Industrial Logistics Properties Trust Q3 FY2025 earnings call

• Portfolio overview: 411 properties across 39 states, 60M sq ft; Hawaii has 226 properties, 16.7M sq ft.
• Third quarter results: Same-property cash basis NOI up 3% y-o-y, normalized FFO up over 100% y-o-y from refinancing.
• Leasing activity: Completed 836,000 sq ft of leasing in Q3, 70% renewals; Mainland accounted for over 80% of leasing volume; pipeline over 8M sq ft with near-term conversion of 75% in advanced negotiation.
• Financials: Same-property NOI $86.4M, cash basis NOI $84.2M, adjusted EBITDAre $84.1M; recognized $6.1M impairment charge on held-for-sale property; balance sheet: cash $83M, restricted cash $95M, net debt to total assets 69.3%, net debt coverage 12x.

ILPT's portfolio consists of 411 distribution and logistics properties across 39 states, totaling 60 million square feet with a weighted average lease term of 7.4 years. The Hawaii footprint includes 226 properties totaling 16.7 million square feet with a weighted average lease term of 6.5 years. Same-property cash basis NOI increased 3% compared to the same period a year ago. Normalized FFO increased over 100% year-over-year, primarily from refinancing in June. Over 76% of annualized revenues come from investment-grade rated tenants or secure Hawaii land leases. Occupancy was 94.1% at quarter end.

• Q4 2025 normalized FFO expected to be between $0.27 and $0.29 per share, excluding incentive fees.
• Adjusted EBITDAre expected between $84 million and $85 million.
• Full year incentive fee expected to be $6.3 million, with less than $2 million recorded in Q4, paid in January 2026.

• Macroeconomic and tariff uncertainty.
• Industrial vacancy rates elevated compared to pandemic lows.
• Uncertainty regarding the sale process of the 3 held-for-sale properties.

Q: Maybe touching on guidance first. I noticed it was net of or not including incentive fees to the external manager. Do you have any kind of range you're expecting for what those fees may be?

A: All right. So if we were to use results as of September 30, we would pay full year incentive fee of $6.3 million, which would -- we would record less than $2 million in Q4 for that to get to that amount. We do not plan on including that in normalized FFO for Q4.

Q: Maybe moving on to the portfolio itself. I noticed the positive GAAP leasing spreads on the overall portfolio, but it seems like the Mainland wholly owned assets only saw a 1.8% increase in GAAP rent. Was there something specific driving that?

A: No. John, I think it was really one deal that kind of drove down the deal with the United States Postal Service was just about a 2% GAAP roll-up. This is a little bit of a unique building. And so we were happy to be able to get it leased, but it wasn't at the spreads that we usually see.

Q: In terms of the dispositions, how much, if any, of the $55 million includes the user owner buyer that was discussed last quarter? And I guess maybe as well, what are you kind of seeing today on pricing for those sales, maybe in terms of cap rate and even if you have it kind of price per square foot?

A: Sure. So the one we -- the property to the owner user is really the bulk of the proceeds, about $50 million of it actually. And the other -- it's a unique situation because it's an owner user and they generally pay a premium. So that's the cap rate there would be under 6%. And the other 2 are both vacant properties and one is actually also being sold to an owner user. And so I would say they're paying a premium. And the third property, it's early days in our process. So I don't have pricing guidance at least at the moment.

Q: And then in terms of the impairment, was that driven by the vacant asset sales?

A: Yes.

Q: And then as we look out to 2026, what are you seeing in terms of kind of the disposition opportunity set? I mean, is there an opportunity to do more transactions? Do you kind of want to shore up the balance sheet on the Mountain JV side before you get more active overall in the portfolio in terms of selling assets to delever? I mean, is that a strategic priority?

A: So we're constantly evaluating the portfolio and really opportunities where we've either maximized value or pruning the portfolio to kind of optimize it. I do think we will -- you might see us selling some more properties in 2026. They might be within the Mountain joint venture. I don't know if it will be coinciding with a potential refinancing or beforehand. So I think that's where you'll see most of the disposition activity, if there is any.

Q: Does completing the refinancing open up more assets to sell in that JV? Or are you pretty open just given the structure of that debt to sell assets out of that JV as you see fit or as opportunities arise?

A: As opportunities arise, we do have flexibility. So the refinancing is not really reliant on the refinancing.

Q: And then one last one. You kind of mentioned it in the prepared remarks, but any update, particularly on potential lease-up in Indianapolis? I know Hawaii is kind of a unique situation, but any kind of progress on the leasing front in Indianapolis?

A: I can certainly jump in on Indianapolis. We have 3 proposals out right now. We're very optimistic, but realistic in many ways. And so perhaps we can lease that up in the first half of next year. Also, on Hawaii: We have one tenant, one prospect actually, full site user that's in diligence. And so John, you're a little bit new to the story, but it does take a long time for this parcel because it's undeveloped land, but they're about halfway through an access agreement that's 90 days, and they're digging in. So we're hopeful that this could lead to a lease.

Q: And then one last one with kind of leasing in mind. Anything else to be aware of on the leasing front or the renewal front in 2026, as we start to kind of build out the model for that and impacting potentially '27 numbers?

A: No. I mean we're making good progress on our '26 and '27 expirations. As Marc mentioned in the prepared remarks that we have a lot of signed LOIs or active lease negotiations. And there isn't anything material in terms of expected vacates.