Market Overview

Industrial Logistics Properties Trust Announces Second Quarter 2018 Results

Share:

Second Quarter Net Income of $0.29 Per Share

Second Quarter Normalized FFO of $0.39 Per Share

Second Quarter Same Property Cash Basis NOI Increased by 3.3%

Industrial Logistics Properties Trust (NASDAQ:ILPT) today announced
financial results for the quarter and six months ended June 30, 2018.
ILPT was formed in 2017 as a wholly owned subsidiary of Select Income
REIT (NASDAQ:SIR). On January 17, 2018, ILPT sold approximately 30.8%
of its common shares in an initial public offering, or the IPO, and
became a separate public company. For periods prior to January 17, 2018,
ILPT's historical results of operations and financial position have been
derived from the financial statements of SIR and may not be comparable
to future results. SIR currently owns 69.2% of ILPT's outstanding common
shares.

John Popeo, President and Chief Executive Officer of ILPT, made the
following statement:

"During the second quarter, we continued our positive leasing activity,
entering leases for approximately 218,000 square feet that resulted in
weighted average rental rates that were approximately 34.5% higher than
prior rental rates for the same space, and a weighted average lease term
of more than 11 years. In addition, we executed one rent reset in Hawaii
for approximately 34,000 square feet of land at a rental rate that was
approximately 18.0% higher than the prior rate. Even though occupancy
declined slightly to 99.1% as of the end of the quarter, same property
cash basis net operating income increased by 3.3% during the quarter
because of rent increases. We are also pleased to announce our first
acquisition since our IPO; in June 2018, we acquired a 240,000 square
foot property located in Doral, Florida for $43.1 million."

Results for the Quarter Ended June 30, 2018:

Net income for the quarter ended June 30, 2018 was $18.7 million, or
$0.29 per diluted share, compared to $21.6 million for the same quarter
last year. Normalized funds from operations, or Normalized FFO, for the
quarter ended June 30, 2018 were $25.6 million, or $0.39 per diluted
share, compared to $28.7 million for the same quarter last year.

Reconciliations of net income determined in accordance with U.S.
generally accepted accounting principles, or GAAP, to funds from
operations, or FFO, and to Normalized FFO for the quarters ended
June 30, 2018 and 2017 appear later in this press release.

Results for the Six Months Ended June 30, 2018:

Net income for the six months ended June 30, 2018 was $38.0 million, or
$0.60 per diluted share, compared to $41.9 million for the same period
last year. Normalized FFO for the six months ended June 30, 2018 were
$51.7 million, or $0.82 per diluted share, compared to $58.3 million for
the same period last year.

Reconciliations of net income determined in accordance with GAAP to FFO
and to Normalized FFO for the six months ended June 30, 2018 and 2017
appear later in this press release.

Leasing, Occupancy and Same Property Results:

During the quarter ended June 30, 2018, ILPT entered lease renewals and
new leases for approximately 218,000 square feet, which resulted in
weighted average (by square feet) rental rates that were approximately
34.5% higher than prior rental rates for the same space and a weighted
average (by square feet) lease term of 11.1 years. Commitments for
leasing capital and concessions for these leases totaled approximately
$540,000, or approximately $0.22 per square foot per lease year. All of
ILPT's leasing activity during the quarter ended June 30, 2018 occurred
in Hawaii. During the quarter ended June 30, 2018, ILPT also executed
one rent reset at one of its properties in Hawaii for approximately
34,000 square feet of land at a rental rate that was approximately 18.0%
higher than the prior rental rate.

As of June 30, 2018, 99.1% of ILPT's total rentable square feet was
leased, compared to 99.9% as of March 31, 2018 and 99.6% as of June 30,
2017. Occupancy for properties owned continuously since April 1, 2017,
or on a same property basis, decreased to 99.1% at June 30, 2018 from
99.6% at June 30, 2017. Same property cash basis net operating income,
or Cash Basis NOI, increased 3.3% for the quarter ended June 30, 2018
compared to the quarter ended June 30, 2017, primarily as a result of
contractual rent increases and leasing activity at certain properties
since April 1, 2017.

Reconciliations of net income determined in accordance with GAAP to net
operating income, or NOI, and Cash Basis NOI, on both a consolidated and
same property basis, for the quarters and six months ended June 30, 2018
and 2017 appear later in this press release.

Recent Investing Activities:

In June 2018, ILPT acquired a single tenant, net leased property located
in Doral, FL with 240,283 rentable square feet for a purchase price of
$43.1 million, excluding acquisition related costs. This property is
100% leased and has a lease term of approximately 10 years.

In July 2018, ILPT entered an agreement to acquire a single tenant, net
leased property located in Upper Marlboro, MD with approximately 221,000
rentable square feet for a purchase price of $29.3 million, excluding
acquisition related costs. This property is 100% leased and has a
remaining lease term of approximately 12 years. This acquisition is
expected to occur before the end of the third quarter of 2018.

Conference Call:

At 10:00 a.m. Eastern Time this morning, President and Chief Executive
Officer, John Popeo, and Chief Financial Officer and Treasurer, Richard
Siedel, will host a conference call to discuss ILPT's second quarter
2018 financial results.

The conference call telephone number is (877) 270-2148. Participants
calling from outside the United States and Canada should dial (412)
902-6510. No pass code is necessary to access the call from either
number. Participants should dial in about 15 minutes prior to the
scheduled start of the call. A replay of the conference call will be
available through 11:59 p.m. on Friday, August 3, 2018. To access the
replay, dial (412) 317-0088. The replay pass code is 10121840.

A live audio webcast of the conference call will also be available in a
listen-only mode on ILPT's website, which is located at www.ilptreit.com.
Participants wanting to access the webcast should visit ILPT's website
about five minutes before the call. The archived webcast will be
available for replay on ILPT's website following the call for about one
week. The transcription, recording and retransmission in any way of
ILPT's second quarter conference call are strictly prohibited without
the prior written consent of ILPT.

Supplemental Data:

A copy of ILPT's Second Quarter 2018 Supplemental Operating and
Financial Data is available for download at ILPT's website, which is
located at www.ilptreit.com. ILPT's
website is not incorporated as part of this press release.

Industrial Logistics Properties Trust is a real estate investment trust,
or REIT, that owns and leases industrial and logistics properties
throughout the United States. ILPT is managed by the operating
subsidiary of The RMR Group Inc. (NASDAQ:RMR), an alternative asset
management company that is headquartered in Newton, MA.

Please see the pages attached hereto for a more detailed statement of
ILPT's operating results and financial condition and for an explanation
of ILPT's calculation of NOI, Cash Basis NOI, same property NOI, same
property Cash Basis NOI, FFO and Normalized FFO and a reconciliation of
those amounts to amounts determined according to GAAP.

WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER ILPT USES
WORDS SUCH AS "BELIEVE", "EXPECT", "ANTICIPATE", "INTEND", "PLAN",
"ESTIMATE", "WILL", "MAY" AND NEGATIVES OR DERIVATIVES OF THESE OR
SIMILAR EXPRESSIONS, ILPT IS MAKING FORWARD LOOKING STATEMENTS. THESE
FORWARD LOOKING STATEMENTS ARE BASED UPON ILPT'S PRESENT INTENT, BELIEFS
OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO
OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
CONTAINED IN OR IMPLIED BY ILPT'S FORWARD LOOKING STATEMENTS AS A RESULT
OF VARIOUS FACTORS. FOR EXAMPLE:

  • MR. POPEO'S STATEMENT IN THIS PRESS RELEASE THAT ILPT CONTINUED ITS
    POSITIVE LEASING ACTIVITY DURING THE SECOND QUARTER OF 2018 MAY IMPLY
    THAT ILPT WILL CONTINUE TO EXPERIENCE POSITIVE LEASING ACTIVITY IN THE
    FUTURE AND THAT ILPT'S OPERATING RESULTS WILL IMPROVE AS A RESULT.
    HOWEVER, ILPT'S ABILITY TO LEASE ITS PROPERTIES DEPENDS IN LARGE PART
    ON MARKET CONDITIONS IN AREAS WHERE ILPT'S PROPERTIES ARE LOCATED WHEN
    SUCH PROPERTIES BECOME AVAILABLE FOR LEASE OR WHEN LEASES ARE
    NEGOTIATED OR RENTS ARE RESET. LEASING MARKET CONDITIONS OFTEN CHANGE
    AND ARE GENERALLY BEYOND ILPT'S CONTROL. IN THE FUTURE, ILPT MAY
    EXPERIENCE INCREASING VACANCIES OR LOWER RENTS AT ILPT'S OWNED
    PROPERTIES AND ITS OPERATING RESULTS MAY DECLINE, AND
  • THIS PRESS RELEASE STATES THAT ILPT HAS ENTERED AN AGREEMENT TO
    ACQUIRE A PROPERTY FOR $29.3 MILLION, EXCLUDING ACQUISITION RELATED
    COSTS. THIS TRANSACTION IS SUBJECT TO CONDITIONS. THESE CONDITIONS MAY
    NOT BE MET AND THIS ACQUISITION MAY NOT OCCUR, MAY BE DELAYED OR THE
    TERMS MAY CHANGE.

THE INFORMATION CONTAINED IN ILPT'S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, OR SEC, INCLUDING UNDER "RISK FACTORS" IN ILPT'S
PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER IMPORTANT
FACTORS THAT COULD CAUSE ILPT'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE STATED IN OR IMPLIED BY ILPT'S FORWARD LOOKING STATEMENTS. ILPT'S
FILINGS WITH THE SEC ARE AVAILABLE ON THE SEC'S WEBSITE AT WWW.SEC.GOV.

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.

EXCEPT AS REQUIRED BY LAW, ILPT DOES NOT INTEND TO UPDATE OR CHANGE ANY
FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS
OR OTHERWISE.

                     

Industrial Logistics Properties Trust

Condensed Consolidated Statements of Income

(amounts in thousands, except per share data)

(unaudited)

 
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Revenues:
Rental income $ 33,880 $ 33,427 $ 68,689 $ 67,297
Tenant reimbursements and other income 5,540   5,178   11,336   10,748  
Total revenues 39,420   38,605   80,025   78,045  
 
Expenses:
Real estate taxes 4,582 4,339 9,167 8,678
Other operating expenses 2,824 2,701 6,369 5,433
Depreciation and amortization 6,890 6,855 13,763 13,666
General and administrative 2,888   2,564   5,462   7,200  
Total expenses 17,184   16,459   34,761   34,977  
 
Operating income 22,236 22,146 45,264 43,068
 
Interest income 50 63

Interest expense (including net amortization of debt issuance costs

and premiums of $311, ($75), $622 and ($148), respectively)

(3,552 ) (560 ) (7,354 ) (1,115 )
Income before income tax expense 18,734 21,586 37,973 41,953
Income tax expense (8 ) (11 ) (15 ) (22 )
Net income $ 18,726   $ 21,575   $ 37,958   $ 41,931  
 
Weighted average common shares outstanding - basic and diluted 65,011   45,000   63,238   45,000  
 
Net income per common share - basic and diluted $ 0.29   $ 0.48   $ 0.60   $ 0.93  
 

 

       

Industrial Logistics Properties Trust

Funds from Operations and Normalized Funds from Operations (1)

(amounts in thousands, except per share data)

(unaudited)

 
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017
 
Net income $ 18,726 $ 21,575 $ 37,958 $ 41,931

Plus: depreciation and amortization

6,890   6,855   13,763   13,666
FFO 25,616 28,430 51,721 55,597

Plus: estimated business management incentive fees (2)

  281     2,690
Normalized FFO $ 25,616   $ 28,711   $ 51,721   $ 58,287
 
Weighted average common shares outstanding - basic and diluted 65,011   45,000   63,238   45,000
 
FFO per common share - basic and diluted $ 0.39   $ 0.63   $ 0.82   $ 1.24
Normalized FFO per common share - basic and diluted $ 0.39   $ 0.64   $ 0.82   $ 1.30
Distributions declared per common share $ 0.27   $   $ 0.27   $
 
(1)   ILPT calculates FFO and Normalized FFO as shown above. FFO is
calculated on the basis defined by The National Association of Real
Estate Investment Trusts, or Nareit, which is net income, calculated
in accordance with GAAP, plus real estate depreciation and
amortization, as well as certain other adjustments currently not
applicable to ILPT. ILPT's calculation of Normalized FFO differs
from Nareit's definition of FFO because ILPT includes business
management incentive fees, if any, only in the fourth quarter versus
the quarter when they are recognized as expense in accordance with
GAAP due to their quarterly volatility not necessarily being
indicative of ILPT's core operating performance and the uncertainty
as to whether any such business management incentive fees will be
payable when all contingencies for determining such fees are known
at the end of the calendar year. ILPT considers FFO and Normalized
FFO to be appropriate supplemental measures of operating performance
for a REIT, along with net income and operating income. ILPT
believes that FFO and Normalized FFO provide useful information to
investors because by excluding the effects of certain historical
amounts, such as depreciation expense, FFO and Normalized FFO may
facilitate a comparison of its operating performance between periods
and with other REITs. FFO and Normalized FFO are among the factors
considered by ILPT's Board of Trustees when determining the amount
of distributions to ILPT's shareholders. Other factors include, but
are not limited to, requirements to qualify for taxation as a REIT,
limitations in ILPT's credit agreement, the availability to ILPT of
debt and equity capital, ILPT's expectation of its future capital
requirements and operating performance and ILPT's expected needs for
and availability of cash to pay its obligations. FFO and Normalized
FFO do not represent cash generated by operating activities in
accordance with GAAP and should not be considered alternatives to
net income or operating income as indicators of ILPT's operating
performance or as measures of ILPT's liquidity. These measures
should be considered in conjunction with net income and operating
income as presented in ILPT's condensed consolidated statements of
income. Other real estate companies and REITs may calculate FFO and
Normalized FFO differently than ILPT does.
 
(2) Incentive fees under ILPT's and SIR's business management agreements
with The RMR Group LLC are payable after the end of each calendar
year, are calculated based on common share total return, as defined
in the respective agreements, and are included in general and
administrative expense in ILPT's condensed consolidated statements
of income. In calculating net income in accordance with GAAP, ILPT
recognizes estimated business management incentive fee expense, if
any, in the first, second and third quarters. Although ILPT
recognizes this expense, if any, in the first, second and third
quarters for purposes of calculating net income, ILPT does not
include such expense in the calculation of Normalized FFO until the
fourth quarter, when the amount of the business management incentive
fee expense for the calendar year, if any, is determined. Normalized
FFO for the three and six months ended June 30, 2017 excludes $281
and $2,690, respectively, which represents the portion of SIR's
estimated business management incentive fee allocated to ILPT for
the period during which ILPT was SIR's wholly owned subsidiary.
 
           

Industrial Logistics Properties Trust

Calculation and Reconciliation of Property Net Operating Income
and Cash Basis Net Operating Income
(1)

(dollars in thousands)

(unaudited)

 
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
Calculation of NOI and Cash Basis NOI:
Rental income $ 33,880 $ 33,427 $ 68,689 $ 67,297
Tenant reimbursements and other income 5,540 5,178 11,336 10,748
Real estate taxes (4,582 ) (4,339 ) (9,167 ) (8,678 )
Other operating expenses (2,824 ) (2,701 ) (6,369 ) (5,433 )
NOI 32,014 31,565 64,489 63,934
Non-cash straight line rent adjustments included in rental income (2) (1,038 ) (1,475 ) (2,232 ) (2,945 )
Lease value amortization included in rental income (2) (101 ) (96 ) (203 ) (192 )
Non-cash amortization included in other operating expenses (3)   (138 )   (276 )
Cash Basis NOI $ 30,875   $ 29,856   $ 62,054   $ 60,521  
 
Reconciliation of Net Income to NOI and Cash Basis NOI:
Net income $ 18,726 $ 21,575 $ 37,958 $ 41,931
Income tax expense 8   11   15   22  
Income before income tax expense 18,734 21,586 37,973 41,953
Interest expense 3,552 560 7,354 1,115
Interest income (50 )   (63 )  
Operating income 22,236 22,146 45,264 43,068
 
General and administrative 2,888 2,564 5,462 7,200
Depreciation and amortization 6,890   6,855   13,763   13,666  
NOI 32,014 31,565 64,489 63,934
 
Non-cash straight line rent adjustments included in rental income (2) (1,038 ) (1,475 ) (2,232 ) (2,945 )
Lease value amortization included in rental income (2) (101 ) (96 ) (203 ) (192 )
Non-cash amortization included in other operating expenses (3)   (138 )   (276 )
Cash Basis NOI $ 30,875   $ 29,856   $ 62,054   $ 60,521  
 
(1)   The calculations of NOI and Cash Basis NOI exclude certain
components of net income in order to provide results that are more
closely related to ILPT's property level results of operations. ILPT
calculates NOI and Cash Basis NOI as shown above. ILPT defines NOI
as income from its rental of real estate less its property operating
expenses. NOI excludes amortization of capitalized tenant
improvement costs and leasing commissions that ILPT records as
depreciation and amortization. ILPT defines Cash Basis NOI as NOI
excluding non-cash straight line rent adjustments, lease value
amortization, lease termination fees, if any, and non-cash
amortization included in other operating expenses. ILPT considers
NOI and Cash Basis NOI to be appropriate supplemental measures to
net income because they may help both investors and management to
understand the operations of ILPT's properties. ILPT uses NOI and
Cash Basis NOI to evaluate individual and company wide property
level performance, and ILPT believes that NOI and Cash Basis NOI
provide useful information to investors regarding its results of
operations because they reflect only those income and expense items
that are generated and incurred at the property level and may
facilitate comparisons of ILPT's operating performance between
periods and with other REITs. NOI and Cash Basis NOI do not
represent cash generated by operating activities in accordance with
GAAP and should not be considered alternatives to net income or
operating income as indicators of ILPT's operating performance or as
measures of ILPT's liquidity. These measures should be considered in
conjunction with net income and operating income as presented in
ILPT's condensed consolidated statements of income. Other real
estate companies and REITs may calculate NOI and Cash Basis NOI
differently than ILPT does.
 
(2) ILPT reports rental income on a straight line basis over the terms
of the respective leases; accordingly, rental income includes
non-cash straight line rent adjustments. Rental income also includes
non-cash amortization of intangible lease assets and liabilities and
lease termination fees, if any.
 
(3) The amounts for the three and six months ended June 30, 2017,
respectively, represent the portion of SIR's non-cash amortization
included in other operating expenses allocated to ILPT for the
period during which ILPT was SIR's wholly owned subsidiary.
 
           

Industrial Logistics Properties Trust

Reconciliation of Net Operating Income to Same Property Net
Operating Income and Calculation of Same

Property Cash
Basis Net Operating Income
(1)

(dollars in thousands)

(unaudited)

 
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
Reconciliation of NOI to Same Property NOI (2)(3):
Rental income $ 33,880

$

33,427 $ 68,689 $ 67,297
Tenant reimbursements and other income 5,540 5,178 11,336 10,748
Real estate taxes (4,582 ) (4,339 ) (9,167 ) (8,678 )
Other operating expenses (2,824 ) (2,701 ) (6,369 ) (5,433 )
NOI 32,014 31,565 64,489 63,934
Less:
NOI of properties not included in same property results (23 )   (23 )  
Same property NOI $ 31,991   $ 31,565   $ 64,466   $ 63,934  
 
 
Calculation of Same Property Cash Basis NOI (2)(3):
Same property NOI $ 31,991 $ 31,565 $ 64,466 $ 63,934
Less:
Non-cash straight line rent adjustments included in rental income (4) (1,035 ) (1,475 ) (2,229 ) (2,945 )
Lease value amortization included in rental income (4) (101 ) (96 ) (203 ) (192 )
Non-cash amortization included in other operating expenses (5)   (138 )   (276 )
Same property Cash Basis NOI $ 30,855   $ 29,856   $ 62,034   $ 60,521  
 
(1)   See footnote (1) on page 7 of this press release for the definitions
of NOI and Cash Basis NOI, a description of why ILPT believes they
are appropriate supplemental measures and a description of how ILPT
uses these measures.
 
(2) For the three months ended June 30, 2018, same property NOI and same
property Cash Basis NOI are based on properties that ILPT owned
(including for the period SIR owned ILPT's properties prior to the
IPO) as of June 30, 2018, and which it owned continuously since
April 1, 2017.
 
(3) For the six months ended June 30, 2018, same property NOI and same
property Cash Basis NOI are based on properties ILPT owned
(including for the period SIR owned ILPT's properties prior to the
IPO) as of June 30, 2018, and which it owned continuously since
January 1, 2017.
 
(4) ILPT reports rental income on a straight line basis over the terms
of the respective leases; accordingly, rental income includes
non-cash straight line rent adjustments. Rental income also includes
non-cash amortization of intangible lease assets and liabilities and
lease termination fees, if any.
 
(5) The amounts for the three and six months ended June 30, 2017,
respectively, represent the portion of SIR's non-cash amortization
included in other operating expenses allocated to ILPT for the
period during which ILPT was SIR's wholly owned subsidiary.
 
         

Industrial Logistics Properties Trust

Condensed Consolidated Balance Sheets

(dollars in thousands, except per share data)

(unaudited)

 
June 30, December 31,
2018 2017

ASSETS

Real estate properties:
Land $ 657,931 $ 642,706
Buildings and improvements 729,823   700,896  
1,387,754 1,343,602
Accumulated depreciation (83,581 ) (74,614 )
1,304,173 1,268,988
Acquired real estate leases, net 73,848 79,103
Cash and cash equivalents 15,565

Rents receivable, including straight line rents of $52,409 and
$50,177, respectively, net

of allowance for doubtful accounts of $766 and $1,241, respectively

54,069 51,672
Debt issuance costs, net 5,169 1,724
Deferred leasing costs, net 5,190 5,254
Due from related persons 2,955
Other assets, net 381   4,942  
Total assets $ 1,461,350   $ 1,411,683  
 

LIABILITIES AND SHAREHOLDERS' EQUITY

Revolving credit facility $ 335,000 $ 750,000
Mortgage note payable, net 49,311 49,427
Assumed real estate lease obligations, net 19,339 20,384
Accounts payable and other liabilities 10,250 11,082
Rents collected in advance 5,852 5,794
Security deposits 5,802 5,674
Due to related persons 1,479   7,114  
Total liabilities 427,033   849,475  
 
Commitments and contingencies
 
Shareholders' equity:

Common shares of beneficial interest, $.01 par value: 100,000,000
shares authorized;

65,020,000 and 45,000,000 shares issued and outstanding,
respectively

650 450
Additional paid in capital 997,991 546,489
Cumulative net income 53,227 15,269
Cumulative common distributions (17,551 )  
Total shareholders' equity 1,034,317   562,208  
Total liabilities and shareholders' equity $ 1,461,350   $ 1,411,683  
 

A Maryland Real Estate Investment Trust with transferable shares of
beneficial interest listed on the Nasdaq.

No shareholder,
Trustee or officer is personally liable for any act or obligation of the
Trust.

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