Industrial Logistics Properties Trust

Good morning and welcome to Industrial Logistics Properties Trust third quarter 2023 financial results conference call. All participants will be in listener 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 touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the call over to Stephen Colbert, Director of Investor Relations. Please go ahead.

Good morning. Joining me on today's call are Yael Duffy, President and Chief Operating Officer, and Tiffany Tsai, Chief Financial Officer and Treasurer. 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 ILTT's beliefs and expectations as of today, October 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 four limiting 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 basis net operating income, or cash basis NOI. A reconciliation of these non-GAAP figures to net income is available in our financial results and supplemental information presentation which can be found on our website. With that, I'll turn the call over to Gaia.

Thank you, Stephen, and good morning. Before we begin, I would like to welcome Tiffany Tsai, who joined ILPT as our Chief Financial Officer and Treasurer on October 1st. On today's call, I will begin with an update on our disposition activity and then review ILPT's operating and leasing performance before turning the call over to Tiffany to discuss our financial results. Last quarter, we reported that we had three properties, two that are encumbered, under agreement to sell for an aggregate sales price of $65.3 million. We also discussed that while dispositions are challenging in this economic environment, ILPT may face additional difficulties given the property release provisions under our debt agreements. During the diligence process, one property fell out of agreement as the buyer was unable to receive the required licensing needed to operate its business, and another terminated due to delays in the transaction timeline. The third property, which is unencumbered, continues to be under agreement to sell for $21.5 million. Turning to our operating and leasing performance. As of September 30th, 2023, our portfolio, which consists of 413 warehouse and distribution properties, achieved same property NOI and cash basis NOI growth of 5.3% and 6% respectively, compared to the third quarter of 2022. We are finally beginning to see the positive impact of the 5.2 million square feet of leasing we completed over the last year. As a point of reference, the impact of this activity is an increase of $7.4 million in annualized rental revenue, which represents 2% of ILPT's total annualized revenue. With 11.2 million square feet set to expire through 2025, we believe there is continued opportunity to generate organic cash flow growth. Turning to the quarter, we executed 12 new and renewal leases for nearly 758,000 square feet, resulting in modest gap in cash leasing spreads of 13.5% and 10.3% respectively. The impact of this activity is an increase of $841,000 of annualized rental revenues. These leases have a weighted average lease term of 4.1 years, which is strategically shorter than what we typically report. As asking rents continue to increase, we are selectively completing short-term renewals with certain tenants to take advantage of market conditions. Highlighted in our results is continued demand from ILPT's largest tenant, FedEx. We completed three renewals totaling 213,000 square feet in Texas, Georgia, and Illinois at a roll-up in rent of 15.9%. As FedEx works through its DRIVE program initiative, our leasing and asset management teams have been engaged in discussions with FedEx decision makers as they work through their long-term plans. Our leasing pipeline includes 1.6 million square feet across 14 properties that is specific to FedEx, with only two known vacates through 2024, which represents less than 40 basis points of annualized revenue. Furthermore, over 71% of our FedEx portfolio and the associated $92 million in annualized revenue is secure, given it is long-term lease with expirations in 2027 and beyond. Leasing in Hawaii was minimal this quarter, with just over 21,000 square feet. We believe this muted activity is a function of timing as our Hawaii leasing pipeline currently exceeds 3 million square feet. Lastly, as we have communicated in the past, we are focused on improving ILPT's leverage, which has declined 1.4 times since last year. However, given the ongoing uncertainty in the capital markets, any improvement in the short term will be organic. With no near-term debt maturities and a cash-flowing portfolio, ILPT will continue to focus on tenant retention, maximizing mark-to-market rent growth opportunities, and reducing operating expenses. I'll now turn the call over to Tiffany.