Industrial Logistics Properties Trust

Good morning and welcome to the Industrial Logistics Properties Trust's second quarter 2024 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. 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 now like to turn the conference over to Kevin Brady, Director of Investor Relations. Please go ahead.

Thanks, Nick. Good morning. Joining me on today's call are ILPT's President and Chief Operating Officer, Yael Duffy, Chief Financial Officer and Treasurer, Tiffany Tsai, and Vice President, Mark Crone. 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, please 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 July 31, 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, ILTTREITs.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we will be discussing non-GAAP financial measures during this call, including normalized funds from operations or normalized FFO, adjusted EBITDA RE, and cash basis net operating income or cash basis NOI. A reconciliation of these non-GAAP measures to net income is available in our earnings presentation, which can be found on our website. With that, I will turn the call over to Yael.

Thank you, Kevin, and good morning. Before we start, I would like to welcome Mark Crone, who joined ILPT as our vice president on June 1st. On today's call, I will start with an overview of our portfolio, review second quarter leasing results and upcoming lease expirations, before turning the call over to Tiffany to review our financial results. As we enter the second half of the year, we remain encouraged by the continued demand for ILPT's high-quality portfolio, which has benefited from solid leasing activity and organic cash flow growth. Compared to the same period last year, cash basis NOI increased 2.6% and normalized FFO increased 18.1%. In the first half of 2024, we signed 26 leases totaling 2.6 million square feet at weighted average rental rates that were 30.5% higher than prior rental rates for the same space. The impact of this activity is an increase of $4.2 million in annualized rental revenue, of which more than $3.4 million has yet to be realized. given the effective dates are in the second half of 2024 or in 2025. As of June 30, 2024, 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. ILPT's portfolio has a weighted average remaining lease term of 7.9 years, anchored by tenants with strong business profiles and stable cash flows. ILPT's top tenants account for nearly half of our total annualized rental revenues, and 77% of our revenues come from investment-grade rated tenants or from our secure Hawaii land leases. During the quarter, we entered 15 new and renewal leases for approximately 628,000 square feet at a weighted average lease term of 6.8 years. This activity resulted in gap in cash leasing spreads of 15.8% and 7.8% respectively. Leasing in our wholly owned mainland portfolio was strong with total renewal leasing of approximately 432,000 square feet at weighted average roll-ups and rent of 9.6%. We continue to benefit from mark-to-market opportunities within our Hawaii portfolio, where market vacancy is 1% and there has been minimal new construction. We executed 11 leases at weighted average rental rates that were 23.8% higher than prior rents, including two new leases totaling 73,000 square feet, increases in rent of 43.5%. As we have long telegraphed, this quarter we saw the impact of the 2.2 million square foot land parcel in Hawaii that became vacant on April 1st as occupancy declined to 95.4%. While the property accounted for 3.7% of total occupancy, it represents less than 1% of ILPT's annualized rental revenues. We are actively marketing the site for lease. Looking ahead to ILPT's upcoming lease expiration. For the remainder of 2024, 1.3 million square feet, or 3.1% of ILPT's annualized revenue is set to expire. In July, a 535,000 square foot property in the east submarket of Indianapolis, previously leased to a beverage distributor, became vacant. This tenant accounted for approximately 90 basis points of ILPT's occupancy and 1% of ILPT's annualized revenue, or $4 million. Accordingly, this move out will impact our results in the second half of the year. As we look ahead to 2025 and 2026, 8.4 million square feet, or 12.8% of ILPT's total annualized revenue is set to expire. Our leasing and asset management teams are proactively engaging in renewal discussions with these tenants. As conversations progress, we expect to benefit from our proven track record of strong tenant retention and reputation as a landlord of choice. Our leasing pipeline remains active. We are tracking 36 deals for over 7 million square feet, of which 2.5 million square feet, or 35%, is in advanced stages of negotiation or lease documentation. Included in our pipeline are proposals for the Hawaii land parcel and the Indianapolis property that I mentioned earlier, and we will update you on our progress as discussions evolve. Before I turn the call over to Tiffany, 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 12.7 times to 11.9 times over the last year. As such, we remain focused on tenant retention, maximizing mark-to-market rent growth, and continuing to evaluate opportunities to reduce operating expenses. Tiffany?