Industrial Logistics Properties Trust 10-Q

Item 1. Financial Statements INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) (unaudited) June 30, December 31, 2021 2020 ASSETS Real estate properties: Land $ 712,909 $ 709,099 Buildings and improvements 1,128,255 1,099,971 Total real estate properties, gross 1,841,164 1,809,070 Accumulated depreciation ( 156,644 ) ( 141,406 ) Total real estate properties, net 1,684,520 1,667,664 Investment in unconsolidated joint venture 62,923 60,590 Acquired real estate leases, net 76,889 83,644 Cash and cash equivalents 30,512 22,834 Rents receivable, including straight line rents of $ 66,748 and $ 62,753 , respectively 72,507 69,511 Deferred leasing costs, net 5,457 4,595 Debt issuance costs, net 738 1,477 Due from related persons — 2,665 Other assets, net 1,141 2,765 Total assets $ 1,934,687 $ 1,915,745 LIABILITIES AND SHAREHOLDERS' EQUITY Revolving credit facility $ 244,000 $ 221,000 Mortgage notes payable, net 645,851 645,579 Assumed real estate lease obligations, net 13,514 14,630 Accounts payable and other liabilities 14,473 14,716 Rents collected in advance 8,948 7,811 Security deposits 6,761 6,540 Due to related persons 2,064 2,279 Total liabilities 935,611 912,555 Commitments and contingencies Shareholders' Equity: Common shares of beneficial interest, $ .01 par value: 100,000,000 shares authorized; 65,314,355 and 65,301,088 shares issued and outstanding, respectively 653 653 Additional paid in capital 1,011,636 1,010,819 Cumulative net income 262,394 224,226 Cumulative common distributions ( 275,607 ) ( 232,508 ) Total shareholders' equity 999,076 1,003,190 Total liabilities and shareholders' equity $ 1,934,687 $ 1,915,745 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (amounts in thousands, except per share data) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Rental income $ 54,180 $ 65,110 $ 108,397 $ 129,388 Expenses: Real estate taxes 7,489 8,932 14,736 17,743 Other operating expenses 4,341 5,041 9,317 10,222 Depreciation and amortization 11,830 18,525 24,508 36,815 Acquisition and certain other transaction related costs 646 — 646 — General and administrative 4,234 4,846 7,990 9,677 Total expenses 28,540 37,344 57,197 74,457 Interest income — 2 — 113 Interest expense (including net amortization of debt issuance costs, premiums and discounts of $ 506 , $ 642 , $ 1,011 and $ 1,229 , respectively) ( 8,643 ) ( 13,205 ) ( 17,384 ) ( 27,724 ) Gain on early extinguishment of debt — 120 — 120 Income before income tax expense and equity in earnings of investees 16,997 14,683 33,816 27,440 Income tax expense ( 42 ) ( 126 ) ( 105 ) ( 189 ) Equity in earnings of investees 1,876 — 4,457 — Net income 18,831 14,557 38,168 27,251 Net loss attributable to noncontrolling interest — 264 — 416 Net income attributable to common shareholders $ 18,831 $ 14,821 $ 38,168 $ 27,667 Weighted average common shares outstanding - basic 65,146 65,089 65,142 65,082 Weighted average common shares outstanding - diluted 65,207 65,091 65,192 65,087 Per common share data (basic and diluted): Net income attributable to common shareholders $ 0.29 $ 0.23 $ 0.58 $ 0.42 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollars in thousands) (unaudited) Number of Additional Cumulative Common Common Paid In Cumulative Common Total Shares Shares Capital Net Income Distributions Equity Balance at December 31, 2020 65,301,088 $ 653 $ 1,010,819 $ 224,226 $ ( 232,508 ) $ 1,003,190 Net income (loss) — — — 19,337 — 19,337 Share grants — — 239 — — 239 Distributions to common shareholders — — — — ( 21,550 ) ( 21,550 ) Balance at March 31, 2021 65,301,088 653 1,011,058 243,563 ( 254,058 ) 1,001,216 Net income (loss) — — — 18,831 — 18,831 Share grants 21,000 — 780 — — 780 Share repurchases ( 7,733 ) — ( 202 ) — — ( 202 ) Distributions to common shareholders — — — — ( 21,549 ) ( 21,549 ) Balance at June 30, 2021 65,314,355 $ 653 $ 1,011,636 $ 262,394 $ ( 275,607 ) $ 999,076 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollars in thousands) (unaudited) Total Equity Total Equity Number of Additional Cumulative Attributable to Attributable to Common Common Paid In Cumulative Common Common Noncontrolling Total Shares Shares Capital Net Income Distributions Shareholders Interest Equity Balance at December 31, 2019 65,180,628 $ 652 $ 999,302 $ 142,155 $ ( 146,419 ) $ 995,690 $ — $ 995,690 Net income (loss) — — — 12,846 — 12,846 ( 152 ) 12,694 Share grants 6,000 — 326 — — 326 — 326 Share repurchases ( 951 ) — ( 18 ) — — ( 18 ) — ( 18 ) Distributions to common shareholders — — — — ( 21,510 ) ( 21,510 ) — ( 21,510 ) Contributions from noncontrolling interest — — 6,972 — — 6,972 100,668 107,640 Balance at March 31, 2020 65,185,677 652 1,006,582 155,001 ( 167,929 ) 994,306 100,516 1,094,822 Net income (loss) — — — 14,821 — 14,821 ( 264 ) 14,557 Share grants 24,500 — 654 — — 654 — 654 Share repurchases ( 613 ) — ( 13 ) — — ( 13 ) — ( 13 ) Distributions to common shareholders — — — — ( 21,511 ) ( 21,511 ) — ( 21,511 ) Distributions to noncontrolling interest — — — — — — ( 1,898 ) ( 1,898 ) Balance at June 30, 2020 65,209,564 $ 652 $ 1,007,223 $ 169,822 $ ( 189,440 ) $ 988,257 $ 98,354 $ 1,086,611 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Six Months Ended June 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 38,168 $ 27,251 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 15,257 22,789 Net amortization of debt issuance costs, premiums and discounts 1,011 1,229 Amortization of acquired real estate leases and assumed real estate lease obligations 8,503 13,025 Amortization of deferred leasing costs 402 610 Straight line rental income ( 3,995 ) ( 4,063 ) Gain on early extinguishment of debt — ( 120 ) Other non-cash expenses 1,019 980 Unconsolidated joint venture distributions 1,320 — Equity in earnings of investees ( 4,457 ) — Change in assets and liabilities: Rents receivable 999 ( 447 ) Deferred leasing costs ( 1,205 ) ( 273 ) Due from related persons 2,665 481 Other assets 1,624 1,380 Accounts payable and other liabilities 153 2,269 Rents collected in advance 1,137 ( 1,947 ) Security deposits 221 ( 83 ) Due to related persons ( 215 ) ( 182 ) Net cash provided by operating activities 62,607 62,899 CASH FLOWS FROM INVESTING ACTIVITIES: Real estate acquisitions and deposits ( 34,081 ) ( 71,628 ) Real estate improvements ( 1,351 ) ( 3,089 ) Proceeds from sale of joint venture 804 — Distributions in excess of earnings from Affiliates Insurance Company — 287 Net cash used in investing activities ( 34,628 ) ( 74,430 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving credit facility 36,000 180,000 Repayments of revolving credit facility ( 13,000 ) ( 170,000 ) Repayment of mortgage note payable — ( 48,750 ) Distributions to common shareholders ( 43,099 ) ( 43,021 ) Proceeds from noncontrolling interest, net — 107,640 Distributions to noncontrolling interest — ( 1,898 ) Repurchase of common shares ( 202 ) ( 31 ) Net cash (used in) provided by financing activities ( 20,301 ) 23,940 Increase (decrease) in cash, cash equivalents and restricted cash 7,678 12,409 Cash, cash equivalents and restricted cash at beginning of period 22,834 34,550 Cash, cash equivalents and restricted cash at end of period $ 30,512 $ 46,959 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (dollars in thousands) (unaudited) Six Months Ended June 30, 2021 2020 SUPPLEMENTAL DISCLOSURES: Interest paid $ 16,184 $ 26,914 Income taxes paid $ 167 $ 199 NON-CASH INVESTING ACTIVITIES: Real estate improvements accrued, not paid $ 174 $ 1,137 SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH: The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows: As of June 30, 2021 2020 Cash and cash equivalents $ 30,512 $ 33,256 Restricted cash — 13,703 Total cash, cash equivalents and restricted cash shown in the statements of cash flows $ 30,512 $ 46,959 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Note 1. Basis of Presentation The accompanying condensed consolidated financial statements of Industrial Logistics Properties Trust and its consolidated subsidiaries, or the Company, ILPT, we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2020, or our 2020 Annual Report. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets, impairments of real estate and related intangibles. Note 2. Real Estate Investments As of June 30, 2021, our portfolio was comprised of 291 wholly owned properties containing approximately 35,201,000 rentable square feet, including 226 buildings, leasable land parcels and easements containing approximately 16,729,000 rentable square feet of primarily industrial lands located on the island of Oahu, Hawaii, or our Hawaii Properties, and 65 properties containing approximately 18,472,000 rentable square feet of industrial properties located in 31 other states, or our Mainland Properties. As of June 30, 2021, we also owned a 22 % equity interest in an unconsolidated joint venture which owns 12 properties located in nine states totaling approximately 9,227,000 rentable square feet. We operate in one business segment: ownership and leasing of properties that include industrial and logistics buildings and leased industrial lands. For the three months ended June 30, 2021 and 2020, approximately 51.3 % and 41.3 %, respectively, of our rental income was from our Hawaii Properties. For the six months ended June 30, 2021 and 2020, approximately 50.8 % and 41.2 %, respectively, of our rental income was from our Hawaii Properties. In addition, subsidiaries of Amazon.com, Inc., which are tenants at certain of our Mainland Properties, accounted for $ 5,348 , or 9.9 %, and $ 10,399 , or 16.0 %, of our rental income for the three months ended June 30, 2021 and 2020, respectively, and $ 10,886 , or 10.0 %, and $ 20,061 , or 15.5 %, of our rental income for the six months ended June 30, 2021 and 2020, respectively. During the six months ended June 30, 2021, we acquired one parcel of developable land and one property containing 357,504 rentable square feet for an aggregate purchase price of $ 34,081 , including acquisition related costs of $ 381 . These acquisitions were accounted for as asset acquisitions. We allocated the purchase prices for these acquisitions based on the estimated fair value of the acquired assets as follows: Number Rentable Buildings Acquired of Square Purchase and Real Estate Date Market Area Properties Feet Price Land Improvements Leases May 2021 Dallas, TX 1 — $ 2,319 $ 2,319 $ — $ — June 2021 Columbus, OH 1 357,504 31,762 1,491 27,407 2,864 2 357,504 $ 34,081 $ 3,810 $ 27,407 $ 2,864 During the six months ended June 30, 2021, we committed $ 4,547 for expenditures related to leasing related costs for leases executed during the period for approximately 1,184,000 square feet. Committed but unspent tenant related obligations based on existing leases as of June 30, 2021 were $ 1,730 . Certain of our industrial lands in Hawaii may require environmental remediation, especially if the use of those lands is changed; however, we do not have plans to change the use of those lands. As of both June 30, 2021 and December 31, 2020, accrued environmental remediation costs of $ 6,940 were included in accounts payable and other liabilities in our condensed consolidated balance sheets. These accrued environmental remediation costs relate to maintenance of our properties for current 9 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) uses, and, because of the indeterminable timing of the remediation, these amounts have not been discounted to present value. In general, we do not have any insurance designated to limit any losses that we may incur as a result of known or unknown environmental conditions which are not caused by an insured event, such as fire or flood, although some of our tenants may maintain such insurance that may benefit us. Although we do not believe that there are environmental conditions at any of our properties that will have a material adverse effect on us, we cannot be sure that such conditions are not present at our properties or that costs we incur to remediate contamination will not have a material adverse effect on our business or financial condition. Charges for environmental remediation costs, if any, are included in other operating expenses in our condensed consolidated statements of comprehensive income. Joint Venture Activities As of June 30, 2021, we have an equity investment in a joint venture that consists of the following: ILPT Carrying Value of ILPT Investment at June 30, Number of Square Joint Venture Ownership 2021 Properties Location Feet 12 properties 22 % $ 62,923 12 Nine states 9,226,729 The following table provides a summary of the mortgage debts of our joint venture: Principal Balance at June 30, Joint Venture Coupon Rate (1) Maturity Date 2021 (2) Mortgage note payable (secured by one property in Florida) 3.60 % 10/1/2023 $ 56,980 Mortgage note payable (secured by 11 other properties in eight states) 3.33 % 11/7/2029 350,000 Weighted average/total 3.37 % $ 406,980 (1) Includes the effect of mark to market purchase accounting. (2) Amounts are not adjusted for our minority interest; none of the debt is recourse to us. During the six months ended June 30, 2020, we entered into agreements related to a joint venture for 12 of our properties in the mainland United States, or our joint venture, with an Asian institutional investor and contributed those 12 properties to our joint venture. We received an aggregate of $ 108,266 from that investor for a 39 % equity interest in our joint venture and we retained the remaining 61 % equity interest in our joint venture. During the six months ended June 30, 2020, we incurred transaction costs of $ 626 in connection with the formation of our joint venture. We recognized a 39 % noncontrolling interest in our condensed consolidated financial statements for the three and six months ended June 30, 2020. The portion of our joint venture's net loss not attributable to us, or $ 264 and $ 416 for the three and six months ended June 30, 2020, respectively, is reported as noncontrolling interest in our condensed consolidated statements of comprehensive income. During the three and six months ended June 30, 2020, our joint venture made aggregate cash distributions of $ 1,898 to the first joint venture investor, which were reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets. In November 2020, we sold an additional 39 % equity interest from our then remaining 61 % equity interest to a second unrelated third party institutional investor and retained a 22 % equity interest in our joint venture. Effective as of the date of the sale, we deconsolidated our joint venture and, since that time, we account for our joint venture using the equity method of accounting under the fair value option. During the three and six months ended June 30, 2021, we recorded an increase in the fair value of our investment in our joint venture of $ 1,876 and $ 4,457 , respectively, as equity in earnings of investees in our condensed consolidated statements of comprehensive income. In addition, during the three and six months ended June 30, 2021, our joint venture made aggregate cash distributions of $ 660 and $ 1,320 , respectively, to us. See Note 5 for more information regarding our joint venture. 10 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) Note 3. Leases We are a lessor of industrial and logistics properties. Our leases provide our tenants with the contractual right to use and economically benefit from all the physical space specified in the leases; therefore, we have determined to evaluate our leases as lease arrangements. Our leases provide for base rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. We do not include in our measurement of our lease receivables certain variable payments, including payments determined by changes in the index or market-based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. Such payments totaled $ 9,383 and $ 11,640 for the three months ended June 30, 2021 and 2020, respectively, of which tenant reimbursements totaled $ 9,138 and $ 11,395 , respectively, and $ 19,255 and $ 23,160 for the six months ended June 30, 2021 and 2020, respectively, of which tenant reimbursements totaled $ 18,765 and $ 22,670 , respectively. We increased rental income to record revenue on a straight line basis by $ 1,951 and $ 2,096 for the three months ended June 30, 2021 and 2020, respectively, and $ 3,995 and $ 4,063 for the six months ended June 30, 2021 and 2020, respectively. Rents receivable included $ 66,748 and $ 62,753 of straight line rents at June 30, 2021 and December 31, 2020, respectively. During the year ended December 31, 2020, certain of our tenants requested, and we granted, relief from their obligations to pay rent due to us in response to the economic conditions resulting from the COVID-19 pandemic. In most cases, the tenants granted deferrals were obligated to pay the deferred rents in 12 equal monthly installments beginning in September 2020. As of June 30, 2021 and December 31, 2020, deferred payments totaling $ 1,383 and $ 2,630 , respectively, are included in rents receivable in our condensed consolidated balance sheets. These deferred amounts did not impact our operating results for the three or six months ended June 30, 2021 or 2020. Note 4. Indebtedness As of June 30, 2021, our outstanding indebtedness consisted of the following: Net Book Value Principal Balance as of of Collateral June 30, December 31, Interest At June 30, 2021 (1) 2020 (1) Rate Maturity 2021 Unsecured revolving credit facility (2) $ 244,000 $ 221,000 1.40 % Dec 2021 $ — Mortgage notes payable (secured by 186 properties in Hawaii) 650,000 650,000 4.31 % Feb 2029 491,357 894,000 871,000 $ 491,357 Unamortized debt issuance costs ( 4,149 ) ( 4,421 ) $ 889,851 $ 866,579 (1) The principal balances are the amounts stated in contracts. In accordance with GAAP, our carrying values and recorded interest expense may be different because of market conditions at the time we assumed certain of these debts. (2) The maturity date of our revolving credit facility is December 29, 2021 and we have the option to extend the maturity date for two , six month periods through December 29, 2022. 11 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) We have a $ 750,000 unsecured revolving credit facility that is available for our general business purposes, including acquisitions. The maturity date of our revolving credit facility is December 29, 2021. We may borrow, repay and reborrow funds under our revolving credit facility until maturity, and no principal repayment is due until maturity. Interest on borrowings under our revolving credit facility is calculated at floating rates based on LIBOR plus a premium that varies based on our leverage ratio. We have the option to extend the maturity date of our revolving credit facility for two , six month periods, subject to payment of extension fees and satisfaction of other conditions. We are also required to pay a commitment fee on the unused portion of our revolving credit facility. The agreement governing our revolving credit facility, or our credit agreement, also includes a feature under which the maximum borrowing availability under our revolving credit facility may be increased to up to $ 1,500,000 in certain circumstances. As of June 30, 2021, interest payable on the amount outstanding under our revolving credit facility was LIBOR plus 130 basis points and our commitment fee was 25 basis points. As of June 30, 2021 and December 31, 2020, the interest rate payable on borrowings under our revolving credit facility was 1.40 % and 1.70 %, respectively. The weighted average interest rate for borrowings under our revolving credit facility was 1.41 % and 2.04 % for the three months ended June 30, 2021 and 2020, respectively, and 1.49 % and 2.80 % for the six months ended June 30, 2021 and June 30, 2020, respectively. As of June 30, 2021 and July 26, 2021, we had $ 244,000 outstanding under our revolving credit facility, and $ 506,000 available to borrow under our revolving credit facility. Our credit agreement provides for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business manager and property manager. Our credit agreement also contains a number of covenants, including covenants that restrict our ability to incur debts or to make distributions in certain circumstances, and generally requires us to maintain certain financial ratios. We believe we were in compliance with the terms and conditions of the covenants under our credit agreement at June 30, 2021. In May 2020, we prepaid at par plus accrued interest a mortgage note secured by one of our properties with an outstanding principal balance of approximately $ 48,750 , an annual interest rate of 3.48 % and a maturity date in November 2020. As a result of the prepayment of this mortgage note, we recorded a gain on early extinguishment of debt of $ 120 for the three and six months ended June 30, 2020 to write off unamortized debt premiums. Note 5. Fair Value of Assets and Liabilities Our financial instruments include cash and cash equivalents, restricted cash, rents receivable, our revolving credit facility, mortgage notes payable, accounts payable, rents collected in advance, security deposits and amounts due from or to related persons. At June 30, 2021 and December 31, 2020, the fair value of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or floating interest rates, except as follows: At June 30, 2021 At December 31, 2020 Carrying Estimated Carrying Estimated Value (1) Fair Value Value (1) Fair Value Mortgage notes payable $ 645,851 $ 719,023 $ 645,579 $ 730,119 (1) Includes unamortized debt issuance costs of $ 4,149 and $ 4,421 as of June 30, 2021 and December 31, 2020, respectively. We estimate the fair value of our mortgage notes payable using discounted cash flow analyses and currently prevailing market rates as of the measurement date (Level 3 inputs). Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value. 12 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) The table below presents certain of our assets measured on a recurring basis at fair value at June 30, 2021 , categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset: Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) Recurring fair value measurements Investment in unconsolidated joint venture (1) $ 62,923 $ — $ — $ 62,923 (1) We own a 22 % equity interest in a joint venture that owns 12 properties and is included in investment in unconsolidated joint venture in our condensed consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs). The significant unobservable inputs used in the fair value are discount rates of between 4.8 % and 7.3 %, exit capitalization rates of between 4.4 % and 6.8 %, holding periods of approximately 10 years and market rents. The assumptions are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from appraisers, industry publications and our experience. See Note 2 for further information regarding our investment in this joint venture. Note 6. Shareholders’ Equity Common Share Awards On June 2, 2021, in accordance with our Trustee compensation arrangements, we awarded to each of our six Trustees 3,500 of our common shares, valued at $ 25.62 per share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day. Share Repurchases During the six months ended June 30, 2021, we purchased an aggregate of 7,733 of our common shares valued at a weighted average share price of $ 26.14 per share, from certain former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares. Distributions During the six months ended June 30, 2021, we declared and paid regular quarterly distributions to common shareholders as follows: Declaration Date Record Date Payment Date Distribution Per Share Total Distribution January 14, 2021 January 25, 2021 February 18, 2021 $ 0.33 $ 21,550 April 15, 2021 April 26, 2021 May 20, 2021 0.33 21,549 $ 0.66 $ 43,099 On July 15, 2021, we declared a regular quarterly distribution to common shareholders of record on July 26, 2021 of $ 0.33 per share, or approximately $ 21,550 in aggregate. We expect to pay this distribution to our shareholders on or about August 19, 2021. 13 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) Note 7. Per Common Share Amounts We calculate basic earnings per common share by dividing net income attributable to common shareholders by the weighted average number of our common shares outstanding during the period. We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method. Unvested common share awards and other potentially dilutive common shares, and the related impact on earnings, are considered when calculating diluted earnings per share. The calculation of basic and diluted earnings per share is as follows: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Numerators: Net income attributable to common shareholders $ 18,831 $ 14,821 $ 38,168 $ 27,667 Income attributable to unvested participating securities ( 47 ) ( 24 ) ( 95 ) ( 45 ) Net income attributable to common shareholder used in calculating earnings per share $ 18,784 $ 14,797 $ 38,073 $ 27,622 Denominators: Weighted average common shares for basic earnings per share 65,146 65,089 65,142 65,082 Effect of dilutive securities: unvested share awards 61 2 50 5 Weighted average common shares for diluted earnings per share 65,207 65,091 65,192 65,087 Net income attributable to common shareholders per common share - basic $ 0.29 $ 0.23 $ 0.58 $ 0.42 Net income attributable to common shareholders per common share - diluted $ 0.29 $ 0.23 $ 0.58 $ 0.42 Note 8. Business and Property Management Agreements with RMR LLC We have no employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have two agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to our property level operations. Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $ 2,580 and $ 5,124 for the three and six months ended June 30, 2021, respectively, and $ 3,277 and $ 6,584 for the three and six months ended June 30, 2020, respectively. T he net business management fees we recognized for the three and six months ended June 30, 2020 include $ 347 and $ 476 , respectively, of management fees paid to RMR LLC for those periods by our joint venture we then owned a majority interest in and whose operating results we reported on a consolidated basis. Beginning in November 2020, our ownership in our joint venture was reduced to a minority interest; as a result, we ceased at that time to consolidate our joint venture’s operating results and, since then, we do not include the management fees it pays to RMR LLC in the management fees we pay to RMR LLC. Our joint venture is further described in Notes 2 and 9. Based on our common share total return, as defined in our business management agreement, as of June 30, 2021 and 2020, no incentive fees are included in the net business management fees we recognized for the three or six months ended June 30, 2021 or 2020. The actual amount of annual incentive fees for 2021, if any, will be based on our common share total return, as defined in our business management agreement, for the three year period ending December 31, 2021, and will be payable in January 2022. We did no t incur any incentive fee payable to RMR LLC for the year ended December 31, 2020. We include business management fees in general and administrative expenses in our condensed consolidated statements of comprehensive income. Pursuant to our property management agreement with RMR LLC, we recognized aggregate property management and construction supervision fees of $ 1,591 and $ 3,185 for the three and six months ended June 30, 2021, respectively, and $ 1,860 and $ 3,783 for the three and six months ended June 30, 2020, respectively. Of these amounts, for the three and six months ended June 30, 2021, $ 1,571 and $ 3,153 , respectively, were expensed to other operating expenses in our condensed consolidated financial statements and $ 20 and $ 32 were capitalized as building improvements in our condensed consolidated balance sheets and are being depreciated over the estimated useful lives of the related capital assets. For the three and six months ended June 30, 2020, $ 1,813 and $ 3,673 , respectively, were expensed to other operating expenses in our condensed 14 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) consolidated financial statements and $ 47 and $ 110 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets and are being depreciated over the estimated useful lives of the related capital assets. We are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. We are generally not responsible for payment of RMR LLC’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR LLC’s centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit function, or as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC. We reimbursed RMR LLC $ 1,125 and $ 2,267 for these expenses and costs for the three and six months ended June 30, 2021, respectively, and $ 1,217 and $ 2,416 for the three and six months ended June 30, 2020, respectively. These amounts are included in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income. See Note 9 for further information regarding our relationships, agreements and transactions with RMR LLC. Note 9. Related Person Transactions We have relationships and historical and continuing transactions with RMR LLC, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR LLC is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC. John Murray, our other Managing Trustee and our President and Chief Executive Officer, also serves as an officer and employee of RMR LLC, and each of our other officers is also an officer and employee of RMR LLC. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as chair of the boards of trustees or boards of directors of several of these public companies and as a managing director or managing trustee of these public companies. Other officers of RMR LLC, including Mr. Murray and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies. Our Manager, RMR LLC . We have two agreements with RMR LLC to provide management services to us. See Note 8 for further information regarding our management agreements with RMR LLC. For further information about these and other such relationships and certain other related person transactions, see our 2020 Annual Report. Our Joint Venture . As of December 31, 2020, our joint venture owed to us $ 2,665 for post-closing adjustments relating to our sale of some of our equity interests in the joint venture to a second third party institutional investor in November 2020. Our joint venture paid these amounts due to us during the six months ended June 30, 2021. TA. In May 2021, we acquired a property located in the Dallas, Texas market from TravelCenters of America Inc., or TA, for a purchase price of $ 2,319 , including acquisition related costs of $ 119 . RMR LLC provides management services to TA and Mr. Portnoy serves as the chair of the board of directors and as a managing director of TA. See Note 2 for further information regarding this acquisition. 15 Table of Contents