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Item 1A. Risk Factors

2021-02-18 compared with 2020-02-24 · 210 added, 168 removed, 255 unchanged (60% of the section changed)

Summary of Risk Factors

Our business is subject to a number of risks and uncertainties.

Investors and prospective investors should carefully consider the risks described below, together with all of the other information in this Annual Report on Form 10-K.

The summary below provides an overview of many of the risks we face that are described in this section.

Additional risks, beyond those summarized below or discussed under the caption “Risk Factors” or described elsewhere in this Annual Report on Form 10-K, may also materially and adversely impact our business, operations or financial results.

Consistent with the foregoing, the risks we face include, but are not limited to, the following:

• our tenants may be unable to satisfy their lease obligations to us, which could materially and adversely affect us;

• we may be unable to renew our leases with current tenants when our leases expire, lease our properties to new tenants without decreasing rents or incurring significant costs or otherwise, or to increase rents when our rents are reset;

• the concentration of our investments in industrial and logistics properties may result in us being adversely affected by cyclical economic conditions, particularly to the extent our tenants are negatively impacted, and the development of new industrial and logistics properties exceeding increase in demand for such properties;

• the geographic concentration of our properties in Hawaii and the tenant concentration of our properties with single tenants may subject us to greater risks of loss than if our properties had more geographic and tenant diversity;

• the COVID-19 pandemic and its resulting economic impact may materially adversely affect our and our tenants’ businesses, operations, financial results and liquidity;

• we may be unable to grow our business by acquisitions of additional properties, and we face significant competition for acquisition opportunities and tenants;

• we have debt and may incur additional debt, and we are subject to the covenants and conditions contained in the agreements governing our debt, which may restrict our operations and ability to make investments and distributions;

• REIT distribution requirements and any limitations on our ability to access reasonably priced capital may adversely impact our ability to carry out our business plan and we are subject to risks associated with our qualification for taxation as a REIT;

• our distributions to our shareholders may be reduced or eliminated and the form of payment could change;

• changes in market interest rates, including changes that may result from the expected phase out of LIBOR, may adversely affect us;

• ownership of real estate is subject to environmental risks and liabilities as well as risks from adverse weather, natural disasters and climate events;

• our existing and any future joint ventures may limit our flexibility with jointly owned investments and we may not realize the benefits we expect from these arrangements;

• insurance may not adequately cover our losses, and insurance costs may continue to increase;

• we depend upon RMR LLC to manage our business and implement our growth strategy and RMR LLC has broad discretion in operating our day to day business;

• we rely on RMR LLC’s information technology and systems and the failure of the security or functioning of such technology or systems could materially and adversely affect us;

• our management structure and agreements with RMR LLC and our relationships with our related parties, including our Managing Trustees, RMR LLC and others affiliated with them, may create conflicts of interest;

• we may change our operational, financing and investment policies without shareholder approval;

• ownership limitations and certain provisions in our declaration of trust, bylaws and agreements, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals;

• our rights and the rights of our shareholders to take action against our Trustees and officers are limited, and our bylaws contain provisions that could limit our shareholders’ ability to obtain a judicial forum they deem favorable for certain disputes.

The risks described below may not be the only risks we face but are risks we believe may be material at this time.

Additional risks that we do not yet know of, or that we currently think are immaterial, also may impair our business operations or financial results.

If any of the events or circumstances described below occurs, our business, financial condition, results of operations or ability to make distributions to our shareholders and the value of our securities could be adversely affected.

Investors and prospective investors should consider the following risks, the information contained under the heading “Warning Concerning Forward Looking Statements” and the risks described elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities.

Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results.

If any of the events or circumstances described below occurs, our business, financial condition, results of operations or ability to make distributions to our shareholders could be adversely affected and the value of an investment in our securities could decline.

Investors and prospective investors should consider the risks described below and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities.

Risks Related to Our Business

Our investments are and will be concentrated in industrial and logistics properties.

Our properties are substantially all industrial and logistics properties and we intend to acquire similar additional properties.

The market demand to lease industrial and logistics properties generally reflects conditions in the U.S.

If the general economy slows, the demand to lease industrial and logistics properties may be reduced and the value of our common shares may decline.

Because we expect to continue to be concentrated in industrial and logistics properties, the adverse impact of cyclical economic conditions affecting industrial and logistics properties may have a greater impact on the value of our common shares than if we were invested in several different types of properties, including residential, office or other properties, in addition to industrial and logistics properties.

The development of new industrial and logistics properties may exceed any increase in demand for such properties.

The current strong demand for industrial and logistics properties is encouraging new development of such properties.

If the development of new industrial and logistics properties exceeds the increase in demand for such properties, our existing properties may be unable to successfully compete for tenants with newer developed buildings, our income may decline and the value of our common shares may decline.

Our business depends upon our tenants satisfying their lease obligations to us, which depends, to a large degree, on our tenants’ abilities to successfully operate their businesses.

Our business depends on our tenants satisfying their lease obligations to us.

The financial capacities of our tenants to pay us rent will depend upon their abilities to successfully operate their businesses, which may be adversely affected by factors over which we and they have no control, including the COVID-19 pandemic.

The failure of our tenants and any applicable parent guarantor to satisfy their lease obligations to us, whether due to a downturn in their business or otherwise, could materially and adversely affect us.

The majority of our properties are leased to single tenants, which may subject us to greater risks of loss than if each of our properties had multiple tenants.

The majority of our rental revenues from our properties as of December 31, 2020 were from properties leased to single tenants.

The value of single tenant properties is materially dependent on the performance of those tenants under their respective leases.

Many of our single tenant leases require that certain property level operating expenses and capital expenditures, such as real estate taxes, insurance, utilities, maintenance and repairs, including increases with respect thereto, be paid, or reimbursed to us, by our tenants.

Accordingly, in addition to our not receiving rental income, a tenant default on such leases could make us responsible for paying these expenses.

Because most of our properties are leased to single tenants, the adverse impact of individual tenant defaults or non-renewals is likely to be greater than would be the case if our properties were leased to multiple tenants.

We may be unable to lease our properties when our leases expire.

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When rents are reset under the leases at our Hawaii Properties, the rents may decline.

Our investments are concentrated in industrial and logistics properties.

Our properties are substantially all industrial and logistics properties and we intend to acquire similar additional properties.

The market demand to lease industrial and logistics properties generally reflects conditions in the U.S.

If the general economy slows, the demand to lease industrial and logistics properties may be reduced and the value of our common shares may decline.

The adverse impact of cyclical economic conditions affecting industrial and logistics properties may have a greater impact on the value of our common shares than if we were invested in several different types of properties, including residential, office or other properties, in addition to industrial and logistics properties.

A significant number of our properties are located on the island of Oahu, HI, and we are exposed to risks as a result of this geographic concentration.

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For example, Oahu’s remote location on a volcanic island makes our properties there vulnerable to certain risks from natural disasters, such as tsunamis, hurricanes, flooding, volcanic eruptions and earthquakes, which could cause damage to our properties, affect our Hawaii tenants’ abilities to pay rent to us and cause the value of our properties and our securities to decline.

The majority of our properties are leased to single tenants which may subject us to greater risks of loss than if each of our properties had multiple tenants.

The majority of our rental revenues from our properties as of December 31, 2019 were from properties leased to single tenants.

The value of single tenant properties is materially dependent on the performance of those tenants under their respective leases.

Accordingly, in addition to our not receiving rental income, a tenant default on such leases could make us responsible for paying these expenses.

Our business depends upon our tenants satisfying their lease obligations to us, which depends, to a large degree, on our tenants ’ abilities to successfully operate their businesses.

The value of our business and the value of our common shares are dependent, in part, on our tenants’ abilities to meet their lease obligations to us.

The financial capacities of our tenants may be adversely affected by factors over which we have no control.

In particular, a subsidiary of Amazon.com, Inc.

contributes approximately 14.2% of our annualized rental revenues, under six separate leases, which are guaranteed by Amazon.com, Inc., as of December 31, 2019.

The inability of our tenants and any applicable parent guarantor to satisfy their lease obligations to us, whether due to a downturn in their business or otherwise, could materially and adversely affect us.

The COVID-19 pandemic and its resulting economic impact may materially adversely affect our business, operations, financial results and liquidity.

The strain of coronavirus that causes the viral disease known as COVID-19 has been declared a pandemic by the World Health Organization, and the U.S.

Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak.

The COVID-19 pandemic has had a substantial adverse impact on the global economy, including the U.S.

Although to date some of our tenants have benefitted from the increased reliance on e-commerce and logistics to support retailers and communities with essential services throughout the United States, challenges to the supply chain due to the COVID-19 pandemic, such as widespread illness that negatively impacts the workforce or other supply chain issues, may negatively impact our tenants’ businesses and operations.

Further, the demand for e-commerce and logistics may decline, particularly if the current economic conditions do not continue to improve or if they worsen for an extended period.

If that occurs, our tenants may become unable to pay rent to us and we may be unable to replace any lost revenues we may experience.

Further, these conditions could result in declining market rents where our properties are located, which may adversely affect our future rents.

We typically conduct leasing activities at our properties.

Accordingly, reductions in the ability of prospective tenants to visit our properties due to the COVID-19 pandemic could reduce rental revenue and ancillary operating revenue produced by our properties.

Concerns relating to the outbreak could also cause on-site personnel not to report to work at our properties, which could adversely affect tenant operations at our properties.

In addition, if tenants default on our leases, we may experience increased vacancies and we may be unable to replace those tenancies for an extended period or at all, we may incur significant costs in connection with seeking and entering into any new or renewal leases, and the terms of any leases we may enter may not be as favorable to us as the terms of our existing leases.

We cannot predict the extent and duration of the COVID-19 pandemic or the severity and duration of its economic impact.

Potential consequences of the current unprecedented measures taken in response to the spread of the virus that causes COVID-19, and current market disruptions and volatility affecting us include, but are not limited to:

• increased risk of default or bankruptcy of our tenants;

• reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of the virus that causes COVID-19, which could impact the continued viability of our tenants and the demand for industrial and logistics properties;

• possible significant declines in the value of our properties or our inability to sell properties we may identify for sale due to decreased demand for our properties;

• our failure to pay interest or principal when due on our outstanding debt, which may result in the acceleration of payment for our outstanding debt and our being unable to borrow under our revolving credit facility;

• our inability to comply with certain financial covenants that could result in our defaulting under our debt agreements;

• our inability to maintain our current distribution rate, or make any distributions, to our shareholders;

• declines in the market price of our common shares;

• our inability to access debt and equity capital on attractive terms, or at all.

Further, the extent and strength of any economic recovery after the COVID-19 pandemic ends or otherwise are uncertain and subject to various factors and conditions.

Our business, operations and financial position may continue to be negatively impacted after the COVID-19 pandemic ends and may remain at depressed levels compared to prior to the outbreak of the COVID-19 pandemic and those conditions may continue for an extended period.

Bankruptcy law may adversely impact us.

The occurrence of a tenant bankruptcy could reduce the rent we receive from such tenant’s lease.

If a tenant becomes bankrupt, federal law may prohibit us from evicting such tenant based solely upon its bankruptcy.

The occurrence of a tenant bankruptcy could reduce the rent we receive from that tenant.

In addition, the continued existence of the COVID-19 pandemic may increase the risk of our tenants filing for bankruptcy.

If a tenant becomes bankrupt, federal law may prohibit us from evicting that tenant based solely upon its bankruptcy.

In addition, a bankrupt tenant may be authorized to reject and terminate its lease with us.

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Moreover, even if we were successful in challenging such laws, the cost of doing so may be significant.

REIT distribution requirements and limitations on our ability to access reasonably priced capital may adversely impact our ability to carry out our business plan.

To maintain our qualification for taxation as a REIT under the IRC, we are required to satisfy distribution requirements imposed by the IRC.

See "Material United States Federal Income Tax Considerations—REIT Qualification Requirements—Annual Distribution Requirements." Accordingly, we may not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties or fund our acquisitions or development or redevelopment efforts.

Our business strategies therefore depend, in part, upon our ability to raise additional capital at reasonable costs.

The volatility in the availability of capital to businesses on a global basis in most debt and equity markets generally may limit our ability to raise reasonably priced capital.

We may also be unable to raise reasonably priced capital because of reasons related to our business, market perceptions of our prospects, the terms of our indebtedness, the extent of our leverage or for reasons beyond our control, such as market conditions.

Because the earnings we are permitted to retain are limited by the rules governing REIT qualification and taxation, if we are unable to raise reasonably priced capital, we may not be able to carry out our business plan.

We may be unable to grow our business by acquisitions of additional properties.

We may be unable to grow our business by acquisitions of additional properties, and we might encounter unanticipated difficulties and expenditures relating to our acquired properties.

Our business plans involve the acquisition of additional properties.

Our ability to make profitable acquisitions is subject to risks, including, but not limited to, risks associated with:

competition from other investors, including publicly traded and private REITs, numerous financial institutions, individuals, foreign investors and other public and private companies;

our long term cost of capital;

• competition from other investors;

• contingencies in our acquisition agreements;

the availability and terms of financing.

• the availability, terms and cost of debt and equity capital.

We might encounter unanticipated difficulties and expenditures relating to our acquired properties.

we do not believe that it is possible to understand fully a property before it is owned and operated for a reasonable period of time, and, notwithstanding pre-acquisition due diligence, we could acquire a property that contains undisclosed defects in design or construction;

• notwithstanding pre-acquisition due diligence, we could acquire a property that contains undisclosed defects in design or construction;

• an acquired property may be located in a new market where we may face risks associated with investing in an unfamiliar market;

• the market in which an acquired property is located may experience unexpected changes that adversely affect the property’s value;

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• we may acquire properties subject to unknown liabilities and without any recourse, or with limited recourse, such as liability for the cleanup of undisclosed environmental contamination or for claims by tenants, vendors or other persons related to actions taken by former owners of the properties.

acquired properties might require significant management attention that would otherwise be devoted to our other business activities.

For these reasons, among others, we might not realize the anticipated benefits of our acquisitions, and our business plan to acquire additional properties may not succeed or may cause us to experience losses.

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We face significant competition for acquisition opportunities from other investors, including publicly traded and private REITs, numerous financial institutions, individuals, foreign investors and other public and private companies.

We believe that the rapid growth in e-commerce sales, which has intensified as a result of the COVID-19 pandemic, will continue to result in strong demand and increase the competition for industrial real estate.

Some of our competitors may have greater financial and other resources than us.

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Development activities may increase the supply of properties of the type we own in the leasing markets in which we own properties and increase the competition we face.

Competition may make it difficult for us to attract and retain tenants and may reduce the rents we are able to charge.

Competition may make it difficult for us to attract and retain tenants and may reduce the rents we are able to charge and the values of our properties.

The development of new industrial and logistics properties may exceed any increase in demand for such properties.

The continuing strong demand for industrial and logistics properties is encouraging new development of such properties.

We have debt and we may incur additional debt.

As of December 31, 2020, our consolidated indebtedness was $650.0 million and our ratio of consolidated net debt to total gross assets (total assets plus accumulated depreciation) was 41.2%, and we had $529 million available for borrowing under our $750.0 million revolving credit facility.

The agreement governing our revolving credit facility, or our credit agreement, includes a feature under which the maximum borrowing availability may be increased to up to $1.5 billion in certain circumstances.

We are subject to numerous risks associated with our debt, including the risk that our cash flows could be insufficient for us to make required payments on our debt.

There are no limits in our organizational documents on the amount of debt we may incur, and we may incur substantial debt.

Our debt obligations could have important consequences to our securityholders.

Our incurrence of debt may increase our vulnerability to adverse economic, market and industry conditions, limit our flexibility in planning for, or reacting to, changes in our business, and place us at a disadvantage in relation to competitors that have lower debt levels.

Our incurrence of debt could also increase the costs to us of incurring additional debt, increase our exposure to floating interest rates or expose us to potential events of default (if not cured or waived) under covenants contained in debt instruments that could have a material adverse effect on our business, financial condition and operating results.

Excessive debt could reduce the available cash flow to fund, or limit our ability to obtain financing for, working capital, capital expenditures, acquisitions, construction projects, refinancing, lease obligations or other purposes and hinder our ability to make or sustain distributions to our shareholders.

If we default under any of our debt obligations, we may be in default under the agreements governing other debt obligations of ours which have cross default provisions, including our credit agreement.

In such case, our lenders may demand immediate payment of any outstanding indebtedness and we could be forced to liquidate our assets for less than the values we would receive in a more orderly process.

We may fail to comply with the terms of the agreements governing our debt, which could adversely affect our business and may prevent our making distributions to our shareholders.

The agreements governing our debt include various conditions, covenants and events of default.

We may not be able to satisfy all of these conditions or may default on some of these covenants for various reasons, including for reasons beyond our control.

Complying with these covenants may limit our ability to take actions that may be beneficial to us and our securityholders.

For example, our credit agreement requires us to maintain certain debt service ratios.

Our ability to comply with such covenants will depend upon the net rental income we receive from our properties.

If the occupancy at our properties declines or if our rents decline, we may be unable to borrow under our revolving credit facility.

If we are unable to borrow under our revolving credit facility, we may be unable to meet our obligations or grow our business by acquiring additional properties.

If we default under our revolving credit facility, our lenders may demand immediate payment and may elect not to fund future borrowings.

During the continuance of any event of default under our credit agreement, we may be limited or in some cases prohibited from making distributions to our shareholders.

Any default under our credit agreement that results in acceleration of our obligations to repay outstanding indebtedness or in our no longer being permitted to borrow under our revolving credit facility would likely have serious adverse consequences to us and would likely cause the value of our securities to decline.

Similarly, our secured debt agreements also contain financial and/or operating covenants, including, among other things, certain coverage ratios, as well as limitations on the ability to incur secured and unsecured debt.

These covenants may limit our operational flexibility and acquisition and disposition activities.

Moreover, if any of the covenants in these secured debt agreements are breached and not cured within the applicable cure period, we could be required to repay the debt immediately, even in the absence of a payment default.

As a result, covenants which limit our operational flexibility or a default under applicable debt covenants could have an adverse effect on our business, financial condition and results of operations.

In the future, we may obtain additional debt financing, and the covenants and conditions which apply to any such additional debt may be more restrictive than the covenants and conditions that are contained in the existing agreements governing our debt.

Secured indebtedness exposes us to the possibility of foreclosure, which could result in the loss of our investment in certain of our subsidiaries or in a property or group of properties or other assets that secure that indebtedness.

We currently have a $650.0 million mortgage loan secured by 186 of our properties, a $350.0 million mortgage loan secured by 11 properties that are owned by a joint venture in which we own a 22% equity interest, and a $57.0 million mortgage note that is secured by another property owned by such joint venture, subject to certain limitations.

Incurring secured indebtedness, including mortgage indebtedness, increases our risk of asset and property losses because defaults on indebtedness secured by our assets may result in foreclosure actions initiated by lenders and ultimately our loss of the property or other assets securing any loans for which we are in default.

Any foreclosure on a mortgaged property or group of properties could have a material adverse effect on the overall value of our portfolio of properties and more generally on us.

For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the indebtedness secured by the mortgage.

If the outstanding balance of the indebtedness secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could materially and adversely affect us.

REIT distribution requirements and limitations on our ability to access reasonably priced capital may adversely impact our ability to carry out our business plan.

To maintain our qualification for taxation as a REIT under the IRC, we are required to satisfy distribution requirements imposed by the IRC.

See “Material United States Federal Income Tax Considerations—REIT Qualification Requirements—Annual Distribution Requirements” included in Part I, Item 1 of this Annual Report on Form 10-K.

Accordingly, we may not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties or fund our acquisitions or development or redevelopment efforts.

Our business strategies therefore depend, in part, upon our ability to raise additional capital at reasonable costs.

The volatility in the availability of capital to businesses on a global basis in most debt and equity markets generally may limit our ability to raise reasonably priced capital.

Changes in market interest rates, including changes that may result from the expected phase out of LIBOR, may adversely affect us.

Since the most recent U.S.

recession, the Board of Governors of the U.S.

Interest rates have remained at relatively low levels on a historical basis, and the U.S.

Federal Reserve System, or the U.S.

Federal Reserve, has taken actions which have resulted in low interest rates prevailing in the marketplace for a historically long period of time.

Federal Reserve steadily increased the targeted federal funds rate over the last several years, but recently took action to decrease the federal funds rate and may continue to make adjustments in the near future.

In addition, as noted in Part II, Item 7A of this Annual Report, LIBOR is expected to be phased out in 2021.

The interest rate under our revolving credit facility is based on LIBOR and future debt we may incur may also be based on LIBOR.

We currently expect that the determination of interest under our revolving credit facility would be based on the alternative rates provided under the agreement governing our revolving credit facility, or our credit agreement, or would be revised to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR.

Federal Reserve, has indicated that it does not expect to raise interest rates in response to the COVID-19 pandemic and current market conditions until at least the end of 2023.

There can be no assurance, however, that the U.S.

Federal Reserve will not raise rates prior to that time.

Low market interest rates, particularly if they remain over a sustained period, may increase our use of debt capital to fund property acquisitions, lower capitalization rates for property purchases and increase competition for property purchases, which may reduce our ability to acquire new properties.

In addition, as noted in Part II, Item 7A of this Annual Report on Form 10-K, LIBOR is currently expected to be phased out for new contracts by December 31, 2021 and for pre-existing contracts by June 30, 2023.

The interest rate under our revolving credit facility is based on LIBOR and the interest we may pay on any future debt we may incur may also be based on LIBOR.

We currently expect that the determination of interest under our revolving credit facility would be based on the alternative rates provided under our credit agreement or would be revised to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR.

Despite our current expectations, we cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest under our credit agreement would approximate the current calculation in accordance with LIBOR.

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When interest rates increase, our interest costs will increase, which could adversely affect our cash flows, our ability to pay principal and interest on our debt, our cost of refinancing our fixed rate debts when they become due and our ability to make or sustain distributions to our shareholders.

Additionally, if we choose to hedge our interest rate risk, we cannot be sure that the hedge will be effective or that our hedging counterparty will meet its obligations to us.

Additionally, if we choose to hedge our interest rate

risk, we cannot be sure that the hedge will be effective or that our hedging counterparty will meet its obligations to us.

• Property values are often determined, in part, based upon a capitalization of rental income formula.

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Increases in interest rates could lower the value of our properties and cause the value of our securities to decline.

Low market interest rates, particularly if they remain over a sustained period, may increase our use of debt capital to fund property acquisitions, lower capitalization rates for property purchases and increased competition for property purchases, which may reduce our ability to acquire new properties.

Ownership of real estate is subject to environmental risks and liabilities.

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In addition, these laws also impose various requirements regarding the operation and maintenance of properties and recordkeeping and reporting requirements relating to environmental matters that require us or the tenants of our properties to incur costs to comply with.

We may incur substantial liabilities and costs for environmental matters.

We may incur environmental liabilities at our leased properties and our tenants may not indemnify us for those costs.

Our leases generally require our tenants to operate in compliance with applicable law and to indemnify us against any environmental liabilities arising from their activities on our properties.

However, applicable law may make us subject to strict liability by virtue of our ownership interests.

Also, our tenants may be unwilling or have insufficient financial resources to satisfy their indemnification obligations under our leases.

Further, the loan agreement governing our $650.0 million mortgage loan 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.

While our leases generally require our tenants to operate in compliance with applicable law and to indemnify us against any environmental liabilities arising from their activities on our properties, applicable law may make us subject to strict liability by virtue of our ownership interests.

Also, our tenants may have insufficient financial resources to satisfy their indemnification obligations under our leases or they may resist doing so.

Furthermore, such liabilities or obligations may affect the ability of some tenants to pay their rents to us.

Further, in the Transaction Agreement, we have agreed to indemnify OPI (as successor by merger to SIR) for any liabilities it incurs with respect to any preexisting environmental conditions at the properties SIR contributed to us in connection with our IPO.

As of December 31, 2020, we had reserved approximately $6.9 million for potential environmental liabilities arising at our properties.

Ownership of real estate is subject to risks from adverse weather and climate events.

We may incur substantial liabilities and costs for environmental matters.

Ownership of real estate is subject to risks from adverse weather, natural disasters and climate events.

Severe weather may have an adverse effect on certain properties we own.

Rising sea levels could cause flooding at some of our properties, including some of our Hawaii Properties, which may have an adverse effect on individual properties we own.

When major weather or climate-related events, such as hurricanes, floods and wildfires, occur at or near our properties, our tenants may need to suspend operations of the impacted property until the event has ended and the property is then ready for operation.

We or the tenants of our properties may incur significant costs and losses as a result of these activities, both in terms of operating, preparing and repairing our properties in anticipation of, during and after a severe weather or climate-related event and in terms of potential lost business due to the interruption in operating our properties.

Rising sea levels could cause flooding at some of our properties, including some of our Hawaii Properties, which may have an adverse effect on properties we own.

When major weather, natural disasters or climate-related events, such as hurricanes, floods and wildfires, occur at or near our properties, our tenants may need to suspend operations of the impacted property until the event has ended and the property is then ready for operation.

We or the tenants of our properties may incur significant costs and losses as a result of these activities, both in terms of operating, preparing and repairing our properties in anticipation of, during and after a severe weather, natural disaster or climate-related event and in terms of potential lost business due to the interruption in operating our properties.

Our insurance and our tenants’ insurance may not adequately compensate us or them for these costs and losses.

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These and other laws may cause energy or other costs at our properties to increase.

Laws enacted to mitigate climate change may make some of our properties obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants and their ability to pay rent to us and cause the value of our securities to decline.

In addition, concerns about climate change and increasing storm intensities may increase the cost of insurance for our properties or potentially render it unavailable to obtain.

Real estate ownership creates risks and liabilities.

In addition to the risks discussed above, our business is subject to other risks associated with real estate ownership, including:

the illiquid nature of real estate markets, which limits our ability to sell our assets rapidly to respond to changing market conditions;

the subjectivity of real estate valuations and changes in such valuations over time;

current and future adverse national real estate trends, including increasing vacancy rates, declining rental rates and general deterioration of market conditions;

costs that may be incurred relating to property maintenance and repair, and the need to make expenditures due to changes in government regulations;

liabilities and litigations arising from injuries on our properties or otherwise incidental to the ownership of our properties.

Insurance may not adequately cover our losses, and the costs of obtaining such insurance may continue to increase.

Our existing and any future joint ventures may limit our flexibility with jointly owned investments and we may not realize the benefits we expect from these arrangements.

We are currently party to a joint venture, and we may in the future sell or contribute additional properties or acquire, develop or recapitalize properties to or in this joint venture or other joint ventures that we may enter.

Our participation in our existing joint venture is subject to risks, including the following:

• we share approval rights over major decisions affecting the ownership or operation of the joint venture and any property owned by the joint venture;

• we may need to contribute additional capital in order to preserve, maintain or grow the joint venture and its investments;

• our joint venture investors may have economic or other business interests or goals that are inconsistent with our business interests or goals and that could affect our ability to lease, relet or operate the properties owned by the joint venture or maintain our or the joint venture’s qualification for taxation as a REIT;

• our joint venture investors may be subject to different laws or regulations than us, or may be structured differently than us for tax purposes, which could create conflicts of interest and/or affect our ability to maintain our qualification for taxation as a REIT;

• our ability to sell our interest in, or sell additional properties to, the joint venture or the joint venture’s ability to sell additional interests of, or properties owned by, the joint venture when we so desire are subject to the approval rights of the other joint venture investors under the terms of the agreements governing the joint venture;

• disagreements with our joint venture investors could result in litigation or arbitration that could be expensive and distracting to management and could delay important decisions.

Any of the foregoing risks could have a material adverse effect on our business, financial condition and results of operations.

Further, these, similar, enhanced or additional risks, including possible mandatory capital contribution requirements, may apply to any future additional or amended joint ventures that we may enter into.

Insurance may not adequately cover our losses, and insurance costs may continue to increase.

The tenants at our properties are generally responsible for the costs of insurance, including for casualty, liability, fire, extended coverage and rental or business interruption loss insurance.

In the future, we may acquire properties for which we are responsible for the costs of insurance.

Recently, the costs of insurance have increased significantly, and these increased costs have had an adverse effect on us and our tenants.

Increased insurance costs may adversely affect our tenants' ability to pay us rent or result in downward pressure on rents we can charge under new or renewed leases.

Losses of a catastrophic nature, such as those caused by hurricanes, flooding, volcanic eruptions and earthquakes, among other things, or losses from terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we or a responsible tenant may not be able to pay.

In the past few years, the costs of insurance have increased significantly, and these increased costs have had an adverse effect on us and our tenants.

Increased insurance costs may adversely affect our tenants’ abilities to pay us rent or result in downward pressure on rents we can charge under new or renewed leases.

Losses of a catastrophic nature, such as those caused by hurricanes, flooding, volcanic eruptions and earthquakes, among other things, losses as a result of outbreaks of pandemics, including the COVID-19 pandemic, or losses from terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we or a tenant may not be able to pay.

Insurance proceeds may not be adequate to restore an affected property to its condition prior to a loss or to compensate us for our losses, including the loss of future revenues from an affected property.

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In addition, future changes in the insurance industry’s risk assessment approach and pricing structure could further increase the cost of insuring our properties or decrease the scope of insurance coverage, either of which could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our shareholders.

We have debt and we may incur additional debt.

As of December 31, 2019, our consolidated indebtedness was $ 1.4 billion and our ratio of consolidated debt to total gross assets (total assets plus accumulated depreciation) was 54.4% , and we had $440.0 million available for borrowing under our $750.0 million revolving credit facility.

Our credit agreement includes a feature under which the maximum borrowing availability may be increased to up to $1.5 billion in certain circumstances.

We are subject to numerous risks associated with our debt, including the risk that our cash flows could be insufficient to meet required payments on our debt.

There are no limits in our organizational documents on the amount of debt we may incur, and we may incur substantial debt.

Our debt obligations could have important consequences to our securityholders.

Our incurring debt could also increase the costs to us of incurring additional debt, increase our exposure to floating interest rates or expose us to potential events of default (if not cured or waived) under covenants contained in debt instruments that could have a material adverse effect on our business, financial condition and operating results.

We may fail to comply with the terms of our credit agreement, which could adversely affect our business and may prevent our making distributions to our shareholders.

Our credit agreement includes various conditions, covenants and events of default.