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Item 2. Management’s Discussion and Analysis

2023-10-25 compared with 2023-07-25 · 127 added, 146 removed, 301 unchanged (48% of the section changed)

3 unchanged sentences

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

As of June 30, 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 June 30, 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 99.1% leased to 302 different tenants with a weighted average remaining lease term (by annualized rental revenues) of approximately 8.4 years.

As of June 30, 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 99.4% leased with an average remaining lease term (based on annualized rental revenues) of 6.5 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 June 30, 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.

As of September 30, 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 September 30, 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 98.9% leased to 304 different tenants with a weighted average remaining lease term (by annualized rental revenues) of approximately 8.2 years.

As of September 30, 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 99.4% leased with an average remaining lease term (based on annualized rental revenues) of 6.4 years.

We define annualized rental revenues as the annualized contractual base rents from our tenants pursuant to our lease agreements as of the measurement date, including straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

Long term e-commerce trends and supply chain resiliency have resulted in high occupancy and increases in rents.

We believe customer service expectations, growth in the number of households and demand for supply chain resiliency will keep demand for industrial properties strong for the foreseeable future.

However, inflationary pressures and rising interest rates in the United States and globally have given rise to economic uncertainty and they have caused disruptions in the financial markets.

However, inflationary pressures and rising interest rates in the United States and globally, and global geopolitical hostilities and tensions, have given rise to economic uncertainty and 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 June 30, 2023 and 2022 were as follows (square feet in thousands):

Occupancy data for our properties as of September 30, 2023 and 2022 were as follows (square feet in thousands):

All Properties Comparable Properties (1)

As of June 30, As of June 30,

As of September 30, As of September 30,

2023 2022 2023 2022

4 unchanged sentences

98.9 % 99.2 % 98.8 % 99.3 %

(1) Consists of properties that we owned continuously since January 1, 2022 and excludes two properties classified as held for sale at June 30, 2023.

(1) Consists of properties that we owned continuously since January 1, 2022 and excludes three properties classified as held for sale at September 30, 2023.

(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 June 30, 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 and six months ended June 30, 2023 and 2022 were as follows:

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

Average effective rental rates per square foot leased:

(3) Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of September 30, 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 and nine months ended September 30, 2023 and 2022 were as follows:

Three Months Ended

Nine Months Ended

September 30,

2023 2022 2023 2022

Average effective rental rates per square foot leased:

All properties $ 7.44 $ 6.96 $ 7.40 $ 6.96

1 unchanged sentence

$ 7.42 $ 6.95 $ 6.73 $ 6.43

(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 April 1, 2022 and January 1, 2022, respectively.

During the three and six months ended June 30, 2023, we entered into new and renewal leases as summarized in the following tables:

Three Months Ended June 30, 2023

(1) Average effective rental rates per square foot leased represents annualized rental revenues 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, 2022 and January 1, 2022, respectively.

During the three and nine months ended September 30, 2023, we entered into new and renewal leases as summarized in the following tables:

Three Months Ended September 30, 2023

New Leases Renewals Totals

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$ 0.45 $ 0.47 $ 0.46

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

New Leases Renewals Totals

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

During the three and six months ended June 30, 2023, we completed rent resets for approximately 382 square feet of land at our Hawaii Properties at rental rates that were approximately 29.9% higher than prior rental rates.

As shown in the table below, approximately 2.0% of our total leased square feet and 2.1% of our total annualized rental revenues as of June 30, 2023 are included in leases scheduled to expire by December 31, 2023.

As of June 30, 2023, our lease expirations by year were as follows (dollars and square feet in thousands):

During the nine months ended September 30, 2023, we completed rent resets for approximately 382,000 square feet of land at our Hawaii Properties at rental rates that were approximately 29.9% higher than prior rental rates.

There were no rent resets during the three months ended September 30, 2023.

As shown in the table below, approximately 0.8% of our total leased square feet and 0.9% of our total annualized rental revenues as of September 30, 2023 are included in leases scheduled to expire by December 31, 2023.

As of September 30, 2023, our lease expirations by year were as follows (dollars and square feet in thousands):

% of Total Cumulative

2 unchanged sentences

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

Period / Year Tenants Expiring (1)

Tenants Expiring (1)

Expiring Expiring Expiring

12 unchanged sentences

Weighted average remaining lease term (in years) 7.1 8.2

(1) Leased square feet is pursuant to existing leases as of June 30, 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 June 30, 2023, subsidiaries of FedEx Corporation and subsidiaries of Amazon.com Services, Inc.

(1) Leased square feet is pursuant to existing leases as of September 30, 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 September 30, 2023, subsidiaries of FedEx Corporation and subsidiaries of Amazon.com Services, Inc.

leased 21.9% and 7.7% of our total leased square feet, respectively, and represented 29.8% and 6.7% of our total annualized rental revenues, respectively.

Mainland Properties.

As of June 30, 2023, our Mainland Properties represented approximately 72.0% of our annualized rental revenues.

As of September 30, 2023, our Mainland Properties represented approximately 72.0% of our annualized rental revenues.

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

2 unchanged sentences

Hawaii Properties.

As of June 30, 2023, our Hawaii Properties represented approximately 28.0% of our annualized rental revenues.

As of June 30, 2023, certain of our Hawaii Properties are lands leased for rents that periodically reset based on fair market values, generally every ten years.

As of September 30, 2023, our Hawaii Properties represented approximately 28.0% of our annualized rental revenues.

As of September 30, 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.

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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 June 30, 2023 scheduled to reset at our Hawaii Properties:

Scheduled Rent Resets at Hawaii Properties

(dollars in thousands)

The following table provides the annualized rental revenues scheduled to reset at our Hawaii Properties as of September 30, 2023:

Rental Revenues

as of June 30, 2023

Scheduled to Reset

7/1/2023-12/31/2023 $ —

Scheduled Rent Reset Year for Hawaii Properties

as of September 30, 2023

2028 and thereafter 17,605

Total $ 21,854

As of June 30, 2023, $22,464, or 5.2%, of our annualized rental revenues are included in leases scheduled to expire by June 30, 2024 and 0.9% of our rentable square feet are currently vacant.

As of September 30, 2023, $28,031, or 6.5%, of our annualized rental revenues are included in leases scheduled to expire by September 30, 2024 and 1.1% of our rentable square feet are currently vacant.

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

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Disposition 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.

As of July 25, 2023, we have entered into agreements to sell three properties containing approximately 762,000 rentable square feet for an aggregate sales price of $65,265, excluding closing costs.

We expect to use the net proceeds from these sales

for the repayment of debt and for general business purposes.

These pending sales are subject to conditions;

accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the terms will not change.

For further information regarding our disposition activities, see Notes 2 and 5 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.

In March 2023, we received gross proceeds of $270 and recognized a $974 net loss on sale of real estate as a result of a property in Everett, Washington partially taken by eminent domain.

As of September 30, 2023, we had three Mainland Properties with an aggregate carrying value of $56,944, classified as held for sale in our condensed consolidated balance sheet.

As of October 25, 2023, one of these properties is under agreement to sell for a sales price of $21,500, excluding closing costs.

This pending sale is subject to conditions;

accordingly, we cannot be sure that we will complete this sale, that this sale will not be delayed or that the terms will not change.

We terminated agreements to sell two of these properties for an aggregate sales price of $43,765 and we continue to market one of these two properties for sale.

For further information regarding our disposition 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 June 30, 2023, Compared to Three Months Ended June 30, 2022 (dollars and share amounts in thousands, except per share data)

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022 (dollars and share amounts in thousands, except per share data)

Comparable Properties Results (1)

1 unchanged sentence

Consolidated Results

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

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

2023 2022 Change Change 2023 2022 Change 2023 2022 Change Change

9 unchanged sentences

General and administrative 7,712 9,110 (1,398) (15.3)%

Loss on impairment of real estate 254 100,747 (100,493) (99.7)%

Acquisition and other transaction related costs — 586 (586) (100.0)%

Total other expenses 51,624 58,215 (6,591) (11.3)%

Interest and other income 1,797 354 1,443 N/M

Interest and other income 2,397 1,068 1,329 124.4%

Interest expense (72,941) (89,739) 16,798 (18.7)%

Loss on sale of real estate — (10) 10 (100.0)%

Loss on equity securities — (9,450) 9,450 (100.0)%

Loss on early extinguishment of debt (359) — (359) N/M

Loss on early extinguishment of debt — (21,370) 21,370 (100.0)%

Loss before income tax expense and equity in earnings of unconsolidated joint venture (36,859) (87,243) 50,384 (57.8)%

5 unchanged sentences

Weighted average common shares outstanding (basic and diluted)

65,488 65,250 238 0.4%

Per common share data (basic and diluted):

Net loss attributable to common shareholders $ (0.40) $ (0.70) $ 0.30 (42.9)%

N/M - not meaningful

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

(2) Consists of four properties, including one property we acquired during the period from April 1, 2022 to June 30, 2023, one property under development and two properties classified as held for sale at June 30, 2023.

(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 June 30, 2023 compared to the three months ended June 30, 2022.

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

(2) Consists of three properties classified as held for sale at September 30, 2023 and one property we acquired during the period from July 1, 2022 to September 30, 2023.

(3) See our definition of net operating income, or 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 September 30, 2023 compared to the three months ended September 30, 2022.

Rental income.

The increase in rental income is primarily a result of our acquisition activities.

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

3 unchanged sentences

Other operating expenses .

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.

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

Depreciation and amortization.

The increase in depreciation and amortization primarily reflects depreciation and amortization of improvements made to certain of our properties since April 1, 2022.

The decrease in depreciation and amortization primarily reflects a decrease in the amortization of leasing costs relating to certain lease expirations since July 1, 2022 and the impact on depreciation expense of certain properties classified as held for sale in the comparable periods, partially offset by an increase in depreciation and amortization related to capital expenditures made since July 1, 2022.

General and administrative.

The decrease in general and administrative expenses is primarily due to a decrease in business management fees.

Loss on impairment of real estate.

During the 2023 period, we recorded $254 on impairment of real estate to reduce the value of one property that was classified as held for sale at June 30, 2023 to its estimated fair value.

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

The decrease in general and administrative expenses is primarily due to decreases in business management fees as a result of a decline in our average market capitalization and in professional fees in the 2023 period.

Acquisition and other transaction related costs.

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

Interest and other income.

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

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

Interest expense.

The decrease in interest expense is due to lower average interest rates and lower average outstanding indebtedness during the 2023 period as compared to the 2022 period.

Loss on sale of real estate.

Loss on sale of real estate during the 2022 period represents a final true up adjustment to the sale of properties during the year ended December 31, 2021.

Loss on equity securities.

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

The decrease in interest expense is due to lower average outstanding indebtedness during the 2023 period as compared to the 2022 period.

Loss on early extinguishment of debt.

Loss on early extinguishment of debt primarily relates to prepayment penalties incurred upon the repayment of four mortgage notes aggregating $35,910 in May 2023.

Loss on early extinguishment of debt primarily relates to the write off of unamortized costs related to the repayment of our $1,385,158 bridge loan facility in September 2022.

Income tax expense.

1 unchanged sentence

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.

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.

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 April 1, 2022.

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.

Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022 (dollars and share amounts in thousands, except per share data)

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

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022 (dollars and share amounts in thousands, except per share data)

Comparable Properties Results (1)

1 unchanged sentence

Consolidated Results

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

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

2023 2022 Change Change 2023 2022 Change 2023 2022 Change Change

9 unchanged sentences

General and administrative 23,750 24,896 (1,146) (4.6)%

Acquisition and other transaction related costs — 586 (586) (100.0)%

Loss on impairment of real estate 254 100,747 (100,493) (99.7)%

Total other expenses 158,282 240,325 (82,043) (34.1)%

Interest and other income 2,943 832 2,111 N/M

Interest and other income 5,340 1,900 3,440 181.1%

Interest expense (215,558) (208,286) (7,272) 3.5%

9 unchanged sentences

Weighted average common shares outstanding (basic and diluted)

65,389 65,228 161 0.2%

Per common share data (basic and diluted):

2 unchanged sentences

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

(2) Consists of 126 properties, including (i) properties we acquired during the period from January 1, 2022 to June 30, 2023, including 94 properties we contributed to our consolidated joint venture in which we own a 61% equity interest and (ii) two properties classified as held for sale at June 30, 2023.

(2) Consists of three properties held for sale as of September 30, 2023 and 125 properties we acquired during the period from January 1, 2022 to September 30, 2023.

(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 six months ended June 30, 2023 compared to the six months ended June 30, 2022.

References to changes in the income and expense categories below relate to the comparison of results for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Rental income.

3 unchanged sentences

Real estate taxes.

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

The increase in real estate taxes primarily reflects our acquisition of MNR.

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 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, during the 2023 period.

The increase in other operating expenses is primarily due to our acquisition of MNR and 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, during the 2023 period.

Depreciation and amortization.

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

The increase in depreciation and amortization primarily reflects the impact of the acquisition of MNR during 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 acquisition activities during the 2022 period, partially offset by a decrease in business management fees as a result of a decline in our average market capitalization in the 2023 period, and an increase in professional fees in the 2023 period.

The decrease in general and administrative expenses is primarily due to decreases in business management fees as a result of a decline in our average market capitalization and a decrease in legal fees, partially offset by an increase in accounting and professional fees in the 2023 period.

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.

Loss on impairment of real estate.

During the 2023 period, we recorded $254 on impairment of real estate to reduce the value of one property that was classified as held for sale at June 30, 2023 to its estimated fair value.

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

During the 2023 period, we recognized a loss on impairment of real estate on one property that was classified as held for sale at September 30, 2023.

During the 2022 period, we recognized a loss on impairment of real estate on 25 properties assumed in the acquisition of MNR.

Interest and other income.

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

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

Interest expense.

The increase in interest expense is primarily due to higher average outstanding indebtedness during the 2023 period as compared to the 2022 period, partially offset by lower average interest rates on the outstanding debt during the 2023 period as compared to the 2022 period.

The increase in interest expense is primarily due to higher average outstanding indebtedness during the 2023 period as compared to the 2022 period, partially offset by lower amortization of debt costs in the 2023 period as compared to the 2022 period.

Loss on sale of real estate.

Loss on sale of real estate was a result of a partial eminent domain taking at one of our properties during the 2023 period and a final true up adjustment to the sale of properties during the year ended December 31, 2021 in the 2022 period.

Loss on sale of real estate was a result of a property in Everett, Washington partially taken by eminent domain during the 2023 period and a final adjustment to the sale of properties during the year ended December 31, 2021 in the 2022 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 during the 2022 period.

Loss on equity securities represents the realized loss on the sale of certain equity securities we acquired as part of the acquisition of MNR during the 2022 period.

Loss on early extinguishment of debt.

Loss on early extinguishment of debt primarily relates to prepayment penalties incurred upon the repayment of four mortgage loans totaling $35,910 in May 2023 and our write off of unamortized costs related to the termination of our unsecured revolving credit facility in February 2022.

Loss on early extinguishment of debt primarily relates to prepayment penalties incurred upon the repayment of four mortgage loans in May 2023, the write off of unamortized costs related to the repayment of our $1,385,158 bridge loan facility in September 2022 and the write off of unamortized costs related to the termination of our unsecured revolving credit facility in February 2022.

Income tax expense.

1 unchanged sentence

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.

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.

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

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

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 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.

We present certain “non-GAAP financial measures” within the meaning of the applicable rules of the Securities and Exchange Commission, or the SEC, including 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.

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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 to NOI for the three and six months ended June 30, 2023 and 2022 (dollars in thousands):

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

The following table presents the reconciliation of net loss to NOI for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):

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

2023 2022 2023 2022

Reconciliation of Net Loss to NOI:

Net loss $ (36,191) $ (83,974) $ (108,317) $ (245,082)

8 unchanged sentences

General and administrative 7,712 9,110 23,750 24,896

Acquisition and other transaction related costs — 586 — 586

Loss on impairment of real estate — — 254 100,747

11 unchanged sentences

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 loss attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three months ended June 30, 2023 and 2022 (dollars in thousands, except per share data):

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

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 September 30, 2023 and 2022 (dollars in thousands, except per share data):

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

2023 2022 2023 2022

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 $ (26,112) $ (45,627) $ (76,749) $ (195,680)

13 unchanged sentences

Weighted average common shares outstanding (basic and diluted)

65,488 65,250 65,389 65,228

Per common share data (basic and diluted):

1 unchanged sentence

Normalized FFO attributable to common shareholders $ 0.12 $ 0.23 $ 0.36 $ 1.09

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

(1) Amounts for the three and nine months ended September 30, 2022 primarily include certain debt issuance costs recognized as interest expense related to the then existing bridge loan facility and other transaction related costs expensed under GAAP.

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

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 June 30, 2023, investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases represented 77.2% of our annualized rental revenues and only 5.2% of our annualized rental revenues were from leases expiring over the next 12 months.

As of September 30, 2023, investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases represented 77.2% of our annualized rental revenues and only 6.5% 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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• maintain the occupancy of, and maintain or increase the rental rates at, our properties;

• control our operating cost increases;

• control our operating cost increases, including interest and other financing costs;

• 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 costs of capital.

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

Six Months Ended June 30,

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:

Nine Months Ended September 30,

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 $ 222,503 $ 126,669

The decrease in net cash provided by operating activities for the three months ended June 30, 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 pursuant to our acquisition of MNR in February 2022.

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

The decrease in net cash provided by financing activities in the 2022 period to 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.

The decrease in net cash provided by operating activities for the nine months ended September 30, 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 pursuant to our acquisition of MNR in February 2022.

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

The decrease in net cash provided by financing activities was primarily due to proceeds from borrowings and sale of joint venture equity interests to finance our acquisition of MNR in the 2022 period.

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

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

As of June 30, 2023, we had cash and cash equivalents of $71,695.

As of September 30, 2023, we had cash and cash equivalents, excluding restricted cash, of $83,283.

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.

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 June 30, 2023 was 6.18%.

The weighted average interest rate payable under the ILPT Floating Rate Loan was 6.18% for both the three and six months ended June 30, 2023.

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%.

The interest rate payable on the Floating Rate Loan as of June 30, 2023 was 6.17%.

The weighted average annual interest rate payable under the Floating Rate Loan was 6.17% for the three and six months ended June 30, 2023.

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 plus a weighted average premium of 3.93%.

The weighted average interest rate payable under the ILPT Floating Rate Loan was 6.18%, including the impact of our interest rate cap on SOFR of 2.25%, for both the three and nine months ended September 30, 2023.

Beginning in October 2023, subject to the satisfaction of certain conditions, we have the option to prepay the ILPT Floating Rate Loan in full or in part at any time at par with no premium.

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%.

The weighted average annual interest rate payable under the Floating Rate Loan was 6.17%, including the impact of our interest rate cap on SOFR of 3.40%, for both the three and nine months ended September 30, 2023.

The weighted average annual interest rate payable 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.

Subject to the satisfaction of certain conditions, we have the option to prepay up to $280,000 of the Floating Rate Loan at par with no premium, and to prepay the balance of the Floating Rate Loan at any time, subject to a premium.

The one year options to extend the Floating Rate Loan and the ILPT Floating Rate Loan require, among other things, that we obtain a replacement interest rate cap, as defined in the applicable agreement.

In May 2023, our consolidated joint venture obtained a $91,000 fixed rate, interest only mortgage loan secured by four properties owned by our consolidated joint venture.

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A portion of the net proceeds from this mortgage loan was used to repay four outstanding mortgage loans of our consolidated joint venture with an aggregate outstanding principal balance of $35,910 and a weighted average interest rate of 3.70%.

As of June 30, 2023, we had an aggregate principal amount of $4,334,755 of debt, including the Floating Rate Loan and the ILPT Floating Rate Loan, scheduled to mature between 2024 and 2038.

As of September 30, 2023, we had an aggregate principal amount of $4,330,370 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 Mountain Industrial REIT LLC, or our consolidated joint venture.

Consolidated Joint Venture

We own a 61% equity interest in Mountain Industrial REIT LLC, which owns 94 properties in 27 states totaling approximately 20,981,000 rentable square feet.

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 June 30, 2023 and 2022, for the six months ended June 30, 2023 and the period from this joint venture’s formation date, February 25, 2022 to June 30, 2022.

The portion of this joint venture's net loss not attributable to us, or $10,676 and $7,781, for the three months ended June 30, 2023 and 2022, respectively, and $21,404 and $11,042 for the six months ended June 30, 2023 and the period from this joint venture’s formation date, February 25, 2022 to June 30, 2022, respectively, is reported as net loss attributable to noncontrolling interest in our condensed consolidated statements of comprehensive income (loss).

As of June 30, 2023, our consolidated joint venture had total assets of $3,092,534 and total liabilities of $1,775,802.

Unconsolidated Joint Venture - The Industrial Fund REIT LLC:

We own a 22% equity interest in The Industrial Fund REIT LLC, or the unconsolidated joint venture.

We recognized a 39% noncontrolling interest in our condensed consolidated financial statements for the three months ended September 30, 2023 and 2022, for the nine months ended September 30, 2023 and the period from this joint venture’s formation date, February 25, 2022 to September 30, 2022.

The portion of this joint venture's net loss not attributable to us, or $10,238 and $38,318, for the three months ended September 30, 2023 and 2022, respectively, and $31,642 and $49,360 for the nine months ended September 30, 2023 and for the period from February 25, 2022 to September 30, 2022, respectively, is reported as net loss attributable to noncontrolling interest in our condensed consolidated statements of comprehensive income (loss).

As of September 30, 2023, our consolidated joint venture had total assets of $3,065,834 and total liabilities of $1,781,222.

Unconsolidated Joint Venture

We own a 22% equity interest in The Industrial Fund REIT LLC, which owns 18 industrial properties located in 12 states totaling approximately 11,726,000 rentable square feet.

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 $2,743 and $1,610 for the three months ended June 30, 2023 and 2022, respectively, and $6,704 and $3,337 for the six months ended June 30, 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 $1,322 during the three months ended June 30, 2023 and 2022, respectively, and $1,980 and $2,642 for the six months ended June 30, 2023 and 2022, respectively.

For further information regarding these joint ventures, see Notes 2, 4, 5, 7, 8 and 9 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 recognize changes in the fair value of our investment in the unconsolidated joint venture 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 $5,390 and $1,320 during the three months ended September 30, 2023 and 2022, respectively, and $7,370 and $3,962 for the nine months ended September 30, 2023 and 2022, respectively.

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

We may also assume mortgage loans or incur debt in connection with future acquisitions, developments and redevelopments.

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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 six months ended June 30, 2023, we paid quarterly cash distributions to our shareholders totaling $1,312 using cash balances.

On July 13, 2023, we declared a regular quarterly distribution to common shareholders of record on July 24, 2023 of $0.01 per share, or approximately $657.

We expect to pay this distribution to our shareholders on or about August 17, 2023 using cash balances.

During the nine months ended September 30, 2023, we paid quarterly cash distributions to our shareholders totaling $1,968 using cash balances.

On October 12, 2023, we declared a regular quarterly distribution to common shareholders of record on October 23, 2023 of $0.01 per share, or approximately $658.

We expect to pay this distribution to our shareholders on or about November 16, 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 and six months ended June 30, 2023 and 2022, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows:

Three Months Ended Six Months Ended

June 30, June 30,

During the three and nine months ended September 30, 2023 and 2022, 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,

2023 2022 2023 2022

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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 June 30, 2023, we had estimated unspent leasing related obligations of $23,876, of which $6,481 is expected to be spent during the next 12 months.

As of September 30, 2023, we had estimated unspent leasing related obligations of $5,923, of which $3,529 is expected to be spent during the next 12 months.

Debt Covenants (dollars in thousands)

Our principal debt obligations as of June 30, 2023 were:

Our principal debt obligations as of September 30, 2023 were:

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

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(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;

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

and (5) $345,370 aggregate principal amount of mortgage loans secured by 12 properties owned by our consolidated joint venture in which we own a 61% equity interest.

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The agreements and related documents governing the ILPT Floating Rate Loan, the 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 June 30, 2023, we believe that we were in compliance with all of the covenants and other terms under the agreements governing these loans.

As of September 30, 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.

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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