Industrial Logistics Properties Trust 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and with our 2019 Annual Report. IMPACT OF COVID-19 In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic and, in response to the outbreak, the U.S. Health and Human Services Secretary declared a public health emergency in the United States and many states and municipalities declared public health emergencies. The virus that causes COVID-19 has continued to spread throughout the United States and the world. Various governmental and market responses attempting to contain and mitigate the spread of the virus have negatively impacted, and continue to negatively impact, the global economy, including the U.S. economy. As a result, most market observers believe the global economy and the U.S. economy are in a recession. Our business is focused on industrial and logistics properties. The industrial and logistics sector has fared better than some other industries thus far in response to the COVID-19 pandemic, including other real estate sectors, due to the demand for e-commerce. We believe that demand was initially supported in part by increased demand by businesses and households to stock up on supplies as the implications of the COVID-19 pandemic and resulting governmental and market responses materialized and e-commerce companies have benefited from the closure of certain retail consumer outlets during the second quarter of 2020. States and municipalities across the United States have been allowing certain businesses to re-open and easing certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time. Recently, economic data have indicated that the U.S. economy has increasingly improved since the lowest periods experienced in March and April 2020. However, certain areas of the United States have experienced increased numbers of COVID-19 infections following the re-openings of their economies and easing of restrictions or otherwise and, in some cases, certain states have imposed or re-imposed closings of certain business activities and other restrictions in response. It is unclear whether the increases in the number of COVID-19 infections will continue or amplify or whether any “second wave” of COVID-19 infection outbreaks will occur in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy, our tenants or our business. We believe that the industrial and logistics sector and many of our tenants are critical to sustaining a resilient supply chain to support essential services and daily consumption across the United States. However, if economic conditions do not continue to improve or if they worsen, including in response to any increase in the number or severity of COVID-19 infections, demand for e-commerce may also decline. If that occurs, our tenants and their businesses may become increasingly negatively impacted, which may result in our tenants seeking assistance from us regarding their rent obligations owed to us, their being unable or unwilling to pay us rent, their ceasing to pay us rent and their ceasing to continue as going concerns. We are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including: • our tenants and their ability to withstand the current, and possible future deteriorating, economic conditions and continue to pay us rent; • our operations, liquidity and capital needs and resources; • conducting financial modeling and sensitivity analyses; • actively communicating with our tenants and other key constituents and stakeholders in order to help assess market conditions, opportunities, best practices and mitigate risks and potential adverse impacts; and • monitoring, with the assistance of counsel and other specialists, possible government relief funding sources and other programs that may be available to us or our tenants to enable us and them to operate through the current economic conditions and enhance our tenants’ ability to pay us rent. We believe that our current financial resources and our expectations as to the future performance of the industrial and logistics sector and our tenants will enable us to withstand the COVID-19 pandemic and its aftermath. As of July 27, 2020 , we had: • $430,000 of availability under our revolving credit facility; • no outstanding debt scheduled to mature during the remainder of 2020 and our next debt maturity being our credit facility in December 2021, which maturity is subject to two six month extensions at our option; 16 Table of Contents • 74.3% of our annualized rental revenues, as of June 30, 2020 , derived from investment grade rated tenants, subsidiaries of investment grade rated parent entities or Hawaii land leases; and • only 3.0% of our annualized rental revenues, as of June 30, 2020 , scheduled to expire over the next 12 months. In light of the above resources, expectations and conditions, we believe that we are well positioned to weather the present disruptions facing the real estate industry. However, as a result of the COVID-19 pandemic and its aftermath, certain of our tenants have requested relief from their obligations to pay rent due to us. We evaluate these requests on a tenant by tenant basis. As of July 27, 2020 , we granted requests for certain of our tenants to defer rent payments totaling $2,799 with respect to leases that represent, as of June 30, 2020 , approximately 8.2% of our annualized rental revenues. As of June 30, 2020, we recognized an increase in our accounts receivable balance related to these deferred rent payments of $2,317 . These tenants will be obligated to pay, in most cases, the deferred rents in 12 equal monthly installments commencing in September 2020 . For the three months ended June 30, 2020, we collected approximately 97% of our contractual rents due after giving effect to such rent deferrals. These deferred amounts did not negatively impact our financial results, and we did not record any revenue reserves for these amounts, for the three and six months ended June 30, 2020, and will continue to be reflected in our financial results in the applicable future reporting periods, assuming these tenants will pay the deferred rents due to us. We do not have any employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC. RMR LLC has implemented enhanced cleaning protocols and social distancing guidelines at its corporate headquarters and its regional offices, as well as business continuity plans to ensure that RMR LLC employees remain safe and able to support us and other companies managed by RMR LLC or its subsidiaries, including providing appropriate information technology such as notebook computers, smart phones, computer applications, information technology security applications and technology support. All RMR LLC property management and engineering personnel have been trained on COVID-19 precaution procedures. As states and local communities across the United States moved to stay at home orders, RMR LLC worked to reduce and optimize our operating costs at our properties by: • deferring non-emergency work; • implementing energy reduction protocols for lighting and HVAC systems; • reducing non-essential building services and staff; and • reducing the frequency of trash removal. RMR LLC’s property management teams have also established business continuity plans to ensure operational stability at our properties. RMR LLC regional management offices limit walk-in visitors and maintain maximum office occupancy limits as required by state and local guidelines, including weekly rotations of employees as needed. As stay at home orders are lifted or loosened across the United States, RMR LLC has implemented additional procedures at our properties based on recommended guidelines from the U.S. Centers for Disease Control and Prevention and other regulatory agencies. For example: • focusing on sanitizing high touch points in common areas and restrooms; • shutting down certain building amenities; • prudently managing the execution or deferment of tenant work orders to limit RMR LLC staff and tenant interactions at our properties; • installing signage throughout our properties with social distancing reminders; • changing certain building HVAC systems and equipment, including adjusting outdoor air control programs to increase the amount of outside air delivered to interior spaces and to adjust control sequences to maintain space relative humidity in order to help minimize the concentration of the virus; • flushing domestic water systems to prepare for re-occupancy; • performing service calls and preventative maintenance after business hours to limit social interactions; 17 Table of Contents • requiring vendors to follow best practices under COVID-19 pandemic conditions, including providing RMR LLC with documented preventative measures for their employees and requiring staff to wear appropriate personal protective equipment when working at our properties; and • altering cleaning schedules to perform vacuuming at times intended to reduce the potential airborne spread of the virus. RMR LLC has significantly reduced non-essential work travel and its regional leadership personnel have not been allowed to work in the same locations at the same time. RMR LLC also requires its employees who work at our properties to use personal protective equipment and business continuity bonus payments have been provided to certain essential workers at our properties. There are extensive uncertainties surrounding the COVID-19 pandemic and its aftermath. These uncertainties include, among others: • the duration and severity of the negative economic impact; • the strength and sustainability of any economic recovery; • the timing and process for how the federal, state and local governments and other market participants may oversee and conduct the return of economic activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States; and • whether, following a recommencing of more normal levels of economic activities, the United States or other countries experience any “second wave” of COVID-19 infection outbreaks and, if so, the responses of governments, businesses and the general public to those events. As a result of these uncertainties, we are unable to determine what the ultimate impact will be on our, our tenants’ and other stakeholders’ businesses, operations, financial results and financial position. For further information and risks relating to the COVID-19 pandemic on us and our business, see Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q. OVERVIEW We are a real estate investment trust, or REIT, organized under Maryland law. As of June 30, 2020 , we owned 301 properties with approximately 43.8 million rentable square feet, including 226 buildings, leasable land parcels and easements with approximately 16.8 million rentable square feet located on the island of Oahu, HI, and 75 properties with approximately 27.0 million rentable square feet located in 30 other states, including 12 properties with approximately 9.2 million rentable square feet owned by a joint venture in which we own a 61% equity interest. As of June 30, 2020 , our properties were approximately 98.8% leased (based on rentable square feet) to 263 different tenants with a weighted average remaining lease term (based on annualized rental revenues) of approximately 9.1 years. We define the term annualized rental revenues as used in this section as the annualized contractual rents, as of June 30, 2020 , including straight line rent adjustments and excluding lease value amortization, adjusted for tenant concessions including free rent and amounts reimbursed to tenants, plus estimated recurring expense reimbursements from tenants. Unless otherwise noted, the data presented in this section includes the 12 properties owned by a joint venture in which we own a 61% equity interest. 18 Table of Contents Property Operations As of June 30, 2020 , 98.8% of our rentable square feet was leased, compared to 99.3% of our rentable square feet as of June 30, 2019 . Occupancy data for our properties as of June 30, 2020 and 2019 is as follows (square feet in thousands): All Properties Comparable Properties (1) As of June 30, As of June 30, 2020 2019 2020 2019 Total properties 301 298 270 270 Total rentable square feet (2) 43,759 42,353 29,651 29,457 Percent leased (3) 98.8 % 99.3 % 98.4 % 99.0 % (1) Consists of properties that we owned continuously since January 1, 2019. (2) Subject to modest adjustments when space is remeasured or reconfigured for new tenants and when land leases are converted to building leases. (3) Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of June 30, 2020 , if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any. The average effective rental rates per square foot, as defined below, for our properties for the three and six months ended June 30, 2020 and 2019 are as follows: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Average effective rental rates per square foot leased: (1) All properties $ 6.02 $ 5.82 $ 6.01 $ 5.86 Comparable properties (2) $ 6.12 $ 5.88 $ 6.16 $ 5.95 (1) Average effective rental rates per square foot leased represents annualized rental income during the period specified divided by the average rentable square feet leased during the period specified. (2) Comparable properties for the three months ended June 30, 2020 and 2019 consist of 277 buildings, leasable land parcels and easements that we owned continuously since April 1, 2019. Comparable properties for the six months ended June 30, 2020 and 2019 consist of 270 buildings, leasable land parcels and easements that we owned continuously since January 1, 2019. During the three months ended June 30, 2020 , we entered lease renewals for approximately 314,000 square feet at weighted average (by square feet) rental rates that were approximately 26.6% higher than prior rates for the same land area or building area (with leasing rate increases for vacant space based upon the most recent rental rate for the same space). The weighted average (by square feet) lease term for leases that were in effect for the same land area or building area during the prior lease term was 20.1 years for lease renewals. Commitments for tenant improvements, leasing costs and concessions for leases entered during the three months ended June 30, 2020 totaled $229,000 , or approximately $0.04 per square foot per year of the new weighted average lease term. Also, during the three months ended June 30, 2020 , we completed rent resets for approximately 1,601,000 square feet of land at our Hawaii Properties at rent rates that were approximately 21.4% higher than the prior rental rates. 19 Table of Contents As shown in the table below, approximately 0.2% of our total rented square feet and approximately 0.3% of our total annualized rental revenues as of June 30, 2020 are included in leases scheduled to expire by December 31, 2020. As of June 30, 2020 , our lease expirations by year are as follows (dollars and square feet in thousands): % of Total Cumulative % of Total Cumulative % Annualized Annualized % of Total Rented Rented of Total Rented Rental Rental Annualized Number of Square Feet Square Feet Square Feet Revenues Revenues Rental Revenues Period / Year Tenants Expiring (1) Expiring (1) Expiring (1) Expiring Expiring Expiring 7/1/2020-12/31/2020 6 72 0.2 % 0.2 % $ 646 0.3 % 0.3 % 2021 29 2,707 6.3 % 6.5 % 15,203 5.9 % 6.2 % 2022 64 2,749 6.4 % 12.9 % 21,357 8.3 % 14.5 % 2023 28 2,536 5.9 % 18.8 % 16,370 6.4 % 20.9 % 2024 30 10,277 23.8 % 42.6 % 44,151 17.2 % 38.1 % 2025 14 2,550 5.9 % 48.5 % 14,551 5.7 % 43.8 % 2026 4 951 2.2 % 50.7 % 6,449 2.5 % 46.3 % 2027 10 5,647 13.1 % 63.8 % 28,143 11.0 % 57.3 % 2028 20 2,888 6.7 % 70.5 % 20,385 8.0 % 65.3 % 2029 9 2,715 6.3 % 76.8 % 14,585 5.7 % 71.0 % Thereafter 84 10,124 23.2 % 100.0 % 74,436 29.0 % 100.0 % Total 298 43,216 100.0 % $ 256,276 100.0 % Weighted average remaining lease term (in years): 8.2 9.1 (1) Rented square feet is pursuant to existing leases as of June 30, 2020 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any. The following chart shows the annualized rental revenues as of June 30, 2020 scheduled to reset at our Hawaii Properties: Scheduled Rent Resets at Hawaii Properties (dollars in thousands) Annualized Rental Revenues as of June 30, 2020 Scheduled to Reset 7/1/2020 - 12/31/2020 $ — 2021 2,610 2022 3,857 2023 2,550 2024 2,100 2025 and thereafter 19,138 Total $ 30,255 20 Table of Contents We generally receive rents from our tenants monthly in advance. As of June 30, 2020 , tenants representing 1% or more of our total annualized rental revenues were as follows (square feet in thousands): % of Total No. of Rented % of Total Annualized Rental Tenant States Properties Sq. Ft. (1) Rented Sq. Ft. (1) Revenues 1 Amazon.com Services, Inc. AZ, FL, IN, SC, TN, VA 7 6,939 16.1 % 15.9 % 2 Federal Express Corporation / FedEx Ground Package System, Inc. AR, CO, HI, IA, ID, IL, MN, MO, NC, ND, NV, OH, OK, UT 17 952 2.2 % 3.7 % 3 The Procter & Gamble Distributing LLC OH 1 1,791 4.1 % 3.7 % 4 Restoration Hardware, Inc. MD 1 1,195 2.8 % 2.4 % 5 American Tire Distributors, Inc. CO, LA, NE, NY, OH 5 722 1.7 % 2.1 % 6 UPS Supply Chain Solutions Inc. NH 1 614 1.4 % 1.9 % 7 Par Hawaii Refining, LLC HI 3 3,148 7.3 % 1.9 % 8 Servco Pacific Inc. HI 4 537 1.2 % 1.8 % 9 SKF USA Inc. MO 1 431 1.0 % 1.6 % 10 EF Transit, Inc. IN 1 535 1.2 % 1.5 % 11 Subaru of America, Inc. IN 1 963 2.2 % 1.4 % 12 BJ's Wholesale Club, Inc. NJ 1 634 1.5 % 1.4 % 13 Shurtech Brands, LLC OH 1 645 1.5 % 1.4 % 14 Safeway Inc. HI 2 146 0.3 % 1.3 % 15 Manheim Remarketing, Inc. HI 1 338 0.8 % 1.2 % 16 Exel Inc. SC 1 945 2.2 % 1.2 % 17 The Toro Company IA 1 644 1.5 % 1.2 % 18 Trex Company, Inc. NV, VA 2 646 1.5 % 1.2 % 19 Avnet, Inc. OH 1 581 1.3 % 1.2 % 20 A.L. Kilgo Company, Inc. HI 5 310 0.7 % 1.2 % 21 Cummins Inc. KY 1 604 1.4 % 1.1 % 22 Warehouse Rentals Inc. HI 5 278 0.6 % 1.0 % 23 Whirlpool Corporation IN 1 805 1.9 % 1.0 % 24 Coca-Cola Bottling of Hawaii, LLC HI 4 351 0.8 % 1.0 % Total 68 24,754 57.2 % 53.3 % (1) Rented square feet is pursuant to existing leases as of June 30, 2020 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any. Mainland Properties. As of June 30, 2020 , our Mainland Properties represented approximately 59.3% of our annualized rental revenues. We generally will seek to renew or extend the terms of leases at our Mainland Properties as their expirations approach. Because of the capital many of the tenants in our Mainland Properties have invested in these properties and because many of these properties appear to be of strategic importance to the tenants’ businesses, we believe that it is likely that these tenants will renew or extend their leases prior to their expirations. However, as noted elsewhere in this Quarterly Report on Form 10-Q, the COVID-19 pandemic has had a substantial adverse impact on the global economy. Depending on the duration and severity of this pandemic and the resulting economic impact, our tenants’ businesses and operations may become significantly negatively impacted, which may result in their failing to pay rent to us or not renewing their leases with us upon expirations. If we are unable to extend or renew our leases, it may be time consuming and expensive to relet some of these properties and the terms of any leases we may enter may be less favorable to us than the terms of our existing leases for those properties. Hawaii Properties. As of June 30, 2020 , our Hawaii Properties represented approximately 40.7% of our annualized rental revenues. As of June 30, 2020 , certain of our Hawaii Properties are lands leased for rents that periodically reset based on fair market values, generally every ten years. Revenues from our Hawaii Properties have generally increased under our or our predecessors’ ownership as rents under the leases for those properties have been reset or renewed. Lease renewals, lease extensions, new leases and rental rates for our Hawaii Properties in the future will depend on prevailing market conditions when these lease renewals, lease extensions, new leases and rental rates are set. As rent reset dates or lease expirations approach at our Hawaii Properties, we generally negotiate with existing or new tenants for new lease terms. If we are unable to reach an agreement with a tenant on a rent reset, our Hawaii Properties’ leases typically provide that rent is reset based on an 21 Table of Contents appraisal process. Despite our and our predecessors’ prior experience with rent resets, lease extensions and new leases in Hawaii, our ability to increase rents when rents reset, leases are extended, or leases expire depends upon market conditions which are beyond our control. Accordingly, we cannot be sure that the historical increases achieved at our Hawaii Properties will continue in the future. If the tenants at our Hawaii Properties are unable to withstand the economic downturn resulting from the COVID-19 pandemic, they may not seek to renew leases with us and we may be unable to obtain new tenants for those properties for an extended period or at all and the terms of any leases we may enter may be less favorable to us than the terms of our existing leases for our Hawaii Properties. As of June 30, 2020 , $7,668 , or 3.0% , of our annualized rental revenues are due to expire through June 30, 2021 and 1.2% of our rentable square feet are currently vacant. Rental rates for which available space may be leased in the future will depend on prevailing market conditions when lease extensions, lease renewals or new leases are negotiated. Whenever we extend, renew, or enter new leases for our properties, we intend to seek rents that are equal to or higher than our historical rents for the same properties; however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control, and as noted elsewhere in this Quarterly Report on Form 10-Q, the COVID-19 pandemic and its economic impact may adversely impact our future leasing activities and our ability to lease our properties and to receive rents. Tenant Review Process. Our manager, RMR LLC, employs a tenant review process for us. RMR LLC assesses tenants on an individual basis based on various applicable credit criteria. In general, depending on facts and circumstances, RMR LLC evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources. RMR LLC also often uses a third party service to monitor the credit ratings of debt securities of our existing tenants whose debt securities are rated by a nationally recognized credit rating agency. Investment Activities (dollars in thousands) During the six months ended June 30, 2020 , we acquired a property with 820,384 rentable square feet for a purchase price of $71,481 , excluding acquisition related costs of $147 . For further information regarding our investment activities, see Note 3 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Financing Activities (dollars in thousands) In February and March 2020, we entered into agreements related to a joint venture for 12 of our Mainland Properties. We received proceeds from the investor in an aggregate amount of $108,266, which includes certain costs associated with the formation of the joint venture, for a 39% equity interest in the joint venture and we retained the remaining 61% equity interest in the joint venture. The investment amount is based on an aggregate property valuation of $680,000, less $406,980 of existing mortgage debts on the properties at the time of the investment that the joint venture assumed. In February 2020, we formed the joint venture with 11 of the 12 properties and the investor initially paid us $82,035, and in March 2020, the twelfth property was added to the joint venture and the investor contributed an additional $26,231. We used the net proceeds from this transaction to reduce outstanding borrowings under our revolving credit facility. During the three and six months ended June 30, 2020, the joint venture made aggregate cash distributions of $4,867, including $1,898 to the other joint venture investor. In May 2020, we prepaid at par plus accrued interest a mortgage note secured by one of our properties with an outstanding principal balance of approximately $48,750, an annual interest rate of 3.48% and a maturity date in November 2020. As a result of the prepayment of this mortgage note, we recorded a gain on early extinguishment of debt of $120 for the three and six months ended June 30, 2020 to write off unamortized premiums. For further information regarding our financing activities, see Notes 5 and 11 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investment and Financing Liquidity and Resources” of this Quarterly Report on Form 10-Q. 22 Table of Contents RESULTS OF OPERATIONS Three Months Ended June 30, 2020 , Compared to Three Months Ended June 30, 2019 (dollars and share amounts in thousands, except per share data) Comparable Properties Results (1) Acquired Properties Results (2) Consolidated Results Three Months Ended June 30, Three Months Ended June 30, Three Months Ended June 30, $ % $ $ % 2020 2019 Change Change 2020 2019 Change 2020 2019 Change Change Rental income $ 50,197 $ 48,187 $ 2,010 4.2 % $ 14,913 $ 11,903 $ 3,010 $ 65,110 $ 60,090 $ 5,020 8.4 % Operating expenses: Real estate taxes 6,889 5,811 1,078 18.6 % 2,043 1,684 359 8,932 7,495 1,437 19.2 % Other operating expenses 3,819 3,558 261 7.3 % 1,222 640 582 5,041 4,198 843 20.1 % Total operating expenses 10,708 9,369 1,339 14.3 % 3,265 2,324 941 13,973 11,693 2,280 19.5 % Net operating income (3) $ 39,489 $ 38,818 $ 671 1.7 % $ 11,648 $ 9,579 $ 2,069 51,137 48,397 2,740 5.7 % Other expenses: Depreciation and amortization 18,525 16,709 1,816 10.9 % General and administrative 4,846 4,856 (10 ) (0.2 %) Total other expenses 23,371 21,565 1,806 8.4 % Interest income 2 138 (136 ) (98.6 %) Interest expense (13,205 ) (13,924 ) 719 (5.2 %) Gain on early extinguishment of debt 120 — 120 N/M Income before income tax expense and equity earnings of an investee 14,683 13,046 1,637 12.5 % Income tax expense (126 ) (60 ) (66 ) 110.0 % Equity in earnings of an investee — 130 (130 ) N/M Net income 14,557 13,116 1,441 11.0 % Net loss attributable to noncontrolling interest 264 — 264 N/M Net income attributable to common shareholders $ 14,821 $ 13,116 $ 1,705 13.0 % Weighted average common shares outstanding - basic 65,089 65,039 50 0.1 % Weighted average common shares outstanding - diluted 65,091 65,043 48 0.1 % Per common share data (basic and diluted): Net income attributable to common shareholders $ 0.23 $ 0.20 $ 0.03 15.0 % N/M - Not Meaningful (1) Consists of 277 buildings, leasable land parcels and easements that we owned continuously since April 1, 2019. (2) Consists of 24 properties that we acquired during the period from April 1, 2019 to June 30, 2020 . (3) See our definition of NOI and our reconciliation of net income to NOI below under the heading “Non-GAAP Financial Measures.” References to changes in the income and expense categories below relate to the comparison of results for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 . Our acquisition activity reflects our acquisition of 24 properties during the period from April 1, 2019 to June 30, 2020 . Rental income. The increase in rental income is primarily a result of our acquisition activity and increases from leasing activity, rent resets and real estate tax expense reimbursements at certain of our comparable properties. Rental income includes non-cash straight line rent adjustments totaling $2,096 for the 2020 period and approximately $2,002 for the 2019 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $204 for the 2020 period and approximately $707 for the 2019 period. Real estate taxes. The increase in real estate taxes primarily reflects higher tax assessments at certain of our comparable properties and our acquisition activity. 23 Table of Contents Other operating expenses. Other operating expenses primarily include repairs and maintenance, utilities, insurance, snow removal, legal and property management fees. The increase in other operating expenses is primarily due to our acquisition activity. The increase in other operating expenses at our comparable properties is primarily due to increases in insurance expense and repairs and maintenance costs during the 2020 period at certain of our comparable properties. Depreciation and amortization. The increase in depreciation and amortization primarily reflects our acquisition activity and an increase in depreciation of improvements made to certain of our properties after April 1, 2019, partially offset by certain leasing related assets becoming fully amortized in the 2020 period. General and administrative. General and administrative expenses primarily include fees paid under our business management agreement with RMR LLC, legal fees, audit fees, Trustee fees and expenses and equity compensation expense. The decrease in general and administrative expenses primarily reflects a decrease in professional fees, partially offset by an increase in business management fees as a result of our acquisition activity in the 2019 and 2020 periods. Interest income. Interest income represents interest earned on our cash balances. The decrease in interest income is primarily due to a decrease in average investable cash during the 2020 period as compared to the 2019 period. Interest expense. The decrease in interest expense in the 2020 period reflects a lower average outstanding indebtedness as compared to the 2019 period. Gain on early extinguishment of debt. We recorded a gain on early extinguishment of debt in connection with our prepayment of a mortgage note during the 2020 period. Income tax expense. Income tax expense reflects state income taxes payable in certain jurisdictions where we are subject to state income taxes. Equity in earnings of an investee. Equity in earnings of an investee represents our proportionate share of earnings from our investment in AIC. The decrease in equity in earnings of an investee is due to the dissolution of AIC in February 2020. Net income. The increase in net income for the 2020 period compared to the 2019 period reflects the changes noted above. Net loss attributable to noncontrolling interest. Net loss attributable to noncontrolling interest represents the net loss attributable to the 39% equity interest that we do not own in our joint venture for 12 of our Mainland Properties. Weighted average common shares outstanding - basic and diluted. The increase in weighted average common shares outstanding primarily reflects common shares awarded under our equity compensation plan since April 1, 2019. Net income attributable to common shareholders per common share - basic and diluted. The increase in net income attributable to common shareholders per common share reflects the changes to net income attributable to common shareholders and weighted average common shares noted above. 24 Table of Contents Six Months Ended June 30, 2020, Compared to Six Months Ended June 30, 2019 (dollars and share amounts in thousands, except per share data) Comparable Properties Results (1) Acquired Properties Results (2) Consolidated Results Six Months Ended June 30, Six Months Ended June 30, Six Months Ended June 30, $ % $ $ % 2020 2019 Change Change 2020 2019 Change 2020 2019 Change Change Rental income $ 89,906 $ 86,839 $ 3,067 3.5 % $ 39,482 $ 19,238 $ 20,244 $ 129,388 $ 106,077 $ 23,311 22.0 % Operating expenses: Real estate taxes 12,498 10,446 2,052 19.6 % 5,245 2,614 2,631 17,743 13,060 4,683 35.9 % Other operating expenses 6,680 6,391 289 4.5 % 3,542 1,193 2,349 10,222 7,584 2,638 34.8 % Total operating expenses 19,178 16,837 2,341 13.9 % 8,787 3,807 4,980 27,965 20,644 7,321 35.5 % Net operating income (3) $ 70,728 $ 70,002 $ 726 1.0 % $ 30,695 $ 15,431 $ 15,264 101,423 85,433 15,990 18.7 % Other expenses: Depreciation and amortization 36,815 26,320 10,495 39.9 % General and administrative 9,677 8,656 1,021 11.8 % Total other expenses 46,492 34,976 11,516 32.9 % Interest income 113 499 (386 ) (77.4 %) Interest expense (27,724 ) (21,520 ) (6,204 ) 28.8 % Gain on early extinguishment of debt 120 — 120 N/M Income before income tax expense and equity earnings of an investee 27,440 29,436 (1,996 ) (6.8 %) Income tax expense (189 ) (68 ) (121 ) 177.9 % Equity in earnings of an investee — 534 (534 ) N/M Net income 27,251 29,902 (2,651 ) (8.9 %) Net loss attributable to noncontrolling interest 416 — 416 N/M Net income attributable to common shareholders $ 27,667 $ 29,902 $ (2,235 ) (7.5 %) Weighted average common shares outstanding - basic 65,082 65,035 47 0.1 % Weighted average common shares outstanding - diluted 65,087 65,042 45 0.1 % Per common share data (basic and diluted): Net income attributable to common shareholders $ 0.42 $ 0.46 $ (0.04 ) (8.7 %) N/M - Not Meaningful (1) Consists of 270 buildings, leasable land parcels and easements that we owned continuously since January 1, 2019. (2) Consists of 31 properties that we acquired during the period from January 1, 2019 to June 30, 2020 . (3) See our definition of NOI and our reconciliation of net income to NOI below under the heading “Non-GAAP Financial Measures.” References to changes in the income and expense categories below relate to the comparison of results for the six months ended June 30, 2020 , compared to the six months ended June 30, 2019 . Our acquisition activity reflects our acquisition of 31 properties during the period from January 1, 2019 to June 30, 2020 . Rental income. The increase in rental income is primarily a result of our acquisition activity and increases from leasing activity and rent resets at certain of our comparable properties. Rental income includes non-cash straight line rent adjustments totaling approximately $4,063 for the 2020 period and approximately $2,981 for the 2019 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $404 for the 2020 period and approximately $820 for the 2019 period. Real estate taxes. The increase in real estate taxes primarily reflects our acquisition activity and higher tax assessments at certain of our comparable properties. 25 Table of Contents Other operating expenses. The increase in other operating expenses is primarily due to our acquisition activity. The increase in other operating expenses at our comparable properties is primarily due to increases in insurance expense, partially offset by a decrease in snow removal expenses during the 2020 period at certain of our comparable properties. Depreciation and amortization. The increase in depreciation and amortization primarily reflects our acquisition activity and an increase in depreciation of improvements made to certain of our properties after January 1, 2019, partially offset by certain leasing related assets becoming fully amortized in the 2020 period. General and administrative. The increase in general and administrative expenses primarily reflects an increase in business management fees as a result of our acquisition activity in the 2019 and 2020 periods. Interest income. The decrease in interest income is primarily due to a decrease in average investable cash during the 2020 period as compared to the 2019 period. Interest expense. The increase in interest expense in the 2020 period is primarily due to increased net borrowings used to fund our acquisition activity in the 2019 period. Gain on early extinguishment of debt. We recorded a gain on early extinguishment of debt in connection with our prepayment of a mortgage note during the 2020 period. Income tax expense. Income tax expense reflects state income taxes payable in certain jurisdictions where we are subject to state income taxes. Equity in earnings of an investee. Equity in earnings of an investee represents our proportionate share of earnings from our investment in AIC. The decrease in equity in earnings of an investee is due to the dissolution of AIC in February 2020. Net income. The decrease in net income for the 2020 period compared to the 2019 period reflects the changes noted above. Net loss attributable to noncontrolling interest. Net loss attributable to noncontrolling interest represents the net loss attributable to the 39% equity interest that we do not own in our joint venture for 12 of our Mainland Properties. Weighted average common shares outstanding - basic and diluted. The increase in weighted average common shares outstanding primarily reflects common shares awarded under our equity compensation plan since January 1, 2019. Net income attributable to common shareholders per common share - basic and diluted. The decrease in net income attributable to common shareholders per common share reflects the changes to net income attributable to common shareholders and weighted average common shares noted above. Non-GAAP Financial Measures We present certain “non-GAAP financial measures” within the meaning of applicable rules of the Securities and Exchange Commission, or SEC, including net operating income, or NOI, funds from operations, or FFO, attributable to common shareholders and Normalized FFO attributable to common shareholders. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income or net income attributable to common shareholders as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income and net income attributable to common shareholders as presented in our condensed consolidated statements of comprehensive income. We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income and net income attributable to common shareholders. We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties. 26 Table of Contents Net Operating Income We calculate NOI as shown below. We define NOI as income from our rental of real estate less our property operating expenses. The calculation of NOI excludes certain components of net income in order to provide results that are more closely related to our property level results of operations. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization expense. We use NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate NOI differently than we do. The following table presents the reconciliation of net income to NOI for the three and six months ended June 30, 2020 and 2019 (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Reconciliation of Net Income to NOI: Net income $ 14,557 $ 13,116 $ 27,251 $ 29,902 Equity in earnings of an investee — (130 ) — (534 ) Income tax expense 126 60 189 68 Income before income tax expense and equity earnings of an investee 14,683 13,046 27,440 29,436 Gain on early extinguishment of debt (120 ) — (120 ) — Interest expense 13,205 13,924 27,724 21,520 Interest income (2 ) (138 ) (113 ) (499 ) General and administrative 4,846 4,856 9,677 8,656 Depreciation and amortization 18,525 16,709 36,815 26,320 NOI $ 51,137 $ 48,397 $ 101,423 $ 85,433 NOI: Hawaii Properties $ 19,783 $ 19,385 $ 39,301 $ 38,994 Mainland Properties 31,354 29,012 62,122 46,439 NOI $ 51,137 $ 48,397 $ 101,423 $ 85,433 Funds From Operations and Normalized Funds From Operations Attributable to Common Shareholders We calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders as shown below. FFO attributable to common shareholders is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income attributable to common shareholders, calculated in accordance with GAAP, plus real estate depreciation and amortization and minus FFO adjustments attributable to noncontrolling interest, as well as certain other adjustments currently not applicable to us. In calculating Normalized FFO attributable to common shareholders, we adjust for the items shown below, if any, and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. FFO attributable to common shareholders and Normalized FFO attributable to common shareholders are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our distribution rate as a percentage of the trading price of our common shares, or dividend yield, and our dividend yield compared to the dividend yields of other industrial REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. Other real estate companies and REITs may calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders differently than we do. 27 Table of Contents The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net income attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three and six months ended June 30, 2020 and 2019 (dollars in thousands, except per share data): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Reconciliation of Net Income attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders: Net income attributable to common shareholders $ 14,821 $ 13,116 $ 27,667 $ 29,902 Depreciation and amortization 18,525 16,709 36,815 26,320 FFO adjustments attributable to noncontrolling interest (2,657 ) — (3,634 ) — FFO attributable to common shareholders 30,689 29,825 60,848 56,222 Gain on early extinguishment of debt (120 ) — (120 ) — Normalized FFO attributable to common shareholders $ 30,569 $ 29,825 $ 60,728 $ 56,222 Per common share data (basic and diluted) FFO attributable to common shareholders and Normalized FFO attributable to common shareholders $ 0.47 $ 0.46 $ 0.93 $ 0.86 LIQUIDITY AND CAPITAL RESOURCES Our Operating Liquidity and Resources (dollars in thousands) Our principal sources of funds to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders are rents from tenants at our properties and borrowings under our revolving credit facility. We believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter based on our current expectations, including impacts from the COVID-19 pandemic and current economic downturn on us and our tenants and their willingness and ability to pay us rent when due. Our future cash flows from operating activities will depend primarily upon our ability to: • collect rents from our tenants when due; • maintain the occupancy of, and maintain or increase the rental rates at, our properties; • control our operating cost increases; and • purchase additional properties that produce cash flows in excess of our costs of acquisition capital and property operating expenses. We are carefully monitoring the developments of the COVID-19 pandemic and its impact on our tenants and our other stakeholders. With $320,000 of availability under our revolving credit facility as of July 27, 2020 , no debt maturities during the remainder of 2020, 74.3% of our annualized rental revenues derived from investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases and only 3.0% of our annualized rental revenues as of June 30, 2020 from expiring leases over the next 12 months, we believe that we are currently well positioned to weather the present disruptions facing the real estate industry. Further, we are hopeful that our focus on industrial and logistics properties will enable us and our tenants to outperform the broader commercial and real estate industry if the demand for e-commerce continues at levels consistent with the demand since the COVID-19 pandemic materialized in the United States during the first quarter of 2020. However, even if that occurs, we expect that some of our tenants may experience significant downturns with respect to their businesses and liquidity. As a result of the COVID-19 pandemic and its resulting economic harm, certain of our tenants have requested relief from their obligations to pay rent due to us. We evaluate these requests on a tenant by tenant basis. As of July 27, 2020 , we have granted requests to certain of our tenants to defer rent payments aggregating $ 2,799 for leases that represent approximately 8.2% of our annualized rental revenues as of June 30, 2020 . These tenants will be obligated to pay, in most cases, the deferred rents in 12 equal monthly installments commencing in September 2020 . As of June 30, 2020, we recognized an increase in our accounts receivable balance related to these deferred rent payments of $2,317 . 28 Table of Contents We expect to receive additional similar requests in the future, particularly if the current economic conditions do not continue to improve or if they worsen for an extended period. We may determine to grant additional relief in the future, which may vary from the type of relief we have granted to date, and could include more substantial relief, if we determine it prudent or appropriate to do so. In addition, if any of our tenants are unable to continue as going concerns as a result of the current economic conditions or otherwise, we will experience a reduction in rents received and we may be unable to find suitable replacement tenants for an extended period or at all and the terms of our leases with those replacement tenants may not be as favorable to us as the terms of our agreements with our existing tenants. Further, we do not know whether there will be any additional government funding programs in response to the COVID-19 pandemic and its aftermath and, if so, whether any of our tenants will qualify for, and receive assistance from any such government programs and, if they do, whether that assistance will be sufficient to enable them to pay rent to us. As a result of the uncertainties surrounding the COVID-19 pandemic and the duration and severity of the current economic downturn, we are unable to determine the ultimate impact on our tenants and their ability and willingness to pay us rent. As a result of the uncertainties surrounding the COVID-19 pandemic, we are unable to currently assess any additional impact this pandemic will have on our future cash flows. The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our condensed consolidated statements of cash flows (dollars in thousands): Six Months Ended June 30, 2020 2019 Cash and cash equivalents and restricted cash at beginning of period $ 34,550 $ 9,608 Net cash provided by (used in): Operating activities 62,899 64,532 Investing activities (74,430 ) (855,296 ) Financing activities 23,940 796,506 Cash and cash equivalents and restricted cash at end of period $ 46,959 $ 15,350 The decrease in net cash provided by operating activities for the six months ended June 30, 2020 compared to the same period in the prior year is primarily due to changes in our working capital, partially offset by an increase in consolidated property NOI due to our property acquisitions since July 1, 2019. Net cash used in investing activities for the six months ended June 30, 2020 decreased primarily due to the acquisitions of 28 properties in the 2019 period as compared to the acquisition of one property in the 2020 period. The decrease in net cash provided by financing activities for the six months ended June 30, 2020 compared to the same period in the prior year is primarily due to net proceeds from our mortgage financing and borrowings under our revolving credit facility to fund acquisitions in the 2019 period compared to the proceeds we received from our joint venture transaction in the 2020 period, partially offset by the prepayment of a mortgage note in the 2020 period. Our Investment and Financing Liquidity and Resources (dollars in thousands, except per share and per square foot data) Our future acquisition or development activity cannot be accurately projected because such activity depends upon available opportunities that come to our attention and upon our ability to successfully acquire, develop and operate properties, financing available to us, our cost of capital, other commitments we have made and alternative uses for the amounts that would be required for the acquisition or development, the extent of our leverage, and the expected impact of the acquisition or development on our debt covenants and certain other financial metrics. Further, the COVID-19 pandemic has resulted in a reduction in investment activity generally and we may be limited in pursuing investments in the current uncertain economic conditions until economic conditions become more stable. We generally do not intend to purchase “turn around” properties, or properties that do not generate positive cash flows, and, to the extent we conduct construction or redevelopment activities on our properties, we currently intend to conduct those activities primarily to satisfy tenant requirements or on a build to suit basis for existing or new tenants. 29 Table of Contents As of June 30, 2020 , we had unrestricted cash and cash equivalents of $ 33,256 . To maintain our qualification for taxation as a REIT under the Internal Revenue Code of 1986, as amended, we generally are required to distribute annually at least 90% of our REIT taxable income, subject to specified adjustments and excluding any net capital gain. This distribution requirement limits our ability to retain earnings and thereby provide capital for our operations or acquisitions. In order to fund cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions, to pay operating or capital expenses or to fund any future property acquisitions, development or redevelopment efforts, we maintain a $750,000 unsecured revolving credit facility with a group of lenders. The maturity date of our revolving credit facility is December 29, 2021. We have the option to extend the maturity date of our revolving credit facility for two, six month periods, subject to payment of extension fees and satisfaction of other conditions. We pay interest on borrowings under our revolving credit facility at the rate of LIBOR plus a premium that varies based on our leverage ratio. We are required to pay a commitment fee on the unused portion of our revolving credit facility. At June 30, 2020 , the interest rate premium on our revolving credit facility was 140 basis points and our commitment fee was 25 basis points. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. As of June 30, 2020 , the annual interest rate payable on borrowings under our revolving credit facility was 1.59% . As of June 30, 2020 and July 27, 2020 , we had $ 320,000 outstanding under our revolving credit facility, and $ 430,000 available to borrow under our revolving credit facility. Our credit agreement includes a feature under which the maximum borrowing availability under the facility may be increased to up to $1,500,000 in certain circumstances. As of June 30, 2020 , our debt maturities (other than our revolving credit facility), include mortgage notes with an aggregate principal amount of $1,056,980 , as follows: Debt Maturity 2023 (1) 56,980 2029 (2) 1,000,000 Total $ 1,056,980 (1) The property encumbered by this mortgage is owned by a joint venture in which we own a 61% equity interest. (2) The properties encumbered by the $350,000 mortgage loan we obtained in October 2019 are owned by a joint venture in which we own a 61% equity interest. In February and March 2020, we entered into agreements related to the formation of a joint venture for 12 of our Mainland Properties. We received proceeds from the investor in an aggregate amount of $108,266, which includes certain costs associated with the formation of the joint venture, for a 39% equity interest in the joint venture and we retained the remaining 61% equity interest in the joint venture. The investment amount is based on an aggregate property valuation of $680,000, less $406,980 of existing mortgage debts on the properties at the time of the investment that the joint venture assumed. In February 2020, we formed the joint venture with 11 of the 12 properties and the investor initially paid us $82,035, and in March 2020, the twelfth property was added to the joint venture and the investor contributed an additional $26,231. We used the net proceeds from this transaction to reduce outstanding borrowings under our revolving credit facility. We may sell additional properties to the joint venture or sell some of our equity interests in the joint venture to additional investors as a source of financing in the future. In addition, this joint venture may issue additional equity interests to other investors. Further, we may seek to enter new joint ventures; however, the current economic conditions may delay, limit or prevent our ability or willingness to enter additional joint ventures. We expect to use borrowings under our revolving credit facility and net proceeds from offerings of equity or debt securities to fund any future property acquisitions, development or redevelopment efforts. We may also assume mortgage notes in connection with future acquisitions. When significant amounts are outstanding under our revolving credit facility or the maturities of our revolving credit facility or our other debt approach, we intend to explore refinancing alternatives. Such alternatives may include incurring term debt, obtaining financing secured by mortgages on properties we own, issuing new equity or debt securities, extending the maturity date of our revolving credit facility, participating in joint ventures or selling properties. We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but we cannot be sure that there will be purchasers for such securities. Although we cannot be sure that we will be successful in completing any particular type of financing, we believe that we will have access to financing, such as debt or equity offerings, to fund capital expenditures, future acquisitions, development, redevelopment and other activities and to pay our obligations. 30 Table of Contents The completion and the costs of any future financings will depend primarily upon our success in operating our business and upon market conditions. In particular, the feasibility and cost of any future debt financings will depend primarily on our then current credit qualities and on market conditions. We have no control over market conditions. Potential lenders in future debt transactions will evaluate our ability to fund required debt service and repay principal balances when they become due by reviewing our financial condition, results of operations, business practices and plans and our ability to maintain our earnings, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. We intend to conduct our business activities in a manner which will afford us reasonable access to capital for investment and financing activities. However, as noted elsewhere in this Quarterly Report on Form 10-Q, it is uncertain what the duration and severity of the current economic downturn resulting from the COVID-19 pandemic will be. A protracted and extensive downturn may have various negative consequences, including a decline in financing availability and increased costs for financing. Further, such conditions could also disrupt capital markets and limit our access to financing from public sources, particularly if the global financial markets experience significant disruptions. During the six months ended June 30, 2020 , we paid quarterly cash distributions to our shareholders totaling $43,021 using existing cash balances and borrowings under our revolving credit facility. For more information regarding the distribution we paid in 2020, see Note 7 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. On July 16, 2020, we declared a regular quarterly distribution of $0.33 per common share, or approximately $21,500 , to shareholders of record on July 27, 2020. We expect to pay this distribution on or about August 20, 2020 using existing cash balances and borrowings under our revolving credit facility. During the three and six months ended June 30, 2020 and 2019, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows: Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Tenant improvements (1) $ 344 $ — $ 448 $ — Leasing costs (2) — 238 189 394 Building improvements (3) 741 1,834 1,978 1,893 Development, redevelopment and other activities (4) — 2,553 1 2,713 $ 1,085 $ 4,625 $ 2,616 $ 5,000 (1) Tenant improvements include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space. (2) Leasing costs include leasing related costs, such as brokerage commissions and tenant inducements. (3) Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets. (4) Development, redevelopment and other activities generally include capital expenditure projects that (i) reposition a property or (ii) result in new sources of revenue. As of June 30, 2020 , we had estimated unspent leasing related obligations of $561 . 31 Table of Contents During the three months ended June 30, 2020 , commitments made for expenditures, such as tenant improvements and leasing costs in connection with leasing space, were as follows: New Leases Renewals Totals Square feet leased during the period (in thousands) — 314 314 Total leasing costs and concession commitments (1) $ — $ 229 $ 229 Total leasing costs and concession commitments per square foot (1) $ — $ 0.73 $ 0.73 Weighted average lease term by square feet (years) — 20.1 20.1 Total leasing costs and concession commitments per square foot per year (1) $ — $ 0.04 $ 0.04 (1) Includes commitments made for leasing expenditures and concessions, such as leasing commissions, tenant improvements or other tenant inducements. Off Balance Sheet Arrangements As of June 30, 2020 , we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Debt Covenants (dollars in thousands) Our principal debt obligations at June 30, 2020 were borrowings outstanding under our revolving credit facility, a $650,000 mortgage loan obtained in January 2019 that is secured by 186 of our properties, a $350,000 mortgage loan obtained in October 2019 that is secured by 11 properties that are owned by a joint venture in which we own a 61% equity interest, and a $56,980 mortgage note that is secured by another property owned by such joint venture, subject to certain limitations. The $650,000 mortgage loan agreement contains certain exceptions to the general non-recourse provisions that obligate us to indemnify the lenders for certain potential environmental losses relating to hazardous materials and violations of environmental law. Our credit agreement provides for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as a change of control of us, which includes RMR LLC ceasing to act as our business and property manager. Our credit agreement contains covenants, including those that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, restrict our ability to make distributions to our shareholders in certain circumstances and generally require us to maintain certain financial ratios. As of June 30, 2020 , we believe we were in compliance with all the covenants and other terms under our credit agreement. Our credit agreement does not contain provisions for acceleration which could be triggered by our leverage ratio. However, under our credit agreement, our leverage ratio is used to determine the interest rates for calculating the amount of interest payable on outstanding borrowings and the fees we pay. Accordingly, if our leverage ratio increases above the applicable thresholds, our interest expense and related costs under our credit agreement would increase. Our revolving credit facility has cross default provisions to other indebtedness that is recourse of $25,000 or more and indebtedness that is non-recourse of $50,000 or more. The loan agreements governing our mortgage loans contain customary covenants and provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default. In addition, pursuant to the loan agreement and related documents governing our $650,000 mortgage loan, we are required to maintain a minimum consolidated net worth of at least $250,000 and liquidity of at least $15,000. As of June 30, 2020 , we believe we were in compliance with all the covenants and other terms under the agreements governing our mortgage notes. 32 Table of Contents Related Person Transactions We have relationships and historical and continuing transactions with RMR LLC, RMR Inc. and others related to them. For example: we have no employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC; RMR Inc. is the managing member of RMR LLC; Adam Portnoy, the Chair of our Board of Trustees and one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC; John Murray, our other Managing Trustee and our President and Chief Executive Officer, also serves as an officer and employee of RMR LLC, and each of our other officers is also an officer and employee of RMR LLC. We have relationships and historical and continuing transactions with other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also trustees, directors or officers of us, RMR LLC or RMR Inc. and some of our Trustees and officers serve as trustees, directors or officers of these companies. For further information about these and other such relationships and related person transactions, see Notes 9 and 10 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2019 Annual Report, our definitive Proxy Statement for our 2020 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” of our 2019 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related persons, including our business and property management agreements with RMR LLC and our various agreements with OPI, are available as exhibits to our public filings with the SEC and accessible at the SEC’s website, www.sec.gov. We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.