Industrial Logistics Properties Trust 10-Q

Item 1. Financial Statements INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) (unaudited) September 30, December 31, 2022 2021 ASSETS Real estate properties: Land $ 1,117,801 $ 699,037 Buildings and improvements 4,053,913 1,049,796 Total real estate properties, gross 5,171,714 1,748,833 Accumulated depreciation ( 242,481 ) ( 167,490 ) Total real estate properties, net 4,929,233 1,581,343 Investment in unconsolidated joint venture 145,693 143,021 Acquired real estate leases, net 313,444 63,441 Cash and cash equivalents 26,381 29,397 Restricted cash 100,288 — Rents receivable, including straight line rents of $ 77,343 and $ 69,173 , respectively 100,347 75,877 Other assets, net 104,249 15,479 Total assets $ 5,719,635 $ 1,908,558 LIABILITIES AND EQUITY Revolving credit facility $ — $ 182,000 Mortgages and notes payable, net 4,243,271 646,124 Assumed real estate lease obligations, net 23,633 12,435 Accounts payable and other liabilities 86,727 27,772 Due to related persons 4,494 2,185 Total liabilities 4,358,125 870,516 Commitments and contingencies Equity: Equity attributable to common shareholders: Common shares of beneficial interest, $ .01 par value: 100,000,000 shares authorized; 65,568,704 and 65,404,592 shares issued and outstanding, respectively 656 654 Additional paid in capital 1,013,802 1,012,224 Cumulative net income 148,228 343,908 Cumulative other comprehensive income 12,300 — Cumulative common distributions ( 362,565 ) ( 318,744 ) Total equity attributable to common shareholders 812,421 1,038,042 Total equity attributable to noncontrolling interest 549,089 — Total equity 1,361,510 1,038,042 Total liabilities and equity $ 5,719,635 $ 1,908,558 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (amounts in thousands, except per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Rental income $ 103,215 $ 54,981 $ 281,812 $ 163,378 Expenses: Real estate taxes 13,749 7,617 36,460 22,353 Other operating expenses 8,453 4,417 22,278 13,734 Depreciation and amortization 48,519 12,694 114,096 37,202 Acquisition and other transaction related costs 586 — 586 646 General and administrative 9,110 4,728 24,896 12,718 Loss on impairment of real estate — — 100,747 — Total expenses 80,417 29,456 299,063 86,653 Interest and other income 1,068 — 1,900 — Interest expense (including net amortization of debt issuance costs, premiums and discounts of $ 35,496 , $ 505 , $ 90,265 and $ 1,516 , respectively) ( 89,739 ) ( 9,084 ) ( 208,286 ) ( 26,468 ) Gain (loss) on sale of real estate — 940 ( 10 ) 940 Loss on equity securities — — ( 5,758 ) — Loss on early extinguishment of debt ( 21,370 ) — ( 22,198 ) — (Loss) income before income tax expense and equity in earnings of unconsolidated joint venture ( 87,243 ) 17,381 ( 251,603 ) 51,197 Income tax expense ( 28 ) ( 72 ) ( 113 ) ( 177 ) Equity in earnings of unconsolidated joint venture 3,297 998 6,634 5,455 Net (loss) income ( 83,974 ) 18,307 ( 245,082 ) 56,475 Net loss attributable to noncontrolling interest 38,347 — 49,402 — Net (loss) income attributable to common shareholders $ ( 45,627 ) $ 18,307 $ ( 195,680 ) $ 56,475 Other comprehensive income: Unrealized gain on derivatives 8,847 — 18,917 — Less: unrealized gain on derivatives attributable to noncontrolling interest ( 4,119 ) — ( 6,617 ) — Other comprehensive income attributable to common shareholders 4,728 — 12,300 — Comprehensive (loss) income attributable to common shareholders $ ( 40,899 ) $ 18,307 $ ( 183,380 ) $ 56,475 Weighted average common shares outstanding - basic 65,250 65,178 65,228 65,154 Weighted average common shares outstanding - diluted 65,250 65,230 65,228 65,205 Per common share data (basic and diluted): Net (loss) income attributable to common shareholders $ ( 0.70 ) $ 0.28 $ ( 3.00 ) $ 0.86 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollars in thousands) (unaudited) Cumulative Total Equity Total Equity Number of Additional Other Cumulative Attributable to Attributable to Common Common Paid In Cumulative Comprehensive Common Common Noncontrolling Total Shares Shares Capital Net Income Income Distributions Shareholders Interest Equity Balance at December 31, 2021 65,404,592 $ 654 $ 1,012,224 $ 343,908 $ — $ ( 318,744 ) $ 1,038,042 $ — $ 1,038,042 Net (loss) income — — — ( 6,514 ) — — ( 6,514 ) ( 3,273 ) ( 9,787 ) Share grants — — 407 — — — 407 — 407 Share repurchases ( 333 ) — ( 7 ) — — — ( 7 ) — ( 7 ) Share forfeitures ( 400 ) — ( 2 ) — — — ( 2 ) — ( 2 ) Net current period other comprehensive income — — — — 3,908 — 3,908 1,724 5,632 Contributions from noncontrolling interest — — — — — — — 591,268 591,268 Distributions to common shareholders — — — — — ( 21,584 ) ( 21,584 ) — ( 21,584 ) Balance at March 31, 2022 65,403,859 654 1,012,622 337,394 3,908 ( 340,328 ) 1,014,250 589,719 1,603,969 Net (loss) income — — — ( 143,539 ) — — ( 143,539 ) ( 7,782 ) ( 151,321 ) Share grants 24,500 — 800 — — — 800 — 800 Share forfeitures ( 900 ) — ( 4 ) — — — ( 4 ) — ( 4 ) Net current period other comprehensive income — — — — 3,664 — 3,664 774 4,438 Distributions to noncontrolling interest — — — — — — — ( 1,365 ) ( 1,365 ) Distributions to common shareholders — — — — — ( 21,583 ) ( 21,583 ) — ( 21,583 ) Balance at June 30, 2022 65,427,459 654 1,013,418 193,855 7,572 ( 361,911 ) 853,588 581,346 1,434,934 Net (loss) income — — — ( 45,627 ) — — ( 45,627 ) ( 38,347 ) ( 83,974 ) Share grants 173,300 2 620 — — — 622 — 622 Share repurchases ( 31,455 ) — ( 232 ) — — — ( 232 ) — ( 232 ) Share forfeitures ( 600 ) — ( 4 ) — — — ( 4 ) — ( 4 ) Net current period other comprehensive income — — — — 4,728 — 4,728 4,119 8,847 Contributions from noncontrolling interest — — — — — — — 1,971 1,971 Distributions to common shareholders — — — — — ( 654 ) ( 654 ) — ( 654 ) Balance at September 30, 2022 65,568,704 $ 656 $ 1,013,802 $ 148,228 $ 12,300 $ ( 362,565 ) $ 812,421 $ 549,089 $ 1,361,510 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollars in thousands) (unaudited) Number of Additional Cumulative Common Common Paid In Cumulative Common Total Shares Shares Capital Net Income Distributions Equity Balance at December 31, 2020 65,301,088 $ 653 $ 1,010,819 $ 224,226 $ ( 232,508 ) $ 1,003,190 Net income — — — 19,337 — 19,337 Share grants — — 239 — — 239 Distributions to common shareholders — — — — ( 21,550 ) ( 21,550 ) Balance at March 31, 2021 65,301,088 653 1,011,058 243,563 ( 254,058 ) 1,001,216 Net income — — — 18,831 — 18,831 Share grants 21,000 — 780 — — 780 Share repurchases ( 7,733 ) — ( 202 ) — — ( 202 ) Distributions to common shareholders — — — — ( 21,549 ) ( 21,549 ) Balance at June 30, 2021 65,314,355 653 1,011,636 262,394 ( 275,607 ) 999,076 Net income — — — 18,307 — 18,307 Share grants 118,800 1 916 — — 917 Share repurchases ( 27,576 ) — ( 713 ) — — ( 713 ) Share forfeitures ( 700 ) — ( 4 ) — — ( 4 ) Distributions to common shareholders — — — — ( 21,554 ) ( 21,554 ) Balance at September 30, 2021 65,404,879 $ 654 $ 1,011,835 $ 280,701 $ ( 297,161 ) $ 996,029 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Nine Months Ended September 30, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ ( 245,082 ) $ 56,475 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 75,014 23,500 Loss on impairment of real estate 100,747 — Net amortization of debt issuance costs, premiums and discounts 90,265 1,516 Amortization of acquired real estate leases and assumed real estate lease obligations 33,680 12,567 Amortization of deferred leasing costs 1,170 620 Loss (gain) on sale of real estate 10 ( 940 ) Loss on equity securities 5,758 — Straight line rental income ( 8,170 ) ( 5,673 ) Loss on early extinguishment of debt 22,198 — Other non-cash expenses 4,443 1,932 Distributions of earnings from unconsolidated joint venture 3,962 1,980 Equity in earnings of unconsolidated joint venture ( 6,634 ) ( 5,455 ) Change in assets and liabilities: Rents receivable ( 16,299 ) 960 Deferred leasing costs ( 7,139 ) ( 2,758 ) Due from related persons — 2,665 Other assets 3,615 ( 5,596 ) Accounts payable and other liabilities 5,398 1,657 Rents collected in advance 15,739 4,012 Security deposits 923 393 Due to related persons 2,309 1,065 Net cash provided by operating activities 81,907 88,920 CASH FLOWS FROM INVESTING ACTIVITIES: Real estate acquisitions and deposits ( 3,589,085 ) ( 134,730 ) Real estate improvements ( 8,741 ) ( 2,373 ) Proceeds from sale of marketable securities 140,792 — Proceeds from sale of real estate — 1,206 Proceeds from sale of joint venture — 804 Net cash used in investing activities ( 3,457,034 ) ( 135,093 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of mortgages and notes payable 3,335,000 — Repayment of mortgage notes payable ( 12,591 ) — Proceeds from secured bridge loan facility 1,385,158 — Repayment of secured bridge loan facility ( 1,385,158 ) — Borrowings under revolving credit facility 3,000 246,000 Repayments of revolving credit facility ( 185,000 ) ( 113,000 ) Payment of debt issuance costs ( 211,996 ) — Distributions to common shareholders ( 43,821 ) ( 64,653 ) Proceeds from sale of noncontrolling interest, net 589,411 — Repurchase of common shares ( 239 ) ( 915 ) Distributions to noncontrolling interest ( 1,365 ) — Net cash provided by financing activities 3,472,399 67,432 Increase in cash, cash equivalents and restricted cash 97,272 21,259 Cash, cash equivalents and restricted cash at beginning of period 29,397 22,834 Cash, cash equivalents and restricted cash at end of period $ 126,669 $ 44,093 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (dollars in thousands) (unaudited) Nine Months Ended September 30, 2022 2021 SUPPLEMENTAL DISCLOSURES: Interest paid $ 113,748 $ 24,708 Income taxes paid $ 223 $ 386 Interest capitalized $ 68 $ — NON-CASH INVESTING ACTIVITIES: Real estate acquired by assumption of mortgage notes payable $ 323,432 $ — Real estate improvements accrued, not paid $ 7,165 $ 799 NON-CASH FINANCING ACTIVITIES: Assumption of mortgage notes payable $ ( 323,432 ) $ — SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH: The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows: As of September 30, 2022 2021 Cash and cash equivalents $ 26,381 $ 44,093 Restricted cash (1) 100,288 — Total cash, cash equivalents and restricted cash shown in the statements of cash flows $ 126,669 $ 44,093 (1) Restricted cash consists of amounts escrowed for capital expenditures at certain of our mortgaged properties and cash held for the operations of our consolidated joint venture arrangement in which we own a 61 % equity interest. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Note 1. Basis of Presentation The accompanying condensed consolidated financial statements of Industrial Logistics Properties Trust and its consolidated subsidiaries, or the Company, ILPT, we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2021, or our 2021 Annual Report. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. On February 25, 2022, we acquired Monmouth Real Estate Investment Corporation, or MNR, pursuant to the merger of MNR with and into one of our wholly owned subsidiaries, or the Merger, as further described below. In connection with the Merger, we entered into a new joint venture arrangement for 95 of the acquired MNR properties, including two then committed, but not yet then completed, property acquisitions, located in the mainland United States, in which we retained a 61 % equity interest. We have determined that this joint venture is not a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, and we evaluated such entity under the voting model and concluded we should consolidate the entity. Under the voting model, we consolidate the entity if we determine that we, directly or indirectly, have greater than 50% of the voting rights and that other equity holders do not have substantive participating rights. The other joint venture investor’s interest in this consolidated entity is reflected as noncontrolling interest in our condensed consolidated financial statements. See Notes 2, 9 and 11 for further information regarding this joint venture. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets, impairments of real estate and related intangibles. Note 2. Real Estate Investments As of September 30, 2022, our portfolio was comprised of 413 consolidated properties containing approximately 59,962,000 rentable square feet, including 226 buildings, leasable land parcels and easements containing approximately 16,729,000 rentable square feet of primarily industrial lands located on the island of Oahu, Hawaii, or our Hawaii Properties, and 187 properties containing approximately 43,233,000 rentable square feet of industrial properties located in 38 other states, or our Mainland Properties, which includes 94 properties owned by a consolidated joint venture arrangement in which we own a 61 % equity interest. As of September 30, 2022, we also owned a 22 % equity interest in an unconsolidated joint venture which owns 18 properties located in 12 states totaling approximately 11,726,000 rentable square feet. We operate in one business segment: ownership and leasing of properties that include industrial and logistics buildings and leased industrial lands. For the three months ended September 30, 2022 and 2021, approximately 26.8 % and 50.5 %, respectively, of our rental income was from our Hawaii Properties. For the nine months ended September 30, 2022 and 2021, approximately 30.6 % and 50.7 %, respectively, of our rental income was from our Hawaii properties. 9 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) As of September 30, 2022, we had a concentration of properties leased to tenants, including their applicable subsidiaries, that leased over 5% of our total rentable square footage. The impact of these tenants on our revenue are as follows: Weighted % of Average Rentable Number Remaining Square of Lease Term Rental Income Rental Income Feet States (in years) Three Months Ended Nine Months Ended Tenant As of September 30, 2022 9/30/2022 9/30/2021 9/30/2022 9/30/2021 Federal Express Corporation/ FedEx Ground Package System, Inc. 22.0 % 34 7.3 $ 31,697 30.7 % $ 2,706 4.9 % $ 76,227 27.0 % $ 8,152 5.0 % Amazon.com Services, Inc./ Amazon.com Services LLC 7.7 % 6 6.2 7,244 7.0 % 5,231 9.5 % 20,095 7.1 % 16,117 9.9 % Home Depot U.S.A., Inc. 5.7 % 3 26.3 3,346 3.2 % 1,322 2.4 % 10,169 3.6 % 3,948 2.4 % Total 35.4 % 34 13.3 $ 42,287 40.9 % $ 54,982 16.8 % $ 106,491 37.7 % $ 163,378 17.3 % Acquisition Activities On February 25, 2022, we completed the acquisition of MNR pursuant to the Agreement and Plan of Merger, dated as of November 5, 2021 and as amended on February 7, 2022, or the Merger Agreement, by and among us, Maple Delaware Merger Sub LLC, a Delaware limited liability company and our wholly owned subsidiary, or Merger Sub, and MNR. At the effective time on February 25, 2022, or the Effective Time, MNR merged with and into Merger Sub, with Merger Sub continuing as the surviving entity, and the separate existence of MNR ceased. MNR’s portfolio included 124 Class A, single tenant, net leased, e-commerce focused industrial properties containing approximately 25,745,000 rentable square feet and two then committed, but not yet then completed, property acquisitions. The aggregate value of the consideration paid in the Merger was $ 3,739,048 , 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. Pursuant to the terms set forth in the Merger Agreement, at the Effective Time, each share of common stock, par value $ 0.01 per share, of MNR that was issued and outstanding immediately prior to the Effective Time was automatically converted into the right to receive $ 21.00 per share in cash, or the Common Stock Consideration, and each share of 6.125 % Series C Cumulative Redeemable Preferred Stock, par value $ 0.01 per share, of MNR, that was issued and outstanding immediately prior to the Effective Time was automatically converted into the right to receive an amount in cash equal to $ 25.00 plus accumulated and unpaid dividends, or the Preferred Stock Consideration. At the Effective Time, each MNR stock option and restricted stock award outstanding immediately prior to the Effective Time, whether vested or unvested, became fully vested and converted into the right to receive, in the case of stock options, the difference between the Common Stock Consideration and the exercise price and, in the case of restricted stock awards, the Common Stock Consideration. Any out-of-money stock options were canceled for no consideration. 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 $ 589,411 , as of the completion of this transaction, and we retained the remaining 61 % equity interest in the joint venture. In connection with the transaction, the joint venture assumed $ 323,432 aggregate principal amount of former MNR mortgage debt secured by 11 properties and entered into a $ 1,400,000 floating rate CMBS loan secured by 82 properties, or 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 an annual rate based on the secured overnight financing rate, or SOFR, plus a premium of 2.77 %. See Notes 4, 9, 10 and 11 for more information regarding this joint venture and related loans. In connection with the closing of the Merger, we entered into a $ 1,385,158 bridge loan facility secured by 109 of our properties, or the Bridge Loan. We also entered into a $ 700,000 fixed rate CMBS loan secured by 17 of our properties, or the Fixed Rate Loan. 10 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) The Bridge Loan was scheduled to mature in February 2023 and required that interest be paid at an annual rate of SOFR plus a weighted average premium of 2.92 %. The Bridge Loan was repaid in full on September 22, 2022. The Fixed Rate Loan matures in March 2032 and requires that interest be paid at a weighted average annual interest rate of 4.42 %. The Floating Rate Loan, the Bridge Loan and the Fixed Rate Loan are collectively referred to as the Loans. See Note 4 for more information regarding the Loans. We used the proceeds from our sale of the equity interest in our joint venture in which we retained a 61 % equity interest to partially fund our acquisition of MNR. We funded our equity interest in that joint venture and the balance of the acquisition of MNR with proceeds from the Bridge Loan and the Fixed Rate Loan. In connection with the Merger and the Loans, we repaid the outstanding principal balance under our $ 750,000 unsecured revolving credit facility and then terminated the agreement governing the facility, which was scheduled to expire in June 2022, in accordance with its terms and without penalty. The following table summarizes the purchase price allocation for the Merger: Land $ 430,818 Buildings 3,035,309 Acquired real estate leases (1) 294,576 Cash 8,814 Other assets, net 14,194 Securities available for sale (2) 146,550 Total assets 3,930,261 Mortgage notes payable, at fair value ( 323,432 ) Accounts payable and other liabilities ( 25,327 ) Assumed real estate lease obligations ( 17,829 ) Equity attributable to noncontrolling interest on the joint venture ( 3,827 ) Net assets acquired 3,559,846 Assumed working capital ( 144,230 ) Assumed mortgage notes payable, principal 323,432 Purchase price $ 3,739,048 (1) As of the date of acquisition, the weighted average amortization periods for the above market lease values, lease origination value and capitalized below market lease values were 11.05 years, 8.50 years and 7.83 years, respectively. (2) As part of the Merger, we acquired a portfolio of marketable securities and classified them as available for sale. During the nine months ended September 30, 2022, we sold all of these securities with a cost of $ 146,550 for net proceeds of $ 140,792 , resulting in a $ 5,758 realized loss on sale of equity securities for the nine months ended September 30, 2022. 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 $ 38,053 , including acquisition related costs of $ 53 . This property is 100 % leased to a single tenant with a remaining lease term of approximately 14.9 years at the time of acquisition. We allocated the purchase price for this acquisition based on the estimated fair value of the acquired assets as follows: Purchase Buildings and Acquired Real Estate Price Land Improvements Leases $ 38,053 $ 3,818 $ 30,780 $ 3,455 This property was one of two committed MNR property acquisitions at the time of the Merger and was acquired directly by our consolidated joint venture. In September 2022, our consolidated joint venture terminated the agreement for the other committed MNR property acquisition. During the nine months ended September 30, 2022, we committed $ 15,304 for expenditures related to leasing related costs for leases executed during the period for approximately 6,442,000 square feet. As of September 30, 2022, committed, but unspent, tenant related obligations based on existing leases were $ 25,939 . 11 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) Certain of our industrial lands in Hawaii may require environmental remediation, especially if the use of those lands changes; however, we do not have plans to change the use of those lands. As of both September 30, 2022 and December 31, 2021, accrued environmental remediation costs of $ 6,940 were included in accounts payable and other liabilities in our condensed consolidated balance sheets. These accrued environmental remediation costs relate to the maintenance of our properties for their current uses, and, because of the indeterminable timing of the remediation, these amounts have not been discounted to present value. In general, we do not have insurance designated to limit any losses that we may incur as a result of known or unknown environmental conditions which are not caused by an insured event, such as fire or flood, although some of our tenants may maintain such insurance that may benefit us. While we do not believe that there are environmental conditions at any of our properties that will have a material adverse effect on us, we cannot be sure that such conditions are not present at our properties or that costs we incur to remediate contamination will not have a material adverse effect on our business or financial condition. Charges for environmental remediation costs, if any, are included in other operating expenses in our condensed consolidated statements of comprehensive income (loss). Disposition Activities During the nine months ended September 30, 2022, we recorded a $ 100,747 loss on impairment of real estate to adjust the carrying value of 25 properties to their estimated fair value, due to a change in plans to sell and the reclassification of those properties from held for sale to held and used. See Note 5 for further information on these properties. Joint Venture Activities As of September 30, 2022, we have equity investments in our joint ventures that consist of the following: ILPT Carrying Value ILPT of Investment Number of Square Joint Venture Presentation Ownership at September 30, 2022 Properties Location Feet Mountain Industrial REIT LLC Consolidated 61 % N/A 94 Various 20,981,000 The Industrial Fund REIT LLC Unconsolidated 22 % $ 145,693 18 Various 11,726,000 The following table provides a summary of the mortgages of our joint ventures: Principal Balance Interest at September 30, Joint Venture (Consolidated) Rate Maturity Date 2022 (1) Mortgage notes payable (secured by 11 properties in 10 states) 3.67 % (2) Various $ 310,842 Mortgage notes payable (secured by 82 properties in 25 states) 5.62 % 3/9/2024 1,400,000 Weighted average/total 5.27 % $ 1,710,842 (1) Amounts are not adjusted for our interest; none of the debt is recourse to us, subject to certain limitations. (2) Represents weighted average interest rate as of September 30, 2022. Principal Balance Interest at September 30, Joint Venture (Unconsolidated) Rate Maturity Date 2022 (1) Mortgage notes payable (secured by one property in Florida) 3.60 % (2) 10/1/2023 $ 56,980 Mortgage notes payable (secured by 11 other properties in eight states) 3.33 % (2) 11/7/2029 350,000 Mortgage notes payable (secured by 5 properties in four states) 4.22 % 10/1/2027 97,000 Weighted average/total 3.53 % (2) $ 503,980 (1) Amounts are not adjusted for our minority interest; none of the debt is recourse to us. (2) Includes the effect of mark to market purchase accounting. 12 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) Consolidated Joint Venture - Mountain Industrial REIT LLC 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 in 27 states, 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 $ 589,411 , as of the completion of this transaction, and we retained the remaining 61 % equity interest in the joint venture. The joint venture assumed $ 323,432 aggregate principal amount of former MNR mortgage debt on certain of the properties. In July 2022, our consolidated joint venture completed one of the two committed MNR property acquisitions, and in September 2022, our consolidated joint venture terminated the agreement for the other committed MNR property acquisition. We control this joint venture and therefore account for the properties 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 and nine months ended September 30, 2022. The portion of this joint venture's net loss not attributable to us, or $ 38,318 and $ 49,360 for the three and nine months ended September 30, 2022, respectively, is reported as noncontrolling interest in our condensed consolidated statements of comprehensive income (loss). During the nine months ended September 30, 2022, this joint venture made aggregate cash distributions of $ 1,365 to the other joint venture investor, which is reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets. No distributions were made during the three months ended September 30, 2022. See Notes 1, 4, 5, 9, 10 and 11 for more information regarding this joint venture. Unconsolidated Joint Venture - The Industrial Fund REIT LLC As of September 30, 2022 and December 31, 2021, we also owned a 22 % interest in an unconsolidated joint venture with 18 properties in 12 states. We account for the 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 the unconsolidated joint venture of $ 3,297 and $ 998 for the three months ended September 30, 2022 and 2021, respectively, and $ 6,634 and $ 5,455 for the nine months ended September 30, 2022 and 2021, respectively, as equity in earnings of unconsolidated joint venture in our condensed consolidated statements of comprehensive income (loss). In addition, the unconsolidated joint venture made aggregate cash distributions to us of $ 1,320 and $ 660 during the three months ended September 30, 2022 and 2021, respectively, and $ 3,962 and $ 1,980 , during the nine months ended September 30, 2022 and 2021, respectively. In October 2022, the unconsolidated joint venture made a cash distribution to us of $ 20,900 , including amounts related to a debt financing. See Notes 1, 4, 5, 9, 10 and 11 for more information regarding our joint ventures. Note 3. Leases We are a lessor of industrial and logistics properties. Our leases provide our tenants with the contractual right to use and economically benefit from all the physical space specified in their respective leases; therefore, we have determined to evaluate our leases as lease arrangements. Our leases provide for base rent payments and may also include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. We do not include in our measurement of our lease receivables certain variable payments, including payments determined by changes in the index or market-based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. Such payments totaled $ 16,664 and $ 9,478 for the three months ended September 30, 2022 and 2021, respectively, of which tenant reimbursements totaled $ 16,419 and $ 9,233 , respectively, and $ 46,071 and $ 28,341 for the nine months ended September 30, 2022 and 2021, respectively, of which tenant reimbursements totaled $ 45,336 and $ 27,606 , respectively. We increased rental income to record revenue on a straight line basis by $ 3,794 and $ 1,678 for the three months ended September 30, 2022 and 2021, respectively, and $ 8,170 and $ 5,673 for the nine months ended September 30, 2022 and 2021, respectively. 13 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) Right of use asset and lease liability. In connection with our acquisition of MNR, we assumed the lease for MNR’s former corporate headquarters, which expires on December 31, 2029, and three of the properties we acquired as part of the MNR acquisition were subject to ground leases under which we are the lessee. For leases under which we are the lessee, we are required to record a right of use asset and lease liability for all leases with a term greater than 12 months. As of September 30, 2022, the value of the right of use asset and related liability representing our future obligations under the lease arrangements under which we are the lessee were $ 4,959 and $ 5,019 , respectively. The right of use asset and related lease liability are included in other assets, net and accounts payable and other liabilities, respectively, in our condensed consolidated balance sheets. Generally, payments of ground lease obligations are made by our tenants. However, if a tenant does not perform obligations under a ground lease or does not renew any ground lease, we may have to perform obligations under, or renew, the ground lease in order to protect our investment in the affected property. 14 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) Note 4. Indebtedness As of September 30, 2022, our outstanding indebtedness consisted of the following: Net Book Value Principal Balance as of of Collateral September 30, December 31, Interest At September 30, Entity Type Secured By: 2022 (1) 2021 (1) Rate Maturity 2022 ILPT Revolving credit facility (2) Unsecured $ — $ 182,000 N/A N/A $ — ILPT Floating Rate - Interest only (3) 104 Properties 1,235,000 — 6.18 % Oct 2024 1,077,796 ILPT Fixed Rate - Interest only 186 Properties 650,000 650,000 4.31 % Feb 2029 490,602 ILPT Fixed Rate - Interest only 17 Properties 700,000 — 4.42 % Mar 2032 521,785 Mountain (4) Floating Rate - Interest only (5) 82 Properties 1,400,000 — 5.62 % Mar 2024 1,923,147 Mountain (4) Fixed Rate - Amortizing One Property 14,074 — 3.76 % Oct 2028 63,829 Mountain (4) Fixed Rate - Amortizing One Property 5,008 — 3.77 % Apr 2030 40,002 Mountain (4) Fixed Rate - Amortizing One Property 5,295 — 3.85 % Apr 2030 40,002 Mountain (4) Fixed Rate - Amortizing One Property 14,793 — 3.56 % Sep 2030 51,100 Mountain (4) Fixed Rate - Amortizing One Property 13,012 — 3.67 % May 2031 30,962 Mountain (4) Fixed Rate - Amortizing One Property 14,443 — 4.14 % Jul 2032 45,094 Mountain (4) Fixed Rate - Amortizing One Property 31,517 — 4.02 % Oct 2033 87,730 Mountain (4) Fixed Rate - Amortizing One Property 43,999 — 4.13 % Nov 2033 131,986 Mountain (4) Fixed Rate - Amortizing One Property 26,602 — 3.10 % June 2035 48,049 Mountain (4) Fixed Rate - Amortizing One Property 42,743 — 2.95 % Jan 2036 102,593 Mountain (4) Fixed Rate - Amortizing One Property 46,659 — 4.27 % Nov 2037 113,839 Mountain (4) Fixed Rate - Amortizing One Property 52,697 — 3.25 % Jan 2038 117,386 Total indebtedness 4,295,842 832,000 $ 4,885,902 Unamortized debt issuance costs ( 52,571 ) ( 3,876 ) Total indebtedness, net $ 4,243,271 $ 828,124 (1) The principal balances are the amounts stated in contracts. In accordance with GAAP, our carrying values and recorded interest expense may be different because of market conditions at the time we assumed certain of these debts. (2) In February 2022, we repaid the outstanding principal balance under our $ 750,000 unsecured revolving credit facility and then terminated the agreement governing the facility in accordance with its terms and without penalty. (3) This loan matures in October 2024, subject to three , one year extension options, and requires that interest be paid at an annual rate of SOFR plus a weighted average premium of 3.93 %. We also purchased an interest rate cap through October 2024 with a SOFR strike rate equal to 2.25 %. (4) Mountain is Mountain Industrial REIT LLC, our consolidated joint venture, in which we own a 61 % equity interest. (5) This 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 2.77 %. We also purchased an interest rate cap through March 2024 with a SOFR strike rate equal to 3.40 %. As of December 31, 2021, we had a $ 750,000 unsecured revolving credit facility that was available for our general business purposes, including acquisitions. The maturity date of this revolving credit facility was June 29, 2022 and had an option to extend the maturity date for one , six month period, subject to payment of extension fees and satisfaction of other conditions. As of December 31, 2021, the annual interest rate payable on borrowings under this revolving credit facility was 1.41 %. The weighted average annual interest rate for borrowings under this revolving credit facility was 1.42 % for the three months ended September 30, 2021 and 1.41 % and 1.46 % for the period from January 1, 2022 to February 25, 2022 and the nine months ended September 30, 2021, respectively. In connection with the closing of the Merger, we entered into the Loans, and repaid the outstanding principal balance under this revolving credit facility and then terminated the agreement governing the facility in accordance with its terms and without penalty. During the nine months ended September 30, 2022, we recorded a $ 828 loss on early extinguishment of debt to write off unamortized costs related to this facility. 15 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) On February 25, 2022, subsidiaries of our consolidated joint venture entered into a loan agreement with a group of institutional lenders, or 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 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. We also purchased an interest rate cap through March 2024 with a SOFR strike rate equal to 3.40 %. As of September 30, 2022, the weighted average annual interest rate payable under the Floating Rate Loan was 5.62 % and the weighted average interest rate for borrowings under the Floating Rate Loan was 4.94 % and 4.23 % for the three months ended September 30, 2022 and the period from February 25, 2022 to September 30, 2022, respectively. Also on February 25, 2022, certain of our subsidiaries entered into a loan agreement with a group of institutional lenders, or 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. Also on February 25, 2022, we entered into a guaranty in favor of the Bridge Lenders and the Bridge Mezz Lender, pursuant to which we guaranteed certain limited recourse obligations of its subsidiaries with respect to the Bridge Loan. The Bridge Loan was scheduled to mature in February 2023 and required that interest only 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. We also purchased an interest rate cap with a SOFR strike rate equal to 2.70 %. The Bridge Loan was repaid in full on September 22, 2022 with cash on hand and proceeds from our $ 1,235,000 floating rate loan, which is further described below. During the three and nine months ended September 30, 2022, we recorded a $ 22,231 loss on early extinguishment of debt to write off unamortized costs related to the Bridge Loan and related interest rate cap. The weighted average annual interest rate for borrowings under the Bridge Loan was 5.01 % and 4.24 % for the period from July 1, 2022 to September 22, 2022 and the period from February 25, 2022 to September 22, 2022, respectively. Also on February 25, 2022, certain of our subsidiaries entered into a loan agreement with a group of institutional lenders, or the Fixed Rate Lenders, and mezzanine loan agreements with a separate group of institutional lenders, or the Fixed Mezz Lenders, pursuant to which we obtained the Fixed Rate Loan. Also on February 25, 2022, we entered into a guaranty in favor of the Fixed Rate Lenders and the Fixed Mezz Lenders, pursuant to which we guaranteed certain limited recourse obligations of our subsidiaries with respect to the Fixed Rate Loan. The interest only Fixed Rate Loan matures in March 2032 and requires that interest be paid at a weighted average annual fixed rate of 4.42 %. We used the aggregate net proceeds from the Loans to partially fund the acquisition of MNR. Principal payments on the Floating Rate Loan and Fixed Rate Loan 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: (1) to prepay up to $ 280,000 of the Floating Rate Loan after March 2023, at par with no premium, and to prepay the balance of the Floating Rate Loan at any time, subject to a premium; and (2) to prepay the Fixed Rate Loan in full or part at any time, subject to a premium, and beginning in September 2031, without a premium. On September 22, 2022, certain of our subsidiaries entered into a loan agreement with a group of institutional lenders, or the ILPT Floating Rate Lenders, and a mezzanine loan agreement with a separate group of institutional lenders, or the ILPT Floating Rate Mezz Lenders, pursuant to which we obtained the ILPT Floating Rate Loan, secured by 104 of our properties. The ILPT Floating Rate Loan is comprised of a $ 1,100,000 mortgage loan and a $ 135,000 mezzanine loan. Also, on September 22, 2022, we entered into a guaranty in favor of the ILPT Floating Rate Lenders and the ILPT Floating Rate Mezz Lenders, pursuant to which we guaranteed certain limited recourse obligations of our subsidiaries with respect to the ILPT Floating Rate Loan. The interest only ILPT Floating Rate Loan matures on October 9, 2024, subject to three , one year extension options, and requires that interest be paid at an annual rate of SOFR, which is capped at an annual rate of 2.25 % for the initial term of the ILPT Floating Rate Loan, plus a weighted average premium of 3.93 %. The weighted average interest rate payable under the ILPT Floating Rate Loan as of September 30, 2022 and for the period from September 22, 2022 to September 30, 2022 was 6.18 %. See Notes 5 and 10 for further information on our interest rate caps. The agreements governing the Floating Rate Loan, Fixed Rate Loan and the ILPT Floating Rate Loan contain customary covenants and provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default. 16 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) In connection with the Merger, our consolidated joint venture, in which we own a 61 % equity interest, assumed an aggregate of $ 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. See Notes 2 and 5 for further information regarding our acquisition of MNR. Note 5. Fair Value of Assets and Liabilities Our financial instruments include cash and cash equivalents, restricted cash, rents receivable, the Floating Rate Loan, the ILPT Floating Rate Loan, the Fixed Rate Loan, mortgage notes payable, accounts payable, rents collected in advance, interest rate caps, security deposits and amounts due from or to related persons. At September 30, 2022 and December 31, 2021, the fair value of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or floating interest rates, except as follows: At September 30, 2022 At December 31, 2021 Carrying Estimated Carrying Estimated Value (1) Fair Value Value (1) Fair Value Fixed rate loan, 4.31 % interest rate, due in 2029 $ 646,532 $ 587,730 $ 646,124 $ 709,198 ILPT Floating Rate Loan, 6.18 % weighted average interest rate, due in 2024 (2) 1,213,336 1,213,336 — — Floating Rate Loan, 5.62 % interest rate, due in 2024 (3) 1,378,000 1,378,000 — — Fixed Rate Loan, 4.42 % interest rate, due in 2032 694,561 626,128 — — Fixed rate loan, 3.76 % interest rate, due in 2028 14,074 13,105 — — Fixed rate loan, 3.77 % interest rate, due in 2030 5,008 4,637 — — Fixed rate loan, 3.85 % interest rate, due in 2030 5,295 4,918 — — Fixed rate loan, 3.56 % interest rate, due in 2030 14,793 13,551 — — Fixed rate loan, 3.67 % interest rate, due in 2031 13,012 11,900 — — Fixed rate loan, 4.14 % interest rate, due in 2032 14,443 13,355 — — Fixed rate loan, 4.02 % interest rate, due in 2033 31,517 28,715 — — Fixed rate loan, 4.13 % interest rate, due in 2033 43,999 40,292 — — Fixed rate loan, 3.10 % interest rate, due in 2035 26,602 22,671 — — Fixed rate loan, 2.95 % interest rate, due in 2036 42,743 35,855 — — Fixed rate loan, 4.27 % interest rate, due in 2037 46,659 42,183 — — Fixed rate loan, 3.25 % interest rate, due in 2038 52,697 44,184 — — $ 4,243,271 $ 4,080,560 $ 646,124 $ 709,198 (1) Includes unamortized debt issuance costs of $ 52,571 and $ 3,876 as of September 30, 2022 and December 31, 2021, respectively. (2) The ILPT Floating Rate Loan matures in October 2024, subject to three , one year extension options. (3) The Floating Rate Loan, entered into by our consolidated joint venture, matures in March 2024, subject to three , one year extension options. 17 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) We estimate the fair value of our mortgage notes payable using discounted cash flow analyses and current prevailing market rates as of the measurement date (Level 3 inputs). As Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value. The table below presents certain of our assets measured on a recurring basis at fair value at September 30, 2022, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset: Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) Recurring fair value measurements Investment in unconsolidated joint venture (1) $ 145,693 $ — $ — $ 145,693 Interest rate cap derivatives (2) $ 67,998 $ — $ 67,998 $ — Non-recurring fair value measurements Real estate properties (3) $ 555,123 $ — $ — $ 555,123 (1) We own a 22 % equity interest in a joint venture that owns 18 properties and is included in investment in unconsolidated joint venture in our condensed consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs). The significant unobservable inputs used in the fair value are discount rates of between 5.25 % and 7.00 %, exit capitalization rates of between 4.50 % and 6.00 %, direct capitalization rates of between 4.00 % and 4.50 %, holding periods of approximately 10 years and market rents. Our assumptions are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from appraisers, industry publications and our experience. See Note 2 for further information regarding our investment in this joint venture. (2) Our derivative assets are carried at fair value as required by GAAP. The estimated fair values of the derivative assets are based on current market prices in secondary markets for similar derivative contracts, (Level 2 inputs). See Note 10 for more information regarding our derivatives and hedging activities. (3) We recorded a loss on impairment of real estate of $ 100,747 to reduce the carrying value of 25 properties in our condensed consolidated balance sheet to their estimated fair value (Level 3 inputs as defined in the fair value hierarchy under GAAP). See Note 3 for more information. Note 6. Shareholders’ Equity Common Share Awards: On June 1, 2022, in accordance with our Trustee compensation arrangements, we awarded to each of our seven Trustees 3,500 of our common shares, valued at $ 15.07 per share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day. On September 14, 2022, we awarded under our equity compensation plan an aggregate of 173,300 of our common shares, valued at $ 6.83 per share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of The RMR Group LLC, or RMR. Common Share Purchases: During the three and nine months ended September 30, 2022, we purchased an aggregate of 31,455 and 31,788 of our common shares, respectively, valued at a weighted average price of $ 7.40 and $ 7.56 per common share, respectively, from our officers and certain other current and former officers and employees of RMR, in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares. Distributions: During the nine months ended September 30, 2022 , we declared and paid regular quarterly distributions to common shareholders as follows: 18 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) Declaration Date Record Date Payment Date Distribution Per Share Total Distribution January 13, 2022 January 24, 2022 February 17, 2022 $ 0.33 $ 21,584 April 14, 2022 April 25, 2022 May 19, 2022 0.33 21,583 July 14, 2022 July 25, 2022 August 18, 2022 0.01 654 $ 0.67 $ 43,821 On October 13, 2022, we declared a quarterly distribution to common shareholders of record on October 24, 2022 in the amount of $ 0.01 per share, or approximately $ 656 . We expect to pay this distribution to our shareholders on or about November 17, 2022. Note 7. Per Common Share Amounts We calculate basic earnings per common share by dividing net income (loss) attributable to common shareholders by the weighted average number of our common shares outstanding during the period. We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method. Unvested common share awards, and the related impact on earnings, are considered when calculating dilutive earnings per share. The calculation of basic and diluted earnings per share is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Numerators: Net (loss) income attributable to common shareholders $ ( 45,627 ) $ 18,307 $ ( 195,680 ) $ 56,475 Loss attributable to unvested share awards ( 2 ) ( 43 ) ( 128 ) ( 140 ) Net (loss) income attributable to common shareholder used in calculating earnings per share $ ( 45,629 ) $ 18,264 $ ( 195,808 ) $ 56,335 Denominators: Weighted average common shares for basic earnings per share 65,250 65,178 65,228 65,154 Effect of dilutive securities: unvested share awards (1) — 52 — 51 Weighted average common shares for diluted earnings per share 65,250 65,230 65,228 65,205 Net (loss) income attributable to common shareholders per common share - basic $ ( 0.70 ) $ 0.28 $ ( 3.00 ) $ 0.86 Net (loss) income attributable to common shareholders per common share - diluted $ ( 0.70 ) $ 0.28 $ ( 3.00 ) $ 0.86 (1) For purposes of calculating diluted earnings per share, we did not include 205 and 196 of unvested share awards for the three and nine months ended September 30, 2022, respectively, because to do so would have been antidilutive. Note 8. Business and Property Management Agreements with RMR We have no employees. The personnel and various services we require to operate our business are provided to us by RMR. We have two agreements with RMR to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to our property level operations. Pursuant to our business management agreement with RMR, we recognized net business management fees of $ 6,465 and $ 17,821 for the three and nine months ended September 30, 2022, respectively, and $ 2,708 and $ 7,832 for the three and nine months ended September 30, 2021, respectively. Based on our common share total return, as defined in our business management agreement, as of September 30, 2022 and 2021, no incentive fees are included in the net business management fees we recognized for the three and nine months ended September 30, 2022 or 2021. The actual amount of annual incentive fees for 2022, if any, will be based on our common share total return, as defined in our business management agreement, for the three-year period ending December 31, 2022, and will be payable in January 2023. We did no t incur any incentive fee payable to RMR for the year ended December 31, 2021. We include business management fees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss). RMR provides management services to our two 19 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) joint ventures. See Note 9 for further information regarding our joint ventures’ management arrangements with RMR and the related impact on our management fees payable to RMR. We and RMR amended our business management agreement effective August 1, 2021 to provide that (i) for periods beginning on and after August 1, 2021, the MSCI U.S. REIT/Industrial REIT Index will be used to calculate benchmark returns per share for purposes of determining any incentive management fee payable by us to RMR and (ii) for periods prior to August 1, 2021, the SNL U.S. REIT Industrial Index will continue to be used. This change of index was due to S&P Global ceasing to publish the SNL U.S. REIT Industrial Index. Pursuant to our property management agreement with RMR, we recognized aggregate property management and construction supervision fees of $ 3,270 and $ 8,797 for the three and nine months ended September 30, 2022, respectively, and $ 1,675 and $ 4,860 for the three and nine months ended September 30, 2021, respectively. Of these amounts, for the three and nine months ended September 30, 2022, $ 2,976 and $ 8,104 , respectively, were expensed to other operating expenses in our condensed consolidated financial statements and $ 294 and $ 693 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets. For the three and nine months ended September 30, 2021, $ 1,598 and $ 4,751 , respectively, were expensed to other operating expenses in our condensed consolidated financial statements and $ 77 and $ 109 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets. The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets. We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR on our behalf. We are generally not responsible for payment of RMR’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR’s centralized accounting personnel, our share of RMR’s costs for providing our internal audit function, or as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR. We reimbursed RMR $ 1,847 and $ 5,155 for these expenses and costs for the three and nine months ended September 30, 2022, respectively, and $ 1,184 and $ 3,451 for the three and nine months ended September 30, 2021, respectively. These amounts are included in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income (loss). See Note 9 for further information regarding our relationships, agreements and transactions with RMR. Note 9. Related Person Transactions We have relationships and historical and continuing transactions with RMR, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR. Matthew Jordan, our other Managing Trustee, is an executive vice president and the chief financial officer and treasurer of RMR Inc. and an officer and employee of RMR. John Murray, one of our Managing Trustees until June 1, 2022 and our President and Chief Executive Officer until March 31, 2022, also serves as an officer and employee of RMR, and each of our other officers is also an officer and employee of RMR. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR or its subsidiaries provide management services. Adam Portnoy serves as chair of the boards and as a managing trustee or managing director of those companies. Other officers of RMR, including Messrs. Jordan and Murray and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies. See Note 6 for information relating to the awards of our common shares we made in September 2022 to our officers and certain other employees of RMR and common shares we purchased from our officers and certain other current and former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares. We include amounts recognized as expense for awards of our common shares to our officers and RMR employees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss). 20 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) Our Manager, RMR . We have two agreements with RMR to provide management services to us. See Note 8 for further information regarding our management agreements with RMR. Joint Ventures . We have two separate joint venture arrangements. One of these joint ventures is with two , third party institutional investors. This joint venture owns 18 properties. We own a 22 % equity interest in this joint venture. We entered into this joint venture prior to January 1, 2021. The other joint venture we entered into in connection with the Merger is with one , third party institutional investor. This joint venture owns 94 properties. We own a 61 % equity interest in the joint venture and the other joint venture investor acquired a 39 % equity interest in the joint venture from us for $ 589,411 , as of the completion of this transaction, in connection with the joint venture’s formation in February 2022. RMR provides management services to both of these joint ventures. We do not include our 18 property joint venture as a consolidated subsidiary and, as a result, we are not obligated to pay management fees to RMR under our management agreements with RMR for the services it provides regarding that joint venture. Our 94 property joint venture is our consolidated subsidiary and, as a result, we are obligated to pay management fees to RMR under our management agreements with RMR for the services it provides regarding that joint venture; however, that joint venture pays management fees directly to RMR, and any such fees paid by that joint venture are credited against the fees payable by us to RMR. In December 2021, we sold six properties to our then existing joint venture. We received proceeds of approximately $ 160,516 from the other equity investors in that joint venture in connection with this sale. We and the other equity investors maintained our respective percentage equity interests in that joint venture following this transaction. As of December 31, 2021 and September 30, 2022, we owed $ 225 and $ 554 , respectively, to that joint venture for rents that we collected on behalf of that joint venture. These amounts are presented as due to related persons in our condensed consolidated balance sheet. We paid the amounts we owed as of December 31, 2021 in January 2022 and the amounts we owed as of September 30, 2022 in October 2022. See Notes 2, 4, 5 and 11 for further information regarding our joint ventures. TA. In May 2021, we acquired a property located in the Dallas, Texas market from TravelCenters of America Inc., or TA, for a purchase price of $ 2,319 , including acquisition related costs of $ 119 . RMR provides management services to TA and Mr. Portnoy serves as the chair of the board of directors and as a managing director of TA. For further information about these and other such relationships and certain other related person transactions, see our 2021 Annual Report. Note 10. Derivatives and Hedging Activities Risk Management Objective of Using Derivatives We are exposed to certain risks relating to our ongoing business operations, including the impact of changes in interest rates. The only risk currently managed by us using derivative instruments is a part of our interest rate risk. We have an interest rate cap agreement to manage our interest rate risk exposure on each of the ILPT Floating Rate Loan and the Floating Rate Loan, both with interest payable at a rate equal to SOFR plus a premium. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, we only enter into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which we or our related parties may also have other financial relationships. We do not anticipate that any of the counterparties will fail to meet their obligations. Cash Flow Hedges of Interest Rate Risk As required by ASC 815, Derivatives and Hedging , we record all derivatives on the balance sheet at fair value. The following table summarizes the terms of our outstanding interest rate cap agreements designated as cash flow hedges of interest rate risk as of September 30, 2022: 21 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) Interest Rate Derivative Balance Sheet Line Item Underlying Instrument Number of Instruments Strike Rate Notional Amount Fair Value at September 30, 2022 Interest Rate Cap Other assets Floating Rate Loan (1) 1 3.40 % $ 1,400,000 $ 19,485 Interest Rate Cap Other assets ILPT Floating Rate Loan 2 2.25 % $ 1,235,000 $ 48,513 (1) The Floating Rate Loan was entered into by our consolidated joint venture. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. For derivatives designated and qualifying as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with our accounting policy election. The earnings recognition of excluded components is presented in interest expense. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our applicable debt. In September 2022, in conjunction with the repayment of the Bridge Loan, we sold two interest rate cap instruments with an aggregate notional amount of $ 1,385,158 , a strike rate equal to 2.70 % and an original expiration date of March 15, 2023 for $ 7,740 . As the underlying debt instrument that these interest rate caps were intended to hedge was repaid in its entirety and the related interest expense was no longer probable to occur, these interest rate caps were no longer designated as cash flow hedges and the remaining deferred gain was reclassified from cumulative other comprehensive income as a reduction of loss on early extinguishment of debt. Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022 Amount of gain recognized in cumulative other comprehensive income $ 15,047 $ 24,200 Amount reclassified from cumulative other comprehensive income into interest expense 761 1,678 Amount reclassified from cumulative other comprehensive income into loss on early extinguishment of debt ( 6,961 ) ( 6,961 ) Unrealized gain on derivative instrument recognized in cumulative other comprehensive income $ 8,847 $ 18,917 22 Table of Contents Note 11. Noncontrolling Interest On February 25, 2022, we completed the acquisition of MNR. In connection with 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 for $ 589,411 , as of the completion of this transaction, and we retained the remaining 61 % equity interest in the joint venture. The joint venture assumed $ 323,432 aggregate principal amount of former MNR mortgage debt on certain of the properties. In July 2022, our consolidated joint venture completed one of the two committed MNR property acquisitions, and in September 2022, our consolidated joint venture terminated the agreement for the other committed MNR property acquisition. We control this joint venture and therefore account for the properties 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 and nine months ended September 30, 2022. The portion of this joint venture's net loss not attributable to us, or $ 38,318 and $ 49,360 for the three and nine months ended September 30, 2022, respectively, is reported as noncontrolling interest in our condensed consolidated statements of comprehensive income (loss). During the nine months ended September 30, 2022, this joint venture made aggregate cash distributions of $ 1,365 to the other joint venture investor, which is reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets. No distributions were made during the three months ended September 30, 2022. See Notes 1, 2, 4, 5, 9 and 11 for further information regarding this joint venture. An unrelated third party owns an approximate 33 % tenancy in common interest in one of the properties we acquired as part of the MNR acquisition located in Somerset, New Jersey, and we own the remaining 67 % tenancy in common interest in this property. The portion of this property’s net loss not attributable to us, or $ 29 and $ 42 for the three and nine months ended September 30, 2022, respectively, is reported as noncontrolling interest in our condensed consolidated statements of comprehensive income (loss). 23 Table of Contents