Industrial Logistics Properties Trust Q4 FY2024 earnings call

• Portfolio Overview: As of Dec 31, 2024, portfolio had 411 properties, 60 million sq ft, Hawaii with 226 properties, 16.7 million sq ft. Occupancy 94.4%, weighted average lease term 7 years.
• Leasing Activity 2024: 58 new/renewal leases + 1 rent reset, 6.1 million sq ft, 18.2% higher rates, $8.2 million revenue increase. Q4: 731,000 sq ft leasing, 39.3% higher rates, Hawaii 148,000 sq ft, 43% higher rates, Mainland renewals 98% of activity.
• 2025 Objectives: Focus on leasing vacancies, Hawaii 2.2 million sq ft land parcel and Indianapolis 535,000 sq ft property.
• Leasing Details: Marc mentioned Q4 731,000 sq ft leasing, 3 Mainland renewals (571,000 sq ft), 38.7% higher rates, 8-year term. Lease expirations: 4.5 million sq ft by 2026, 6.4% of revenue. Leasing pipeline: 28 deals >6.5 million sq ft.
• RMR Group's Kingsley Survey: Portfolio exceeded benchmark in all categories, 34 properties got Excellence Award.

As of December 31st, 2024, ILPT's portfolio consisted of 411 distribution and logistics properties in 39 states, totaling approximately 60 million square feet. The Hawaii footprint had 226 properties totaling over 16.7 million square feet. Consolidated occupancy at year-end was 94.4%. ILPT's top 10 tenants account for 48% of total annualized rental revenues, and nearly 77% of annualized revenues come from investment grade rate tenants or secure Hawaii land leases. For the full year 2024, 58 new and renewal leases plus 1 rent reset were executed, totaling 6.1 million square feet at weighted average rental rates 18.2% higher than prior, resulting in a $8.2 million increase in annualized rental revenue. In the fourth quarter, 731,000 square feet of leasing was completed at rental rates 39.3% higher than prior, with Hawaii accounting for 148,000 square feet at 43% higher rates and Mainland lease renewals making up 98% of renewal activity.

• 2024 Normalized FFO: $35.4 million ($0.54 per share), +12.1% vs 2023. Q4 2024: $8.9 million ($0.13 per share), +10% sequential and prior year.
• 2025 Interest Expense: Expect Q1 2025 interest expense to decline to ~$70 million, with $59 million cash interest expense. Normalized FFO for Q1 2025 between $0.16 and $0.18 per share.
• Debt: No debt maturities until 2027, weighted average interest rate 5.51% as of Dec 31, 2024.

• Vacancies: Hawaii 2.2 million sq ft land parcel and Indianapolis 535,000 sq ft property impacted 2H 2024 earnings, reducing occupancy 4.6% and $1.8 million quarterly rental revenue. Hawaii site has prospective tenants conducting extensive diligence on development feasibility. Indianapolis faces competition from new buildings online.

Q: What's the biggest variance from 4Q earnings to 1Q that's driving some of the per share upside?

A: That percentage rent is not factored in. We're not considering that. That's not an amount that stayed the same period-over-period. So, we would consider that non-recurring. But there's two things. So, it's interest expense, but it's also some of the leasing that Yael and Marc were mentioning. But in addition to that, we did have some bad debt in this quarter in Q4, and that was less than $1 million, which we wouldn't expect to be recurring. So, that's part of the pop.

Q: I noticed that the leasing pipeline was down. I think it was over $8 million last quarter. 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?

A: Hi Mitch, actually, it isn't -- it really would have been $8 million still. It's just in Marc's prepared comments, he mentioned that subsequent to year-end, we've already completed $1.8 million, so we just removed that from our pipeline for these purposes. So, if you add the $6 million plus the $1.8 million, we'd be right about the $8 million.

Q: 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?

A: It's been pretty consistent. Again, as Marc 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.

Q: 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 of the validity as to what specifically how that situation will play out?

A: 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. I think at this point, we're not open to those conversations. We feel really good about these properties. They are kind of a sweet spot of size, generally about 125,000 square feet in 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.