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What changed in Industrial Logistics Properties Trust's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Industrial Logistics Properties Trust's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+362 added−401 removedSource: 10-K (2024-02-20) vs 10-K (2023-02-14)

Top changes in Industrial Logistics Properties Trust's 2023 10-K

362 paragraphs added · 401 removed · 302 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

95 edited+21 added−16 removed255 unchanged
Biggest changeForeclosure property is generally any real property, including interests in real property, and any personal property incident to such real property: • that is acquired by a REIT as a result of the REIT having bid on such property at foreclosure, or having otherwise reduced such property to ownership or possession by agreement or process of law, after there was a default or when default was imminent on a lease of such property or on indebtedness that such property secured; • for which any related loan acquired by the REIT was acquired at a time when the default was not imminent or anticipated; and • for which the REIT makes a proper election to treat the property as foreclosure property. 14 Table of Contents Any gain that a REIT recognizes on the sale of foreclosure property held as inventory or primarily for sale to customers, plus any income it receives from foreclosure property that would not otherwise qualify under the 75% gross income test in the absence of foreclosure property treatment, reduced by expenses directly connected with the production of those items of income, would be subject to federal income tax at the highest regular corporate income tax rate under the foreclosure property income tax rules of Section 857(b)(4) of the IRC.
Biggest changeAny gain that a REIT recognizes on the sale of foreclosure property held as inventory or primarily for sale to customers, plus any income it receives from foreclosure property that would not otherwise qualify under the 75% gross income test in the absence of foreclosure property treatment, reduced by expenses directly connected with the production of those items of income, would be subject to federal income tax at the highest regular corporate income tax rate under the foreclosure property income tax rules of Section 857(b)(4) of the IRC.
We regularly confer with tenants at our Mainland Properties to determine if they are interested in our expanding or otherwise improving their leased properties in return for increased rents and extended terms. Hawaii Properties’ Leases.
We regularly confer with tenants at our Mainland Properties to determine if they are interested in expanding or otherwise improving their leased properties in return for increased rents and extended terms. Hawaii Properties’ Leases.
In the future, we may invest in or enter into additional real estate joint ventures, or acquire additional properties with the intention of contributing such properties to our existing joint venture, if we conclude that by doing so we may benefit from the participation of co-venturers or that our opportunity to participate in the investment is contingent on the use of a joint venture structure or to take advantage of property valuation differences among private and public sources of equity capital.
In the future, we may invest in or enter into additional real estate joint ventures, or acquire additional properties with the intention of contributing such properties to our existing joint ventures, if we conclude that by doing so we may benefit from the participation of co-venturers or that our opportunity to participate in the investment is contingent on the use of a joint venture structure or to take advantage of property valuation differences among private and public sources of equity capital.
At the close of each calendar quarter of each taxable year, we must also satisfy the following asset percentage tests in order to qualify for taxation as a REIT for federal income tax purposes: • At least 75% of the value of our total assets must consist of “real estate assets,” defined as real property (including interests in real property and interests in mortgages on real property or on interests in real property), ancillary personal property to the extent that rents attributable to such personal property are treated as rents from real property in accordance with the rules described above, cash and cash items, shares in other REITs, debt instruments issued by “publicly offered REITs” as defined in Section 562(c)(2) of the IRC, government securities and temporary investments of new capital (that is, any stock or debt instrument that we hold that is attributable to any amount received by us (a) in exchange for our shares or (b) in a public offering of our five-year or longer debt instruments, but in each case only for the one-year period commencing with our receipt of the new capital). • Not more than 25% of the value of our total assets may be represented by securities other than those securities that count favorably toward the preceding 75% asset test. • Of the investments included in the preceding 25% asset class, the value of any one non-REIT issuer’s securities that we own may not exceed 5% of the value of our total assets.
At the close of each calendar quarter of each taxable year, we must also satisfy the following asset percentage tests in order to qualify for taxation as a REIT for federal income tax purposes: • At least 75% of the value of our total assets must consist of “real estate assets”, defined as real property (including interests in real property and interests in mortgages on real property or on interests in real property), ancillary personal property to the extent that rents attributable to such personal property are treated as rents from real property in accordance with the rules described above, cash and cash items, shares in other REITs, debt instruments issued by “publicly offered REITs” as defined in Section 562(c)(2) of the IRC, government securities and temporary investments of new capital (that is, any stock or debt instrument that we hold that is attributable to any amount received by us (a) in exchange for our shares or (b) in a public offering of our five-year or longer debt instruments, but in each case only for the one-year period commencing with our receipt of the new capital). • Not more than 25% of the value of our total assets may be represented by securities other than those securities that count favorably toward the preceding 75% asset test. • Of the investments included in the preceding 25% asset class, the value of any one non-REIT issuer’s securities that we own may not exceed 5% of the value of our total assets.
In evaluating potential property acquisitions, we consider various factors, including, but not limited to, the following: • the location of the property; • the historical and projected rents received and to be received from the property; • our cost of capital compared to projected returns we may realize by owning the property; • the experience and credit quality of the property’s tenants; • the industries in which the tenants operate; • the remaining term of the leases at the property and other lease terms; • the type of property (e.g., bulk distribution, last-mile distribution, etc.); • the tax and regulatory circumstances of the market area in which the property is located; • the occupancy and demand for similar properties in the same or nearby locations; • the construction quality, physical condition and design of the property, including various environmental sustainability factors; • the expected capital expenditures that may be needed at the property; • the price at which the property may be acquired as compared to the estimated replacement cost of the property; • the price at which the property may be acquired as compared to the prices of comparable properties as evidenced by recent market sales; • the strategic fit of the property with the rest of our portfolio; 3 Table of Contents • the existence of alternative sources, uses or needs for our capital; and • the tenants’ historic and expected adoption of environmental sustainability in connection with their operations.
In evaluating potential property acquisitions, we consider various factors, including, but not limited to, the following: • the location of the property; • the historical and projected rents received and to be received from the property; • our cost of capital compared to projected returns we may realize by owning the property; • the experience and credit quality of the property’s tenants; • the industries in which the tenants operate; • the remaining term of the leases at the property and other lease terms; • the type of property (e.g., bulk distribution, last-mile distribution, etc.); • the occupancy and demand for similar properties in the same or nearby locations; • the construction quality, physical condition and design of the property, including various environmental sustainability factors; • the expected capital expenditures that may be needed at the property; • the price at which the property may be acquired as compared to the estimated replacement cost of the property; • the price at which the property may be acquired as compared to the prices of comparable properties as evidenced by recent market sales; • the strategic fit of the property with the rest of our portfolio; • the existence of alternative sources, uses or needs for our capital; 3 Tabl e of Contents • the tenants’ historic and expected adoption of environmental sustainability in connection with their operations; and • the tax and regulatory circumstances of the market area in which the property is located.
Section 856(a) of the IRC defines a REIT as a corporation, trust or association: (1) that is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; (3) that would be taxable, but for Sections 856 through 859 of the IRC, as a domestic C corporation; (4) that is not a financial institution or an insurance company subject to special provisions of the IRC; (5) the beneficial ownership of which is held by 100 or more persons; (6) that is not “closely held,” meaning that during the last half of each taxable year, not more than 50% in value of the outstanding shares are owned, directly or indirectly, by five or fewer “individuals” (as defined in the IRC to include specified tax-exempt entities); (7) that does not have (and has not succeeded to) the post-December 7, 2015 tax-free spin-off history proscribed by Section 856(c)(8) of the IRC; and (8) that meets other tests regarding the nature of its income and assets and the amount of its distributions, all as described below.
Section 856(a) of the IRC defines a REIT as a corporation, trust or association: (1) that is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; (3) that would be taxable, but for Sections 856 through 859 of the IRC, as a domestic C corporation; (4) that is not a financial institution or an insurance company subject to special provisions of the IRC; (5) the beneficial ownership of which is held by 100 or more persons; (6) that is not “closely held”, meaning that during the last half of each taxable year, not more than 50% in value of the outstanding shares are owned, directly or indirectly, by five or fewer “individuals” (as defined in the IRC to include specified tax-exempt entities); (7) that does not have (and has not succeeded to) the post-December 7, 2015 tax-free spin-off history proscribed by Section 856(c)(8) of the IRC; and (8) that meets other tests regarding the nature of its income and assets and the amount of its distributions, all as described below.
In general, our Mainland Properties are subject to leases pursuant to which the tenants pay fixed annual rents on a monthly, quarterly or semi-annual basis, and also pay or reimburse us for all, or substantially all, property level operating and maintenance expenses, such as real estate taxes, insurance, utilities and repairs, including increases with respect thereto.
Mainland Properties’ Leases. In general, our Mainland Properties are subject to leases pursuant to which the tenants pay fixed annual rents on a monthly, quarterly or semi-annual basis, and also pay or reimburse us for all, or substantially all, property level operating and maintenance expenses, such as real estate taxes, insurance, utilities and repairs, including increases with respect thereto.
We make available, free of charge, through the “Investors” section of our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after these forms are filed with, or furnished to the Securities and Exchange Commission, or SEC.
We make available, free of charge, through the “Investors” section of our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after these forms are filed with or furnished to the SEC.
In connection with the Merger, we entered into a joint venture arrangement with an institutional investor for 95 of the acquired MNR properties, including the two committed MNR property acquisitions, one of which was subsequently completed. Our consolidated joint venture subsequently terminated the agreement for the other committed MNR property acquisition.
In connection with the Merger, we entered into a joint venture arrangement, or our consolidated joint venture, with an institutional investor for 95 of the acquired MNR properties, including the two committed MNR property acquisitions, one of which was subsequently completed. Our consolidated joint venture subsequently terminated the agreement for the other committed MNR property acquisition.
In addition, if we so elect by making a timely designation to our shareholders, a shareholder would be taxed on its proportionate share of our undistributed capital gain and would generally be expected to receive a credit or refund for its proportionate share of the tax we paid. 9 Table of Contents • If we have net income from the disposition of “foreclosure property,” as described in Section 856(e) of the IRC, that is held primarily for sale to customers in the ordinary course of a trade or business or other nonqualifying income from foreclosure property, we will be subject to tax on this income at the highest regular corporate income tax rate. • If we have net income from “prohibited transactions”—that is, dispositions at a gain of inventory or property held primarily for sale to customers in the ordinary course of a trade or business other than dispositions of foreclosure property and other than dispositions excepted by statutory safe harbors—we will be subject to tax on this income at a 100% rate. • If we fail to satisfy the 75% gross income test or the 95% gross income test discussed below, due to reasonable cause and not due to willful neglect, but nonetheless maintain our qualification for taxation as a REIT because of specified cure provisions, we will be subject to tax at a 100% rate on the greater of the amount by which we fail the 75% gross income test or the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year. • If we fail to satisfy any of the REIT asset tests described below (other than a de minimis failure of the 5% or 10% asset tests) due to reasonable cause and not due to willful neglect, but nonetheless maintain our qualification for taxation as a REIT because of specified cure provisions, we will be subject to a tax equal to the greater of $50,000 or the highest regular corporate income tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail the test. • If we fail to satisfy any provision of the IRC that would result in our failure to qualify for taxation as a REIT (other than violations of the REIT gross income tests or violations of the REIT asset tests described below) due to reasonable cause and not due to willful neglect, we may retain our qualification for taxation as a REIT but will be subject to a penalty of $50,000 for each failure. • If we fail to distribute for any calendar year at least the sum of 85% of our REIT ordinary income for that year, 95% of our REIT capital gain net income for that year and any undistributed taxable income from prior periods, we will be subject to a 4% nondeductible excise tax on the excess of the required distribution over the amounts actually distributed. • If we acquire a REIT asset where our adjusted tax basis in the asset is determined by reference to the adjusted tax basis of the asset in the hands of a C corporation, under specified circumstances we may be subject to federal income taxation on all or part of the built-in gain (calculated as of the date the property ceased being owned by the C corporation) on such asset.
In addition, if we so elect by making a timely designation to our shareholders, a shareholder would be taxed on its proportionate share of our undistributed capital gain and would generally be expected to receive a credit or refund for its proportionate share of the tax we paid. 10 Tabl e of Contents • If we have net income from the disposition of “foreclosure property”, as described in Section 856(e) of the IRC, that is held primarily for sale to customers in the ordinary course of a trade or business or other nonqualifying income from foreclosure property, we will be subject to tax on this income at the highest regular corporate income tax rate. • If we have net income from “prohibited transactions”—that is, dispositions at a gain of inventory or property held primarily for sale to customers in the ordinary course of a trade or business other than dispositions of foreclosure property and other than dispositions excepted by statutory safe harbors—we will be subject to tax on this income at a 100% rate. • If we fail to satisfy the 75% gross income test or the 95% gross income test discussed below, due to reasonable cause and not due to willful neglect, but nonetheless maintain our qualification for taxation as a REIT because of specified cure provisions, we will be subject to tax at a 100% rate on the greater of the amount by which we fail the 75% gross income test or the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year. • If we fail to satisfy any of the REIT asset tests described below (other than a de minimis failure of the 5% or 10% asset tests) due to reasonable cause and not due to willful neglect, but nonetheless maintain our qualification for taxation as a REIT because of specified cure provisions, we will be subject to a tax equal to the greater of $50,000 or the highest regular corporate income tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail the test. • If we fail to satisfy any provision of the IRC that would result in our failure to qualify for taxation as a REIT (other than violations of the REIT gross income tests or violations of the REIT asset tests described below) due to reasonable cause and not due to willful neglect, we may retain our qualification for taxation as a REIT but will be subject to a penalty of $50,000 for each failure. • If we fail to distribute for any calendar year at least the sum of 85% of our REIT ordinary income for that year, 95% of our REIT capital gain net income for that year and any undistributed taxable income from prior periods, we will be subject to a 4% nondeductible excise tax on the excess of the required distribution over the amounts actually distributed. • If we acquire a REIT asset where our adjusted tax basis in the asset is determined by reference to the adjusted tax basis of the asset in the hands of a C corporation, under specified circumstances we may be subject to federal income taxation on all or part of the built-in gain (calculated as of the date the property ceased being owned by the C corporation) on such asset.
The summary does not discuss all of the particular tax considerations that might be relevant to you if you are subject to special rules under federal income tax law, for example if you are: • a bank, insurance company or other financial institution; • a regulated investment company or REIT; • a subchapter S corporation; • a broker, dealer or trader in securities or foreign currencies; • a person who marks-to-market our shares for U.S. federal income tax purposes; • a U.S. shareholder (as defined below) that has a functional currency other than the U.S. dollar; • a person who acquires or owns our shares in connection with employment or other performance of services; • a person subject to alternative minimum tax; • a person who acquires or owns our shares as part of a straddle, hedging transaction, constructive sale transaction, constructive ownership transaction or conversion transaction, or as part of a “synthetic security” or other integrated financial transaction; • a person who owns 10% or more (by vote or value, directly or constructively under the IRC) of any class of our shares; • a U.S. expatriate; 7 Table of Contents • a non-U.S. shareholder (as defined below) whose investment in our shares is effectively connected with the conduct of a trade or business in the United States; • a nonresident alien individual present in the United States for 183 days or more during an applicable taxable year; • a “qualified shareholder” (as defined in Section 897(k)(3)(A) of the IRC); • a “qualified foreign pension fund” (as defined in Section 897(l)(2) of the IRC) or any entity wholly owned by one or more qualified foreign pension funds; • a non-U.S. shareholder that is a passive foreign investment company or controlled foreign corporation; • a person subject to special tax accounting rules as a result of their use of applicable financial statements (within the meaning of Section 451(b)(3) of the IRC); or • except as specifically described in the following summary, a trust, estate, tax-exempt entity or foreign person.
The summary does not discuss all of the particular tax considerations that might be relevant to you if you are subject to special rules under federal income tax law, for example if you are: • a bank, insurance company or other financial institution; • a regulated investment company or REIT; • a subchapter S corporation; • a broker, dealer or trader in securities or foreign currencies; • a person who marks-to-market our shares for U.S. federal income tax purposes; • a U.S. shareholder (as defined below) that has a functional currency other than the U.S. dollar; • a person who acquires or owns our shares in connection with employment or other performance of services; • a person subject to alternative minimum tax; • a person who acquires or owns our shares as part of a straddle, hedging transaction, constructive sale transaction, constructive ownership transaction or conversion transaction, or as part of a “synthetic security” or other integrated financial transaction; • a person who owns 10% or more (by vote or value, directly or constructively under the IRC) of any class of our shares; • a U.S. expatriate; 8 Tabl e of Contents • a non-U.S. shareholder (as defined below) whose investment in our shares is effectively connected with the conduct of a trade or business in the United States; • a nonresident alien individual present in the United States for 183 days or more during an applicable taxable year; • a “qualified shareholder” (as defined in Section 897(k)(3)(A) of the IRC); • a “qualified foreign pension fund” (as defined in Section 897(l)(2) of the IRC) or any entity wholly owned by one or more qualified foreign pension funds; • a non-U.S. shareholder that is a passive foreign investment company or controlled foreign corporation; • a person subject to special tax accounting rules as a result of their use of applicable financial statements (within the meaning of Section 451(b)(3) of the IRC); or • except as specifically described in the following summary, a trust, estate, tax-exempt entity or foreign person.
We expect that shareholders that are tax-exempt pension plans, individual retirement accounts or other qualifying tax-exempt entities, and that receive (a) distributions from us, or (b) proceeds from the sale of our shares, should not have such amounts treated as UBTI, provided in each case (x) that the shareholder has not financed its acquisition of our shares with “acquisition indebtedness” within the meaning of the IRC, (y) that the shares are not otherwise used in an unrelated trade or business of the tax-exempt entity, and (z) that, consistent with our present intent, we do not hold a residual interest in a real 21 Table of Contents estate mortgage investment conduit or otherwise hold mortgage assets or conduct mortgage securitization activities that generate “excess inclusion” income.
We expect that shareholders that are tax-exempt pension plans, individual retirement accounts or other qualifying tax-exempt entities, and that receive (a) distributions from us, or (b) proceeds from the sale of our shares, should not have such amounts treated as UBTI, provided in each case (x) that the shareholder has not financed its acquisition of our shares with “acquisition indebtedness” within the meaning of the IRC, (y) that the shares are not otherwise used in an unrelated trade or business of the tax-exempt entity, and (z) that, consistent with our present intent, we do not hold a residual interest in a real estate mortgage investment conduit or otherwise hold mortgage assets or conduct mortgage securitization activities that generate “excess inclusion” income.
In general, our Hawaii Properties are subject to leases pursuant to which the tenants pay fixed annual rent on a monthly, quarterly or semi-annual basis, and also pay or reimburse us for all, or substantially all, property level operating and maintenance expenses, such as real estate taxes, insurance, utilities and repairs, including increases with respect thereto.
In general, our Hawaii Properties are subject to leases pursuant to which the tenants pay fixed annual rents on a monthly, quarterly or semi-annual basis, and also pay or reimburse us for all, or substantially all, property level operating and maintenance expenses, such as real estate taxes, insurance, utilities and repairs, including increases with respect thereto.
However, even if we continue to qualify for taxation as a REIT, we may still be subject to federal tax in the following circumstances, as described below: • We will be taxed at regular corporate income tax rates on any undistributed “real estate investment trust taxable income,” determined by including our undistributed ordinary income and net capital gains, if any.
However, even if we continue to qualify for taxation as a REIT, we may still be subject to federal tax in the following circumstances, as described below: • We will be taxed at regular corporate income tax rates on any undistributed “real estate investment trust taxable income”, determined by including our undistributed ordinary income and net capital gains, if any.
A U.S. shareholder may be subject to backup withholding when it receives distributions on our shares or proceeds upon the sale, exchange, redemption, retirement or other disposition of our shares, unless the U.S. shareholder properly executes, or has previously properly executed, under penalties of perjury an IRS Form W-9 or substantially similar form that: • provides the U.S. shareholder’s correct taxpayer identification number; 23 Table of Contents • certifies that the U.S. shareholder is exempt from backup withholding because (a) it comes within an enumerated exempt category, (b) it has not been notified by the IRS that it is subject to backup withholding, or (c) it has been notified by the IRS that it is no longer subject to backup withholding; and • certifies that it is a U.S. citizen or other U.S. person.
A U.S. shareholder may be subject to backup withholding when it receives distributions on our shares or proceeds upon the sale, exchange, redemption, retirement or other disposition of our shares, unless the U.S. shareholder properly executes, or has previously properly executed, under penalties of perjury an IRS Form W-9 or substantially similar form that: • provides the U.S. shareholder’s correct taxpayer identification number; • certifies that the U.S. shareholder is exempt from backup withholding because (a) it comes within an enumerated exempt category, (b) it has not been notified by the IRS that it is subject to backup withholding, or (c) it has been notified by the IRS that it is no longer subject to backup withholding; and • certifies that it is a U.S. citizen or other U.S. person.
The IRC also provides an excepted securities safe harbor to the 10% value test that includes among other items (a) “straight debt” securities, (b) specified rental agreements in which payment is to be made in subsequent years, (c) any obligation to pay “rents from real property,” (d) securities issued by governmental entities that are not dependent in whole or in part on the profits of or payments from a nongovernmental entity, and (e) any security issued by another REIT.
The IRC also provides an excepted securities safe harbor to the 10% value test that includes among other items (a) “straight debt” securities, (b) specified rental agreements in which payment is to be made in subsequent years, (c) any obligation to pay “rents from real property”, (d) securities issued by governmental entities that are not dependent in whole or in part on the profits of or payments from a nongovernmental entity, and (e) any security issued by another REIT.
Our counsel, Sullivan & Worcester LLP, is of the opinion that we have been organized and have qualified for taxation as a REIT under the IRC for our 2018 through 2022 taxable years, and that our current and anticipated investments and plan of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the IRC.
Our counsel, Sullivan & Worcester LLP, is of the opinion that we have been organized and have qualified for taxation as a REIT under the IRC for our 2018 through 2023 taxable years, and that our current and anticipated investments and plan of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the IRC.
To summarize, the preferential federal income tax rates for long-term capital gains and for qualified dividends generally apply to: (1) long-term capital gains, if any, recognized on the disposition of our shares; (2) our distributions designated as long-term capital gain dividends (except to the extent attributable to real estate depreciation recapture, in which case the distributions are subject to a maximum 25% federal income tax rate); (3) our dividends attributable to dividend income, if any, received by us from C corporations such as TRSs; (4) our dividends attributable to earnings and profits that we inherit from C corporations; and (5) our dividends to the extent attributable to income upon which we have paid federal corporate income tax (such as taxes on foreclosure property income or on built-in gains), net of the corporate income taxes thereon.
To summarize, the preferential federal income tax rates for long-term capital gains and for qualified dividends generally apply to: (1) long-term capital gains, if any, recognized on the disposition of our shares; 21 Tabl e of Contents (2) our distributions designated as long-term capital gain dividends (except to the extent attributable to real estate depreciation recapture, in which case the distributions are subject to a maximum 25% federal income tax rate); (3) our dividends attributable to dividend income, if any, received by us from C corporations such as TRSs; (4) our dividends attributable to earnings and profits that we inherit from C corporations; and (5) our dividends to the extent attributable to income upon which we have paid federal corporate income tax (such as taxes on foreclosure property income or on built-in gains), net of the corporate income taxes thereon.
Our Board of Trustees may change our acquisition and investment policies at any time without a vote of, or advance notice to, our shareholders. We may in the future adopt policies with respect to investments in real estate mortgages or securities of other entities engaged in real estate activities.
Our Board of Trustees may change our investment policies at any time without a vote of, or advance notice to, our shareholders. We may in the future adopt policies with respect to investments in real estate mortgages or securities of other entities engaged in real estate activities.
We also expect that our operating and investing activities will be financed by rents from tenants at our properties in excess of planned distributions to our shareholders and by using cash on hand and proceeds from any future financing arrangements we may obtain.
We also expect that our operating and investing activities will be funded by rents from tenants at our properties in excess of planned distributions to our shareholders and by using cash on hand and proceeds from any future financing arrangements we may obtain.
To the extent that we do not distribute all of our net capital gain and all of our “real estate investment trust taxable income,” as adjusted, we will be subject to federal income tax at regular corporate income tax rates on undistributed amounts.
To the extent that we do not distribute all of our net capital gain and all of our “real estate investment trust taxable income”, as adjusted, we will be subject to federal income tax at regular corporate income tax rates on undistributed amounts.
These tax consequences may not be comparable to the U.S. federal income tax consequences discussed above. 24 Table of Contents ERISA PLANS, KEOGH PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS General Fiduciary Obligations The Employee Retirement Income Security Act of 1974, as amended, or ERISA, the IRC and similar provisions to those described below under applicable foreign or state law, individually and collectively, impose certain duties on persons who are fiduciaries of any employee benefit plan subject to Title I of ERISA, or an ERISA Plan, or an individual retirement account or annuity, or an IRA, a Roth IRA, a tax-favored account (such as an Archer MSA, Coverdell education savings account or health savings account), a Keogh plan or other qualified retirement plan not subject to Title I of ERISA, each a Non-ERISA Plan.
These tax consequences may not be comparable to the U.S. federal income tax consequences discussed above. 26 Tabl e of Contents ERISA PLANS, KEOGH PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS General Fiduciary Obligations The Employee Retirement Income Security Act of 1974, as amended, or ERISA, the IRC and similar provisions to those described below under applicable foreign or state law, individually and collectively, impose certain duties on persons who are fiduciaries of any employee benefit plan subject to Title I of ERISA, or an ERISA Plan, or an individual retirement account or annuity, or an IRA, a Roth IRA, a tax-favored account (such as an Archer MSA, Coverdell education savings account or health savings account), a Keogh plan or other qualified retirement plan not subject to Title I of ERISA, each a Non-ERISA Plan.
In addition, any debt instrument issued by an entity classified as a partnership for federal income tax purposes, and not otherwise excepted from the definition of 16 Table of Contents a security for purposes of the above safe harbor, will not be treated as a security for purposes of the 10% value test if at least 75% of the partnership’s gross income, excluding income from prohibited transactions, is qualifying income for purposes of the 75% gross income test.
In addition, any debt instrument issued by an entity classified as a partnership for federal income tax purposes, and not otherwise excepted from the definition of a security for purposes of the above safe harbor, will not be treated as a security for purposes of the 10% value test if at least 75% of the partnership’s gross income, excluding income from prohibited transactions, is qualifying income for purposes of the 75% gross income test.
The U.S. federal income tax treatment of our distributions will vary based on the status of the recipient shareholder as more fully described below under the headings “—Taxation of Taxable U.S. Shareholders,” “—Taxation of Tax-Exempt U.S. Shareholders,” and “—Taxation of Non-U.S.
The U.S. federal income tax treatment of our distributions will vary based on the status of the recipient shareholder as more fully described below under the headings “—Taxation of Taxable U.S. Shareholders”, “—Taxation of Tax-Exempt U.S. Shareholders”, and “—Taxation of Non-U.S.
Because the determination as to whether a shareholder will satisfy any of the tests of Section 302(b) of the IRC depends upon the facts and circumstances at the time that our shares are redeemed, we urge you to consult your own tax advisor to determine the particular tax treatment of any redemption. 19 Table of Contents Taxation of Taxable U.S.
Because the determination as to whether a shareholder will satisfy any of the tests of Section 302(b) of the IRC depends upon the facts and circumstances at the time that our shares are redeemed, we urge you to consult your own tax advisor to determine the particular tax treatment of any redemption. Taxation of Taxable U.S.
The regulation defines a publicly offered security as a security that is “widely held,” “freely transferable” and either part of a class of securities registered under the Exchange Act, or sold under an effective registration statement under the Securities Act of 1933, as amended, or the Securities Act, provided the securities are registered under the Exchange Act within 120 days after the end of the fiscal year of the issuer during which the offering occurred.
The regulation defines a publicly offered security as a security that is “widely held”, “freely transferable” and either part of a class of securities registered under the Exchange Act, or sold under an effective registration statement under the Securities Act of 1933, as amended, or the Securities Act, provided the securities are registered under the Exchange Act within 120 days after the end of the fiscal year of the issuer during which the offering occurred.
The portion of rental income treated as attributable to personal property is determined according to the ratio of the fair market value of the personal property to the total fair market value of the real and personal property that is rented. • In addition, “rents from real property” includes both charges we receive for services customarily rendered in connection with the rental of comparable real property in the same geographic area, even if the charges are separately stated, as well as charges we receive for services provided by our TRSs when the charges are not separately stated.
The portion of rental income treated as attributable to personal property is determined according to the ratio of the fair market value of the personal property to the total fair market value of the real and personal property that is rented. 15 Tabl e of Contents • In addition, “rents from real property” includes both charges we receive for services customarily rendered in connection with the rental of comparable real property in the same geographic area, even if the charges are separately stated, as well as charges we receive for services provided by our TRSs when the charges are not separately stated.
RMR has a principal place of business at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and its telephone number is (617) 796-8390. 5 Table of Contents RMR is an alternative asset management company that is focused on commercial real estate and related businesses.
RMR has a principal place of business at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and its telephone number is (617) 796-8390. 5 Tabl e of Contents RMR is an alternative asset management company that is focused on commercial real estate and related businesses.
Security holders may send communications to our Board of Trustees or individual Trustees by writing to the party for whom the communication is intended at c/o Secretary, Industrial Logistics Properties Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634 or by email at secretary@ilptreit.com.
Securityholders may send communications to our Board of Trustees or individual Trustees by writing to the party for whom the communication is intended at c/o Secretary, Industrial Logistics Properties Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634 or by email at secretary@ilptreit.com.
Other Matters Legislative and regulatory developments may occur at the federal, state and local levels that have direct or indirect impact on the ownership, leasing and operation of our properties.
Other Matters Legislative and regulatory developments may occur at the federal, state and local levels that have direct or indirect impacts on the ownership, leasing and operation of our properties.
In such case, we expect that we would be able to avail ourselves of the relief 10 Table of Contents provisions described below, but would be subject to a tax equal to the greater of $50,000 or the highest regular corporate income tax rate multiplied by the net income we earned from this subsidiary.
In such case, we expect that we would be able to avail ourselves of the relief provisions described below, but would be subject to a tax equal to the greater of $50,000 or the highest regular corporate income tax rate multiplied by the net income we earned from this subsidiary.
In addition, the applicable withholding agent would be required to withhold from 22 Table of Contents a distribution to such a non-U.S. shareholder, and remit to the IRS, up to 21% of the maximum amount of any distribution that was or could have been designated as a capital gain dividend.
In addition, the applicable withholding agent would be required to withhold from a distribution to such a non-U.S. shareholder, and remit to the IRS, up to 21% of the maximum amount of any distribution that was or could have been designated as a capital gain dividend.
We are not an investment company registered under the Investment Company Act of 1940, as amended. 25 Table of Contents Each class of our equity (that is, our common shares and any other class of equity that we may issue) must be analyzed separately to ascertain whether it is a publicly offered security.
We are not an investment company registered under the Investment Company Act of 1940, as amended. Each class of our equity (that is, our common shares and any other class of equity that we may issue) must be analyzed separately to ascertain whether it is a publicly offered security.
Our stock and other securities in a TRS are exempted from these 5% and 10% asset tests. • Not more than 20% of the value of our total assets may be represented by stock or other securities of our TRSs. • Not more than 25% of the value of our total assets may be represented by “nonqualified publicly offered REIT debt instruments” as defined in Section 856(c)(5)(L)(ii) of the IRC.
Our stock and other securities in a TRS are exempted from these 5% and 10% asset tests. • Not more than 20% of the value of our total assets may be represented by stock or other securities of our TRSs. 17 Tabl e of Contents • Not more than 25% of the value of our total assets may be represented by “nonqualified publicly offered REIT debt instruments” as defined in Section 856(c)(5)(L)(ii) of the IRC.
Any entity (or other arrangement) treated as a partnership for federal income tax purposes that is a holder of our shares and the partners in such a partnership (as determined for federal income tax purposes) are urged to consult their own tax advisors about the federal income tax consequences and other tax consequences of the acquisition, ownership and disposition of our shares. 8 Table of Contents Taxation as a REIT We have elected to be taxed as a REIT under Sections 856 through 860 of the IRC, commencing with our 2018 taxable year.
Any entity (or other arrangement) treated as a partnership for federal income tax purposes that is a holder of our shares and the partners in such a partnership (as determined for federal income tax purposes) are urged to consult their own tax advisors about the federal income tax consequences and other tax consequences of the acquisition, ownership and disposition of our shares. 9 Tabl e of Contents Taxation as a REIT We have elected to be taxed as a REIT under Sections 856 through 860 of the IRC, commencing with our 2018 taxable year.
For more information regarding our financing sources and activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investing and Financing Liquidity and Resources” of this Annual Report on Form 10-K and Note 3 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
For more information regarding our financing sources and activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investing and Financing Liquidity and Resources” included in Part II, Item 7 of this Annual Report on Form 10-K and Note 3 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
We do not expect protective TRS elections to impact our compliance with the 75% and 95% gross income tests described below, because we do not expect our gains and dividends from a subsidiary REIT’s shares to jeopardize compliance with these tests even if for some reason the subsidiary is not a REIT. 12 Table of Contents Taxable REIT Subsidiaries .
We do not expect protective TRS elections to impact our compliance with the 75% and 95% gross income tests described below, because we do not expect our gains and dividends from a subsidiary REIT’s shares to jeopardize compliance with these tests even if for some reason the subsidiary is not a REIT. Taxable REIT Subsidiaries .
As a result, REIT shares owned by an entity that is not an “individual” are considered to be owned by the direct and indirect owners of the entity that are individuals (as so 11 Table of Contents defined), rather than to be owned by the entity itself.
As a result, REIT shares owned by an entity that is not an “individual” are considered to be owned by the direct and indirect owners of the entity that are individuals (as so defined), rather than to be owned by the entity itself.
As our Hawaii Properties are currently experiencing strong demand for their current uses, we do not currently expect redevelopment 1 Table of Contents efforts in Hawaii to become a major activity in the near term; however, we may undertake such activities on a selective basis.
As our Hawaii Properties are currently experiencing strong demand for their current uses, we do not currently expect redevelopment efforts in Hawaii to become a major activity in the near term; however, we may undertake such activities on a selective basis.
We expect our decision to sell properties, additional equity interests in our consolidated joint venture or a stake in some of our properties will be based upon the following considerations, among others, which may be relevant to a particular property at a particular time: • whether the property is leased and, if so, the remaining lease term and likelihood of lease renewal; • whether the property’s tenants are current on their lease obligations; • our evaluation of the property’s tenants’ abilities to pay their contractual rents; • our ability to identify new tenants if the property has or is likely to develop vacancies; • our evaluation of future rents which may be achieved from the property; • the potential costs associated with finding replacement tenants, including tenant improvements, leasing commissions and concessions, the cost to operate the property while vacant, and required building improvement capital, if any, all as compared to our projected returns from future rents; • the estimated proceeds we may receive by selling the property; • the strategic fit of the property with the rest of our portfolio; • our intended use of the proceeds we may realize from the sale of a property; • the benefits we believe we will achieve from selling additional equity interests in our joint ventures or contributing additional properties to our existing joint ventures or any new joint venture; • the existence of alternative sources, uses or needs for capital; • the terms of any debt that may secure the property; and • the tax implications to us and our shareholders of any proposed disposition.
We expect our decision to sell properties, equity interests in our joint ventures or a stake in some of our properties will be based upon the following considerations, among others, which may be relevant to a particular property at a particular time: • the terms of any debt that may secure the property; • whether the property is leased and, if so, the remaining lease term and likelihood of lease renewal; • our ability to identify new tenants if the property has or is likely to develop vacancies; • our evaluation of future rents which may be achieved from the property; • the potential costs associated with finding replacement tenants, including tenant improvements, leasing commissions and concessions, the cost to operate the property while vacant and required building improvement capital, if any, all as compared to our projected returns from future rents; • the estimated proceeds we may receive by selling the property; • the strategic fit of the property with the rest of our portfolio; • our intended use of the proceeds we may realize from the sale of a property; • the tax implications to us and our shareholders; • the existence of alternative sources, uses or needs for capital; and • the benefits we believe we will achieve from selling equity interests in our joint ventures or contributing additional properties to our existing joint ventures or any new joint venture.
We cannot be sure that financing would be available for these purposes on favorable terms, or at all. 17 Table of Contents We may be able to rectify a failure to pay sufficient dividends for any year by paying “deficiency dividends” to shareholders in a later year.
We cannot be sure that financing would be available for these purposes on favorable terms, or at all. We may be able to rectify a failure to pay sufficient dividends for any year by paying “deficiency dividends” to shareholders in a later year.
Each class of our shares has been listed on a U.S. national securities exchange; however, we cannot be sure that our shares will continue to be so listed in future taxable years or that any class of our shares that we may issue in the future will be so listed. Distributions.
Each class of our shares has been listed on a U.S. national securities exchange; however, we cannot be sure that our shares will continue to be so listed in future taxable years or that any class of our shares that we may issue in the future will be so listed. 23 Tabl e of Contents Distributions.
Many of our Mainland Properties’ leases require us to maintain the roof, exterior walls, foundation and other structural elements of the buildings at our expense; however, as we believe our Mainland Properties are being well maintained, we do not believe these expenses will be material to us during the remaining lease terms. Our Mainland Properties are currently 99.4% leased.
Many of our Mainland Properties’ leases require us to maintain the roof, exterior walls, foundation and other structural elements of the buildings at our expense; however, as we believe our Mainland Properties are well maintained, we do not believe these expenses will be material to us during the remaining lease terms. Our Mainland Properties are currently 98.9% leased.
In such case, MNR would be deemed to have retained its qualification for taxation as a REIT and the relevant penalties or sanctions for remediation would fall upon us in a manner comparable to the above. • As discussed below, we are invested in real estate through subsidiaries that we believe qualify for taxation as REITs.
In such case, MNR would be deemed to have retained its qualification for taxation as a REIT and the relevant penalties or sanctions for remediation would fall upon us in a manner comparable to the above. 11 Tabl e of Contents • As discussed below, we are invested in real estate through subsidiaries that we believe qualify for taxation as REITs.
We generally do not intend to lease property to any party if rents from that 13 Table of Contents property would not qualify as “rents from real property,” but application of the 10% ownership rule is dependent upon complex attribution rules and circumstances that may be beyond our control.
We generally do not intend to lease property to any party if rents from that property would not qualify as “rents from real property”, but application of the 10% ownership rule is dependent upon complex attribution rules and circumstances that may be beyond our control.
MNR’s portfolio included 124 class A, single tenant, net leased, e-commerce focused industrial properties containing approximately 25.7 million rentable square feet and two then committed, but not yet then completed, property acquisitions.
MNR’s portfolio included 124 class A, single tenant, net leased, e-commerce focused industrial properties containing approximately 25,745,000 rentable square feet and two then committed, but not yet then completed, property acquisitions.
We cannot be sure that arrangements involving our TRSs will not result in the imposition of one or more of these restrictions or sanctions, but we do not believe that we or our TRSs are or will be subject to these impositions. Income Tests.
We cannot be sure that arrangements involving our TRSs will not result in the imposition of one or more of these restrictions or sanctions, but we do not believe that we or our TRSs are or will be subject to these impositions. 14 Tabl e of Contents Income Tests.
As a result of this acquisition, one of our joint ventures is generally liable for unpaid taxes, including penalties and interest (if any), 18 Table of Contents of MNR.
As a result of this acquisition, one of our joint ventures is generally liable for unpaid taxes, including penalties and interest (if any), of MNR.
Fiduciaries considering an investment in our securities should consult their own legal advisors as to whether the ownership of our securities involves a non-exempt prohibited transaction. “Plan Assets” Considerations The U.S.
Fiduciaries considering an investment in our securities should consult their own legal advisors as to whether the ownership of our securities involves a non-exempt prohibited transaction. 27 Tabl e of Contents “Plan Assets” Considerations The U.S.
We will decide when and whether to issue equity or new debt depending primarily upon our success in operating our business and upon market conditions.
We will decide when and whether to issue equity, incur new debt or refinance existing debt depending primarily upon our success in operating our business and upon market conditions.
Competition Investing in and operating real estate is a very competitive business. We compete against publicly traded and private REITs, numerous financial institutions, individuals and public and private companies. Some of our competitors may have greater financial and other resources than us.
Competition Owning and operating real estate is a highly competitive business. We compete against publicly traded and private REITs, numerous financial institutions, individuals and public and private companies. Some of our competitors may have greater financial and other resources than us.
We may elect to retain and pay income tax on our net capital gain.
We may elect to retain and pay income tax on our net capital gains.
Unless the U.S. shareholder has established on a properly executed IRS Form W-9 or substantially similar form that it comes within an enumerated exempt category, distributions or proceeds on our shares paid to it during the calendar year, and the amount of tax withheld, if any, will be reported to it and to the IRS.
Unless the U.S. shareholder has established on a properly executed IRS Form W-9 or substantially similar form that it comes within an enumerated exempt category, distributions or proceeds on our shares paid to it during the calendar year, and the amount of tax withheld, if any, will be reported to it and to the IRS. 25 Tabl e of Contents Distributions on our shares to a non-U.S. shareholder during each calendar year and the amount of tax withheld, if any, will generally be reported to the non-U.S. shareholder and to the IRS.
Our Board of Trustees may change our disposition policies at any time without a vote of, or notice to, our shareholders. 4 Table of Contents Our Financing Policies To qualify for taxation as a REIT under the IRC, we generally are required to distribute annually at least 90% of our REIT taxable income, subject to specified adjustments and excluding any net capital gain.
Our Board of Trustees may change our disposition policies at any time without a vote of, or notice to, our shareholders. 4 Tabl e of Contents Our Financing Policies To qualify for taxation as a REIT under the Internal Revenue Code of 1986, as amended, or the IRC, we generally are required to distribute annually at least 90% of our REIT taxable income, subject to specified adjustments and excluding any net capital gain.
In order to qualify for taxation as a REIT under the IRC, we are required to make annual distributions other than capital gain dividends to our shareholders in an amount at least equal to the excess of: (1) the sum of 90% of our “real estate investment trust taxable income” and 90% of our net income after tax, if any, from property received in foreclosure, over (2) the amount by which our noncash income (e.g., imputed rental income or income from transactions inadvertently failing to qualify as like-kind exchanges) exceeds 5% of our “real estate investment trust taxable income.” For these purposes, our “real estate investment trust taxable income” is as defined under Section 857 of the IRC and is computed without regard to the dividends paid deduction and our net capital gain and will generally be reduced by specified corporate-level income taxes that we pay (e.g., taxes on built-in gains or foreclosure property income).
In order to qualify for taxation as a REIT under the IRC, we are required to make annual distributions other than capital gain dividends to our shareholders in an amount at least equal to the excess of: (1) the sum of 90% of our “real estate investment trust taxable income” and 90% of our net income after tax, if any, from property received in foreclosure, over (2) the amount by which our noncash income (e.g., imputed rental income or income from transactions inadvertently failing to qualify as like-kind exchanges) exceeds 5% of our “real estate investment trust taxable income.” For these purposes, our “real estate investment trust taxable income” is as defined under Section 857 of the IRC and is computed without regard to the dividends paid deduction and our net capital gain and will generally be reduced by specified corporate-level income taxes that we pay (e.g., taxes on built-in gains or foreclosure property income). 18 Tabl e of Contents The IRC generally limits the deductibility of net interest expense paid or accrued on debt properly allocable to a trade or business to 30% of “adjusted taxable income”, subject to specified exceptions.
For more information, see “Risk Factors—Risks Related to Our Business—We face significant competition” in this Annual Report on Form 10-K. Our Manager RMR Inc. is a holding company and substantially all of its business is conducted by its majority owned subsidiary, RMR. Adam D.
For more information, see “Risk Factors—Risks Related to Our Business—We face significant competition” included in Part I, Item 1A of this Annual Report on Form 10-K. Our Manager The RMR Group Inc., or RMR Inc., is a holding company and substantially all of its business is conducted by its majority owned subsidiary, RMR. Adam D.
This opinion is conditioned upon certain assumptions and representations, as discussed above under the heading “Material United States Federal Income Tax Considerations—Taxation as a REIT.”
This opinion is conditioned upon certain assumptions and representations, as discussed above under the heading “Material United States Federal Income Tax Considerations—Taxation as a REIT.” 28 Tabl e of Contents
Under some of our leases, some of these costs are required to be paid or reimbursed to us by our tenants. 6 Table of Contents Internet Website Our internet website address is www.ilptreit.com.
Under some of our leases, some of these costs are required to be paid or reimbursed to us by our tenants. 7 Tabl e of Contents Internet Website Our internet website address is www.ilptreit.com.
In addition, if we so elect by making a timely designation to our shareholders: (1) each of our U.S. shareholders will be taxed on its designated proportionate share of our retained net capital gains as though that amount were distributed and designated as a capital gain dividend; (2) each of our U.S. shareholders will receive a credit or refund for its designated proportionate share of the tax that we pay; (3) each of our U.S. shareholders will increase its adjusted basis in our shares by the excess of the amount of its proportionate share of these retained net capital gains over the U.S. shareholder’s proportionate share of the tax that we pay; and (4) both we and our corporate shareholders will make commensurate adjustments in our respective earnings and profits for federal income tax purposes. 20 Table of Contents Distributions in excess of our current or accumulated earnings and profits will not be taxable to a U.S. shareholder to the extent that they do not exceed the shareholder’s adjusted tax basis in our shares, but will reduce the shareholder’s basis in such shares.
In addition, if we so elect by making a timely designation to our shareholders: (1) each of our U.S. shareholders will be taxed on its designated proportionate share of our retained net capital gains as though that amount were distributed and designated as a capital gain dividend; (2) each of our U.S. shareholders will receive a credit or refund for its designated proportionate share of the tax that we pay; (3) each of our U.S. shareholders will increase its adjusted basis in our shares by the excess of the amount of its proportionate share of these retained net capital gains over the U.S. shareholder’s proportionate share of the tax that we pay; and (4) both we and our corporate shareholders will make commensurate adjustments in our respective earnings and profits for federal income tax purposes.
Also, we may invest in or enter into real estate joint ventures. We currently own a 61% equity interest in a consolidated joint venture, a 22% equity interest in an unconsolidated joint venture, and a 67% tenancy in common interest in one of the properties we acquired as part of the MNR acquisition.
Also, we may invest in or enter into real estate joint ventures. We currently own a 61% equity interest in our consolidated joint venture, a 22% equity interest in the unconsolidated joint venture and a 67% tenancy in common interest in one of our Mainland Properties.
If MNR is deemed to have lost its qualification for taxation as a REIT prior to the date of our acquisition and no relief is available, we or one of our joint ventures would face the following tax consequences: • as a successor, we or one of our joint ventures would generally inherit any corporate income tax liabilities of MNR, including penalties and interest; • we or one of our joint ventures would be subject to tax on the built-in gain on each asset of MNR existing at the time we acquired it if we or one of our joint ventures were to dispose of such an asset during the five-year period following the date that we acquired MNR; and • we or one of our joint ventures could be required to pay a special distribution and/or employ applicable deficiency dividend procedures (including interest payments to the IRS) to eliminate any earnings and profits accumulated by MNR for taxable periods that it did not qualify for taxation as a REIT.
If MNR is deemed to have lost its qualification for taxation as a REIT prior to the date of our acquisition and no relief is available, we or one of our joint ventures would face the following tax consequences: a. inherit, as successor to MNR, any corporate income tax liabilities of MNR, including penalties and interest; b. be subject to tax on the built-in gain on each asset of MNR existing at the time we acquired MNR if such an asset were disposed of during the five-year period following the date that we acquired MNR; and c. be required to eliminate any earnings and profits accumulated by MNR for taxable periods that it did not qualify for taxation as a REIT, through a special distribution and/or employing applicable deficiency dividend procedures (including interest payments to the IRS). 20 Tabl e of Contents It is unclear whether the IRC provisions that are generally available to remediate REIT compliance failures will be available to us or one of our joint ventures as a successor in respect of any determination that MNR failed to qualify for taxation as a REIT.
However, this grace period terminates and foreclosure property ceases to be foreclosure property on the first day: • on which a lease is entered into for the property that, by its terms, will give rise to income that does not qualify for purposes of the 75% gross income test (disregarding income from foreclosure property), or any nonqualified income under the 75% gross income test is received or accrued by the REIT, directly or indirectly, pursuant to a lease entered into on or after such day; • on which any construction takes place on the property, other than completion of a building or any other improvement where more than 10% of the construction was completed before default became imminent and other than specifically exempted forms of maintenance or deferred maintenance; or • which is more than 90 days after the day on which the REIT acquired the property and the property is used in a trade or business which is conducted by the REIT, other than through an independent contractor from whom the REIT itself does not derive or receive any income or a TRS.
However, this grace period terminates and foreclosure property ceases to be foreclosure property on the first day: • on which a lease is entered into for the property that, by its terms, will give rise to income that does not qualify for purposes of the 75% gross income test (disregarding income from foreclosure property), or any nonqualified income under the 75% gross income test is received or accrued by the REIT, directly or indirectly, pursuant to a lease entered into on or after such day; • on which any construction takes place on the property, other than completion of a building or any other improvement where more than 10% of the construction was completed before default became imminent and other than specifically exempted forms of maintenance or deferred maintenance; or • which is more than 90 days after the day on which the REIT acquired the property and the property is used in a trade or business which is conducted by the REIT, other than through an independent contractor from whom the REIT itself does not derive or receive any income or a TRS. 16 Tabl e of Contents Other than sales of foreclosure property, any gain that we realize on the sale of property held as inventory or other property held primarily for sale to customers in the ordinary course of a trade or business, together known as dealer gains, may be treated as income from a prohibited transaction that is subject to a penalty tax at a 100% rate.
Our intentions and beliefs described in this summary are based upon our understanding of applicable laws and regulations that are in effect as of the date of this Annual Report on Form 10-K. If new laws or regulations are enacted which impact us directly or indirectly, we may change our intentions or beliefs.
Our intentions and beliefs described in this summary are based upon our understanding of applicable laws and regulations that are in effect as of February 16, 2024. If new laws or regulations are enacted which impact us directly or indirectly, we may change our intentions or beliefs.
If as expected our shares are not USRPIs, then a non-U.S. shareholder’s gain on the sale of these shares generally will not be subject to U.S. federal income taxation or withholding. We expect that our shares will not be USRPIs because one or both of the following exemptions will be available at all times.
If as expected our shares are not USRPIs, then a non-U.S. shareholder’s gain on the sale of these shares generally will not be subject to U.S. federal income taxation or withholding.
We target estimated capitalization rates of 4.5% to 7% for new investments. If and as market conditions change, or in certain other instances, our target investments and target estimated capitalization rates may change.
If and as market conditions change, or in certain other instances, our target investments and target estimated capitalization rates may change.
The 413 properties consisted of 226 buildings, leasable land parcels and easements containing approximately 16.7 million rentable square feet (all square footage amounts included within this Annual Report on Form 10-K are unaudited) that were primarily industrial lands located on the island of Oahu, Hawaii, or our Hawaii Properties, and 187 properties containing approximately 43.3 million rentable square feet that were industrial and logistics properties located in 38 other states, or our Mainland Properties.
As of December 31, 2023, our portfolio was comprised of 411 properties containing approximately 59,951,000 rentable square feet located in 39 states, including 226 buildings, leasable land parcels and easements containing approximately 16,729,000 rentable square feet (all square footage amounts included within this Annual Report on Form 10-K are unaudited) that were primarily industrial lands located on the island of Oahu, Hawaii, or our Hawaii Properties, and 185 properties containing approximately 43,222,000 rentable square feet that were industrial and logistics properties located in 38 other states, or our Mainland Properties.
Our shareholders would then increase the adjusted tax basis of their shares by the difference between (a) the amount of capital gain dividends that we designated and that they included in their taxable income, and (b) the tax that we paid on their behalf with respect to that capital gain.
Our shareholders would then increase the adjusted tax basis of their shares by the difference between (a) the amount of capital gain dividends that we designated and that they included in their taxable income, and (b) the tax that we paid on their behalf with respect to that capital gain. 19 Tabl e of Contents Acquisitions of C Corporations We may in the future engage in transactions where we acquire all of the outstanding stock of a C corporation.
U.S. shareholders who are individuals, estates or trusts are generally required to pay a 3.8% Medicare tax on their net investment income (including dividends on our shares (without regard to any deduction allowed by Section 199A of the IRC) and gains from the sale or other disposition of our shares), or in the case of estates and trusts on their net investment income that is not distributed, in each case to the extent that their total adjusted income exceeds applicable thresholds.
In addition, any loss upon a sale or exchange of our shares held for six months or less will generally be treated as a long-term capital loss to the extent of any long-term capital gain dividends we paid on such shares during the holding period. 22 Tabl e of Contents U.S. shareholders who are individuals, estates or trusts are generally required to pay a 3.8% Medicare tax on their net investment income (including dividends on our shares (without regard to any deduction allowed by Section 199A of the IRC) and gains from the sale or other disposition of our shares), or in the case of estates and trusts on their net investment income that is not distributed, in each case to the extent that their total adjusted income exceeds applicable thresholds.
Acquisitions of C Corporations We may in the future engage in transactions where we acquire all of the outstanding stock of a C corporation. Upon these acquisitions, except to the extent we make an applicable TRS election, each of our acquired entities and their various wholly-owned corporate and noncorporate subsidiaries will become our QRSs.
Upon these acquisitions, except to the extent we make an applicable TRS election, each of our acquired entities and their various wholly-owned corporate and noncorporate subsidiaries will become our QRSs.
RMR or its subsidiaries also act as a manager to other publicly traded real estate companies, privately held real estate funds and real estate related operating businesses. In addition, RMR provides management services to our existing joint ventures.
RMR or its subsidiaries also act as a manager to other publicly traded real estate companies, privately held real estate funds and real estate related operating businesses. In addition, RMR provides management services to our joint ventures. As of February 16, 2024, the executive officers of RMR are: Adam D. Portnoy, president and chief executive officer; Christopher J.
We define the term annualized rental revenues as used in this Annual Report on Form 10-K as the annualized contractual rents as of December 31, 2022, including straight line rent adjustments and excluding lease value amortization, adjusted for tenant concessions including free rent and amounts reimbursed to tenants, plus estimated recurring expense reimbursements from tenants.
We define the term annualized rental revenues used in this Annual Report on Form 10-K as the annualized contractual base rents from our tenants pursuant to their leases as of the measurement date, including straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.
In addition to the internal rent growth which may result from our rent resets and lease activity at our Hawaii Properties, a majority of the leases at our Mainland Properties and certain leases at our Hawaii Properties include periodic set dollar amount or percentage increases that raise the cash rent payable to us.
In addition to the internal rent growth which may result from our rent resets and lease activity at our Hawaii Properties, a majority of the leases at our Mainland Properties and certain leases at our Hawaii Properties include periodic set dollar amount or percentage increases that raise the cash rent payable to us. 1 Tabl e of Contents Since the time, in some cases 40 to 50 years ago, certain of our Hawaii Properties’ leases were originally entered into, the characteristics of the neighborhoods in the vicinity of some of those properties have changed.
This relief provision may apply to a failure of the applicable income tests even if the failure first occurred in a year prior to the taxable year in which the failure was discovered. 15 Table of Contents Based on the discussion above, we believe that we have satisfied, and will continue to satisfy, the 75% and 95% gross income tests outlined above on a continuing basis beginning with our first taxable year as a REIT.
Based on the discussion above, we believe that we have satisfied, and will continue to satisfy, the 75% and 95% gross income tests outlined above on a continuing basis beginning with our first taxable year as a REIT. Asset Tests.
First, for so long as a class of our shares is listed on a U.S. national securities exchange, a non-U.S. shareholder’s gain on the sale of those shares will not be subject to U.S. federal income taxation as a sale of a USRPI. Second, our shares will not constitute USRPIs if we are a “domestically controlled” REIT.
We expect that our shares will not be USRPIs because one or both of the following exemptions will be available at all times. 24 Tabl e of Contents First, for so long as a class of our shares is listed on a U.S. national securities exchange, a non-U.S. shareholder’s gain on the sale of those shares will not be subject to U.S. federal income taxation as a sale of a USRPI.
Segment Information As of December 31, 2022, we had one operating segment: ownership and leasing of properties that include industrial and logistics buildings and leased industrial lands. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of this Annual Report on Form 10-K and our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
In such a situation, the REIT parent’s own qualification and taxation as a REIT could be jeopardized on account of the subsidiary’s failure cascading up to the REIT parent, all as described below under the heading “—Asset Tests”.
In such a situation, the REIT parent’s own qualification and taxation as a REIT could be jeopardized on account of the subsidiary’s failure cascading up to the REIT parent, all as described below under the heading “—Asset Tests”. 13 Tabl e of Contents We have joined with our subsidiary REITs in filing protective TRS elections, and we may continue to annually make such elections unless and until our ownership of these subsidiaries falls below 10%.
Our Business and Growth Strategies We own and lease industrial and logistics properties located throughout the United States. We believe our current properties provide a stable base of increasing income. We intend to expand our business by acquiring additional industrial and logistics properties in the United States that may benefit from the growth of e-commerce or demand for logistics properties.
Our Business and Growth Strategies We own and lease industrial and logistics properties located throughout the United States. We believe our current properties provide a stable base of increasing income. We seek to extend or enter new leases as leases approach expiration and selectively develop industrial and logistics properties in the United States.
(2) Includes an executed lease for 2,238,000 square feet in Hawaii that is expected to commence in the second quarter of 2024. Our Investment Policies Our target investments include all industrial and logistics buildings in top tier markets. Outside of top tier markets, our focus is on newer buildings, high credit quality tenants and longer lease terms.
Our Investment Policies Our target investments include all industrial and logistics buildings in top tier markets. Outside of top tier markets, our focus is on newer buildings, high credit quality tenants and longer lease terms. We target estimated capitalization rates of 6.0% to 7.5% for new investments.
Various (34 States) 84 13,108,882 22.1 % 29.6 % Amazon.com Services, Inc./ Amazon.com Services LLC AL, IN, OK, SC, TN, VA 8 4,539,084 7.6 % 6.7 % Home Depot U.S.A., Inc. (2) GA, HI, IL 4 3,364,679 5.7 % 4.4 % UPS Supply Chain Solutions, Inc. NH, NY 3 794,313 1.3 % 1.6 % Restoration Hardware, Inc.
(1) Revenues FedEx Corporation / FedEx Ground Package System, Inc. Various (34 States) 80 12,851 21.7 % 29.7 % Amazon.com Services, Inc. / Amazon.com Services LLC AL, IN, OK, SC, TN, VA 8 4,539 7.7 % 6.7 % Home Depot U.S.A., Inc. GA, HI 2 956 1.6 % 2.1 % UPS Supply Chain Solutions, Inc.
Our principal executive offices are located at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and our telephone number is (617) 219-1460. Acquisition of Monmouth Real Estate Investment Corporation On February 25, 2022, we completed the acquisition of MNR pursuant to the merger of MNR with and into one of our wholly owned subsidiaries, or the Merger.
Acquisition of Monmouth Real Estate Investment Corporation On February 25, 2022, we completed the acquisition of Monmouth Real Estate Investment Corporation, or MNR, pursuant to the merger of MNR with and into one of our wholly owned subsidiaries, or the Merger.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe following is a summary of the principal risk factors described in this section: • unfavorable market, economic and commercial real estate conditions due to, among other things, rising or sustained high interest rates and high inflation, labor market challenges, volatility in the public equity and debt markets, pandemics (such as the COVID-19 pandemic) or other adverse public health safety events or conditions, geopolitical instability (such as the war in Ukraine), and other conditions beyond our control, may have a material 26 Table of Contents adverse effect on our and our tenants’ results of operations and financial conditions, and our tenants may be unable to satisfy their lease obligations to us; • we have a significant amount of debt outstanding and we are subject to risks related to our debt, including that our debt could negatively impact our operations and our ability to make investments and to pay distributions to our shareholders, our ability to manage our leverage at a level we believe appropriate and to access capital at reasonable costs or at all; • our long term financing plan for the acquisition of MNR, development or redevelopment projects or potential future acquisitions may not be successful or may not be executed on the terms or within the timing we expect as a result of competition, current market and economic conditions, including capital market disruptions, rising or sustained high interest rates and high inflation, or otherwise; • we may be unable to renew our leases when they expire or lease our properties to new tenants without decreasing rents or incurring significant costs or at all; • our concentration of investments in industrial and logistics properties leased to single tenants and our concentration of properties leased to certain companies may result in us being adversely affected by a downturn in economic conditions or a possible recession and subject us to greater risks of loss than if our properties had more industry sector and tenant diversity; • we are subject to risks related to our qualification for taxation as a REIT, including REIT distribution requirements; • our distributions to our shareholders may remain at $0.01 per share for an indefinite period or be eliminated and the form of payment could change; • our existing and any future joint ventures may limit our flexibility with jointly owned investments and we may not realize the benefits we expect from these arrangements or our joint ventures could require us to provide additional capital; • ownership of real estate is subject to environmental risks and liabilities, as well as risks from adverse weather, natural disasters and climate change and climate related events; • insurance may not adequately cover our losses, and insurance costs may continue to increase; • we are subject to risks related to our dependence upon RMR to implement our business strategies and manage our day to day operations; • we are subject to risks related to the security of RMR’s information technology; • our management structure and agreements with RMR and our relationships with our related parties, including our Managing Trustees, RMR and others affiliated with them, may create conflicts of interest; • ESG initiatives, requirements and market expectations may impose additional costs and expose us to new risks; • we may change our operational, financing and investment policies without shareholder approval; and • provisions in our declaration of trust, bylaws and other agreements, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals, limit our rights and the rights of our shareholders to take action against our Trustees and officers or limit our shareholders’ ability to obtain a favorable judicial forum for certain disputes.
Biggest changeThe following is a summary of the principal risk factors described in this section: • we have a substantial amount of debt and we are subject to risks related to our debt, including our ability to refinance maturing debt and the cost of any such refinanced debt and our ability to reduce our debt leverage, which may remain at or above current levels for an indefinite period, covenants and conditions contained in our debt agreements which may restrict our operations by increasing our interest expense and limiting our ability to make investments in our properties, sell properties securing our debt and pay distributions to our shareholders and other limitations on our ability to access capital at reasonable costs or at all; • our potential future development or redevelopment projects or sales or acquisitions may not be successful or may not be executed on the terms or within the timing we expect as a result of limitations in our debt agreements on our ability to sell properties securing our debt, ongoing market and economic conditions, including capital market disruptions, high interest rates, prolonged high inflation, competition, or otherwise; • we may be unable to renew our leases when they expire or lease our properties to new tenants without decreasing rents or incurring significant costs or at all; • our concentration of investments in industrial and logistics properties leased to single tenants and our concentration of properties leased to certain companies may result in us being adversely affected by economic downturns or a possible recession and subject us to greater risks of loss than if our properties had more industry sector and tenant diversity; • unfavorable market and commercial real estate industry conditions due to, among other things, high interest rates, prolonged high inflation, labor market challenges, supply chain disruptions, volatility in the public equity and debt markets, pandemics, geopolitical instability and tensions (such as the ongoing wars in Ukraine and the Middle East), economic downturns or a possible recession, changes in real estate utilization and other conditions beyond our control, may have a material adverse effect on our and our tenants’ results of operations and financial conditions, and our tenants may be unable to satisfy their lease obligations to us; • we are subject to risks related to our qualification for taxation as a REIT, including REIT distribution requirements; • our distributions to our shareholders may remain at $0.01 per share for an indefinite period or be eliminated and the form of payment could change; • our existing and any future joint ventures may limit our flexibility with jointly owned investments and we may not realize the benefits we expect from these arrangements or our joint ventures could require us to provide additional capital; • ownership of real estate is subject to environmental risks and liabilities, as well as risks from adverse weather, natural disasters and adverse impacts from global climate change; • insurance may not adequately cover our losses, and insurance costs may continue to increase; • we are subject to risks related to our dependence upon RMR to implement our business strategies and manage our day to day operations; • we are subject to risks related to the security of RMR’s information technology; • our management structure and agreements with RMR and our relationships with our related parties, including our Managing Trustees, RMR and others affiliated with them, may create conflicts of interest; • sustainability initiatives, requirements and market expectations may impose additional costs and expose us to new risks; • we may change our operational, financing and investment policies without shareholder approval; and 29 Tabl e of Contents • provisions in our declaration of trust, bylaws and other agreements, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals, limit our rights and the rights of our shareholders to take action against our Trustees and officers or limit our shareholders’ ability to obtain a favorable judicial forum for certain disputes.
Excessive or expensive debt could reduce the available cash flow to fund, or limit our ability to obtain financing for, working capital, capital expenditures, acquisitions, development or redevelopment projects, refinancing, lease obligations or other purposes and hinder our ability to pay distributions to our shareholders.
Excessive or expensive debt could reduce the available cash flow to fund, or limit our ability to obtain financing for, lease obligations, working capital, capital expenditures, refinancing, acquisitions, development or redevelopment projects or other purposes and hinder our ability to pay distributions to our shareholders.
When we renew our leases with current tenants or lease to new tenants, we may experience rent decreases, and we may have to spend substantial amounts for leasing commissions, tenant improvements or other tenant inducements.
When we renew our leases with current tenants or lease to new tenants, we may experience rent decreases, and we may have to spend substantial amounts for tenant improvements, leasing commissions or other tenant inducements.
Our ability to make profitable acquisitions is subject to risks, including, but not limited to, risks associated with: • competition from other investors; • contingencies in our acquisition agreements; • the availability, terms and cost of debt and equity capital; and • the extent of our debt leverage.
Our ability to make profitable acquisitions is subject to risks, including, but not limited to, risks associated with: • the extent of our debt leverage; • the availability, terms and cost of debt and equity capital; • competition from other investors; and • contingencies in our acquisition agreements.
If we or our third party vendors experience material security or other failures, inadequacies or interruptions in our or their information technology systems, we could incur material costs and losses and our operations could be disrupted.
If we or our third party vendors experience material security or other failures, inadequacies or interruptions in our or their information technology and systems, we could incur material costs and losses and our operations could be disrupted.
As a result of these limitations on liability and indemnification obligations, we and our shareholders may have more limited rights against our present and former Trustees and officers than might exist with other companies, which could limit shareholder recourse in the event of actions that some shareholders may believe are not in our best interest.
As a result of these limitations on liability and indemnification obligations, we and our shareholders may have more limited rights against our present and former Trustees and officers than might exist with other companies, which could limit shareholder recourse in the event of actions which some shareholders may believe are not in our best interest.
If we fail to adequately prepare for such events, our revenues, results of operations and financial condition may be impacted. In addition, we may incur significant costs in preparing for possible future climate change or climate related events or in response to our tenants’ requests for such investments and we may not realize desirable returns on those investments.
If we fail to adequately prepare for such events, our revenues, results of operations and financial condition may be impacted. In addition, we may incur significant costs in preparing for possible future climate change or in response to our tenants’ requests for such investments and we may not realize desirable returns on those investments.
Some of our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR or its subsidiaries provide management services. In addition, we may in the future enter into additional transactions with RMR, its affiliates or entities managed by it or its subsidiaries. In addition to his investments in RMR Inc. and RMR, Mr.
Some of our Independent Trustees also serve as independent trustees of other public companies to which RMR or its subsidiaries provide management services. In addition, we may in the future enter into additional transactions with RMR, its affiliates or entities managed by it or its subsidiaries. In addition to his investments in RMR Inc. and RMR, Mr.
Portnoy holds equity investments in other companies to which RMR or its subsidiaries provide management services and some of these companies have significant cross ownership interests. Our executive officers may also own equity investments in other companies to which RMR or its subsidiaries provide management services.
Portnoy holds equity investments in other companies to which RMR or its subsidiaries provide management services and some of these companies have significant cross ownership interests. Our executive officers also own equity investments in other companies to which RMR or its subsidiaries provide management services.
Our participation in joint ventures is subject to risks, including the following: • we share approval rights over major decisions affecting the ownership or operation of the joint ventures and any property owned by the joint ventures; • we may need to contribute additional capital in order to preserve, maintain or grow the joint ventures and their investments; • joint venture investors may have economic or other business interests or goals that are inconsistent with our business interests or goals and that could affect our ability to lease, relet or operate properties owned by the joint ventures; • our ability to sell our interest in, or sell additional properties to, the joint ventures or the joint ventures’ ability to sell additional interests of, or properties owned by, the joint ventures when we so desire are subject to the approval rights of the other joint venture investors under the terms of the agreements governing the joint ventures; • joint venture investors may be subject to different laws or regulations than us, or may be structured differently than us for tax purposes, which could create conflicts of interest and/or affect our ability to maintain our qualification for taxation as a REIT; and • disagreements with joint venture investors could result in litigation or arbitration that could be expensive and distracting to management and could delay important decisions.
Our participation in joint ventures is subject to risks, including the following: • we share approval rights over major decisions affecting the ownership or operation of the joint ventures and any property owned by the joint ventures; • we may need to contribute additional capital in order to preserve, maintain or grow the joint ventures and their investments; • joint venture investors may have economic or other business interests or goals that are inconsistent with our business interests or goals, which could affect our ability to lease, relet or operate properties owned by the joint ventures; • our ability to sell our interest in, or sell additional properties to, the joint ventures, or the joint ventures’ ability to sell additional interests of, or properties owned by, the joint ventures when we so desire are subject to the approval rights of the other joint venture investors under the terms of the agreements governing the joint ventures; 35 Tabl e of Contents • joint venture investors may be subject to different laws or regulations than us, or may be structured differently than us for tax purposes, which could create conflicts of interest and/or affect our ability to maintain our qualification for taxation as a REIT; and • disagreements with joint venture investors could result in litigation or arbitration that could be expensive and distracting to management and could delay important decisions.
Our business depends upon our tenants satisfying their lease obligations to us, which depends, to a large degree, on our tenants’ abilities to successfully operate their businesses. Our business depends on our tenants satisfying their lease obligations to us.
Our business depends upon our tenants satisfying their lease obligations, which depends, to a large degree, on our tenants’ abilities to successfully operate their businesses. Our business depends on our tenants satisfying their lease obligations.
Additionally, provisions contained in our declaration of trust and bylaws or under Maryland law may have a similar impact, including, for example, provisions relating to: • limitations on shareholder voting rights with respect to certain actions that are not approved by our Board of Trustees; • the authority of our Board of Trustees, and not our shareholders, to adopt, amend or repeal our bylaws and to fill vacancies on our Board of Trustees; • shareholder voting standards which require a supermajority of shares for approval of certain actions; • the fact that only our Board of Trustees, or, if there are no Trustees, our officers, may call shareholder meetings and that shareholders are not entitled to act without a meeting; • required qualifications for an individual to serve as a Trustee and a requirement that certain of our Trustees be “Managing Trustees” and other Trustees be “Independent Trustees,” as defined in our governing documents; • limitations on the ability of our shareholders to propose nominees for election as Trustees and propose other business to be considered at a meeting of our shareholders; • limitations on the ability of our shareholders to remove our Trustees; 38 Table of Contents • the authority of our Board of Trustees to create and issue new classes or series of shares (including shares with voting rights and other rights and privileges that may deter a change in control) and issue additional common shares; • restrictions on business combinations between us and an interested shareholder that have not first been approved by our Board of Trustees (including a majority of Trustees not related to the interested shareholder); and • the authority of our Board of Trustees, without shareholder approval, to implement certain takeover defenses.
Additionally, provisions contained in our declaration of trust and bylaws or under Maryland law may have a similar impact, including, for example, provisions relating to: • limitations on shareholder voting rights with respect to certain actions that are not approved by our Board of Trustees; • the authority of our Board of Trustees, and not our shareholders, to adopt, amend or repeal our bylaws and to fill vacancies on our Board of Trustees; • shareholder voting standards which require a supermajority of shares for approval of certain actions; • the fact that only our Board of Trustees, or, if there are no Trustees, our officers, may call shareholder meetings and that shareholders are not entitled to act without a meeting; • required qualifications for an individual to serve as a Trustee and a requirement that certain of our Trustees be “Managing Trustees” and other Trustees be “Independent Trustees”, as defined in our governing documents; • limitations on the ability of our shareholders to propose nominees for election as Trustees and propose other business to be considered at a meeting of our shareholders; • limitations on the ability of our shareholders to remove our Trustees; 41 Tabl e of Contents • the authority of our Board of Trustees to create and issue new classes or series of shares (including shares with voting rights and other rights and privileges that may deter a change in control) and issue additional common shares; • restrictions on business combinations between us and an interested shareholder that have not first been approved by our Board of Trustees (including a majority of Trustees not related to the interested shareholder); and • the authority of our Board of Trustees, without shareholder approval, to implement certain takeover defenses.
Our property management fees are calculated based on rents we receive and construction supervision fees for construction at our properties overseen and managed by RMR, and our base business management fee is calculated based upon the lower of the historical costs of our real estate investments and our market capitalization.
Our property management fees are calculated based on rents we receive and we also pay RMR construction supervision fees for construction at our properties overseen and managed by RMR, and our base business management fee is calculated based upon the lower of the historical costs of our real estate investments and our market capitalization.
While our leases generally require our tenants to operate in compliance with applicable law and to indemnify us against any environmental liabilities arising from their activities on our properties, applicable law may make us subject to strict liability by virtue of our ownership interests.
While our leases generally require our tenants to operate in compliance with applicable laws and to indemnify us against any environmental liabilities arising from their activities on our properties, applicable laws may make us subject to strict liability by virtue of our ownership interests.
In addition, we may incur significant costs in attempting to comply with ESG policies or third party expectations or demands. Risks Related to Our Relationships with RMR We are dependent upon RMR to manage our business and implement our growth strategy. We have no employees.
In addition, we may incur significant costs in attempting to comply with regulatory requirements, ESG policies or third party expectations or demands. Risks Related to Our Relationships with RMR We are dependent upon RMR to manage our business and implement our growth strategy. We have no employees.
We cannot be sure that our Code of Conduct or our governance guidelines, or other procedural protections we adopt will be sufficient to enable us to identify, adequately address or mitigate actual or alleged conflicts of interest or ensure that our transactions with related persons are made on terms that are at least as favorable to us as those that would have been obtained with an unrelated person. 36 Table of Contents Our management agreements with RMR were not negotiated on an arm’s length basis and their fee and expense structure may not create proper incentives for RMR, which may increase the risk of an investment in our common shares.
We cannot be sure that our Code of Conduct or our governance guidelines, or other procedural protections we adopt will be sufficient to enable us to identify, adequately address or mitigate actual or alleged conflicts of interest or ensure that our transactions with related persons are made on terms that are at least as favorable to us as those that would have been obtained with an unrelated person. 39 Tabl e of Contents Our management agreements with RMR were not negotiated on an arm’s length basis and their fee and expense structure may not create proper incentives for RMR, which may increase the risk of an investment in our common shares.
Further, in order to preserve liquidity, we may elect to pay distributions to our shareholders in part in a form other than cash, such as issuing additional common shares of ours to our shareholders, as permitted by the applicable tax rules.
Further, in order to preserve liquidity, we may elect to, in part, pay distributions to our shareholders in a form other than cash, such as issuing additional common shares to our shareholders, as permitted by the applicable tax rules.
Because economic conditions in the United States may affect the demand for industrial and logistics space, real estate values, occupancy levels and property income, current and future economic conditions in the United States, including slower growth or a recession and capital market volatility or disruptions, could have a material adverse impact on our earnings and financial condition.
As economic conditions in the United States may affect the demand for industrial and logistics space, real estate values, occupancy levels and property income, current and future economic conditions in the United States, including slower growth or a possible recession and capital market volatility or disruptions, could have a material adverse impact on our earnings and financial condition.
Losses of a catastrophic nature, such as those caused by hurricanes, flooding, volcanic eruptions and earthquakes, among other things, losses as a result of outbreaks of pandemics or acts of terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we or a responsible tenant may not be able to pay.
Losses of a catastrophic nature, such as those caused by hurricanes, flooding, volcanic eruptions and earthquakes or losses as a result of outbreaks of pandemics or acts of terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we or a responsible tenant may not be able to pay.
RMR relies on information technology and systems, including the Internet and cloud-based infrastructures, commercially available software and its internally developed applications, to process, transmit, store and safeguard information and to manage or support a variety of its business processes (including managing our building systems), including financial transactions and 34 Table of Contents maintenance of records, which may include personal identifying information of employees, tenants and guarantors and lease data.
RMR relies on information technology and systems, including the Internet and cloud-based infrastructures and services, commercially available software and its internally developed applications, to process, transmit, store and safeguard information and to manage or support a variety of its business processes (including managing our building systems), including financial transactions and maintenance of records, which may include personal identifying information of employees, tenants and guarantors and lease data.
Although much of RMR’s staff returned to its offices during the pandemic, flexible working arrangements have resulted in a higher extent of remote working than it experienced prior to the pandemic.
Although most of RMR’s staff returned to its offices during the pandemic, flexible working arrangements have resulted in a higher extent of remote working than it experienced prior to the pandemic.
The exclusive forum provision of our bylaws may limit a 39 Table of Contents shareholder’s ability to bring a claim in a judicial forum that the shareholder believes is favorable for disputes with us or our Trustees, officers, manager or other agents, which may discourage lawsuits against us and our Trustees, officers, manager or other agents.
The exclusive forum provision of our bylaws may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder believes is favorable for disputes with us or our Trustees, officers, manager or other agents, which may discourage lawsuits against us and our Trustees, officers, manager or other agents.
More favorable rates will nevertheless continue to apply to regular corporate “qualified” dividends, which may cause some investors to perceive that an investment in a REIT is less attractive than an investment in a non-REIT entity that pays dividends, thereby reducing the demand and market price of our common shares. REIT distribution requirements could adversely affect us and our shareholders.
More favorable rates will nevertheless continue to apply to regular corporate “qualified” dividends, which may cause some investors to perceive that an investment in a REIT is less attractive than an investment in a non-REIT entity that pays dividends, thereby reducing the demand and market price of our common shares. 43 Tabl e of Contents REIT distribution requirements could adversely affect us and our shareholders.
Also, our tenants may have insufficient financial resources to satisfy their indemnification obligations under our leases or they may resist doing so. Furthermore, such liabilities or obligations may affect the ability of some tenants to pay their rents to us. As of December 31, 2022, we had reserved approximately $6.9 million for potential environmental liabilities arising at our properties.
Also, our tenants may have insufficient financial resources to satisfy their indemnification obligations under our leases or they may resist doing so. Furthermore, such liabilities or obligations may affect the ability of some tenants to pay their rents to us. As of December 31, 2023, we had reserved approximately $6.8 million for potential environmental liabilities arising at our properties.
Competition may make it difficult for us to attract and retain tenants and may reduce the rents we are able to charge and the values of our properties. We also face competition for acquisition opportunities from other investors, including publicly traded and private REITs, numerous financial institutions, individuals, foreign investors and other public and private companies.
Competition may make it difficult for us to attract and retain tenants and may reduce the rents we are able to charge and the values of our properties. 32 Tabl e of Contents We also face competition for acquisition opportunities from other investors, including publicly traded and private REITs, numerous financial institutions, individuals, foreign investors and other public and private companies.
Because the earnings we are permitted to retain are limited by the rules governing REIT qualification and taxation, if we are unable to raise reasonably priced capital, we may not be able to carry out our business plan. Increases in market interest rates have significantly increased our interest expense and may otherwise materially and negatively affect us.
Because the earnings we are permitted to retain are limited by the rules governing REIT qualification and taxation, if we are unable to raise reasonably priced capital, we may not be able to carry out our business plan. High interest rates have significantly increased our interest expense and may otherwise materially and negatively affect us.
We cannot predict how changes in the tax laws might affect us or our shareholders. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to remain qualified for taxation as a REIT or the tax consequences of such qualification to us and our shareholders. Item 1B. Unresolved Staff Comments None.
We cannot predict how changes in the tax laws might affect us or our shareholders. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to remain qualified for taxation as a REIT or the tax consequences of such qualification to us and our shareholders. Item 1B.
We may be unable to lease our properties when our leases expire. Although we typically will seek to renew or extend the terms of leases for our properties with tenants when they expire, we cannot be sure that we will be successful in doing so.
Although we typically will seek to renew or extend the terms of leases for our properties with tenants when they expire, we cannot be sure that we will be successful in doing so.
Further, our debt agreements contain exceptions to the general non-recourse provisions that 32 Table of Contents obligate us to indemnify the lenders for certain potential environmental losses relating to hazardous materials and violations of environmental law.
Further, our debt agreements contain exceptions to the general non-recourse provisions that obligate us to indemnify the lenders for certain potential environmental losses relating to hazardous materials and violations of environmental law.
Even if we remain qualified for taxation as a REIT under the IRC, we may be subject to federal, state and local taxes on our income and assets, including taxes on any undistributed income, excise taxes, state or local income, property and transfer taxes, 40 Table of Contents and other taxes.
Even if we remain qualified for taxation as a REIT under the IRC, we may be subject to federal, state and local taxes on our income and assets, including taxes on any undistributed income, excise taxes, state or local income, property and transfer taxes, and other taxes.
We may fail to comply with the terms of our debt agreements, which could adversely affect our business and prohibit us from paying distributions to our shareholders. Our debt agreements contain financial and/or operating covenants. These covenants may limit our operational flexibility and acquisition and disposition activities.
We may fail to comply with the terms of our debt agreements, which could adversely affect our business and prohibit us from paying distributions to our shareholders. Our debt agreements contain financial and/or operating covenants. Certain of these covenants limit our operational flexibility.
In the event RMR is unwilling or unable to 35 Table of Contents continue to provide management services to us, our cost of obtaining substitute services may be greater than the fees we pay RMR under our management agreements, and as a result our expenses may increase. RMR has broad discretion in operating our day to day business.
In the event RMR is unwilling or unable to continue to provide management services to us, our cost of obtaining substitute services may be greater than the fees we pay RMR under our management agreements, and as a result our expenses may increase. 38 Tabl e of Contents RMR has broad discretion in operating our day to day business.
Sales of our common shares may cause a decline in the value of our common shares; • amounts outstanding under certain of our debt require interest to be paid at floating interest rates.
Sales of our common shares may cause a decline in the market price of our common shares; • amounts outstanding under certain of our debt require interest to be paid at floating interest rates.
Donley has duties to SVC, as well as to us, and we do not have their undivided attention. They and other RMR personnel may have conflicts in allocating their time and resources between us and RMR and other companies to which RMR or its subsidiaries provide services.
Duffy has duties to OPI, as well as to us, and we do not have their undivided attention. They and other RMR personnel may have conflicts in allocating their time and resources between us and RMR and other companies to which RMR or its subsidiaries provide services.
Our debt may increase 28 Table of Contents our vulnerability to adverse market and economic conditions, limit our flexibility in planning for changes in our business and place us at a disadvantage in relation to competitors that have lower debt levels.
Our debt may increase our vulnerability to adverse market and economic conditions, limit our flexibility in planning for changes in our business and place us at a disadvantage in relation to competitors that have lower debt levels.
These recommendations by proxy advisory firms have affected the outcomes of past Board of Trustees elections, and similar recommendations in the future would likely affect the outcome of future Board of Trustees elections, which may increase shareholder activism and litigation.
These recommendations by proxy advisory firms have affected past Board of Trustees elections, and similar recommendations in the future would likely affect the outcome of future Board of Trustees elections or other shareholder votes, which may increase shareholder activism and litigation.
We may incur substantial liabilities and costs for environmental matters. We are subject to risks from adverse weather, natural disasters and climate change and climate related events, and we incur significant costs and invest significant amounts with respect to these matters.
We may incur substantial liabilities and costs for environmental matters. We are subject to risks from adverse weather, natural disasters and adverse impacts from global climate change, and we incur significant costs and invest significant amounts with respect to these matters.
If we and RMR fail to satisfy the expectations of investors and our tenants and other stakeholders or our or RMR’s announced goals and other initiatives are not executed as planned, our and RMR’s reputation and financial results could be adversely affected, and our revenues, results of operations and ability to grow our business may be negatively impacted.
If we and RMR fail to comply with ESG related regulations and to satisfy the expectations of investors and our tenants and other stakeholders or our or RMR’s announced goals and other initiatives are not executed as planned, our and RMR’s reputation could be adversely affected, and our revenues, results of operations and ability to grow our business may be negatively impacted.
The Chair of our Board of Trustees and one of our Managing Trustees, Adam Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR.
Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR.
The financial capacities of our tenants to pay us rent will depend upon their abilities to successfully operate their businesses, which may be adversely affected by factors over which we and they have no control, including market and economic conditions, such as rising or sustained high interest rates and high inflation and economic recessions or downturns.
The financial capacities of our tenants to pay us rent will depend upon their abilities to successfully operate their businesses, which may be adversely affected by factors over which we and they have no control, including market and economic conditions, such as high interest rates, prolonged high inflation and economic downturns or a possible recession.
If any of the covenants in these debt agreements are breached and not cured within the applicable cure period, we could be required to repay the debt immediately, even in the absence of a payment default.
If any of the covenants in these debt agreements are breached and not cured within the applicable cure period, we could be required to repay the debt immediately, even in the absence of a payment default, or be prevented from refinancing maturing debt.
Ownership of real estate is subject to environmental risks and liabilities. Ownership of real estate is subject to risks associated with environmental hazards.
Ownership of real estate is subject to risks associated with environmental hazards.
The various relationships noted above may precipitate such activities. Certain proxy advisory firms which have significant influence over the voting by shareholders of public companies have, in the past, recommended, and in the future may recommend, that shareholders withhold votes for the election of our incumbent Trustees, vote against other management proposals or vote for shareholder proposals that we oppose.
Certain proxy advisory firms which have significant influence over the voting by shareholders of public companies have, in the past, recommended, and in the future may recommend, that shareholders withhold votes for the election of our incumbent Trustees, vote against other management proposals or vote for shareholder proposals that we oppose.
Our business may be adversely affected by market, economic and commercial real estate conditions in the U.S. and global economies and/or the local economies in the markets in which our properties are located.
Our business and operations may be adversely affected by market and economic volatility experienced by the U.S. and global economies, the commercial real estate industry and/or the local economies in the markets in which our properties are located.
Any of the foregoing risks could have a material adverse effect on our business, financial condition and results of operations. Further, these, similar, enhanced or additional risks, including possible mandatory capital contribution requirements, may apply to any future additional or amended joint ventures. Insurance may not adequately cover our losses, and insurance costs may continue to increase.
Any of the foregoing risks could have a material adverse effect on our business, financial condition and results of operations. Further, these, similar, enhanced or additional risks, including possible mandatory capital contribution requirements, may apply to any future additional or amended joint ventures.
Competing properties may have lower rates of occupancy than our properties, which may result in competing owners offering available space at lower rents than we offer at our properties. In addition, the continuing strong demand for industrial and logistics properties has encouraged new development of these properties.
Competing properties may have lower rates of occupancy than our properties, which may result in competing owners offering available space at lower rents than we offer at our properties. In addition, strong demand for industrial and logistics properties in recent years encouraged new development of these properties; however, such development has slowed.
Matthew Jordan, our other Managing Trustee, is an executive vice president and the chief financial officer and treasurer of RMR Inc. and an officer and employee of RMR, and Yael Duffy, our President and Chief Operating Officer, and Brian Donley, our Chief Financial Officer and Treasurer, are also officers and employees of RMR. Mr.
Jordan, our other Managing Trustee, is an executive vice president and the chief financial officer and treasurer of RMR Inc. and an officer and employee of RMR, and Yael Duffy, our President and Chief Operating Officer, and Tiffany R. Sy, our Chief Financial Officer and Treasurer, are also officers and employees of RMR. Mr.
We are subject to risks and could be exposed to additional costs from adverse weather, natural disasters and climate change and climate related events.
We are subject to risks and could be exposed to additional costs from adverse weather, natural disasters and adverse impacts from global climate change.
Unfavorable market, economic and commercial real estate conditions may have a material adverse effect on our results of operations, financial condition and ability to pay distributions to our shareholders.
Unfavorable market and industry conditions may have a material adverse effect on our results of operations, financial condition and ability to pay distributions to our shareholders.
We have purchased interest rate caps for certain of our debt, and we may continue to use similar or other derivatives to manage our exposure to interest rate volatility on debt instruments, including hedging for future debt issuances, as well as to increase our exposure to floating interest rates.
We have purchased interest rate caps as required pursuant to the terms of certain of our debt, and we may elect or be required to use similar or other derivatives to manage our exposure to interest rate volatility on debt instruments in the future, including hedging for future debt issuances, as well as to increase our exposure to floating interest rates.
For example, if increased onshoring of manufacturing to countries where the goods or materials are consumed, decreased global trade and increased localization of commercial ecosystems occur, there may be reduced volume of, and travel distance for, transporting goods, which may reduce demand for our properties. In addition, emerging technologies could reduce the demand for industrial and logistics properties.
For example, if increased nearshoring of manufacturing, decreased global trade and increased localization of commercial ecosystems occur, there may be reduced volume of, and travel distance for, transporting goods, which may reduce demand for our properties. In addition, emerging technologies could reduce the demand for industrial and logistics properties.
RMR or its subsidiary also acts as the manager to certain other Nasdaq listed companies and private companies, and Mr. Portnoy serves as a managing director, managing trustee, director or trustee, as applicable, of those companies, and as chair of the board of trustees or board of directors, as applicable, of those Nasdaq listed companies.
RMR or its subsidiaries also act as the manager to certain other Nasdaq listed companies and private companies, and Mr. Portnoy serves as a managing trustee, director or trustee, as applicable, of those companies, and as chair of the board of trustees of those Nasdaq listed companies. Matthew P.
Our debt could increase our costs of capital, limit our ability to incur additional debt in the future and increase our exposure to floating interest rates. Rising interest rates have significantly increased, and may continue to significantly increase, our interest expense.
Our debt could increase our costs of capital, limit our ability to incur additional debt in the future and increase our exposure to floating interest rates. High interest rates have significantly increased our borrowing costs.
Investors and prospective investors should consider the risks described below and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities.
Investors and prospective investors should consider the risks described below and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities. We may update these risk factors in our future periodic reports.
In July 2022, RMR announced its zero emissions goal pursuant to which it has pledged to reduce its scope 1 and 2 emissions to net zero by 2050 with a 50% reduction commitment by 2030 from a 2019 baseline.
Pursuant to RMR’s zero emissions goal, RMR has pledged to reduce its Scope 1 and 2 emissions to net zero by 2050 with a 50% reduction commitment by 2030 from a 2019 baseline.
These risks could result in substantial unanticipated delays and increased development and renovation costs and could prevent the initiation or the completion of development, redevelopment or repositioning activities.
These pricing increases, as well as increases in labor costs, could result in substantial unanticipated delays and increased development and renovation costs and could prevent the initiation or the completion of development, redevelopment or repositioning activities.
However: • our ability to pay distributions to our shareholders or sustain the rate of distributions may continue to be adversely affected if any of the risks described in this Annual Report on Form 10-K occur, including any negative impact caused by current market and economic conditions, such as rising or sustained high interest rates and high inflation and economic recessions or downturns, on our business, results of operations and liquidity; and • the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including, but not limited to, our FFO attributable to common shareholders, our Normalized FFO attributable to common shareholders, requirements to maintain our qualification for taxation as a REIT, limitations in our debt agreements, the availability to us of debt and equity capital, our dividend yield and our dividend yield compared to the dividend yields of other industrial REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.
During 2022, we reduced our quarterly cash distribution rate on our common shares to $0.01 per common share to enhance our liquidity until our leverage profile otherwise improves, subject to applicable REIT tax requirements; however: • our ability to pay distributions to our shareholders or sustain the rate of distributions may continue to be adversely affected if any of the risks described in this Annual Report on Form 10-K occur, including any negative impact caused by current market and economic conditions, such as high interest rates, prolonged high inflation and economic downturns or a possible recession, on our business, results of operations and liquidity; and • the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including, but not limited to, our funds from operations, or FFO, attributable to common shareholders, normalized funds from operations, or Normalized FFO, attributable to common shareholders, requirements to maintain our qualification for taxation as a REIT, limitations in our debt agreements, 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, 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.
If market interest rates continue to rise or remain at elevated levels, investors may expect a higher distribution rate than we are able to pay, which may increase our cost of capital, or they may sell our common shares and seek alternative investments that offer higher distribution rates.
At current interest rate levels, investors may expect a higher distribution rate than we are able to pay, which may increase our cost of capital, or they may sell our common shares and seek alternative investments with higher distribution rates.
In particular, these factors could arise from weaknesses in or a lack of established markets for the properties we have identified for sale, changes in the financial condition of prospective purchasers for and the tenants of the properties, the terms of leases with tenants at certain of the properties, the characteristics, quality and prospects of the properties, the availability of financing to potential purchasers on reasonable terms, the number of prospective purchasers, the number of competing properties in the market, unfavorable local, national or international economic conditions, industry trends and changes in laws, regulations or fiscal policies of jurisdictions in which the properties are located.
In particular, these factors could arise from weaknesses in or a lack of established markets for the properties we may identify for sale, the availability of financing to potential purchasers on reasonable terms, changes in the financial condition of prospective purchasers for and the tenants of the properties, the terms of leases with tenants at certain of the properties, the characteristics, quality and prospects of the properties, the number of prospective purchasers, the number of competing properties in the market, unfavorable local, national or international economic conditions, such as high inflation, high interest rates, labor market challenges, supply chain challenges and economic downturns or a possible recession, and changes in laws, regulations or fiscal policies of jurisdictions in which the properties are located.
Although we have options to extend the maturity date of certain of our debt upon payment of a fee and meeting other conditions, the applicable conditions may not be met, and we may be required to repay or refinance the outstanding borrowings with new debt on less favorable terms.
Although we have options to extend the maturity date of certain of our debt upon payment of a fee and meeting other conditions, the applicable conditions may not be met or we may incur significant costs complying with such conditions, including in connection with obtaining any required interest rate caps, and we may be required to repay or refinance the outstanding borrowings with new debt on less favorable terms.
In addition, the default, financial distress or bankruptcy of a tenant could cause interruptions in the receipt of rental revenue and/or result in a vacancy, which is, in the case of a single tenant property, likely to result in the complete reduction in the operating cash flows generated by the property and may decrease the value of that property.
In addition, the default, financial distress or bankruptcy of a tenant could cause interruptions in the receipt of rental revenue and/or result in a vacancy, which is, in the case of a single tenant property, likely to result in the complete reduction in the operating cash flows generated by the property and may decrease the value of that property. 31 Tabl e of Contents We may be unable to lease our properties when our leases expire.
If we determine that an uninsured loss or a loss in excess of insured limits occurs and if we are not able to recover amounts from our applicable tenants for certain losses, we may have to incur uninsured costs to mitigate such losses or lose all or a portion of the capital invested in a property, as well as the anticipated future revenue from the property.
If we determine that an uninsured loss or a loss in excess of insured limits occurs and if we are not able to recover amounts from our applicable tenants for certain losses, we may have to incur uninsured costs to mitigate such losses or lose all or a portion of the capital invested in a property, as well as the anticipated future revenue from the property. 36 Tabl e of Contents Changes in global supply chain conditions and emerging technologies may result in reduced demand for industrial and logistics properties.
However, economic conditions, including high inflation, may cause our tenants not to renew or extend their leases when they expire, or to seek to renew their leases for less space than they currently occupy.
However, economic conditions, including prolonged high inflation, may cause our tenants not to renew or extend their leases when they expire, or to seek to renew their leases for less space than they currently occupy. In addition, decreased demand for industrial and logistics space may impair our ability to extend or renew our leases.
We may be unable to raise capital at reasonable costs or at all because of reasons related to our business, market perceptions of our prospects, the terms of our debt, the extent of our leverage or for reasons beyond our control, such as capital market volatility, rising or sustained high interest rates and other market conditions, and we have recently experienced these challenges with respect to our long term financing for the MNR acquisition.
We may also be unable to raise capital at reasonable costs or at all because of reasons related to our business, market perceptions of our prospects, the terms of our debt, the extent of our leverage or for reasons beyond our control, such as capital market volatility, high interest rates and other market conditions.
Jordan is also a managing trustee of Seven Hills Realty Trust, or SEVN, and Mr. Donley is also the chief financial officer and treasurer of Service Properties Trust, or SVC. Messrs. Portnoy, Jordan and Donley and Ms. Duffy have duties to RMR, Mr. Jordan has duties to SEVN and Mr.
Jordan is also a managing trustee of Seven Hills Realty Trust, or SEVN, and Ms. Duffy is also the president and chief operating officer of Office Properties Income Trust, or OPI. Messrs. Portnoy and Jordan and Mses. Duffy and Sy have duties to RMR, Mr. Jordan has duties to SEVN and Ms.
For example, current market conditions have caused, and may continue to cause, increased capitalization rates which, together with rising interest rates, has resulted in reduced commercial real estate transaction volume, and such conditions may continue or worsen. We may not succeed in selling properties or other assets and any sales may be delayed or may not occur.
For example, current market conditions have caused, and may continue to cause, increased capitalization rates which, together with high interest rates, has resulted in reduced commercial real estate transaction volume, and such conditions may continue or worsen.
In addition, some of our Hawaii Properties require the rents to be reset periodically based on fair market values, which could result in rental increases or decreases. When we reset rents at our Hawaii Properties, our rents may decrease.
In addition, some of our Hawaii Properties require the rents to be reset periodically based on fair market values, which could result in rental increases or decreases. When we reset rents at our Hawaii Properties, our rents may decrease. Further, with respect to certain long-term leases, the contracted rent adjustments may not keep pace with inflation.
Further, the operating results and values of our Hawaii Properties are impacted by local market conditions, including a downturn in economic conditions in this area or a possible recession as a result of current inflationary conditions or otherwise, as well as possible government action that may limit our ability to increase rents.
Further, the operating results and values of our Hawaii Properties are impacted by local market conditions, including economic downturns or a possible recession as a result of current inflationary conditions or otherwise, as well as possible government action that may limit our ability to increase rents. 34 Tabl e of Contents Ownership of real estate is subject to environmental risks and liabilities.
Increases in or continued elevated levels of interest rates could lower the value of our properties and cause the value of our securities to decline. Failure to hedge effectively against interest rate changes may adversely affect our results of operations.
High interest rates could therefore lower the value of our properties and cause the value of our securities to decline. 33 Tabl e of Contents Failure to hedge effectively against interest rate changes may adversely affect our results of operations.
We currently have one property under development and may seek to develop, redevelop or reposition additional properties, and, as a result, we are subject to certain risks, which could adversely affect us, including our financial condition and results of operations.
We are exposed to risks associated with property development, redevelopment and repositioning that could adversely affect us, including our financial condition and results of operations. We may seek to develop, redevelop or reposition certain of our properties, which could subject us to certain associated risks.
Interest rate increases may materially and negatively affect us in several ways, including: 31 Table of Contents • investors may consider whether to buy or sell our common shares based upon the distribution rate on our common shares relative to the then prevailing market interest rates, and our quarterly cash distribution rate on our common shares is currently $0.01 per common share in order to enhance our liquidity until we complete our long term financing plan for the MNR acquisition and/or our leverage profile otherwise improves.
High interest rates may materially and negatively affect us in several ways, including: • one of the factors that investors typically consider important in deciding whether to buy or sell our common shares is the distribution rate on our common shares relative to prevailing interest rates, and our quarterly cash distribution rate on our common shares is currently $0.01 per common share in order to enhance our liquidity until our leverage profile otherwise improves.
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our Trustees, officers, manager or other agents.
In addition, the ability to collect attorneys’ fees or other damages may be limited in the arbitration proceedings, which may discourage attorneys from agreeing to represent parties wishing to bring such litigation. 42 Tabl e of Contents Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our Trustees, officers, manager or other agents.
Current conditions have negatively impacted our ability to complete our long term financing plan for the MNR acquisition consistent with our expectations when we committed to that acquisition and to pay distributions to our shareholders and these or other conditions may continue to have similar impacts in the future and on our results of operations and financial condition.
Current conditions have negatively impacted our ability to pay distributions to our shareholders and these or other conditions may continue to have similar impacts in the future and on our results of operations and financial condition.
Policy changes could adversely affect the market price of our common shares and our ability to pay distributions to our shareholders. Further, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Our Board of Trustees may alter or eliminate our current policy on borrowing at any time without shareholder approval.
Policy changes could adversely affect the market price of our common shares and our ability to pay distributions to our shareholders. Further, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur; however, our current leverage effectively limits us from incurring additional debt at this time.
Recent increases in market interest rates have significantly increased our interest expense. In response to significant and prolonged increases in inflation over the past year, the U.S. Federal Reserve has raised interest rates multiple times since the beginning of 2022 and has announced an expectation that interest rates will continue to rise.
In response to significant and prolonged increases in inflation, the U.S. Federal Reserve has raised interest rates multiple times since the beginning of 2022, which has significantly increased our interest expense. Although the U.S.
Moreover, any such challenge could result in substantial costs and a diversion of our management’s attention, could have a material adverse effect on our reputation, business and growth and could adversely affect our ability to realize the benefits expected from the transactions, whether or not the allegations have merit or are substantiated.
Moreover, any such challenge could result in substantial costs and a diversion of our management’s attention, could have a material adverse effect on our reputation, business and growth and could adversely affect our ability to realize the benefits expected from the transactions, whether or not the allegations have merit or are substantiated. 40 Tabl e of Contents We may be at an increased risk for dissident shareholder activities due to perceived conflicts of interest arising from our management structure and relationships.
Increased 33 Table of Contents insurance costs may adversely affect our applicable tenants’ abilities to pay us rent or result in downward pressure on rents we can charge under new or renewed leases.
In the past few years, the costs of insurance have increased significantly, and these increased costs have had an adverse effect on us and certain of our tenants. Increased insurance costs may adversely affect our applicable tenants’ abilities to pay us rent or result in downward pressure on rents we can charge under new or renewed leases.
The global economy, including the U.S. economy, recently experienced supply chain disruptions due to a multitude of factors that are beyond our control, and these supply chain challenges have reduced the availability of goods and materials, caused price inflation and increased the time from order to receipt of goods and materials.
In recent years, the global economy, including the U.S. economy, experienced supply chain disruptions due to the COVID-19 pandemic and related factors, and these supply chain challenges reduced the availability of goods and materials, which caused price inflation and increased the time from order to receipt of goods and materials.
We are subject to numerous risks associated with our debt, including the risk that our cash flows could be insufficient for us to make required payments and risks associated with increases and sustained high market interest rates. There are no limits in our organizational documents on the amount of debt we may incur, and we may incur substantial debt.
We are subject to numerous risks associated with our debt, including the risk that our cash flows could be insufficient for us to make required payments and risks associated with high interest rates for an extended period of time.
Unfavorable market, economic and commercial real estate conditions may be due to, among other things, rising or sustained high interest rates and high inflation, labor market challenges, volatility in the public equity and debt markets, pandemics (such as the COVID-19 pandemic), geopolitical instability (such as the war in Ukraine), and other conditions beyond our control.
Unfavorable economic and industry conditions may be due to, among other things, high interest rates, prolonged high inflation, labor market challenges, supply chain disruptions, volatility in the public equity and debt markets, pandemics, geopolitical instability and tensions (such as the ongoing wars in Ukraine and the Middle East), economic downturns or a possible recession, changes in real estate utilization and other conditions beyond our control.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2022, we also owned a 22% equity interest in an unconsolidated joint venture, which owns 18 properties located in 12 states containing approximately 11.7 million rentable square feet. 41 Table of Contents The following table provides certain information about our consolidated properties as of December 31, 2022 (dollars in thousands): Undepreciated Depreciated Number of Carrying Carrying State Properties Value (1) Value (1) Encumbrances (2) Alabama 4 $ 126,874 $ 123,291 $ 94,236 Arizona 1 31,518 30,386 4,240 Arkansas 1 4,385 3,695 23,500 Colorado 7 78,541 71,947 88,170 Connecticut 3 21,786 18,054 19,533 Florida 15 360,539 349,814 296,191 Georgia 8 393,679 385,449 188,604 Hawaii 226 635,949 610,720 862,930 Idaho 1 5,182 4,287 31,269 Illinois 11 129,877 125,742 5,480 Indiana 9 347,503 331,335 92,705 Iowa 4 30,098 21,501 239,156 Kansas 5 136,703 132,766 97,695 Kentucky 4 113,030 109,170 89,435 Louisiana 3 44,033 40,718 31,096 Maryland 2 106,576 91,912 108,690 Michigan 5 166,160 155,294 98,240 Minnesota 3 32,160 29,067 33,296 Mississippi 4 91,121 88,699 53,421 Missouri 7 70,898 67,232 30,138 Nebraska 2 17,959 16,061 111,507 Nevada 2 36,648 31,387 3,180 New Hampshire 1 49,213 44,595 19,130 New Jersey 4 214,969 200,523 72,550 New York 5 77,899 72,956 137,799 North Carolina 6 175,732 171,520 43,330 North Dakota 1 3,923 3,285 70,203 Ohio 20 447,453 418,033 328,108 Oklahoma 6 101,791 98,929 81,451 Pennsylvania 3 54,049 52,737 33,985 South Carolina 10 307,464 282,813 297,620 South Dakota 1 17,402 15,822 18,750 Tennessee 6 183,996 167,293 181,218 Texas 11 305,556 298,710 204,088 Utah 2 22,825 21,271 24,490 Vermont 1 48,563 47,627 104,689 Virginia 6 123,552 108,697 40,965 Washington 1 31,352 30,800 12,691 Wisconsin 2 29,150 28,503 16,581 Total 413 $ 5,176,108 $ 4,902,641 $ 4,290,363 (1) Excludes the value of real estate related intangibles.
Biggest changeAs of December 31, 2023, our Mainland Properties included 94 properties that we own in a consolidated joint venture in which we own 61% equity interest. 45 Tabl e of Contents The following table provides certain information about our properties as of December 31, 2023 (dollars in thousands): Undepreciated Depreciated Number of Carrying Carrying State Properties Value (1) Value (1) Encumbrances (2) Alabama 4 $ 126,874 $ 119,402 $ 93,008 Arizona 1 31,518 29,050 23,500 Arkansas 1 4,385 3,608 4,240 Colorado 7 78,754 70,195 88,170 Connecticut 3 21,843 17,573 19,533 Florida 15 360,722 340,803 296,191 Georgia 8 393,931 375,536 201,780 Hawaii 226 637,049 609,808 862,930 Idaho 1 5,216 4,181 5,480 Illinois 11 130,537 122,071 92,705 Indiana 9 348,421 322,604 236,897 Iowa 4 30,062 20,744 31,269 Kansas 5 137,102 129,552 97,695 Kentucky 4 113,026 105,756 89,435 Louisiana 3 44,185 39,763 31,096 Maryland 2 106,799 89,562 108,690 Michigan 5 166,479 151,206 98,240 Minnesota 3 32,316 28,374 33,296 Mississippi 4 91,442 86,122 51,164 Missouri 7 70,723 65,012 53,421 Nebraska 2 17,959 15,581 19,130 Nevada 2 36,648 30,466 43,330 New Hampshire 1 49,213 43,356 72,550 New Jersey 4 215,046 196,859 134,599 New York 5 79,030 71,738 70,203 North Carolina 5 173,978 165,331 109,765 North Dakota 1 3,923 3,204 3,180 Ohio 20 448,931 407,112 332,539 Oklahoma 6 101,804 96,320 81,451 Pennsylvania 3 54,049 50,877 33,985 South Carolina 10 307,672 274,844 297,620 South Dakota 1 17,402 15,399 18,750 Tennessee 6 184,259 161,921 181,218 Texas 10 293,618 278,574 210,778 Utah 2 22,825 20,740 24,490 Vermont 1 48,563 46,525 40,965 Virginia 6 123,964 105,663 104,689 Washington 1 30,134 28,932 11,380 Wisconsin 2 29,150 27,734 16,582 Total 411 $ 5,169,552 $ 4,772,098 $ 4,325,944 (1) Excludes the value of real estate related intangibles.
Properties As of December 31, 2022, our portfolio was comprised of 413 consolidated properties located in 39 states containing approximately 60.0 million rentable square feet, including 226 buildings, leasable land parcels and easements located on the island of Oahu, Hawaii containing approximately 16.7 million rentable square feet and 187 properties located in 38 other states containing approximately 43.3 million rentable square feet.
Properties As of December 31, 2023, our portfolio was comprised of 411 properties containing approximately 59,951,000 rentable square feet located in 39 states, including 226 buildings, leasable land parcels and easements containing approximately 16,729,000 rentable square feet located on the island of Oahu, Hawaii and 185 properties containing approximately 43,222,000 rentable square feet located in 38 other states in the mainland United States.
Most of our Hawaii Properties are lands leased to industrial and commercial tenants, many of which own buildings and operate their businesses on our lands. As of December 31, 2022, our 413 consolidated properties included 94 properties that we own in a consolidated joint venture in which we own 61% equity interest.
Most of our Hawaii Properties are lands leased to industrial and commercial tenants, many of which own buildings and operate their businesses on our lands.
For purposes of this table, the total principal balance of a mortgage debt that is secured by certain of our properties is allocated among such properties based on each property’s investment balance. 42 Table of Contents For more information regarding our mortgages and our joint ventures, see Notes 3, 5, 6, 9, 10, and 11 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
For more information regarding our mortgages and our joint ventures, see Notes 3 and 5 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 46 Tabl e of Contents
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(2) Certain of our consolidated properties are encumbered by mortgage debts.
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(2) Certain of our properties are encumbered by mortgage debts. For purposes of this table, the total principal balance of a mortgage debt that is secured by certain of our properties is allocated among such properties based on each property’s balance as stated in the applicable loan agreements.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Mine Safety Disclosures Not applicable. 47 Tabl e of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table provides information about our purchases of our equity securities during the quarter ended December 31, 2022: Maximum Total Number of Approximate Dollar Shares Purchased Value of Shares that Number of Average as Part of Publicly May Yet Be Purchased Shares Price Paid Announced Plans Under the Plans or Calendar Month Purchased (1) per Share of Programs Programs October 2022 144 $ 5.60 — $ — December 2022 415 3.27 — $ — Total 559 $ 3.87 — $ — (1) These common share withholdings and purchases were made to satisfy tax withholding and payment obligations of a former employee and a former officer and employee of RMR in connection with the vesting of prior awards of our common shares.
Biggest changeThe following table provides information about our purchases of our equity securities during the quarter ended December 31, 2023: Maximum Total Number of Approximate Dollar Shares Purchased Value of Shares that Number of Average as Part of Publicly May Yet Be Purchased Shares Price Paid Announced Plans Under the Plans or Calendar Month Purchased (1) per Share of Programs Programs December 1, 2023 - December 31, 2023 436 $ 3.92 — $ — Total 436 $ 3.92 — $ — (1) These common share withholdings and purchases were made to satisfy tax withholding and payment obligations of a former employee of RMR in connection with the vesting of prior awards of our common shares.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common shares are traded on Nasdaq (symbol: ILPT). As of February 9, 2023, there were 1,811 shareholders of record of our common shares, although there is a larger number of beneficial owners. Issuer purchases of equity securities.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common shares are traded on Nasdaq (symbol: ILPT). As of February 15, 2024, there were 1,711 shareholders of record of our common shares, although there is a larger number of beneficial owners. Issuer purchases of equity securities.
We withheld and purchased these common shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase dates. Item 6. [ Reserved. ]
We withheld and purchased these common shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date. Our current cash distribution rate to common shareholders is $0.01 per share per quarter, or $0.04 per share per year.
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However, the timing, amount and form of future distributions will be determined at the discretion of our Board of Trustees and will depend upon various factors that our Board of Trustees deems relevant, including, but not limited to, our FFO attributable to common shareholders, our Normalized FFO attributable to common shareholders, requirements to maintain our qualification for taxation as a REIT, limitations in our debt agreements, the availability to us of debt and equity capital, our dividend yield, our dividend yield compared to the dividend yields of other industrial REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.
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Therefore, we cannot be sure that we will continue to pay distributions in the future or that the amount of any distributions we do pay will not decrease. Item 6. [ Reserved. ]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeRMR 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. 47 Table of Contents RESULTS OF OPERATIONS Year Ended December 31, 2022, Compared to Year Ended December 31, 2021 (dollars and share amounts in thousands, except per share data) Comparable Properties Results (1) Non-Comparable Properties Results (2) Consolidated Results Year Ended December 31, Year Ended December 31, Year Ended December 31, $ % $ $ % 2022 2021 Change Change 2022 2021 Change 2022 2021 Change Change Rental income 216,014 210,113 $ 5,901 2.8 % $ 172,137 $ 9,761 $ 162,376 $ 388,151 $ 219,874 $ 168,277 76.5 % Operating expenses: Real estate taxes 29,913 28,961 952 3.3 % 20,711 1,173 19,538 50,624 30,134 20,490 68.0 % Other operating expenses 18,273 17,610 663 3.8 % 12,582 1,068 11,514 30,855 18,678 12,177 65.2 % Total operating expenses 48,186 46,571 1,615 3.5 % 33,293 2,241 31,052 81,479 48,812 32,667 66.9 % Net operating income (3) $ 167,828 $ 163,542 $ 4,286 2.6 % $ 138,844 $ 7,520 $ 131,324 306,672 171,062 135,610 79.3 % Other expenses: Depreciation and amortization 160,982 50,598 110,384 218.2 % General and administrative 32,877 16,724 16,153 96.6 % Acquisition and other transaction related costs 586 1,132 (546) (48.2) % Loss on impairment of real estate 100,747 — 100,747 — % Total other expenses 295,192 68,454 226,738 N/M Interest and other income 2,663 — 2,663 N/M Interest expense (280,051) (35,625) (244,426) N/M (Loss) gain on sale of real estate (10) 12,054 (12,064) (100.1) % Loss on equity securities (5,758) — (5,758) N/M Loss on early extinguishment of debt (22,198) — (22,198) N/M (Loss) income before income tax expense and equity in earnings of unconsolidated joint venture (293,874) 79,037 (372,911) N/M Income tax expense (45) (273) 228 (83.5) % Equity in earnings of unconsolidated joint venture 7,078 40,918 (33,840) (82.7) % Net (loss) income (286,841) 119,682 (406,523) N/M Net loss attributable to noncontrolling interest 60,118 — 60,118 N/M Net (loss) income attributable to common shareholders $ (226,723) $ 119,682 $(346,405) N/M Weighted average common shares outstanding - basic 65,248 65,169 79 0.1 % Weighted average common shares outstanding - diluted 65,248 65,211 37 0.1 % Per common share data (basic and diluted): Net (loss) income attributable to common shareholders — $ — (5.30) N/M N/M - not meaningful (1) Consists of properties that we owned continuously since January 1, 2021 and excludes properties owned by an unconsolidated joint venture.
Biggest changeFor further information regarding our disposition activities, see elsewhere in this Annual Report on Form 10-K, including “Business—Our Company”, “Business—Our Investment Policies” and “Business—Our Disposition Policies” included in Part I, Item 1 of this Annual Report on Form 10-K, “Liquidity and Capital Resources—Our Investing and Financing Liquidity and Resources” below and Note 3 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 51 Tabl e of Contents RESULTS OF OPERATIONS Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 (dollars and share amounts in thousands, except per share data) Comparable Non-Comparable Properties Results Properties Results Consolidated Results Year Ended December 31, (1) Year Ended December 31, (2) Year Ended December 31, $ % $ $ % 2023 2022 Change Change 2023 2022 Change 2023 2022 Change Change Rental income $ 226,921 $ 217,528 $ 9,393 4.3 % $ 210,417 $ 170,623 $ 39,794 $ 437,338 $ 388,151 $ 49,187 12.7 % Operating expenses: Real estate taxes 31,743 29,958 1,785 6.0 % 28,310 20,666 7,644 60,053 50,624 9,429 18.6 % Other operating expenses 20,445 18,439 2,006 10.9 % 17,747 12,416 5,331 38,192 30,855 7,337 23.8 % Total operating expenses 52,188 48,397 3,791 7.8 % 46,057 33,082 12,975 98,245 81,479 16,766 20.6 % Net operating income (3) $ 174,733 $ 169,131 $ 5,602 3.3 % $ 164,360 $ 137,541 $ 26,819 339,093 306,672 32,421 10.6 % Other expenses: Depreciation and amortization 178,728 160,982 17,746 11.0 % General and administrative 31,164 32,877 (1,713) (5.2) % Acquisition and other transaction related costs 287 586 (299) (51.0) % Loss on impairment of real estate 156 100,747 (100,591) (99.8) % Total other expenses 210,335 295,192 (84,857) (28.7) % Interest and other income 7,911 2,663 5,248 197.1 % Interest expense (288,537) (280,051) (8,486) 3.0 % Gain (loss) on sale of real estate 1,710 (10) 1,720 n/m Loss on equity securities — (5,758) 5,758 (100.0) % Loss on early extinguishment of debt (359) (22,198) 21,839 (98.4) % Loss before income taxes and equity in earnings of unconsolidated joint venture (150,517) (293,874) 143,357 (48.8) % Income tax expense (104) (45) (59) 131.1 % Equity in earnings of unconsolidated joint venture 902 7,078 (6,176) (87.3) % Net loss (149,719) (286,841) 137,122 (47.8) % Net loss attributable to noncontrolling interest 41,730 60,118 (18,388) (30.6) % Net loss attributable to common shareholders $ (107,989) $ (226,723) $118,734 (52.4) % Weighted average common shares outstanding (basic and diluted) 65,430 65,248 182 0.3 % Per common share data (basic and diluted): Net loss attributable to common shareholders $ (1.65) $ (3.47) $ 1.82 (52.4) % n/m - not meaningful (1) Consists of properties that we owned continuously since January 1, 2022.
These measures should be considered in conjunction with net income (loss) and net income (loss) attributable to common shareholders as presented in our consolidated statements of comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss) and net income (loss) attributable to common shareholders.
These measures should be considered in conjunction with net loss and net loss attributable to common shareholders as presented in our consolidated statements of comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net loss and net loss attributable to common shareholders.
Net Operating Income We calculate NOI as shown below. We define NOI as income from our rental of real estate less our property operating expenses. The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations.
Net Operating Income We calculate NOI as shown below. We define NOI as income from our rental of real estate less our property operating expenses. The calculation of NOI excludes certain components of net loss in order to provide results that are more closely related to our property level results of operations.
Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our dividend yield and our dividend yield compared to the dividend yields of other industrial REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.
Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our dividend yield, our dividend yield compared to the dividend yields of other industrial REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.
Critical Accounting Estimates Our critical accounting policies are those that will have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and estimates have been and will be consistently applied and produce financial information that fairly presents our results of operations.
Critical Accounting Estimates Our critical accounting estimates are those that will have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and estimates have been and will be consistently applied and produce financial information that fairly presents our results of operations.
These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) or net income (loss) attributable to common shareholders as indicators of our operating performance or as measures of our liquidity.
These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net loss or net loss attributable to common shareholders as indicators of our operating performance or as measures of our liquidity.
For more information about the risks that may arise as a result of these and other related person transactions and relationships, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward Looking Statements,” Part I, Item 1, “Business” and Part I, Item 1A, “Risk Factors.” We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services.
For more information about the risks that may arise as a result of these and other related person transactions and relationships, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements”, Part I, Item 1, “Business” and Part I, Item 1A, “Risk Factors.” We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services.
For more information about these and other such relationships and related person transactions, see Notes 9 and 10 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, our other filings with the SEC, including our definitive Proxy Statement for our 2023 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2022.
For more information about these and other such relationships and related person transactions, see Notes 9 and 10 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, our other filings with the SEC, including our definitive Proxy Statement for our 2024 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2023.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with our consolidated financial statements and accompanying notes included in Part IV, Item 5 of this Annual Report on Form 10-K. OVERVIEW (dollars in thousands, except per square foot data) We are a REIT organized under Maryland law.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with our consolidated financial statements and accompanying notes included in Part IV, Item 15 of this Annual Report on Form 10-K. OVERVIEW (dollars in thousands, except per square foot data) We are a REIT organized under Maryland law.
These accounting policies involve significant judgments made based upon our experience and the experience of our management and our Board of Trustees, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability and willingness of our tenants to perform their obligations to us, current and future economic conditions and competitive factors in the markets in which our properties are located.
These accounting estimates involve significant judgments made based upon our experience and the experience of our management and our Board of Trustees, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability and willingness of our tenants to perform their obligations to us, current and future economic conditions and competitive factors in the markets in which our properties are located.
Our most critical accounting policies involve our investments in real property. These policies affect our: • allocation of purchase prices between various asset categories, including allocations to above and below market leases and the related impact on the recognition of rental income and depreciation and amortization expenses; and • assessment of the carrying values and impairments of long lived assets.
Our most critical accounting estimates involve our investments in real property. These estimates affect our: • allocation of purchase prices between various asset categories, including allocations to above and below market leases and the related impact on the recognition of rental income and depreciation and amortization expenses; and • assessment of the carrying values and impairments of long lived assets.
An economic recession, or continued or intensified disruptions in the financial markets, could adversely affect our financial condition and that of our tenants, could adversely impact the ability or willingness of our tenants to renew our leases or pay rent to us, may restrict our access to, and would likely increase our cost of capital, and may cause the values of our properties and of our securities to decline.
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.
For a comparison of consolidated results for the year ended December 31, 2021 compared to the year ended December 31, 2020, see Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021. Rental income.
For a comparison of consolidated results for the year ended December 31, 2022 to the year ended December 31, 2021, see Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022. Rental income.
However, we cannot be sure that our mitigation efforts will be sufficient or that future storms, rising sea levels or other changes that may occur due to future climate change could not have a material adverse effect on our financial results.
However, we cannot be sure that our mitigation efforts will be sufficient or that future storms, rising sea levels or other changes that may occur due to future climate change could not have a material adverse effect on our financial results. 60 Tabl e of Contents
Our future cash flows from operating activities will depend primarily upon our ability to: • collect rents from our tenants when due; • maintain the occupancy of, and maintain or increase the rental rates at, our properties; • control our operating cost increases; • purchase additional properties that produce cash flows in excess of our costs of acquisition capital and property operating expenses; and 52 Table of Contents • develop properties to produce cash flows in excess of our costs of capital.
Our future cash flows from operating activities will depend primarily upon our ability to: • collect rents from our tenants when due; • maintain the occupancy of, and maintain or increase the rental rates at, our properties; • control our operating cost increases, including interest and other financing costs; • develop properties to produce cash flows in excess of our costs of capital; and • purchase additional properties that produce cash flows in excess of our costs of acquisition and the cost to our capital and property operating expenses.
We expect to use proceeds we may receive from the other investors in our joint ventures in connection with any additional properties we may sell to our joint ventures, equity contributions from any third party investors in our joint ventures or any future joint ventures and net proceeds from offerings of equity or debt securities to fund any future property acquisitions, 55 Table of Contents developments and redevelopments.
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.
The change from net cash used in financing activities in the 2021 period to net cash provided by financing activities in the 2022 period was primarily due to the net borrowings and sale of joint venture equity interests used to finance our acquisition of MNR in the 2022 period.
The decrease in net cash provided by financing activities was primarily due to proceeds from borrowings and sale of joint venture equity interests to finance our acquisition of MNR in the 2022 period.
We may also assume mortgage notes in connection with future acquisitions. When the maturities of our debt approach or we desire to reduce our leverage or refinance debt, we intend to explore refinancing alternatives, property sales or sales of equity interests in joint ventures.
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.
(3) See our definition of NOI and our reconciliation of net (loss) income to NOI below under the heading "Non-GAAP Financial Measures." 48 Table of Contents References to changes in the income and expense categories below relate to the comparison of results for the year ended December 31, 2022 compared to the year ended December 31, 2021.
(3) See our definition of NOI and our reconciliation of net loss to NOI below under the heading "Non-GAAP Financial Measures." 52 Tabl e of Contents References to changes in the income and expense categories below relate to the comparison of results for the year ended December 31, 2023 to the year ended December 31, 2022.
FFO attributable to common shareholders is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss) attributable to common shareholders, calculated in accordance with GAAP, excluding loss on impairment of real estate, any gain or loss on sale of real estate, equity in earnings of unconsolidated joint venture and any realized and unrealized gains or losses on equity securities, plus real estate depreciation and amortization of consolidated properties and our proportionate share of FFO of the unconsolidated joint venture properties and minus FFO adjustments attributable to noncontrolling interest, as well as certain other adjustments currently not applicable to us.
FFO attributable to common shareholders is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is: (1) net loss attributable to common shareholders calculated in accordance with GAAP, excluding loss on impairment of real estate, any gain or loss on sale of real estate, equity in earnings of unconsolidated joint venture and loss on equity securities; (2) plus real estate depreciation and amortization of our properties and our proportionate share of FFO from unconsolidated joint venture properties; (3) minus FFO adjustments attributable to noncontrolling interest; and (4) certain other adjustments currently not applicable to us.
Our Investing and Financing Liquidity and Resources (dollars in thousands, except per share and per square foot data) Our future acquisition or development activity cannot be accurately projected because such activity depends upon available opportunities that come to our attention, our ability to successfully acquire, develop and operate properties, financing available to us, our cost of capital, other commitments we have made and alternative uses for the amounts that would be required for the acquisition or development, the extent of our leverage, and the expected impact of the acquisition or development on certain of our financial metrics and debt covenants.
Our future acquisition or development activity cannot be accurately projected because such activity depends upon available opportunities that come to our attention, our ability to successfully acquire and develop properties, financing available to us, our cost of capital, other commitments we have made and alternative uses for the amounts that would be required for the acquisition or development, the extent of our leverage, and the expected impact of the acquisition or development on certain of our financial metrics and debt covenants.
During the years ended December 31, 2022 and 2021, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows: Year Ended December 31, 2022 2021 Tenant improvements and leasing costs (1) $ 12,659 $ 5,819 Building improvements (2) 3,999 3,732 Development, redevelopment and other activities (3) 13,673 660 $ 30,331 $ 10,211 (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.
During the years ended December 31, 2023 and 2022, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows: Year Ended December 31, 2023 2022 Tenant improvements and leasing costs (1) $ 8,398 $ 12,659 Building improvements (2) 6,779 3,999 Development, redevelopment and other activities (3) 8,086 13,673 $ 23,263 $ 30,331 (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.
As of December 31, 2022, our portfolio was comprised of 413 consolidated properties containing approximately 59,983,000 rentable square feet located in 39 states, including 226 buildings, leasable land parcels and easements containing approximately 16,729,000 rentable square feet located on the island of Oahu, Hawaii, and 187 properties containing approximately 43,254,000 rentable square feet located in 38 other states.
As of December 31, 2023, our portfolio was comprised of 411 properties containing approximately 59,951,000 rentable square feet located in 39 states, including 226 buildings, leasable land parcels and easements containing approximately 16,729,000 rentable square feet located on the island of Oahu, Hawaii, and 185 properties containing approximately 43,222,000 rentable square feet located in 38 other states.
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.
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.
We currently expect to maintain a shelf registration statement that allows us to issue public securities on an expedited basis, but we cannot be sure that there will be purchasers for such securities. Further, any issuances of our equity securities may be dilutive to our existing shareholders.
We currently have an effective shelf registration statement that allows us to issue up to $500,000 in aggregate amount of public securities on an expedited basis, but we cannot be sure that there will be purchasers for such securities. Further, any issuances of our equity securities may be dilutive to our existing shareholders.
In addition, the unconsolidated joint venture made aggregate cash distributions to us of $25,742 and $2,640 during the years ended December 31, 2022 and 2021, respectively. For more information regarding this joint venture, see Notes 3, 5, 6 and 10 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
The unconsolidated joint venture made aggregate cash distributions to us of $9,900 and $25,742 during the years ended December 31, 2023 and 2022, respectively. For more information regarding these joint ventures, see Note 3 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
As of December 31, 2022, investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases represented 78.3% of our annualized rental revenues and only 4.2% of our annualized rental revenues were from leases expiring over the next 12 months.
As of December 31, 2023, investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases represented 76.9% of our annualized rental revenues and only 5.6% of our annualized rental revenues were from leases expiring over the next 12 months.
The ILPT Floating Rate Loan matures in October 2024, subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR, which is capped at an annual rate of 2.25% for the initial term of the ILPT Floating Rate Loan, plus a weighted average premium of 3.93%.
The ILPT Floating Rate Loan matures in October 2024, subject to three, one year extension options, and requires that interest be paid at an annual rate of the secured overnight financing rate, or SOFR, plus a weighted average premium of 3.93%.
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 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. 56 Tabl e of Contents In February 2022, we completed our acquisition of MNR.
We generally do not intend to purchase “turn around” properties, or properties that do not generate positive cash flows, but we may conduct construction or redevelopment activities on our properties. As of December 31, 2022, we had cash and cash equivalents of $48,261.
We generally do not intend to purchase “turn around” properties, or properties that do not generate positive cash flows, but we may conduct construction or redevelopment activities on our properties.
The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our consolidated statements of cash flows (dollars in thousands): Year Ended December 31, 2022 2021 Cash and cash equivalents and restricted cash at beginning of period $ 29,397 $ 22,834 Net cash provided by (used in): Operating activities 83,251 110,650 Investing activities (3,445,869) 22,875 Financing activities 3,474,001 (126,962) Cash and cash equivalents and restricted cash at end of period $ 140,780 $ 29,397 The decrease in net cash provided by operating activities for the year ended December 31, 2022 compared to the prior year is primarily due to higher interest expense, partially offset by our acquisition of MNR.
The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our consolidated statements of cash flows: Year Ended December 31, 2023 2022 Cash and cash equivalents and restricted cash at beginning of period $ 140,780 $ 29,397 Net cash provided by (used in): Operating activities 6,059 83,251 Investing activities 67,740 (3,445,869) Financing activities 31,144 3,474,001 Cash and cash equivalents and restricted cash at end of period $ 245,723 $ 140,780 The decrease in net cash provided by operating activities for the year ended December 31, 2023 compared to the prior year is primarily due to higher interest expense paid in the 2023 period, partially offset by higher cash flows from the properties we acquired pursuant to the Merger in 2022.
As of December 31, 2022, our Hawaii Properties represented approximately 28.9% of our annualized rental revenues. As of December 31, 2022, certain of our Hawaii Properties are lands leased for rents that periodically reset based on fair market values, generally every ten years.
As of December 31, 2023, occupancy at our Hawaii Properties was 98.6% and represented 27.9% of our annualized rental revenues. As of December 31, 2023, certain of our Hawaii Properties are lands leased for rents that periodically reset based on fair market values, generally every 10 years.
Incorrect assumptions and estimates may result in inaccurate charges to rental income and depreciation and amortization over future periods. 57 Table of Contents We periodically evaluate our properties for impairment.
Purchase price allocations require us to make certain assumptions and estimates. Incorrect assumptions and estimates may result in inaccurate charges to rental income and depreciation and amortization over future periods. We periodically evaluate our properties for impairment.
Despite our and our predecessors’ prior experience with rent resets, lease extensions and new leases in Hawaii, our ability to increase rents when rents reset, leases are extended, or leases expire depends upon market conditions which are beyond our control.
Despite our and our predecessors’ prior experience with rent resets, lease extensions and new leases in Hawaii, our ability to increase rents when rents reset, leases are extended or leases expire depends upon market conditions, which are beyond our control. Accordingly, we cannot be sure that the historical increases achieved at our Hawaii Properties will continue in the future.
Subject to the satisfaction of certain conditions, we have the option: (1) to prepay up to $247,000 of the ILPT Floating Rate Loan at par with no premium; and (2) to prepay the balance of the ILPT Floating Rate Loan in full or in part at any time, subject to a premium, and beginning in October 2023, without a premium.
Subject to the satisfaction of certain conditions, we have the option to prepay up to $280,000 of the Floating Rate Loan at par with no premium, and to prepay the balance of the Floating Rate Loan at any time, subject to a premium.
For more information regarding our investing and financing activities, including our acquisition of MNR, see Notes 2, 3, 5, 6, 9, 10 and 11 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
For further information regarding indebtedness, see Notes 5 and 11 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
The agreements governing the ILPT Floating Rate Loan, Floating Rate Loan, Fixed Rate Loan and the $650,000 mortgage loan contain certain exceptions to the general non-recourse provisions, including our obligation to indemnify the lenders for certain potential environmental losses. Related Person Transactions We have relationships and historical and continuing transactions with RMR, RMR Inc. and others related to them.
The agreements governing the ILPT Floating Rate Loan, the Floating Rate Loan, the $700,000 mortgage loan and the $650,000 mortgage loan contain certain exceptions to the general non-recourse provisions, including our obligation to indemnify the lenders for certain potential environmental losses.
As of December 31, 2022, subsidiaries of FedEx and subsidiaries of Amazon.com, Inc. leased 22.1% and 7.6% of our total leased square feet, respectively, and represented 29.6% and 6.7% of our total annualized rental revenues, respectively. Mainland Properties. As of December 31, 2022, our Mainland Properties represented approximately 71.1% of our annualized rental revenues.
(2) Annualized rental revenues are as of December 31, 2023. As of December 31, 2023, FedEx and Amazon leased 21.7% and 7.7% of our total leased square feet, respectively, and represented 29.7% and 6.7% of our total annualized rental revenues, respectively. Mainland Properties.
We base purchase price allocations and the determination of useful lives on our estimates and, under some circumstances, studies from independent real estate appraisers to provide market information and evaluations that are relevant to our purchase price allocations and determinations of useful lives; however, our management is ultimately responsible for the purchase price allocations and determination of useful lives.
We base purchase price allocations and the determination of useful lives on our estimates and, under some circumstances, studies from independent real estate appraisers to provide market information and evaluations that are relevant to our purchase price allocations and determinations of useful lives; however, our management is ultimately responsible for the purchase price allocations and determination of useful lives. 59 Tabl e of Contents We compute depreciation expense using the straight line method over estimated useful lives of up to 40 years for buildings and improvements, and up to seven years for personal property.
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.
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. 58 Tabl e of Contents During the year ended December 31, 2023, we paid quarterly cash distributions to our shareholders totaling $2,627 using cash on hand.
NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization expense. We use NOI to evaluate individual and company-wide property level performance.
NOI excludes amortization of capitalized tenant improvement costs and leasing commissions from depreciation and amortization expense. We use NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate NOI differently than we do.
Property Operations Occupancy data for our properties as of December 31, 2022 and 2021 were as follows: All Properties Comparable Properties (1) As of December 31, As of December 31, 2022 2021 2022 2021 Total properties 413 288 286 286 Total rentable square feet (in thousands) (2) 59,983 33,991 33,655 33,634 Percent leased (3) 99.1 % 99.2 % 99.1 % 99.2 % (1) Consists of properties that we owned continuously since January 1, 2021 and excludes 18 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.
Property Operations Occupancy data for our properties as of December 31, 2023 and 2022 were as follows: All Properties Comparable Properties as of December 31, as of December 31, (1) 2023 2022 2023 2022 Total properties 411 413 286 286 Total rentable square feet (in thousands) (2) 59,951 59,983 33,980 33,980 Percent leased (3) 98.8 % 99.1 % 98.7 % 99.1 % (1) Consists of properties that we owned continuously since January 1, 2022.
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.
Rental rates for which available space may be leased in the future will depend on prevailing market conditions when lease extensions, lease renewals or new leases are negotiated. Whenever we extend, renew or enter new leases for our properties, we intend to seek rents that are equal to or higher than our historical rents for the same properties.
The weighted average interest rate payable under the ILPT Floating Rate Loan was 6.18% as of both December 31, 2022 and February 9, 2023 and for the period from September 22, 2022 to December 31, 2022.
The weighted average interest rate payable under the ILPT Floating Rate Loan was 6.18%, including the impact of our interest rate cap of 2.25%, as of December 31, 2023 and 2022, and for the year ended December 31, 2023 and the period from September 22, 2022 (the date we entered into the applicable loan agreements) to December 31, 2022.
Other real estate companies and REITs may calculate NOI differently than we do. 50 Table of Contents The following table presents the reconciliation of net (loss) income to NOI for the years ended December 31, 2022 and 2021 (dollars in thousands): Year Ended December 31, 2022 2021 Reconciliation of Net (Loss) Income to NOI: Net (loss) income $ (286,841) $ 119,682 Equity in earnings of unconsolidated joint venture (7,078) (40,918) Income tax expense 45 273 (Loss) income before income tax expense and equity in earnings of unconsolidated joint venture (293,874) 79,037 Loss on early extinguishment of debt 22,198 — Loss on equity securities 5,758 — Loss (gain) on sale of real estate 10 (12,054) Interest expense 280,051 35,625 Interest and other income (2,663) — Loss on impairment of real estate 100,747 — Acquisition and other transaction related costs 586 1,132 General and administrative 32,877 16,724 Depreciation and amortization 160,982 50,598 NOI $ 306,672 $ 171,062 NOI: Hawaii Properties $ 85,145 $ 82,436 Mainland Properties 221,527 88,626 NOI $ 306,672 $ 171,062 Funds From Operations Attributable to Common Shareholders and Normalized Funds From Operations Attributable to Common Shareholders We calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders as shown below.
The following table presents the reconciliation of net loss to NOI for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 Net loss $ (149,719) $ (286,841) Equity in earnings of unconsolidated joint venture (902) (7,078) Income tax expense 104 45 Loss before income taxes and equity in earnings of unconsolidated joint venture (150,517) (293,874) Loss on early extinguishment of debt 359 22,198 Loss on equity securities — 5,758 (Gain) loss on sale of real estate (1,710) 10 Interest expense 288,537 280,051 Interest and other income (7,911) (2,663) Loss on impairment of real estate 156 100,747 Acquisition and other transaction related costs (1) 287 586 General and administrative 31,164 32,877 Depreciation and amortization 178,728 160,982 NOI $ 339,093 $ 306,672 NOI: Hawaii Properties $ 89,634 $ 85,145 Mainland Properties 249,459 221,527 NOI $ 339,093 $ 306,672 (1) Acquisition and other transaction related costs consist of costs related to potential acquisition and disposition activities that were not completed. 54 Tabl e of Contents Funds From Operations Attributable to Common Shareholders and Normalized Funds From Operations Attributable to Common Shareholders We calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders as shown below.
We generally will seek to renew or extend the terms of leases at our Mainland Properties as their expirations approach.
As of December 31, 2023, occupancy at our Mainland Properties was 98.9% and represented 72.1% of our annualized rental revenues. We generally will seek to renew or extend the terms of leases at our Mainland Properties as their expirations approach.
The increase in interest and other income is primarily due to interest earned on higher invested cash balances during the 2022 period as compared to the 2021 period and distributions we received on certain equity securities we held during the 2022 period. Interest expense.
The increase in interest and other income is primarily due to higher interest rates and average cash balances during the 2023 period as compared to the 2022 period. Interest expense.
The Floating Rate Loan matures in March 2024, subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR plus a premium of 2.25%.
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. 57 Tabl e of Contents The Floating Rate Loan matures in March 2024, subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR plus a premium of 2.77%.
Other operating expenses . The increase in other operating expenses is primarily due to our acquisition and disposition activities. Other operating expenses at certain of our comparable properties increased primarily due to increases in insurance, repairs and maintenance and snow removal expenses in the 2022 period. Depreciation and amortization.
The increase in other operating expenses is primarily due to the Merger. Additionally, increases in management fees and insurance and repairs and maintenance costs were partially offset by a decrease in snow removal expenses at certain of our comparable properties during the 2023 period. Depreciation and amortization. The increase in depreciation and amortization primarily reflects the impact of the Merger.
The weighted average annual interest rate payable under the Floating Rate Loan was 6.17% as of both December 31, 2022 and February 9, 2023, and was 6.10% for the period from February 25, 2022 to December 31, 2022.
The weighted average annual interest rate payable under the Floating Rate Loan was 6.17% for the year ended December 31, 2023, and was 6.10% for the period from February 25, 2022 (the date our consolidated joint venture entered into the applicable loan agreements) to December 31, 2022, each including the impact of our interest rate cap of 3.40%.
(3) Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of December 31, 2022, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.
(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 December 31, 2023, and includes space being fitted out for occupancy, if any, and space which is leased but is not occupied.
The increase in interest expense is due to higher average interest rates and higher average outstanding debt balances in the 2022 period as compared to the 2021 period, primarily related to our acquisition of MNR. Loss (gain) on sale of real estate.
The increase in interest expense is primarily due to higher average outstanding indebtedness during the 2023 period resulting from the Merger, partially offset by lower amortization of debt costs in the 2023 period as compared to the 2022 period. Gain (loss) on sale of real estate.
Certain of the mortgages we assumed in conjunction with our acquisition of MNR are non-recourse, subject to certain limitations, and do not contain any material financial covenants.
As of December 31, 2023, we believe that we were in compliance with all of the covenants and other terms under the agreements governing these loans. Certain of the mortgage loans we assumed in connection with our acquisition of MNR are non-recourse, subject to certain limitations, and do not contain any material financial covenants.
We amortize capitalized below market lease values as an increase to rental income over the terms of the respective leases. We amortize the value of acquired in place leases exclusive of the value of above market and below market acquired in place leases to depreciation and amortization over the periods of the respective leases.
We do not depreciate the allocated cost of land. We amortize capitalized above market lease values as a reduction to rental income over the terms of the respective leases. We amortize capitalized below market lease values as an increase to rental income over the terms of the respective leases.
Non-GAAP Financial Measures We present certain “non-GAAP financial measures” within the meaning of the applicable SEC rules, including NOI, FFO attributable to common shareholders and Normalized FFO attributable to common shareholders.
Equity in earnings of unconsolidated joint venture is the change in the fair value of our investment in the unconsolidated joint venture. 53 Tabl e of Contents Non-GAAP Financial Measures (dollars in thousands, except per share data) We present certain “non-GAAP financial measures” within the meaning of the applicable SEC rules, including NOI, FFO attributable to common shareholders and Normalized FFO attributable to common shareholders.
Debt Covenants (dollars in thousands) Our principal debt obligations as of December 31, 2022 were: (1) $1,235,000 outstanding principal amount of the ILPT Floating Rate Loan secured by 104 of our properties; (2) $1,400,000 outstanding principal amount of the Floating Rate Loan secured by 82 properties owned by our consolidated joint venture; (3) $700,000 outstanding principal amount of the Fixed Rate Loan secured by 17 our properties; (4) $650,000 outstanding principal amount of a mortgage loan secured by 186 of our properties; and (5) $305,363 aggregate principal amount of mortgages secured by 11 properties owned by our consolidated joint venture in which we own a 61% equity interest. 56 Table of Contents The agreements and related documents governing the ILPT Floating Rate Loan, Floating Rate Loan, Fixed Rate Loan and the $650,000 mortgage loan contain customary covenants, provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default and, in the case of the $650,000 mortgage loan, also require us to maintain a minimum consolidated net worth of at least $250,000 and liquidity of at least $15,000.
The agreements and related documents governing the ILPT Floating Rate Loan, the Floating Rate Loan, the $700,000 mortgage loan and the $650,000 mortgage loan contain customary covenants, provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default and, in the case of the $650,000 mortgage loan, also require us to maintain a minimum consolidated net worth of at least $250,000 and liquidity of at least $15,000.
During the year ended December 31, 2022, we entered into new and renewal leases as summarized in the following tables: Year Ended December 31, 2022 New Leases Renewals Totals Square feet leased during the period (in thousands) 3,664 3,917 7,581 Weighted average rental rate change (by rentable square feet) 109.3 % 22.4 % 64.4 % Weighted average lease term by square feet (years) 22.9 6.9 14.6 Total leasing costs and concession commitments (1) $ 9,732 $ 10,602 $ 20,334 Total leasing costs and concession commitments per square foot (1) $ 2.66 $ 2.71 $ 2.68 Total leasing costs and concession commitments per square foot per year (1) $ 0.12 $ 0.39 $ 0.18 (1) Includes commitments made for leasing expenditures and concessions, such as leasing commissions, tenant improvements or other tenant inducements. 45 Table of Contents During the year ended December 31, 2022, we completed rent resets for approximately 230,000 square feet of land at our Hawaii Properties at rental rates that were approximately 36.2% higher than the prior rental rates.
During the year ended December 31, 2023, we entered into new and renewal leases as summarized in the following table: Year Ended December 31, 2023 New Leases Renewals Totals Square feet leased during the period (in thousands) 870 4,112 4,982 Weighted average rental rate change (by rentable square feet) 33.9 % 17.6 % 19.9 % Weighted average lease term by square feet (years) 8.9 7.2 7.5 Total leasing costs and concession commitments (1) $ 4,748 $ 6,175 $ 10,923 Total leasing costs and concession commitments per square foot (1) $ 5.46 $ 1.50 $ 2.19 Total leasing costs and concession commitments per square foot per year (1) $ 0.61 $ 0.21 $ 0.29 (1) Includes commitments made for leasing expenditures and concessions, such as leasing commissions, tenant improvements or other tenant inducements.
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.
In calculating Normalized FFO attributable to common shareholders, we adjust for certain non-recurring items shown below, including adjustments for such items related to the unconsolidated joint venture, if any. FFO attributable to common shareholders and Normalized FFO attributable to common shareholders are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders.
As of December 31, 2022, we had estimated unspent leasing related obligations of $25,547, of which $9,706 is expected to be spent during the next 12 months.
As of December 31, 2023, we had estimated unspent leasing related obligations of $5,947, all of which is expected to be spent during the next 12 months. Related Person Transactions We have relationships and historical and continuing transactions with RMR, RMR Inc. and others related to them.
We recorded a $100,747 loss on impairment of real estate in the 2022 period to reduce the carrying value of 25 properties we reclassified from held for sale to held and used in June 2022 to their estimated fair values. Interest and other income.
We recognized a loss on impairment of real estate on one property that was classified as held for sale and subsequently reclassified to held and used during the 2023 period and we recognized a loss on impairment of real estate on 25 properties acquired in the Merger during the 2022 period. Interest and other income.
Other real estate companies and REITs may calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders differently than we do. 51 Table of Contents The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net income (loss) attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the years ended December 31, 2022 and 2021 (dollars in thousands, except per share data) : Year Ended December 31, 2022 2021 Reconciliation of Net (Loss) Income Attributable to Common Shareholders to FFO Attributable to Common Shareholders and Normalized FFO Attributable to Common Shareholders: Net (loss) income attributable to common shareholders $ (226,723) $ 119,682 Depreciation and amortization 160,982 50,598 Equity in earnings of unconsolidated joint venture (7,078) (40,918) Loss on equity securities 5,758 — Share of FFO from unconsolidated joint venture 6,406 4,823 Loss on impairment of real estate 100,747 — (Gain) loss on sale of real estate 10 (12,054) FFO adjustments attributable to noncontrolling interest (38,695) — FFO attributable to common shareholders 1,407 122,131 Loss on early extinguishment of debt 22,198 — Acquisition, transaction related and certain other financing costs (1) 80,992 1,132 Normalized FFO adjustments attributable to noncontrolling interest (28,379) — Normalized FFO attributable to common shareholders $ 76,218 $ 123,263 Weighted average common shares outstanding - basic 65,248 65,169 Weighted average common shares outstanding - diluted 65,248 65,211 Per common share data (basic and diluted): FFO attributable to common shareholders $ 0.02 $ 1.87 Normalized FFO attributable to common shareholders $ 1.17 $ 1.89 (1) Amount for the year ended December 31, 2022 primarily includes certain debt issuance costs recorded as interest expense related to the Bridge Loan and other transaction related costs expensed under GAAP.
Year Ended December 31, 2023 2022 Net loss attributable to common shareholders $ (107,989) $ (226,723) Equity in earnings of unconsolidated joint venture (902) (7,078) Loss on equity securities — 5,758 (Gain) loss on sale of real estate (1,710) 10 Loss on impairment of real estate 156 100,747 Depreciation and amortization 178,728 160,982 Share of FFO from unconsolidated joint venture 5,783 6,406 FFO adjustments attributable to noncontrolling interest (43,031) (38,695) FFO attributable to common shareholders 31,035 1,407 Loss on early extinguishment of debt 359 22,198 Acquisition, transaction related and certain other financing costs (1) 287 80,992 Normalized FFO adjustments attributable to noncontrolling interest (140) (28,379) Normalized FFO attributable to common shareholders $ 31,541 $ 76,218 Weighted average common shares outstanding (basic and diluted) 65,430 65,248 Per common share data (basic and diluted): FFO attributable to common shareholders $ 0.47 $ 0.02 Normalized FFO attributable to common shareholders $ 0.48 $ 1.17 (1) Acquisition, transaction related and certain other financing costs consist of costs related to potential acquisition and disposition activities that were not completed.
We recognized a 39% noncontrolling interest in our consolidated financial statements for the year ended December 31, 2022. The portion of this joint venture's net loss not attributable to us, or $60,067 for the year ended December 31, 2022, is reported as noncontrolling interest in our consolidated statements of comprehensive income (loss).
We recognized net loss attributable to noncontrolling interest in our consolidated financial statements for the year ended December 31, 2023 and the period from February 25, 2022 (inception of our consolidated joint venture) to December 31, 2022 of $41,798 and $60,067, respectively.
The change from net cash provided by investing activities in the 2021 period to net cash used by investing activities in the 2022 period is primarily due to our acquisition of MNR during the 2022 period as compared to the sale of six properties to an unconsolidated joint venture, partially offset by our acquisition of five properties, in the 2021 period.
The change in net cash provided by investing activities is primarily due to the Merger in 2022 as compared to the sale of two properties and a portion of a land parcel during the 2023 period.
In July 2022, our consolidated joint venture completed one of the two committed MNR property acquisitions, and in September 2022, our consolidated joint venture terminated the agreement for the other committed MNR property acquisition. We control this joint venture and therefore account for the properties on a consolidated basis in our consolidated financial statements in accordance with GAAP.
We control our consolidated joint venture and therefore account for the properties owned by this joint venture on a consolidated basis in our consolidated financial statements.
Loss on early extinguishment of debt primarily relates to our write off of unamortized costs related to the repayment of the Bridge Loan in September 2022 and the termination of our unsecured revolving credit facility in February 2022. Income tax expense. Income tax expense primarily reflects state income taxes payable in certain jurisdictions. Equity in earnings of unconsolidated joint venture.
Loss on early extinguishment of debt is due to prepayment penalties incurred upon the refinancing of four mortgage loans in 2023 and the write off of unamortized costs related to the refinancing of our then existing bridge loan facility and the termination of our unsecured revolving credit facility in 2022. Income tax expense.
We recorded a change in the fair value of our investment in the unconsolidated joint venture of $7,078 and $40,918 for the years ended December 31, 2022 and 2021, respectively, as equity in earnings of unconsolidated joint venture in our consolidated statements of comprehensive income (loss).
We account for the unconsolidated joint venture under the equity method of accounting under the fair value option. We recognize changes in the fair value of our investment in the unconsolidated joint venture as equity in earnings of unconsolidated joint venture in our consolidated statements of comprehensive income (loss).
LIQUIDITY AND CAPITAL RESOURCES Our Operating Liquidity and Resources (dollars in thousands) Our principal sources of funds to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders are rents from tenants at our properties.
In addition, certain debt issuance costs recognized as interest expense related to the then existing bridge loan facility and other transaction related costs expensed under GAAP were included for the year ended December 31, 2022. 55 Tabl e of Contents LIQUIDITY AND CAPITAL RESOURCES Our Operating Liquidity and Resources (dollars in thousands) Our principal sources of funds to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders are rents from tenants at our properties.
The average effective rental rates per square foot, as defined below, for our properties for the years ended December 31, 2022 and 2021 were as follows: Year Ended December 31, 2022 2021 Average effective rental rates per square foot leased: (1) All properties $ 7.01 $ 6.58 Comparable properties (2) $ 6.47 $ 6.32 (1) Average effective rental rates per square foot leased represents total rental income during the period specified divided by the average rentable square feet leased during the period specified.
For the years ended December 31, 2023 and 2022, the average effective rental rates per square foot of our properties were as follows: Year Ended December 31, 2023 2022 All properties $ 7.39 $ 7.01 Comparable properties (1) $ 6.77 $ 6.45 (1) Consists of properties that we owned continuously since January 1, 2022.
Acquisition and other transaction related costs primarily consist of costs related to potential acquisition and disposition activities that were not completed. Loss on impairment of real estate.
Acquisition and other transaction related costs decreased as a result of fewer acquisition and disposition activities during the 2023 period. Loss on impairment of real estate.
The increase in depreciation and amortization primarily reflects our acquisition and disposition activities in the 2022 period. General and administrative. The increase in general and administrative expenses is primarily due to an increase in business management fees as a result of our net acquisition activity in the 2022 period. Acquisition and other transaction related costs.
General and administrative. The decrease in general and administrative expenses is primarily due to decreases in business management fees and legal fees, partially offset by increases in accounting and professional fees in the 2023 period. Acquisition and other transaction related costs.
The increase in rental income is primarily a result of our acquisition and disposition activities, which includes our acquisition of MNR. Rental income increased at certain of our comparable properties primarily due to increases from leasing activity and rent resets and a $3,428 write off of capitalized below market lease value related to a terminated lease in the 2022 period.
The increase in rental income is primarily a result of the Merger and leasing activity, including rent resets, at certain of our comparable properties in the 2023 period. Real estate taxes. The increase in real estate taxes primarily reflects the Merger. Real estate taxes at certain of our comparable properties increased due to higher assessed values. Other operating expenses .
Our leasing activity for new and renewal leases in 2022 resulted in a 64% year-over-year increase in contractual rents. As of December 31, 2022, our consolidated properties were approximately 99.1% leased (based on rentable square feet) to 301 different tenants with a weighted average remaining lease term (based on annualized rental revenues) of approximately 9.0 years.
As of December 31, 2023, our properties were approximately 98.8% leased to 303 tenants with a weighted average remaining lease term (by annualized rental revenues) of approximately 8.1 years.
As of December 31, 2022, our lease expirations by year were as follows (dollars and square feet in thousands): % of Total Cumulative % of Total Cumulative % Annualized % of Total Leased Leased of Total Annualized Rental Annualized Number of Square Feet Square Feet Square Feet Rental Revenues Revenues Rental Revenues Period / Year Tenants Expiring (1) Expiring (1) Expiring (1) Expiring Expiring Expiring 2023 38 2,507 4.2 % 4.2 % $ 17,879 4.2 % 4.2 % 2024 48 4,710 7.9 % 12.1 % 32,183 7.6 % 11.8 % 2025 34 4,800 8.1 % 20.2 % 27,784 6.6 % 18.4 % 2026 24 3,549 6.0 % 26.2 % 23,225 5.5 % 23.9 % 2027 39 8,924 15.0 % 41.2 % 53,099 12.5 % 36.4 % 2028 29 5,143 8.7 % 49.9 % 36,157 8.5 % 44.9 % 2029 17 3,428 5.8 % 55.7 % 16,814 4.0 % 48.9 % 2030 15 2,334 3.9 % 59.6 % 19,397 4.6 % 53.5 % 2031 16 3,265 5.5 % 65.1 % 25,653 6.1 % 59.6 % 2032 39 4,112 6.9 % 72.0 % 40,310 9.5 % 69.1 % Thereafter 100 16,648 28.0 % 100.0 % 131,267 30.9 % 100.0 % Total 399 59,420 100 % $ 423,768 100 % Weighted average remaining lease term (in years) 8.6 9.0 (1) Leased square feet is pursuant to existing leases as of December 31, 2022 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.
During the year ended December 31, 2023, we completed rent resets for approximately 420,000 square feet of land at our Hawaii Properties at rental rates that were 29.6% higher than prior rental rates. 49 Tabl e of Contents As of December 31, 2023, our lease expirations by year were as follows (square feet in thousands): % of Total Cumulative % of Total Cumulative % Annualized % of Total Leased Leased of Total Annualized Rental Annualized No. of Square Feet Square Feet Square Feet Rental Revenues Revenues Rental Revenues Year Leases Expiring (1) Expiring (1) Expiring (1) Expiring (2) Expiring (2) Expiring (2) 2024 40 5,070 8.6% 8.6% $ 24,239 5.6% 5.6% 2025 36 5,015 8.5% 17.1% 28,846 6.6% 12.2% 2026 31 4,128 7.0% 24.1% 28,571 6.6% 18.8% 2027 38 8,738 14.7% 38.8% 52,823 12.2% 31.0% 2028 42 6,165 10.4% 49.2% 45,765 10.5% 41.5% Thereafter 204 30,133 50.8% 100.0% 254,255 58.5% 100.0% Total 391 59,249 100.0% $ 434,499 100.0% Weighted average remaining lease term (in years) 7.0 8.1 (1) Leased square feet is pursuant to existing leases as of December 31, 2023 and includes space being fitted out for occupancy, if any, and space which is leased but is not occupied.
If a lease is terminated prior to its stated expiration, all unamortized amounts relating to that lease are written off. Purchase price allocations require us to make certain assumptions and estimates.
We amortize the value of acquired in-place leases exclusive of the value of above market and below market acquired in-place leases to depreciation and amortization over the periods of the respective leases. If a lease is terminated prior to its stated expiration, all unamortized amounts relating to that lease are written off.
The value of these mortgages approximated their estimated fair value on the date of acquisition. 54 Table of Contents As of December 31, 2022, we had an aggregate principal amount of $4,290,363 of debt, including the Floating Rate Loan, Fixed Rate Loan and the ILPT Floating Rate Loan, scheduled to mature between 2023 and 2038.
We intend to conduct our business activities in a manner which will afford us reasonable access to capital for investing and financing activities. As of December 31, 2023, we had an aggregate principal amount of $4,325,944 of debt, including the ILPT Floating Rate Loan, the Floating Rate Loan and the Fixed Rate Loan, scheduled to mature between 2024 and 2038.
(2) Consists of 133 properties including (i) properties we acquired during the period from January 1, 2021 to December 31, 2022, including 94 properties we contributed to a consolidated joint venture in which we own a 61% equity interest, and (ii) 18 properties we sold in December 2021 to an unconsolidated joint venture in which we own a 22% equity interest.
(2) Consists of 127 properties, including 125 properties we acquired and two properties we disposed of during the period from January 1, 2022 to December 31, 2023.
Accordingly, we cannot be sure that the historical increases achieved at our Hawaii Properties will continue in the future. 46 Table of Contents The following chart shows the annualized rental revenues as of December 31, 2022 scheduled to reset at our Hawaii Properties: Scheduled Rent Resets at Hawaii Properties (dollars in thousands) Annualized Rental Revenues as of December 31, 2022 Scheduled to Reset 2023 $ 1,824 2024 1,273 2025 831 2026 1,307 2027 781 2028 and thereafter 17,105 Total $ 23,121 As of December 31, 2022, $17,879, or 4.2%, of our annualized rental revenues are included in leases scheduled to expire by December 31, 2023 and 0.9% of our rentable square feet are currently vacant.
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. 50 Tabl e of Contents The following table provides the annualized rental revenues scheduled to reset by year at our Hawaii Properties as of December 31, 2023: Annualized Rental Revenues Scheduled to Reset 2024 $ 814 2025 989 2026 1,315 2027 795 2028 — Thereafter 18,525 Total $ 22,438 As of December 31, 2023, $24,239, or 5.6%, of our annualized rental revenues are included in leases scheduled to expire by December 31, 2024 and 1.2% of our rentable square feet are currently vacant.
We also entered into a $700,000 interest only fixed rate commercial mortgage backed securities, or CMBS, loan secured by 17 of our properties, or the Fixed Rate Loan. The Fixed Rate loan matures in March 2032 and requires that interest be paid at a weighted average annual fixed rate of 4.42%.
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%.
We may seek to sell additional equity interests in this joint venture and use the net proceeds to reduce our debt. For more information regarding this joint venture, see Notes 3, 5, 6, 10 and 11 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
For further information regarding disposition activities, see Note 3 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Consolidated Joint Venture We own a 61% equity interest in Mountain Industrial REIT LLC, which owns 94 properties in 27 states totaling approximately 20,981,000 rentable square feet.
For more information regarding the distributions we paid during 2022, see Note 7 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. On January 12, 2023, we declared a regular quarterly distribution of $0.01 per common share, or approximately $656, to shareholders of record on January 23, 2023.
On January 11, 2024, we declared a regular quarterly distribution to common shareholders of record on January 22, 2024 in the amount of $0.01 per share, or approximately $658, and we paid this distribution on February 15, 2024 using cash on hand.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeOur exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amounts of any floating rate debt we may incur. 59 Table of Contents Fixed Rate Debt As of December 31, 2022, our outstanding fixed rate debt consisted of the following mortgage notes: Annual Annual Interest Principal Interest Interest Payments Debt Balance (1) Rate (1) Expense (1) Maturity Due Mortgage notes (186 Hawaii Properties) $ 650,000 4.31 % $ 28,015 2029 Monthly Mortgage notes (17 Mainland Properties) 700,000 4.42 % 30,940 2032 Monthly Mortgage note (2) 13,556 3.76 % 510 2028 Monthly Mortgage note (2) 4,865 3.77 % 183 2030 Monthly Mortgage note (2) 5,145 3.85 % 198 2030 Monthly Mortgage note (2) 14,392 3.56 % 512 2030 Monthly Mortgage note (2) 12,691 3.67 % 466 2031 Monthly Mortgage note (2) 14,144 4.14 % 586 2032 Monthly Mortgage note (2) 30,949 4.02 % 1,244 2033 Monthly Mortgage note (2) 43,219 4.13 % 1,785 2033 Monthly Mortgage note (2) 26,175 3.10 % 811 2035 Monthly Mortgage note (2) 42,087 2.95 % 1,242 2036 Monthly Mortgage note (2) 46,109 4.27 % 1,969 2037 Monthly Mortgage note (2) 52,031 3.25 % 1,691 2038 Monthly $ 1,655,363 $ 70,152 (1) The principal balance, annual interest rate and annual interest expense are the amounts stated in the applicable contract.
Biggest changeOur exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amounts of any floating rate debt we may incur. 61 Tabl e of Contents Fixed Rate Debt At December 31, 2023, our outstanding fixed rate debt consisted of the following mortgage notes: Annual Annual Interest Principal Interest Interest Payments Debt Balance Rate (1) Expense Maturity Due Mortgage notes (186 Hawaii Properties) $ 650,000 4.31 % $ 28,015 2029 Monthly Mortgage notes (17 Mainland Properties) 700,000 4.42 % 30,940 2032 Monthly Mortgage note (2) 91,000 6.25 % 5,688 2030 Monthly Mortgage note (3) 11,380 3.67 % 418 2031 Monthly Mortgage note (3) 12,916 4.14 % 535 2032 Monthly Mortgage note (3) 28,622 4.02 % 1,151 2033 Monthly Mortgage note (3) 40,019 4.13 % 1,653 2033 Monthly Mortgage note (3) 24,433 3.10 % 757 2035 Monthly Mortgage note (3) 39,411 2.95 % 1,163 2036 Monthly Mortgage note (3) 43,850 4.27 % 1,872 2037 Monthly Mortgage note (3) 49,313 3.25 % 1,603 2038 Monthly $ 1,690,944 $ 73,795 (1) The annual interest rate is the rate stated in the applicable contract.
The Floating Rate Loan matures on March 9, 2024, subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR plus a premium of 2.77%. We are vulnerable to changes in the U.S. dollar based short term rates, specifically SOFR.
The Floating Rate Loan matures on March 9, 2024, subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR plus a premium of 2.77%. We are vulnerable to changes in the U.S. dollar based on short term rates, specifically SOFR.
Our $650,000 and $700,000 mortgage notes require interest only payments until maturity. The remaining fixed rate mortgage notes require amortizing payment of principal and interest until maturity. Because our mortgage notes require interest to be paid at a fixed rate, changes in market interest rates during the terms of these mortgage notes will not affect our interest obligations.
Our $650,000, $700,000 and $91,000 mortgage notes require interest only payments until maturity. The remaining fixed rate mortgage notes require amortizing payment of principal and interest until maturity. Because our mortgage notes require interest to be paid at a fixed rate, changes in market interest rates during the terms of these mortgage notes will not affect our interest obligations.
Item 8. Financial Statements and Supplementary Data The information required by this item is included in Item 15 of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.
Financial Statements and Supplementary Data The information required by this item is included in Item 15 of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.
If these mortgage notes are refinanced at an interest rate which is one percentage point higher or lower than shown above, our annual interest cost would increase or decrease by approximately $16,553. Changes in market interest rates would affect the fair value of our fixed rate debt obligations.
If these mortgage notes are refinanced at an interest rate which is one percentage point higher or lower than shown above, our annual interest cost would increase or decrease by approximately $16,909. Changes in market interest rates would affect the fair value of our fixed rate debt obligations.
The ILPT Floating Rate Loan matures on October 9, 2024, subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR plus a premium of 3.93%.
The ILPT Floating Rate Loan matures on October 9, 2024, subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR plus a weighted average premium of 3.93%.
In addition, upon renewal or refinancing of these obligations, we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit risk. Generally, a change in interest rates would not affect the value of our floating rate debt but would affect our operating results.
In addition, upon renewal or refinancing of these obligations, we are vulnerable to increases in interest rate premiums, including increases in the cost of replacement interest rate caps, due to market conditions and our perceived credit risk. Generally, a change in interest rates would not affect the value of our floating rate debt but would affect our operating results.
The foregoing table shows the impact of an immediate one percentage point change in floating interest rates. If interest rates were to change gradually over time, the impact would be spread over time.
The foregoing table shows the impact of an immediate one percentage point change in floating interest rates, excluding the impact of our interest rate caps. If interest rates were to change gradually over time, the impact would be spread over time.
The following table presents the approximate impact a one percentage point increase in interest rates would have on our annual floating rate interest expense at December 31, 2022, excluding the impact of our interest rate caps: Impact of an Increase in Interest Rates Total Interest Annual Interest Rate Outstanding Expense Earnings Per Per Year Debt Per Year Share Impact (1) At December 31, 2022 6.17 % $ 2,635,000 $ 164,838 $ 2.53 One percentage point increase 7.17 % $ 2,635,000 $ 191,554 $ 2.94 (1) Based on the diluted weighted average common shares outstanding for the year ended December 31, 2022.
The following table presents the approximate impact a one percentage point increase in interest rates would have on our annual floating rate interest expense at December 31, 2023, excluding the impact of our interest rate caps: Impact of an Increase in Interest Rates Total Interest Annual Interest Rate Outstanding Expense Earnings Per Per Year Debt Per Year Share Impact (1) At December 31, 2023 6.17 % $ 2,635,000 $ 164,963 $ (2.52) One percentage point increase 7.17 % $ 2,635,000 $ 191,679 $ (2.92) (1) Based on the diluted weighted average common shares outstanding for the year ended December 31, 2023.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (dollars in thousands, except per share data) We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (dollars in thousands, except per share data) We are exposed to risks associated with market changes in interest rates.
Increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt. The U.S. Federal Reserve has raised interest rates multiple times since the beginning of 2022 in an effort to combat inflation and may continue to do so.
Increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt. In response to significant and prolonged increases in inflation, the U.S. Federal Reserve has raised interest rates multiple times since the beginning of 2022. Although the U.S.
At December 31, 2022, our aggregate floating rate debt was $2,635,000, consisting of the $1,400,000 outstanding principal amount of the Floating Rate Loan secured by 82 properties owned by our consolidated joint venture and the $1,235,000 outstanding principal amount of the ILPT Floating Rate Loan.
At December 31, 2023, our aggregate floating rate debt was $2,635,000, consisting of the $1,235,000 outstanding principal amount of the ILPT Floating Rate Loan and the $1,400,000 outstanding principal amount of the Floating Rate Loan.
Based on the balances outstanding at December 31, 2022 and discounted cash flow analyses through the maturity date, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligation, a hypothetical immediate one percentage point change in the interest rates would change the fair value of this obligation by approximately $92,473.
Based on the balances outstanding at December 31, 2023 and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligation, a hypothetical immediate one percentage point change in the interest rates would change the fair value of these obligations by approximately $87,358. Item 8.
Other than as described below, we do not currently expect any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future. 58 Table of Contents Floating Rate Debt At December 31, 2022, our outstanding floating rate debt consisted of the following: Annual Annual Interest Principal Interest Interest Payments Debt Balance (1) Rate (1) Expense (1) Maturity Due ILPT Floating Rate Loan $ 1,235,000 6.18 % $ 77,383 2024 Monthly Floating Rate Loan $ 1,400,000 6.17 % $ 87,580 2024 Monthly $ 2,635,000 $ 164,963 (1) The principal balance, annual interest rate and annual interest expense are the amounts stated in the applicable contract, as adjusted by our interest rate caps as applicable.
Floating Rate Debt At December 31, 2023, our outstanding floating rate debt consisted of the following: Annual Annual Interest Principal Interest Interest Payments Debt Balance Rate (1) Expense Maturity Due ILPT Floating Rate Loan $ 1,235,000 6.18 % $ 77,383 2024 Monthly Floating Rate Loan 1,400,000 6.17 % 87,580 2024 Monthly $ 2,635,000 $ 164,963 (1) The annual interest rate is the rate stated in the applicable contract, as adjusted by our interest rate caps.
In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we assumed or issued this debt. (2) Our consolidated joint venture, in which we have a 61% equity interest, assumed these former MNR mortgages, which are secured by 11 properties in aggregate.
(2) Our consolidated joint venture, in which we own a 61% equity interest, obtained this mortgage loan, which is secured by four properties. (3) Our consolidated joint venture, in which we own a 61% equity interest, assumed these former MNR mortgage loans, which are secured by eight properties in aggregate.
Removed
In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we assumed or issued this debt.
Added
We manage our exposure to this market risk by monitoring available financing alternatives, including fixed rate debt, and employing derivative instruments, including interest rate caps, to limit our exposure to increasing interest rates.
Added
Other than as described below, we do not currently expect any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.
Added
Federal Reserve has indicated that it may lower interest rates in 2024, we cannot be sure that it will do so, and interest rates may remain at the current high levels or continue to increase.

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