• Funds From Operations (FFO): $8.1 million or $0.12 per share, an increase of 1.5% compared to Q3 2023.
• Net Operating Income (NOI): Decreased by 0.7% to $84.7 million compared to Q3 2023.
• Cash Basis NOI: Increased by 1.1% to $82.5 million compared to Q3 2023.
• Adjusted EBITDAre: Increased by 0.9% to $83.9 million.
• Occupancy Rate: 94.4% at quarter end.
• Leasing Activity: Over 2.7 million square feet leased, with a 7% increase in weighted average rates compared to prior leases.
• Interest Expense: $58.8 million cash interest expense paid, with a decline expected in Q4 to approximately $72 million.
• Net Debt to Total Assets Ratio: 68.1%, an improvement of 40 basis points from a year ago.
• Total Cash: Approximately $154 million, excluding $101 million of restricted cash.

• Warning! GuruFocus has detected 7 Warning Signs with ILPT.

Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• ILPT reported year-over-year growth in key metrics such as funds from operations (FFO) and cash basis net operating income (NOI).
• The company has a strategically diversified portfolio with a significant presence in Hawaii, consisting of 226 properties totaling over 16.7 million square feet.
• ILPT's portfolio is anchored by tenants with strong business profiles, with 77% of annualized revenues coming from investment-grade rated tenants or secure Hawaii land leases.
• The company executed over 2.7 million square feet of leasing in the third quarter, with a weighted average lease term of 5.5 years and a 7% increase in weighted average rates compared to prior leases.
• ILPT has no debt maturities until 2027, providing financial stability and flexibility for future operations and deleveraging efforts.

Negative Points

• American Tire Distributors, ILPT's fourth largest tenant, filed for Chapter 11 bankruptcy, which could impact future rental income.
• Consolidated occupancy decreased to 94.4% due to a 535,000 square foot property in Indianapolis becoming vacant.
• The company incurred a $1.3 million non-cash charge due to the early termination of a tenant in Hawaii.
• ILPT's quarterly cash dividend remains at $0.01 per share, with no immediate plans to increase it due to the need for liquidity and financial flexibility.
• The company's net debt to total assets ratio is high at 68.1%, although it has improved slightly compared to the previous year.

Q & A Highlights

Q: Can you explain the trade-off in pricing versus interest rate for the interest rate cap costs? A: Tiffany Sy, CFO & Treasurer, explained that the interest rate for a particular loan will increase to 6.71%, with a weighted average for ILPT at around 5.5%. The lender determines the strike rate based on the required debt service coverage ratio. The higher strike rate of 2.78% allowed them to save upfront costs, effectively deferring interest rate payments.

Q: Can you provide more details on the leasing timeline for Hawaii and Indianapolis properties? A: Yael Duffy, President & COO, stated that for the Hawaii land parcel, the second half of 2025 is most realistic due to the diligence required by prospective tenants. For Indianapolis, they aim to be in a position to lease in the first half of 2025.

Q: Are there any expected vacates from American Tire or other tenants in the next 12 months? A: Yael Duffy confirmed that American Tire is utilizing the properties and they do not expect lease rejections, although it is early in the bankruptcy proceedings. There are no other material known vacates expected.

Q: What is the impact on net debt to EBITDA if the Mountain JV is deconsolidated? A: Tiffany Sy mentioned that there are many factors to consider, and they do not have exact numbers to share at this point.

Q: Is the firm considering asset sales given the current rate environment? A: Yael Duffy noted that they receive unsolicited offers and evaluate them, but there is often a disconnect between perceived property value and offers. They are constantly evaluating, but releasing properties from debt involves several covenants.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.