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 2022 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 ofMarch 31, 2023 , our portfolio was comprised of 413 consolidated properties containing approximately 59,983,000 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 43,254,000 rentable square feet located in 38 other states. As ofMarch 31, 2023 , our 413 consolidated properties included 94 properties that we own in a consolidated joint venture in which we own a 61% equity interest, and our consolidated properties were approximately 98.7% leased to 300 different tenants with a weighted average remaining lease term (by annualized rental revenues) of approximately 8.4 years. As ofMarch 31, 2023 , we also owned a 22% equity interest in an unconsolidated joint venture, which owns 18 properties located in 12 states in the mainlandUnited States containing approximately 11,726,000 rentable square feet that were 99% leased with an average remaining lease term (based on annualized rental revenues) of 5.4 years. We define the term annualized rental revenues as used in this Quarterly Report on Form 10-Q as the annualized contractual rents as ofMarch 31, 2023 , 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. Inflationary pressures and rising interest rates inthe United States and globally have given rise to increasing concerns that theU.S. economy may soon enter an economic recession and they have caused disruptions in the financial markets. These conditions have increased our cost of capital and negatively impacted our ability to reduce our leverage. 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 or willingness 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, may impact our ability to sell properties and may cause the values of our properties and of our securities to decline.
Property Operations
Occupancy data for our properties as ofMarch 31, 2023 and 2022 were as follows (square feet in thousands): All Properties Comparable Properties (1) As of March 31, As of March 31, 2023 2022 2023 2022 Total properties 413 412 287 287 Total rentable square feet (in thousands) (2) 59,983 59,736 34,012 33,991 Percent leased (3) 98.7 % 98.9 % 99.0 % 99.3 %
(1)Consists of properties that we owned continuously since
(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 ofMarch 31, 2023 , 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 months ended
Three Months Ended March 31,
Average effective rental rates per square foot leased: (1) 2023 2022
All properties $ 7.46 $ 6.56
Comparable properties (2) $ 6.73 $ 6.23
(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 months ended March 31, 2023 , 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) 36 1,107 1,143
Weighted average rental rate change (by rentable square feet)
51.4 % 13.9 % 15.1 %
Weighted average lease term by square feet (years) 18.0 8.6 8.9
Total leasing costs and concession commitments (1)
$ 4.44
$ 0.25
(1)Includes commitments made for leasing expenditures and concessions, such as leasing commissions, tenant improvements or other tenant inducements.
As shown in the table below, approximately 2.8% of our total leased square feet and 2.9% of our total annualized rental revenues as ofMarch 31, 2023 are included in leases scheduled to expire byDecember 31, 2023 . As ofMarch 31, 2023 , our lease expirations by year were as follows (dollars and square feet in thousands): % of Total Cumulative % of Total Cumulative % Annualized Annualized % of Total Leased Leased of Total 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 Expiring4/1/2023-12/31/2023 27 1,678 2.8 % 2.8 %$ 12,231 2.9 % 2.9 % 2024 47 6,758 11.4 % 14.2 % 34,041 8.1 % 11.0 % 2025 35 4,802 8.1 % 22.3 % 27,999 6.6 % 17.6 % 2026 25 3,851 6.5 % 28.8 % 25,608 6.1 % 23.7 % 2027 38 8,841 14.9 % 43.7 % 53,593 12.7 % 36.4 % 2028 32 5,489 9.3 % 53.0 % 39,325 9.3 % 45.7 % 2029 16 3,428 5.8 % 58.8 % 17,018 4.0 % 49.7 % 2030 15 2,334 3.9 % 62.7 % 19,582 4.6 % 54.3 % 2031 17 3,265 5.5 % 68.2 % 25,366 6.0 % 60.3 % 2032 37 3,615 6.1 % 74.3 % 35,200 8.3 % 68.6 % Thereafter 105 15,132 25.7 % 100.0 % 132,443 31.4 % 100.0 % Total 394 59,193 100.0 %$ 422,406 100.0 % Weighted average remaining lease term (in years) 7.3
8.4
(1)Leased square feet is pursuant to existing leases as ofMarch 31, 2023 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. As ofMarch 31, 2023 , subsidiaries of FedEx and subsidiaries of Amazon leased 22.1% and 7.7% of our total leased square feet, respectively, and represented 30.1% and 6.9% of our total annualized rental revenues, respectively.Mainland Properties . As ofMarch 31, 2023 , ourMainland Properties represented approximately 72.2% of our annualized rental revenues. We generally will seek to renew or extend the terms of leases at ourMainland Properties as their expirations approach. Due to the capital that many of the tenants in ourMainland 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 ofMarch 31, 2023 , ourHawaii Properties represented approximately 27.8% of our annualized rental revenues. As ofMarch 31, 2023 , certain of ourHawaii Properties are lands leased for rents that periodically reset based on fair market values, generally every ten years. Revenues from ourHawaii 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 ourHawaii Properties in the future will depend on prevailing market conditions when 18 -------------------------------------------------------------------------------- Table of Contents these lease renewals, lease extensions, new leases and rental rates are set. As rent reset dates or lease expirations approach at ourHawaii 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, ourHawaii 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 inHawaii , 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 ourHawaii Properties will continue in the future.
The following chart shows the annualized rental revenues as of
Scheduled Rent Resets at Hawaii Properties
(dollars in thousands)
Annualized
Rental Revenues
as of March 31, 2023
Scheduled to Reset
4/1/2023-12/31/2023 $ 1,824
2024 1,273
2025 831
2026 1,307
2027 781
2028 and thereafter 17,202
Total $ 23,218
As of March 31, 2023 , $12,231 , or 4.6%, of our annualized rental revenues are
included in leases scheduled to expire by March 31, 2024 and 1.3% 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.
Investing Activities
In
For further information regarding our investing activities, see Note 2 to our
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.
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