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Item 2. Management’s Discussion and Analysis

2023-04-25 compared with 2022-10-25 · 148 added, 355 removed, 194 unchanged (72% of the section changed)

3 unchanged sentences

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

As of September 30, 2022, our portfolio was comprised of 413 consolidated properties containing approximately 59,962,000 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 43,233,000 rentable square feet located in 38 other states.

As of September 30, 2022, our 413 consolidated properties include 94 properties that we own in 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 containing approximately 11,726,000 rentable square feet that were 100% leased with an average (by annualized rental revenues) remaining lease term of 5.9 years.

As of September 30, 2022, our consolidated properties were approximately 99.2% leased (based on rentable square feet) to 305 different tenants with a weighted average remaining lease term (based on annualized rental revenues) of approximately 8.9 years.

We define the term annualized rental revenues as used in this section as the annualized contractual rents, as of September 30, 2022, including straight line rent adjustments and excluding lease value amortization, adjusted for tenant concessions including free rent and amounts reimbursed to tenants, plus estimated recurring expense reimbursements from tenants.

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 the $1,385,158 Bridge Loan, secured by 109 of our properties.

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 entered into the $700,000 Fixed Rate Loan secured by 17 of our properties.

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 the $1,400,000 Floating Rate Loan secured by 82 properties.

The Floating Rate Loan matures in March 2024, subject to three one year extension options, and requires that interest be paid at an annual rate of SOFR plus a premium of 2.77%.

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

In July 2022, our consolidated joint venture acquired a property located in Augusta, GA containing 226,000 rentable square feet for a purchase price of approximately $38,053, 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 the $1,235,000 ILPT Floating Rate Loan, secured by 104 of our properties.

The interest only 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%.

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

As of September 30, 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 three and nine months ended September 30, 2022, we recorded the change in the fair value of our investment in the unconsolidated joint venture of $3,297 and $6,634, respectively, in our condensed consolidated statements of comprehensive income (loss).

In addition, during the three and nine months ended September 30, 2022, the unconsolidated joint venture made aggregate cash distributions of $1,320 and $3,962, respectively, to us.

In October 2022, the unconsolidated joint venture made a cash distribution to us of $20,900, including amounts related to a debt financing.

For further information regarding our investing and financing activities, see Notes 2, 4, 5, 9 10, and 11 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investing and Financing Liquidity and Resources” of this Quarterly Report on Form 10-Q.

In response to inflationary pressures, the U.S.

Federal Reserve increased the federal funds rate by 300 basis points over five consecutive meetings from March 2022 to September 2022 and has signaled that further large 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 is now in, or 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 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.

As of March 31, 2023, 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 March 31, 2023, our 413 consolidated properties included 94 properties that we own in a consolidated joint venture in which we own a 61% equity interest, and our consolidated properties were approximately 98.7% leased to 300 different tenants with a weighted average remaining lease term (by annualized rental revenues) of approximately 8.4 years.

As of March 31, 2023, 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 99% leased with an average remaining lease term (based on annualized rental revenues) of 5.4 years.

We define the term annualized rental revenues as used in this Quarterly Report on Form 10-Q as the annualized contractual rents as of March 31, 2023, including straight line rent adjustments and excluding lease value amortization, adjusted for tenant concessions including free rent and amounts reimbursed to tenants, plus estimated recurring expense reimbursements from tenants.

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.

These conditions have increased our cost of capital and negatively impacted our ability to reduce our leverage.

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, may impact our ability to sell properties and may cause the values of our properties and of our securities to decline.

Property Operations

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

Occupancy data for our properties as of March 31, 2023 and 2022 were as follows (square feet in thousands):

All Properties Comparable Properties (1)

As of September 30, As of September 30,

As of March 31, As of March 31,

2023 2022 2023 2022

Total properties 413 412 287 287

Total rentable square feet (2)

Total rentable square feet (in thousands) (2)

59,983 59,736 34,012 33,991

1 unchanged sentence

98.7 % 98.9 % 99.0 % 99.3 %

(1) Consists of properties that we owned continuously since January 1, 2021 and excludes 18 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.

(1) Consists of properties that we owned continuously since January 1, 2022.

(2) Subject to modest adjustments when space is remeasured or reconfigured for new tenants and when land leases are converted to building leases.

(3) Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of September 30, 2022, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

The average effective rental rates per square foot, as defined below, for our properties for the three and nine months ended September 30, 2022 and 2021 are as follows:

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

(3) Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of March 31, 2023, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

The average effective rental rates per square foot, as defined below, for our properties for the three months ended March 31, 2023 and 2022 were as follows:

Three Months Ended March 31,

Average effective rental rates per square foot leased:

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(1) Average effective rental rates per square foot leased represents annualized rental income during the period specified divided by the average rentable square feet leased during the period specified.

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

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

Three Months Ended September 30, 2022

New Leases Renewals Totals

Square feet leased during the period (in thousands) 543 1,142 1,685

Weighted average rental rate change (by rentable square feet) 280.7 % 26.1 % 77.5 %

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

Total leasing costs and concession commitments (1)

$ 3,570 $ 992 $ 4,562

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

$ 6.58 $ 0.87 $ 2.71

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

$ 0.89 $ 0.24 $ 0.55

Nine months ended September 30, 2022

(2) Consists of properties that we owned continuously since January 1, 2022.

During the three months ended March 31, 2023, we entered into new and renewal leases as summarized in the following tables:

Three Months Ended March 31, 2023

New Leases Renewals Totals

2 unchanged sentences

Weighted average lease term by square feet (years) 18.0 8.6 8.9

23.8 6.4 16.1

Total leasing costs and concession commitments (1)

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

(2) The weighted average (by square feet) lease term for leases that were in effect for the same land area or building area during the prior lease term was 4.9 years for the three months ended September 30, 2022 and 16.1 years for the nine months ended September 30, 2022.

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

As shown in the table below, approximately 1.0% of our total leased square feet and 1.0% of our total annualized rental revenues as of September 30, 2022 are included in leases scheduled to expire by December 31, 2022.

As of September 30, 2022, our lease expirations by year are as follows (dollars and square feet in thousands):

As shown in the table below, approximately 2.8% of our total leased square feet and 2.9% of our total annualized rental revenues as of March 31, 2023 are included in leases scheduled to expire by December 31, 2023.

As of March 31, 2023, our lease expirations by year were as follows (dollars and square feet in thousands):

% of Total Cumulative

% of Total Cumulative % Annualized Annualized % of Total

Leased Leased of Total Leased Rental Rental Annualized

Leased Leased of Total Rental Rental Annualized

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

14 unchanged sentences

Weighted average remaining lease term (in years) 7.3 8.4

(1) Leased square feet is pursuant to existing leases as of September 30, 2022 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

We generally receive rents from our tenants monthly and in advance.

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

of Leased % of Total Annualized Rental

Tenant States Properties Sq.

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

Various (34 states) 84 13,109 22.0 % 29.6 %

2 Amazon.com Services, Inc./ Amazon.com Services LLC AL, IN, OK, SC, TN, VA 8 4,539 7.6 % 6.8 %

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

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

4 UPS Supply Chain Solutions, Inc.

NH, NY 3 794 1.3 % 1.6 %

5 Restoration Hardware, Inc.

MD 1 1,195 2.0 % 1.5 %

6 Servco Pacific, Inc.

HI 7 629 1.1 % 1.4 %

7 American Tire Distributors, Inc.

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

8 TD SYNNEX Corporation OH 2 939 1.6 % 1.1 %

Total 114 25,292 42.5 % 47.7 %

Tenant Concentration.

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

% of Number Remaining Rental Income Rental Income

Rentable of Lease Term Three Months Ended Nine Months Ended

Tenant Square Feet States (in years) 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 %

(1) Leased square feet is pursuant to existing leases as of March 31, 2023 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 March 31, 2023, subsidiaries of FedEx and subsidiaries of Amazon leased 22.1% and 7.7% of our total leased square feet, respectively, and represented 30.1% and 6.9% of our total annualized rental revenues, respectively.

Mainland Properties.

As of September 30, 2022, our Mainland Properties represented approximately 71.5% of our annualized rental revenues.

As of March 31, 2023, our Mainland Properties represented approximately 72.2% of our annualized rental revenues.

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

2 unchanged sentences

Hawaii Properties.

As of September 30, 2022, our Hawaii Properties represented approximately 28.5% of our annualized rental revenues.

As of September 30, 2022, certain of our Hawaii Properties are lands leased for rents that periodically reset based on fair market values, generally every ten years.

As of March 31, 2023, our Hawaii Properties represented approximately 27.8% of our annualized rental revenues.

As of March 31, 2023, certain of our Hawaii Properties are lands leased for rents that periodically reset based on fair market values, generally every ten years.

Revenues from our Hawaii Properties have generally increased under our or our predecessors’ ownership as rents under the leases for those properties have been reset or renewed.

Lease renewals, lease extensions, new leases and rental rates for our Hawaii Properties in the future will depend on prevailing market conditions when these lease renewals, lease extensions, new leases and rental rates are set.

Lease renewals, lease extensions, new leases and rental rates for our Hawaii Properties in the future will depend on prevailing market conditions when

these lease renewals, lease extensions, new leases and rental rates are set.

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

2 unchanged sentences

Accordingly, we cannot be sure that the historical increases achieved at our Hawaii Properties will continue in the future.

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

The following chart shows the annualized rental revenues as of March 31, 2023 scheduled to reset at our Hawaii Properties:

Scheduled Rent Resets at Hawaii Properties

(dollars in thousands)

Rental Revenues as of

September 30, 2022

Rental Revenues

as of March 31, 2023

Scheduled to Reset

2 unchanged sentences

Total $ 23,218

As of September 30, 2022, $20,740, or 4.9%, of our annualized rental revenues are included in leases scheduled to expire through September 30, 2023 and 0.8% of our rentable square feet are currently vacant.

As of March 31, 2023, $12,231, or 4.6%, of our annualized rental revenues are included in leases scheduled to expire by March 31, 2024 and 1.3% of our rentable square feet are currently vacant.

Rental rates for which available space may be leased in the future will depend on prevailing market conditions when lease extensions, lease renewals or new leases are negotiated.

6 unchanged sentences

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

Investing Activities

In March 2023, we received gross proceeds of $270 and recorded a $974 net loss on sale of real estate as a result of a partial eminent domain taking at a property in Everett, Washington.

For further information regarding our investing activities, see Note 2 to our Condensed Consolidated Financial Statements included in Part I, Item 1 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investing and Financing Liquidity and Resources” of this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

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

Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022 (dollars and share amounts in thousands, except per share data)

Comparable Properties Results (1)

1 unchanged sentence

Consolidated Results

Three Months Ended September 30, Three Months Ended September 30, Three Months Ended September 30,

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

2023 2022 Change Change 2023 2022 Change 2023 2022 Change Change

2 unchanged sentences

Real estate taxes 7,800 7,271 529 7.3% 8,667 2,165 6,502 16,467 9,436 7,031 74.5%

Other operating

expenses 4,630 4,160 470 11.3% 3,823 257 3,566 8,453 4,417 4,036 91.4%

Total operating

expenses 12,343 11,467 876 7.6% 9,859 567 9,292 22,202 12,034 10,168 84.5%

Other operating expenses 5,263 4,960 303 6.1% 4,055 1,812 2,243 9,318 6,772 2,546 37.6%

Total operating expenses 13,063 12,231 832 6.8% 12,722 3,977 8,745 25,785 16,208 9,577 59.1%

Net operating income (3)

1 unchanged sentence

Other expenses:

Depreciation and amortization 48,519 12,694 35,825 N/M

Acquisition and other transaction related costs 586 — 586 —%

General and administrative 9,110 4,728 4,382 92.7%

Total other expenses 58,215 17,422 40,793 N/M

Interest and other income 1,068 — 1,068 —%

Interest expense (89,739) (9,084) (80,655) N/M

Gain on sale of real estate — 940 (940) (100.0%)

Loss on early extinguishment of debt (21,370) — (21,370) —

(Loss) income before income tax expense and equity in earnings of unconsolidated joint venture (87,243) 17,381 (104,624) N/M

Income tax expense (28) (72) 44 (61.1%)

Equity in earnings of unconsolidated joint venture 3,297 998 2,299 230.4%

Net (loss) income (83,974) 18,307 (102,281) N/M

Net loss attributable to noncontrolling interest 38,347 — 38,347 —%

Net (loss) income attributable to common shareholders $ (45,627) $ 18,307 $ (63,934) N/M

Weighted average common shares outstanding - basic 65,250 65,178 72 0.1%

Weighted average common shares outstanding - diluted 65,250 65,230 20 —%

Per common share data (basic and diluted):

Net (loss) income attributable to common shareholders $ (0.70) $ 0.28 $ (0.98) N/M

N/M - Not Meaningful

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

(2) Consists of 131 properties including (i) properties we acquired during the period from July 1, 2021 to September 30, 2022, including 94 properties we contributed to a consolidated joint venture in which we own a 61% equity interest, and (ii) properties we sold in December 2021 to our 18 property unconsolidated joint venture in which we own a 22% equity interest.

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

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

Rental income.

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

Rental income increased at certain of our comparable properties primarily due to increases from leasing activity and rent resets.

Rental income includes non-cash straight line rent adjustments of $3,794 and $1,678 for the 2022 and 2021 periods, respectively, and net amortization of acquired real estate leases and assumed real estate lease obligations of $250 and $174 for the 2022 and 2021 periods, respectively.

Real estate taxes.

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

Real estate taxes at our comparable properties increased primarily due to higher assessed values at certain of our properties.

Other operating expenses.

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

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

Other operating expenses increased primarily due to increases in repairs and maintenance and insurance expenses at certain of our comparable properties.

Depreciation and amortization 45,457 22,878 22,579 98.7%

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

Acquisition and other transaction related costs.

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

General and administrative 7,907 6,077 1,830 30.1%

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

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

Total other expenses 53,364 28,955 24,409 84.3%

Interest and other income 1,146 478 668 139.7%

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

Interest expense (70,771) (40,999) (29,772) 72.6%

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.

Gain on sale of real estate.

Gain on sale of real estate represents the net gain from the sale of a portion of a land parcel as a result of an eminent domain taking in the 2021 period.

Loss on sale of real estate (974) — (974) —%

Realized gain on sale of equity securities — 1,232 (1,232) (100.0)%

Unrealized gain on equity securities — 2,460 (2,460) (100.0)%

Loss on early extinguishment of debt — (828) 828 (100.0)%

Loss on early extinguishment of debt primarily relates to the write off of unamortized costs related to the repayment of the Bridge Loan in September 2022.

Loss before income tax expense and equity in earnings of unconsolidated joint venture (39,490) (11,445) (28,045) 245.0%

Income tax expense (17) (69) 52 (75.4)%

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

Equity in earnings of unconsolidated joint venture 3,961 1,727 2,234 129.4%

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 (35,546) (9,787) (25,759) N/M

Net loss attributable to noncontrolling interest 10,737 3,273 7,464 228.0%

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.

Net loss attributable to common shareholders $ (24,809) $ (6,514) $ (18,295) N/M

Weighted average common shares outstanding - basic and diluted 65,309 65,212 97 0.1%

The increase in weighted average common shares outstanding primarily reflects common shares awarded under our equity compensation plan since July 1, 2021.

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

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

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

Comparable Properties Results (1)

Non-Comparable Properties Results (2)

Consolidated Results

Nine Months Ended September 30, Nine Months Ended September 30, Nine Months Ended September 30,

2022 2021 Change Change 2022 2021 Change 2022 2021 Change Change

Rental income $ 161,921 $ 156,971 $ 4,950 3.2% $ 119,891 $ 6,407 $ 113,484 $ 281,812 $ 163,378 $ 118,434 72.5%

Operating expenses:

Real estate taxes 22,278 21,616 662 3.1% 14,182 737 13,445 36,460 22,353 14,107 63.1%

Other operating

expenses 13,652 13,055 597 4.6% 8,626 679 7,947 22,278 13,734 8,544 62.2%

Total operating

expenses 35,930 34,671 1,259 3.6% 22,808 1,416 21,392 58,738 36,087 22,651 62.8%

Net operating income (3)

$ 125,991 $ 122,300 $ 3,691 3.0% $ 97,083 $ 4,991 $ 92,092 $ 223,074 $ 127,291 $ 95,783 75.2%

Other expenses:

Depreciation and amortization 114,096 37,202 76,894 206.7%

Acquisition and other transaction related costs 586 646 (60) (9.3%)

General and administrative 24,896 12,718 12,178 95.8%

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

Total other expenses 240,325 50,566 189,759 N/M

Interest and other income 1,900 — 1,900 —%

Interest expense (208,286) (26,468) (181,818) N/M

(Loss) gain on sale of real estate (10) 940 (950) (101.1%)

Loss on equity securities (5,758) — (5,758) —%

Loss on early extinguishment of debt (22,198) — (22,198) —%

(Loss) income before income tax expense and equity in earnings of unconsolidated joint venture (251,603) 51,197 (302,800) N/M

Income tax expense (113) (177) 64 (36.2%)

Equity in earnings of unconsolidated joint venture 6,634 5,455 1,179 21.6%

Net (loss) income (245,082) 56,475 (200,810) N/M

Net loss attributable to noncontrolling interest 49,402 — 49,402 —%

Net (loss) income attributable to common shareholders $ (195,680) $ 56,475 $ (252,155) N/M

Weighted average common shares outstanding - basic 65,228 65,154 74 0.1%

Weighted average common shares outstanding - diluted 65,228 65,205 23 —%

Per common share data (basic and diluted):

Net (loss) income attributable to common shareholders $ (3.00) 0.86 (3.86) N/M

Net loss attributable to common shareholders $ (0.38) $ (0.10) $ (0.28) N/M

N/M - not meaningful

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

(2) Consists of 133 properties including (i) properties we acquired during the period from January 1, 2021 to September 30, 2022, including 94 properties we contributed to a consolidated joint venture in which we own a 61% equity interest, and (ii) properties we sold in December 2021 to our 18 property unconsolidated joint venture in which we own a 22% equity interest.

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

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

(1) Consists of properties that we owned continuously since January 1, 2022.

(2) Consists of 126 properties including properties we acquired during the period from January 1, 2022 to March 31, 2023, including 94 properties we contributed to our consolidated joint venture in which we own a 61% equity interest.

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

References to changes in the income and expense categories below relate to the comparison of results for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Rental income.

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 tenant.

The increase in rental income is primarily a result of our acquisition activities, which includes our acquisition of MNR in February 2022.

Rental income increased at certain of our comparable properties primarily due to increases from our leasing activity and rent resets.

Rental income includes non-cash straight line rent adjustments of $3,762 and $1,156 for the 2023 and 2022 periods, respectively, and net amortization of acquired real estate leases and assumed real estate lease obligations of $270 and $320 for the 2023 and 2022 periods, respectively.

Real estate taxes.

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

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

Real estate taxes at certain of our comparable properties increased due to higher assessed values.

Other operating expenses .

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

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

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

Other operating expenses at certain of our comparable properties increased primarily due to increases in insurance expenses and repairs and maintenance at certain of our properties, partially offset by a decrease in snow removal expenses at certain of our properties, in the 2023 period.

Depreciation and amortization.

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

Acquisition and other transaction related costs.

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

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

General and administrative.

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

Loss on impairment of real estate.

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.

The increase in general and administrative expenses is primarily due to an increase in business management fees as a result of our acquisition activity in the 2022 period.

Interest and other income.

The increase in interest and other income is primarily due to higher interest earned on higher cash balances during the 2023 period as compared to the 2022 period.

Interest expense.

Loss (gain) on sale of real estate.

Loss (gain) on sale of real estate in the 2022 period includes an adjustment to the gain from the sale of six properties to our joint venture during December 2021 and a net gain from the sale of a portion of a land parcel as a result of an eminent domain taking in the 2021 period.

Loss on equity securities.

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

The increase in interest expense is due to higher average interest rates and higher average outstanding debt balances in the 2023 period as compared to the 2022 period, primarily related to our acquisition of MNR during the 2022 period.

Loss on sale of real estate.

Loss on sale of real estate in the 2023 period was a result of a partial eminent domain taking at one of our properties.

Realized gain on sale of equity securities.

Realized gain on sale of equity securities represents the realized gain of $1,232 on the sale of certain equity securities we acquired as part of our acquisition of MNR during the 2022 period.

Unrealized gain on equity securities.

Unrealized gain on equity securities represents the increase in fair value of certain equity securities we acquired as part of our acquisition of MNR during the 2022 period.

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 terminating our unsecured revolving credit facility in February 2022.

Loss on early extinguishment of debt primarily relates to our write off of unamortized costs related to the termination of our unsecured revolving credit facility in February 2022.

Income tax expense.

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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.

The net loss for the 2023 period compared to the net loss for the 2022 period reflects the changes noted above.

Net loss attributable to noncontrolling interest.

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

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.

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, 2022.

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

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

The increase in net loss attributable to common shareholders per common share for the 2023 period compared to the net loss attributable to common shareholders per share for the 2022 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 rules of the Securities and Exchange Commission, or SEC, including net operating income, or NOI, funds from operations, or FFO, attributable to common shareholders and normalized funds from operations, or 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 (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 condensed 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 present certain “non-GAAP financial measures” within the meaning of the applicable rules of the Securities and Exchange Commission, or the SEC, including net operating income, or NOI, funds from operations, or FFO, attributable to common shareholders and normalized funds from operations, or 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 loss or net 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 loss and net loss attributable to common shareholders as presented in our condensed 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 loss and net 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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Other real estate companies and REITs may calculate NOI differently than we do.

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Reconciliation of Net (Loss) Income to NOI:

Net (loss) income $ (83,974) $ 18,307 $ (245,082) $ 56,475

The following table presents the reconciliation of net loss to NOI for the three months ended March 31, 2023 and 2022 (dollars in thousands):

Three Months Ended March 31,

Reconciliation of Net Loss to NOI:

Net loss $ (35,546) $ (9,787)

Equity in earnings of unconsolidated joint venture (3,961) (1,727)

(3,297) (998) (6,634) (5,455)

Income tax expense 17 69

(Loss) income before income tax expense and equity in earnings of unconsolidated joint venture

(87,243) 17,381 (251,603) 51,197

Loss before income tax expense and equity in earnings of unconsolidated joint venture (39,490) (11,445)

Loss on early extinguishment of debt — 828

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Interest expense 70,771 40,999

Loss (gain) on sale of real estate — (940) 10 (940)

Loss on equity securities — — 5,758 —

Loss on sale of real estate 974 —

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

Unrealized gain on equity securities — (2,460)

General and administrative 7,907 6,077

Acquisition and other transaction related costs 586 — 586 646

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

Depreciation and amortization 45,457 22,878

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NOI $ 84,473 $ 55,167

Funds From Operations and Normalized Funds From Operations Attributable to Common Shareholders

Funds From Operations Attributable to Common Shareholders and Normalized Funds From Operations Attributable to Common Shareholders

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

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

The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net income (loss) attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three and nine months ended September 30, 2022 and 2021 (dollars in thousands, except per share data):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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

Net (loss) income attributable to common shareholders $ (45,627) $ 18,307 $ (195,680) $ 56,475

The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net loss attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three months ended March 31, 2023 and 2022 (dollars in thousands, except per share data):

Three Months Ended March 31,

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

Net loss attributable to common shareholders $ (24,809) $ (6,514)

Depreciation and amortization 45,457 22,878

Equity in earnings of unconsolidated joint venture (3,961) (1,727)

Loss on equity securities — — 5,758 —

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

Unrealized gain on equity securities — (2,460)

Share of FFO from unconsolidated joint venture 1,468 1,761

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

(Gain) loss on sale of real estate — (940) 10 (940)

Loss on sale of real estate 974 —

FFO adjustments attributable to noncontrolling interest (11,213) (4,604)

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Loss on early extinguishment of debt — 828

Acquisition and other transaction related costs (1)

32,016 — 80,992 646

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

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

Normalized FFO attributable to common shareholders $ 7,916 $ 27,603

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:

FFO attributable to common shareholders - basic $ (0.16) $ 0.46 $ (0.06) $ 1.40

FFO attributable to common shareholders - diluted $ (0.16) $ 0.46 $ (0.06) $ 1.39

Normalized FFO attributable to common shareholders - basic $ 0.23 $ 0.46 $ 1.09 $ 1.41

Normalized FFO attributable to common shareholders - diluted $ 0.23 $ 0.46 $ 1.09 $ 1.40

(1) Amounts for the three and nine months ended September 30, 2022 primarily include certain debt issuance costs recorded as interest expense related to the Bridge Loan and other transaction related costs expensed under GAAP.

Weighted average common shares outstanding - basic and diluted 65,309 65,212

Per common share data (basic and diluted):

FFO attributable to common shareholders $ 0.12 $ 0.12

Normalized FFO attributable to common shareholders $ 0.12 $ 0.42

(1) Amount for the three months ended March 31, 2022 primarily includes certain debt issuance costs recorded as interest expense related to certain financing and other transaction related costs expensed under GAAP.

LIQUIDITY AND CAPITAL RESOURCES

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

As of September 30, 2022, investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases represented 78.1% of our annualized rental revenues and only 4.9% of our annualized rental revenues were from leases expiring over the next 12 months.

As of March 31, 2023, investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases represented 77.6% of our annualized rental revenues and only 4.6% 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.

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

Nine Months Ended September 30,

Three Months Ended March 31,

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

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Cash and cash equivalents and restricted cash at end of period $ 145,159 $ 421,429

The decrease in net cash provided by operating activities for the nine months ended September 30, 2022 compared to the 2021 period is primarily due to changes in our working capital.

The increase in net cash used in investing activities for the nine months ended September 30, 2022 compared to the 2021 period is primarily due to our acquisition of MNR during the 2022 period as compared to our acquisition of four properties and one parcel of developable land during the 2021 period.

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

The decrease in net cash provided by operating activities for the three months ended March 31, 2023 compared to the prior year is primarily due to higher interest expense paid in the 2023 period, partially offset by higher cash flows from the properties we acquired from MNR.

The decrease in net cash provided by investing activities in the 2023 period compared to the net cash used in the 2022 period is primarily due to our acquisition of MNR during the 2022 period as compared to no property acquisitions during the 2023 period.

The change from net cash provided by financing activities in the 2022 period to net cash used in financing activities in the 2023 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)

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

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 and develop 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 September 30, 2022, we had cash and cash equivalents of $26,381.

As of March 31, 2023, we had cash and cash equivalents of $61,250.

To maintain our qualification for taxation as a REIT under the Internal Revenue Code of 1986, as amended, or the IRC, we generally are required to distribute at least 90% of our REIT taxable income annually, subject to specified adjustments and excluding any net capital gain.

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We may use our cash and cash equivalents on hand, the cash flow from our operations, net proceeds from any sales of assets and net proceeds of offerings of equity or debt securities to fund our distributions to our shareholders.

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

On February 25, 2022, subsidiaries of our consolidated joint venture entered into a loan agreement with 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 the Bridge Lenders, and a mezzanine loan agreement with 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.

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 the ILPT Floating Rate Loan.

During the three and nine months ended September 30, 2022, we also 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 the Fixed Rate Lenders, and mezzanine loan agreements with 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 the ILPT Floating Rate Lenders, and a mezzanine loan agreement with the ILPT Floating Rate Mezz Lenders, pursuant to which we obtained 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%.

For further information on our interest rate caps, see Notes 5 and 10 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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 September 30, 2022, we have an aggregate principal amount of $4,295,842 of debt, including the Floating Rate Loan, Fixed Rate Loan and the ILPT Floating Rate Loan, scheduled to mature between 2022 and 2038.

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

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

Consolidated Joint Venture

Immediately following the closing of the Merger, we entered into a joint venture arrangement with an institutional investor for 95 of the acquired MNR properties 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 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.

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

See Notes 1, 2, 9 and 11 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding this joint venture.

Unconsolidated Joint Venture

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.

The ILPT Floating Rate Loan secured by 104 of our properties 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%.

The interest rate payable on the ILPT Floating Rate Loan as of March 31, 2023 and the weighted average interest rate for the three months ended March 31, 2023 were both 6.18%.

Subject to the satisfaction of certain conditions, we have the option to prepay up to $247,000 of the ILPT Floating Rate Loan at par with no premium, and 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 Floating Rate Loan secured by 82 properties owned by our consolidated joint venture matures in March 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 3.40% through the initial term of the Floating Rate Loan, plus a premium of 2.77%.

As of March 31, 2023, the interest rate payable on the Floating Rate Loan was 6.17%.

The weighted average annual interest rate payable under the Floating Rate Loan was 6.17% for the three months ended March 31, 2023, and was 3.01% for the period from February 25, 2022 to March 31, 2022.

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

As of March 31, 2023, we had an aggregate principal amount of $4,284,833 of debt, including the Floating Rate Loan and the ILPT Floating Rate Loan, scheduled to mature between 2024 and 2038.

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

Consolidated Joint Venture - Mountain Industrial REIT LLC:

We own a 61% equity interest in our consolidated joint venture.

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

We recognized a 39% noncontrolling interest in our condensed consolidated financial statements for the three months ended March 31, 2023 and for the period from this joint venture’s formation date, February 25, 2022, to March 31, 2022.

The portion of this joint venture's net loss not attributable to us, or $10,728 and $3,261, for the three months ended March 31, 2023 and for the period from February 25, 2022 to March 31, 2022, respectively, is reported as net loss attributable to noncontrolling interest in our condensed consolidated statements of comprehensive income (loss).

This joint venture made no distributions for the three months ended March 31, 2023 or for the period from February 25, 2022 to March 31, 2022.

As of March 31, 2023, this joint venture had total assets of $3,064,043 and total liabilities of $1,721,021.

Unconsolidated Joint Venture - The Industrial Fund REIT LLC:

We own a 22% equity interest in the unconsolidated joint venture.

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.

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

We expect to use payments 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, development or redevelopment efforts.

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

We recorded a change in the fair value of our investment in the unconsolidated joint venture of $3,961 and $1,727 for the three months ended March 31, 2023 and 2022, 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 $990 and $1,320 during the three months ended March 31, 2023 and 2022, respectively.

For further information regarding these joint ventures, see Notes 2, 4, 5, 8, 9 and 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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 loans or incur debt in connection with future acquisitions, developments and redevelopments.

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 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.

We currently have an effective shelf registration statement that allows us to issue up to $500,000 in aggregate amount of public securities on an expedited basis, but we cannot be sure that there will be purchasers for such securities.

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

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

Although we cannot be sure that we will be successful in

completing any particular type of financing, we believe that we will have access to financing, such as debt or equity offerings, to fund capital expenditures, future acquisitions, development, redevelopment and other activities and to pay our obligations.

The completion and the costs of any future financings will depend primarily upon our success in operating our business and upon market conditions.

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

During the nine months ended September 30, 2022, we paid quarterly cash distributions to our shareholders totaling $43,821 using existing cash balances.

For more information regarding these distributions we paid in 2022, see Note 6 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

On October 13, 2022, we declared a quarterly distribution of $0.01 per common share, or approximately $656, to shareholders of record on October 24, 2022.

We expect to pay this distribution to our shareholders on or about November 17, 2022 using cash balances.

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

During the three and nine months ended September 30, 2022 and 2021, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows:

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

During the three months ended March 31, 2023, we paid quarterly cash distributions to our shareholders totaling $656 using cash balances.

On April 13, 2023, we declared a regular quarterly distribution to common shareholders of record on April 24, 2023 of $0.01 per share, or approximately $656.

We expect to pay this distribution to our shareholders on or about May 18, 2023 using cash balances.

For more information regarding these distributions, see Note 6 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

During the three months ended March 31, 2023 and 2022, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows:

Three Months Ended

Tenant improvements and leasing costs (1)

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Building improvements (2)

1,292 1,625 1,778 2,417

Development, redevelopment and other activities (3)

$ 4,931 $ 3,765

$ 8,574 $ 3,444 $ 22,419 $ 5,604

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

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

As of September 30, 2022, we had estimated unspent leasing related obligations of $25,939.

As of March 31, 2023, we had estimated unspent leasing related obligations of $25,054, of which $8,365 is expected to be spent during the next 12 months.

Debt Covenants (dollars in thousands)

Our principal debt obligations at September 30, 2022 were:

Our principal debt obligations as of March 31, 2023 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;

(3) $700,000 outstanding principal amount of a mortgage loan secured by 17 our properties;

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

and (5) $310,842 aggregate principal amount of mortgages secured by 11 properties owned by our consolidated joint venture in which we own a 61% equity interest.

For further information regarding our indebtedness, see Note 4 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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 September 30, 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.

and (5) $299,833 aggregate principal amount of mortgage loans secured by 11 properties owned by our consolidated joint venture in which we own a 61% equity interest.

For further information regarding our indebtedness, see Note 4 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The agreements and related documents governing the ILPT Floating Rate Loan, Floating Rate Loan, the $700,000 mortgage 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 March 31, 2023, we believe that we were in compliance with all of the covenants and other terms under the agreements governing these loans.

Certain of the mortgage loans we assumed in connection 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, the $700,000 mortgage 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

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and others related to them.

For further information about these and other such relationships and related person transactions, see Notes 8 and 9 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2021 Annual Report, our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders and our other filings with the SEC.

For further information about these and other such relationships and related person transactions, see Notes 8 and 9 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2022 Annual Report, our definitive Proxy Statement for our 2023 Annual Meeting of Shareholders and our other filings with the SEC.

In addition, see the section captioned “Risk Factors” of our 2022 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships.

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Actual results could differ from those estimates.

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

A discussion of our critical accounting estimates is included in our 2022 Annual Report.

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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-Q

Item 2. Management’s Discussion and Analysis