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Item 2. Management’s Discussion and Analysis

2022-07-26 compared with 2022-04-27 · 262 added, 128 removed, 280 unchanged (58% of the section changed)

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

As of March 31, 2022, our portfolio was comprised of 412 consolidated properties containing approximately 59.7 million rentable square feet located in 39 states, including 226 buildings, leasable land parcels and easements containing approximately 16.7 million rentable square feet located on the island of Oahu, Hawaii, and 186 properties containing approximately 43.0 million rentable square feet located in 38 other states.

Our 412 consolidated properties include 93 properties that we own in a consolidated joint venture arrangement in which we own a 61% equity interest.

As of March 31, 2022, we also owned a 22% equity interest in an unconsolidated joint venture, which owns 18 properties located in 12 states containing approximately 11.7 million rentable square feet that were 100% leased with an average (by annualized rental revenues) remaining lease term of 6.4 years.

As of March 31, 2022, our consolidated properties were approximately 98.9% leased (based on rentable square feet) to 304 different tenants with a weighted average remaining lease term (based on annualized rental revenues) of approximately 8.6 years.

We define the term annualized rental revenues as used in this section as the annualized contractual rents, as of March 31, 2022, 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.

On February 25, 2022, we completed the acquisition of MNR as a result of which we acquired 124 Class A, single tenant, net leased, e-commerce focused industrial properties located in 32 states containing approximately 25,745,000 rentable square feet and two committed, but not yet completed, property acquisitions.

The aggregate value of the consideration paid in the Merger was $3,734,485, including the assumption of $323,432 aggregate principal amount of existing MNR mortgage debt, the repayment of $885,269 of MNR debt and the payment of certain transaction fees and expenses, net of MNR’s cash on hand, and excluding two pending property acquisitions for an aggregate purchase price of $78,843, excluding acquisition related costs.

As of June 30, 2022, our portfolio was comprised of 412 consolidated properties containing approximately 59.7 million rentable square feet located in 39 states, including 226 buildings, leasable land parcels and easements containing approximately 16.7 million rentable square feet located on the island of Oahu, Hawaii, and 186 properties containing approximately 43.0 million rentable square feet located in 38 other states.

As of June 30, 2022, our 412 consolidated properties include 93 properties that we own in a consolidated joint venture arrangement in which we own a 61% equity interest.

As of June 30, 2022, we also owned a 22% equity interest in an unconsolidated joint venture, which owns 18 properties located in 12 states containing approximately 11.7 million rentable square feet that were 100% leased with an average (by annualized rental revenues) remaining lease term of 6.1 years.

As of June 30, 2022, our consolidated properties were approximately 98.9% leased (based on rentable square feet) to 305 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, 2022, 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.

The aggregate value of the consideration paid in the Merger was $3,734,485, including the assumption of $323,432 aggregate principal amount of former MNR mortgage debt, the repayment of $885,269 of MNR debt and the payment of certain transaction fees and expenses, net of MNR’s cash on hand, and excluding two then pending property acquisitions for an aggregate purchase price of $78,843, excluding acquisition related costs.

The 124 MNR properties were 97.9% leased to various tenants and had a remaining weighted average (by rental revenues) lease term of eight years as of the date of the acquisition.

Immediately following the closing of the Merger, we entered into a joint venture arrangement with an institutional investor for 95 MNR properties, including two committed, but not yet completed, property acquisitions.

Immediately following the closing of the Merger, we entered into a joint venture arrangement with an institutional investor for 95 MNR properties, including two then committed, but not yet then completed, property acquisitions.

The investor acquired a 39% equity interest in the joint venture from us for $587,440, and we retained the remaining 61% equity interest in the joint venture.

The joint venture assumed $323,432 aggregate principal amount of existing MNR mortgage debt on certain of the properties.

The joint venture assumed $323,432 aggregate principal amount of former MNR mortgage debt on certain of the properties.

Federal Reserve recently raised interest rates in an effort to combat inflation, which could result in negative consequences in the U.S.

economy, and concerns about a potential recession are becoming more pronounced.

It is unclear whether the U.S.

economy will be able to withstand such challenges and continue sustained growth.

A recession could adversely affect our financial condition and that of our tenants, could adversely impact the ability of our tenants to renew our leases or pay rent to us, would impair our ability to effectively deploy our capital or realize upon investments on favorable terms and may cause the values of our properties and of our securities to decline.

We could also be affected by any overall weakening of, or disruptions in, the financial markets.

Property Operations

Occupancy data for our properties as of March 31, 2022 and 2021 is as follows (square feet in thousands):

Occupancy data for our properties as of June 30, 2022 and 2021 is as follows (square feet in thousands):

All Properties Comparable Properties (1)

As of March 31, As of March 31,

As of June 30, As of June 30,

2022 2021 2022 2021

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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 March 31, 2022, 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 months ended March 31, 2022 and 2021 are as follows:

Three Months Ended March 31,

(3) Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of June 30, 2022, 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, 2022 and 2021 are as follows:

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

2022 2021 2022 2021

Average effective rental rates per square foot leased:

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(2) Consists of properties that we owned continuously since January 1, 2021 and excludes properties owned by an unconsolidated joint venture.

During the three months ended March 31, 2022, we entered into new and renewal leases as summarized in the following tables:

Three Months Ended March 31, 2022

During the three and six months ended June 30, 2022, we entered into new and renewal leases as summarized in the following tables:

Three Months Ended June 30, 2022

New Leases Renewals Totals

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Weighted average lease term by square feet (years) (2)

28.3 9.1 22.7

Total leasing costs and concession commitments (1)

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$ 0.04 $ 0.30 $ 0.07

Six Months Ended June 30, 2022

New Leases Renewals Totals

Square feet leased during the period (in thousands) 2,933 1,630 4,563

Weighted average rental rate change (by rentable square feet) 95.6 % 23.9 % 52.1 %

Weighted average lease term by square feet (years) (2)

26.8 8.4 20.2

Total leasing costs and concession commitments (1)

$ 5,380 $ 5,362 $ 10,742

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

$ 1.83 $ 3.29 $ 2.35

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

$ 0.07 $ 0.39 $ 0.12

(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 8.9 years for the three months ended March 31, 2022 and 11.7 years for the three months ended March 31, 2021.

During the three months ended March 31, 2022, we entered into new and renewal leases for approximately 829,000 square feet at weighted average (by square feet) rental rates that were approximately 31.0% higher than prior rental rates for the same space (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 space during the prior lease term was 8.9 years.

Commitments for tenant improvements, leasing costs and concessions for leases entered into during the three months ended March 31, 2022 totaled $4,772, or approximately $0.65 per square foot per year of the new weighted average lease term.

During the three months ended March 31, 2022, we completed rent resets for approximately 56,000 square feet of land at our Hawaii Properties at rental rates that were approximately 35.8% higher than the prior rental rates.

As shown in the table below, approximately 3.3% of our total leased square feet and 3.6% of our total annualized rental revenues as of March 31, 2022 are included in leases scheduled to expire by December 31, 2022.

As of March 31, 2022, 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 22.7 years for the three months ended June 30, 2022 and 20.2 years for the six months ended June 30, 2022.

During the three and six months ended June 30, 2022, we completed rent resets for approximately 138,000 and 194,000 square feet of land, respectively, at our Hawaii Properties at rental rates that were approximately 37.2% and 36.8%, respectively, higher than the prior rental rates.

As shown in the table below, approximately 2.1% of our total leased square feet and 2.2% of our total annualized rental revenues as of June 30, 2022 are included in leases scheduled to expire by December 31, 2022.

As of June 30, 2022, 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 March 31, 2022 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 June 30, 2022 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 and in advance.

As of March 31, 2022, tenants representing 1% or more of our total annualized rental revenues were as follows (square feet in thousands):

As of June 30, 2022, tenants representing 1% or more of our total annualized rental revenues were as follows (square feet in thousands):

of Leased % of Total Annualized Rental

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3 Home Depot U.S.A., Inc.

GA, IL 2 829 1.4 % 1.8 %

GA, HI, IL 4 3,365 5.7 % 4.4 %

4 UPS Supply Chain Solutions, Inc.

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CO, LA, NE, NY, OH 5 722 1.2 % 1.3 %

8 Par Hawaii Refining, LLC HI 3 3,148 5.3 % 1.2 %

8 TD SYNNEX Corporation OH 2 939 1.6 % 1.1 %

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AL 1 530 0.9 % 1.0 %

OH, SC 2 703 1.2 % 1.0 %

Total 116 26,963 45.6 % 50.3 %

Tenant Concentration.

We have a concentration of Mainland Properties leased to FDX, which as of March 31, 2022, consisted of approximately 21.8% of our rentable square feet located in 34 states, with a weighted average remaining lease term of 7.5 years.

For the three months ended March 31, 2022, approximately $13,468, or 18.9% of our rental income was from FDX.

Other than FDX, the only other tenants that leased over 5% of our total rentable square footage were subsidiaries of Amazon.com, Inc.

at certain of our Mainland Properties.

Subsidiaries of Amazon.com, Inc.

accounted for $5,615 and $5,538, or 7.9% and 10.2%, of our rental income for the three months ended March 31, 2022 and 2021, respectively.

We have a concentration of properties leased to tenants, including their applicable subsidiaries that leased over 5% of our total rentable square footage as follows:

% of Number Remaining Rental Income Rental Income

Rentable of Lease Term Three Months Ended Six Months Ended

Tenant Square Feet States (in years) 6/30/2022 6/30/2021 6/30/2022 6/30/2021

Federal Express Corporation/ FedEx Ground Package System, Inc.

21.8 % 34 7.4 $ 31,063 29.0 % $ 2,695 5.0 % $ 44,531 24.9 % $ 5,446 5.0 %

Amazon.com Services, Inc./ Amazon.com Services LLC 7.7 % 6 6.4 7,236 6.7 % 5,348 9.9 % 12,852 7.2 % 10,886 10.0 %

Home Depot U.S.A., Inc.

5.7 % 3 26.5 6,540 6.1 % 1,312 2.4 % 6,822 3.8 % 2,625 2.4 %

Total 35.2 % 34 10.3 $ 44,839 41.8 % $ 9,355 17.3 % $ 64,205 35.9 % $ 18,957 17.4 %

Mainland Properties.

As of March 31, 2022, our Mainland Properties represented approximately 72.7% of our annualized rental revenues.

As of June 30, 2022, our Mainland Properties represented approximately 71.0% 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.

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.

Due to the capital that 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.

As of March 31, 2022, our Hawaii Properties represented approximately 27.3% of our annualized rental revenues.

As of March 31, 2022, certain of our Hawaii Properties are lands leased for rents that periodically reset based on fair market values, generally every ten years.

As of June 30, 2022, our Hawaii Properties represented approximately 29.0% of our annualized rental revenues.

As of June 30, 2022, 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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As rent reset dates or lease expirations approach at our Hawaii Properties, we generally negotiate with existing or new tenants for new lease terms.

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

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.

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 March 31, 2022 scheduled to reset at our Hawaii Properties:

The following chart shows the annualized rental revenues as of June 30, 2022 scheduled to reset at our Hawaii Properties:

Scheduled Rent Resets at Hawaii Properties

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Rental Revenues as of

March 31, 2022

June 30, 2022

Scheduled to Reset

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Total $ 22,947

As of March 31, 2022, $16,591, or 4.1%, of our annualized rental revenues are included in leases scheduled to expire through March 31, 2023 and 1.1% of our rentable square feet are currently vacant.

As of June 30, 2022, $17,568, or 4.2%, of our annualized rental revenues are included in leases scheduled to expire through June 30, 2023 and 1.1% 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;

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.

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In general, depending on facts and circumstances, RMR 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.

RMR 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.

RMR also may use 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.

Investing and Financing Activities (dollars in thousands)

As previously disclosed, on February 25, 2022, we completed the acquisition of MNR.

MNR’s portfolio included 124 Class A, single tenant, net leased, e-commerce focused industrial properties located in 32 states containing approximately 25,745,000 rentable square feet with a remaining weighted average (by rental revenues) lease term of eight years as of the date of the acquisition, and two committed, but not yet completed, property acquisitions.

Immediately following the closing of the Merger, we entered into a joint venture arrangement with an institutional investor for 95 of the acquired MNR properties, including two committed, but not yet completed, property acquisitions.

On February 25, 2022, we completed the acquisition of MNR.

In connection with the closing of the Merger, we entered into a $1,385,158 bridge loan facility, secured by 109 of our properties.

We also entered into a $700,000 fixed rate CMBS loan secured by 17 of our properties.

Immediately following the closing of the Merger, we entered into a joint venture arrangement with an institutional investor for 95 of the acquired MNR properties, including two then committed, but not yet then completed, property acquisitions.

The investor acquired a 39% noncontrolling equity interest in the joint venture from us for $587,440, and we retained the remaining 61% equity interest in the joint venture.

The joint venture assumed $323,432 aggregate principal amount of existing MNR mortgage debt on certain of the properties and entered into a $1,400,000 floating rate CMBS loan secured by 82 properties.

The joint venture assumed $323,432 aggregate principal amount of former MNR mortgage debt on certain of the properties and entered into a $1,400,000 floating rate CMBS loan secured by 82 properties.

The Floating Rate Loan matures in March 2024, subject to three one year extension options, and requires that interest be paid at an annual rate of SOFR plus a premium of 2.765%.

In connection with the closing of the Merger, we entered into a $1,385,158 bridge loan facility, secured by 109 properties not owned by the joint venture in which we retained a 61% equity interest.

We also entered into a $700,000 fixed rate CMBS loan secured by 17 of our properties.

We control this joint venture and therefore account for the properties on a consolidated basis in our condensed consolidated financial statements.

As of March 31, 2022, we also own an interest in an unconsolidated joint venture that owns 18 properties.

During the six months ended June 30, 2022, this joint venture made aggregate cash distributions of $1,365 to the other joint venture investor.

In July 2022, our consolidated joint venture acquired a property located in Augusta, GA containing 226,000 rentable square feet for a purchase price of approximately $38,000, excluding acquisition related costs.

This property is 100% leased to a single tenant with a remaining lease term of approximately 14.9 years.

This property was a committed MNR acquisition at the time we acquired MNR and was purchased directly by our consolidated joint venture.

As of June 30, 2022, we also own an interest in an unconsolidated joint venture that owns 18 properties.

We account for our 18 property unconsolidated joint venture under the equity method of accounting under the fair value option.

During the three months ended March 31, 2022, we recorded the change in the fair value of our investment in our unconsolidated joint venture of $1,727 in our condensed consolidated statements of comprehensive income (loss).

In addition, during the three months ended March 31, 2022, our unconsolidated joint venture made aggregate cash distributions of $1,320 to us.

During the three and six months ended June 30, 2022, we recorded the change in the fair value of our investment in our unconsolidated joint venture of $1,610 and $3,337, respectively, in our condensed consolidated statements of comprehensive income (loss).

In addition, during the three and six months ended June 30, 2022, our unconsolidated joint venture made aggregate cash distributions of $1,322 and $2,642, respectively, to us.

For further information regarding our investing and financing activities, see Notes 2, 4, 5, 9 and 11 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 March 31, 2022, Compared to Three Months Ended March 31, 2021 (dollars and share amounts in thousands, except per share data)

Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021 (dollars and share amounts in thousands, except per share data)

Comparable Properties Results (1)

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Consolidated Results

Three Months Ended March 31, Three Months Ended March 31, Three Months Ended March 31,

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

2022 2021 Change Change 2022 2021 Change 2022 2021 Change Change

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Other expenses:

Depreciation and amortization 22,878 12,678 10,200 80.5 %

Depreciation and amortization 42,699 11,830 30,869 N/M

Acquisition and certain other transaction costs — 646 (646) (100.0%)

General and administrative 9,709 4,234 5,475 129.3%

Total other expenses 28,955 16,434 12,521 76.2 %

Realized gain on sale of equity securities 1,232 — 1,232 — %

Unrealized gain on equity securities 2,460 — 2,460 — %

Dividend income 478 — 478 — %

Loss on impairment of real estate 100,747 — 100,747 N/M

Total other expenses 153,155 16,710 136,445 N/M

Interest and other income 354 — 354 N/M

Interest expense (77,548) (8,643) (68,905) N/M

Loss on early extinguishment of debt (828) — (828) N/M

Income (loss) before income tax expense and equity in earnings of investees (11,445) 16,819 (28,264) (168.0 %)

Loss on sale of real estate (10) — (10) N/M

Loss on equity securities (9,450) — (9,450) N/M

(Loss) income before income tax expense and equity in earnings of investees (152,915) 16,997 (169,912) N/M

Income tax expense (16) (42) 26 (61.9%)

Equity in earnings of investees 1,610 1,876 (266) (14.2%)

Net (loss) income (9,787) 19,337 (29,124) (150.6 %)

Net (loss) income (151,321) 18,831 (170,152) N/M

Net loss attributable to noncontrolling interest 7,782 — 7,782 —%

Net (loss) income attributable to common shareholders $ (6,514) $ 19,337 $ (25,851) (133.7 %)

Weighted average common shares outstanding - basic 65,212 65,139 73 0.1 %

Weighted average common shares outstanding - diluted 65,212 65,177 35 0.1 %

Net (loss) income attributable to common shareholders $ (143,539) $ 18,831 $ (162,370) N/M

Weighted average common shares outstanding - basic 65,221 65,146 75 N/M

Weighted average common shares outstanding - diluted 65,221 65,207 14 N/M

Per common share data (basic and diluted):

Net (loss) income attributable to common shareholders $ (0.10) $ 0.30 $ (0.40) (133.3 %)

Net (loss) income attributable to common shareholders $ (2.20) $ 0.29 $ (2.49) N/M

N/M - Not Meaningful

(1) Consists of properties that we owned continuously since January 1, 2021 and excludes properties owned by an unconsolidated joint venture.

(2) Consists of 131 properties that we acquired during the period from January 1, 2021 to March 31, 2022, including 93 properties we contributed to a consolidated joint venture in which we own a 61% equity interest and six properties we sold in December 2021 to our 18 property unconsolidated joint venture in which we own a 22% equity interest.

(1) Consists of properties that we owned continuously since April 1, 2021 and excludes properties owned by an unconsolidated joint venture.

(2) Consists of 131 properties that we acquired during the period from April 1, 2021 to June 30, 2022, including 93 properties we contributed to a consolidated joint venture in which we own a 61% equity interest and six properties we sold in December 2021 to our 18 property unconsolidated joint venture in which we own a 22% equity interest.

(3) See our definition of NOI and our reconciliation of net income (loss) 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 March 31, 2022 compared to the three months ended March 31, 2021.

References to changes in the income and expense categories below relate to the comparison of results for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Rental income.

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The increase also reflects our leasing activity and rent resets at certain of our comparable properties.

Rental income at our comparable properties decreased primarily due to the sale of six properties to our unconsolidated joint venture in December 2021.

Rental income increased at certain of our comparable properties primarily due to increases from leasing activity and rent resets and a $3,500 reduction of a non-cash assumed lease obligation following an early lease termination.

Rental income includes non-cash straight line rent adjustments totaling approximately $3,220 for the 2022 period and approximately $1,951 for the 2021 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $3,695 for the 2022 period and approximately $171 for the 2021 period.

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

The increase in other operating expenses is primarily due to our acquisition and disposition activities, as well as an increase in insurance costs at certain of our comparable properties in the 2022 period.

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

Other operating expenses at our comparable properties in the 2022 period were consistent with the 2021 period.

Depreciation and amortization.

The increase in depreciation and amortization primarily reflects our acquisition and disposition activities.

Acquisition and certain other transaction costs.

Acquisition and certain other transaction 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, legal fees, audit fees, Trustee fees and expenses and equity compensation expense.

The increase in general and administrative expenses is primarily due to an increase in business management fees as a result of our net acquisition activity since January 2021.

Realized gain on sale of equity securities.

Realized gain on sale of equity securities represents the realized gain of $1,232 on the sale of certain equity securities we acquired as part of our acquisition of MNR.

Unrealized gain on equity securities.

Unrealized gain on equity securities represents the increase in fair value of certain equity securities we acquired as part of our acquisition of MNR for the period from February 25, 2022 to March 31, 2022.

Dividend income.

Dividend income represents the distributions received on certain equity securities we held during the period from February 25, 2022 to March 31, 2022.

The increase in general and administrative expenses is primarily due to an increase in business management fees as a result of our net acquisition activity.

Loss on impairment of real estate.

We recorded a $100,747 loss on impairment of real estate in the 2022 period to reduce the carrying value of 25 of the 30 properties reclassified from held for sale to held and used to their estimated fair value.

Interest and other income.

Interest and other income represents interest earned on our cash balances and distributions received on equity securities.

The increase in interest and other income is primarily due to higher cash balances during the 2022 period as compared to the 2021 period and distributions we received on certain equity securities we held during the 2022 period.

Interest expense.

The increase in interest expense is due to higher average interest rates incurred on larger average outstanding balances in the 2022 period as compared to the 2021 period, primarily due to our acquisition of MNR.

Loss on sale of real estate.

Loss on sale of real estate represents a final true up adjustment to the $11,114 gain from the sale of six properties to our unconsolidated joint venture during the three months ended December 31, 2021.

Loss on equity securities.

Loss on equity securities represents the realized loss of $9,450 on the sale of certain equity securities we acquired as part of our acquisition of MNR.

Income tax expense.

Income tax expense primarily reflects state income taxes payable in certain jurisdictions.

Equity in earnings of investees.

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

Net (loss) income.

The net loss for the 2022 period compared to the net income for the 2021 period reflects the changes noted above.

Net loss attributable to noncontrolling interest.

Net loss attributable to noncontrolling interest represents the net loss attributable to the 39% equity interest in our consolidated joint venture that we did not own during the 2022 period.

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, 2021.

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

The net loss attributable to common shareholders per common share for the 2022 period compared to the net income attributable to common shareholders per share for the 2021 period reflects the changes to net income attributable to common shareholders and weighted average common shares noted above.

Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021 (dollars and share amounts in thousands, except per share data)

Comparable Properties Results (1)

Non-Comparable Properties Results (2)

Consolidated Results

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

2022 2021 Change Change 2022 2021 Change 2022 2021 Change Change

Rental income $ 108,997 $ 104,799 $ 4,198 4.0% $ 69,600 $ 3,598 $ 66,002 $ 178,597 $ 108,397 $ 70,200 64.8%

Operating expenses:

Real estate taxes 14,578 14,317 261 1.8% 8,133 419 7,714 22,711 14,736 7,975 54.1%

Other operating

expenses 9,068 8,928 140 1.6% 4,757 389 4,368 13,825 9,317 4,508 48.4%

Total operating

expenses 23,646 23,245 401 1.7% 12,890 808 12,082 36,536 24,053 12,483 51.9%

Net operating income (3)

$ 85,351 $ 81,554 $ 3,797 4.7% $ 56,710 $ 2,790 $ 53,920 $ 142,061 $ 84,344 $ 57,717 68.4%

Other expenses:

Depreciation and amortization 65,577 24,508 41,069 167.6%

Acquisition and certain other transaction costs — 646 (646) (100.0%)

General and administrative 15,786 7,990 7,796 97.6%

Loss on impairment of real estate 100,747 — 100,747 N/M

Total other expenses 182,110 33,144 148,966 N/M

Interest and other income 832 — 832 N/M

Interest expense (118,547) (17,384) (101,163) N/M

Loss on sale of real estate (10) — (10) N/M

Loss on equity securities (5,758) — (5,758) N/M

Loss on early extinguishment of debt (828) — (828) N/M

(Loss) income before income tax expense and equity in earnings of investees (164,360) 33,816 (198,176) N/M

Income tax expense (85) (105) 20 (19.0%)

Equity in earnings of investees 3,337 4,457 (1,120) (25.1%)

Net (loss) income (161,108) 38,168 (199,276) N/M

Net loss attributable to noncontrolling interest 11,055 — 11,055 N/M

Net (loss) income attributable to common shareholders $ (150,053) $ 38,168 $ (188,221) N/M

Weighted average common shares outstanding - basic 65,217 65,142 75 N/M

Weighted average common shares outstanding - diluted 65,217 65,192 25 N/M

Per common share data (basic and diluted):

Net (loss) income attributable to common shareholders $ (2.30) 0.58 (2.88) N/M

N/M - Not Meaningful

(1) Consists of properties that we owned continuously since January 1, 2021 and excludes properties owned by an unconsolidated joint venture.

(2) Consists of 131 properties that we acquired during the period from January 1, 2021 to June 30, 2022, including 93 properties we contributed to a consolidated joint venture in which we own a 61% equity interest and six properties we sold in December 2021 to our 18 property unconsolidated joint venture in which we own a 22% equity interest.

(3) See our definition of NOI and our reconciliation of net income (loss) 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, 2022 compared to the six months ended June 30, 2021.

Rental income.

The increase in rental income is primarily a result of our acquisition and disposition activities, which includes our acquisition of MNR.

The increase also reflects our leasing activity and rent resets at certain of our comparable properties.

Rental income increased at certain of our comparable properties primarily due to increases from leasing activity and rent resets and a $3,500 reduction of a non-cash assumed lease obligation.

Rental income includes non-cash straight line rent adjustments totaling approximately $4,376 for the 2022 period and approximately $3,995 for the 2021 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $4,015 for the 2022 period and approximately $351 for the 2021 period.

Real estate taxes.

The increase in real estate taxes primarily reflects our acquisition and disposition activities.

Other operating expenses.

The increase in other operating expenses is primarily due to our acquisition and disposition activities, Other operating expenses at our comparable properties in the 2022 period were consistent with the 2021 period.

Depreciation and amortization.

The increase in depreciation and amortization primarily reflects our acquisition and disposition activities.

Acquisition and certain other transaction costs.

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

General and administrative.

The increase in general and administrative expenses is primarily due to an increase in business management fees as a result of our net acquisition activity.

Loss on impairment of real estate.

Interest and other income.

Interest expense.

Loss on sale of real estate.

Loss on sale of real estate represents a final true up adjustment to the $11,114 gain from the sale of six properties to our joint venture during the three months ended December 31, 2021.

Loss on equity securities.

Loss on equity securities represents the realized loss of $5,758 on the sale of certain equity securities we acquired as part of our acquisition of MNR.

Loss on early extinguishment of debt.

Loss on extinguishment of debt relates to unamortized costs related the termination of our $750,000 unsecured credit facility during the 2022 period.

Loss on early extinguishment of debt relates to unamortized costs related the termination of our $750,000 unsecured credit facility during the 2022 period.

Income tax expense.

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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 months ended March 31, 2022 and 2021 (dollars in thousands):

Three Months Ended March 31,

The following table presents the reconciliation of net (loss) income to NOI for the three and six months ended June 30, 2022 and 2021 (dollars in thousands):

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

2022 2021 2022 2021

Reconciliation of Net (Loss) Income to NOI:

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Income tax expense 16 42 85 105

Income (loss) before income tax expense and equity in earnings of investees (11,445) 16,819

(Loss) income before income tax expense and equity in earnings of investees (152,915) 16,997 (164,360) 33,816

Loss on early extinguishment of debt — — 828 —

Interest and other income (354) — (832) —

Interest expense 77,548 8,643 118,547 17,384

Realized gain on sale of equity securities (1,232) —

Unrealized gain on equity securities (2,460) —

Dividend income (478) —

Loss on equity securities 9,450 — 5,758 —

Loss on real estate 10 — 10 —

General and administrative 9,709 4,234 15,786 7,990

Acquisition and certain other transaction costs — 646 — 646

Loss on impairment of real estate 100,747 — 100,747 —

Depreciation and amortization 42,699 11,830 65,577 24,508

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

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 (loss) attributable to common shareholders, calculated in accordance with GAAP, excluding loss on impairment of real estate, any gain or loss on sale of real estate, equity in earnings of an unconsolidated joint venture and any realized and unrealized gains or losses on equity securities, 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 exclude acquisition and transaction costs expensed under GAAP.

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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 (loss) attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three months ended March 31, 2022 and 2021 (dollars in thousands, except per share data):

Three Months Ended March 31,

Reconciliation of Net Income (Loss) Attributable to Common Shareholders to FFO Attributable to Common Shareholders and Normalized FFO Attributable to Common Shareholders:

The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net income (loss) 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, 2022 and 2021 (dollars in thousands, except per share data):

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

2022 2021 2022 2021

Reconciliation of Net (Loss) Income Attributable to Common Shareholders to FFO Attributable to Common Shareholders and Normalized FFO Attributable to Common Shareholders:

Net (loss) income attributable to common shareholders $ (143,539) $ 18,831 $ (150,053) $ 38,168

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Equity in earnings of unconsolidated joint venture (1,610) (1,876) (3,337) (4,457)

Realized gain on sale of equity securities (1,232) —

Unrealized gain on equity securities (2,460) —

Loss on equity securities 9,450 — 5,758 —

Share of FFO from unconsolidated joint venture 1,676 1,170 3,437 2,406

Loss on impairment of real estate 100,747 — 100,747 —

Loss on sale of real estate 10 — 10 —

FFO adjustments attributable to noncontrolling interest (11,434) — (16,038) —

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Acquisition and certain other transaction costs (1)

30,303 646 48,976 646

Normalized FFO attributable to common shareholders $ 28,302 $ 30,601 $ 55,905 $ 61,271

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Normalized FFO attributable to common shareholders $ 0.43 $ 0.47 $ 0.86 $ 0.94

(1) Amounts for the three and six months ended June 30, 2022 include certain finance fees related to our bridge loan facility and/or other transaction related expenses that are expensed under GAAP.

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.

With $275,075 of cash on hand, 77.3% 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 4.1% of our annualized rental revenues as of March 31, 2022 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 $291,866 of cash on hand, 78.0% 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 3 .8% of our annualized rental revenues as of June 30, 2022 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.

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;

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

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

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):

Three Months Ended March 31,

Six Months Ended June 30,

Cash and cash equivalents and restricted cash at beginning of period $ 29,397 $ 22,834

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Cash and cash equivalents and restricted cash at end of period $ 436,944 $ 30,512

The increase in net cash provided by operating activities for the three months ended March 31, 2022 compared to the 2021 period is primarily due to increased operating cash flow from the acquisition of MNR and changes in our working capital.

The increase in net cash used in investing activities for the three months ended March 31, 2022 compared to the 2021 period is primarily due to our acquisition of MNR during the 2022 period as compared to no property acquisitions during the 2021 period.

The change in net cash provided by financing activities for the three months ended March 31, 2022 to net cash used in financing activities during the 2021 period is primarily due to the net borrowings and sale of joint venture equity interests used to finance our acquisition of MNR in the 2022 period.

The increase in net cash provided by operating activities for the six months ended June 30, 2022 compared to the 2021 period is primarily due to increased operating cash flow from the acquisition of MNR and changes in our working capital.

The increase in net cash used in investing activities for the six months ended June 30, 2022 compared to the 2021 period is primarily due to our acquisition of MNR during the 2022 period as compared to two properties acquired during the 2021 period.

The change in net cash provided by financing activities for the six months ended June 30, 2022 to net cash used in financing activities during the 2021 period is primarily due to the net borrowings and sale of joint venture equity interests used to finance our acquisition of MNR in the 2022 period.

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

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

As of March 31, 2022, we had cash and cash equivalents of $275,075.

As of June 30, 2022, we had cash and cash equivalents of $291,866.

To maintain our qualification for taxation as a REIT under the Internal Revenue Code of 1986, as amended, or the IRC, 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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We may use our cash and cash equivalents on hand, the cash flow from our operations, net proceeds from any sales of assets and net proceeds of offerings of equity or debt securities to fund our distributions to our shareholders.

We currently expect to reduce our debt with the proceeds from the sale of 30 properties we have classified as held for sale as of March 31, 2022.

On July 14, 2022, we announced that we reduced our quarterly cash distribution rate on our common shares to $0.01 per share and we expect our distributions to our common shareholders in 2022 will be, together with distributions we paid earlier in 2022, at least equal to the minimum amounts required for us to remain a REIT for federal income tax purposes.

On February 25, 2022, subsidiaries of our consolidated joint venture entered into a loan agreement with Citi Real Estate Funding Inc., UBS AG, Bank of America, N.A., Bank of Montreal and Morgan Stanley Bank, N.A., or collectively, the Floating Rate Lenders, pursuant to which this joint venture obtained the Floating Rate Loan.

Also on February 25, 2022, our consolidated joint venture entered into a guaranty in favor of the Floating Rate Lenders, pursuant to which this joint venture guaranteed certain limited recourse obligations of its subsidiaries with respect to the Floating Rate Loan.

The Floating Rate Loan matures in March 2024, subject to three, one year extension options, and requires that interest be paid at a rate of SOFR plus a premium of 2.25%.

The Floating Rate Loan matures in March 2024, subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR plus a premium of 2.25%.

Effective in March 2022, the Floating Rate Lenders exercised their option to increase the premium in connection with the securitization of the Floating Rate Loan, resulting in an increase of 51.5 basis points in the premium.

As of March 31, 2022, the weighted average annual interest rate payable under our Floating Rate Loan was 3.060% and the weighted average interest rate for borrowings under the Floating Rate Loan was 3.011% for the period from February 25, 2022 to March 31, 2022.

As of June 30, 2022, the weighted average annual interest rate payable under our Floating Rate Loan was 4.04% and the weighted average interest rate for borrowings under the Floating Rate Loan was 3.61% and 3.38% for the three months ended June 30, 2022 and the period from February 25, 2022 to June 30, 2022, respectively.

Also on February 25, 2022, certain of our subsidiaries entered into a loan agreement with Citibank, N.A., UBS AG, Bank of America, N.A., Bank of Montreal and Morgan Stanley Bank, N.A., or collectively, the Bridge Lenders, and a mezzanine loan agreement with an institutional lender, or the Bridge Mezz Lender, together pursuant to which we obtained the Bridge Loan.

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The Bridge Loan matures in February 2023 and requires that interest be paid at an annual rate of SOFR plus a premium of 1.75% under the loan agreement and a premium of 8.0% under the mezzanine loan agreement.

As of March 31, 2022, the weighted average annual interest rate payable under our Bridge Loan was 3.214% and the weighted average annual interest rate for borrowings under the Bridge Loan was 3.143% for the period from February 25, 2022 to March 31, 2022.

As of June 30, 2022, the weighted average annual interest rate payable under our Bridge Loan was 4.20% and the weighted average annual interest rate for borrowings under the Bridge Loan was 5.29% and 5.23% for the three months ended June 30, 2022 and the period from February 25, 2022 to June 30, 2022, respectively.

Also on February 25, 2022, certain of our subsidiaries entered into a loan agreement with Citi Real Estate Funding Inc., UBS AG, Bank of America, N.A., Bank of Montreal and Morgan Stanley Bank, N.A., or collectively, the Fixed Rate Lenders, and mezzanine loan agreements with Citigroup Global Markets Realty Corp., UBS AG, Bank of America, N.A., Bank of Montreal and Morgan Stanley Mortgage Capital Holdings LLC, or collectively the Fixed Mezz Lenders, pursuant to which we obtained the Fixed Rate Loan.

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We used the aggregate net proceeds from the Loans to fund the acquisition of MNR.

Principal payments on the Loans are not required prior to the end of the respective initial term, subject to certain conditions set forth in the applicable loan agreement.

Principal payments on the Loans are not required prior to the end of their respective initial terms, subject to certain conditions set forth in the applicable loan agreement.

Subject to the satisfaction of certain stated conditions, we have the option under the applicable loan agreement:

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The agreements governing the Loans contain customary covenants and provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default.

In connection with the Merger, our consolidated joint venture in which we own a 61% equity interest assumed an aggregate $323,432 of existing MNR mortgages secured by 11 properties which are owned by this joint venture.

In connection with the Merger, our consolidated joint venture in which we own a 61% equity interest assumed an aggregate $323,432 of former MNR mortgages secured by 11 properties which are owned by this joint venture.

These amortizing mortgages require monthly payments of principal and interest until maturity.

The value of these mortgages approximated their estimated fair value on the date of acquisition.

As of March 31, 2022, we have an aggregate principal amount of $4,456,808 of debt, including the Loans, scheduled to mature between 2022 and 2038.

As of June 30, 2022, we have an aggregate principal amount of $4,451,429 of debt, including the Loans, scheduled to mature between 2022 and 2038.

Since committing to the acquisition of MNR, there have been unanticipated increases in interest rates and uncertainty in real estate market conditions.

As a result, it is taking longer than originally expected to complete our long term financing plan for the MNR acquisition, which includes the repayment of the Bridge Loan with borrowings under a longer term financing arrangement and proceeds from property sales.

In addition, we plan to sell additional equity interests in our consolidated joint venture, which would reduce our ownership percentage in that joint venture and raise additional proceeds to reduce our outstanding indebtedness.

The current economic conditions have negatively impacted the real estate market and we may not be able to sell properties and/or additional equity interests in our joint venture as expected or at all.

This property is 100% leased to a single tenant with a remaining lease term of approximately 14.9 years.

This property was a committed MNR acquisition at the time we acquired MNR and was purchased directly by our consolidated joint venture.

For further information regarding our investing and financing activities, including our acquisition of MNR, see Notes 2, 4, 5, 9 and 11 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Consolidated Joint Venture

Immediately following the closing of the Merger, we entered into a joint venture arrangement with an institutional investor for 95 of the acquired MNR properties, including two then committed, but not yet then completed, property acquisitions.

The investor acquired a 39% noncontrolling equity interest in the joint venture from us for $587,440, and we retained the remaining 61% equity interest in the joint venture.

The joint venture assumed $323,432 aggregate principal amount of existing MNR mortgages on certain of the properties.

The joint venture assumed $323,432 aggregate principal amount of former MNR mortgages on certain of the properties.

We account for this joint venture on a consolidated basis in our condensed consolidated financial statements.

We recognized a 39% noncontrolling interest in our condensed consolidated financial statements for the three months ending March 31, 2022.

The portion of this joint venture's net loss not attributable to us, or $3,261 for the three months ended March 31, 2022, is reported as noncontrolling interest in our condensed consolidated statements of comprehensive income (loss).

There were no distributions made by this joint venture during the three months ended March 31, 2022.

We recognized a 39% noncontrolling interest in our condensed consolidated financial statements for the three months ending June 30, 2022.

The portion of this joint venture's net loss not attributable to us, or $7,781 and $11,042 for the three and six months ended June 30, 2022, respectively, is reported as noncontrolling interest in our condensed consolidated statements of comprehensive income (loss).

During the three and six months ended June 30, 2022, this joint venture made aggregate cash distributions of $1,365,000 to the other joint venture investor, which are reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets.

We may seek to sell additional equity interests in this joint venture and use the proceeds to reduce our debt.

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Unconsolidated Joint Venture

As of March 31, 2022 and December 31, 2021, we also owned an interest in an unconsolidated joint venture.

We account for the unconsolidated joint venture under the equity method of accounting under the fair value option.

During the three months ended March 31, 2022 and 2021, we recorded the change in the fair value of our investment in our unconsolidated joint venture of $1,727 and $2,581, respectively, as equity in earnings of investees in our condensed consolidated statements of comprehensive income (loss).

In addition, during the three months ended March 31, 2022 and 2021, our unconsolidated joint venture made aggregate cash distributions of $1,320 and $660, respectively, to us.

As of June 30, 2022 and December 31, 2021, we also owned an interest in an unconsolidated joint venture.

We account for our unconsolidated joint venture under the equity method of accounting under the fair value option.

We recorded a change in the fair value of our investment in our unconsolidated joint venture of $1,610 and $1,876 for the three months ended June 30, 2022 and 2021, respectively, and $3,337 and $4,457 for the six months ended June 30, 2022 and 2021, respectively, as equity in earnings of investees in our condensed consolidated statements of comprehensive income (loss).

In addition, our unconsolidated joint venture made aggregate cash distributions of $1,322 and $660 during the three months ended June 30, 2022 and 2021, respectively, and $2,642 and $1,320, during the six months ended June 30, 2022 and 2021, respectively, to us.

For further information regarding this joint venture, see Notes 2, 5 and 11 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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When the maturities of our debt approach, we intend to explore refinancing alternatives.

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

Such alternatives may include incurring term debt, obtaining financing secured by mortgages on properties we own, issuing new equity or debt securities, obtaining a

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.

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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.

During the three months ended March 31, 2022, we paid a quarterly cash distribution to our shareholders totaling $21,584 using existing cash balances.

For more information regarding the distribution we paid in 2022, 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 April 14, 2022, we declared a regular quarterly distribution of $0.33 per common share, or approximately $21,600, to shareholders of record on April 25, 2022.

We expect to pay this distribution to our shareholders on or about May 19, 2022 using existing cash balances.

During the three months ended March 31, 2022 and 2021, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows:

Three Months Ended

During the six months ended June 30, 2022, we paid quarterly cash distributions to our shareholders totaling $43,167 using existing cash balances.

For more information regarding these distributions we paid in 2022, 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 14, 2022, we declared a quarterly distribution of $0.01 per common share, or approximately $650, to shareholders of record on July 25, 2022.

We expect to pay this distribution to our shareholders on or about August 18, 2022 using cash balances.

We reduced our quarterly dividend to enhance our liquidity until we complete our long term financing plan for the MNR acquisition and/or our leverage profile otherwise improves.

During the three and six months ended June 30, 2022 and 2021, 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,

2022 2021 2022 2021

Tenant improvements and leasing costs (1)

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Building improvements (2)

376 560 486 792

Development, redevelopment and other activities (3)

7,077 104 7,371 104

$ 10,080 $ 1,105 $ 13,845 $ 2,160

(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.

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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 March 31, 2022, we had estimated unspent leasing related obligations of $28,700.

As of June 30, 2022, we had estimated unspent leasing related obligations of $27,998.

Debt Covenants (dollars in thousands)

Our principal debt obligations at March 31, 2022 were:

Our principal debt obligations at June 30, 2022 were:

(1) $1,385,158 outstanding principal amount of the Bridge Loan;

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The agreements and related documents governing the Loans and the $650,000 mortgage loan contain customary covenants, provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default and, in the case of the $650,000 mortgage loan, also require us to maintain a minimum consolidated net worth of at least $250,000 and liquidity of at least $15,000.

As of March 31, 2022, we believe we were in compliance with all the covenants and other terms under the agreements governing the Loans and the $650,000 mortgage loan.

As of June 30, 2022, we believe that we were in compliance with all of the covenants and other terms under the agreements governing the Loans and the $650,000 mortgage loan.

Certain of the mortgages we assumed in conjunction with our acquisition of MNR are non-recourse, subject to certain limitations, and do not contain any material financial covenants.

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We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services.

Critical Accounting Estimates

The preparation of our Condensed Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts.

Actual results could differ from those estimates.

Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets and assessment of impairment of real estate and the related intangibles.

A discussion of our critical accounting estimates is included in our 2021 Annual Report.

There have been no significant changes in our critical accounting estimates since the year ended December 31, 2021.

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