $145.9 million, all of which is secured by mortgages on our properties. After June 30, 2017, we entered into the KeyBank Credit Agreement under which we have borrowed an additional approximately $23.8 million as of the date of this prospectus. We may incur additional debt in connection with future acquisitions or for other purposes and, if necessary, we may borrow funds to make distributions to our stockholders in order to qualify and maintain our qualification as a REIT for U.S. federal income tax purposes. The Series A Preferred Stock is subordinate to all of our existing and future debt. Our existing debt restricts, and our future debt may include restrictions on, our ability to pay dividends to preferred stockholders in the event of a default under the debt facilities.

Our charter currently authorizes the issuance of up to 100,000,000 shares of preferred stock in one or more series, of which none are currently outstanding. The issuance of additional shares of capital stock on parity with or senior to the Series A Preferred Stock would dilute the interests of the holders of the Series A Preferred Stock, and any issuance of shares of capital stock senior to the Series A Preferred Stock or of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on the Series A Preferred Stock.

Other than the limited voting rights as described under “Description of Series A Preferred Stock—Limited Voting Rights,” none of the provisions relating to the Series A Preferred Stock relate to or limit our indebtedness or afford the holders of the Series A Preferred Stock protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all of our assets or business, that might adversely affect the holders of the Series A Preferred Stock. We may be unable to make distributions on the Series A Preferred Stock at required levels, and we may be required to borrow funds to make distributions.

We may be unable to pay the quarterly dividend payments to the holders of the Series A Preferred Stock out of cash available for distribution.

If cash available for distribution generated by our assets is less than our current estimate, or if such cash available for distribution decreases in future periods from expected levels, our inability to make the required distributions could result in a decrease in the market price of our Series A Preferred Stock. All distributions will be made at the discretion of our board of directors and will be based upon, among other factors, our earnings and financial condition, maintenance of REIT qualification, the applicable restrictions contained in the MGCL and such other factors as our board may determine in its sole discretion. We may not be able to make distributions in the future. In addition, some of our distributions may include a return of capital. If we decide to make distributions in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for federal income tax purposes to the extent of the holder’s adjusted tax basis in its shares, and thereafter as gain on a sale or exchange of such shares. See “Material U.S. Federal Income Tax Considerations—U.S. Federal Income Tax Considerations for Holders of Our Stock.” If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.

The shares of Series A Preferred Stock to be issued in this offering are newly issued securities with no established trading market, which may negatively affect their market value and your ability to transfer or sell your shares. We have applied to list the Series A Preferred Stock on the NYSE American but we cannot assure you that the listing will be approved or that a trading market will develop or be sustained.

The shares of Series A Preferred Stock to be issued in this offering are newly issued securities with no established trading market. We have applied to list the Series A Preferred Stock on the NYSE American, but we cannot assure you that the Series A Preferred Stock will be approved for listing. An active trading market on the NYSE American for the Series A Preferred Stock may not develop or, even if it develops, may not be sustained, in which case the trading price of the Series A Preferred Stock could be materially and adversely affected.

 23

 

The stock markets, including the NYSE American, on which we intend to list our Series A Preferred Stock, historically have experienced price and volume fluctuations. The market price of our Series A Preferred Stock could be subject to wide fluctuations in response to a number of factors, including those listed in this “Risk Factors” section of this prospectus supplement, our financial performance, government regulatory action or inaction, tax laws, interest rates and general market conditions and others such as:

·actual or anticipated variations in our quarterly results of operations or dividends;
·changes in our funds from operations or earnings estimates;
·changes in government regulations or policies affecting our business or the farming business; 
·publication of research reports about us or the real estate or farming industries; 
·increases in market interest rates that lead purchasers of our common or preferred stock to demand a higher yield; 
·changes in market valuations of similar companies; 
·adverse market reaction to any additional debt we incur in the future;
·additions or departures of key management personnel; 
·actions by institutional stockholders; 
·speculation in the press or investment community; 
·the realization of any of the other risk factors presented in this prospectus;
·the extent of investor interest in our securities; 
·the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies; 
·our underlying asset value; 
·investor confidence in the stock and bond markets generally; 
·changes in tax laws; 
·future equity issuances or the perception that they may occur; 
·failure to meet earnings estimates; 
·failure to meet and maintain REIT qualifications and requirements; 
·low trading volume of the Series A Preferred Stock; and
·general market and economic conditions.

The Series A Preferred Stock has not been rated.

We have not sought to obtain a rating for the Series A Preferred Stock. No assurance can be given, however, that one or more rating agencies might not independently determine to issue such a rating or that such a rating, if issued, would not adversely affect the market price of the Series A Preferred Stock. In addition, we may elect in the future to obtain a rating of the Series A Preferred Stock, which could adversely impact the market price of the Series A Preferred Stock. Ratings only reflect the views of the rating agency or agencies issuing the ratings and such ratings could be revised downward or withdrawn entirely at the discretion of the issuing rating agency if in its judgment circumstances so warrant. Any such downward revision or withdrawal of a rating could have an adverse effect on the market price of the Series A Preferred Stock.

 24

 

As a holder of Series A Preferred Stock, you have extremely limited voting rights.

Your voting rights as a holder of shares of Series A Preferred Stock will be extremely limited. Our common stock is the only class or series of our stock carrying full voting rights. Voting rights for holders of shares of Series A Preferred Stock exist primarily with respect to the ability to elect two additional directors in the event that dividends for each of six quarterly dividend periods (whether or not consecutive) payable on our Series A Preferred Stock are in arrears, and with respect to voting on amendments to our charter that materially and adversely affect the rights of our Series A Preferred Stock or the creation of additional classes or series of preferred stock that are senior to our Series A Preferred Stock with respect to a liquidation, dissolution or winding up of our affairs. See “Description of Series A Preferred Stock—Limited Voting Rights.” Other than the limited circumstances described in this prospectus, holders of Series A Preferred Stock will not have voting rights.

Holders of shares of our Series A Preferred Stock should not expect us to redeem the Series A Preferred Stock on or after the date they become redeemable at our option.

Except in limited circumstances related to our ability to qualify as REIT or upon the occurrence of a Change of Control/Delisting, our Series A Preferred Stock may be redeemed by us at our option, either in whole or in part, only on or after December 31, 2022. Any decision we make at any time to propose a redemption of our Series A Preferred Stock will depend upon, among other things, our evaluation of our capital position, the composition of our stockholders’ equity and general market conditions at that time.

We may not have sufficient funds to redeem our Series A Preferred Stock upon a Change of Control/Delisting.

Upon the occurrence of a Change of Control/Delisting, unless we have exercised our right to redeem our Series A Preferred Stock, each holder of our Series A Preferred Stock will have the right to require us to redeem all or any part of such holder’s Series A Preferred Stock at a price equal to the liquidation preference of $25.00 per share, plus an amount equal to any accrued but unpaid dividends up to and including the date of redemption. If we experience a Change of Control/Delisting, there can be no assurance that we would have sufficient financial resources available to satisfy our obligations to redeem our Series A Preferred Stock and any guarantees or indebtedness that may be required to be repaid or repurchased as a result of such event. Our failure to redeem our Series A Preferred Stock could have material adverse consequences for us and the holders of our Series A Preferred Stock. See “Description of Series A Preferred Stock—Redemption at Option of Holders Upon a Change of Control/Delisting.” In addition, our special optional redemption right in connection with a Change of Control/Delisting may have the effect of inhibiting a third party from making an acquisition proposal for the company, or of delaying, deferring or preventing a change of control of the company under circumstances that otherwise could provide the holders of our common stock and Series A Preferred Stock with the opportunity for liquidity or the opportunity to realize a premium over the then-current market price or that stockholders may otherwise believe is in their best interests.

If you own shares of our Series A Preferred Stock, you will not be entitled to any rights with respect to our common stock, but you will be subject to all changes made with respect to our common stock.

If you own shares of our Series A Preferred Stock, you will not be entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock), but you will be subject to all changes affecting the common stock. For example, in the event that an amendment is proposed to our charter requiring stockholder approval and the record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the delivery of common stock to you following a conversion, you will not be entitled to vote on the amendment, although you will nevertheless be subject to any changes in the powers, preferences or special rights of our common stock.

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Future offerings of debt securities, which would be senior to our Series A Preferred Stock upon liquidation, and/or preferred equity securities which may be senior to our Series A Preferred Stock for purposes of dividend distributions or upon liquidation, may materially and adversely affect the per share trading price of our Series A Preferred Stock.

In the future, we may attempt to increase our capital resources by making additional offerings of debt or equity securities (or causing our operating partnership to issue debt or equity securities), including medium-term notes, senior or subordinated notes and classes or series of preferred stock. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will be entitled to receive our available assets prior to distribution to the holders of our Series A Preferred Stock. Other securities we issue in the future could have a preference on liquidating distributions or a preference on dividend payments that could limit our ability pay dividends to the holders of our Series A Preferred Stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our Series A Preferred Stock bear the risk of our future offerings.

The market price and trading volume of the Series A Preferred Stock may fluctuate significantly and be volatile due to numerous circumstances beyond our control.

The trading prices of common and preferred equity securities issued by REITs and other real estate companies historically have been affected by changes in market interest rates. One of the factors that may influence the market price of the Series A Preferred Stock is the annual yield from distributions on the Series A Preferred Stock as compared to yields on other financial instruments. An increase in market interest rates may lead prospective purchasers of the Series A Preferred Stock to demand a higher annual yield, which could materially reduce the market price of the Series A Preferred Stock.

Risks Related to Our Business and Operations

The Company Portfolio is concentrated in the industrial real estate sector, and our business would be adversely affected by an economic downturn in that sector.

Our assets are comprised entirely of industrial facilities, including warehouse/distribution facilities, light manufacturing facilities and flex/office facilities. This concentration may expose us to the risk of economic downturns in the industrial real estate sector to a greater extent than if our properties were more diversified across other sectors of the real estate industry. In particular, an economic downturn affecting the market for industrial properties could have a material adverse effect on our results of operations, cash flows, financial condition and our ability to pay distributions to our stockholders.

The Company Portfolio is geographically concentrated in eight states, which causes us to be especially susceptible to adverse developments in those markets.

In addition to general, regional, national and international economic conditions, our operating performance is impacted by the economic conditions of the specific geographic markets in which we have concentrations of properties. The Company Portfolio consists of holdings in the following states (which will account for the percentage of our total annualized rent indicated) as of the date of this prospectus: Ohio (34.5%); Indiana (20.0%); Tennessee (19.7%); Illinois (12.4%); Maine (5.0%); New Jersey (4.0%); Georgia (2.5%) and Kentucky (2.0%). This geographic concentration could adversely affect our operating performance if conditions become less favorable in any of the states or regions in which we have a concentration of properties. We cannot assure you that any of our target markets will grow or that underlying real estate fundamentals will be favorable to owners and operators of industrial properties. Our operations may also be affected if competing properties are built in our target markets. Any adverse economic or real estate developments in our target markets, or any decrease in demand for industrial space resulting from the regulatory environment, business climate or energy or fiscal problems, could materially and adversely impact our financial condition, results of operations, cash flow, our ability to satisfy our debt service obligations and our ability to pay distributions to our stockholders.

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The Company Portfolio is comprised almost entirely of Class B industrial properties in secondary markets, which subjects us to risks associated with concentrating the Company Portfolio on such assets.

The Company Portfolio is comprised of almost entirely Class B industrial properties in secondary markets. While we believe that Class B industrial properties in secondary markets have shown positive trends, we cannot give any assurance that these trends will continue. Any developments or circumstances that adversely affect the value of Class B industrial properties generally could have a more significant adverse impact on us than if the Company Portfolio was diversified by asset type, which could materially and adversely impact our financial condition, results of operations and ability to make distributions to our stockholders.

Our business strategy depends on achieving revenue growth from anticipated increases in demand for Class B industrial space in our target markets; accordingly, any delay or a weaker than anticipated economic recovery could materially and adversely affect us and our growth prospects.

Our business strategy depends on achieving revenue growth from anticipated near-term growth in demand for Class B industrial space in our target markets as a result of improving demographic trends and supply and demand fundamentals. As a result, any delay or a weaker than anticipated economic recovery, particularly in our target markets, could materially and adversely affect us and our growth prospects. Furthermore, even if economic conditions generally improve, we cannot provide any assurances that demand for Class B industrial space will increase from current levels. If demand does not increase in the near future, or if demand weakens, our future results of operations and our growth prospects could also be materially and adversely affected.

We may not be aware of characteristics or deficiencies involving any one or all of the properties that we acquire in the future, which could have a material adverse effect on our business.

Newly acquired properties may have characteristics or deficiencies unknown to us that could affect their valuation or revenue potential and such properties may not ultimately perform to our expectations. We cannot assure you that the operating performance of any newly acquired properties will not decline under our management. Any characteristics or deficiencies in any newly acquired that adversely affect the value of the properties or their revenue-generation potential could have a material adverse effect on our results of operations and financial condition.

We are subject to risks associated with single-tenant leases, and the default by one or more tenants could materially and adversely affect our results of operations and financial condition.

We are subject to the risk that the default, financial distress or bankruptcy of a single tenant could cause interruptions in the receipt of rental revenue and/or result in a vacancy, which is likely to result in the complete reduction in the operating cash flows generated by the property leased to that tenant and may decrease the value of that property. In addition, a majority of our leases generally require the tenant to pay all or substantially all of the operating expenses normally associated with the ownership of the property, such as utilities, real estate taxes, insurance and routine maintenance. Following a vacancy at a single-tenant property, we will be responsible for all of the operating costs at such property until it can be re-let, if at all.

We are subject to risks related to tenant concentration, which could materially adversely affect our cash flows, results of operations and financial condition.

On an annualized basis as of June 30, 2017, one of our tenants comprised approximately 12.6% of our total annualized rent and our top three tenants collectively comprised approximately 29.7% of our total annualized rent. As a result, our financial performance will be dependent, in large part, on the revenues generated from these significant tenants and, in turn, the financial condition of these tenants. In the event that a tenant occupying a significant portion of one or more of our properties or whose rental income represents a significant portion of the rental revenue at our properties were to experience financial weakness or file bankruptcy, it could have a material adverse effect on our cash flows, results of operations and financial condition.

We may be unable to renew leases, lease vacant space or re-lease space as leases expire.

Leases representing 12.8%, 5.2% and 21.0% of the rentable square footage of the industrial properties in the Company Portfolio will expire in 2017, 2018 and 2019, respectively. We cannot assure you that our leases will be renewed or that our properties will be re-leased at rental rates equal to or above the current average rental rates or that we will not offer substantial rent abatements, tenant improvements, early termination rights or below-market renewal options to attract new tenants or retain existing tenants. If the rental rates for our properties decrease, or if our existing tenants do not renew their leases or we do not re-lease a significant portion of our available space and space for which leases will expire, our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our Series A Preferred Stock could be adversely affected.

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Certain of our properties are subject to tenant rights of first refusal and options to repurchase, which could inhibit our ability to sell or retain such properties

Our tenants at 8288 Green Meadows Drive, 3500 Southwest Blvd. and 3100 Creekside Parkway each have rights of first refusal to purchase the property before we can sell any these properties to a third party. The existence of such rights of first refusal could limit third-party offers for such properties, inhibit our ability to sell a property or adversely affect the timing of any sale of any such property and affect our ability to obtain the highest price for any sale of such property.

Our tenant at 1875 Holmes Rd. has an option to repurchase the property at fair market value at the end of the lease term on October 31, 2019. The existence of the repurchase right could inhibit our ability to retain the 1875 Holmes Rd. property upon the expiration of the current lease.

We may be unable to identify and complete acquisitions of properties that meet our investment criteria, which may have a material adverse effect on our growth prospects.

Our primary investment strategy involves the acquisition of Class B industrial properties predominantly in secondary markets. These activities require us to identify suitable acquisition candidates or investment opportunities that meet our investment criteria and are compatible with our growth strategies. We may be unable to acquire properties identified as potential acquisition opportunities. Our ability to acquire properties on favorable terms, or at all, may expose us to the following significant risks:

  we may incur significant costs and divert management attention in connection with evaluating and negotiating potential acquisitions, including ones that we are subsequently unable to complete;
  even if we enter into agreements for the acquisition of properties, these agreements are subject to conditions to closing, which we may be unable to satisfy; and
  we may be unable to finance any given acquisition on favorable terms or at all.

If we are unable to finance property acquisitions or acquire properties on favorable terms, or at all, our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our Series A Preferred Stock could be adversely affected. In addition, failure to identify or complete acquisitions of suitable properties could limit our growth.

Our acquisition activities may pose risks that could harm our business.

In connection with future acquisitions, we may be required to incur debt and expenditures and issue additional common stock or OP units to pay for the acquired properties. These acquisitions may dilute our stockholders’ ownership interests, delay or prevent our profitability and may also expose us to risks such as:

  the possibility that we may not be able to successfully integrate any future acquisitions into the Company Portfolio;
  the possibility that senior management may be required to spend considerable time negotiating agreements and integrating acquired properties, diverting their attention from our other objectives;
  the possibility that we may overpay for a property;
  the possible loss or reduction in value of acquired properties; and
  the possibility of pre-existing undisclosed liabilities regarding acquired properties, including environmental or asbestos liability, for which our insurance may be insufficient or for which we may be unable to secure insurance coverage.

We cannot assure you that the price for any future acquisitions will be similar to prior acquisitions. If our revenue does not keep pace with these potential acquisition and expansion costs, we may incur net losses. There is no assurance that we will successfully overcome these risks or other problems encountered with acquisitions.

We may obtain limited or no warranties when we purchase a property, which increases the risk that we may lose invested capital in or rental income from such property.

The seller of a property will often sell such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. Also, many sellers of real estate are single-purpose entities without any other significant assets. The purchase of properties with limited warranties or from undercapitalized sellers increases the risk that we may lose some or all of our invested capital in the property as well as the loss of rental income from such property.

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We have significant indebtedness outstanding, which may expose us to the risk of default under our debt obligations.

Our total consolidated indebtedness consists of approximately $169.7  million of indebtedness, which consists of borrowings under the AIG Loan, the Torchlight Mezzanine Loan and the KeyBank Credit Agreement. We may incur significant additional debt to finance future acquisition and development activities.

Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties or to pay the dividends currently contemplated or necessary to maintain our REIT qualification. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:

  our cash flow may be insufficient to meet our required principal and interest payments;
  we may be unable to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to meet operational needs;
  we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;
  we may be forced to dispose of one or more of our properties, possibly on unfavorable terms or in violation of certain covenants to which we may be subject;
  we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations; and
  our default under any loan with cross default provisions could result in a default on other indebtedness.

If any one of these events were to occur, our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our Series A Preferred Stock could be materially adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Existing Indebtedness.”

We face significant competition for acquisitions of real properties, which may reduce the number of acquisition opportunities available to us and increase the costs of these acquisitions.

The current market for acquisitions of industrial properties in our target markets continues to be extremely competitive. This competition may increase the demand for our target properties and, therefore, reduce the number of suitable acquisition opportunities available to us and increase the prices paid for such acquisition properties. We also face significant competition for attractive acquisition opportunities from an indeterminate number of investors, including publicly traded and privately held REITs, private equity investors and institutional investment funds, some of which have greater financial resources than we do, a greater ability to borrow funds to acquire properties and the ability to accept more risk than we can prudently manage, including risks with respect to the geographic proximity of investments and the payment of higher acquisition prices. This competition will increase if investments in real estate become more attractive relative to other forms of investment. Competition for investments may reduce the number of suitable investment opportunities available to us and may have the effect of increasing prices paid for such acquisition properties and/or reducing the rents we can charge and, as a result, adversely affecting our operating results.

We may be unable to source “off-market” or “lightly-marketed” deal flow in the future, which may have a material adverse effect on our growth.

A key component of our investment strategy is to acquire additional industrial real estate assets. We seek to acquire properties before they are widely marketed by real estate brokers. Properties that are acquired in off-market or lightly-marketed transactions are typically more attractive to us as a purchaser because of the absence of a formal sales process, which could lead to higher prices. If we do not have access to off-market or lightly-marketed deal flow in the future, our ability to locate and acquire additional properties in our target markets at attractive prices could be materially adversely affected.

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Our future acquisitions may not yield the returns we expect.

Our future acquisitions and our ability to successfully operate the properties we acquire in such acquisitions may be exposed to the following significant risks:

  even if we are able to acquire a desired property, competition from other potential acquirers may significantly increase the purchase price;
  we may acquire properties that are not accretive to our results upon acquisition, and we may not successfully manage and lease those properties to meet our expectations;
  our cash flow may be insufficient to meet our required principal and interest payments;
  we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;
  we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations, and as a result our results of operations and financial condition could be adversely affected;
  market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and
  we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties, liabilities incurred in the ordinary course of business and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

If we cannot operate acquired properties to meet our financial expectations, our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our Series A Preferred Stock could be materially and adversely affected.

High mortgage rates and/or unavailability of mortgage debt may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our net income and the amount of cash distributions we can make.

If mortgage debt is unavailable to us in the future at reasonable rates, we may not be able to finance the purchase of additional properties or refinance our properties on favorable terms or at all. If interest rates are higher when we refinance our properties, our income could be reduced. If any of these events occur, our cash flow could be reduced. This, in turn, could reduce cash available for distribution to our stockholders and materially and adversely affect our ability to raise more capital by issuing additional equity securities or by borrowing more money.

The AIG Loan, the Torchlight Mezzanine Loan and the KeyBank Credit Agreement, and some of our future financing arrangements are expected to, involve balloon payment obligations, which may materially and adversely affect our financial condition and our ability to make distributions.

The AIG Loan, the Torchlight Mezzanine Loan and the KeyBank Credit Agreement require, and some of our future financing arrangements may, require us to make a lump-sum or “balloon” payment at maturity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Existing Indebtedness.” Our ability to satisfy a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell property securing such financing. At the time the balloon payment is due, we may or may not be able to refinance the existing financing on terms as favorable as the original loan or sell the property at a price sufficient to satisfy the balloon payment. The effect of a refinancing or sale could affect the rate of return to stockholders and the projected time of disposition of our assets. In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT.

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The AIG Loan, the Torchlight Mezzanine Loan and the KeyBank Credit Agreement contain, and future indebtedness we incur may contain, various covenants, and the failure to comply with those covenants could materially and adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock.

The AIG Loan, the Torchlight Mezzanine Loan and the KeyBank Credit Agreement contain, and any future indebtedness we incur, including debt assumed pursuant to property acquisitions, may contain, certain covenants, which, among other things, restrict our activities, including, as applicable, our ability to sell the underlying property without the consent of the holder of such indebtedness, to repay or defease such indebtedness or to engage in mergers or consolidations that result in a change in control of our company. We may also be subject to financial and operating covenants. Failure to comply with any of these covenants would likely result in a default under the applicable indebtedness that would permit the acceleration of amounts due thereunder and under other indebtedness and foreclosure of properties, if any, serving as collateral therefor.

The AIG Loan and the KeyBank Credit Agreement are secured by the Company Portfolio and the Torchlight Mezzanine Loan is secured in the equity of Plymouth Industrial 20, so a default under these loan documents could result in a loss of one or more properties in the Company Portfolio.

The AIG Loan and the KeyBank Credit Agreement are secured by first lien mortgages on the properties in the Company Portfolio and the Torchlight Mezzanine Loan is secured by the equity of Plymouth Industrial 20. A default under the AIG Loan, the Torchlight Mezzanine Loan or the KeyBank Credit Agreement could result in the foreclosure on all, or a material portion, of the Company Portfolio, which could leave us with insufficient cash to make debt service payments on our outstanding indebtedness and to make distributions to our stockholders. In addition, the Torchlight Mezzanine Loan is secured by a pledge of our equity interests in Plymouth Industrial 20, which is the sole member of each of the owners of the Company Portfolio. As a result, a default under the Torchlight Mezzanine Loan could result in the loss of all of our equity in Plymouth Industrial 20, resulting in the loss of all cash flow from the Company Portfolio.

The AIG Loan, the Torchlight Mezzanine Loan and the KeyBank Credit Agreement restrict our ability to engage in some business activities, which could put us at a competitive disadvantage and materially and adversely affect our results of operations and financial condition.

The AIG Loan, the Torchlight Mezzanine Loan and the KeyBank Credit Agreement contain customary negative covenants and other financial and operating covenants that, among other things:

  restrict our ability to incur additional indebtedness;
  restrict our ability to dispose of properties;
  restrict our ability to make certain investments;
  restrict our ability to enter into material agreements;
  limit our ability to make capital expenditures;
  require us to maintain a specified amount of capital in Plymouth Industrial 20;
  restrict our ability to merge with another company;
  restrict our ability to make distributions to stockholders; and
  require us to maintain financial coverage and leverage ratios.

These limitations and the Series A Preferred Stock restrict our ability to engage in some business activities, which could materially and adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our common stock and the Series A Preferred Stock. In addition, debt agreements we enter into in the future may contain specific cross-default provisions with respect to specified other indebtedness, giving the lenders the right to declare a default if we are in default under other loans in some circumstances.

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Future mortgage and other secured debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group of properties subject to mortgage debt.

Incurring mortgage and other secured debt obligations increases our risk of property losses because defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we are in default. Any foreclosure on a mortgaged property or group of properties could adversely affect the overall value of the Company Portfolio. For tax purposes, a foreclosure on any of our properties that is subject to a nonrecourse mortgage loan would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code.

We may not be able to successfully operate our business or generate sufficient cash flows to make or sustain distributions to our stockholders as a publicly traded company or maintain our qualification as a REIT.

We may not be able to successfully operate our business or implement our operating policies and investment strategy as described in this prospectus. Failure to operate successfully as a listed public company, to develop and implement appropriate control systems and procedures in accordance with the Sarbanes-Oxley Act or maintain our qualification as a REIT would have an adverse effect on our financial condition, results of operations, cash flow and per share trading price of our Series A Preferred Stock. See “—Risks Related to Our Status as a REIT—Failure to maintain our qualification as a REIT would have significant adverse consequences to us and the per share trading price of our Series A Preferred Stock.” Furthermore, we may not be able to generate sufficient cash flows to pay our operating expenses, service any debt we may incur in the future and make distributions to our stockholders. Our ability to successfully operate our business and implement our operating policies and investment strategy will depend on many factors, including:

  the availability of, and our ability to identify, attractive acquisition opportunities consistent with our investment strategy;
  our ability to contain renovation, maintenance, marketing and other operating costs for our properties;
  our ability to maintain high occupancy rates and target rent levels;
  costs that are beyond our control, including title litigation, litigation with tenants, legal compliance, real estate taxes and insurance; interest rate levels and volatility, such as the accessibility of short- and long-term financing on desirable terms; and
  economic conditions in our target markets as well as the condition of the financial and real estate markets and the economy generally.

Even though we are an “emerging growth company” as defined in the JOBS Act and therefore may take advantage of various exemptions to public reporting requirements (see “—We are an ‘emerging growth company,’ and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock and our Series A Preferred Stock less attractive to investors”), we will still be required to implement substantial control systems and procedures in order to maintain our qualification as a REIT, satisfy our periodic and current reporting requirements under applicable SEC regulations and comply with the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or Dodd Frank, and the NYSE American or other relevant listing standards. As a result, we will incur significant legal, accounting and other expenses, particularly after we are no longer an “emerging growth company,” and our management and other personnel will need to devote a substantial amount of time to comply with these rules and regulations and establish the corporate infrastructure and control systems and procedures demanded of a publicly traded REIT. These costs and time commitments could be substantially more than we currently expect.

The Stockholders Agreement grants Torchlight certain rights that may restrain our ability to take various actions in the future.

In connection with our initial listed public offering and the Torchlight Transactions, we entered into a Stockholders Agreement with Torchlight. See “Management—Stockholders Agreement with Torchlight.” Pursuant to the terms of the Stockholders Agreement, as long as Torchlight maintains beneficial ownership of at least 2.5% of our then outstanding shares of common stock, Torchlight will be entitled to nominate one director to our board of directors. In connection with this board nomination right, the size of our board will be increased to seven directors and the vacancy will be filled by Torchlight’s nominee. As of the date of this prospectus, Torchlight has not exercised its board nomination right but has the ability to do so at any time its beneficial ownership remains over 2.5% of the outstanding shares of our common stock.

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In addition, the Stockholders Agreement provides that, for so long as Torchlight’s level of beneficial ownership is equal to or greater than 2.5% of our outstanding common stock, we will be prohibited from issuing preferred stock of any class unless Torchlight consents to such offering. Although Torchlight has consented to the offer and sale of the Series A Preferred Stock in this offering, they are not required to consent to future offerings of preferred stock and we can provide no assurances that Torchlight will provide such consents in the future. Torchlight’s rights under the Stockholders Agreement may prohibit us from taking certain actions that would benefit our other stockholders. We intend to use approximately $5.0 million of the net proceeds of this offering to repurchase the 263,158 shares of our common stock that we issued to Torchlight in the Torchlight Transactions. See “Use of Proceeds.” After giving effect to the expected use of proceeds, Torchlight’s beneficial ownership of our common stock will remain in excess of 2.5%, and as a result, Torchlight will retain its rights under the Stockholders Agreement after the completion of this offering.

Under the Stockholders Agreement, Torchlight is also entitled, subject to certain exceptions, to certain customary registration rights, including the requirement that we file a registration statement registering the resale of (1) the 263,158 shares of common stock and (2) the 250,000 shares of common stock issuable upon the exercise of the warrants issued in the Torchlight Transactions following the first anniversary of the closing of our initial listed public offering or to participate in future offerings of our common stock. In addition, Torchlight will have a pre-emptive right to participate in future issuances of common stock by the company for so long as Torchlight maintains beneficial ownership of at least 2.5% of our outstanding common stock. These rights may reduce our ability to raise capital through the equity capital markets in the future because we will be required to accommodate sales of our common stock by Torchlight.

We face significant competition in the leasing market, which may decrease or prevent increases of the occupancy and rental rates of our properties.

We compete with numerous developers, owners and operators of real estate, many of whom own properties similar to ours in the same submarkets in which our properties are located. If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates below those we currently charge or to offer more substantial rent abatements, tenant improvements, early termination rights or below-market renewal options in order to retain tenants when our tenants’ leases expire. As a result, our financial condition, results of operations, cash flows and our ability to pay distributions on, and the value of, our Series A Preferred Stock could be adversely affected.

We may be required to make rent or other concessions and/or significant capital expenditures to improve our properties in order to retain and attract tenants, causing our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our Series A Preferred Stock to be adversely affected.

In order to attract and retain tenants, we may be required to make rent or other concessions to tenants, accommodate requests for renovations, build-to-suit remodeling and other improvements or provide additional services to our tenants. Additionally, when a tenant at one of our properties does not renew its lease or otherwise vacates its space, it is likely that, in order to attract one or more new tenants, we will be required to expend funds for improvements in the vacated space. As a result, we may have to make significant capital or other expenditures in order to retain tenants whose leases expire and to attract new tenants in sufficient numbers. Additionally, we may need to raise capital to make such expenditures. If we are unable to do so or if capital is otherwise unavailable, we may be unable to make the required expenditures. This could result in non-renewals by tenants upon expiration of their leases, which could have an adverse effect on our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our Series A Preferred Stock.

A substantial majority of the leases in the Company Portfolio are with tenants who have non-investment grade credit ratings, which may result in our leasing to tenants that are more likely to default in their obligations to us than an entity with an investment grade credit rating.

A substantial majority of the leases in the Company Portfolio are with tenants who have non-investment grade credit ratings. The ability of a non-investment grade tenant to meet its obligations to us cannot be considered as well assured as that of an investment grade tenant. All of our tenants may face exposure to adverse business or economic conditions which could lead to an inability to meet their obligations to us. However, non-investment grade tenants may not have the financial capacity or liquidity to adapt to these conditions or may have less diversified businesses, which may exacerbate the effects of adverse conditions on their businesses. Moreover, the fact that so many of our tenants are not investment grade may cause investors or lenders to view our cash flows as less stable, which may increase our cost of capital, limit our financing options or adversely affect the trading price of our common stock and our Series A Preferred Stock.

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The actual rents we receive for the Company Portfolio may be less than our asking rents, and we may experience lease roll down from time to time.

As a result of various factors, including competitive pricing pressure in our submarkets, adverse conditions in our target markets, a general economic downturn and a decline in the desirability of our properties compared to other properties in our submarkets, we may be unable to realize the asking rents for properties in the Company Portfolio. In addition, the degree of discrepancy between our asking rents and the actual rents we are able to obtain may vary both from property to property and among different leased spaces within a single property. If we are unable to obtain rental rates comparable to our asking rents for the properties in the Company Portfolio, our ability to generate cash flow growth will be negatively impacted. In addition, depending on fluctuations in asking rental rates at any given time, from time to time rental rates for expiring leases in the Company Portfolio may be higher than starting rental rates for new leases.

We may acquire properties or portfolios of properties through tax-deferred contribution transactions, which could result in stockholder dilution and limit our ability to sell such assets.

In the future, we may acquire properties or portfolios of properties through tax-deferred contribution transactions in exchange for partnership interests in our operating partnership, which may result in stockholder dilution. This acquisition structure may have the effect of, among other things, reducing the amount of tax depreciation we are able to deduct over the tax life of the acquired properties, and may require that we agree to protect the contributors’ ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties and/or the allocation of partnership debt to the contributors to maintain their tax bases. These restrictions limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions.

Any real estate development and re-development activities are subject to risks particular to development and re-development.

We may engage in development and redevelopment activities with respect to certain of our properties. To the extent that we do so, we will be subject to the following risks associated with such development and redevelopment activities:

  unsuccessful development or redevelopment opportunities could result in direct expenses to us;
  construction or redevelopment costs of a project may exceed original estimates, possibly making the project less profitable than originally estimated, or unprofitable;
  time required to complete the construction or redevelopment of a project or to lease up the completed project may be greater than originally anticipated, thereby adversely affecting our cash flow and liquidity;
  contractor and subcontractor disputes, strikes, labor disputes or supply disruptions;
  failure to achieve expected occupancy and/or rent levels within the projected time frame, if at all;
  delays with respect to obtaining or the inability to obtain necessary zoning, occupancy, land use and other governmental permits, and changes in zoning and land use laws;
  occupancy rates and rents of a completed project may not be sufficient to make the project profitable;
  our ability to dispose of properties developed or redeveloped with the intent to sell could be impacted by the ability of prospective buyers to obtain financing given the current state of the credit markets; and
  the availability and pricing of financing to fund our development activities on favorable terms or at all.

These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development or redevelopment activities once undertaken, any of which could have an adverse effect on our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock.

Our success depends on key personnel whose continued service is not guaranteed, and the departure of one or more of our key personnel could adversely affect our ability to manage our business and to implement our growth strategies, or could create a negative perception in the capital markets.

Our continued success and our ability to manage anticipated future growth depend, in large part, upon the efforts of key personnel, particularly Messrs. Witherell and White, who have extensive market knowledge and relationships and exercise substantial influence over our operational, financing, acquisition and disposition activity.

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Our ability to retain our senior management, particularly Messrs. Witherell and White, or to attract suitable replacements should any member of our senior management leave, is dependent on the competitive nature of the employment market. We have not obtained and do not expect to obtain key man life insurance on any of our key personnel. The loss of services of one or more members of our senior management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our relationships with lenders, business partners, existing and prospective tenants and industry participants. Further, the loss of a member of our senior management team could be negatively perceived in the capital markets. Any of these developments could adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on, and the value of, our common stock and our Series A Preferred Stock.

Potential losses, including from adverse weather conditions and natural disasters, may not be covered by insurance.

We carry commercial property, liability and terrorism coverage on all the properties in the Company Portfolio under a blanket insurance policy, in addition to other coverages that may be appropriate for certain of our properties. We will select policy specifications and insured limits that we believe to be appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. Some of our policies will be insured subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover losses, which could affect certain of our properties that are located in areas particularly susceptible to natural disasters. In addition, we may discontinue terrorism or other insurance on some or all of our properties in the future if the cost of premiums for any such policies exceeds, in our judgment, the value of the coverage discounted for the risk of loss. We do not carry insurance for certain types of extraordinary losses, such as loss from riots, war, earthquakes and wildfires because such coverage may not be available or is cost prohibitive or available at a disproportionately high cost. As a result, we may incur significant costs in the event of loss from riots, war, earthquakes, wildfires and other uninsured losses.

If we or one or more of our tenants experiences a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged. Furthermore, we may not be able to obtain adequate insurance coverage at reasonable costs in the future as the costs associated with property and casualty renewals may be higher than anticipated.

We may not be able to rebuild the Company Portfolio to its existing specifications if we experience a substantial or comprehensive loss of such properties.

In the event that we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing specifications. Further, reconstruction or improvement of such a property would likely require significant upgrades to meet zoning and building code requirements. Environmental and legal restrictions could also restrict the rebuilding of our properties.

Existing conditions at some of our properties may expose us to liability related to environmental matters.

Independent environmental consultants conducted a Phase I or similar environmental site assessment of our properties at the time of their acquisition or in connection with subsequent financings. Such Phase I or similar environmental site assessments are limited in scope and may not include or identify all potential environmental liabilities or risks associated with the relevant properties. We have not obtained and do not intend to obtain new or updated Phase I or similar environmental site assessments in connection with this offering, which may expose us to liability related to unknown or unanticipated environmental matters. Unless required by applicable laws or regulations, we may not further investigate, remedy or ameliorate the liabilities disclosed in the existing Phase I or similar environmental site assessments and this failure may expose us to liability in the future.

We may be unable to sell a property if or when we decide to do so.

We expect to hold the various real properties until such time as we decide that a sale or other disposition is appropriate. Our ability to dispose of properties on advantageous terms depends on factors beyond our control, including competition from other sellers and the availability of attractive financing for potential buyers of our properties. We cannot predict the various market conditions affecting the industrial real estate market which will exist at any particular time in the future. Due to the uncertainty of market conditions which may affect the future disposition of our properties, we cannot assure you that we will be able to sell our properties at a profit in the future, which could adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on, and the value of, our common stock and our Series A Preferred Stock.

Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct such defects or to make such improvements.

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Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between us and our co-venturers.

We may co-invest in the future with third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing responsibility for managing the affairs of a property, partnership, joint venture or other entity. In such event, we would not be in a position to exercise sole decision-making authority regarding the property, partnership, joint venture or other entity. Investments in partnerships, joint ventures or other entities may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their share of required capital contributions. Partners or co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives, and they may have competing interests in our markets that could create conflict of interest issues. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the partner or co-venturer would have full control over the partnership or joint venture. In addition, prior consent of our joint venture partners may be required for a sale or transfer to a third party of our interests in the joint venture, which would restrict our ability to dispose of our interest in the joint venture. If we become a limited partner or non-managing member in any partnership or limited liability company and such entity takes or expects to take actions that could jeopardize our company’s status as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Consequently, actions by or disputes with partners or co-venturers might result in subjecting properties owned by the partnership or joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers. Our joint ventures may be subject to debt and, in the current volatile credit market, the refinancing of such debt may require equity capital calls.

If we fail to implement and maintain an effective system of integrated internal controls, or to remediate the material weaknesses we have identified in our internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results.

As a publicly traded company, we are required to comply with the applicable provisions of the Sarbanes-Oxley Act, which requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting and effective disclosure controls and procedures for making required filings with the SEC. Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed.

The process for designing and implementing an effective system of integrated internal controls is a continuous effort that requires significant resources and devotion of time, and material weaknesses in our internal controls also may result in certain deficiencies in our disclosure controls and procedures. As part of the ongoing monitoring of internal controls required of publicly traded companies, and in connection with management’s evaluation of our internal control over financial reporting and disclosure controls and procedures as of June 30, 2017, we identified material weaknesses in our internal controls and our disclosure controls and procedures. In particular, we identified as a material weakness, that due to limited financial and accounting resources, we were unable to fully address our internal controls and procedures, including sufficiently documented procedures and risk assessment analysis or fully tested existing controls to meet the requirements of COSO’s 2013 framework. In order to remediate this deficiency, the Company has undertaken a full review and evaluation of key processes, procedures and completion of documentation that can be monitored and tested independently.

Although we have developed and are in the process of implementing a remediation plan for the identified material weaknesses, we can provide no assurances that our remediation plan will adequately remediate the identified material weakness. The Company continues to evaluate what additional policies and procedures may be necessary, how to most effectively communicate the policies and procedures to its personnel and how to improve our financial reporting system. We expect that work on the plan to remediate the identified weaknesses will continue throughout 2017, as financial resources permit.

There is no assurance that we will be successful in remediating the identified deficiencies in our internal controls or that we will be successful in remediating any additional deficiencies that may arise in the future. If the remedial measures we are implementing are insufficient to address any of the identified material weaknesses or are not implemented effectively, or additional deficiencies arise in the future, material misstatements in our interim or annual financial statements may occur in the future. Among other things, any unremediated material weaknesses could result in material post-closing adjustments in future financial statements. In addition, as an “emerging growth company,” our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until the date we are no longer an “emerging growth company,” which may be up until December 31, 2017.

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Any failure to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could adversely affect our ability to remain listed with the NYSE American. Ineffective internal and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the per share trading price of our common stock and our Series A Preferred Stock.

Our growth depends on external sources of capital that are outside of our control and may not be available to us on commercially reasonable terms or at all.

In order to maintain our qualification as a REIT, we are required under the Code, among other things, to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In addition, we will be subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our REIT taxable income, including any net capital gains. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we intend to rely on third-party sources to fund our capital needs. We may not be able to obtain such financing on favorable terms or at all and any additional debt we incur will increase our leverage and likelihood of default. Our access to third-party sources of capital depends, in part, on:

  general market conditions;
  the market’s perception of our growth potential;
  our current debt levels;
  our current and expected future earnings;
  our cash flow and cash distributions; and
  the market price per share of our common stock.

In recent years, the capital markets have been subject to significant disruptions. If we cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when strategic opportunities exist, meet the capital and operating needs of the Company Portfolio, satisfy our debt service obligations or make the cash distributions to our stockholders necessary to maintain our qualification as a REIT.

We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock and our Series A Preferred Stock less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act. We will remain an “emerging growth company” until the last day of the fiscal year ending December 31, 2017. We may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our Series A Preferred Stock less attractive because we may rely on these exemptions. If some investors find our Series A Preferred Stock less attractive as a result, there may be a less active trading market for our Series A Preferred Stock and our per share trading price may be adversely affected and more volatile.

Risks Related to the Real Estate Industry

Our performance and value are subject to risks associated with real estate assets and the real estate industry.

Our ability to pay expected dividends to our stockholders depends on our ability to generate revenues in excess of expenses, scheduled principal payments on debt and capital expenditure requirements. Events and conditions generally applicable to owners and operators of real property that are beyond our control may decrease cash available for distribution and the value of our properties. These events include many of the risks set forth above under “—Risks Related to Our Business and Operations,” as well as the following:

  local oversupply or reduction in demand for industrial space;
  adverse changes in financial conditions of buyers, sellers and tenants of properties;

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  vacancies or our inability to rent space on favorable terms, including possible market pressures to offer tenants rent abatements, tenant improvements, early termination rights or below-market renewal options, and the need to periodically repair, renovate and re-lease space;
  increased operating costs, including insurance premiums, utilities, real estate taxes and state and local taxes;
  civil unrest, acts of war, terrorist attacks and natural disasters, including earthquakes, floods and wildfires, which may result in uninsured or underinsured losses;
  decreases in the underlying value of our real estate;
  •  changing submarket demographics; and
  changing traffic patterns.

In addition, periods of economic downturn or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases, which would adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock.

Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

The real estate investments made, and to be made, by us are relatively difficult to sell quickly. As a result, our ability to promptly sell one or more properties in the Company Portfolio in response to changing economic, financial and investment conditions is limited. Return of capital and realization of gains, if any, from an investment generally will occur upon disposition or refinancing of the underlying property. We may be unable to realize our investment objectives by sale, other disposition or refinancing at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. Our ability to dispose of one or more properties within a specific time period is subject to the possible weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located.

In addition, the Code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable to other types of real estate companies. In particular, the tax laws applicable to REITs effectively require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer sales of properties that otherwise would be in our best interest. Therefore, we may not be able to vary the Company Portfolio in response to economic or other conditions promptly or on favorable terms, which may adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock.

Declining real estate valuations and impairment charges could materially adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock.

We intend to review the carrying value of our properties when circumstances, such as adverse market conditions, indicate a potential impairment may exist. We intend to base our review on an estimate of the future cash flows (excluding interest charges) expected to result from the property’s use and eventual disposition on an undiscounted basis. We intend to consider factors such as future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If our evaluation indicates that we may be unable to recover the carrying value of a real estate investment, an impairment loss will be recorded to the extent that the carrying value exceeds the estimated fair value of the property.

Impairment losses have a direct impact on our operating results because recording an impairment loss results in an immediate negative adjustment to our operating results. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. A worsening real estate market may cause us to reevaluate the assumptions used in our impairment analysis. Impairment charges could materially adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock.

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Adverse economic conditions and the dislocation in the credit markets could materially adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock.

Ongoing challenging economic conditions have negatively impacted the lending and capital markets, particularly for real estate. The capital markets have experienced significant adverse conditions in recent years, including a substantial reduction in the availability of, and access to, capital. The risk premium demanded by lenders has increased markedly, as they are demanding greater compensation for risk, and underwriting standards have been tightened. In addition, failures and consolidations of certain financial institutions have decreased the number of potential lenders, resulting in reduced lending sources available to the market. These conditions may limit the amount of indebtedness we are able to obtain and our ability to refinance our indebtedness, and may impede our ability to develop new properties and to replace construction financing with permanent financing, which could result in our having to sell properties at inopportune times and on unfavorable terms. If these conditions continue, our financial condition, results of operations, cash flows and ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock could be materially adversely affected.

The lack of availability of debt financing may require us to rely more heavily on additional equity issuances, which may be dilutive to our current stockholders, or on less efficient forms of debt financing. Additionally, the limited amount of financing currently available may reduce the value of our properties and limit our ability to borrow against such properties, which could materially adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock.

Acquired properties may be located in new markets where we may face risks associated with investing in an unfamiliar market.

We have acquired, and may continue to acquire, properties in markets that are new to us. When we acquire properties located in new markets, we may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permitting procedures.

We may choose not to distribute the proceeds of any sales of real estate to our stockholders, which may reduce the amount of our cash distributions to stockholders.

We may choose not to distribute any proceeds from the sale of real estate investments to our stockholders. Instead, we may elect to use such proceeds to:

  acquire additional real estate investments;
  repay debt;
  buy out interests of any partners in any joint venture in which we are a party;
  create working capital reserves; or
  make repairs, maintenance, tenant improvements or other capital improvements or expenditures on our other properties.

Any decision to retain or invest the proceeds of any sales, rather than distribute such proceeds to our stockholders may reduce the amount of cash distributions you receive on your Series A Preferred Stock.

Uninsured losses relating to real property may adversely affect your returns.

We attempt to ensure that all of our properties are adequately insured to cover casualty losses. However, there are certain losses, including losses from floods, earthquakes, wildfires, acts of war, acts of terrorism or riots, that are not generally insured against or that are not generally fully insured against because it is not deemed economically feasible or prudent to do so. In addition, changes in the cost or availability of insurance could expose us to uninsured casualty losses. In the event that any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by the amount of any such uninsured loss, and we could experience a significant loss of capital invested and potential revenue in these properties and could potentially remain obligated under any recourse debt associated with the property. Moreover, we, as the general partner of our operating partnership, generally will be liable for all of our operating partnership’s unsatisfied recourse obligations, including any obligations incurred by our operating partnership as the general partner of joint ventures. Any such losses could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock. In addition, we may have no source of funding to repair or reconstruct the damaged property, and we cannot assure you that any such sources of funding will be available to us for such purposes in the future. We evaluate our insurance coverage annually in light of current industry practice through an analysis prepared by outside consultants.

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Our property taxes could increase due to property tax rate changes or reassessment, which could adversely impact our cash flows.

Even if we maintain our qualification as a REIT for federal income tax purposes, we will be required to pay some state and local taxes on our properties. The real property taxes on our properties may increase as property tax rates change or as our properties are assessed or reassessed by taxing authorities. The amount of property taxes we pay in the future may increase substantially from what we have paid in the past. If the property taxes we pay increase, our cash flow would be adversely impacted to the extent that we are not reimbursed by tenants for those taxes, and our ability to pay any expected dividends to our stockholders could be adversely affected.

We could incur significant costs related to government regulation and litigation over environmental matters.

Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under or migrating to or from such property, including costs to investigate, clean up such contamination and liability for harm to natural resources. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and several. These liabilities could be substantial and the cost of any required remediation, removal, fines or other costs could exceed the value of the property and/or our aggregate assets. In addition, the presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability for costs of remediation and/or personal, property, or natural resources damage or materially adversely affect our ability to sell, lease or develop our properties or to borrow using the properties as collateral. In addition, environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures.

Some of the properties in the Company Portfolio have been or may be impacted by contamination arising from current or prior uses of the property, or adjacent properties, for commercial or industrial purposes. Such contamination may arise from spills of petroleum or hazardous substances or releases from tanks used to store such materials.

From time to time, we may acquire properties with known adverse environmental conditions where we believe that the environmental liabilities associated with these conditions are quantifiable and that the acquisition will yield a superior risk-adjusted return. We usually perform a Phase I environmental site assessment at any property we are considering acquiring. In connection with certain financing transactions our lenders have commissioned independent environmental consultants to conduct Phase I environmental site assessments on the properties in the Company Portfolio. However, we have not always received copies of the Phase I environmental site assessment reports commissioned by our lenders and, as such, may not be aware of all potential or existing environmental contamination liabilities at the properties in the Company Portfolio. In addition, Phase I environmental site assessments are limited in scope and do not involve sampling of soil, soil vapor, or groundwater, and these assessments may not include or identify all potential environmental liabilities or risks associated with the property. Even where subsurface investigation is performed, it can be very difficult to ascertain the full extent of environmental contamination or the costs that are likely to flow from such contamination. We cannot assure you that the Phase I environmental site assessment or other environmental studies identified all potential environmental liabilities, or that we will not face significant remediation costs or other environmental contamination that makes it difficult to sell any affected properties. Also, we have not always implemented actions recommended by these assessments, and recommended investigation and remediation of known or suspected contamination has not always been performed. As a result, we could potentially incur material liability for these issues, which could adversely impact our financial condition, results of operations, cash flows and ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock.

Environmental laws also govern the presence, maintenance and removal of asbestos-containing building materials, or ACBM, and may impose fines and penalties for failure to comply with these requirements. Such laws require that owners or operators of buildings containing ACBM (and employers in such buildings) properly manage and maintain the asbestos, adequately notify or train those who may come into contact with asbestos, and undertake special precautions, including removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building. In addition, the presence of ACBM in our properties may expose us to third-party liability (e.g., liability for personal injury associated with exposure to asbestos).

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In addition, the properties in the Company Portfolio also are subject to various federal, state and local environmental and health and safety requirements, such as state and local fire requirements. Moreover, some of our tenants routinely handle and use hazardous or regulated substances and wastes as part of their operations at our properties, which are subject to regulation. Such environmental and health and safety laws and regulations could subject us or our tenants to liability resulting from these activities. Environmental liabilities could affect a tenant’s ability to make rental payments to us. In addition, changes in laws could increase the potential liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise materially and adversely affect our operations, or those of our tenants, which could in turn have a material adverse effect on us.

We cannot assure you that costs or liabilities incurred as a result of environmental issues will not affect our ability to make distributions to you or that such costs or other remedial measures will not have an adverse effect on our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock. If we do incur material environmental liabilities in the future, we may face significant remediation costs, and we may find it difficult to sell any affected properties.

Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for adverse health effects and costs of remediation.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury is alleged to have occurred.

We may incur significant costs complying with various federal, state and local laws, regulations and covenants that are applicable to our properties.

The properties in the Company Portfolio are subject to various covenants and federal, state and local laws and regulatory requirements, including permitting and licensing requirements. Local regulations, including municipal or local ordinances and zoning restrictions may restrict our use of our properties and may require us to obtain approval from local officials or restrict our use of our properties and may require us to obtain approval from local officials of community standards organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of the Company Portfolio. Among other things, these restrictions may relate to fire and safety, seismic or hazardous material abatement requirements. There can be no assurance that existing laws and regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations will not be adopted that increase such delays or result in additional costs. Our growth strategy may be adversely affected by our ability to obtain permits, licenses and zoning relief. Our failure to obtain such permits, licenses and zoning relief or to comply with applicable laws could have an adverse effect on our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock.

In addition, federal and state laws and regulations, including laws such as the Americans with Disabilities Act, or ADA, and the Fair Housing Amendment Act of 1988, or FHAA, impose further restrictions on our properties and operations. Under the ADA and the FHAA, all public accommodations must meet federal requirements related to access and use by disabled persons. Some of our properties may currently be in non-compliance with the ADA or the FHAA. If one or more of the properties in the Company Portfolio is not in compliance with the ADA, the FHAA or any other regulatory requirements, we may be required to incur additional costs to bring the property into compliance, including the removal of access barriers, and we might incur governmental fines or the award of damages to private litigants. In addition, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely impact our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock.

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Risks Related to Our Organizational Structure

Conflicts of interest may exist or could arise in the future between the interests of our stockholders and the interests of holders of OP units, which may impede business decisions that could benefit our stockholders.

Conflicts of interest may exist or could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and our operating partnership or any partner thereof, on the other. Our directors and officers have duties to our company under Maryland law in connection with their management of our company. At the same time, we, as the general partner of our operating partnership, have fiduciary duties and obligations to our operating partnership and its limited partners under Maryland law and the partnership agreement of our operating partnership in connection with the management of our operating partnership. Our fiduciary duties and obligations as the general partner of our operating partnership may come into conflict with the duties of our directors and officers to our company.

Under Delaware law, a general partner of a Delaware limited partnership has fiduciary duties of loyalty and care to the partnership and its partners and must discharge its duties and exercise its rights as general partner under the partnership agreement or Delaware law consistent with the obligation of good faith and fair dealing. The partnership agreement provides that, in the event of a conflict between the interests of our operating partnership or any partner, on the one hand, and the separate interests of our company or our stockholders, on the other hand, we, in our capacity as the general partner of our operating partnership, may give priority to the separate interests of our company or our stockholders (including with respect to tax consequences to limited partners, assignees or our stockholders), and, in the event of such a conflict, any action or failure to act on our part or on the part of our directors that gives priority to the separate interests of our company or our stockholders that does not result in a violation of the contract rights of the limited partners of our operating partnership under its partnership agreement does not violate the duty of loyalty or any other duty that we, in our capacity as the general partner of our operating partnership, owe to our operating partnership and its partners or violate the obligation of good faith and fair dealing.

Additionally, the partnership agreement provides that we generally will not be liable to our operating partnership or any partner for any action or omission taken in our capacity as general partner, for the debts or liabilities of our operating partnership or for the obligations of the operating partnership under the partnership agreement, except for liability for our fraud, willful misconduct or gross negligence, pursuant to any express indemnity we may give to our operating partnership or in connection with a redemption as described in “Description of the Partnership Agreement of Plymouth Industrial OP, LP—Exchange Rights.” Our operating partnership must indemnify us, our directors and officers, officers of our operating partnership and our designees from and against any and all claims that relate to the operations of our operating partnership, unless (1) an act or omission of the person was material to the matter giving rise to the action and either was committed in bad faith or was the result of active and deliberate dishonesty, (2) the person actually received an improper personal benefit in violation or breach of the partnership agreement or (3) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful. Our operating partnership must also pay or reimburse the reasonable expenses of any such person in advance of a final disposition of the proceeding upon its receipt of a written affirmation of the person’s good faith belief that the standard of conduct necessary for indemnification has been met and a written undertaking to repay any amounts paid or advanced if it is ultimately determined that the person did not meet the standard of conduct for indemnification. Our operating partnership is not required to indemnify or advance funds to any person with respect to any action initiated by the person seeking indemnification without our approval (except for any proceeding brought to enforce such person’s right to indemnification under the partnership agreement) or if the person is found to be liable to our operating partnership on any portion of any claim in the action.

Our charter and bylaws, the partnership agreement of our operating partnership and Maryland law contain provisions that may delay, defer or prevent a change of control transaction.

Our charter contains certain ownership limits with respect to our stock.    Our charter authorizes our board of directors to take such actions as it determines are advisable, in its sole and absolute discretion, to preserve our qualification as a REIT. Our charter also prohibits the actual, beneficial or constructive ownership by any person of more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock, including the Series A Preferred Stock, in each case excluding any shares that are not treated as outstanding for federal income tax purposes. Our board of directors, in its sole and absolute discretion, may exempt a person, prospectively or retroactively, from these ownership limits if certain conditions are satisfied. However, our bylaws provide that the board of directors must waive the ownership limit with respect to a particular person if it: (i) determines that such person’s ownership will not cause any individual’s beneficial ownership of shares of our stock to violate the ownership limit and that any exemption from the ownership limit will not jeopardize our status as a REIT; and (ii) determines that such stockholder does not and will not own, actually or constructively, an interest in a tenant of ours (or a tenant of any entity whose operations are attributed in whole or in part to us) that would cause us to own, actually or constructively, more than a 9.8% interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant or that any such ownership would not cause us to fail to qualify as a REIT under the Code. The restrictions on ownership and transfer of our stock may:

  discourage a tender offer or other transactions or a change in management or of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interests; or
  result in the transfer of shares acquired in excess of the restrictions to a trust for the benefit of a charitable beneficiary and, as a result, the forfeiture by the acquirer of the benefits of owning the additional shares.

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We could increase the number of authorized shares of stock, classify and reclassify unissued stock and issue stock without stockholder approval.    Our board of directors, without stockholder approval, has the power under our charter to amend our charter to increase the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue, to authorize us to issue authorized but unissued shares of our common stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock into one or more classes or series of stock and set the terms of such newly classified or reclassified shares. See “Description of Stock—Power to Increase or Decrease Authorized Shares of Common Stock and Issue Additional Shares of Common and Preferred Stock.” As a result, we may issue additional classes or series of preferred stock with preferences, powers and rights, voting or otherwise, that are on parity with or senior to, or otherwise conflict with, the rights of holders of our Series A Preferred Stock, which would dilute the interests of holders of Series A Preferred Stock. Although our board of directors has no such intention at the present time, it could establish a class or series of preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction or a change of control that might trigger your rights to require us to redeem your shares of Series A Preferred Stock.

Certain provisions of Maryland law could inhibit changes in control, which may discourage third parties from conducting a tender offer or seeking other change of control transactions that could trigger your rights to require us to redeem your shares of Series A Preferred Stock.    Certain provisions of the MGCL may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

  “business combination” provisions that, subject to certain exceptions, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our then outstanding voting stock at any time within the two-year period; and
  “control share” provisions that provide that holders of “control shares” of our company (defined as shares that, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise voting power in the election of directors within one of three increasing ranges) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of the voting power of issued and outstanding “control shares,” subject to certain exceptions) have no voting rights with respect to their control shares, except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

As permitted by the MGCL, our bylaws provide that we will not be subject to the control share provisions of the MGCL and our board of directors has, by resolution, exempted us from the business combination between us and any other person. In addition, the board resolution opting out of the business combination provisions of the MGCL provides that any alteration or repeal of the resolution shall be valid only if approved, at a meeting duly called, by the affirmative vote of a majority of votes cast by stockholders entitled to vote generally for directors, and our bylaws provide that any such alteration or repeal of the resolution, or any amendment, alteration or repeal of the provision in our bylaws exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock, will be valid only if approved, at a meeting duly called, by the affirmative vote of a majority of votes cast by stockholders entitled to vote generally for directors.

Certain provisions of the MGCL permit the board of directors of a Maryland corporation with at least three independent directors and a class of stock registered under the Exchange Act without stockholder approval and regardless of what is currently provided in its charter or bylaws, to implement certain corporate governance provisions, some of which (for example, a classified board) are not currently applicable to us. These provisions may have the effect of limiting or precluding a third party from making an unsolicited acquisition proposal for our company or of delaying, deferring or preventing a change in control under circumstances that otherwise could trigger your rights to require us to redeem your shares of Series A Preferred Stock.

Certain provisions in the partnership agreement of our operating partnership may delay or prevent unsolicited acquisitions of us.    Provisions of the partnership agreement of our operating partnership may delay or make more difficult unsolicited acquisitions of us or changes of our control. These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although some stockholders or limited partners might consider such proposals, if made, desirable. These provisions include, among others:

  redemption rights of qualifying parties;
  a requirement that we may not be removed as the general partner of our operating partnership without our consent;
  transfer restrictions on OP units;

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  our ability, as general partner, in some cases, to amend the partnership agreement and to cause our operating partnership to issue additional partnership interests with terms that could delay, defer or prevent a merger or other change of control of us or our operating partnership without the consent of our stockholders or the limited partners; and
  the right of the limited partners to consent to certain transfers of our general partnership interest (whether by sale, disposition, statutory merger or consolidation, liquidation or otherwise).

Our charter and bylaws, the partnership agreement of our operating partnership and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interest. See “Description of the Partnership Agreement of Plymouth Industrial OP, LP—Transferability of Interests,” “Material Provisions of Maryland Law and of Our Charter and Bylaws—Removal of Directors,” “—Control Share Acquisitions” and “—Advance Notice of Director Nominations and New Business.”

Our board of directors may change our investment and financing policies without stockholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations.

Our investment and financing policies are exclusively determined by our board of directors. Accordingly, our stockholders, including holders of Series A Preferred Stock, do not control these policies. Further, our charter and bylaws do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Our board of directors may alter or eliminate our current policy on borrowing at any time without stockholder approval. If this policy changed, we could become more highly leveraged which could result in an increase in our debt service. Higher leverage also increases the risk of default on our obligations. In addition, a change in our investment policies, including the manner in which we allocate our resources across the Company Portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk. Changes to our policies with regard to the foregoing could adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our common stock and our Series A Preferred Stock.

Our rights and the rights of our stockholders to take action against our directors and officers are limited.

As permitted by Maryland law, our charter eliminates the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from:

  actual receipt of an improper benefit or profit in money, property or services; or
  active and deliberate dishonesty by the director or officer that was established by a final judgment and was material to the cause of action adjudicated.

In addition, our charter authorizes us to obligate our company, and our bylaws require us, to indemnify our directors and officers for actions taken by them in those and certain other capacities to the maximum extent permitted by Maryland law in effect from time to time. Generally, Maryland law permits a Maryland corporation to indemnify its present and former directors and officers except in instances where the person seeking indemnification acted in bad faith or with active and deliberate dishonesty, actually received an improper personal benefit in money, property or services or, in the case of a criminal proceeding, had reasonable cause to believe that his or her actions were unlawful. Under Maryland law, a Maryland corporation also may not indemnify a director or officer in a suit by or on behalf of the corporation in which the director or officer was adjudged liable to the corporation or for a judgment of liability on the basis that a personal benefit was improperly received. A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct; however, indemnification for an adverse judgment in a suit by us or on our behalf, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist. Accordingly, in the event that actions taken in good faith by any of our directors or officers impede the performance of our company, your ability to recover damages from such director or officer will be limited. See “Material Provisions of Maryland law and of Our Charter and Bylaws—Indemnification and Limitation of Directors’ and Officers’ Liability.”

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We are a holding company with no direct operations and, as such, we will rely on funds received from our operating partnership to pay liabilities, and the interests of our stockholders will be structurally subordinated to all liabilities and obligations of our operating partnership and its subsidiaries.

We are a holding company and conduct substantially all of our operations through our operating partnership. We do not have, apart from an interest in our operating partnership, any independent operations. As a result, we will rely on distributions from our operating partnership to pay any dividends we might declare on shares of our Series A Preferred Stock. We will also rely on distributions from our operating partnership to meet any of our obligations, including any tax liability on taxable income allocated to us from our operating partnership. In addition, because we are a holding company, your claims as stockholders will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of our operating partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our operating partnership and its subsidiaries will be available to satisfy the claims of our stockholders only after all of our and our operating partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.

Our operating partnership may issue additional OP units to third parties without the consent of our stockholders, which would reduce our ownership percentage in our operating partnership and would have a dilutive effect on the amount of distributions made to us by our operating partnership and, therefore, the amount of distributions we can make to our stockholders.

We have issued 421,438 OP units in connection with the Recent Acquisitions and may in the future, in connection with our acquisition of properties or otherwise, cause our operating partnership to issue additional OP units to third parties. Such issuances would reduce our ownership percentage in our operating partnership and affect the amount of distributions made to us by our operating partnership and, therefore, the amount of distributions we can make to our stockholders. Because you will not directly own OP units, you will not have any voting rights with respect to any such issuances or other partnership level activities of our operating partnership.

Risks Related to Our Status as a REIT

Failure to maintain our qualification as a REIT would have significant adverse consequences to us and the per share trading price of our common stock and our Series A Preferred Stock.

We have elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2012 and have operated in a manner that we believe will allow us to maintain our qualification as a REIT. We cannot assure you that we will remain qualified as a REIT in the future. If we lose our REIT qualification, we will face serious tax consequences that would substantially reduce the funds available for distribution to you for each of the years involved because:

  we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to federal income tax at regular corporate rates;
  we also could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and
  unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.

Any such corporate tax liability could be substantial and would reduce our cash available for, among other things, our operations and distributions to stockholders. In addition, if we fail to maintain our qualification as a REIT, we will not be required to make distributions to our stockholders. As a result of all these factors, our failure to maintain our qualification as a REIT also could impair our ability to expand our business and raise capital, and could materially and adversely affect the per share trading price of our common stock and our Series A Preferred Stock.

Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury regulations that have been promulgated under the Code, or the Treasury regulations, is greater in the case of a REIT that, like us, holds its assets through a partnership. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In order to maintain our qualification as a REIT, we must satisfy a number of requirements, including requirements regarding the ownership of our stock, requirements regarding the composition of our assets and a requirement that at least 95% of our gross income in any year must be derived from qualifying sources, such as “rents from real property.” Also, we must make distributions to stockholders aggregating annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains and losses. In addition, legislation, new regulations, administrative interpretations or court decisions may materially adversely affect our investors, our ability to maintain our qualification as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments.

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Even if we maintain our qualification as a REIT for federal income tax purposes, we may be subject to some federal, state and local income, property and excise taxes on our income or property and, in certain cases, a 100% penalty tax, in the event we sell property as a dealer. In addition, any taxable REIT subsidiaries that we own will be subject to tax as regular C corporations in the jurisdictions in which they operate.

If our operating partnership failed to qualify as a partnership or a disregarded entity for federal income tax purposes, we would cease to qualify as a REIT and suffer other adverse consequences.

We believe that our operating partnership will be treated as a partnership or a disregarded entity for federal income tax purposes. During periods in which our operating partnership is treated as a disregarded entity, our operating partnership will not be subject to federal income tax on its income. Rather, its income will be attributed to us as the sole owner for federal income tax purposes of the operating partnership. During periods in which our operating partnership has limited partners other than Plymouth OP Limited, LLC, the operating partnership will be treated as a partnership for federal income tax purposes. As a partnership, our operating partnership would not be subject to federal income tax on its income. Instead, each of its partners would be allocated, and may be required to pay tax with respect to, its share of our operating partnership’s income. We cannot assure you, however, that the Internal Revenue Service, or the IRS will not challenge the status of our operating partnership or any other subsidiary partnership in which we own an interest as a partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating our operating partnership or any such other subsidiary partnership as an entity taxable as a corporation for federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, we would likely cease to maintain our qualification as a REIT. Also, if our operating partnership or any subsidiary partnerships were treated as entities taxable as corporations, such entities could become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners, including us.

Our taxable REIT subsidiaries will be subject to federal income tax, and we will be required to pay a 100% penalty tax on certain income or deductions if our transactions with our taxable REIT subsidiaries are not conducted on arm’s length terms.

We may acquire securities in taxable REIT subsidiaries in the future. A taxable REIT subsidiary is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a taxable REIT subsidiary. If a taxable REIT subsidiary owns more than 35% of the total voting power or value of the outstanding securities of another corporation, such other corporation will also be treated as a taxable REIT subsidiary. Other than some activities relating to lodging and health care facilities, a taxable REIT subsidiary may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A taxable REIT subsidiary is subject to federal income tax as a regular C corporation. In addition, a 100% excise tax will be imposed on certain transactions between a taxable REIT subsidiary and its parent REIT that are not conducted on an arm’s length basis.

To maintain our REIT qualification, we may be forced to borrow funds during unfavorable market conditions.

To maintain our qualification as a REIT, we generally must distribute to our stockholders at least 90% of our REIT taxable income each year, determined without regard to the dividends paid deduction and excluding net capital gains, and we will be subject to regular corporate income taxes to the extent that we distribute less than 100% of our REIT taxable income each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. Accordingly, we may not be able to retain sufficient cash flow from operations to meet our debt service requirements and repay our debt. Therefore, we may need to raise additional capital for these purposes, and we cannot assure you that a sufficient amount of capital will be available to us on favorable terms, or at all, when needed, which would materially adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the per share trading price of, our common stock and the Series A Preferred Stock. Further, in order to maintain our REIT qualification and avoid the payment of income and excise taxes, we may need to borrow funds to meet the REIT distribution requirements even if the then prevailing market conditions are not favorable for these borrowings. These borrowing needs could result from, among other things, differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments. These sources, however, may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of factors, including the market’s perception of our growth potential, our current debt levels, the per share trading price of our common stock, and our current and potential future earnings. We cannot assure you that we will have access to such capital on favorable terms at the desired times, or at all, which may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, and could adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share trading price of, our common stock and the Series A Preferred Stock.

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Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

The maximum tax rate applicable to “qualified dividend income” payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates. Although these rules do not adversely affect the taxation of REITs or dividends payable by REITs, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including the per share trading price of our common stock and the Series A Preferred Stock.

The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for federal income tax purposes.

A REIT’s net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Although we do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business, unless a sale or disposition qualifies under certain statutory safe harbors, such characterization is a factual determination and no guarantee can be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors.

Complying with REIT requirements may affect our profitability and may force us to liquidate or forgo otherwise attractive investments.

To maintain our qualification as a REIT, we must continually satisfy tests concerning, among other things, the nature and diversification of our assets, the sources of our income and the amounts we distribute to our stockholders. We may be required to liquidate or forgo otherwise attractive investments in order to satisfy the asset and income tests or to qualify under certain statutory relief provisions. We also may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. As a result, having to comply with the distribution requirement could cause us to: (1) sell assets in adverse market conditions; (2) borrow on unfavorable terms; or (3) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt. Accordingly, satisfying the REIT requirements could have an adverse effect on our business results, profitability and ability to execute our business plan. Moreover, if we are compelled to liquidate our investments to meet any of these asset, income or distribution tests, or to repay obligations to our lenders, we may be unable to comply with one or more of the requirements applicable to REITs or may be subject to a 100% tax on any resulting gain if such sales constitute prohibited transactions.

Changes to the U.S. federal income tax laws, including the enactment of certain proposed tax reform measures, could have an adverse impact on our business and financial results.

Numerous changes to the U.S. federal income tax laws are proposed regularly. Moreover, legislative and regulatory changes may be more likely in the 115th Congress because the Presidency and such Congress are controlled by the same political party and significant reform of the Code has been described publicly as a legislative priority. Additionally, the REIT rules are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department, which may result in revisions to regulations and interpretations in addition to statutory changes. If enacted, certain such changes could have an adverse impact on our business and financial results. For example, certain proposals set forth in Trump administration and House Republican tax plans could reduce the relative competitive advantage of operating as a REIT unless accompanied by responsive changes to the REIT rules. These proposals include: the lowering of income tax rates on individuals and corporations, which could ease the burden of double taxation on corporate dividends and make the single level of taxation on REIT distributions relatively less attractive; allowing the expensing of capital expenditures, which could have a similar impact and also could result in the bunching of taxable income and required distributions for REITs; and further limiting or eliminating the deductibility of interest expense, which could disrupt the real estate market and could increase the amount of REIT taxable income that must be distributed as dividends to shareholders.

We cannot predict whether, when or to what extent new U.S. federal tax laws, regulations, interpretations or rulings will be issued, nor is the long-term impact of proposed tax reforms on the real estate investment industry or REITs clear. Prospective investors are urged to consult their tax advisors regarding the effect of potential changes to the U.S. federal tax laws on an investment in our Series A Preferred Stock.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We make statements in this prospectus that are forward-looking statements, which are usually identified by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans” “projects,” “seeks,” “should,” “will,” and variations of such words or similar expressions. Our forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by our forward-looking statements are reasonable, we can give no assurance that our plans, intentions, expectations, strategies or prospects will be attained or achieved and you should not place undue reliance on these forward-looking statements. Furthermore, actual results may differ materially from those described in the forward-looking statements and may be affected by a variety of risks and factors including, without limitation:

  the factors included in this prospectus, including those set forth under the headings “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business;”
  the competitive environment in which we operate;
  real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for tenants in such markets;
  decreased rental rates or increasing vacancy rates;
  potential defaults on or non-renewal of leases by tenants;
  potential bankruptcy or insolvency of tenants;
  acquisition risks, including failure of such acquisitions to perform in accordance with projections;
  the timing of acquisitions and dispositions;
  potential natural disasters such as earthquakes, wildfires or floods;
  national, international, regional and local economic conditions;
  the general level of interest rates;
  potential changes in the law or governmental regulations that affect us and interpretations of those laws and regulations, including changes in real estate and zoning or REIT tax laws, and potential increases in real property tax rates;
  financing risks, including the risks that our cash flows from operations may be insufficient to meet required payments of principal and interest and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all;
  lack of or insufficient amounts of insurance;
  our ability to maintain our qualification as a REIT;
  litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and
  possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us.

Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Market data and industry forecasts and projections used in this prospectus have been obtained from REIS or other independent industry sources. Forecasts, projections and other forward-looking information obtained from REIS or other sources are subject to similar qualifications and uncertainties as other forward-looking statements in this prospectus.

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USE OF PROCEEDS

We estimate that the net proceeds we will receive from the sale of shares of our Series A Preferred Stock in this offering will be approximately $43,102,500 million (or approximately $49,639,875 million if the underwriters exercise their overallotment option in full) after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

We will contribute the net proceeds we receive from this offering, including any net proceeds from the exercise of the overallotment option, to our operating partnership in exchange for Series A Preferred Units.

Our operating partnership will use $5.0 million of the net proceeds from this offering to repurchase, in a privately negotiated transaction, the 263,158 shares of our common stock issued to Torchlight concurrently with the closing of our initial listed public offering as part of the Torchlight Transactions. Our operating partnership is expected to use the remaining net proceeds to fund future acquisitions of industrial properties in accordance with our investment strategy and for general corporate purposes.

 

Prior to the full deployment of the net proceeds as described above, we intend to invest the undeployed net proceeds in interest-bearing short-term investment grade securities or money-market accounts that are consistent with our intention to maintain our qualification as a REIT, including, for example, government and government agency certificates, certificates of deposit and interest-bearing bank deposits. We expect that these initial investments will provide a lower net return than we expect to receive from investments in industrial properties.

 49

 

DISTRIBUTION POLICY

In order to maintain our qualification as a REIT, we must distribute to our stockholders, on an annual basis, at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. In addition, we will be subject to U.S. federal income tax at regular corporate rates to the extent that we distribute less than 100% of our net taxable income (including net capital gains) and will be subject to a 4% nondeductible excise tax on the amount by which our distributions in any calendar year are less than a minimum amount specified under U.S. federal income tax laws. For more information, see “Material U.S. Federal Income Tax Considerations.”

The amount, timing and frequency of distributions authorized by our board of directors will be based upon a variety of factors, including:

·actual results of operations;
·our level of retained cash flows;
·the timing of the investment of the net proceeds of this offering;
·restrictions under Maryland law;
·any debt service requirements and compliance with covenants under our credit facility;
·the annual distribution requirements under the REIT provisions of the Code;
·distributions to senior equity security holders; and
·other factors that our board of directors may deem relevant.

Our ability to make distributions to our common and preferred stockholders will depend upon the ability of our management team to invest in our target assets in accordance with our business strategy and the performance of our properties. Distributions will be made in cash to the extent that cash is available for distribution. We may not be able to generate sufficient net interest income to pay distributions to our stockholders. In addition, our board of directors may change our distribution policy in the future. See “Risk Factors” included elsewhere in this prospectus.

Our charter allows us to issue shares of preferred stock that could have a preference on distributions. The distribution preference of our Series A Preferred Stock could limit our ability to make distributions to the holders of our common stock. Our board of directors will set the level of distributions. We intend to distribute our taxable income to our stockholders and retain the balance of our cash available for distribution for reinvestment in properties. However, our cash available for distribution may be less than the amount required to meet the distribution requirements for REITs under the Code, and we may be required to borrow money, sell assets or make taxable distributions of our equity securities or debt securities to satisfy the distribution requirements. Additionally, we may pay future distributions from the proceeds from this offering or other securities offerings and thus all or a portion of such distributions may constitute a return of capital for federal income tax purposes. We also may elect to pay all or a portion of any distribution in the form of a taxable distribution of our equity or debt securities.

The timing and frequency of distributions authorized by our board of directors in its sole discretion and declared by us will be based upon a variety of factors deemed relevant by our board of directors, which may include among others: our actual and projected results of operations; our liquidity, cash flows and financial condition; revenue from our properties; our operating expenses; economic conditions; debt service requirements; limitations under our financing arrangements; applicable law; capital requirements and the REIT requirements of the Code. Our actual results of operations will be affected by a number of factors, including the revenue we receive from our assets, our operating expenses, interest expenses and unanticipated expenditures.

We cannot guarantee whether or when we will be able to make distributions or that any distributions will be sustained over time. Distributions to our stockholders generally will be taxable to our stockholders as ordinary income, although a portion of such distributions may be designated by us as capital gain dividends or qualified dividend income, or may constitute a return of capital. We will furnish annually to each of our stockholders a statement setting forth distributions paid during the preceding year and their U.S. federal income tax treatment. For a discussion of the federal income tax treatment of our distributions, see “Material U.S. Federal Income Tax Considerations.”

 50

 

CAPITALIZATION

The following table sets forth as of June 30, 2017:

  the actual capitalization of the company;
  our pro forma as-adjusted capitalization, which gives effect to (i) the issuance of 160,000 shares of our common stock as a result of the partial exercise of the underwriters’ overallotment option in connection with our initial listed public offering and (ii) $23.8 million in borrowings under the KeyBank Credit Agreement; and
  our pro forma capitalization as further adjusted for this offering to give effect to the sale of 1,800,000 shares of Series A Preferred Stock in this offering, net of the underwriting discounts and estimated offering expenses payable by us (assuming no exercise of the underwriters’ option to purchase additional shares) and the repurchase of 263,158 shares of our common stock from Torchlight with a portion of the net proceeds from this offering.

This table should be read in conjunction with “Use of Proceeds,” “Selected Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical audited financial statements and the unaudited pro forma financial information and related notes appearing elsewhere in this prospectus.

($ in thousands)  As of June 30, 2017 
   Historical   Pro Forma   Pro Forma
As Further
Adjusted for
this Offering
 
   (Unaudited)   (Unaudited)   (Unaudited) 
Debt:               
Senior secured debt, net   $116,402   $116,402   $116,402 
Deferred interest    200    200    200 
Mezzanine debt to investor, net    29,319    29,319    29,319 
Secured revolving line of credit        23,825    23,825 
Total debt   $145,921   $169,746   $169,746 
                
Deficit               
Preferred Stock $0.01 par value per share, 100,000,000 shares authorized, none issued and outstanding, historical and pro forma and 100,000,000 shares authorized, 1,800,000 shares of Series A Preferred Stock issued and outstanding, pro forma as further adjusted for this offering(1)           $45,000 
Common stock $0.01 par value per share, 900,000,000 shares authorized, 3,652,886 shares issued and outstanding, historical, 3,812,886 pro forma and 900,000,000 shares authorized, 3,549,728 shares issued and outstanding pro forma as further adjusted for this offering   $37   $39   $36 
Additional paid-in capital    123,448    126,263    119,368 
Accumulated deficit    (112,107)   (112,107)   (112,107)
Non-controlling interest        8,007    8,007 
Total Equity   $11,378   $22,202   $60,304 

______________________

(1) Pro forma as further adjusted for this offering preferred stock outstanding represents the 1,800,000 shares of Series A Preferred Stock issued in this offering (assuming no exercise of the underwriters’ option to purchase additional shares).

 51

 

RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

The following table sets forth our ratio of earnings to combined fixed charges and preference dividends for the six months ended June 30, 2017 and each of the years ended December 31, 2016, 2015, 2014, 2013 and 2012. For the purpose of computing the ratio of earnings to combined fixed charges and preference dividends, earnings have been calculated by adding fixed charges to pre-tax income from continuing operations before non-controlling interests and capitalized interest. Fixed charges consist of interest costs, whether expensed or capitalized, and amortization of deferred financing costs, whether expensed or capitalized. We had no preferred securities outstanding during the periods presented. The information below is presented on an unaudited basis. 

   Six Months Ended
June 30
   Year Ended December 31, 
   2017   2016   2015   2014   2013   2012 
                         
Ratio of Earnings to Combined Fixed Charges and Preferred Dividends   -0.09    0.03    -0.09    -0.40    n/a    n/a 

________________

(a)Due to the loss from continuing operations, the ratio coverage was less than 1:1 for the six months ended June 30, 2017 and the years ended December 31, 2016, 2015, and 2014, and is not applicable (n/a) for 2013 and 2012 as there were no fixed charges for those years. We would have needed to generate additional earnings from continuing operations of $6.3 million, $39.5 million, $48.6 million, and $18.6 million for the six months ended June 30, 2017, and the years ended December 31, 2016, 2015, and 2014, respectively, to acheive a coverage ratio of 1:1.

 

(b)For the respective periods presented there were no preferred dividends and, therefore, the amounts required to achieve a 1:1 ratio of earnings to combined fixed charges and preferred dividends are the same as set forth in note (a) above.

 52

 

SELECTED FINANCIAL INFORMATION

You should read the following summary financial and operating data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” our unaudited pro forma consolidated financial statements and related notes and the historical consolidated financial statements and related notes included elsewhere in this prospectus.

The summary unaudited historical condensed consolidated balance sheet information on June 30, 2017 and 2016 and the statement of operations data for the six months ended June 30, 2017 and June 30, 2016 have been derived from our financial statements included elsewhere in this prospectus. The selected historical consolidated balance sheet information as of December 31, 2016 and 2015, and the historical consolidated statement of operations data for the years ended December 31, 2016 and 2015 have been derived from the company’s consolidated financial statements, which were audited by Marcum LLP, our independent registered public accounting firm, and are included elsewhere in this prospectus. The following tables do not include the unaudited pro forma financial information included elsewhere in this prospectus.

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(In thousands)  As of June 30,   As of December 31, 
   Historical Consolidated   Historical Consolidated 
   2017   2016   2016   2015 
   (Unaudited)         
Assets                
Rental Property   $139,326   $138,924   $139,086   $138,236 
   Less Accumulated Depreciation    (19,816)   (12,261)   (16,027)   (8,522)
   Real estate properties, net    119,510    126,663    123,059    129,714 
                     
Investments in real estate joint ventures        2,927        2,987 
Cash    28,981    1,310    941    698 
Restricted cash    687    770    6,353    757 
Cash escrows/ reserves    3,221        2,907     
Deferred lease intangibles, net    8,680    12,592    10,533    14,773 
Other assets    2,733    1,213    1,953    1,122 
Total assets   $163,812   $145,475   $145,746   $150,051 
                     
Liabilities and stockholders' equity                    
Liabilities:                    
Senior debt, net   $116,402   $202,134   $116,053   $196,800 
Mezzanine debt to investor, net    29,319        29,262     
Deferred interest    200    20,938    207    8,081 
Secured revolving line of credit                
Accounts payable, accrued expenses and other liabilities    5,363    7,244    5,352    4,268 
Deferred lease intangibles, net    1,150    1,674    1,405    1,941 
Redeemable Preferred member interest            31,043     
Total Liabilities   $152,434   $231,990   $183,322   $211,090 
                     
Stockholders' equity (deficit):                    
Preferred stock,  $0.01 par value per share; 100,000,000 shares authorized; none issued and outstanding                 
Common stock, $0.01 par value per share: 900,000,000 shares authorized; 331,965 shares issued and outstanding as of 12/31/15 and 12/31/16; and 3,652,886  and 3,812,886 outstanding as of 6/30/17 historical and pro forma respectively    37    3    3    3 
Additional paid in capital    123,448    12,477    12,477    12,477 
Accumulated deficit    (112,107)   (98,995)   (110,506)   (73,519)
Total Plymouth Industrial REIT stockholders' equity (deficit)    11,378    (86,515)   (98,026)   (61,039)
Non-controlling interest   $   $   $60,450   $ 
Total equity (deficit)    11,378    (86,515)   (37,576)   (61,039)
Total liabilities and equity   $163,812   $145,475   $145,746   $150,051 

 

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(In thousands)  Six Months Ended June 30,   Year Ended December 31, 
   Historical Consolidated   Historical Consolidated 
   2017   2016   2016   2015 
   (Unaudited)         
Rental revenue   $9,964   $9,680   $19,658   $19,290 
Equity investment income (loss)    1    5    230    (85)
Total revenues    9,965    9,685    19,888    19,205 
                     
Operating expenses:                    
Property   2,925    2,868    5,927    5,751 
Depreciation and amortization    5,557    5,911    11,674    12,136 
General and administrative    1,933    1,721    3,742    4,688 
Acquisition costs    82    33        1,061 
Offering costs                938 
Total operating expenses    10,497    10,533    21,343    24,574 
                     
Operating income (loss)    (532)   (848)   (1,455)   (5,369)
                     
Other income (expense):                    
Gain on disposition of equity investment            2,846    1,380 
Interest expense    (5,743)   (24,627)   (40,679)   (44,676)
Total other income (expense)    (5,743)   (24,627)   (37,833)   (43,296)
Net (loss)    (6,275)   (25,475)  $(39,288)  $(48,665)
Net loss attributable to non-controlling interest    (4,674)       (2,301)    
Net loss attributable to Plymouth Industrial REIT, Inc. common stockholders   $(1,601)  $(25,475)  $(36,987)  $(48,665)

 

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(In thousands)  Six Months Ended June 30,   Year Ended December 31, 
   Historical Consolidated   Historical Consolidated 
   2017   2016   2016   2015 
   (Unaudited)         
Total in service Properties    20    20    20    20 
NOI: (1)                    
                     
Net loss   $(6,275)  $(25,475)  $(39,288)  $(48,665)
General and administrative    1,933    1,721    3,742    4,688 
Acquisition expense    82    33        1,061 
Interest expense    5,743    24,627    40,679    44,676 
Depreciation and amortization    5,557    5,911    11,674    12,136 
Offering costs                938 
Other (income) expense    (1)   (5)   (3,076)   (1,295)
                     
NOI   $7,039   $6,812   $13,731   $13,539 
                     
EBITDA: (1)                    
                     
Net loss   $(6,275)  $(25,475)  $(39,288)  $(48,665)
Depreciation and amortization    5,557    5,911    11,674    12,136 
Interest expense    5,743    24,627    40,679    44,676 
                     
EBITDA   $5,025   $5,063   $13,065   $8,147 
                     
FFO: (1)                    
                     
Net loss   $(6,275)  $(25,475)  $(39,288)  $(48,665)
Depreciation and amortization    5,557    5,911    11,674    12,136 
Gain on disposition of equity investment        (3)   (2,846)   (1,380)
Adjustment for unconsolidated joint ventures        241    452    1,363 
                     
FFO   $(718)  $(19,326)  $(30,008)  $(36,546)
                     
AFFO: (1)                    
                     
FFO   $(718)  $(19,326)  $(30,008)  $(36,546)
Amortization of above or accretion of below market lease rents    (166)   (178)   (355)   (351)
Acquisition costs    82    33        1,061 
Offering Costs                938 
Stock based compensation                 
Distributions        61    337    2,030 
Straight line rent    (76)   (158)   (287)   (404)
                     
AFFO   $(878)  $(19,568)  $(30,313)  $(33,272)

____________________

  (1) For definitions and reconciliations of net income to NOI, EBITDA, FFO and AFFO, as well as a statement disclosing the reasons why our management believes that NOI, EBITDA, FFO and AFFO provide useful information to investors as to the financial performance of our company, and, to the extent material, any additional purposes for which our management uses NOI, EBITDA, FFO and AFFO, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

 56

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those expressed or implied in forward-looking statements for many reasons, including the risks described in “Risk Factors” and elsewhere in this prospectus. You should read the following discussion together with the “Cautionary Note Regarding Forward-Looking Statements” and the pro forma and consolidated historical financial statements and related notes included elsewhere in this prospectus.

The following discussion and analysis is based on, and should be read in conjunction with, our unaudited financial statement and notes thereto as of June 30, 2017 and audited historical financial statements and related notes thereto as of and for the years ended December 31, 2016 and 2015. We also present in this prospectus pro forma financial information for our company reflecting the Company Portfolio, on a consolidated basis after giving effect to the Indianapolis and South Bend Recent Acquisitions (and the related borrowings under the KeyBank Credit Agreement), as of and for the six months ended June 30, 2017 and for the year ended December 31, 2016. These effects are reflected in the unaudited pro forma consolidated financial statements located elsewhere in this prospectus.

Overview

We are a full service, vertically integrated, self-administered and self-managed REIT focused on the acquisition, ownership and management of single- and multi-tenant Class B industrial properties, including distribution centers, warehouses and light industrial properties. The Company Portfolio consists of 29 industrial buildings located in eight states with an aggregate of approximately 5.8 million rentable square feet leased to 55 different tenants.

Our strategy is to invest in single- and multi-tenant Class B industrial properties located primarily in secondary markets across the U.S.; however, we may make opportunistic acquisitions of Class A industrial properties or industrial properties located in primary markets. We seek to generate attractive risk-adjusted returns for our stockholders through a combination of dividends and capital appreciation.

Factors That May Influence Future Results of Operations

Business and Strategy

Our core investment strategy is to acquire primarily Class B industrial properties predominantly in secondary markets across the U.S. We expect to acquire these properties through third-party purchases and structured sale-leasebacks where we believe we can achieve high initial yields and strong ongoing cash-on-cash returns. In addition, we may make opportunistic acquisitions of Class A industrial properties or industrial properties in primary markets that offer similar return characteristics.

Our target markets are comprised primarily of secondary markets because we believe these markets tend to have less occupancy and rental rate volatility and less buyer competition relative to primary markets. We also believe that the systematic aggregation of such properties will result in a diversified portfolio that will produce sustainable risk-adjusted returns. Future results of operations may be affected, either positively or negatively, by our ability to effectively execute this strategy.

We also intend to pursue joint venture arrangements with institutional partners which could provide management fee income as well as residual profit-sharing income. Such joint ventures may involve investing in industrial assets that would be characterized as opportunistic or value-add investments. These may involve development or re-development strategies that may require significant up-front capital expenditures, lengthy lease-up periods and result in inconsistent cash flows. As such, these properties’ risk profiles and return metrics would likely differ from the non-joint venture properties that we target for acquisition.

Rental Revenue and Tenant Recoveries

We receive income primarily from rental revenue from our properties. The amount of rental revenue generated by the Company Portfolio depends principally on the occupancy levels and lease rates at our properties, our ability to lease currently available space and space that becomes available as a result of lease expirations and on the rental rates at our properties.

Occupancy Rates.    As of the date of the prospectus, the Company Portfolio was approximately 96.5% occupied. Our occupancy rate is impacted by general market conditions in the geographic areas which our properties are located and the financial condition of tenants in our target markets.

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Rental Rates.    We believe that rental rates for Class B industrial properties in our markets are recovering from the 2008 financial crisis and subsequent economic recession, and accordingly we expect increases in lease rates upon renewal of upcoming lease expirations as market conditions continue to improve. Additional detailed market information is set out elsewhere in this prospectus. See “Market Overview.”

Future economic downturns affecting our markets could impair our ability to renew or re-lease space, and adverse developments that affect the ability of our tenants to fulfill their lease obligations, such as tenant bankruptcies, could adversely affect our ability to maintain or increase occupancy or rental rates at our properties. Adverse developments or trends in one or more of these factors could adversely affect our rental revenue in future periods.

Scheduled Lease Expirations

Our ability to re-lease space subject to expiring leases will impact our results of operations and will be affected by economic and competitive conditions in the markets in which we operate and by the desirability of our individual properties. In the year ending December 31, 2017 through the year ending December 31, 2019, an aggregate of 51.2% of the annualized base rent leases in the Company Portfolio are scheduled to expire, which we believe will provide us an opportunity to adjust below market rates as market conditions continue to improve.

We have historically been able to quickly and efficiently lease vacant space in the Company Portfolio.  During 2015, 2016 and the first quarter of 2017, leases for space totaling 417,102 square feet (10.4% of the Company Portfolio) either was subject to renewal or expired. All of the expired space was renewed and an additional 22,701 square feet was leased pursuant to long-term leases with new tenants. At June 30, 2017, the vacancy rate of the Company Portfolio was 1.6%.

Address Metro Status Tenant Start 
Date
Square 
Feet 
Expired
Square Feet 
Leased/ 
Renewed
Portfolio 
Vacancy
Portfolio 
Percent 
Vacant
6075 E Shelby Memphis Renewal Dollar Tree 1/1/2016 20,400 20,400 84,894 2.1%
1755 Enterprise Cleveland Renewal Technoform 3/1/2016 53,970 53,970 84,894 2.1%
4115 Thunderbird Cincinnati Renewal Worldpac 4/1/2016 70,000 70,000 84,894 2.1%
6005 E Shelby Memphis New Impact Innovations 6/9/2016   41,040 43,854 1.1%
6005 E Shelby Memphis Renewal Libra Resources 8/1/2016 13,680 13,680 43,854 1.1%
6075 E Shelby Memphis New Impact Innovations 9/13/2016   21,153 22,701 0.6%
8273 Green Meadows Columbus New Signcaster Corporation 11/1/2016   19,473 3,228 0.1%
6005 E Shelby Memphis Expired Impact Innovations 11/30/2016 41,040   44,268 1.1%
6075 E Shelby Memphis Expired Impact Innovations 11/30/2016 21,153   65,421 1.6%
6045 E Shelby Memphis Renewal RR Donnelly 10/30/2016 11,352 11,352 65,421 1.6%
6075 E Shelby Memphis Renewal Dollar Tree 1/1/2017 20,400 20,400 65,421 1.6%
2401 Commerce Chicago Renewal VW Credit 1/1/2017 18,309 18,309 65,421 1.6%
3490 Stern Chicago Renewal Colony Displays 1/1/2017 146,798 146,798 65,421 1.6%
4 East Stow Rd Philadelphia New Telissa R. Lindsey 2/18/2017   3,228 62,193 1.6%
Total/Weighted Average         417,102 439,803   1.6%

During 2016 and the first six months of 2017, we negotiated 11 leases with durations in excess of six months encompassing 418,680 square feet (excluding one property consisting of an aggregate of 21,153 square feet, for which the lease terms did not exceed six months). Renewed leases made up 84.8% of the square footage covered by the 114 leases, and the rent under the renewed leases increased by an average of 6.3% over the prior leases. Leases to new tenants comprised the other 15.2% of the square footage covered by the 11 leases, and the rent under new leases increased by an average of 83.2% over the prior leases. The rental rates under all leases entered into in 2016 and the first six months of 2017 increased by an average of 12.2% over the prior leases.

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The table below reflects certain data about our new and renewed leases with terms of greater than six months executed in 2015, 2016 and the six months ended June 30, 2017.

Year Type Square 
Footage
% of Total
Square
Footage
Expiring
Rent
New 
Rent

Change
Tenant 
Improvements
$/SF/YR
Lease
Commissions
$/SF/YR
                 
2016 Renewals 169,402 73.7% $    3.69 $  3.83 3.8% $         0.29 $           0.13
  New Leases 60,513 26.3% $    1.90 $  2.98 57.1% $         0.34 $           0.26
  Total 229,915 100.0% $    3.22 $  3.61 12.1% $         0.31 $           0.16
                 
2017 Renewals 118,507 98.3% $    4.01 $   4.34 8.4% $          0.09 $          0.13
  New Leases 3,228 7.7% $  9.29 NA $         0.55 $           0.68
  Total 188,735 100.0% $   2.95 $  55.65 91.1% $         0.21 $           0.28
                 
Total Renewals 354,909 84.8% $   3.89 $  4.10 6.3% $         0.19 $           0.13
  New Leases 63,741 15.2% $    1.80 $  3.30 83.2% $         0.35 $           0.28
  Total 418,650 100.0% $    3.55 $  3.98 12.2% $         0.21 $           0.15

Conditions in Our Markets

The Company Portfolio is located primarily in various secondary markets in the eastern half of the U.S. Positive or negative changes in economic or other conditions, adverse weather conditions and natural disasters in these markets are likely to affect our overall performance.

Rental Expenses

Our rental expenses generally consist of utilities, real estate taxes, insurance and site repair and maintenance costs. For the majority of the Company Portfolio, rental expenses are controlled, in part, by either the triple net provisions or modified gross lease expense reimbursement provisions in tenant leases. However, the terms of our tenant leases vary and in some instances the leases may provide that we are responsible for certain rental expenses. Accordingly, our overall financial results will be impacted by the extent to which we are able to pass-through rental expenses to our tenants.

General and Administrative Expenses

As a newly public company, we expect to incur increased general and administrative expenses, including legal, accounting and other expenses related to corporate governance, public reporting and compliance with various provisions of the Sarbanes-Oxley Act. In addition, we anticipate that our staffing levels will increase slightly from nine employees as of the date of this prospectus to between 10 and 12 employees during the 12 to 24 months following the closing of this offering and, as a result, our general and administrative expenses will increase further.

Critical Accounting Policies

Our discussion and analysis of our company’s historical financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses in the reporting period. Actual amounts may differ from these estimates and assumptions.

We believe our most critical accounting policies are the regular evaluation of whether the value of a real estate asset has been impaired and accounting for joint ventures. Each of these items involves estimates that require management to make judgments that are subjective in nature. We rely on our experience, we collect historical data and current market data, and we analyze these assumptions in order to arrive at what we believe to be reasonable estimates. Under different conditions or assumptions, materially different amounts could be reported related to the accounting policies described below. In addition, application of these accounting policies involves the exercise of judgments on the use of assumptions as to future uncertainties and, as a result, actual results could materially differ from these estimates.

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Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes significant estimates regarding impairments. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. Management adjusts such estimates when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from those estimates and assumptions.

Going Concern

In accordance with ASU 2014-15, Presentation of Financial Statements – Going Concern (“ASU 2014-15”), we have evaluated our ability to continue as a going concern. Our financial statements for the years ended December 31, 2016 and 2015 included in the prospectus dated June 8, 2017, included a statement indicating substantial doubt with regard to our ability to continue as a going concern. The net proceeds of our initial listed public offering in June 2017 have fully addressed our working capital needs. Our condensed consolidated financial statements have been prepared on a basis which assumes that we will continue as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business.

Cash

We maintain our cash in bank deposit accounts, which at times may exceed federally insured limits. As of June 30, 2017, we had not realized any losses in such cash accounts and believe that we are not exposed to any significant risk of loss.

Income Taxes

We elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2012 and we believe that our organization and method of operation enable us to continue to meet the requirements for qualification and taxation as a REIT. We had no taxable income prior to electing REIT status. To maintain our qualification as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax on income that we distribute as dividends to our stockholders. If we fail to maintain our qualification as a REIT in any tax year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless we are able to obtain relief under certain statutory provisions. Such an event could materially and adversely affect our net income and net cash available for distribution to stockholders.

Investments in Real Estate

We generally acquire individual properties, and, in some instances, a portfolio of properties. When we acquire individual operating properties with the intention to hold the investment for the long-term, we allocate the purchase price to the various components of the acquisition based upon the fair value of each component. The components typically include land, building, debt, intangible assets related to above and below market leases, value of costs to obtain tenants, and other assumed assets and liabilities. We consider Level 3 inputs such as the replacement cost of such assets, appraisals, property condition reports, comparable market rental data and other related information in determining the fair value of the tangible assets. The recorded fair value of intangible lease assets or liabilities includes Level 3 inputs including the value associated with leasing commissions, legal and other costs, as well as the estimated period necessary to lease such property and lease commencement. An intangible asset or liability resulting from in-place leases that are above or below the market rental rates are valued based upon our estimates of prevailing market rates for similar leases. Intangible lease assets or liabilities are amortized over the estimated, reasonably assured lease term of the remaining in-place leases as an adjustment to “Rental revenues” or “Real estate related depreciation and amortization” depending on the nature of the intangible. The difference between the fair value and the face value of debt assumed in connection with an acquisition is recorded as a premium or discount and amortized to “Interest expense” over the life of the debt assumed. The valuation of assumed liabilities is based on our estimate of the current market rates for similar liabilities in effect at the acquisition date.

In an acquisition of multiple properties, we must also allocate the purchase price among the properties. The allocation of the purchase price is based on our assessment of estimated fair value and often is based upon the expected future cash flows of the property and various characteristics of the markets where the property is located. The fair value may also include an enterprise value premium that we estimate a third party would be willing to pay for a portfolio of properties. The initial allocation of the purchase price is based on management’s preliminary assessment, which may differ when final information becomes available. Subsequent adjustments made to the initial purchase price allocation are made within the allocation period, which typically does not exceed one year.

Capitalization of Costs and Depreciation and Amortization

We capitalize costs incurred in developing, renovating, rehabilitating and improving real estate assets as part of the investment basis. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred. During the land development and construction periods, we capitalize interest costs, insurance, real estate taxes and certain general and administrative costs of the personnel performing development, renovations and rehabilitation if such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. Capitalized costs are included in the investment basis of real estate assets. We also capitalize costs incurred to successfully originate a lease that result directly from, and are essential to, the acquisition of that lease. Leasing costs that meet the requirements for capitalization are presented as a component of other assets.

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Real estate, including land, building and land improvements, tenant improvements, and furniture, fixtures and equipment, leasing costs and intangible lease assets and liabilities are stated at historical cost less accumulated depreciation and amortization, unless circumstances indicate that the cost cannot be recovered, in which case, the carrying value of the property is reduced to estimated fair value as discussed below in our policy with regards to impairment of long-lived assets. We estimate the depreciable portion of our real estate assets and related useful lives in order to record depreciation expense. Our ability to estimate the depreciable portions of our real estate assets and useful lives is critical to the determination of the appropriate amount of depreciation and amortization expense recorded and the carrying value of the underlying assets. Any change to the assets to be depreciated and the estimated depreciable lives of these assets would have an impact on the depreciation expense recognized.

As discussed above in investments in real estate, in connection with property acquisitions, we may acquire leases with rental rates above or below the market rental rates. Such differences are recorded as an intangible lease asset or liability and amortized to “Rental revenues” over the reasonably assured term of the related leases. The unamortized balances of these assets and liabilities associated with the early termination of leases are fully amortized to their respective revenue line items in our consolidated financial statements over the shorter of the expected life of such assets and liabilities or the remaining lease term.

Our estimate of the useful life of our assets is evaluated upon acquisition and when circumstances indicate a change in the useful life, which requires significant judgment regarding the economic obsolescence of tangible and intangible assets.

Impairment of Long-Lived Assets

We assess the carrying values of our respective long-lived assets, including goodwill, whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable.

Recoverability of real estate assets is measured by comparison of the carrying amount of the asset to the estimated future undiscounted cash flows. In order to review our real estate assets for recoverability, we consider current market conditions, as well as our intent with respect to holding or disposing of the asset. Our intent with regard to the underlying assets might change as market conditions change, as well as other factors, especially in the current global economic environment. Fair value is determined through various valuation techniques, including discounted cash flow models, applying a capitalization rate to estimated net operating income of a property and quoted market values and third-party appraisals, where considered necessary. The use of projected future cash flows is based on assumptions that are consistent with our estimates of future expectations and the strategic plan we use to manage our underlying business. If our analysis indicates that the carrying value of the real estate asset is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the real estate property.

Assumptions and estimates used in the recoverability analyses for future cash flows, discount rates and capitalization rates are complex and subjective. Changes in economic and operating conditions or our intent with regard to our investment that occurs subsequent to our impairment analyses could impact these assumptions and result in future impairment of our real estate properties.

Valuation of Receivables

We are subject to tenant defaults and bankruptcies that could affect the collection of outstanding receivables. In order to mitigate these risks, we perform credit reviews and analyses on prospective tenants before significant leases are executed and on existing tenants before properties are acquired. We specifically analyze aged receivables, customer credit-worthiness, historical bad debts and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. As a result of our periodic analysis, we maintain an allowance for estimated losses that may result from the inability of our tenants to make required payments. This estimate requires significant judgment related to the lessees’ ability to fulfill their obligations under the leases. If a tenant is insolvent or files for bankruptcy protection and fails to make contractual payments beyond any allowance, we may recognize additional bad debt expense in future periods equal to the net outstanding balances, which include amounts recognized as straight-line revenue not realizable until future periods.

Consolidation

We consolidate all entities that are wholly owned and those in which we own less than 100% but control, as well as any variable interest entities in which we are the primary beneficiary. We evaluate our ability to control an entity and whether the entity is a variable interest entity and we are the primary beneficiary through consideration of the substantive terms of the arrangement to identify which enterprise has the power to direct the activities of a variable interest entity that most significantly impacts the entity’s economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Investments in entities in which we do not control but over which we have the ability to exercise significant influence over operating and financial policies are presented under the equity method. Investments in entities that we do not control and over which we do not exercise significant influence are carried at the lower of cost or fair value, as appropriate. Our ability to correctly assess our influence and/or control over an entity affects the presentation of these investments in our consolidated financial statements.

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Historical Results of Operations

Six Months Ended June 30, 2017 Compared to June 30, 2016

A discussion of operations for the six months ended June 30, 2017 and 2016 is presented below ($ in thousands).

   Six Months Ended June 30, 
   Historical Consolidated 
   2017   2016 
   (Unaudited) 
Rental revenue   $9,964   $9,680 
Other income    1    5 
Total revenues    9,965    9,685 
           
Operating expenses:          
Property    2,925    2,868 
Depreciation and amortization    5,557    5,911 
General and administrative    1,933    1,721 
Acquisition costs    82    33 
Total operating expenses    10,497    10,533 
           
Operating income (loss)    (532)   (848)
           
Other income (expense):          
Gain on disposition of equity investment    (5,743)   (24,627)
Total other income (expense)    (5,743)   (24,627)
           
Net (loss)    (6,275)   (25,475)
Net loss attributable to non-controlling interest    (4,674)    
Net loss attributable to Plymouth Industrial REIT, Inc. common stockholders   $(1,601)  $(25,475)

Rental Revenue: Rental revenue increased by approximately $284 to $9,964 for the six months ended June 30, 2017 as compared to $9,680 for the six months ended June 30, 2016. The increase was primarily related to increased base rent of $178 and increased real estate taxes and utilities reimbursement of $107.

Property Expenses: Property expenses remained substantially consistent at approximately $2,925 for the six months ended June 30, 2017 as compared to $2,868 for the six months ended June 30, 2016.

Depreciation and Amortization: Depreciation and amortization expense decreased by approximately $354 to approximately $5,557 for the six months ended June 30, 2017 as compared to $5,911 for the six months ended June 30, 2016, primarily due to the lower amortization of deferred lease intangibles of approximately $415 for the six months ended June 30, 2017.

General and Administrative: General and administrative expenses increased approximately $212 to $1,933 for the six months ended June 30, 2017 as compared to $1,721 for the six months ended June 30, 2016. The increase is attributable primarily to accounting and legal expenses related to the Company’s preparation for the Offering and redemption of the redeemable preferred interest in 20 LLC. Accounting costs increased $266 and legal increased $124 offset by a decrease in Directors and Officers insurance of $107.

Acquisition Expenses: Acquisition expenses increased by $49 for the six months ended June 30, 2017. Acquisition expenses represented costs for acquisitions we decide not to pursue.

Interest Expense: Interest expense decreased by approximately $18,884 to $5,743 for the six months ended June 30, 2017 as compared to $24,627 for the six months ended June 30, 2016 due to the refinancing of the Company’s debt through proceeds from the AIG Loan and the Torchlight Mezzanine Loan and the issuance to Torchlight of preferred member interests in Plymouth Industrial 20, or the Preferred Interests, and the extinguishment of our prior senior loan. The components of interest expense for the six months ended June 30, 2017 consisted of interest on senior secured debt of $2,450, mezzanine debt of $2,515, and amortization of deferred financing cost and fees of $407. For more information about our 2016 refinancing transactions, see Note 6 to the unaudited consolidated financial statements for the six months ended June 30, 2017 included elsewhere in this prospectus.

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   Six  Months Ended June 30, 
   2017   2016 
         
Accrued interest payments   $200   $9,179 
           
Make Whole payment at maturity (accretion)        302 
Accretion of financing fees    765     
Default interest        12,555 
Total accretion of interest and deferred interest   $965   $22,036 
Cash interest paid    4,778    2,591 
Total interest expense   $5,743   $24,627 

Other Income: There was no other income for the six months ended June 30, 2017 and 2016.

Year Ended December 31, 2016 Compared to December 31, 2015

A discussion of operations for the years ended December 31, 2016 and 2015 is presented below ($ in thousands).

   Year Ended December 31, 
   Historical Consolidated 
   2016   2015 
         
Rental revenue   $19,658   $19,290 
Equity investment income (loss)    230    (85)
Total revenues    19,888    19,205 
           
Operating expenses:          
Property    5,927    5,751 
Depreciation and amortization    11,674    12,136 
General and administrative    3,742    4,688 
Acquisition costs        1,061 
Offering costs        938 
Total operating expenses    21,343    24,574 
           
Operating income (loss)    (1,455)   (5,369)
           
Other income (expense):          
Gain on disposition of equity investment    2,846    1,380 
Interest expense    (40,679)   (44,676)
Total other income (expense)    (37,833)   (43,296)
           
Net (loss)   $(39,288)  $(48,665)
Net loss attributable to non-controlling interest    (2,301)    
Net loss attributable to Plymouth Industrial REIT, Inc. common stockholders   $(36,987)  $(48,665)

Rental Revenue: Rental revenue increased by approximately $368 to approximately $19,658 for the year ended December 31, 2016 as compared to $19,290 for the year ended December 31, 2015. The increase was primarily from base rent increases of $155 and reimbursement of expenses totaling $333 including increased real estate taxes of $105 and utilities of $70 offset by decreased straight line rent of $120.

Equity Investment Income (Loss): Equity income on our investment in joint venture increased approximately $315 in 2016 to $230 as compared to a loss of $85 in 2015 as a result of increased rental revenue at the property level.

Property Expenses: Property expenses increased by approximately $176 to approximately $5,927 for the year ended December 31, 2016 as compared to $5,751 for the year ended December 31, 2015 primarily due to real estate taxes of $145 and utilities of $65 offset by $34 of other variable expenses.

Depreciation and Amortization: Depreciation and amortization expense decreased by approximately $462 to approximately $11,674 for the year ended December 31, 2016 from $12,136 for the year ended December 31, 2015, due primarily to $478 of lower amortization of deferred lease intangibles to $4,126 for the year ended December 31, 2016 compared to $4,604 for the year ended December 31, 2015.

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General and Administrative: General and administrative expenses decreased approximately $946 to $3,742 for the year ended December 31, 2016 as compared to $4,688 for the year ended December 31, 2015. The decrease is attributable primarily to reduced professional fees of $1,001, and directors’ fees of $420, offset by increases in compensation and related expense of $221 and Company insurance expense of $284.

Acquisition Expenses: There were no acquisition expenses incurred in 2016. Acquisition expenses were approximately $1,061 for the year ended December 31, 2015. Acquisition expenses include costs for acquisitions we decide not to pursue.

Interest Expense: Interest expense decreased by approximately $3,997 to $40,679 for the year ended December 31, 2016 from $44,676 for the year ended December 31, 2015 due to the refinancing of our debt through proceeds from the AIG Loan and the Torchlight Mezzanine Loan, the issuance of the Preferred Interests and the extinguishment of our prior senior loan. The schedule below sets out the components of the interest expense for the years ended December 31 2016 and 2015. For more information about our 2016 refinancing transactions, see Note 6 to our consolidated audited financial statements for the year ended December 31, 2016 included elsewhere in this prospectus.

   Year Ended December 31, 
   2016   2015 
         
Accrued Interest Payments   $14,428   $10,295 
Accretion of Prior Senior Loan Discount    419    12,877 
Make Whole Payment at Maturity (Accretion)        6,429 
Accretion of Financing Fees    113    2,927 
Default Interest    18,730     
Total accretion of interest and deferred interest    33,690    32,528 
Cash Interest Paid    6,989    12,148 
Total interest expense   $40,679   $44,676 

Other Income: Other income represents amounts received in excess of our basis for an equity investment in real estate and the investment liquidated in 2016 and 2015. In 2016, we recognized gain of $2,846 on the disposition of the property held in the joint venture compared to the gain from disposition in 2015 of $1,380.

Liquidity and Capital Resources

We believe that this offering will improve the financial position of the Company through changes in our capital structure. Upon completion of this offering, we expect to have approximately $43.0 million of cash available for future acquisitions and to meet operational needs of the company. We believe our operating cash, together with the net proceeds of this offering, will be sufficient for us to meet our working capital needs and make required payments under the AIG Loan, the Torchlight Mezzanine Loan and the KeyBank Credit Agreement.

We intend to make reserve allocations as necessary to aid our objective of preserving capital for our investors by supporting the maintenance and viability of properties we acquire in the future. If reserves and any other available income become insufficient to cover our operating expenses and liabilities, it may be necessary to obtain additional funds by borrowing, refinancing properties or liquidating our investments.

Our short-term liquidity requirements consist primarily of funds to pay for operating expenses and other expenditures directly associated with our properties, including:

  · property expenses that are not borne by our tenants under our leases;
  · interest expense on outstanding indebtedness;
  · general and administrative expenses; and
  · capital expenditures for tenant improvements and leasing commissions.

In addition, we will require funds for future dividends required to be paid on our Series A Preferred Stock following completion of this offering.

We intend to satisfy our short-term liquidity requirements through our existing cash, cash flow from operating activities and the net proceeds of this offering.

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Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, recurring and non-recurring capital expenditures and scheduled debt maturities. We intend to satisfy our long-term liquidity needs through cash flow from operations, long-term secured and unsecured borrowings, future issuances of equity and debt securities, property dispositions and joint venture transactions, and, in connection with acquisitions of additional properties, the issuance of OP units.

Contractual Commitments—Historical

The following table sets forth our principal obligations and commitments as of June 30, 2017:

Future Minimum Rents

($ in thousands)

Corporate Office     2017     $ 108  
      2018     $ 221  
      2019     $ 225  
      2020     57  

In addition to the contractual obligations set forth in the table above, we have entered into employment agreements with certain of our executive officers. The material terms of the agreements are described under “Executive Compensation—Executive Compensation Arrangements.” We also enter into contracts for maintenance and other services at certain properties from time to time.

Existing Indebtedness

AIG Loan

On October 17, 2016, certain indirect subsidiaries of our operating partnership entered into a senior secured loan agreement with investment entities managed by AIG Asset Management, or the AIG Loan Agreement, which provides for a loan of $120 million, or the AIG Loan, bearing interest at 4.08% per annum, and a seven-year term. As of June 30, 2017, there was $120 million outstanding under the AIG Loan Agreement. The AIG Loan Agreement provides for monthly payments of interest only for the first three years of the term and thereafter monthly principal and interest payments based on a 27-year amortization period. Our operating partnership used the net proceeds of the AIG Loan to partially repay the outstanding principal and accrued interest under our then-existing senior secured loan agreement with Torchlight. As of the date of this prospectus, we are in compliance with all covenants under the AIG Loan Agreement.

The borrowings under the AIG Loan Agreement are secured by first lien mortgages on all of the properties in the Company Portfolio. The obligations under the AIG Loan Agreement are also guaranteed by our company and each of our operating partnership’s wholly-owned subsidiaries.

Torchlight Mezzanine Loan

On October 17, 2016, Plymouth Industrial 20, a subsidiary of our operating partnership, entered into a mezzanine loan agreement, or the Torchlight Mezzanine Loan Agreement, with Torchlight, which provides for a loan of $30 million, or the Torchlight Mezzanine Loan, and a seven-year term. The Torchlight Mezzanine Loan bears interest at 15% per annum, of which 7% percent is paid currently during the first four years of the term and 10% is paid for the remainder of the term. The Torchlight Mezzanine Loan requires Plymouth Industrial 20 to pay a repayment premium equal to the difference between (x) the sum of 150% of the principal being repaid (excluding accrued interest) and (y) the sum of the actual principal amount being repaid and current and accrued interest paid through the date of repayment. This repayment feature operates as a prepayment feature since the difference will be zero at maturity. The borrowings under the Torchlight Mezzanine Loan are secured by, among other things, pledges of the equity interest in Plymouth Industrial 20 and each of its property-owning subsidiaries. The proceeds of the Torchlight Mezzanine Loan were used to partially repay the outstanding principal and accrued interest under our then-existing senior secured loan agreement.

KeyBank Credit Agreement

In August 2017, our operating partnership entered the KeyBank Credit Agreement. The KeyBank Credit Agreement provides us with a $35 million revolving credit facility with an accordion feature that allows the total borrowing capacity under the KeyBank Credit Agreement to be increased up to $75 million, subject to certain conditions. The KeyBank Credit Agreement matures in August 2020 and has one 12-month extension option, subject to certain conditions. Borrowings under the KeyBank Credit Agreement bear interest at either (1) the base rate (determined as the highest of (a) KeyBank’s prime rate, (b) the federal funds rate plus 0.50% and (c) the one month LIBOR rate plus 1.0%) or (2) LIBOR, plus, in either case, a spread between 250 and 300 basis points depending on our total leverage ratio. The KeyBank Credit Agreement is secured by certain assets of our operating partnership and certain of its subsidiaries and the Company has guaranteed the payment of the indebtedness under the KeyBank Credit Agreement. We used approximately $23.8 million in borrowings under the KeyBank Credit Agreement to complete certain of the Recent Acquisitions, all of which remains outstanding as of the date of this prospectus.

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The KeyBank Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, distributions, mergers and acquisitions, dispositions of assets and transactions with affiliates. The covenants limit our use of proceeds to, among other things, funding acquisitions of additional properties, funding capital and construction expenditures, tenant improvements, leasing commissions and property and equipment acquisitions and for general working capital purposes. The KeyBank Credit Agreement also contains financial covenants that require us to maintain a minimum fixed charge coverage ratio of 1.5 to 1.0, a maximum total indebtedness to total asset value of 65% and a minimum net worth of $32,819,000.

In the event of a default, the agent may, and at the request of the requisite number of lenders, shall, declare all obligations under the KeyBank Credit Agreement immediately due and payable, terminate the lenders’ commitments to make loans under the KeyBank Credit Agreement and enforce any and all rights of the lenders or the agent under the KeyBank Credit Agreement and related documents.

Redeemable Preferred Member Interests

On October 17, 2016, and in connection with its refinancing of the Torchlight Mezzanine Loan, we issued Torchlight the Preferred Interests in Plymouth Industrial 20 in exchange for $30.5 million. The Preferred Interests were mandatorily redeemable at their redemption price, as defined below, by us on January 17, 2017. The redemption price of the Preferred Interests was the amount of Torchlight’s unreturned capital contributions a preferred return equal to a cumulative annual return of 7%, plus any additional preferred return, compounded monthly on an amount equal to the unreturned capital contributions until the date that such amount is returned to Torchlight and all other sums advanced and costs and expenses (including legal fees) incurred by Torchlight in connection with such redemption. On March 3, 2017, we and Torchlight entered into a Letter Agreement in which Torchlight agreed (i) to extend the redemption date of the Preferred Interests from January 17, 2017 to May 16, 2017 and subsequently extended to June 16, 2017; (ii) to fix the redemption price of the Preferred Interests at $25.0 million; and (iii) that the Preferred Interests incurred no interest or any additional preferential returns. We paid Torchlight $20.0 million in cash and issued $5.0 million in shares of common stock in a private placement concurrently with the closing of our initial listed public offering. Restricted cash in the amount of $5.6 million, which was included on the consolidated balance sheet at December 31, 2016, had been previously applied to the amount due under the Preferred Interest in February 2017. In addition, pursuant to the Letter Agreement, certain Torchlight participation rights were terminated in consideration for the Company’s issuance of warrants to Torchlight to acquire 250,000 shares of our common stock, at a price of $23.00 per share, issued concurrently with the closing of our initial listed public offering.

Cash Flow

In summary, our cash flows for the six months ended June 30, 2017 and 2016 and for the years ended December 31, 2016 and 2015 are as follows:

($ in thousands)  Six Months Ended June 30,   Year Ended December 31, 
   2017   2016   2016   2015 
Net cash provided by (used in) operating activities   $(1,247)  $1,339   $220   $(4,351)
Net cash provided by (used in) investing activities   $(992)  $(627)  $(1,632)  $1,620 
Net cash provided by (used in) financing activities   $30,279   $(100)  $1,655   $(1,545)

Operating Activities: Net cash used in operating activities during the six months ended June 30, 2017 increased approximately $2,586 compared to the six months ended June 30, 2016 primarily due to the refinancing of the Company’s debt through the AIG Loan, the Torchlight Mezzanine Loan and the Preferred Interests and extinguishment of our prior senior loan, resulting in reduced interest expense and deferred interest.

Investing Activities: Net cash used in investing activities during the six months ended June 30, 2017 increased approximately $365 compared to the six months ended June 30, 2016 primarily due to increased cash held in escrow of $752 offset by reduced real estate improvements of $240.

Financing Activities: Net cash provided by financing activities increased approximately $30,379 due to our initial listed public offering net of offering costs, partially offset by the redemption of Interest.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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Interest Rate Risk

ASC 815, Derivatives and Hedging (formerly known as SFAS No. 133, Accounting for Derivative Instruments and hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities), requires us to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value and the changes in fair value must be reflected as income or expense. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income, which is a component of stockholders equity. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings.

Non-GAAP Financial Measures

In this prospectus, we disclose NOI, EBITDA, FFO and AFFO, each of which meet the definition of “non-GAAP financial measure” set forth in Item 10(e) of Regulation S-K promulgated by the SEC. As a result we are required to include in this prospectus a statement of why management believes that presentation of these measures provides useful information to investors.

None of NOI, EBITDA, FFO or AFFO should be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, and we believe that to understand our performance further NOI, EBITDA, FFO, and AFFO should be compared with our reported net income or net loss and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements.

NOI

We consider net operating income, or NOI, to be an appropriate supplemental measure to net income because it helps both investors and management understand the core operations of our properties. We define NOI as total revenue (including rental revenue, tenant reimbursements, management, leasing and development services revenue and other income) less property-level operating expenses including allocated overhead. NOI excludes depreciation and amortization, general and administrative expenses, impairments, gain/loss on sale of real estate, interest expense, and other non-operating items.

The following is a reconciliation from historical reported net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to NOI:

(In thousands)  Six Months Ended June 30,   Year Ended December 31, 
   Historical Consolidated   Historical Consolidated 
   2017   2016   2016   2015 
   (Unaudited)         
                 
Net loss   $(6,275)  $(25,475)  $(39,288)  $(48,665)
General and administrative    1,933    1,721    3,742    4,688 
Acquisition expense    82    33        1,061 
Interest expense    5,743    24,627    40,679    44,676 
Depreciation and amortization    5,557    5,911    11,674    12,136 
Offering costs                938 
Other (income) expense    (1)   (5)   (3,076)   (1,295)
NOI   $7,039   $6,812   $13,731   $13,539 

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EBITDA

We believe that earnings before interest, taxes, depreciation and amortization, or EBITDA, is helpful to investors as a supplemental measure of our operating performance as a real estate company because it is a direct measure of the actual operating results of our industrial properties. We also use this measure in ratios to compare our performance to that of our industry peers. The following table sets forth a reconciliation of our historical EBITDA for the periods presented.

(In thousands)   Six Months Ended June 30,     Year Ended December 31,  
    Historical Consolidated     Historical Consolidated  
    2017     2016     2016     2015  
    (Unaudited)              
                         
Net loss   $ (6,275 )   $ (25,475 )   $ (39,288 )   $ (48,665 )
Depreciation and amortization     5,557       5,911       11,674       12,136  
Interest expense     5,743       24,627       40,679       44,676  
EBITDA   $ 5,025     $ 5,063     $ 13,065     $ 8,147  

FFO

Funds from operations, or FFO, is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance. We consider FFO to be an appropriate supplemental measure of our operating performance as it is based on a net income analysis of property portfolio performance that excludes non-cash items such as depreciation. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. We define FFO, consistent with the National Association of Real Estate Investment Trusts, or NAREIT, definition, as net income, computed in accordance with GAAP, excluding gains (or losses) from sales of property, depreciation and amortization of real estate assets, impairment losses and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis. Other equity REITs may not calculate FFO in accordance with the NAREIT definition as we do, and, accordingly, our FFO may not be comparable to such other REITs’ FFO. FFO should not be used as a measure of our liquidity, and is not indicative of funds available for our cash needs, including our ability to pay dividends.

The following table sets forth a reconciliation of our historical net loss to FFO for the periods presented:

(In thousands)   Six Months Ended June 30,     Year Ended December 31,  
    Historical Consolidated     Historical Consolidated  
    2017     2016     2016     2015  
    (Unaudited)              
                         
Net loss   $ (6,275 )   $ (25,475 )   $ (39,288 )   $ (48,665 )
Depreciation and amortization     5,557       5,911       11,674       12,136  
Gain on disposition of equity investment           (3     (2,846 )     (1,380 )
Adjustment for unconsolidated joint ventures           241       452       1,363  
FFO   $ (718 )   $ (19,326 )   $ (30,008 )   $ (36,546 )

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AFFO

Adjusted funds from operation, or AFFO, is presented in addition to FFO calculated in accordance the standards set forth by NAREIT. AFFO is defined as FFO, excluding acquisition and transaction related costs as well as certain other costs that we consider to be non-recurring. The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to investors. In evaluating investments in real estate, we differentiate the costs to acquire the investment from the operations derived from the investment. By excluding expensed acquisition and transaction related costs as well as other non-recurring costs, we believe AFFO provides a useful supplemental measure of our operating performance because it provides a consistent comparison of our operating performance across time periods that is comparable for each type of real estate investment and is consistent with management’s analysis of the operating performance of our properties.

AFFO further adjusts FFO for certain other non-cash items, including the amortization or accretion of above or below market rents included in revenues, straight line rent adjustments, impairment losses and non-cash equity compensation. As with FFO, our reported AFFO may not be comparable to other REITs’ AFFO, should not be used as a measure of our liquidity, and is not indicative of our funds available for our cash needs, including our ability to pay dividends.

The following table sets forth a reconciliation of our historical FFO to AFFO.

(In thousands)   Six Months Ended June 30,     Year Ended December 31,  
    Historical Consolidated     Historical Consolidated  
    2017     2016     2016     2015  
    (Unaudited)              
                         
FFO   $ (718 )   $ (19,326 )   $ (30,008 )   $ (36,546 )
Amortization of above or accretion of below market lease rents     (166 )     (178 )     (355 )     (351 )
Acquisition costs     82       33             1,061  
Offering Costs                       938  
Stock based compensation                        
Distributions           61       337       2,030  
Straight line rent     (76 )     (158 )     (287 )     (404 )
AFFO   $ (878 )   $ (19,568 )   $ (30,313 )   $ (33,272 )

Inflation

The majority of our leases are either triple net or provide for tenant reimbursement for costs related to real estate taxes and operating expenses. In addition, most of the leases provide for fixed rent increases. We believe that inflationary increases may be at least partially offset by the contractual rent increases and tenant payment of taxes and expenses described above. We do not believe that inflation has had a material impact on our historical financial position or results of operations.

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The new standard will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. Earlier application is permitted only for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.  We are in the process of evaluating the impact of this pronouncement on its consolidation financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (“ASU 2014-15”), which requires a company to evaluate the existence of conditions or events that raise substantial doubt about its ability to continue as a going concern within one year of the issuance date of its financial statements.  The standard is effective for interim and annual periods ending after December 15, 2016 with early adoption permitted. We have evaluated the impact of ASU 2014-15 and have included the appropriate disclosures in the notes to the consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810) (“ASU 2015-02”), to address financial reporting considerations for the evaluation as to the requirement to consolidate certain legal entities. ASU 2015-02 is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2015.  We have evaluated the impact of ASU 2015-02 and has concluded that it has no effect on the consolidated financial statements.

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In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted. We are currently assessing the potential impact that the adoption of ASU 2016-01 will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which requires a lessee to recognize assets and liabilities on the balance sheet for operating leases and changes many key definitions, including the definition of a lease. The update includes a short-term lease exception for leases with a term of 12 months or less, in which a lessee can make an accounting policy election not to recognize lease assets and lease liabilities. For lessees, the recognition, measurement, and presentation of expenses and cash flows arising from a lease have not significantly changed from previous U.S. GAAP. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply as well as transition guidance specific to nonstandard leasing transactions. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We are currently evaluating the potential impact that the adoption of ASU 2016-02 may have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation – Improvements to Employee Share-Based Payment Accounting, (“ASU 2016-09”), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and policy elections on the impact for forfeitures. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 and interim periods within those annual periods.  We are in the process of evaluating the impact of ASU 2016-09 on its financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). The ASU requires an entity to explain the changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents on the statement of cash flows and to provide a reconciliation of the totals in that statement to the related captions in the balance sheet when the cash, cash equivalents, restricted cash, and restricted cash equivalents are presented in more than one line item on the balance sheet. This ASU is effective for annual and interim periods beginning after December 15, 2017, and is required to be adopted using a retrospective approach, with early adoption permitted. We are currently evaluating the potential impact that the adoption of ASU 2016-18 may have on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. However, we are choosing to “opt out” of such extended transition period and, as a result, we will comply with any such new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

Quantitative and Qualitative Disclosure About Market Risk

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. In the future, we may use derivative financial instruments to manage, or hedge, interest rate risks related to our borrowings, primarily through interest rate swaps.

An interest rate swap is a contractual agreement entered into by two counterparties under which each agrees to make periodic payments to the other for an agreed period of time based on a notional amount of principal. Under the most common form of interest rate swap, known from our perspective as a floating-to-fixed interest rate swap, a series of floating, or variable, rate payments on a notional amount of principal is exchanged for a series of fixed interest rate payments on such notional amount.

No assurance can be given that any future hedging activities by us will have the desired beneficial effect on our results of operations or financial condition.

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MARKET OVERVIEW

Market Opportunity

A key component of our business strategy is to tap into forecasted U.S. economic growth by investing in industrial real estate that we believe will benefit from rental growth and increased tenant demand. We believe that in some cases there has already been significant growth and capitalization rate compression in primary markets in the Class A industrial sector, but that there still exists an opportunity to take advantage of capitalization rate compression, favorable pricing, limited supply and competition in secondary growth markets and in Class B properties. While we will focus on the acquisition of Class B industrial properties in secondary markets, we may also make opportunistic acquisitions of Class A industrial properties and industrial properties in primary markets.

Our acquisition pipeline focuses on a select group of target markets, including, among others, Atlanta, Chicago, Cincinnati, Columbus and Memphis, which we believe possess certain characteristics that we believe are beneficial to industrial real estate investment. These characteristic include, but are not limited to, employment growth, recent and forecasted rent growth, a shortage of industrial development, and falling vacancy rates. We believe that these characteristics will allow us to increase rental rates, increase occupancy and drive value.

U.S. Economic Trends

We believe that growth in U.S. gross domestic product, or U.S. GDP, is a key driver of performance for industrial real estate. Coupled with solid industry fundamentals and limited new supply of suitable industrial real estate in our target markets, we believe that current market conditions make investments in Class B industrial real estate in secondary markets particularly attractive.

U.S. Economic Outlook Through 2027

According to forecasts by the CBO, inflation-adjusted U.S. GDP grew by 1.6% in 2016 and is expected to grow 2.1% in 2017, 2.2% in 2018, and 1.6% in 2019. The CBO expects that these increases in U.S. GDP will spur businesses to maintain and/or grow hiring rates, which will continue to push down the unemployment rate and raise the rate of participation in the labor force. In particular, the CBO projects that the unemployment rate will maintain a range of 4.5% to 5.0% over the next 11 years. Overall, the CBO anticipates that over the next decade, inflation-adjusted U.S. GDP will increase at an average annual pace of 1.9%. We expect that increased employment will lead to increased consumer spending, further enhancing the demand for warehouse space, particularly in an e-commerce retail environment.

Key Drivers of Industrial Real Estate Market: Trade, Manufacturing/Production, and Consumer Consumption

In addition to our belief in the correlation between U.S. GDP growth and U.S. industrial real estate performance, we believe that industrial real estate fundamentals in our target markets will be favorably impacted by observable macroeconomic factors including increased rates related to international trade, manufacturing production and consumer consumption. These key factors experienced declines during the recent recession but have experienced positive growth since 2011 and we believe the continued growth related to these three key drivers will increase demand for and enhance the value of U.S. industrial real estate.

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Industrial Trade

Industrial trade is one of the most important drivers of industrial real estate demand as import and export volume greatly determine the amount of space that is needed in order to store goods. Since the recession of 2008 - 2010, exports have been one of the key drivers of the recovery in trade, with export levels up now more than 19.9% from pre-recession levels as illustrated in the graph below. While import rates have not grown as quickly as export rates since the recession, import rates (excluding oil) have risen 6.4% over pre-recession levels, which have resulted in further increased demand for industrial real estate space. We believe that this recovery to import and export rates should continue during 2017, which should help drive demand for industrial space.

US Imports & Exports 
Figure 1 (Source: US Department of Commerce — Bureau of Economic Analysis)

Manufacturing and Production

We believe that manufacturing and production are key components of industrial real estate performance as the level of goods that are manufactured and produced has a positive correlation with the amount of space needed to store such goods. The productivity of U.S. mines and factories, as measured by the industrial production index, picked up pace in 2013 and has maintained its momentum to date. Due in large part to the surge in domestic energy production, the U.S. is enjoying lower energy costs, which, combined with more competitive labor costs, should allow industrial production to continue to expand in 2017.

Industrial Production Index 
Figure 2 (Source: US Federal Reserve)

In 2015, the U.S. industrial capacity utilization rate stood just above its historical average, with some sectors running well above their long-run averages. We believe that this suggests that more investment in industrial capacity will be needed for industrial production to continue growing The CBO is forecasting that business investment will grow by about 2.0% annually over the next 10 years. Likewise, the CBO also forecasts total output to grow closer to 2.0% per year rather than the 1.4% increase realized between 2008 and 2016.

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Consumer Consumption

Consumer consumption, which accounts for two-thirds of U.S. GDP, declined during the recession, as high unemployment and stagnating wages forced people to cut back on non-essential spending. However, since 2009, real consumer spending has grown at an annual rate of 2.3%.

Consumer Spending 
Figure 3 (Source: US Department of Commerce — Bureau of Economic Analysis)

Industrial Real Estate Fundamentals

Overview

According to CBRE, industrial real estate demand in Q1 2017 remains strong though net absorption is down from prior quarters. In many of our target markets vacancy rates are steadily dropping, construction is continuing to pick up and rent growth remains healthy. The industrial real estate market has seen 29 consecutive quarters of positive demand. With construction starts being held in check and strong demand drivers to power absorption, industrial fundamentals will continue to strengthen. We believe that, as a result of the lack of new construction and overall demand for industrial properties in many U.S. markets, vacancy rates will continue to fall until rent growth increases to a point where developers can justify undergoing more speculative projects. The following graph illustrates this on an historical basis.

US Industrial Supply 
Figure 4 (Source: CBRE)

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This belief aligns with REIS’ data and projections on occupancy and effective rental forecasts for both the 6.4 billion square foot warehouse/distribution and 1.2 billion square foot U.S. Flex/R&D markets, which, as illustrated in the two graphs below, show an increase in effective rents since 2011 and a declining vacancy rate through 2020.

US Warehouse DIst 2q17  US Flex R&D 2Q17 
Figure 5 (Source: REIS) Figure 6 (Source: REIS)

In the longer term, industrial real estate fundamentals are expected to continue to be strong, as the sector is uniquely positioned to benefit from current economic trends, including increased trade growth, inventory rebuilding, and increased industrial output. Additionally, developing trends point to a strong near-to medium-term outlook for the sector. For example, the growth of big-box warehouses serving large online retailers close to population centers is forecasted to gain popularity, which we believe could potentially influence smaller e-retailers to do the same.

Increased e-commerce has a positive impact on warehouse demand, as it tends to transfer retail tenants to warehouses. According to CBRE, U.S. e-commerce sales now comprise 8% of all US retail sales, up from 5.8% in 2013 and 1.5% in 2003. With massive increase in online sales over the past 15 years, e-commerce companies have had to make major investments in infrastructure and facilities to keep pace with demand. This is expected to continue, as online sales keep growing with traditional brick and mortar retailers employing multi-channel sale strategies. Additionally, this emergence of e-commerce and the growth of internet retailers and wholesalers are expanding the universe of tenants seeking industrial space in our target markets, which should drive demand and rent growth into the future.

Manufacturing is also likely to play an increased role in the industrial sector’s recovery. With energy prices and labor costs down, we believe that the fundamentals support a sustained resurgence in domestic manufacturing. Lack of supply may be a hurdle for continued demand growth, as some markets are already reporting shortages of space in certain asset types.

Our Target Markets

The U.S. industrial real estate market is large and there is significant opportunity for REITs to participate in that market. According to CoStar, the U.S. industrial real estate market is 15.4 billion square feet and it’s estimated to be valued at approximately $1 trillion. Industrial REITs currently only own approximately 8%, or 1.2 billion square feet, of the U.S. industrial real estate market.

The following sections reflect the current market status, based largely on REIS data, of the key markets in which we currently own and where we expect to acquire additional properties in the future. Currently, these markets include Atlanta, Chicago, Cincinnati, Columbus and Memphis.

Atlanta Industrial Market

Overall Market Fundamentals

Atlanta’s long-standing role as a significant center for logistics, along with its centralized location (which is bisected by key transportation corridors) and an international airport have established Atlanta as a leading warehouse/distribution market. These substantial advantages of the Atlanta market have driven prominent firms including Home Depot, Walmart, Williams-Sonoma, Dollar General, Samsung Electronics and others in their decisions to open facilities in the region. The Atlanta warehouse/distribution market has been a major beneficiary of the explosion of e-commerce retailing, as retailers, cutting back on brick-and-mortar store space, increasingly go online and store their goods in warehouses. Amazon.com, the national trailblazer in online retailing, has leased more than 1.4 million square feet to serve as fulfillment centers in two business parks in the Northeast submarket. Warehouse demand has been exceedingly strong, keeping pace, and then some, with the rising volumes of new supply. Thus, the completion of nearly 10.6 million square feet of new warehouse/distribution space in 2016 met with more than 11.2 million square feet of net absorption. Vacancy dropped to 11.9% during 2016, down from 12.4% in 2015, and is forecasted to continue dropping over the coming years as new supply slows and move-ins take place.

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As seen below in Figure 7, U.S. Bureau of Labor Statistics (BLS) preliminary data for December 2016 put total non-farm employment up 85,675 jobs (3.3%) from 12 months earlier, with the gain over 24 months being 164,408 jobs (6.6%).

 
Figure 7 (Source: US Department of Labor)

Employment growth is strong and is diversified among a number of industries (professional and business services, transportation, utilities, travel, education and health services). According to REIS, the distribution/warehouse vacancy rate finished Q2 2017 at 11.5% and will fall 0.3 percentage points to 11.2% by year-end 2018. REIS also projects that asking rent growth will accelerate to an annualized average of 3.2% during 2017 and 2018 to reach a level of $4.11 per square foot. Effective rents are forecasted to climb by a more rapid annualized average rate of 3.5%, during the same period, as market conditions begin to allow landlords to reduce the value of concession packages.

Atlanta Warehouse/Distribution Market

A summary of key real estate supply and demand market indicators show that during Q2 2017 the Atlanta warehouse/distribution market recorded positive net absorption of 3.2 million square feet which advanced effective rents and pushed the vacancy rate down. As seen in Figure 8 below, the Atlanta metro warehouse/distribution absorption is projected to be 8.3 million square feet during 2017. Additionally, the market’s year-end 2016 vacancy rate was 3.3 percentage points lower than the 14.6% average since 2010.

Atlanta Warehouse Construction 
Figure 8 (Source: REIS)

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Also during Q2 2017, effective rents rose by 1.2%, and are projected to rise 3.5% during 2017, to an average of $3.49. As shown in Figure 9, positive movement in effective rent is slated to continue.

Atlanta Warehouse Dist 
Figure 9 (Source: REIS)

Atlanta Flex/R&D Market

Atlanta’s 50.3 million square foot metro area Flex/R&D sector had a solid quarter in Q2 2017 with net absorption of 277,000 square feet. Currently there are limited Flex/R&D projects under construction which should help keep net absorption high in the future. As seen in Figures 10 and 11 below, a summary of key real estate supply and demand metrics shows that during 2016 the Atlanta Flex/R&D market recorded increasing effective rents, positive net absorption, and downward movement in the market’s vacancy rate. Effective rents increased by 0.7% during Q2 2017, and are projected to grow 2.6% in all of 2017, to an average of $5.61. Additionally, asking rents rose by 0.6% during the Q2 2017 and are projected to grow 2.4% for all of 2017.

Atlanta Flex Construction 
Figure 10 (Source: REIS)

Atlanta experienced positive net absorption for each of the past three years and is projected to remain that way for the next four years. From a historical perspective, the market’s Q2 2017 ending vacancy rate is 3.5 percentage points lower than its 18.2% average recorded since 2010.

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As per REIS, over the next two years, developers are expected to deliver a total of 303,000 square feet to the Atlanta Flex/R&D market. As mentioned before, employment growth at the Atlanta metro is expected to remain strong, which we believe is enough to facilitate an absorption rate averaging 450,600 square feet per year. This absorption rate exceeds total completions over the two-year period by enough to reduce the market vacancy rate to 13.6% by year end 2018. Thereafter, REIS anticipates that effective rent growth will accelerate to an annualized average of 3.4% during 2018 and 2019 to reach a level of $6.00 per square foot, as is illustrated in Figure 11 below.

Atlanta Flex R&D 
Figure 11 (Source: REIS)

Chicago Industrial Market

Overall Market Fundamentals

The 550 million square foot Chicago warehouse/distribution market continues to surge, with extensive speculative construction, strong demand, and steady rent gains. It is one of the strongest commercial real estate markets in the country. The Q2 2017 warehouse/distribution vacancy rate is 11.9% for Chicago, down from 12.4% in Q2 2016. The rate is down 540 basis points from the 17.3% recorded at the end of 2010 While new supply has slowed the rate of decline slightly, REIS predicts the vacancy rate will continue to trend down to 9.4% by 2021.

The 49.2 million square foot Flex/R&D has performed impressively over the last 18 months with the vacancy rate dropping to 13.5, down from 15.1% at the end of 2015.  This trend should continue with REIS projecting that the vacancy rate will drop to 10.8% by 2021.

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As seen below in Figure 12, non-farm employment growth has experienced year over year growth since 2010. While the growth is positive, the growth rate has been slower than other metropolitan areas. However, employment is expected to continue growing through 2018 then level off for a period due to population growth slowing, thus creating an environment where the industrial real estate market should continue to prosper with high rent growth driven by low levels of new supply forecasted.

Chicago Non-Farm 
Figure 12  (Source: US Department of Labor)

Chicago Warehouse/Distribution Market

As seen in Figure 13 below, effective rents are projected to increase by 2.5% during 2017 to an average of $4.45. REIS predicts that this effective rental growth and vacancy rate decline are going to continue through 2021, which we believe bodes well for our focus on warehouse/distribution product in Chicago.

Chicago Warehouse Distribution 
Figure 13 (Source: REIS)

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As is illustrated in Figure 14 below, during 2016 and the first half of 2017 developers delivered a total of 16.4 million square feet to the warehouse/distribution market. However, those numbers were not enough to slow net absorption which was 17.5 million square feet over those two years. REIS predicts that more than 40 million square feet of new supply will be added between 2017 and 2021 but there will also be 50 million square feet of net absorption during the same time frame. The market vacancy rate finished Q2 2017 at 11.6% and is predicted to fall further to 9.4% by 2021. REIS anticipates that asking rent growth will accelerate to an annualized average of 2.8% during 2017 through 2020 to reach a level of $5.04 per square foot. Additionally, they are projecting effective rents to advance by a more rapid annualized average rate as market conditions begin to allow landlords to limit the value of their concession packages. New construction is projected to gradually slow down over the next few years.

Chicago Warehouse Construction 
Figure 14 (Source: REIS)

Chicago Flex/R&D Market

Construction in the Chicago Flex/R&D market has been limited over the past six years but net absorption has been positive over the past three and a half years. Flex/R&D vacancy has dropped from a high of 18.9% in 2011 to its current level of 13.5%. Average annual effective rents have begun to increase and are expected to grow at an average annual rate of 3.0% over the next four years to an effective rental rate of $7.85 per square foot in 2021, as shown in Figure 15. Vacancy rates will also continue to decrease over this period which we believe makes the Flex/R&D product in Chicago very attractive at this time.

Chicago Flex R&D 
Figure 15 (Source: REIS)

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As illustrated in Figure 16 below, during 2017 through 2021, developers are expected to deliver an average of 295,200 square feet to the Chicago Flex/R&D market. Net Absorption will continue to out-pace construction at 521,600 square feet per year during the same period. The market vacancy rate is forecasted to continue dropping from its Q2 2017 rate of 13.5% to 10.8% by the end of 2021.

Chicago Flex Construction 
Figure 16 (Source: REIS)

Columbus Industrial Market

Overall Market Fundamentals

During 2016, the U.S. Department of Labor data shows an increase of approximately 24,008 jobs for a 2.3% increase over 2015. While the rate of growth has slowed steadily from the high of 2.8% in 2012, it still remains higher than the national average of 1.4%. As seen below in Figure 17, non-farm employment has grown an average of 23,854 per year over the past six years. The transportation industry, which is a focus in Ohio, remained hot growing at over 3.1% in 2016. Unemployment is low at 4% for the metropolitan area.

Columbus Non-Farm 
Figure 17 (Source: US Department of Labor)

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Columbus Warehouse/Distribution Market

The Columbus warehouse/distribution market is comprised of 113 million square feet in four geographic concentrations. During Q2 2017, the warehouse/distribution market experienced negative net absorption of 959,000 square feet, but is projected to be a net positive 810,000 for all of 2017. In a long-term context, the market’s Q2 2017 vacancy rate of 12.5% is 3.6 percentage points lower than the 16.1% vacancy rate during 2010. New construction slowed during Q2 2017 and is expected to remain subdued during the balance of 2017 before picking up again in 2018.

Columbus Warehouse Construction 
Figure 18 (Source: REIS)

Effective rents were up 0.3% during Q2 2017 and are expected to grow 2.4% for all of 2017, to $3.35 per square foot. Over the next four years effective rents are projected to grow an average of 2.9% annually reaching $3.76 per square foot by 2021.

Columbus Warehouse Distribution 
Figure 19 (Source: REIS)

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Columbus Flex/R&D Market

During 2017, Flex and R&D effective rents are projected to grow in Columbus by 2.5% to $5.01. As highlighted by REIS in Figure 20 below, this effective rental growth and vacancy rate decline are forecasted to accelerate through 2021, which we believe bodes well for the Flex/R&D product in Columbus. By 2021 vacancy is projected to decrease to 13.7% and effective rents are expected to be $5.61 per square foot. We believe that market conditions will begin to allow landlords to reduce the value of concession packages and allow effective rents to climb more rapidly.

Columbus Flex R&D 
Figure 20 (Source: REIS)

As illustrated in Figure 21 below, Columbus Flex and R&D construction activity has been minimal with modest growth projected at 145,000 square feet to be added on average over the next four years. Net absorption has been steady and will continue to outpace construction over the foreseeable future.

Columbus Flex Construction 
Figure 21 (Source: REIS)

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Memphis Industrial Market

Overall Market Fundamentals

The approximate 111 million square foot Memphis warehouse/distribution market is having a solid year in 2017 with 1.5 million square feet of net absorption forecasted and a 140 basis point vacancy rate drop to 13.2%. The vacancy rate is expected to be a bit flatter over the next couple of years with new development coming on line but net absorption will be greater driving the vacancy rate down to 12.0% in 2021.

With regard to employment overall, the Memphis market has recovered from the recession, as is seen in Figure 22 below. After having lost jobs in years 2008 through 2010, metro Memphis has now experienced six years of positive job growth, averaging 1.3% per year. There was an increase of job growth in Memphis of 1.6% in 2016 and it is expected to be higher over the next two years before it starts slowing.

Memphis Non-Farm 
Figure 22 (Source: US Department of Labor)

Memphis Warehouse/Distribution Market Overview

A summary of key real estate supply and demand metrics reveals that during Q2 2017 the Memphis warehouse/distribution market experienced positive net absorption, advancing effective rents, and downward movement in the market’s vacancy rate. During 2017, effective rents are forecasted to increase by 3.3% to an average of $2.51 per square foot and are forecasted to be $2.85 per square foot by 2021. As highlighted by REIS in Figure 23 below, this rental growth and vacancy rate decline are forecasted to continue through 2021, which we believe bodes well for our focus on warehouse/distribution product in Memphis.

Memphis Warehouse Distribution 
Figure 23 (Source: REIS)

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Leasing activity is expected to generate positive 1,502,000 square feet of absorption during 2017, while over the prior four years, warehouse/distribution absorption averaged a positive 1.6 million square feet. From a historical standpoint, the market’s 2017 projected vacancy rate of 13.2% is 3.0 percentage points lower than the 16.2% average recorded since 2010.

As is illustrated in Figure 24 below, developers are expected to deliver an average of 2.1 million square feet to the warehouse/distribution market in Memphis over the next four years. However, industrial employment growth at the metro level over the same period is expected to average over 1.0% annually, enough to facilitate an absorption rate averaging 2.2 million square feet per year and drive the vacancy rate down to 12.0% by 2021. REIS projects that effective rent growth will continue at an annualized average rate of 3.2% through 2021. Overall the Memphis warehouse/distribution market is projected to continue its steady improvements.

Memphis Warehouse Construction 
Figure 24 (Source: REIS)

Memphis Flex/R&D Market

A summary of key real estate supply and demand market indicator forecasts show that during 2017 the Memphis Flex/R&D market is projected to achieve positive net absorption, a drop in the market’s vacancy rate and increasing effective rents. This trend is forecasted to continue through 2021.

Memphis flex 
Figure 25 (Source: REIS)

Leasing activity will generate positive 43,000 square feet of absorption during the 2017, while over the prior four years, positive Flex/R&D absorption averaged 83,000 square feet. From a historical standpoint, the market’s projected 2017 vacancy rate of 12.9% is 1.3 percentage points lower than the 15.2% average recorded since 2010.

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As is illustrated in Figure 26 below, developers are expected to deliver a total of 71,000 square feet to the Memphis Flex/R&D market over the next four years. Industrial employment growth at the metro level over the same period is expected to average 1.0% annually, which we believe is enough to facilitate a net positive absorption rate averaging 102,000 square feet per year. REIS projects the market vacancy rate to finish 2021 at 12.2%, down an additional 1.7 percentage points. On an annualized basis effective rents are anticipated to climb an average of 2.1%, ending 2021 at $5.51 per square foot.

Memphis Flex Construction 
Figure 26 (Source: REIS)

Cincinnati Industrial Market

Overall Market Fundamentals

The Cincinnati warehouse/distribution real estate market is expected to see a drop in vacancy in 2017 with a net absorption of over 3.4 million square feet. The low vacancy rates and robust jobs market has sparked some speculative construction. However, even with new product the vacancy rate is projected to continue its descent over the next four years. Total employment rose by 21,100 (1.8%) jobs since 2016. This is the sixth year in a row that Cincinnati has seen positive employment growth. It is projected that the employment growth will continue, at around 1.5% over the next few years.

 
Figure 27 (Source: REIS)

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Cincinnati Warehouse/Distribution Market

Cincinnati’s warehouse/distribution market is projected to finish 2017 with a vacancy rate of 8.8%, down from 10.2% in 2016. Net absorption is expected to be a positive 3,448,000 square feet during the year. The solid absorption performance was achieved even with the completion of over 1,994,000 newly constructed square feet. REIS projects that an average of 1,270,000 square feet of new product will come on line per year over the next four years. Even with this new product, absorption should outpace construction and the vacancy rate should come down to 8.4% by 2021.

 
Figure 28 (Source: REIS)

During 2017, effective rents are projected to rise 2.9% to $3.18 per square foot. Rents had risen 1.4% on average over the past five years and are projected, by REIS, to grow by 2.4% per annum over the next four years.

 
Figure 29 (Source: REIS)

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Cincinnati Flex/R&D Market

For Flex/R&D space, REIS expects 2017 vacancy to be at 11.5%, down from 2016 rate of 12.3%. New construction over the next four years should average 43,000 square feet while net absorption should average 127,000 square feet.

 
Figure 30 (Source: REIS)

For Flex/R&D space, REIS expects average effective rent to increase 1.9% to $5.85 per square foot. Flex/R&D rents are expected to increase an average of 2.4% per annum over the next four years to $6.44 per square foot by 2021.

 
Figure 31 (Source: REIS)

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BUSINESS

Overview

We are a full service, vertically integrated, self-administered and self-managed Maryland corporation focused on the acquisition, ownership and management of single- and multi-tenant Class B industrial properties, including distribution centers, warehouses and light industrial properties, primarily located in secondary and select primary markets across the U.S. For a definition of Class B industrial properties, see “—Our Investment and Growth Strategies—General.” As of the date of this prospectus, the Company Portfolio consists of 29 industrial properties located in eight states. The Company Portfolio was approximately 96.5% leased to 55 different tenants across 17 industry types as of June 30, 2017.

We intend to continue to focus on the acquisition of industrial properties in secondary markets with net rentable square footage ranging between approximately 100 million and 300 million square feet, which we refer to as our target markets. We believe industrial properties in such target markets will provide superior and consistent cash flow returns at generally lower acquisition costs relative to industrial properties in primary markets. Further, we believe there is a greater potential for higher rates of appreciation in the value of industrial properties in our target markets relative to industrial properties in primary markets.

We believe our target markets provide us with opportunities to acquire both stabilized properties generating favorable cash flows, as well as properties where we can enhance returns through value-add renovations and redevelopment. We focus primarily on the following investments:

single-tenant industrial properties where tenants are paying below-market rents with near-term lease expirations that we believe have a high likelihood of renewal at market rents; and
multi-tenant industrial properties that we believe would benefit from our value-add management approach to create attractive leasing options for our tenants, and as a result of the presence of smaller tenants, obtain higher per-square-foot rents.

We believe there are a significant number of attractive acquisition opportunities available to us in our target markets and that the fragmented and complex nature of our target markets generally make it difficult for less-experienced or less-focused investors to access comparable opportunities on a consistent basis. See “Market Overview.”

Our company, which was formerly known as Plymouth Opportunity REIT, Inc., was founded in March 2011 by two of our executive officers, Jeffrey Witherell and Pendleton White, Jr., each of whom has at least 25 years of experience acquiring, owning and operating commercial real estate properties. Specifically, both were members of a team of senior investment executives that was responsible for the acquisition and capital formation of commercial properties for Franklin Street Properties (NYSE: FSP), a REIT based in Boston, MA, from 2000 to 2007, during which time Franklin Street listed its stock on the American Stock Exchange. Following their time at Franklin Street, our founders recognized a growing opportunity in the Class B industrial space, particularly in secondary markets and select primary markets, following the 2008-2010 recession, and founded the company to participate in the cyclical recovery of the U.S. economy. Between March 2011 to April 2014, we prepared for and engaged in a non-listed public offering of our common stock. We used the proceeds from that offering to acquire equity interests in five industrial properties. In 2014, we used the proceeds of a senior secured loan to acquire 100% fee ownership in three of these properties and 100% fee ownership in the remaining 17 properties that comprise the Company Portfolio. In July 2015 and January 2017, we sold our equity interests in the two properties in which we did not have 100% fee ownership.

We believe that our focus on owning and expanding a portfolio of such properties will generate attractive risk-adjusted returns for our stockholders. Specifically, we believe we can achieve attractive and stable cash flow yields relative to yields achievable from Class A industrial properties because average capitalization rates tend to be higher in Class B industrial properties. In addition, we believe Class B industrial properties offer a higher degree of stability in occupancy and rental rates relative to Class A industrial properties. See “Our Investment and Growth Strategies.”

We source our acquisitions primarily through a combination of off-market and lightly marketed transactions, sale lease-backs and related transactions from illiquid owners and short sales and discounted note purchases from financial institutions. We expect to benefit from our management team’s extensive business and personal relationships and research-driven origination methods to generate investment opportunities, many of which may not be available to our competitors. Additionally, rental rates in our target markets have only recently begun to recover from their recessionary lows, and we believe these rates will increase over time.

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We elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2012. As a REIT, we generally are not subject to U.S. federal taxes on our income to the extent we annually distribute at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid, to our stockholders and otherwise maintain our qualification as a REIT. We are structured as an UPREIT and will own substantially all of our assets and conduct substantially all of our business through our operating partnership. We are the sole general partner and own 90% of the interests in our operating partnership.

Competitive Strengths

We believe that our investment strategy and operating model distinguish us from other owners, operators and acquirers of industrial real estate in several important ways, including the following:

High-Quality Portfolio with Strong Fundamentals:  Since 2014, we have acquired a portfolio of 29 industrial properties with an aggregate of approximately 5.8 million square feet of rentable space. As of June 30, 2017, the Company Portfolio was 98.4% leased to 37 different tenants across 17 diversified industries, which we believe reduces our exposure to tenant default risk and earnings volatility. We have seen consistent increases in rental rates since the acquisition of the properties comprising the Company Portfolio. Rental rates on new leases signed in 2016 were approximately 57.1% higher than rental rates on prior leases, and rental rates for renewing tenants increased 3.8%. In addition, our tenant retention rate increased from 17.3% in 2015 to 73.7% in 2016. We believe that high occupancy rates across the Company Portfolio, as well as strong rental growth, are indicative of the consistent execution of our business strategy.

Strategic Focus on Class B Industrial Properties in Secondary Markets with Stable and Predictable Cash Flows:    We focus on Class B distribution centers, warehouses and light industrial properties rather than Class A industrial or other commercial properties for the following reasons, among others: fewer capital expenditure requirements, generally greater investment yields, overall greater tenant retention, generally higher current returns and lower earnings volatility. We believe the Company Portfolio is, and our future acquisitions will be, attractively positioned to participate in the recovering rental rates in our target markets while providing our stockholders with consistent, stable cash flows.

We intend to continue to focus on the acquisition of industrial properties in our target markets across the U.S. We believe that our target markets have exhibited, or will exhibit in the near future, positive demographic trends (i.e., population growth, decreasing unemployment rates, personal income growth and/or favorable tax climates), scarcity of available industrial space and favorable rental growth projections, which should help create superior long-term risk-adjusted returns. However, we will consider acquisitions in non-target markets that will our overall investment criteria.

Superior Access to Deal Flow:    We believe our management team’s extensive personal relationships and research-driven origination methods will provide us access to off-market and lightly marketed acquisition opportunities, many of which may not be available to our competitors. Off-market and lightly marketed transactions are characterized by a lack of a formal marketing process and a lack of widely disseminated marketing materials. Our executive management and acquisition teams maintain a deep, broad network of relationships among key market participants, including property brokers, lenders, owners and tenants, and greater than 50% of the Company Portfolio was sourced in off-market or lightly marketed transactions. We also utilize data-driven and event-driven analytics and primary research to identify and pursue events and circumstances, including financial distress, related to owners, lenders, and tenants that we believe signal emerging investment opportunities that our competitors may not recognize. We believe that our sourcing approach will provide us access to a significant number of attractive investment opportunities.

Experienced Management Team:    Each of the three senior members of our executive management team has over 25 years of real estate industry experience, with each member having previous public REIT or public real estate company experience. Led by Mr. Witherell, our Chairman and Chief Executive Officer, Mr. White, our President and Chief Investment Officer, and Mr. Wright, our Chief Financial Officer, our management team has significant experience in acquiring, owning, operating and managing commercial real estate, with a particular emphasis on industrial assets. Throughout their careers, Mr. Witherell and Mr. White have had primary responsibility of overseeing the acquisition, financing, ownership and management of more than ten million square feet of office and industrial properties in our target markets, while over the past 18 years Mr. Wright has served as the Chief Financial Officer of two real estate companies, one of which had approximately $8 billion in assets.

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Our Investment and Growth Strategies

General

Our primary objective is to generate attractive risk-adjusted returns for our stockholders through dividends and capital appreciation primarily through the acquisition of Class B industrial properties, including distribution centers, warehouses and light industrial properties. We generally define Class B industrial properties as industrial properties that are typically more than 15 years old, have clear heights between 18 and 26 feet and square footage between 50,000 and 500,000 square feet, with building systems that have adequate capacities to deliver the services currently needed by existing tenants, but may need upgrades for future tenants. In contrast, we define Class A industrial properties as industrial properties that typically are 15 years old or newer, have clear heights in excess of 26 feet and square footage in excess of 200,000 square feet, with energy efficient design characteristics suitable for current and future tenants.

Our investment strategy will also focus on the burgeoning e-commerce industry, acquiring industrial properties that may service tenants’ e-commerce fulfillment needs, or “last mile” deliver requirements. These properties, termed “in-fill” properties are typically located in highly populated areas, new city centers or populous suburban areas.

We target Class B industrial properties, as compared to Class A industrial properties. The distinction between Class A industrial and Class B industrial properties is subjective. However, we consider Class A industrial properties and Class B industrial properties to have the following characteristics:

  Class A industrial properties typically possess most of the following characteristics: 15 years old or newer, square footage generally in excess of 300,000 square feet, concrete tilt-up construction, clear height in excess of 26 feet, a ratio of dock doors to floor area that is more than one door per 10,000 square feet and energy efficient design characteristics for current and future tenants. Rents are based on a specified range between the top 20-30% of the industrial rents in the marketplace.
  Class B industrial properties typically vary from Class A industrial properties in that they have some but not all of the features of the Class A industrial properties. They are typically more than 15 years old, have clear heights between 18 and 26 feet and square footage between 50,000 and 300,000 square feet. Building systems (mechanical, HVAC and utility) have adequate capacities to deliver services currently required by tenants but may need upgrades for future tenants. Rents are typically 30-50% below Class A properties in the marketplace.

Our definitions of Class A industrial properties and Class B industrial properties may vary from the definitions of these terms used by investors, analysts or other industrial REITs.

In addition, we primarily target secondary markets, as compared to primary markets. The distinction between primary markets and secondary markets is subjective. However, we define primary and secondary markets as follows:

  Primary Markets include gateway cities and the following six target metropolitan areas in the U.S., each generally consisting of more than 300 million square feet of industrial space: Los Angeles, San Francisco, New York, Chicago, Washington, DC and Boston.
  Secondary Markets for our purposes include non-gateway markets, each generally consisting of between 100 million and 300 million square feet of industrial space, including the following metropolitan areas in the U.S.: Atlanta, Austin, Baltimore, Charlotte, Cincinnati, Cleveland, Columbus, Dallas, Detroit, Houston, Indianapolis, Jacksonville, Kansas City, Memphis, Milwaukee, Nashville, Norfolk, Orlando, Philadelphia, Pittsburgh, Raleigh/Durham, San Antonio, South Florida, St. Louis and Tampa.

Our definitions of primary and secondary markets may vary from the definitions of these terms used by investors, analysts and other industrial REITs, could include additional metropolitan statistical areas in addition to those named above and may change over time.

We will focus our acquisition activities on our core property types, which include warehouse/distribution facilities and light manufacturing facilities, because we believe they generate higher tenant retention rates and require lower tenant improvement and re-leasing costs. To a lesser extent, we will focus on flex/office facilities (light assembly and research and development). We define these property types as follows:

  Warehouse/Distribution—properties generally 200,000 to 500,000 square feet in size with ceiling heights between 22 feet and 36 feet and used to store and ship various materials and products.
  Light Manufacturing—properties generally 75,000 to 250,000 square feet in size with ceiling heights between 16 feet and 22 feet and used to manufacture all types of goods and products.

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According to CBRE, secondary industrial market areas have, on average, a high degree of fundamental stability in rents and occupancies. Alternatively, although primary markets may offer a substantial amount of depth and ability to re-tenant vacant space, these markets tend to have a higher degree of volatility in occupancy and rent due in large part to a tenant dependence on external trade and distribution flows and these tend to be more volatile than locally-generated demand. Additionally, these primary markets tend to be prone to a higher propensity for speculative construction.

According to a recent study published by CBRE, which examines the availability rates of industrial properties, the majority of industrial tenants are satisfied with their Class B industrial properties. While these Class B industrial properties usually have lower clear height, less cross-docked loading, less technology incorporated into building utilities and overall less functionality than Class A industrial properties, such building characteristics also result in lower building costs which result in lower rents when compared to Class A industrial properties. Thus, Class B industrial properties are priced for the industrial functionality they deliver, which tends to result in high tenant retention rates.

The CBRE study also revealed that older industrial buildings generally have higher occupancy rates than newer buildings. Specifically by decade of construction, buildings built in the 1980s had higher rates of occupancy than those built in the 1990s, with this trend continuing with buildings built in 2000 and thereafter. These statistics seem to refute the common misperception of diminished functionality and desirability of older Class B industrial properties.

Overall, we believe that the aforementioned factors impacting the supply and demand dynamic create a compelling case for the attractiveness and overall cost effectiveness of Class B industrial properties among a variety of tenants. Class B industrial property owners and operators generally benefit from low tenant rollover because of the properties’ locations and sufficient functionality. Tenants tend to benefit from lower rentals rates, while we believe investors can expect stable and predictable cash flows and lower volatility.

We believe that pursuing the following strategies will enable us to achieve our investment objectives.

Investment Strategy

Our primary investment strategy is to acquire Class B industrial properties predominantly in secondary markets across the U.S. We intend to acquire properties that we believe can achieve high initial yields and strong ongoing cash-on-cash returns and that exhibit the potential for increased rental growth in the near future. In addition, we may acquire Class A industrial properties that offer similar attractive return characteristics if the cost bases for such properties are comparable to those of Class B industrial properties in a given market or sub-market.

Our investment strategy also focuses on properties in our target markets that consist of the following tenant profiles:

Multi-Tenant Acquisitions:    Our core acquisition strategy is to (1) acquire multi-tenanted industrial properties, and (2) acquire properties currently occupied by a single tenant that have the capacity to efficiently break-up the space and create customized sizes for various tenants. We believe that smaller tenants (ranging typically between 25,000 square feet to 100,000 square feet) will pay more on a per-square-foot basis than a single tenant while reducing the binary risk associated with leasing to single tenants. Further, typically the extra cost we incur to break-up a property (such as demising walls, additional doors, signage) is off-set by the expected increase in rent paid by the individual tenant over the term of the lease. This multi-tenant property strategy also benefits us in acquiring such properties as many of our competitors steer away from smaller-sized properties in favor of pursuing larger and newer (and, in or view, less competitive) Class A single tenant properties where the pricing is typically higher on a price-per-square-foot basis.

Single Tenant Acquisitions:    The performance of single-tenant properties tends to be binary in nature: either a tenant is paying rent or the owner is paying the entire carrying cost of the property. We believe that this binary nature frequently causes the market to inefficiently price certain single-tenant assets. In an attempt to avoid this binary risk, potential investors in single-tenant properties often apply a set of rigid decision rules that would force buyers of single-tenant properties to avoid acquisitions where the tenant does not have an investment grade rating or where the remaining primary lease term is less than an arbitrary number such as 10 years. By adhering to such inflexible decision rules, these types of investors may miss attractive opportunities that we can identify and acquire.

As of June 30, 2017, we owned both multi-tenant and single-tenant properties which made up approximately 61% and 39% of the Company Portfolio by square footage, respectively, excluding the Recent Acquisitions.

We further believe that our method of using and applying the results of our due diligence and our ability to understand and underwrite risk allows us to exploit certain market inefficiencies. We believe the systematic aggregation of individual properties will result in a diversified portfolio that mitigates the risk of any single property and will produce sustainable risk-adjusted returns which are attractive in light of the associated risks. A diversified portfolio with low correlated risk facilitates debt financing and mitigates individual property ownership risk. This, coupled with our intention to maintain relatively low debt levels, should mitigate any potential carrying costs in the event a tenant decides to vacate.

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We will employ a “bottom-up” set of analyses that evaluates potential acquisitions within the context of the market and submarket in which they are located. Each submarket has its own unique market characteristics that determine the timing and amount of cash flow that can reasonably be expected to be derived from the ownership of real estate asset in that market.

The company also intends to pursue joint venture arrangements with institutional partners which could provide management fee income as well as residual profit-sharing income. Such joint ventures may involve investing in industrial assets that would be characterized as opportunistic or value-add investments. These may involve development or re-development strategies that may require significant up-front capital expenditures, lengthy lease-up periods and result in inconsistent cash flows. As such, these properties’ risk profiles and return metrics would likely differ from the non-joint venture properties that we target for acquisition.

Finally, following this offering, we believe we will have a competitive advantage in sourcing attractive acquisitions because the competition for our target assets is primarily local investors who are not likely to have ready access to debt or equity capital. In addition, our UPREIT structure may enable us to acquire industrial properties on a non-cash basis in a tax efficient manner through the issuance of OP units as consideration for the transaction. We will also continue to develop our large existing network of relationships with real estate and financial intermediaries. These individuals and companies give us access to significant deal flow—both those broadly marketed and those exposed through only limited marketing. These properties will be acquired primarily from third-party owners of existing leased buildings and secondarily from owner-occupiers through sale-leaseback transactions.

Growth Strategies

We will seek to maximize our cash flows through proactive asset management. Our asset management team will be actively managing the Company Portfolio in an effort to maintain high retention rates, lease vacant space, manage operating expenses and maintain our properties to an appropriate standard. In doing so, we will seek to develop strong tenant relationships with all of our tenants and leverage those relationships and market knowledge to increase renewals, properly prepare tenants for rent increases, obtain early notification of departures to provide longer re-leasing periods and work with tenants to properly maintain properties. Our asset management team will collaborate with our internal credit function to actively monitor the credit profile of each of our tenants and prospective tenants on an ongoing basis.

Our asset management team functions include strategic planning and decision-making, centralized leasing activities and management of third-party leasing and property management companies. Our asset management/credit team oversees property management activities relating to our properties which include controlling capital expenditures and expenses that are not reimbursable by tenants, making regular property inspections, overseeing rent collections and cost control and planning and budgeting activities. Tenant relations matters, including monitoring of tenant compliance with their property maintenance obligations and other lease provisions, will be handled by in-house personnel for most of our properties.

A key asset management goal is to cost effectively retain tenants and increase occupancy. Our asset management team strives to maintain an active dialogue with all tenants to identify lease extension opportunities. We intend to typically prepare our renewal or releasing strategy 12 months prior to scheduled lease expiration dates, and also enter into discussions with tenants well in advance of such expiration dates to identify any potential changing tenant requirements. By actively working to retain tenants we will keep occupancy levels high and minimize “down time” and releasing costs.

Additionally, we will seek to stagger lease termination dates in order to minimize the possibility of significant portions of the Company Portfolio becoming vacant at the same time.

In addition to cost effective tenant retention, we intend to actively market space for which tenant renewals are not obtained. We plan to work with national and local brokerage companies to market and lease available properties on advantageous terms. We will track the activity of these brokerage firms and we will position our properties in the market to cost effectively balance occupancy downtime with asking rents and incentives. We aim to increase the cash flow generated by our acquired properties through appropriate rent increase provisions in our leases.

Our asset management team monitors our assets on an ongoing basis through engagement and supervision of local property managers and regular site visits, and keeps apprised on local market conditions through discussions with brokers and principals, as well as by tracking comparable sales and rental data from various reporting services such as CoStar and REIS. By maintaining this knowledge base we are better prepared for discussions with tenants regarding retention terms and be better able to position our properties appropriately when marketing to potential tenants.

Another vital asset management function is our active monitoring of our tenant’s and prospective tenant’s credit profiles. On a continuing basis, our asset management/credit team will monitor the financial data provided by our tenants including quarterly, semi-annual, or annual financial information. We also expect to have access to our tenants’ executive management teams to discuss their historical performance and future expectations. The credit monitoring process involves the review of key news developments, financial statement analysis, credit rating agency data, management discussions, and the exchange of information with the other asset management specialists.

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Financing Strategy

We intend to maintain a flexible and growth-oriented capital structure. We intend to use the net proceeds from this offering to repurchase 263,158 shares of our common stock from Torchlight and the remaining net proceeds, along with additional secured and unsecured indebtedness, to acquire industrial properties, including borrowings under our KeyBank Credit Agreement. See “Use of Proceeds.” We believe that we will have the ability to leverage newly-acquired properties up to a 65% debt-to-value ratio, though our long-term target debt-to-value ratio is less than 50%. We also anticipate using OP units to acquire properties from existing owners interested in tax-deferred transactions.

Investment Criteria

We believe that our market knowledge, operations systems and internal processes allow us to efficiently analyze the risks associated with an asset’s ability to produce cash flow going forward. We blend fundamental real estate analysis with corporate credit analysis to make a probabilistic assessment of cash flows that will be realized in future periods. We also utilize data-driven and event-driven analytics and primary research to identify and pursue events and circumstances, including financial distress, related to owners, lenders, and tenants that we believe signal emerging investment opportunities that our competitors may not recognize.

Our investment strategy focuses on Class B industrial properties in secondary markets for the following reasons:

  Class B Industrial properties generally require less capital expenditures than both Class A industrial properties and other commercial property types;
  investment yields for Class B industrial properties are often greater than investment yields on both Class A industrial properties and other commercial property types;
  Class B industrial tenants tend to retain their current space more frequently than Class A industrial tenants;
  Class B industrial properties tend to have higher current returns and lower volatility than class A industrial properties;
  we believe there is less competition for Class B industrial properties from institutional real estate buyers;
  our typical competitors are local investors who often do not have ready access to debt or equity capital;
  the Class B industrial properties real estate market is highly fragmented and complex, which we believe makes it difficult for less-experienced or less-focused investors to access comparable opportunities on a consistent basis;
  we believe that there is a limited new supply of Class B industrial properties space in our target markets;
  secondary markets generally have less occupancy and rental rate volatility than primary markets;
  Class B industrial properties and secondary markets are typically “cycle agnostic”; i.e., less prone to overall real estate cycle fluctuations;
  we believe secondary markets, today, generally, have more growth potential at a lower cost basis than primary markets; and
  we believe that the demand for e-commerce-related properties, or e-fulfillment facilities, will continue to grow and play a significant role in our investing strategy.

Underwriting Process

For each property we evaluate, our analysis focuses on:

  Real Estate.  We evaluate the physical real estate within the context of the market (and submarket) in which it is located and the prospect for re-tenanting the building as leases expire by estimating the following:

 

  market rent for this building in this location;
  downtime to re-lease and related carrying costs;
  cost (tenant improvements, leasing commissions and required capital expenditures) to achieve the projected market rent within the projected downtime; and
  single-tenant or multi-tenant reuse.

 

  Deal Parameters.  We evaluate the tenant and landlord obligations contained within the existing or proposed lease and other transaction documents.

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  Tenant Credit.  We apply fundamental credit analysis to evaluate the tenant’s credit profile by focusing on the tenant’s current and historical financial status, general business plan, operating risks, capital sources and earnings expectations. We also analyze SEC filings, press releases, management calls, rating agency reports and other public information. In the case of a private, non-rated firm, we will obtain financial information from the tenant and calculate common measures of credit strength such as debt-to-EBITDA and coverage ratios. For publicly rated firms, we use the credit information issued by Moody’s Investor Services, Standard & Poor’s, and

Fitch Ratings. Using this data and publicly available bond default studies of comparable tenant credits, we estimate the probability of future rent loss due to tenant default.

  Tenant Retention.  We assess the tenant’s use of the property and the degree to which the property is central to the tenant’s ongoing operations, the tenant’s potential cost to relocate, the supply/demand dynamic in the relevant submarket and the availability of suitable alternative properties. We believe tenant retention tends to be greater for properties that are critical to the tenants’ businesses.

Acquisition Pipeline

Our executive management and acquisition teams maintain a deep, broad network of relationships among key market participants, including property brokers, lenders, owners and tenants. We believe these relationships and our research-driven origination methods will provide us access to off-market and lightly marketed acquisition opportunities, many of which may not be available to our competitors. Furthermore, we believe that a significant portion of the 13.8 billion square feet of industrial space in the U.S. falls within our target investment criteria and that there will be ample supply of attractive acquisition opportunities in the future.

In the normal course of our business, we regularly evaluate the market for industrial properties to identify potential acquisition targets. As of the date of this prospectus, we were evaluating approximately $400 million of potential acquisitions in our target markets that we have identified as warranting further investment consideration after an initial review. We do not have any relationship with the sellers of the properties we are evaluating. As of the date of this prospectus, we have neither entered into any letters of intent or purchase agreements with respect to any potential acquisitions nor have we begun a comprehensive due diligence review with respect to any of these properties. Accordingly, we do not believe that the acquisition of any of the properties under evaluation is probable as of the date of this prospectus.

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The Company Portfolio

As of the date of this prospectus, we own and operate 29 industrial buildings, with an aggregate of approximately 5.8 million square feet of rentable space that was 96.5% occupied .

Pre-IPO Portfolio

The following table provides certain information with respect to the Company Portfolio, excluding the Recent Acquisitions, as of June 30, 2017. Certain information with respect to the Recent Acquisitions is set forth separately below as all of the Recent Acquisitions were completed subsequent to June 30, 2017.

Metro  Address  Property Type  Percent Ownership  Year Built/
Renovated (1)
  Square
Footage
  Occupancy  Annualized
Rent (2)
   Percent of
Total
Annualized
Rent
  Annualized Rent/Square
Foot (4)
Chicago, IL  3940 Stern Avenue  Warehouse/Light Manufacturing  100%  1987  146,798  100%  $623,891   4.4%  $4.25
Chicago, IL  1875 Holmes Road  Warehouse/Light Manufacturing  100%  1989  134,415  100%  $641,706   4.5%  $4.77
Chicago, IL  1355 Holmes Road  Warehouse/Distribution  100%  1975/1998  82,456  100%  $391,589   2.8%  $4.75
Chicago, IL  2401 Commerce Drive  Warehouse/Flex  100%  1994/2009  78,574  100%  $584,663   4.1%  $7.44
Chicago, IL  189 Seegers Road  Warehouse/Light Manufacturing  100%  1972  25,000  100%  $162,365   1.1%  $6.49
Chicago, IL  11351 W. 183rd Street  Warehouse/Distribution  100%  2000  18,768  100%  $186,889   1.3%  $9.96
Cincinnati, OH  Mostellar Distribution Center I & II  Warehouse/Light Manufacturing  100%  1959  358,386  100%  $1,053,038   7.5%  $2.94
Cincinnati, OH  4115 Thunderbird Lane  Warehouse/Light Manufacturing  100%  1991  70,000  100%  $239,190   1.7%  $3.42
Florence, KY  7585 Empire Drive  Warehouse/Light Manufacturing  100%  1973  148,415  100%  $412,785   2.9%  $2.78
Columbus, OH  3500 Southwest Boulevard  Warehouse/Distribution  100%  1992  527,127  100%  $1,782,634   12.6%  $3.38
Columbus, OH  3100 Creekside Parkway  Warehouse/Distribution  100%  1999  340,000  100%  $1,003,000   7.1%  $2.95
Columbus, OH  8288 Green Meadows Dr.  Warehouse/Distribution  100%  1988  300,000  100%  $927,000   6.6%  $3.09
Columbus, OH  8273 Green Meadows Dr.  Warehouse/Distribution  100%  1996/2007  77,271  100%  $355,765   2.5%  $4.60
Columbus, OH  7001 American Pkwy  Warehouse/Distribution  100%  1986/2007 & 2012  54,100  100%  $175,824   1.2%  $3.25
Memphis, TN  6005, 6045 & 6075 Shelby Dr.  Warehouse/Distribution  100%  1989  202,303  69.3%  $424,078   3.0%  $3.03
Jackson, TN  210 American Dr.  Warehouse/Distribution  100%  1967/1981 & 2013  638,400  100%  $1,404,480   10.0%  $2.20
Altanta, GA  32 Dart Road  Warehouse/Light Manufacturing  100%  1988/2014  194,800  100%  $516,228   3.7%  $2.65
Portland, ME  56 Milliken Road  Warehouse/Light Manufacturing  100%  1966/1995, 2005, 2013  200,625  100%  $1,052,694   7.5%  $5.25
Marlton, NJ  4 East Stow Road  Warehouse/Distribution  100%  1986  156,279  100%  $834,900   5.9%  $5.34
Cleveland, OH  1755 Enterprise Parkway  Warehouse/Light Manufacturing  100%  1979/2005  255,570  100%  $1,354,762   9.6%  $5.30
Existing Portfolio – Industrial Properties -- Total/Weighted Average        4,009,287  98.4%  $14,127,481   100.0%(3)  $3.58

_______________

  (1) Renovation means significant upgrades, alterations or additions to building areas, interiors, exteriors and/or systems.
  (2) Annualized rent is calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended June 30, 2017 by (ii) 12. On June 30, 2017, there were no rental abatements or concessions in effect that would impact cash rent.
(3) Represents the percentage of total annualized rent for properties owned as of June 30, 2017, but does not reflect the annualized rent attributable to the Recent Acquisitions, none of which had been consummated as of June 30, 2017.
  (4) Calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended June 30, 2017, by (ii) 12, and then dividing by leased square feet for such property as of June 30, 2017.

The tenants at 8288 Green Meadows Dr., 3500 Southwest Blvd. and 3100 Creekside Pkwy. each have a right of first refusal to purchase the property. The tenant at 1875 Holmes Rd. has an option to purchase the property at fair market value at the end of the lease term on October 31, 2019.

Recent Acquisitions

Except as set forth in the footnotes below, the following table provides certain information with respect to the Recent Acquisitions as of September 30, 2017. All of the Recent Acquisitions were completed subsequent to June 30, 2017.

Metro  Address  Property Type  Year Built/
Renovated (1)
  Square
Footage
  Occupancy  Annualized
Rent (2)
   Percent of
Total
Annualized
Rent
  Annualized
Rent/Square
Foot (4)
  Purchase
Price
 
Columbus, OH  2120 New World Drive  Warehouse/Distribution  1971  121,440  99.8%  $327,060   4.8%  $2.70  $3,700,000 
Memphis, TN  3635 Knight Road  Warehouse/Distribution  1986  131,904  100.0%  $319,980   4.7%  $2.43  $3,700,000 
Memphis, TN  2815, 2828, 2842, 2847, 2864, 2869, 2890 Business Park Drive  Office/Distribution  1985-1989  235,006  51.8%  $1,913,389   29.0%  $16.21  $7,825,000 
Indianapolis, IN  3165, 3169 North Shadeland Ave  Warehouse/Distribution  1962/2004
1979/1993
  606,871  95%  $1,781,468   26.2%  $3.07  $16,875,000(5)
South Bend, IN  5861 W Cleveland Road  Warehouse/Distribution  1994  62,550  100%  $187,650   2.8%  $3.00  $2,030,337 
South Bend, IN  West Brick Road  Warehouse/Distribution  1998  101,450  100%  $304,350   4.5%  $3.00  $3,293,009 
South Bend, IN  4491 N Mayflower Road  Warehouse/Distribution  2000  77,000  100%  $231,000   3.4%  $3.00  $2,499,376 
South Bend, IN  5855 West Carbonmill Road  Warehouse/Distribution  2002  198,000  100%  $792,000   11.6%  $4.00  $8,569,288 
South Bend, IN  4955 Ameritech Drive  Warehouse/Distribution  2004  228,000  100%  $888,000   13.0%  $3.89  $9,607,990 
Industrial Properties -- Total/Weighted Average        1,762,221  92.0%  $6,804,897       100%(3)  $4.20  $58,100,000 

 

  (1) Renovation means significant upgrades, alterations or additions to building areas, interiors, exteriors and/or systems.
  (2) Annualized rent is calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended September 30, 2017 by (ii) 12. On September 30, 2017, there were no rental abatements or concessions in effect that would impact cash rent.
(3) Represents the percentage of total annualized rent solely for the Recent Acquisitions. Assuming that the Recent Acquisitions had been consummated as of June 30, 2017 at the rental rates in place as of September 30, 2017, the Recent Acquisitions would have represented approximately 32.5% of our total annualized rent for the entire Company Portfolio.
  (4) Calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended September 30, 2017, by (ii) 12, and then dividing by leased square feet for such property as of September 30, 2017.
(5) Purchase price consisted of approximately $8.8 million in cash 421,438 OP units valued at $19.00 per unit.

Significant Tenants

As of June 30, 2017, the two largest properties in the Company Portfolio, each representing 10% or more of our total annualized rent, were Perseus-210 American Drive (the “Perseus Property”) and Pier One-3500 Southwest Boulevard (the “Pier One Property”), consisting of 638,400 and 527,127 square feet, respectively. Additional information regarding these two properties is set forth below.

95 

 

Perseus-210 American Drive is a 638,400 square foot warehouse and distribution center located in Jackson, Tennessee. The property is 100% leased to Perseus Distribution, the largest third-party book distributor in the United States, which was purchased by Ingram Content Group in 2016. Perseus Distribution has occupied the property since 2006.

Address   Tenant   Industry   Rentable
Square
Feet
  Percent of
Rentable
Square
Feet
  Expiration   Annualized
Base
Rent/SF(1)
  Annualized
Base Rent(2)
  Percent of
Property
Annualized
Base Rent
  Lease
Type
210 American Drive   Perseus Distribution   Paper & Printing     638,400     100.0%     5/31/2020   $ 2.20   $ 1,404,480     100.0%   Triple Net

The average lease term for the in-place lease is 2.9 years as of June 30, 2017.

Year of Expiration  Number of
Leases
Expiring
   Total
Rentable
Square Feet
   Percentage of
Rentable
Square Feet
   Annualized
Base Rent(2)
   Percentage of
Property
Annualized
Base Rent
   Annualized
Base Rent per
Square Foot(1)
 
Available            0.0%   $    0.0%   $ 
2017   0        0.0%   $    0.0%   $ 
2018   0        0.0%   $    0.0%   $ 
2019   0        0.0%   $    0.0%   $ 
2020   1    638,400    100.0%   $1,404,480    100.0%   $2.20 
2021   0        0.0%   $    0.0%   $ 
2022   0        0.0%   $    0.0%   $ 
2023   0        0.0%   $    0.0%   $ 
2024   0        0.0%   $    0.0%   $ 
2025   0        0.0%   $