INDUSTRIAL LOGISTICS PROPERTIES TRUST The following information should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and with our 2021 Annual Report.
OVERVIEW (dollars in thousands, except per share and per square foot data)
We are a real estate investment trust, or REIT, organized underMaryland law. As ofSeptember 30, 2022 , our portfolio was comprised of 413 consolidated properties containing approximately 59,962,000 rentable square feet located in 39 states, including 226 buildings, leasable land parcels and easements containing approximately 16,729,000 rentable square feet located on the island ofOahu, Hawaii , and 187 properties containing approximately 43,233,000 rentable square feet located in 38 other states. As ofSeptember 30, 2022 , our 413 consolidated properties include 94 properties that we own in a consolidated joint venture arrangement in which we own a 61% equity interest. As ofSeptember 30, 2022 , we also owned a 22% equity interest in an unconsolidated joint venture, which owns 18 properties located in 12 states containing approximately 11,726,000 rentable square feet that were 100% leased with an average (by annualized rental revenues) remaining lease term of 5.9 years. As ofSeptember 30, 2022 , our consolidated properties were approximately 99.2% leased (based on rentable square feet) to 305 different tenants with a weighted average remaining lease term (based on annualized rental revenues) of approximately 8.9 years. We define the term annualized rental revenues as used in this section as the annualized contractual rents, as ofSeptember 30, 2022 , including straight line rent adjustments and excluding lease value amortization, adjusted for tenant concessions including free rent and amounts reimbursed to tenants, plus estimated recurring expense reimbursements from tenants.
Investing and Financing Activities
OnFebruary 25, 2022 , we completed the acquisition of MNR. MNR's portfolio included 124 Class A, single tenant, net leased, e-commerce focused industrial properties located in 32 states containing approximately 25,745,000 rentable square feet and two committed, but not yet then completed, property acquisitions. The aggregate value of the consideration paid in the Merger was$3,739,048 , including the assumption of$323,432 aggregate principal amount of former MNR mortgage debt, the repayment of$885,269 of MNR debt and the payment of certain transaction fees and expenses, net of MNR's cash on hand, and excluding two then pending property acquisitions for an aggregate purchase price of$78,843 , excluding acquisition related costs. The 124 MNR properties were 97.9% leased to various tenants and had a remaining weighted average (by rental revenues) lease term of eight years as of the date of the acquisition. In connection with the closing of the Merger, we entered into the$1,385,158 Bridge Loan , secured by 109 of our properties. The Bridge Loan was scheduled to mature inFebruary 2023 and required that interest only be paid at an annual rate of SOFR plus a premium of 1.75% under the loan agreement and a premium of 8.0% under the mezzanine loan agreement. We also entered into the$700,000 Fixed Rate Loan secured by 17 of our properties. The Fixed Rate loan matures inMarch 2032 and requires that interest be paid at a weighted average annual fixed rate of 4.42%. Immediately following the closing of the Merger, we entered into a joint venture arrangement with an institutional investor for 95 of the acquired MNR properties, including two then committed, but not yet then completed, property acquisitions. The investor acquired a 39% noncontrolling equity interest in the joint venture from us for$589,411 , as of the completion of this transaction, and we retained the remaining 61% equity interest in the joint venture. In connection with the transaction, the joint venture assumed$323,432 aggregate principal amount of former MNR mortgage debt on certain of the properties and entered into the$1,400,000 Floating Rate Loan secured by 82 properties. The Floating Rate Loan matures inMarch 2024 , subject to three one year extension options, and requires that interest be paid at an annual rate of SOFR plus a premium of 2.77%. During the nine months endedSeptember 30, 2022 , this joint venture made aggregate cash distributions of$1,365 to the other joint venture investor. InJuly 2022 , our consolidated joint venture acquired a property located inAugusta, GA containing 226,000 rentable square feet for a purchase price of approximately$38,053 , including acquisition related costs of$53 . This property is 100% leased to a single tenant with a remaining lease term of approximately 14.9 years at the time of acquisition. This property was one of two committed MNR property acquisitions at the time of the Merger and was acquired directly by our consolidated joint venture. InSeptember 2022 , our consolidated joint venture terminated the agreement for the other committed MNR property acquisition. InSeptember 2022 , we entered into the$1,235,000 ILPT Floating Rate Loan, secured by 104 of our properties. The interest only ILPT Floating Rate Loan matures inOctober 2024 , subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR, which is capped at an annual rate of 2.25% for the initial term of the ILPT Floating Rate Loan, plus a weighted average premium of 3.93%. The Bridge Loan was repaid in full onSeptember 22, 2022 with cash on hand and proceeds from the ILPT Floating Rate Loan. 24 -------------------------------------------------------------------------------- Table of Contents As ofSeptember 30, 2022 , we also own an interest in an unconsolidated joint venture that owns 18 properties. We account for the unconsolidated joint venture under the equity method of accounting under the fair value option. During the three and nine months endedSeptember 30, 2022 , we recorded the change in the fair value of our investment in the unconsolidated joint venture of$3,297 and$6,634 , respectively, in our condensed consolidated statements of comprehensive income (loss). In addition, during the three and nine months endedSeptember 30, 2022 , the unconsolidated joint venture made aggregate cash distributions of$1,320 and$3,962 , respectively, to us. InOctober 2022 , the unconsolidated joint venture made a cash distribution to us of$20,900 , including amounts related to a debt financing. For further information regarding our investing and financing activities, see Notes 2, 4, 5, 9 10, and 11 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 and "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Our Investing and Financing Liquidity and Resources" of this Quarterly Report on Form 10-Q. In response to inflationary pressures, theU.S. Federal Reserve increased the federal funds rate by 300 basis points over five consecutive meetings fromMarch 2022 toSeptember 2022 and has signaled that further large increases are likely to occur. These inflationary pressures and rising interest rates inthe United States and globally have given rise to increasing concerns that theU.S. economy is now in, or may soon enter, an economic recession and they have caused disruptions in the financial markets. An economic recession, or continued or intensified disruptions in the financial markets could adversely affect our financial condition and that of our tenants, could adversely impact the ability of our tenants to renew our leases or pay rent to us, may restrict our access to, and would likely increase our cost of capital, and may cause the values of our properties and of our securities to decline.
Property Operations
Occupancy data for our properties as of
All Properties Comparable Properties (1)
As of September 30, As of September 30,
2022 2021 2022 2021
Total properties 413 294 286 286
Total rentable square feet (2) 59,962 36,488 33,634 33,631
Percent leased (3) 99.2 % 99.0 % 99.3 % 98.9 %
(1)Consists of properties that we owned continuously since January 1, 2021 and
excludes 18 properties owned by an unconsolidated joint venture in which we own
a 22% equity interest.
(2)Subject to modest adjustments when space is remeasured or reconfigured for new tenants and when land leases are converted to building leases.
(3)Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as ofSeptember 30, 2022 , if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any. The average effective rental rates per square foot, as defined below, for our properties for the three and nine months endedSeptember 30, 2022 and 2021 are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Average effective rental rates per square foot leased: (1) All properties$ 6.96 $ 6.22 $ 6.96$ 6.28 Comparable properties (2)$ 6.32 $ 6.26 $ 6.46$ 6.31 (1)Average effective rental rates per square foot leased represents annualized rental income during the period specified divided by the average rentable square feet leased during the period specified.
(2)Consists of properties that we owned continuously since
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During the three and nine months ended September 30, 2022 , we entered into new
and renewal leases as summarized in the following tables:
Three
Months Ended
New Leases Renewals Totals
Square feet leased during the period (in thousands) 543 1,142 1,685
Weighted average rental rate change (by rentable square feet)
280.7 % 26.1 % 77.5 %
Weighted average lease term by square feet (years) (2) 7.4 3.7 4.9
Total leasing costs and concession commitments (1)
$ 6.58 $ 0.87 $ 2.71 Total leasing costs and concession commitments per square foot per year (1)$ 0.89 $ 0.24 $ 0.55 Nine
months ended
New Leases Renewals Totals
Square feet leased during the period (in thousands) 3,476 2,772 6,248
Weighted average rental rate change (by rentable square feet)
122.0 % 24.6 % 56.5 %
Weighted average lease term by square feet (years) (2) 23.8 6.4 16.1
Total leasing costs and concession commitments (1)
$ 2.57 $ 2.29 $ 2.45 Total leasing costs and concession commitments per square foot per year (1)$ 0.11 $ 0.36 $ 0.15
(1)Includes commitments made for leasing expenditures and concessions, such as leasing commissions, tenant improvements or other tenant inducements.
(2)The weighted average (by square feet) lease term for leases that were in effect for the same land area or building area during the prior lease term was 4.9 years for the three months endedSeptember 30, 2022 and 16.1 years for the nine months endedSeptember 30, 2022 . During the nine months endedSeptember 30, 2022 , we completed rent resets for approximately 194,000 square feet of land, respectively, at ourHawaii Properties at rental rates that were approximately 36.8% higher than the prior rental rates. As shown in the table below, approximately 1.0% of our total leased square feet and 1.0% of our total annualized rental revenues as ofSeptember 30, 2022 are included in leases scheduled to expire byDecember 31, 2022 .
As of
% of Total Cumulative
% of Total Cumulative % Annualized Annualized % of Total
Leased Leased of Total Leased Rental Rental Annualized
Number of Square Feet Square Feet Square Feet Revenues Revenues Rental Revenues
Period / Year Tenants Expiring (1) Expiring (1) Expiring (1) Expiring Expiring Expiring
10/1/2022-12/31/2022 12 593 1.0 % 1.0 % $ 4,210 1.0 % 1.0 %
2023 36 3,146 5.3 % 6.3 % 22,287 5.3 % 6.3 %
2024 49 4,855 8.2 % 14.5 % 32,699 7.8 % 14.1 %
2025 32 4,794 8.1 % 22.6 % 27,683 6.6 % 20.7 %
2026 24 3,524 5.9 % 28.5 % 22,708 5.4 % 26.1 %
2027 37 8,795 14.8 % 43.3 % 52,046 12.4 % 38.5 %
2028 27 4,876 8.2 % 51.5 % 34,085 8.1 % 46.6 %
2029 17 3,428 5.8 % 57.3 % 16,644 4.0 % 50.6 %
2030 14 2,155 3.6 % 60.9 % 18,303 4.4 % 55.0 %
2031 16 3,265 5.5 % 66.4 % 25,606 6.1 % 61.1 %
Thereafter 134 20,038 33.6 % 100.0 % 163,710 38.9 % 100.0 %
Total 398 59,469 100.0 % $ 419,981 100.0 %
Weighted average remaining lease term (in years): 8.6 8.9
(1)Leased square feet is pursuant to existing leases as ofSeptember 30, 2022 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any. 26
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We generally receive rents from our tenants monthly and in advance. As of
% of Total
No. of Leased % of Total Annualized Rental
Leased Sq. Ft.
Tenant States Properties Sq. Ft. (1) (1) Revenues
1 Federal Express Corporation/ Various (34 states) 84 13,109 22.0 % 29.6 %
FedEx Ground Package System,
Inc.
2 Amazon.com Services, Inc./ AL, IN, OK, SC, TN, VA 8 4,539 7.6 % 6.8 %
Amazon.com Services LLC
3 Home Depot U.S.A ., Inc. GA, HI, IL 4 3,365 5.7 % 4.4 %
4 UPS Supply Chain Solutions, Inc. NH, NY 3 794 1.3 % 1.6 %
5 Restoration Hardware, Inc. MD 1 1,195 2.0 % 1.5 %
6 Servco Pacific, Inc. HI 7 629 1.1 % 1.4 %
7 American Tire Distributors, Inc. CO, LA, NE, NY, OH 5 722 1.2 % 1.3 %
8 TD SYNNEX Corporation OH 2 939 1.6 % 1.1 %
Total 114 25,292 42.5 % 47.7 %
(1)Leased square feet is pursuant to existing leases as of September 30, 2022
and includes (i) space being fitted out for occupancy, if any, and (ii) space
which is leased but is not occupied or is being offered for sublease by tenants,
if any.
Tenant Concentration. We have a concentration of properties leased to tenants, including their applicable subsidiaries that leased over 5% of our total rentable square footage as follows:
Weighted
Average
% of Number Remaining Rental Income Rental Income
Rentable of Lease Term Three Months Ended Nine Months Ended
Tenant Square Feet States (in years) 9/30/2022 9/30/2021 9/30/2022 9/30/2021
Federal Express
Corporation/ FedEx
Ground Package System,
Inc. 22.0 % 34 7.3 $ 31,697 30.7 % $ 2,706 4.9 % $ 76,227 27.0 % $ 8,152 5.0 %
Amazon.com Services,
Inc./ Amazon.com
Services LLC 7.7 % 6 6.2 7,244 7.0 % 5,231 9.5 % 20,095 7.1 % 16,117 9.9 %
Home Depot U.S.A., Inc. 5.7 % 3 26.3 3,346 3.2 % 1,322 2.4 % 10,169 3.6 % 3,948 2.4 %
Total 35.4 % 34 13.3 $ 42,287 40.9 % $ 54,982 16.8 % $ 106,491 37.7 % $ 163,378 17.3 %
Mainland Properties . As of September 30, 2022 , our Mainland Properties
represented approximately 71.5% of our annualized rental revenues. We generally
will seek to renew or extend the terms of leases at our Mainland Properties as
their expirations approach. Due to the capital that many of the tenants in our
Mainland Properties have invested in these properties and because many of these
properties appear to be of strategic importance to the tenants' businesses, we
believe that it is likely that these tenants will renew or extend their leases
prior to their expirations. If we are unable to extend or renew our leases, it
may be time consuming and expensive to relet some of these properties and the
terms of any leases we may enter may be less favorable to us than the terms of
our existing leases for those properties.
Hawaii Properties . As of September 30, 2022 , our Hawaii Properties represented
approximately 28.5% of our annualized rental revenues. As of September 30, 2022 ,
certain of our Hawaii Properties are lands leased for rents that periodically
reset based on fair market values, generally every ten years. Revenues from our
Hawaii Properties have generally increased under our or our predecessors'
ownership as rents under the leases for those properties have been reset or
renewed. Lease renewals, lease extensions, new leases and rental rates for our
Hawaii Properties in the future will depend on prevailing market conditions when
these lease renewals, lease extensions, new leases and rental rates are set. As
rent reset dates or lease expirations approach at our Hawaii Properties , we
generally negotiate with existing or new tenants for new lease terms. If we are
unable to reach an agreement with a tenant on a rent reset, our Hawaii
Properties' leases typically provide that rent is reset based on an appraisal
process. Despite our and our predecessors' prior experience with rent resets,
lease extensions and new leases in Hawaii , our ability to increase rents when
rents reset, leases are extended, or leases expire depends upon market
conditions which are beyond our control. Accordingly, we cannot be sure that the
historical increases achieved at our Hawaii Properties will continue in the
future.
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The following chart shows the annualized rental revenues as of
Scheduled Rent Resets at Hawaii Properties
(dollars in thousands)
Annualized
Rental Revenues as of
September 30, 2022
Scheduled to Reset
10/1/2022-12/31/2022 $ -
2023 2,114
2024 1,273
2025 831
2026 1,307
2027 and thereafter 17,596
Total $ 23,121
As of September 30, 2022 , $20,740 , or 4.9%, of our annualized rental revenues
are included in leases scheduled to expire through September 30, 2023 and 0.8%
of our rentable square feet are currently vacant. Rental rates for which
available space may be leased in the future will depend on prevailing market
conditions when lease extensions, lease renewals or new leases are negotiated.
Whenever we extend, renew or enter new leases for our properties, we intend to
seek rents that are equal to or higher than our historical rents for the same
properties; however, our ability to maintain or increase the rents for our
current properties will depend in large part upon market conditions, which are
beyond our control.
Tenant Review Process. Our manager, RMR, employs a tenant review process for us.
RMR assesses tenants on an individual basis based on various applicable credit
criteria. In general, depending on facts and circumstances, RMR evaluates the
creditworthiness of a tenant based on information that is provided by the tenant
and, in some cases, information that is publicly available or obtained from
third party sources. RMR also may use a third party service to monitor the
credit ratings of debt securities of our existing tenants whose debt securities
are rated by a nationally recognized credit rating agency.
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