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Item 7. Management’s Discussion and Analysis

2023-02-14 compared with 2022-02-15 · 221 added, 242 removed, 243 unchanged (66% of the section changed)

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We are a REIT organized under Maryland law.

As of December 31, 2021, our portfolio was comprised of 288 wholly owned properties containing approximately 34.0 million rentable square feet, including 226 buildings, leasable land parcels and easements containing approximately 16.7 million rentable square feet located on the island of Oahu, HI, and 62 properties containing approximately 17.3 million rentable square feet located in 30 other states.

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

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

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

in the first quarter of 2022.

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

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

Our business is focused on industrial and logistics properties.

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

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

As of December 31, 2021, we recognized $1,297 in our accounts receivable related to the remaining deferred amounts.

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

These deferred amounts did not negatively impact our operating results for the year ended December 31, 2021 and will continue to be reflected in our financial results in the applicable future reporting periods, assuming these tenants continue to pay the deferred rents due to us.

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

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

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

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

As of December 31, 2022, our portfolio was comprised of 413 consolidated properties containing approximately 59,983,000 rentable square feet located in 39 states, including 226 buildings, leasable land parcels and easements containing approximately 16,729,000 rentable square feet located on the island of Oahu, Hawaii, and 187 properties containing approximately 43,254,000 rentable square feet located in 38 other states.

As of December 31, 2022, our 413 consolidated properties included 94 properties that we own in a consolidated joint venture in which we own a 61% equity interest.

As of December 31, 2022, we also owned a 22% equity interest in an unconsolidated joint venture, which owns 18 properties located in 12 states in the mainland United States containing approximately 11,726,000 rentable square feet that were 100% leased with an average (by annualized rental revenues) remaining lease term of 5.6 years.

During 2022, our consolidated properties generated increased rental income and net operating income as compared to the prior year as a result of strong demand for e-commerce focused industrial properties and our acquisition of MNR.

Our leasing activity for new and renewal leases in 2022 resulted in a 64% year-over-year increase in contractual rents.

As of December 31, 2022, our consolidated properties were approximately 99.1% leased (based on rentable square feet) to 301 different tenants with a weighted average remaining lease term (based on annualized rental revenues) of approximately 9.0 years.

In response to inflationary pressures, the U.S.

Federal Reserve has significantly increased the federal funds rate since the beginning of 2022 and has signaled that further increases are likely to occur.

These inflationary pressures and rising interest rates in the United States and globally have given rise to increasing concerns that the U.S.

economy may soon enter an economic recession and they have caused disruptions in the financial markets.

An economic recession, or continued or intensified disruptions in the financial markets, could adversely affect our financial condition and that of our tenants, could adversely impact the ability or willingness of our tenants to renew our leases or pay rent to us, may restrict our access to, and would likely increase our cost of capital, and may cause the values of our properties and of our securities to decline.

Investing and Financing Activities

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 and two 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.

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.

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

The Bridge Loan was scheduled to mature in February 2023 and required that interest be paid at an annual rate of secured overnight financing rate, or SOFR, plus a weighted average premium of 2.92%.

We also entered into a $700,000 interest only fixed rate commercial mortgage backed securities, or CMBS, loan secured by 17 of our properties, or the Fixed Rate Loan.

The Fixed Rate loan matures in March 2032 and requires that interest be paid at a weighted average annual fixed rate of 4.42%.

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 $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 on certain of the properties and entered into a $1,400,000 interest only floating rate CMBS loan secured by 82 of our 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 of SOFR plus a premium of 2.77%.

During the year ended December 31, 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, Georgia 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.

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.

In September 2022, we entered into a $1,235,000 interest only loan, comprised of a $1,100,000 mortgage loan and a $135,000 mezzanine loan, secured by 104 of our properties, or the ILPT Floating Rate Loan.

The ILPT Floating Rate Loan matures in October 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%.

We repaid the Bridge Loan in full on September 22, 2022 with cash on hand and proceeds from the ILPT Floating Rate Loan.

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

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

During the years ended December 31, 2022 and 2021, we recorded the change in the fair value of our investment in the unconsolidated joint venture of $7,078 and $40,918, respectively, as equity in earnings of unconsolidated joint venture in our consolidated statements of

comprehensive income (loss).

In addition, the unconsolidated joint venture made aggregate cash distributions to us of $25,742 and $2,640 during the years ended December 31, 2022 and 2021, respectively.

For more information regarding the unconsolidated joint venture and the use of the equity method for that joint venture, see Notes 2, 3, 5, 6, 9, 10 and 11 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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

Property Operations

Occupancy data for our properties as of December 31, 2021 and 2020 is as follows (square feet in thousands):

Occupancy data for our properties as of December 31, 2022 and 2021 were as follows:

All Properties Comparable Properties (1)

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Total properties 413 288 286 286

Total rentable square feet (2)

Total rentable square feet (in thousands) (2)

59,983 33,991 33,655 33,634

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(3) Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of December 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 years ended December 31, 2021 and 2020 are as follows:

The average effective rental rates per square foot, as defined below, for our properties for the years ended December 31, 2022 and 2021 were as follows:

Year Ended December 31,

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During the year ended December 31, 2022, we completed rent resets for approximately 230,000 square feet of land at our Hawaii Properties at rental rates that were approximately 36.2% higher than the prior rental rates.

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

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

% of Cumulative

% of Total Cumulative % Annualized % of

As shown in the table below, approximately 4.2% of our total leased square feet and 4.2% of our total annualized rental revenues as of December 31, 2022 are included in leases scheduled to expire by December 31, 2023.

As of December 31, 2022, our lease expirations by year were as follows (dollars and square feet in thousands):

% of Total Cumulative

% of Total Cumulative % Annualized % of Total

Leased Leased of Total Annualized Rental Annualized

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

We generally receive rents from our tenants monthly in advance.

As of December 31, 2021, tenants representing 1% or more of our total annualized rental revenues were as follows (square feet in thousands):

% of Total % of Total

of Leased Leased Annualized Rental

States Properties Sq.

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

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

AR, CO, HI, IA, ID, IL, MN, MO, NC, ND, NV, OH, OK, UT 17 952 2.8 % 4.8 %

3 Restoration Hardware, Inc.

MD 1 1,195 3.5 % 3.0 %

4 American Tire Distributors, Inc.

CO, LA, NE, NY, OH 5 722 2.1 % 2.6 %

5 Servco Pacific, Inc.

HI 6 590 1.8 % 2.5 %

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

7 UPS Supply Chain Solutions, Inc.

NH 1 614 1.8 % 2.3 %

8 EF Transit, Inc.

IN 1 535 1.6 % 1.9 %

9 BJ's Wholesale Club, Inc.

NJ 1 634 1.9 % 1.7 %

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

11 Safeway Inc.

HI 2 146 0.4 % 1.6 %

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

13 Manheim Remarketing, Inc.

KS 1 338 1.0 % 1.5 %

SC 1 945 2.8 % 1.4 %

15 Avnet, Inc.

OH 1 581 1.7 % 1.4 %

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

17 Warehouse Rentals Inc.

HI 5 278 0.8 % 1.3 %

18 YNAP Corporation NJ 1 167 0.5 % 1.2 %

19 ODW Logistics, Inc.

OH 3 760 2.3 % 1.1 %

20 Refresco Beverages US Inc.

MO, SC 2 421 1.2 % 1.1 %

21 Honolulu Warehouse Co., Ltd.

HI 1 298 0.9 % 1.1 %

22 Hellmann Worldwide Logistics, Inc.

FL 1 240 0.7 % 1.1 %

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

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

Total 65 18,653 55.1 % 48.3 %

(1) Leased square feet is pursuant to existing leases as of December 31, 2021 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

As of December 31, 2022, subsidiaries of FedEx and subsidiaries of Amazon.com, Inc.

leased 22.1% and 7.6% of our total leased square feet, respectively, and represented 29.6% and 6.7% of our total annualized rental revenues, respectively.

Mainland Properties.

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

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.

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Tenant Review Process.

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

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

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

Investing and Financing Activities (dollars in thousands)

During the year ended December 31, 2021, we acquired four properties and one parcel of developable land containing 1,644,508 rentable square feet for an aggregate purchase price of $134,730, including acquisition related costs of $1,030.

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

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

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

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

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

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

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

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

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

In November 2020, we sold an additional 39% equity interest from our then remaining 61% equity interest to a second unrelated third party institutional investor for $108,812, which included certain costs related with the formation of our joint venture, and we retained a 22% equity interest in our joint venture following this sale.

Effective as of the date of the sale in November 2020, we deconsolidated our joint venture and, since that time, we account for our joint venture using the equity method of accounting under the fair value option.

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

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

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

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

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

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

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

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

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

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

In May 2020, we prepaid at par plus accrued interest a mortgage note secured by one of our properties with an outstanding principal balance of approximately $48,750, an annual interest rate of 3.48% and a maturity date in November 2020.

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

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

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

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

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 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.

RESULTS OF OPERATIONS

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Real estate taxes 29,913 28,961 952 3.3 % 20,711 1,173 19,538 50,624 30,134 20,490 68.0 %

28,845 28,162 683 2.4 % 1,289 7,023 (5,734) 30,134 35,185 (5,051) (14.4) %

Other operating expenses 18,273 17,610 663 3.8 % 12,582 1,068 11,514 30,855 18,678 12,177 65.2 %

17,353 15,752 1,601 10.2 % 1,325 4,997 (3,672) 18,678 20,749 (2,071) (10.0) %

Total operating expenses

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Depreciation and amortization 160,982 50,598 110,384 218.2 %

Acquisition and certain other transaction related costs 1,132 200 932 N/M

General and administrative 32,877 16,724 16,153 96.6 %

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

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

Interest income — 113 (113) (100.0) %

Interest expense (35,625) (51,619) 15,994 (31.0) %

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

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

Acquisition and other transaction related costs 586 1,132 (546) (48.2) %

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

Total other expenses 295,192 68,454 226,738 N/M

Interest and other income 2,663 — 2,663 N/M

Interest expense (280,051) (35,625) (244,426) N/M

(Loss) gain on sale of real estate (10) 12,054 (12,064) (100.1) %

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

Loss on early extinguishment of debt (22,198) — (22,198) N/M

(Loss) income before income tax expense and equity in earnings of unconsolidated joint venture (293,874) 79,037 (372,911) N/M

Income tax expense (45) (273) 228 (83.5) %

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

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

Equity in earnings of unconsolidated joint venture 7,078 40,918 (33,840) (82.7) %

Net (loss) income (286,841) 119,682 (406,523) N/M

Net loss attributable to noncontrolling interest 60,118 — 60,118 N/M

Net income attributable to common shareholders $ 119,682 $ 82,071 $ 37,611 45.8 %

Net (loss) income attributable to common shareholders $ (226,723) $ 119,682 $(346,405) N/M

Weighted average common shares outstanding - basic 65,248 65,169 79 0.1 %

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Per common share data (basic and diluted):

Net income attributable to common shareholders $ 1.83 $ 1.26 $ 0.57 45.2 %

Net (loss) income attributable to common shareholders — $ — (5.30) N/M

N/M - not meaningful

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

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

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

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

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

(2) Consists of 133 properties including (i) properties we acquired during the period from January 1, 2021 to December 31, 2022, including 94 properties we contributed to a consolidated joint venture in which we own a 61% equity interest, and (ii) 18 properties we sold in December 2021 to an unconsolidated joint venture in which we own a 22% equity interest.

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

References to changes in the income and expense categories below relate to the comparison of results for the year ended December 31, 2022 compared to the year ended December 31, 2021.

For a comparison of consolidated results for the year ended December 31, 2020 compared to the year ended December 31, 2019, see Part II, Item 7, “Management's Discussion and

Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

For a comparison of consolidated results for the year ended December 31, 2021 compared to the year ended December 31, 2020, see Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Rental income.

The decrease in rental income is primarily a result of our acquisition and disposition activities, which includes the contribution of 12 properties to our joint venture that was deconsolidated in November 2020 and the sale of six properties to our joint venture in December 2021, partially offset by increases from the acquisition of two properties during the 2020 period, the acquisition of five properties during the 2021 period and leasing activity and rent resets at certain of our comparable properties.

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

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

Rental income increased at certain of our comparable properties primarily due to increases from leasing activity and rent resets and a $3,428 write off of capitalized below market lease value related to a terminated lease in the 2022 period.

Rental income includes non-cash straight line rent adjustments of $11,538 and $7,263 for the 2022 and 2021 periods, respectively, and net amortization of acquired real estate leases and assumed real estate lease obligations of $4,544 and $781 for the 2022 and 2021 periods, respectively.

Real estate taxes.

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

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

Other operating expenses .

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

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

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

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

Other operating expenses at certain of our comparable properties increased primarily due to increases in insurance, repairs and maintenance and snow removal expenses in the 2022 period.

Depreciation and amortization.

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

Acquisition and certain other transaction related costs.

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

The increase in depreciation and amortization primarily reflects our acquisition and disposition activities in the 2022 period.

General and administrative.

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

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

Gain on sale of real estate.

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

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

Interest income.

Interest income represents interest earned on our cash balances.

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

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 in the 2022 period.

Acquisition and other transaction related costs.

Acquisition and other transaction related costs primarily consist of costs related to potential acquisition and disposition activities that were not completed.

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 properties we reclassified from held for sale to held and used in June 2022 to their estimated fair values.

Interest and other income.

The increase in interest and other income is primarily due to interest earned on higher invested 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 decrease in interest expense in the 2021 period is primarily due to lower average outstanding indebtedness in the 2021 period as compared to the 2020 period.

Gain on early extinguishment of debt.

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

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

Loss (gain) on sale of real estate.

Loss (gain) on sale of real estate in the 2021 period represents a net gain from the sale of six properties to an unconsolidated joint venture and a net gain from the sale of a portion of a land parcel as a result of an eminent domain taking.

Loss on equity securities.

Loss on equity securities in the 2022 period 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 early extinguishment of debt primarily relates to our write off of unamortized costs related to the repayment of the Bridge Loan in September 2022 and the termination of our unsecured revolving credit facility in February 2022.

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 joint venture.

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

Equity in earnings of unconsolidated joint venture.

Equity in earnings of unconsolidated joint venture is the change in the fair value of our investment in the 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 joint venture that we did not own during the 2020 period when we owned a 61% equity interest in the venture.

Net income attributable to common shareholders.

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

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

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

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

The increase in 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.

Non-GAAP Financial Measures

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

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

These measures should be considered in conjunction with net income or net income attributable to common shareholders as presented in our consolidated statements of comprehensive income.

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income and net income attributable to common shareholders.

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

These measures should be considered in conjunction with net income (loss) and net income (loss) attributable to common shareholders as presented in our consolidated statements of comprehensive income (loss).

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss) and net income (loss) attributable to common shareholders.

We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.

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We define NOI as income from our rental of real estate less our property operating expenses.

The calculation of NOI excludes certain components of net income in order to provide results that are more closely related to our property level results of operations.

The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations.

NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization 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 years ended December 31, 2021 and 2020 (dollars in thousands):

The following table presents the reconciliation of net (loss) income to NOI for the years ended December 31, 2022 and 2021 (dollars in thousands):

Year Ended December 31,

Reconciliation of Net Income to NOI:

Net income $ 119,682 $ 81,205

Equity in earnings of investees (40,918) (529)

Reconciliation of Net (Loss) Income to NOI:

Net (loss) income $ (286,841) $ 119,682

Equity in earnings of unconsolidated joint venture (7,078) (40,918)

Income tax expense 45 273

Income before income tax expense and equity in earnings of investees 79,037 80,953

Gain on early extinguishment of debt — (120)

(Loss) income before income tax expense and equity in earnings of unconsolidated joint venture (293,874) 79,037

Loss on early extinguishment of debt 22,198 —

Loss on equity securities 5,758 —

Loss (gain) on sale of real estate 10 (12,054)

Interest expense 280,051 35,625

Interest income — (113)

Gain on sale of real estate (12,054) (23,996)

Interest and other income (2,663) —

Loss on impairment of real estate 100,747 —

Acquisition and other transaction related costs 586 1,132

General and administrative 32,877 16,724

Acquisition and certain other transaction related costs 1,132 200

Depreciation and amortization 160,982 50,598

$ 171,062 $ 198,641

NOI $ 306,672 $ 171,062

Hawaii Properties

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

FFO attributable to common shareholders is calculated on the basis defined by The National Association of Real

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

In calculating Normalized FFO attributable to common shareholders, we adjust for the items shown below including similar adjustments for our unconsolidated joint venture, if any, and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year.

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

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

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

The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net income attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the years ended December 31, 2021 and 2020 (dollars in thousands, except per share data) :

The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net income (loss) attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the years ended December 31, 2022 and 2021 (dollars in thousands, except per share data) :

Year Ended December 31,

Reconciliation of Net Income attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders:

Net income attributable to common shareholders $ 119,682 $ 82,071

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 $ (226,723) $ 119,682

Depreciation and amortization 160,982 50,598

Equity in earnings of unconsolidated joint venture (7,078) (40,918)

Loss on equity securities 5,758 —

Share of FFO from unconsolidated joint venture 6,406 4,823

Gain on sale of real estate (12,054) (23,996)

Loss on impairment of real estate 100,747 —

(Gain) loss on sale of real estate 10 (12,054)

FFO adjustments attributable to noncontrolling interest (38,695) —

FFO attributable to common shareholders 1,407 122,131

Acquisition and certain other transaction related costs 1,132 200

Gain on early extinguishment of debt — (120)

Loss on early extinguishment of debt 22,198 —

Acquisition, transaction related and certain other financing costs (1)

Normalized FFO adjustments attributable to noncontrolling interest (28,379) —

Normalized FFO attributable to common shareholders $ 76,218 $ 123,263

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Normalized FFO attributable to common shareholders $ 1.17 $ 1.89

(1) Amount for the year ended December 31, 2022 primarily includes certain debt issuance costs recorded as interest expense related to the Bridge Loan and other transaction related costs expensed under GAAP.

LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources (dollars in thousands)

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

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

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

Our 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.

As of December 31, 2022, investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases represented 78.3% of our annualized rental revenues and only 4.2% of our annualized rental revenues were from leases expiring 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 consolidated statements of cash flows (dollars in thousands):

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Cash and cash equivalents and restricted cash at end of period $ 140,780 $ 29,397

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

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

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

The decrease in net cash provided by operating activities for the year ended December 31, 2022 compared to the prior year is primarily due to higher interest expense, partially offset by our acquisition of MNR.

The change from net cash provided by investing activities in the 2021 period to net cash used by investing activities in the 2022 period is primarily due to our acquisition of MNR during the 2022 period as compared to the sale of six properties to an unconsolidated joint venture, partially offset by our acquisition of five properties, in the 2021 period.

The change from net cash used in financing activities in the 2021 period to net cash provided by financing activities in the 2022 period was 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)

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

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

During the year ended December 31, 2021, we acquired a

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

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

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

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 December 31, 2022, we had cash and cash equivalents of $48,261.

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This distribution requirement limits our ability to retain earnings and thereby provide capital for our operations or acquisitions.

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

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

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

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

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

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

At December 31, 2021, the interest rate premium on our revolving credit facility was 130 basis points and our commitment fee was 25 basis points.

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

As of December 31, 2021, the annual interest rate payable on borrowings under our revolving credit facility was 1.41%.

As of December 31, 2021 and February 11, 2022, we had $182,000 outstanding under our revolving credit facility, and $568,000 available to borrow under our revolving credit facility.

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

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

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

During the year ended December 31, 2021, we acquired four industrial properties and one parcel of developable land containing 1,644,508 rentable square feet for an aggregate purchase price of $134,730, including acquisition related costs of $1,030.

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

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

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

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

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

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

In November 2020, we sold an additional 39% equity interest from our then remaining 61% equity interest to a second unrelated third party institutional investor for an additional $108,812, which included certain costs associated with the formation of our joint venture, and we retained a 22% equity interest in our joint venture following the sale.

Effective as of the sale in November 2020, we deconsolidated our joint venture and, since that time, we account for our joint venture using the equity method of accounting under the fair value option.

We 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.

On July 14, 2022, we announced that we reduced our quarterly cash distribution rate on our common shares to $0.01 per share to enhance our liquidity until we complete our long term financing plan for the MNR acquisition and/or our leverage profile otherwise improves, and we expect the distributions made to our common shareholders in 2022 will satisfy 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 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 interest rate 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%.

The weighted average annual interest rate payable under the Floating Rate Loan was 6.17% as of both December 31, 2022 and February 9, 2023, and was 6.10% for the period from February 25, 2022 to December 31, 2022.

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 our 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%.

We repaid the Bridge Loan in full on September 22, 2022 with cash on hand and proceeds from the ILPT Floating Rate Loan.

During the year ended December 31, 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 payable under the Bridge Loan was 4.24% for the period from February 25, 2022 to September 22, 2022.

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%.

The Floating Rate Loan, the Bridge Loan and the Fixed Rate Loan are collectively referred to as the Loans.

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 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 ILPT Floating Rate Loan, secured by 104 of our properties.

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%.

Subject to the satisfaction of certain conditions, we have the option:

(1) to prepay up to $247,000 of the ILPT Floating Rate Loan at par with no premium;

and (2) to prepay the balance of the ILPT Floating Rate Loan in full or in part at any time, subject to a premium, and beginning in October 2023, without a premium.

The weighted average interest rate payable under the ILPT Floating Rate Loan was 6.18% as of both December 31, 2022 and February 9, 2023 and for the period from September 22, 2022 to December 31, 2022.

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.

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 December 31, 2022, we had an aggregate principal amount of $4,290,363 of debt, including the Floating Rate Loan, Fixed Rate Loan and the ILPT Floating Rate Loan, scheduled to mature between 2023 and 2038.

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

As a result, the debt financing used to acquire MNR has been more expensive than originally anticipated and it is taking longer than originally expected to complete our long term financing plan for the MNR acquisition.

We planned to sell certain properties and 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 or additional equity interests in our consolidated 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 at the time of acquisition.

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.

For more information regarding our investing and financing activities, including our acquisition of MNR, see Notes 2, 3, 5, 6, 9, 10 and 11 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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 in 27 states, including two then committed, but not yet then completed, property acquisitions.

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 consolidated financial statements in accordance with GAAP.

We recognized a 39% noncontrolling interest in our consolidated financial statements for the year ended December 31, 2022.

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

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

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

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

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

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

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

The portion of this joint venture's net loss not attributable to us, or $60,067 for the year ended December 31, 2022, is reported as noncontrolling interest in our consolidated statements of comprehensive income (loss).

During the year ended December 31, 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 consolidated balance sheets.

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

For more information regarding this joint venture, see Notes 3, 5, 6, 10 and 11 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Unconsolidated Joint Venture

As of December 31, 2022 and December 31, 2021, we also owned a 22% equity 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 $7,078 and $40,918 for the years ended December 31, 2022 and 2021, respectively, as equity in earnings of unconsolidated joint venture in our consolidated statements of comprehensive income (loss).

In addition, the unconsolidated joint venture made aggregate cash distributions to us of $25,742 and $2,640 during the years ended December 31, 2022 and 2021, respectively.

For more information regarding this joint venture, see Notes 3, 5, 6 and 10 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

We expect to use proceeds we may receive from the other investors in our joint ventures in connection with any additional properties we may sell to our joint ventures, equity contributions from any third party investors in our joint ventures or any future joint ventures and net proceeds from offerings of equity or debt securities to fund any future property acquisitions,

developments and redevelopments.

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

When significant amounts are outstanding under our revolving credit facility or the maturities of our revolving credit facility or our other 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, extending the maturity date of our revolving credit facility, participating in joint ventures or selling properties.

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

When the maturities of our debt approach or we desire to reduce our leverage or refinance debt, we intend to explore refinancing alternatives, property sales or sales of equity interests in joint ventures.

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 or selling equity interests in joint ventures or selling properties.

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

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

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

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

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

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

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

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

During the year ended December 31, 2022, we paid quarterly cash distributions to our shareholders totaling $44,477 using cash balances.

For more information regarding the distributions we paid during 2022, see Note 7 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

On January 12, 2023, we declared a regular quarterly distribution of $0.01 per common share, or approximately $656, to shareholders of record on January 23, 2023.

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

We expect to pay this distribution to our shareholders on or about February 16, 2023 using cash balances.

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

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Debt Covenants (dollars in thousands)

Our principal debt obligations at December 31, 2021 were borrowings outstanding under our revolving credit facility and a $650,000 non-recourse, mortgage loan that is secured by 186 of our properties.

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

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

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

As of December 31, 2021, we believe we were in compliance with all the covenants and other terms under our credit agreement.

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

However, under our credit agreement, our leverage ratio is used to determine the interest rates for calculating the amount of interest payable on outstanding borrowings and the fees we pay.

Accordingly, if our leverage ratio increases above the applicable thresholds, our interest expense and related costs under our credit agreement would increase.

Our revolving credit facility has cross default provisions to other indebtedness that is recourse of $25,000 or more and indebtedness that is non-recourse of $50,000 or more.

The loan agreement and related documents governing our $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 require us to maintain a minimum consolidated net worth of at least $250,000 and liquidity of at least $15,000.

As of December 31, 2021, we believe we were in compliance with all the covenants and other terms under this loan agreement.

Our principal debt obligations as of December 31, 2022 were:

(1) $1,235,000 outstanding principal amount of the ILPT Floating Rate Loan secured by 104 of our properties;

(2) $1,400,000 outstanding principal amount of the Floating Rate Loan secured by 82 properties owned by our consolidated joint venture;

(3) $700,000 outstanding principal amount of the Fixed Rate Loan secured by 17 our properties;

(4) $650,000 outstanding principal amount of a mortgage loan secured by 186 of our properties;

and (5) $305,363 aggregate principal amount of mortgages secured by 11 properties owned by our consolidated joint venture in which we own a 61% equity interest.

The agreements and related documents governing the ILPT Floating Rate Loan, Floating Rate Loan, Fixed Rate Loan 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 December 31, 2022, we believe that we were in compliance with all of the covenants and other terms under the agreements governing the ILPT Floating Rate Loan, Floating Rate Loan, Fixed Rate Loan 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.

The agreements governing the ILPT Floating Rate Loan, Floating Rate Loan, Fixed Rate Loan and the $650,000 mortgage loan contain certain exceptions to the general non-recourse provisions, including our obligation to indemnify the lenders for certain potential environmental losses.

Related Person Transactions

We have relationships and historical and continuing transactions with RMR LLC, RMR Inc.

We have relationships and historical and continuing transactions with RMR, RMR Inc.

and others related to them.

For more information about these and other such relationships and related person transactions, see Notes 9 and 10 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, our other filings with the SEC, including our definitive Proxy Statement for our 2023 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2022.

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

Critical Accounting Estimates

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

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

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

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

Impact of Climate Change

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In an effort to reduce the effects of any increased energy costs in the future, we continuously study ways to improve the energy efficiency at all of our properties.

Our property manager, RMR LLC, is a member of the ENERGY STAR program, a joint program of the U.S.

Our property manager, RMR, is a member of the ENERGY STAR program, a joint program of the U.S.

Environmental Protection Agency and the U.S.

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

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

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

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

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

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis