Industrial Logistics Properties Trust 10-Q

Item 4. Controls and Procedures As of the end of the period covered by this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our Managing Trustees, our President and Chief Operating Officer and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Managing Trustees, our President and Chief Operating Officer and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective. There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 36 Table of Contents Warning Concerning Forward-Looking Statements This Quarterly Report on Form 10-Q contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Also, whenever we use words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions, we are making forward-looking statements. These forward-looking statements are based upon our present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Forward-looking statements in this Quarterly Report on Form 10-Q relate to various aspects of our business, including: • Our tenants’ ability and willingness to pay their rent obligations to us, • The likelihood that our tenants will renew or extend their leases or that we will be able to obtain replacement tenants on terms as favorable to us as the terms of our existing leases, • Our belief that the industrial and logistics sector and many of our tenants are critical to sustaining a resilient supply chain and that our business will benefit as a result, • Our acquisitions or sales of properties, • The development, redevelopment or repositioning of our properties, • Our ability to compete for tenancies and acquisitions effectively, • The likelihood that our rents will increase when we renew or extend our leases, when we enter new leases, or when our rents reset at our Hawaii Properties, • Our ability to pay distributions to our shareholders and to sustain the amount of such distributions, • Our policies and plans regarding investments, financings and dispositions, • Our ability to raise debt or equity capital, • Our ability to pay interest on and principal of our debt or refinance such debt, • Our ability to appropriately balance our use of debt and equity capital, • Our ability to expand our existing, or enter into additional, real estate joint ventures or to attract co-venturers and benefit from our existing joint ventures or any real estate joint ventures we may enter into, • Whether we may contribute additional properties to our joint ventures and receive proceeds from the other investors in our joint ventures in connection with any such contributions, • The credit qualities of our tenants, • Changes in the security of cash flows from our properties, • Our expectations about our ability and the ability of the industrial and logistics properties real estate sector and our tenants to operate throughout the remainder of the COVID-19 pandemic and current economic conditions, • Our ability to maintain sufficient liquidity, including for the remainder of the COVID-19 pandemic and any resulting economic impact, • Our ability to prudently pursue, and successfully and profitably complete, expansion and renovation projects at our properties and to realize our expected returns on those projects, • Our expectation that we benefit from our relationships with RMR, • Our qualification for taxation as a REIT under the IRC, • Changes in federal or state tax laws, • Changes in environmental laws or in their interpretations or enforcement as a result of climate change or otherwise, or our incurring environmental remediation costs or other liabilities, • Changes in global supply chain conditions, and 37 Table of Contents • Other matters. Our actual results may differ materially from those contained in or implied by our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. Risks, uncertainties and other factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, FFO attributable to common shareholders, Normalized FFO attributable to common shareholders, NOI, cash flows, liquidity and prospects include, but are not limited to: • The impact of economic conditions and the capital markets on us and our tenants, including if the current inflationary environment continues or intensifies, • Competition within the real estate industry, particularly for industrial and logistics properties in those markets in which our properties are located, • Compliance with, and changes to, federal, state and local laws and regulations, accounting rules, tax laws and similar matters, • Limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our qualification for taxation as a REIT for U.S. federal income tax purposes, • Actual and potential conflicts of interest with our related parties, including our managing trustees, RMR and others affiliated with them, and • Acts of terrorism, outbreaks of pandemics, war or other hostilities, further material or prolonged disruption to supply chains, or other manmade or natural disasters beyond our control. For example: • Our ability to make future distributions to our shareholders and to make payments of principal and interest on our indebtedness depends upon a number of factors, including our receipt of rent from our tenants, future earnings, the capital costs we incur to lease our properties and our working capital requirements. We may be unable to pay our debt obligations or to increase or maintain our current rate of distributions on our common shares and future distributions may be reduced or eliminated, • Our ability to grow our business and increase our distributions depends in large part upon our ability to acquire properties and lease them for rents, less their property operating costs, that exceed our capital costs. We may be unable to further grow our business by acquiring additional properties. We may be unable to identify properties that we want to acquire, and we may fail to reach agreement with the sellers and complete the purchases of any properties we do want to acquire. In addition, we might encounter unanticipated difficulties and expenditures relating to the properties we acquired in the MNR acquisition or other properties we may acquire in the future, and these properties may not provide us with rents less property operating costs that exceed our capital costs or achieve our expected returns, • Contingencies in our acquisition and sale agreements may not be satisfied and any expected acquisitions and sales may not occur, may be delayed or the terms of such transactions may change, • We may not be able to sell the MNR properties we acquired and are seeking to sell, and any such sales may be at prices lower than the carrying values, • We may experience declining rents or incur significant costs when we renew our leases with current tenants or lease our properties to new tenants or when our rents reset at our properties in Hawaii, • Leasing for some of our properties depends on a single tenant and we may be adversely affected by the bankruptcy, insolvency, downturn of business or lease termination of a single tenant at these properties, • Any existing or possible development, redevelopment or repositioning of our properties may not be successful and may cost more or take longer to complete than we currently expect or than we expected when the project commenced. In addition, we may not realize the returns we expect from these projects and we may incur losses from these projects, • It is difficult to accurately estimate leasing related obligations and costs of development and tenant improvement costs. Our leasing related obligations, development projects and tenant improvements may cost more and may 38 Table of Contents take longer to complete than we currently expect or than we expected when the project commenced, and we may incur increasing amounts for these and similar purposes in the future, • Economic conditions in areas where our properties are located may decline in the future. Such circumstances or other conditions may reduce demand for leasing industrial space. If the demand for leasing industrial space is reduced, we may be unable to renew leases with our tenants as leases expire or enter new leases at rental rates as high as expiring rents and our financial results may decline, • E-commerce retail sales may not continue to grow and increase the demand for industrial and logistics real estate as we expect, • Increasing development of industrial and logistics properties may reduce the demand for, and rents from, our properties, • We may not achieve or sustain our targeted capitalization rates for properties we acquire and we may incur losses with respect to those acquisitions, • Our belief that there is a likelihood that tenants may renew or extend our leases prior to their expirations whenever they have made significant investments in the leased properties, or because those properties may be of strategic importance to them, may not be realized, • Some of our tenants may not renew expiring leases, and we may be unable to obtain new tenants to maintain or increase the historical occupancy rates of, or rents from, our properties, and we may need to make significant expenditures to lease our properties, • We may not be able to maintain good relations with, and continue to be responsive to the needs of, our significant and other tenants, • The competitive advantages we believe we have may not in fact exist or provide us with the advantages we expect. We may fail to maintain any of these advantages or our competition may obtain or increase their competitive advantages relative to us, • We intend to conduct our business activities in a manner that will afford us reasonable access to capital for investing and financing activities. However, we may not succeed in this regard and we may not have reasonable access to capital, • Actual costs under our floating rate debt will be higher than the stated rate plus a premium because of fees and expenses associated with the applicable facility, • We may incur additional debt. Additional debt leverage may limit our ability to make acquisitions, pay distributions and pursue other opportunities we may deem desirable. Further, increased leverage may increase our cost of capital, • We may not be able to obtain replacement financing on desirable terms when our debts mature, • Our existing, and any future, derivative contracts we are party to or may enter into may not have the intended or desired beneficial impact, and may expose us to additional risks such as counterparty credit risk and may involve additional costs, • We may spend more for capital expenditures than we currently expect and we expect to spend more than we have in the past, • Our existing joint ventures and any additional joint ventures we may enter into in the future may not be successful, and we may not be able to sell any additional equity interests in our existing joint ventures at expected prices or at all, • Our Board of Trustees considers, among other factors, our dividend yield and our dividend yield compared to the dividend yields of other industrial REITs when setting our distributions to shareholders. This may imply that we will maintain or seek to maintain a specific dividend yield on our common shares. However, the dividend yield is only one of many factors our Board of Trustees considers in its discretion when setting our distributions to shareholders. Further, various market and other factors impact trading prices for our and our competitors’ securities and the corresponding yields on those securities. As a result, the trading prices on our common shares 39 Table of Contents and the yields on our common shares are subject to change and may fluctuate significantly. We do not intend to maintain or to seek to maintain any specific yield on our common shares, • The business and property management agreements between us and RMR have continuing 20 year terms. However, those agreements permit early termination in certain circumstances. Accordingly, we cannot be sure that these agreements will remain in effect for continuing 20 year terms, • We expect that we will benefit from RMR’s Environmental, Social and Governance, or ESG, program and initiatives. However, we may incur extensive costs and may not realize the benefits we expect from such program and initiatives and we or RMR may not succeed in meeting existing or future standards, or investors’ expectations, regarding ESG, • We believe that our relationships with our related parties, including RMR, RMR Inc. and others affiliated with them may benefit us and provide us with competitive advantages in operating and growing our business. However, the advantages we believe we may realize from these relationships may not materialize, and • We may not succeed in selling the marketable securities acquired as part of the MNR acquisition on the expected timeline or at all. Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as acts of terrorism, war or other hostilities, pandemics, natural disasters, climate change and climate related events, changes in our tenants’ financial conditions, the market demand for leased space or changes in capital markets or the economy generally. The information contained elsewhere in this Quarterly Report on Form 10-Q and in our 2021 Annual Report or in our other filings with the SEC, including under the caption “Risk Factors”, or incorporated herein or therein, identifies other important factors that could cause differences from our forward-looking statements. Our filings with the SEC are available on the SEC’s website at www.sec.gov. You should not place undue reliance upon our forward-looking statements. Except as required by law, we do not intend to update or change any forward-looking statements as a result of new information, future events or otherwise. Statement Concerning Limited Liability The Amended and Restated Declaration of Trust establishing Industrial Logistics Properties Trust, dated January 11, 2018, as amended, as filed with the State Department of Assessments and Taxation of Maryland, provides that no trustee, officer, shareholder, employee or agent of Industrial Logistics Properties Trust shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, Industrial Logistics Properties Trust. All persons dealing with Industrial Logistics Properties Trust in any way shall look only to the assets of Industrial Logistics Properties Trust for the payment of any sum or the performance of any obligation. 40 Table of Contents PART II. Other Information Item 1A. Risk Factors There have been no material changes to the risk factors from those we previously provided in our 2021 Annual Report.