Industrial Logistics Properties Trust(ILPT) - 2025 Q2 - Quarterly Report

PART I: Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Industrial Logistics Properties Trust as of June 30, 2025, and for the three and six-month periods then ended It includes the Balance Sheets, Statements of Comprehensive Income (Loss), Statements of Shareholders' Equity, Statements of Cash Flows, and the accompanying notes which provide detailed explanations of accounting policies and financial activities Condensed Consolidated Balance Sheets As of June 30, 2025, the company's total assets were $5.24 billion, a decrease from $5.41 billion at year-end 2024 The decrease was primarily driven by a reduction in real estate properties, net, and cash equivalents Total liabilities also decreased to $4.29 billion from $4.40 billion, mainly due to changes in mortgage notes payable Consequently, total equity declined from $1.01 billion to $947.8 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total real estate properties, net | $4,573,309 | $4,656,499 | | Cash and cash equivalents | $58,559 | $131,706 | | Total assets | $5,238,548 | $5,406,331 | | Mortgages notes payable, net | $4,200,314 | $4,300,537 | | Total liabilities | $4,290,784 | $4,397,001 | | Total equity | $947,764 | $1,009,330 | Condensed Consolidated Statements of Comprehensive Income (Loss) For the second quarter of 2025, rental income slightly increased to $112.1 million from $110.6 million in Q2 2024 The net loss attributable to common shareholders improved to $(21.3) million, or $(0.32) per share, compared to $(23.2) million, or $(0.35) per share, in the prior-year quarter For the six-month period, the net loss per share also improved to $(0.65) from $(0.71) year-over-year Key Income Statement Data (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Rental income | $112,097 | $110,621 | $224,002 | $222,856 | | Total expenses | $75,645 | $75,716 | $149,804 | $153,165 | | Net loss | $(30,394) | $(33,479) | $(61,563) | $(67,381) | | Net loss attributable to common shareholders | $(21,310) | $(23,175) | $(42,842) | $(46,578) | | Net loss per share (basic and diluted) | $(0.32) | $(0.35) | $(0.65) | $(0.71) | Condensed Consolidated Statements of Shareholders' Equity Total equity decreased from $1.01 billion at the end of 2024 to $947.8 million as of June 30, 2025 The decline was primarily driven by the net loss for the period and distributions to common shareholders, which totaled $1.3 million for the six months - Total equity attributable to common shareholders decreased from $562.0 million at December 31, 2024, to $519.1 million at June 30, 2025, primarily due to a cumulative net deficit increase from $(86.5) million to $(129.3) million[10][15] - For the six months ended June 30, 2025, the company declared and paid distributions to common shareholders totaling $1,323 thousand[15][60] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities increased to $29.8 million from $18.8 million in the prior year period Net cash used in investing activities was $5.8 million, a shift from cash provided of $4.6 million in 2024 Financing activities used significantly more cash, $107.4 million compared to $10.6 million, largely due to debt repayments This resulted in a total decrease in cash, cash equivalents, and restricted cash of $83.4 million Summary of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $29,780 | $18,839 | | Net cash (used in) provided by investing activities | $(5,767) | $4,648 | | Net cash used in financing activities | $(107,428) | $(10,641) | | (Decrease) increase in cash | $(83,415) | $12,846 | - The significant increase in cash used for financing activities was primarily due to the repayment of the $1.24 billion ILPT Floating Rate Loan, partially offset by proceeds from a new $1.16 billion mortgage note[17] Notes to Condensed Consolidated Financial Statements The notes provide crucial context to the financial statements, detailing the company's real estate portfolio, lease concentrations, debt structure, fair value measurements, and related-party transactions As of June 30, 2025, the portfolio consisted of 411 properties Key tenants FedEx and Amazon represented 28.8% and 6.7% of annualized rental revenues, respectively The company also detailed significant debt refinancing activity during the quarter - As of June 30, 2025, the company's portfolio comprised 411 properties with approximately 59.9 million rentable square feet, including properties in a consolidated joint venture[25] - Major tenant concentration exists with FedEx Corporation (28.8% of annualized rental revenues) and Amazon (6.7%) as of June 30, 2025[41] - In June 2025, the company obtained a new $1.16 billion fixed-rate mortgage loan and used the proceeds to repay its $1.235 billion floating-rate loan, resulting in a $5.1 million loss on debt extinguishment[46] - The company has no employees and is managed by The RMR Group LLC (RMR), to which it pays business and property management fees For Q2 2025, business management fees were $5.8 million and property management fees were $3.2 million[61][65] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, highlighting a portfolio of 411 properties with 94.3% occupancy The analysis covers property operations, leasing activity, period-over-period financial comparisons, non-GAAP measures like FFO, and liquidity Key events include significant leasing activity with an 18.7% increase in rental rates for new/renewal leases in H1 2025 and a major debt refinancing Normalized FFO per share increased to $0.21 in Q2 2025 from $0.14 in Q2 2024 Overview and Property Operations As of June 30, 2025, ILPT's portfolio consisted of 411 properties totaling 59.9 million square feet with 94.3% occupancy, down slightly from 95.4% a year prior During the first six months of 2025, the company executed new and renewal leases for 2.3 million square feet, achieving a weighted average rental rate increase of 18.7% Additionally, rent resets for land at its Hawaii properties resulted in a 34.6% rental rate increase Portfolio Summary as of June 30, 2025 | Metric | Value | | :--- | :--- | | Number of Properties | 411 | | Rentable Square Feet | 59,890,000 | | Occupancy | 94.3% | Leasing Activity - Six Months Ended June 30, 2025 | Metric | Value | | :--- | :--- | | Square feet leased (New & Renewals) | 2,346,000 | | Weighted average rental rate change | +18.7% | | Weighted average lease term (years) | 6.1 | - During the first six months of 2025, rent resets for approximately 144,000 square feet of land at Hawaii Properties resulted in rental rates that were 34.6% higher than prior rates[90] Results of Operations Comparing Q2 2025 to Q2 2024, rental income grew 1.3% to $112.1 million and Net Operating Income (NOI) increased 1.5% to $87.6 million The net loss attributable to common shareholders improved to $(21.3) million from $(23.2) million For the six-month period, rental income rose 0.5% and NOI grew 1.6%, with the net loss attributable to common shareholders narrowing to $(42.8) million from $(46.6) million year-over-year Q2 2025 vs Q2 2024 Performance (in thousands) | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Rental income | $112,097 | $110,621 | 1.3% | | Net operating income (NOI) | $87,557 | $86,265 | 1.5% | | Net loss attributable to common shareholders | $(21,310) | $(23,175) | 8.0% | Six Months 2025 vs 2024 Performance (in thousands) | Metric | H1 2025 | H1 2024 | % Change | | :--- | :--- | :--- | :--- | | Rental income | $224,002 | $222,856 | 0.5% | | Net operating income (NOI) | $175,059 | $172,317 | 1.6% | | Net loss attributable to common shareholders | $(42,842) | $(46,578) | (8.0)% | Non-GAAP Financial Measures The company provides non-GAAP measures including NOI, FFO, and Normalized FFO For Q2 2025, FFO attributable to common shareholders was $7.4 million ($0.11/share), and Normalized FFO was $13.8 million ($0.21/share) This represents a significant increase in Normalized FFO per share from $0.14 in Q2 2024, primarily due to adjustments for incentive management fees and a loss on debt extinguishment FFO and Normalized FFO per Share | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | FFO per share | $0.11 | $0.14 | $0.30 | $0.28 | | Normalized FFO per share | $0.21 | $0.14 | $0.41 | $0.28 | - Normalized FFO for Q2 2025 includes adjustments for $1.3 million in accrued incentive management fees and a $5.1 million loss on extinguishment of debt[118] Liquidity and Capital Resources The company's primary liquidity source is rental income As of June 30, 2025, cash and cash equivalents were $58.6 million (excluding restricted cash) Total indebtedness was $4.2 billion In a key financing event in June 2025, the company secured a new $1.16 billion fixed-rate mortgage loan maturing in 2030 to repay a $1.235 billion floating-rate loan that was due in 2025, extending its debt maturity profile - As of June 30, 2025, the company had $58.6 million in cash and cash equivalents, excluding restricted cash[122] - In June 2025, the company refinanced its $1.235 billion ILPT Floating Rate Loan with a new $1.16 billion fixed-rate mortgage, extending the maturity to July 2030[131] - On July 10, 2025, the company declared a quarterly distribution of $0.05 per share, a significant increase from the previous $0.01 per share[60][137] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate changes This risk is managed through a combination of fixed-rate debt and interest rate caps on its floating-rate debt As of June 30, 2025, the company had $1.4 billion in floating-rate debt and $2.8 billion in fixed-rate debt The floating-rate debt is hedged by an interest rate cap, mitigating the impact of rising rates - As of June 30, 2025, the company had $1.4 billion of floating-rate debt related to the Mountain Floating Rate Loan, which is subject to an interest rate cap with a SOFR strike rate of 3.10%[142][143] - The company held $2.8 billion in fixed-rate debt as of June 30, 2025 A hypothetical 1% change in interest rates would alter the fair value of this debt by approximately $121.1 million[147][149] Item 4. Controls and Procedures Management, including the Managing Trustees and Chief Financial Officer, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2025 There were no material changes to the company's internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the company's management concluded that its disclosure controls and procedures are effective[150] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, these controls[151] PART II: Other Information Item 1A. Risk Factors This section supplements the risk factors disclosed in the 2024 Annual Report It specifically highlights the risk that changes in U.S. and foreign trade policies, such as tariffs and trade agreement modifications, could disrupt global supply chains and negatively impact the macroeconomic environment, which in turn could adversely affect the company and its tenants' businesses and financial conditions - The company identifies significant changes to U.S. and foreign trade policies, treaties, and tariffs as a key risk These changes could disrupt global supply chains, increase costs, and adversely affect the revenues and profitability of tenants who rely on imported goods[162] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the second quarter of 2025, the company purchased 9,095 of its common shares at a weighted average price of $3.17 per share These purchases were not part of a publicly announced buyback program but were made to satisfy tax withholding and payment obligations for a former officer and other former employees of RMR in connection with the vesting of share awards Issuer Purchases of Equity Securities (Q2 2025) | Total Shares Purchased | Weighted Average Price Paid per Share | | :--- | :--- | | 9,095 | $3.17 | - The share purchases were made to satisfy tax withholding obligations for former officers and employees of RMR related to the vesting of prior common share awards[163] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q Notable exhibits include corporate governance documents, certifications required by the Sarbanes-Oxley Act, and a new Loan Agreement dated June 26, 2025, related to the company's recent debt financing activities - A key exhibit filed is the Loan Agreement dated June 26, 2025, among subsidiaries of ILPT and a syndicate of banks including Citi Real Estate Funding Inc. and Bank of America, N.A[164]