Industrial Logistics Properties Trust

Good day and welcome to the Industrial Logistics Properties Trust Second Quarter 2023 Financial Results Conference Call. All participants will be in a listen-only mode. If 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 a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would like now to turn the conference over to Stephen Colbert, Director of Ambassador Relations. Please go ahead, sir.

Good morning. Joining me on today's call are Yael Duffy, President and Chief Operating Officer, and Brian Donley, 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 Security Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on ILPT's beliefs and expectations as of today, July 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, 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 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. This quarter, we are also introducing our calculation of cash available for distribution, or CAD. Our reconciliation of these non-GAAP figures to net income is available in our supplemental operating and financial data package, which can be found on our website. And with that, I will turn the call over to Yael.

Thank you, Stephen, and good morning. On today's call, I will review ILPT's operating and leasing performance and then provide an update on our disposition activity before turning the call over to Brian to discuss our financial results. As we enter the second half of the year, we remain encouraged by the continued demand for ILTT's high-quality portfolio and the strength in the industrial real estate fundamentals. In the first six months of 2023, we signed 32 leases totaling more than 3.1 million square feet at weighted average rental rates that were 23% higher than prior rental rates for the same space. The impact of this activity is an increase of $4.8 million in annualized rental revenue, of which more than half will take effect in the second half of 2023 or in 2024. These results, along with a tenant retention rate of 87%, showcase our ability to generate organic cash flow growth while maintaining portfolio stability. As of June 30th, 2023, Our portfolio, which consists of 413 warehouse and distribution properties, achieved 99.1% occupancy, representing a 40 basis point increase sequentially. During the quarter, we executed 17 new and renewal leases and three rent resets for nearly 2 million square feet at a weighted average lease term of 8.9 years. resulted in gap in cash leasing spreads of 29.6% and 10.2% respectively. Highlighted in these results is the robust activity within our Hawaii portfolio. With a market vacancy rate under 1%, strong tenant demand, and minimal new construction in the pipeline, we have been able to take advantage of mark-to-market opportunities. We executed 855,000 square feet of leasing in Hawaii at weighted average rental rates that were 41.7% higher than prior rents, including five new leases totaling 195,000 square feet at increases in rent of 62.2%. Leasing in our wholly owned mainland portfolio was also strong, with total leasing of approximately 428,000 square feet, including one new lease and three renewals, at weighted average roll-ups in rent of 50% and 36%, respectively. Looking ahead, 12 million square feet, or 16% of ILPT's total annualized revenue, is set to expire through 2025. We believe there is ample opportunity to increase cash flows consistent with the 30% roll-up in gap rents we achieved over the past 12 months. Turning to transactions, among the most frequently asked questions we receive is when we expect to resume our disposition program to reduce leverage. Based on what we are seeing firsthand and through discussions with brokers, we believe the market has slowly begun to thaw as investors look for opportunities to deploy capital. We consistently receive unsolicited offers for the high-quality properties in our portfolio. However, given we are not a distressed seller, it isn't as simple as finding a buyer. As we evaluate each opportunity, our ability to transact is dependent on pricing and the impact to our financial position. For each offer we may receive, we compare the potential transaction price to the allocated loan amount under our debt agreements and confirm that we can maintain the required debt service coverage ratios. Additionally, potential tax gains and the impact to our overall liquidity needs to be considered. As such, disposition opportunities have been limited in this challenging sales market. Given these obstacles, we are happy to report that we currently have three properties, two that are encumbered, totaling 762,000 square feet under agreement to sell for an aggregate sales price of $65.3 million. We hope to continue to improve our financial position with additional disposition opportunities. However, we expect activity to be limited in the short term. I'll now turn the call over to Brian.