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Item 7. Management’s Discussion and Analysis

2022-02-15 compared with 2021-02-18 · 148 added, 146 removed, 337 unchanged (47% of the section changed)

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The following information should be read in conjunction with our consolidated financial statements and accompanying notes included in Part IV, Item 5 of this Annual Report on Form 10-K.

OVERVIEW (dollars in thousands, except per square foot data)

We are a REIT organized under Maryland law.

As of December 31, 2021, our portfolio was comprised of 288 wholly owned properties containing approximately 34.0 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, HI, and 62 properties containing approximately 17.3 million rentable square feet located in 30 other states.

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

As of December 31, 2021, we also owned a 22% equity interest in an unconsolidated joint venture, which owns 18 properties located in 12 states in the mainland United States containing approximately 11.7 million rentable square feet that were 100% leased with an average (by annualized rental revenues) remaining lease term of 6.6 years.

In November 2021, we entered into the Merger Agreement related to the Monmouth Transaction, which will add 126 new, Class A, single tenant, net leased, e-commerce focused industrial properties containing over 26 million rentable square feet with a weighted average remaining lease term of approximately eight years to our portfolio.

The Monmouth Transaction is subject to the satisfaction of conditions, including the receipt of requisite approval by Monmouth’s stockholders, and is expected to close

in the first quarter of 2022.

For more information regarding the Monmouth Transaction and the associated risks, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements”, Part I, Item I, “Business,” and Part I, Item 1A, “Risk Factors.”

As of December 31, 2021, our properties were approximately 99.2% leased (based on rentable square feet) to 259 different tenants with a weighted average remaining lease term (based on annualized rental revenues) of approximately 9.4 years.

The COVID-19 Pandemic

To date, the COVID-19 pandemic has not had a significant impact on our business as the industrial and logistics sector has fared better than some other industries thus far in response to the COVID-19 pandemic, including other real estate sectors, due to the demand for e-commerce.

We believe that demand was initially supported in part by increased demand by businesses and households to stock up on supplies as the implications of the COVID-19 pandemic and resulting governmental responses materialized and e-commerce companies have benefited from the closure of certain retail consumer outlets since the beginning of the second quarter of 2020 and the continued increased market demand for e-commerce.

We believe that our current financial resources, our portfolio of high-quality industrial and logistics assets and our strong credit quality tenants, will enable us to withstand the COVID-19 pandemic.

However, as a result of the COVID-19 pandemic and its aftermath, certain of our tenants have requested relief from their obligations to pay rent due to us.

We evaluate these requests on a tenant by tenant basis.

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

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

Our business is focused on industrial and logistics properties.

The industrial and logistics sector has fared better than some other industries thus far during the COVID-19 pandemic, including other real estate sectors, due, in part, to the demand for e-commerce.

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 December 31, 2021, we recognized $1,297 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.

For the year ended December 31, 2020, we collected approximately 97.6% of our contractual rents due after giving effect to such rent deferrals.

For more information and risks relating to the COVID-19 pandemic on us and our business, see elsewhere in this Annual Report on Form 10-K, including "Warning Concerning Forward-Looking Statements," Part I, Item 1 "Business" and Part I, Item 1A, "Risk Factors."

These deferred amounts did not negatively impact our operating results for the year ended December 31, 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.

As of February 11, 2022, we collected approximately 99% of our granted rent deferrals.

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 more information and risks relating to the COVID-19 pandemic on us and our business, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements,” and Part I, Item 1A, “Risk Factors.”

Property Operations

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(2) Consists of properties that we owned continuously since January 1, 2020 and excludes 18 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.

During the year ended December 31, 2020, excluding 12 properties owned by our unconsolidated joint venture, we entered new and renewal leases for approximately 1.1 million square feet at weighted average (by square feet) rental rates that were approximately 14.7% higher than prior rates for the same land area or building area (with leasing rate increases for vacant space based upon the most recent rental rate for the same space).

The weighted average (by square feet) lease term for leases that were in effect for the same land area or building area during the prior lease term, was 11.4 years.

Commitments for tenant improvements, leasing costs and concessions for leases entered during the year ended December 31, 2020 totaled $2.1 million, or approximately $0.17 per square foot per year of the new weighted average lease term.

Also, during the year ended December 31, 2020, we completed rent resets for approximately 1.9 million square feet of land at our Hawaii Properties at rental rates that were approximately 20.1% higher than the prior rental rates.

As shown in the table below, approximately 1.2% of our total rented square feet and approximately 1.4% of our total annualized rental revenues as of December 31, 2020 are included in leases scheduled to expire by December 31, 2021.

During the year ended December 31, 2021, we entered into new and renewal leases as summarized in the following tables:

Year Ended December 31, 2021

New Leases Renewals Totals

Square feet leased during the period (in thousands) 556 2,548 3,103

Weighted average rental rate change (by rentable square feet) 16.0 % 13.6 % 14.1 %

Weighted average lease term by square feet (years) 11.0 9.3 9.6

Total leasing costs and concession commitments (1)

$ 3,715 $ 6,829 $ 10,544

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

$ 6.69 $ 2.68 $ 3.40

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

$ 0.61 $ 0.29 $ 0.35

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

During the year ended December 31, 2021, we completed rent resets for approximately 462,000 square feet of land at our Hawaii Properties at rental rates that were approximately 33.2% higher than the prior rental rates.

As shown in the table below, approximately 5.0% of our total leased square feet and approximately 5.8% of our total annualized rental revenues as of December 31, 2021 are included in leases scheduled to expire by December 31, 2022.

As of December 31, 2021, our lease expirations by year are as follows (dollars and square feet in thousands):

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% of Total Cumulative % Annualized % of

Rented Rented of Total Rented Annualized Rental Annualized

Leased Leased of Total Annualized Rental Annualized

Number of Square Feet Square Feet Square Feet Rental Revenues Revenues Rental Revenues

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Weighted average remaining lease term (in years) 8.2 9.4

(1) Rented square feet is pursuant to existing leases as of December 31, 2020, and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

(1) Leased square feet is pursuant to existing leases as of December 31, 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.

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% of Total % of Total

of Rented Rented Annualized Rental

of Leased Leased Annualized Rental

States Properties Sq.

1 Amazon.com Services, Inc.

AZ, SC, TN, VA 4 3,869 11.3 % 10.0 %

1 Amazon.com Services, Inc./ Amazon.com Services LLC SC, TN, VA 3 3,048 9.0 % 7.7 %

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

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HI 6 590 1.8 % 2.5 %

6 Par Hawaii Refining, LLC HI 3 3,148 9.3 % 2.4 %

7 UPS Supply Chain Solutions, Inc.

NH 1 614 1.8 % 2.3 %

7 Par Hawaii Refining, LLC HI 3 3,148 9.2 % 2.4 %

8 EF Transit, Inc.

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NJ 1 634 1.9 % 1.7 %

10 Shurtech Brands, LLC OH 1 645 1.9 % 1.7 %

10 Coca-Cola Bottling of Hawaii, LLC HI 4 351 1.0 % 1.6 %

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HI 2 146 0.4 % 1.6 %

13 ELC Distribution Center KS 1 645 1.9 % 1.5 %

12 ELC Distribution Center LLC KS 1 645 1.9 % 1.6 %

13 Manheim Remarketing, Inc.

HI 1 338 1.0 % 1.5 %

KS 1 338 1.0 % 1.5 %

SC 1 945 2.8 % 1.4 %

Kilgo Company, Inc.

HI 5 310 0.9 % 1.5 %

15 Avnet, Inc.

OH 1 581 1.7 % 1.4 %

16 Shurtape Technologies, LLC OH 1 645 1.9 % 1.4 %

17 Warehouse Rentals Inc.

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

25 AES Hawaii, Inc.

HI 2 1,242 3.6 % 1.0 %

24 AES Hawaii, LLC HI 2 1,242 3.7 % 1.0 %

Total 65 18,653 55.1 % 48.3 %

(1) Rented square feet is pursuant to existing leases as of December 31, 2020 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

Mainland Properties.

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

Because of the capital many of the tenants in our Mainland Properties have invested in these properties and because many of these properties appear to be of strategic importance to the tenants’ businesses, we believe that it is likely that these tenants will renew or extend their leases prior to their expirations.

Due to the capital many of the tenants in our Mainland Properties have invested in these properties and because many of these properties appear to be of strategic importance to the tenants’ businesses, we believe that it is likely that these tenants will renew or extend their leases prior to their expirations.

If we are unable to extend or renew our leases, it may be time consuming and expensive to relet some of these properties and the terms of any leases we may enter may be less favorable to us than the terms of our existing leases for those properties.

Hawaii Properties.

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Total $ 26,424

As of December 31, 2020, $2.9 million, or 1.4%, of our annualized rental revenues are included in leases scheduled to expire by December 31, 2021 and 1.5% of our rentable square feet are currently vacant.

As of December 31, 2021, $12,156, or 5.8%, of our annualized rental revenues are included in leases scheduled to expire by December 31, 2022 and 0.8% 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.

Whenever we extend, renew or enter new leases for our properties, we intend to seek rents that are equal to or higher than our historical rents for the same properties;

however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control, and as noted elsewhere in this Annual Report on Form 10-K, the COVID-19 pandemic and its economic impact may adversely impact our future leasing activities and our ability to lease properties and to receive rents.

Since the leases at certain of our Hawaii Properties were originally entered, in some cases as long as 40 or 50 years ago, the characteristics of the neighborhoods in the vicinity of some of those properties have changed.

however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control.

Since the time, in some cases 40 to 50 years ago, certain of our Hawaii Properties’ leases were originally entered into, the characteristics of the neighborhoods in the vicinity of some of those properties have changed.

In such circumstances, we and our predecessors have sometimes engaged in redevelopment activities to change the character of certain properties in order to increase rents.

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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.

In general, depending on facts and circumstances, RMR LLC evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources.

RMR LLC also often uses a third party service to monitor the credit ratings of debt securities of our existing tenants whose debt securities are rated by a nationally recognized credit rating agency.

In general, depending on facts and circumstances, RMR LLC evaluates the creditworthiness of a tenant based on information that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources.

Investing and Financing Activities (dollars in thousands)

During the year ended December 31, 2020, we acquired two properties with a combined 1,465,846 rentable square feet for an aggregate purchase price of $115,481, excluding acquisition related costs of $332.

During the year ended December 31, 2020, we sold one property located in Virginia containing 308,217 rentable square feet for a sales price of $10,775, excluding closing costs of $196.

In the first quarter of 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.

We contributed 11 of these properties to our joint venture in February 2020 and the remaining property in March 2020.

We received proceeds from the investor in an aggregate amount of $107,942, which includes $734 of costs associated with the formation of our joint venture, for a 39% equity interest in our joint venture and we retained the remaining 61% equity interest in our joint venture.

In November 2020, we sold an additional 39% equity interest from our remaining 61% equity interest in our joint venture to a second unrelated third party institutional investor for $108,812, which includes certain costs associated with the initial formation of our joint venture.

After giving effect to the sale, we continue to own a 22% equity interest in our joint venture.

Effective as of the date of the sale, we deconsolidated our joint venture and account for our joint venture using the equity method of accounting under the fair value option.

Our initial investment amount was based on an aggregate property valuation of $680,000, less $406,980 of existing mortgage debts on the properties that our joint venture assumed.

During the year ended December 31, 2021, we acquired four 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 an eminent domain taking during the year ended December 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 November 2021, we entered into the Merger Agreement related to the Monmouth Transaction, which will add 126 new, Class A, single tenant, net leased, e-commerce focused industrial properties containing over 26 million square feet with a weighted average remaining lease term of approximately eight years to our portfolio.

We intend to finance the Monmouth Transaction by entering into a joint venture with one or more institutional investors for equity investments and with proceeds from new mortgage debt and the assumption of existing Monmouth mortgage debt.

Depending on the ultimate amount of the joint venture equity investments, we may also use proceeds from the sale of some of Monmouth’s properties to finance the Monmouth Transaction.

In addition, in connection with the financing of the Monmouth Transaction, we have obtained commitments from lenders to make a bridge loan of up to $4,000,000 available to us.

The Monmouth Transaction is subject to the satisfaction of conditions, including the receipt of requisite approval by Monmouth’s stockholders and is expected to close in the first quarter of 2022.

For more information regarding the Monmouth Transaction and the associated risks, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements,” Part I, Item I, “Business,” and Part I, Item 1A, “Risk Factors.”

In the first quarter of 2020, we entered into agreements related to our joint venture for 12 of our properties in the mainland United States, or our joint venture, with an unrelated third party institutional investor and contributed those 12 properties to our joint venture.

We received an aggregate amount of $108,676 which included certain costs associated with the formation of our joint venture from that investor for a 39% equity interest in our joint venture and we retained the remaining 61% equity interest in our joint venture.

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 for $108,812, which included certain costs related with the formation of our joint venture, and we retained a 22% equity interest in our joint venture following this sale.

Effective as of the date of the sale in November 2020, 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.

We recognized a 39% noncontrolling interest in our consolidated financial statements for the year ended December 31, 2020.

The portion of our joint venture's net loss not attributable to us, or $866 for the year ended December 31, 2020, is reported as noncontrolling interest in our consolidated statements of comprehensive income.

During the year ended December 31, 2020, our joint venture made aggregate cash distributions of $14,049, including $5,479 to the first joint venture investor.

In December 2021, we sold six recently acquired properties to our existing joint venture for an aggregate price of approximately $205,789.

We received proceeds from the investors, who own an aggregate of 78% equity interest in the joint venture, for an aggregate amount of $160,516 and recognized a net gain on sale of $11,114 on this transaction, which is included in gain on sale of real estate in our consolidated statements of comprehensive income.

The sale resulted in an increase in our investment in the joint venture, in which we own a 22% equity interest, of $45,273.

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

During the year ended December 31, 2020, our joint venture made aggregate cash distributions of $14,049, $5,479 to the first joint venture investor and $8,570 to us.

During the year ended December 31, 2021, we recorded an increase in the fair value of our investment in our joint venture of $40,918 as equity in earnings of investees in our consolidated statements of comprehensive income.

In addition, during the year ended December 31, 2021, our joint venture made aggregate cash distributions of $2,640 to us.

For more information regarding our joint venture and the use of the equity method for our joint venture, see Notes 3 and 6 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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 year ended December 31, 2020 to write off unamortized premiums.

For more information regarding our investing and financing activities, see "Business—Our Investment Policies" and "Business—Our Disposition Policies" in Part 1, Item 1 of this Annual Report on Form 10-K, “Liquidity and Capital Resources—Our Investing and Financing Liquidity and Resources” below and Note 3 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

For more information regarding our investing and financing activities, see elsewhere in this Annual Report on Form 10-K, including “Business—Our Company”, “Business—Our Investment Policies” and “Business—Our Disposition Policies” in Part 1, Item 1 of this Annual Report on Form 10-K, “Liquidity and Capital Resources—Our Investing and Financing Liquidity and Resources” below and Notes 3 and 5 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

RESULTS OF OPERATIONS

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Total other expenses 68,454 90,298 (21,844) (24.2) %

Gain on sale of real estate 23,996 — 23,996 N/M

Gain on sale of real estate 12,054 23,996 (11,942) (49.8) %

Interest income — 113 (113) (100.0) %

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

Income before income tax expense and equity earnings of investees 80,953 52,003 28,950 55.7 %

Income before income tax expense and equity in earnings of investees 79,037 80,953 (1,916) (2.4) %

Income tax expense (273) (277) 4 (1.4) %

Equity in earnings of investees 529 666 (137) (20.6)%

Equity in earnings of investees 40,918 529 40,389 N/M

Net income 119,682 81,205 38,477 47.4 %

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(1) Consists of properties that we owned continuously since January 1, 2020 and excludes 18 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.

(2) Consists of 23 properties that we acquired during the period from January 1, 2019 to December 31, 2019, one property we sold in December 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 the properties owned by the joint venture until November 2020.

(2) Consists of seven properties that we acquired during the period from January 1, 2020 to December 31, 2021, one property we sold in December 2020 and 12 and six properties we contributed and sold in the first quarter of 2020 and in December 2021, respectively, to our joint venture in which we currently own a 22% equity interest.

Until November 2020, we consolidated the properties we then owned which were subsequently contributed to our joint venture.

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

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Rental income.

The increase in rental income is primarily a result of our acquisition and disposition activities, and increases from leasing activity and rent resets at certain of our comparable properties.

Rental income includes non-cash straight line rent adjustments totaling approximately $9,041 for the 2020 period and approximately $4,345 for the 2019 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $791 for the 2020 period and approximately $1,195 for the 2019 period.

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 and the sale of six properties to our joint venture in December 2021, partially offset by increases from the acquisition of two properties during the 2020 period, the acquisition of five properties during the 2021 period and leasing activity and rent resets at certain of our comparable properties.

Rental income includes non-cash straight line rent adjustments totaling approximately $7,263 and $9,041 for the 2021 and 2020 periods, respectively, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $781 and $791 for the 2021 and 2020 periods, respectively.

Real estate taxes.

The increase in real estate taxes primarily reflects our acquisition and disposition activities and higher tax assessments at certain of our comparable properties.

The decrease in real estate taxes primarily reflects our acquisition and disposition activities, partially offset by higher tax assessments at certain of our comparable properties.

Other operating expenses.

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

The increase in other operating expenses is primarily due to our acquisition and disposition activities.

The increase in other operating expenses at our comparable properties is primarily due to an increase in insurance expense and repair and maintenance costs in the 2020 period, partially offset by higher snow removal and legal expenses in the 2019 period.

The decrease in other operating expenses is primarily due to our acquisition and disposition activities.

The increase in other operating expenses at our comparable properties is primarily due to an increase in snow removal, repairs and maintenance costs and insurance expense in the 2021 period.

Depreciation and amortization.

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

Acquisition and certain other transaction related costs.

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

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

General and administrative.

General and administrative expenses primarily include fees paid under our business management agreement with RMR LLC, legal fees, audit fees, Trustee fees and equity compensation expense.

The increase in general and administrative expenses primarily reflects an increase in business management fees as a result of our acquisition activity in the 2020 and 2019 periods as well as an increase in our equity compensation expenses.

General and administrative expenses primarily include fees paid under our business management agreement with RMR LLC, legal fees, audit fees, Trustee fees and expenses and equity compensation expense.

The decrease in general and administrative expenses is primarily due to a decrease in business management fees as a result of our net disposition of properties since January 1, 2020.

Gain on sale of real estate.

We recorded a $23,996 aggregate gain on sale of real estate in 2020, resulting from the deconsolidation of and sale of an equity interest in our joint venture and the sale of one other property in the 2020 period.

Gain on sale of real estate represents the net gain of $11,114 from the sale of six properties to our joint venture and a $940 gain from the sale of a portion of a land parcel as a result of an eminent domain taking in the 2021 period.

During the 2020 period, we recorded a $23,966 aggregate gain on sale of real estate, resulting from the deconsolidation of and sale of equity interests in our joint venture and the sale of one other property.

Interest income.

Interest income represents interest earned on our cash balances.

The decrease in interest income is primarily due to a decrease in average investable cash and lower interest rates earned on invested cash during the 2020 period as compared to the 2019 period.

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

Interest expense.

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

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

Gain on early extinguishment of debt.

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Equity in earnings of investees.

Equity in earnings of investees includes earnings from our unconsolidated joint venture following our sale of an equity interest in that joint venture to a third party in November 2020.

Following the sale, we own a 22% equity interest in the venture.

Equity in earnings of investees also includes our proportionate share of earnings from our former investment in Affiliates Insurance Company, or AIC, in the 2019 period.

Equity in earnings of investees is the change in the fair value of our investment in our joint venture.

The increase in net income for the 2021 period compared to the 2020 period reflects the changes noted above.

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Net loss attributable to noncontrolling interest represents the net loss attributable to the 39% equity interest in our joint venture that we did not own during the 2020 period when we owned a 61% equity interest in the venture.

Weighted average common shares outstanding .

Net income attributable to common shareholders.

The increase in net income attributable to common shareholders for the 2021 period compared to the 2020 period reflects the changes noted above.

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.

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Non-GAAP Financial Measures

We present certain “non-GAAP financial measures” within the meaning of applicable SEC rules, including NOI, FFO attributable to common shareholders and Normalized FFO attributable to common shareholders.

We present certain “non-GAAP financial measures” within the meaning of the applicable SEC rules, including NOI, FFO attributable to common shareholders and Normalized FFO attributable to common shareholders.

These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income or net income attributable to common shareholders as indicators of our operating performance or as measures of our liquidity.

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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.

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.

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, and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year.

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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 year ended December 31, 2020 and 2019 (dollars in thousands, except per share data) :

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 years ended December 31, 2021 and 2020 (dollars in thousands, except per share data) :

Year Ended December 31,

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Per common share data (basic and diluted)

FFO attributable to common shareholders and Normalized FFO attributable to common shareholders $ 1.86 $ 1.76

FFO attributable to common shareholders $ 1.87 $ 1.86

Normalized FFO attributable to common shareholders $ 1.89 $ 1.86

LIQUIDITY AND CAPITAL RESOURCES

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

We believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter based on our current expectations, including impacts from the COVID-19 pandemic and current economic downturn on us and our tenants and their ability to pay us rent when due.

With $568,000 of availability under our revolving credit facility as of February 11, 2022, 71.9% 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 5.8% of our annualized rental revenues as of December 31, 2021 from expiring leases over the next 12 months, we believe that these sources of funds will be sufficient to meet our current operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and the foreseeable future thereafter.

The pending Monmouth Transaction and our financing of such acquisition may adversely affect our operating liquidity and resources as further described in “Risk Factors—Risks Related to the Monmouth Transaction—If we do not enter into a joint venture with one or more institutional investors for equity investments in the amounts we currently expect, or if our committed debt financing is not available, we may be required to obtain alternative financing for the Monmouth Transaction on terms which are materially less favorable to us.” in this Annual Report on Form 10-K.

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

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• purchase additional properties that produce cash flows in excess of our costs of acquisition capital and property operating expenses;

With $529,000 of availability under our revolving credit facility as of December 31, 2020, $22,834 of cash on hand, 72.2% 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 1.4% of our annualized rental revenues as of December 31, 2020 from expiring leases over the next 12 months, we believe that we are currently well positioned to weather the present disruptions facing the real estate industry.

Further, we are hopeful that our focus on industrial and logistics properties will enable us and our tenants to outperform the broader commercial and real estate industry if the demand for e-commerce continues at levels consistent with the demand since the COVID-19 pandemic materialized in the United States during the first quarter of 2020.

However, even if that occurs, we expect that some of our tenants may experience significant downturns with respect to their businesses and liquidity.

As a result of the COVID-19 pandemic and its resulting economic downturn, certain of our tenants have requested relief from their obligations to pay rent due to us.

We evaluate these requests on a tenant by tenant basis.

As of February 15, 2021, we granted requests to certain of our tenants to defer aggregate rent payments of $3,244 with respect to leases that represent, as of December 31, 2020, approximately 9.6% of our annualized rental revenues.

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

As of December 31, 2020, we recognized $2,630 in our accounts receivable related to the remaining deferred amounts.

For the year ended December 31, 2020, we collected approximately 97.6% of our contractual rents due after giving effect to such rent deferrals.

We expect to receive additional similar requests in the future, particularly if the current economic conditions do not continue to improve or if they worsen for an extended period.

We may determine to grant additional relief in the future, which may vary from the type of relief we have granted to date, and could include more substantial relief, if we determine it prudent or appropriate to do so.

In addition, if any of our tenants are unable to continue as going concerns as a result of the current economic conditions or otherwise, we may experience a reduction in rents received and we may be unable to find suitable replacement tenants for an extended period or at all.

The terms of our leases with those replacement tenants may not be as favorable to us as the terms of our agreements with our existing tenants.

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):

• develop properties to produce cash flows in excess of our cost of capital.

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

Year Ended December 31,

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The decrease in net cash provided by operating activities for the year ended December 31, 2021 compared to the prior year is primarily due to changes in our working capital.

The decrease in net cash used in investing activities for the year ended December 31, 2020 compared to the prior year is primarily due to our acquisition of 30 properties in the 2019 period compared to the acquisition of two properties in the 2020 period.

The change in net cash provided by financing activities in 2019 to net cash used in financing activities in 2020 was primarily due to net proceeds from our mortgage financing to fund acquisitions in the 2019 period, partially offset by the proceeds we received from our first joint venture transaction and a prepayment of a mortgage note in the 2020 period.

The change in net cash provided by investing activities in the 2021 period to net cash used by investing activities in the 2020 period is primarily due to the sale of six properties to our joint venture, partially offset by our acquisition of five properties in the 2021 period compared to the acquisition of two properties in the 2020 period.

The increase in net cash used in financing activities in the 2021 period compared to the 2020 period was primarily due to the proceeds we received from our joint venture transactions in the 2020 period, partially offset by a prepayment of a mortgage note and higher net borrowings under our revolving credit facility in the 2020 period.

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.

We generally do not intend to purchase ‘‘turn around’’ properties, or properties that do not generate positive cash flows, and, to the extent we conduct construction or redevelopment activities on our properties, we currently intend to conduct those activities primarily to satisfy tenant requirements or on a build to suit basis for existing or new tenants.

Except as described below with respect to the Monmouth Transaction, 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 year ended December 31, 2021, we acquired a

developable land parcel for $2,319, including acquisition costs of $119.

We expect to spend approximately $14,000 to construct a building for lease on this land.

As of December 31, 2021, we had cash and cash equivalents of $29,397.

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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.

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

In November 2021, we exercised our option to extend the maturity date of our revolving credit facility by six months to June 29, 2022.

We have an additional option to extend the maturity date of our revolving credit facility for one six month period, subject to the payment of an extension fee and meeting 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.

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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.

On January 29, 2019, we obtained a $650,000 mortgage loan secured by 186 of our properties (178 land parcels and eight buildings) containing approximately 9.6 million square feet located on the island of Oahu, HI.

As of December 31, 2021, our debt maturities (other than revolving credit facility), consisted of mortgage notes with an aggregate principal amount of $650,000, which is secured by 186 of our properties (178 land parcels and eight buildings) containing approximately 9.6 million square feet located on the island of Oahu, HI.

This non-amortizing loan matures on February 7, 2029 and requires monthly payments of interest only at a fixed rate of 4.31% per annum.

We used the proceeds from this loan to reduce outstanding borrowings under our revolving credit facility and to fund acquisitions.

In connection with the acquisition of a portfolio of 20 industrial properties in April 2019, we assumed a $56,980 mortgage note secured by one property containing approximately 1.0 million square feet located in Ruskin, FL.

This non-amortizing loan matures on October 1, 2023 and requires monthly payments of interest only at a fixed rate of 3.60% per annum.

In October 2019, we obtained a $350,000 mortgage loan secured by 11 of our properties located in mainland United States containing an aggregate of approximately 8.2 million rentable square feet and located in eight states.

This non-amortizing loan matures in November 2029 and requires monthly payments of interest at a fixed rate of 3.33% per annum.

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

As a result of the prepayment of this mortgage note, we recorded a gain on early extinguishment of debt of $120 for the year ended December 31, 2020 to write off unamortized debt premiums.

We no longer include the $56,980 secured mortgage note or the $350,000 mortgage loan in our consolidated balance sheet following the deconsolidation of the net assets of our formerly majority-owned joint venture.

For further information regarding our joint venture, see Note 3 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

As of December 31, 2020, we had mortgage notes payable with an aggregate principal amount of $650,000, which is scheduled to mature in 2029.

In the first quarter of 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.

We contributed 11 of these properties to our joint venture in February 2020 and the remaining property in March 2020.

We received proceeds from the investor in an aggregate amount of $107,942, which includes $734 of costs associated with the formation of our joint venture, for a 39% equity interest in the joint venture and we retained the remaining 61% equity interest in our joint venture.

We recognized a noncontrolling interest in our consolidated balance sheet of $98,375 as of the completion of this transaction, which was equal to 39% of our aggregate carrying value of the total equity of the properties immediately prior to our respective contributions of the properties to our joint venture.

The difference between the net proceeds received from this transaction and the noncontrolling interest recognized, which was $9,567, has been reflected as an increase in additional paid in capital in our consolidated balance sheet.

During the year ended December 31, 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.

In November 2021, we entered into the Merger Agreement related to the Monmouth Transaction, which will add 126 new, Class A, single tenant, net leased, e-commerce focused industrial properties containing over 26 million square feet with a weighted average remaining lease term of approximately eight years to our portfolio.

Depending on the ultimate amount of the joint venture equity investments, we may also use proceeds from the sale of some of Monmouth’s properties to finance the Monmouth Transaction.

In addition, in connection with the financing of the Monmouth Transaction, we have obtained commitments from lenders to make a bridge loan of up to $4,000,000 available to us.

The Monmouth Transaction is subject to the satisfaction of conditions, including the receipt of requisite approval by Monmouth’s stockholders and is expected to close in the first quarter of 2022.

In the first quarter of 2020, we entered into agreements related to our joint venture for 12 of our properties in the mainland United States with an unrelated third party institutional investor and contributed those 12 properties to our joint venture.

We received an aggregate amount of $108,676, which included certain costs associated with the formation of our joint venture from that investor for a 39% equity interest in our joint venture and we retained the remaining 61% equity interest in our joint venture.

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 for an additional $108,812, which included certain costs associated with the formation of our joint venture, and we retained a 22% equity interest in our joint venture following the sale.

Effective as of the sale in November 2020, 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.

We recognized a 39% noncontrolling interest in our consolidated financial statements for the year ended December 31, 2020.

During the year ended December 31, 2020, our joint venture made aggregate cash distributions of $14,049, $5,479 to the first joint venture investor, which was reflected as a decrease in total equity attributable to noncontrolling interest and $8,570 to us.

We determined that, while we owned a 61% equity interest in our joint venture, our joint venture was a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board Accounting Standards Codification.

We concluded that we must consolidate this VIE, and we did so, until we sold an additional 39% equity interest in the joint venture in November 2020.

We reached this determination because we were the entity with the power to direct the activities that most significantly impacted the VIE's economic performance and we had the obligation to absorb losses of, and the right to receive benefits from, the VIE that could be significant to the VIE, and therefore were the primary beneficiary of the VIE.

The joint venture investor's interest in this consolidated entity was reflected as noncontrolling interest in our consolidated financial statements.

We deconsolidated the net assets of our joint venture and recognized a net gain on sale of $23,415 on this transaction, which is included in gain on sale of real estate in our consolidated statements of comprehensive income.

After giving effect to the sale, we continue to own a 22% equity interest in our joint venture, but have determined that we are no longer the primary beneficiary.

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.

Our initial investment amount was based on an aggregate property valuation of $680,000, less $406,980 of existing mortgage debts on the properties, that our joint venture assumed.

During the year ended December 31, 2020, our joint venture made aggregate cash distributions of $14,049, including $5,479 to the first joint venture investor.

In December 2021, we sold six recently acquired properties to our joint venture for an aggregate price of approximately $205,789.

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

For more information regarding the use of the equity method for our joint venture, see Note 6 to the Notes to the Consolidated Financial Statements included in Part IV, of this Annual Report on Form 10-K.

We expect to use borrowings under our revolving credit facility and net proceeds from offerings of equity or debt securities to fund any future property acquisitions, development or redevelopment efforts.

During the year ended December 31, 2021, we recorded an increase in the fair value of our investment in our joint venture of $45,273, as equity in earnings of investees in our consolidated statements of comprehensive income.

In addition, during the year ended December 31, 2021 our joint venture made aggregate cash distributions of $2,640 to us.

For more information regarding our investing and financing activities, our joint venture, the use of the equity method for our joint venture, see Notes 2, 3 and 6 to the Notes to Consolidated Financial Statements included in Part IV, of this Annual Report on Form 10-K.

We expect to use borrowings under our revolving credit facility, proceeds we may receive from sales of properties to or equity investments 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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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.

Although we cannot be sure that we will be successful in completing any particular type of financing, we believe that we will have access to financing, such as debt or equity offerings, to fund capital expenditures, future acquisitions, development, redevelopment and other activities and to pay our obligations.

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Potential lenders in future debt transactions will evaluate our ability to fund required debt service and repay principal balances when they become due by reviewing our financial condition, results of operations, business practices and plans and our ability to maintain our earnings, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes.

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

However, as noted elsewhere in this Annual Report on Form 10-K, it is uncertain what the duration and severity of the current economic downturn 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.

Further, such conditions could also disrupt capital markets and limit our access to financing from public sources, particularly if the global financial markets experience significant disruptions.

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

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 year ended December 31, 2021, we paid quarterly cash distributions to our shareholders totaling $86,236 using existing cash balances and borrowings under our revolving credit facility.

For more information regarding the distributions we paid during 2020, see Note 7 to the Notes to the Consolidated Financial Statements included in Part IV, of this Annual Report on Form 10-K.

On January 14, 2021, we declared a regular quarterly distribution of $0.33 per common share, or $21,549, to shareholders of record on January 25, 2021.

We paid this distribution to our shareholders on February 18, 2021 using existing cash balances and borrowings under our revolving credit facility.

For more information regarding the distributions we paid during 2020, see Note 7 to the Notes to Consolidated Financial Statements included in Part IV, of this Annual Report on Form 10-K.

On January 13, 2022, we declared a regular quarterly distribution of $0.33 per common share, or approximately $21,600, to shareholders of record on January 24, 2022.

We expect to pay this distribution to our shareholders on or about February 17, 2022 using existing cash balances and borrowings under our revolving credit facility.

During the years ended December 31, 2021 and 2020, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows:

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

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

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

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

As of December 31, 2021, we had estimated unspent leasing related obligations of $2,224, of which $1,671 is expected to be spent during the next 12 months.

During the year ended December 31, 2020, commitments made for expenditures, such as tenant improvements and leasing costs in connection with leasing space, were as follows:

New Leases Renewals Totals

Square feet leased during the period (in thousands) 182 920 1,102

Total leasing costs and concession commitments (1)

$ 956 $ 1,150 $ 2,106

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

$ 5.25 $ 1.25 $ 1.91

Weighted average lease term by square feet (years) 10.9 11.5 11.4

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

$ 0.48 $ 0.11 $ 0.17

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

Debt Covenants (dollars in thousands)

Our principal debt obligations at December 31, 2020 were borrowings outstanding under our revolving credit facility and a $650,000 non-recourse, mortgage loan obtained in January 2019 that is secured by 186 properties.

The applicable 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.

Our principal debt obligations at December 31, 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.

Our credit agreement provides for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as a change of control of us, which includes RMR LLC ceasing to act as our business and property manager.

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and others related to them.

For more information about these and other such relationships and related person transactions, see Notes 9 and 10 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, and our other filings with the SEC, including our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2020.

For more information about these and other such relationships and related person transactions, see Notes 9 and 10 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, our other filings with the SEC, including our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2021.

For more information about the risks that may arise as a result of these and other related person transactions and relationships, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward Looking Statements,” Part I, Item 1, “Business” and Part I, Item 1A, “Risk Factors.” We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.

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Competition, economic conditions and other factors may cause occupancy declines in the future.

In the future, we may need to revise our carrying value assessments to incorporate information which is not now known, and such revisions could increase or decrease our depreciation expense related to properties we own or decrease the carrying values of our assets.

In the future, we may need to revise our carrying value

assessments to incorporate information which is not now known, and such revisions could increase or decrease our depreciation expense related to properties we own or decrease the carrying values of our assets.

Impact of Climate Change

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Green Building Council, a nonprofit organization focused on promoting energy efficiency at commercial properties through its leadership in energy and environmental design, or LEED ® , green building program.

RMR LLC’s annual Sustainability Report summarizes the ESG initiatives of RMR LLC and its client companies, including ILPT.

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

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

Some observers believe severe weather in different parts of the world over the last few years is evidence of global climate change.

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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-K

Item 7. Management’s Discussion and Analysis