Plymouth, Sixth Street Launch $500M Partnership
In a key part of this multifaceted deal, Sixth Street will take a majority stake in the REIT's Chicago-area assets.
Plymouth Industrial REIT and Sixth Street Partners have struck a deal which will provide Plymouth with about $500 million of new capital, the firms announced on Tuesday.
As part of the agreement, Sixth Street will assume a 65 percent stake in Plymouth’s Chicago-area industrial portfolio, which totals roughly 5.9 million square feet across a 34-building mix of warehouses, distribution centers, light manufacturing and small bay facilities. Plymouth will retain a 35 percent stake.
“Plymouth is active in markets such as Memphis, Columbus, Atlanta and Jacksonville,” Jeff Witherell, Plymouth’s chairman & CEO, told Commercial Property Executive. “We will pursue additional acquisitions in these markets as we believe they will be major beneficiaries of the reshoring and onshoring initiatives of manufacturers.”
In addition to acquisitions, Plymouth intends to use the capital to de-risk obsolete industrial assets, pay borrowing costs from the recent $100 million purchase of a Memphis-area industrial portfolio, and retire $67 million of existing debt.
Sixth Street cited the strong performance and demand for Plymouth industrial properties that clock in below 250,000 square feet, which have seen elevated demand from local warehouse occupiers and manufacturers. Sixth Street intends to partner with Plymouth on future joint ventures.
Plymouth’s payouts
Sixth Street’s initial $250 million contribution to the portfolio will come in two parts. The first $116 million is 65 percent of the required equity for the joint venture and asset ownership. An additional $140 million consists of a non-convertible Series C investment in Plymouth’s preferred equity. The initial preferred equity investment was seeded with $61 million, while the remaining $79 million will be paid within nine months of the partnership’s closing.
The financing for the industrial portfolio will consist of $178 million worth of secured mortgages, which will amount to $294 million worth of gross proceeds for Plymouth. After assuming the mortgage debt and paying for transaction costs, the REIT will have access to $212 million worth of investable capital.
Currently, the Chicago portfolio is valued at $356 million, with a 6.2 percent cap rate. The properties have a net operating income of $22 million.
Sixth Street’s returns
Sixth Street’s payout will come at a 7 percent return per year, with 4 percent in cash and the remaining 3 as payments in kind. The total returns will increase in the fifth and seventh years following the investment.
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Sixth Street’s payout will come at a 7 percent return per year, with 4 percent in cash and the remaining 3 as payments in kind. The total returns will increase in the fifth and seventh years following the investment.In addition to the new industrial assets, Sixth Street will receive 11.76 million warrants to purchase Plymouth’s common stock units.
Windy City windfall
Chicago’s industrial market continues to show sound fundamentals, with a supply pipeline and transaction volume that lead the nation. CommercialEdge’s latest national industrial report found that the market has 10.6 million square feet of space in the works, and a sale price of $98 per square foot, tops in the Midwest and fourth highest in the nation.
The city is also attracting steady interest from the tech sector, with PsiQuantum signing on as the anchor tenant at a $500 million,128-acre research and development campus that will be the site of the nation’s first utility-scale quantum computer.
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