Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Industrial Logistics Properties Trust reported a 19% year-over-year increase in normalized FFO and a 17% increase on a sequential quarter basis.
- The company executed new and renewal leases for nearly 2 million square feet, reaching a total occupancy of 99%.
- GAAP and cash leasing spreads were 38.3% and 25% respectively, indicating strong rent roll-ups over the past six quarters.
- ILPT's portfolio is anchored by tenants with strong business profiles, with 77% of revenues coming from investment-grade rated tenants or secure Hawaii land leases.
- The company has a robust pipeline with 41 deals for more than 7.5 million square feet, expected to yield an average rent roll-up of 20% on the mainland and 30% in Hawaii.
Negative Points
- Interest expenses increased by 3.5% year-over-year, with further slight increases expected in the upcoming quarter.
- The company noted a potential vacancy period of up to a year for a 600,000 square foot property in Indianapolis.
- There is a noted increase in competition from new industrial products coming online, particularly in the Indianapolis area.
- The cost for an interest rate cap was slightly higher than expected, at $26.2 million compared to the forecasted $25 million.
- ILPT is holding a significant amount of cash to cover future cap costs and tenant expansion needs, which could imply a cautious approach to current market conditions.
Q & A Highlights
Q: What are the expectations for rent roll-ups on the mainland and Hawaii, and are there any tenant pushbacks during negotiations?
A: Yael Duffy, President and Chief Operating Officer, noted that while negotiations are taking longer, significant rent roll-ups are expected due to market shifts since original leases were signed. There's continued demand, and no specific pushbacks were mentioned.
Q: Can you provide details on the cost expectations for future interest rate caps and the strategy for using the company's cash reserves?
A: Tiffany Sy, Chief Financial Officer and Treasurer, mentioned that the cost for the October interest rate cap is expected to be around the low $30 million range. The company plans to hold onto its cash reserves to cover these costs and provide flexibility for tenant expansion needs.
Q: Are there any specific markets where demand is softening, similar to reports from the Inland Empire in California?
A: Yael Duffy acknowledged new competition in markets like Indianapolis due to delayed projects from COVID-19. However, tenants are generally opting to renew rather than relocate, mitigating significant impacts from new supply.
Q: What should be considered regarding percentage rents from Hawaii tenants and the fluctuation in financial modeling from Q1 to Q2?
A: Tiffany Sy clarified that the percentage rent recognized in Q1 was offset by other one-time items, suggesting that the current financial run rate is stable and should be consistent moving forward.
Q: How should the deal pipeline, particularly the large parcel in Hawaii, be interpreted in terms of potential lease finalizations?
A: Yael Duffy explained that the pipeline includes multiple prospects for the Hawaii parcel, but each is only counted once. The company has a good track record of advancing negotiations, particularly in renewals.
Q: Are there any known large property vacancies expected soon, and what are the plans for these properties?
A: Yael Duffy mentioned a 600,000 square foot property in Indianapolis expected to be vacated by the end of June, with marketing efforts ongoing. It may remain vacant for up to a year, indicating a cautious approach to re-leasing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
