Hello, welcome to the Industrial Logistics Properties Trust Q1 2023 Financial Results Conference Call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I will now turn the conference over to Stephen Colbert, Director of Investor Relations. Please go ahead, sir. Good morning. Joining me on today's call are Yael Duffy, President and Chief Operating Officer, and Brian Donley, Treasurer and Chief Financial Officer. Today's call includes a presentation by management, followed by a question and answer session with analysts. Please note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Also note that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on ILPT's beliefs and expectations as of today, April 26, 2023, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revisions of the forward-looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, or SEC, which can be accessed from our website, ilptreit.com, or the SEC's website. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we will be discussing non-GAAP financial numbers during this call, including normalized funds from operations or normalized FFO, Adjusted EBITDA and cash-based net operating income, or cash basis NOI. A reconciliation of these non-GAAP figures to net income and the components to calculate cash available for distribution are available in our supplemental operating and financial data package, which can be found on our website. With that, I will turn the call over to Yael. Thank you, Stephen. Good morning. I would like to begin by highlighting the enhanced earnings release format that we issued last night. We believe this combined presentation of information will be helpful for analysts and investors to efficiently digest information about our company and results. On today's call, I will review ILPT's operating and leasing performance and then turn the call over to Brian to provide an update on our financial results. We started the year with continued demand for our high-quality portfolio, consistent with the trends we saw throughout 2022. Same property cash basis NOI grew by 3.2% compared to the same period last year. We executed new and renewal leases for 1.1 million sq ft. Total occupancy remained healthy at 98.7%. Before we get into the details of the quarter, we wanted to make you aware that Home Depot, our third largest tenant, exercised its termination right on a 2.2 million sq ft land parcel in Hawaii that they agreed to lease from us last year. The lease was executed in June 2022 and allowed for a due diligence period that was scheduled to expire on March 31. We remain in active discussions with Home Depot regarding this site but have also re-engaged broader leasing efforts. This lease termination had no impact on our financial results as we continue to recognize rents from an existing tenant that leases the site through March 2024, which we believe gives us ample time to re-lease the property prior to the tenant's lease maturity. Turning to our operating and leasing results. ILPT's consolidated portfolio includes 413 warehouse and distribution properties in 39 states, totaling approximately 60 million sq ft with a weighted average remaining lease term of approximately eight years. During the Q1, we entered 12 new and renewal leases for approximately 1.1 million sq ft at a weighted average lease term of eight point nine years. This activity resulted in GAAP and cash leasing spreads of 15.1% and 9.5% respectively. The impact of this activity is an increase of $1.4 million in annualized rental revenue, of which 75% will go into effect in 2023. These results continue to showcase our ability to generate organic cash flow growth while maintaining portfolio stability. Renewals on the mainland drove most of our leasing for the quarter, including three renewals with FedEx, our largest tenant, that totaled 587,000 sq ft with weighted average roll-ups in GAAP and cash rents of 14.1% and 12.6% respectively. Earlier this month at its DRIVE investor event, FedEx announced that it plans to consolidate its operating companies into one organization which will merge FedEx Express, Ground, and several other of its operating companies into Federal Express Corporation. Our leasing and asset management teams have a strong relationship with FedEx decision-makers who have committed to having an open dialogue with us as they work through their plans. Furthermore, over 75% of our FedEx portfolio and the associated $96.9 million in annualized revenue is secure given its long-term lease with expirations in 2027 and beyond. Looking ahead, approximately 18% of ILPT's portfolio is scheduled to roll by the end of 2025, primarily driven by our mainland properties. We are currently tracking 27 deals in our pipeline for more than 2.5 million sq ft. We anticipate a near-term conversion of 62% of our pipeline, given that 1.6 million sq ft of current activity is in advanced stages of negotiation or lease documentation. Once executed, we expect these leases will yield average roll-ups in rent of 20% on the mainland and 30% in Hawaii, further illustrating the strength of our portfolio. Before turning the call over to Brian, I wanted to make you aware of the recent publication of The RMR Group's annual sustainability report. The report highlights insights, accomplishments, and data regarding our manager's commitment to long-term ESG goals. We are proud of the progress made to strengthen ILPT's sustainability practices and enhance our ESG transparency and disclosure. You can find links to the complete report as well as an ILPT specific tear sheet on our website at ilptreit.com. Brian. Thank you, Yael. Good morning. Starting with our consolidated financial results for the Q1 of 2023, normalized funds from operations were $7.9 million or $0.12 per share, a decline of $19.7 million compared to the prior-year quarter. The major drivers impacting normalized FFO over the prior-year quarter was higher interest expense, partially offset by a $29.3 million increase in NOI. Adjusted EBITDAre increased 53.6% year-over-year to $80.7 million. These changes were a result of our acquisition and related financing activities of Monmouth in 2022. Total portfolio same property cash basis NOI for the Q1 increased 3.2% year-over-year. The increase this quarter was driven by favorable change to reserve for uncollectible rents of approximately $850,000 and an increase in percentage rents earned at one of our Hawaii properties. Interest expense increased $29.8 million over the prior year quarter as a result of our financing activities related to the Monmouth acquisition in 2022. As a reminder, we have interest rate caps for our $2.6 billion of floating rate loans and rates continue to exceed the strike rates, fixing our interest through the initial maturities in 2024. Our current estimated quarterly interest expense run rate is approximately $71 million, consisting of $58 million of cash interest expense and $13 million of non-cash amortization of financing costs, including the interest rate caps. Turning to our balance sheet, including extension options, ILPT's weighted average debt maturity is six years with no maturities until 2027. As of March 31, our total debt either carried a fixed rate or is fixed through interest rate caps with a total weighted average interest rate of 5.4%. We currently have $61 million of cash on hand, excluding the cash held by our consolidated joint venture and amounts escrowed under our debt agreements. Capital expenditures for the Q4 were $4.9 million, including $2.5 million of development costs, $2 million of tenant improvements and leasing costs, and $400,000 of building improvements. In closing, we're focused on our operations and continue to monitor market conditions for potential dispositions and deleveraging opportunities. Our portfolio remains strong with an exceptional tenant roster, near full occupancy, and rising rents across our portfolio, and we expect that ILPT will continue to benefit from industry demand for high quality industrial real estate. That concludes our prepared remarks. Operator, please open the line for questions. Yes, thank you. At this time, we will begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please cup your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble the roster. The first question comes from Bryan Maher with B. Riley FBR. Thank you, and good morning, Yael and Brian. Maybe a question for Brian to start. On the interest rate, you know, it's a big topic these days, and you kind of walk through the cash component and the non-cash component. As we think out to 2024, and let's assume that you know, exercise your extension options and you have to make, you know, pay for new caps, how should we think about that non-cash component of the amortization and the cost of the new caps? Let's just to say, you know, assume you have to do that, you know, at today's rates. You know, how should we think about interest expense next year under that scenario? Thanks, Bryan. Good morning. This is a good question. You know, as we look at the interest rate caps and how that accounting works, you're essentially buying down the interests to maintain the same strike rate for the next one-year period. You know, if we were to buy a cap today, you know, I would estimate a one-year cap based on today's SOFR curve, anywhere from $10 million-$20 million. It's a very volatile market, and interest rates, as you know, can change on a whim. The way that will work is the amortization of the current cap will expire. You know, I will note, especially on the CMBS loan we did in September, that cap was very expensive, you know, $50 million. You know, the amortization of that cap, there could be a favorable change in where we're recognizing for interest expense if the cap for one year is cheaper. That's the best guidance I can give today that, you know, hopefully the rates continue, the forward curve continues to decline and the price of those caps decline because, you know, they're not cheap today. Right. That, that's helpful. You know, another company that we covered here, last year bought some caps or some hedges or did something, I'd have to go look it up, last year knowing that caps on it, you know, would expire this year on loans that they were gonna extend. Is there anything that you're looking at given, you know, the 10 year at 3.40% today that you could do today that would lock in something for an extension for next year? Yeah, that's a good question. It's not something we're considering. You know, I think all pundits would say that interest rates are expected to decline at some point in the future. You know, the forward curve is what drives the pricing on a cap. You know, it's something we talk to different people on, you know, what that could look like in a year. You know, for us, it's, we're gonna give it some more time and let the backdrop settle in hopefully over the next few quarters. Okay. Maybe shifting gears, can you elaborate a little bit more maybe, Yael, on the Home Depot termination? You know, it seems like you're still engaged with them. Are they just simply looking for a lower price? Maybe how deep is the bench of potential tenants to take that space if you can't come to an agreement with them? Thanks, Bryan. You know, this was a unique circumstance. We generally don't allow for diligence periods and termination rights in our leases. You know, with Home Depot, this is a very large parcel, 2.2 million sq ft, and they had done some diligence. You know, as I think we mentioned earlier, they were planning on putting a warehouse and distribution facility on this site. They just needed a little more time on their, you know, on their planning. As I mentioned, they didn't give us the reason why they terminated, but I think they realized that this site would be really essential as they grow their network, and they remain interested. As I mentioned, we have started engaging the broader market. I think the reasons why Home Depot liked this site, another, you know, mainland retailer would also find it attractive. I think our chances are good in this park. This parcel's in James Campbell Industrial Park, and as of Q1, it had less than 0.5% of vacancy. You know, I think that provides us with a competitive advantage to re-lease it. Thanks. Just last for me. You mentioned the 27 deals and that you're tracking 2.5 million sq ft for the next couple of years releasing. You said something about a 62% conversion anticipated. Am I to assume from that the properties or tenants that you've engaged in the 38% aren't looking to renew? What are the prospects for those properties? No. No, that's actually not what I meant. We have in our pipeline, you know, in 2023, 2024 expirations. We actually have very minimal expirations in the next couple years. That's mostly 2023 and 2024. We just have, you know, we've engaged with them early. The ones that are 62% likely to execute are just the ones that we have a signed LOI or we're negotiating a lease. Okay. If you had to put some kind of probability on the level of renewals from those that are expiring, you know, give or take five percentage points, what do you anticipate that being? Yeah. Currently today, we only know of three properties where the tenant's likely to vacate, and it represents less than 0.5% of ILPT's annualized revenue, about 240,000 sq ft. Perfect. Thank you. Yep. Thank you. The next question comes from Mitch Germain with JMP Securities. Good morning. Appreciate the new disclosures. Wanted to talk about revenues. Brian, I know you talked about a reserve and the percentage rent from Hawaii. Assuming the reserve's a kind of a one-timer, what about the percentage rent? Is that just gonna be a one-time benefit in the quarter? Yeah. That tenant pays percentage rent annually. You know, that tenant, you had a significant increase in their revenues that result in the percentage rent. It could repeat next year, but it's a percentage rent that could disappear as well. It's not something we'll necessarily project for, but, you know, we've received some form of percentage rent from that tenant annually. What's the dollar value of that? Yeah, we had an increase of $680,000 in change, year-over-year, quarter-over-quarter. Okay. About $1.5 million of revenues this quarter that are non-recurring. Is that the way to think about it? Yes. Okay. I saw Par Pacific, you know, entered your top tenant list. Anything you can provide some perspective there? No, I think it's just with Home Depot, you know, with that lease terminating, that was 2.2 million sq ft. They just moved up in the ranks. Gotcha. Okay. You talked about the leasing spreads, Yael, you know, 9%. You referenced FedEx was a bit higher. I think it was 12. You know, I think it looks like FedEx was about 1/2 of your leasing in the quarter. You know, kinda what was on the lower end, anything specific that we should be noting there or any trends that we should be worried about? No, you know, as you know, when we do renewal leasing, especially in Hawaii, those are smaller, rents. In certain instances, the roll-ups just aren't as big. We had a couple leases in Hawaii on the renewals. Okay. you know, given where your cost of debt is today, you know, is there any thought about maybe pursuing some one-off sales, now that the market is at least kind of digesting the higher rates and seems to be stabilizing a bit? Yeah, we're constantly evaluating opportunities. We've had, you know, a lot of inbound inquiries from opportunistic buyers looking, and, you know, we're evaluating all of those on a case-by-case basis. I think, you know, I think there's still a period of price discovery. You know, transaction volume is considerably down year over year, you know, I think upwards of 55%. I think if the opportunity presents itself and it makes sense, we will. I think we're still holding tight, and we're gonna be patient until we have a little more data. Thank you. Thank you. Thank you. Once again, please press star and then one if you would like to ask a question. The next question comes from DG Balachandran with RBC Capital Markets. Hi. Good morning. Can you talk a little bit more about what you're seeing in the transaction market right now and what exactly would need to happen or change for you to bring something to the market? I mean, you know, we have really a big network of brokers, capital market brokers. We have, you know, acquisitions and dispositions team. They are very, you know, close to the market. There just hasn't been a lot of deals closing. Again, I think until there's more price discovery, I think we're just waiting. I mean, again, I think from what we hear, things might start to open up in Q2, Q3, and as interest rates kind of settle. I think the banking crisis kind of put a little bit of a slowdown in the process. Hopefully in the next quarter or two quarters, we'll have more data. Okay. Got it. Is it fair to assume that you're thinking about, like, some of the outright asset sales, or what are your thought process on that? I think any way we can maximize value, I think we're open to a portfolio. Again, I think with financing being hard to come by, I think that's a limited buyer pool. Again, we have a robust team that can execute on individual sales, and we're fine to go that route if we can maximize value. Okay. Great. Thank you. Yeah. Thank you. The next question on the call from Mitch Germain with JMP Securities. Sorry, couldn't help myself. Yael, what happened with Home Depot in Illinois? I know you talked about Hawaii. Yep. They came to their natural lease expiration. When we actually bought the Monmouth portfolio, we knew that to be a known vacate. We're at an active discussions with another tenant, and we're hoping to be able to lease it this quarter. Great. Appreciate it. Yep. Thank you. We also have follow-up from Bryan Maher with B. Riley FBR. Yeah, just a quick one. As it comes to thinking about potential dispositions or JV partner or, you know, putting assets into, you know, JVs that you've already established, are you still actively engaged in those JV partners, sovereign wealth funds that you've had dialogue with or worked with in the past? What's their level of interest currently? As you know, we have, you know, we have a couple JVs in place, and we're in active discussions with them because we're managing the JVs with that for them. For bringing on additional partners, especially for the Mountain JV, there's been no discussions. As you can see from our financial and supplemental disclosures, that JV is not currently cash flowing, so it would be hard to make it attractive for a new partner. Would you ever entertain bringing on a new JV related to the Hawaii assets? I know those have been kind of the crown jewels in the RMR complex for 20-ish years. Given the fixed rate debt on that and, you know, a valuation that's, you know, you can tell me maybe north of $1.5 billion, what would the appetite be there for ILPT? Yeah, I think we're, I mean, we're really evaluating anything that could help with our de-leveraging, so that's not off the table, but we're not in any active conversations right now. Can you share with us what you think that property is worth currently in Hawaii, you know, maybe give or take $100 million? I think your assumption was correct, if not a little low. Perfect. Thank you. Thank you. This concludes our question and answer session. I would like to turn the call to Yael Duffy, President and Chief Operating Officer, for any closing remarks. Thank you everyone for joining us on the call today. We look forward to speaking with many of you at NAREIT in June. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your phone lines.