On Monday, B.Riley raised the price target for Industrial Logistics Properties Trust (NASDAQ:ILPT) shares, a real estate investment trust (REIT), to $10.00, up from $9.00, while maintaining a Buy rating on the stock. The adjustment reflects the firm's updated estimates considering the leasing activities of the trust's properties.
Industrial Logistics Properties Trust, which had recently seen Home Depot (NYSE:HD) vacate a significant land lease in Hawaii, is actively engaging with potential new tenants for the 2.2 million square feet property.
Despite the vacancy only affecting 0.7% of ILPT's annual base rent (ABR), the size of the property and the due diligence required by tenants suggest that re-leasing may not occur until mid-2025.
Additionally, ILPT is addressing the vacancy of 535,000 square feet of space in Indianapolis, Indiana, that became available in early July. The re-leasing of these two properties is anticipated to happen between the first and third quarters of 2025.
Despite these vacancies, the REIT's leasing pipeline is strong, with 36 deals representing over 7 million square feet of space, and 2.5 million square feet of that in advanced negotiation stages.
In the first half of 2024, ILPT successfully leased 2.6 million square feet at rental rates 30.5% higher than the previous rates for the same spaces.
This progress, along with a reduction in leverage following the $4 billion acquisition in the first quarter of 2022, has seen ILPT's net debt to EBITDA ratio decrease from 12.7x to 11.9x over the past four quarters.
The REIT is also poised to benefit from the recent fall in interest rates, which could lead to savings on its new interest rate cap coming in September, or it may consider refinancing its debt, potentially boosting earnings.
Currently, ILPT's shares trade at a multiple of 14.5 times the estimated 2024 EBITDA, which is lower than the average of 21.4 times EBITDA for its industrial REIT peers.
The firm's revised price target of $10 represents a multiple of 15.5 times the last twelve months' EBITDA as expected in the third quarter of 2025.
In other recent news, Industrial Logistics Properties Trust (ILPT) has demonstrated a robust performance in Q2 of 2024, with a 2.6% increase in cash basis net operating income (NOI) and an 18.1% rise in normalized funds from operations (FFO).
This growth is attributed to the company's strategic leasing efforts, securing 26 new leases covering 2.6 million square feet at rental rates significantly higher than previous agreements. The company's financial stability is further highlighted by its improved net debt to total assets ratio and net debt coverage ratio.
ILPT's portfolio remains strong with 411 properties totaling around 60 million square feet. However, the company faces upcoming lease expirations, with 1.3 million square feet in 2024 and 8.4 million square feet in 2025 and 2026.
The company's representative, Yael Duffy, assures a strong leasing pipeline with a net positive of 150,000 square feet added this quarter.
The company plans to utilize its $250 million cash position for future leasing obligations and an interest rate cap. In terms of future outlook, ILPT is focusing on tenant retention, rent growth, and reducing operating expenses.
Meanwhile, the company is also considering refinancing existing debt as an alternative to exercising an interest rate cap on a maturing loan.
InvestingPro Insights
As Industrial Logistics Properties Trust (NASDAQ: ILPT) navigates the challenges of re-leasing significant properties, real-time data from InvestingPro shows a mixed financial picture. The company's market capitalization stands at a modest $326.61 million, with a notably high gross profit margin of 86.47% over the last twelve months as of Q2 2024. This indicates a strong capacity to generate profits from its revenues, despite the vacancies.
InvestingPro Tips highlight the stock's volatility and the fact that short-term obligations currently exceed liquid assets, which could pose liquidity risks. Moreover, analysts are not expecting profitability for the current year, and the company has not been profitable over the last twelve months. On a more positive note, there has been a strong return over the last month with a price total return of 43.78%, suggesting a recent upward trend in the stock's performance.
For investors considering ILPT, it's worth noting that there are more InvestingPro Tips available that could provide deeper insights into the stock's potential. The REIT's recent leasing successes and its potential interest rate savings are factors that might influence its financial trajectory, and these could be weighed against the risks outlined by InvestingPro Tips. For a more comprehensive analysis, visit https://www.investing.com/pro/ILPT to explore additional tips and metrics.
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