Industrial Logistics Properties Trust

Hello, and welcome to the Industrial Logistics Property Trust's first quarter 2023 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 your question, please press star then two. Please note, today's event is being recorded. I now turn the conference over to Stephen Colbert, Director of Investor Relations. Please go ahead, sir.

Good morning. Joining me on today's call are Yael Duffy, President and Chief Operating Officer, and Brian Donnelly, Treasurer and Chief Financial Officer. Today's call includes a presentation by management, followed by a question and answer session with analysts. Please 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, April 26, 2023, 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 could cause those differences is contained in our filings with the Securities and Exchange Commission, or SEC, which can be accessed from our website, ilptreat.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 financial 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 the 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 can be found on our website. With that, I will turn the call over to Yada.

Thank you, Stephen, and good morning. I would like to begin by highlighting the Enhanced Earnings Release Format that we issued last night. We believe this combined presentation of information will be helpful for analysts and investors to efficiently digest information about our company and results. On today's call, I will review ILPT's operating and leasing performance, and then turn the call over to Brian to provide an update on our financial results. We started the year with continued demand for our high-quality portfolio, consistent with the trends we saw throughout 2022. Same property cash basis NOI grew by 3.2% compared to the same period last year. We executed new and renewal leases for 1.1 million square feet and total occupancy remained healthy at 98.7%. Before we get into the details of the quarter, we wanted to make you aware that Home Depot, our third largest tenant, exercised its termination rights on a 2.2 million square foot land parcel in Hawaii that they agreed to lease from us last year. The lease was executed in June of 2022 and allowed for a due diligence period that was scheduled to expire on March 31st. We remain in active discussions with Home Depot regarding this site, but have also reengaged broader leasing efforts. This lease termination had no impact on our financial results as we continue to recognize rent from an existing tenant that leases the site through March 2024, which we believe gives us ample time to release the property prior to the tenant's lease maturity. Turning to our operating and leasing results. ILPT's consolidated portfolio includes 413 warehouse and distribution properties in 39 states, totaling approximately 60 million square feet with a weighted average remaining lease term of approximately eight years. During the first quarter, we entered 12 new and renewal leases for approximately 1.1 million square feet at a weighted average lease term of 8.9 years. This activity resulted in gap in cash leasing spreads of 15.1% and 9.5% respectively. The impact of this activity is an increase of $1.4 million in annualized rental revenue, of which 75% will go into effect in 2023. These results continue to showcase our ability to generate organic cash flow growth while maintaining portfolio stability. Renewals on the mainland drove most of our leasing for the quarter, including three renewals with FedEx, our largest tenant, that totaled 587,000 square feet, with weighted average roll-ups in gap and cash rents of 14.1% and 12.6% respectively. Earlier this month at its Drive Investor event, FedEx announced that it plans to consolidate its operating companies into one organization which will merge FedEx Express, Ground, and several other of its operating companies into Federal Express Corporation. Our leasing and asset management teams have a strong relationship with FedEx decision makers who have committed to having an open dialogue with us as they work through their plans. Furthermore, over 75% of our FedEx portfolio and the associated $96.9 million in annualized revenue is secure given its long-term lease with expirations in 2027 and beyond. Looking ahead, approximately 18% of ILPT's portfolio is scheduled to roll by the end of 2025, primarily driven by our mainland properties. We are currently tracking 27 deals in our pipeline for more than 2.5 million square feet. We anticipate a near-term conversion of 62% of our pipeline, given that 1.6 million square feet of current activity 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 30% in Hawaii, further illustrating the strength of our portfolio. Before turning the call over to Brian, I wanted to make you aware of the recent publication of the RMR Group's Annual Sustainability Report. The report highlights insights, accomplishments, and data regarding our managers' commitment to long-term ESG goals. We are proud of the progress made to strengthen ILPT's sustainability practices and enhance our ESG transparency and disclosure. You can find links to the complete report as well as an ILPT-specific care sheet on our website at ILPTREAP.com. Brian?