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    ILPT
    Earnings call· Jun 2026(Q2 FY26)

    Industrial Logistics Properties Trust Q2 FY26 earnings call ILPT

    Jul 30, 2026 Source

    Executive summary

    Industrial Logistics Properties Trust Q2 FY26 — Record Leasing and Strategic Debt Refinancing Drive Strong Performance

    Industrial Logistics Properties Trust delivered a strong second quarter, marked by record leasing volumes and a significant debt refinancing that converted all consolidated debt to fixed rate, extending maturities to 2029. These operational and financial achievements drove substantial FFO growth and an increased dividend, underscoring management's confidence in the portfolio's embedded value. While leverage remains elevated, the company is focused on building cash reserves to address future debt obligations and prudently manage capital.

    Highlights

    5

    • Normalized FFO grew 51% year-over-year to $0.31 per share.

    • Achieved a record leasing quarter, completing 5.4 million square feet at weighted average GAAP leasing spreads of 35%.

    • Consolidated occupancy rose 450 basis points quarter-over-quarter to 99%.

    • Successfully refinanced $1.6 billion of floating rate debt in a joint venture to fixed rate, eliminating variable rate exposure and extending maturities until 2029.

    • Doubled the quarterly dividend to $0.10 per share, reflecting confidence in earnings durability.

    Concerns

    3

    • Net debt to total assets ratio increased to 69.2%.

    • Net debt leverage ratio remained elevated at 11.5 times.

    • Same property cash basis NOI was negatively impacted by a bad debt reserve for a tenant in Hawaii, resulting in 2% YoY growth (would have been 3.8% without it).

    Guidance & targets

    8
    CategoryTargetConfidence
    Q3 FY26 Interest Expense
    $61 million
    medium materiality
    High
    Q3 FY26 Adjusted EBITDA RE
    $87.5 million and $88.5 million
    medium materiality
    High
    Q3 FY26 Normalized FFO per share
    $0.34 and $0.36 per share
    high materiality
    High
    Full-year 2026 Capital Expenditures
    $29 million and $34 million
    medium materiality
    High
    Full-year 2026 Interest Expense
    approximately $245 million
    medium materiality
    High
    Full-year 2026 Adjusted EBITDA RE
    $348 million and $353 million
    high materiality
    High
    Full-year 2026 Normalized FFO per share
    $1.31 and $1.39 per share
    high materiality
    High
    Hawaii ground lease cash rent commencement
    3 years
    medium materiality
    High

    Operational metrics

    18
    Normalized FFO
    $20.8 million51% higher YoY
    Q2 FY26
    Adjusted EBITDA RE
    $87.4 million3% increase YoY
    Q2 FY26
    CAD payout ratio
    50%up from 29% prior quarter
    Q2 FY26

    Elevated due to leasing commissions related to record leasing volume.

    Total return
    63%outperforming Industrial REIT benchmark by 55 percentage points
    H1 FY26
    Weighted average lease term
    8 years
    Q2 FY26 end
    Annualized rental revenue increase from Q2 leasing
    $8.2 million
    Q2 FY26
    Lease expiration schedule
    <17%
    through end of 2028

    Well balanced with minimal expirations in 2026.

    Expected roll-ups from leasing pipeline
    20%
    next 12 months
    Expected roll-ups from leasing pipeline
    30%
    next 12 months
    Cash on hand
    $135 million
    Q2 FY26 end
    Restricted cash
    $46 million
    Q2 FY26 end

    Reduction related to debt refinancing.

    JV distribution to ILPT
    >$23 million
    Q2 FY26

    Part of $38 million total JV distribution.

    JV total distribution
    $38 million
    Q2 FY26

    From consolidated joint venture, enabled by debt refinancing.

    Normalized FFO adjustments attributable to non-controlling interest
    $1.5 million
    Q2 FY26

    One-time item related to the loss on extinguishment from debt refinancing.

    Traditional lease escalators
    2% to 3%
    annual

    Some cases higher, up to 4%, depending on the market.

    Hawaii ground lease real estate taxes
    $800,000
    annual

    Tenant will pay these immediately, providing recoveries despite free rent period.

    Building improvement run rate
    $2 million to $4 million
    quarterly

    General expectation for building improvement capex.

    Net debt to total assets ratio
    69.2%increased
    Q2 FY26 end

    Industry KPIs

    10
    MetricValueDetails
    Occupancy rate99%%
    Lease mark to market—
    Net debt adjusted EBITDA11.5xx
    Quarterly leasing volume5.4 millionsq ft
    Leasing spread cash basis14%%
    Bad debt credit loss level—
    Turnover costs and concessions$0.23USD/sq ft/year
    Market fundamentals rent growth—
    Leasing spread net effective basis35%%
    Same store noi growth cash vs net effective2%%

    Orderbook & backlog

    2
    Leasing pipeline3.4 million sq ftQ2 FY26 end
    Leasing pipeline in advanced negotiation/documentation2.2 million sq ftQ2 FY26 end

    Relates to expirations over the next 12 months.

    Deals & partnerships

    6
    Consolidated joint venture lendersDebt refinancing$1.62 billion5 years

    Closed a $1.62 billion five-year interest-only mortgage loan at a fixed rate of 5.71%. Proceeds used to refinance the joint venture's existing $1.4 billion floating rate loan and $205 million of fixed-rate amortized debt. Secured by 90 mainland properties.

    FedExNew lease10 years

    Signed a 10-year lease for a 532,000 square foot property in Indianapolis.

    Construction companyGround lease53 years

    Completed a 53-year ground lease on 2.2 million square feet in Hawaii.

    Southern StatesNew lease10 years

    Signed a new 218,000 square foot lease in Georgia, filling the space after one month of downtime.

    Shaw IndustriesLease renewal7 years

    Renewed 832,000 square feet in Georgia, retaining a long-standing tenant.

    ABT Technology SolutionsLease renewal7 years

    Renewed 581,000 square feet in Ohio.

    Risks & headwinds

    2
    Elevated leverageOngoing

    Net debt to total assets ratio of 69.2%; net debt leverage ratio of 11.5 times.

    Mitigation: Building cash reserves to potentially reduce leverage, targeting the 2029 maturity of the Hawaii portfolio debt.

    Bad debt reserve impacting NOIQ2 FY26

    Negatively impacted same property cash basis NOI, reducing it from 3.8% to 2% YoY.

    Mitigation: In discussions with the tenant and hopeful for direct deals with subtenants to secure future rent. Expecting a return to normal trends next quarter.

    What to watch in Q3 FY26

    5

    Same-property cash basis NOI

    next quarter
    Current2% (would be 3.8% ex-bad debt)
    TargetReturn to normal trends

    Why it matters

    This metric is a key indicator of organic growth and will show if the impact of the bad debt reserve was indeed a one-time📎 event.

    So it's just a one time📎 that hit this quarter, which will be back to normal trends, I think next quarter.

    Q&A highlights

    6

    Inquired about a new $1.5 million line item in the NFFO calculation for non-controlling interest, asking if it was a one-time event and how to consider it going forward.

    The adjustment was a one-time item related to the non-controlling interest portion of the loss on extinguishment from the debt refinancing.

    “That was a one-timer related to the debt refinancing. It was the NCI portion of the... the extinguishment, the loss on the extinguishment.”

    asked by Unknown Speaker · answered by Unknown Speaker

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Debt Refinancing and Deleveraging Focus

    ILPT successfully refinanced $1.62 billion of floating rate debt within its consolidated joint venture in May, securing a five-year interest-only mortgage loan at a fixed rate of 5.71%. This move eliminated exposure to variable rates, making 100% of ILPT's consolidated debt fixed rate with no maturities until 2029. The proceeds were used to refinance existing floating rate and amortized debt, allowing the JV to distribute $38 million, with over $23 million going to ILPT. Management plans to build cash reserves to potentially reduce leverage when the Hawaii portfolio debt matures in 2029.

    02

    Record Leasing Activity and Occupancy Gains

    The second quarter saw record leasing, with 5.4 million square feet signed across 14 new and renewal leases, plus one rent reset. This activity resulted in weighted average GAAP leasing spreads of 35% and cash spreads of 14%, marking the seventh consecutive quarter of double-digit rent growth and fifth straight quarter of accelerating mark-to-market spreads. Consolidated occupancy significantly improved by 450 basis points to 99%, outperforming the national industrial average by 590 basis points. Key transactions included a 10-year lease with FedEx for 532,000 square feet in Indianapolis and a 53-year ground lease for 2.2 million square feet in Hawaii.

    03

    Dividend Increase and Payout Ratio Dynamics

    ILPT doubled its quarterly dividend to $0.10 per share, signaling confidence in the durability of its earnings and commitment to shareholder returns. The second quarter CAD payout ratio rose to 50% from 29% in the prior quarter, primarily due to elevated leasing commissions associated with the record leasing volume. Management believes the new dividend rate remains well covered by underlying cash flows, providing ample capacity for future priorities.

    04

    Capital Expenditures and Leasing Costs

    Capital expenditures for the quarter totaled approximately $14 million, with $10 million directly attributable to leasing commissions. Costs and concessions averaged just $0.23 per square foot per year, consistent with historical trends. The company anticipates Q3 and Q4 to be the heaviest quarters for capital spend, particularly for building improvements like roof projects and parking lots, which are easier to execute in warmer months. There is also potential for redevelopment capital in 2027 for a tenant expansion.

    05

    Impact of Hawaii Ground Lease and Future Cash Flow

    The 53-year ground lease for 2.2 million square feet in Hawaii, signed with a construction company, had a significant GAAP roll-up of 162% and a cash roll-up of 52%. While the tenant took possession on July 1st, 2026, there is a three-year free rent period, meaning cash rent will not be recognized until 2029. However, the tenant will immediately begin paying real estate taxes for the parcel, contributing approximately $800,000 annually in recoveries.

    AI-generated summary of the company’s earnings call. Not investment advice.