Industrial Logistics Properties Trust

Good morning and welcome to the Industrial Logistics Properties Trust's fourth quarter 2023 financial results conference call. All participants will be in a 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. Please note, this event is being recorded. I would now like to turn the conference 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 ILPT's beliefs and expectations as of today, February 21st, 2024, 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 SFO, adjusted EBITDA RE, 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. And with that, I will turn the call over to Yael.

Thank you, Stephen, and good morning. On today's call, I will begin with an overview of ILPT's portfolio, summarize leasing activity for 2023 as well as the fourth quarter, and look ahead to our 2024 lease expirations and objectives. From there, I will turn the call over to Tiffany to discuss our financial results. As of December 31st, 2023, ILPT's portfolio consisted of 411 warehouse and distribution properties in 39 states, totaling approximately 60 million square feet, which includes 16.7 million square feet of industrial land and properties in Hawaii. Since ILPT's inception in 2018, ILPT has maintained portfolio occupancy over 98%, and this quarter was no exception at 98.8%. ILPT's portfolio has a weighted average remaining lease term of 8.1 years, anchored by tenants with strong business profiles and well-recognized brands that continue to benefit from e-commerce. FedEx is our largest tenant, representing 29.7% of annualized revenue, followed by Amazon and Home Depot at 6.7% and 2.1% of total annualized revenues, respectively. ILPT's top 10 tenants account for nearly half of total annualized rental revenues, and 77% of our revenues come from investment-grade rated tenants or subsidiaries or from our secure Hawaii land leases. During 2023, we entered 56 new and renewal leases and four rent recess for 5.4 million square feet, which is in line with 2022 leasing volumes. Same property NOI and same property cash basis NOI increased 3.3% and 4.5% compared to the prior year. Rents were 20.5% higher than prior rental rates for the same space. The impact of this activity is an increase of $7.4 million in annualized rental revenue, of which more than 40% will take effect in 2024. During the fourth quarter, we entered 15 new and renewal leases and one rent reset for 1.5 million square feet at a weighted average lease term of 6.7 years. This activity resulted in gap in cash leasing spreads of 19.7% and 11.2% respectively. Renewals drove most of our leasing, accounting for 80% of total activity, which reinforces our strong tenant retention. Included in these results are three renewals with FedEx, our largest tenant, for over 158,000 square feet at weighted average lease spreads of 19%. Also this quarter, we sold two properties, both of which were unencumbered, for an aggregate sales price of $25.2 million, excluding closing costs. Proceeds were used to enhance our liquidity, which, as of year end, now includes unrestricted cash of $112 million. As we have discussed on prior calls, we expect future disposition opportunities to be limited, given our ability to transact is dependent on pricing and the impact to our operating metrics and debt covenants. Looking ahead, 10.1 million square feet or 12.2% of ILPT's annualized revenue is scheduled to roll by the end of 2025. Included in these expirations is the 2.2 million square foot land parcel in Hawaii that Home Depot had agreed to lease from us before exercising its termination right in 2023. We have been actively marketing the site, and while we have seen interest, we do not expect to have a replacement tenant ahead of the March 31st lease expiration. Given the historical low vacancy and continued rise in asking rents in Hawaii, we expect we will see a meaningful roll-up in rents once we identify a tenant for this site. Turning to our leasing pipeline, we are currently tracking 26 deals in our pipeline for more than 4.8 million square feet. We anticipate a near-term conversion of 30% of our pipeline, given that 1.5 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. As we head into 2024, I would like to reiterate that we believe there is continued opportunity to generate organic cash flow growth and reduce leverage, which has declined from 13.1 times to 12.3 times over the last year. Accordingly, we are focused on tenant retention, maximizing mark-to-market rent growth opportunities, and reducing operating expenses. I will now turn the call over to Tiffany.