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Item 7. Management’s Discussion and Analysis

2024-02-20 compared with 2023-02-14 · 177 added, 248 removed, 216 unchanged (66% of the section changed)

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We are a REIT organized under Maryland law.

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

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

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

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

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

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

In response to inflationary pressures, the U.S.

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

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

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

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

Investing and Financing Activities

On February 25, 2022, we completed the acquisition of MNR.

MNR’s portfolio included 124 Class A, single tenant, net leased, e-commerce focused industrial properties located in 32 states containing approximately 25,745,000 rentable square feet and two committed, but not yet then completed, property acquisitions.

The aggregate value of the consideration paid in the Merger was $3,739,048, including the assumption of $323,432 aggregate principal amount of former MNR mortgage debt, the repayment of $885,269 of MNR debt and the payment of certain transaction fees and expenses, net of MNR’s cash on hand, and excluding two then pending property acquisitions for an aggregate purchase price of $78,843, excluding acquisition related costs.

The 124 MNR properties were 97.9% leased to various tenants and had a remaining weighted average (by rental revenues) lease term of eight years as of the date of the acquisition.

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

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

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

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

Immediately following the closing of the Merger, we entered into a joint venture arrangement with an institutional investor for 95 of the acquired MNR properties, including two then committed, but not yet then completed, property acquisitions.

The investor acquired a 39% noncontrolling equity interest in the joint venture from us for $589,411, as of the completion of this transaction, and we retained the remaining 61% equity interest in the joint venture.

In connection with the transaction, the joint venture assumed $323,432 aggregate principal amount of former MNR mortgage debt on certain of the properties and entered into a $1,400,000 interest only floating rate CMBS loan secured by 82 of our properties, or the Floating Rate Loan.

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

During the year ended December 31, 2022, this joint venture made aggregate cash distributions of $1,365 to the other joint venture investor.

In July 2022, our consolidated joint venture acquired a property located in Augusta, Georgia containing 226,000 rentable square feet for a purchase price of approximately $38,053, including acquisition related costs of $53.

This property is 100% leased to a single tenant with a remaining lease term of approximately 14.9 years at the time of acquisition.

This property was one of two committed MNR property acquisitions at the time of the Merger and was acquired directly by our consolidated joint venture.

In September 2022, our consolidated joint venture terminated the agreement for the other committed MNR property acquisition.

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

The ILPT Floating Rate Loan matures in October 2024, subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR, which is capped at an annual rate of 2.25% for the initial term of the ILPT Floating Rate Loan, plus a weighted average premium of 3.93%.

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

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

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

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

comprehensive income (loss).

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

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

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

As of December 31, 2023, our portfolio was comprised of 411 properties containing approximately 59,951,000 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 185 properties containing approximately 43,222,000 rentable square feet located in 38 other states.

As of December 31, 2023, our properties were approximately 98.8% leased to 303 tenants with a weighted average remaining lease term (by annualized rental revenues) of approximately 8.1 years.

As of December 31, 2023, our properties included 94 properties in which we owned a 61% equity interest located in 27 states containing approximately 20,981,000 rentable square feet that were 99.2% leased with an average remaining lease term (based on annualized rental revenues) of approximately 7.1 years.

As of December 31, 2023, we also owned a 22% equity interest in the unconsolidated joint venture.

Tabl e of Contents

During 2023, our rental income and net operating income, or NOI, increased as compared to the prior year as a result of the Merger completed in February 2022 and from leasing activity and rent resets at our properties.

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 high 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 common shares or other securities to decline.

Property Operations

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All Properties Comparable Properties

As of December 31, As of December 31,

as of December 31,

as of December 31, (1)

2023 2022 2023 2022

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98.8 % 99.1 % 98.7 % 99.1 %

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

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

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

(3) Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of December 31, 2022, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

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

(3) Leased square feet is pursuant to existing leases as of December 31, 2023, and includes space being fitted out for occupancy, if any, and space which is leased but is not occupied.

The average effective rental rates per square foot represents total rental income divided by the average rentable square feet leased during the periods specified for our properties.

For the years ended December 31, 2023 and 2022, the average effective rental rates per square foot of our properties were as follows:

Year Ended December 31,

Average effective rental rates per square foot leased:

All properties $ 7.39 $ 7.01

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$ 6.77 $ 6.45

(1) Average effective rental rates per square foot leased represents total 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 January 1, 2021 and excludes 18 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.

During the year ended December 31, 2022, we entered into new and renewal leases as summarized in the following tables:

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

During the year ended December 31, 2023, we entered into new and renewal leases as summarized in the following table:

Year Ended December 31, 2023

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

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

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

% of Total Cumulative

% of Total Cumulative % Annualized % of Total

Leased Leased of Total Annualized Rental Annualized

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

Period / Year Tenants Expiring (1)

Expiring Expiring Expiring

2023 38 2,507 4.2 % 4.2 % $ 17,879 4.2 % 4.2 %

2024 48 4,710 7.9 % 12.1 % 32,183 7.6 % 11.8 %

2025 34 4,800 8.1 % 20.2 % 27,784 6.6 % 18.4 %

2026 24 3,549 6.0 % 26.2 % 23,225 5.5 % 23.9 %

2027 39 8,924 15.0 % 41.2 % 53,099 12.5 % 36.4 %

During the year ended December 31, 2023, we completed rent resets for approximately 420,000 square feet of land at our Hawaii Properties at rental rates that were 29.6% higher than prior rental rates.

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

Annualized % of Total

Leased of Total Annualized

Rental Annualized

Square Feet Square Feet Square Feet Rental Revenues Revenues Rental Revenues

2024 40 5,070 8.6% 8.6% $ 24,239 5.6% 5.6%

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Weighted average remaining lease term (in years) 7.0 8.1

(1) Leased square feet is pursuant to existing leases as of December 31, 2022 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

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

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

(1) Leased square feet is pursuant to existing leases as of December 31, 2023 and includes space being fitted out for occupancy, if any, and space which is leased but is not occupied.

(2) Annualized rental revenues are as of December 31, 2023.

As of December 31, 2023, FedEx and Amazon leased 21.7% and 7.7% of our total leased square feet, respectively, and represented 29.7% and 6.7% of our total annualized rental revenues, respectively.

Mainland Properties.

As of December 31, 2022, our Mainland Properties represented approximately 71.1% of our annualized rental revenues.

As of December 31, 2023, occupancy at our Mainland Properties was 98.9% and represented 72.1% 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.

A majority of the leases at our Mainland Properties include periodic set dollar amount or percentage increases that raise the cash rent payable to us.

Due to the capital that many of the tenants in our Mainland Properties have invested in these properties and because many of these properties appear to be of strategic importance to the tenants’ businesses, we believe that it is likely that these tenants will renew or extend their leases prior to their expirations.

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Hawaii Properties.

As of December 31, 2022, our Hawaii Properties represented approximately 28.9% of our annualized rental revenues.

As of December 31, 2022, certain of our Hawaii Properties are lands leased for rents that periodically reset based on fair market values, generally every ten years.

As of December 31, 2023, occupancy at our Hawaii Properties was 98.6% and represented 27.9% of our annualized rental revenues.

As of December 31, 2023, certain of our Hawaii Properties are lands leased for rents that periodically reset based on fair market values, generally every 10 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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If we are unable to reach an agreement with a tenant on a rent reset, our Hawaii Properties’ leases typically provide that rent is reset based on an appraisal process.

Despite our and our predecessors’ prior experience with rent resets, lease extensions and new leases in Hawaii, our ability to increase rents when rents reset, leases are extended, or leases expire depends upon market conditions which are beyond our control.

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 December 31, 2022 scheduled to reset at our Hawaii Properties:

Scheduled Rent Resets at Hawaii Properties

(dollars in thousands)

Due to the limited availability of land suitable for industrial uses that might compete with our Hawaii Properties, we believe that our Hawaii Properties offer the potential for future rent growth as a result of periodic rent resets, lease extensions and new leasing.

Tabl e of Contents

The following table provides the annualized rental revenues scheduled to reset by year at our Hawaii Properties as of December 31, 2023:

Rental Revenues

as of December 31, 2022

Scheduled to Reset

2028 and thereafter 17,105

Total $ 22,438

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Whenever we extend, renew or enter new leases for our properties, we intend to seek rents that are equal to or higher than our historical rents for the same properties.

however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control.

Since the time, in some cases 40 to 50 years ago, certain of our Hawaii Properties’ leases were originally entered into, the characteristics of the neighborhoods in the vicinity of some of those properties have changed.

In such circumstances, we and our predecessors have sometimes engaged in redevelopment activities to change the character of certain properties in order to increase rents.

Because our Hawaii Properties are currently experiencing strong demand for their current uses, we do not currently expect redevelopment efforts in Hawaii to become a major activity of ours in the near term;

however, we may undertake such activities on a selective basis.

Despite our and our predecessors’ prior experience with rent resets, lease extensions and new leases in Hawaii, our ability to increase rents when rents reset, leases are extended or leases expire depends upon market conditions, which are beyond our control.

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

Tenant Review Process.

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

Disposition Activities

In 2023, we received gross proceeds of $25,460, excluding closing costs, and recognized a net gain on sale of real estate of $1,710 as a result of the sale of two properties and a portion of a land parcel.

For further information regarding our disposition activities, see elsewhere in this Annual Report on Form 10-K, including “Business—Our Company”, “Business—Our Investment Policies” and “Business—Our Disposition Policies” included in Part I, Item 1 of this Annual Report on Form 10-K, “Liquidity and Capital Resources—Our Investing and Financing Liquidity and Resources” below and Note 3 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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RESULTS OF OPERATIONS

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 (dollars and share amounts in thousands, except per share data)

Comparable Properties Results (1)

Non-Comparable Properties Results (2)

Non-Comparable

Properties Results

Consolidated Results

Year Ended December 31, Year Ended December 31, Year Ended December 31,

Year Ended December 31, (1)

Year Ended December 31, (2)

Year Ended December 31,

2023 2022 Change Change 2023 2022 Change 2023 2022 Change Change

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Total operating expenses 52,188 48,397 3,791 7.8 % 46,057 33,082 12,975 98,245 81,479 16,766 20.6 %

48,186 46,571 1,615 3.5 % 33,293 2,241 31,052 81,479 48,812 32,667 66.9 %

Net operating income (3)

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Loss on impairment of real estate 156 100,747 (100,591) (99.8) %

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

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

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

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

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

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

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

Total other expenses 210,335 295,192 (84,857) (28.7) %

Interest and other income 7,911 2,663 5,248 197.1 %

Interest expense (288,537) (280,051) (8,486) 3.0 %

Gain (loss) on sale of real estate 1,710 (10) 1,720 n/m

Loss on equity securities — (5,758) 5,758 (100.0) %

Loss on early extinguishment of debt (359) (22,198) 21,839 (98.4) %

Loss before income taxes and equity in earnings of unconsolidated joint venture

(150,517) (293,874) 143,357 (48.8) %

Income tax expense (104) (45) (59) 131.1 %

Equity in earnings of unconsolidated joint venture 902 7,078 (6,176) (87.3) %

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

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

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

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

Weighted average common shares outstanding - diluted 65,248 65,211 37 0.1 %

Net loss (149,719) (286,841) 137,122 (47.8) %

Net loss attributable to noncontrolling interest 41,730 60,118 (18,388) (30.6) %

Net loss attributable to common shareholders $ (107,989) $ (226,723) $118,734 (52.4) %

Weighted average common shares outstanding (basic and diluted) 65,430 65,248 182 0.3 %

Per common share data (basic and diluted):

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

Net loss attributable to common shareholders $ (1.65) $ (3.47) $ 1.82 (52.4) %

n/m - not meaningful

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

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

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

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

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

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

(2) Consists of 127 properties, including 125 properties we acquired and two properties we disposed of during the period from January 1, 2022 to December 31, 2023.

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

Tabl e of Contents

References to changes in the income and expense categories below relate to the comparison of results for the year ended December 31, 2023 to the year ended December 31, 2022.

For a comparison of consolidated results for the year ended December 31, 2022 to the year ended December 31, 2021, see Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022.

Rental income.

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

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

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

The increase in rental income is primarily a result of the Merger and leasing activity, including rent resets, at certain of our comparable properties in the 2023 period.

Real estate taxes.

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

The increase in real estate taxes primarily reflects the Merger.

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

Other operating expenses .

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

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

The increase in other operating expenses is primarily due to the Merger.

Additionally, increases in management fees and insurance and repairs and maintenance costs were partially offset by a decrease in snow removal expenses at certain of our comparable properties during the 2023 period.

Depreciation and amortization.

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

The increase in depreciation and amortization primarily reflects the impact of the Merger.

General and administrative.

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

The decrease in general and administrative expenses is primarily due to decreases in business management fees and legal fees, partially offset by increases in accounting and professional fees in the 2023 period.

Acquisition and other transaction related costs.

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

Acquisition and other transaction related costs decreased as a result of fewer acquisition and disposition activities during the 2023 period.

Loss on impairment of real estate.

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

We recognized a loss on impairment of real estate on one property that was classified as held for sale and subsequently reclassified to held and used during the 2023 period and we recognized a loss on impairment of real estate on 25 properties acquired in the Merger during the 2022 period.

Interest and other income.

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

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

Loss (gain) on sale of real estate.

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

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

Gain (loss) on sale of real estate.

During the 2023 period, we recognized a gain on sale of real estate of $1,710 as a result of the sale of two properties in Asheville, NC and Mesquite, TX, and we also recognized a loss on sale of real estate of $974 as a result of the sale of a portion of a land parcel in Everett, WA.

During the 2022 period, we incurred costs related to the sale of properties during the year ended December 31, 2021.

Loss on equity securities.

Loss on equity securities in the 2022 period represents the realized loss of $5,758 on the sale of certain equity securities we acquired as part of our acquisition of MNR.

During 2022, we recognized a loss on the equity securities we acquired, and subsequently sold, as part of the Merger.

Loss on early extinguishment of debt.

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

Loss on early extinguishment of debt is due to prepayment penalties incurred upon the refinancing of four mortgage loans in 2023 and the write off of unamortized costs related to the refinancing of our then existing bridge loan facility and the termination of our unsecured revolving credit facility in 2022.

Income tax expense.

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

Net (loss) income.

The net loss for the 2022 period compared to the net income for the 2021 period reflects the changes noted above.

Net loss attributable to noncontrolling interest.

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

Weighted average common shares outstanding - basic and diluted.

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

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

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

Non-GAAP Financial Measures

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Non-GAAP Financial Measures (dollars in thousands, except per share data)

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

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

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

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

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

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

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

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

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

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

NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization expense.

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

NOI excludes amortization of capitalized tenant improvement costs and leasing commissions from depreciation and amortization expense.

We use NOI to evaluate individual and company-wide property level performance.

Other real estate companies and REITs may calculate NOI differently than we do.

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

The following table presents the reconciliation of net loss to NOI for the years ended December 31, 2023 and 2022:

Year Ended December 31,

Reconciliation of Net (Loss) Income to NOI:

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

Net loss $ (149,719) $ (286,841)

Equity in earnings of unconsolidated joint venture (902) (7,078)

Income tax expense 104 45

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

Loss before income taxes and equity in earnings of unconsolidated joint venture

(150,517) (293,874)

Loss on early extinguishment of debt 359 22,198

Loss on equity securities — 5,758

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

(Gain) loss on sale of real estate (1,710) 10

Interest expense 288,537 280,051

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Hawaii Properties $ 89,634 $ 85,145

$ 85,145 $ 82,436

Mainland Properties 249,459 221,527

221,527 88,626

$ 306,672 $ 171,062

NOI $ 339,093 $ 306,672

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

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

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

FFO attributable to common shareholders is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss) attributable to common shareholders, calculated in accordance with GAAP, excluding loss on impairment of real estate, any gain or loss on sale of real estate, equity in earnings of unconsolidated joint venture and any realized and unrealized gains or losses on equity securities, plus real estate depreciation and amortization of consolidated properties and our proportionate share of FFO of the unconsolidated joint venture properties and minus FFO adjustments attributable to noncontrolling interest, as well as certain other adjustments currently not applicable to us.

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

FFO attributable to common shareholders is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is:

(1) net loss attributable to common shareholders calculated in accordance with GAAP, excluding loss on impairment of real estate, any gain or loss on sale of real estate, equity in earnings of unconsolidated joint venture and loss on equity securities;

(2) plus real estate depreciation and amortization of our properties and our proportionate share of FFO from unconsolidated joint venture properties;

(3) minus FFO adjustments attributable to noncontrolling interest;

and (4) certain other adjustments currently not applicable to us.

In calculating Normalized FFO attributable to common shareholders, we adjust for certain non-recurring items shown below, including adjustments for such items related to the unconsolidated joint venture, if any.

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

Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our dividend yield and our dividend yield compared to the dividend yields of other industrial REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.

Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our dividend yield, our dividend yield compared to the dividend yields of other industrial REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.

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

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

The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net loss attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the years ended December 31, 2023 and 2022.

Year Ended December 31,

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

Net (loss) income attributable to common shareholders $ (226,723) $ 119,682

Depreciation and amortization 160,982 50,598

Net loss attributable to common shareholders $ (107,989) $ (226,723)

Equity in earnings of unconsolidated joint venture (902) (7,078)

Loss on equity securities — 5,758

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

Loss on impairment of real estate 100,747 —

(Gain) loss on sale of real estate (1,710) 10

Loss on impairment of real estate 156 100,747

Depreciation and amortization 178,728 160,982

Share of FFO from unconsolidated joint venture 5,783 6,406

FFO adjustments attributable to noncontrolling interest (43,031) (38,695)

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Normalized FFO attributable to common shareholders $ 31,541 $ 76,218

Weighted average common shares outstanding - basic 65,248 65,169

Weighted average common shares outstanding - diluted 65,248 65,211

Weighted average common shares outstanding (basic and diluted) 65,430 65,248

Per common share data (basic and diluted):

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Normalized FFO attributable to common shareholders $ 0.48 $ 1.17

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

(1) Acquisition, transaction related and certain other financing costs consist of costs related to potential acquisition and disposition activities that were not completed.

In addition, certain debt issuance costs recognized as interest expense related to the then existing bridge loan facility and other transaction related costs expensed under GAAP were included for the year ended December 31, 2022.

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LIQUIDITY AND CAPITAL RESOURCES

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• maintain the occupancy of, and maintain or increase the rental rates at, our properties;

• control our operating cost increases;

• purchase additional properties that produce cash flows in excess of our costs of acquisition capital and property operating expenses;

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

• develop properties to produce cash flows in excess of our costs of capital;

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

• purchase additional properties that produce cash flows in excess of our costs of acquisition and the cost to our capital and property operating expenses.

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

Year Ended December 31,

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Cash and cash equivalents and restricted cash at end of period $ 245,723 $ 140,780

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

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

The change from net cash used in financing activities in the 2021 period to net cash provided by financing activities in the 2022 period was primarily due to the net borrowings and sale of joint venture equity interests used to finance our acquisition of MNR in the 2022 period.

The decrease in net cash provided by operating activities for the year ended December 31, 2023 compared to the prior year is primarily due to higher interest expense paid in the 2023 period, partially offset by higher cash flows from the properties we acquired pursuant to the Merger in 2022.

The change in net cash provided by investing activities is primarily due to the Merger in 2022 as compared to the sale of two properties and a portion of a land parcel 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)

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

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

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

As of December 31, 2023, we had cash and cash equivalents, excluding restricted cash, of $112,341.

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

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

On July 14, 2022, we announced that we reduced our quarterly cash distribution rate on our common shares to $0.01 per share to enhance our liquidity until we complete our long term financing plan for the MNR acquisition and/or our leverage profile otherwise improves, and we expect the distributions made to our common shareholders in 2022 will satisfy the minimum amounts required for us to remain a REIT for federal income tax purposes.

On February 25, 2022, subsidiaries of our consolidated joint venture entered into a loan agreement with a group of institutional lenders, or the Floating Rate Lenders, pursuant to which this joint venture obtained the Floating Rate Loan.

Also on February 25, 2022, our consolidated joint venture entered into a guaranty in favor of the Floating Rate Lenders, pursuant to which this joint venture guaranteed certain limited recourse obligations of its subsidiaries with respect to the Floating Rate Loan.

The Floating Rate Loan matures in March 2024, subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR plus a premium of 2.25%.

Effective in March 2022, the Floating Rate Lenders exercised their option to increase the interest rate premium in connection with the securitization of the Floating Rate Loan, resulting in an increase of 51.5 basis points in the premium.

We also purchased an interest rate cap through March 2024 with a SOFR strike rate equal to 3.40%.

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

Also on February 25, 2022, certain of our subsidiaries entered into a loan agreement with a group of institutional lenders, or the Bridge Lenders, and a mezzanine loan agreement with an institutional lender, or the Bridge Mezz Lender, together pursuant to which we obtained the Bridge Loan.

Also on February 25, 2022, we entered into a guaranty in favor of the Bridge Lenders and the Bridge Mezz Lender, pursuant to which we guaranteed certain limited recourse obligations of our subsidiaries with respect to the Bridge Loan.

The Bridge Loan was scheduled to mature in February 2023 and required that interest only be paid at an annual rate of SOFR plus a premium of 1.75% under the loan agreement and a premium of 8.0% under the

mezzanine loan agreement.

We also purchased an interest rate cap with a SOFR strike rate equal to 2.70%.

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

During the year ended December 31, 2022, we recorded a $22,231 loss on early extinguishment of debt to write off unamortized costs related to the Bridge Loan and related interest rate cap.

The weighted average annual interest rate payable under the Bridge Loan was 4.24% for the period from February 25, 2022 to September 22, 2022.

Also on February 25, 2022, certain of our subsidiaries entered into a loan agreement with a group of institutional lenders, or the Fixed Rate Lenders, and mezzanine loan agreements with a separate group of institutional lenders, or the Fixed Mezz Lenders, pursuant to which we obtained the Fixed Rate Loan.

Also on February 25, 2022, we entered into a guaranty in favor of the Fixed Rate Lenders and the Fixed Mezz Lenders, pursuant to which we guaranteed certain limited recourse obligations of our subsidiaries with respect to the Fixed Rate Loan.

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

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

We used the aggregate net proceeds from the Loans to partially fund the acquisition of MNR.

Principal payments on the Floating Rate Loan and Fixed Rate Loan are not required prior to the end of their respective initial terms, subject to certain conditions set forth in the applicable loan agreement.

Subject to the satisfaction of certain conditions, we have the option under the applicable loan agreement:

(1) to prepay up to $280,000 of the Floating Rate Loan after March 2023, at par with no premium, and to prepay the balance of the Floating Rate Loan at any time, subject to a premium;

and (2) to prepay the Fixed Rate Loan in full or part at any time, subject to a premium, and beginning in September 2031, without a premium.

On September 22, 2022, certain of our subsidiaries entered into a loan agreement with a group of institutional lenders, or the ILPT Floating Rate Lenders, and a mezzanine loan agreement with a separate group of institutional lenders, or the ILPT Floating Rate Mezz Lenders, pursuant to which we obtained ILPT Floating Rate Loan, secured by 104 of our properties.

Also, on September 22, 2022, we entered into a guaranty in favor of the ILPT Floating Rate Lenders and the ILPT Floating Rate Mezz Lenders, pursuant to which we guaranteed certain limited recourse obligations of our subsidiaries with respect to the ILPT Floating Rate Loan.

The interest only ILPT Floating Rate Loan matures on October 9, 2024, subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR, which is capped at an annual rate of 2.25% for the initial term of the ILPT Floating Rate Loan, plus a weighted average premium of 3.93%.

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

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

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

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

The agreements governing the Floating Rate Loan, Fixed Rate Loan and the ILPT Floating Rate Loan contain customary covenants and provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default.

In connection with the Merger, our consolidated joint venture, in which we own a 61% equity interest, assumed an aggregate $323,432 of former MNR mortgages secured by 11 properties which are owned by this joint venture.

These amortizing mortgages require monthly payments of principal and interest until maturity.

The value of these mortgages approximated their estimated fair value on the date of acquisition.

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

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

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

We planned to sell certain properties and to sell additional equity interests in our consolidated joint venture, which would reduce our ownership percentage in that joint venture and raise additional proceeds to reduce our outstanding indebtedness.

The current economic conditions have negatively impacted the real estate market and we may not be able to sell properties or additional equity interests in our consolidated joint venture as expected or at all.

This property is 100% leased to a single tenant with a remaining lease term of approximately 14.9 years at the time of acquisition.

This property was one of two committed MNR property acquisitions at the time of the Merger and was acquired directly by our consolidated joint venture.

In September 2022, our consolidated joint venture terminated the agreement for the other committed MNR property acquisition.

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

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In February 2022, we completed our acquisition of MNR.

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

For further information regarding disposition activities, see Note 3 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Consolidated Joint Venture

Immediately following the closing of the Merger, we entered into a joint venture arrangement with an institutional investor for 95 of the acquired MNR properties in 27 states, including two then committed, but not yet then completed, property acquisitions.

The joint venture assumed $323,432 aggregate principal amount of former MNR mortgage debt on certain of the properties.

In July 2022, our consolidated joint venture completed one of the two committed MNR property acquisitions, and in September 2022, our consolidated joint venture terminated the agreement for the other committed MNR property acquisition.

We control this joint venture and therefore account for the properties on a consolidated basis in our consolidated financial statements in accordance with GAAP.

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

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

During the year ended December 31, 2022, this joint venture made aggregate cash distributions of $1,365 to the other joint venture investor, which is reflected as a decrease in total equity attributable to noncontrolling interest in our consolidated balance sheets.

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

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

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 consolidated financial statements.

We recognized net loss attributable to noncontrolling interest in our consolidated financial statements for the year ended December 31, 2023 and the period from February 25, 2022 (inception of our consolidated joint venture) to December 31, 2022 of $41,798 and $60,067, respectively.

As of December 31, 2023, our consolidated joint venture had total assets of $3,026,194 and total liabilities of $1,774,380.

Unconsolidated Joint Venture

As of December 31, 2022 and December 31, 2021, we also owned a 22% equity interest in an unconsolidated joint venture with 18 properties in 12 states.

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

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

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

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

developments and redevelopments.

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

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

Such alternatives may include incurring term debt, obtaining financing secured by mortgages on properties we own, issuing new equity or debt securities, obtaining a revolving credit facility, participating or selling equity interests in joint ventures or selling properties.

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

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

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

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 consolidated statements of comprehensive income (loss).

The unconsolidated joint venture made aggregate cash distributions to us of $9,900 and $25,742 during the years ended December 31, 2023 and 2022, respectively.

For more information regarding these joint ventures, see Note 3 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Our principal debt obligations as of December 31, 2023 were:

(1) a $1,235,000 loan, or the ILPT Floating Rate Loan, secured by 104 of our properties;

(2) a $1,400,000 loan, or the Floating Rate Loan, secured by 82 properties owned by our consolidated joint venture;

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

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

and (5) $340,944 aggregate principal amount of mortgage loans secured by 12 properties owned by our consolidated joint venture.

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 the 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 of 2.25%, as of December 31, 2023 and 2022, and for the year ended December 31, 2023 and the period from September 22, 2022 (the date we entered into the applicable loan agreements) to December 31, 2022.

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.

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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% for the year ended December 31, 2023, and was 6.10% for the period from February 25, 2022 (the date our consolidated joint venture entered into the applicable loan agreements) to December 31, 2022, each including the impact of our interest rate cap of 3.40%.

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.

As of February 20, 2024, our consolidated joint venture intends to exercise its first option to extend the maturity of this loan.

The one year options to extend the ILPT Floating Rate Loan and the 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.

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%.

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

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

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

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

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

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

As of December 31, 2023, we had an aggregate principal amount of $4,325,944 of debt, including the ILPT Floating Rate Loan, the Floating Rate Loan and the Fixed Rate Loan, scheduled to mature between 2024 and 2038.

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 December 31, 2023, we believe that we were in compliance with all of the covenants and other terms under the agreements governing these loans.

Certain of the mortgage loans we assumed in connection with our acquisition of MNR are non-recourse, subject to certain limitations, and do not contain any material financial covenants.

The agreements governing the ILPT Floating Rate Loan, the Floating Rate Loan, the $700,000 mortgage loan and the $650,000 mortgage loan contain certain exceptions to the general non-recourse provisions, including our obligation to indemnify the lenders for certain potential environmental losses.

For further information regarding indebtedness, see Notes 5 and 11 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

We expect to fund any future property acquisitions, developments and redevelopments with proceeds we may receive 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.

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

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

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

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

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During the year ended December 31, 2023, we paid quarterly cash distributions to our shareholders totaling $2,627 using cash on hand.

On January 11, 2024, we declared a regular quarterly distribution to common shareholders of record on January 22, 2024 in the amount of $0.01 per share, or approximately $658, and we paid this distribution on February 15, 2024 using cash on hand.

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

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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 December 31, 2022, we had estimated unspent leasing related obligations of $25,547, of which $9,706 is expected to be spent during the next 12 months.

Debt Covenants (dollars in thousands)

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

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

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

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

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

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

The agreements and related documents governing the ILPT Floating Rate Loan, Floating Rate Loan, Fixed Rate Loan and the $650,000 mortgage loan contain customary covenants, provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default and, in the case of the $650,000 mortgage loan, also require us to maintain a minimum consolidated net worth of at least $250,000 and liquidity of at least $15,000.

As of December 31, 2022, we believe that we were in compliance with all of the covenants and other terms under the agreements governing the ILPT Floating Rate Loan, Floating Rate Loan, Fixed Rate Loan and the $650,000 mortgage loan.

Certain of the mortgages we assumed in conjunction with our acquisition of MNR are non-recourse, subject to certain limitations, and do not contain any material financial covenants.

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

As of December 31, 2023, we had estimated unspent leasing related obligations of $5,947, all of which is expected to be spent during the next 12 months.

Related Person Transactions

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and others related to them.

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

For more information about these and other such relationships and related person transactions, see Notes 9 and 10 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, our other filings with the SEC, including our definitive Proxy Statement for our 2024 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2023.

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

Critical Accounting Estimates

Our critical accounting policies are those that will have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates.

Our critical accounting estimates are those that will have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates.

We believe that our judgments and estimates have been and will be consistently applied and produce financial information that fairly presents our results of operations.

Our most critical accounting policies involve our investments in real property.

These policies affect our:

Our most critical accounting estimates involve our investments in real property.

These estimates affect our:

• allocation of purchase prices between various asset categories, including allocations to above and below market leases and the related impact on the recognition of rental income and depreciation and amortization expenses;

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however, our management is ultimately responsible for the purchase price allocations and determination of useful lives.

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We compute depreciation expense using the straight line method over estimated useful lives of up to 40 years for buildings and improvements, and up to seven years for personal property.

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If we misjudge or estimate incorrectly or if future tenant operations, market or industry factors differ from our expectations, we may record an impairment charge that is inappropriate or fail to record a charge when we should have done so, or the amount of any such charges may be inaccurate.

These accounting policies involve significant judgments made based upon our experience and the experience of our management and our Board of Trustees, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability and willingness of our tenants to perform their obligations to us, current and future economic conditions and competitive factors in the markets in which our properties are located.

These accounting estimates involve significant judgments made based upon our experience and the experience of our management and our Board of Trustees, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability and willingness of our tenants to perform their obligations to us, current and future economic conditions and competitive factors in the markets in which our properties are located.

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

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However, we cannot be sure that our mitigation efforts will be sufficient or that future storms, rising sea levels or other changes that may occur due to future climate change could not have a material adverse effect on our financial results.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis