Industrial Logistics Properties Trust 10-Q

Item 1. Financial Statements INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) (unaudited) September 30, December 31, 2023 2022 ASSETS Real estate properties: Land $ 1,110,279 $ 1,117,779 Buildings and improvements 4,017,355 4,058,329 Total real estate properties, gross 5,127,634 5,176,108 Accumulated depreciation ( 361,814 ) ( 273,467 ) Total real estate properties, net 4,765,820 4,902,641 Assets of properties held for sale 57,606 — Investment in unconsolidated joint venture 124,411 124,358 Acquired real estate leases, net 254,968 297,445 Cash and cash equivalents 83,283 48,261 Restricted cash 139,220 92,519 Rents receivable, including straight line rents of $ 91,218 and $ 80,710 , respectively 113,665 107,011 Other assets, net 95,342 103,931 Total assets $ 5,634,315 $ 5,676,166 LIABILITIES AND EQUITY Mortgages and notes payable, net $ 4,303,631 $ 4,244,501 Liabilities of properties held for sale 1,156 — Accounts payable and other liabilities 86,028 73,547 Assumed real estate lease obligations, net 19,466 22,523 Due to related persons 5,896 4,824 Total liabilities 4,416,177 4,345,395 Commitments and contingencies Equity: Equity attributable to common shareholders: Common shares of beneficial interest, $ .01 par value: 100,000,000 shares authorized; 65,845,073 and 65,568,145 shares issued and outstanding, respectively 658 656 Additional paid in capital 1,015,468 1,014,201 Cumulative net income 40,436 117,185 Cumulative other comprehensive income 22,142 21,903 Cumulative common distributions ( 365,189 ) ( 363,221 ) Total equity attributable to common shareholders 713,515 790,724 Noncontrolling interest 504,623 540,047 Total equity 1,218,138 1,330,771 Total liabilities and equity $ 5,634,315 $ 5,676,166 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (amounts in thousands, except per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Rental income $ 110,142 $ 103,215 $ 328,443 $ 281,812 Expenses: Real estate taxes 14,926 13,749 46,493 36,460 Other operating expenses 9,907 8,453 27,744 22,278 Depreciation and amortization 43,912 48,519 134,278 114,096 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 Total expenses 76,457 80,417 232,519 299,063 Interest and other income 2,397 1,068 5,340 1,900 Interest expense (including net amortization of debt issuance costs, premiums and discounts of $ 6,743 , $ 35,496 , $ 20,177 , and $ 90,265 , respectively) ( 72,941 ) ( 89,739 ) ( 215,558 ) ( 208,286 ) Loss on sale of real estate — — ( 974 ) ( 10 ) Loss on equity securities — — — ( 5,758 ) Loss on early extinguishment of debt — ( 21,370 ) ( 359 ) ( 22,198 ) Loss before income tax expense and equity in earnings of unconsolidated joint venture ( 36,859 ) ( 87,243 ) ( 115,627 ) ( 251,603 ) Income tax expense ( 51 ) ( 28 ) ( 113 ) ( 113 ) Equity in earnings of unconsolidated joint venture 719 3,297 7,423 6,634 Net loss ( 36,191 ) ( 83,974 ) ( 108,317 ) ( 245,082 ) Net loss attributable to noncontrolling interest 10,079 38,347 31,568 49,402 Net loss attributable to common shareholders ( 26,112 ) ( 45,627 ) ( 76,749 ) ( 195,680 ) Other comprehensive income: Unrealized (loss) gain on derivatives ( 6,635 ) 8,847 ( 3,392 ) 18,917 Less: unrealized loss (gain) on derivatives attributable to noncontrolling interest 2,290 ( 4,119 ) 3,631 ( 6,617 ) Other comprehensive (loss) income attributable to common shareholders ( 4,345 ) 4,728 239 12,300 Comprehensive loss attributable to common shareholders $ ( 30,457 ) $ ( 40,899 ) $ ( 76,510 ) $ ( 183,380 ) Weighted average common shares outstanding (basic and diluted) 65,488 65,250 65,389 65,228 Per common share data (basic and diluted): Net loss attributable to common shareholders $ ( 0.40 ) $ ( 0.70 ) $ ( 1.17 ) $ ( 3.00 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollars in thousands) (unaudited) Cumulative Total Equity Number of Additional Other Cumulative Attributable to Common Common Paid In Cumulative Comprehensive Common Common Noncontrolling Total Shares Shares Capital Net Income Income Distributions Shareholders Interest Equity Balance at December 31, 2022 65,568,145 $ 656 $ 1,014,201 $ 117,185 $ 21,903 $ ( 363,221 ) $ 790,724 $ 540,047 $ 1,330,771 Net loss — — — ( 24,809 ) — — ( 24,809 ) ( 10,737 ) ( 35,546 ) Share grants, repurchases and forfeitures ( 2,176 ) — 384 — — — 384 — 384 Distributions to common shareholders — — — — — ( 656 ) ( 656 ) — ( 656 ) Other comprehensive loss — — — — ( 7,018 ) — ( 7,018 ) ( 1,760 ) ( 8,778 ) Balance at March 31, 2023 65,565,969 656 1,014,585 92,376 14,885 ( 363,877 ) 758,625 527,550 1,286,175 Net loss — — — ( 25,828 ) — — ( 25,828 ) ( 10,752 ) ( 36,580 ) Share grants, repurchases and forfeitures 131,990 1 553 — — — 554 — 554 Distributions to common shareholders — — — — — ( 656 ) ( 656 ) — ( 656 ) Other comprehensive income — — — — 11,602 — 11,602 419 12,021 Distributions to noncontrolling interest — — — — — — — ( 225 ) ( 225 ) Balance at June 30, 2023 65,697,959 657 1,015,138 66,548 26,487 ( 364,533 ) 744,297 516,992 1,261,289 Net loss — — — ( 26,112 ) — — ( 26,112 ) ( 10,079 ) ( 36,191 ) Share grants, repurchases and forfeitures 147,114 1 330 — — — 331 — 331 Distributions to common shareholders — — — — — ( 656 ) ( 656 ) — ( 656 ) Other comprehensive loss — — — — ( 4,345 ) — ( 4,345 ) ( 2,290 ) ( 6,635 ) Balance at September 30, 2023 65,845,073 $ 658 $ 1,015,468 $ 40,436 $ 22,142 $ ( 365,189 ) $ 713,515 $ 504,623 $ 1,218,138 5 Table of Contents Cumulative Total Equity Number of Additional Other Cumulative Attributable to Common Common Paid In Cumulative Comprehensive Common Common Noncontrolling Total Shares Shares Capital Net Income Income Distributions Shareholders Interest Equity Balance at December 31, 2021 65,404,592 $ 654 $ 1,012,224 $ 343,908 $ — $ ( 318,744 ) $ 1,038,042 $ — $ 1,038,042 Net loss — — — ( 6,514 ) — — ( 6,514 ) ( 3,273 ) ( 9,787 ) Share grants, repurchases and forfeitures ( 733 ) — 398 — — — 398 — 398 Other comprehensive income — — — — 3,908 — 3,908 1,724 5,632 Contributions from noncontrolling interest — — — — — — — 591,268 591,268 Distributions to common shareholders — — — — — ( 21,584 ) ( 21,584 ) — ( 21,584 ) Balance at March 31, 2022 65,403,859 654 1,012,622 337,394 3,908 ( 340,328 ) 1,014,250 589,719 1,603,969 Net loss — — — ( 143,539 ) — — ( 143,539 ) ( 7,782 ) ( 151,321 ) Share grants, repurchases and forfeitures 23,600 — 796 — — — 796 — 796 Other comprehensive income — — — — 3,664 — 3,664 774 4,438 Distributions to noncontrolling interest — — — — — — — ( 1,365 ) ( 1,365 ) Distributions to common shareholders — — — — — ( 21,583 ) ( 21,583 ) — ( 21,583 ) Balance at June 30, 2022 65,427,459 654 1,013,418 193,855 7,572 ( 361,911 ) 853,588 581,346 1,434,934 Net loss — — — ( 45,627 ) — — ( 45,627 ) ( 38,347 ) ( 83,974 ) Share grants, repurchases and forfeitures 141,245 2 384 — — — 386 — 386 Other comprehensive income — — — — 4,728 — 4,728 4,119 8,847 Contributions from noncontrolling interest — — — — — — — 1,971 1,971 Distributions to common shareholders — — — — — ( 654 ) ( 654 ) — ( 654 ) Balance at September 30, 2022 65,568,704 $ 656 $ 1,013,802 $ 148,228 $ 12,300 $ ( 362,565 ) $ 812,421 $ 549,089 $ 1,361,510 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Nine Months Ended September 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 108,317 ) $ ( 245,082 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 93,545 75,014 Loss on impairment of real estate 254 100,747 Net amortization of debt issuance costs, premiums and discounts 20,177 90,265 Amortization of acquired real estate leases and assumed real estate lease obligations 38,275 33,680 Amortization of deferred leasing costs 1,723 1,170 Loss on equity securities — 5,758 Straight line rental income ( 10,531 ) ( 8,170 ) Loss on early extinguishment of debt 359 22,198 Loss on sale of real estate 974 10 Proceeds from settlement of derivatives ( 40,426 ) — Other non-cash expenses 19,865 4,443 Distributions of earnings from unconsolidated joint venture 2,970 3,962 Equity in earnings of unconsolidated joint venture ( 7,423 ) ( 6,634 ) Change in assets and liabilities: Rents receivable 3,260 ( 16,299 ) Other assets ( 11,459 ) 3,615 Accounts payable and other liabilities 9,745 14,921 Due to related persons 1,072 2,309 Net cash provided by operating activities 14,063 81,907 CASH FLOWS FROM INVESTING ACTIVITIES: Real estate acquisitions — ( 3,589,085 ) Real estate improvements ( 13,649 ) ( 8,741 ) Proceeds from sale of marketable securities — 140,792 Proceeds from sale of real estate 243 — Proceeds from settlement of derivatives 40,426 — Distributions in excess of earnings from unconsolidated joint venture 4,400 — Net cash provided by (used in) investing activities 31,420 ( 3,457,034 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of mortgage notes payable 91,000 3,335,000 Repayment of mortgage notes payable ( 50,993 ) ( 12,591 ) Proceeds from secured bridge loan facility — 1,385,158 Repayment of secured bridge loan facility — ( 1,385,158 ) Borrowings under revolving credit facility — 3,000 Repayments of revolving credit facility — ( 185,000 ) Payment of debt issuance costs ( 1,414 ) ( 211,996 ) Distributions to common shareholders ( 1,968 ) ( 43,821 ) Proceeds from sale of noncontrolling interest, net — 589,411 Repurchase of common shares ( 160 ) ( 239 ) Distributions to noncontrolling interest ( 225 ) ( 1,365 ) Net cash provided by financing activities 36,240 3,472,399 Increase in cash, cash equivalents and restricted cash 81,723 97,272 Cash, cash equivalents and restricted cash at beginning of period 140,780 29,397 Cash, cash equivalents and restricted cash at end of period $ 222,503 $ 126,669 7 Table of Contents SUPPLEMENTAL DISCLOSURES: Interest paid $ 218,369 $ 113,748 Income taxes paid $ 85 $ 223 Interest capitalized $ 545 $ 68 NON-CASH INVESTING ACTIVITIES: Real estate acquired by assumption of mortgage notes payable $ — $ 323,432 Real estate improvements accrued not paid $ 2,810 $ 7,165 NON-CASH FINANCING ACTIVITIES: Assumption of mortgage notes payable $ — $ ( 323,432 ) SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH: The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows: As of September 30, 2023 2022 Cash and cash equivalents $ 83,283 $ 26,381 Restricted cash (1) 139,220 100,288 Total cash, cash equivalents and restricted cash shown in the statements of cash flows $ 222,503 $ 126,669 (1) Restricted cash consists of amounts escrowed for capital expenditures at certain of our mortgaged properties and cash held for the operations of our consolidated joint venture. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Note 1. Basis of Presentation The accompanying condensed consolidated financial statements of Industrial Logistics Properties Trust and its consolidated subsidiaries, or the Company, ILPT, we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2022, or our 2022 Annual Report. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets, and assessment of impairment of real estate and related intangibles. Note 2. Real Estate Investments As of September 30, 2023, our portfolio was comprised of 413 consolidated properties containing approximately 59,983,000 rentable square feet, including 226 buildings, leasable land parcels and easements containing approximately 16,729,000 rentable square feet of primarily industrial lands located on the island of Oahu, Hawaii, or our Hawaii Properties, and 187 industrial properties containing approximately 43,254,000 rentable square feet located in 38 other states, or our Mainland Properties, which included 94 properties in 27 states totaling approximately 20,981,000 rentable square feet, owned by a consolidated joint venture in which we own a 61 % equity interest. As of September 30, 2023, we also owned a 22 % equity interest in an unconsolidated joint venture which owns 18 industrial properties located in 12 states totaling approximately 11,726,000 rentable square feet. We operate in one business segment: ownership and leasing of properties that include industrial and logistics buildings and leased industrial lands. We incurred capital expenditures and leasing costs at certain of our properties of $ 5,275 and $ 8,574 during the three months ended September 30, 2023 and 2022, respectively, and $ 17,857 and $ 22,419 for the nine months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 2023, we committed $ 7,273 for expenditures related to tenant improvements and leasing costs for leases executed during the period for approximately 3,868,000 rentable square feet. Committed, but unspent, tenant related obligations based on existing leases as of September 30, 2023 were $ 5,923 , of which $ 3,529 is expected to be spent during the next 12 months. Impairment We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of long lived assets. Impairment indicators may include declining tenant occupancy, lack of progress leasing vacant space, tenant bankruptcies, low long term prospects for improvement in property performance, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an asset before the end of its estimated useful life and legislative, market or industry changes that could permanently reduce the value of a property. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. The future net undiscounted cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. If the carrying value exceeds the projected undiscounted cash flows, we determine the amount of any impairment loss by comparing the historical carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. In addition to consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining useful lives of our long lived assets. If we change our estimate of the remaining useful lives, we allocate the carrying value of the affected assets over their revised remaining useful lives. 9 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) During the nine months ended September 30, 2023, we recognized a loss on impairment of real estate of $ 254 to reduce the carrying value of a property that was classified as held for sale at September 30, 2023 to its estimated sales price less costs to sell. During the nine months ended September 30, 2022, we recognized a $ 100,747 loss on impairment for 25 properties we acquired as part of our acquisition of Monmouth Real Estate Investment Corporation, or MNR, on February 25, 2022, to adjust the carrying value of these properties to their estimated fair value. Disposition Activities 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. Consolidated Joint Venture We own a 61 % equity interest in Mountain Industrial REIT LLC, or Mountain JV, or our consolidated joint venture, 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 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 . Consolidated Tenancy in Common An unrelated third party owns an approximate 33 % tenancy in common interest in one property located in Somerset, New Jersey with approximately 64,000 rentable square feet, and we own the remaining 67 % tenancy in common interest in this property. The portion of this property’s net income (loss) not attributable to us, or $ 159 and ($ 29 ), for the three months ended September 30, 2023 and 2022, respectively, and $ 74 and ($ 42 ) for the nine months ended September 30, 2023 and the period from the date we acquired our interest in this property, 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). During the nine months ended September 30, 2023, this tenancy in common made cash distributions of $ 225 to the unrelated third party investor, which is reflected as a decrease in noncontrolling interest in our condensed consolidated balance sheet. Unconsolidated Joint Venture We own a 22 % equity interest in The Industrial Fund REIT LLC, or the unconsolidated joint venture, 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 recognize changes in the fair value of our investment in the unconsolidated joint venture as equity in earnings of the unconsolidated joint venture in our condensed consolidated statements of comprehensive income (loss). 10 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Note 3. Leases We are a lessor of industrial and logistics properties. Our leases provide our tenants with the contractual right to use and economically benefit from all the physical space specified in their respective leases; therefore, we have determined to evaluate our leases as lease arrangements. We recognize rental income from operating leases on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. We increased rental income by $ 3,414 and $ 3,794 to record revenue on a straight line basis during the three months ended September 30, 2023 and 2022, respectively, and $ 10,531 and $ 8,170 for the nine months ended September 30, 2023 and 2022, respectively. We do not include in our measurement of our lease receivables certain variable payments, including payments determined by changes in the index or market-based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. Such payments totaled $ 19,310 and $ 16,664 for the three months ended September 30, 2023 and 2022, respectively, and $ 58,700 and $ 46,071 for the nine months ended September 30, 2023 and 2022, respectively. Generally, payments of ground lease obligations are made by our tenants. However, if a tenant does not perform obligations under a ground lease or does not renew any ground lease, we may have to perform obligations under, or renew, the ground lease in order to protect our investment in the affected property. 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. Right of Use Assets and Lease Liabilities We are the lessee for three of our properties subject to ground leases and one office property that we assumed as part of our acquisition of MNR. For leases with a term greater than 12 months under which we are the lessee, we are required to record a right of use asset and lease liability. The values of our right of use assets and related lease liabilities were $ 4,757 and $ 4,837 , respectively, as of September 30, 2023, and $ 5,084 and $ 5,149 , respectively, as of December 31, 2022. Our right of use assets and related lease liabilities are included in other assets, net and accounts payable and other liabilities, respectively, in our condensed consolidated balance sheets. We sublease a portion of our office property assumed in the acquisition of MNR. Rent expense incurred under this lease, net of sublease revenue, was $ 12 and $ 176 for three months ended September 30, 2023 and 2022, respectively, and $ 141 and $ 355 for the nine months ended September 30, 2023 and the period from February 25, 2022 to September 30, 2022, respectively. Rent expense is included in general and administrative expense in our condensed consolidated statements of comprehensive income (loss). Tenant Concentration Subsidiaries of FedEx Corporation and Amazon.com Services, Inc. were responsible for approximately 29.8 % and 6.7 % of our annualized rental revenues as of September 30, 2023, respectively, and 29.6 % and 6.8 % as of September 30, 2022, respectively. Geographic Concentration For the three months ended September 30, 2023 and 2022, approximately 28.1 % and 26.8 %, respectively, of our rental income was from our Hawaii Properties. For the nine months ended September 30, 2023 and 2022, approximately 27.9 % and 30.6 %, respectively, of our rental income was from our Hawaii Properties. 11 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Note 4. Indebtedness As of September 30, 2023 and December 31, 2022, our outstanding indebtedness consisted of the following: Number of Principal Balance at Carrying Value of Collateral at Properties September 30, December 31, Interest September 30, December 31, Entity Secured By 2023 2022 Rate (1) Type Maturity 2023 2022 ILPT 104 $ 1,235,000 $ 1,235,000 6.18 % Floating 10/9/2024 $ 1,049,983 $ 1,071,815 ILPT 186 650,000 650,000 4.31 % Fixed 2/7/2029 489,901 490,416 ILPT 17 700,000 700,000 4.42 % Fixed 3/9/2032 508,383 518,806 Mountain JV 82 1,400,000 1,400,000 6.17 % Floating 3/9/2024 1,870,541 1,909,185 Mountain JV 4 91,000 — 6.25 % Fixed 6/10/2030 184,375 — Mountain JV 1 11,712 12,691 3.67 % Fixed 5/1/2031 29,094 30,800 Mountain JV 1 13,228 14,144 4.14 % Fixed 7/1/2032 43,826 44,777 Mountain JV 1 29,213 30,949 4.02 % Fixed 10/1/2033 85,380 87,143 Mountain JV 1 40,832 43,219 4.13 % Fixed 11/1/2033 130,197 131,539 Mountain JV 1 24,873 26,175 3.10 % Fixed 6/1/2035 46,725 47,718 Mountain JV 1 40,087 42,087 2.95 % Fixed 1/1/2036 99,805 101,896 Mountain JV 1 44,423 46,109 4.27 % Fixed 11/1/2037 110,881 113,063 Mountain JV 1 50,002 52,031 3.25 % Fixed 1/1/2038 114,259 116,607 Mountain JV 1 — 13,556 N/A Fixed 10/1/2028 — 63,314 Mountain JV 1 — 4,865 N/A Fixed 4/1/2030 — 39,724 Mountain JV 1 — 5,145 N/A Fixed 4/1/2030 — 39,724 Mountain JV 1 — 14,392 N/A Fixed 9/1/2030 — 50,825 Total / weighted average 4,330,370 4,290,363 5.47 % $ 4,763,350 $ 4,857,352 Unamortized debt issuance costs ( 26,739 ) ( 45,862 ) Total indebtedness, net $ 4,303,631 $ 4,244,501 (1) Interest rates are as of September 30, 2023 and reflect the impact of interest rate caps, if any, and exclude the impact of the amortization of debt issuance costs, premiums and discounts. Our $ 1,235,000 loan, or 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 secured overnight financing rate, or 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. Our $ 1,400,000 loan, or 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. See Note 9 for more information regarding our interest rate caps. 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. This mortgage loan matures in June 2030 and requires that interest be paid at an annual rate of 6.25 %. 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 %. We recognized a loss on early extinguishment of debt of $ 359 for the nine months ended September 30, 2023 in conjunction with the repayment of these mortgage loans. 12 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) The agreements governing certain of our indebtedness contain customary covenants and provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default. Note 5. Fair Value of Assets and Liabilities Our financial instruments include cash and cash equivalents, restricted cash, mortgages and notes payables, accounts payable and interest rate caps. At September 30, 2023 and December 31, 2022, the fair value of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or floating interest rates, except as follows: At September 30, 2023 At December 31, 2022 Carrying Carrying Value (1) Fair Value Value (1) Fair Value Fixed rate loan, 4.31 % interest rate, due in 2029 $ 647,077 $ 613,520 $ 646,669 $ 592,295 Fixed rate loan, 6.25 % interest rate, due in 2030 90,038 94,438 — — Fixed rate loan, 3.67 % interest rate, due in 2031 11,712 11,009 12,691 11,713 Fixed rate loan, 4.42 % interest rate, due in 2032 695,134 609,714 694,704 623,133 Fixed rate loan, 4.14 % interest rate, due in 2032 13,228 12,611 14,144 13,182 Fixed rate loan, 4.02 % interest rate, due in 2033 29,213 27,185 30,949 28,195 Fixed rate loan, 4.13 % interest rate, due in 2033 40,832 38,181 43,219 39,573 Fixed rate loan, 3.10 % interest rate, due in 2035 24,873 21,837 26,175 22,373 Fixed rate loan, 2.95 % interest rate, due in 2036 40,087 34,723 42,087 35,444 Fixed rate loan, 4.27 % interest rate, due in 2037 44,423 41,466 46,109 41,880 Fixed rate loan, 3.25 % interest rate, due in 2038 50,001 43,463 52,031 43,878 Fixed rate loan, 3.76 % interest rate, due in 2028 (2) — — 13,556 12,784 Fixed rate loan, 3.77 % interest rate, due in 2030 (2) — — 4,865 4,553 Fixed rate loan, 3.85 % interest rate, due in 2030 (2) — — 5,145 4,829 Fixed rate loan, 3.56 % interest rate, due in 2030 (2) — — 14,392 13,315 $ 1,686,618 $ 1,548,147 $ 1,646,736 $ 1,487,147 (1) Includes unamortized debt issuance costs, premiums and discounts of $ 8,751 and $ 8,628 at September 30, 2023 and December 31, 2022, respectively. (2) This loan was repaid in May 2023. We estimate the fair value of our mortgage notes payable using significant unobservable inputs (Level 3), such as discounted cash flow analyses and prevailing market rates as of the measurement date. 13 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) The table below presents certain of our assets measured on a recurring and non-recurring basis at fair value at September 30, 2023 and December 31, 2022, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset: Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) At September 30, 2023 Recurring fair value measurements Investment in unconsolidated joint venture $ 124,411 $ — $ — $ 124,411 Interest rate cap derivatives (1) $ 51,322 $ — $ 51,322 $ — Non-recurring fair value measurements Real estate properties (2) $ 1,414 $ — $ — $ 1,414 At December 31, 2022 Recurring fair value measurements Investment in unconsolidated joint venture $ 124,358 $ — $ — $ 124,358 Interest rate cap derivatives (1) $ 73,133 $ — $ 73,133 $ — Non-recurring fair value measurements Real estate properties (2) $ 555,123 $ — $ — $ 555,123 (1) The estimated fair values of our interest rate cap derivatives are based on then current market prices in secondary markets for similar derivative contracts. (2) At September 30, 2023 and December 31, 2022, we reduced the carrying value of one property and 25 properties, respectively, to their estimated fair value based on third party offers. See Note 2 for more information. At September 30, 2023 and December 31, 2022, the fair value of our investment in the unconsolidated joint venture was determined by discounting expected future cash flows based on prevailing market rents over a holding period and including an exit capitalization rate to determine the final year of cash flows. The discount rates, exit capitalization rates and holding periods used are Level 3 significant unobservable inputs and are shown in the table below: Exit Capitalization Valuation Technique Discount Rates Rates Holding Periods At September 30, 2023 Investment in unconsolidated joint venture Discounted cash flow 5.25 % - 7.00 % 4.95 % - 6.00 % 10 - 12 years At December 31, 2022 Investment in unconsolidated joint venture Discounted cash flow 5.25 % - 7.00 % 4.75 % - 6.00 % 10 years The table below presents a summary of the changes in fair value for our investment in the unconsolidated joint venture: Three Months Nine Months Ended September 30, Ended September 30, 2023 2022 2023 2022 Beginning balance $ 129,082 $ 143,716 $ 124,358 $ 143,021 Equity in earnings of unconsolidated joint venture 719 3,297 7,423 6,634 Distributions from unconsolidated joint venture ( 5,390 ) ( 1,320 ) ( 7,370 ) ( 3,962 ) Ending balance $ 124,411 $ 145,693 $ 124,411 $ 145,693 14 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Note 6. Shareholders’ Equity Common Share Awards On June 1, 2023, in accordance with our Trustee compensation arrangements, we awarded to each of our seven Trustees 20,000 of our common shares, valued at $ 1.78 per share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day. On September 13, 2023, we awarded under our equity compensation plan an aggregate of 188,350 of our common shares, valued at $ 3.63 per share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of The RMR Group LLC, or RMR. Common Share Purchases During the three and nine months ended September 30, 2023, we purchased an aggregate of 40,636 and 48,722 of our common shares, respectively, valued at a weighted average price of $ 3.54 and $ 3.29 per common share, respectively, from our officers and certain other current and former employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares. Distributions During the nine months ended September 30, 2023, we declared and paid regular quarterly distributions to common shareholders as follows: Declaration Date Record Date Payment Date Distribution Per Share Total Distribution January 12, 2023 January 23, 2023 February 16, 2023 $ 0.01 $ 656 April 13, 2023 April 24, 2023 May 18, 2023 0.01 656 July 13, 2023 July 24, 2023 August 17, 2023 0.01 656 $ 0.03 $ 1,968 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. Note 7. Business and Property Management Agreements with RMR We have no employees. The personnel and various services we require to operate our business are provided to us by RMR. We have two agreements with RMR to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to our property level operations. Pursuant to our business management agreement with RMR, we recognized net business management fees of $ 5,919 and $ 17,301 for the three and nine months ended September 30, 2023, respectively, and $ 6,465 and $ 17,821 for the three and nine months ended September 30, 2022, respectively. Based on our common share total return, as defined in our business management agreement, as of September 30, 2023 and 2022, no incentive fees are included in the net business management fees we recognized for the three and nine months ended September 30, 2023 or 2022. The actual amount of annual incentive fees for 2023, if any, will be based on our common share total return, as defined in our business management agreement, for the three-year period ending December 31, 2023, and will be payable in January 2024. We did no t incur any incentive fee payable to RMR for the year ended December 31, 2022. We include business management fees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss). 15 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Pursuant to our property management agreement with RMR, we recognized aggregate property management and construction supervision fees of $ 3,464 and $ 10,286 for the three and nine months ended September 30, 2023, respectively, and $ 3,270 and $ 8,797 for the three and nine months ended September 30, 2022, respectively. Of these amounts, for the three and nine months ended September 30, 2023, $ 3,293 and $ 9,745 , respectively, were included in other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 171 and $ 541 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets. For the three and nine months ended September 30, 2022, $ 2,976 and $ 8,104 , respectively, were included in other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 294 and $ 693 , respectively, were capitalized as buildings and improvements in our condensed consolidated balance sheets. The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets. We are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR on our behalf. We are generally not responsible for payment of RMR’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR’s centralized accounting personnel, our share of RMR’s costs for providing our internal audit function, or as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR. We reimbursed RMR $ 2,375 and $ 6,216 for these expenses and costs for the three and nine months ended September 30, 2023, respectively, and $ 1,847 and $ 5,155 for the three and nine months ended September 30, 2022, respectively. These amounts are included in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income (loss). Management Agreements Between Our Joint Ventures and RMR. We have two separate joint venture arrangements, our consolidated joint venture and the unconsolidated joint venture. RMR provides management services to both of these joint ventures. We are not obligated to pay management fees to RMR under our management agreements with RMR for the services it provides to the unconsolidated joint venture. We are obligated to pay management fees to RMR under our management agreements with RMR for the services it provides to our consolidated joint venture; however, that joint venture pays management fees directly to RMR, and any such fees paid by our consolidated joint venture are credited against the fees payable by us to RMR. See Note 2 for further information about our joint ventures. See Note 8 for further information regarding our relationships, agreements and transactions with RMR. Note 8. Related Person Transactions We have relationships and historical and continuing transactions with RMR, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam D. Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., the chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR. Matthew P. Jordan, our other Managing Trustee, is an executive vice president and the chief financial officer and treasurer of RMR Inc., an officer and employee of RMR and an officer of ABP Trust. John G. Murray, one of our Managing Trustees until June 1, 2022 and our President and Chief Executive Officer until March 31, 2022, also serves as an officer and employee of RMR, and each of our current officers is also an officer and employee of RMR. Some of our Independent Trustees also serve as independent trustees of other public companies to which RMR or its subsidiaries provide management services. Adam D. Portnoy serves as chair of the boards and as a managing trustee of those companies. Other officers of RMR, including Messrs. Jordan and Murray and certain of our officers, serve as managing trustees or officers of certain of these companies. See Note 6 for information relating to the awards of our common shares we made in September 2023 to our officers and certain other employees of RMR and common shares we purchased from our officers and certain other current and former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares. We include amounts recognized as expense for awards of our common shares to our officers and RMR employees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss). 16 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Our Manager, RMR . We have two agreements with RMR to provide management services to us. See Note 7 for further information regarding our management agreements with RMR. Joint Ventures. We have two separate joint venture arrangements. RMR provides management services to each of these joint ventures. As of September 30, 2023 and December 31, 2022, we owed $ 613 and $ 616 , respectively, to the unconsolidated joint venture for rents that we collected on behalf of that joint venture. These amounts are presented as due to related persons in our condensed consolidated balance sheets. We paid these amounts in October 2023 and January 2023, respectively. See Notes 2 and 7 for further information regarding our joint ventures and RMR’s management agreements with our joint ventures. For further information about these and other such relationships and certain other related person transactions, see our 2022 Annual Report. Note 9. Derivatives and Hedging Activities Risk Management Objective of Using Derivatives We are exposed to certain risks relating to our ongoing business operations, including the impact of changes in interest rates. The only risk currently managed by us using derivative instruments is our interest rate risk. We have an interest rate cap agreement to manage our interest rate risk exposure on each of the ILPT Floating Rate Loan and the Floating Rate Loan, both with interest payable at a rate equal to SOFR plus a premium. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, we only enter into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which we or our related parties may also have other financial relationships. We do not anticipate that any of the counterparties will fail to meet their obligations. Cash Flow Hedges of Interest Rate Risk We record all derivatives in our condensed consolidated balance sheets at fair value. The following table summarizes the terms of our outstanding interest rate cap agreements designated as cash flow hedges of interest rate risk at September 30, 2023 and December 31, 2022: Interest Rate Balance Sheet Strike Notional Fair Value at Derivative Line Item Underlying Instrument Rate Amount September 30, 2023 December 31, 2022 Interest rate cap Other assets Floating Rate Loan 3.40 % $ 1,400,000 $ 12,712 $ 23,337 Interest rate cap Other assets ILPT Floating Rate Loan 2.25 % $ 1,235,000 38,610 49,796 $ 51,322 $ 73,133 Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. For derivatives designated and qualifying as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in cumulative other comprehensive income and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with our accounting policy election. The earnings recognition of excluded components is presented in interest expense. Amounts reported in cumulative other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our applicable debt. In September 2022, in conjunction with the repayment of the then existing $ 1,385,158 bridge loan facility secured by 109 of our properties, we sold two interest rate cap instruments with an aggregate notional amount of $ 1,385,158 , a strike rate equal to 2.70 % and an original expiration date of March 15, 2023 for $ 7,740 . As the underlying debt instrument that these interest rate caps were intended to hedge was repaid in its entirety and the related interest expense was no longer probable to occur, these interest rate caps were no longer designated as cash flow hedges and the remaining deferred gain was reclassified from cumulative other comprehensive income as a reduction of loss on early extinguishment of debt. 17 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) The following table summarizes the activity related to our cash flow hedges within cumulative other comprehensive income for the periods shown: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Amount of gain recognized in cumulative other comprehensive income $ 3,428 $ 15,047 $ 19,677 $ 24,200 Amount reclassified from cumulative other comprehensive income into interest expense ( 10,063 ) 761 ( 23,069 ) 1,678 Amount reclassified from cumulative other comprehensive income into loss on early extinguishment of debt — ( 6,961 ) — ( 6,961 ) Unrealized (loss) gain on derivative instrument recognized in cumulative other comprehensive loss $ ( 6,635 ) $ 8,847 $ ( 3,392 ) $ 18,917 18 Table of Contents