Industrial Logistics Properties Trust Q4 2024 Earnings Report

Industrial Logistics Properties Trust EPS Results

• Actual EPS: $0.13
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Industrial Logistics Properties Trust Revenue Results

• Actual Revenue: $110.52 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Industrial Logistics Properties Trust Announcement Details

• Quarter: Q4 2024
• Date: 2/18/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, February 19, 2025
• Conference Call Time: 1:00PM ET

Industrial Logistics Properties Trust (NASDAQ:ILPT) (Nasdaq: ILPT) is a real estate investment trust, or REIT, focused on owning and leasing high quality distribution and logistics properties. As of December 31, 2023, ILPT's portfolio consisted of 411 properties containing approximately 60 million rentable square feet located in 39 states. Approximately 77% of ILPT's annualized rental revenues as of December 31, 2023 are derived from investment grade tenants, tenants that are subsidiaries of investment grade rated entities or Hawaii land leases. ILPT is managed by The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with over $41 billion in assets under management as of December 31, 2023 and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. ILPT is headquartered in Newton, MA.

Industrial Logistics Properties Trust Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning and good day, and welcome to Industrial Logistics Properties Trust's Fourth Quarter twenty twenty four Financial Results Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Matt Murphy, Manager of Investor Relations. Please go ahead.

[Matt Murphy, Manager, IR at Industrial Logistics Properties Trust]

Good afternoon. Joining me on today's call are ILPT's President and Chief Operating Officer, Yael Duffy Chief Financial Officer and Treasurer, Tiffany Tsai and Vice President, Mark Crone. Today's call includes a presentation by management followed by a question and answer session with analysts. Please note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Also, please note that today's conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws.

[Matt Murphy, Manager, IR at Industrial Logistics Properties Trust]

These forward looking statements are based on ILPT's beliefs and expectations as of today, 02/19/2025, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission or SEC, which can be accessed from our website, ilptreit.com. Investors are cautioned not to place undue reliance upon any forward looking statements. In addition, we will be discussing non GAAP financial measures during this call, including normalized funds from operations or normalized FFO, adjusted EBITDAre and cash basis net operating income or cash basis NOI.

[Matt Murphy, Manager, IR at Industrial Logistics Properties Trust]

A reconciliation of these non GAAP measures to net income is available in our financial results package, which can be found on our website. With that, I will now turn the call over to Yael.

[Yael Duffy, President & COO at Industrial Logistics Properties Trust]

Thank you, Matt, and good afternoon. On today's call, I will begin with an overview of our portfolio, summarize leasing activity for 2024 as well as the fourth quarter and look ahead to our objectives for 2025. I will then turn the call over to Mark, who will provide further detail into leasing within our Mainland portfolio as well as our pipeline. Then Tiffany will review our financial results and provide guidance on normalized FFO. As of 12/31/2024, ILPT's portfolio consisted of four eleven distribution and logistics properties in 39 states totaling approximately 60,000,000 square feet.

[Yael Duffy, President & COO at Industrial Logistics Properties Trust]

Our strategically diversified portfolio is highlighted by our unique Hawaii footprint consisting of two twenty six properties totaling more than 16,700,000 square feet. Our consolidated occupancy at year end was 94.4% in line with our third quarter results. Our portfolio carries a weighted average lease term of seven years and is anchored by tenants with strong business profiles and stable cash flows. ILTT's top 10 tenants account for 48% of our total annualized rental revenues and nearly 77% of our annualized revenues come from investment grade rated tenants or from secure Hawaii land leases. We finished the year with strong demand for our high quality portfolio, consistent with the trends we saw throughout 2023.

[Yael Duffy, President & COO at Industrial Logistics Properties Trust]

For the full year, we entered 58 new and renewal leases and one rent reset totaling 6,100,000.0 square feet at weighted average rental rates that were 18.2% higher than prior rental rates for the same space. The impact of this activity is an increase of $8,200,000 in annualized rental revenue, of which 41% has not yet been realized and will take effect in 2025 or beyond. These results showcase our ability to generate organic cash flow growth while maintaining portfolio stability. During the fourth quarter, we completed 731,000 square feet of leasing at rental rates that were 39.3 higher than prior rents for the same space and had a weighted average remaining lease term of ten point five years. Hawaii accounted for all of our new leasing, 148,000 square feet at rental rates that were 43% higher than prior rents and had a weighted average lease term of twenty one point three years.

[Yael Duffy, President & COO at Industrial Logistics Properties Trust]

Meanwhile, lease renewals on the Mainland accounted for 98% of our renewal activity this quarter, which Mark will provide additional detail on shortly. These results highlight the value of our Hawaii portfolio, our ability to realize mark to market rent growth through leasing and continued strong tenant retention. As we look ahead to 2025, we remain focused on leasing our vacancies, specifically the 2,200,000 square land parcel in Hawaii that became vacant in April and a 535,000 square foot property in the East Submarket Of Indianapolis, which became vacant in July. Together, these vacancies have negatively impacted our earnings in the second half of the year, reducing occupancy by 4.6% and accounting for a loss of $1,800,000 in quarterly rental revenues. As we have mentioned on prior calls, leasing efforts are underway and we are in active discussions with tenants for both locations.

[Yael Duffy, President & COO at Industrial Logistics Properties Trust]

While we have experienced robust leasing in Hawaii historically, this site is unique due to its undeveloped 50 acre size. Accordingly, as one would expect, prospective tenants are conducting extensive diligence to understand the feasibility of operating on the site and the costs associated with its development. In Indianapolis, while we have seen strong tour and proposal activity, we face significant competition as new buildings come online. We remain optimistic that both locations will be leased in 2025. I will now turn the call over to Mark.

[Marc Krohn, Vice President at Industrial Logistics Properties Trust]

Thank you and good afternoon everyone. As Yael mentioned, we executed 731,000

[Marc Krohn, Vice President at Industrial Logistics Properties Trust]

square feet of leasing during the fourth quarter, which includes three

[Marc Krohn, Vice President at Industrial Logistics Properties Trust]

renewals on the In aggregate In aggregate, these renewals represent a weighted average rental rate increase of 38.7% with a weighted average lease term of eight years and were completed with minimal lease concessions. Looking ahead, 6,300,000 square feet or 8.7% of ILPT's annualized revenue is scheduled to roll by the end of twenty twenty six. We are engaging in renewal discussions with our tenants at least eighteen months in advance to best understand their space needs. We believe this is especially important today as we have seen decision and lease negotiation timelines lengthen. To that end, we are pleased to share that as of today, we have already addressed nearly 1,800,000 square feet of our expirations, reducing ILPT's lease expirations to 4,500,000 square feet through 2026 or just 6.4% of total annualized revenue.

[Marc Krohn, Vice President at Industrial Logistics Properties Trust]

Furthermore, our total leasing pipeline remains robust as we are currently tracking 28 deals for more than 6,500,000 square feet, including tenants for the two vacancies in Hawaii and Indianapolis that Yael mentioned earlier. Before I turn the call over to Tiffany, I want to highlight the recent results of the RMR Group Kingsley survey, which was completed on our behalf. For those unfamiliar with the survey, it is the trusted industry benchmark in tenant satisfaction and is used to assess property performance and identify areas for improvement. Our portfolio exceeded the Kingsley benchmark in every category, including management satisfaction, leasing satisfaction, renewal intentions, and overall satisfaction. Additionally, 34 properties received the Kingsley Excellence Award, which recognizes properties that outperform the index benchmark for overall satisfaction.

[Marc Krohn, Vice President at Industrial Logistics Properties Trust]

These results highlight the value of RMR as our manager and its ability to deliver outstanding property management services for our tenants. Now, I'll turn the call over to Tiffany.

[Tiffany Sy, CFO & Treasurer at Industrial Logistics Properties Trust]

Thank you, Mark. Last night, we reported financial results for the year and quarter ended 12/31/2024. Starting with our annual results, we closed out the year with normalized FFO of $35,400,000 or $0.54 per share, representing an increase of 12.1% compared to 2023. NOI increased by 0.6% to $341,200,000 and cash basis NOI increased by 1.5% to $329,200,000 while adjusted EBITDAre increased by 2.2% to $335,600,000 For the fourth quarter, we reported normalized FFO of $8,900,000 or $0.13 per share, an increase of approximately 10% on both a sequential quarter and prior year basis. Compared to the same quarter in 2023, fourth quarter NOI decreased by 0.8% to $84,200,000 and cash basis NOI remained relatively flat at $81,600,000 Adjusted EBITDAre decreased by 1.1% to $82,200,000 As we discussed during our last earnings call, we exercised the first of our three one year extension options for a $1,200,000,000 floating rate loan in October of twenty twenty four.

[Tiffany Sy, CFO & Treasurer at Industrial Logistics Properties Trust]

As part of the extension, we purchased a one year interest rate cap for $17,000,000 with a silver strike rate of 2.78%, replacing our previous cap with a rate of 2.25%. Our fourth quarter interest expense declined by $2,200,000 to $71,700,000 reflecting the impact of the new interest rate cap. Turning to our balance sheet. As of December 31, cash on hand exceeded $130,000,000 and restricted cash held by our consolidated joint venture was over $110,000,000 Our net debt to total assets ratio was 68.6% and our net debt coverage ratio was 12.4 times, each of which were relatively flat compared to the fourth quarter of twenty twenty three. As a reminder, all of our debt is currently carried at a fixed rate or is fixed through interest rate caps with a weighted average interest rate of 5.51% as of December 31.

[Tiffany Sy, CFO & Treasurer at Industrial Logistics Properties Trust]

Including extension options, ILPT has no debt maturities until 2027. Heading into 2025, in March, our consolidated joint venture will exercise the second of its three one year extensions for its $1,400,000,000 floating rate loan, which requires an interest rate cap to be purchased. In connection with the exercise of its first extension option in March 2024, our consolidated joint venture purchased a cap for $26,000,000 Last week, we purchased a cap with a SOFR strike rate of 3.1% for the second extension for $15,000,000 or $11,000,000 less than the previous cap. Including the impact of the new interest rate cap, we expect our interest expense for the first quarter of twenty twenty five to decline to approximately $70,000,000 with $59,000,000 of cash interest expense, net of the cash we receive from our interest rate caps and $11,000,000 of non cash amortization of financing and interest rate cap costs. In closing, ILPT is anchored by quality assets, strong tenants and stable cash flows.

[Tiffany Sy, CFO & Treasurer at Industrial Logistics Properties Trust]

Based on the leasing activity both Yael and Mark mentioned earlier and our expectations for interest expense, we expect normalized FFO for the first quarter of twenty twenty five to be between $0.16 and $0.18 per share. That concludes our prepared remarks. Operator, please open the lines for questions.

[Operator]

We will now begin the question and answer session. The first question comes from Mitch Germain with Citizens JMP. Please go ahead.

[Mitch Germain, MD - Real Estate Research at JMP Securities LLC]

Thank you, guys. Maybe Tiffany, what's the biggest variance from your 4Q earnings to 1Q that's driving some of the per share upside? Is it just interest expense? I think you get some percentage rent as well like a one time 1Q like what are the main variables that are changing quarter over quarter?

[Tiffany Sy, CFO & Treasurer at Industrial Logistics Properties Trust]

So that percentage rent is not factored in. We're not considering that. That's not an amount that stays the same period over period. So we would consider that non recurring. But there's two things.

[Tiffany Sy, CFO & Treasurer at Industrial Logistics Properties Trust]

So it's interest expense, but it's also some of the leasing that Yael and Mark were mentioning. But in addition to that, we did have some bad debt in this quarter, in Q4 and that was less than $1,000,000 which we wouldn't expect to be recurring. So that's part of the path.

[Mitch Germain, MD - Real Estate Research at JMP Securities LLC]

Got you. Okay. That's super helpful. I noticed that the leasing pipeline was down. I think it was over $8,000,000 last quarter.

[Mitch Germain, MD - Real Estate Research at JMP Securities LLC]

Obviously, you did you executed some deals in 4Q, but I'm curious if there is a broader change in the environment that you're seeing. Is it just really seasonality? Anything that you could attribute that to?

[Yael Duffy, President & COO at Industrial Logistics Properties Trust]

Hi, Mitch. Actually, it isn't it really would have been $8,000,000 still. It's just in Mark's prepared comments, he mentioned that subsequent to year end, we've already completed $1,800,000 so we just removed that from our pipeline for these purposes. So if you add the $6,000,000 plus the $1,800,000 we'd be right about the $8,000,000

[Mitch Germain, MD - Real Estate Research at JMP Securities LLC]

And what is your kind of percentage of execution on that pipeline? I'm sure you're tracking it over time. How is that kind of working out for you guys?

[Yael Duffy, President & COO at Industrial Logistics Properties Trust]

It's been pretty consistent. Again, as Mark mentioned, it's taking us a little longer to get deals over the finish line. But generally, once it makes it to an LOI, we're pretty successful in getting it to lease execution.

[Mitch Germain, MD - Real Estate Research at JMP Securities LLC]

Great. Obviously, it seems like I believe you had a bankruptcy that you noted last quarter. It appears that you're going to be keeping those spaces, but you kind of left open the potential for some rent modifications. How are your discussions ongoing? I know you can't share that much, but is there some sort of date in which there should be some validity as to what specifically how that situation will play out?

[Yael Duffy, President & COO at Industrial Logistics Properties Trust]

Yes, I think they so I'm assuming you're talking about American Tire. I think they have a date out there of sometime in May. And from what we know today, they haven't rejected any of our leases. We don't believe they will, but again, there's still time. But I think they've reached out initially to start discussions about potential restructures.

[Yael Duffy, President & COO at Industrial Logistics Properties Trust]

I think at this point, we're not open to those conversations. We feel really good about these properties. They're kind of a sweet spot of size. Generally, about 125,000 square feet in five very distinct markets that don't compete with each other. So, I think we feel good that American Tire wants to be at these locations and we're going to hold their feet to the fire.

[Mitch Germain, MD - Real Estate Research at JMP Securities LLC]

Great. That's it for me. Thank you.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to Yael Duffy, President and Chief Operating Officer for any closing remarks.

[Yael Duffy, President & COO at Industrial Logistics Properties Trust]

Thank you for joining us and your interest in ILPT.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Matt Murphy, Manager, IR
• Yael Duffy, President & COO
• Marc Krohn, Vice President
• Tiffany Sy, CFO & Treasurer

Analysts

• Mitch Germain, MD - Real Estate Research at JMP Securities LLC