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Item 2. Management’s Discussion and Analysis

2024-10-29 compared with 2024-07-30 · 130 added, 110 removed, 287 unchanged (46% of the section changed)

3 unchanged sentences

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

As of June 30, 2024, our portfolio was comprised of 411 properties containing approximately 59,893,000 rentable square feet located in 39 states with 95.4% occupancy leased to 300 different tenants.

As of June 30, 2024, we also owned a 22% equity interest in the unconsolidated joint venture.

Our portfolio as of June 30, 2024 is summarized below (square feet in thousands):

As of September 30, 2024, our portfolio was comprised of 411 properties containing approximately 59,890,000 rentable square feet located in 39 states with 94.4% occupancy leased to approximately 300 different tenants.

As of September 30, 2024, we also owned a 22% equity interest in the unconsolidated joint venture.

Our portfolio as of September 30, 2024 is summarized below (square feet in thousands):

Number of Rentable Remaining

Ownership Properties States Square Feet Occupancy Lease Term (1)

Ownership Properties Location

Square Feet Occupancy Lease Term (1)

Mainland Properties

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Total / weighted average 411 59,890 94.4% 8.0

(1) Based on annualized rental revenues as of June 30, 2024.

During the three and six months ended June 30, 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.

(1) Based on annualized rental revenues as of September 30, 2024.

During the nine months ended September 30, 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.

However, high interest rates, even with the recent reduction and anticipated future reductions by the U.S.

Federal Reserve, inflationary pressures, and global geopolitical hostilities and tensions, have given rise to economic uncertainty and have caused disruptions in the financial markets.

These conditions continue to keep our cost of capital elevated and negatively impact 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 June 30, 2024 and 2023 were as follows:

Occupancy data for our properties as of September 30, 2024 and 2023 were as follows:

All Properties Comparable Properties

as of June 30,

as of June 30, (1)

as of September 30,

as of September 30, (1)

2024 2023 2024 2023

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94.4 % 98.9 % 94.4 % 98.9 %

(1) Consists of properties that we owned continuously since April 1, 2023.

(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 June 30, 2024, and includes space being fitted out for occupancy, if any, and space which is leased but is not occupied, if any.

(3) Leased square feet is pursuant to existing leases as of September 30, 2024, and includes space being fitted out for occupancy, if any, and space which is leased but is not occupied, if any.

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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 and six months ended June 30, 2024 and 2023, the average effective rental rates per square foot of our properties were as follows:

Three Months Ended June 30, (1)

Six Months Ended June 30, (2)

For the three and nine months ended September 30, 2024 and 2023, the average effective rental rates per square foot of our properties were as follows:

Three Months Ended Nine Months Ended

September 30, (1)

September 30, (2)

2024 2023 2024 2023

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$ 7.69 $ 7.43 $ 7.68 $ 7.40

(1) Consists of properties that we owned continuously since April 1, 2023.

(1) Consists of properties that we owned continuously since July 1, 2023.

(2) Consists of properties that we owned continuously since January 1, 2023.

During the three and six months ended June 30, 2024, we entered into new and renewal leases as summarized in the following table (excluding the impact of rent resets):

Three Months Ended June 30, 2024

During the three and nine months ended September 30, 2024, we entered into new and renewal leases as summarized in the following table (excluding the impact of rent resets):

Three Months Ended September 30, 2024

New Leases Renewals Totals

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$ 1.75 $ 0.17 $ 0.17

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

New Leases Renewals Totals

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

During the six months ended June 30, 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.

There were no rent resets during the three months ended June 30, 2024.

As of June 30, 2024, our remaining lease expirations by year were as follows (square feet in thousands):

During the nine months ended September 30, 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.

There were no rent resets during the three months ended September 30, 2024.

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As of September 30, 2024, our remaining lease expirations by year were as follows (square feet in thousands):

% of Total Cumulative

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Leases Expiring (1)

Expiring Expiring Expiring

11 79 0.1 % 0.1 % $ 1,293 0.3 % 0.3 %

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Weighted average remaining lease term (in years) 7.2 8.0

(1) Leased square feet is pursuant to existing leases as of June 30, 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 June 30, 2024.

As of June 30, 2024, subsidiaries of FedEx and Amazon leased 22.4% and 7.9% of our total leased square feet, respectively, and represented 29.0% and 6.8% of our total annualized rental revenues, respectively.

(1) Leased square feet is pursuant to existing leases as of September 30, 2024, and includes space being fitted out for occupancy, if any, and space which is leased but is not occupied, if any.

As of September 30, 2024, subsidiaries of FedEx and Amazon leased 22.7% and 8.0% of our total leased square feet, respectively, and represented 29.3% and 6.8% of our total annualized rental revenues, respectively.

Mainland Properties.

As of June 30, 2024, occupancy at our Mainland Properties was 98.9% and represented 72.4% of our annualized rental revenues.

As of September 30, 2024, occupancy at our Mainland Properties was 97.7% 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.

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Hawaii Properties.

As of June 30, 2024, occupancy at our Hawaii Properties was 86.1% and represented 27.6% of our annualized rental revenues.

As of June 30, 2024, certain of our Hawaii Properties are lands leased for rents that periodically reset based on fair market values, generally every 10 years.

As of September 30, 2024, occupancy at our Hawaii Properties was 85.7% and represented 27.9% of our annualized rental revenues.

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.

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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 June 30, 2024:

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The following table provides the annualized rental revenues scheduled to reset at our Hawaii Properties as of September 30, 2024:

Rental Revenues

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Total $ 22,873

As of June 30, 2024, $22,564, or 5.1%, of our annualized rental revenues are included in leases scheduled to expire by June 30, 2025 and 4.6% of our rentable square feet are currently vacant.

As of September 30, 2024, $17,287, or 4.0%, of our annualized rental revenues are included in leases scheduled to expire by September 30, 2025 and 5.6% of our rentable square feet are currently vacant.

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

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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.

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.

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RESULTS OF OPERATIONS

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 (dollars and share amounts in thousands, except per share data)

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 (dollars and share amounts in thousands, except per share data)

Comparable Non-Comparable

Properties Results Properties Results Consolidated Results

Three Months Ended June 30, (1)

Three Months Ended June 30, (2)

Three Months Ended June 30,

Three Months Ended Three Months Ended Three Months Ended

September 30, (1)

September 30, (2)

September 30,

2024 2023 Change Change 2024 2023 Change 2024 2023 Change Change

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Total operating expenses 24,232 24,820 (588) (2.4)% 4 13 (9) 24,236 24,833 (597) (2.4)%

Net operating income (3)

$ 84,713 $ 85,322 $ (609) (0.7)% $ (4) $ (13) $ 9 84,709 85,309 (600) (0.7)%

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General and administrative 7,237 7,712 (475) (6.2)%

Loss on impairment of real estate — 254 (254) (100.0)%

Total other expenses 50,442 51,624 (1,182) (2.3)%

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Interest expense (73,936) (72,941) (995) 1.4%

Loss on early extinguishment of debt — (359) 359 (100.0)%

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

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Net loss attributable to common shareholders $ (0.38) $ (0.40) $ 0.02 (5.0)%

(1) Consists of properties that we owned continuously since April 1, 2023.

(2) Consists of two properties we disposed of during the period from April 1, 2023 to June 30, 2024.

(1) Consists of properties that we owned continuously since July 1, 2023.

(2) Consists of two properties we disposed of since July 1, 2023.

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

References to changes in the income and expense categories below relate to the comparison of results for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

References to changes in the income and expense categories below relate to the comparison of results for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Rental income.

Rental income increased primarily due to increases from our leasing activity and rent resets.

Rental income decreased primarily due to vacancies at two of our properties, partially offset by increased rental income from leasing activities and rent resets.

Real estate taxes .

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

Other operating expenses .

Other operating expenses increased primarily due to increases in insurance expenses at certain of our properties.

Other operating expenses decreased primarily due to decreases in maintenance and repair expenses incurred in the 2023 period at certain of our properties and insurance expenses.

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Depreciation and amortization.

The decrease in depreciation and amortization primarily reflects certain leasing related assets becoming fully amortized after July 1, 2023, partially offset by an increase in depreciation of improvements made to certain of our properties after July 1, 2023.

The decrease in depreciation and amortization primarily reflects the impact of renewals at certain of our properties as a result of leasing activity in the 2024 period and certain acquired real estate leases fully amortizing since October 1, 2023, partially offset by increased depreciation related to improvements made to certain of our properties since October 1, 2023.

General and administrative.

The decrease in general and administrative expenses is primarily due to decreases in legal and other professional fees and franchise taxes, partially offset by increases in our equity based compensation and in our business management fees during the 2024 period.

Loss on impairment of real estate.

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

The decrease in general and administrative expenses is primarily due to decreases in franchise taxes and professional fees, partially offset by an increase in leasing costs compared to the 2023 period.

Interest income.

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Interest expense.

In March 2024, our consolidated joint venture exercised the first of its three, one year options to extend the maturity date of the Mountain Floating Rate Loan and purchased a one year interest rate cap for $26,175 and reduced the weighted average interest rate from 6.17% to 5.81%.

The increase in interest expense is primarily due to increased amortization related to the cost of the interest rate cap, partially offset by decreased weighted average interest costs and amortization of debt issuance costs related to the Mountain Floating Rate Loan.

Loss on early extinguishment of debt.

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

The increase in interest expense is primarily due to increased amortization related to the cost of the interest rate cap purchased by our consolidated joint venture in March 2024, partially offset by decreased interest costs and amortization of debt issuance costs related to the Mountain Floating Rate Loan.

Income tax expense.

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

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023 (dollars and share amounts in thousands, except per share data)

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Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 (dollars and share amounts in thousands, except per share data)

Comparable Non-Comparable

Properties Results Properties Results Consolidated Results

Six Months Ended June 30, (1)

Six Months Ended June 30, (2)

Six Months Ended June 30,

Nine Months Ended Nine Months Ended Nine Months Ended

September 30, (1)

September 30, (2)

September 30,

2024 2023 Change Change 2024 2023 Change 2024 2023 Change Change

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Total operating expenses 74,739 74,189 550 0.7% 36 48 (12) 74,775 74,237 538 0.7%

Net operating income (3)

$ 257,062 $ 254,150 $ 2,912 1.1% $ (36) $ 56 $ (92) 257,026 254,206 2,820 1.1%

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(1) Consists of properties that we owned continuously since January 1, 2023.

(2) Consists of two properties and a portion of a land parcel we disposed of during the period from January 1, 2023 to June 30, 2024.

(2) Consists of two properties and a portion of a land parcel we disposed since January 1, 2023.

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

References to changes in the income and expense categories below relate to the comparison of results for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

References to changes in the income and expense categories below relate to the comparison of results for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Rental income.

Rental income increased primarily due to increases from our leasing activity and rent resets.

Rental income increased primarily due to increases from our net leasing activity and rent resets.

Real estate taxes.

Real estate taxes decreased primarily due to lowered assessed values as a result of successful real estate tax appeals.

Real estate taxes decreased primarily due to successful real estate tax appeals, partially offset by higher assessed values at certain of our properties.

Tabl e of Contents

Other operating expenses .

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

Other operating expenses increased primarily due to increases in insurance, roof repairs, snow removal expenses and professional fees at certain of our properties.

Depreciation and amortization.

The decrease in depreciation and amortization primarily reflects certain leasing related assets becoming fully amortized in the 2023 period, partially offset by an increase in depreciation of improvements made to certain of our properties in the 2023 period.

The decrease in depreciation and amortization primarily reflects the impact of renewals at certain of our properties as a result of leasing activity in the 2024 period and certain acquired real estate leases fully amortizing since the 2023 period, partially offset by increased depreciation related to improvements made to certain of our properties since the 2023 period.

General and administrative.

The decrease in general and administrative expenses is primarily due to decreases in accounting fees and franchise taxes, partially offset by increases in our equity based compensation and in our business management fees during the 2024 period.

The decrease in general and administrative expenses is primarily due to decreases in franchise taxes and professional fees, partially offset by increases in our equity based compensation and in our business management fees during the 2024 period.

Loss on impairment of real estate.

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Interest expense.

In March 2024, our consolidated joint venture exercised the first of its three, one year options to extend the maturity date of the Mountain Floating Rate Loan and purchased a one year interest rate cap, reducing the weighted average interest rate from 6.17% to 5.81%, for $26,175.

The increase in interest expense is primarily due to increased amortization related to the cost of the interest rate cap and the $91,000 mortgage loan obtained by our consolidated joint venture in May 2023, partially offset by decreased weighted average interest costs and amortization of debt issuance costs related to the Mountain Floating Rate Loan.

The increase in interest expense is primarily due to increased amortization related to the cost of the interest rate cap purchased by our consolidated joint venture in March 2024 and the $91,000 mortgage loan obtained by our consolidated joint venture in May 2023, partially offset by decreased interest costs and amortization of debt issuance costs related to the Mountain Floating Rate Loan.

Loss on sale of real estate.

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

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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 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.

We present certain “non-GAAP financial measures” within the meaning of the applicable rules of the Securities and Exchange Commission, or the SEC, including NOI, funds from operations, or FFO, attributable to common shareholders and normalized funds from operations, or Normalized FFO, attributable to common shareholders.

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

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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.

NOI excludes depreciation and amortization.

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 to NOI for the three and six months ended June 30, 2024 and 2023:

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

The following table presents the reconciliation of net loss to NOI for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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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;

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

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

(3) minus FFO adjustments attributable to noncontrolling interest;

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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.

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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.

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

The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net loss attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three and six months ended June 30, 2024 and 2023:

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

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

2024 2023 2024 2023

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LIQUIDITY AND CAPITAL 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 June 30, 2024, investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases represented approximately 77% of our annualized rental revenues and only 5.1% 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 principal sources of funds to meet our operating and capital obligations, pay our debt service and make distributions to our shareholders are rents from tenants at our properties.

As of September 30, 2024, investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases represented 77.2% of our annualized rental revenues and only 4.0% 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 obligations, pay our debt service and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter.

Tabl e of Contents

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:

Six Months Ended June 30,

Nine Months Ended

September 30,

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

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Cash and cash equivalents and restricted cash and cash equivalents at end of period $ 264,931 $ 222,503

The increase in net cash provided by operating activities for the six months ended June 30, 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 decrease in net cash provided by investing activities for the six months ended June 30, 2024 compared to the 2023 period is primarily due to costs associated with the purchase of an interest rate cap for $26,175 in the 2024 period, partially offset by increased proceeds from the settlement of our interest rate caps and a reduction in our real estate improvements.

The change in net cash used in financing activities for the six months ended June 30, 2024 compared to net cash provided by financing activities for the 2023 period was primarily due to our consolidated joint venture obtaining a $91,000 fixed rate, interest only mortgage loan secured by four properties owned by our consolidated joint venture in the 2023 period.

The increase in net cash provided by operating activities for the nine months ended September 30, 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 decrease in net cash provided by investing activities for the nine months ended September 30, 2024 compared to the 2023 period is primarily due to costs associated with the purchase of an interest rate cap for $26,175 in the 2024 period and distributions in excess of earnings from the unconsolidated joint venture in the 2023 period, partially offset by increased proceeds from the settlement of our interest rate caps and a reduction in expenditures on our real estate improvements.

The change in net cash used in financing activities for the nine months ended September 30, 2024 compared to net cash provided by financing activities for the 2023 period was primarily due to our consolidated joint venture obtaining a $91,000 fixed rate, interest only mortgage loan secured by four properties owned by our consolidated joint venture in the 2023 period.

A portion of the net proceeds was used to repay four then outstanding mortgage loans of our consolidated joint venture with an aggregate outstanding principal balance of $35,910 in the 2023 period.

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

As of June 30, 2024, we had cash and cash equivalents, excluding restricted cash and cash equivalents, of $146,150.

As of September 30, 2024, we had cash and cash equivalents, excluding restricted cash and cash equivalents, of $153,863.

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.

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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.

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.

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Further, any issuances of our equity securities may be dilutive to our existing 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, net proceeds from offerings of equity or debt securities and cash on hand.

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

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.

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Real Estate Activities

During the three and six months ended June 30, 2024 and 2023, amounts capitalized at our properties for tenant improvements, leasing costs, building improvements and development, redevelopment and other activities were as follows:

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

During the three and nine months ended September 30, 2024 and 2023, amounts capitalized at our properties for tenant improvements, leasing costs, building improvements and development, redevelopment and other activities were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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(3) Development, redevelopment and other activities generally include capital expenditure projects that reposition a property or result in new sources of revenues.

As of June 30, 2024, we had estimated unspent leasing related obligations of $5,646, 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.

As of September 30, 2024, committed, but unspent, tenant related obligations based on existing leases were $6,382, of which $6,042 is expected to be spent during the next 12 months.

Joint Ventures

We own a 61% equity interest in our consolidated joint venture.

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 June 30, 2024 and 2023 of $10,314 and $10,676, respectively, and $20,828 and $21,404 for the six months ended June 30, 2024 and 2023, respectively.

As of June 30, 2024, our consolidated joint venture had total assets of $2,964,265 and total liabilities of $1,769,499.

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 also own a 22% equity interest in the unconsolidated joint venture.

We account for the unconsolidated joint venture using 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 for both the three months ended June 30, 2024 and 2023, and $1,980 for both the six months ended June 30, 2024 and 2023.

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 June 30, 2024 and December 31, 2023, and for the three and six months ended June 30, 2024 and 2023.

The unconsolidated joint venture made aggregate cash distributions to us of $990 and $5,390 for the three months ended September 30, 2024 and 2023, respectively, and $2,970 and $7,370 for the nine months ended September 30, 2024 and 2023, respectively.

For further information regarding our consolidated joint venture and unconsolidated joint venture, see Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The ILPT Floating Rate Loan, which is secured by 104 of our properties, was scheduled to mature in October 2024, subject to three, one year extension options, and required that interest be paid at an annual rate of SOFR plus a weighted average premium of 3.93%.

In October 2024, we exercised the first of our three, one year extension options for the maturity date of this loan.

In connection with the exercise of the extension, we purchased a one year interest rate cap for $16,975 with a SOFR strike rate equal to 2.78%, which replaced the previous interest rate cap with a SOFR strike rate equal to 2.25%.

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.

As of July 30, 2024, we intend to exercise the first of our three, one year options to extend the maturity of this loan.

The Mountain Floating Rate Loan matures in March 2025, subject to two remaining one year extension options, and requires that interest be paid at an annual rate of SOFR plus a premium of 2.77%.

In March 2024, in connection with the exercise of its option to extend the maturity date of this loan to March 2025, 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 June 30, 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 5.81% and 5.95% for the three and six months ended June 30, 2024, respectively, including the impact of our interest rate caps.

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

In March 2024, in connection with the exercise of the first of its three, one year extension options for the maturity date of this loan, 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%.

Subject to the satisfaction of certain conditions, we have the option to prepay the Mountain Floating Rate Loan in full or in part at any time at par with no premium.

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The weighted average interest rates under our floating rate loans for the three and nine months ended September 30, 2024 were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

ILPT Floating Rate Loan (1)

6.18% 6.18% 6.18% 6.18%

Mountain Floating Rale Loan (2)

5.81% 6.17% 5.90% 6.17%

(1) Reflects the impact of an interest rate cap with a SOFR strike rate equal to 2.25%.

(2) Reflects the impact of interest rate caps with a current SOFR strike rate equal to 3.04%, which replaced the previous strike rate equal to 3.40% in March 2024.

The one year extension options for 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.

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

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

We recognized a loss on early extinguishment of debt of $359 for the six months ended June 30, 2023 in conjunction with the repayment of these mortgage loans.

As of June 30, 2024, we had an aggregate principal amount of $4,316,970 of indebtedness, including the ILPT Floating Rate Loan, the Mountain Floating Rate Loan, our $700,000 mortgage loan and our $650,000 mortgage loan, scheduled to mature between 2024 and 2038.

We recognized a loss on early extinguishment of debt of $359 for the nine months ended September 30, 2023 in conjunction with the repayment of these mortgage loans.

As of September 30, 2024, we had an aggregate principal amount of $4,312,421 of indebtedness, including the ILPT Floating Rate Loan, the Mountain Floating Rate Loan, our $700,000 mortgage loan and our $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 June 30, 2024, we believe that we were in compliance with all of the covenants and other terms under the agreements governing these loans.

As of September 30, 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 six months ended June 30, 2024, we paid quarterly cash distributions to our shareholders totaling $1,317 using cash on hand.

On July 11, 2024, we declared a regular quarterly distribution to common shareholders of record on July 22, 2024 of $0.01 per share, or approximately $660.

We expect to pay this distribution to our shareholders on or about August 15, 2024 using cash on hand.

During the nine months ended September 30, 2024, we paid quarterly cash distributions to our shareholders totaling $1,976 using cash on hand.

On October 16, 2024, we declared a regular quarterly distribution to common shareholders of record on October 28, 2024 of $0.01 per share, or approximately $661.

We expect to pay this distribution to our shareholders on or about November 14, 2024 using cash on hand.

Related Person Transactions

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We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services.

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Critical Accounting Estimates

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis