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Item 2. Management’s Discussion and Analysis

2025-04-29 compared with 2024-10-29 · 129 added, 251 removed, 166 unchanged (70% of the section changed)

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.

The following information should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our 2024 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 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

As of March 31, 2025, our portfolio was comprised of 411 properties containing approximately 59,890,000 rentable square feet located in 39 states with 94.6% occupancy leased to approximately 300 different tenants.

As of March 31, 2025, we also owned a 22% equity interest in the unconsolidated joint venture.

We believe consumer 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, uncertainties surrounding interest rates and inflation in the United States and globally, global geopolitical hostilities and tensions and the impacts of or changes to tariffs and trade policies, have given rise to economic uncertainty and have caused, and may continue to cause, disruptions in the financial markets.

For example, there have been significant changes to U.S.

and foreign trade policies, treaties and tariffs, which have led to, and may continue to cause, the disruption of global supply chains, additional or increased tariffs and other import-export barriers, sudden fluctuations in commodity prices and costs, greater political instability and the implementation of sanctions and heightened cybersecurity concerns, any or all of which may create long-term macroeconomic challenges, limit liquidity opportunities or lead to higher costs, for us and our tenants.

These conditions, if continued, 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.

Our portfolio as of March 31, 2025 is summarized below (square feet in thousands):

% of Weighted

Rentable Annualized Average

Number of Square Rental Remaining

Ownership Properties Location

Square Feet Occupancy Lease Term (1)

Feet Occupancy Revenues Lease Term (1)

Mainland Properties

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Total / weighted average 411 59,890 94.6% 100.0% 7.8

(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, 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.

(1) Based on annualized rental revenues as of March 31, 2025.

Property Operations

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

All Properties Comparable Properties

as of September 30,

as of September 30, (1)

2024 2023 2024 2023

Occupancy and average effective rental rate data for our portfolio as of March 31, 2025 and 2024 were as follows (square feet in thousands):

As of March 31,

Total properties 411 411

Total rentable square feet (in thousands) (2)

Total rentable square feet (1)

59,890 59,893

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94.6 % 99.0 %

(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 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 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

All properties $ 7.69 $ 7.44 $ 7.68 $ 7.40

Comparable properties

$ 7.69 $ 7.43 $ 7.68 $ 7.40

(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 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

Square feet leased during the period (in thousands) 17 2,740 2,757

Weighted average rental rate change (by rentable square feet) 4.1 % 7.0 % 7.0 %

Weighted average lease term by square feet (years) 3.9 6.2 6.2

Total leasing costs and concession commitments (1)

$ 113 $ 2,794 $ 2,907

Total leasing costs and concession commitments per square foot (1)

$ 6.77 $ 1.02 $ 1.05

Total leasing costs and concession commitments per square foot per year (1)

Average effective rental rates per square feet (3)

$ 7.92 $ 7.58

Nine Months Ended September 30, 2024

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

(2) Leased square feet is pursuant to existing leases as of March 31, 2025, and includes space being fitted out for occupancy, if any, and space which is leased but is not occupied, if any.

(3) Represents total rental income divided by the average rentable square feet leased during the periods specified for our properties.

Mainland Properties.

We g enerally will seek to renew or extend the terms of leases for our Mainland Properties as their expirations approach.

A majority of the leases for 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 new leases we enter into may be less favorable to us than the terms of our existing leases for those properties.

Hawaii Properties.

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.

During the three months ended March 31, 2025, we entered into new and renewal leases as summarized in the following table, excluding the impact of rent resets (square feet in thousands):

New Leases Renewals Totals

Square feet leased during the period (in thousands) 180 5,080 5,260

Square feet leased during the period 437 1,738 2,175

Weighted average rental rate change (by rentable square feet) 22.2 % 17.6 % 18.5 %

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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 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):

During the three months ended March 31, 2025, we completed rent resets for approximately 144,000 square feet of land at our Hawaii Properties at rental rates that were 34.6% higher than prior rental rates.

The following table provides the annualized rental revenues scheduled to reset at our Hawaii Properties as of March 31, 2025:

Rental Revenues

Scheduled to Reset

Thereafter 11,491

Total $ 22,725

As of March 31, 2025, 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

of Square Feet Square Feet Square Feet Revenues Revenues Rental Revenues

% of Total % of Total

Annualized Annualized % of Total

Leased Leased Leased

Rental Rental Annualized

of Square Feet Square Feet Square Feet

Revenues Revenues Rental Revenues

Leases Expiring (1)

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Weighted average remaining lease term (in years) 7.0 7.8

(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 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.

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.

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 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.

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.

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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

Scheduled to Reset

Thereafter 19,742

Total $ 22,873

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.

(1) Leased square feet is pursuant to existing leases as of March 31, 2025, and includes space being fitted out for occupancy, if any, and space which is leased but is not occupied, if any.

As of March 31, 2025, subsidiaries of FedEx and Amazon leased 22.5% and 8.0% of our total leased square feet, respectively, and represented 28.7% and 6.7% of our total annualized rental revenues, respectively.

As of March 31, 2025, $5,478, or 1.2%, of our annualized rental revenues was included in leases scheduled to expire by March 31, 2026 and 5.4% of our rentable square feet was 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 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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In October 2024, American Tire Distributors, Inc., or ATD, which represented 1.6% of our total annualized rental revenues as of March 31, 2025, filed for Chapter 11 bankruptcy.

As of April 29, 2025, this tenant has no outstanding lease obligations due to us and has indicated that it does not intend to vacate any of its leases with us but is seeking to modify the terms of its existing leases with us.

As of April 29, 2025, we have not engaged with ATD to modify any of its current leases.

ATD has until May 20, 2025 to accept or reject the continuation of these leases.

RESULTS OF OPERATIONS

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 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

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 (dollars and share amounts in thousands, except per share data)

Three Months Ended March 31,

2025 2024 Change Change

Rental income $ 111,905 $ 112,235 $ (330) (0.3)%

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Total operating expenses 24,403 26,183 (1,780) (6.8)%

Net operating income (1)

87,502 86,052 1,450 1.7%

4 unchanged sentences

Interest income 1,968 2,852 (884) (31.0)%

3,134 2,397 737 30.7%

Interest expense (69,813) (73,230) 3,417 (4.7)%

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

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

(30,099) (35,592) 5,493 15.4%

Income tax expense (28) (33) 5 (15.2)%

Equity in earnings of unconsolidated joint venture 1,161 719 442 61.5%

Net loss (35,407) (36,191) 784 (2.2)%

Net loss attributable to noncontrolling interest 10,417 10,079 338 3.4%

Net loss attributable to common shareholders $ (24,990) $ (26,112) $ 1,122 (4.3)%

Weighted average common shares outstanding (basic and diluted) 65,769 65,488 281 0.4%

Per common share data (basic and diluted):

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

(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 September 30, 2024 compared to the three months ended September 30, 2023.

Rental income.

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 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 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 franchise taxes and professional fees, partially offset by an increase in leasing costs compared to the 2023 period.

Interest income.

The increase in interest 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 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.

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

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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

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

Rental income $ 331,801 $ 328,339 $ 3,462 1.1% $ — $ 104 $ (104) $ 331,801 $ 328,443 $ 3,358 1.0%

Operating expenses:

Real estate taxes 46,348 46,475 (127) (0.3)% 1 18 (17) 46,349 46,493 (144) (0.3)%

Other operating expenses 28,391 27,714 677 2.4% 35 30 5 28,426 27,744 682 2.5%

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

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

Other expenses:

Depreciation and amortization 130,203 134,278 (4,075) (3.0)%

General and administrative 22,865 23,750 (885) (3.7)%

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

Total other expenses 153,068 158,282 (5,214) (3.3)%

Interest income

Equity in (losses) earnings of unconsolidated joint venture

(1,042) 1,723 (2,765) (160.5)%

Interest expense (220,797) (215,558) (5,239) 2.4%

Loss on sale of real estate — (974) 974 (100.0)%

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

Loss before income taxes and equity in earnings of unconsolidated joint venture (107,918) (115,627) 7,709 (6.7)%

Income tax expense (102) (113) 11 (9.7)%

Equity in earnings of unconsolidated joint venture 5,232 7,423 (2,191) (29.5)%

Net loss (31,169) (33,902) 2,733 8.1%

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Weighted average common shares outstanding (basic and diluted) 65,834 65,556 278 0.4%

Per common share data (basic and diluted):

Net loss attributable to common shareholders $ (1.09) $ (1.17) $ 0.08 (6.8)%

(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 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 nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

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

$ (0.33) $ (0.36) $ 0.03 8.3%

(1) See our definition of net operating income, or 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, 2025 compared to the three months ended March 31, 2024.

Rental income.

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

Rental income decreased primarily due to vacancies at certain of our properties, partially offset by our leasing activity.

Real estate taxes .

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

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Real estate taxes decreased primarily due to a lowered assessed value as a result of a successful real estate tax appeal at one of our Mainland Properties.

Other operating expenses .

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

The decrease in other operating expenses is primarily due to decreases in insurance expenses and professional fees, partially offset by increases in snow removal and electricity expenses at certain of our properties.

Depreciation and amortization.

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.

The decrease in depreciation and amortization primarily reflects the impact of certain acquired real estate leases fully amortizing since April 1, 2024, partially offset by increased depreciation related to improvements made to certain of our properties since April 1, 2024.

General and administrative.

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.

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

The increase in general and administrative expenses is primarily due to accrued incentive management fees of $967 recognized during the three months ended March 31, 2025 as a result of our total shareholder return exceeding the returns for the MSCI U.S.

REIT/Industrial REIT Index over the applicable measurement period, partially offset by decreases in professional and legal fees.

Interest income.

The increase in interest income is primarily due to higher interest rates and average cash balances during the 2024 period as compared to the 2023 period.

The decrease in interest income is primarily due to lower interest rates and average cash balances during the 2025 period as compared to the 2024 period.

Interest expense.

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.

During the 2023 period, we recognized a loss on sale of real estate from the sale of a portion of a land parcel in Everett, Washington.

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 decrease in interest expense is primarily due to decreased amortization of debt issuance and interest rate cap costs related to our floating rate loans.

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

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Equity in (losses) earnings of unconsolidated joint venture.

Equity in (losses) earnings of unconsolidated joint venture represents 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)

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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 nine months ended September 30, 2024 and 2023:

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

The following table presents the reconciliation of net loss to NOI for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

Net loss $ (31,169) $ (33,902)

Equity in earnings of unconsolidated joint venture (1,161) (719) (5,232) (7,423)

Equity in losses (earnings) of unconsolidated joint venture

1,042 (1,723)

Income tax expense 28 33

Loss before income taxes and equity in earnings of unconsolidated joint venture (36,535) (36,859) (107,918) (115,627)

Loss on early extinguishment of debt — — — 359

Loss on sale of real estate — — — 974

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

(30,099) (35,592)

Interest expense 69,813 73,230

1 unchanged sentence

(1,968) (2,852)

Loss on impairment of real estate — — — 254

General and administrative 8,238 7,689

4 unchanged sentences

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 (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;

(2) plus (i) real estate depreciation and amortization and (ii) 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.

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In calculating Normalized FFO attributable to common shareholders, we adjust for certain nonrecurring items shown below, including adjustments for such items related to the unconsolidated joint venture, if any, and incentive management fees, 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 factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, the then current and expected needs for and availability of cash to pay our obligations and fund our investments, 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 REITs and our expectation of future capital requirements and operating performance.

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 nine months ended September 30, 2024 and 2023:

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

2024 2023 2024 2023

Three Months Ended March 31,

Net loss attributable to common shareholders $ (21,532) $ (23,403)

Equity in earnings of unconsolidated joint venture (1,161) (719) (5,232) (7,423)

Loss on sale of real estate — — — 974

Loss on impairment of real estate — — — 254

Equity in losses (earnings) of unconsolidated joint venture

1,042 (1,723)

Depreciation and amortization 41,518 43,577

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FFO attributable to common shareholders $ 12,523 $ 9,450

Loss on early extinguishment of debt — — — 359

Normalized FFO adjustments attributable to noncontrolling interest — — — (140)

Incentive management fees (1)

Normalized FFO attributable to common shareholders $ 13,490 $ 9,450

1 unchanged sentence

Per common share data (basic and diluted):

Net loss attributable to common shareholders

$ (0.33) $ (0.36)

FFO attributable to common shareholders $ 0.19 $ 0.14

Normalized FFO attributable to common shareholders $ 0.20 $ 0.14

LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands)

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.

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(1) Incentive management fees are estimated and accrued during the applicable measurement period.

Actual incentive management fees will be calculated based on common share total return, as defined in our business management agreement, for the three year period ending December 31 of the applicable calendar year, are included in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss) and will be payable to RMR in January of the following calendar year.

LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands, except per share and per square foot data)

Our principal sources of funds to meet our operating and capital obligations, pay our debt service obligations and make distributions to our shareholders are rents from tenants at our properties.

As of March 31, 2025, investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases represented 76.1% of our annualized rental revenues and only 1.2% 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 obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter.

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:

Nine Months Ended

September 30,

Three Months Ended March 31,

Cash and cash equivalents and restricted cash and cash equivalents at beginning of period $ 242,480 $ 245,723

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Financing activities (5,460) (5,465)

Total (5,778) (9,246)

Cash and cash equivalents and restricted cash and cash equivalents at end of period $ 236,702 $ 236,477

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.

The increase in net cash provided by operating activities for the three months ended March 31, 2025 compared to the 2024 period is primarily due to lower cash interest expense, excluding the impact of settlement of our interest rate caps.

The change in net cash used in investing activities for the three months ended March 31, 2025 compared to the 2024 period is primarily due to a decrease in proceeds from settlement of interest rate caps and an increase in real estate improvements, partially offset by reduced interest rate cap purchase costs.

Our Operating Liquidity and Resources

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

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

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

Our Investing and Financing Liquidity and Resources

As of March 31, 2025, we had cash and cash equivalents, excluding restricted cash and cash equivalents, of $107,951.

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.

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

We 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 any offerings of equity or debt securities to fund our distributions to our shareholders.

As our debt approaches maturity or we desire to reduce our leverage or refinance debt, we may 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.

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 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

During the three months ended March 31, 2025 and 2024, amounts capitalized at our properties for tenant improvements, leasing costs and building improvements were as follows:

Three Months Ended March 31,

Tenant improvements (1)

$ 433 $ 194 $ 1,019 $ 1,893

Leasing costs (1)

2,695 1,047 5,006 3,886

Building improvements (2)

2,509 2,720 5,817 4,373

Development, redevelopment and other activities (3)

— 1,314 — 7,705

Total capital expenditures

$ 3,959 $ 3,373

(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 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.

(1) Includes 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) Includes expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets.

As of March 31, 2025, committed, but unspent, tenant related obligations based on existing leases were $6,786, all of which are expected to be spent during the next 12 months.

Joint Ventures

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

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%.

The unconsolidated joint venture made aggregate cash distributions to us of $990 for each of the three months ended March 31, 2025 and 2024.

For further information regarding our consolidated joint venture and the 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.

As of March 31, 2025, we had an aggregate principal amount of $4,303,196 of indebtedness, including (1) the ILPT Floating Rate Loan, (2) the Mountain Floating Rate Loan, (3) our $700,000 mortgage loan and (4) our $650,000 mortgage loan, with maturity dates after giving effect to potential exercises of all extension options between 2027 and 2038.

The ILPT Floating Rate Loan, which is secured by 104 of our properties, matures in October 2025, subject to two remaining one-year extension options, and requires 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.

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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 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 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

The Mountain Floating Rate Loan, which is secured by 82 properties, matures in March 2026, subject to one remaining one-year extension option, and requires that interest be paid at an annual rate of SOFR plus a premium of 2.77%.

In March 2025, our consolidated joint venture exercised the second of its three, one-year extension options for the maturity date of this loan.

In connection with the exercise of the extension, our consolidated joint venture purchased a one-year interest rate cap for $15,010 with a SOFR strike rate equal to 3.10%, which replaced the previous interest rate cap with a SOFR strike rate equal to 3.04%.

Subject to the satisfaction of certain conditions, our consolidated joint venture has the option to prepay the Mountain Floating Rate Loan in full or in part at any time at par with no premium.

The weighted average interest rates under our floating rate loans for the three months ended March 31, 2025 and 2024 were as follows:

Three Months Ended March 31,

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%.

Mountain Floating Rate Loan (2)

(1) Reflects the impact of interest rate caps, with a current SOFR strike rate equal to 2.78% which replaced the previous strike rate equal to 2.25% in October 2024.

(2) Reflects the impact of interest rate caps, with a current SOFR strike rate equal to 3.10% which replaced the previous strike rate equal to 3.04% in March 2025.

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.

This mortgage loan matures in June 2030 and requires that interest be paid at an annual rate of 6.25%.

A portion of the net proceeds from this mortgage loan was used to repay four 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 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 September 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 March 31, 2025, 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 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.

During the three months ended March 31, 2025, we declared and paid a regular quarterly distribution to common shareholders totaling $661 using cash on hand.

On April 10, 2025, we declared a regular quarterly distribution to common shareholders of record on April 22, 2025 of $0.01 per share, or approximately $661.

We expect to pay this distribution on or about May 15, 2025 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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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.

Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets and impairment of real estate and related intangibles.

A discussion of our critical accounting estimates is included in our 2024 Annual Report.

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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