Operator: Good morning, and welcome to the Industrial Logistics Properties Trust Fourth Quarter 2022 Financial Results Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Kevin Barry, Director of Investor Relations. Please go ahead, sir.
Kevin Barry: Good morning, everyone, and thank you for joining us today. With me on the call are ILPT's President and Chief Operating Officer, Yael Duffy and Chief Financial Officer and Treasurer, Brian Donley. In just a moment, they will provide details about our business and our performance for the four quarter of 2022, followed by a question-and-answer session with sell-side analysts. First, I would like to 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, Wednesday, February 15th, 2023, 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, or SEC, which can be accessed from our website, ilptreit.com or the SEC's website. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we will be discussing non-GAAP numbers during this call, including normalized funds from operations or normalized FFO, adjusted EBITDA and cash-based net operating income or cash basis NOI. A reconciliation of these non-GAAP figures to net income and the components to calculate cash available for distribution are available in our supplemental operating and financial data package, which also can also be found on our website.
I will now turn the call over to Yael.
Yael Duffy: Thank you, Kevin and good morning. I will begin with a review of ILPT's portfolio and operating performance and then turn the call over to Brian to provide an update on our financial results. ILPT's consolidated portfolio includes 413 warehouse and distribution properties in 39 states, totaling 60 million square feet with a weighted average remaining lease term of approximately nine years. Occupancy at year-end was 99.1%. FedEx, Amazon and Home Depot, represent approximately 40% of our annualized rental revenues and 78% of our revenues come from investment grade-rated tenants or their subsidiaries or from our secure Hawaii land leases. We finished the year with strong demand for our high-quality portfolio consistent with the trends we saw throughout 2022.
For the full year, we achieved record annual leasing activity of 7.8 million square feet at weighted average rental rates that were 47.3% higher than prior rental rates for the same space. The impact of this activity is an increase of $17.1 million in annualized rental revenue, of which more two-third will take effect in 2023 or 2024. These results showcase our ability to generate organic cash flow while maintaining portfolio stability. During the fourth quarter, we entered 17 new in renewal leases and one rent reset for a total of 1.4 million square feet at a weighted average lease term of eight years. This activity resulted in GAAP and cash leasing spreads of 18.7% and 6.7% respectively. Renewals on the Mainland drove most of our leasing activity.
Our leasing spreads include a 338,000 square foot renewal in a tertiary market in Iowa, where we were only able to achieve a 4.5% roll-up in rent. Excluding this renewal, GAAP and cash leasing spreads were 25.7% and 14.1% respectively. Looking ahead, approximately 12 million square feet or 18% of ILPT's portfolio is scheduled to roll by the end of 2025, primarily driven by our Mainland properties. We are currently tracking 28 deals in our pipeline for 2.8 million square feet. Once executed, we expect these leases will yield average roll-ups in rent of 20% on the Mainland, and 30% in Hawaii, further illustrating the strength of our portfolio. Lastly, as we have communicated in the past, we are focused on improving ILPT's leverage. However, given the ongoing uncertainty in the capital markets, our timeline for addressing these priorities is unknown.
With no near-term debt maturities and a cash flowing portfolio ILPT will continue to be patient as we evaluate opportunities. I will now turn the call over to Brian.
Brian Donley: Thank you, Yael. Good morning, everyone. Starting with our consolidated financial results for the fourth quarter of 2022, normalized funds from operations were $5.4 million or $0.08 per share, a decline of $26.3 million compared to the prior year quarter. The major drivers impacting normalized FFO over the prior year quarter was higher interest expense, partially offset by a $40 million increase in NOI. Adjusted EBITDAre increased 88% year-over-year to $79.2 million. These changes were a result of our acquisition of Monmouth, and the related financing activities earlier in 2022. Total portfolio same-property cash basis NOI for the fourth quarter increased 30 basis points year-over-year. The prior year included a reduction to reserves for uncollectible rents of approximately $0.5 million, negatively impacting comparisons.
Excluding these charges, consolidated same-property cash-based NOI increased 1.3%, primarily due to our leasing activity and contractual rent steps. Interest expense increased $62.6 million over the prior year quarter. The interest rate cap we have for our $1.2 billion floating rate CMBS loan exceeded the strike rate for the entire fourth quarter, and a cap to the $1.4 billion floating rate loan in our consolidated joint venture crossed the strike rate in mid-November. Assuming short-term interest rates remain at current levels or continue to rise our current estimated quarterly interest expense run rate will remain fixed at approximately $72 million. This consists of $59 million of cash interest expense, and $13 million of non-cash amortization of financing costs, including the interest rate caps.
Turning to our balance sheet. Including extension options ILPT's weighted average debt maturity is six years with no maturities until 2027. As of December 31, our total debt either carrying a fixed rate or was fixed through interest rate caps with a total weighted average interest rate of 5.4%. We currently have $48 million of cash on hand, excluding the cash held by our consolidated joint venture and amounts escrowed under our debt agreements. Capital expenditures for the fourth quarter were $7.9 million, including $4.4 million of tenant improvements and leasing costs, $2.2 million of building improvements and $1.3 million of development costs. In closing, our operations remain strong with an exceptional tenant roster, near full occupancy, and rising rents across our portfolio, and we expect that ILPT will continue to benefit from industry demand for high-quality industrial real estate.
Before we turn the call over to Q&A, I'd like to point out that we've included additional disclosures in our supplemental operating and financial data package this quarter that provides additional details and insight into the different components of our portfolio, as well as our joint ventures that we believe may be helpful to stakeholders. That concludes our prepared remarks. Operator, please open the line for questions.
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