Executives: Olivia Snyder - Manager, IR John Popeo - President, COO & Managing Trustee Richard Siedel - CFO & Treasurer

Analysts: Bryan Maher - B Riley FBR Mitch Germain - JMP Securities

Operator: Good morning, and welcome to Industrial Logistics Properties Trust Third Quarter 2018 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Olivia Snyder, Manager of Investor Relations. Please go ahead.

Olivia Snyder: Thank you, and good morning, everyone. Thanks for joining us today. With me on the call are ILPT’s President and Chief Executive Officer, John Popeo; and Chief Financial Officer, Rick Siedel. In addition, we are joined by John Murray, who has been appointed as Managing Trustee, President and Chief Executive Officer effective December 1, 2018. In just a moment, they will provide details about our business and our performance for the third quarter of 2018. We will then open the call to your questions. 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, Friday, October 26, 2018, and that 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, 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 distributions, or CAD, are available in our supplemental operating and financial data package, which also can be found on our website. And now I will turn the call over to John Popeo.

John Popeo: Thank you, Olivia. Good morning, everyone, and welcome to the third quarter earnings call for Industrial Logistics Properties Trust, or ILPT. As of the end of the third quarter, ILP T’s portfolio consisted of 269 primarily warehouse and distribution properties, with 29. 2 million square feet located in 26 states. Approximately 60% of ILPTs annualized revenues continue to come from 16.8 million square feet of industrial land located on the island of Oahu in Hawaii. Our mainland portfolio consists of 43 buildings with 12.4 million square feet located in 25 states that are 100% leased with an average lease term of around eight years as of quarter end. We have made steady progress on our mainland acquisition plan acquiring two properties during the quarter and closing on one additional property during October, all three were briefly discussed during last quarter’s earnings call. I’ll now provide more details. In September, we acquired a 205,000 square-foot Class A warehouse distribution facility in Carlisle, Pennsylvania for $20 million. The property is net lease for seven years to Trans-American auto parts or TAP, a leading manufacturer, distributor, retailer and installer of off-road Jeep and truck accessories, and a wholly-owned subsidiary of Polaris Industries. The building was constructed in 2016, features 32 for clear heights and serves as the largest of TAP’s six U.S. distribution centers. The property is well located directly off I-81 and the I-81, I-78 distribution quarter, one of the largest and fastest growing industrial markets in the country. Also in September, we acquired a 221,000 square-foot Class A warehouse distribution facility in upper Marlboro Maryland for $29.3 million. The property is located approximately 10 miles east of Washington DC’s capital beltway immediately adjacent to 301 and with ready access to I-95. The property is net lease for 12 years to La-Z-Boy Incorporated who chose this location to better serve as Maryland Virginia and the Carolinas without having to travel through DC. The property was built in 2016 with high quality construction and design including 32 for clear heights and modern column spacing and dock capacity. After quarter end, in October, we acquired for $27.7 million, a multitenant net leased warehouse distribution facility located in Maple Grove, Minnesota one of the strongest industrial submarkets of Minneapolis. The 319,000 square foot property was constructed in 2015 with 32 for clear heights, and is 100% leased with the remaining average lease term of 6.3 years. The primary tenant at the property is Bunzl Minneapolis, distributor serving customers in the grocery, retail, food processing, convenient store and airline industries throughout Minnesota, the Dakotas, Iowa and Wisconsin. Maple Grove is situated at the intersections of Interstate 694, 494 and 94 with excellent access to the Twin Cities via highways 169 and 610. The average cap rate for these properties is approximately 5.3% reflecting the construction quality and desirable locations. In addition, we are beginning to gain some traction with build-to- suit expansions for existing tenants. As previously reported, we have approximately 900,000 square feet of expansion options built into our existing Mainland leases. We completed one small 35,000 square foot expansion for FedEx back in September 2017, and in early October of 2018, we successfully negotiated a second build-to- suit expansion at one of our existing 450,000 square-foot distribution facilities leased to Torah [ph]. This 194,000 square foot expansion is expected to cost $15 million, which translates to a return on invested capital of close to 7%. In October, we acquired the land parcel adjacent to the existing property for $450,000 to accommodate this expansion. The lease term for the expansion space will be 15 years from the expected date of completion. We are currently expecting to complete this project by November 2019. As part of this expansion, we also extended the lease term for the tenants existing space by seven years to coincide with the expiration date of the new expansion space of December 2034. We have around 700,000 square feet of additional expansion opportunities built into our existing leases throughout the Mainland portfolio, and we continue to proactively reach out to existing tenants to encourage them to execute their expansion options. Before Rick touches on this quarter’s leasing activities, I wanted to follow up on my discussion last quarter of American Tire Distributors or ATD, one of our top tenants accounting for approximately $5 million or 3.1% of annualized revenues. In early October, ATD announced they filed for reorganization under Chapter 11 to implement an agreement with bondholders on the terms of a recapitalization that would reduce the company’s debt by approximately $1.1 billion. ATD has stated that operations across their distribution networks are continuing without disruption as it moves through this process. ATD occupies five of our distribution facilities located in Baton Rouge, Louisiana, Albany New York, Columbus Ohio, Colorado Springs, Colorado and Lincoln Nebraska. The tenant remains current on their rent and our hope is that the plan is approved by the courts. However, for some reason we are not able to collect on our existing leases. We’re confident that we can re-let the stays within 6 to 9 months at three of the properties in between 12 and 24 months for the other two. As a reminder, ILPT is managed by the RMR Group, which has over 30 regional property management offices located throughout the U.S. RMR stands ready to provide new leasing solutions for the properties occupied by ATD if it becomes necessary, but again, we are hopeful that ATD continues to honor its lease – its leases with ILPT. I’d like to briefly note that as a condition of the proposed merger agreement between our current majority shareholder Select Income REIT or SIR and government properties income trust subject to requisite shareholder approvals and certain other conditions, SIR will distribute all of the 45 million common shares of ILPT that it owns to SIRs shareholders. And lastly for those of you who haven’t heard, I have decided to retire as President, CEO and Managing Trustee of ILPT and other executive positions I hope across the RMR platform effective November 30. My employment at RMR will continue until March of 2019 to allow for a smooth of a transition as possible. I’ve been with the RMR Group since November 1997 and during this 21 year period, I was fortunate to participate in the tremendous growth that has taken place since then. I am grateful for the friendships that I’ve developed over the years, both within the company and with bankers, analysts, investors and vendors. I’m proud to have been part of this organization and I am profoundly grateful to the Portnoy's for giving me the opportunity to work and grow in such a dynamic and exciting work environment. John Murray has been named the new President, CEO and Managing Trustee of ILPT and I couldn’t be happier for John and the Company. John has been with the RMR Group longer than I have primarily focused today on hotels and travel centers. John is a seasoned real estate professional, and a close friend. I wish John all the best in his new role at ILPT effective December 1, 2018. There’s no question in my mind that ILPT and its shareholders are in good hands with John at the helm. I’ll now hand the call over to Rick Seidel to provide details on this quarter’s leasing activity and financial results. Rick?

Richard Siedel: Thanks John and good morning everyone. I’ll begin with an overview of leasing and then continue to our financial results. During the quarter, we executed new and renewal releases totaling approximately 324,000 square feet at rents that were 12.1% higher than previous rents for the same space. The average lease term of 11.8 years and leasing capital per square foot per lease year was $0.10. One of the new leases we executed this quarter was on our property in Lafayette, Louisiana currently leased to FedEx which is occupied by a sub tenant. This is the only one of our 13 FedEx facilities that are subleased and FedEx has told us they don’t intent to renew at this building when their lease expires in 2020. We executed a new lease this quarter direct with the subtenant that will ensure this building stays occupied and eliminates any downtime or capital typically associated with marketing and re-tenanting. FedEx is paying an above market rent for this 70,000 square-foot facility constructed in 2010, so the new lease represents a roll down on rent. Excluding this one new lease that isn’t effective for nearly two years we achieved average rent roll up on new and renewal leases of 39.9% and 26.6% respectively over previous rental rates, which we believe illustrates the strong internal growth we expect from our portfolio. We also executed 11 rent reset in Hawaii for approximately 516,000 square feet of land rental rates that were 20.3% higher then prior rates. Portfolio occupancy as of the end of the third quarter was 99.3%, a 20 basis point increase from last quarter. We have no significant near-term lease expirations on the Mainland with less than 1% of total annualized rents expiring by the end of 2019. Moving to Hawaii, we have just 11,000 square feet of leases expiring during the remainder of this year. Looking forward to 2019 in Hawaii 1.4 million square feet for $3.7 million of total annualized rents are scheduled to expire in addition to 2 million square feet for $7 million of annualized rents that is schedule to reset. Our hope is that rents will continue to increase in Hawaii at rates consistent with our historical performance. We continue to be encouraged by our leasing results and the growth we may achieve when over 50% of our Hawaii leases mark-to-market either through rent resets or as leases rollover over the next five years. Moving on to the financials. Normalized FFO for the third quarter of 2018 was $25.3 million or $0.39 per share. Adjusted EBITDA for the quarter was $29.6 million. Our quarterly dividend of 33% continues to be well covered with a comfortable payout ratio of 84.6%. Total revenues for the third quarter of 2018 increased by $1.4 million to $40.49 representing a 3.5% increase over prior year results, this increase primarily reflects our acquisition activity as well as lease renewal and rent resets at our Hawaii properties. Same-store cash NOI increased by 1.5% over the prior year primarily as a result of our contractual rent increases and leasing activity in our Hawaii and Mainland properties. Hawaii same-property cash NOI increased 1.2% over the prior year reflecting increases in rents and renewal, releasing in resets as well as recoveries related to a previously evicted tenant, offset by increased non-recoverable expenses including bad debt reserves, repairs, real estate taxes and security costs associated with our occupancy being slightly lower than the nearly 100% reported last year. Mainland cash NOI increased 1.8% over the prior year primarily as a result of the contractual rent increases and an increase in rent from an expansion project with FedEx that was completed in September of 2017. General and administrative expenses for the third quarter totaled $2.9 million or just under 20 basis points of our total assets as of September 30. Our recurring capital expenditures totaled $845,000, the majority of these expenditures were building and land improvements at various properties which included parking lot resurfacing and a fire alarm system upgrade along with some minor leasing capital. The increase in interest expense over the prior year reflects average borrowing on our revolving credit facility. The average interest rate on our revolver is based on LIBOR plus a spread, which amounted to approximately 3.5% at quarter end. After the acquisition, John mentioned earlier we have just over $400 million outstanding on our $750 million unsecured revolving credit facility. So we may consider refinancing the long-term fixed rate debt in the coming month. We ended the quarter with $11.1 million of cash on hand, debt to adjust EBITDA of just 3.6 times and adjusted EBITDA to interest expense is 7.3 times. We have only one property encumbered by secured debt and we continue to believe our balance sheet is very well positioned for growth. That concludes our prepared remarks. Operator, we’re now ready to take questions.

Operator: Thank you. [Operator Instructions] And our first question will come from Bryan Maher with B Riley FBR. Please go ahead.

Bryan Maher: Good morning and thanks for those comments. Just a quick question on Hawaii, with the number, I guess it was up 20% and change. It’s a little shy of the historical average since 2003. Was there something particular there with the quarter? And how should we think about that as we approach 2019 and 2020 with what you're seeing on the ground at the moment?

Richard Siedel: Hey, Bryan, this is Rick. So, couple of thoughts on that. First, individual resets can always vary from quarter to quarter depending on the particular parcels involved. And second, we have been negotiating rent steps of around 3% per year into some of our leases when they’re do to be reset, which helps consistently grow our cash NOI year after year and its also a little bit less of a shock for the tenant. So, often we’ll negotiate lease extension with resets at the same time and then we’ll wind up reporting them in our renewal leasing activity. So while the 20% number for resets was a little lower than historical. When you combined it with the first nine months of activity in Hawaii we’ve average about 43.9% rollups on renewals and about 36.8% rollups on new leases, so when you combined them we’re just around – we’re just under 30% combined. So we think our leasing activity has been consistent with historical levels and its been strong from a Hawaii overall NOI results perspective this quarter. I mentioned some of the non-recoverable cost that we incurred this period. Historically we do get some of those back, our team on the ground that will work with collections teams and everything else to go after it. Typically if one of our tenants falls behind our team will occasionally offer a payment plan secured with the stipulated judgment so that we can quickly retake possession if it becomes necessary. The good news is many of our Hawaii parcels can be release quickly because of their location between the port in Honolulu and we have a really strong team on the ground. So looking forward to 2019 I think we like to say that we estimate that current rents are probably 20% below market but as we look at the specific leases we hope to be a little higher than that. But I think generally the 20% numbers are reasonable expectation for the portfolio.

Bryan Maher: All right, great. That's really good color. And can you talk a little bit about your acquisition outlook? I know you guys have kind of stepped up your acquisition activity of late, and that's good to see. But are you seeing any changes real near term, particularly as it relates to the volatility in the capital markets, things that are going on with the Amazon, et cetera? Are you seeing any changes out there in the marketplace for your acquisitions?

Richard Siedel: We continue to be active on acquisitions. It was interesting we weren’t seeing a whole lot or we saw volumes of sort of tail off in July and August, but it’s picked right backup again, still lot of newer buildings coming in market listed by merchant builders and developers. We probably reviewed since our IPO over 100 listings bid on probably just over 25 and we lost but five. But we’re very happy with the five that we currently closed on or have under contract. We’re targeting properties that are close to major population centers that have solid highway access and that’s resulting in the cap rates that you’re seeing us publish in our financials of right around 5% going in. We are taking a very disciplined approach. We passed on probably 60 or 70 properties based on the tertiary locations, building age, poor construction quality, low clear heights. We're seeking out solid tenants in all cases, but we want to keep a real close eye on and pulse on market growth potential because that’s the name of the game right now, that’s how justify going in cap rates of high-fours and low-fives. Pending deals, we have – let’s see, closed for this year we’ve around 2 million square feet pricing should come in right around 5%, 5.5%, these properties are located in Phoenix, Atlanta and South Carolina, a couple of them are over 800,000 square feet. We’re – we talk about the Phoenix market on the last call, one of our properties, our potential acquisitions is located in Phoenix. We actually bid on one and loss. We bid a little more aggressively this time around. We’re excited about this acquisition opportunity. It’s a building acquired in – built in 2008, 30 foot clear heights, top-tier e-commerce tenant occupies the building for over seven years. We’re also excited about our property we’re looking at. In Atlanta brand new construction very close to downtown and the airport. And we're also looking at various properties in other locations throughout the country. In addition, the pipeline is pretty robust. Right now, we have close to 3 million square feet in the pipeline. Some of the markets we’re looking at is Atlanta. And we’re also looking – continue to look for more products in the Phoenix market. We like Phoenix because it's easy access, fairly easy access to LA and also Austin and Texas, but these properties in markets numbered six to 15 still need to meet all our underwriting attributes, good quality tenant, newer construction, 32 foot clear heights and so on.

Bryan Maher: All right, great. Thanks. That’s really good color. And John Popeo, good luck with your retirement. Its been great working with you. And John Murray, its going to be great working with you again and more. We’ve known each other for 15 plus years and you do a great job. So, I’m pretty happy to see you in this new role. So congrats to both of you.

John Popeo : Thank you.

Operator: [Operator Instructions] Your next question will come from Mitch Germain with JMP Securities. Please go ahead.

Mitch Germain: Yes. It seems like a notes offering could be – I think you said in the coming months maybe just some perspective there and some ideas around pricing?

Richard Siedel: Sure. Mitch, this is Rick again. We’ve seen the interest rate on our revolver increase 60 basis points this year. So with just over 400 million outstanding, it maybe a good time to refinance that and to attractively price long-term fixed rate debt. At this point, because we haven’t really finished the seasoning period, we’re still only a few months old having IPO-ed in January of this year. We’re actually thinking that it might make sense to look at the secured debt market which we historically haven’t used a lot. We currently only have one property encumbered by a mortgage. But depending on the particular asset we choose to encumber along with the leverage we’ll have to use. It seems 10-year rates between four and a quarter and four and three quarters are readily available, and pricing at these levels will allow for positive spread between our cost to debt and our acquisition cap rates along with our development returns that we’ve talked a little bit about this quarter. Like you mentioned, timing would likely be late in the fourth quarter, but could possibly slip into Q1 if we take a good look at the options from the life insurance companies. So there will be more to come on that, but I think that’s just planned.

Mitch Germain: But don’t expect it to be materially dilutive, right? You’re expecting this to – it sounds like pricing is going to be not far off from where your revolver is already?

Richard Siedel: That’s correct. I mean, the revolver that’s 3.5 now, so I mean, to go at 4.5 is a little bit dilutive, but the acquisitions would offset that. So it should be positive.

Mitch Germain: And Rick in your mind, I have probably have this somewhere, but based on kind of where your leverage metrics are, what sort of dry powder? How much capacity I should say, do you guys have to kind of hit the levels that you kind of capped that out?

Richard Siedel: I think we still have significant capacity. Again, the kind of modeling in the pipeline, John has talked about a little bit, I think we easily still have 500 million or so capacity for next year at fairly aggressive cap rates before we are kind of inline with the higher end of our leverage metric target.

Mitch Germain: Great. And then – go ahead.

Richard Siedel: Yes. I was just going to say, we’re still only at 3.6 times debt to EBITDA today, so there’s a substantial amount of dry powder left.

Mitch Germain: Got you. Any update on the taxability of the special dividend or is that still kind of to be seen as the year progresses?

Richard Siedel: Still work in progress.

Mitch Germain: Got you. Great. Congrats for you John and wish you best and thanks for your time.

John Popeo: Thank you, Richard.

Operator: And this will conclude our question and answer session. I would like to turn the conference back over to John Popeo for any closing remarks.

John Popeo: Okay. We’re very happy with out acquisition momentum this quarter and remain optimistic about our continued growth prospects through acquisitions, expansion and Hawaii resets in the coming quarters. We look forward to seeing many of you at the NAREIT Conference in San Francisco next month. Thank you everyone for joining today’s call.

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