Industrial Logistics Properties Trust(ILPT) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported third quarter FFO of $8.1 million or$ 0.12 per share, representing an increase of 1.5% compared to the same quarter in 2023 [26] - Third quarter NOI decreased by 0.7% to $84.7 million, while cash basis NOI increased by 1.1% to$ 82.5 million compared to the same quarter in 2023 [26] - Adjusted EBITDAre increased by 0.9% to $83.9 million [26] - The net debt to total assets ratio improved to 68.1%, while the net debt coverage ratio declined to 12.1 times [30] Business Line Data and Key Metrics Changes - The company executed over 2.7 million square feet of leasing in the third quarter, with a weighted average rate that was 7% higher than prior leases [17] - The consolidated occupancy rate was 94.4%, a slight decrease from the previous quarter [14] - The company executed 13 renewals with FedEx, encompassing over 2 million square feet across eight states, with an average lease term of 5.1 years and a GAAP rollup in rent of 4.5% [21] Market Data and Key Metrics Changes - The portfolio consisted of 411 distribution and logistics properties in 39 states, totaling approximately 60 million square feet [11] - The company highlighted a unique Hawaii footprint with 226 properties totaling more than 16.7 million square feet [11] - 77% of annualized revenues come from investment-grade rated tenants and secure Hawaii land leases [12] Company Strategy and Development Direction - The company aims to capitalize on the attractive operating environment to deliver favorable leasing outcomes [18] - The management plans to address near-term expirations strategically to maximize mark-to-market rent growth while minimizing potential downtime [18] - The company is evaluating unsolicited offers for asset sales but notes a disconnect between property valuations and buyer offers [48] Management Comments on Operating Environment and Future Outlook - Management remains encouraged by the continued demand for high-quality industrial real estate and the strength in fundamentals [9] - The company expects strategic leasing approaches to result in strong tenant retention and stable cash flows [32] - Management is cautious about increasing dividends due to the need for liquidity and financial flexibility [20] Other Important Information - American Tire Distributors, a significant tenant, filed for voluntary Chapter 11 proceedings, but the company expects them to continue operating and fulfilling lease obligations [13][37] - The company announced it would maintain its quarterly cash dividend at$ 0.01 per share [19] Q&A Session Summary Question: Interest rate cap costs and trade-offs - Management discussed the interest rate for the loan increasing to 6.71% and the strike rate for the cap being set at 2.78%, allowing for upfront cost savings [34] Question: Leasing timelines for Hawaii and Indianapolis - Management indicated that leasing for the Hawaii land parcel is expected in the second half of 2025, while Indianapolis may see leasing in the first half of 2025 [36] Question: American Tire's lease status - Management expects American Tire to utilize the properties and not reject the leases, noting their history of renewing leases even during bankruptcy [38] Question: Dividend expectations - Management acknowledged the importance of dividends to investors but emphasized the need for financial flexibility before increasing the dividend level [40] Question: Interest expense forecast - Management clarified that the expected cash interest expense would be $60 million, with noncash amortization at$ 12 million, reflecting changes in interest rates and amortization of financing costs [43]