Q4 2023 Industrial Logistics Properties Trust Earnings Call
Operator: Good morning and welcome to the Industrial Logistics Properties Trust's fourth quarter 2023 financial results conference call. All participants will be in a listen-only mode.
Good morning, and welcome to the industrial Logistics properties Trust fourth quarter 2023 financial results Conference call.
All participants will be in a listen only mode.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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 Stephen Colbert, Director of Investor Relations. Please do so.
You need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions. Please.
Please note this event is being recorded.
I would now like to turn the conference over to Stephen Colbert Director of Investor Relations. Please go ahead.
Stephen Colbert: Good morning. 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 a presentation by management, followed by a question and answer session with analysts. Please note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company.
Good morning.
Joining me on today's call are your Io Duffy, President and Chief operating Officer, and Tiffany Tsai, Chief Financial Officer and Treasurer.
Today's call includes a presentation by management, followed by a question and answer session with 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 todays conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and other securities laws.
Stephen Colbert: 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, February 21, 2024, 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, or SEC, which can be accessed from our website, ILPTREIT.com, or the SEC's website. Investors are cautioned not to place undue reliance upon any forward-looking statement.
These forward looking statements are based on I L. P cheese beliefs and expectations as of today February 21st 2024, 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 or SEC, which can be accessed from our website.
L P T re dot com or the Sec's website.
Investors are cautioned not to place undue reliance upon any forward looking statements.
In addition, we will be discussing non-GAAP financial numbers during this call <unk>.
Stephen Colbert: In addition, we will be discussing non-GAAP financial numbers during this call, including Normalized Funds from Operations or Normalized SFO, Adjusted EBITDA RE, and Cash Basis Net Operating Income or Cash Basis NOI. 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. And with that, I will turn the call over to Yael. Thank you, Stephen, and good morning.
Including normalized funds from operations or normalized at that though.
Adjusted EBITDA R E.
And cash basis net operating income.
Or cash basis NOI.
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.
And with that I will turn the call over to guy. Thank.
Thank you Stephen and good morning.
Yael Duffy: On today's call, I will begin with an overview of ILTT's portfolio, summarize leasing activity for 2023, as well as the fourth quarter, and look ahead to our 2024 lease expirations and objectives. From there, I will turn the call over to Tiffany to discuss our financial results. As of December 31, 2023, ILPT's portfolio consisted of 411 warehouse and distribution properties in 39 states, totaling approximately 60 million square feet, which includes 16.7 million square feet of industrial land and properties in Hawaii. Since its inception in 2018, ILPT has maintained portfolio occupancy over 98 percent, and this quarter was no exception at 98.8 percent. ILPT's portfolio has a weighted average remaining lease term of 8.1 years, anchored by tenants with strong business profiles and well-recognized brands that continue to benefit from e-commerce. FedEx is our largest tenant, representing 29.7% of annualized revenue, followed by Amazon and Home Depot at 6.7% and 2.1% of total annualized revenues, respectively.
Today's call I will begin with an overview of I O P. Ts portfolio summarized leasing activity for 2023 as well as the fourth quarter and look ahead to our 2024 lease expirations and objective.
I'm, there I will turn the call over to Stephanie to discuss our financial results.
As of December 31st 2023, I L. P. Ts portfolio consisted of 411 warehouse and distribution properties in 39 states totaling approximately 60 million square feet, which includes $16 7 million square feet of industrial land in properties.
Hawaii.
Since I L. P. Pes inception in 2018 I L. P. T has maintained portfolio occupancy over 98% and this quarter was no exception and 98, 8%.
I L. P. Ts portfolio has a weighted average remaining lease term of eight one years anchor.
Anchored by tenants with strong business profile and well recognized brands that continue to benefit from E Commerce.
But as is our largest tenant representing 29, 7% of annualized revenue.
So by Amazon and home depot at six 7% and two 1% of total annualized revenues respectively.
I L. P. Pes top 10 tenants account for nearly half of total annualized rental revenues and 77% of our revenues come from investment grade rated tenants or subsidiaries or from our secure Hawaii land leases.
During 2023, we entered 56, new and renewal leases and for rent resets for $5 4 million square feet, which is in line with 2022 leasing volume.
Yael Duffy: ILPT's top 10 tenants account for nearly half of total annualized rental revenues, and 77 percent of our revenues come from investment grade rated tenants or subsidiaries or from our secure Hawaii land leases. During 2023, we entered into 56 new and renewal leases and four rent receivable for 5.4 million square feet, which is in line with 2022 leasing volume. Same property NOI and same property cash basis NOI increased 3.3% and 4.5% compared to the prior year, and rents were 20.5% higher than prior rental rates for the same space. The impact of this activity is an increase of $7.4 million in annualized rental revenue, of which more than 40% will take effect in 2024. During the fourth quarter, we entered 15 new and renewal leases and one rent reset for 1.5 million square feet at a weighted average lease term of 6.7 years. This activity resulted in a gap in cash leasing spreads of 19.7% and 11.2%, respectively. Renewals drove most of our leasing, accounting for 80% of total activity, which reinforces our strong tenant retention.
Same property NOI and same property cash basis, NOI increased three 3% and four 5% compared to the prior year.
Rents were 25% higher than prior rental rates for the same space. The impact of this activity is an increase of $7 $4 million in annualized rental revenue of which more than 40, but that will take effect in 2024.
During the fourth quarter, we entered 15, new and renewal leases and one rent reset for by one 5 million square feet at a weighted average lease term of six seven years.
This activity resulted in GAAP and cash leasing spreads of 19, 7% and 11, 2% respectively.
<unk> drove most of our leasing accounting for 80% of total activity, which reinforces our strong tenant retention.
Included in these results are three renewals with our largest tenant for over a 158000 square feet at weighted average lease spreads of 19%.
Also this quarter, we sold two properties both of which are unencumbered for an aggregate sales price of $25 $2 million, excluding closing costs.
Proceeds were used to enhance our liquidity, which as of yearend now includes unrestricted cash of $112 million.
As we have discussed on prior calls, we expect future disposition opportunities to be limited given our ability to transact is dependent on pricing and the impact to our operating metrics and debt covenants.
Looking ahead, $10 1 million square feet or 12, 2% of I O T T. As annualized revenue is scheduled to roll by the end of 2025.
Included in these exploration.
Is the 2.2 million square foot land parcel in Hawaii that home depot had agreed to lease from us before exercising its termination right in 2023.
We have been actively marketing the site and while we have seen interest we do not expect to have a replacement tenant ahead of the March 31st lease expiration.
Given the historical low vacancy and continued rise in asking rents in Hawaii, We expect we will see a meaningful roll up in rent once we identify a tenant for the site.
Turning to our leasing pipeline we.
We are currently tracking 26 deals in our pipeline for more than $4 8 million square feet.
We anticipate a near term conversion of 30% of our pipeline given that one 5 million square feet of current activity is in advanced stages of negotiation or at least documentation.
Once executed we expect these leases will yield the average roll up in rent of 20% on the mainland and 30% in Hawaii further illustrating the strength of our portfolio.
Yael Duffy: Included in these results are three renewable energy projects with FedEx, our largest tenant for over 158,000 square feet at weighted average lease spreads of 19%. Also this quarter, we sold two properties, both of which were unencumbered for an aggregate sales price of $25.2 million, excluding closing costs. Proceeds were used to enhance our liquidity, which, as of year-end, now includes unrestricted cash of $112 million. As we have discussed on prior calls, we expect future disposition opportunities to be limited, given our ability to transact is dependent on pricing and the impact on our operating metrics and debt covenants. Looking ahead, 10.1 million square feet, or 12.2% of ILPT's annualized revenue, is scheduled to roll by the end of 2025. Included in these expirations is the 2.2 million square foot land parcel in Hawaii that Home Depot had agreed to lease from us before exercising its termination right in 2023. We have been actively marketing the site, and while we have seen interest, we do not expect to have a replacement tenant ahead of the March 31st lease expiration.
As we head into 2024, I would like to reiterate that we believe there is continued opportunity to generate organic cash flow growth and reduce leverage which has declined from 13.1 time to $12 three times over the last year.
Accordingly, we are focused on tenant retention maximizing mark to market rent growth opportunities in reducing operating expenses I will now turn the call over to Stephanie.
Thank you Yale and good morning, everyone.
Starting with our financial results for 2023.
From a full year perspective normalized funds from operations was $31 $5 million compared to $76 2 million in the prior year.
Adjusted EBIT for Ari was $328 $3 million, an increase of 13, 7% compared to our 2022 results.
Cash basis, NOI was $324 $4 million, an increase of 11, 6%.
For the fourth quarter, we ended the year with normalized funds from operations of $8 $1 million or 12 cents per share adjusted adjusted EBITDA Ari.
$3 $1 million in cash basis, NOI of $81 $5 million, all of which were in line with the previous quarter's results, while increasing compared to the same quarter of 2022.
Additionally, as Joe mentioned earlier, we sold two properties during the quarter generating proceeds of $25 $2 million, excluding closing costs and a gain on sale of $2 $7 million.
Interest expense was flat on a sequential quarter basis at $73 million.
We estimate our first quarter interest expense to remain at that level with $66 million of cash interest expense, including the benefit from our interest rate cap and $7 million of noncash amortization of financing costs.
Yael Duffy: Given the historical low vacancy and continued rise in asking rents in Hawaii, we accept we will see a meaningful increase in rents once we identify a tenant for this site. Turning to our leasing pipeline, we are currently tracking 26 deals in our pipeline for more than 4.8 million square feet.
Turning to our balance sheet.
As of December 31, our net debt to total assets ratio was 68, 4% compared to 69, 7% a year ago and our net debt coverage ratio declined to $12 three times compared to $13. One times on a year over year basis, driven by the improvement in our adjusted EBITDA Ari and the <unk>.
Can you pay down of our amortizing debt.
All of our debt is currently carried at a fixed rate or fixed through interest rate cap with a total weighted average interest rate of 5.47%.
Yael Duffy: We anticipate a near-term conversion of 30% of our pipeline, given that 1.5 million square feet of current activity is in the advanced stages of negotiation or lease documentation. Once executed, 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. As we head into 2024, I would like to reiterate that we believe there is continued opportunity to generate organic cash flow growth and reduce leverage, which has declined from 13.1 times to 12.3 times over the last year. Accordingly, we are focused on tenant retention, maximizing mark-to-market rent growth opportunities, and reducing operating expenses. I will now turn the call over to Tiffany. Thank you, Yael.
Including extension options I don't think he has no debt maturities until 2027.
In March we intend to exercise our first extension option on the $1 4 billion dollar floating rate loan held by consolidated joint venture.
In connection with the extension we are required to replace the existing interest rate cap.
Based on todays pricing, we expect to pay approximately $25 million for the cat.
As of December 31, we had approximately $112 million of cash on hand.
And $133 million of restricted cash in our consolidated joint venture.
In closing, we will continue to evaluate opportunities to reduce our leverage and build liquidity. However, we currently have no plans to market properties for sale.
Our portfolio remains strong with nearly full occupancy investment grade tenants and rising rents across our portfolio.
We expect the Iot to you will continue to benefit from the demand for its high quality industrial real estate.
That concludes our prepared remarks, operator, please open the lines for questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone 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.
Okay.
Our first question comes from Bryan Maher of B Riley FBR. Please go ahead.
Thank you and good morning, maybe sticking with the caps for a second Tiffany.
Tiffany R. Sy: Good morning, everyone. Starting with our financial results for 2023. From a full year perspective, normalized funds from operations were $31.5 million, compared to $76.2 million in the prior year. Adjusted EBITDA RE was $328.3 million, an increase of 13.7% compared to our 2022 results, and Cash Basis NOI was $324.4 million, an increase of 11.6%. For the fourth quarter, we ended the year with normalized funds from operations of $8.1 million, or $0.12 per share, adjusted EBITDA RE of $83.1 million, and cash basis NOI of $81.5 million, all of which were in line with the previous quarter Additionally, as Yael mentioned earlier, we sold two properties during the quarter, generating proceeds of $25.2 million excluding closing costs and a gain on sale of $2.7 million. Interest expense was flat on a sequential quarter basis at $73 million.
The 25 million to replace the cap so let's divide that by four quarters, so $6 million a quarter I'm, assuming is how we're going to amortize that over the upcoming year.
That's right.
And does that keep you at that current 6.17%.
Or does the rate change.
The rate changes based on.
What we expect the new strike rate to be so it would be.
Less than 6% currently we expect that strike rate to be.
Three point or 4%.
So.
Seven seven days our spread.
But the big button for.
So 581 is where we think well be.
Okay, Great. That's helpful. Thank you.
Maybe one we just circling back to the asset sales are the two that were done in the quarter were those marketed properties, where they inbound calls.
Was there a common denominator, there and as we look out to 2020 four I heard your comments on not to expect much in the way of asset sales, but but what are you thinking is is it one property is at five somewhere in between.
Brian So for the two dispositions one was.
Actually an eminent domain, taking them for a property in North Carolina and the department of transportation is using it to the property and the structure to expand the highway and then the other one was our development in Mesquite, Texas and so we had been marketing.
The properties are leased and we got an offer from another group as part of that process and then as far as dispositions in 2024, I think it would be safe to assume that there will be none I think as we've talked about.
There's really a lot of a lot we need to consider when we.
Consider selling properties right now and part of it is you know we need to really to release the property from the collateral pool it needs to be the greater of 115% of the allocated loan value or 100% of the net sale proceeds and you know the value of the <unk>.
Tiffany R. Sy: We estimate our first quarter interest expense to remain at that level, with $66 million of cash interest expense, including the benefit from our interest rate caps, and $7 million of non-cash amortization of financing costs. Turning to our balance sheet, As of December 31st, our net debt-to-total-assets ratio was 68.4 percent, compared to 69.7 percent a year ago, and our net debt coverage ratio declined to 12.3 times compared to 13.1 times on a year-over-year basis, driven by the improvement in our adjusted EBITDA RE and the continued paydown of our amortizing debt. All of our debt is currently carried at a fixed Including extension options, ILPT has no debt maturities until 2027.
<unk> today versus when we closed on the loan I think we all know that the market has shifted and so.
I don't know that the math works. So I think at least for the time being unless something some great offer comes along I don't think we're actively marketing anything.
Okay, Thanks and just.
Two more quick ones for me maybe for Tiffany is as you think about 2024 and the deleveraging you know over the past year from 13 to 12, three and you know what.
Organic cash growth from rent roll ups, where do you think that that number ends up at the end of 'twenty 'twenty four barring anything unusual happening.
Oh, that's a good question you know we do have the continued amortization of the amortizing debt that we have that's about $250 million of debt in the.
And our consolidated joint venture we pay.
Upwards of 4 million a quarter.
On that so we will have that natural kind of organic deleveraging happening the other component like I said and in.
In the presentation as adjusted EBIT to Ari.
And so with the rent roll ups.
You know, we don't really giving forward looking guidance, but we would expect it to continue to NASA.
Naturally decline I'm, not sure whether or not we're don't I'm not.
But I would just say whether or not I feel like.
I'm not sure if we'll see that same level of deleveraging.
Because there is.
Tiffany R. Sy: In March, we intend to exercise our first extension option on the $1.4 billion floating rate loan held by our Consolidated Joint Venture. In connection with the extension, we're required to replace the existing interest rate cap. Based on today's pricing, we expect to pay approximately $25 million for the cap. As of December 31st, we had approximately $112 million of cash on hand and $133 million of restricted cash in our consolidated joint venture.
The factor related to adjusted EBITDAR, even like I said, we're not really giving them.
Guidance, there, but we do expect it to continue to decline.
Sorry, I didn't mean to.
Put you on the spot there just just last for me and maybe pre aisle.
When you think about your your lease expirations for this year and you're in your pipeline and the demand in general for your product yeah, suffice it to say.
You and I don't want to put words in your mouth, but you wouldn't expect occupancy this year to dip below 98, five with you.
Well I think the.
Parcel in Hawaii, while it's not a significant portion of our annualized revenue, it's actually less than 1%. It does account for over 3% of occupancy so until we lease that parcel up I think in Q2, we wish we will expect to see.
Tiffany R. Sy: In closing, we will continue to evaluate opportunities to reduce our leverage and build liquidity. However, we currently have no plans to market properties for sale. Our portfolio remains strong, with nearly full occupancy, investment grade tenants, and rising rents across our portfolio. We expect that ILPT will continue to benefit from the demand for its high-quality industrial real estate.
Occupancy probably around 95%.
But that's a temporary and b how comfortable do you think that that you are with that property being you know released by the third quarter.
We aren't far enough along with any one prospect so.
I think it would be.
RSO to think that we'll have at least by the third quarter, but hopefully if not in Q4, then hopefully early into 2025. It is it is a large parcel in well, it's a unique opportunity for <unk>.
Turning it also you need to find the right person, who is willing to take a 2.2 million square foot parcel.
It's going to take us a little time.
Okay. Thank you very much.
Thank you.
Again, if you would like to ask a question. Please press Star then one.
Our next question is from Tom Catherine Ward with B P. I G. Please go ahead.
Operator: That concludes our prepared remarks. Operator, please open the lines for questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone.
Thank you good morning, everyone.
Maybe going back to what.
Brian's questions on asset sales I think you had.
One that was under contract and three Q that went back into the operating portfolio this quarter.
Operator: If you're using a speakerphone, 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. Our first question comes from Brian Maher of B. Reilly FBR. Please go ahead. Thank you, and good morning.
If my memory serves me correctly, what was the change with that transaction and I believe that.
<unk> had a lease that expires. This June is that correct.
That's correct and so that actually fell out of diligence because we were having some delays getting the property released from the debt and so the tenant just wasn't willing to wait.
Yeah.
Tiffany R. Sy: Maybe sticking with the CAHPS for a second, Tiffany. So $25 million to replace the cap, so let's divide that by four quarters, so $6 million a quarter, I'm assuming is how we're going to amortize that over the upcoming year. That's right. And does that keep you at that current 6.17% rate, or does the rate change? The rate changes based on what we expect the new strike rate to be
Got you and then that's again.
As of June the 500, plus thousand square foot lease expires as well. So we should include that in our occupancy expectations.
Correct, where market, we're marketing that property, but again, we don't have anything far enough along that we think we'll have a replacement tenant before the lease expires.
Got it.
And then on the caps Oh. Thank you for the heads up on the 25 million for the the $1 4 billion dollar alone when we look out to October do you have the.
$1.2 billion plus loan extension coming up we would assume that would also be in that 20 million dollar range and you mentioned organic delevering really through you know.
Tiffany R. Sy: So it would be less than 6%. Currently, we expect that strike rate to be 3.04%. So, um... 2.77 is our spread, plus the 3.04. So 581 is where we think we'll be. Okay, great, that's helpful, thank you. Maybe when we're circling back to the asset sales, the two that were done in the quarter, were those marketed properties? Were they inbound calls?
EBITDA and cash flow and all that but it seems to us like all of your cash available. After distributions are going to go to these comps. This year is is our math generally in line there or are we off base.
So I mean, we do have we are building up our cash reserves. So I mean, if we have more than 20, we're anticipating 25 million for the caps.
Well still have access.
Liquidity.
I agree with that.
Yeah.
Gotcha.
And then if we look.
Yael Duffy: Was there a common denominator there? And as we look at 2024, I heard your comments on not expecting much in the way of asset sales, but what are you thinking? Is it one property? Is it five, somewhere in between? Hi Brian.
The earnings breakdown by portfolio that you have on page 20 of the sup. The Hawaii portfolio is obviously the key driver of earnings with the mainland generating negative both F. O N. CAD would you consider spinning off the Hawaii assets to unlock value for shareholders or is that not even.
Yael Duffy: So, for the two dispositions, one was actually an imminent domain taking for a property in North Carolina. The Department of Transportation is using the property and the structure to expand the highway. And then the other one was our development in Mesquite, Texas.
On the table.
That's not on the table I mean, I think if anything we understand the value of Hawaii. So maybe down the line, we could think about a joint venture for those properties, but there's no. There's no plans to spin that off.
Yeah.
Got it that's it for me thanks, everyone.
Thanks.
The next question is from Mitch Germain of citizens J P M Securities.
Yael Duffy: And so we have been marketing the property for lease, and we got an offer from another group as part of that process. And then, as for dispositions in 2024, I think it would be safe to assume that there will be none. I think, as we've talked about, there's really a lot we need to consider when we consider selling properties right now. And part of it is, you know, we need to release the property from the collateral pool. It needs to be the greater of 115% of the allocated loan value or 100% of the net sale proceeds.
Please go ahead Sir.
Thank you I think you guys had mentioned the two properties that were sold were unencumbered. So I'm curious are there any other properties that you own that are unencumbered.
We have two others.
So potentially could sell them if.
Do you Wanna be optimistic okay. Yep, we could we have a large parcel in Hawaii. That's unencumbered so that would that could be some unlock our value down the line we needed to.
It's a long term lease right now and producing solid NOI. So it hasn't been considered.
Gotcha, Okay, great the home depot I know.
It's a pretty interesting opportunity given the size.
Is it potential to divide.
And possibly try to increase the population of <unk>.
Leasing that could occur for that space.
Yael Duffy: And, you know, the value of the properties today versus when we closed on the loan, I think we all know that the market has shifted. And so, I don't know that the math works, so I think, at least for the time being, unless some great offer comes along, I don't think we're actively marketing anything. Okay, thanks. And just two more quick ones for me.
Yeah. It would mean, we we could easily divided up.
Easily into at least two parcels and we have been softly marketing that that's an option. So we aren't opposed to that.
Okay great.
I think there was a little noise in the.
J D.
On the.
Earnings statement is there anything that we need to be aware of there.
You mean, the equity and earnings Yeah, Yeah, although a consolidated JV, yeah, we measure that on a fair value basis. So the.
Tiffany R. Sy: Maybe for Tiffany, as you think about 2024 and the deleveraging, you know, over the past year from, you know, low 13s to 12.3, and, you know, organic cash growth from rent roll-ups, where do you think that number ends up at the end of 2024, barring anything unusual happening? That's a good question. You know, we do have a continued amortization of the amortizing debt that we have. That's about $250 million of debt in our consolidated joint venture. We pay upwards of $4 million a quarter on that, so we'll have that natural kind of organic deleveraging happening. The other component, like I said, in the presentation is even adjusted to RE.
What youre seeing there is reflection of the change in the fair value.
Gotcha, Okay, and just want to make sure I got you said that.
The pipeline of leasing around 5 million square feet and around it a little less in October that is.
And sort of late stages, though is that the way to think about it.
Exactly yeah. Okay. So is there a how how is there a way to like think about the breakdown of that space.
For new versus renewal.
Yeah. So the 26 deals 10 10 of them are for new prospects and the remainder for renewals and the 66% of.
The in advanced stages relates to the renewal activity.
Okay, I know you don't give.
Guidance, but if we have home depot and moving out in March end of March and then that that other lease of the property that was potentially for sale too it looks like to the tenant.
Tiffany R. Sy: And so with the rent roll-up. You know, we don't really give forward-looking guidance, but we would expect it to continue to, you know, naturally decline. I'm not sure whether or not, or I don't, I'm not, I'm not going to say whether or not I feel like it.
I'll move out happening in mid year, I know you do have headwinds associated I'm, sorry tailwind associated with.
Your wrench, but is it safe to say same property results are likely to come in.
Now well below where they ended this year.
Yeah, I guess I, just I want to reiterate for the for.
For the home depot parcel again, its a large parcel, but a very small fraction of I O P. Ts annualized it's less than 1%. So it won't have a meaningful impact.
Yael Duffy: I'm not sure we'll see that same level of deleveraging, you know, because there is. The factor related to adjusted HRE, like I said, we're not really giving guidance there. But we do expect it to continue to decline. I didn't mean to put you on the spot there, just last for me and maybe for Yael, you know, when you think about your lease expirations for this year and your pipeline and the demand in general for your product, suffice it to say, you and I don't want to put words in your mouth, but you wouldn't expect occupancy this year to dip below 98.5, would you? Well, I think the parcel in Hawaii, while it' It does account for over 3% of occupancy.
Okay, it'll have a impact to occupancy, but not to the results.
Right. Thank you.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Y'all, Duffy, President and Chief operating officer for any closing remarks.
Thank you for joining us today and your interest in I O P T.
Yeah.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].
Yael Duffy: So until we lease that parcel up, I think in Q2, we will expect to see occupancy probably around 95%. But that, A, is temporary, and B, how comfortable do you think that you are with that property being, you know, released by the third quarter? We aren't far enough along with any one prospect so I think it would be aggressive to think that we'll have one at least by the third quarter, but hopefully, if not in Q4, then hopefully early into 2025.
Tom Catherwood: It is a large parcel, and while it's a unique opportunity for a tenant, you also need to find the right person who is willing to take a 2.2 million square foot parcel. I think it's going to take up a little time. Okay, thank you very much. Thank you. Again, if you would like to ask a question, please press star and then 1. Our next question is from Tom Catherwood with BPIG. Please go ahead. Thank you. Good morning everyone.
Yeah.
[music].
Yael Duffy: Yael, maybe going back to one of Brian's questions on asset sales, I think you had one that was under contract in 3Q that went back into the operating portfolio this quarter. If my memory serves me correctly, what was the change in that transaction? And I believe that the building has a lease that expires this June. Is that correct? That's correct. So that actually fell out of diligence because we were having some delays getting the property released from the debt. And so the tenant just wasn't willing to wait.
Yael Duffy: Gotcha. And again, as of June, that 500-plus thousand square foot lease expires as well. So we should include that in our occupancy expectations. Correct. We're marketing that property. But again, we don't have anything far enough along that we think we'll have a replacement tenant before the lease expires.
Tom Catherwood: Got it. Then on the caps, you know, thank you for the heads up on the $25 million for the $1.4 billion loan. When we look out to October, you have the $1.2 billion plus loan extension coming up; we would assume that would also be in that $20 million range. And, you know, you mentioned organic delevering through EBITDA and cash flow and all that, but it seems to us like all of your cash available after distributions is going to go to these caps this year. Is our math generally in line there, or are we off base?
Okay.
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Tiffany R. Sy: So I mean, we do have, and we are building up our cash reserve. So I mean, if we have more than 20, we're anticipating 25 million for the cap, will still have access to liquidity.
Tom Catherwood: I agree with that. Gotcha. And then if we look at the earnings breakdown by portfolio that you have on page 20 of this, the Hawaii portfolio is obviously the key driver of earnings, with the mainland generating negative both FFO and CAD.
Yeah.
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Tom Catherwood: Would you consider spinning off the Hawaii assets to unlock value for shareholders, or is that not even on the table? I mean, I think if anything, we understand the value of Hawaii.
Yael Duffy: So maybe down the line, we could think about a joint venture for those properties. But there's no, there's no plans to spin that off. Got it. That's it for me.
Tom Catherwood: Thanks, everyone. Thanks. The next question is from Mitch Germain of Citizens DPM Securities. Please go ahead, sir.
Mitch Germain: Thank you. Um, I think you guys mentioned the two properties that were sold were unencumbered, so I'm curious. Are there any other properties that you own that are? We have two others, and potentially, we could sell them. If you want to be on it. Yeah, we could. We have a large parcel in Hawaii that's unencumbered.
Yes.
Yael Duffy: So that would, that could be some unlocking of value down the line if we needed to. It's long-term leased right now and producing solid NOI, so it hasn't been considered. The Home Depot, I know, it's a pretty interesting opportunity given the size, but is there the potential to divide it? and possibly try to increase the population of... Um, leasing that could occur for that phase. Yeah, we could easily divide it into at least two parcels.
Yeah.
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Yael Duffy: And we have been softly marketing that that's an option. So we aren't opposed to that. Okay, great. Um, give us a little noise in the JV line on the Earnings Statement. Is there anything that we need to be aware of there? You mean the equity in earnings? Yeah, yeah. Oh, the unconsolidated shaving?
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Yael Duffy: Yeah, we measure that on a fair value basis, so the, What you're seeing there is a reflection of the change in fair value, and just want to make sure I understood you said that the pipeline of leasing around five million square feet and around a little less than a third of that is, um, in sort of late stages? Is that the way to think about it? Exactly. Yep. So is there a way to think about the breakdown of that space?
Okay.
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Yael Duffy: for New vs. Renew Yeah, so of the 26 deals, 10 of them are for new prospects, and the remainder for renewals. And 66% of the deals in the advanced stages relate to renewal activity. Okay, I know you don't give guidance, but if we have Home Depot and moving out in March, end of March, and then that other lease of the property that was potentially for sale to, it looks like to the tenant, a move out happening in mid-year, I know you do have headwinds associated, oh sorry, tailwinds associated with your rents, but is it safe to say property results are likely to come in, you know It's less than 1%, so it won't have a meaningful impact. It will have an impact on occupancy but not on the results.
Yeah.
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Yael Duffy: Great, thank you. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Yael Duffy, President and Chief Operating Officer, for any closing remarks. Thank you for joining us today and for your interest in ILPT. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Yeah.
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