Industrial Logistics Properties Trust Q2 Earnings Call Highlights

Key Points

• Strong leasing momentum lifted occupancy to 99%: ILPT leased 5.4 million square feet in the second quarter at a 35% GAAP rent spread and a 14% cash spread, adding $8.2 million in annualized rental revenue. The company’s pipeline includes 3.4 million square feet, with expected roll-ups of about 20% on mainland properties and 30% in Hawaii.
• Refinancing eliminated floating-rate debt exposure: ILPT’s joint venture closed a $1.62 billion, five-year fixed-rate mortgage at 5.71%, making all consolidated debt fixed-rate with no maturities until 2029. Leverage remains high, however, at 11.5 times net debt leverage and 69.2% net debt to total assets.
• ILPT raised its 2026 outlook: Full-year adjusted EBITDAre guidance increased to $348 million-$353 million, while normalized FFO guidance rose to $1.31-$1.39 per share. Second-quarter normalized FFO reached $0.31 per share, up 51% year over year, and the company recently doubled its quarterly dividend to $0.10 per share.

Industrial Logistics Properties Trust NASDAQ: ILPT reported second-quarter 2026 normalized funds from operations, or FFO, of $20.8 million, or $0.31 per share, up 51% from a year earlier and in line with its guidance. The industrial real estate investment trust raised its full-year outlook after a quarter marked by record leasing volume, higher occupancy and a refinancing that fixed the interest rate on all of its consolidated debt.

President and Chief Executive Officer Yael Duffy said the company completed 5.4 million square feet of leasing activity during the quarter at GAAP and cash leasing spreads of 35% and 14%, respectively. The activity represented ILPT’s seventh consecutive quarter of double-digit rent growth and fifth straight quarter of accelerating mark-to-market spreads, according to Duffy.

Leasing Activity Lifts Occupancy to 99%

As of June 30, ILPT owned 409 properties totaling 60 million square feet, with a weighted-average lease term of eight years. Portfolio occupancy rose 450 basis points during the quarter to 99%, which Vice President Marc Krohn said was 590 basis points above the national industrial average.

The company signed 14 new and renewal leases, along with one rent reset, covering 5.4 million square feet. The leases carried a weighted-average term of 18.6 years and are expected to add $8.2 million of annualized rental revenue. Krohn said about 70% of that increase has not yet been realized and is expected to commence during the second half of 2026 or in 2027.

ILPT also addressed two large vacancies during the period. In Indianapolis, the company signed a 10-year lease with FedEx for a 532,000-square-foot property. The transaction produced GAAP and cash rent roll-ups of 14% and 4%, respectively.

In Hawaii, ILPT completed a 53-year ground lease covering 2.2 million square feet with a construction company. The lease had GAAP and cash rent roll-ups of 162% and 52%, respectively. However, Duffy said the tenant took possession on July 1 and has a three-year free-rent period. The company will recognize the lease’s GAAP impact immediately, while cash rent growth is not expected for three years. The tenant will pay real estate taxes of about $800,000 annually, which ILPT expects to recover immediately.

Other notable transactions included a 10-year, 218,000-square-foot lease with Southern States in Georgia at a 35% rent roll-up, following one month of downtime after the former tenant’s expiration. ILPT also renewed Shaw Industries for 832,000 square feet in Georgia and ABC Technology Solutions for 581,000 square feet in Ohio, with each renewal generating a 21% rent roll-up and carrying seven-year terms.

Krohn said ILPT’s current pipeline totals 3.4 million square feet, including 2.2 million square feet tied to leases expiring over the next 12 months that are in advanced negotiation or documentation. The company expects average roll-ups of 20% on mainland properties and 30% in Hawaii on that activity.

Refinancing Removes Floating-Rate Exposure

In May, ILPT’s consolidated joint venture closed a $1.62 billion, five-year interest-only mortgage loan at a fixed rate of 5.71%. The proceeds refinanced a $1.4 billion floating-rate loan and $205 million of fixed-rate amortizing debt secured by 90 mainland properties.

The refinancing means that 100% of ILPT’s consolidated debt is now fixed rate, with no maturities until 2029. Duffy said leverage remains elevated but that the company has reduced financial risk by eliminating variable-rate debt exposure.

The transaction also allowed the joint venture to release cash previously reserved for debt amortization and interest-rate caps. The venture distributed $38 million in the quarter, including more than $23 million to ILPT, which owns 61% of the venture.

ILPT ended the quarter with $135 million of cash and $46 million of restricted cash. Its net debt-to-total-assets ratio was 69.2%, while its net debt leverage ratio improved to 11.5 times.

During the question-and-answer session, Duffy said the company is comfortable building cash reserves at the wholly owned ILPT level. While there are no maturities before 2029, she said ILPT could use accumulated cash to reduce leverage when its Hawaii portfolio debt comes due and potentially refinance at a lower level. She also noted ILPT currently does not have a revolving credit facility.

NOI Growth and Capital Spending

Same-property net operating income was $88.6 million, while same-property cash-basis NOI was $85.7 million, with both measures increasing 2% year over year. Adjusted EBITDAre rose 3% to $87.4 million.

Duffy said same-property cash-basis NOI growth was affected by timing of lease commencements and a bad-debt reserve for a Hawaii tenant. Excluding the reserve, she said cash-basis NOI growth would have been 3.8%. ILPT is in discussions regarding the tenant and said it may seek direct arrangements with subtenants occupying the parcel.

Capital expenditures totaled approximately $14 million in the second quarter, including $10 million in leasing commissions associated with the elevated volume of leasing. Costs and concessions averaged $0.23 per square foot per year. Duffy said building-improvement spending has generally run at $2 million to $4 million per quarter, while Chief Financial Officer and Treasurer Tiffany Sy said capital spending is typically heavier in the third and fourth quarters because roofing and parking-lot work is easier to complete in warmer weather.

Earlier in July, ILPT doubled its quarterly dividend to $0.10 per share. The company’s second-quarter cash available for distribution payout ratio increased to 50% from 29% in the first quarter, which Duffy attributed largely to leasing commissions tied to the record leasing activity.

Company Raises 2026 Outlook

For the third quarter, ILPT expects adjusted EBITDAre of $87.5 million to $88.5 million and normalized FFO of $0.34 to $0.36 per share. It forecast interest expense of $61 million, including $59 million of cash interest expense.

For full-year 2026, the company raised its adjusted EBITDAre guidance to $348 million to $353 million, an increase of $4 million at the midpoint. It raised normalized FFO guidance to $1.31 to $1.39 per share, an increase of $0.05 at the midpoint.

ILPT expects full-year capital expenditures of $29 million to $34 million and interest expense of about $245 million, including $234.5 million of cash interest expense. Sy said the range of outcomes in the outlook reflects timing of leasing activity and potential fluctuations in general and administrative expenses.

About Industrial Logistics Properties Trust (NASDAQ:ILPT)

Industrial Logistics Properties Trust NASDAQ: ILPT is a real estate investment trust focused on acquiring, owning and operating industrial logistics properties across the United States. The company specializes in modern distribution centers, cross-dock facilities and last-mile delivery hubs designed to support e-commerce, retail, manufacturing and third-party logistics customers. ILPT’s assets are characterized by high ceilings, ample loading docks and clear spans to accommodate a wide range of warehouse functions.

Formed as a spin-off from STAG Industrial, Inc in January 2022, ILPT commenced operations with a portfolio of strategically located facilities and a disciplined acquisition strategy.

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