Industrial Logistics Properties Trust Stock

Good morning and welcome to Industrial Logistics Properties Trust's second quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Kevin Barry, Senior Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining ILPT's second quarter 2026 earnings call. With me on today's call are President and Chief Executive Officer, Yael Duffy; Chief Financial Officer and Treasurer, Tiffany Sy; and Vice President, Marc Krohn. In just a moment, they will provide details about our business and quarterly results, followed by a Q&A 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 third quarter and full year 2026 financial measures.

These forward-looking statements are based on ILPT's beliefs and expectations as of today, July 30, 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. The reconciliation of these non-GAAP measures and net income is available in our financial results package, which can be found on our website.

Lastly, we will be providing guidance on this call, including estimated normalized FFO and adjusted EBITDAre. We are not providing 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.

Thank you, Kevin, and good morning. Last night, we reported second quarter results that demonstrate the strength of our portfolio and our ability to convert operating momentum into shareholder value. Normalized FFO grew 51% year-over-year in line with our guidance and same property cash basis NOI increased 2%. These results were driven by a record leasing quarter in which we completed 5.4 million square feet at leasing spreads of 35%. It also marks our seventh consecutive quarter of double-digit rent growth and our fifth straight quarter of accelerating mark-to-market spreads. Based on this performance, we raised our full year 2026 guidance, which Tiffany will detail shortly.

In May, we refinanced $1.6 billion of floating rate debt in our consolidated joint venture with fixed rate debt. As a result, 100% of ILPT's consolidated debt is now fixed rate with no maturities until 2029. Although leverage remains elevated, over the past year we have materially reduced financial risk, eliminating our exposure to variable rates and locking in greater predictability of future cash flows. Among the quarter's achievements was resolving the two large vacancies within our portfolio.

In Indianapolis, we signed a 10-year lease with FedEx on a 532,000 square foot property at a GAAP and cash roll-up in rent of 14% and 4%. We also completed a 53-year ground lease on 2.2 million square feet in Hawaii with a construction company at a GAAP and cash roll-up of 162% and 52%. As a result, consolidated occupancy rose 450 basis points to 99%.

Together, these long-duration leases lock in a stable growing income stream for years to come and reflect the underlying quality of our portfolio. Capital expenditures for the quarter totaled approximately $14 million, of which $10 million was directly tied to leasing commissions. Costs and concessions averaged just $0.23 per square foot per year in line with historical trends. Earlier this month, we doubled our quarterly dividend to $0.10 per share. The increase underscores our confidence in the durability of our earnings and our commitment to delivering attractive, growing returns to our shareholders. Our second quarter CAD payout ratio rose to 50% from 29% in the prior quarter and is almost entirely a function of the elevated leasing commissions related to our record leasing volume.

We believe the new dividend rate remains well covered by ILPT's underlying cash flows while continuing to provide ample capacity to fund our priorities. Importantly, the market has recognized our execution. ILPT shares delivered a total return of 63% in the first half of 2026, outperforming the Industrial REIT benchmark by 55 percentage points. Looking ahead, we remain focused on the drivers that compound value, including capturing the significant embedded rent growth across our portfolio, sustaining best-in-class tenant retention, and continuing to strengthen our financial position. With that, I'll turn the call over to Mark, who will provide additional details on our leasing activity and pipeline.

Thank you, Yael, and good morning. As of June 30th, 2026, ILPT's portfolio consisted of 409 properties, totaling 60 million square feet with a weighted average lease term of 8 years. Demand across the industrial sector remains healthy even as the market absorbs the elevated supply delivered over the past several years. Our portfolio has outperformed against that backdrop. We finished the quarter at 99% occupancy, 590 basis points ahead of the national industrial average. We continue to benefit from the diversity and quality of our tenant base, our strategic locations and the irreplaceable nature of our land holdings in Hawaii.

Turning to second quarter leasing activity, during the quarter, we signed 14 new and renewal leases plus 1 rent reset for 5.4 million square feet at a weighted average lease term of 18.6 years. This resulted in GAAP and cash leasing spreads of 35% and 14% respectively. The impact of this activity is an increase of $8.2 million in annualized rental revenue, of which 70% has not yet been realized and will take effect in the second half of 2026 or in 2027. These results showcase our ability to grow rents organically while maintaining portfolio stability. Beyond the Indianapolis and Hawaii transactions Yael highlighted, we captured meaningful value across several other deals this quarter.

In Georgia, we signed a new 218,000 square foot lease with Southern States at a 35% rent roll-up for a 10-year term and that filled the space after just 1 month of downtime following the prior tenant's expiration. Also in Georgia, we renewed Shaw Industries in 832,000 square feet at a 21% rent roll-up for a 7-year term, retaining a long-standing tenant with no capital outlay for tenant improvements. And in Ohio, we renewed ABC Technology Solutions in 581,000 square feet, also at a 21% rent roll-up for a 7-year term. Looking ahead, our lease expiration schedule is well balanced with minimal expirations in 2026 and less than 17% of annualized rental revenues rolling through the end of 2028.

Today, our leasing pipeline stands at 3.4 million square feet, and 2.2 million square feet of that relates to expirations over the next 12 months that are already in advanced negotiation or documentation. On that activity, we expect average roll-ups of 20% on the mainland and 30% in Hawaii. Together, this gives us clear visibility into durable organic cash flow growth and positions ILPT to continue building on the momentum we delivered this quarter. I will now turn the call over to Tiffany to review our financial results.

Thank you, Marc. Good morning, everyone. Yesterday, we reported second quarter normalized FFO of $20.8 million, or $0.31 per share, which is in line with our guidance and 51% higher compared to the same quarter a year ago. These results reflect lower interest expense from our debt refinancing over the past year and the rent growth that both Yael and Marc highlighted earlier. Same property NOI was $88.6 million, and same property cash basis NOI was $85.7 million, both increasing 2% year-over-year, and adjusted EBITDAre totaled $87.4 million, a 3% increase year-over-year.

Turning to our balance sheet, in May, we closed a $1.62 billion 5-year interest-only mortgage loan for our consolidated joint venture at a fixed rate of 5.71%. The proceeds were used to refinance the joint venture's existing $1.4 billion floating rate loan and $205 million of fixed-rate amortizing debt. The new loan is secured by the same 90 mainland properties that collateralized the prior borrowing. As a result of this refinancing, our consolidated joint venture was able to access cash previously reserved for loan amortization and interest rate caps and distributed $38 million during the quarter, including more than $23 million to ILPT as a 61% owner.

ILPT ended the quarter with cash on hand of $135 million and restricted cash of $46 million. Our net debt to total assets ratio increased to 69.2%, and our net debt leverage ratio improved to 11.5x. Turning to our outlook, for the third quarter of 2026, we expect interest expense of $61 million, including $59 million of cash interest expense and $2 million of non-cash amortization of deferred financing fees, adjusted EBITDAre between $87.5 million and $88.5 million, and normalized FFO between $0.34 and $0.36 per share.

For the full year 2026, we expect capital expenditures between $29 million and $34 million and interest expense of approximately $245 million, with cash interest of $234.5 million and non-cash interest of $10.5 million. Additionally, we are increasing our Adjusted EBITDAre guidance to a range between $348 million and $353 million, a $4 million increase at the midpoint. And we are increasing normalized FFO guidance to a range of $1.31 and $1.39 per share, representing a $0.05 increase at the midpoint.

In closing, ILPT is delivering attractive growth by continuing to execute on our operating and financial objectives. As we look to the back half of 2026, we are focused on building on this momentum, prudently managing our capital and creating long-term value for our shareholders. That concludes our prepared remarks. Operator, please open the line for questions.

[Operator Instructions] And the first question comes from Craig Kucera with Lucid Capital Markets. Please go ahead.

Yes. It looks like it was recovered back in your CAD calculation, but what were the normalized FFO adjustments this quarter for unconsolidated interest? I think it reduced NFFO by about $0.03, and how should we think about that going forward?

Yes. I'm sorry, can you repeat that, Craig?

Yes, so in your NFFO calculation, you had a new line item, which was normalized FFO adjustments attributable to non-controlling interest, and it was about $1.5 million, and it reduced your NFFO by about $0.03. I'm just curious, was that a one-timer, or how should we think about that going forward?

Got it. That was a one-timer related to the debt refinancing. It was the NCI portion of the extinguishment, the loss on the extinguishment.

Okay, that's helpful. And with the debt refinancing now behind you, you no longer are going to have any amortization. We're forecasting pretty decent cash flow builds. How should we think about that use of excess cash? Is it built up?

Within the joint venture or within just ILPT wholly owned, I guess, or both?

Yes, just ILPT wholly owned. Understanding that you've got CapEx requirements, et cetera, and appreciate the incremental guidance there, but I guess as you have excess cash, how should we think about it at the ILPT level?

I think for now we're comfortable just to continue to build the cash reserves. While we have no maturities until 2029, I think we would like to be in a position to potentially reduce our leverage. And so maybe when our Hawaii portfolio comes due in 2029, use some of that cash to pay off and refinance at a lower level.

We don't have a revolver right now either, so, you know, that's another thing to keep in mind.

Got it. And I take it the reduction in restricted cash was related to the refinancing. And is that the only amount required going forward?

Yes. That's right. So, the reduction was absolutely a result of the $38 million distribution from Mountain JV.

Got it. And just one more for me. I mean, now that you've got the Indianapolis lease done, leased up Hawaii, does that open up any opportunities for joint ventures or I know in the past you said you probably aren't looking to sell many assets, but just kind of your updated thoughts regarding the portfolio.

Yes, I think we feel pretty good about the portfolio. I think if there was any opportunity to do a joint venture, it would be within our Mountain existing joint venture and now that the debt is fixed and we're starting to make distributions, I think it could be an attractive opportunity for a potential investor, but it's early days.

[Operator Instructions] Your next question comes from Mitchell Germain with Citizens Bank. Please go ahead.

Same-store NOI. I think it was 2%. Was that just a function of timing of when the leases commenced and the realization of income related to that. Is that the way we should think about it?

I think that's right. That's part of the story. And then we also had to take a bad debt reserve for a tenant in Hawaii, which also negatively impacted the NOI. So if we factor that in our cash NOI year-over-year would have been 3.8%. So it's just a one-time that hit this quarter, which will be back to normal trends, I think next quarter.

And that specific situation or is that tenant back, are they paying? Is there anything that you want to highlight there?

So, we're in discussions with them. We were -- it's early days. I think we're just being conservative that we don't think we're going to be able to collect rent from them, but it's a situation where there's other tenants that they've subleased to, which we're hopeful that we'll be able to do a direct deal with those subtenants. And so I'm not concerned about the annualized revenue associated with that parcel. It's just more of an accounting requirement to just take that reserve.

Okay, great. Appreciate that. Where are escalators on your more traditional leases? Obviously we're hearing a lot of your peers, you know, continue to be pushing the needle a bit with regards to the annual growth associated with some of the leases. Where do you stand with that?

I think we're around 2% to 3%.

Yes, in some cases higher than that as well, right? It just depends on the market that we're in. But we're seeing some even in the 4% range as well.

So, Marc, average is like 3%? Is it a good way to think about it?

Yes. I'd say yes.

Okay. Great. And last one for me. Interest income obviously came up a little bit. Is that just going to be a line item that continues to benefit from the cash build? Is that how we should be thinking about that on a go-forward basis?

No, that interest income actually has a one-time in there as well, related to the extinguishment of the cap that we had.

Okay, so that goes back to more normalized levels.

Exactly.

Great, great. And then Tiffany, while I have you, I guess I do have one more question. Can you sensitize me from, you know, kind of $0.34 to $0.36 like how we go from, you know, kind of how, what are the variables to get you to the higher end of the range.

It depends on timing of leasing and activity. And then also, there's some fluctuations in G&A that could occur. So those types of activities.

Okay, just meaning based on how the calculation works out, that there could be some -- got you. Okay. I understand what you're saying. Not the incentive payment, but it will be net of the incentive payment, right? Is that the way to think about it?

That's right. We don't include the incentive fee in that calculation. That gets included in CAD in January.

And your next question comes from John Massocca with B. Riley. Please go ahead.

So maybe sticking with Mitch's line of questioning there. On the guidance for the full year, it's still a fairly wide range on the normalized FFO per share at $0.08. I mean, I know it would be some of the same factors that impact kind of next quarter's guidance and why there's a range there. But, I mean, I'm just thinking – you're looking at the numbers correctly, it got wider, even as you kind of increased guidance. I'm just kind of curious what's going into that. Is it something to do with the new Hawaii transaction? Just maybe a little color on kind of where the low end of that new range and the high end of that new range kind of, you know, what are the factors in that?

Yes, it doesn't really have anything to do with Hawaii. We're pretty locked in there. It's really a function of if you look at NOI and the other dollar amounts, $5 million range, which is not that wide, but when you break that down into per share, it's about that range. So we were just trying to make the math work. That makes sense?

Makes sense. The other -- so maybe kind of sticking with the guidance, maybe versus kind of the 2Q results, you kind of came at the low end of the quarterly guidance you provided, you know, for 2Q at the time of 1Q earnings, but you kind of raised year end. I mean, is that all just tied to the successful Hawaii transaction? Is there some other leasing that was kind of better than expected? Just kind of what are the variables that maybe kind of caused 2Q to come in a little light. I mean, I'd imagine some of it had to do with the rent reserve on the other Hawaii property, but just kind of make sure there's not any other moving pieces we're not aware of here on lower-than-expected 2Q, or maybe not lower than, low-end expectations for 2Q results and then the increase to guidance.

So I think in the Q1 guidance, we weren't sure if we were going to be able to get to a final lease on the Hawaii parcel. So it wasn't included in Q1 and was adjusted for the full year in Q2. And then the second part of Q2 coming in lower than or on the low end of guidance from Q1 is really primarily on that reserve for that tenant in Hawaii.

Okay. And then is that also kind of, if we think about the quarter-over-quarter decline and just kind of top line revenue, I know you also had some one-timers in 1Q. Is it also just the reserve kind of flowing through or is there something else? It is a little higher than the total amount.

Yes, it's the reserve in Q2. And then, if you recall, in Q1, we had that percentage rent that we took for the tenant in Hawaii that increased revenue. So that's just the two things working together.

Okay. Makes sense. And then with Hawaii, you know, what should we expect in terms of timing for that to kind of flow through? You know, it sounds like it's pretty immediate on a GAAP basis, but any kind of delay on a cash basis in terms of the positive impact from that lease-up?

Yes. So, we will -- you're right, it's an immediate GAAP impact. The tenant took possession on July 1, and they have a 3-year free rent period, so we're not going to recognize cash growth there until 3 years from now, but they will be paying real estate taxes for the parcel, which is about $800,000 a year. So we'll at least get those recoveries immediately.

Okay. And then on the CapEx, you know, appreciate the new guidance there. Sounds like a lot of that's kind of one-time-ish stuff with lease-up. What's maybe the outlook roughly for like '27 CapEx or even kind of long-term? I mean, is all of that $29 million to $34 million kind of going to be this year and then gone? Or could some of that flow through into next year or even kind of longer?

Yes, this quarter was outsized just because of the $10 million in leasing commissions, just because we had so much leasing activity. But from a building improvement perspective, I mean, I think our run rate is usually $2 million to $4 million a quarter. So I think that's generally from a building improvement perspective I think that's what we should expect. We do have a potential tenant who would like to expand their building in 2027 and starting early discussions with that. So we might have some redevelopment capital that we'll start seeing in 2027, but that would just be a one-time outlier.

Okay. Anyway, just think about the delta versus kind of what's been done year-to-date versus that guidance. I mean, is a lot of that coming in 3Q, or is that going to be kind of ratable over the remainder of the year?

Yes, we usually see 1Q is usually slow. And then we usually see building capital start to ramp up, especially in the summer months, just because you can do roof projects and parking lots a lot easier than you can in the winter. So historically, Q3 and Q4 are usually our heaviest quarters for capital. So we'll catch up.

Okay. And then last one for me, kind of leasing metrics. Do you have kind of like a rough idea or rough brackets of what that would have been without the new lease on the vacant Hawaii asset?

I don't have it in front of me. I can circle back with you, but that one lease, I mean, it was just such a big square footage and 160% roll-up. But I mean, we had a very healthy quarter without that in there. A couple of, as Mark mentioned in his prepared remarks, some big lease roll-ups on the other mainland property, but I can circle back with you.

This concludes 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.

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

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

Good morning, and welcome to Industrial Logistics Properties Trust's First Quarter 2026 Financial Results Conference Call. I would now like to turn the call over to Kevin Barry, Senior Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining ILPT's First Quarter 2026 Earnings Call. With me on today's call are President and Chief Executive Officer, Yael Duffy; Chief Financial Officer and Treasurer, Tiffany Sy; and Vice President, Mark 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 second quarter and full year 2026 financial measures.

These forward-looking statements are based on ILPT's beliefs and expectations as of today, April 30, 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, 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.

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.

Thank you, Kevin, and good morning. To begin, I would like to highlight the announcement we made last week that our consolidated joint venture successfully priced $1.6 billion of fixed rate interest-only debt at an attractive interest rate of 5.7%. This outcome was achieved despite geopolitical headwinds and capital markets volatility. It also speaks to the strength of our high-quality industrial portfolio, the creditworthiness of our tenants and the depth of the banking relationships our manager, the RMR Group has built.

As Tiffany will cover shortly, this financing takes out the JV's floating rate and amortizing debt, substantially strengthening its capital structure, insulating it from interest rate swings and driving stronger cash flow. As a result, all of ILPT's consolidated debt will now be fixed rate and non-amortizing at a weighted average interest rate of less than 5.5%.

Turning to our results. We're pleased to report another quarter of strong earnings growth that outpaced our expectations, which was supported by continued leasing momentum across our portfolio. Same-property Cash Basis NOI increased more than 4% year-over-year and normalized FFO grew more than 60%, demonstrating the meaningful progress we've made reducing financing costs and driving rent growth.

We leased 862,000 square feet at a weighted average rent roll-up of 26.3%, marking our sixth consecutive quarter of double-digit rent growth. Renewals accounted for approximately 70% of the activity, reflecting continued strong tenant retention and portfolio stability with consolidated occupancy of 94.6% Today, 8.1 million square feet or 11.5% of ILPT's total annualized revenue is scheduled to expire by the end of 2027, which provides us a substantial runway to capture embedded rent growth and drive organic cash flow.

Currently, our leasing pipeline stands at approximately 6 million square feet with more than 2 million square feet already in advanced stages of negotiation or lease documentation. We're especially pleased to share that we anticipate fully leasing the 535,000 square foot vacancy in Indianapolis in June, accomplishing a key 2026 initiative for the company.

Before I turn the call over to Tiffany, I want to take a moment to underscore the momentum we have built across three fronts. A meaningfully strengthened capital structure, continued double-digit leasing spreads and a healthy pipeline of embedded mark-to-market opportunities still available to us. Looking ahead, we believe we have a clear path to continued cash flow growth and delivering value to our shareholders. Tiffany?

Thank you, Yael, and good morning, everyone. Yesterday, we reported first quarter normalized FFO of $22 million or $0.33 per share. These results exceeded the high end of our guidance by $0.02 per share, driven by onetime revenues and fees totaling $1.1 million. Normalized FFO grew 16% on a sequential quarter basis and 63% compared to the same quarter a year ago. Same-property NOI was $90.3 million. Same-property Cash Basis NOI was $87.4 million and adjusted EBITDAre totaled $87 million, each increasing on a year-over-year and sequential quarter basis.

Turning to our balance sheet. We ended the quarter with cash on hand of $100 million and restricted cash of $86 million. Our net debt to total assets ratio declined modestly to 68.8%, and our net debt leverage ratio improved to 11.6x from 11.8x. Last week, we priced $1.6 billion of 5-year fixed rate interest-only mortgage financing for our consolidated joint venture at 5.71%. We expect to close the loan on or about May 8 and plan to use the proceeds to refinance the joint venture's existing $1.4 billion floating rate loan and $205 million of fixed rate amortizing debt.

The new debt is secured by the same 90 Mainland properties as the existing borrowings. With this refinancing, our consolidated joint venture will unlock nearly $20 million in annual cash flow by eliminating its amortizing debt and the need to purchase interest rate caps. Additionally, all of ILPT's consolidated debt will be fixed rate, limiting our exposure to market interest rate volatility with a weighted average interest rate of 5.48% and no debt maturities until 2029.

Turning to our outlook. We introduced full year guidance in our earnings presentation issued last night in addition to the quarterly guidance we have been providing. For the second quarter of 2026, we expect interest expense of $61.5 million, including $59 million of cash interest expense and $2.5 million of noncash amortization of deferred financing fees. Adjusted EBITDAre between $85.5 million and $86.5 million and normalized FFO between $0.31 to $0.33 per share. For the full year 2026, we are guiding to interest expense of approximately $245 million with cash interest of $234.5 million and noncash interest of $10.5 million.

Adjusted EBITDAre between $344 million and $349 million and normalized FFO between $1.27 to $1.34 per share. This guidance reflects the impact of our consolidated joint ventures refinance. It also assumes our vacant property in Indianapolis is leased in June 2026 and does not include the lease-up of our Hawaii land parcel. In closing, we are pleased with the meaningful progress that ILPT has made over the past year, refinancing our floating rate debt and enhancing cash flow. As we look ahead to the remainder of 2026, we are focused on building on this momentum, advancing our growth initiatives and creating long-term value for our shareholders. That concludes our prepared remarks. Operator, please open the lines for questions.

[Operator Instructions] Our first question comes from Mitch Germain with Citizens Bank.

Can you guys provide some sensitivity from the top to the bottom end of the guidance range, please?

Meaning what will impact?

Exactly. Like what factors bring you from the bottom and what factors take you to the high end of the range?

Sure. I mean sometimes we have onetime reimbursements, those types of things or onetime fees. They're usually not very large. So that's the accounting for the $1 million range in the guidance.

Got you. Okay. That's helpful. Obviously, your interest rate is pretty much fixed at this point. So maybe provide some perspective on the Indianapolis lease. I know that this has been a big burden for you guys, a big priority strategically. Do you believe it becomes income paying June? How should I think -- and maybe just provide some perspective on the economics. Are we looking at rents going higher? Maybe if you can provide some details on that, please?

Sure. Mitch, so we anticipate the lease to be signed in June. There will be a minimal free rent of 4 months. So we'll start seeing the cash in the back half of the year, and it will be at a roll-up in rent.

Great. And then last question for me with regards to the recent debt. Does it offer some more flexibility from a covenant perspective with regards to your ability to potentially look to sell some assets? And then maybe just broadly speaking, do you think that asset sales might become more of a strategic priority?

Mitch, so there is a 24-month lockout period in the new debt.

And then I will add, I think with the leasing of this property in Indianapolis, it does -- it will allow us flexibility on the $1.16 billion debt to be able to look to sell properties in that pool. So while we might not be able to, in the short term, have dispositions within Mountain, we will have greater flexibility now that we've gotten this Indianapolis lease completed.

Our next question comes from John Massocca with B. Riley.

So maybe can you walk us through what the $1.1 million of onetime items were in the quarter? And I guess, is that kind of why guidance is calling for, I guess, a step down in 2Q versus 1Q at the midpoint?

Yes, that's exactly why. So there was $650,000 of percentage rent that gets trued up that happened this quarter. And then we also had $450,000 of a onetime remediation fee related to a move-out that has already been re-leased.

Okay. And the percentage rent kind of true-up, is that something that could hit in any given quarter? Or is that usually a 1Q item?

It's always a 1Q item. We just never know what the amount will be or even if it will be incremental to us.

And kind of post the debt transaction and now kind of your balance sheet really pretty set, how are you thinking about utilizing the kind of cash balance today? You talked a little bit about dispositions, maybe using that in the cash to pay down debt potentially? Or would you even potentially look into the acquisition market? Just kind of curious how you're thinking of kind of managing the cash outstanding given there's a little more certainty from the debt side of your balance sheet.

I think that's a good question. I think we're kind of evaluating all of our options right now. We want to make sure that we have cash on the balance sheet to address our tenants' needs. We have a couple of tenants we're in early discussions with who are looking at potential building expansions that they want us to partner with them on. So we want to make sure that we have that cash available to us. So I think it's early stages. We'll see where we shake out and then go from there.

And I know those are potentially unique situations, but how do you think about like a return threshold if you get back to the market of deploying capital?

I think that we're certainly in a better position today than we were even a year ago. So I think that's something that we're always considering with the Board.

Okay. And then lastly...

No, I didn't know if you were asking about property acquisitions specifically.

Property acquisitions or even kind of investment -- I mean, I know investments with existing tenants, there's other considerations at play there. But if you were to get back into the market, like how would you kind of view the current cap rate environment versus where you'd want to deploy capital? Are there things that are attractive out there today, especially given it would probably be coming from cash on hand rather than newly raised capital?

I think given where our leverage is today, I don't see us looking to acquire any properties at least in the short term unless it's a very specific situation or an opportunistic one.

Okay. And then lastly, the CapEx spending was down a little bit. I know 1Q can be a relatively weak period seasonally for CapEx spend. But is that kind of more typical run rate should be? Or was the current quarter a little bit of an anomaly?

Current quarter was an anomaly. I think Q1 can be down sometimes. That's not what we are forecasting going forward.

Operator, I believe that concludes our Q&A.

Thank you for joining today's call, and we look forward to meeting with many of you at the NAREIT conference in June. Please reach out to Investor Relations if you're interested in scheduling a meeting with ILPT. Operator, that concludes our call.

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

Good day, and welcome to the Industrial Logistics Properties Trust Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kevin Barry, Senior Director of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining ILPT's Fourth Quarter 2025 Earnings Call. With me on today's call are President and Chief Executive Officer, Yael Duffy; Chief Financial Officer and Treasurer, Tiffany Sy; 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 first quarter 2026 financial measures.

These forward-looking statements are based on ILPT's beliefs and expectations as of today, February 19, 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 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, 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, 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.

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.

Thank you, Kevin, and good afternoon. We ended the year with robust demand for our high-quality portfolio of Industrial and Logistics Properties, consistent with the trends we saw throughout 2025, delivering one of the strongest quarters in ILPT's history.

We achieved record quarterly leasing volume, executing nearly 4 million square feet at a weighted average rent roll-up of 25.7%, marking our fifth consecutive quarter of double-digit rent growth. Normalized FFO grew 113% year-over-year and same-property cash basis NOI increased 5.2%.

Our improved performance resulted in ILPT generating a total shareholder return of more than 55% in 2025, ranking us third in the U.S. across all REITs. Additionally, we made notable progress on our strategic priorities including improving our balance sheet and positioning ILPT for future growth.

In June, we successfully refinanced $1.2 billion of floating rate debt into fixed rate debt, resulting in annual cash savings of more than $8 million.

Shortly thereafter, we announced a material increase in our annualized dividend from $0.04 to $0.20 per share. Turning to our portfolio. As of December 31, 2025, ILPT owned 409 properties across 39 states, totaling approximately 60 million square feet with a weighted average lease term of 7 years.

Our well-diversified portfolio is further highlighted by our unique Hawaii footprint consisting of 226 properties totaling 16.7 million square feet. More than 76% of our annualized revenues come from investment-grade rated tenants or from our secure Hawaii land leases.

Consolidated occupancy at year-end was 94.5%, representing a 40 basis point increase over from the third quarter. During 2025, we completed 42 new and renewal leases and 2 rent resets totaling 7.3 million square feet.

This activity is expected to generate an increase of approximately $10.6 million in annualized rental revenue, of which approximately $5.8 million or 55% has not yet commenced and will contribute to cash flow in 2026 and beyond.

Additionally, we continue to expand our relationships with FedEx and Amazon, our 2 largest tenants, which accounted for 2.8 million square feet or 38% of our annual leasing volume. These results showcase our ability to realize mark-to-market rent growth through leasing and continued strong tenant retention.

Looking ahead to 2026, we remain focused on our leasing priorities, specifically the 2.2 million square foot land parcel in Hawaii and a 535,000 square foot property in Indianapolis. We believe there is continued opportunity to generate organic cash flow growth and reduce leverage, which has declined from 12.4x to 11.8x over the last year.

We are pleased with the strong performance and momentum we are building at ILPT, and we look forward to delivering long-term value for our shareholders. I will now turn the call over to Marc, who will provide further details into our fourth quarter leasing results within our Mainland portfolio as well as our pipeline.

Thank you, Yael. And good afternoon, everyone. During the fourth quarter, we executed nearly 4 million square feet of leasing at a weighted average lease term of 9.5 years and a roll-up in rent of 25.7%. Given the limited available space within our portfolio, renewals represented the majority of the activity this quarter, reflecting a tenant retention rate of 96%.

Notable leases include 3 lease renewals totaling 2.3 million square feet with Amazon, our second largest tenant for a weighted average lease term of 11.5 years and a roll-up in rent of 26.8%, a 1.2 million square foot renewal with Restoration Hardware, our fourth largest tenant for a weighted average lease term of 7.4 years and a roll-up in rent of 29% and 3 lease renewals totaling 152,000 square feet with FedEx, our largest tenant for a weighted average lease term of 4.6 years and a roll-up in rent of 11.7%. These results are a testament to the quality of our portfolio, showcase our commitment to fostering strong tenant relationships and underscore our collaborative and strategic approach to leasing.

As we look ahead, 8.8 million square feet or 11.8% of ILPT's total annualized revenue is scheduled to expire by the end of 2027, which provides meaningful embedded rent growth opportunities.

Today, our leasing pipeline consists of 6.4 million square feet, of which 3.8 million square feet is in advanced stages of negotiation or lease documentation. Based on current discussions, we expect this activity to generate average rent roll-ups of approximately 20% on the Mainland and 30% in Hawaii. I will now turn the call over to Tiffany to review our financial results.

Thank you, Marc. Yesterday, we reported fourth quarter normalized FFO of $18.9 million or $0.29 per share, which was at the high end of our guidance. This represents an increase of 9% on a sequential quarter basis and 113% compared to the same quarter a year ago. Same-property NOI was $88.2 million and same-property cash basis NOI was $85.7 million, both increasing on a year-over-year and sequential quarter basis, driven by strong tenant retention and rent roll-ups.

Adjusted EBITDAre totaled $85.1 million. During the quarter, we recognized $14.6 million of earnings from our unconsolidated joint venture, which was primarily driven by an increase in the fair value of the underlying real estate owned by this joint venture.

Additionally, we sold 2 vacant unencumbered properties totaling 286,000 square feet for total proceeds of $3.9 million, resulting in a $1.4 million net loss. In January 2026, we paid our manager an incentive fee of $5.7 million incurred for the year ended December 31, 2025.

This payment resulted from ILPT outperforming the total return of the industry benchmark over the trailing 3-year measurement period by more than 60%.

Turning to our balance sheet. We ended the quarter with cash on hand of $95 million and restricted cash of $88 million. Our total net debt to total assets ratio declined modestly to 69%, and our net debt leverage ratio improved to 11.8x. As of December 31, all of ILPT's debt is either fixed rate or fixed through an interest rate cap with a weighted average interest rate of 5.43%. We continue to monitor capital market conditions as we evaluate opportunities to refinance our consolidated joint ventures $1.4 billion floating rate loan.

Including its remaining extension option, this loan does not mature until March 2027. We currently expect to exercise this extension option and purchase a related interest rate cap for approximately $4 million. Looking ahead to the first quarter, we expect interest expense to be $61.5 million, including $57 million of cash interest expense and $4.5 million of noncash amortization of deferred financing fees and interest rate cap costs.

We expect normalized FFO to be between $0.29 and $0.31 per share and adjusted EBITDAre between $84 million and $85 million. In summary, ILPT ended 2025 with strong operating momentum, improving financial performance and less exposure to market and interest rate volatility. Our leasing results, stable tenant base and focus on strengthening ILPT's balance sheet has us well positioned for 2026.

That concludes our prepared remarks. Operator, please open the line for questions.

[Operator Instructions] The first question today comes from Mitchell Germain with Citizens Bank.

Tiffany, you were speaking a little too fast for me. What's the noncash interest amount for the year -- for the quarter, I mean?

For the quarter -- well, for the forecasted quarter is $4.5 million.

So $61.5 million starting out next year. Is that the way to think about it?

That's correct.

Okay. Great. I believe there was another asset that was under contract or maybe in discussion for sale. Can you provide an update there?

Mitch, yes, we had another property under LOI for about $50 million, and the tenant was actually going to be the buyer of that property, and they decided that they prefer to engage in a renewal discussion versus buy the property. So we have a signed LOI for them for a 7-year renewal now that we're negotiating.

Okay. That's helpful. Marc's talked about expirations for the next 2 years. Are there any known move-outs we need to be aware of?

Mitch, nothing material in nature at this point. We've got -- we're making really good progress on our '26 expirations and '27 as we kind of move into beyond 2026. So we feel good about kind of where we're landing right now.

And Marc, while I have you, is there any changes that you're making in the marketing process for the Indi and Hawaii vacancies? I know it's been north of a year that you've been sitting on them now. Have you kind of looked at possibly changing the concession package or some sort of adjustments there?

Well, I'll touch on Indi, and then I'll let Yael touch on Hawaii. But Indi, we made some really good progress, and we're actually exchanging lease comments right now. So that could be as early as next quarter that we would be in a position to maybe provide some positive news about the lease-up of that space.

Then as it relates to Hawaii, we're continuing -- we're in discussions with the same tenant that we've talked about the last couple of quarters. As I think you know, it's just the size of that parcel and the complexity of it just provides some timing delays, but we're hopeful we'll be able to be able to lease that one.

But in terms of concessions, there really -- for that site specifically, there really isn't anything we can do just given it's a ground lease. So it's just finding kind of that unicorn that wants to take such a big parcel.

Got you. I guess last one for me, maybe just Tiffany, like bridge me from -- I think it was around $64 million or $63 million in interest expense in 4Q to the forecast that you just laid out for 1Q? How do we get there?

That's really a number of days. There were 92 days in this quarter, and there's only 90 in the next quarter.

So does that suggest that it goes up again in 2Q?

Well, if you -- no, it doesn't because if you consider what we think we would pay for a cap, $4 million, we'll have the impact of that in Q2, which should lower interest expense.

Your next question comes from John Massocca with B. Riley.

So maybe looking at the same-store NOI growth in the quarter, a little higher versus kind of your past 3 quarters. Was there anything specific that drove that beyond kind of leasing and addressing some of the vacancy in the Mainland portfolio? Just curious if there's any kind of cash rent coming online or anything like that, that may have caused that to be elevated relative to the last 3 quarters of the year?

So I mean, Tiffany might want to expand, but I think really the reasoning is we do a lot of our leases ahead of time. So it could be 12 to 18 months ahead of a natural lease expiration. So it does take a little while for the cash impact of the new leases to kind of hit.

And so I think that's the majority of the increase.

Leasing.

Okay. And I mean, would that be something then as some of those new leases keep hitting that this level of same-store NOI growth is sustainable long term? Or is it really going to be a product of just addressing some of the maturing leases that are still left in '26 and '27?

So I'll give you as an example. This quarter, we did -- I think the impact of that -- of our leasing was about $10 million of cash growth. And most of that hasn't been -- we haven't seen that yet this quarter.

A lot of that, I mean, I would say at least 50% is going to hit probably in the back half of '26 and into '27 because that's when the leases we renewed this quarter are going to actually go into effect, so later. So I will say -- I would say that it's sustainable to continue to see that growth.

Okay. And then outside of the transactions closed in 4Q and the transaction that was potentially going to be disposition but became a lease renewal. What's the outlook for disposition activity for the remainder of 2026?

I don't see it being a huge part of our business plan, at least in the near term, but we do get a lot of inbounds and sometimes they appear really good, and we kind of investigate them further. So I think it will be -- any sales will really be opportunistic, but not a material part of our business plan.

Okay. And then with regards to the Mountain JV loan, it sounds like you're going to utilize the extension. But what's kind of the thought process around refinancing?

How are you think about timing there? Is there something you want to see in the markets or something else kind of structurally with the JV you want to see before looking to address that refi? Just kind of curious how we should think about that.

We're actively evaluating refinance opportunities. The good thing is with the extension option that we have, it gives us flexibility to really not have to rush into anything because it's no extra fees.

The only thing we have to do is purchase the interest rate cap, which we can later sell when we refinance -- if we refinance before the maturity date.

So I guess is there -- I mean, is it just you want to see what kind of macro environment shapes out in terms of where we are with kind of base interest rates? Or is there something within the portfolio or within the JV you're kind of looking to see before you go out there to kind of maximize the best pricing?

No, I wouldn't say that. I think we're currently looking at macroeconomic factors and what's available to us. And these types of things do take some time, and we are aware of that.

Yes. And I would just add, John, I think the portfolio, it's 100% leased. It has -- we've been seeing really good tenant retention. Even if we get a vacancy, we're able to lease it up. So from an operating perspective, it's -- there's nothing to do to put it in a position to refinance.

Okay. And then lastly, I mean, how do some of your kind of core markets look, particularly on the Mainland in terms of kind of competing supply -- is that at all kind of a near-term concern? Or is that something that given where interest rates moved in the last couple of years and et cetera, that that's not really a big issue going forward?

We haven't seen it be a big issue. I think the construction has slowed, and I think the vacancy increase from a macro perspective has just been new supply coming to the market. But I think tenants are realizing that it costs money to relocate and is also disruptive to their operations. So I think we've had some tenants that have looked into potential relocations and then have come back and wanted to do a lease renewals.

This concludes 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.

Thank you for joining today's call, and we look forward to meeting with many of you at industry conferences this spring. Please reach out to Investor Relations if you're interested in scheduling a meeting with ILPT.

Operator, that concludes our call.

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

Good morning, and welcome to Industrial Logistics Properties Trust's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Kevin Barry, Senior Director of Investor Relations. Please go ahead.

Good morning. Thank you for joining us today.

With me on the call are ILPT's President and Chief Operating Officer, Yael Duffy; Chief Financial Officer and Treasurer, Tiffany Sy; and Vice President, Marc Krohn. In just a moment, they will provide details about our business and our performance for the third quarter of 2025, 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.

These forward-looking statements are based on ILPT's beliefs and expectations as of today, October 29, 2025, 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, 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.

I will now turn the call over to Yael.

Thank you, Kevin, and good morning. I will begin today's call with a brief overview of ILPT's portfolio and highlight our third quarter results before turning the call over to Marc to discuss our leasing activity and pipeline. From there, Tiffany will review our financial performance.

Despite macroeconomic and tariff uncertainty, the industrial real estate sector continues to demonstrate resilience as reflected in our solid third quarter results. We are seeing tenants show greater confidence in their long-term space needs, especially compared to the start of the year, and we are making significant progress addressing our 2026 and 2027 lease expirations.

Though industrial vacancy rates remain elevated compared to pandemic lows, new supply is limited and long-term demand drivers such as e-commerce growth and reshoring initiatives continue to underpin demand in the sector.

ILPT's third quarter reflects continued demand for our high-quality portfolio of industrial and logistics properties and growth in many of our key metrics. Same-property cash basis NOI increased 3% compared to the same period a year ago, supported by strong renewal activity and rent growth. Additionally, normalized FFO increased over 100% year-over-year, primarily from the refinancing we executed in June.

ILPT's portfolio consists of 411 distribution and logistics properties across 39 states, totaling 60 million square feet with a weighted average lease term of 7.4 years. Our well-diversified portfolio is further highlighted by our unique Hawaii footprint, consisting of 226 properties totaling 16.7 million square feet. Our portfolio has a weighted average lease term of 6.5 years and is anchored by tenants with strong business profiles and stable cash flows.

Over 76% of our annualized revenues come from investment-grade rated tenants or from our secure Hawaii land leases. We finished the quarter with consolidated occupancy of 94.1%, outperforming the U.S. industrial average by 150 basis points.

Turning to our leasing activity. During the third quarter, we completed 836,000 square feet of leasing, including a rent reset at weighted average rental rates that were 22% higher than prior rental rates for the same space and for an average lease term of 8 years. Renewals accounted for 70% of our activity, highlighting strong tenant retention.

As we continue to execute on our leasing priorities, we are simultaneously focused on evaluating opportunities to improve our balance sheet and reduce leverage. To that end, we have identified 3 properties for sale totaling 867,000 square feet. We are in various stages of the sale process and anticipate a combined sales price of approximately $55 million. One property is encumbered by debt and the proceeds from the sale will be used to partially repay ILPT's $700 million loan, which comes due in 2032. We anticipate these transactions to close in the fourth quarter and into early 2026.

I will now turn the call over to Marc.

Thank you, and good morning. As Yael mentioned, we executed 836,000 square feet of new and renewal leasing during the quarter, including one rent reset. Renewals represented most of the leasing activity and our Mainland portfolio accounted for over 80% of the leasing volume, including notable transactions with FedEx and the United States Postal Services.

Looking ahead, approximately 4% of ILPT's total annualized revenues are set to expire by the end of 2026 and approximately 11% expires in 2027. Our leasing pipeline continues to grow and now exceeds 8 million square feet with the majority relating to renewal discussions for leases expiring in 2026 and 2027. We anticipate a near-term conversion of approximately 75% of our pipeline, which is in advanced stages of negotiation or lease documentation.

Additionally, our leasing pipeline could result in positive net absorption of 3 million square feet, including continued interest for our vacancies in Hawaii and Indiana. Overall, we expect the leasing in our pipeline to yield average roll-ups in rent of 20% on the Mainland and 30% in Hawaii, further supporting our objective of enhancing cash flow and creating long-term value for our shareholders.

I will now turn the call over to Tiffany.

Thank you, Marc, and good morning, everyone. Yesterday, we reported third quarter normalized FFO of $17.4 million or $0.26 per share, which was in line with our expectations and represents an increase of 26% on a sequential quarter basis and 116% compared to the same quarter a year ago.

Same-property NOI was $86.4 million and same-property cash basis NOI was $84.2 million, both representing an increase on a year-over-year and sequential quarter basis, supported by strong tenant retention and rent roll-ups. Adjusted EBITDAre ended the quarter at $84.1 million.

Interest expense decreased by $4.4 million compared to the second quarter of 2025 to $63.5 million, reflecting the impact of our $1.16 billion fixed rate debt refinancing completed in June. We expect interest expense to remain flat in the fourth quarter with $58.5 million of cash interest expense and $5 million of noncash amortization of financing and interest rate cap costs.

As Yael mentioned, we have 3 properties held for sale. During the quarter, we recognized a $6.1 million impairment charge on one of those properties to write down its carrying value to its estimated sales price less cost of sale. At September 30, the carrying value of the 3 held-for-sale properties was approximately $31 million.

Turning to our balance sheet. We ended the quarter with cash on hand of $83 million and restricted cash of $95 million. Our net debt to total assets ratio decreased slightly to 69.3%, and our net debt coverage ratio remained unchanged at 12x. All of ILPT's debt is currently carried at a fixed rate or is fixed through an interest rate cap with a weighted average interest rate of 5.43% as of September 30.

ILPT has no debt maturities until 2029, except for the $1.4 billion floating rate loan related to our consolidated joint venture. Including its remaining extension option, this loan is not due until 2027, providing us the flexibility to continue monitoring the capital markets as we evaluate opportunities to move to a fixed rate, extend the maturity and reduce our overall leverage.

In closing, ILPT's operating and financial performance during the third quarter remained strong and continues to benefit from our high-quality industrial portfolio, investment-grade tenant roster and skilled asset management and leasing teams.

Looking ahead to the fourth quarter of 2025, we expect normalized FFO to be between $0.27 and $0.29 per share, excluding incentive fees and adjusted EBITDAre between $84 million and $85 million.

That concludes our prepared remarks. Operator, please open the line for questions.

[Operator Instructions] The first question comes from John Massocca with B. Riley.

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?

All right. So if we were to use results as of September 30, we would pay full year incentive fee of $6.3 million, which would -- we would record less than $2 million in Q4 for that to get to that amount. We do not plan on including that in normalized FFO for Q4.

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?

It's paid in January of '26.

Paid in 1Q. Would that impact then the 1Q '26 normalized FFO per share number?

It's in January. So...

Okay. Maybe I'm just saying, like is that essentially, you're thinking about normalized FFO, maybe even on a go-forward basis, if there are more incentive fees that are paid in future years, right? Obviously, you back that out of normalized FFO because it's kind of an accrual, right, in kind of past quarters.

Yes.

As it's paid out in cash, I mean, that is going to impact the normalized FFO number as it is reported.

Normalized FFO is intended to exclude onetime nonrecurring activities. And so this is not a normal payment we've had in recent times. I hope that's helpful.

Okay. And maybe moving on to the portfolio itself. 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?

No. John, I think it was really one deal that kind of drove down the deal with the United States Postal Service was just about a 2% GAAP roll-up. This is a little bit of a unique building. And so we were happy to be able to get it leased, but it wasn't at the spreads that we usually see.

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?

Sure. So the one we -- the property to the owner user is really the bulk of the proceeds, about $50 million of it actually. And the other -- it's a unique situation because it's an owner user and they generally pay a premium. So that's the cap rate there would be under 6%.

And then the other 2 are both vacant properties and one is actually also being sold to an owner user. And so I would say they're paying a premium. And the third property, it's early days in our process. So I don't have pricing guidance at least at the moment.

Okay. And then in terms of the impairment, was that driven by the vacant asset sales?

Yes.

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.

So 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. I don't know if it will be coinciding with a potential refinancing or beforehand. So I think that's where you'll see most of the disposition activity, if there is any.

Okay. 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?

As opportunities arise, we do have flexibility. So the refinancing is not really reliant on the refinancing.

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?

I can certainly jump in on Indianapolis. 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.

Okay. I really appreciate the color.

Sorry, I didn't know if you wanted an update on Hawaii as well. So we have one tenant, one prospect actually, full site user that's in diligence. And so John, you're a little bit new to the story, but it does take a long time for this parcel because it's undeveloped land, but they're about halfway through an access agreement that's 90 days, and they're digging in. So we're hopeful that this could lead to a lease.

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?

No. I mean we're making good progress on our '26 and '27 expirations. As Marc mentioned in the prepared remarks that we have a lot of signed LOIs or active lease negotiations. And there isn't anything material in terms of expected vacates.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Yael Duffy, President and Chief Operating Officer, for any closing remarks.

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

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