Industrial Logistics Properties Trust - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 delivered steady operations: rental income of $110.94M, Normalized FFO of $17.39M ($0.26/share), Adjusted EBITDAre of $84.09M, same property Cash Basis NOI up 3.0% year-over-year, and consolidated occupancy of 94.1%.
• Versus Wall Street: revenue came in slightly below consensus, EPS modestly beat, and EBITDA missed; revenue $110.94M vs $111.93M consensus, EPS -$0.234 vs -$0.26 consensus, EBITDA $74.10M vs $83.40M consensus. Values retrieved from S&P Global.*
• Management guided Q4 2025 Normalized FFO of $0.27–$0.29 per share and Adjusted EBITDAre of $84–$85M; interest expense expected to be flat with ~$58.5M cash and ~$5M non-cash amortization.
• Portfolio actions: three properties (867k sq ft) in various stages of disposition for ~$55M; recognized a $6.1M impairment to align carrying value with estimated sales price; proceeds to partially repay ILPT’s $700M loan due 2032.
• Dividend maintained at $0.05 per quarter (annualized $0.20), following the July increase from $0.01; declared on October 9, 2025.

What Went Well and What Went Wrong

• What Went Well

  • Normalized FFO grew 26% sequentially and 116% year over year, supported by refinancing and rent roll-ups.
  • Strong leasing economics: 836k sq ft executed with weighted average GAAP rent increases of 22.4%; renewals comprised ~70% with an average 8-year term, sustaining cash flow and stability.
  • Interest expense declined $10.5M (14.2%) year over year, reflecting lower debt costs and improved rates.

• What Went Wrong

  • GAAP losses persist: net loss attributable to common shareholders was -$21.6M and -$0.33 per share for Q3 2025.
  • A $6.1M impairment was recorded related to a held-for-sale property, reducing GAAP earnings in the quarter.
  • Mainland wholly owned portfolio GAAP rent spread was just 1.8% this quarter, largely due to a lower-spread USPS re-leasing outcome.

Transcript

Operator (participant)

Good morning and welcome to Industrial Logistics Properties Trust's third quarter 2025 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. 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 Barry, Senior Director of Investor Relations. Please go ahead.

Kevin Barry (Senior Director of Investor Relations)

Good morning. Thank you for joining us today. With me on the call are ILPT's President and Chief Operating Officer, Yael Duffy, Chief Financial Officer and Treasurer, Tiffany Sy, and Vice President, Marc Krohn. In just a moment, they will provide details about our business and our performance for the third quarter of 2025, followed by a question and answer session with sell-side 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, October 29, 2025, 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, which can be accessed from our website, ilptreit.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, net operating income or NOI, and cash basis NOI. A reconciliation of these non-GAAP measures to net income is available in our financial results package, which can be found on our website. I will now turn the call over to Yael.

Yael Duffy (President and COO)

Thank you, Kevin, and good morning. I will begin today's call with a brief overview of ILPT's portfolio and highlight our third quarter results before turning the call over to Marc to discuss our leasing activity and pipeline. From there, Tiffany will review our financial performance. Despite macroeconomic and tariff uncertainty, the industrial real estate sector continues to demonstrate resilience, as reflected in our solid third quarter results. We are seeing tenants show greater confidence in their long-term space needs, especially compared to the start of the year, and we are making significant progress addressing our 2026 and 2027 lease expirations. Though industrial vacancy rates remain elevated compared to pandemic lows, new supply is limited, and long-term demand drivers, such as e-commerce growth and reshoring initiatives, continue to underpin demand in the sector.

ILPT's third quarter reflects continued demand for a high-quality portfolio of industrial and logistics properties and growth in many of our key metrics. Same property cash basis NOI increased 3% compared to the same period a year ago, supported by strong renewal activity and rent growth. Additionally, normalized FFO increased over 100% year-over-year, primarily from the refinancing we executed in June. ILPT's portfolio consists of 411 distribution and logistics properties across 39 states, totaling 60 million sq ft, with a weighted average lease term of 7.4 years. Our well-diversified portfolio is further highlighted by our unique Hawaii footprint, consisting of 226 properties totaling 16.7 million sq ft. Our portfolio has a weighted average lease term of six and a half years and is anchored by tenants with strong business profiles and stable cash flows.

Over 76% of our annualized revenues come from investment-grade rated tenants or from our secure Hawaii land leases. We finished the quarter with consolidated occupancy of 94.1%, outperforming the U.S. industrial average by 150 basis points. Turning to our leasing activity, during the third quarter, we completed 836,000 sq ft of leasing, including a rent reset at weighted average rental rates that were 22% higher than prior rental rates for the same space and for an average lease term of eight years. Renewals accounted for 70% of our activity, highlighting strong tenant retention. As we continue to execute on our leasing priorities, we are simultaneously focused on evaluating opportunities to improve our balance sheet and reduce leverage. To that end, we have identified three properties for sale totaling 867,000 sq ft. We are in various stages of the sale process and anticipate a combined sales price of approximately $55 million.

One property is encumbered by debt, and the proceeds from the sale will be used to partially repay ILPT's $700 million loan, which comes due in 2032. We anticipate these transactions to close in the fourth quarter and into early 2026. I will now turn the call over to Marc.

Marc Krohn (VP)

Thank you and good morning. As Yael mentioned, we executed 836,000 sq ft of new and renewal leasing during the quarter, including one rent reset. Renewals represented most of the leasing activity, and our mainland portfolio accounted for over 80% of the leasing volume, including notable transactions with FedEx and the United States Postal Service. Looking ahead, approximately 4% of ILPT's total annualized revenues are set to expire by the end of 2026, and approximately 11% expires in 2027. Our leasing pipeline continues to grow and now exceeds 8 million square feet, with the majority relating to renewal discussions for leases expiring in 2026 and 2027. We anticipate a near-term conversion of approximately 75% of our pipeline, which is in advanced stages of negotiation or lease documentation.

Additionally, our leasing pipeline could result in positive net absorption of 3 million sq ft, including continued interest for our vacancies in Hawaii and Indiana. Overall, we expect the leasing in our pipeline to yield average roll-ups in rent of 20% on the mainland and 30% in Hawaii, further supporting our objective of enhancing cash flows and creating long-term value for our shareholders. I will now turn the call over to Tiffany.

Tiffany Sy (CFO and Treasurer)

Thank you, Marc. Good morning, everyone. Yesterday, we reported third-quarter normalized FFO of $17.4 million or $0.26 per share, which was in line with our expectations and represents an increase of 26% on a sequential quarter basis and 116% compared to the same quarter a year ago. Same property NOI was $86.4 million, and same property cash basis NOI was $84.2 million, both representing an increase on a year-over-year and sequential quarter basis, supported by strong tenant retention and rent roll-ups. Adjusted EBITDA-RE ended the quarter at $84.1 million. Interest expense decreased by $4.4 million compared to the second quarter of 2025 to $63.5 million, reflecting the impact of our $1.16 billion fixed-rate debt refinancing completed in June. We expect interest expense to remain flat in the fourth quarter, with $58.5 million of cash interest expense and $5 million of non-cash amortization of financing and interest rate cap costs.

As Yael mentioned, we have three properties held for sale. During the quarter, we recognized a $6.1 million impairment charge on one of those properties to write down its carrying value to its estimated sales price less cost to sell. At September 30th, the carrying value of the three held-for-sale properties was approximately $31 million. Turning to our balance sheet, we ended the quarter with cash on hand of $83 million and restricted cash of $95 million. Our net debt-to-total assets ratio decreased slightly to 69.3%, and our net debt coverage ratio remains unchanged at 12x. All of ILPT's debt is currently carried at a fixed rate or is fixed through an interest rate cap, with a weighted average interest rate of 5.43% as of September 30th. ILPT has no debt maturities until 2029, except for the $1.4 billion floating rate loan related to our consolidated joint venture.

Including its remaining extension options, this loan is not due until 2027, providing us with flexibility to continue monitoring the capital markets as we evaluate opportunities to move to a fixed rate, extend the maturity, and reduce our overall leverage. In closing, ILPT's operating and financial performance during the third quarter remains strong and continues to benefit from our high-quality industrial portfolio, investment-grade tenant roster, and skilled asset management and leasing teams. Looking ahead to the fourth quarter of 2025, we expect normalized FFO to be between $0.27-$0.29 per share, excluding incentive fees, and adjusted EBITDA-RE between $84 million-$85 million. That concludes our prepared remarks. Operator, please open the line for questions.

Operator (participant)

We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from John Massocca with B. Riley. Please go ahead.

John Massocca (Senior Research Analyst)

Good morning. Maybe touching on guidance first, I noticed it was a net of or not including incentive fees to the external manager. Do you have any kind of range you're expecting for what those fees may be? I know it's contingent on the stock price performance, but I guess maybe based on where the stock would be today, how would that look? Just to confirm, is that going to flow through your reported normalized FFO per share number in Fortune?

Tiffany Sy (CFO and Treasurer)

All right. If we were to use results as of September 30, we would pay a full-year incentive fee of $6.3 million, which would mean we would record less than $2 million in Q4 for that to get to that amount. We do not plan on including that in normalized FFO for Q4.

John Massocca (Senior Research Analyst)

That would be a cash payment. You would basically be paying a full cash payment for the year in Q4, though, if we're thinking about CAD and cash flow.

Tiffany Sy (CFO and Treasurer)

It's paid in January of 2026.

John Massocca (Senior Research Analyst)

Okay. It's paid in 1Q. Would that impact then the 1Q 2026 normalized FFO per share number?

Tiffany Sy (CFO and Treasurer)

It's in January.

John Massocca (Senior Research Analyst)

Okay. Maybe I'm just saying, like, is that essentially, if you're thinking about normalized FFO, maybe even on a go-forward basis, if there are more incentive fees that are paid in future years, right? Obviously, you back that out of normalized FFO because it's kind of an accrual, right, in kind of past quarters.

Tiffany Sy (CFO and Treasurer)

Right.

John Massocca (Senior Research Analyst)

As it's paid out in cash, I mean, that is going to impact the normalized FFO number as it is reported?

Tiffany Sy (CFO and Treasurer)

Normalized FFO is intended to exclude one-time non-recurring activities, and this is not a normal payment that we've had in recent times. I hope that's helpful.

John Massocca (Senior Research Analyst)

Okay. Maybe moving on to the portfolio itself, you know, noticed the positive GAAP leasing spreads on the overall portfolio, but seemed like the mainland wholly owned assets only saw a 1.8% increase in GAAP rent. Was there something specific driving that? Maybe one re-leasing transaction, or just kind of curious why that number was so much lower than the rest of the portfolio.

Yael Duffy (President and COO)

No. Hi, John. I think it was really one deal that kind of drove down. The deal with the United States Postal Service was just about a 2% GAAP roll-up. This is a little bit of a unique building, and we were happy to be able to get it leased, but it wasn't at the spreads that we usually see.

John Massocca (Senior Research Analyst)

Okay. In terms of the dispositions, how much, if any, of the $55 million includes the user-owner-buyer that was discussed last quarter? I guess maybe as well, what are you kind of seeing today on pricing for those sales, maybe in terms of cap rate and even, you know, if you have it, a kind of price per square foot?

Yael Duffy (President and COO)

Sure. The property to the owner-user is really the bulk of the proceeds, about $50 million of it, actually. The other is a unique situation because it's an owner-user and they generally pay a premium, so the cap rate there would be under 6%. The other two are both vacant properties, and one is actually also being sold to an owner-user. I would say they're paying a premium. The third property, it's early days in our process, so I don't have pricing guidance, at least at the moment.

John Massocca (Senior Research Analyst)

Okay. In terms of the impairment, was that driven by the vacant asset sales?

Tiffany Sy (CFO and Treasurer)

Yes.

John Massocca (Senior Research Analyst)

As we look down to 2026, what are you seeing in terms of the disposition opportunity set? Is there an opportunity to do more transactions? Do you want to shore up the balance sheet on the Mountain JV side before you get more active overall in the portfolio in terms of selling assets to delever? Is that a strategic priority? Any color on what you're expecting in 2026 from a sales perspective?

Yael Duffy (President and COO)

We're constantly evaluating the portfolio and really opportunities where we've either maximized value or pruning the portfolio to kind of optimize it. I do think you might see us selling some more properties in 2026. They might be within the Mountain joint venture. I don't know if it'll be coinciding with a potential refinancing or beforehand. I think that's where you'll see most of the disposition activity, if there is any.

John Massocca (Senior Research Analyst)

Okay. Does completing a refinancing open up more assets to sell in that Mountain JV, or are you pretty open just given the structure of that debt to sell assets out of that Mountain JV as you see fit or as opportunities arise?

Yael Duffy (President and COO)

As opportunities arise, we do have flexibility. The refinancing, it's not really reliant on the refinancing.

John Massocca (Senior Research Analyst)

Okay. One last one, you kind of mentioned it in the prepared remarks, but any update particularly on potential lease up in Indianapolis? I know Hawaii is kind of a unique situation, but any kind of progress on the leasing front in Indianapolis?

Marc Krohn (VP)

I can certainly jump in on Indianapolis. We have three proposals out right now. We're very optimistic, but realistic in many ways. Perhaps we can lease that up in the first half of next year.

John Massocca (Senior Research Analyst)

Okay, I really appreciate that color.

Yael Duffy (President and COO)

Thank you.

John Massocca (Senior Research Analyst)

Go ahead.

Yael Duffy (President and COO)

Sorry. I didn't know if you wanted an update on Hawaii as well. We have one tenant, one prospect actually, full-site user that's in diligence. John, you're a little bit new to the story, but it does take a long time for this parcel because it's undeveloped land. They're about halfway through an access agreement that's 90 days, and they're digging in. We're hopeful that this could lead to a lease.

John Massocca (Senior Research Analyst)

One last one with kind of leasing in mind. You know, anything else to be aware of on the leasing front or the renewal front in 2026 as we start to kind of build out the model for that and impacting potentially 2027 numbers?

Yael Duffy (President and COO)

No. I mean, we're making good progress on our 2026 and 2027 expirations, as Marc mentioned in the prepared remarks, that we have a lot of signed LOIs or active lease negotiations. There isn't anything material in terms of expected vacates.

John Massocca (Senior Research Analyst)

Okay. I appreciate all that. That's it for me. Thank you very much.

Operator (participant)

Again, if you have a question, please press star, then one. This concludes our question and answer session. I would like to turn the conference back over to Yael Duffy, President and Chief Operating Officer, for any closing remarks.

Yael Duffy (President and COO)

Thanks for joining our call today. Please reach out to Investor Relations if you're interested in scheduling a meeting with ILPT. Operator, that concludes the call.

Operator (participant)

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.