What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-28 compared with 2020-07-29 · 227 added, 153 removed, 342 unchanged (53% of the section changed)

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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.

States and municipalities across the United States have generally allowed most businesses to re-open and have generally eased certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time, although some states and municipalities have imposed or re-imposed certain restrictions in response to increases in COVID-19 infections experienced since then.

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.

economy has increasingly improved since the lowest periods experienced in March and April 2020, although some recent data indicate a slowing in those improvements.

It is unclear whether the increases in the number of COVID-19 infections will continue or amplify 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.

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, continued or worsening economic conditions, demand for e-commerce may also decline.

If that occurs, our tenants and their businesses may become negatively impacted, which may result in our tenants seeking assistance from us regarding their rent obligations owed to us, their being unable 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 tenants and their ability to withstand the current, and possible future deteriorating, economic conditions and ability to pay us rent;

• our operations, liquidity and capital needs and resources;

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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:

As of October 26, 2020, we had:

• $457,000 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;

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;

only 3.0% of our annualized rental revenues, as of June 30, 2020 , scheduled to expire over the next 12 months.

• 75.7% of our annualized rental revenues, as of September 30, 2020, derived from investment grade rated tenants, subsidiaries of investment grade rated parent entities or Hawaii land leases;

• only 3.3% of our annualized rental revenues, as of September 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.

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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.

As of October 23, 2020, we granted requests to certain of our tenants to defer aggregate rent payments of $3,578 with respect to leases that represent, as of September 30, 2020, approximately 8.6% of our annualized rental revenues.

As of September 30, 2020, we recognized $2,847 in our accounts receivable related to these deferred amounts.

In most cases, these tenants were obligated to pay the deferred rents in 12 equal monthly installments beginning in September 2020.

These deferred amounts did not negatively impact our financial results for the three and nine months ended September 30, 2020, and will continue to be reflected in our financial results in the applicable future reporting periods, assuming these tenants continue to pay the deferred rents due to us.

For the three months ended September 30, 2020, we collected approximately 98.4% of our contractual rents due after giving effect to such rent deferrals.

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.

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• 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;

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.

• the responses of governments, businesses and the general public to any increased level or rates of COVID-19 infections.

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.

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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.

As of September 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 September 30, 2020, our properties were approximately 98.8% leased (based on rentable square feet) to 264 different tenants with a weighted average remaining lease term (based on annualized rental revenues) of approximately 9.0 years.

We define the term annualized rental revenues as used in this section as the annualized contractual rents, as of September 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 and one property classified as held for sale as of September 30, 2020.

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 September 30, 2020, 98.8% of our rentable square feet was leased, compared to 99.5% of our rentable square feet as of September 30, 2019.

Occupancy data for our properties as of September 30, 2020 and 2019 is as follows (square feet in thousands):

All Properties Comparable Properties (1)

As of September 30, As of September 30,

2020 2019 2020 2019

Total properties 301 300 269 269

Total rentable square feet (2)

43,759 42,745 29,343 29,149

Percent leased (3)

Consists of properties that we owned continuously since January 1, 2019.

98.8 % 99.5 % 98.4 % 99.3 %

(1) Consists of properties that we owned continuously since January 1, 2019 and excludes one property classified as held for sale.

(2) Subject to modest adjustments when space is remeasured or reconfigured for new tenants and when land leases are converted to building leases.

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,

(3) Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of September 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 nine months ended September 30, 2020 and 2019 are as follows:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Average effective rental rates per square foot leased:

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Comparable properties (2)

$ 6.04 $ 5.78 $ 6.18 $ 5.92

(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.

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.

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 Rented

Rental Revenues

Period / Year

(2) Comparable properties for the three months ended September 30, 2020 and 2019 consist of 297 buildings, leasable land parcels and easements that we owned continuously since July 1, 2019 and exclude one property classified as held for sale.

Comparable properties for the nine months ended September 30, 2020 and 2019 consist of 269 buildings, leasable land parcels and easements that we owned continuously since January 1, 2019 and exclude one property classified as held for sale.

During the three months ended September 30, 2020, we entered new and renewal leases for approximately 486,000 square feet at weighted average (by square feet) rental rates that were approximately 7.9% 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).

Commitments for tenant improvements, leasing costs and concessions for leases entered during the three months ended September 30, 2020 totaled $927,000, or approximately $0.44 per square foot per year of the new weighted average lease term.

Also, during the three months ended September 30, 2020, we completed rent resets for approximately 290,000 square feet of land at our Hawaii Properties at rent rates that were approximately 15.6% higher than the prior rental rates.

As shown in the table below, approximately 0.2% of both our total rented square feet and our total annualized rental revenues as of September 30, 2020 are included in leases scheduled to expire by December 31, 2020.

As of September 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 Expiring Expiring

10/1/2020-12/31/2020 5 67 0.2 % 0.2 % $ 474 0.2 % 0.2 %

2021 26 2,379 5.5 % 5.7 % 13,150 5.1 % 5.3 %

2022 64 2,946 6.8 % 12.5 % 21,057 8.2 % 13.5 %

2023 28 2,534 5.9 % 18.4 % 16,360 6.4 % 19.9 %

2024 30 10,253 23.7 % 42.1 % 43,711 17.0 % 36.9 %

2025 15 2,557 5.9 % 48.0 % 14,647 5.7 % 42.6 %

2026 5 956 2.2 % 50.2 % 6,501 2.5 % 45.1 %

2027 12 5,768 13.3 % 63.5 % 30,049 11.7 % 56.8 %

2028 20 2,888 6.7 % 70.2 % 20,462 8.0 % 64.8 %

2029 9 2,715 6.3 % 76.5 % 14,650 5.7 % 70.5 %

Thereafter 85 10,154 23.5 % 100.0 % 75,760 29.5 % 100.0 %

Total 299 43,217 100.0 % $ 256,821 100.0 %

Weighted average remaining lease term (in years):

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:

(1) Rented square feet is pursuant to existing leases as of September 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 September 30, 2020 scheduled to reset at our Hawaii Properties:

Scheduled Rent Resets at Hawaii Properties

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Rental Revenues as of

June 30, 2020

September 30, 2020

Scheduled to Reset

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2025 and thereafter 20,105

Total $ 31,447

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):

Annualized Rental

As of September 30, 2020, tenants representing 1% or more of our total annualized rental revenues were as follows (square feet in thousands):

of Rented % of Total Annualized Rental

Tenant States Properties Sq.

1 Amazon.com Services, Inc.

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AR, CO, HI, IA, ID, IL, MN, MO, NC, ND, NV, OH, OK, UT 17 952 2.2 % 3.7 %

The Procter & Gamble Distributing LLC

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.

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6 UPS Supply Chain Solutions Inc.

Par Hawaii Refining, LLC

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.

Shurtech Brands, LLC

NJ 1 634 1.5 % 1.4 %

13 Shurtech Brands, LLC OH 1 645 1.5 % 1.4 %

14 Coca-Cola Bottling of Hawaii, LLC HI 4 351 0.8 % 1.3 %

15 Safeway Inc.

HI 2 146 0.3 % 1.3 %

16 Manheim Remarketing, Inc.

The Toro Company

HI 1 338 0.8 % 1.2 %

SC 1 945 2.2 % 1.2 %

18 The Toro Company IA 1 644 1.5 % 1.2 %

19 Trex Company, Inc.

NV, VA 2 646 1.5 % 1.2 %

Kilgo Company, Inc.

HI 5 310 0.7 % 1.2 %

21 Avnet, Inc.

OH 1 581 1.3 % 1.2 %

22 Cummins Inc.

KY 1 604 1.4 % 1.1 %

23 Warehouse Rentals Inc.

Whirlpool Corporation

Coca-Cola Bottling of Hawaii, LLC

HI 5 278 0.6 % 1.0 %

24 Whirlpool Corporation IN 1 805 1.9 % 1.0 %

Total 68 24,754 57.2 % 53.6 %

Mainland Properties.

As of June 30, 2020 , our Mainland Properties represented approximately 59.3% of our annualized rental revenues.

As of September 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.

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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.

As of September 30, 2020, our Hawaii Properties represented approximately 40.7% of our annualized rental revenues.

As of September 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.

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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

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.

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 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.

As of September 30, 2020, $8,425, or 3.3%, of our annualized rental revenues are due to expire through September 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.

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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 .

During the nine months ended September 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.

In September 2020, we entered into an agreement to sell one property located in Virginia, for a gross sales price of $11,000, excluding closing costs.

This sale is expected to occur during the fourth quarter of 2020.

However, this sale is subject to conditions;

accordingly, we cannot be sure that we will complete this sale, that this sale will not be delayed or the terms will not change.

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.

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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.

During the three and nine months ended September 30, 2020, the joint venture made aggregate cash distributions of $5,402 and $10,269, respectively, including $2,107 and $4,005, respectively, 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.

As a result of the prepayment of this mortgage note, we recorded a gain on early extinguishment of debt of $120 for the nine months ended September 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.

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)

Three Months Ended September 30, 2020, Compared to Three Months Ended September 30, 2019 (dollars and share amounts in thousands, except per share data)

Comparable Properties Results (1)

Acquired Properties Results (2)

Non-Comparable Properties Results (2)

Consolidated Results

Three Months Ended June 30,

Three Months Ended September 30, Three Months Ended September 30, Three Months Ended September 30,

2020 2019 Change Change 2020 2019 Change 2020 2019 Change Change

Rental income $ 62,932 $ 60,354 $ 2,578 4.3 % $ 2,174 $ 604 $ 1,570 $ 65,106 $ 60,958 $ 4,148 6.8 %

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Real estate taxes 8,826 8,563 263 3.1 % 210 23 187 9,036 8,586 450 5.2 %

Other operating expenses

Total operating expenses

Other operating

expenses 5,267 4,748 519 10.9 % 244 73 171 5,511 4,821 690 14.3 %

Total operating

expenses 14,093 13,311 782 5.9 % 454 96 358 14,547 13,407 1,140 8.5 %

Net operating income (3)

$ 48,839 $ 47,043 $ 1,796 3.8 % $ 1,720 $ 508 $ 1,212 50,559 47,551 3,008 6.3 %

Other expenses:

Depreciation and amortization 18,488 17,568 920 5.2 %

Acquisition and certain other transaction related costs 178 — 178 N/M

General and administrative 5,180 4,475 705 15.8 %

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Interest expense (12,886) (14,687) 1,801 (12.3 %)

Gain on early extinguishment of debt

Income before income tax expense and equity earnings of an investee 13,827 10,902 2,925 26.8 %

Income tax expense (13) (63) 50 (79.4 %)

Equity in earnings of an investee

Net loss attributable to noncontrolling interest

Equity in earnings of an investee — 83 (83) N/M

Net income 13,814 10,922 2,892 26.5 %

Net loss attributable to noncontrolling interest 275 — 275 N/M

Net income attributable to common shareholders $ 14,089 $ 10,922 $ 3,167 29.0 %

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N/M - Not Meaningful

Consists of 277 buildings, leasable land parcels and easements that we owned continuously since April 1, 2019.

Consists of 24 properties that we acquired during the period from April 1, 2019 to June 30, 2020 .

(1) Consists of 297 buildings, leasable land parcels and easements that we owned continuously since July 1, 2019 and excludes one property classified as held for sale as of September 30, 2020.

(2) Consists of three properties that we acquired during the period from July 1, 2019 to September 30, 2020 and one property classified as held for sale as of September 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 .

References to changes in the income and expense categories below relate to the comparison of results for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

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.

Rental income includes non-cash straight line rent adjustments totaling approximately $2,120 for the 2020 period and approximately $979 for the 2019 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $202 for the 2020 period and approximately $182 for the 2019 period.

Real estate taxes.

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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.

The increase in other operating expenses is primarily due to increases in insurance expense and repairs and maintenance costs during the 2020 period at certain of our comparable properties and our acquisition activity.

Acquisition and certain other transaction related costs.

Acquisition and certain other transaction related costs consist of costs related to acquisitions that were not completed.

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.

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 July 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.

The increase in general and administrative expenses is primarily due to increases in professional fees and business management fees as a result of our acquisition activity in the 2020 and 2019 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.

The decrease in interest income is primarily due to a decrease in average investable cash and lower interest rates earned on invested 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.

The decrease in interest expense in the 2020 period is primarily due to a lower weighted average interest rate on outstanding indebtedness as compared to the 2019 period and the prepayment of a $48,750 mortgage loan during the 2020 period.

Income tax expense.

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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.

The increase in weighted average common shares outstanding primarily reflects common shares awarded under our equity compensation plan since July 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.

Six Months Ended June 30, 2020, Compared to Six Months Ended June 30, 2019 (dollars and share amounts in thousands, except per share data)

Nine Months Ended September 30, 2020, Compared to Nine Months Ended September 30, 2019 (dollars and share amounts in thousands, except per share data)

Comparable Properties Results (1)

Acquired Properties Results (2)

Non-Comparable Properties Results (2)

Consolidated Results

Six Months Ended June 30,

Nine Months Ended September 30, Nine Months Ended September 30, Nine Months Ended September 30,

2020 2019 Change Change 2020 2019 Change 2020 2019 Change Change

Rental income $ 133,794 $ 128,190 $ 5,604 4.4 % $ 60,700 $ 38,845 $ 21,855 $ 194,494 $ 167,035 $ 27,459 16.4 %

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Real estate taxes

18,811 16,565 2,246 13.6 % 7,968 5,081 2,887 26,779 21,646 5,133 23.7 %

Other operating expenses

10,199 9,541 658 6.9 % 5,534 2,864 2,670 15,733 12,405 3,328 26.8 %

Total operating expenses

29,010 26,106 2,904 11.1 % 13,502 7,945 5,557 42,512 34,051 8,461 24.8 %

Net operating income (3)

$ 104,784 $ 102,084 $ 2,700 2.6 % $ 47,198 $ 30,900 $ 16,298 151,982 132,984 18,998 14.3 %

Other expenses:

Depreciation and amortization

55,303 43,888 11,415 26.0 %

Acquisition and certain other transaction related costs 178 — 178 N/M

General and administrative

14,857 13,131 1,726 13.1 %

Total other expenses 70,338 57,019 13,319 23.4 %

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Interest expense (40,610) (36,207) (4,403) 12.2 %

Gain on early extinguishment of debt

Gain on early extinguishment of debt 120 — 120 N/M

Income before income tax expense and equity earnings of an investee 41,267 40,338 929 2.3 %

Income tax expense (202) (131) (71) 54.2 %

Equity in earnings of an investee

Net loss attributable to noncontrolling interest

Equity in earnings of an investee — 617 (617) N/M

Net income 41,065 40,824 241 0.6 %

Net loss attributable to noncontrolling interest 691 — 691 N/M

Net income attributable to common shareholders $ 41,756 $ 40,824 $ 932 2.3 %

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N/M - Not Meaningful

Consists of 270 buildings, leasable land parcels and easements that we owned continuously since January 1, 2019.

Consists of 31 properties that we acquired during the period from January 1, 2019 to June 30, 2020 .

(1) Consists of 269 buildings, leasable land parcels and easements that we owned continuously since January 1, 2019 and excludes one property classified as held for sale as of September 30, 2020.

(2) Consists of 31 properties that we acquired during the period from January 1, 2019 to September 30, 2020 and one property classified as held for sale as of September 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 .

References to changes in the income and expense categories below relate to the comparison of results for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.

Rental income.

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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.

The increase in other operating expenses at our comparable properties is primarily due to an increase 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.

Acquisition and certain other transaction related costs.

Acquisition and certain other transaction related costs consist of costs related to acquisitions that were not completed.

General and administrative.

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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.

The decrease in interest income is primarily due to a decrease in average investable cash and lower interest rates earned on invested 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.

The increase in interest expense is primarily due to higher average outstanding indebtedness, partially offset by a lower weighted average interest rate on outstanding indebtedness, during the 2020 period as compared to the 2019 period.

Gain on early extinguishment of debt.

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The decrease in equity in earnings of an investee is due to the dissolution of AIC in February 2020.

The decrease in net income for the 2020 period compared to the 2019 period reflects the changes noted above.

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.

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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

Six Months Ended June 30,

The following table presents the reconciliation of net income to NOI for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Reconciliation of Net Income to NOI:

Net income $ 13,814 $ 10,922 $ 41,065 $ 40,824

Equity in earnings of an investee — (83) — (617)

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Interest income — (81) (113) (580)

Acquisition and certain other transaction related costs 178 — 178 —

General and administrative 5,180 4,475 14,857 13,131

Depreciation and amortization 18,488 17,568 55,303 43,888

NOI $ 50,559 $ 47,551 $ 151,982 $ 132,984

Hawaii Properties $ 19,273 $ 17,821 $ 58,573 $ 56,815

Mainland Properties 31,286 29,730 93,409 76,169

NOI $ 50,559 $ 47,551 $ 151,982 $ 132,984

Funds From Operations and Normalized Funds From Operations Attributable to Common Shareholders

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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 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.

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

Six Months Ended June 30,

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 nine months ended September 30, 2020 and 2019 (dollars in thousands, except per share data):

Three Months Ended September 30, Nine Months Ended September 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:

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FFO attributable to common shareholders 29,939 28,490 90,787 84,712

Acquisition and certain other transaction related costs 178 — 178 —

Gain on early extinguishment of debt — — (120) —

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Per common share data (basic and diluted)

FFO attributable to common shareholders and Normalized FFO attributable to common shareholders

FFO attributable to common shareholders $ 0.46 $ 0.44 $ 1.39 $ 1.30

Normalized FFO attributable to common shareholders $ 0.46 $ 0.44 $ 1.40 $ 1.30

LIQUIDITY AND CAPITAL RESOURCES

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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:

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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.

With $457,000 of availability under our revolving credit facility as of October 26, 2020, no debt maturities during the remainder of 2020, 75.7% 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 3.3% of our annualized rental revenues as of September 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.

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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 .

We evaluate these requests on a

tenant by tenant basis.

As of October 23, 2020, we have granted requests to certain of our tenants to defer aggregate rent payments of $3,578 for leases that represent approximately 8.6% of our annualized rental revenues as of September 30, 2020.

In most cases, these tenants were obligated to pay the deferred rents in 12 equal monthly installments beginning in September 2020.

As of September 30, 2020, we recognized $2,847 in our accounts receivable related to these deferred amounts.

For the three months ended September 30, 2020, we collected approximately 98.4% of our contractual rents due after giving effect to such rent deferrals.

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.

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 may experience a reduction in rents received and we may be unable to find suitable replacement tenants for an extended period or at all.

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.

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,

Nine Months Ended September 30,

Cash and cash equivalents and restricted cash at beginning of period $ 34,550 $ 9,608

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Cash and cash equivalents and restricted cash at end of period $ 51,911 $ 23,336

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.

The increase in net cash provided by operating activities for the nine months ended September 30, 2020 compared to the same period in the prior year is primarily due to an increase in consolidated property NOI due to our property acquisitions since January 1, 2019, partially offset by a decrease in working capital in the 2020 period.

Net cash used in investing activities for the nine months ended September 30, 2020 decreased primarily due to the acquisitions of 30 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 nine months ended September 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.

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.

As of September 30, 2020, we had unrestricted cash and cash equivalents of $39,105.

To maintain our qualification for taxation as a REIT under the Internal Revenue Code of 1986, as amended, we generally are required to distribute at least 90% of our REIT taxable income annually, 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.

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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.

At September 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.

As of September 30, 2020, the annual interest rate payable on borrowings under our revolving credit facility was 1.56%.

As of September 30, 2020 and October 26, 2020, we had $320,000 and $293,000, respectively, outstanding under our revolving credit facility, and $430,000 and $457,000, respectively, 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:

As of September 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

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.

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 $108,676, 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.

We used the net proceeds from this transaction to reduce outstanding borrowings under our revolving credit facility.

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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.

During the nine months ended September 30, 2020, we paid quarterly cash distributions to our shareholders totaling $64,540 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

Tenant improvements (1)

Leasing costs (2)

On October 15, 2020, we declared a regular quarterly distribution of $0.33 per common share, or approximately $21,550, to shareholders of record on October 26, 2020.

We expect to pay this distribution on or about November 19, 2020 using existing cash balances and borrowings under our revolving credit facility.

During the three and nine months ended September 30, 2020 and 2019, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows:

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Tenant improvements and leasing costs (1)

$ 242 $ 495 $ 879 $ 889

Building improvements (2)

1,000 1,093 2,978 2,986

Development, redevelopment and other activities (3)

Tenant improvements include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space.

Leasing costs include leasing related costs, such as brokerage commissions and tenant inducements.

10 5,208 11 7,921

$ 1,252 $ 6,796 $ 3,868 $ 11,796

(1) Tenant improvements and leasing costs include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space and leasing related costs, such as brokerage commissions and tenant inducements.

(2) Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets.

(3) 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 .

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:

As of September 30, 2020, we had estimated unspent leasing related obligations of $499.

During the three and nine months ended September 30, 2020, commitments made for expenditures, such as tenant improvements and leasing costs in connection with leasing space, were as follows:

Three Months Ended September 30, 2020

New Leases Renewals Totals

Square feet leased during the period (in thousands) 41 445 486

Total leasing costs and concession commitments (1)

$ 237 $ 690 $ 927

Total leasing costs and concession commitments per square foot (1)

$ 5.78 $ 1.55 $ 1.91

Weighted average lease term by square feet (years) 14.7 3.4 4.4

Total leasing costs and concession commitments per square foot per year (1)

$ 0.39 $ 0.46 $ 0.44

Nine Months Ended September 30, 2020

New Leases Renewals Totals

Square feet leased during the period (in thousands) 77 773 850

Total leasing costs and concession commitments (1)

$ 695 $ 918 $ 1,613

Total leasing costs and concession commitments per square foot (1)

$ 8.99 $ 1.19 $ 1.90

Weighted average lease term by square feet (years) 16.9 10.3 10.9

Total leasing costs and concession commitments per square foot per year (1)

$ 0.53 $ 0.11 $ 0.17

(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.

As of September 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.

Our principal debt obligations at September 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.

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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.

As of September 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.

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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.

As of September 30, 2020, we believe we were in compliance with all the covenants and other terms under the agreements governing our mortgage notes.

Related Person Transactions

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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.

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 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis