Business Overview and History

Industrial Logistics Properties Trust (ILPT) is a real estate investment trust (REIT) that owns and leases high-quality distribution and logistics properties across the United States. The company's strategically diversified portfolio, anchored by its unique Hawaii footprint, positions it well to capitalize on the growing demand for industrial real estate.

Industrial Logistics Properties Trust was organized as a Maryland real estate investment trust in 2017. The company went public in 2018 and has since grown its portfolio to 411 properties totaling approximately 59.89 million square feet across 39 states as of December 31, 2024.

A significant aspect of ILPT's portfolio is its 226 properties located primarily on the island of Oahu, Hawaii, comprising over 16.7 million square feet. This Hawaii footprint, which represents 28% of the company's annualized rental revenues as of Q4 2024, provides ILPT with a unique competitive advantage due to the limited availability of land suitable for industrial use in the region. The company's Hawaii properties have historically experienced strong demand, with rents periodically resetting to fair market values, resulting in significant rental rate growth.

ILPT's mainland portfolio of 185 properties, representing the remaining 72% of annualized rental revenues, is diversified across 38 states and leased to a variety of tenants, including subsidiaries of FedEx Corporation (29.1% of annualized rental revenues) and Amazon.com Services, Inc. (6.8% of annualized rental revenues). The company's top 10 tenants account for 48% of total annualized rental revenues, with approximately 77% of those revenues derived from investment-grade or secure Hawaii land leases.

In February 2022, ILPT completed a significant acquisition of Monmouth Real Estate Investment Corporation (MNR). This merger added 124 class A, single tenant, net leased, e-commerce focused industrial properties to ILPT's portfolio, containing approximately 25.75 million rentable square feet. The acquisition also included two committed, but not yet completed, property acquisitions. To facilitate this merger, ILPT entered into a consolidated joint venture with an institutional investor for 95% of the acquired MNR properties.

Throughout its history, ILPT has faced various challenges. In 2023, the company recognized a loss on impairment of real estate on one property that was classified as held for sale. Additionally, in October 2024, American Tire Distributors, Inc., one of ILPT's top 10 tenants, filed for Chapter 11 bankruptcy. As of February 2025, this tenant had no outstanding rental obligations due to ILPT and indicated that it did not intend to vacate any of its leases with ILPT, although it may seek to modify the terms of its existing leases.

Financial Performance and Metrics

For the full year 2024, ILPT reported revenue of $442.32 million and a net loss of $95.67 million. The company's operating cash flow and free cash flow both stood at $1.96 million. Normalized funds from operations (FFO) were $35.4 million, or $0.54 per share, representing a 12.1% increase compared to 2023. Net operating income (NOI) increased by 0.6% to $341.2 million, while cash basis NOI increased by 1.5% to $329.2 million. Adjusted EBITDAre, a key metric for REITs, grew by 2.2% to $335.6 million.

In the fourth quarter of 2024, ILPT reported revenue of $110.52 million and a net loss of $24.10 million. The company's normalized FFO was $8.9 million, or $0.13 per share, an increase of approximately 10% on both a sequential quarter and prior year basis. NOI decreased by 0.8% to $84.2 million, while cash basis NOI remained relatively flat at $81.6 million. Adjusted EBITDAre decreased by 1.1% to $82.2 million.

Liquidity and Balance Sheet

The company's balance sheet remains healthy, with a net debt to total assets ratio of 68.6% as of December 31, 2024, and no debt maturities until 2027. ILPT had cash on hand of $131.7 million and an additional $110.8 million in restricted cash held by its consolidated joint venture as of the end of the fourth quarter. The company's total debt was approximately $4.30 billion as of December 31, 2024.

ILPT's current ratio and quick ratio both stood at 4.56, indicating strong short-term liquidity. The company had $131.71 million in cash and cash equivalents, and $110.77 million in restricted cash and cash equivalents as of December 31, 2024.

Leasing Activity and Operational Highlights

ILPT's leasing activity remained strong throughout 2024, with the company entering into 58 new and renewal leases and one rent reset totaling 6.1 million square feet. The weighted average rental rates on these transactions were 18.2% higher than the prior rates for the same space, showcasing the company's ability to drive organic cash flow growth.

In the fourth quarter, ILPT completed 731,000 square feet of leasing, with rental rates 39.3% higher than prior rents for the same space and a weighted average remaining lease term of 10.5 years. The company's Hawaii portfolio accounted for all of the new leasing activity during the quarter, with 148,000 square feet of new leases at rental rates 43% higher than prior rents and a weighted average lease term of 21.3 years.

ILPT's portfolio occupancy remained stable at 94.4% as of December 31, 2024, with the Mainland Properties segment at 96.3% occupancy and the Hawaii Properties segment at 86.2% occupancy. The weighted average remaining lease term across ILPT's portfolio was 7.8 years. The company is currently focused on leasing two significant vacancies – a 2.2 million square foot land parcel in Hawaii and a 535,000 square foot property in Indianapolis – which negatively impacted its earnings in the second half of 2024.

Portfolio Composition

ILPT's portfolio consists of two main segments: Mainland Properties and Hawaii Properties. The Mainland Properties segment includes 185 industrial and logistics properties located in 38 states outside of Hawaii, totaling approximately 43.16 million rentable square feet. These properties are generally subject to leases where the tenants pay fixed annual rents and also pay or reimburse ILPT for property-level operating and maintenance expenses.

The Hawaii Properties segment includes 226 buildings, leasable land parcels, and easements primarily located on the island of Oahu, Hawaii, totaling approximately 16.73 million rentable square feet. Many of the leases for the Hawaii Properties provide for rents to be periodically reset based on fair market values, which has resulted in significant rent increases over time.

ILPT's portfolio also includes 94 properties in 27 states totaling approximately 20.98 million rentable square feet that are owned by its consolidated joint venture, Mountain JV, in which ILPT holds a 61% equity interest. Additionally, ILPT owns a 22% equity interest in an unconsolidated joint venture that owns 18 industrial properties located in 12 states totaling approximately 11.73 million rentable square feet.

Tenant Composition

FedEx Corporation and Amazon.com Services, Inc. were ILPT's largest tenants, leasing 22.6% and 8.0% of the company's total leased square feet, respectively, and representing 29.1% and 6.8% of its total annualized rental revenues, respectively.

Guidance and Outlook

For the first quarter of 2025, ILPT expects normalized FFO to be between $0.16 and $0.18 per share. This guidance is based on several factors, including the company's robust leasing pipeline of 6.5 million square feet, which includes potential tenants for the two vacant properties in Hawaii and Indianapolis. Additionally, ILPT anticipates a decline in interest expense, with the interest rate cap for the second extension of the $1.4 billion floating rate loan costing $11 million less than the previous cap. The guidance also reflects the removal of a one-time bad debt expense of less than $1 million that occurred in Q4 2024.

Risks and Challenges

While ILPT's diversified portfolio and strong tenant base provide stability, the company is not without risks. The industrial and logistics real estate sector is highly competitive, and ILPT faces competition from other REITs, private investors, and developers for acquisitions and tenants. Additionally, unfavorable market conditions, such as rising interest rates, inflation, and economic downturns, could adversely impact the company's operations and financial performance.

The company's significant exposure to the Hawaii market also presents geographic concentration risk, as the islands are vulnerable to natural disasters and other events that could disrupt operations. ILPT's ability to maintain and grow occupancy levels, renew leases, and achieve rental rate increases are critical to its success.

Conclusion

Despite the challenges, ILPT remains well-positioned to capitalize on the strong demand for industrial and logistics properties. The company's diverse portfolio, strategic Hawaiian footprint, and stable tenant base provide a solid foundation for growth. With a healthy balance sheet and a focus on leasing vacant spaces, ILPT is poised to continue delivering value to its shareholders.

As the industrial real estate sector continues to evolve, ILPT's strategic positioning, operational excellence, and disciplined approach to capital allocation will be key to its long-term success. Investors seeking exposure to the thriving industrial and logistics real estate market may find ILPT an attractive option to consider.