Q3 2023 Industrial Logistics Properties Trust Earnings Call
Good morning.
Speaker 1: Good morning and welcome to Industrial Logistics Properties Trust 3rd Quarter 2023 Financial Results Conference Call
And welcome to industrial logistics properties Trust.
Third quarter 2023 financial results conference call.
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Speaker 1: I would now like to turn the call over to Stephen Colbert, Director of Investor Relations. Please go ahead.
I would now like to turn the call over to Stephen Colbert Director of Investor Relations. Please go ahead.
Good morning.
Speaker 2: Joining me on today's call are Yael Duffy, President and Chief Operating Officer, and Tiffany Tsai, Chief Financial Officer and Treasurer.
Joining me on today's call are Yale Duffy, President and Chief operating Officer, and Tiffany Tsai, Chief Financial Officer, and Treasurer. Today's call includes a presentation by management followed by.
Speaker 2: Today's call includes the presentation by management followed by a question and answer session with analysts.
A question and answer session with analysts.
Speaker 2: Please note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company.
Please note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company.
Speaker 2: Also note that today's conference call contains forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995 and other securities laws.
Also note that todays 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 <unk> beliefs and expectations as of today October 26, 2023, and actual results may differ materially from those that we project.
Speaker 2: These four looking statements are based on IELPT's beliefs and expectations as of today, October 26, 2023, and actual results may differ materially from those that we project.
Speaker 2: the company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's Congress call.
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.
Speaker 2: Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, or SEC, which can be accessed from our website ILPTReit.com or the SEC's website.
Additional information concerning factors that could cause those differences is contained in our filings with the securities and exchange Commission or SEC, which can be accessed from our website I L. P T rate dot com or the Sec's website.
Investors are cautioned not to place undue reliance upon any forward looking statements.
Speaker 2: investors are cautioned not to place undue reliance upon any forward-looking statement.
Speaker 2: In addition, we will be discussing non-GAF financial numbers during this call, including normalized funds from operations or normalized FFO, adjusted EBITDA, and cash-basis net operating income for cash-basis NLI.
In addition, we.
We will be discussing non-GAAP financial numbers during this call, including normalized funds from operations or normalized SFO, adjusted EBITDA and cash basis, net operating income or cash basis NOI.
Speaker 2: A reconciliation of these non-GAAP figures to net income is available in our Financial Results and Supplemental Information presentation which can be found on our website.
Reconciliation of these non-GAAP figures to net income is available in our financial results and supplemental information presentation, which can be found on our website.
Speaker 3: With that, I'll turn the call over to Yael. Thank you, Stephen, and good morning. Before we begin, I would like to welcome Tiffany Tsai, who joined ILPT as our Chief Financial Officer and Treasurer on October 1.
With that I'll turn the call over to Guy.
Thank you Stephen and good morning, before we begin I would like to welcome Tiffany Si who joined I O P T as our Chief Financial Officer, and Treasurer on October 1st.
Speaker 3: On today's call, I will begin with an update on our disposition activity and then review ILPT's operating and leasing performance before turning the call over to Tiffany to discuss our financial results.
On today's call I will begin with an update on our disposition activity and then review I L. P. Ts operating and leasing performance before turning the call over to Tiffany to discuss our financial results.
Last quarter, we reported that we had three properties too that are encumbered under agreement for sale for an aggregate sales price of $65 $3 million.
Speaker 3: Last quarter, we reported that we had three properties, two that are encumbered under agreement to sell for an aggregate sales price of $65.3 million.
Speaker 3: We also discussed that while dispositions are challenging in this economic environment, ILPT may face additional difficulties given the property release provisions under our debt agreement.
We also discussed that while dispositions are challenging in this economic environment I L. P. T may face additional difficulties given the property relieves provision under our debt agreements.
Speaker 3: During the diligence process, one property fell out of agreement as the buyer was unable to receive the required licensing needed to operate its business.
During the diligence process, one property fell out of agreement as the buyer was unable to receive the required licensing needed to operate its business.
Speaker 3: and another terminated due to delays in the transaction timeline.
And another terminated due to delays in the transaction timeline.
Speaker 3: The third property, which is unencumbered, continues to be under agreement to sell for $21.5 million.
Third property, which is unencumbered continues to be under agreement to sell our $21.5 million.
Speaker 3: Turnate to our operating and leasing performance. As of September 30th, 2023, our portfolio, which consists of 413 warehouse and distribution properties, achieved same property NOI and cash basis NOI growth of 5.3% and 6% respectively, compared to the third quarter of 2022.
Turning to our operating and leasing performance.
At September 30th 2023, our portfolio, which consists of 413 warehouse and distribution properties achieved same property NOI and cash basis, NOI growth of five 3% and 6% respectively compared to the third quarter of 2000.
'twenty two.
We are finally, beginning to see the positive impact of the 5.2 million square feet of leasing we completed over the last year.
Speaker 3: We are finally beginning to see the positive impact of the 5.2 million square feet of leasing we completed over the last year.
Speaker 3: As a point of reference, the impact of this activity is an increase of $7.4 million in annualized rental revenue, which represents 2% of ILPT's total annualized revenue.
As a point of reference the impact of this activity is an increase of $7.4 million in annualized rental revenue, which represents 2% of I O P. Ts total annualized revenue.
Speaker 3: With 11.2 million square feet set to expire through 2025, we believe there is continued opportunity to generate organic cash flow growth.
With 11.2 million square feet set to expire through 2025, we believe there is continued opportunity to generate organic cash flow growth.
Turning to the quarter.
Speaker 3: We'd executed 12 new and renewal leases for nearly 758,000 square feet, resulting in modest gap and cash leasing spreads of 13.5% and 10.3% respectively.
What do you executed 12, new and renewal leases for nearly 758000 square feet, resulting in modest gap and cash leasing spreads of 13.5% and 10, 3% respectively.
Speaker 3: The impact of this activity is an increase of $841,000 of annualized rental revenue.
The impact of this activity is an increase of $841000 of annualized rental revenues.
Speaker 3: These leases have a weighted average lease term of 4.1 years, which is strategically shorter than what we typically report.
These leases have a weighted average lease term of four one years, which is strategically shorter than what we typically report.
It's asking rents continue to increase we are selectively completing short term renewals with certain tenants to take advantage of market conditions.
Speaker 3: As asking rents continue to increase, we are selectively completing short-term renewals with certain tenets to take advantage of market conditions.
Speaker 3: Highlighted in our results is continued demand from ILPT's largest tenant FedEx.
Highlighted in our results is continued demand from IL P Ts largest tenant Fedex.
Speaker 3: We completed three renewals totaling 213,000 square feet in Texas, Georgia, and Illinois at a roll-up in rent of 15.9 percent.
We completed three renewals totaling 213000 square feet in Texas, Georgia, and Illinois, I don't roll up in rent of 15, 9%.
As Fedex works through its drive program initiatives, our leasing and asset management team has been engaged in discussions with Fedex decision makers as they work through their long term plans.
Speaker 3: As FedEx works through its DRIVE program initiative, our leasing and asset management teams have been engaged in discussions with FedEx decision makers as they work through their long-term plan.
Speaker 3: Our leasing pipeline includes 1.6 million square feet across 14 properties that is specific to FedEx, with only two known vacates through 2024, which represents less than 40 basis points of annualized revenue.
Our leasing pipeline includes 1.6 million square feet across 14 properties that is specific to Fedex with only two known vacates through 2024, which represents less than 40 basis points of annualized rent revenue.
Speaker 3: Furthermore, over 71% of our FedEx portfolio and the associated $92 million in annualized revenue is secure given it is long-term lease with expiration in 2027 and beyond.
More over 71% of our portfolio and the associated $92 million in annualized revenue. It's the Kerr given it is long term lease with expirations in 2027 and beyond.
Speaker 3: Leasing in Hawaii was minimal this quarter, with just over 21,000 square feet. We believe this muted activity is a function of timing as our Hawaii leasing pipeline currently exceeds 3 million square feet.
Leasing in Hawaii was minimal this quarter with just over 21000 square feet. We believe this muted activity is a function of timing as our Hawaii leasing pipeline currently exceeds 3 million square feet.
Speaker 3: Lastly, as we have communicated in the past, we are focused on improving IELPT's leverage, which has declined 1.4 times since last year. However, given the ongoing uncertainty in the capital market, any improvement in the short term will be organic.
Lastly, as we have communicated in the past we are focused on improving I O P. T leverage which has declined 1.4 times since last year.
However, given the ongoing uncertainty in the capital markets any improvement in the short term will be organic.
Speaker 3: With no near-term debt materities and a cash-flowing portfolio, IOPT will continue to focus on tenant retention, maximizing market-ranked growth opportunities, and reducing operating expenses. I'll now turn the call over to Tiffany. Thank you.
With no near term debt maturities and a cash flowing portfolio I O. P. T will continue to focus on tenant retention maximizing mark to market rent growth opportunities and reducing operating expenses I'll now turn the call over to Tiffany.
Yeah, good morning, everyone.
Starting with our consolidated financial results for the third quarter of 2023.
Speaker 1: Starting with our consolidated financial results for the third quarter of 2023.
Speaker 1: Generalized funds from operations were flat on a sequential quarter basis at $7.9 million for 12 cents for share and declined compared to prior to your quarter.
So all of our funds from operation, but flat on a sequential quarter basis of $7 $9 million or 12 cents per share a decline compared to the prior year quarter.
Justice EBITDA Ari will be $3 $2 million, an increase on both a sequential quarter and year over year basis.
Speaker 1: The Justice Visa RA would pay $3.2 million, and increase on both the federal quarter and your or your base.
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Our leasing activity generated increases in cash rent on a same property basis of $7 $2 million or seven 4% year over year, partially offset by operating expense increases of $2 $7 million or 12, 2%.
Speaker 4: or leasing activity generated increases in cash rent on the same property basis of $7.2 million or 7.4% year over year, partially offset by operating expense increases of $2.7 million or 12.2%.
Operator: After today's presentation there will be an opportunity to ask questions. You ask a question you may press star then one on your touch time phone. To withdraw your question please press star then two.
Speaker 4: results in a net 6% increase in same property cash basis and a lives for the third quarter.
This resulted in a 6% increase in same property cash basis NOI for the third quarter.
Operator: Please note this event is being recorded.
Interest expense was $72.9 billion for the quarter.
Stephen Colbert: I would now like to turn the call over to Stephen Colbert, Director of Investor Relations. Please come ahead. Good morning.
Speaker 4: Interest expense was $72.9 million to the quarter. And it increased the $1.1 million sequentially, and it reflects the full quarter's impact of the mortgage loans we refinanced in May.
An increase of $1 $1 million sequentially and reflects a full quarter's impact of the mortgage balls, we refinance in may.
Stephen Colbert: Joining me on today's call are Yael Duffy, President and Chief Operating Officer and Tiffany Sy, Chief Financial Officer and Treasurer. Today's call includes the presentation by management followed by a question and answer session with analysts.
Speaker 4: Our fourth quarter estimated interest expense is approximately 73 million dollars.
Our fourth quarter estimated interest expense was approximately $73 million.
The thing is $56 million of cash interest expense, including the benefit from our in the money interest rate cap.
And the $7 million of noncash amortization of financing costs.
Turning to our balance sheet.
Stephen Colbert: Please note that the recording and retransmission of today's conference call is prohibited without the prior ribbon consent of the company. Also note that today's conference call contains forward-looking statements within the meeting of the Private Security's litigation reform act of 1995 and other security laws. These forward-looking statements are based on IELPT's police and expectations as of today of Proper 26, 2023 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 call.
Speaker 4: I will be the end of the quarter with a net step to total access ratio of 68.5%, compared to 69.9% a year ago. And our net step coverage ratio declined to 12.3 times compared to 13.7 on a year or a year later.
Okay. So you ended the quarter with a net debt to total assets ratio of 68, 5%.
Care to 69, 9% a year ago.
The coverage ratio declined to $12 three times compared to $13 seven on a year over year basis.
Speaker 4: All of our debt is currently carried out of 6 rates or 6-2 interest rate cap, but the total weighted average interest rate of 5.47%.
All of our debt is currently carried at a fixed rate or fixed through interest rate cost, but the total weighted average interest rate of 5.47%.
Speaker 4: including extension options. I hope that you have no deputy french games until 2012 8 2 1 2 2 3 3 2 3 2
Including extension options I Hope you do you have no debt maturities until 2027.
Speaker 4: Our first extension option on the $1.4 billion quality rate loan under our Consolidated Joint Venture occurs in March 2024 subject to the replacement of the related interest rate cap. Based on today's pricing, the replacement cap would range from $20 to $30 million.
Our first dispatch an option on the $1 4 billion dollar floating rate loan.
Our consolidated joint venture occurs in March 2024, subject to the replacement of the related interest rate cap.
Based on todays pricing replacement cap would range from $20 million to $30 million.
Stephen Colbert: Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission or SEC, which can be accessed from our website ILPTREET.com or the SEC's website. Investors are cautioned not to place undue reliance upon any forward-looking statements.
As of September 30th we had approximately $83 million of cash on hand.
Speaker 4: As a September 30th, we had approximately $83 million of cash on hand.
Speaker 4: and $139 million of restricted cash in our consolidated joint venture.
At $139 million of restricted cash in our consolidated joint venture.
Speaker 4: As Gaelle mentioned earlier, we will continue to evaluate opportunities to reduce our leverage and build liquidity. However, we currently have no plans to market properties for sale.
As Gavin mentioned earlier, we will continue to evaluate opportunities to reduce our leverage and build liquidity. However, we currently have no plans market property for sale.
In closing, while the current economic environment had its challenges our portfolio remain compelling.
Speaker 4: In quoting, while the current economic environment has its challenges, our portfolio remains compelling, the exceptional tenant roster near full occupancy and rising rent across our portfolio. We expect the IOPT will continue to benefit from demand for high-quality industrial real estate like our.
Stepchild tenant roster near full occupancy and rising rents across our portfolio and we expect the Iot T will continue to benefit from demand for high quality industrial real estate like ours.
Stephen Colbert: In addition, we will be discussing non-GAAP financial numbers during this call, including normalized funds from operations or normalized FFO, adjusted EBITDA and cash-basis net operating income or cash-basis NLI. A reconciliation of these non-GAAP figures to net income is available in our financial results and supplemental information presentation, which can be found on our website.
Speaker 4: That concludes our prepared remarks. Operator, please open the line for questions.
That concludes our prepared remarks, operator, please open the line for questions.
Yeah.
Speaker 1: Thank you. We will now begin the question and answer session.
Thank you.
We will now begin the question and answer session.
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Yael Duffy: With that, I'll turn the call over to GAIA. Thank you, Steven, and good morning.
Speaker 1: At this time, we will pause momentarily to assemble our rock.
At this time, we will pause momentarily to assemble our roster.
Yael Duffy: Before we begin, I would like to welcome Tiffany Sy, who joined ILPT as our Chief Financial Officer and Treasurer on October 1st. On today's call, I will begin with an update on our dissolution activity and then review ILPT's operating and leasing performance before turning the call over to Tiffany to discuss our financial results. Last quarter, we reported that we had three properties, two that are encumbered under agreement to sell for an aggregate sales price of $65.3 million.
Our first question comes from Bryan Maher with B Riley FBR. Please go ahead.
Speaker 1: Our first question comes from Brian Mayer with Be Rylee at BR. Please go ahead.
Speaker 5: Thank you and good morning, Yaha and Tiffany. Maybe sticking with the caps for a minute. Tiffany, did you say that was $28 to $30 million or $20 to $30 million? I didn't quite catch that.
Thank you.
Morning, a young island, Tiffany maybe sticking with the caps for a minute tip.
Tiffany did you say that was $28 million to $30 million or 20 to 30 minute I didn't quite catch that.
Speaker 4: I said 20 to 30 million. That is based on the processing.
It's about a 20 to 30 million.
That is based on.
Pricing them, but also.
Speaker 4: our expectations of the strike price, so there's some range there as well.
Our expectations of the.
Yael Duffy: We also discussed that while dispositions are challenging in this economic environment, IELPT may face additional difficulties given the property release provisions under our debt agreements. During the diligence process, one property fell out of agreement as the buyer was unable to receive the required licensing needed to operate its business, and another terminated due to delays in the transaction timeline. The third property, which is unencumbered, continues to be under agreement to sell for $21.5 million.
The strike price so there's some range there as well.
Speaker 5: And was that for one of the capture? Was that for both of the 2024 caps? Its closer now as the
And was that for one of the caps or was that for both of the 'twenty 'twenty four caps.
That is what we wanted to cast.
Speaker 5: And how does that pricing compare to the cap cost that was put on that loan back in 2022?
And how does that pricing compare to the cat cost that was put on that loan back in 2022.
Speaker 4: Well, the most recent cap that we purchased was September 22, and that was $47 million. That was at a much
Well the most recent cat that we purchased was a September 22, and that was $47 million that will go that much.
Speaker 4: That was at a lower spec price, however, and it was also a two-year period.
Those are the lower stock price. However, it was also a two year period.
Yael Duffy: Turning to our operating and leasing performance. As of September 30, 2023, our portfolio, which consists of 413 warehouse and distribution properties, achieved same property NOI and cash faces NOI growth of 5.3% and 6% respectively compared to the third quarter of 2022. We are finally beginning to see the positive impact of the 5.2 million square feet of leasing we completed over the last year. As a point of reference, the impact of this activity is an increase of $7.4 million in annualized revenue, which represents 2% of IELPT's total annualized revenue. With 11.2 million square feet set to expire through 2025, we believe there is continued opportunity to generate organic cash flow growth.
So it's not necessarily apples to apples, but I will say that pricing has slightly increased since the last time, we purchased.
Speaker 4: So it's not necessarily apples to apples, but I will say that pricing has slightly increased since the last time we purchased.
Okay. That's helpful. And then when we think about organic deleveraging I think you mentioned or you. All mentioned that has come down from $13 seven times to I think 12, three times should we suspect that all else being equal over the next 12 months, we should see.
Speaker 5: Okay, that's helpful. And then when we think about organic deleveraging...
Speaker 5: I think you mentioned or Yael mentioned that it's come down from 13.7 times to I think 12.3 times. Should we suspect that all else being equal over the next 12 months we should see a similar amount of organic deleveraging or do you think that moderates a little?
A similar amount of organic deleveraging or do you think that moderates a little bit.
No I think that I think it's a good that's a good proxy for our run rate as we will continue to pay down our mortgages. It shouldn't that easily steadily continue to decline in that fashion.
Speaker 4: I think it's a good property for a run rate. We have people continue to pay down our mortgages. It should steadily continue to decline enough.
Speaker 5: Okay, and then just maybe for your eye on the asset dispositions, I caught all what you said on the three going to one, and that I think you said you weren't actively marketing properties, but are you still receiving inbound inquiries into some of your properties, and how are those progressing?
Okay, and then just maybe for you either on the asset dispositions I caught all what you said on the three going to one and that I think you said you weren't actively marketing properties, but are you still receiving inbound inquiries into some of your properties and how are those progressing.
Yael Duffy: Turning to the quarter. We have executed 12 new and renewal leases for nearly 758,000 square feet, resulting in modest gap and cash leasing spreads of 13.5% and 10.3% respectively. The impact of this activity is an increase of $841,000 of annualized revenue. The leases have a weighted average lease term of 4.1 years, which is strategically shorter than what we typically report. As asking rents continue to increase, we are selectively completing short term renewals with certain tenants to take advantage of market conditions.
Speaker 3: So, we have been. I will say that I think it's the unsolicited offers have slowed in the last quarter or so. And so with each with each offer that we get, we really do review if it makes sense to sell. And I think we've talked about this on the prior last quarter's call, but it really is.
So we have been I will say that I think it's the unsolicited offers have flowed them in the last quarter or so and so with each of them with each offer that we got we rarely do review them. If it makes sense to sell and I think we've talked about this on the prior.
Our last quarter's call, but it really is it's hard for us to sell things out of the collateral pools given him the amount to release the property from the collateral pool must be the greater of 115% of the allocated loan value.
Speaker 3: It's hard for us to sell things out of the collateral pool given the amount to release the property from the collateral pool must be the greater of 115% of the allocated loan value or 100% of the net sale proceeds.
Yael Duffy: Highlighted in our results is continued to manage from IELPT's largest tenant FedEx. We completed three renewals totaling 213,000 square feet in Texas, Georgia, and Illinois at a roll-up in rent of 15.9%. As FedEx works through its drive program initiatives, our leasing and asset management teams have been engaged in discussions with FedEx decision makers as they work through their long-term plans. Our leasing pipeline includes 1.6 million square feet across 14 properties that is specific to FedEx with only two known vacates through 2024, which represents less than 40 basis points of annualized revenue. Furthermore, over 71% of our FedEx portfolio and the associated $92 million in annualized revenue is secure, given it is long-term lease with aspirations in 2027 and beyond.
You or 100% of the net sale proceeds and so.
You know.
On top of that we also have to maintain our required debt service coverage ratio. So.
Speaker 3: On top of that, we also have to maintain a required debt service coverage ratio.
Speaker 3: Really, we have to look at the value of the property today versus what we close on the value when we close on the loan. And I think we can all agree that there's been some shift in valuations. So it's hard to make the math work. And then if we're going to target under performing properties.
Really we have to look at the value of the property today versus what we closed on the value. When we closed on the alone and I think we can all agree that theres been some shift in valuation. So it's hard to make the math work and then you know if we're going to target under performing.
<unk>.
Properties for sale.
It's hard to we have to improve our debt yields when we remove it from the collateral pool, but it's.
Speaker 3: It's hard to, we have to improve our debt yields when we remove it from the collateral pool, but...
Speaker 3: It's hard to sell a property that's under performing. So there's a lot of, there's a lot that's going into it, but you know, if the opportunity is right and it makes sense, we'll do it, but it's been far into you between.
It's hard to sell a property that's underperforming so it's there's a lot of there's a lot that's going into it but you know this the opportunity is right and it makes sense well, we'll do it but it's been far and few between.
Speaker 5: When we look at the rolling four quarter, trailing CAD being $0.54 or so, and you're paying out basically $0.04.
Okay. Thanks, and then just maybe last for me a quick one on the dividend I mean, when we look at the rolling four quarter trailing.
Yael Duffy: Leasing in Hawaii was minimal this quarter, with just over 21,000 square feet. We believe this muted activity is a function of timing as our Hawaii leasing pipeline currently exceeds 3 million square feet.
Trailing CAD being I think it's 54 sensors, so and you're paying out basically four cents.
Speaker 5: Is there any thought to take in that dividend up even a little or is the focus just solely on paying down a debt and keeping dry powder for cap costs?
Is there any thought to taking that dividend up even a little or is the focus just solely on paying down debt and keeping dry powder for cap costs.
Yael Duffy: Lastly, as we have communicated in the past, we are focused on improving IOPT's leverage, which has declined 1.4 times since last year. However, given the ongoing uncertainty in the capital market, any improvement in the short term will be organic. With no near-term debt materities and a cash-flowing portfolio, IOPT will continue to focus on tenant retention, maximizing mark-to-market rank growth opportunities, and reducing operating expenses.
Speaker 4: Currently we are focusing on reducing our leverage. We would like to get it to a lower level.
It's just the ladder currently we're focusing on reducing our leverage them you know we'd like to get it.
To a lower level I mean at least.
And and then you know.
Speaker 4: You know, we could have a real, I think, discussion or considerations, but that's our most perfect now.
We could have a real I think discussion.
Considerations, but that's where I'm sorry, right now.
Tiffany Sy: I'll now turn the call over to Tiffany. Cindy Yael, good morning, everyone. Starting with our consolidated financial results for the third quarter of 2023, some of our funds from operations were flat on a sequential quarter basis at $7.9 million or 12 cents for share, and declined compared to prior to year quarter. The Justice EBITDA RE was $83.2 million, and increased on both sequential quarter and year-rear basis. Our leasing activity generated increases in cash rent on the same property basis of $7.2 million or 7.4% year-over-year, partially offset by operating expense increases of $2.7 million or 12.2%, which resulted in a net 6% increase in the same property cash basis and allies for the third quarter.
Speaker 5: I didn't catch that. Did you say you wanted to get leverage down to 10 before you rethink that?
I didn't catch that did you say you wanted to get leverage down to 10 before you rethink that.
Yeah, I think the board's looking at it I'm, Brian, but I think right now really we need we need to have liquidity to be make sure that we have liquidity to buy the caps and then also to run the business you know I mean, if we.
Speaker 3: Yeah, I think the board's looking at it, Brian , but I think right now really we need we need to have liquidity to make sure that we have liquidity to buy the caps and then also to run the business. You know, I mean, if.
Speaker 3: We have some leasing that's coming up and then if you know, FedEx comes to us and wants to do a building expansion or parking lot project, we want to make sure that we have the liquidity to partner with our tenants to meet their needs.
We have some leasing that's coming up and then if you know if that comes to us and wants to do a building expansion or a parking lot project, we want to make sure that we have the liquidity to partner with our tenants to meet their needs.
Right, but you know to the extent that you know 10 is the bogie before the board starts to think about it that is helpful from our standpoint, as we model out. The company you know kind of now through 2026, you know kind of where you hit that in and where there could be thought process of us like you know dividend increase you know nothing crazy, but.
Speaker 5: Right, but to the extent that, you know, Ken is the bogey before the board starts to think about it, that's helpful for Mars standpoint as we model out the company, you know, kind of now through 2026, you know, kind of where you hit that and where there could be thought process of a slight dividend increase, you know, nothing crazy. But anyways, food for thought and thanks.
Tiffany Sy: Interest expense was $72.9 million to the quarter, and an increase of $1.1 million sequentially, and reflects the full quarter's impact of the mortgage loans we refinanced in May. Our fourth quarter estimated interest expense was approximately $73 million, existing at $66 million with cash and can expense, including the benefits from our in-the-money interest rate cash, and the $7 million of non-cash underlization of financing costs. Turning to our balance sheet, I will be seeing end of the quarter with a net step to total assets ratio of 68.5%, compared to 69.9% a year ago, and our net step coverage ratio declined to 12.3 times, compared to 13.7 on a year-over-year basis.
Anyways food for thought and thank you for all those comments.
Thanks.
Yeah.
Okay, and if you'd like to ask a question. Please press Star then one our next question comes from Mitch Germain with JMP Securities. Please go ahead.
Speaker 6: Again, if you'd like to ask a question, please press star then one. Our next question comes from that's germane with JMP security. Please go ahead. Keith, I'll go ahead and ask Aberde . . .
How did you mute your phone on mute perhaps.
Hello.
Tiffany Sy: All of our debts is currently carried out of 6 rates or a 6-through interest rate cash, but the total weighted average interest rate of 5.47%. Including extension options, I will be seeing you have no debt maturities until 2027. Our first extension option on the $1.4 billion floating rate loan under our Consolidated Joint Venture occurs in March of 2024, subject to the replacement of the related interest rate cap. Based on today's pricing, the replacement cap would range from $20 to $30 million.
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Hi, Yes. Please proceed with your question.
Yeah, you had mentioned that there are some fedex move outs in 'twenty 'twenty four are there any other known move outs for the year.
Speaker 1: I'll read mention that there were some FedEx move up.
Speaker 7: Are there any other known moveouts for these?
Tiffany Sy: As a September 30, we had approximately $83 million of cash on hand, and $139 million of restricted cash in our Consolidated Joint Mentor. As Yael mentioned earlier, it will continue to evaluate opportunities to reduce our leverage and build liquidity, however, we currently have no plans to market properties for sale. In quoting, while the current economic environment has its challenges, our portfolio remains compelling, the exceptional tenant roster near full occupancy and rising rent across our portfolio. We expect the IOPT will continue to benefit from demand for high-quality industrial real estate like ours.
Speaker 3: So we have the 1 property that we had under agreement to sell in Indiana. That's a 535,000 square feet property and that lease expires in June of 2024.
So we have the one property that we had under agreement to sell in Indiana, and that's a 535000 square feet property in that lease expires in June of 2020 for them. So we know that tenant is moving to a build to suit location we are in.
Speaker 3: So we know that tenant is moving to a built-to-suit location. We are in discussions with them potentially for a short-term renewal because I think their construction's been delayed, but that's really the major one on the mainland. And then as we've talked about in the past, the home of the parcel in Hawaii, the 2.2 million square feet.
Discussions with them potentially for a short term renewal because they think their construction has been delayed but that's really it.
The major one on the mainland and then as we've talked about in the past the home of the parcel in Hawaii, the $2 2 million square feet that was previously leased to home depot that one will be coming back to us at the end of Q1.
Operator: That concludes our prepared remarks. Operator, please open the line for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch to own phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.
Speaker 3: that was previously released to Home Depot. That one will be coming back to us at the end of Q1.
Oh that you all are I think last quarter, you had mentioned that there was some activity on Dodd said any update.
Speaker 7: On that, I think last quarter you mentioned that there was some activity on that. Is there any update?
We continue to see him good activity nothing far enough along to announce but I do we do feel confident that we'll be able to lease that with minimal downtime.
Speaker 3: We continue to see good activity, nothing far enough along to announce, but I do feel confidence that we'll be able to lease that with minimal downtime.
Bryan Maher: Our first question comes from Bryan Maher with B. Riley at BR. Please go ahead. Thank you. Good morning, Yael and Tiffany. Maybe sticking with the caps for a minute. Tiffany, did you say that was 28 to 30 million or 20 to 30 million? I didn't quite catch that. That's about 20 to 30 million. That is based on today's pricing, but also our expectations of the strike price. So there's some range there as well.
Okay and the last one for me I think you explained the shortage Tom on the new leasing during the quarter.
Speaker 7: And the last one for me, are you explain the shorter term on the new leasing during the course?
Speaker 7: Is there anything we can attribute the new lease rental changes to because that has also changed quarter to quarter? Yeah.
He said anything that you can attribute the new lease rental changes too because that touch also changed quarter over quarter yeah.
Speaker 3: No, I think it's just, you know, in some of the past quarters we've had really long lease terms which have, you know, resulted in bigger gap rent increases and so with the shorter waltz, we're not seeing that same robust strike increase. But I would also say we did release one property which negatively impacted our results at a roll down in rent because we had...
No I think it's just you know in some of the past quarters. We've had really long lease terms, which of you know resulted in bigger GAAP rent increases and so with the shorter Walt I'm, we're not seeing that same robust strike increase.
Bryan Maher: And was that for one of the caps or was that for both of the 2024 caps? That is for one of the caps. And how does that pricing compare to the cap cost that was put on that loan back in 2022? Well, the most recent cap that we purchased was September 2022, and that was $47 million. That was that much of the lower strike price, however, and it's also a two year period.
I would also say, we did released one property, which negatively impacted our results at a roll down in rent because we had it was previously leased to Fedex and it had an amortizing ti which was inflating their rent numbers so without that property.
Speaker 3: It was previously leased to FedEx and it had amortizing TI, which was inflating their rent numbers. So without that property, kind of, we excluded that, we would be a 17-18% roll up. So that was part of the outlier this quarter.
Kind of if we excluded that we would be at 17.
17, 18% roll up so that was.
Part of the outlier this quarter.
Okay got it thank you.
Thank you.
Yeah.
Bryan Maher: It's not necessarily apples to apples, but I will say that pricing has slightly increased since the last time we purchased. Okay, that's helpful. And then when we think about organic de-leveraging, I think you mentioned, or y'all mentioned, that has come down from 13.7 times to, I think, 12.3 times. Should we suspect that all else being equal over the next 12 months, we should see a similar amount of organic de-leveraging? Or do you think that moderates a little bit?
Speaker 1: This concludes our question and answer session. I would like to turn the conference back over to Yaryl Desi, for an closing remarks.
This concludes our question and answer session I would like to turn the conference back over to you I hope that would be for any closing remarks.
Thanks for joining us have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker 1: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Bryan Maher: No, I think it's a good property for a run rate. We have people continue to pay down our mortgages. It should steadily continue to decline in that fashion. Okay. And then just maybe for y'all on the asset dispositions, I caught all what you said on the three going to one, and that I think you said you weren't actively marketing properties. But are you still receiving inbound inquiries into some of your properties?
Bryan Maher: And how are those progress? So we have been, I will say that I think the unsolicited offers have slowed in the last quarter or so and so with each offer that we really do review if it makes sense to sell and I think we've talked about this on the prior last quarter's call but it really is it's hard for us to sell things out of the collateral. So we have a couple of pools given the amount to release the property from the collateral pool must be the greater of 115% of the allocated loan value or 100% of the net sale proceeds and so you know on top of that we also have to maintain required debt service coverage ratio.
Bryan Maher: So really we have to look at the value of the property today versus what we close on the value when we close on the loan and I think we can all agree that there's been some shift in valuations so it's hard to make the math work and then you know if we're going to target under performing properties for sale. So it's hard to we have to improve our debt yields when we remove it from the collateral pool but it's hard to sell a property that's under performing so there's a lot of there's a lot that's going into it but you know this opportunity is right and it makes sense we'll we'll do it but it's been far into between.
Bryan Maher: Okay thanks and just maybe last for me a quick one on the dividend and I mean when we look at the rolling for quarter you know trailing CAD being I think it's 54 cents or so and you're paying out basically for cents. Is there any thought to take in that dividend up even a little or is the focus just solely on paying down a debt and keeping dry powder for cap costs.
Bryan Maher: It's just the latter currently we're focusing on reducing our leverage. You know we'd like to get it to a lower level I mean at least and and then you know we could have a real I think discussion or consideration but that's more important now. I didn't catch that did you say you want to get leverage down to 10 before you rethink that. Yeah I think the board's looking at it Brian but I think right now really we need we need to have liquidity to make sure that we have liquidity to buy the caps and then also to run the business you know I mean if we have some leasing that's coming up and then if you know FedEx comes to us and wants to do a building expansion or parking lot.
Bryan Maher: We want to make sure that we have the liquidity to partner with our tenants to meet their needs. Right but you know to the extent that you know 10 is the bogey before the board starts to think about it that's helpful for Mars standpoint as we model out the company you know kind of now through 2026 you know kind of where you hit that and where there could be thought process of a slight you know dividend increase you know nothing increases, but anyways, food for thought, and thank you for all those comments. Thanks. Again, if you'd like to ask a question, please press star then one.
Mitch Germain: Our next question comes from Mitch Germain with JMP Securities. Please go ahead. I need your phone on me perhaps. Hello. Please proceed with your question. Hi. Can you hear me? Hi, please proceed with your question. Yeah, you had mentioned that there were some FedEx moveouts in 2024. Are there any other known moveouts for the year? So we have the one property that we had under agreement to sell in Indiana. That's a 535,000 square feet property and that least expires in June of 2024.
Mitch Germain: So we know that tenant is moving to a built to suit location. We are in discussions with them potentially for a short term renewal because I think their construction has been delayed. But that's really the major one on the mainland. And then as we've talked about in the past, the parcel in Hawaii, the 2.2 million square feet that was previously leased to Home Depot, that one will be coming back to us.
Mitch Germain: At the end of Q1. On that, I think last quarter you had mentioned that there was some activity on that. Is there any update? We continue to see good activity, nothing far enough along to announce. But we do feel confidence that we'll be able to lease that with minimal downtime. And the last one for me, I think you explained the shorter term on the new leasing during the quarter. Is there anything we can attribute the new lease rental changes to because that has also changed quarter of a quarter?
Mitch Germain: Yeah. No, I think it's just, you know, in some of the past quarters, we've had really long lease terms, which have resulted in bigger gap rent increases. And so with the shorter waltz, we're not seeing that same robust strike increase. But I would also say we did release one property, which negatively impacted our results at a roll down in rent, because we had, it was previously leased to FedEx, and it had amortizing TI, which was inflating their rent numbers. So without that property kind of, we excluded that, we would be 17, 18% roll up. So that was... Part of the Outlier, this quarter.
Mitch Germain: Thank you.
Yael Duffy: This concludes our question and answer session.
Operator: I would like to turn the conference back over to Yael Duffy for any closing remarks. Thanks for joining us. Have a good day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.