Industrial Logistics Properties Trust(ILPT) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total portfolio same-property NOI grew 10.8% year-over-year, reflecting a favorable impact of approximately $3.4 million due to the noncash write-off of a below-market lease [23] - Adjusted EBITDA increased nearly 100% year-over-year to $80.8 million, driven by same-property NOI growth and the Monmouth acquisition [25] - Second quarter normalized FFO was $28.3 million or $0.43 per share, including a favorable impact of approximately $0.05 per share related to the lease write-off [26] - Net loss for the quarter was $151.3 million, including a noncash impairment charge of $100.7 million due to the decision not to sell properties in the current market [27] Business Line Data and Key Metrics Changes - ILPT's consolidated portfolio included 412 warehouse and distribution properties totaling approximately 60 million square feet with nearly 99% occupancy [12] - Record leasing activity of 3.9 million square feet at weighted average rental rates that were 61.3% higher than prior rates [13] - New leasing activity included 8 new leases for approximately 2.7 million square feet at an average roll-up in rents of 104.7% [13] - Renewal leasing activity included 22 lease renewals for approximately 1 million square feet at an average roll-up in rents of 29.1% [13] Market Data and Key Metrics Changes - The company has paused discussions with potential partners for the Mountain Industrial joint venture due to increased interest rates affecting market conditions [10] - The real estate transaction market has deteriorated, with buyers seeking steep discounts, leading to the withdrawal of 30 Monmouth properties from the market [9][10] Company Strategy and Development Direction - The company plans to remain disciplined in considering future sales of properties or equity interests to maximize value [10] - A temporary reduction in the quarterly cash dividend was made to preserve approximately $20 million of cash flow per quarter, enhancing cash reserves for refinancing options [11][32] - The company is evaluating alternatives to repay its bridge facility, including longer duration debt and joint venture opportunities [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of their properties and the robust industry tailwinds underpinning demand for real estate [10] - The company expects demand for its properties to persist as it executes on its financing plans [80] - Management acknowledged that while operating trends are stable, interest rate headwinds are real and may lead to further deterioration in FFO [55] Other Important Information - The company ended the quarter with $292 million of cash on hand and a debt to annualized adjusted EBITDA ratio of 12.4x [31] - The RMR Group's Annual Sustainability Report was published, highlighting the company's commitment to long-term ESG goals [21] Q&A Session Summary Question: Will the combination of cash on hand and dividend availability allow for refinancing the bridge loan? - Management confirmed that the extra liquidity from the dividend reduction provides additional flexibility for refinancing options [36] Question: What is the status of the joint venture discussions? - Management indicated that discussions with multiple groups have paused due to market volatility [38] Question: What are the plans for the 30 properties withdrawn from marketing? - Management stated they are flexible and will consider remarketing based on market conditions [40] Question: Has the process for joint venturing other properties started? - Management has not identified specific properties yet but has potential opportunities with fixed-rate debt in place [42] Question: What is the current interest rate environment affecting refinancing? - Management noted that every 50 basis points increase in interest rates translates to about $0.04 of FFO per quarter [58] Question: Is there a pullback in leasing activity from tenants? - Management reported that demand remains strong despite inflationary pressures and rising interest rates [59] Question: What is the impact of the impairment charge on the properties? - The impairment charge reflects the decision to reclassify properties from held for sale to held for use due to market conditions [27][62]