Industrial Logistics Properties Trust

Good morning and welcome to Industrial Logistics Properties Trust's third quarter 2022 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the queue, please press star then two. Please note this event is being recorded. I would now like to turn the call over to Kevin Barry, Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us today. With me on the call are ILPT's President and Chief Operating Officer, Yael Duffy, and Chief Financial Officer and Treasurer, Brian Donnelly. In just a moment, they will provide details about our business and our performance for the third quarter of 2022, followed by a question and answer session with sell-side analysts. First, I would like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Also note that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on ILPT's beliefs and expectations as of today, Wednesday, October 26, 2022, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward looking statements made in today's conference call. Additional information concerning factors that can cause those differences is contained in our filings with the Securities and Exchange Commission, or SEC, which can be accessed from our website, ILPTREIT.com, or the SEC's website. Investors are cautioned not to place undue reliance upon any forward looking statements. In addition, we will be discussing non-GAAP numbers during this call, including normalized funds from operations, or normalized FFO, adjusted EBITDA, and cash-based net operating income, or cash basis NOI. A reconciliation of these non-GAAP figures to net income and the components to calculate cash available for distribution are available in our supplemental operating and financial data package, which also can be found on our website. With that, I will now turn the call over to Yael.

Thank you, Kevin, and good morning. Before we start, I would like to welcome Brian Donley, who joined ILPT as our Chief Financial Officer and Treasurer on October 1st. On today's call, I will provide a summary of our financing and deleveraging plans and review our third quarter operating and leasing performance. Brian will then provide details on our financial results and balance sheet before we open the call to questions. In September, we closed on a $1.2 billion debt package that enabled us to fully repay the bridge loan facility used for the Monmouth Real Estate Investment Corporation acquisition. While the pricing on this debt is wider than the pricing of the bridge loan, interest rates and market spreads have continued to rise. Accordingly, we are pleased with the outcome of this transaction. We believe continued demand within the industrial sector coupled with our high quality investment grade portfolio allowed us to execute during a challenging time in the debt markets. Importantly, this refinancing extended our weighted average debt maturity to over four years and provides us time and flexibility to execute on our deleveraging plans. As we have discussed on prior calls, Our plan may include relaunching the marketing campaign of the 30 properties previously identified for disposition, resuming discussions with potential partners for an equity interest in ILPT's Mountain Industrial joint venture, or exploring additional joint venture opportunities with properties where fixed debt is already in place. As we work through these strategies, we will use available proceeds to pay down debt and improve leverage. Now turning to portfolio fundamentals and operating results. As of September 30, 2022, ILPT's consolidated portfolio included 413 warehouse and distribution properties in 39 states, totaling approximately 60 million square feet, with a weighted average remaining lease term of approximately nine years. Occupancy at quarter end reached 99.2%. up 30 basis points on a sequential quarter basis. As we are in a time of economic uncertainty, we are encouraged that 78% of our revenues come from investment grade tenants or subsidiaries or from our secure Hawaii land leases. During the third quarter, we entered new and renewal leases for approximately 1.7 million square feet at weighted average rental rates that were nearly 77.5% higher than prior rental rates for the same space, reflecting record quarterly leasing spreads. The impact of this activity is an increase of $4.8 million in annualized rental revenue, which showcases our ability to generate organic cash flow growth while maintaining portfolio stability. We executed five new leases totaling approximately 543,000 square feet for a weighted average lease term of 7.4 years. Included in this activity was a five-year lease for a 368,000 square foot warehouse and distribution building in Ohio that we acquired vacant as part of the Monmouth acquisition. In under six months, we were able to leverage industry and broker relationships to lease this building to an investment-grade rated tenant with minimal concessions. We signed four new deals in Hawaii totaling 175,000 square feet at a blended roll-up in rent of 62%. As Brian will discuss later in the call, We recorded a bad debt reserve of $1.2 million this quarter related to one tenant which leased three parcels within our Damon portfolio in Hawaii. Almost immediately, we were able to execute new leases with replacement tenants at average roll-ups in rent of 68%. These results continue to highlight the scarcity of land, persistent demand, and value of our Hawaii real estate. Renewal activity was also strong. with nine executed leases for approximately 1.1 million square feet, primarily on the mainland, at an average roll-up in rent of 26.1%, with a weighted average lease term of 3.7 years. As asking rents continue to increase, we are selectively completing short-term renewals with certain tenants to take advantage of market conditions. For example, We signed 760,000 square feet of renewal activity in the Columbus market, which has experienced record low vacancy and rent growth of nearly 20% year over year. By completing three-year renewals, we were able to achieve 40% roll-ups in rent while allowing for further growth. Now turning to our leasing opportunities. With minimal lease expirations for the remainder of 2022, our focus continues to be on the future. Approximately 20% of ILPT's portfolio is scheduled to roll by the end of 2025, mainly driven by our mainland properties. Given the strength of the industrial sector, we feel confident that our active leasing pipeline will position us to maximize mark-to-market rent growth and increase cash flows. Our pipeline includes 36 deals for 3.6 million square feet, of which roughly 1.4 million square feet is in advanced stages of negotiation or lease documentation. Once executed, we expect these leases will yield average roll-ups in rent of 20% on the mainland and 40% in Hawaii, further illustrating the strength of our portfolio. I will now turn the call over to Brian to review our financial results.