ILPT Q3 2026 Earnings Call: FFO Rises 42%, NOI Guidance Increased

Key Takeaways

• Industrial Logistics Properties Trust (ILPT) reported Q3 2026 normalized FFO of $21.3 million, or $0.32 per share, up 42% year over year as higher occupancy and refinancing reduced interest expense.
• Same-property NOI increased 5.7%, including nearly $3 million of incremental NOI from previously vacant properties in Hawaii and Indianapolis. Same-property cash-basis NOI rose 1.9% as rent abatements limited near-term cash recognition.
• ILPT completed 645,000 square feet of leasing at GAAP and cash rent spreads of 163% and 99%, respectively, with a weighted average lease term of nearly 16 years.
• Consolidated occupancy reached 98.3%, up 420 basis points year over year. The portfolio comprised 409 properties and nearly 60 million square feet at September 30, 2026.
• Management increased the midpoint of full-year 2026 NOI guidance by $2 million. Revised normalized FFO guidance is $82 million to $83 million, or $1.23 to $1.25 per share.
• All debt is fixed at a weighted average rate of 5.48%, with no maturities until 2029. Leverage declined to 11.6x from 12.2x a year earlier.

Core Financial Data

Business and Operating Performance

ILPT’s portfolio generated approximately 79% of annualized rental revenue from investment-grade-rated tenants, their subsidiaries or Hawaii land leases. The weighted average remaining lease term was eight years.

Quarterly leasing included a 288,000-square-foot, 16-year renewal in Phoenix at a 200% GAAP rent increase. In Hawaii, ILPT completed a 30-year renewal covering a 214,000-square-foot land lease, resetting rent after a period of nominal payments during site remediation. The company also signed a new 100,000-square-foot lease in St. Louis at an 8% rent increase after two months of downtime.

Over the trailing 12 months, ILPT signed approximately 11 million square feet of leases at rents 35% above prior levels. Q3 marked the eighth consecutive quarter of double-digit rent increases.

The leasing pipeline totaled 5 million square feet. Roughly 90%, or about 4 million square feet, related to upcoming renewals, with an expected weighted average rent increase of approximately 30%. Less than 16% of annualized rental revenue expires through the end of 2028.

Management Guidance

The guidance includes $8.4 million, or $0.13 per share, of incentive management fees accrued through September 30. Management cautioned that the final amount could differ materially because it depends on ILPT’s total shareholder return relative to a benchmark index through December 31, 2026.

Management expects cash-basis NOI growth to accelerate as rent abatements expire. Indianapolis began paying cash rent after its free-rent period ended in August, meaning Q4 should include a full quarter of cash rent. The 2.2 million-square-foot Hawaii lease has a three-year free-rent period, although the tenant immediately assumed more than $800,000 of annual real estate taxes.

Risks and Points to Watch

• The accrued incentive management fee can fluctuate with ILPT’s share price and relative total shareholder return, affecting normalized FFO, adjusted EBITDAre and CAD.
• The extended Hawaii rent abatement creates a timing gap between GAAP NOI and cash NOI, although the tenant is responsible for real estate taxes immediately.
• A tenant vacated a Columbus, Ohio property in July. Management cited leasing interest and described the local market as solid, but also noted somewhat elevated construction starts.
• Leverage remains 11.6x. Management intends to retain operating cash flow and build cash balances to support organic deleveraging.

Analyst Q&A Highlights

Management described the approximately 8% of the portfolio expiring in 2027 as “business as usual,” with no material move-outs expected.

In Hawaii, management said land scarcity continues to support demand and rent increases. Typical downtime has been around three months and up to six months in a more difficult case, excluding the unusually large 2.2 million-square-foot parcel.

ILPT does not currently expect near-term acquisitions. Potential development spending would most likely involve existing tenants exercising expansion options. Management indicated that such investments would require returns “upwards of 10%” given current interest rates.

The company plans to retain its cash rather than immediately repay debt. Management said this approach supports natural deleveraging and preserves flexibility for tenant expansions and property investments.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Good day, and welcome to the Industrial Logistics Properties Trust Third Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Kevin Barry, Senior Director of Investor Relations. Please go ahead.

Kevin Barry

Good morning, and thank you for joining ILPT's Third Quarter 2026 Earnings Call. With me on today's call are President and Chief Executive Officer, Yael Duffy; Chief Financial Officer and Treasurer, Anthony Paula; and Vice President, Marc Krohn. In just a moment, they will provide details about our business and quarterly results, followed by a question-and-answer session with sell-side 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, including guidance with respect to certain fourth quarter and full year 2026 financial measures. These forward-looking statements are based on ILPT's beliefs and expectations as of today, October 29, 2026, 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 revision to 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, which can be accessed from our website, ilptreit.com. Investors are cautioned not to place undue reliance upon any forward-looking statements.

In addition, we will be discussing non-GAAP financial measures during this call, including normalized funds from operations or normalized FFO, cash available for distribution, or CAD, adjusted EBITDAre, net operating income or NOI and cash basis NOI. A reconciliation of these non-GAAP measures to net income is available in our financial results package, which can be found on our website.

Beginning this quarter, our calculations of normalized FFO, adjusted EBITDAre and CAD include estimated incentive management fees accrued under GAAP and prior periods have been recast to conform to this presentation.

Lastly, we will be providing guidance on this call, including estimated normalized FFO and adjusted EBITDAre. We are not providing a reconciliation of these non-GAAP measures as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all. I will now turn the call over to Yael.

Yael Duffy

Thank you, Kevin, and good morning. Before we begin, I would like to welcome Anthony Paula, who joined ILPT as our Chief Financial Officer and Treasurer on October 1. Anthony has been with RMR for more than 15 years and brings deep real estate financial expertise to the role. We're pleased to have him on the team. ILPT's momentum continued in the third quarter with normalized FFO increasing 42% year-over-year, primarily the result of the refinancing we completed earlier this year.

Same-property NOI increased 5.7%, driven by strong rent growth across the portfolio, including at our previously vacant properties in Hawaii and Indianapolis, which generated nearly $3 million of incremental NOI during the quarter. While these properties are already contributing to NOI growth, the benefit to cash NOI has yet to be fully realized. In Indianapolis, the tenant's free rent period ended in August and Q4 will reflect a full quarter of cash rent. In Hawaii, the new 2.2 million square foot lease includes a period of free rent with the tenant assuming immediate responsibility for real estate taxes.

As a result, same-property cash basis NOI grew 1.9% this quarter, which we expect to accelerate as these rent abatement periods roll off. In addition to our strong operating performance, we have also materially strengthened our balance sheet over the past 18 months. In June 2025, we replaced our $1.2 billion floating rate loan with fixed rate financing. In addition, this past May, our Mountain JV closed a $1.62 billion fixed rate interest-only loan at 5.71%. The proceeds were used to refinance this $1.4 billion floating rate loan and retire $205 million of amortizing debt.

Accordingly, all of our debt is now fixed at a weighted average rate of 5.48% with no maturities until 2029. We are no longer exposed to fluctuations in SOFR or the cost of interest rate caps, enhancing the stability and predictability of our cash flows in today's capital markets environment. Our leasing results this quarter once again demonstrated strong demand for our properties.

We completed 645,000 square feet of leasing at GAAP rents that were 163% above prior rents with a weighted average lease term of nearly 16 years. Over the past 12 months, we have signed approximately 11 million square feet of leases at rents 35% above prior levels, and this quarter marks our eighth consecutive quarter of double-digit rent increases. Our strong operating and financial performance has translated into exceptional shareholder value creation.

Over the past three years, ILPT has delivered a total shareholder return of more than 200%, placing us among the top three performing REITs in the United States and significantly outperforming the MSCI U.S. REIT Industrial Index. Looking ahead, our priorities include capturing the embedded rent growth in our portfolio, maintaining high tenant retention and growing our cash position to support continued deleveraging.

With a fully fixed balance sheet, a long maturity runway and a robust leasing pipeline, ILPT is well positioned to deliver durable earnings growth and long-term value for our shareholders. With that, I'll turn the call over to Marc to discuss our leasing activity and pipeline in more detail, followed by Anthony, who will review our financial results.

Marc Krohn

Thank you, Yael, and good morning. As of September 30, 2026, ILPT's portfolio consisted of 409 properties totaling nearly 60 million square feet with a weighted average lease term of eight years. Our cash flows are supported by a high-quality tenant base with approximately 79% of annualized rental revenues derived from investment-grade rated tenants, their subsidiaries or our Hawaii land leases. During the quarter, we signed 645,000 square feet of leasing at a weighted average lease term of nearly 16 years, generating GAAP and cash leasing spreads of 163% and 99%, respectively.

This activity adds approximately $3.5 million of annualized rental revenue, the majority of which is already in effect or will be by year-end. We ended the quarter with consolidated occupancy of 98.3%, which is an increase of 420 basis points over last year. Our leasing activity this quarter was driven by the following transactions, in the Phoenix market, we renewed 288,000 square feet with a beverage bottling manufacturer for 16 years at a 200% rent GAAP roll-up, underscoring the mark-to-market opportunity across our Mainland portfolio.

In Hawaii, we completed a 30-year renewal on a 214,000 square foot land lease, resetting rents to market levels following a period of nominal rent while the tenant remediated the site. And in the St. Louis market, we signed a new 100,000 square foot lease at an 8% rent roll-up, re-leasing the space after only two months of downtime. Looking ahead, our lease expiration schedule is well balanced with less than 16% of annualized rental revenues expiring through the end of 2028. Our leasing pipeline stands at 5 million square feet and roughly 90% is related to upcoming expirations with an expected weighted average rent roll-up of approximately 30%.

We believe this gives us clear visibility into durable organic cash flow and positions ILPT to continue building upon the momentum we have delivered over the past year. I will now turn the call over to Anthony to review our financial results.

Anthony Paula

Thank you, Marc, and good morning, everyone. Before I review our results, I would like to walk through a change in how we present our non-GAAP financial measures. Following the review of our annual report on Form 10-K, the SEC staff provides interpretation that incentive management fees accrued under GAAP should be included in normalized FFO and adjusted EBITDAre. Historically, we excluded the incentive fee in these measures and recognize the incentive fee in CAD if an incentive fee was actually paid.

While we believe our prior approach was appropriate and supported period-to-period comparability, we agreed to adopt the SaaS interpretation and change our presentation. Beginning this quarter, normalized FFO, adjusted EBITDAre and CAD include estimated incentive management fees as they accrued under GAAP and have recast prior periods to conform. To be clear, this is a change in presentation only. It does not affect our GAAP results or our cash flows and does not change how the incentive fee is calculated or the amount that would ultimately be payable to RMR.

Because the fee is based on ILPT's total shareholder return relative to a benchmark index over a three-year period ending December 31, the accrual will fluctuate from quarter-to-quarter with our share price. For the third quarter, normalized FFO and adjusted EBITDAre include $1.9 million or $0.03 per share of accrued incentive fees. And year-to-date, we've accrued $6.3 million or $0.09 per share. Page 7 of our earnings presentation includes a bridge between our third quarter results and previously issued guidance.

We believe this bridge will assist our investors with comparability between our revised normalized FFO and adjusted EBITDAre calculations in prior guidance. During the quarter, our normalized FFO was $21.3 million or $0.32 per share, representing a 42% increase year-over-year. Our year-over-year increase in normalized FFO was driven by increased occupancy of 420 basis points and refinancing activity that reduced our interest expense. We are pleased with our third quarter results as NOI was the high end of the guidance we provided last quarter.

As a result of our positive leasing momentum, we are increasing our full year 2026 NOI guidance at the midpoint by $2 million and narrowing our full year guidance ranges as follows: NOI of $363 million to $364 million, adjusted EBITDAre of $344 million to $345 million, normalized FFO of $82 million to $83 million and normalized FFO per share of $1.23 to $1.25. As Yael mentioned, ILPT has been one of the best-performing REITs from a total shareholder return standpoint over the past three years.

As a result, our full year guidance includes $8.4 million or $0.13 per share of incentive management fees based on the amount accrued as of September 30. The final amount, if any, will be based on our total return relative to the benchmark index through December 31 and could differ materially from the amount accrued today. We'll share our 2027 guidance on our next earnings call. As of September 30, we had approximately $131 million of unrestricted cash. Our unrestricted cash temporarily declined sequentially due to the timing of our real estate tax and annual property insurance payments.

We remain focused on growing our cash position over time through retained operating cash flow and positioning ILPT to further delever its balance sheet. Our leverage decreased year-over-year to 11.6x from 12.2x, driven by our positive leasing activity. This leverage calculation also reflects the change in adjusted EBITDAre described previously.

As a result of our refinancing activity over the last 18 months, all of our debt is fixed and our next maturity is not until 2029. With strong growth in rents and NOI and continued growth in cash balances over time, we are confident that our leverage will continue to decrease organically. Our recently increased dividend of $0.10 per quarter is well covered, and our focus remains on creating long-term value for our shareholders. That concludes our prepared remarks. Operator, please open the line for questions.

Operator

[Operator Instructions] And our first question for today will come from Christine Chan with Citizens Bank.

Question-and-Answer Session

Mitch Germain

It's Mitch here with Christine. You've got about 8% of the portfolio coming due next year. Anything that we should expect? Are there any big move-outs that are planned? Or is it pretty much business as usual?

Yael Duffy

Mitch, I would say it's business as usual, nothing material.

Mitch Germain

Great. And if I think about that 5 million square foot pipeline, is that -- that's not all new. That includes some of your existing customers that are -- that you're negotiating renewals with, correct? Is that the way to think about it?

Yael Duffy

Yes. If you look at the pipeline in totality of the 5 million square feet, about $4 million is associated with lease renewals.

Mitch Germain

Got you. Got you. Last one for me. Just I haven't revisited Hawaii in a while. And I'm just curious if the region is still experiencing the same type of positive leasing dynamics that we've historically seen there.

Yael Duffy

It is. The scarcity of land continues. So as we get either tenants decide to move out or ground leases become available, we've been finding that there's very little downtime, three months, maybe six in a worst-case scenario. Of course, the big parcel was a little bit of an outlier just given its size. But we're continuing to see good roll-ups in rent and strong demand.

Operator

The next question will come from John Massocca with B. Riley.

John Massocca

So look at the occupancy, provide a little color maybe on why that ticked down kind of quarter-over-quarter and to the extent it was something that is a move out or a tenant leaving the prospects for backfilling that space?

Yael Duffy

Sure. So I can start and Marc can give some more detail. But we had one tenant vacate in the Columbus, Ohio market in July. And so we've been marketing that space. We've had good activity. It's a pretty strong market, and Marc can give you some more details on the market and kind of our expectations on re-leasing.

Marc Krohn

Yes. We believe that the Columbus market is a solid market. The vacancy has been ticking down quarter-over-quarter and year-over-year. Vacancy there right now is about 4.7%. Construction starts are a little bit elevated. But by the time a lot of that new product comes online, we feel pretty confident that we'll have the vacancy within that pocket of the Southeast submarket, which is a really strong submarket, at least before a lot of that new product comes online.

John Massocca

Okay. And then in the past, you've talked about not really being in the market for kind of true de novo acquisitions, but maybe some opportunities to invest in existing properties. How is the current macro environment impacting that? Is that still something we could potentially see here over the next 12 to 18 months?

Yael Duffy

So we have several tenants that have expansion options within their leases. And so I think if we were going to be doing any development, it would come within those circumstances. I think as tenants are evaluating the cost to relocate and disrupt their businesses, it seems much more -- it's an easier path to just stay in place and expand their footprint while continuing their operations. So I think any big redevelopment capital will come from that. And otherwise, I don't think -- at least currently, we don't have any acquisitions in our immediate future.

John Massocca

Okay. If you were to do those type of transactions, I mean, what kind of yields would you be looking for to kind of make them attractive? By which you mean development de novo acquisitions.

Yael Duffy

Yes, it's a good question. I think it will be most likely calculated return on capital. And I mean, because where interest rates are today, I think we would need to get a healthy return. So I mean, upwards of 10%.

John Massocca

Okay. And does the interest rate environment change at all how you're thinking about utilizing your cash balance? Is there a point where that could get to a place where you would want to pay down debt? Or do you think of the current interest rate environment, given where your debt is priced today, you kind of want to hold to what you have and keep just building cash balance over time?

Marc Krohn

Yes. So our view on our cash position is we're going to continue to retain that cash and it's for a couple of reasons. One, it lets us naturally delever the balance sheet; and two, provides us optionality to when we have potential tenant expansions or whatnot, we like the optionality of being able to pursue those routes and have the cash on the balance sheet to address that as it comes due.

Operator

[Operator Instructions] Our next question will come from Craig Kucera with Lucid Capital Markets.

Craig Kucera

I'm trying to parse the $0.04 per share increase in straight-line rent that was booked here in the third quarter. Can you talk about how much of that was related to rent abatements and sort of how to think about that going forward?

Marc Krohn

You're right. So a lot of that's going to be related to our Hawaii lease-up. So there is a free rent period that goes along with that, which we're still in. So most of the change is going to come from that one lease. We also have a free rent period for our Indianapolis lease-up. That did end in August. So we will have a full quarter of cash rent reflected in the fourth quarter.

Craig Kucera

And can you give us a sense of how much free rent was given to Indianapolis? And remind me how long the Hawaii lease-up will be free?

Yael Duffy

Sure. So the Hawaii lease was 53 years. And the free rent period is three years. As you might recall, this is an undeveloped land parcel. So for the tenant to be able to get the infrastructure in place, it needs to create roads, put in utilities. So there's a lot of work to be done.

And so that's why we gave them, I mean, I would say, an outsized free rent period for the market for at least historically, we don't give such long free rent in Hawaii, but this is just a unique circumstance. And I would also say that they're going to continue to pay -- they're going to pay real estate taxes immediately, which is over $800,000 a year. So there's upside there as well.

Craig Kucera

Okay. All right. I'll try to parse through that in the queue. In the past, and this is getting in the weeds, but I just want to make sure I understand sort of the new adjustments to NFFO and AFFO. In the past, you didn't -- you added incentive fees back to NFFO and then you took a cash adjustment in the first quarter of the following year. Are you going to do that and then reverse the NFFO adjustments for incentive fees or just not make that adjustment in that going forward?

Marc Krohn

No. So what we're going to do is if it's recognized on the GAAP income statement, we're going to let that flow through on all of our non-GAAP metrics. So the presentation will be the same for normalized FFO, adjusted EBITDAre and CAD with CAD starting at normalized FFO that will naturally just have the incentive fee included within that number.

Operator

And this will conclude our question-and-answer session. I would like to turn the conference back over to Yael Duffy, President and Chief Executive Officer, for any closing remarks. Please go ahead.

Yael Duffy

Thank you for joining today's call. Please reach out to Investor Relations if you are interested in scheduling a meeting with ILPT. Operator, that concludes our call.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.