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) March 31, December 31, 2024 2023 ASSETS Real estate properties: Land $ 1,113,723 $ 1,113,723 Buildings and improvements 4,057,048 4,055,829 Total real estate properties, gross 5,170,771 5,169,552 Accumulated depreciation ( 428,967 ) ( 397,454 ) Total real estate properties, net 4,741,804 4,772,098 Investment in unconsolidated joint venture 116,093 115,360 Acquired real estate leases, net 231,621 243,521 Cash and cash equivalents 128,394 112,341 Restricted cash and cash equivalents 108,083 133,382 Rents receivable, including straight line rents of $ 97,798 and $ 94,309 , respectively 116,170 119,170 Other assets, net 85,404 67,803 Total assets $ 5,527,569 $ 5,563,675 LIABILITIES AND EQUITY Mortgages and notes payable, net $ 4,307,999 $ 4,305,941 Accounts payable and other liabilities 73,923 72,455 Assumed real estate lease obligations, net 17,608 18,534 Due to related persons 5,539 4,966 Total liabilities 4,405,069 4,401,896 Commitments and contingencies Equity: Equity attributable to common shareholders: Common shares of beneficial interest, $ .01 par value: 100,000,000 shares authorized; 65,831,530 and 65,843,387 shares issued and outstanding, respectively 658 658 Additional paid in capital 1,016,067 1,015,777 Cumulative net (deficit) income ( 14,207 ) 9,196 Cumulative other comprehensive income 7,213 10,171 Cumulative common distributions ( 366,506 ) ( 365,848 ) Total equity attributable to common shareholders 643,225 669,954 Noncontrolling interest 479,275 491,825 Total equity 1,122,500 1,161,779 Total liabilities and equity $ 5,527,569 $ 5,563,675 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 March 31, 2024 2023 Rental income $ 112,235 $ 110,258 Expenses: Real estate taxes 15,861 16,467 Other operating expenses 10,322 9,318 Depreciation and amortization 43,577 45,457 General and administrative 7,689 7,907 Total expenses 77,449 79,149 Interest and other income 2,852 1,146 Interest expense ( 73,230 ) ( 70,771 ) Loss on sale of real estate — ( 974 ) Loss before income taxes and equity in earnings of unconsolidated joint venture ( 35,592 ) ( 39,490 ) Income tax expense ( 33 ) ( 17 ) Equity in earnings of unconsolidated joint venture 1,723 3,961 Net loss ( 33,902 ) ( 35,546 ) Net loss attributable to noncontrolling interest 10,499 10,737 Net loss attributable to common shareholders ( 23,403 ) ( 24,809 ) Other comprehensive income: Unrealized loss on derivatives ( 4,846 ) ( 8,778 ) Less: unrealized loss on derivatives attributable to noncontrolling interest 1,888 1,760 Other comprehensive loss attributable to common shareholders ( 2,958 ) ( 7,018 ) Comprehensive loss attributable to common shareholders $ ( 26,361 ) $ ( 31,827 ) Weighted average common shares outstanding (basic and diluted) 65,556 65,309 Per common share data (basic and diluted): Net loss attributable to common shareholders $ ( 0.36 ) $ ( 0.38 ) 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 Cumulative Other Cumulative Attributable to Common Common Paid In Net (Deficit) Comprehensive Common Common Noncontrolling Total Shares Shares Capital Income Income Distributions Shareholders Interest Equity Balance at December 31, 2023 65,843,387 $ 658 $ 1,015,777 $ 9,196 $ 10,171 $ ( 365,848 ) $ 669,954 $ 491,825 $ 1,161,779 Net loss — — — ( 23,403 ) — — ( 23,403 ) ( 10,499 ) ( 33,902 ) Share grants, repurchases and forfeitures ( 11,857 ) — 290 — — — 290 — 290 Distributions to common shareholders — — — — — ( 658 ) ( 658 ) — ( 658 ) Other comprehensive loss — — — — ( 2,958 ) — ( 2,958 ) ( 1,888 ) ( 4,846 ) Distributions to noncontrolling interest — — — — — — — ( 163 ) ( 163 ) Balance at March 31, 2024 65,831,530 $ 658 $ 1,016,067 $ ( 14,207 ) $ 7,213 $ ( 366,506 ) $ 643,225 $ 479,275 $ 1,122,500 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 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Three Months Ended March 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 33,902 ) $ ( 35,546 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation 31,540 31,224 Net amortization of debt issuance costs, premiums and discounts 6,654 6,713 Amortization of acquired real estate leases and assumed real estate lease obligations 10,974 13,414 Amortization of deferred leasing costs 705 559 Straight line rental income ( 3,489 ) ( 3,762 ) Loss on sale of real estate — 974 Proceeds from settlement of derivatives ( 16,537 ) ( 12,976 ) General and administrative expenses paid in common shares 339 387 Other non-cash expenses 7,210 6,145 Distributions of earnings from unconsolidated joint venture 990 990 Equity in earnings of unconsolidated joint venture ( 1,723 ) ( 3,961 ) Change in assets and liabilities: Rents receivable 6,489 ( 242 ) Other assets ( 3,972 ) ( 7,449 ) Accounts payable and other liabilities 2,138 3,747 Due to related persons 573 950 Net cash provided by operating activities 7,989 1,167 CASH FLOWS FROM INVESTING ACTIVITIES: Real estate improvements ( 2,132 ) ( 3,784 ) Purchase of interest rate cap ( 26,175 ) — Proceeds from settlement of derivatives 16,537 12,976 Proceeds from sale of real estate — 243 Net cash (used in) provided by investing activities ( 11,770 ) 9,435 CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of mortgage notes payable ( 4,466 ) ( 5,530 ) Payment of debt issuance costs ( 129 ) ( 34 ) Distributions to common shareholders ( 658 ) ( 656 ) Repurchase of common shares ( 49 ) ( 3 ) Distributions to noncontrolling interest ( 163 ) — Net cash used in financing activities ( 5,465 ) ( 6,223 ) (Decrease) increase in cash and cash equivalents and restricted cash and cash equivalents ( 9,246 ) 4,379 Cash and cash equivalents and restricted cash and cash equivalents at beginning of period 245,723 140,780 Cash and cash equivalents and restricted cash and cash equivalents at end of period $ 236,477 $ 145,159 SUPPLEMENTAL DISCLOSURES: Interest paid $ 59,621 $ 68,600 Cash received for income tax refund $ 80 $ — NON-CASH INVESTING ACTIVITIES: Real estate improvements accrued not paid $ 348 $ 2,092 6 Table of Contents SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS: The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows: As of March 31, 2024 2023 Cash and cash equivalents $ 128,394 $ 61,250 Restricted cash and cash equivalents (1) 108,083 83,909 Total cash and cash equivalents and restricted cash shown in the statements of cash flows $ 236,477 $ 145,159 (1) Restricted cash and cash equivalents 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. 7 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, 2023, or our 2023 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. Recent Accounting Pronouncements New Accounting Pronouncements. In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update, or ASU, 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities, including those with a single reportable segment, to: (i) provide disclosures of significant segment expenses and other segment items if they are regularly provided to the chief operating decision maker, or the CODM, and included in each reported measure of segment profit or loss; (ii) provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Accounting Standards Codification, or ASC, 280, Segment Reporting , in interim periods; and (iii) disclose the CODM’s title and position, as well as an explanation of how the CODM uses the reported measures and other disclosures. ASU 2023-07 does not change how a public entity identifies its operating segments, aggregates those operating segments or applies the quantitative thresholds to determine its reportable segments. ASU 2023-07 is required to be applied retrospectively and is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact ASU 2023-07 will have on our condensed consolidated financial statements. Note 3. Real Estate Investments As of March 31, 2024, our portfolio was comprised of 411 properties containing approximately 59,893,000 rentable square feet located in 39 states, including 226 buildings, leasable land parcels and easements containing approximately 16,729,000 rentable square feet that were primarily industrial lands located on the island of Oahu, Hawaii, or our Hawaii Properties, and 185 properties containing approximately 43,164,000 rentable square feet that were industrial and logistics properties located in 38 other states, or our Mainland Properties. As of March 31, 2024, we also owned a 22 % equity interest in an unconsolidated joint venture. 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 at certain of our properties of $ 3,373 , and $ 4,931 , during the three months ended March 31, 2024 and 2023, respectively. Capital expenditures include leasing costs of $ 2,127 and $ 1,562 for the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024, we committed $ 3,471 for expenditures related to tenant improvements and leasing costs for leases executed during the period for approximately 1,981,000 rentable square feet. Committed, but unspent, tenant related obligations based on existing leases as of March 31, 2024 were $ 5,981 , all of which is expected to be spent during the next 12 months. 8 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) 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 this 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 net loss attributable to noncontrolling interest in our condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 of $ 10,514 and $ 10,728 , respectively. As of March 31, 2024, our consolidated joint venture had total assets of $ 2,991,343 and total liabilities of $ 1,771,327 . 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. We recognized net income (loss) attributable to noncontrolling interest in our condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 of $ 15 and ($ 9 ), respectively. During the three months ended March 31, 2024, the tenancy in common made cash distributions of $ 163 to the unrelated third party investor. As of March 31, 2024, the tenancy in common had total assets of $ 10,877 and total liabilities of $ 60 . 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). Note 4. 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 and are generally classified as operating leases. 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 $ 21,175 and $ 21,099 for the three months ended March 31, 2024 and 2023, 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. Right of Use Assets and Lease Liabilities We are the lessee for three of our properties subject to ground leases and one office lease that we assumed in an acquisition. For leases with a term greater than 12 months under which we are the lessee, we recognize right of use assets and lease liabilities. The values of our right of use assets and related lease liabilities were $ 4,534 and $ 4,621 , respectively, as of March 31, 2024, and $ 4,646 and $ 4,730 , respectively, as of December 31, 2023. 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. Geographic Concentration For the three months ended March 31, 2024 and 2023, our Hawaii Properties represented 28.0 % and 27.4 %, respectively, of our rental income. 9 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Tenant Concentration 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 amortization of deferred leasing costs. Subsidiaries of FedEx Corporation, or FedEx, and subsidiaries of Amazon.com Services, Inc., or Amazon, represented 28.9 % and 6.7 % of our annualized rental revenues as of March 31, 2024, respectively, and 30.1 % and 6.9 % as of March 31, 2023, respectively. Note 5. Indebtedness Our outstanding indebtedness as of March 31, 2024 is summarized below: Number of Properties Principal Interest Carrying Value Entity Secured By Balance Rate (1) Type Maturity of Collateral ILPT 104 $ 1,235,000 6.18 % Floating 10/09/2024 $ 1,036,749 ILPT 186 650,000 4.31 % Fixed 02/07/2029 490,619 ILPT 17 700,000 4.42 % Fixed 03/09/2032 501,338 Mountain JV 82 1,400,000 5.81 % Floating 03/09/2025 1,843,036 Mountain JV 4 91,000 6.25 % Fixed 06/10/2030 181,935 Mountain JV 1 11,045 3.67 % Fixed 05/01/2031 28,769 Mountain JV 1 12,601 4.14 % Fixed 07/01/2032 43,193 Mountain JV 1 28,026 4.02 % Fixed 10/01/2033 84,206 Mountain JV 1 39,198 4.13 % Fixed 11/01/2033 129,302 Mountain JV 1 23,989 3.10 % Fixed 06/01/2035 46,063 Mountain JV 1 38,730 2.95 % Fixed 01/01/2036 98,411 Mountain JV 1 43,269 4.27 % Fixed 11/01/2037 109,573 Mountain JV 1 48,620 3.25 % Fixed 01/01/2038 112,694 Total/weighted average 4,321,478 5.35 % $ 4,705,888 Unamortized debt issuance costs ( 13,479 ) Total indebtedness, net $ 4,307,999 (1) Interest rates reflect the impact of interest rate caps, if any, and exclude the impact of the amortization of debt issuance costs, premiums and discounts. 10 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Our outstanding indebtedness as of December 31, 2023 is summarized below: Number of Properties Principal Interest Carrying Value Entity Secured By Balance Rate (1) Type Maturity of Collateral ILPT 104 $ 1,235,000 6.18 % Floating 10/09/2024 $ 1,044,028 ILPT 186 650,000 4.31 % Fixed 02/07/2029 490,149 ILPT 17 700,000 4.42 % Fixed 03/09/2032 505,153 Mountain JV 82 1,400,000 6.17 % Floating 03/09/2024 1,857,062 Mountain JV 4 91,000 6.25 % Fixed 06/10/2030 183,264 Mountain JV 1 11,380 3.67 % Fixed 05/01/2031 28,932 Mountain JV 1 12,916 4.14 % Fixed 07/01/2032 43,510 Mountain JV 1 28,622 4.02 % Fixed 10/01/2033 84,793 Mountain JV 1 40,019 4.13 % Fixed 11/01/2033 129,749 Mountain JV 1 24,433 3.10 % Fixed 06/01/2035 46,394 Mountain JV 1 39,411 2.95 % Fixed 01/01/2036 99,108 Mountain JV 1 43,850 4.27 % Fixed 11/01/2037 110,097 Mountain JV 1 49,313 3.25 % Fixed 01/01/2038 113,477 Total/weighted average 4,325,944 5.47 % $ 4,735,716 Unamortized debt issuance costs ( 20,003 ) Total indebtedness, net $ 4,305,941 (1) Interest rates 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, which is secured by 104 of our properties, matures in October 2024, subject to three , one year extension options, and requires that interest be paid at an annual rate of secured overnight financing rate, or SOFR, plus a weighted average premium of 3.93 %. The weighted average interest rate under the ILPT Floating Rate Loan was 6.18 %, including the impact of our interest rate cap on SOFR of 2.25 %, as of March 31, 2024 and December 31, 2023, and for the three months ended March 31, 2024 and 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 consolidated joint venture’s $ 1,400,000 loan, or the Mountain Floating Rate Loan, was scheduled to mature in March 2024, subject to three , one year extension options, and required that interest be paid at an annual rate of SOFR plus a premium of 2.77 %. In March 2024, our consolidated joint venture exercised the first of its three , one year options to extend the maturity date of this loan. As part of the extension, our consolidated joint venture purchased a one year interest rate cap for $ 26,175 with a SOFR strike rate equal to 3.04 %, which replaced the previous interest rate cap with a SOFR strike rate equal to 3.40 %. As of March 31, 2024 and December 31, 2023, the interest rate under the Mountain Floating Rate Loan was 5.81 % and 6.17 %, respectively. The weighted average interest rate under the Mountain Floating Rate Loan was 6.09 % and 6.17 % for the three months ended March 31, 2024 and 2023, respectively, including the impact of our interest rate caps. Subject to the satisfaction of certain conditions, we have the option to prepay up to $ 280,000 of the Mountain Floating Rate Loan at par with no premium, and to prepay the balance of the Mountain Floating Rate Loan at any time, subject to a premium. 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. See Note 10 for further information regarding our interest rate caps. 11 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) The required principal payments due during the next five years and thereafter under all our outstanding debt as of March 31, 2024 are as follows: Principal Payment 2024 $ 1,248,648 2025 1,418,794 2026 19,495 2027 20,229 2028 20,989 Thereafter 1,593,323 $ 4,321,478 Note 6. Fair Value of Assets and Liabilities Our financial instruments include cash and cash equivalents, restricted cash and cash equivalents, mortgages and notes payable, accounts payable and interest rate caps. As of March 31, 2024 and December 31, 2023, 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 for our fixed rate mortgage notes payable. Our fixed rate mortgage notes payable had an aggregate carrying value of $ 1,678,351 and $ 1,682,501 as of March 31, 2024 and December 31, 2023, respectively, and a fair value of $ 1,531,780 and $ 1,553,863 as of March 31, 2024 and December 31, 2023, respectively. We estimate the fair value of our fixed rate mortgage notes payable using significant unobservable inputs (Level 3), including discounted cash flow analyses and prevailing market interest rates. The table below presents certain of our assets measured on a recurring basis at fair value as of March 31, 2024 and December 31, 2023, categorized by the level of inputs as defined in the fair value hierarchy under ASC 820, Fair Value Measurement , 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) As of March 31, 2024 Investment in unconsolidated joint venture $ 116,093 $ — $ — $ 116,093 Interest rate caps $ 44,700 $ — $ 44,700 $ — As of December 31, 2023 Investment in unconsolidated joint venture $ 115,360 $ — $ — $ 115,360 Interest rate caps $ 30,576 $ — $ 30,576 $ — The fair value of our investment in the unconsolidated joint venture is determined by applying our ownership percentage to the net asset value of the entity. The net asset value of the unconsolidated joint venture is determined by using similar estimation techniques as those used for consolidated real estate properties, including discounting expected future cash flows of the underlying real estate investments based on prevailing market rents over a holding period and including an exit capitalization rate to determine the final year of cash flows. The fair values of our interest rate cap derivatives are based on prevailing market prices in secondary markets for similar derivative contracts as of the measurement date. 12 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) The discount rates, exit capitalization rates and holding periods used to determine the fair value of our investment in the unconsolidated joint venture are Level 3 significant unobservable inputs and are shown in the table below: Exit Valuation Discount Capitalization Holding Technique Rates Rates Periods As of March 31, 2024 Investment in unconsolidated joint venture Discounted cash flow 5.75 % - 8.00 % 5.25 % - 6.50 % 10 - 12 years As of December 31, 2023 Investment in unconsolidated joint venture Discounted cash flow 5.75 % - 8.00 % 5.25 % - 6.50 % 9 - 12 years The table below presents a summary of the changes in fair value for our investment in the unconsolidated joint venture: Three Months Ended March 31, 2024 2023 Beginning balance $ 115,360 $ 124,358 Equity in earnings of unconsolidated joint venture 1,723 3,961 Distributions from unconsolidated joint venture ( 990 ) ( 990 ) Ending balance $ 116,093 $ 127,329 Note 7. Shareholders’ Equity Common Share Purchases During the three months ended March 31, 2024, we purchased an aggregate of 11,857 of our common shares, valued at a weighted average price of $ 4.12 per common share, from certain former employees of The RMR Group LLC, or RMR, in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares. We withheld and purchased these common shares at their fair market values based upon the trading prices of our common shares at the close of trading on The Nasdaq Stock Market LLC, or Nasdaq, on the applicable purchase dates. Distributions During the three months ended March 31, 2024, we declared and paid a regular quarterly distribution to common shareholders as follows: Distribution Total Declaration Date Record Date Payment Date Per Share Distribution January 11, 2024 January 22, 2024 February 15, 2024 $ 0.01 $ 658 On April 11, 2024, we declared a regular quarterly distribution to common shareholders of record on April 22, 2024 of $ 0.01 per share, or approximately $ 658 . We expect to pay this distribution to our shareholders on or about May 16, 2024 using cash on hand. Note 8. 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. 13 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Pursuant to our business management agreement with RMR, we recognized business management fees of $ 5,830 and $ 5,726 for the three months ended March 31, 2024 and 2023, respectively. Based on our common share total return, as defined in our business management agreement, as of March 31, 2024 and 2023, no incentive fees are included in the business management fees we recognized for the three months ended March 31, 2024 or 2023. The actual amount of annual incentive fees for 2024, 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, 2024, and will be payable in January 2025. We did no t incur any incentive fee payable to RMR for the year ended December 31, 2023. We include business management fees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss). Pursuant to our property management agreement with RMR, we recognized aggregate property management and construction supervision fees of $ 3,403 and $ 3,452 for the three months ended March 31, 2024 and 2023, respectively. Of these amounts, for the three months ended March 31, 2024 and 2023, $ 3,330 and $ 3,319 , respectively, were included in other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 73 and $ 133 , respectively, were capitalized as building 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 of 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 $ 1,687 and $ 1,841 for these expenses and costs for the three months ended March 31, 2024 and 2023, 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, our consolidated 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 9 for further information regarding our relationships, agreements and transactions with RMR. Note 9. 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. Each of our 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. Mr. Portnoy serves as chair of the boards and as a managing trustee of these public companies. Yael Duffy, our President and Chief Operating Officer, is also the president and chief operating officer of Office Properties Income Trust, one of the public companies managed by RMR. Other officers of RMR, including Mr. Jordan, serve as managing trustees or officers of certain of these public companies. Our Manager, RMR . We have two agreements with RMR to provide management services to us. See Note 8 for further information regarding our management agreements with RMR. 14 Table of Contents INDUSTRIAL LOGISTICS PROPERTIES TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Joint Ventures. We have two separate joint venture arrangements. RMR provides management services to each of these joint ventures. See Note 3 for further information regarding our joint ventures. As of March 31, 2024 and December 31, 2023, we owed $ 652 and $ 680 , 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. For further information about these and other such relationships and certain other related person transactions, see our 2023 Annual Report. Note 10. Derivatives and Hedging Activities 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 interest rate cap agreements to manage our interest rate risk exposure on each of the ILPT Floating Rate Loan and the Mountain 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. Our interest rate cap agreements are designated as cash flow hedges of interest rate risk and are measured on a recurring basis at fair value. See Notes 5 and 6 for further information regarding the debt our interest rate caps are related to and the fair value of our interest rate caps. The following table summarizes the terms of our outstanding interest rate cap agreements as of March 31, 2024 and December 31, 2023: Balance Sheet Underlying Current Strike Notional Fair Value at Line Item Instrument Maturity Rate Amount March 31, 2024 December 31, 2023 Other assets Mountain Floating Rate Loan 03/15/2024 3.40 % $ 1,400,000 $ — $ 5,516 Other assets Mountain Floating Rate Loan 03/15/2025 3.04 % $ 1,400,000 25,345 — Other assets ILPT Floating Rate Loan 10/15/2024 2.25 % $ 1,235,000 19,355 25,060 $ 44,700 $ 30,576 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. The following table summarizes the activity related to our cash flow hedges within cumulative other comprehensive income for the periods shown: Three Months Ended March 31, 2024 2023 Unrealized gain (loss) on derivatives recognized in cumulative other comprehensive income $ 4,674 $ ( 3,776 ) Realized gain on derivatives reclassified from cumulative other comprehensive income into interest expense ( 9,520 ) ( 5,002 ) Unrealized loss on derivatives recognized in cumulative other comprehensive income $ ( 4,846 ) $ ( 8,778 ) 15 Table of Contents