$ILPT: A story of GREED and OPPORTUNITY!!

Good day people!!!

I present to you a stock trading at $2 dollars today after being humbled from highs of $28, with a turnaround opportunity worthy of your attention :)

In times of high interest rates and a banking turmoil, with a fed trying to hold it all together with chewing gum.....now comes the time for the ultimate value play!!

Enough with the intro, and back to the company in question... Industrial Logistics Properties Trust ($ILPT). These guys fall under the category of what some of you might call a REIT. So real estate investment trusts are basically a group of properties or a property portfolio managed by "professionals", which is mushed down into a stock and presented to you on robinhood as a way to gamble your life savings away.

ILPT is the owner of an extensive portfolio of you guessed it... Industrial logisctic properties. This means they own different plots with warehouse like facilities that are usually occupied by retail and logistics tenants (Fedex, Amazon, Home Depot, and UPS are among the top ILPT tenants).

As the housing market in general has been on the tipsy side....with mortgages at these rates costing a kidney or two, it has dragged the REIT segment down with it. This devaluation although true for the housing and office sector, it is not the case for logistic properties. Demand for logistic properties has drived rents higher even in these challenging days, with new leases proving increased revenues for owners. ILPT has seen increased rental rates of +47% in 2022, and anticipates a solid market for renewed and new leases in 2023.

ILPTs portfolio has 226 properties situated in Hawaii and 187 properties in mainland USA. The beautiful thing about the Hawaiian properties is their scarcity, as lots with the potential for industrial logistics are very limited over there causing their prices to appreciate nicely over the years.

So where did it all go south for ILPT. This REIT is unfortunately externally managed by the RMR group. These villains have a track record of maximising management fees and compensation at the expense shareholders. They have been proficient at taking REITs to the market and then slowly diluting shareholder value, in other terms they are professionals at legal pump and dump skeems. In general internally managed REITs do better and are valued higher by the market as management and shareholder interests are alligned.

To understand where RMR's greed lies with ILPT you need some background on their management structure, which is detailed in ILPTs 10K (a company’s yearly financial report, you can find it on the SEC website). I'm gonna go over the points I think are of interest here...

Their latest trick was acquiring Monmouth Real Estate for approximately $4 billion dollars, overloading ILPT's balance sheet with debt and chewing down on their earnings from increased interest expense as a result of the increased debt load.

So why would management acquire a huge comapny, arguably at a premium to the market and at a time where interest headwinds from the fed were anticipated!!!? The answer is simple, management fees and thus RMR's revenues increase as the assets under management see an uptick. As expected after the acquisition, ILPTs operating expenses nearly doubled in 2022.

The thing that really beat down ILPT was the sudden increased debt load and the high interest expenses that followed meant that they could not sustain their quarterly dividend. The share price then took a nose dive from around the mid $20s to sub $2 as they cut their quarterly dividend from $0.33 to $0.01.

Now for where the opportunity lies and a possibe rare instance where RMR's incentives might be oriented with ILPTs shareholders...

1) Currently the net asset value of ILPT (net assets - net liabilities) is at $1287 million. With outstanding shares at around 65 million and the assumption that the value of the assets can be reproduced at the current market, the current net asset value is valued at $19.8 per share. At this valuation you are literally buying the real estate assets of ILPT at a 90% discount!!! Not to mention that assets carried on the balance sheet are depreciated although in actuality they may be worth much more (remember the Hawaiian assets and their scarcity).

2) Management is incentivised (due to their fee structure) to increase ILPT's market cap, especially above $250 million (as a minimum), which would mean a share price of $3.8 and the following is how the can go about doing it.... - Their most recent filing for march 2023 showed increased rent rates with higher than expected revenue and FFO (funds from operations) of $7.9 Million or $0.12 per share. So basically they are generating cash flow, and this so far is not a sinking ship as they can comfortably afford the interest expenses especially with the interest rate caps they have in place as a hedge. Keep in mind interest rates will not be going up forever!! - 60 Million in cash (Apprx $1 per share) is available on the balance sheet. - Possible sale of some assets to cover debt. - Re-instating their dividend as a result of one or more of the 3 previous points.

So you got to the end, give urself a pat on the back!

TLDR: ILPT is an externally managed REIT, which was recently punished by the market (share price fell from mid $20s to sub $2) as a result of a huge acquisition in 2022 forcing them to cut their dividend in order to manage their debt load.

ILPT most likely can afford the high interest expenses and will be producing positive FFO for 2023.

A high net asset value of apprx $20/share, apprx $1/share in cash on the balance sheet, appreciating logistical assets, a likely dividend re-instatement due to positive FFO in 2023, and management's incentive to increase market cap all point to a juicy outcome.