What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-27 compared with 2021-07-28 · 128 added, 121 removed, 364 unchanged (41% of the section changed)

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

As of June 30, 2021, our portfolio was comprised of 291 wholly owned properties containing approximately 35.2 million rentable square feet, including 226 buildings, leasable land parcels and easements containing approximately 16.7 million rentable square feet located on the island of Oahu, Hawaii, and 65 properties containing approximately 18.5 million rentable square feet located in 31 other states.

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 containing approximately 9.2 million rentable square feet that were 100% leased with an average (by annualized rental revenues) remaining lease term of 7.7 years.

As of June 30, 2021, our consolidated properties were approximately 99.0% leased (based on rentable square feet) to 259 different tenants with a weighted average remaining lease term (based on annualized rental revenues) of approximately 9.2 years.

We define the term annualized rental revenues as used in this section as the annualized contractual rents, as of June 30, 2021, 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 September 30, 2021, our portfolio was comprised of 294 wholly owned properties containing approximately 36.5 million rentable square feet, including 226 buildings, leasable land parcels and easements containing approximately 16.7 million rentable square feet located on the island of Oahu, Hawaii, and 68 properties containing approximately 19.8 million rentable square feet located in 32 other states.

As of September 30, 2021, we also owned a 22% equity interest in an unconsolidated joint venture which owns 12 properties located in nine states containing approximately 9.2 million rentable square feet that were 100% leased with an average (by annualized rental revenues) remaining lease term of 7.7 years.

As of September 30, 2021, our consolidated properties were approximately 99.0% leased (based on rentable square feet) to 261 different tenants with a weighted average remaining lease term (based on annualized rental revenues) of approximately 9.0 years.

We define the term annualized rental revenues as used in this section as the annualized contractual rents, as of September 30, 2021, 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.

Our business is focused on industrial and logistics properties.

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Although, to date, the COVID-19 pandemic has not had a significant adverse impact on our business, certain of our tenants requested relief from their obligations to pay rent due to us in response to the economic conditions resulting from the COVID-19 pandemic.

As of July 26, 2021, we granted requests to certain of our tenants to defer aggregate rent payments of $3,753 with respect to leases that represent, as of June 30, 2021, approximately 1.8% of our annualized rental revenues.

As of June 30, 2021, we recognized $1,383 in our accounts receivable related to the remaining deferred amounts.

As of October 25, 2021, we granted requests to certain of our tenants to defer aggregate rent payments of $3,753 with respect to leases that represent, as of September 30, 2021, approximately 1.7% of our annualized rental revenues.

As of September 30, 2021, we recognized $1,168 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 operating results for the three or six months ended June 30, 2021, and will continue to be reflected in our financial results in the applicable future reporting periods, assuming these tenants continue to pay the deferred rents due to us.

There are uncertainties surrounding the COVID-19 pandemic and, 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.

These deferred amounts did not negatively impact our operating results for the three or nine months ended September 30, 2021, and will continue to be reflected in our financial results in the applicable future reporting periods, assuming these tenants continue to pay the deferred rents due to us.

There remains uncertainty as to the ultimate duration and severity of the COVID-19 pandemic.

As a result, we are unable to determine what the ultimate impact will be on our, our tenants’ and other stakeholders’ businesses, operations, financial results and financial position.

For further information and risks relating to the COVID-19 pandemic on us and our business, see Part I, Item 1, “Business—Impact of COVID-19” and Part I, Item 1A, “Risk Factors”, of our 2020 Annual Report.

Property Operations

Occupancy data for our properties as of June 30, 2021 and 2020 is as follows (square feet in thousands):

Occupancy data for our properties as of September 30, 2021 and 2020 is as follows (square feet in thousands):

All Properties Comparable Properties (1)

As of June 30, As of June 30,

As of September 30, As of September 30,

2021 2020 2021 2020

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

(3) Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of June 30, 2021, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

The average effective rental rates per square foot, as defined below, for our properties for the three and six months ended June 30, 2021 and 2020 are as follows:

Three Months Ended June 30, Six Months Ended June 30,

(3) Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of September 30, 2021, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

The average effective rental rates per square foot, as defined below, for our properties for the three and nine months ended September 30, 2021 and 2020 are as follows:

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

2021 2020 2021 2020

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(1) Average effective rental rates per square foot leased represents annualized rental income during the period specified divided by the average rentable square feet leased during the period specified.

(2) Comparable properties for the three months ended June 30, 2021 and 2020 consist of 288 buildings, leasable land parcels and easements that we owned continuously since April 1, 2020 and exclude 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.

Comparable properties for the six months ended June 30, 2021 and 2020 consist of 287 buildings, leasable land parcels and easements that are owned continuously since January 1, 2020 and exclude 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.

During the three and six months ended June 30, 2021, we entered into new and renewal leases as summarized in the following tables:

Three Months Ended June 30, 2021

(2) Comparable properties for the three months ended September 30, 2021 and 2020 consist of 288 buildings, leasable land parcels and easements that we owned continuously since July 1, 2020 and exclude 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.

Comparable properties for the nine months ended September 30, 2021 and 2020 consist of 287 buildings, leasable land parcels and easements that are owned continuously since January 1, 2020 and exclude 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.

During the three and nine months ended September 30, 2021, we entered into new and renewal leases as summarized in the following tables:

Three Months Ended September 30, 2021

New Leases Renewals Totals

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$ 0.15 $ 0.41 $ 0.40

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

New Leases Renewals Totals

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(1) Includes commitments made for leasing expenditures and concessions, such as leasing commissions, tenant improvements or other tenant inducements.

(2) The weighted average (by square feet) lease term for leases that were in effect for the same land area or building area during the prior lease term was 7.6 years for the three months ended June 30, 2021 and 9.9 years for the six months ended June 30, 2021.

During the three and six months ended June 30, 2021, we completed rent resets for approximately 79,000 square feet of land at our Hawaii Properties at rental rates that were approximately 37.4% higher than the prior rental rates.

As shown in the table below, approximately 0.2% of our total leased square feet and approximately 0.4% of our total annualized rental revenues as of June 30, 2021 are included in leases scheduled to expire by December 31, 2021.

As of June 30, 2021, our lease expirations by year are as follows (dollars and square feet in thousands):

(2) The weighted average (by square feet) lease term for leases that were in effect for the same land area or building area during the prior lease term was 8.2 years for the three months ended September 30, 2021 and 9.2 years for the nine months ended September 30, 2021.

During the three and nine months ended September 30, 2021, we completed rent resets for approximately 47,000 and 127,000 square feet of land at our Hawaii Properties, respectively, at rental rates that were approximately 34.5% and 36.3%, respectively, higher than the prior rental rates.

As shown in the table below, approximately 0.1% of our total leased square feet and approximately 0.2% of our total annualized rental revenues as of September 30, 2021 are included in leases scheduled to expire by December 31, 2021.

As of September 30, 2021, our lease expirations by year are as follows (dollars and square feet in thousands):

% of Total Cumulative

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Weighted average remaining lease term (in years):

(1) Leased square feet is pursuant to existing leases as of June 30, 2021 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

(1) Leased square feet is pursuant to existing leases as of September 30, 2021 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

We generally receive rents from our tenants monthly in advance.

As of June 30, 2021, tenants representing 1% or more of our total annualized rental revenues were as follows (square feet in thousands):

As of September 30, 2021, tenants representing 1% or more of our total annualized rental revenues were as follows (square feet in thousands):

of Leased % of Total Annualized Rental

Tenant States Properties Sq.

1 Amazon.com Services, Inc.

/ Amazon.com Services LLC AZ, SC, TN, VA 4 3,869 11.1 % 9.9 %

1 Amazon.com Services, Inc./ Amazon.com Services LLC AZ, SC, TN, VA 4 3,869 10.7 % 9.5 %

2 Federal Express Corporation/ FedEx Ground Package System, Inc.

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HI 6 590 1.6 % 2.3 %

6 Par Hawaii Refining, LLC HI 3 3,148 8.7 % 2.2 %

7 UPS Supply Chain Solutions, Inc.

NH 1 614 1.7 % 2.2 %

7 Par Hawaii Refining, LLC HI 3 3,148 9.0 % 2.3 %

8 EF Transit, Inc.

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OH 1 581 1.6 % 1.4 %

17 StyleCraft Home Collection, Inc.

MS 1 603 1.7 % 1.3 %

18 Warehouse Rentals Inc.

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OH 3 760 2.1 % 1.1 %

20 Honolulu Warehouse Co., Ltd.

HI 1 298 0.9 % 1.1 %

21 Refresco Beverages US Inc.

MO, SC 2 421 1.2 % 1.0 %

22 Honolulu Warehouse Co., Ltd.

HI 1 298 0.8 % 1.0 %

23 Hellmann Worldwide Logistics, Inc.

FL 1 240 0.7 % 1.0 %

23 General Mills Operations, LLC MI 1 158 0.5 % 1.0 %

24 AES Hawaii, Inc.

HI 2 1,242 3.6 % 1.0 %

24 Flextronics International Holding LLC TN 1 438 1.2 % 1.0 %

Total 65 19,115 53.0 % 48.3 %

Mainland Properties.

As of June 30, 2021, our Mainland Properties represented approximately 49.4% of our annualized rental revenues.

As of September 30, 2021, our Mainland Properties represented approximately 50.7% of our annualized rental revenues.

We generally will seek to renew or extend the terms of leases at our Mainland Properties as their expirations approach.

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Hawaii Properties.

As of June 30, 2021, our Hawaii Properties represented approximately 50.6% of our annualized rental revenues.

As of June 30, 2021, certain of our Hawaii Properties are lands leased for rents that periodically reset based on fair market values, generally every ten years.

As of September 30, 2021, our Hawaii Properties represented approximately 49.3% of our annualized rental revenues.

As of September 30, 2021, certain of our Hawaii Properties are lands leased for rents that periodically reset based on fair market values, generally every ten years.

Revenues from our Hawaii Properties have generally increased under our or our predecessors’ ownership as rents under the leases for those properties have been reset or renewed.

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If we are unable to reach an agreement with a tenant on a rent reset, our Hawaii Properties’ leases typically provide that rent is reset based on an appraisal process.

Despite our and our predecessors’ prior experience with rent resets, lease extensions and new leases in Hawaii, our ability to increase rents when rents reset, leases are extended, or leases expire depends upon market conditions which are

beyond our control.

Despite our and our predecessors’ prior experience with rent resets, lease extensions and new leases in Hawaii, our

ability to increase rents when rents reset, leases are extended, or leases expire depends upon market conditions which are beyond our control.

Accordingly, we cannot be sure that the historical increases achieved at our Hawaii Properties will continue in the future.

The following chart shows the annualized rental revenues as of June 30, 2021 scheduled to reset at our Hawaii Properties:

The following chart shows the annualized rental revenues as of September 30, 2021 scheduled to reset at our Hawaii Properties:

Scheduled Rent Resets at Hawaii Properties

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Rental Revenues as of

June 30, 2021

September 30, 2021

Scheduled to Reset

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Total $ 27,763

As of June 30, 2021, $3,447, or 1.6%, of our annualized rental revenues are included in leases scheduled to expire through June 30, 2022 and 1.0% of our rentable square feet are currently vacant.

As of September 30, 2021, $4,306, or 1.9%, of our annualized rental revenues are included in leases scheduled to expire through September 30, 2022 and 1.0% of our rentable square feet are currently vacant.

Rental rates for which available space may be leased in the future will depend on prevailing market conditions when lease extensions, lease renewals or new leases are negotiated.

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Tenant Review Process.

Our manager, RMR LLC, employs a tenant review process for us.

Our manager, RMR LLC, employs a tenant review process on our behalf.

RMR LLC assesses tenants on an individual basis based on various applicable credit criteria.

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Investing and Financing Activities (dollars in thousands)

During the six months ended June 30, 2021, we acquired one parcel of developable land located in the Dallas, Texas market and one property located near the Rickenbacker intermodal terminal and airport in Columbus, Ohio containing 357,504 rentable square feet for an aggregate purchase price of $33,700, excluding acquisition related costs of $381.

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 with an Asian institutional investor and contributed those 12 properties to our joint venture.

During the nine months ended September 30, 2021, we acquired four industrial properties and one parcel of developable land containing 1,644,508 rentable square feet for an aggregate purchase price of $134,730, including acquisition related costs of $1,030.

As a result of eminent domain taking in September 2021, we sold a portion of a land parcel located in Rock Hill, South Carolina for $1,400, excluding closing costs, resulting in a net gain on sale of real estate of $940.

In October 2021, we entered into an agreement to acquire a recently built property located in Detroit, Michigan market area containing approximately 1,009,000 rentable square feet and net leased to a single e-commerce tenant for a purchase price of $120,000, excluding acquisition related costs.

This acquisition is expected to close during the fourth quarter of 2021.

However, this acquisition is subject to conditions;

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

During the nine months ended September 30, 2020, we entered into agreements related to our joint venture for 12 of our properties in the mainland United States with an Asian institutional investor and contributed those 12 properties to our joint venture.

We received an aggregate of $108,676 from that investor for a 39% equity interest in our joint venture and we retained the remaining 61% equity interest in our joint venture.

As of 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 $4,867, including $1,898 to the first joint venture investor.

We recognized a 39% noncontrolling interest in our condensed consolidated financial statements for the three and nine months ended September 30, 2020.

The portion of our joint venture's net loss not attributable to us, or $275 and $691 for the three and nine months ended September 30, 2020, respectively, is reported as noncontrolling interest in our condensed consolidated statements of comprehensive income.

During the three and nine months ended September 30, 2020, our joint

venture made aggregate cash distributions of $5,402 and $10,269, respectively, including $2,107 and $4,005, respectively, to the first joint venture investor.

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.

During the three and nine months ended September 30, 2021, we recorded an increase in the fair value of our investment in our joint venture of $998 and $5,455, respectively, as equity in earnings of investees in our condensed consolidated statements of comprehensive income.

In addition, during the three and nine months ended September 30, 2021, our joint venture made aggregate cash distributions of $660 and $1,980, respectively, to us.

For further information regarding our investing and financing activities, see Notes 2 and 5 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investing and Financing Liquidity and Resources” of this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020 (dollars and share amounts in thousands, except per share data)

Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020 (dollars and share amounts in thousands, except per share data)

Comparable Properties Results (1)

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Consolidated Results

Three Months Ended June 30, Three Months Ended June 30, Three Months Ended June 30,

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

2021 2020 Change Change 2021 2020 Change 2021 2020 Change Change

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Depreciation and amortization 12,694 18,488 (5,794) (31.3 %)

Acquisition and certain other transaction related costs 646 — 646 N/M

Acquisition and certain other transaction related costs — 178 (178) (100.0 %)

General and administrative 4,728 5,180 (452) (8.7 %)

Total other expenses 17,422 23,846 (6,424) (26.9 %)

Interest income — 2 (2) (100.0 %)

Gain on sale of real estate 940 — 940 N/M

Interest expense (9,084) (12,886) 3,802 (29.5 %)

Gain on early extinguishment of debt — 120 (120) (100.0 %)

Income before income tax expense and equity in earnings of investees 17,381 13,827 3,554 25.7 %

Income tax expense (42) (126) 84 (66.7 %)

Income tax expense (72) (13) (59) N/M

Equity in earnings of investees 998 — 998 N/M

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N/M - Not Meaningful

(1) Consists of 288 properties that we owned continuously since April 1, 2020 and excludes 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.

(2) Consists of three properties that we acquired during the period from April 1, 2020 to June 30, 2021, one property we sold in 2020 and 12 properties we contributed during the six months ended June 30, 2020 to our joint venture in which we currently own a 22% equity interest.

(1) Consists of 288 properties that we owned continuously since July 1, 2020 and excludes 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.

(2) Consists of six properties that we acquired during the period from July 1, 2020 to September 30, 2021, one property we sold in 2020 and 12 properties we contributed during the nine months ended September 30, 2020 to our joint venture in which we currently own a 22% equity interest.

We consolidated our properties owned by the joint venture until November 2020.

(3) See our definition of NOI and our reconciliation of net income to NOI below under the heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of results for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

References to changes in the income and expense categories below relate to the comparison of results for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Rental income.

The decrease in rental income is primarily a result of our acquisition and disposition activities, which includes the contribution of 12 properties to our joint venture that was deconsolidated in November 2020, partially offset by increases from leasing activity and rent resets at certain of our comparable properties.

Rental income includes non-cash straight line rent adjustments totaling approximately $1,951 for the 2021 period and approximately $2,096 for the 2020 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $171 for the 2021 period and approximately $204 for the 2020 period.

Rental income includes non-cash straight line rent adjustments totaling approximately $1,678 for the 2021 period and approximately $2,120 for the 2020 period, and net

amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $174 for the 2021 period and approximately $202 for the 2020 period.

Real estate taxes.

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Other operating expenses primarily include repairs and maintenance, utilities, insurance, snow removal, legal and property management fees.

The decrease in other operating expenses is primarily due to our acquisition and disposition activities and higher insurance costs during the 2020 period, partially offset by an increase in repairs and maintenance costs at certain of our comparable properties.

The decrease in other operating expenses is primarily due to our acquisition and disposition activities and decreases in repairs and maintenance costs at certain of our comparable properties in the 2021 period.

Depreciation and amortization.

The decrease in depreciation and amortization primarily reflects our acquisition and disposition activities and an increase in depreciation of improvements made to certain of our properties after April 1, 2020, partially offset by certain leasing related assets becoming fully amortized in the 2021 period.

The decrease in depreciation and amortization primarily reflects our acquisition and disposition activities and certain leasing related assets becoming fully amortized in the 2021 period, partially offset by an increase in depreciation of improvements made to certain of our properties after July 1, 2020.

Acquisition and certain other transaction related costs.

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The decrease in general and administrative expenses is primarily due to a decrease in business management fees as a result of our net disposition of properties in the 2020 period.

Interest income.

Interest income represents interest earned on our cash balances.

The decrease in interest income is primarily due to a decrease in the interest rate earned on invested cash during the 2021 period as compared to the 2020 period.

Gain on sale of real estate.

Gain on sale of real estate represents the net gain from the sale of a portion of a land parcel as a result of an eminent domain taking in the 2021 period.

Interest expense.

The decrease in interest expense is primarily due to lower average outstanding indebtedness during the 2021 period as compared to the 2020 period.

Gain on early extinguishment of debt.

We recorded a gain on early extinguishment of debt in connection with our prepayment of a mortgage note during the 2020 period.

Income tax expense.

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Weighted average common shares outstanding - basic and diluted.

The increase in weighted average common shares outstanding primarily reflects common shares awarded under our equity compensation plan since January 1, 2020.

The increase in weighted average common shares outstanding primarily reflects common shares awarded under our equity compensation plan since July 1, 2020.

Net income attributable to common shareholders per common share - basic and diluted.

The increase in net income attributable to common shareholders per common share reflects the changes to net income attributable to common shareholders and weighted average common shares noted above.

Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020 (dollars and share amounts in thousands, except per share data)

Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020 (dollars and share amounts in thousands, except per share data)

Comparable Properties Results (1)

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Consolidated Results

Six Months Ended June 30, Six Months Ended June 30, Six Months Ended June 30,

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

2021 2020 Change Change 2021 2020 Change 2021 2020 Change Change

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Total other expenses 50,566 70,338 (19,722) (28.1 %)

Gain on sale of real estate 940 — 940 N/M

Interest income — 113 (113) (100.0 %)

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(1) Consists of 287 buildings, leasable land parcels and easements that we owned continuously since January 1, 2020 and excludes 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.

(2) Consists of four properties that we acquired during the period from January 1, 2020 to June 30, 2021, one property we sold in 2020 and 12 properties we contributed in the first quarter of 2020 to a joint venture in which we currently own a 22% equity interest.

(2) Consists of seven properties that we acquired during the period from January 1, 2020 to September 30, 2021, one property we sold in 2020 and 12 properties we contributed in the first quarter of 2020 to a joint venture in which we currently own a 22% equity interest.

We consolidated our properties owned by the joint venture until November 2020.

(3) See our definition of NOI and our reconciliation of net income to NOI below under the heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of results for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

References to changes in the income and expense categories below relate to the comparison of results for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Rental income.

Rental income includes non-cash straight line rent adjustments totaling approximately $3,995 for the 2021 period and approximately $4,063 for the 2020 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $351 for the 2021 period and approximately $404 for the 2020 period.

Rental income includes non-cash straight line rent adjustments totaling approximately $5,673 for the 2021 period and approximately $6,183 for the 2020 period, and net

amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $525 for the 2021 period and approximately $606 for the 2020 period.

Real estate taxes.

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Depreciation and amortization.

The decrease in depreciation and amortization primarily reflects our acquisition and disposition activities and an increase in depreciation of improvements made to certain of our properties after January 1, 2020, partially offset by certain leasing related assets becoming fully amortized in the 2021 period.

Acquisition and certain other transaction related costs.

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The decrease in general and administrative expenses is primarily due to a decrease in business management fees as a result of our net disposition of properties in the 2020 period.

Gain on real estate.

Gain on sale of real estate represents the net gain from the sale of a portion of a land parcel as a result of an eminent domain taking in the 2021 period.

Interest income.

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Other real estate companies and REITs may calculate NOI differently than we do.

The following table presents the reconciliation of net income to NOI for the three and six months ended June 30, 2021 and 2020 (dollars in thousands):

Three Months Ended June 30, Six Months Ended June 30,

The following table presents the reconciliation of net income to NOI for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands):

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

2021 2020 2021 2020

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Income before income tax expense and equity in earnings of investees 17,381 13,827 51,197 41,267

Gain on sale of real estate (940) — (940) —

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

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We calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders as shown below.

FFO attributable to common shareholders is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income attributable to common shareholders, calculated in accordance with GAAP, excluding any gain or loss on sale of real estate and equity in earnings of an unconsolidated joint venture, plus real estate depreciation and amortization of consolidated properties and our proportionate share of FFO of unconsolidated joint venture properties and minus FFO adjustments attributable to noncontrolling interest, as well as certain other adjustments currently not applicable to us.

properties and minus FFO adjustments attributable to noncontrolling interest, as well as certain other adjustments currently not applicable to us.

In calculating Normalized FFO attributable to common shareholders, we adjust for the items shown below including similar adjustments for our unconsolidated joint venture, if any.

FFO attributable to common shareholders and

Normalized FFO attributable to common shareholders are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders.

FFO attributable to common shareholders and Normalized FFO attributable to common shareholders are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders.

Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our distribution rate as a percentage of the trading price of our common shares, or dividend yield, and our dividend yield compared to the dividend yields of other industrial REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.

Other real estate companies and REITs may calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders differently than we do.

The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net income attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three and six months ended June 30, 2021 and 2020 (dollars in thousands, except per share data):

Three Months Ended June 30, Six Months Ended June 30,

The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net income attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands, except per share data):

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

2021 2020 2021 2020

4 unchanged sentences

Share of FFO from unconsolidated joint venture 1,215 — 3,621 —

Gain on sale of real estate (940) — (940) —

FFO adjustments attributable to noncontrolling interest — (2,638) — (6,272)

3 unchanged sentences

Normalized FFO attributable to common shareholders $ 30,278 $ 30,117 $ 91,549 $ 90,845

Per common share data (basic and diluted)

FFO attributable to common shareholders $ 0.46 $ 0.47 $ 0.93 $ 0.93

Normalized FFO attributable to common shareholders $ 0.47 $ 0.47 $ 0.94 $ 0.93

Per common share data:

FFO attributable to common shareholders - basic $ 0.46 $ 0.46 $ 1.40 $ 1.39

FFO attributable to common shareholders - diluted $ 0.46 $ 0.46 $ 1.39 $ 1.39

Normalized FFO attributable to common shareholders - basic $ 0.46 $ 0.46 $ 1.41 $ 1.40

Normalized FFO attributable to common shareholders - diluted $ 0.46 $ 0.46 $ 1.40 $ 1.40

LIQUIDITY AND CAPITAL RESOURCES

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Our principal sources of funds to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders are rents from tenants at our properties and borrowings under our revolving credit facility.

With $506,000 of availability under our revolving credit facility as of July 26, 2021, 71.7% of our annualized rental revenues derived from investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases and only 1.6% of our annualized rental revenues as of June 30, 2021 from expiring leases over the next 12 months, we believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter.

With $423,000 of availability under our revolving credit facility as of October 25, 2021, 70.9% of our annualized rental revenues derived from investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases and only 1.9% of our annualized rental revenues as of September 30, 2021 from expiring leases over the next 12 months, we believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and the foreseeable future thereafter.

Our future cash flows from operating activities will depend primarily upon our ability to:

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The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our condensed consolidated statements of cash flows (dollars in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Cash and cash equivalents and restricted cash at beginning of period $ 22,834 $ 34,550

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Cash and cash equivalents and restricted cash at end of period $ 44,093 $ 51,911

The decrease in net cash provided by operating activities for the six months ended June 30, 2021 compared to the 2020 period is primarily due to changes in our working capital.

The decrease in net cash used in investing activities for the six months ended June 30, 2021 compared to the 2020 period is primarily due to our acquisition of two properties for an aggregate purchase price of $34,081 during the 2021 period as compared to one property for a purchase price of $71,628 during the 2020 period.

The change in net cash used in financing activities for the six months ended June 30, 2021 from net cash provided by financing activities for the 2020 period is primarily due to the proceeds we received from our sale of equity interests in our joint venture and net debt repayments in the 2020 period, partially offset by higher net borrowings under our revolving credit facility during the 2021 period to fund acquisitions.

The decrease in net cash provided by operating activities for the nine months ended September 30, 2021 compared to the 2020 period is primarily due to changes in our working capital.

The increase in net cash used in investing activities for the nine months ended September 30, 2021 compared to the 2020 period is primarily due to our acquisition of four properties and one parcel of developable land for an aggregate purchase price of $134,730 during the 2021 period as compared to one property for a purchase price of $71,628 during the 2020 period.

The increase in net cash provided by financing activities for the nine months ended September 30, 2021 compared to the 2020 period is primarily due to higher net borrowings under our revolving credit facility during the 2021 period to fund acquisitions.

Our Investing and Financing Liquidity and Resources (dollars in thousands, except per share and per square foot data)

Our future acquisition or development activity cannot be accurately projected because such activity depends upon available opportunities that come to our attention and upon our ability to successfully acquire, develop and operate properties, financing available to us, our cost of capital, other commitments we have made and alternative uses for the amounts that would be required for the acquisition or development, the extent of our leverage, and the expected impact of the acquisition or development on our debt covenants and certain other financial metrics.

Our future acquisition or development activity cannot be accurately projected because such activity depends upon available opportunities to, and our ability to successfully, acquire, develop and operate properties, financing available to us, our cost of capital, other commitments we have made and alternative uses for the amounts that would be required for the acquisition or development, the extent of our leverage, and the expected impact of the acquisition or development on our debt covenants and certain other financial metrics.

We generally do not intend to purchase “turn around” properties, or properties that do not generate positive cash flows, but we may undertake construction or redevelopment activities on our properties.

During the three months ended June 30, 2021, we acquired a developable land parcel for $2,319, including acquisition costs of $119.

During the nine months ended September 30, 2021, we acquired a developable land parcel for $2,319, including acquisition costs of $119.

We expect to spend approximately $16,600 to construct a building for lease on this land.

As of June 30, 2021, we had cash and cash equivalents of $30,512.

As of September 30, 2021, we had cash and cash equivalents of $44,093.

To maintain our qualification for taxation as a REIT under the Internal Revenue Code of 1986, as amended, we generally are required to distribute at least 90% of our REIT taxable income annually, subject to specified adjustments and excluding any net capital gain.

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In order to fund cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions, to pay operating or capital expenses or to fund any future property acquisitions, development or redevelopment efforts, we maintain a $750,000 unsecured revolving credit facility with a group of lenders.

The maturity date of our revolving credit facility is December 29, 2021.

We have the option to extend the maturity date of our revolving credit facility for two, six month periods, subject to payment of extension fees and satisfaction of other conditions.

We pay interest on borrowings under our revolving credit facility at the rate of LIBOR plus a premium that varies based on our leverage ratio.

We are required to pay a commitment fee on the unused portion of our revolving credit facility.

At June 30, 2021, the interest rate premium on our revolving credit facility was 130 basis points and our commitment fee was 25 basis points.

At September 30, 2021, the interest rate premium on our revolving credit facility was 130 basis points and our commitment fee was 25 basis points.

We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity.

As of June 30, 2021, the annual interest rate payable on borrowings under our revolving credit facility was 1.40%.

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.

As of September 30, 2021, the annual interest rate payable on borrowings under our revolving credit facility was 1.39%.

As of September 30, 2021 and October 25, 2021, we had $354,000 and $327,000, respectively, outstanding under our revolving credit facility, and $396,000 and $423,000 respectively, available to borrow under our revolving credit facility.

The maturity date of our revolving credit facility is December 29, 2021.

We have the option to extend the maturity date of our revolving credit facility for two, six month periods, subject to payment of extension fees and satisfaction of other conditions.

Our credit agreement includes a feature under which the maximum borrowing availability under the facility may be increased to up to $1,500,000 in certain circumstances.

As of June 30, 2021, our debt maturities (other than our revolving credit facility), consisted of mortgage notes with an aggregate principal amount of $650,000, which is scheduled to mature in 2029.

As of September 30, 2021, our debt maturities (other than our revolving credit facility), consisted of mortgage notes with an aggregate principal amount of $650,000, which is scheduled to mature in 2029.

We received an aggregate of $108,676 from that investor for a 39% equity interest in our joint venture and we retained the remaining 61% equity interest in our joint venture.

As of 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.

During the three and six months ended June 30, 2020, our joint venture made aggregate cash distribution of $4,867, including $1,898 to the first joint venture investor.

We recognized a 39% noncontrolling interest in our condensed consolidated financial statements for the three and nine months ended September 30, 2020.

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

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 months 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.

During the three months and nine months ended September 30, 2021, we recorded an increase in the fair value of our investment in our joint venture of $998 and $5,455, respectively, as equity in earnings of investees in our condensed consolidated statements of comprehensive income.

In addition, during the three and nine months ended September 30, 2021, our joint venture made aggregate cash distributions of $660 and $1,980, respectively, to us.

We expect to use borrowings under our revolving credit facility, payments we may receive for pro rata equity contributions from the other investors in our joint venture in connection with properties we may contribute to our joint venture, equity contributions from the third party investors in our joint venture and net proceeds from offerings of equity or debt securities to fund any future property acquisitions, development or redevelopment efforts.

We expect to use borrowings under our revolving credit facility, payments we may receive for equity contributions from any third party investors in our joint venture or any future joint ventures we may enter into and net proceeds from offerings of equity or debt securities to fund any future property acquisitions, development or redevelopment efforts.

We may also assume mortgage notes in connection with future acquisitions.

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Such alternatives may include incurring term debt, obtaining financing secured by mortgages on properties we own, issuing new equity or debt securities, extending the maturity date of our revolving credit facility, participating in joint ventures or selling properties.

We currently have an effective shelf registration statement that allows us to issue public securities on an expedited

basis, but we cannot be sure that there will be purchasers for such securities.

We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but we cannot be sure that there will be purchasers for such securities.

Further, any issuances of our equity securities may be dilutive to our existing shareholders.

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We intend to conduct our business activities in a manner which will afford us reasonable access to capital for investing and financing activities.

However, as noted elsewhere in this Quarterly Report on Form 10-Q, it is uncertain what the duration and severity of the current economic impact resulting from the COVID-19 pandemic will be.

A protracted and extensive downturn may have various negative consequences, including a decline in financing availability and increased costs for financing.

However, there remains uncertainty as to the ultimate duration and severity of the COVID-19 pandemic and its impact on the economy and public health as well as our business.

A protracted and extensive economic downturn resulting from the COVID-19 pandemic or otherwise may have various negative consequences, including a decline in financing availability and increased costs for financing.

Further, such conditions could also disrupt capital markets and limit our access to financing from public sources.

During the six months ended June 30, 2021, we paid quarterly cash distributions to our shareholders totaling $43,099 using existing cash balances and borrowings under our revolving credit facility.

During the nine months ended September 30, 2021, we paid quarterly cash distributions to our shareholders totaling $64,653 using existing cash balances and borrowings under our revolving credit facility.

For more information regarding the distribution we paid in 2021, see Note 6 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

On July 15, 2021, we declared a regular quarterly distribution to common shareholders of record on July 26, 2021 of $0.33 per common share, or approximately $21,550 in aggregate.

We expect to pay this distribution to our shareholders on or about August 19, 2021 using existing cash balances and borrowings under our revolving credit facility.

During the three and six months ended June 30, 2021 and 2020, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows:

Three Months Ended Six Months Ended

June 30, June 30,

On October 14, 2021, we declared a regular quarterly distribution to common shareholders of record on October 25, 2021 of $0.33 per common share, or approximately $21,600 in aggregate.

We expect to pay this distribution to our shareholders on or about November 18, 2021 using existing cash balances and borrowings under our revolving credit facility.

During the three and nine months ended September 30, 2021 and 2020, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows:

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

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(3) Development, redevelopment and other activities generally include capital expenditure projects that reposition a property or result in new sources of revenues.

As of June 30, 2021, we had estimated unspent leasing related obligations of $1,730.

As of September 30, 2021, we had estimated unspent leasing related obligations of $2,315.

Debt Covenants (dollars in thousands)

Our principal debt obligations at June 30, 2021 were borrowings outstanding under our revolving credit facility and a $650,000 non-recourse, mortgage loan that is secured by 186 of our properties.

Our principal debt obligations at September 30, 2021 were borrowings outstanding under our revolving credit facility and a $650,000 non-recourse, mortgage loan that is secured by 186 of our properties.

The mortgage loan agreement contains certain exceptions to the general non-recourse provisions that obligate us to indemnify the lenders for certain potential environmental losses relating to hazardous materials and violations of environmental law.

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Our credit agreement contains covenants, including those that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, restrict our ability to make distributions to our shareholders in certain circumstances and generally require us to maintain certain financial ratios.

As of June 30, 2021, we believe we were in compliance with all the covenants and other terms under our credit agreement.

As of September 30, 2021, we believe we were in compliance with all the covenants and other terms under our credit agreement.

Our credit agreement does not contain provisions for acceleration which could be triggered by our leverage ratio.

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The loan agreement and related documents governing our mortgage loan contain customary covenants and provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default and require us to maintain a minimum consolidated net worth of at least $250,000 and liquidity of at least $15,000.

As of June 30, 2021, we believe we were in compliance with all the covenants and other terms under this mortgage loan agreement.

As of September 30, 2021, we believe we were in compliance with all the covenants and other terms under this mortgage loan agreement.

Related Person Transactions

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis