Earnings call transcript: Industrial Logistics Properties Q2 2025 sees slight revenue beat

Industrial Logistics Properties Trust (ILPT) reported its Q2 2025 earnings, revealing a slight revenue beat with actual figures at $112.1 million against a forecast of $111.68 million. The earnings per share (EPS) came in at -$0.32, highlighting ongoing profitability challenges. The stock showed a modest premarket increase of 1.45%, reflecting a cautious yet optimistic market response. According to InvestingPro data, ILPT has demonstrated strong momentum with a 53.68% year-to-date return, despite being currently undervalued based on Fair Value analysis. The stock’s recent performance aligns with InvestingPro’s observation of strong returns over the past three and six months.

Key Takeaways

• ILPT’s revenue surpassed expectations by a small margin, with a surprise of 0.38%.
• The company increased its quarterly dividend from $0.01 to $0.05 per share.
• Occupancy rates are strong at 94.3%, above the national industrial average.
• ILPT faces significant refinancing needs with JV debt maturing in 2026.

Company Performance

ILPT continues to demonstrate resilience in its operational metrics, with a strong occupancy rate of 94.3% and a tenant retention rate of 86%. The company benefits from a diversified portfolio of 411 properties across 39 states, including a significant presence in Hawaii. Despite these strengths, the negative EPS reflects ongoing financial challenges.

Financial Highlights

• Revenue: $112.1 million, slightly above forecast.
• Earnings per share (EPS): -$0.32, indicating continued profitability issues.
• Normalized FFO: $13.8 million, a 54% increase year-over-year.
• Net Operating Income (NOI): $87.6 million.

Earnings vs. Forecast

ILPT’s revenue surpassed the forecast by $420,000, a 0.38% surprise. However, the negative EPS aligns with the company’s historical trend of profitability challenges, as seen in future EPS projections.

Market Reaction

The stock experienced a 1.45% increase in premarket trading, rising to $5.6. This movement reflects a cautiously optimistic market sentiment, driven by the revenue beat and dividend increase, despite ongoing financial challenges.

Outlook & Guidance

ILPT expects its 2025 Normalized FFO to range between $0.25 and $0.27 per share. The company is focusing on balance sheet improvement and leverage reduction, evaluating potential asset sales, and monitoring its refinancing strategy for upcoming debt maturities.

Executive Commentary

"We believe ILPT remains well positioned to navigate the current market conditions," stated Yael Duffy, President and COO. CFO Tiffany Tsai emphasized the strategic balance in dividend increases, while Vice President Mark Cron highlighted proactive lease renewal strategies.

Risks and Challenges

• High leverage with a net debt to total assets ratio of 69.9%.
• Negative EPS indicates ongoing operational and financial challenges.
• Significant refinancing needs with $1.4 billion JV debt maturing in 2026.
• Potential market volatility affecting property valuations and lease renewals.

Q&A

Analysts focused on ILPT’s refinancing strategies and potential asset sales. Executives noted strong performance in the Hawaii portfolio and emphasized ongoing evaluations of refinancing options and additional property sales.

Full transcript - Industrial Logistics Properties Trust (ILPT) Q2 2025:

Conference Operator: Good morning and welcome to Industrial Logistics Properties Trust’s Second Quarter twenty twenty five Financial Results Conference Call. All participants will be in listen only mode. 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 Matt Murphy, Manager of Investor Relations.

Please go ahead.

Matt Murphy, Manager of Investor Relations, ILPT: 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 Cron. In just a moment, they will provide details about our business and our performance for the 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, 07/30/2025, 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 EBITDAre, 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 Chief Operating Officer, ILPT: Thank you, Matt, and good morning. Before we begin, I want to acknowledge the reports of a tsunami warning issued for Hawaii last night. Fortunately, the warning has since been lifted and early assessments suggest there was no significant flooding. We currently expect little to no impact to our tenants or properties. ILPT reported another strong quarter and made significant progress in improving its balance sheet and positioning the company for future growth.

Cash basis NOI grew by 2.1% compared to the same period last year and normalized FFO increased 54% year over year. We made notable progress on our strategic priorities this quarter. First, American Tire, our fourth largest tenant emerged from bankruptcy proceedings in May without terminating or modifying any of its five leases with us and thereby securing $7,500,000 in annualized revenue through 2029. Second, in June, we successfully refinanced our $1,235,000,000 of floating rate debt into $1,160,000,000 of fixed rate debt. And lastly, earlier this month, we announced a material increase of our quarterly dividend from $01 per share to $05 As of 06/30/2025, ILPT’s portfolio consisted of four eleven distribution and logistics properties across 39 states totaling 60,000,000 square feet with a weighted average lease term of seven point six years.

Our well diversified portfolio is further highlighted by our unique Hawaii footprint consisting of two twenty six properties totaling 16,700,000 square feet. More than 76% of our annualized revenues come from investment grade rated tenants or from our secure Hawaii leases. Following a robust first quarter in which we executed 2,300,000 square feet of leasing, second quarter activity totaled 171,000 square feet at a weighted average lease term of four point eight years and at weighted average rental rates that were 21.1% higher than prior rental rates for the same space. More importantly, leasing activity year to date is expected to increase ILPT’s annualized rental revenue by approximately 3,200,000 of which one third has yet to be realized. Mark will provide further details on our leasing activity and pipeline shortly.

Turning to our goals for the second half of the year. We remain focused on evaluating opportunities to improve our balance sheet and reduce leverage. Accordingly, as part of our recent refinancing, it was important that we were able to successfully negotiate improved terms to release properties under the new loan provision. By doing so, we’ll have greater flexibility as we evaluate potential asset sales to enhance liquidity and support our broader capital strategy. That being said, we continue to believe in the strength of our properties and will remain disciplined when considering future sales to ensure that we maximize value.

To that end, through an unsolicited offer from an owner user, one property was classified as held for sale at quarter end at what we believe is an attractive valuation of $50,000,000 A portion of the proceeds from this potential sale will be used to partially repay ILPT’s $700,000,000 fixed rate mortgage loan, which comes due in 02/1932. We anticipate a close in late twenty twenty five or early twenty twenty six and look forward to updating you on our progress on future calls. Additionally, we are closely monitoring the capital markets to evaluate opportunities to refinance our consolidated joint venture’s $1,400,000,000 of debt. This loan matures in March 2026 and has one remaining one year extension option, which provides us continued flexibility as we evaluate our options. Lastly, we remain committed to driving value by executing new and renewal leasing with strong economics through the second half of the year.

The growth of our leasing pipeline is a testament to ILPT’s portfolio of high quality assets and diversified tenant roster. While ongoing macroeconomic uncertainty may ultimately delay tenant decision making or hinder leasing velocity, we have not seen any weakening demand within our portfolio. We believe ILPT remains well positioned to navigate the current market conditions and capitalize on the long term fundamentals of our industry. I will now turn the call over to Mark.

Mark Cron, Vice President, ILPT: Thank you, Yael, and good morning. ILPT ended the quarter with occupancy of 94.3%, which exceeded the national industrial average by 170 basis points. We executed 171,000 square feet of leasing during the quarter, which was primarily related to renewals and achieved with minimal concessions. Over the last four quarters, we have completed nearly 6,000,000 square feet of leasing across 57 transactions. As a result, only 2,100,000 square feet or 3.6% of our leased square footage is set to expire in the next twelve months.

As we have shared in prior quarters, we typically begin renewal discussions at least eighteen to twenty four months ahead of lease expiration. We believe this proactive approach and early engagement helps drive tenant retention and reduces potential downtime. These principles, along with a tenant retention rate of 86%, underscore our ability to maintain portfolio stability. Today, our leasing pipeline totals 7,800,000 square feet with more than half of the activity related to renewal discussions for leases that expire in 2026 and 2027. Through active conversations with tenants, most are choosing to renew versus relocate given the cost to move, business disruption and economic uncertainty.

Additionally, continue to invest their own capital into our properties, leading to a higher renewal probability. Furthermore, our leasing pipeline could result in positive net absorption of 3,000,000 square feet, including early stage prospects for our vacancies in Hawaii and Indiana. 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 and our ability to generate organic cash flow growth. Our team remains focused on driving rent spreads, maintaining high tenant retention and advancing the active pipeline to conversion in the second half of the year. I will now turn the call over to Tiffany.

Tiffany Tsai, Chief Financial Officer and Treasurer, ILPT: Thank you, Mark. Good morning, everyone. Before I cover our second quarter results, I’d like to provide more details on the refinancing that Yael mentioned earlier. Using cash on hand of $75,000,000 we refinanced our $1,235,000,000 floating rate loan into a new $1,160,000,000 fixed rate loan. The new loan requires interest only payments and matures in 02/1930.

By reducing the outstanding principal balance, eliminating the need to purchase interest rate caps and reducing our interest rate from 6.7% to 6.4%, we expect our annual cash savings to be approximately $8,500,000 or $0.13 per share. As a result, earlier this month, we announced that our Board has raised the quarterly dividend from $01 to $05 or $0.20 per share annually. Now turning to our second quarter results. Last night, we reported normalized FFO of $13,800,000 or $0.21 per share, which was at the high end of our guidance and represents an increase of 54% compared to the same quarter a year ago. NOI was $87,600,000 and cash basis NOI was $84,700,000 each representing increases on both a year over year and sequential quarter basis, while adjusted EBITDAre remained relatively flat at $85,000,000 Interest expense decreased by $1,900,000 compared to the 2025 to $67,900,000 reflecting the impact of our lower cost interest rate cap at our consolidated joint venture purchased in March.

We expect third quarter interest expense to decline to approximately $63,500,000 with $58,500,000 of cash interest expense and $5,000,000 of noncash amortization of financing and interest rate cap costs. Turning to our balance sheet. We ended the quarter with cash on hand of nearly $60,000,000 and restricted cash of just over $100,000,000 Our net debt to total assets ratio increased slightly to 69.9%, and our net debt coverage ratio remained relatively unchanged at 12 times. As a result of the refinancing, our variable debt to net debt ratio declined from 64.8% as of March 31 to 34.4% at June 30, and our interest coverage ratio increased from 1.2x to 1.3x. All of our debt is fixed with no maturities until 2029, except for our consolidated joint venture’s $1,400,000,000 floating rate loan.

This loan is fixed through an interest rate cap and including its remaining extension option is due in 2027. As a reminder, this loan is prepayable with no penalties at any time through its maturity. Looking ahead, based on ILPT’s leasing activity and the interest expense savings from our refinancing, we expect normalized FFO for the 2025 to be between $0.25 and $0.27 per share. In closing, ILPT is actively making strides to strengthen its balance sheet and continues to benefit from demand for its high quality industrial real estate. We believe the increased dividend strikes the right balance between delivering returns for our shareholders while maintaining sufficient capital to support our operations and continued deleveraging strategies.

That concludes our prepared remarks. Operator, please open the lines for questions.

Conference Operator: We will now begin the question and answer session. The first question comes from Mitch Germain with Citizens Capital Markets. Please go ahead.

Jody, Analyst, Citizens Capital Markets: Hi, this is Mitch this is Jody on for Mitch. Just starting with few questions there. Thank you for providing all the details. I wanted to ask if there are any one timers in the earnings this quarter like a lease term fee or something on those lines?

Tiffany Tsai, Chief Financial Officer and Treasurer, ILPT: We had $1.07 and $50,000 remediation payment related to a scheduled termination of a lease. That’s it.

Jody, Analyst, Citizens Capital Markets: Okay. Got it. Thank you. And congratulations on the refi. So are you right now in discussions or looking forward to refiling the $1,400,000,000 JV debt as well?

Tiffany Tsai, Chief Financial Officer and Treasurer, ILPT: We are actively evaluating options that are available to us.

Jody, Analyst, Citizens Capital Markets: Okay. Got it. And the last one for me here is that, you mentioned one of the properties held for sale. Should we expect more on those lines in the coming quarters?

Yael Duffy, President and Chief Operating Officer, ILPT: We don’t have anything else, in the works right now, but we are evaluating, opportunities. And so I would I could foreshadow that in the second half of the year or early twenty twenty six, there might be some additional properties that we bring to market or consider for disposition.

Jody, Analyst, Citizens Capital Markets: Got it. Congratulations on the quarter. That’s all from me. Thank you.

Yael Duffy, President and Chief Operating Officer, ILPT: Thank you. Thank you.

Conference Operator: The next question comes from John Massocca with B. Riley Securities. Please go ahead.

John Massocca, Analyst, B. Riley Securities: Good morning.

Yael Duffy, President and Chief Operating Officer, ILPT: Good morning.

John Massocca, Analyst, B. Riley Securities: So maybe kind of yes, okay. So maybe thinking about potential refinancing for the $1,400,000,000 of kind of floating rate cap debt. Is there anything you’re looking for in terms of the performance of the Mountain JV portfolio that might make that more attractive, might kind of accelerate the timing of kind of completing a refinancing there? And just maybe what were you kind of seeing in the market? What were you kind of seeing with the wholly owned portfolio that made closing that refinancing in June the right time, the right kind of period to the right pricing, etcetera, to be doing that transaction?

Tiffany Tsai, Chief Financial Officer and Treasurer, ILPT: Well, I think the refinancing on the $1,235,000,000 there was more of a that one had a higher interest rate. And so, that seemed to make the most sense in order of refinancing in terms of timing. We still have one year option extension left on the Mountain loans, so we have time to evaluate that. But certainly, if something attractive presents itself at the right rate and right maturity, all of those factors, then we would execute on that.

Yael Duffy, President and Chief Operating Officer, ILPT: Yes. And I guess I’d just add too, John, that I mean the Mountain JV or the Mountain portfolio right now, we’re at almost 100% occupied. So there really isn’t anything additional that we need to do from an operational or leasing perspective to get it primed. Again, it’s just as Tiffany mentioned, it’s really timing and big it’s endeavor to go through a refinancing. So we kind of take one at a time.

John Massocca, Analyst, B. Riley Securities: I mean, there any thought that you want to see maybe some of that 2026 lease renewal before and see how kind of where I guess rent bumps are going to go? Or is that something where the portfolio kind of is where it is in terms of how you’re going to present it to the banking group as you think about refinancing?

Yael Duffy, President and Chief Operating Officer, ILPT: Yes. There isn’t anything material within that Mountain portfolio, in terms of 2026 lease expirations. We only have within all of ILPT, we only have 4.4% of our annualized revenue expiring in 2026. So it isn’t material and even less so for Mountain.

John Massocca, Analyst, B. Riley Securities: And then thinking about the wholly owned portfolio, I know things can vary quarter to quarter, but the GAAP leasing spreads on kind of the Hawaiian new leases in the Hawaiian portfolio were a little bit below the kind of 30% target that you put out there or kind of mark to market that you kind of are thinking about within the portfolio. Is there anything specific driving that? Or is it just, hey, it’s you spoke in the current quarter and then we may outperform next quarter, etcetera?

Yael Duffy, President and Chief Operating Officer, ILPT: Yes. So for our I mean, if we’re to break it out between new leasing and renewals, I mean, our new leasing, we had almost over 83% roll up in rent, across two leases. And then for the renewals, it was hovered around 11%. And I would say really what was driving that is most of those renewals were on our space leases versus our ground leases. And so just as it’s a little bit nuanced because those are generally smaller, tenants anywhere from 1,500 to 6,000 square feet and it’s more traditional as how you would think of office leasing versus ground leasing.

So that’s really just the nuance of it.

John Massocca, Analyst, B. Riley Securities: Okay. That makes sense. And anything notable in terms of the lease up of vacant assets, just notably the Hawaii land parcel in Indianapolis, any kind of moving pieces there that have changed since last quarter?

Yael Duffy, President and Chief Operating Officer, ILPT: Yes. So nothing material. I will say, I think we’ve been seeing a little more activity on our Indiana property in the last several weeks. I think we have three active prospects. In Hawaii, it’s pretty much status quo.

Again, that property is a lot for somebody to, underwrite in terms of all the work that needs to be done there. So it’s just it’s slow.

John Massocca, Analyst, B. Riley Securities: Okay. That’s it for me. Thanks very much.

Yael Duffy, President and Chief Operating Officer, ILPT: Thanks, John. Thank you.

Conference Operator: This concludes our question and answer session. I would like to turn the conference back over to Gael Duffy, President and Chief Executive excuse me, Chief Operating Officer for any closing remarks.

Yael Duffy, President and Chief Operating Officer, ILPT: Thanks for joining today’s call. Please reach out to Investor Relations if you’re interested in scheduling a meeting with us. Operator, that concludes our call. Thank you.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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