Industrial Logistics Properties Trust (ILPT) June 2, 2026 Capital Markets Day Transcript

Great. Thanks, everybody. Appreciate your time. My name is Mitch Dromain. I'm a sell-side analyst with Citizens Bank, and it's my pleasure and honor to introduce you to the industrial logistics properties trust presentation. Joining me on the stage with the management team, I have Yael Duffy, right next to me, president and CEO, Tiffany Tsai, chief financial officer and treasurer. Management's going to take five or seven minutes to talk about background of the company. Then we're going to shift over to Q&A. If you have a question, just raise your hand, and I'll make sure it gets answered. Thank you very much.

Thanks, Mitch. So for those of you who aren't familiar with our story, we own 409 properties in 39 states, about 60 million square feet. The portfolio is 95% leased with a weighted average lease term of just under 7 1⁄2 years. I think part of what makes our portfolio unique is our Hawaii footprint. We have about 226 properties in Hawaii that are mostly ground leased. I know Mitch is going to ask me more about that later, so I'm going to wait for that question to give you more about what makes Hawaii unique for us. Our largest tenant is FedEx. They represent about 20% of our annualized revenue, followed by Amazon at just under 7%. Included in our portfolio is a 61% ownership of our Mountain Industrial Joint Venture, which we spun out as part of the acquisition of Monmouth in 2022. That portfolio is about 94 properties, 100% lease, 21 million square feet, and a walt of just under six years. I think just for a little history on ILPT, we were spun out of select income rate in January of 2018 to unlock value of our industrial and logistics properties that were mostly in Hawaii and some on the mainland. At the time of our IPO, our portfolio was 266 properties and just under 29 million square feet. So really, we grew the portfolio significantly when we acquired Monmouth in 2022. We had had some portfolio acquisitions, 13 property portfolio and a property portfolio prior to that. But it was really with Mon Mint that we grew our scale to where it is today. I think really the story of IOPT, we've had really great success over the last year. We have been top three of the best performing REITs, and this year we're on trend to be the second best performing, at least so far. Not to toot our own horns, but we're very proud of that. I think a lot of what has sparked that increase in shareholder sentiment is we've been able to fix some of our floating rate debt. We did two big financings, one last year and one just in April. And I think that's really the big stories, I guess, the big headlines for ILPT.

Great. Thank you for that. So you said I was going to ask about Hawaii. Let's start there. I actually think that your Hawaii exposure is underappreciated and often overlooked. So let's talk about the market. Let's talk about what you own, maybe provide some history of the portfolio, and what is so unique about the Hawaii market when it comes to industrial assets or commercial real estate.

Yep. So we've actually, through, I mean, different ownerships before they've actually ended up with ilpt we've owned these proper this portfolio of properties since 2003 and they are we have really two large portfolios one that is in this really the cbd the seaport the airport so prime location to honolulu all of those are ground lease so we have very little exposure to any operating expenses because the tenants are responsible for everything so if insurance real estate taxes the tenants are responsible for all of that and we're just getting paid ground rent and there's over the years a lot of industrial zone land has been converted to highest and best use so it's become a hotel or a shopping center and so really for businesses and even mainland tenants that are looking to be on the island there is very little place for them to lease land and so we've historically we've had a concept which is really unique to Hawaii where a tenant will lease a parcel for 30 years 40 years 50 years depending and then every 10 years usually there's something called a rent reset and with that right reset their rent while they're not adding any new term is going to market so they have like a fixed rent for the first 10 years and then it right it goes to market and so the market isn't necessarily for ground lease it's just the highest and best use and so over the years we've seen 30 50 60 percent rent roll-ups as part of this rent reset and we've really tried I think over the last five six years trying to get away from that and go to more normalized annual rent increases because it's better for us because we see continued rent growth but also better for our tenants who aren't getting sticker shock when this rent reset comes up. So that's one I mean that's kind of the concept that we have for all of our Hawaii land leases but then we also have another parcel of group of properties where it is much more heavily zoned industrial land and so really it's a same concept but it's just a little bit further away from the cbd the airport and the port and so the rents are very different so in mipunapuna you can get eight nine dollars per square foot on the ground lease and then in capital a it could be a dollar to a dollar fifty so really a big just discrepancy in rent but But still, we've been very successful, and we generally have been very well leased in Hawaii in a huge amount of roll-ups.

Just making sure I understand this, you guys are the largest industrial landlord in Hawaii, Apart from the government. And if I'm not mistaken, single-digit percent of the land is earmarked for commercial. the rest of it is really conservation, right?

Correct, yep.

So that's really the opportunity to grow rents is not near-term or not previous, but probably going forward as well.

Correct, yeah, and one of the things, you know, some of our tenants in Hawaii are more local users, and we, I think, within our portfolio, we have really good tenant credit, it but sometimes some of these smaller Hawaii tenants sometimes default on their leases if we have any AR issues within our portfolio it's usually in Hawaii but since there's such little land available just in general the Hawaii vacancy rate is under 1% and so if a tenant fails there's usually someone right behind it looking to lease the space and we're usually able to lease it terminate the lease of the failing tenant sign the lease of the new tenant

the next day and usually see 20 to 30 percent roll up in rent so for us when tenants default in Hawaii it's usually good news versus bad news great I wanted to talk a little bit about the balance sheet strengthening so you mentioned I guess there are two really big loans right one which was executed back in 2025 other of which in your consolidated joint venture earlier this year so maybe if we can just discuss you know kind of those two transactions and what what it's meant for the company sure great so last year in 2025 spring of 2025 we had 1.235 billion dollars of floating rate debt that

was on the consolidated balance sheet it was floating rate we were subject to volatility especially with what's going on or what has been going on in the market with interest rates we were required to buy interest rate caps and those the pricing of those fluctuated at one point we bought a 26 million dollar cap they went down to 3 million so there was a lot of volatility there so last Last year, we were able to fix that. We paid that down $75 million. And overall, we're able to really reduce our interest expense, not only from a gap perspective, but also from a cash cash flow perspective. And so this year, we had $1.4 billion of floating rate debt that sat at our consolidated joint venture similar similar issue right we've got floating rate debt we've got to buy caps we just in May refinance that not only did we take that 1.4 billion dollars of voting rate debt that was coming due next year but we also package that up with 200 million dollars of amortizing debt that sits at the that did sit at the consolidated joint venture which we were spending around 20 million dollars of cash annually to reduce the principal we packaged that all up into 1.62 billion dollars of fixed rate debt it's interest only along with the other one that i mentioned so we're able to free up 20 million dollars of cash in our joint venture and so now we've fixed our entire debt portfolio we all in we have $4.2 billion on a consolidated basis. Our weighted average rate is now 5.48% and our next maturity date isn't until 2029. So, you know, we feel really good about these recent transactions. It's allowing us to be able to, you know, avoid the volatility in the market and really plan around that.

And obviously preserve more cash.

And preserve certainly key um the leverage is still a little bit high it is um these balance sheet enhancing transactions will help create a little bit more cash flow your property operations have been strong so you're creating more ebitda what you know kind of maybe just talk a little bit about the long-term strategy with regards to what's next for the balance sheet yeah i think for us i mean doing these two financings were really imperative for us just because as tiffany mentioned we had just so much volatility with the um interest interest rates um so i think for when just as a little history when we had first bought monmouth our business plan had been that we were going to um bring on we're gonna buy the properties we're gonna spin off a joint venture for 94 properties which we did we brought in one partner but we had been pretty heavily marketing for a second partner that could take maybe 39, 40, another 39 percent stake. We have one partner that has 39 percent already. And so as we were going through that marketing process, Russia invaded Ukraine, interest rates went up, and people got a little bit squeamish about investing just where we had floating rate debt. And so I think now that we've fixed the rate on this Mountain debt I think it presents an opportunity where we might be able to it might be attractive for a potential second partner we haven't started marketing it yet just because as Tiffany said we just did this we just executed last month but I think this could be a good opportunity and it could organically help us deliver so I think it could be in a better position to be with our appears.

Great. Let's talk about the operating portfolio. And I know, you know, if you look at some of the year-to-date achievements on the operating side, one has been on the leasing side, right? So obviously you backfilled the largest vacancy you had in the mainland, right, which was over 500,000 square feet in Indianapolis. I know it was obviously a key pillar to your plan. Maybe just talk a little bit about how that process evolved.

Yeah, so we have really for I think for the past six or seven quarters, we've been talking about two major vacancies within our portfolio that really have been needle movers for us. One, as you said, Mitch, is a 532,000-square-foot property in the suburbs of Indianapolis. That one has been vacant for about since 2024. And we've had some start and stops with some leasing efforts, but we actually last month signed FedEx for a 10-year lease there and it's great for us because FedEx is a large tenant in our portfolio we know them we have some properties that are this size with FedEx which you know they use it as a distribution or 3PL and then we have some last mile facilities that are much smaller so kind of within FedEx we have the whole gamut of portfolio size but it was you know I think it was a big lease for us and I think we're really happy with the execution there I think the other major vacancy that we talk about all the time I didn't ask about it I know in Hawaii, and I know 10 minutes ago I was telling you how we have tenants lining up on our doorsteps to lease our Hawaii properties, but this one is a little bit of a unique situation. It's 2.2 million square feet, and for those who can't wrap their head around that, that's about 50 acres. It's undeveloped, so it is really an open field. Trees. I think we've had tenants or prospective tenants go and they see pigs running around on the site. So it is, when I say undeveloped land, it is really undeveloped land. And we've had that one. We had previously that had been leased to a tenant that had really leased it just for a defensive purpose. And so they had leased it for 30 years and had done nothing with it, hence why vegetation is growing. and then we in 2022 had signed a lease with Home Depot who had a right to terminate their lease as they kind of went through their diligence process and I think it wasn't really the site but it was just operating fundamentals for their own business that they ended up terminating the lease so we've been working really hard to try to lease that property and we've had a lot of interest but it just takes a lot of work for somebody to get comfortable with how big of a project it's going to be, because I think anybody who's investing could be investing, you know, not tens of millions, but hundreds of millions of dollars, so they really, it isn't such an easy thing for somebody to just get comfortable with, but we've actually, in the last couple months, have gotten a little more traction, and somebody, a group really digging in, so I'm hopeful that we might actually be able to get this one leased sometime in the near future.

Now, it's actually the leasing momentum in the portfolio has been pretty strong. I think it's 6 million or so square feet a year or a day. That doesn't include, you know, kind of Indianapolis. So clearly that number continues to rise. You've got a pretty large pipeline, 6 or so million square feet. Maybe just talk about overall demand trends that you're seeing, please.

Yeah, so we've been, you know, our processes that we really try to get ahead of these lease expirations of our tenants pretty much as far in advance as we can get them to start talking to us it's very hard for a million square foot tenant to decide three months left on their lease if they're going to stay or go and it's also hard for us to try to lease it if we don't know what their plans are so we do a lot of you know tenant we're always talking to our tenants but we try to talk to them and try to understand their plans. If it seems to be going like 50-50, we hire brokers and we start trying to market the property in advance. I think that's really given us good success because we've been able to, if a tenant decides to leave, we usually have enough runway to find another tenant to backfill the space. I think generally what we've been seeing in the market is that tenants they're engaging but they just don't know and so I think with you know some are blaming they don't know what's going on geopolitically and the impacts to their business they're you know concerned it's I always laugh a little bit because rent is such a small portion for some of these industrial tenants because labor and fuel is much bigger needle movers for them. But I think they're just being a little gun shy to make decisions that are for a five or 10 year lease. So there have been some tenants that are just kind of kicking the can and wanting to do short term renewals. Depending on the market, we could be open to that just because we've been seeing great market rent growth. But in other cases, I think we try to hold their feet to the fire and have them exercise their renewal options that they have because it just is better security for us it's funny you say that because broadly speaking we're hearing a little bit more active or maybe more abrupt decision making particularly when you compare it to you know early 2025 when we had the all the threat about what the tariffs were going to be the impact of the tariffs so would you say it's a little bit better or would you say it's definitely better but i think it's still long it's taking longer than it did in 22 where people they just couldn't get enough they were gobbling up the space and they couldn't get enough and they wanted to make sure they locked it in before the rents went up higher I think they're just being a little more cautious but I think tariffs I don't know I think there was a lot of talk of tariffs but I think it I don't know that it necessarily made its way through the decision-making ultimately I think it was the reason that tenants delayed but I don't know that it changed their decision-making.

Now, despite the slower decision-making, the economics around the leases have been pretty spectacular. Rents increasing, I think it's four consecutive quarters north of 20 percent? Six. Okay, so I'll let you take it from here then.

I think, you know, I think part of, again, not to go back to COVID, but I think part of during COVID, I think a lot of our peers were seeing this enormous growth in their portfolios, and for us we had you know our walt is seven and a half years so we in some ways have the benefit of a long-term walt because we know that you know we have consistent rank annualized revenue that we're going to be getting but we really missed a lot of the opportunity in 22 and 23 where our peers were seeing these huge rollovers in their leases and they were capitalizing on that market rent growth for us it's just taking longer for it to come to fruition because these leases that were signed in 2020 or 2019 are just starting to roll. So we're seeing, you know, tenants are having sticker shock because they signed a $3.75 per square foot, and now their market rent is $9. But, I mean, it is what it is. So I think it's just taken a while for it to come through our financials. And also, as I mentioned, we're getting ahead of some of these leases ahead of their expiration. So, you know, if we sign the lease today for a tenant in 2027, we're not going to see the benefit of that cash NOI until 2027. So it just takes a little bit longer to hit. But we definitely have been the last six quarters benefiting from that.

You've been providing guidance on a quarterly basis. But this past quarter, you know, you offered us full year guidance. And I'd love to get some insight on what, A, what prompted the change, and maybe you can highlight kind of some of the parameters of what your expectations are.

We felt as though investors and analysts would appreciate the transparency. You know, we have the capability to give that guidance. We feel pretty comfortable about, you know, our ability to forecast, and especially with the interest rate volatility being locked down, now, you know, we feel pretty comfortable with that. So hopefully, you know, it seems as though it's appreciated. It definitely was. It definitely was. Do you want me to speak specifics? So NOI for this year, this is what you're looking for? All right. NOI for this year. We're forecasting 357 to 362 million. Our adjusted EBITDA RE, we expect to be between 349, sorry, 344, 349 million. Normalized FFO between 84 and 89 million. And per share, we expect to be around 127 to 100, I'm sorry, $1.34. All of that being growth from the prior year all of that being growth from the prior year and i'll point out the ranges are pretty tight uh in in our guidance we do feel pretty comfortable in in our ability to forecast there so hopefully uh that's helpful great um anybody great go ahead that would be a three cent per share annual uh improvement it's not well let's if we were to replace it with what was previously there right we don't know if that's exactly if that's what would what would happen but it's it's three cents i i don't know if we've said this or not but it is a much larger impact on occupancy our occupancy percentage than it is on our actual revenues i mean from a revenue perspective it was 0.79 percent of our annualized revenue so but it represents 3.6 percent of occupancy so it's really it's a big headline for us because it's just such a big number from an occupancy impact, and so much more meaningful occupancy versus revenue.

Right.

But on the bottom line, the Indianapolis lease has a real meaningful impact.

Exactly right. Less on occupancy. It's the complete opposite. That's right.

Yeah. So backdrops improving, balance sheets strengthening. How do you want of final thoughts for everybody.

I think we have more room. I think, I mean, we were just talking about this earlier. I think there's much more room in the share price. I think, again, we have, we continue to see market growth. Our portfolio is very strong in its performance, operating performance. We're not denying that we have a lot of leverage, but we're working on it. And I think there's more to come.

Great. Thank you. you so much it's an honor to be up here and appreciate everyone's time thank you