Industrial Logistics Properties Trust(ILPT) - 2023 Q4 - Annual Report

Part I Business ILPT is a REIT owning 411 industrial and logistics properties, externally managed, focusing on growth through rent increases and acquisitions Portfolio Overview as of December 31, 2023 | Metric | Value | | :--- | :--- | | Total Properties | 411 | | Total Rentable Square Feet | 59,951,000 | | Locations | 39 states | | Mainland Properties (sq. ft.) | 43,222,000 (185 properties) | | Hawaii Properties (sq. ft.) | 16,729,000 (226 properties) | | Mainland Properties (% of Annualized Rental Revenues) | 72.1% | | Hawaii Properties (% of Annualized Rental Revenues) | 27.9% | - On February 25, 2022, ILPT acquired Monmouth Real Estate Investment Corporation (MNR), adding 124 industrial properties and forming a consolidated joint venture for 95 of these properties[24] Top Tenants by Annualized Rental Revenues as of December 31, 2023 | Tenant | % of Total Leased Sq. Ft. | % of Total Annualized Rental Revenues | | :--- | :--- | :--- | | FedEx Corporation / FedEx Ground Package System, Inc. | 21.7% | 29.7% | | Amazon.com Services, Inc. / Amazon.com Services LLC | 7.7% | 6.7% | | Home Depot U.S.A., Inc. | 1.6% | 2.1% | | UPS Supply Chain Solutions, Inc. | 1.3% | 1.6% | | American Tire Distributors, Inc. | 1.2% | 1.5% | | Restoration Hardware, Inc. | 2.0% | 1.5% | - The company's internal growth strategy relies on increasing rents, particularly through periodic fair market value resets for its Hawaii Properties, which have historically resulted in significant rent increases due to limited land availability[26] - ILPT has no employees and is externally managed by The RMR Group LLC (RMR), which provides day-to-day operations, management, and administrative services[48][50] - To maintain its REIT status, the company must annually distribute at least 90% of its REIT taxable income, influencing its financing policies that rely on future financing, property sales, and equity/debt issuance to fund growth and repay debt[44] Risk Factors The company faces significant risks from high debt, leverage, market conditions, tenant concentration, external management, and dividend limitations Debt and Leverage as of December 31, 2023 | Metric | Value | | :--- | :--- | | Consolidated Debt | ~$4.3 billion | | Ratio of Consolidated Net Debt to Total Gross Assets | 68.4% | - High interest rates have significantly increased borrowing costs, adversely affecting cash flows, the ability to service debt, and the ability to pay shareholder distributions[185][187] - The company has significant tenant concentration, with FedEx and Amazon representing 29.7% and 6.7% of total annualized rental revenues, respectively, as of December 31, 2023, where a default by these tenants could materially and adversely affect the company[177] - The quarterly cash distribution rate on common shares was reduced to $0.01 per share in 2022 to enhance liquidity and may remain at this level for an indefinite period or be eliminated, subject to REIT tax requirements and Board discretion[202][205] - The company is dependent on its external manager, RMR, for all operations, and this relationship, along with cross-ownership and shared executives, may create conflicts of interest[208][211][213] - Failure to maintain qualification as a REIT would result in significant adverse consequences, including being subject to federal and state income taxes, which would reduce cash available for distributions[232][233] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - None[241] Cybersecurity The company relies on its external manager, RMR, for cybersecurity risk management, with Audit Committee oversight - ILPT relies on its manager, RMR, to identify and manage material risks from cybersecurity threats, with the Audit Committee overseeing these matters[243] - The company states it has not been materially affected and does not believe it is reasonably likely to be materially affected by risks from cybersecurity threats[243] Properties ILPT's portfolio consists of 411 properties totaling 59.95 million square feet across 39 states, including a significant joint venture Properties by State as of December 31, 2023 (Top 5 by Undepreciated Carrying Value) | State | Number of Properties | Undepreciated Carrying Value ($ thousands) | Depreciated Carrying Value ($ thousands) | Encumbrances ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Hawaii | 226 | $637,049 | $609,808 | $862,930 | | Ohio | 20 | $448,931 | $407,112 | $332,539 | | Georgia | 8 | $393,931 | $375,536 | $201,780 | | Florida | 15 | $360,722 | $340,803 | $296,191 | | Indiana | 9 | $348,421 | $322,604 | $236,897 | - The total undepreciated carrying value of the 411 properties is approximately $5.17 billion, with total encumbrances of approximately $4.33 billion[246] Legal Proceedings The company is not currently a party to any litigation that it expects to have a material adverse effect on its business - The company is not currently party to any litigation expected to have a material adverse effect on its business[248] Mine Safety Disclosures This item is not applicable to the company - Not applicable[249] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ILPT common shares trade on Nasdaq, with a current $0.01 quarterly distribution, though future distributions are not guaranteed - The company's common shares trade on the Nasdaq under the symbol ILPT[252] - The current cash distribution rate is $0.01 per share per quarter, but future distributions are not guaranteed and depend on various factors, including financial performance, REIT requirements, and debt limitations[253] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, highlighting increased rental income and NOI, but notes economic uncertainties, high interest rates, and leverage constraints Leasing Activity for the Year Ended December 31, 2023 | Metric | New Leases | Renewals | Total | | :--- | :--- | :--- | :--- | | Square Feet Leased (thousands) | 870 | 4,112 | 4,982 | | Weighted Avg. Rental Rate Change | 33.9% | 17.6% | 19.9% | | Weighted Avg. Lease Term (years) | 8.9 | 7.2 | 7.5 | - In 2023, rent resets for approximately 420,000 square feet of land at Hawaii Properties resulted in rental rates that were 29.6% higher than prior rates[261] Consolidated Results of Operations (Year Ended Dec 31) | Metric ($ thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Rental income | $437,338 | $388,151 | | Net operating income (NOI) | $339,093 | $306,672 | | Net loss attributable to common shareholders | $(107,989) | $(226,723) | | Net loss per share | $(1.65) | $(3.47) | Normalized FFO (Year Ended Dec 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Normalized FFO attributable to common shareholders ($ thousands) | $31,541 | $76,218 | | Normalized FFO per share | $0.48 | $1.17 | - As of December 31, 2023, the company had cash and cash equivalents of $112.3 million, and its principal debt obligations totaled approximately $4.3 billion[295][302] - Critical accounting estimates include the allocation of purchase prices for real estate investments and the assessment of carrying values and potential impairments of long-lived assets, which require significant management judgment[317][318][320] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate changes, managed with interest rate caps on its $2.635 billion floating-rate debt Debt Composition as of December 31, 2023 | Debt Type | Principal Balance ($ thousands) | | :--- | :--- | | Floating Rate Debt | $2,635,000 | | Fixed Rate Debt | $1,690,944 | - The company uses interest rate caps to hedge its exposure to interest rate volatility on its floating-rate debt, with the ILPT Floating Rate Loan having a SOFR strike rate of 2.25% and the Floating Rate Loan having a SOFR strike rate of 3.40%[326] - A hypothetical one percentage point increase in interest rates would increase the company's annual floating rate interest expense by approximately $26.7 million, from $165.0 million to $191.7 million, before considering the mitigating effects of the existing interest rate caps[327] Financial Statements and Supplementary Data This section includes the company's audited consolidated financial statements for FY2023 and supplementary data - The information required by this item, including audited consolidated financial statements and supplementary data, is included in Item 15 of the Annual Report on Form 10-K[333] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[334] Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[335] - Management's assessment, based on the COSO framework, concluded that the company's internal control over financial reporting was effective as of December 31, 2023[338] Other Information During the fourth quarter of 2023, none of the company's Trustees or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No Trustees or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fourth quarter of 2023[340] Part III Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Certain Relationships Information for Items 10-14 is incorporated by reference from the 2024 Proxy Statement, detailing governance, compensation, and equity plans - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference to the company's definitive Proxy Statement for the 2024 Annual Meeting of Shareholders[7][345][346] Equity Compensation Plan Information as of December 31, 2023 | Plan Category | Securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by securityholders - 2018 Plan | None | None | 3,156,613 | Part IV Exhibits and Financial Statement Schedules This section provides an index of consolidated financial statements, schedules, and exhibits, including the auditor's report - This section contains the index to financial statements, schedules, and exhibits[354] - A significant tenant, FedEx, leased 39.5% of the company's gross real estate assets as of December 31, 2023[355] Form 10-K Summary The company reports that there is no Form 10-K summary - None[361]