Industrial Logistics Properties Trust 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and with our 2023 Annual Report. OVERVIEW (dollars in thousands, except per square foot data) We are a real estate investment trust, or REIT, organized under Maryland law. As of March 31, 2024, our portfolio was comprised of 411 properties containing approximately 59,893,000 rentable square feet located in 39 states with 99.0% occupancy leased to 301 different tenants. As of March 31, 2024, we also owned a 22% equity interest in the unconsolidated joint venture. Our portfolio as of March 31, 2024 is summarized below (square feet in thousands): Weighted Average Number of Rentable Remaining Ownership Properties States Square Feet Occupancy Lease Term (1) Hawaii Properties 100% 226 Hawaii 16,729 99.0% 13.1 Consolidated joint venture properties 61% 94 27 States 20,981 99.2% 6.9 Wholly owned Mainland Properties 100% 90 34 States 22,119 98.9% 5.0 Other 67% 1 New Jersey 64 100.0% 4.2 Total/weighted average 411 59,893 99.0% 8.0 (1) Based on annualized rental revenues as of March 31, 2024. During the three months ended March 31, 2024, our rental income and net operating income, or NOI, increased compared to the 2023 period primarily due to 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 Occupancy data for our properties as of March 31, 2024 and 2023 were as follows: All Properties Comparable Properties as of March 31, as of March 31, (1) 2024 2023 2024 2023 Total properties 411 413 411 411 Total rentable square feet (in thousands) (2) 59,893 59,983 59,893 59,951 Percent leased (3) 99.0 % 98.7 % 99.0 % 98.7 % (1) Consists of properties that we owned continuously since January 1, 2023. (2) Subject to modest adjustments when space is remeasured or reconfigured for new tenants and when land leases are converted to building leases. (3) Leased square feet is pursuant to existing leases as of March 31, 2024, and includes space being fitted out for occupancy, if any, and space which is leased but is not occupied, if any. 16 Table of Contents 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 three months ended March 31, 2024 and 2023, the average effective rental rates per square foot of our properties were as follows: Three Months Ended March 31, 2024 2023 All properties $ 7.58 $ 7.46 Comparable properties (1) $ 7.58 $ 7.46 (1) Consists of properties that we owned continuously since January 1, 2023. During the three months ended March 31, 2024, we entered into new and renewal leases as summarized in the following table: Three Months Ended March 31, 2024 New Leases Renewals Totals Square feet leased during the period (in thousands) 90 1,785 1,875 Weighted average rental rate change (by rentable square feet) 48.1 % 38.5 % 39.4 % Weighted average lease term by square feet (years) 19.4 5.6 6.2 Total leasing costs and concession commitments (1) $ 717 $ 2,754 $ 3,471 Total leasing costs and concession commitments per square foot (1) $ 7.96 $ 1.54 $ 1.85 Total leasing costs and concession commitments per square foot per year (1) $ 0.41 $ 0.28 $ 0.30 (1) Includes commitments made for leasing expenditures and concessions, such as leasing commissions, tenant improvements or other tenant inducements. During the three months ended March 31, 2024, we completed rent resets for approximately 106,000 square feet of land at our Hawaii Properties at rental rates that were approximately 27.5% higher than prior rental rates. As of March 31, 2024, our remaining lease expirations by year were as follows (square feet in thousands): % of Total Cumulative % of Total Cumulative % Annualized Annualized % of Total Leased Leased of Total Rental Rental Annualized No. of Square Feet Square Feet Square Feet Revenues Revenues Rental Revenues Period/Year Leases Expiring (1) Expiring (1) Expiring (1) Expiring (2) Expiring (2) Expiring (2) 2024 32 4,017 6.8 % 6.8 % $ 20,420 4.6 % 4.6 % 2025 34 4,355 7.3 % 14.1 % 26,598 6.0 % 10.6 % 2026 32 4,174 7.0 % 21.1 % 29,664 6.7 % 17.3 % 2027 38 8,738 14.7 % 35.8 % 53,275 12.1 % 29.4 % 2028 41 6,066 10.2 % 46.0 % 45,274 10.3 % 39.7 % Thereafter 213 31,963 54.0 % 100.0 % 265,595 60.3 % 100.0 % Total 390 59,313 100.0 % $ 440,826 100.0 % Weighted average remaining lease term (in years) 7.0 8.0 (1) Leased square feet is pursuant to existing leases as of March 31, 2024, and includes space being fitted out for occupancy, if any, and space which is leased but is not occupied, if any. (2) Annualized rental revenues are as of March 31, 2024. As of March 31, 2024, subsidiaries of FedEx and Amazon leased 21.7% and 7.7% of our total leased square feet, respectively, and represented 28.9% and 6.7% of our total annualized rental revenues, respectively. 17 Table of Contents Mainland Properties. As of March 31, 2024, occupancy at our Mainland Properties was 99.0% and represented 72.0% of our annualized rental revenues. We generally will seek to renew or extend the terms of leases at our Mainland Properties as their expirations approach. A majority of the leases at our Mainland Properties include periodic set dollar amount or percentage increases that increase 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. If we are unable to extend or renew our leases, it may be time consuming and expensive to relet some of these properties and the terms of any leases we may enter may be less favorable to us than the terms of our existing leases for those properties. Hawaii Properties. As of March 31, 2024, occupancy at our Hawaii Properties was 99.0% and represented 28.0% of our annualized rental revenues. As of March 31, 2024, 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 as rents under the leases for those properties have been reset or renewed. Lease renewals, lease extensions, new leases and rental rates for our Hawaii Properties in the future will depend on prevailing market conditions when these lease renewals, lease extensions, new leases and rental rates are set. As rent reset dates or lease expirations approach at our Hawaii Properties, we generally negotiate with existing or new tenants for new lease terms. 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. 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. The following table provides the annualized rental revenues scheduled to reset at our Hawaii Properties as of March 31, 2024: Annualized Rental Revenues Scheduled to Reset 2024 $ — 2025 1,002 2026 1,315 2027 795 2028 — Thereafter 19,338 Total $ 22,450 As of March 31, 2024, $24,430, or 5.5%, of our annualized rental revenues are included in leases scheduled to expire by March 31, 2025 and 1.0% of our rentable square feet are currently vacant. Rental rates for which available space may be leased in the future will depend on prevailing market conditions when lease extensions, lease renewals or new leases are negotiated. 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. Despite our 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. Our manager, RMR, employs a tenant review process for us. RMR assesses tenants on an individual basis based on various applicable credit criteria. In general, depending on facts and circumstances, RMR evaluates the creditworthiness of a tenant based on information that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources. 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. 18 Table of Contents RESULTS OF OPERATIONS Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023 (dollars and share amounts in thousands, except per share data) Comparable Non-Comparable Properties Results Properties Results Consolidated Results Three Months Ended March 31, (1) Three Months Ended March 31, (2) Three Months Ended March 31, $ % $ $ % 2024 2023 Change Change 2024 2023 Change 2024 2023 Change Change Rental income $ 112,235 $ 110,195 $ 2,040 1.9% $ — $ 63 $ (63) $ 112,235 $ 110,258 $ 1,977 1.8% Operating expenses: Real estate taxes 15,860 16,461 (601) (3.7%) 1 6 (5) 15,861 16,467 (606) (3.7%) Other operating expenses 10,290 9,307 983 10.6% 32 11 21 10,322 9,318 1,004 10.8% Total operating expenses 26,150 25,768 382 1.5% 33 17 16 26,183 25,785 398 1.5% Net operating income (3) $ 86,085 $ 84,427 $ 1,658 2.0% $ (33) $ 46 $ (79) 86,052 84,473 1,579 1.9% Other expenses: Depreciation and amortization 43,577 45,457 (1,880) (4.1)% General and administrative 7,689 7,907 (218) (2.8)% Total other expenses 51,266 53,364 (2,098) (3.9)% Interest and other income 2,852 1,146 1,706 148.9% Interest expense (73,230) (70,771) (2,459) 3.5% Loss on sale of real estate — (974) 974 (100.0)% Loss before income taxes and equity in earnings of unconsolidated joint venture (35,592) (39,490) 3,898 (9.9)% Income tax expense (33) (17) (16) 94.1% Equity in earnings of unconsolidated joint venture 1,723 3,961 (2,238) (56.5)% Net loss (33,902) (35,546) 1,644 (4.6)% Net loss attributable to noncontrolling interest 10,499 10,737 (238) (2.2)% Net loss attributable to common shareholders $ (23,403) $ (24,809) $ 1,406 (5.7)% Weighted average common shares outstanding (basic and diluted) 65,556 65,309 247 0.4% Per common share data (basic and diluted): Net loss attributable to common shareholders $ (0.36) $ (0.38) $ 0.02 (5.3)% (1) Consists of properties that we owned continuously since January 1, 2023. (2) Consists of two properties we disposed of during the period from January 1, 2023 to March 31, 2024. (3) See our definition of NOI and our reconciliation of net loss to NOI below under the heading "Non-GAAP Financial Measures." References to changes in the income and expense categories below relate to the comparison of results for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Rental income. Rental income increased primarily due to increases from our leasing activity and rent resets. Real estate taxes. Real estate taxes decreased primarily due to lower assessed values as a result of successful real estate tax appeals. Other operating expenses . Other operating expenses increased primarily due to increases in insurance and repairs and maintenance costs and snow removal expenses at certain of our properties. 19 Table of Contents Depreciation and amortization. The decrease in depreciation and amortization primarily reflects certain leasing related assets becoming fully amortized and our disposition related activities after April 1, 2023, partially offset by an increase in depreciation of improvements made to certain of our properties after April 1, 2023. General and administrative. The decrease in general and administrative expenses is primarily due to decreases in accounting fees and leasing costs, partially offset by an increase in other professional fees in the 2024 period. Interest and other income. The increase in interest and other income is primarily due to higher interest rates and average cash balances during the 2024 period as compared to the 2023 period. Interest expense. The increase in interest expense is primarily due to refinancing activities from our consolidated joint venture in May 2023, resulting in higher debt balances and interest rate and costs related to the purchase of an interest rate cap during the 2024 period. Loss on sale of real estate. During the 2023 period, we 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, Washington. Income tax expense. Income tax expense primarily reflects state income taxes payable in certain jurisdictions. Equity in earnings of unconsolidated joint venture. Equity in earnings of unconsolidated joint venture is the change in the fair value of our investment in the unconsolidated joint venture. Non-GAAP Financial Measures (dollars in thousands, except per share data) We present certain “non-GAAP financial measures” within the meaning of the applicable Securities and Exchange Commission, or SEC, rules, including NOI, funds from operations, or FFO, attributable to common shareholders and normalized funds from operations, or Normalized FFO, attributable to common shareholders. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net loss or net loss attributable to common shareholders, as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net loss and net loss attributable to common shareholders as presented in our condensed consolidated statements of comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net loss and net loss attributable to common shareholders. We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties. Net Operating Income We calculate NOI as shown below. 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 loss in order to provide results that are more closely related to our property level results of operations. NOI excludes 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. 20 Table of Contents The following table presents the reconciliation of net loss to NOI for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, 2024 2023 Net loss $ (33,902) $ (35,546) Equity in earnings of unconsolidated joint venture (1,723) (3,961) Income tax expense 33 17 Loss before income taxes and equity in earnings of unconsolidated joint venture (35,592) (39,490) Loss on sale of real estate — 974 Interest expense 73,230 70,771 Interest and other income (2,852) (1,146) General and administrative 7,689 7,907 Depreciation and amortization 43,577 45,457 NOI $ 86,052 $ 84,473 NOI: Hawaii Properties $ 23,433 $ 22,122 Mainland Properties 62,619 62,351 NOI $ 86,052 $ 84,473 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: (1) net loss attributable to common shareholders calculated in accordance with GAAP, excluding any gain or loss on sale of real estate and equity in earnings of unconsolidated joint venture; (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 distribution rate as a percentage of the trading price of our common shares, or 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 real estate companies and REITs may calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders differently than we do. 21 Table of Contents The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net loss attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, 2024 2023 Net loss attributable to common shareholders $ (23,403) $ (24,809) Equity in earnings of unconsolidated joint venture (1,723) (3,961) Loss on sale of real estate — 974 Depreciation and amortization 43,577 45,457 Share of FFO from unconsolidated joint venture 1,459 1,468 FFO adjustments attributable to noncontrolling interest (10,460) (11,213) FFO and Normalized FFO attributable to common shareholders $ 9,450 $ 7,916 Weighted average common shares outstanding (basic and diluted) 65,556 65,309 Per common share data (basic and diluted): FFO and Normalized FFO attributable to common shareholders $ 0.14 $ 0.12 LIQUIDITY AND CAPITAL RESOURCES Our Operating Liquidity and Resources (dollars in thousands) Our principal sources of funds to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders are rents from tenants at our properties. As of March 31, 2024, investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases represented 76.6% of our annualized rental revenues and only 5.5% of our annualized rental revenues were from leases expiring over the next 12 months. We believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter. Our future cash flows from operating activities will depend primarily upon our ability to: • collect rents from our tenants when due; • maintain the occupancy of, and maintain or increase the rental rates at, our properties; • control our operating cost increases, including interest and other financing costs; • develop properties to produce cash flows in excess of our costs of capital; and • 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 condensed consolidated statements of cash flows: Three Months Ended March 31, 2024 2023 Cash and cash equivalents and restricted cash and cash equivalents at beginning of period $ 245,723 $ 140,780 Net cash provided by (used in): Operating activities 7,989 1,167 Investing activities (11,770) 9,435 Financing activities (5,465) (6,223) Cash and cash equivalents and restricted cash and cash equivalents at end of period $ 236,477 $ 145,159 22 Table of Contents The increase in net cash provided by operating activities for the three months ended March 31, 2024 compared to the 2023 period is primarily due to higher cash flows from our properties and favorable changes in working capital in the 2024 period. The change in net cash used in investing activities for the 2024 period compared to net cash provided by investing activities for the 2023 period is primarily due to costs associated with the purchase of an interest rate cap for $26,175 in the 2024 period. The decrease in net cash used in financing activities was primarily due to a decrease in principal repayments on our amortizing loans. Our Investing and Financing Liquidity and Resources (dollars in thousands, except per share and per square foot data) As of March 31, 2024, we had cash and cash equivalents, excluding restricted cash and cash equivalents, of $128,394. To maintain our qualification for taxation as a REIT under the Internal Revenue Code of 1986, as amended, 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. This distribution requirement limits our ability to retain earnings and thereby provide capital for our operations or acquisitions. 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. 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. 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. 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. Real Estate Activities During the three months ended March 31, 2024 and 2023, amounts capitalized for tenant improvements and leasing costs, building improvements and development and redevelopment activities were as follows: Three Months Ended March 31, 2024 2023 Tenant improvements and leasing costs (1) $ 2,571 $ 2,040 Building improvements (2) 802 370 Development, redevelopment and other activities (3) — 2,521 $ 3,373 $ 4,931 (1) Tenant improvements and leasing costs include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space and leasing related costs, such as brokerage commissions and tenant inducements. (2) Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets. (3) Development, redevelopment and other activities generally include capital expenditure projects that reposition a property or result in new sources of revenues. As of March 31, 2024, we had estimated unspent leasing related obligations of $5,981, all of which is expected to be spent during the next 12 months. Consolidated Joint Venture We own a 61% equity interest in our consolidated joint venture, which owns 94 properties in 27 states totaling approximately 20,981,000 rentable square feet. We control our consolidated joint venture and therefore account for the properties owned by this joint venture on a consolidated basis. We recognized net loss attributable to noncontrolling interest of our consolidated joint venture 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. 23 Table of Contents Unconsolidated Joint Venture We own a 22% equity interest in 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). The unconsolidated joint venture made aggregate cash distributions to us of $990 during the three months ended March 31, 2024 and 2023, respectively. For further information regarding these joint ventures, see Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Indebtedness 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 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. 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 one year options to extend the ILPT Floating Rate Loan and the Mountain Floating Rate Loan require, among other things, that we obtain a replacement interest rate cap, as defined in the applicable agreement. As of March 31, 2024, we had an aggregate principal amount of $4,321,478 of indebtedness, including the ILPT Floating Rate Loan, the Mountain Floating Rate Loan, the $700,000 mortgage loan and the $650,000 mortgage loan, scheduled to mature between 2024 and 2038. The agreements and related documents governing the ILPT Floating Rate Loan, the Mountain Floating Rate Loan, our $700,000 mortgage loan and our $650,000 mortgage loan contain customary covenants, provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default and, in the case of the $650,000 mortgage loan, also require us to maintain a minimum consolidated net worth of at least $250,000 and liquidity of at least $15,000. As of March 31, 2024, we believe that we were in compliance with all of the covenants and other terms under the agreements governing these loans. For further information regarding our indebtedness, see Notes 5 and 6 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Distributions During the three months ended March 31, 2024, we paid quarterly cash distributions to our shareholders totaling $658 using cash on hand. 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. 24 Table of Contents Related Person Transactions We have relationships and historical and continuing transactions with RMR, RMR Inc. and others related to them. For further information about these and other such relationships and related person transactions, see Notes 8 and 9 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2023 Annual Report, our definitive Proxy Statement for our 2024 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” of our 2023 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services. Critical Accounting Estimates The preparation of our condensed consolidated 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. A discussion of our critical accounting estimates is included in our 2023 Annual Report. There have been no significant changes in our critical accounting estimates since the year ended December 31, 2023.