ILPT outlines $0.27–$0.29 normalized FFO guidance for Q4 2025 supported by 8M sq ft leasing pipeline

Earnings Call Insights: Industrial Logistics Properties Trust (ILPT) Q3 2025

MANAGEMENT VIEW

* Yael Duffy, President & COO, reported that "despite macroeconomic and tariff uncertainty, the industrial real estate sector continues to demonstrate resilience as reflected in our solid third quarter results." She highlighted that tenants are showing "greater confidence in their long-term space needs" and noted progress addressing 2026 and 2027 lease expirations as well as a 3% increase in same-property cash basis NOI year-over-year.
* Duffy stated the portfolio finished the quarter with consolidated occupancy at 94.1%, which "outperformed the U.S. industrial average by 150 basis points." Over 76% of annualized revenues are from investment-grade tenants or secure Hawaii land leases.
* Duffy explained that 836,000 square feet of leasing was completed in the quarter, with weighted average rental rates "22% higher than prior rental rates for the same space" and an average lease term of 8 years, with renewals accounting for 70% of activity. Three properties totaling 867,000 square feet have been identified for sale, with anticipated combined proceeds of approximately $55 million.
* Vice President Marc Krohn described a leasing pipeline now exceeding 8 million square feet, with "the majority relating to renewal discussions for leases expiring in 2026 and 2027," and expects a conversion rate of approximately 75% in the near term. He indicated anticipated average roll-ups in rent of 20% on the Mainland and 30% in Hawaii.
* CFO & Treasurer Tiffany Sy stated, "Yesterday, we reported third quarter normalized FFO of $17.4 million or $0.26 per share, which was in line with our expectations and represents an increase of 26% on a sequential quarter basis and 116% compared to the same quarter a year ago."

OUTLOOK

* Management expects normalized FFO for the fourth quarter of 2025 to be between $0.27 and $0.29 per share, excluding incentive fees, and adjusted EBITDAre between $84 million and $85 million.
* Sy noted that interest expense is expected to "remain flat in the fourth quarter with $58.5 million of cash interest expense and $5 million of noncash amortization of financing and interest rate cap costs."
* There was no explicit change in guidance language compared to the previous quarter, with continued emphasis on leasing momentum and asset sales to support balance sheet optimization.

FINANCIAL RESULTS

* Sy reported same-property NOI of $86.4 million and same-property cash basis NOI of $84.2 million for the third quarter, each increasing both year-over-year and sequentially, supported by "strong tenant retention and rent roll-ups."
* Adjusted EBITDAre was $84.1 million. Interest expense decreased by $4.4 million from the prior quarter to $63.5 million, reflecting the impact of fixed rate debt refinancing.
* ILPT ended the quarter with cash on hand of $83 million and restricted cash of $95 million. Net debt to total assets ratio decreased slightly to 69.3%. All debt is fixed or fixed through interest rate caps, with a weighted average interest rate of 5.43% as of September 30.
* The company recognized a $6.1 million impairment charge on one held-for-sale property. The carrying value of the three held-for-sale properties was approximately $31 million at quarter end.

Q&A

* John Massocca, B. Riley Securities: Asked for details about incentive fees and their impact on normalized FFO. Sy clarified, "If we were to use results as of September 30, we would pay full year incentive fee of $6.3 million, which would -- we would record less than $2 million in Q4 for that to get to that amount. We do not plan on including that in normalized FFO for Q4."
* Massocca: Inquired about cash flow impact of incentive fees. Sy replied, "It's paid in January of '26."
* Massocca: Questioned the lower leasing spread in Mainland assets. Duffy responded, "It was really one deal that kind of drove down the deal with the United States Postal Service was just about a 2% GAAP roll-up. This is a little bit of a unique building."
* Massocca: Asked about asset sale pricing and cap rates. Duffy explained, "The property to the owner user is really the bulk of the proceeds, about $50 million of it actually... the cap rate there would be under 6%." Other properties are vacant and also being sold to owner users.
* Massocca: Queried about 2026 disposition opportunities. Duffy stated, "You might see us selling some more properties in 2026. They might be within the Mountain joint venture."
* Massocca: Asked about lease-up progress in Indianapolis and Hawaii. Krohn shared, "We have 3 proposals out right now. We're very optimistic, but realistic in many ways." Duffy added, "We have one tenant, one prospect actually, full site user that's in diligence" in Hawaii.

SENTIMENT ANALYSIS

* Analysts pressed for clarity on incentive fee treatment, leasing spreads, and asset sale specifics, showing a neutral to slightly negative tone, particularly around recurring fees and asset values.
* Management maintained a confident tone in prepared remarks and during Q&A, emphasizing strong leasing momentum and stable financials, with Duffy stating, "we are making significant progress addressing our 2026 and 2027 lease expirations." Sy addressed questions directly and clarified treatment of onetime items.
* Compared to the previous quarter, analysts maintained a similar level of scrutiny, while management’s tone remained confident, citing improved normalized FFO and ongoing progress in leasing and asset management.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for normalized FFO per share increased from $0.25–$0.27 in Q2 2025 to $0.27–$0.29 for Q4 2025, reflecting stronger operational performance and interest expense savings.
* Leasing activity increased significantly, from 171,000 square feet in Q2 to 836,000 square feet in Q3, alongside a larger pipeline (now over 8 million square feet).
* Asset sale activity expanded, with three properties now identified for sale versus one in the prior quarter.
* Debt metrics saw marginal improvement, with a slight reduction in net debt to total assets ratio. Management’s confidence was steady, emphasizing progress on refinancing and leasing, while analysts continued to probe asset sales and recurring costs.

RISKS AND CONCERNS

* Management cited "macroeconomic and tariff uncertainty" as ongoing external risks, but noted resilience in sector demand.
* Elevated industrial vacancy rates compared to pandemic lows were acknowledged, with limited new supply as a mitigating factor.
* A $6.1 million impairment charge was recognized on a held-for-sale property, indicating potential risk in asset valuation.
* Analyst questions reflected concern over incentive fee impacts and the valuation environment for asset sales.
* Management is focused on improving balance sheet strength, reducing leverage, and maintaining flexibility around asset sales and refinancing.

FINAL TAKEAWAY

ILPT management highlighted robust Q3 2025 financial and operating performance, underpinned by substantial leasing activity, strong tenant retention, and a growing leasing pipeline. The company projects normalized FFO between $0.27 and $0.29 per share for Q4 2025, expects continued rent roll-ups, and is proactively executing asset dispositions to enhance balance sheet flexibility. Management remains confident in navigating sector uncertainty and delivering long-term value through disciplined asset management and strategic capital allocation.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/ilpt/earnings/transcripts]

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