ILPT - Earnings call transcript Q1 2020 | Industrial Logistics Properties Trust

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Operator

Thank you and good morning, everyone. Thanks for joining us today. With me on the call are ILPT's President, John Murray; Chief Financial Officer, Rick Siedel; and Vice President, Yael Duffy. In just a moment, they will provide details about our business and our performance for the first quarter of 2020, followed by a question-and-answer session with sell-side analysts.

First, I would like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. conference Private forward-looking of Securities other laws. today's meaning within XXXX that securities the of Litigation note call statements contains the and Also Reform Act

in as based actual publicly and may release conference revise any company differ today's that of beliefs These undertakes XX, those results on revision from the forward-looking project. statements Thursday, April results are and forward-looking statements to or expectations we of materially no today, XXXX; to made ILPT's call. the The obligation

Additional factors contained could Exchange those in upon are can website, cause our SEC, Investors not and website. our be cautioned or reliance information any Securities ilptreit.com; to that forward-looking concerning SEC's undue differences or accessed from statements. filings is with Commission the which the place

income to will NOI. discussing also can our including on of non-GAAP adjusted financial which EBITDA supplemental during this we package, and in figures from or income addition, operating website. data A basis our net numbers the operating be or available normalized call, available to calculate operations non-GAAP for cash reconciliation and be or FFO, are funds normalized In components these net and CAD cash-based distribution cash found

call to are the location. Massachusetts shelter-in-place from I unable call to would order, to like that, turning Before over same the we due John, note to the conduct today's

our not some be may may there our risk question-and-answer a during normal. there delays result, a As as audio clear John? and is be as session,

John Murray

Quarter Earnings Good you, Call. and First morning Olivia. XXXX welcome ILPT's to Thank

extraordinary times fraught you challenges are many with As know, levels. on these

business, and communities call, of the responding strength to has to priority effect and our families. through this are and discuss liquidity, monitoring our challenges; we COVID-XX on impact ability we how weeks, the the will developments our its today's crisis. several of pandemic business; the last the those Over sheet On pandemic; balance and tenants, on manage our been

believe comes logistics the unprecedented sector rent has that to negative due of economy, demand, a strength and annualized in e-commerce and impact XX% these ILPT country. Nearly shelter-in-place disruptions the seeing on an we communities to industrial positioned measures weather from sector. our purposes. seen portfolio accelerated as logistics and are support distribution we an While ILPT's to strong is our on throughout result reliance used as warehouse properties This retailers for remained of we've the of

has new generations; our and essential resilient of our a support grocery including two and and are to The supply tenants, goods Amazon FedEx, daily products Many services largest critical such pantry new older to users, chain specifically the could penetration volume of Amazon estate as consumption. a could typical tenants increased e-commerce have holiday be sustaining in and XX% for inventory. as up businesses demand e-commerce three require times than retail have during moving to season. typically significant store more logistics pandemic the space real requires brick-and-mortar than sector forward, greater they to reported during

lead the critical certain warehouse similarly stockpiles targeted could impact. have may The production This to pandemic the an on port shutdown medical an equipment protect manufacturing supplies U.S. to challenges inventories of a in increase due resilience depending of companies mandated overseas manufacturing onshoring manufacturing and and and to trade supply evaluate and also both possible the of Furthermore, overseas of to and is forcing the disruption. chain. of positive

will we consumer continued will increased the support for inventory term, supply chain and likely growth long well demand like dynamics which of impact evolution believe demand in future, real levels as e-commerce as the estate positively In in the the ours.

economy. short-term Additionally, disruptions in several qualities our may that mitigate possesses defensive portfolio the help

land of portfolio was leases. investment-grade-rated annualized XX.X%, investment-grade-rated Nearly rent or comes total of XX% XX, occupancy March XXXX, from subsidiaries portfolio Hawaiian total was of occupancy and tenants, As mainland parent XX.X%. entities

or guidelines. of mainland tenants Further, state from or subsidiaries following New of that comes investment-grade-rated revenue deemed the of York produce that essential, investment-grade-rated alone, comes goods On our properties rent mainland entities. XX% XX% provide or parent services from are

long and lease X.X% years minimal XX term a expirations, nine.three expiring with the only remaining lease average have near-term rent over months. of of We next annualized

Rick strong, more detail, discuss our near-term As debt will we liquidity in minimal have remained also and maturities.

reinforces we our investors a amid uncertain distribution secure which regular conditions. investment remains month, quarterly this shareholders, Earlier our that market to ILPT maintained to belief we these hope

activity. business Turning to our current

We first this support we leverage. first enhancement. formed of raising $XXX the private used asset growth continued our to which to ILPT's approximately at quarter, was previously As with we million expand venture have value announced, joint proceeds to and intend during reduce venture, net capital value

venture in advanced diligence. lockdown possible this the another partner, discussions pandemic are to for timing as uncertain complete nearly with has impossible due but made is investor it property We

a XXX% is an cap The February, XX.X%. As concentration X.X%. $XX.X rate acquired of near our last to distribution we discussed located property on Class this Amazon, leased bringing call, total XXX,XXX-square-foot portfolio Phoenix for quarter's in with A at tenant facility million to key e-commerce

and offers monitor not from month We on selected yet changed pre-pandemic the as to been transaction properties us during submitted have the market have levels. but which buyer, that continue not significantly selectively has past certain pricing to indicates the

to over tenant I'll to leasing now discuss and call turn the activity. Yael

Yael Duffy

business as and the will good We paid over portfolio remained with And prior our strong consistent of tenants XX% nature believe trends caused to XX months rent strength collections us disruptions the April of economic COVID-XX. ILPT's ILPT's XX allow top scheduled. the having by of successfully rent everyone. morning, with and Thanks, that John. manage or

we where tenant one has the deferment have been rent granted. a payment, not received For

a tenants total support their ILPT's experiencing we long-term been and success focus preserve Our hardship can business' on flows. financial so identifying has cash that

May, remainder granted In XX XX% to represent annualized XX% rent. approximately these As and X.X% July. of million, XX% of revenue rent $X.X of attributable approximately to of June to aggregate, deferred deferrals the we The period. to representing the date rent April have XX, X.XX% contractual approximately of the total tenants, to cash is which over April, amount deferrals is to

reopens We we expect May, deferrals rent May to enter economy June, the quarter. as in fully and continue provided third rent the subside referral requests throughout should but

for deferrals of over relief revenues. XX monthly temporary rent, recent generally are those requests, our the impacted intended assistance deferral relief back to COVID-XX; with Consistent any rent cash not include tenant expect most the our to of these will fall. the accounting and installments beginning be related flow The which by base impact tenants provide in rent GAAP to to we guidance do paid

our has abated. been payment date, To they flows. rent forgiven collectible, rent As the plans assume these will no to are or deferrals is which be temporarily deemed reduce only cash

impacted most small tied local Hawaii our are Our businesses to are a tourism. tenants in businesses portfolio and economy whose

Protection through as public expect occupancy our financial maintain Program that impacted sector seek previous has programs been Act, the the our tenants downturns, providing and Hawaii been data resolves. time has assistance and and as Paycheck other in a the under Considering well we economy, Historical this which resilient as them these speed deferment CARES private portfolio of like relief programs. crisis rent from on give the shows to to focus has which demand pandemic strong the will

buildings distribution On e-commerce mainland, and continue the of open to remain our many and operate.

essential York Properties definition our Mainland XX% we our portfolio. mentioned, state New the of of of meet John which the believe businesses, As strength highlights

quarter's this activity. leasing to Turning

of renewal XX,XXX a XX% concessions all foot Hawaii, commitments we and and square over During leases XX% of an XX lease completed than leasing rent expirations approximately capital reset were $X.XX year. per expiring square for quarter, months average are feet that in feet roll-up prior at for entered and XXXX. with rent. of Lease included more resets, leases in and minimal higher XX% XX.X the the rates, new one lease term, and term in only rent X.X% the square than of after with This for near first rent rents expiring next years at annualized XX,XXX per

and we prior feet X%. approximately with X.X that the Hawaii in square resulting avoid discussed the scheduled roll-up calls, As we tenant were rent million in of in of to finalized reset that a been million terms $X.X through able XXXX. for have leases working in We're reset rent have a annualized of rent settlement arbitration was approximately on of to a April,

the turn and Rick this to financial provide to on over liquidity results. details now quarter's call I'll

Rick Siedel

And good everyone. Thanks, morning, Yael.

we the addition to our remain position capital overall confident discussed, In and our through liquidity stability business operate also challenging that in current ability have our this and to John market environment. portfolio effectively our Yael that supports

$XXX million cash of we of and revolving hand our of on March credit As availability million facility. on approximately had $XX XX,

debt prepay have next minimal over one due tomorrow, that maturities just million coming X. Additionally, with $XX XX months, the we plan to mortgage May we

prior level. declared we of quarterly $X.XX share, per unchanged the month, this dividend our Earlier from regular

our Our and have minimum requirements dividend capital portfolio. is well liquidity covered, strong we and throughout

flow pay to regular We continue as expect short-term we quarterly even may cash our disruptions. dividend to face

FFO $X.XX normalized EBITDA $XX.X was quarter or Adjusted XX% up XX% for quarter year-over-year. up $XX.X was First million, the year-over-year. per million share,

offset representing which Total activity $XX.X over quarter. rental reduction we a prior leasing well resets, our discussed XXXX XX% percentage recognized reflects by first as million, primarily in for income a increase of from $XX.X results. the as Hawaii increased to increase rent quarter year by and in This last rent increases acquisition

a XXXX. we the recognized in including approximately first year, million quarter rent of $X As percentage each reminder, historically of

X.X% $X establishing increased floor percentage favorable basis the We consolidated basis year mainland. per million in increased on XX NOI the for the which NOI the X%. by slightly the quarter amended change and any an rent quarter. Hawaii cash X% Total same-property cash decrease ratably XXXX, is same-property adjustments rent, Adjusting in portfolio a decreased this versus Hawaii the increase a amendment Hawaii tenant's fourth year lease and prior recognized basis timing same-property in recognized percentage in with year, with points X.X% of the NOI fourth throughout of for basis cash the annual after

attributable expense to million, million totaled finished $XX.X beginning was to $X.X year-over-year. General administrative These first outstanding primarily acquisition quarter the since year. $X activity in up our with credit on balances. up due for last expense the Interest our $XX.X expense of year-over-year. million $XXX revolving debt are the million quarter We higher increased depreciation million million quarter million, $X.X the by $X.X facility. increases year-over-year And first to and

million partially joint in from times the acquisition net $XXX closed times. debt-to-EBITDA reduced We approximately John by of venture the during proceeds consolidated due consolidated uptick quarter, X.X to from last received a discussed, offset quarter net debt-to-EBITDA slight X.X our by resulting with

EBITDA of was debt debt-to-EBITDA. rest related the the the times and joint at Excluding X.X venture, to the portfolio

to expand securely. the explore to current our but to to run with and reduce profile effectively joint venture financial continue and confident ability We leverage remain businesses opportunities further our

line please remarks. prepared Operator, our up concludes open That the for questions.

Operator

you. Thank

with Maher go We begin [Operator the Instructions] question-and-answer session. will Bryan question Riley first today FBR. The B. Please from now comes ahead.

Bryan Maher

given morning, second rent we million? might but I to early expectations And $X kind Good you couple abate I mean, questions. get John, of the sorry reported, of that you this, be by I'm another if you kind that million in thoughts quarter, quick quarter? to deferral bad that for you the $X your your third you the connection missed A like I had it a to what be but do maybe expect What the think are time say there? expect I I heard million-ish $X had that or of call.

John Murray

question. let take that think, I'll Yael I

Yael Duffy

Bryan. Hi,

So granted May, a majority for of we've on the future of June months $X.X it already, is July. and million that

private have been we've the us in subsided. we've approaching Paycheck and And get come tenants, And to May, started that their tenants as nine so, And say to asks. requests rescind a funding have the that the especially had lot think I we've about Hawaii, noticed, from gotten of Program. Protection they've actually

should I it's So May enter quarter, May. some subside feel third still like get we requests might more might we the been for it but as

Bryan Maher

kind the thinking? in is what you're but Okay, millions of low single-digit

Yael Duffy

I safe. think that's

Bryan Maher

then And kind shifting Okay. of gears.

guys I bids think mentioned that properties. still you on putting in you're

cap to are assume not acquisitions? How said you those rate would successful been guys you I basis successful those being you are First, Properties. bidding. those And off in that with Mainland a you do relative on that have are that far I think who think

John Murray

to Yes. right. Bryan, XX are Mainland somewhere you're on basis we and off XXX we say points submitted have bids pricing. Properties – Those for that I'd we're

Bryan Maher

can Okay. And you...

John Murray

their do if But the a fair, stronger. we is hopes know close, to so haven't don't could they've come we them the they the or we're additional that back market rounds understand we to when close withdrawn that know have haven't have market, a properties them yet. And of accepted bid, we we be others, seen from in couple properties seen moved but

are we the if seen be expectations the to off mark off seller remains are it So or if mark.

Bryan Maher

other has I kind of kind activity on materially my volume. And two decreased I'd modestly or quarters mean, of to, Right. only say, it relative ago? decreased that up question tees

John Murray

I of choice the were but That's that one seller taking taking like eight couple the property a off there's XX bid other because felt or a in we least we think of tough there one where of to market, of they answer buildings had on our at the that the we the to brokers on bidders. we where were had that bid told magnitude us the the price properties

still but cause for we're capital in So out for case there a lot where me other like the think would the environment, to out think a we demand that the bidder, that current there's transactions. chasing me felt there's this, makes lot only there that the that less acquisitions

say... to hard it's So

Bryan Maher

to you went as JV? kind into us what of cap rate gears on can remind JV, they the the then those was shifting assets And the

John Murray

have Rick, the of do off top you number head? that your

Rick Siedel

was do. I Bryan. about X.X%, It a

Bryan Maher

some lastly, Okay. in might Correct to be to JV on into of that I do JV to And wrong grow planning on And at over say, future? that the months? point over next coming then expect this. me kind the so. continue you XX six JV there another and potentially time, partner Was if

John Murray

Yes.

to they in because to partner. haven't with the conduct diligence venture discussions Due the a to property-level the us, ability of deciding of second are them had move We pandemic. with timing forward

the We as join initial XX%. documentation. ownership the they our working and that on same venture joint venture will the partner, terms to we're so that And would reduce expect just completing on over do

to that the return timing third but additional from June, grow that And to to there. so able assuming will expect market partner tell, to in May that's we then is maybe to start hard And in that or be if start work quarter then people join. it the

Operator

any session. to over John This now Murray concludes our closing question-and-answer I like to conference for would back turn the remarks.

John Murray

joining all you to we talking on look for you to soon. Thank today, and call stay and you well the us hope forward

Operator

has This presentation. now today’s for conference concluded. attending Thank you

Industrial Logistics Properties Trust (ILPT) 1 May 202020 Q1 Earnings call transcript