What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2021-02-18 compared with 2020-02-24 · 130 added, 67 removed, 675 unchanged (23% of the section changed)

We are a real estate investment trust, or REIT, that was organized under Maryland law in 2017.

We are a real estate investment trust, or REIT, organized under Maryland law in 2017.

We own and lease industrial and logistics properties throughout the United States.

1 unchanged sentence

federal income tax purposes beginning with our taxable year ended December 31, 2018.

As of December 31, 2019 , we owned 300 properties that were approximately 99.3 % leased to 270 tenants with a weighted average (by annualized rental revenues) remaining lease term of approximately 9.6 years.

These properties consisted of 226 buildings, leasable land parcels and easements with a total of approximately 16.8 million rentable square feet (all square footage amounts included within this Annual Report on Form 10-K are unaudited) that were primarily industrial lands located on the island of Oahu, HI, or our Hawaii Properties, and 74 buildings with a total of approximately 26.1 million rentable square feet that were industrial and logistics properties located in 29 other states, or our Mainland Properties.

As of December 31, 2020, our portfolio was comprised of 289 wholly owned properties that were approximately 98.5% leased to 253 tenants with a weighted average (by annualized rental revenues) remaining lease term of approximately 9.5 years.

The 289 properties consisted of 226 buildings, leasable land parcels and easements containing approximately 16.8 million rentable square feet (all square footage amounts included within this Annual Report on Form 10-K are unaudited) that were primarily industrial lands located on the island of Oahu, HI, or our Hawaii Properties, and 63 buildings containing approximately 18.1 million rentable square feet that were industrial and logistics properties located in 30 other states, or our Mainland Properties.

As of December 31, 2020, our Hawaii Properties represented 50.7% of our annualized rental revenues and our Mainland Properties represented 49.3% of our annualized rental revenues.

We define the term annualized rental revenues as used in this Annual Report on Form 10-K as the annualized contractual rents as of December 31, 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.

As of December 31, 2020, we also owned a 22% equity interest in an unconsolidated joint venture that owns 12 properties located in nine states in the mainland United States containing approximately 9.2 million rentable square feet that were 100% leased with an average (by annualized rental revenues) remaining lease term of 7.1 years.

Our principal executive offices are located at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and our telephone number is (617) 219-1460.

2 unchanged sentences

We believe our current properties provide a stable base of increasing income.

We intend to expand our business by acquiring additional industrial and logistics properties in the United States that may benefit from the growth of e-commerce.

We intend to expand our business by acquiring additional industrial and logistics properties in the United States that may benefit from the growth of e-commerce or demand for logistics properties.

Internal Growth through Rent Resets and Leasing Activity, Fixed Increases in Our Leases and Selective Development.

15 unchanged sentences

Because there are a limited number of industrial and logistics properties in Hawaii, we expect that most of our acquisitions will be in other states.

Our external growth strategy is further defined by our investment policies.

The following is an overview of the general lease terms for our properties.

4 unchanged sentences

however, because we believe our Mainland Properties have been well maintained, we do not believe these expenses will be material to us during the remaining lease terms.

Our Mainland Properties are fully leased, but we expect to have opportunities to raise rents or redevelop these properties when these leases start to expire beginning in 2020.

Our Mainland Properties remain over 99% leased.

We expect to have opportunities to raise rents or redevelop these properties as lease expirations at these properties approach.

Also, some of the tenant renewal options at our Mainland Properties provide for rents to be reset to fair market values, and we may be able to raise rents if and as these options are exercised.

We regularly confer with tenants at our Mainland Properties to determine if they are interested in our expanding or otherwise improving their leased properties in return for increased rents and extended terms.

For example, in 2018 we negotiated a build to suit expansion of 194,000 square feet for an existing tenant at our Ankeny, IA property that resulted in a lease extension of approximately seven years after completion of the expansion and a rent increase of 2% annually for the extended term.

Hawaii Properties’ Leases.

6 unchanged sentences

In the appraisal process for land leases that are periodically reset based on a percentage of the fair market value of the land, the appraisers are required to determine the fair market value of the land, usually exclusive of improvements, with such fair market value being based on the highest and best use of such land and as though unencumbered by the lease, and then the appraisers apply a rent return rate to the land value which may be set in the lease or determined by the appraisers based on market conditions.

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.

Various governmental 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.

To varying degrees, states and municipalities across the United States have generally allowed most businesses to re-open and have generally eased 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 recently have re-imposed certain restrictions in response to increases in COVID-19 infections.

Economic data have indicated that the U.S.

economy has improved since the lowest periods experienced in March and April 2020, although the U.S.

gross domestic product remains below pre-pandemic levels.

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 would be on human health and safety, the economy, our tenants or our business.

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 responses materialized and e-commerce companies have benefited from the closure of certain retail consumer outlets since the beginning of the second quarter of 2020 and the continued increased market demand for e-commerce.

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 improve or if they worsen, including in response to any increase in the number or severity of COVID-19 infections or 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 ability to pay us rent;

• our operations, liquidity and capital needs and resources;

• actively communicating with our tenants and other key constituents and stakeholders in order to help assess market conditions, opportunities and best practices and mitigate risks and potential adverse impacts;

• 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 December 31, 2020, we had:

• $529.0 million of availability under our revolving credit facility and $22.8 million of cash on hand;

• no outstanding debt scheduled to mature until the maturity of our revolving credit facility in December 2021, which maturity is subject to two six month extensions at our option;

• 72.2% of our annualized rental revenues, as of December 31, 2020, derived from investment grade rated tenants, subsidiaries of investment grade rated parent entities or Hawaii land leases;

• only 1.4% of our annualized rental revenues, as of December 31, 2020, scheduled to expire in 2021.

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 February 15, 2021, we granted requests to certain of our tenants to defer aggregate rent payments of $3.2 million with respect to leases that represent, as of December 31, 2020, approximately 9.6% of our annualized rental revenues.

As of December 31, 2020, we recognized $2.6 million in our accounts receivable related to the remaining 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 year ended December 31, 2020.

For the year ended December 31, 2020, we collected approximately 97.6% 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 The RMR Group LLC, or 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.

With respect to our properties, RMR LLC has implemented protocols and procedures at our properties based on recommended guidelines from the U.S.

Centers for Disease Control and Prevention and other regulatory agencies for the

purpose of mitigating the potential for spreading of COVID-19 infections.

RMR LLC property management and engineering personnel have been trained on COVID-19 precaution procedures and RMR LLC's property management teams have also established business continuity plans to ensure operational stability at our properties.

Included among the protocols and procedures implemented by RMR LLC are the following:

• 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;

• making changes to 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;

• requiring vendors to follow best practices under COVID-19 pandemic conditions, including providing RMR LLC with documented preventative measures for vendors' employees and requiring vendors' staff to wear appropriate personal protective equipment when working at our properties;

• altering cleaning schedules to perform vacuuming at times intended to reduce the potential airborne spread of the virus.

Additionally, as our properties experience lower tenant utilization rates, RMR LLC has 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;

• reducing the frequency of trash removal.

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.

RMR LLC's regional management offices are currently limiting walk-in visitors and maintaining maximum office occupancy limits as required by state and local guidelines, including weekly rotations of employees as needed.

There are extensive uncertainties surrounding the COVID-19 pandemic.

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 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;

• 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.

For more information and risks relating to the COVID-19 pandemic on us and our business, see Part I, Item 1A, "Risk Factors" of this Annual Report on Form 10-K.

Our Investment Policies

2 unchanged sentences

We target estimated capitalization rates of 5% - 7% for new investments.

If and as market conditions change, our target investments and target estimated capitalization rates may change.

If and as market conditions change, or in certain other instances, our target investments and target estimated capitalization rates may change.

In evaluating potential property acquisitions, we consider various factors, including, but not limited to, the following:

• the location of the property;

the historic and projected rents received and to be received from the property;

• the historical and projected rents received and to be received from the property;

• our cost of capital compared to projected returns we may realize by owning the property;

2 unchanged sentences

• the remaining term of the leases at the property and other lease terms;

the type of property (e.g., distribution facility, light industrial, etc.);

• the type of property (e.g., bulk distribution, last-mile distribution, etc.);

• the tax and regulatory circumstances of the market area in which the property is located;

6 unchanged sentences

• the existence of alternative sources, uses or needs for our capital.

Also, we may invest in or enter into real estate joint ventures if we conclude that by doing so we may benefit from the participation of co-venturers or that our opportunity to participate in the investment is contingent on the use of a joint venture structure or to take advantage of property valuation differences among private and public sources of equity capital.

For example, in February 2020, we entered agreements related to a joint venture with an Asian institutional investor for up to 12 of our Mainland Properties.

Further, we may acquire interests in joint ventures as part of an acquisition of properties or entities.

Also, we may invest in or enter into real estate joint ventures.

We currently own a 22% equity interest in an unconsolidated joint venture.

In the future, we may invest in or enter into additional real estate joint ventures, or acquire additional properties with the intention of contributing such properties to our existing joint venture, if we conclude that by doing so we may benefit from the participation of co-venturers or that our opportunity to participate in the investment is contingent on the use of a joint venture structure or to take advantage of property valuation differences among private and public sources of equity capital.

We have no limitations on the amount or percentage of our total assets that may be invested in any one property and no limits on the concentration of investments in any one location.

15 unchanged sentences

• our intended use of the proceeds we may realize from the sale of a property;

• the benefits we believe we will achieve from contributing additional properties to our existing or any new joint venture;

• the existence of alternative sources, uses or needs for capital;

4 unchanged sentences

We expect to repay our debts, invest in our properties or fund acquisitions, developments or redevelopments by borrowing under our revolving credit facility, issuing equity or debt securities or using retained cash from operations that may exceed distributions paid.

We also expect that our operating and investment activities will be financed by rents from tenants at our properties in excess of planned distributions to our shareholders and by borrowings under our revolving credit facility.

We also expect that our operating and investing activities will be financed by rents from tenants at our properties in excess of planned distributions to our shareholders and by borrowings under our revolving credit facility.

As the maximum borrowing under, or the maturity of, our revolving credit facility approaches, we expect to renew that facility or refinance that indebtedness with equity issuances or new debt.

3 unchanged sentences

In addition, in January 2019, we obtained a $650.0 million mortgage loan secured by 186 properties containing 9.6 million rentable square feet located on the island of Oahu, HI.

In October 2019, we obtained a $350.0 million mortgage loan secured by 11 of our Mainland Properties containing an aggregate of approximately 8.2 million rentable square feet located in eight states.

In April 2019, we assumed a $57.0 million secured mortgage note in connection with one of our acquisitions.

For more information regarding our financing sources and activities, see “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 Annual Report on Form 10-K.

In October 2019, we obtained a $350.0 million mortgage loan secured by 11 of our properties located in mainland United States containing an aggregate of approximately 8.2 million rentable square feet located in eight states.

We no longer include the $57.0 million secured mortgage note or the $350.0 million mortgage loan in our consolidated balance sheet following the deconsolidation of the net assets of our formerly majority-owned joint venture.

Resources” of this Annual Report on Form 10-K and Note 3 to the Notes to the Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

We do not have policies limiting the amount of debt we may incur or the number or amount of mortgages that may be placed on our properties.

Our Board of Trustees may change our financing policies at any time without a vote of, or notice to, our shareholders.

Structure and Formation of Our Company

On January 17, 2018, we completed an initial public offering and listing on The Nasdaq Stock Market LLC, or Nasdaq, of 20,000,000 of our common shares, or our IPO.

At that time, we owned 266 properties, or our Initial Properties, with a total of approximately 28.5 million rentable square feet (all square footage amounts included within this Annual Report on Form 10-K are unaudited).

Our Initial Properties were contributed to us on September 29, 2017 by Select Income REIT, or SIR, a former publicly traded REIT that merged with a wholly owned subsidiary of Office Properties Income Trust (formerly known as Government Properties Income Trust), or OPI, on December 31, 2018.

In connection with our formation and the contribution of our Initial Properties, we (i) issued to SIR 45,000,000 of our common shares, (ii) issued to SIR a $750.0 million non-interest bearing demand note, or the SIR Note, and (iii) assumed three mortgage notes totaling $63.1 million, excluding premiums, that were secured by three of our Initial Properties.

In December 2017, we obtained a $750.0 million secured revolving credit facility, and we used the proceeds of an initial borrowing under this credit facility to pay the SIR Note in full.

Also in December 2017, SIR prepaid on our behalf two of the mortgage notes totaling approximately $14.3 million that had encumbered two of our Initial Properties.

Upon the closing of our IPO, our secured revolving credit facility was converted into a four year unsecured revolving credit facility and we used substantially all of the net proceeds from our IPO to reduce amounts outstanding under our revolving credit facility.

We also reimbursed SIR for costs that SIR incurred in connection with our formation and the preparation for our IPO.

On December 27, 2018, SIR distributed all 45,000,000 of our common shares that SIR owned to SIR's shareholders of record as of the close of business on December 20, 2018.

Environmental Matters

10 unchanged sentences

is a holding company and substantially all of its business is conducted by its majority owned subsidiary, RMR LLC.

Our Chair of our Board of Trustees and one of our Managing Trustees, Adam D.

Portnoy, as the sole trustee of ABP Trust, is the controlling shareholder of RMR Inc.

and is a managing director and the president and chief executive officer of RMR Inc.

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.

3 unchanged sentences

RMR LLC has a principal place of business at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and its telephone number is (617) 796-8390.

RMR LLC or its subsidiaries also act as the manager to Service Properties Trust (formerly known as Hospitality Properties Trust), or SVC, OPI, Diversified Healthcare Trust (formerly known as Senior Housing Properties Trust), or DHC, and Tremont Mortgage Trust, or TRMT, and provides management and other services to other private and public companies, including Five Star Senior Living Inc., or Five Star, TravelCenters of America Inc., or TA, and Sonesta International Hotels Corporation, or Sonesta.

RMR LLC or its subsidiaries also act as the manager to Diversified Healthcare Trust, or DHC, Office Properties Income Trust, or OPI, RMR Mortgage Trust (formerly known as RMR Real Estate Income Fund), or RMRM, Service Properties Trust, or SVC, and Tremont Mortgage Trust, or TRMT, and provides management and other services to other private and public companies, including Five Star Senior Living Inc., or Five Star, TravelCenters of America Inc., or TA, and Sonesta International Hotels Corporation, or Sonesta.

RMR LLC also provides management services to our existing joint venture.

As of the date of this Annual Report on Form 10-K, the executive officers of RMR LLC are:

Adam Portnoy, President and Chief Executive Officer;

Blackman, Executive Vice President;

Clark, Executive Vice President, General Counsel and Secretary;

Francis, Executive Vice President;

Jordan, Executive Vice President, Chief Financial Officer and Treasurer;

3 unchanged sentences

Our Chief Financial Officer and Treasurer, Richard W.

Siedel, Jr., is a Senior Vice President of RMR LLC.

Siedel, Jr., is a Senior Vice President of RMR LLC, and our Chief Operating Officer and Vice President, Yael Duffy, is a Vice President of RMR LLC.

Murray and Siedel and other officers of RMR LLC also serve as officers of other companies to which RMR LLC or its subsidiaries provide management services.

In July 2020, our manager, RMR LLC, released its first annual Sustainability Report, which summarizes the environmental, social and governance initiatives RMR LLC and its client companies, including ILPT, employ.

RMR LLC’s Sustainability Report may be accessed on The RMR Group Inc.'s, or RMR Inc., website at www.rmrgroup.com/corporate-sustainability/default.aspx.

The information on or accessible through RMR Inc.'s website is not incorporated by reference into this Annual Report on Form 10-K.

We have no employees.

4 unchanged sentences

and, under the leases for our Mainland Properties, our tenants generally are either required to reimburse us for the costs of maintaining the insurance coverage or to purchase such insurance directly and list us as an insured party.

We previously participated with other companies to which RMR LLC provides management services in a combined property insurance program through Affiliates Insurance Company, or AIC.

The policies under that program expired on June 30, 2019 and we and the other companies to which RMR LLC provides management services elected not to renew the AIC property insurance program;

we instead have purchased standalone property insurance coverage with unrelated third party insurance providers.

For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions" and Note 10 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Other Matters

6 unchanged sentences

We also have a policy outlining procedures for handling concerns or complaints about accounting, internal accounting controls or auditing matters and a governance hotline accessible on our website that shareholders can use to report concerns or complaints about accounting, internal accounting controls or auditing matters or violations or possible violations of our Code of Conduct.

We make available, free of charge, through the “Investors” section of our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after these forms are filed with, or furnished to the SEC.

Any material we file with or furnish to the SEC is also maintained on the SEC website, www.sec.gov.

46 unchanged sentences

• a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S.

persons have the authority to control all substantial decisions of the trust, or, to the extent provided in Treasury regulations, a trust in existence on August 20, 1996 that has elected to be treated as a domestic trust;

persons have the authority to control all substantial decisions of the trust, or, to the

extent provided in Treasury regulations, a trust in existence on August 20, 1996 that has elected to be treated as a domestic trust;

whose status as a U.S.

12 unchanged sentences

In addition, for taxable years beginning before 2026 and pursuant to the deduction-without-outlay mechanism of Section 199A of the IRC, our noncorporate U.S.

shareholders are generally eligible for lower effective tax rates on our dividends that are not treated as capital gain dividends or as qualified dividend income.

shareholders that meet specified holding period requirements are generally eligible for lower effective tax rates on our dividends that are not treated as capital gain dividends or as qualified dividend income.

No portion of any of our dividends is eligible for the dividends received deduction for corporate shareholders.

2 unchanged sentences

For all these purposes, our distributions include cash distributions, any in kind distributions of property that we might make, and deemed or constructive distributions resulting from capital market activities (such as some redemptions), as described below.

Our counsel, Sullivan & Worcester LLP, is of the opinion that we have been organized and have qualified for taxation as a REIT under the IRC for our 2018 and 2019 taxable years, and that our current and anticipated investments and plan of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the IRC.

Our counsel, Sullivan & Worcester LLP, is of the opinion that we have been organized and have qualified for taxation as a REIT under the IRC for our 2018 through 2020 taxable years, and that our current and anticipated investments and plan of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the IRC.

Our counsel’s opinions are conditioned upon the assumption that our leases, our declaration of trust, and all other legal documents to which we have been or are a party have been and will be complied with by all parties to those documents, upon the accuracy and completeness of the factual matters described in this Annual Report on Form 10-K and upon representations made by us to our counsel as to certain factual matters relating to our organization and operations and our expected manner of operation.

24 unchanged sentences

• Our subsidiaries that are C corporations, including our “taxable REIT subsidiaries” as defined in Section 856(l) of the IRC, or TRSs, generally will be required to pay federal corporate income tax on their earnings, and a 100% tax may be imposed on any transaction between us and one of our TRSs that does not reflect arm’s length terms.

• As discussed below, we are invested in real estate through a subsidiary that we believe qualifies for taxation as a REIT.

If it is determined that this entity failed to qualify for taxation as a REIT, we may fail one or more of the REIT asset tests.

In such case, we expect that we would be able to avail ourselves of the relief provisions described below, but would be subject to a tax equal to the greater of $50,000 or the highest regular corporate income tax rate multiplied by the net income we earned from this subsidiary.

If we fail to qualify for taxation as a REIT in any year, then we will be subject to federal income tax in the same manner as a regular C corporation.

46 unchanged sentences

However, failure of the subsidiary to separately satisfy the various REIT qualification requirements described in this summary or that are otherwise applicable (and failure to qualify for the applicable relief provisions) would generally result in (a) the subsidiary being subject to regular U.S.

corporate income tax, as described above, and (b) the REIT parent’s ownership in the subsidiary (i) ceasing to be qualifying real estate assets for purposes of the 75% asset test, (ii) becoming subject to the 5% asset test, the 10% vote test and the 10% value test generally applicable to a REIT’s ownership in corporations other than REITs and TRSs, and (iii) thereby jeopardizing the REIT parent’s own REIT qualification and taxation on account of the subsidiary’s failure cascading up to the REIT parent, all as described below under the heading “—Asset Tests”.

We intend to join with our subsidiary REIT in filing a protective TRS election, effective for the first quarter of 2020, and to reaffirm this protective election with this subsidiary every January thereafter, and we may continue to do so unless and until our ownership of this subsidiary falls below 10%.

and taxation on account of the subsidiary’s failure cascading up to the REIT parent, all as described below under the heading “—Asset Tests”.

We joined with our subsidiary REIT in filing a protective TRS election, effective for the first quarter of 2020, and we have reaffirmed this protective election with this subsidiary as of January 2021, and we may continue to do so unless and until our ownership of this subsidiary falls below 10%.

Pursuant to this protective TRS election, we believe that if our subsidiary is not a REIT for some reason, then it would instead be considered one of our TRSs, and as such its value would fit within our REIT gross asset tests described below.

4 unchanged sentences

Very generally, a TRS is a subsidiary corporation other than a REIT in which a REIT directly or indirectly holds stock and that has made a joint election with its affiliated REIT to be treated as a TRS.

A TRS is taxed as a regular C corporation, separate and apart from its affiliated REIT.

Our ownership of stock and other securities in our TRSs is exempt from the 5% asset test, the 10% vote test and the 10% value test discussed below.

4 unchanged sentences

Therefore, our TRSs may generally conduct activities that would be treated as prohibited transactions or would give rise to nonqualified income if conducted by us directly.

As regular C corporations, TRSs may generally utilize net operating losses and other tax attribute carryforwards to reduce or otherwise eliminate federal income tax liability in a given taxable year.

Net operating losses and other carryforwards are subject to limitations, however, including limitations imposed under Section 382 of the IRC following an “ownership change” (as defined in applicable Treasury regulations) and a limitation providing that carryforwards of net operating losses generally cannot offset more than 80% of the current year’s taxable income.

Moreover, net operating losses may not be carried back, but may be carried forward indefinitely.

As a result, we cannot be sure that our TRSs will be able to utilize, in full or in part, any net operating losses or other carryforwards that they may generate in the future.

Restrictions and sanctions are imposed on TRSs and their affiliated REITs to ensure that the TRSs will be subject to an appropriate level of federal income taxation.

9 unchanged sentences

Second, at least 95% of our gross income for each taxable year must consist of income that is qualifying income for purposes of the 75% gross income test, other types of interest and dividends, gain from the sale or disposition of stock or securities, or any combination of these.

Gross income from our sale of property that we hold primarily for sale to customers in the ordinary course of business, income and gain from specified “hedging transactions” that are clearly and timely identified as such, and income from the repurchase or discharge of indebtedness is excluded from both the numerator and the denominator in both gross income tests.

gross income tests.

In addition, specified foreign currency gains will be excluded from gross income for purposes of one or both of the gross income tests.

5 unchanged sentences

Nevertheless, we cannot be sure that these restrictions will be effective to prevent our qualification for taxation as a REIT from being jeopardized under the 10% affiliated tenant rule.

Furthermore, we cannot be sure that we will be able to monitor and enforce

these restrictions, nor will our shareholders necessarily be aware of ownership of our shares attributed to them under the IRC’s attribution rules.

Furthermore, we cannot be sure that we will be able to monitor and enforce these restrictions, nor will our shareholders necessarily be aware of ownership of our shares attributed to them under the IRC’s attribution rules.

• There is a limited exception to the above prohibition on earning “rents from real property” from a 10% affiliated tenant where the tenant is a TRS.

3 unchanged sentences

In addition, a de minimis amount of noncustomary services provided to tenants will not disqualify income as “rents from real property” as long as the value of the impermissible tenant services does not exceed 1% of the gross income from the property.

If rent attributable to personal property leased in connection with a lease of real property is 15% or less of the total rent received under the lease, then the rent attributable to personal property will qualify as “rents from real property”;

if this 15% threshold is exceeded, then the rent attributable to personal property will not so qualify.

• If rent attributable to personal property leased in connection with a lease of real property is 15% or less of the total rent received under the lease, then the rent attributable to personal property will qualify as “rents from real property;" if this 15% threshold is exceeded, then the rent attributable to personal property will not so qualify.

The portion of rental income treated as attributable to personal property is determined according to the ratio of the fair market value of the personal property to the total fair market value of the real and personal property that is rented.

23 unchanged sentences

However, compliance with the safe harbors is not always achievable in practice.

We intend to structure our activities to avoid transactions that are prohibited transactions, or otherwise conduct such activities through TRSs;

We attempt to structure our activities to avoid transactions that are prohibited transactions, or otherwise conduct such activities through TRSs;

but, we cannot be sure whether or not the IRS might successfully assert that one or more of our dispositions is subject to the 100% penalty tax.

13 unchanged sentences

At the close of each calendar quarter of each taxable year, we must also satisfy the following asset percentage tests in order to qualify for taxation as a REIT for federal income tax purposes:

At least 75% of the value of our total assets must consist of “real estate assets,” defined as real property (including interests in real property and interests in mortgages on real property or on interests in real property), ancillary personal property to the extent that rents attributable to such personal property are treated as rents from real property in accordance with the rules described above, cash and cash items, shares in other REITs, debt instruments issued by “publicly offered REITs” as defined in Section 562(c)(2) of the IRC, government securities

and temporary investments of new capital (that is, any stock or debt instrument that we hold that is attributable to any amount received by us (a) in exchange for our stock or (b) in a public offering of our five-year or longer debt instruments, but in each case only for the one-year period commencing with our receipt of the new capital).

• At least 75% of the value of our total assets must consist of “real estate assets,” defined as real property (including interests in real property and interests in mortgages on real property or on interests in real property), ancillary personal property to the extent that rents attributable to such personal property are treated as rents from real property in accordance with the rules described above, cash and cash items, shares in other REITs, debt instruments issued by “publicly offered REITs” as defined in Section 562(c)(2) of the IRC, government securities and temporary investments of new capital (that is, any stock or debt instrument that we hold that is attributable to any amount received by us (a) in exchange for our stock or (b) in a public offering of our five-year or longer debt instruments, but in each case only for the one-year period commencing with our receipt of the new capital).

• Not more than 25% of the value of our total assets may be represented by securities other than those securities that count favorably toward the preceding 75% asset test.

24 unchanged sentences

Any deduction in excess of the limitation is carried forward and may be used in a subsequent year, subject to that year’s 30% limitation.

Provided a taxpayer makes an election (which is irrevocable), the 30% limitation does not apply to a trade or business involving real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage, within the meaning of Section 469(c)(7)(C) of the IRC.

While legislative history and proposed Treasury regulations indicate that a real property trade or business includes a trade or business conducted by a corporation or a REIT, we have not yet made an election to be treated as a real property trade or business.

The Coronavirus Aid, Relief, and Economic Security Act changed the limitation on adjusted taxable income, increasing it from 30% to 50%, but only for 2019 and 2020.

Moreover, taxpayers can elect to use their adjusted taxable income from their 2019 tax year for their adjusted taxable income in their 2020 tax year for purposes of calculating the limitation.

Provided a taxpayer makes an election (which is irrevocable), the applicable limitation on the deductibility of net interest expense does not apply to a trade or business involving real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage, within the meaning of Section 469(c)(7)(C) of the IRC.

Treasury regulations provide that a real property trade or business includes a trade or business conducted by a REIT.

We have made an election to be treated as a real property trade or business and accordingly do not expect the foregoing interest deduction limitations to apply to us or to the calculation of our "real estate investment trust taxable income."

Distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our federal income tax return for the earlier taxable year and if paid on or before the first regular distribution payment after that declaration.

5 unchanged sentences

We will be treated as having sufficient earnings and profits to treat as a dividend any distribution by us up to the amount required to be distributed in order to avoid imposition of the 4% excise tax.

If we do not have enough cash or other liquid assets to meet the 90% distribution requirements, or if we so choose, we may find it necessary or desirable to arrange for new debt or equity financing to provide funds for required distributions in order to maintain our qualification for taxation as a REIT.

If we do not have enough cash or other liquid assets to meet our distribution requirements, or if we so choose, we may find it necessary or desirable to arrange for new debt or equity financing to provide funds for required distributions in order to maintain our qualification for taxation as a REIT.

We cannot be sure that financing would be available for these purposes on favorable terms, or at all.

29 unchanged sentences

We will generally depreciate our depreciable real property on a straight-line basis over forty years and our personal property over the applicable shorter periods.

These depreciation schedules, and our initial tax bases, may vary for properties that we acquire through tax-free or carryover basis acquisitions (for example, our initial properties contributed to us by SIR as discussed below), or that are the subject of cost segregation analyses.

The initial tax bases and depreciation schedules for the assets we held immediately after we separated from SIR depends upon whether the deemed exchange that resulted for federal income tax purposes from that separation, or the Deemed Exchange, was an exchange governed by Sections 351(a), 351(b) and 357(a) of the IRC.

These depreciation schedules, and our initial tax bases, may vary for properties that we acquire through tax-free or carryover basis acquisitions (for example, our initial properties contributed to us by Select Income REIT, or SIR, as discussed below), or that are the subject of cost segregation analyses.

The initial tax bases and depreciation schedules for the assets we held immediately after we separated from SIR depend upon whether the deemed exchange that resulted for federal income tax purposes from that separation, or the Deemed Exchange, was an exchange governed by Sections 351(a), 351(b) and 357(a) of the IRC.

Our counsel, Sullivan & Worcester LLP, is of the opinion that the Deemed Exchange should be treated as an exchange governed by Sections 351(a) and 357(a) of the IRC, except for a modest amount of gain recognized by SIR under Section 351(b) of the IRC in respect of our obligation to reimburse SIR for certain offering costs, and we agreed with SIR to perform all of our tax reporting accordingly.

This opinion is conditioned upon the assumption that the transaction agreement between us and SIR that governed our relationship with SIR, or the Transaction Agreement, has been and will be complied with by all parties thereto, upon the accuracy and completeness of the factual matters described in our Registration Statement on Form S-11 filed with the SEC on November 21, 2017, as amended through the date hereof (File No.

333-221708), and upon representations made by us and SIR as to specified factual matters.

This opinion is conditioned upon the assumption that the transaction agreement between us and SIR that governed our relationship with SIR has been and will be complied with by all parties thereto, upon the accuracy and completeness of the factual matters described in our Registration Statement on Form S-11 filed in connection with our initial public offering and listing on The Nasdaq Stock Market LLC, or Nasdaq, of 20,000,000 of our common shares, and upon representations made by us and SIR as to specified factual matters.

Therefore, we carried over SIR’s tax basis and depreciation schedule in each of the assets that we received from SIR, as adjusted by the gain SIR recognized under Section 351(b) of the IRC in the Deemed Exchange.

9 unchanged sentences

If the IRS were to successfully challenge our reported depreciation methods and the associated tax reporting, then, including for purposes of qualifying for taxation as a REIT, we could be required to amend our tax reporting, including tax information reporting sent to our shareholders, or could be required to pay deficiency dividends, including the associated interest charge, as discussed above.

We are entitled to depreciation deductions from our facilities only if we are treated for federal income tax purposes as the owner of the facilities.

This means that the leases of our facilities must be classified for U.S.

We are entitled to depreciation deductions from our properties only if we are treated for federal income tax purposes as the owner of the properties.

This means that the leases of our properties must be classified for U.S.

federal income tax purposes as true leases, rather than as sales or financing arrangements, and we believe this to be the case.

18 unchanged sentences

As a result, our ordinary dividends generally are taxed at the higher federal income tax rates applicable to ordinary income (subject to the lower effective tax rates applicable to qualified REIT dividends via the deduction-without-outlay mechanism of Section 199A of the IRC, which is generally available to our noncorporate U.S.

shareholders for taxable years before 2026).

shareholders that meet specified holding period requirements for taxable years before 2026).

To summarize, the preferential federal income tax rates for long-term capital gains and for qualified dividends generally apply to:

5 unchanged sentences

As long as we qualify for taxation as a REIT, a distribution to our U.S.

shareholders that we do not designate as a capital gain dividend generally will be treated as an ordinary income dividend to the extent of our available current or accumulated earnings and profits (subject to the lower effective tax rates applicable to qualified REIT dividends via the deduction-without-outlay mechanism of Section 199A of the IRC, which is available to our noncorporate U.S.

shareholders for taxable years before 2026).

shareholders that meet specified holding period requirements for taxable years before 2026).

Distributions made out of our current or accumulated earnings and profits that we properly designate as capital gain dividends generally will be taxed as long-term capital gains, as discussed below, to the extent they do not exceed our actual net capital gain for the taxable year.

68 unchanged sentences

shareholder that we make and do not designate as a capital gain dividend.

Notwithstanding this potential withholding on distributions in excess of our current and accumulated earnings and profits, these excess portions of distributions are a nontaxable return of capital to the extent that they do not exceed the non-U.S.

Notwithstanding this potential withholding on distributions in excess of our current and accumulated earnings and profits, these

excess portions of distributions are a nontaxable return of capital to the extent that they do not exceed the non-U.S.

shareholder’s adjusted basis in our shares, and the nontaxable return of capital will reduce the adjusted basis in these shares.

101 unchanged sentences

shareholder must provide specified documentation (usually an applicable IRS Form W-8) containing information about its identity, its status, and if required, its direct and indirect U.S.

shareholders and shareholders who hold our shares through a non-U.S.

shareholders and

shareholders who hold our shares through a non-U.S.

intermediary are encouraged to consult their own tax advisors regarding foreign account tax compliance.

52 unchanged sentences

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-K

Item 1. Business