Industrial Logistics Properties Trust's Q3 2025: Contradictions Emerge on Disposition Strategy, Leasing Environment, Vacant Asset Sales Impact, and Mountain JV Plans

Guidance:

• Q4 2025 normalized FFO expected $0.27–$0.29 per share (excludes incentive fees).
• Q4 2025 adjusted EBITDAre expected $84–$85 million.
• Expect Q4 interest expense to remain flat: $58.5M cash interest + $5M noncash amortization.
• Expect closing of 3 held-for-sale properties (~867k sq ft) for ~ $55M in Q4 and into early 2026.

Business Commentary:

• Strong Financial Performance and Leasing Activity:
• ILPT reported normalized FFO of $17.4 million or $0.26 per share for Q3 2025, representing a 26% increase sequentially and a 116% increase year-over-year.

• This growth was primarily due to the $1.16 billion fixed rate debt refinancing executed in June.

• Leasing Success and Renewal Rates:

• ILPT completed 836,000 square feet of leasing during Q3, with renewals accounting for 70% of the activity.

• The successful renewal rates are attributed to strong tenant retention and favorable long-term demand drivers, including e-commerce growth and reshoring initiatives.

• Disposition Strategy and Balance Sheet Improvement:

• ILPT has identified 3 properties for sale totaling 867,000 square feet, expected to close in Q4 and early 2026.

• The strategic disposal of these properties will be used to partially repay a $700 million loan and reduce leverage, as part of the company's ongoing efforts to improve its balance sheet.

• Portfolio Occupancy and Diversification:

• ILPT's consolidated occupancy remained strong at 94.1%, outperforming the U.S. industrial average by 150 basis points.
• The portfolio's diversification, especially its unique Hawaii footprint, has contributed to this stability, supported by tenants with strong business profiles and stable cash flows.

Sentiment Analysis:

Overall Tone: Positive

• Management described 'resilience' in the sector, highlighted same-property cash basis NOI up 3% YOY, normalized FFO up 116% YOY (to $17.4M, $0.26/sh) driven by June refinancing, and consolidated occupancy of 94.1% — all cited as evidence of strong operating performance.

Q&A:

• Question from John Massocca (B. Riley Securities, Inc., Research Division): Maybe touching on guidance first. I noticed it was net of or not including incentive fees to the external manager. Do you have any kind of range you're expecting for what those fees may be? I know it's contingent on the stock price performance. But I guess maybe based on where the stock would be today, how would that look? And just to confirm, is that going to flow through your reported normalized FFO per share number in 4Q?
  Response: Using Sept 30 results, full-year incentive fee would be ~$6.3M; < $2M would be recorded in Q4 but ILPT will exclude the incentive fee from Q4 normalized FFO.

• Question from John Massocca (B. Riley Securities, Inc., Research Division): That would be a cash payment. You would basically be paying a full cash payment for the year in 4Q, though, if we're thinking about CAD and cash flow? (follow up) Paid in 1Q. Would that impact then the 1Q '26 normalized FFO per share number?
  Response: The cash payment is made in January 2026; normalized FFO excludes this nonrecurring payment although the cash outflow occurs in 1Q '26.

• Question from John Massocca (B. Riley Securities, Inc., Research Division): In terms of the portfolio itself, I noticed the positive GAAP leasing spreads on the overall portfolio, but it seems like the Mainland wholly owned assets only saw a 1.8% increase in GAAP rent. Was there something specific driving that, maybe one re-leasing transaction, or just kind of curious why that number was so much lower than the rest of the portfolio?
  Response: One USPS transaction was an atypical building with only ~2% GAAP roll-up and it materially lowered the Mainland GAAP spread for the quarter.

• Question from John Massocca (B. Riley Securities, Inc., Research Division): In terms of the dispositions, how much, if any, of the $55 million includes the user owner buyer that was discussed last quarter? And I guess maybe as well, what are you kind of seeing today on pricing for those sales, maybe in terms of cap rate and even if you have it kind of price per square foot?
  Response: About $50M of the ~$55M is from an owner-user sale that commands a premium (cap rate under 6%); one of the other two vacant properties is also selling to an owner-user at a premium, the third is early in process with no pricing yet.

• Question from John Massocca (B. Riley Securities, Inc., Research Division): Okay. And then in terms of the impairment, was that driven by the vacant asset sales?
  Response: Yes — the $6.1M impairment related to one held-for-sale vacant property to reflect estimated sales proceeds less costs.

• Question from John Massocca (B. Riley Securities, Inc., Research Division): And then as we look out to 2026, what are you seeing in terms of kind of the disposition opportunity set? I mean, is there an opportunity to do more transactions? Do you kind of want to shore up the balance sheet on the Mountain JV side before you get more active overall in the portfolio in terms of selling assets to delever? I mean, is that a strategic priority? Just any kind of color on what you're expecting in 2026 from a sales perspective.
  Response: We continually evaluate the portfolio and expect you may see additional sales in 2026, likely concentrated in the Mountain JV; timing could be before or alongside any JV refinancing.

• Question from John Massocca (B. Riley Securities, Inc., Research Division): Does completing the refinancing open up more assets to sell in that JV? Or are you pretty open just given the structure of that debt to sell assets out of that JV as you see fit or as opportunities arise?
  Response: We have flexibility to sell assets as opportunities arise; disposition activity is not dependent on completing a refinancing.

• Question from John Massocca (B. Riley Securities, Inc., Research Division): Okay. And then one last one. You kind of mentioned it in the prepared remarks, but any update, particularly on potential lease-up in Indianapolis? I know Hawaii is kind of a unique situation, but any kind of progress on the leasing front in Indianapolis?
  Response: We have three proposals outstanding in Indianapolis, are optimistic, and could potentially lease up the asset in the first half of next year.

• Question from John Massocca (B. Riley Securities, Inc., Research Division): (follow up) Any update on Hawaii leasing?
  Response: One full-site prospective tenant is in diligence and roughly halfway through a 90-day access agreement; management is hopeful this could convert to a lease.

• Question from John Massocca (B. Riley Securities, Inc., Research Division): And then one last one with kind of leasing in mind. Anything else to be aware of on the leasing front or the renewal front in 2026, as we start to kind of build out the model for that and impacting potentially '27 numbers?
  Response: We are making good progress on 2026/2027 expirations with many signed LOIs and active negotiations and do not expect any material vacates.

Contradiction Point 1

Disposition Strategy and Opportunities

It involves differing perspectives on the company's disposition strategy and opportunities, which impacts investor expectations and financial planning.

What is the current disposition opportunity set? Are additional transactions planned? Should the Mountain JV balance sheet be strengthened before pursuing asset sales to delever? Is deleveraging a strategic priority? What sales expectations exist for 2026? - John Massocca(B. Riley Securities, Inc., Research Division)

2025Q3: We're constantly evaluating the portfolio and really opportunities where we've either maximized value or pruning the portfolio to kind of optimize it. I do think we will -- you might see us selling some more properties in 2026. They might be within the Mountain joint venture. - Yael Duffy(COO)

Will there be more properties held for sale in upcoming quarters? - Jyoti Yadav(Citizens JMP Securities, LLC, Research Division)

2025Q2: ILPT is evaluating opportunities, and there may be additional properties considered for disposition in the second half of the year or early 2026. - Yael Duffy(COO)

Contradiction Point 2

Leasing Environment and Strategy

It involves differing perspectives on the leasing environment and strategy, which directly impacts revenue and occupancy levels.

Any updates on lease-up progress in Indianapolis? - John Massocca(B. Riley Securities, Inc., Research Division)

2025Q3: We have 3 proposals out right now. We're very optimistic, but realistic in many ways. And so perhaps we can lease that up in the first half of next year. - Marc Krohn(VP)

What are you currently seeing in the leasing environment? - Mitchell Germain(Citizens Bank)

2025Q1: We are still seeing elongated leasing timelines. Tenants with renewals into 2026 and 2027 in many cases are looking to start that process earlier, with more people involved in the lease decision process. We want to ensure we have enough time to mitigate risk and run dual paths, preparing properties for new tenants if needed. - Marc Krohn(VP)

Contradiction Point 3

Impact of Vacant Asset Sales on Impairment

It highlights differing perspectives on the direct impact of vacant asset sales on impairment, which could influence financial reporting and decision-making.

What opportunities do you expect for asset dispositions by 2026? Are additional transactions planned? Should the Mountain JV's balance sheet be strengthened before pursuing broader portfolio sales to reduce leverage? Is this a strategic priority? What sales expectations do you have for 2026? - John Massocca(B. Riley Securities, Inc., Research Division)

2025Q3: Yes. - Tiffany Sy(CFO)

Were there any one-time items in this quarter's earnings, such as a lease term fee? - Jyoti Yadav(Citizens JMP Securities, LLC, Research Division)

2025Q2: It's not related. The revaluation losses were related to the Mountain portfolio where we've seen some tenants vacate or default, which were not in the disposition properties. - Tiffany Sy(CFO)

Contradiction Point 4

Mountain Joint Venture and Disposition Strategy

It involves differing statements about the company's strategy regarding the Mountain joint venture and its impact on disposition strategy.

What are your expectations for 2026 regarding disposition opportunities and transaction activity? Should the Mountain JV balance sheet be strengthened before pursuing further asset sales to delever? Is asset sales a strategic priority for portfolio management? What sales outlook do you have for 2026? - John Massocca(B. Riley Securities, Inc., Research Division)

2025Q3: I do think we will -- you might see us selling some more properties in 2026. They might be within the Mountain joint venture. - Yael Duffy(COO)

Can you provide an update on the discussions with the lenders and JPMorgan Chase? - Mitch Germain(Citizens JMP)

2024Q4: We have no comment either way on the joint venture, and it's something we'll continue to keep an eye on. - Tiffany Sy(CFO)