Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - Plymouth Industrial REIT Inc.Financial_Report.xls
EX-31.1 - Plymouth Industrial REIT Inc.ex31-2.htm
EX-31.1 - Plymouth Industrial REIT Inc.ex31-1.htm
EX-31.2 - Plymouth Industrial REIT Inc.ex32-1.htm
EX-31.2 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - Plymouth Industrial REIT Inc.ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended March 31, 2013

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From _______to ________

 

Commission File Number: 333-173048

 

PLYMOUTH OPPORTUNITY REIT, INC.

(Exact name of registrant as specified in its charter)

 

Maryland 27-5466153
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
Two Liberty Square, 10th Floor, Boston, MA 02109 (617) 340-3814
(Address of principal executive offices) (Registrant’s telephone number)

 

Indicate by check mark whether the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. YES _ NO ü

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESü  NO _

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). YES ü NO _

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   Accelerated filer   Non-accelerated filer   Smaller reporting company

 

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). YES _ NO ü

 

As of May 15, 2013 the Registrant had outstanding 505,648 shares of common stock.

 

 
 

 

 

PLYMOUTH OPPORTUNITY REIT, INC.

 

INDEX TO QUARTERLY REPORT ON FORM 10-Q

 

 

 

 

PART I FINANCIAL INFORMATION PAGE
     
ITEM 1. Financial Statements  
  Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012 2
     
  Consolidated Income Statements for the three months ended March 31, 2013 and 2012 3
     
  Consolidated Statements of Equity for the three months ended March 31, 2013 and 2012 4
     
  Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012 5
     
  Notes to Consolidated Financial Statements 6
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 10
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 13
     
ITEM 4. Controls and Procedures 13
     
PART II OTHER INFORMATION 14
     
SIGNATURES 16

 

 

 

 

1
 

 

PART I FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

 

PLYMOUTH OPPORTUNITY REIT, INC.

CONSOLIDATED BALANCE SHEETS

Unaudited

 

 

   March 31,
 2013
   December 31,
2012
 
         
Assets          
Investments in Joint Ventures  $1,621,112   $1,642,027 
Cash   175,356    174,442 
Restricted Cash   173,509     
Security Deposit   16,733    16,733 
Due From Affiliate   13,580    9,431 
Total Assets  $2,000,290   $1,842,633 
           
Liabilities and Equity          
Accounts Payable  $62,448   $ 
Accrued Expenses   152,159    381,432 
Accrued Directors Fees   49,500    49,500 
Investor Deposits   173,509     
Total Liabilities   437,616    430,932 
           
Preferred Stock, $.01 par value, 10,000,000 shares authorized, none issued and outstanding        
Common Stock, $.01 par value, 1,000,000,000 shares authorized, 457,298 and 367,841 shares issued and outstanding, respectively   4,496    3,678 
Common Stock Dividend Distributable   77     
Additional Paid-In Capital   4,514,388    3,620,709 
Accumulated Deficit   (2,956,287)   (2,212,686)
Total Equity   1,562,674    1,411,701 
Total Liabilities and Equity  $2,000,290   $1,842,633 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

2
 

PLYMOUTH OPPORTUNITY REIT, INC.

CONSOLIDATED INCOME STATEMENTS

Unaudited

 

 

   For the Three Months Ended
March 31,
 
   2013   2012 
         
Income          
Equity Investment Income  $23,263   $ 
Realized Gain on Sale of REIT Securities       205 
Total Income   23,263    205 
           
Expenses          
Professional Services   40,000     
Commissions   30,080     
Marketing   1,825     
Rent   37,650     
Directors Fees, including Stock Compensation   42,000     
Insurance   18,969     
Salary Reimbursement   426,788     
General and Administrative   41,979     
Total Expenses   639,291     
           
Net Income (Loss)  $(616,028)  $205 
           
Weighted Average Number of Shares Outstanding   216,040    20,000 
Basic and Diluted Income (Loss) Per Share  $(2.85)  $0.01 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3
 

 

PLYMOUTH OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF EQUITY

Unaudited

 

 

 

 

   Common Stock,
$.01 par value
   Additional         
   Shares   Amount   Dividend
Distributable
   Paid-In
Capital
   Accumulated
Deficit
   Total
Equity
 
Balance, January 1, 2013   367,841   $3,678   $   $3,620,709   $(2,212,686)  $1,411,701 
Issuance of common stock for cash   75,200    752        751,248        752,000 
Stock compensation   1,500    15        14,986        15,001 
Stock dividend   12,757    51    77    127,445    (127,573)    
Net loss                   (616,028)   (616,028)
Balance, March 31, 2013   457,298   $4,496   $77   $4,514,388   $(2,956,287)  $1,562,674 

 

 

   Common Stock,
$.01 par value
   Additional         
   Shares   Amount   Paid-In
Capital
   Accumulated
Deficit
   Total
 Equity
 
Balance, January 1, 2012   20,000   $200   $199,800   $1,070   $201,070 
Issuance of common stock for cash   331,500    3,315    3,257,664        3,260,979 
Stock compensation   11,633    116    116,214        116,330 
Stock dividend   4,708    47    47,031    (47,078)    
Net loss               (2,166,678)   (2,166,678)
Balance, December 31, 2012   367,841   $3,678   $3,620,709   $(2,212,686)  $1,411,701 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

4
 

PLYMOUTH OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

 

 

   For the Three Months Ended
March 31,
 
   2013   2012 
         
Cash from operating activities          
Net income (loss)  $(616,028)  $205 
Realized gain on sale of REIT securities       (205)
Restricted cash   (173,509)    
Changes in due from affiliate   (4,149)    
Equity investment income   (23,263)    
Directors fees – stock compensation   15,001     
Investor deposits   173,509     
Accounts payable   62,448     
Accrued expenses   (229,273)    
             Net cash used for operating activities   (795,264)    
           
Cash from investing activities          
             Proceeds from sale of REIT securities       25,630 
                Net cash provided by investing activities       25,630 
           
Cash from financing activities          
            Distributions from investments in joint ventures   44,178     
            Proceeds from issuance of common stock   752,000     
                 Net cash provided by financing activities   796,178     
           
Net increase in cash   914    25,630 
Cash at the beginning of the period   174,442    175,645 
Cash at the end of the period  $175,356   $201,275 
           
Disclosure of non-cash financing activities:          
           
Common stock distributed as dividends:          
          Common stock  $128   $ 
          Additional paid-in capital   127,445     
Fair value of stock dividend  $127,573   $ 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

5
 

Plymouth Opportunity REIT, Inc.

Notes to Consolidated Financial Statements

 

(1) Business

 

Plymouth Opportunity REIT, (the "Company") is a Maryland corporation formed on March 7, 2011. The Company intends to acquire and operate on an opportunistic basis commercial real estate and real estate-related assets that exhibit current income characteristics. In particular, the Company intends to focus on acquiring commercial properties located in markets and submarkets with growth potential and those available from sellers who are distressed or face time-sensitive deadlines. In addition, our opportunistic investment strategy may include investments in real estate-related assets with significant possibilities for short-term capital appreciation, such as those requiring development, redevelopment or repositioning. The Company may acquire, or participate in joint ventures owning, a wide variety of commercial properties including office, industrial, retail, hospitality, medical office, single-tenant, multifamily and other real properties.

 

All references to the Company refer to Plymouth Opportunity REIT, Inc. and its subsidiaries, collectively, unless the context otherwise requires.

 

The Company intends to operate in a manner that will allow it to be a real estate investment trust, or “REIT”, for federal income tax purposes. The Company utilizes an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) organizational structure to hold all or substantially all of its properties and securities through an operating partnership, Plymouth Opportunity OP, LP (the “Operating Partnership").

 

On March 11, 2011, the Company sold 20,000 shares of common stock to Plymouth Group Real Estate, LLC (the “Sponsor”), at a price of $200,000, or $10 per share. As of May 15, 2013, the Company has 485,648 shares outstanding for gross offering proceeds of $4.646 million to third party investors.

 

The Company has retained Plymouth Real Estate Investors, Inc. (the “Advisor” or “Plymouth REI”) to serve as its advisor. The Advisor is responsible for managing, operating, directing and supervising the operations and administration of the Company and its assets. The Company has retained Plymouth Real Estate Capital, LLC (the “Dealer Manager”), and a member of FINRA, to act as the exclusive Dealer Manager for this offering. The Advisor and the Dealer Manager are affiliates of Plymouth Group Real Estate LLC.

 

(2) Summary of Significant Accounting Policies

 

Basis of Presentation

 

These interim condensed consolidated financial statements include the accounts of the Company and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All significant intercompany transactions have been eliminated in consolidation. These interim condensed consolidated financial statements include adjustments of a normal and recurring nature considered necessary by management to fairly present the Company’s financial position and results of operations. These interim condensed consolidated financial statements may not be indicative of financial results for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The interim condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

Equity Method Accounting

 

The Company may acquire equity interest in various limited partnerships or other entities. In certain cases where the Company has the ability to exercise significant influence over the borrower, it accounts for its equity interest under the equity method of accounting. Under the equity method of accounting, the Company recognizes the proportional share of the investee’s net income or loss as determined under U.S. generally accepted accounting principles (“GAAP”) in the Company’s results of operations.

 

 

6
 

Plymouth Opportunity REIT, Inc.

Notes to Consolidated Financial Statements

 

(2) Summary of Significant Accounting Policies – (continued)

 

Earnings per Share

 

Basic earnings per share are calculated on the basis of weighted-average number of common shares outstanding during the year. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period.

 

(3) Initial Public Offering

 

The Company is offering for sale up to $642,500,000 in shares of common stock, of which 50,000,000 shares are offered to investors at a price of $10.00 per share, and of which 15,000,000 shares are offered to participants in the Company’s distribution reinvestment plan at a price of $9.50 per share (the “Initial Public Offering”). The Company commenced the Initial Public Offering on November 1, 2011. As of May 15, 2013, the Company had reached gross offering proceeds of approximately $4.646 million, which is sufficient to satisfy minimum offering amounts in all states where the Company is conducting its offering except Ohio, Pennsylvania and Tennessee.

 

The Company has the right to reallocate the shares of common stock offered between the Company’s primary public offering and the Company’s distribution reinvestment plan. The Dealer Manager is providing dealer manager services in connection with the offering. The Initial Public Offering is a best efforts offering, which means that the Dealer Manager is not required to sell any specific number or dollar amount of shares of common stock in the offering but will use its best efforts to sell the shares of common stock. The Initial Public Offering is a continuous offering that will end within two years of November 1, 2011, unless it is extended in states that permit such an extension. In certain states, the Initial Public Offering must be renewed after one year of offering. Offering renewals are currently in process.

 

(4) Related Party Transactions

 

The Company is a party to an advisory agreement dated July 27, 2011 with Plymouth REI which entitles Plymouth REI to specified fees upon the provision of certain services with regard to the Initial Public Offering and investment of funds in real estate and real estate related investments, among other services, as well as reimbursement for organization and offering costs incurred by Plymouth REI and its affiliates on behalf of the Company and certain costs incurred by Plymouth REI and its affiliates in providing services to the Company.

 

Type of Compensation Form of Compensation
Organization and Offering Costs Reimbursement of organization and offering costs to the Advisor or its affiliates for cumulative organization and offering expenses, but only to the extent that the total organizational and offering costs borne by the Company do not exceed 15.0% of gross offering proceeds as of the date of the reimbursement.
Acquisition and Advisory Fees Reimbursement of acquisition costs and origination fees to the Advisor and its affiliates for expenses actually incurred (including personnel costs) related to selecting, evaluating and acquiring assets on the Company’s behalf, regardless of whether the Company actually acquires the related assets.
Asset Management Fee Monthly asset management fees to the Advisor equal to one-twelfth of 1.0% of the sum of the cost of each asset, where cost equals the amount actually paid.  Total asset management fees incurred as of March 31, 2013 are $4,375.
Common Stock Common Stock issuable upon occurrence of certain events will be paid to the Sponsor as an origination fee equal to 3% of the equity funded to acquire the investments. This fee will be payable semi-annually in shares of the Company’s common stock, which shares will be valued at a price equal to the price then payable for shares redeemed under the Company’s share redemption program, provided such price shall not be less than $10.00 per share. The aggregate origination fee payable to the Sponsor will not exceed 3% of the net proceeds of the Company’s primary offering of shares as of the time of such payment.

 

7
 

Plymouth Opportunity REIT, Inc.

Notes to Consolidated Financial Statements

 

 

(4) Related Party Transactions - (continued)
 
Subscription Processing Fee Monthly subscription processing fee to the Advisor equal to $35 per subscription agreement received and processed by the Advisor. The Advisor at its sole discretion may defer all or any portion of the $35 per subscription agreement fee payable.
Expense Reimbursement Reimbursement to the Advisor for all expenses paid or incurred by the Advisor in connection with the services provided to the Company, subject to the limitation that the Company will not reimburse our Advisor for any amount by which our operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater of: (A) 2% of our average invested assets, or (B) 25% of our net income.  During the three months ended March 31, 2013, the Company reimbursed $365,000 of general and administrative expenses.
Termination Upon termination or nonrenewal of the advisory agreement, the Advisor shall be entitled to receive an amount, payable in the form of an interest bearing promissory note, equal to 15% of the amount by which (i) our adjusted market value plus distributions exceeds (ii) the aggregate capital contributed by investors plus an amount equal to an 8% cumulative, non-compounded return to investors.

For the quarter ended March 31, 2013, there have been no organization and offering expenses or acquisition and advisory fees incurred or paid.

Pursuant to the terms of the agreement with its Advisor, Plymouth REI has the right to defer (without interest) receipt of all of these fees and expenses.

As of March 31, 2013, the Company is owed $13,580 from the Dealer Manager for costs reimbursable under the expense sharing agreement signed August 1, 2012. This receivable was reimbursed on April 12, 2013.

For the three months ended March 31, 2013, the Company has paid $30,080 in commissions to the Dealer Manager related to the issuance of common stock.

 

(5) Investments in Joint Ventures

 

On August 17, 2012 the Company, through its operating partnership, Plymouth Opportunity OP LP, acquired a 51.5% equity interest in the Class A shares of Colony Hills Capital Residential II, LLC (“CHCR II”) which is a joint venture with Colony Hills Capital, LLC. CHCR II is the sole member of Wynthrope Holdings, LLC, which owns Wynthrope Forest Apartments, a 23 building, 270 unit multifamily complex located in Riverdale, a suburb of Atlanta, Georgia. The property was 93.3% occupied at the time of acquisition, with a majority of leases ranging from one year or longer. The purchase price for the equity interest was $1,250,000. The total purchase price the joint venture paid for the property was $13.9 million, which included $10.6 million of secured debt.

 

On September 10, 2012, the Company, through its operating partnership, Plymouth Opportunity OP LP, acquired a 12% limited partnership interest in TCG Cincinnati DRE LP (the “Partnership”). The Partnership owns three Class B industrial buildings comprised of approximately 576,751 square feet located in the Greater Cincinnati area. All three buildings were 100% occupied at the time of the investment, consisting of four tenants with leases of two to ten years. The purchase price for the equity interest acquired by the Company was $500,000. The Company funded the purchase price of these investments with proceeds from its Initial Public Offering.

 

The Company performed an analysis to determine whether or not these entities represent variable interest entities (“VIE”s), and if the Company is the primary beneficiary (“PB”) of the VIEs.

 

8
 

Plymouth Opportunity REIT, Inc.

Notes to Consolidated Financial Statements

 

The Company concluded that CHCR II is a VIE. The Company has determined that it is not the PB of the VIE as the Company does not have the ability to make decisions over the activities that most significantly impact the performance of CHCR II. The Company accounts for the CHCR II investment as an equity method investment.

 

The Company has concluded that the Partnership is not a VIE. The Company does not have control over the Partnership and accounts for this investment as an equity method investment.

 

The Company accounts for these investments using equity method accounting, as the Company has significant influence over the entities. During the three months ended March 31, 2013 the Company recorded $23,263 of income and distributions of $44,178 from these investments.

 

For the quarter ended March 31, 2013, CHCR II and the Partnership had combined revenues of $1,141,857 and expenses of $841,340.

 

(6) Subsequent Events

 

On April 5, 2013, the Company entered into agreements with its independent directors for all compensation through December 31, 2013 and amounts accrued as of December 31, 2012 to be paid in the form of stock.

 

On May 8, 2013, the Board of Directors declared a stock dividend of 1.5% of each outstanding share of common stock, $0.01 par value per share, to the stockholders of record at the close of business on June 28, 2013 to be paid on July 15, 2013.

 

 

9
 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our Consolidated Financial Statements and the related notes that appear elsewhere in this document. For a more detailed description of the risks affecting our financial condition and results of operations see "Risk Factors" in Item 1A of the Company’s Form 10-K for the year ended December 31, 2012, filed with the SEC on April 15, 2013.

 

General

 

We were formed in March 2011 as a Maryland corporation and intend to qualify as a real estate investment trust, or “REIT”, beginning with the year ending December 31, 2012. On March 24, 2011, we filed a registration statement on Form S-11 with the SEC to offer a minimum of 250,000 shares of our common stock and a maximum 65,000,000 shares for sale to the public, of which 50,000,000 were registered in our primary offering and 15,000,000 were registered under our dividend reinvestment plan (the “Offering”). The SEC declared our registration statement effective on November 1, 2011, and we retained Plymouth Real Estate Capital, LLC, an affiliate of the Company, to act as the Dealer Manager of the Offering. The Dealer Manager is responsible for marketing our shares in our ongoing Offering. On July 26, 2012 we broke escrow in the Offering and through May 15, 2013 we had 505,648 shares of our common stock outstanding with gross offering proceeds of $4.646 million, all of which were sold in our primary Offering.

 

We intend to use substantially all of the proceeds from our ongoing Offering to acquire and operate a diverse portfolio of commercial real estate assets that are expected to provide consistent current income and may also provide capital appreciation resulting from our expectation that in certain circumstances we will be able to acquire properties at a discount to replacement cost or otherwise less than the anticipated market value or to expend capital to reposition or redevelop a property so as to increase its value over the amount of cash we paid to acquire and rehabilitate the property. In particular, we plan to diversify our portfolio by property type, geographic region, investment size and investment risk with the goal of acquiring a portfolio of income producing real estate properties and real estate related assets that provide attractive returns for our stockholders. We intend to primarily acquire, or participate in joint ventures owning a wide variety of commercial properties including office, industrial, retail, hospitality, medical office, single-tenant, multifamily, student housing and other real properties, including raw land. These properties are initially expected to be existing, income-producing properties. Additionally, we may invest in newly constructed properties or properties under development or construction. In addition, given the then existing economic conditions and subject to applicable REIT requirements, our investment strategy may also include investments in real estate-related assets such as mortgage, mezzanine, bridge and other loans and debt and equity securities issued by other real estate companies. However, we intend to limit these types of investments so that neither the Company nor any of its subsidiaries will meet the definition of an "investment company" under the Investment Company Act of 1940. We expect to make our investments in real estate assets located in the United States. Our investment strategy is designed to provide our stockholders with a diversified portfolio of real estate assets.

 

Although this is our current target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities. We will not forego what we believe to be a good investment because it does not precisely fit our expected portfolio composition. Thus, to the extent that our Advisor presents us with attractive investment opportunities that allow us to meet the REIT requirements under the Internal Revenue Code, our portfolio composition may vary from what we initially expect.

 

Plymouth Real Estate Investors, Inc. is our Advisor. As our Advisor, Plymouth Real Estate Investors, Inc. manages our day-to-day operations and our portfolio of real estate properties and real estate-related assets. Plymouth Real Estate Investors, Inc. makes recommendations on all investments to our board of directors. All proposed investments must be approved by at least a majority of our board of directors, including a majority of the members of the corporate governance committee, not otherwise interested in the transaction. Plymouth Real Estate Investors, Inc. will also provide asset-management, marketing, investor relations and other administrative services on our behalf.

 

10
 

 

The Company intends to operate in a manner that will allow it to be a REIT for federal income tax purposes. If we fail to qualify as a REIT in any taxable year going forward, 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 four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and cash available for distribution.

 

Liquidity and Capital Resources

 

We derive the capital required to purchase and originate real estate-related investments and conduct our operations from the proceeds of our offering from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations.

Through March 31, 2013, the Sponsor has incurred $2,338,996 of costs on behalf of the Company. Pursuant to the terms of the agreement with its Advisor, Plymouth REI has the right to defer (without interest) receipt of all of these fees and expenses. The Company has repaid $1,430,000 to the Sponsor and will continue to reimburse as cash flow permits. Simultaneous with selling common shares, offering costs will be charged to stockholders’ equity as a reduction of additional paid-in capital upon completion of the Offering or to expenses if the Offering is not completed. Organizational costs will be expensed as they are reimbursed to the Sponsor.

 

We are offering and selling to the public up to 50 million shares of our common stock at $10.00 per share (subject to certain volume discounts). We are also offering up to 15 million shares of our common stock to be issued pursuant to our distribution reinvestment plan pursuant to which our stockholders may elect to have distributions reinvested in additional shares of our common stock at $9.50 per share.

 

As of the date of this quarterly report on Form 10-Q for the three months ended March 31, 2013, filed on May 15, 2013, we have made two equity investments through our operating partnership, Plymouth Opportunity OP LP (“OP”). The first was in Wynthrope Forest, a 270-unit, 23-building multifamily community in a suburb of Atlanta, Georgia. The second was in TCG Cincinnati DRE LP, a three-building industrial portfolio totaling approximately 576,751 square feet in the Greater Cincinnati area.

 

Our cash needs for these acquisitions were met with the proceeds of the Offering. Operating cash needs during the same period were also met with proceeds from the Offering.

 

Proceeds from the Offering will continue to be applied to investments in properties and the payment or reimbursement of selling commissions and other fees and expenses related to our Offering. We will experience a relative increase in liquidity as we receive additional subscriptions for shares and a relative decrease in liquidity as we spend net offering proceeds in connection with the acquisition and operation of our properties or the payment of distributions.

 

The number of properties and other assets that we will acquire will depend upon the number of shares sold and the resulting amount of the net proceeds available for investment in properties and other assets. Until required for the acquisition or operation of assets or use for distributions, we will keep the net proceeds of our offering in short-term, low-risk, highly liquid, interest-bearing investments.

 

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 investment in one or more properties. There is no assurance that such funds will be available, or if available, that the terms will be acceptable to us.

 

Our principal demands for cash will be for acquisition costs, including the purchase price of the assets we acquire, improvement costs, the payment of our operating and administrative expenses, continuing debt service obligations and distributions to our stockholders. Generally, we will fund our acquisitions from the net proceeds of our offering. We intend to acquire our assets with cash and mortgage or other debt, but we also may acquire assets free and clear of permanent mortgage or other indebtedness by paying the entire purchase price for the asset in cash or in units issued by the OP.

 

11
 

 

As of May 15, 2013, we had gross offering proceeds of approximately $4.646 million, which satisfied our minimum offering amounts in all states except, Ohio, Pennsylvania and Tennessee. If we are unable to raise substantially more funds in the Offering than the minimum offering amount, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments we make and the value of an investment in us will fluctuate with the performance of the specific assets we acquire. Further, we will have certain fixed operating expenses, including certain expenses as a publicly offered REIT, regardless of whether we are able to raise substantial funds in our Offering. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and limiting our ability to make distributions. We do not expect to establish a permanent reserve from our offering proceeds for maintenance and repairs of real properties, as we expect the vast majority of leases for the properties we acquire will provide for tenant reimbursement of operating expenses. However, to the extent that we have insufficient funds for such purposes, we may establish reserves from gross offering proceeds, out of cash flow from operations or net cash proceeds from the sale of properties.

 

In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments to our Advisor and Dealer Manager. During our organization and offering stage, these payments will include payments to the Dealer Manager for selling commissions and the Dealer Manager fee and payments to the Dealer Manager and our Advisor for reimbursement of certain organization and offering expenses. However, our Advisor has agreed to reimburse us to the extent that selling commissions, the Dealer Manager fee and other organization and offering expenses incurred by us exceed 15% of our gross offering proceeds. During our acquisition and development stage, we expect to make payments to our Advisor in connection with the selection and origination or purchase of real estate investments, the management of our assets and costs incurred by our Advisor in providing services to us. The advisory agreement has a one-year term but may be renewed for an unlimited number of successive one-year periods upon the mutual consent of Plymouth Real Estate Investors, Inc. and our corporate governance committee.

 

The Company intends to operate in a manner that will allow it to be a REIT for federal income tax purposes. To maintain our qualification as a REIT, we will be required to make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends-paid deduction and excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant. Provided we have sufficient available cash flow, we intend to authorize and declare distributions based on daily record dates and pay distributions on a quarterly basis. We have not established a minimum distribution level.

 

Results of Operations

 

For the three months ended March 31, 2013, we have a net loss of $604,916, due primarily to legal, professional, filing and printing costs incurred in connection with the commencement of our operations. During the quarter ended March 31, 2012, we had net income of $205 as we had been formed but had not yet commenced any significant operations because we had not broken escrow. As a result, we had no material results of operations for that period.

 

Our results of operations as of March 31, 2013 are not indicative of those expected in future periods because we broke escrow in the Offering on July 26, 2012 and commenced operations on August 17, 2012 with our first investment.

 

As of March 31, 2013, we have made our initial investments in Wynthrope Forest and TCG Cincinnati DRE LP. We funded these acquisitions with proceeds from the Offering. For the quarter ended March 31, 2013, we have received $44,178 of distributions relating to these investments and have recognized $23,263 of income from these investments. Cash flow from real estate will increase due to expected increases in the rate of raising funds and as the result of anticipated future acquisitions of additional real estate and real estate-related assets.

 

Salary reimbursement expenses for the three months ended March 31, 2013 and 2012 totaled $426,788 and $0, respectively. These expenses consisted primarily of the allocation of salary earned by employees of the Company’s affiliates for work performed on behalf of the Company.

 

12
 

Stock Dividends

 

We have declared a stock dividend of 7,714 shares of our common stock, $0.01 par value per share, or 1.5% of each outstanding share of common stock, to the stockholders of record at the close of business on March 31, 2013. These shares were distributed on April 15, 2013.

 

Critical Accounting Policies

 

Refer to the Company’s 2012 Annual Report on Form 10-K for a complete discussion regarding our critical accounting policies.

 

Earnings per Share

 

Basic earnings per share are calculated on the basis of weighted-average number of common shares outstanding during the year. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period.

 

Recently Issued Accounting Standards

 

None.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We may be exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the acquisition, expansion and refinancing of our real estate investment portfolio and operations. We may also be exposed to the effects of changes in interest rates as a result of the acquisition and origination of mortgage, mezzanine, bridge and other loans. Our profitability and the value of our investment portfolio may be adversely affected during any period as a result of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We may manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an acceptable level. In addition, we may utilize a variety of financial instruments,

 

including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for payments to holders of our common stock and that the losses may exceed the amount we invested in the instruments.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

As of the end of the period covered by this report, management, including our chief executive officer (“CEO”) and chief accounting officer (“CAO”), evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures” as defined in Rules 13A-15(e) and 15d-15(e) under the Securities and Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities and Exchange Act is accumulated and communicated to the Company’s management including its CEO and CAO, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

13
 

A significant deficiency is a deficiency or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness; yet important enough to merit attention by those responsible for oversight of the Company’s financial reporting. Upon the completion of the year end audit, no significant deficiencies in internal control were noted.

Based upon the evaluation of our disclosure controls and procedures as of December 31, 2012, and because of a material weakness in our internal control over financial reporting disclosed in the Company’s 2012 Annual Report on Form 10-K, our CEO and CAO concluded that, as of such date our disclosure controls and procedures were not effective.

Internal Control over Financial Reporting

 

As noted in the 2012 Annual Report on Form 10-K filed by the Company we have engaged a financial accounting specialist. This firm will assist with the financial reporting process and provide the expertise necessary to present all information accurately and in a timely manner and provide consulting services on an as-needed basis.

Management in coordination with the input, oversight and support of our audit committee, has identified the above-mentioned measures to strengthen our internal control over financial reporting and to address the material weakness described above. We expect these remedial actions to be effectively implemented during the year ended December 31, 2013.

 

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, we are not a party to any material pending legal proceedings.

 

Items 1A. Risk Factors

 

Not Applicable

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3. Defaults Upon Senior Securities

 

None

 

Item 4. Reserved

 

Item 5. Other Information

 

None

 

 

14
 

Item 6. Exhibits

 

Exhibit No. Description
   
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
   
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
   
101.INS XBRL Instance
   
101.XSD XBRL Schema
   
101.CAL XBRL Calculation
   
101.DEF XBRL Definition
   
101.LAB XBRL Label
   
101.PRE XBRL Presentation

 

 

 

15
 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on our behalf by the undersigned, hereunto duly authorized.

 

PLYMOUTH OPPORTUNITY REIT, INC.

 

 

By: /s/ Jeffrey E. Witherell            

Jeffrey E. Witherell,

Chief Executive Officer and Chairman of the Board of Directors

By: /s/ Donna Brownell                 

Donna Brownell,

Executive Vice President, Chief Accounting Officer and Treasurer

 

Dated: May 15, 2013

 

16