If for any taxable year we designate capital gain dividends for our shareholders, then a portion of the capital gain dividends we designate will be allocated to the holders of a particular class of shares on a percentage basis equal to the ratio of the amount of the total dividends paid or made available for the year to the holders of that class of shares to the total dividends paid or made available for the year to holders of all outstanding classes of our shares. We will similarly designate the portion of any dividend that is to be taxed to noncorporate U.S. shareholders at preferential maximum rates (including any qualified dividend income and any capital gains attributable to real estate depreciation recapture that are subject to a maximum 25% federal income tax rate) so that the designations will be proportionate among all outstanding classes of our shares.
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. To the extent that these excess distributions exceed a U.S. shareholder’s adjusted basis in such shares, they will be included in income as capital gain, with long-term gain generally taxed to noncorporate U.S. shareholders at preferential maximum rates. No U.S. shareholder may include on its federal income tax return any of our net operating losses or any of our capital losses. In addition, no portion of any of our dividends will beis eligible for the dividends received deduction for corporate shareholders.
If a dividend is declared in October, November or December to shareholders of record during one of those months and is paid during the following January, then for federal income tax purposes the dividend will be treated as having been both paid and received on December 31 of the prior taxable year.
A U.S. shareholder will generally recognize gain or loss equal to the difference between the amount realized and the shareholder’s adjusted basis in our shares that are sold or exchanged. This gain or loss will be capital gain or loss, and will be long-term capital gain or loss if the shareholder’s holding period in our shares exceeds one year. 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.
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. U.S. shareholders are urged to consult their tax advisors regarding the application of the 3.8% Medicare tax, including the applicabilitytax.
If a U.S. shareholder recognizes a loss upon a disposition of our shares in an amount that exceeds a prescribed threshold, it is possible that the provisions of Treasury regulations involving “reportable transactions” could apply, with a resulting requirement to separately disclose the loss-generating transaction to the IRS. These Treasury regulations are written quite broadly, and apply to many routine and simple transactions. A reportable transaction currently includes, among other things, a sale or exchange of our shares resulting in a tax loss in excess of (a) $10 million in any single year or $20 million in a prescribed combination of taxable years in the case of our shares held by a C corporation or by a partnership with only C corporation partners or (b) $2 million in any single year or $4 million in a prescribed combination of taxable years in the case of our shares held by any other partnership or an S corporation, trust or individual, including losses that flow through pass through entities to individuals. A taxpayer discloses a reportable transaction by filing IRS Form 8886 with its federal income tax return and, in the first year of filing, a copy of Form 8886 must be sent to the IRS’s Office of Tax Shelter Analysis. The annual maximum penalty for failing to disclose a reportable transaction is generally $10,000 in the case of a natural person and $50,000 in any other case.
Noncorporate U.S. shareholders who borrow funds to finance their acquisition of our shares could be limited in the amount of deductions that will be allowed for the interest paid on the indebtedness incurred. Under Section 163(d) of the IRC, interest paid or accrued on indebtedness incurred or continued to purchase or carry property held for investment is generally deductible only to the extent of the investor’s net investment income. A U.S. shareholder’s net investment income will include ordinary income dividend distributions received from us and, only if an appropriate election is made by the shareholder, capital gain dividend distributions and qualified dividends received from us. In addition, a U.S. shareholder that utilizes the deduction under Section 199A of the IRC with respect to qualified
REIT dividends received from us may also be required to make a similar election in order to include such qualified REIT dividends in the calculation of net investment income. Distributionsus; however, distributions treated as a nontaxable return of the shareholder’s basis will not enter into the computation of net investment income.
Taxation of Tax-Exempt U.S. Shareholders
The rules governing the federal income taxation of tax-exempt entities are complex, and the following discussion is intended only as a summary of material considerations of an investment in our shares relevant to such investors. If you are a tax-exempt shareholder, we urge you to consult your own tax advisor to determine the impact of federal, state, local and foreign tax laws, including any tax return filing and other reporting requirements, with respect to your acquisition of or investment in our shares.
Our distributions made to shareholders that are tax-exempt pension plans, individual retirement accounts or other qualifying tax-exempt entities should not constitute UBTI, provided that the shareholder has not financed its acquisition of our shares with “acquisition indebtedness” within the meaning of the IRC, that the shares are not otherwise used in an unrelated trade or business of the tax-exempt entity, and 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.
Taxation of Non-U.S. Shareholders
The rules governing the U.S. federal income taxation of non-U.S. shareholders are complex, and the following discussion is intended only as a summary of material considerations of an investment in our shares relevant to such investors. If you are a non-U.S. shareholder, we urge you to consult your own tax advisor to determine the impact of U.S. federal, state, local and foreign tax laws, including any tax return filing and other reporting requirements, with respect to your acquisition of or investment in our shares.
We expect that a non-U.S. shareholder’s receipt of (a) distributions from us, and (b) proceeds from the sale of our shares, will not be treated as income effectively connected with a U.S. trade or business and a non-U.S. shareholder will therefore not be subject to the often higher federal tax and withholding rates, branch profits taxes and increased reporting and filing requirements that apply to income effectively connected with a U.S. trade or business. This expectation and a number of the determinations below are predicated on our shares being listed on a U.S. national securities exchange, such as Nasdaq. Although we cannot be sure, we expect that eachEach class of our shares has been and will remain 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.Distributions. A distribution by us to a non-U.S. shareholder that is not designated as a capital gain dividend will be treated as an ordinary income dividend to the extent that it is made out of our current or accumulated earnings and profits. A distribution of this type will generally be subject to U.S. federal income tax and withholding at the rate of 30%, or at a lower rate if the non-U.S. shareholder has in the manner prescribed by the IRS demonstrated to the applicable withholding agent its entitlement to benefits under a tax treaty. Because we cannot determine our current and accumulated earnings and profits until the end of the taxable year, withholding at the statutory rate of 30% or applicable lower treaty rate will generally be imposed on the gross amount of any distribution to a non-U.S. shareholder that we make and do not designate as a capital gain dividend. Notwithstanding this potential withholding on distributions in excess of our current and accumulated earnings and profits, these
excess portions of distributions are a nontaxable return of capital to the extent that they do not exceed the non-U.S. shareholder’s adjusted basis in our shares, and the nontaxable return of capital will reduce the adjusted basis in these shares. To the extent that distributions in excess of our current and accumulated earnings and profits exceed the non-U.S. shareholder’s adjusted basis in our shares, the distributions will give rise to U.S. federal income tax liability only in the unlikely event that the non-U.S. shareholder would otherwise be subject to tax on any gain from the sale or exchange of these shares, as discussed below under the heading “—Dispositions of Our Shares.” A non-U.S. shareholder may seek a refund from the IRS of amounts withheld on distributions to it in excess of such shareholder’s allocable share of our current and accumulated earnings and profits.
For so long as a class of our shares is listed on a U.S. national securities exchange, capital gain dividends that we declare and pay to a non-U.S. shareholder on those shares, as well as dividends to a non-U.S. shareholder on those shares attributable to our sale or exchange of “United States real property interests” within the meaning of Section 897 of the IRC, or USRPIs, will not be subject to withholding as though those amounts were effectively connected with a U.S. trade or business, and non-U.S. shareholders will not be required to file U.S. federal income tax returns or pay branch profits tax in respect of
these dividends. Instead, these dividends will generally be treated as ordinary dividends and subject to withholding in the manner described above.
Tax treaties may reduce the withholding obligations on our distributions. Under some treaties, however, rates below 30% that are applicable to ordinary income dividends from U.S. corporations may not apply to ordinary income dividends from a REIT or may apply only if the REIT meets specified additional conditions. A non-U.S. shareholder must generally use an applicable IRS Form W-8, or substantially similar form, to claim tax treaty benefits. If the amount of tax withheld with respect to a distribution to a non-U.S. shareholder exceeds the shareholder’s U.S. federal income tax liability with respect to the distribution, the non-U.S. shareholder may file for a refund of the excess from the IRS. Treasury regulations also provide special rules to determine whether, for purposes of determining the applicability of a tax treaty, our distributions to a non-U.S. shareholder that is an entity should be treated as paid to the entity or to those owning an interest in that entity, and whether the entity or its owners are entitled to benefits under the tax treaty.
If, contrary to our expectation, a class of our shares was not listed on a U.S. national securities exchange and we made a distribution on those shares that was attributable to gain from the sale or exchange of a USRPI, then a non-U.S. shareholder holding those shares would be taxed as if the distribution was gain effectively connected with a trade or business in the United States conducted by the non-U.S. shareholder. 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. The non-U.S. shareholder also would generally be subject to the same treatment as a U.S. shareholder with respect to the distribution (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of a nonresident alien individual), would be subject to fulsome U.S. federal income tax return reporting requirements, and, in the case of a corporate non-U.S. shareholder, may owe the up to 30% branch profits tax under Section 884 of the IRC (or lower applicable tax treaty rate) in respect of these amounts.
Dispositions of Our Shares. Shares. 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.
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 will be a “domestically controlled” REIT if less than 50% of the value of our shares (and(including any future outstanding equityclass of shares that we may issue) is held, directly or indirectly, by non-U.S. shareholders at all times during a specified testing period,the preceding five years, after applying specified presumptions regarding the ownership of our shares as described in Section 897(h)(4)(E) of the IRC. Under these rules and for as long as SIR remains our majority shareholder, we expect to be treated as a “domestically controlled” REIT if SIR itself is treated as a “domestically controlled” REIT. For these purposes, we believe that the statutory ownership presumptions apply to validate SIR’s status as a “domestically controlled” REIT and therefore our own status as a “domestically controlled” REIT. Accordingly, and in reliance on SIR’s status as “domestically controlled”, we believe that we are and will remain a “domestically controlled” REIT.
If, contrary to our expectation, a gain on the sale of our shares is subject to U.S. federal income taxation (for example, because neither of the above exemptions were then available, i.e., that class of our shares were not then listed on a U.S. national securities exchange and we were not a “domestically controlled” REIT), then (a) a non-U.S. shareholder would generally be subject to the same treatment as a U.S. shareholder with respect to its gain (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals), (b) the non-U.S. shareholder would also be subject to fulsome U.S. federal income tax return reporting requirements, and (c) a purchaser of that class of our shares from the non-U.S. shareholder may be required to withhold 15% of the purchase price paid to the non-U.S. shareholder and to remit the withheld amount to the IRS.
Information Reporting, Backup Withholding, and Foreign Account Withholding
Information reporting, backup withholding, and foreign account withholding may apply to distributions or proceeds paid to our shareholders under the circumstances discussed below. If a shareholder is subject to backup or other U.S. federal income tax withholding, then the applicable withholding agent will be required to withhold the appropriate amount with respect to a deemed or constructive distribution or a distribution in kind even though there is insufficient cash from which to satisfy the withholding obligation. To satisfy this withholding obligation, the applicable withholding agent may collect the amount of U.S. federal income tax required to be withheld by reducing to cash for remittance to the IRS a sufficient portion of the property that the shareholder would otherwise receive or own, and the shareholder may bear brokerage or other costs for this withholding procedure.
Amounts withheld under backup withholding are generally not an additional tax and may be refunded by the IRS or credited against the shareholder’s federal income tax liability, provided that such shareholder timely files for a refund or credit with the IRS. 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.
If the U.S. shareholder has not provided and does not provide its correct taxpayer identification number and appropriate certifications on an IRS Form W-9 or substantially similar form, it may be subject to penalties imposed by the IRS, and the applicable withholding agent may have to withhold a portion of any distributions or proceeds paid to such U.S. shareholder. 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.
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. This information reporting requirement applies regardless of whether the non-U.S. shareholder is subject to withholding on distributions on our shares or whether the withholding was reduced or eliminated by an applicable tax treaty. Also, distributions paid to a non-U.S. shareholder on our shares will generally be subject to backup withholding, unless the non-U.S. shareholder properly certifies to the applicable withholding agent its non-U.S. shareholder status on an applicable IRS Form W-8 or substantially similar form. Information reporting and backup withholding will not apply to proceeds a non-U.S. shareholder receives upon the sale, exchange, redemption, retirement or other disposition of our shares, if the non-U.S. shareholder properly certifies to the applicable withholding agent its non-U.S. shareholder status on an applicable IRS Form W-8 or substantially similar form. Even without having executed an applicable IRS Form W-8 or substantially similar form, however, in some cases information reporting and backup withholding will not apply to proceeds that a non-U.S. shareholder receives upon the sale, exchange, redemption, retirement or other disposition of our shares if the non-U.S. shareholder receives those proceeds through a broker’s foreign office.
Non-U.S. financial institutions and other non-U.S. entities are subject to diligence and reporting requirements for purposes of identifying accounts and investments held directly or indirectly by U.S. persons. The failure to comply with these additional information reporting, certification and other requirements could result in a 30% U.S. withholding tax on applicable payments to non-U.S. persons, notwithstanding any otherwise applicable provisions of an income tax treaty. In particular, a payee that is a foreign financial institution that is subject to the diligence and reporting requirements described above must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by “specified United States persons” or “United States owned foreign entities” (each as defined in the IRC and administrative guidance thereunder), annually report information about such accounts, and withhold 30% on applicable payments to noncompliant foreign financial institutions and account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States with respect to these requirements may be subject to different rules. The foregoing withholding regime generally will applyapplies to payments of dividends on our shares, and is expected to generally apply to other “withholdable payments” (including payments of gross proceeds from a sale, exchange, redemption, retirement or other disposition of our shares) made after December 31, 2018.shares. In general, to avoid withholding, any non-U.S. intermediary through which a shareholder owns our shares must establish its compliance with the foregoing regime, and a non-U.S. shareholder must provide specified documentation (usually an applicable IRS Form W-8) containing information about its identity, its status, and if required, its direct and indirect U.S. owners. Non-U.S. shareholders and
shareholders who hold our shares through a non-U.S. intermediary are encouraged to consult their own tax advisors regarding foreign account tax compliance.
Other Tax Considerations
Our tax treatment and that of our shareholders may be modified by legislative, judicial or administrative actions at any time, which actions may have retroactive effect. The rules dealing with federal income taxation are constantly under review by
the U.S. Congress, the IRS and the U.S. Department of the Treasury, and statutory changes, new regulations, revisions to existing regulations and revised interpretations of established concepts are issued frequently; in fact, both technical corrections legislation and administrative guidance may someday be enacted or promulgated in response to the substantial December 2017 amendments to the IRC.frequently. Likewise, the rules regarding taxes other than U.S. federal income taxes may also be modified. No prediction can be made as to the likelihood of passage of new tax legislation or other provisions, or the direct or indirect effect on us and our shareholders. Revisions to tax laws and interpretations of these laws could adversely affect our ability to qualify and be taxed as a REIT, as well as the tax or other consequences of an investment in our shares. We and our shareholders may also be subject to taxation by state, local or other jurisdictions, including those in which we or our shareholders transact business or reside. These tax consequences may not be comparable to the U.S. federal income tax consequences discussed above.
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. Under ERISA and the IRC, any person who exercises any discretionary authority or control over the administration of, or the management or disposition of the assets of, an ERISA Plan or Non-ERISA Plan, or who renders investment advice for a fee or other compensation to an ERISA Plan or Non-ERISA Plan, is generally considered to be a fiduciary of the ERISA Plan or Non-ERISA Plan.
Fiduciaries of an ERISA Plan must consider whether:
•their investment in our shares or other securities satisfies the diversification requirements of ERISA;
•the investment is prudent in light of possible limitations on the marketability of our shares;
•they have authority to acquire our shares or other securities under the applicable governing instrument and Title I of ERISA; and
•the investment is otherwise consistent with their fiduciary responsibilities.
Fiduciaries of an ERISA Plan may incur personal liability for any loss suffered by the ERISA Plan on account of a violation of their fiduciary responsibilities. In addition, these fiduciaries may be subject to a civil penalty of up to 20% of any amount recovered by the ERISA Plan on account of a violation. Fiduciaries of any Non-ERISA Plan should consider that the Non-ERISA Plan may only make investments that are authorized by the appropriate governing instrument and applicable law.
Fiduciaries considering an investment in our securities should consult their own legal advisors if they have any concern as to whether the investment is consistent with the foregoing criteria or is otherwise appropriate. The sale of our securities to an ERISA Plan or Non-ERISA Plan is in no respect a representation by us or any underwriter of the securities that the investment meets all relevant legal requirements with respect to investments by the arrangements generally or any particular arrangement, or that the investment is appropriate for arrangements generally or any particular arrangement.
Prohibited Transactions
Fiduciaries of ERISA Plans and persons making the investment decision for Non-ERISA Plans should consider the application of the prohibited transaction provisions of ERISA and the IRC in making their investment decision. Sales and other transactions between an ERISA Plan or a Non-ERISA Plan and disqualified persons or parties in interest, as applicable, are prohibited transactions and result in adverse consequences absent an exemption. The particular facts concerning the sponsorship, operations and other investments of an ERISA Plan or Non-ERISA Plan may cause a wide range of persons to be treated as disqualified persons or parties in interest with respect to it. A non-exempt prohibited transaction, in addition to imposing potential personal liability upon ERISA Plan fiduciaries, may also result in the imposition of an excise tax under the IRC or a penalty under ERISA upon the disqualified person or party in interest. If the disqualified person who engages in the transaction is the individual on behalf of whom an IRA, Roth IRA or other tax-favored account is maintained (or his beneficiary), the IRA, Roth IRA or other tax-favored account may lose its tax-exempt status and its assets may be deemed to have been distributed to the individual in a taxable distribution on account of the non-exempt prohibited transaction, but no
excise tax will be imposed. 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. Department of Labor has issued a regulation defining “plan assets.” The regulation, as subsequently modified by ERISA, generally provides that when an ERISA Plan or a Non-ERISA Plan otherwise subject to Title I of ERISA and/or Section 4975 of the IRC acquires an interest in an entity that is neither a “publicly offered security” nor a security issued by an investment company registered under the Investment Company Act of 1940, as amended, the assets of the ERISA Plan or Non-ERISA Plan include both the equity interest and an undivided interest in each of the underlying assets of the entity, unless it is established either that the entity is an operating company or that equity participation in the entity by benefit plan investors is not significant. 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. 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. Each class of our outstanding shares has been registered under the Exchange Act within the necessary time frame to satisfy the foregoing condition.
The regulation provides that a security is “widely held” only if it is part of a class of securities that is owned by 100 or more investors independent of the issuer and of one another. However, a security will not fail to be “widely held” because the number of independent investors falls below 100 subsequent to the initial public offering as a result of events beyond the issuer’s control. Although we cannot be sure, we believe our common shares have been and will remain widely held, and we expect the same to be true of any future class of equity that we may issue.
The regulation provides that whether a security is “freely transferable” is a factual question to be determined on the basis of all relevant facts and circumstances. The regulation further provides that, where a security is part of an offering in which the minimum investment is $10,000 or less, some restrictions on transfer ordinarily will not, alone or in combination, affect a finding that these securities are freely transferable. The restrictions on transfer enumerated in the regulation as not affecting that finding include:
•any restriction on or prohibition against any transfer or assignment that would result in a termination or reclassification for federal or state tax purposes, or would otherwise violate any state or federal law or court order;
•any requirement that advance notice of a transfer or assignment be given to the issuer and any requirement that either the transferor or transferee, or both, execute documentation setting forth representations as to compliance with any restrictions on transfer that are among those enumerated in the regulation as not affecting free transferability, including those described in the preceding clause of this sentence;
•any administrative procedure that establishes an effective date, or an event prior to which a transfer or assignment will not be effective; and
•any limitation or restriction on transfer or assignment that is not imposed by the issuer or a person acting on behalf of the issuer.
We believe that the restrictions imposed under our declaration of truston the transfer of shares do not result in the failure of our shares to be “freely transferable.” Furthermore, we believe that there exist no other facts or circumstances limiting the transferability of our shares that are not included among those enumerated as not affecting their free transferability under the regulation, and we do not expect or intend to impose in the future, or to permit any person to impose on our behalf, any limitations or restrictions on transfer that would not be among the enumerated permissible limitations or restrictions.
Assuming that each class of our shares will be “widely held” and that no other facts and circumstances exist that restrict transferability of these shares, our counsel, Sullivan & Worcester LLP, is of the opinion that our shares will not fail to be “freely transferable” for purposes of the regulation due to the restrictions on transfer of our shares in our declaration of trust and that under the regulation each class of our currently outstanding shares is publicly offered and our assets will not be deemed to be “plan assets” of any ERISA Plan or Non-ERISA Plan that acquires our shares in a public offering. This opinion is conditioned upon certain assumptions and representations, as discussed above inunder the heading “Material United States Federal Income Tax Considerations—Taxation as a REIT.”
Item 1A. Risk Factors
Summary of Risk Factors
Our business is subject to a number of risks and uncertainties. The summary below provides an overview of many of the risks we face that are described in this section. Additional risks, beyond those summarized below or discussed under the caption “Risk Factors” or described elsewhere in this Annual Report on Form 10-K, may also materially and adversely impact our business, operations or financial results. Consistent with the foregoing, the risks we face include, but are not limited to, the following:
•our tenants may be unable to satisfy their lease obligations to us, which could materially and adversely affect us;
•we may be unable to renew our leases with current tenants when our leases expire, lease our properties to new tenants without decreasing rents or incurring significant costs or otherwise, or to increase rents when our rents are reset;
•the concentration of our investments in industrial and logistics properties may result in us being adversely affected by cyclical economic conditions, particularly to the extent our tenants are negatively impacted, and the development of new industrial and logistics properties exceeding increase in demand for such properties;
•the geographic concentration of our properties in Hawaii and the tenant concentration of our properties with single tenants may subject us to greater risks of loss than if our properties had more geographic and tenant diversity;
•the COVID-19 pandemic and its resulting economic impact may materially adversely affect our and our tenants’ businesses, operations, financial results and liquidity;
•we may be unable to grow our business by acquisitions of additional properties, and we face significant competition for acquisition opportunities and tenants;
•we have debt and may incur additional debt, and we are subject to the covenants and conditions contained in the agreements governing our debt, which may restrict our operations and ability to make investments and distributions;
•REIT distribution requirements and any limitations on our ability to access reasonably priced capital may adversely impact our ability to carry out our business plan and we are subject to risks associated with our qualification for taxation as a REIT;
•our distributions to our shareholders may be reduced or eliminated and the form of payment could change;
•changes in market interest rates, including changes that may result from the expected phase out of LIBOR, may adversely affect us;
•ownership of real estate is subject to environmental risks and liabilities as well as risks from adverse weather, natural disasters and climate events;
•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;
•insurance may not adequately cover our losses, and insurance costs may continue to increase;
•we depend upon RMR LLC to manage our business and implement our growth strategy and RMR LLC has broad discretion in operating our day to day business;
•we rely on RMR LLC’s information technology and systems and the failure of the security or functioning of such technology or systems could materially and adversely affect us;
•our management structure and agreements with RMR LLC and our relationships with our related parties, including our Managing Trustees, RMR LLC and others affiliated with them, may create conflicts of interest;
•we may change our operational, financing and investment policies without shareholder approval;
•ownership limitations and certain provisions in our declaration of trust, bylaws and agreements, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals; and
•our rights and the rights of our shareholders to take action against our Trustees and officers are limited, and our bylaws contain provisions that could limit our shareholders’ ability to obtain a judicial forum they deem favorable for certain disputes.
The risks described below may not be the only risks we face but are risks we believe aremay be material at this time. AdditionalOther risks thatof which we doare not yet know of,aware, or that we currently thinkbelieve are immaterial,not material, may also may impairmaterially and adversely impact our business operations or financial results. If any of the events or circumstances described below occurs, our business, financial condition, results of operations liquidity, prospects or ability to make or sustain distributions to our shareholders could be adversely affected and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described below and the information contained under the headingcaption “Warning Concerning Forward LookingForward-Looking Statements” and the risks described elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities.
Risks Related to Our Business
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 investments are and will be concentrated in industrial and logistics properties.
Our properties are substantially all industrial and logistics properties and we intendbusiness depends on our tenants satisfying their lease obligations to acquire similar additional properties.us. The market demand to lease industrial and logistics properties generally reflects conditions in the U.S. economy. If the general economy slows, the demand to lease industrial and logistics properties will be reduced and the valuefinancial capacities of our common sharestenants to pay us rent will depend upon their abilities to successfully operate their businesses, which may decline. Becausebe adversely affected by factors over which we expect to be concentrated in industrial and logistics properties,they have no control, including the adverse impact of cyclical economic conditions affecting industrial and logistics properties may have a greater impact on the valueCOVID-19 pandemic. The failure of our common shares than if we were investedtenants and any applicable parent guarantor to satisfy their lease obligations to us, whether due to a downturn in several different types of properties, including residential, officetheir business or other properties, in addition to industrialotherwise, could materially and logistics properties.
The development of new industrial and logistics properties may exceed any increase in demand for such properties.
The current strong demand for industrial and logistics properties is encouraging new development of such properties. If the development of new industrial and logistics properties exceeds the increase in demand for such properties, our existing properties may be unable to successfully compete for tenants with newer developed buildings, our income may decline and the value of our common shares may decline.
Increasing interest rates may adversely affect us.
Since the most recent U.S. recession, the Board of Governors of the U.S. Federal Reserve System, or the U.S. Federal Reserve, has taken actions that have resulted in low interest rates for a long period of time. Since December 2016, the U.S. Federal Reserve has raised its benchmark interest rate by 125 basis points, and there are some market expectations that market interest rates will rise further in the near to intermediate term. Market interest rates may continue to increase, and those increases may materially and negatively affect us in several ways, including:
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. If market interest rates go up, 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. Sales of our common shares may cause a decline in the value of our common shares.
Amounts outstanding under our revolving credit facility require interest to be paid at variable interest rates. When interest rates increase, our interest costs will increase, which could adversely affect our cash flows, our ability to pay principal and interest on our debt, our cost of refinancing our fixed rate debts when they become due and our ability to make or sustain distributions to our shareholders. Additionally, if we choose to hedge our interest rate risk, we cannot be sure that the hedge will be effective or that our hedging counterparty will meet its obligations to us.
Property values are often determined, in part, based upon a capitalization of rental income formula. When market interest rates increase, property investors often demand higher capitalization rates and that causes property values to decline. Increases in interest rates could lower the value of our properties and cause the value of our securities to decline.
We may be unable to lease our properties when our leases expire.
Although we typically will seek to renew our leases with current tenants when they expire, we cannot be sure that we will be successful in doing so. If our tenants do not renew their leases, we may be unable to obtain new tenants to maintain or increase the historical occupancy rates of, or rents from, our properties.
We may experience declining rents or incur significant costs to renew our leases with current tenants or lease our properties to new tenants.
When rents are reset under the leases at our Hawaii Properties, the rents may decline. 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. Moreover, many of our Mainland Properties have been specially designed for the particular businesses of our tenants; if the current leases for such properties are terminated or are not renewed, we may be required to renovate such properties at substantial costs, decrease the rents we charge or provide other concessions in order to lease such properties to new tenants.
A significant number of our properties are located on the island of Oahu, HI, and we are exposed to risks as a result of this geographic concentration.
A significant number of our properties are located on the island of Oahu, HI. This geographic concentration creates risks. For example, Oahu’s remote location on a volcanic island makes our properties there vulnerable to certain risks from natural disasters, such as tsunamis, hurricanes, flooding, volcanic eruptions and earthquakes, which could cause damage to our properties, affect our Hawaii tenants’ ability to pay rent to us and cause the value of our properties and our securities to decline.
Current government policies regarding interest rates and trade policies may cause a recession.
The U.S. Federal Reserve policy regarding the timing and amount of future increases in interest rates and changing U.S. and other countries’ trade policies may hinder the growth of the U.S. economy. It is unclear whether the U.S. economy will be able to withstand these challenges and continue sustained growth. Economic weakness in the U.S. economy generally or a new U.S. recession would likely adversely affect our financial condition and that of our tenants, could adversely impact the ability of our tenants to renew our leases or pay rent to us, and may cause the values of our properties and of our securities to decline.
Substantially allmajority of our properties are leased to single tenants, which may subject us to greater risks of loss than if each of our properties had multiple tenants.
Substantially allThe majority of our rental revenues from our properties as of December 31, 20172020 were from properties leased to single tenants. The value of single tenant properties is materially dependent on the performance of those tenants under their respective leases. Many of our single tenant leases require that certain property level operating expenses and capital expenditures, such as real estate taxes, insurance, utilities, maintenance and repairs, including increases with respect thereto, be paid, or reimbursed to us, by our tenants. Accordingly, in addition to our not receiving rental income, a tenant default on such leases could make us responsible for paying these expenses. Because most of our properties are leased to single tenants, the adverse impact of individual tenant defaults or non-renewals is likely to be greater than would be the case if our properties were leased to multiple tenants.
We may be unable to lease our properties when our leases expire.
Our business depends uponAlthough we typically will seek to renew our leases with current tenants when they expire, we cannot be sure that we will be successful in doing so. If our tenants satisfyingdo not renew their leases, we may be unable to obtain new tenants to maintain or increase the historical occupancy rates of, or rents from, our properties.
We may experience declining rents or incur significant costs to renew our leases with current tenants or lease obligationsour properties to us, which depends,new tenants.
When we renew our leases with current tenants or lease to a large degree, on ournew tenants,’ abilities we may experience rent decreases, and we may have to successfully operate their businesses.
The valuespend substantial amounts for leasing commissions, tenant improvements or other tenant inducements. Moreover, many of our businessMainland Properties have been specially designed for the particular businesses of our tenants; if the current leases for such properties are terminated or are not renewed, we may be required to renovate such properties at substantial costs, decrease the rents we charge or provide other concessions in order to lease such properties to new tenants. When rents are reset under the leases at our Hawaii Properties, the rents may decline.
Our investments are concentrated in industrial and logistics properties.
Our properties are substantially all industrial and logistics properties and we intend to acquire similar additional properties. The market demand to lease industrial and logistics properties generally reflects conditions in the U.S. economy. If the general economy slows, the demand to lease industrial and logistics properties may be reduced and the value of our common shares may decline. The adverse impact of cyclical economic conditions affecting industrial and logistics properties may have a greater impact on the value of our common shares than if we were invested in several different types of properties, including residential, office or other properties, in addition to industrial and logistics properties.
A significant number of our properties are dependent, in part,located on the island of Oahu, HI, and we are exposed to risks as a result of this geographic concentration.
A significant number of our properties are located on the island of Oahu, HI. This geographic concentration creates risks. For example, Oahu’s remote location on a volcanic island makes our properties there vulnerable to certain risks from natural disasters, such as tsunamis, hurricanes, flooding, volcanic eruptions and earthquakes, which could cause damage to our properties, affect our Hawaii tenants’ abilities to meet their lease obligationspay rent to us. us and cause the value of our properties and our securities to decline.
The COVID-19 pandemic and its resulting economic impact may materially adversely affect our business, operations, financial capacitiesresults and liquidity.
The strain of coronavirus that causes the viral disease known as COVID-19 has been declared a pandemic by the World Health Organization, and the U.S. Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak. The COVID-19 pandemic has had a substantial adverse impact on the global economy, including the U.S. economy.
Although to date some of our tenants have benefitted from the increased reliance on e-commerce and logistics to support retailers and communities with essential services throughout the United States, challenges to the supply chain due to the COVID-19 pandemic, such as widespread illness that negatively impacts the workforce or other supply chain issues, may negatively impact our tenants’ businesses and operations. Further, the demand for e-commerce and logistics may decline, particularly if the current economic conditions do not continue to improve or if they worsen for an extended period. If that occurs, our tenants may become unable to pay rent to us and we may be unable to replace any lost revenues we may experience. Further, these conditions could result in declining market rents where our properties are located, which may adversely affectedaffect our future rents.
We typically conduct leasing activities at our properties. Accordingly, reductions in the ability of prospective tenants to visit our properties due to the COVID-19 pandemic could reduce rental revenue and ancillary operating revenue produced by factors overour properties. Concerns relating to the outbreak could also cause on-site personnel not to report to work at our properties, which could adversely affect tenant operations at our properties. In addition, if tenants default on our leases, we have no control. In particular, two subsidiariesmay experience increased vacancies and we may be unable to replace those tenancies for an extended period or at all, we may incur significant costs in connection with seeking and entering into any new or renewal leases, and the terms of Amazon.com, Inc. together contribute approximately 10.3%any leases we may enter may not be as favorable to us as the terms of our annualized rental revenues, under three separate leases,existing leases.
We cannot predict the extent and duration of the COVID-19 pandemic or the severity and duration of its economic impact. Potential consequences of the current unprecedented measures taken in response to the spread of the virus that causes COVID-19, and current market disruptions and volatility affecting us include, but are not limited to:
•increased risk of default or bankruptcy of our tenants;
•reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of the virus that causes COVID-19, which are guaranteed by Amazon.com, Inc., as of December 31, 2017. The inabilitycould impact the continued viability of our tenants and any applicable parent guarantorthe demand for industrial and logistics properties;
•possible significant declines in the value of our properties or our inability to satisfy their lease obligations to us, whethersell properties we may identify for sale due to a downturndecreased demand for our properties;
•our failure to pay interest or principal when due on our outstanding debt, which may result in their businessthe acceleration of payment for our outstanding debt and our being unable to borrow under our revolving credit facility;
•our inability to comply with certain financial covenants that could result in our defaulting under our debt agreements;
•our inability to maintain our current distribution rate, or make any distributions, to our shareholders;
•declines in the market price of our common shares; and
•our inability to access debt and equity capital on attractive terms, or at all.
Further, the extent and strength of any economic recovery after the COVID-19 pandemic ends or otherwise could materiallyare uncertain and adversely affect us.
subject to various factors and conditions. Our business, operations and financial position may continue to be negatively impacted after the COVID-19 pandemic ends and may remain at depressed levels compared to prior to the outbreak of the COVID-19 pandemic and those conditions may continue for an extended period.
Bankruptcy law may adversely impact us.
The occurrence of a tenant bankruptcy could reduce the rent we receive from that tenant’s lease.tenant. In addition, the continued existence of the COVID-19 pandemic may increase the risk of our tenants filing for bankruptcy. If a tenant becomes bankrupt, federal law may prohibit us from evicting that tenant based solely upon its bankruptcy. In addition, a bankrupt tenant
may be authorized to reject and terminate its lease with us. Any claims against a bankrupt tenant for unpaid future rent would be subject to statutory limitations that may be substantially less than the contractually specified rent we are owed under the lease, and any claim we have for unpaid past rent, may not be paid in full.
Many of our tenants do not have credit ratings.
The majority of our tenants are not rated by any nationally recognized credit rating organization. It is more difficult to assess the ability of a tenant that is not rated to meet its obligations than that of a rated tenant. Moreover, tenants may be rated when we enter leases with them but their ratings may be later lowered or terminated during the term of the leases. Because we have many unrated tenants, we may experience a higher percentage of tenant defaults than landlords who have a higher percentage of highly rated tenants.
When we reset rents, renew or extend leases or lease to new tenants at our Hawaii Properties, our rents may decrease, and our ability to increase rents may be limited in the future by government action.
Approximately 35%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. Our ability to increase rents when rent resets occur will depend upon then prevailing market conditions, which are beyond our control. While rent resets involving our Hawaii Properties have, in the aggregate, resulted in rent increases during the period of our SIR’s and SIR’s predecessor’sour predecessors’ ownership, in some instances rent resets have resulted in rent decreases. Accordingly, the historical increases achieved from rent resets involving our Hawaii Properties may not be repeated in the future.
In 2009,the past, the Hawaii state legislature has enacted legislation that would have limited rent increases at certain of our Hawaii Properties. In May 2010, theThe U.S. District Court in Hawaii ruledlater held that this legislation violated the U.S. Constitution and therefore was unenforceable. In October 2010, SIR’s predecessor entered a settlement agreement with Hawaii pursuant to which Hawaii’s appeal of this decision was dismissed with prejudice in return forHowever, the agreement by SIR’s predecessor not to pursue collection of its attorneys’ fees from Hawaii. The Hawaii state legislature may in the future adopt laws to limit rent increases at our Hawaii Properties, and we may not be successful in any challenge we make to that legislation. Moreover, even if we arewere successful in challenging such laws, the cost of doing so may be significant.
REIT distribution requirements and limitations on our ability to access reasonably priced capital may adversely impact our ability to carry out our business plan.
We intend to elect and qualify for taxation as a REIT under the IRC. As a REIT, we are required to distribute at least 90%Table of our annual REIT taxable income (excluding capital gains). Accordingly, we may not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties or fund our acquisitions or development or redevelopment efforts. Our business strategies therefore depend, in part, upon our ability to raise additional capital at reasonable costs. The volatility in the availability of capital to businesses on a global basis in most debt and equity markets generally may limit our ability to raise reasonably priced capital. We may also be unable to raise reasonably priced capital because of reasons related to our business, market perceptions of our prospects, the terms of our indebtedness or for reasons beyond our control, such as market conditions. 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.Contents
We may be unable to grow our business by acquisitions of additional properties, and we might encounter unanticipated difficulties and expenditures relating to our acquired properties.
Our business plans involve the acquisition of additional properties. Our ability to make profitable acquisitions is subject to risks, including, but not limited to, risks associated with:
•competition from other investors, including publicly traded and private REITs, numerous financial institutions, individuals, foreign investors and other public and private companies;investors;
our long term cost of capital;
•contingencies in our acquisition agreements; and
•the availability, terms and termscost of financing.
debt and equity capital.
We might encounter unanticipated difficulties and expenditures relating to anyour acquired properties. For example:
we do not believe that it is possible to understand fully a property before it is owned and operated for a reasonable period of time, and, •notwithstanding pre-acquisition due diligence, we could acquire a property that contains undisclosed defects in design or construction;
•an acquired property may be located in a new market where we may face risks associated with investing in an unfamiliar market;
•the market in which an acquired property is located may experience unexpected changes that adversely affect the property’s value;
•the occupancy of and rents from properties that we acquire may decline during our ownership;
•property operating costs for our acquired properties may be higher than anticipated, which may result in tenants that pay or reimburse us for those costs terminating their leases or our acquired properties not yielding expected returns; and
•we may acquire properties subject to unknown liabilities and without any recourse, or with limited recourse, such as liability for the cleanup of undisclosed environmental contamination or for claims by tenants, vendors or other persons related to actions taken by former owners of the properties; and
acquired properties might require significant management attention that would otherwise be devoted to our other business activities.
properties.
For these reasons, among others, we might not realize the anticipated benefits of our acquisitions, and our business plan to acquire additional properties may not succeed or may cause us to experience losses.
Future leases may require us to pay property operating costs.
While our properties are generally leased to tenants that are financially responsible to pay or reimburse us for all, or substantially all, increases in property level operating and maintenance expenses, many industrial and logistics properties do not utilize this lease structure. In the future, we may enter into new leases or acquire properties subject to leases that make us responsible for property level operating costs; and we may be adversely affected if such costs increase.
We face significant competition.
We face significant 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. We believe that the rapid growth in e-commerce sales, which has intensified as a result of the COVID-19 pandemic, will continue to result in strong demand and increase the competition for industrial real estate. Some of our competitors may have greater financial and other resources than us. Because of competition for acquisitions, we may be unable to acquire desirable properties or we may pay higher prices for, and realize lower net cash flows than we hope to achieve from, acquisitions.
We also face competition for tenants at our properties. Some competing properties may be newer, better located or more attractive to tenants. 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. Development activities may increase the supply of properties of the type we own in the leasing markets in which we own properties and increase the competition we face. Competition may make it difficult for us to attract and retain tenants and may reduce the rents we are able to charge.charge and the values of our properties.
OwnershipThe development of real estatenew industrial and logistics properties may exceed any increase in demand for such properties.
The continuing strong demand for industrial and logistics properties is subject to environmental risks.
Ownershipencouraging new development of real estate is subject to risks associated with environmental hazards. Wesuch properties. If the development of new industrial and logistics properties exceeds the increase in demand for such properties, our existing properties may be liableunable to successfully compete for environmental hazards at, or migrating from,tenants with newer developed buildings, our properties, including those created by prior owners or occupants, existing tenants, abutters or other persons. Various federalincome and state laws impose liabilities upon property owners, including us, for environmental damages arising at, or migrating from, owned properties, and we may be liable for the costs of environmental investigation and clean up at, or near, our properties. As an owner or previous owner of properties, we also may be liable to pay damages to government agencies or third parties for costs and damages they incur arising from environmental hazards at, or migrating from, our properties. The costs and damages that may arise from environmental hazards are often difficult to project and may be substantial.
In addition, we believe somevalue of our properties may contain asbestos. We believe any asbestos on our properties is contained in accordance with applicable laws and regulations, and we have no current plans to remove it. If we removed the asbestos or demolished the affected properties, certain environmental regulations govern the manner in which the asbestos must be handled and removed, and we could incur substantial costs complying with such regulations.
Environmental liabilities could adversely affect our financial condition and result in losses.
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. However, applicable law may make us subject to strict liability by virtue of our ownership interests. Also, our tenants may be unwilling or have insufficient financial resources to satisfy their indemnification obligations under our leases. Furthermore, such liabilities or obligations may affect the ability of some tenants to pay their rents to us. Further, in the Transaction Agreement, we have agreed to indemnify SIR for any environmental conditions at the properties SIR contributed to us in connection with the IPO.
We do not have any insurance to limit losses that we may incur as a result of known or unknown environmental conditions. As of December 31, 2017, we had reserved approximately $7.0 million for potential environmental liabilities arising at our properties. However, environmental exposures are difficult to assess and estimate for numerous reasons, including uncertainty about the extent of contamination, alternative treatment methods that may be applied, the location of the property which subjects it to differing local laws and regulations and their interpretations, as well as the time it may take to remediate contamination.
Ownership of real estate is subject to climate change risks.
Some observers believe severe weather in different parts of the world over the last few years is evidence of global climate change. Severe weather may have an adverse effect on certain properties we own. Rising sea levels could cause flooding at some of our properties, including some of our Hawaii Properties, which may have an adverse effect on individual properties we own. Also, the political debate about climate change has resulted in various treaties, laws and regulations that are intended to limit carbon emissions. These or future laws may cause operating costs at our properties to increase. Laws enacted to mitigate climate change may make some of our buildings obsolete or require us to make material investments in our properties which could materially and adversely affect our financial condition and results of operations and cause the value of our securities to decline.
Real estate ownership creates risks and liabilities.
In addition to the risks discussed above, our business is subject to other risks associated with real estate ownership, including:
the illiquid nature of real estate markets, which limits our ability to sell our assets rapidly to respond to changing market conditions;
the subjectivity of real estate valuations and changes in such valuations over time;
current and future adverse national real estate trends, including increasing vacancy rates, declining rental rates and general deterioration of market conditions;
costs that may be incurred relating to property maintenance and repair, and the need to make expenditures due to changes in government regulations; and
liabilities and litigations arising from injuries on our properties or otherwise incidental to the ownership of our properties.
We have debt and we may incur additional debt.
As of December 31, 2017,2020, our consolidated indebtedness was $799.4$650.0 million and our ratio of consolidated net debt to total gross assets (total assets plus accumulated depreciation) was 53.8%41.2%, and we had no availability$529 million available for borrowing under our $750.0 million revolving credit facility. The agreement governing our revolving credit facility, or our credit agreement, includes a feature under which the maximum borrowing availability may be increased to up to $1.5 billion in certain circumstances.
We are subject to numerous risks associated with our debt, including the risk that our cash flows could be insufficient for us to meetmake required payments on our debt. There are no limits in our organizational documents on the amount of debt we may incur, and we may incur substantial debt. Our debt obligations could have important consequences to our securityholders. Our incurringincurrence of debt may increase our vulnerability to adverse economic, market and industry conditions, limit our flexibility in planning for, or reacting to, changes in our business, and place us at a disadvantage in relation to competitors that have lower debt levels. Our incurrence of debt could also increase the costs to us of incurring additional debt, increase our exposure to floating interest rates or expose us to potential events of default (if not cured or waived) under covenants contained in debt instruments that could have a material adverse effect on our business, financial condition and operating results. Excessive debt could reduce the available cash flow to fund, or limit our ability to obtain financing for, working capital, capital expenditures, acquisitions,
construction projects, refinancing, lease obligations or other purposes and hinder our ability to obtain investment grade ratings from nationally recognized credit rating agencies or to make or sustain distributions to our shareholders.
If we default under any of our debt obligations, we may be in default under the agreements governing other debt obligations of ours which have cross default provisions, including our credit agreement. In such case, our lenders may demand immediate payment of any outstanding indebtedness and we could be forced to liquidate our assets for less than the values we would receive in a more orderly process.
We may fail to comply with the terms of the agreements governing our credit agreement,debt, which could adversely affect our business and may prevent our making distributions to our shareholders.
Our credit agreement includesThe agreements governing our debt include various conditions, covenants and events of default. We may not be able to satisfy all of these conditions or may default on some of these covenants for various reasons, including for reasons beyond our control. Complying with these covenants may limit our ability to take actions that may be beneficial to us and our securityholders.
For example, our credit agreement requires us to maintain certain debt service ratios. Our ability to comply with such covenants will depend upon the net rental income we receive from our properties. If the occupancy at our properties declines or if our rents decline, we may be unable to borrow under our revolving credit facility. Complying with these covenants may limit our ability to take actions that may be beneficial to us and our securityholders.
If we are unable to borrow under our revolving credit facility, we may be unable to meet our obligations or grow our business by acquiring additional properties. If we default under our revolving credit facility, our lenders may demand immediate payment and may elect not to fund future borrowings. During the continuance of any event of default under our credit agreement, we may be limited or in some cases prohibited from making distributions to our shareholders. Any default under our credit agreement that results in acceleration of our obligations to repay outstanding indebtedness or in our no longer being permitted to borrow under our revolving credit facility would likely have serious adverse consequences to us and would likely cause the value of our securities to decline.
Similarly, our secured debt agreements also contain financial and/or operating covenants, including, among other things, certain coverage ratios, as well as limitations on the ability to incur secured and unsecured debt. These covenants may limit our operational flexibility and acquisition and disposition activities. Moreover, if any of the covenants in these secured 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. As a result, covenants which limit our operational flexibility or a default under applicable debt covenants could have an adverse effect on our business, financial condition and results of operations.
In the future, we may obtain additional debt financing, and the covenants and conditions which apply to any such additional debt may be more restrictive than the covenants and conditions that are contained in the existing agreements governing our debt.
Secured indebtedness exposes us to the possibility of foreclosure, which could result in the loss of our investment in certain of our subsidiaries or in a property or group of properties or other assets that secure that indebtedness.
We currently have a $650.0 million mortgage loan secured by 186 of our properties, a $350.0 million mortgage loan secured by 11 properties that are owned by a joint venture in which we own a 22% equity interest, and a $57.0 million mortgage note that is secured by another property owned by such joint venture, subject to certain limitations. Incurring secured indebtedness, including mortgage indebtedness, increases our risk of asset and property losses because defaults on indebtedness secured by our assets may result in foreclosure actions initiated by lenders and ultimately our loss of the property or other assets securing any loans for which we are in default. Any foreclosure on a mortgaged property or group of properties could have a material adverse effect on the overall value of our portfolio of properties and more generally on us. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the indebtedness secured by the mortgage. If the outstanding balance of the indebtedness secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could materially and adversely affect us.
REIT distribution requirements and limitations on our ability to access reasonably priced capital may adversely impact our ability to carry out our business plan.
To maintain our qualification for taxation as a REIT under the IRC, we are required to satisfy distribution requirements imposed by the IRC. See “Material United States Federal Income Tax Considerations—REIT Qualification Requirements—Annual Distribution Requirements” included in Part I, Item 1 of this Annual Report on Form 10-K. Accordingly, we may not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties or fund our acquisitions or development or redevelopment efforts. Our business strategies therefore depend, in part, upon our ability to raise additional capital at reasonable costs. The volatility in the availability of capital to businesses on a global basis in most debt and equity markets generally may limit our ability to raise reasonably priced capital. We may also be unable to raise reasonably priced capital because of reasons related to our business, market perceptions of our prospects, the terms of our indebtedness, the extent of our leverage or for reasons beyond our control, such as market conditions. 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.
Changes in market interest rates, including changes that may result from the expected phase out of LIBOR, may adversely affect us.
Interest rates have remained at relatively low levels on a historical basis, and the U.S. Federal Reserve System, or the U.S. Federal Reserve, has indicated that it does not expect to raise interest rates in response to the COVID-19 pandemic and current market conditions until at least the end of 2023. There can be no assurance, however, that the U.S. Federal Reserve will not raise rates prior to that time. Low market interest rates, particularly if they remain over a sustained period, may increase our use of debt capital to fund property acquisitions, lower capitalization rates for property purchases and increase competition for property purchases, which may reduce our ability to acquire new properties.
In addition, as noted in Part II, Item 7A of this Annual Report on Form 10-K, LIBOR is currently expected to be phased out for new contracts by December 31, 2021 and for pre-existing contracts by June 30, 2023. The interest rate under our revolving credit facility is based on LIBOR and the interest we may pay on any future debt we may incur may also be based on LIBOR. We currently expect that the determination of interest under our revolving credit facility would be based on the alternative rates provided under our credit agreement.agreement or would be revised to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR. Despite our current expectations, we cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest under our credit agreement would approximate the current calculation in accordance with LIBOR. An alternative interest rate index that may replace LIBOR may result in our paying increased interest. Interest rate increases may materially and negatively affect us in several ways, including:
•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. If market interest rates go up, 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. Sales of our common shares may cause a decline in the value of our common shares.
•Amounts outstanding under our revolving credit facility require interest to be paid at floating interest rates. When interest rates increase, our interest costs will increase, which could adversely affect our cash flows, our ability to pay principal and interest on our debt, our cost of refinancing our fixed rate debts when they become due and our ability to make or sustain distributions to our shareholders. Additionally, if we choose to hedge our interest rate
risk, we cannot be sure that the hedge will be effective or that our hedging counterparty will meet its obligations to us.
•Property values are often determined, in part, based upon a capitalization of rental income formula. When market interest rates increase, property investors often demand higher capitalization rates and that causes property values to decline. Increases in interest rates could lower the value of our properties and cause the value of our securities to decline.
Ownership of real estate is subject to environmental risks and liabilities.
Ownership of real estate is subject to risks associated with environmental hazards. Under various laws, owners as well as tenants of real estate may be required to investigate and clean up or remove hazardous substances present at or migrating from properties they own, lease or operate and may be held liable for property damage or personal injuries that result from hazardous substances. These laws also expose us to the possibility that we may become liable to government agencies or third parties for costs and damages they incur in connection with hazardous substances. The costs and damages that may arise from environmental hazards may be substantial and are difficult to assess and estimate for numerous reasons, including uncertainty about the extent of contamination, alternative treatment methods that may be applied, the location of the property which subjects it to differing local laws and regulations and their interpretations, as well as the time it may take to remediate contamination. In addition, these laws also impose various requirements regarding the operation and maintenance of properties and recordkeeping and reporting requirements relating to environmental matters that require us or the tenants of our properties to incur costs to comply with. Further, the loan agreement governing our $650.0 million mortgage loan contains certain 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.
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. 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, 2020, we had reserved approximately $6.9 million for potential environmental liabilities arising at our properties. We may incur substantial liabilities and costs for environmental matters.
Ownership of real estate is subject to risks from adverse weather, natural disasters and climate events.
Severe weather may have an adverse effect on certain properties we own. Rising sea levels could cause flooding at some of our properties, including some of our Hawaii Properties, which may have an adverse effect on properties we own. When major weather, natural disasters or climate-related events, such as hurricanes, floods and wildfires, occur at or near our properties, our tenants may need to suspend operations of the impacted property until the event has ended and the property is then ready for operation. We or the tenants of our properties may incur significant costs and losses as a result of these activities, both in terms of operating, preparing and repairing our properties in anticipation of, during and after a severe weather, natural disaster or climate-related event and in terms of potential lost business due to the interruption in operating our properties. Our insurance and our tenants’ insurance may not adequately compensate us or them for these costs and losses.
Also, concerns about climate change have resulted in various treaties, laws and regulations that are intended to limit carbon emissions and address other environmental concerns. These and other laws may cause energy or other costs at our properties to increase. Laws enacted to mitigate climate change may make some of our properties obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants and their ability to pay rent to us and cause the value of our properties to decline. In addition, concerns about climate change and increasing storm intensities may increase the cost of insurance for our properties or potentially render it unavailable to obtain.
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.
We are currently party to a joint venture, and we may in the future sell or contribute additional properties or acquire, develop or recapitalize properties to or in this joint venture or other joint ventures that we may enter. Our participation in our existing joint venture is subject to risks, including the following:
•we share approval rights over major decisions affecting the ownership or operation of the joint venture and any property owned by the joint venture;
•we may need to contribute additional capital in order to preserve, maintain or grow the joint venture and its investments;
•our 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 the properties owned by the joint venture or maintain our or the joint venture’s qualification for taxation as a REIT;
•our 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;
•our ability to sell our interest in, or sell additional properties to, the joint venture or the joint venture’s ability to sell additional interests of, or properties owned by, the joint venture 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 venture; and
•disagreements with our joint venture investors could result in litigation or arbitration that could be expensive and distracting to management and could delay important decisions.
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 that we may enter into.
Insurance may not adequately cover our losses.
losses, and insurance costs may continue to increase.
The tenants at our properties are generally responsible for the costs of insurance, including for casualty, liability, fire, extended coverage and rental or business interruption loss insurance. In the future, we may acquire properties for which we are responsible for the costs of insurance. In the past few years, the costs of insurance have increased significantly, and these increased costs have had an adverse effect on us and our tenants. Increased insurance costs may adversely affect our tenants’ abilities to pay us rent or result in downward pressure on rents we can charge under new or renewed leases. 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, including the COVID-19 pandemic, or losses from 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. Insurance proceeds may not be adequate to restore an affected property to its condition prior to a loss or to compensate us for our losses, including the loss of future revenues from an affected property. Similarly, our other insurance, including our general liability insurance, mightmay not provide adequate insurance to cover our losses.
In addition, we do not have any insurance to limit losses that we may incur as a result of known or unknown environmental conditions. Further, we cannot be sure that certain types of risks that are currently insurable will continue to be insurable on an economically feasible basis, and we may discontinue, or agree to our tenants discontinuing, certain insurance coverage on some or all of our properties in the future if we determine that the cost of premiums for any of these policies exceeds the value of the coverage. If 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 those 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. We might also remain obligated for any financial obligations related to the property, even if the property is irreparably damaged. In addition, future changes in the insurance industry’s risk assessment approach and pricing structure could further increase the cost of insuring our properties or decrease the scope of insurance coverage, either of which could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our shareholders.
Real estate construction and redevelopment creates risks.
We may develop new properties or redevelop some of our existing properties as the existing leases expire, as our tenants’ needs change or to pursue any other opportunities that we believe are desirable. The development and redevelopment of new and existing buildings involves significant risks in addition to those involved in the ownership and operation of leased properties, including the risks that construction may not be completed on schedule or within budget, resulting in increased construction costs and delays in leasing such properties and generating cash flows. Development activities are also subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land use, building, occupancy, and other required government permits and authorizations. Once completed, any new properties may perform below anticipated financial results. The occurrence of one or more of these circumstances in connection with our development or redevelopment activities could have an adverse effect on our financial condition, results of operations and the valuevalues of our securities.properties.
We may incur significant costs complying with the Americans with Disabilities Act and similar laws.
Our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or our internal control over financial reporting.
The design and effectiveness of our disclosure controls and procedures and our internal control over financial reporting may not prevent all errors, misstatements or misrepresentations. There can be no guarantee that our disclosure controls and procedures and internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weaknesses, in our disclosure controls and procedures or internal control over financial reporting could result in misstatements of our results of operations or our financial statements or could otherwise materially and adversely affect our business, reputation, results of operations, financial condition or liquidity.
RMR LLC relies on information technology and systems in its operations,provision of services to us, and any material failure, inadequacy, interruption or security failure of that technology or those systems could materially and adversely affect us.
RMR LLC 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 maintenance of records, which may include personal identifying information of employees and tenants and lease data. If RMR LLC experiencesthese systems experience material security or other failures, inadequacies or interruptions of its information technology, itwe could incur material costs and losses and our operations could be disrupted as a result. Further, third party vendors could experience similar events with respect to their information technology and systems that impact the products and services they provide to RMR LLC or us. RMR LLC relies on commercially available systems, software, tools and monitoring, as well as its internally developed applications and internal procedures and personnel, to provide security for processing, transmitting, storing and safeguarding confidential tenant, customer and vendor information, such as personally identifiable information related to its employees and others and information regarding its and our financial accounts. RMR LLC takes various actions, and incurs significant costs, to maintain and protect the operation and security of its information technology and systems, including the data maintained in those systems. However, it is possible that these measures will not prevent the systems’ improper functioning or a compromise in security, such as in the event of a cyberattack or the improper disclosure of personally identifiable information.
Security breaches, computer viruses, attacks by hackers, online fraud schemes and similar breaches can create significant system disruptions, shutdowns, fraudulent transfer of assets or unauthorized disclosure of confidential information. For example, in June 2017, RMR LLC became aware that it had been a victim of criminal fraud in which a person pretending to be a representative of a seller in a property acquisition transaction provided fraudulent money wire instructions that caused money to be wire transferred to an account that was believed to be, but was not, the seller’s account. We were not involved in that transaction and we did not incur any loss from that transaction; however, there may be a risk that similar fraudulent activities could be attempted against us, RMR LLC or others with respect to our assets. TheOur cybersecurity risks to RMR LLC, us and third party vendors are heightened by, among other things, the evolving nature of the threats faced, advances in computer capabilities, new discoveries in the field of cryptography and new and increasingly sophisticated methods used to perpetrate illegal or fraudulent activities, against RMR LLC, including cyberattacks, email or wire fraud and other attacks exploiting security vulnerabilities in RMR LLC’s or other third parties’ information technology networks and systems or operations. Any failure to maintain the security, proper function and availability of RMR LLC’s information technology and systems, or certain third party vendors’ failure to similarly protect their information technology and systems that are relevant to RMR LLC’s or our operations, or to safeguard RMR LLC’s or our business processes, assets and information could result in financial losses, interrupt RMR LLC’sour operations, damage RMR LLC’sour reputation, cause RMR LLCus to be in default of material contracts and subject RMR LLCus to liability claims or regulatory penalties. Any or allpenalties, any of the foregoingwhich could materially and adversely affect our business and the value of our securities.
The reduced disclosure requirements applicable to us as an “emerging growth company” may make our common shares less attractive to investors.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we may avail ourselves of certain exemptions from various reporting requirements of public companies that are not “emerging growth companies,” including, but not limited to, an exemption from complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirement of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We may remain an emerging growth company for up to five full fiscal years following the IPO. If some investors find our common shares less attractive as a result of the exemptions available to us as an emerging growth company, there may be a less active trading market for our common shares, and the trading price of our common shares may be more volatile than that of an otherwise
comparable company that does not avail itself of the same or similar exemptions. We cannot predict if investors will find our common shares less attractive because we rely on the JOBS Act exemptions.
Changes in lease accounting standards may materially and adversely affect us.
The Financial Accounting Standards Board adopted new accounting rules to be effective for fiscal years ending after December 2018, which will require companies to capitalize substantially all leases on their balance sheets by recognizing a lessee’s rights and obligations. When the final rules are effective, many companies that account for certain leases on an “off balance sheet” basis will be required to account for such leases “on balance sheet.” This change will remove many of the differences in the way companies account for owned property and leased property and could have a material effect on various aspects of our tenants’ businesses, including the appearance of their credit quality and other factors they consider in deciding whether to own or lease properties. When the rules are effective, or as the effective date approaches, these rules could cause companies that lease properties to prefer shorter lease terms in an effort to reduce the leasing liability required to be recorded on their balance sheets or some companies may decide to prefer property ownership to leasing. Such decisions by our current or prospective tenants may adversely impact our business and the value of our securities.
Risks Related to Our Relationships with SIR, RMR Inc. and RMR LLC
SIR owns 69.2% of our common shares. As a result, investors in our securities will have less influence over our business than shareholders of most other publicly owned companies.
As of the date of this Annual Report on Form 10-K, SIR owned 69.2% of our outstanding common shares. For as long as SIR retains a significant ownership of our common shares, SIR may be able to elect all of the members of our Board of Trustees, including our Independent Trustees, and may effectively control the outcome of all shareholder actions and, through our Board of Trustees, determinations with respect to our management, business plans and policies, including:
our acquisition or disposition of assets, financing activities and plans, capital structure, distributions on our common shares, corporate policies and the appointment and removal of our officers, among others;
determinations with respect to mergers and other business combinations; and
the number of common shares available for issuance under our equity compensation plan.
SIR’s majority ownership in us may discourage transactions involving a change of control of us, including transactions in which holders of our common shares might otherwise receive a premium for their common shares over the then current market price.
SIR’s sale of some or all of its ownership stake in us, acquisition of additional shares of us and speculation about any such possible transactions may adversely affect the market price of our common shares.
After July 10, 2018, SIR will not be prohibited from selling some or all of our common shares it owns or purchasing additional common shares of ours, subject to applicable requirements of the federal securities laws. Speculation by the press, stock analysts, our shareholders or others regarding SIR’s intention with respect to its investment in us could adversely affect the market price of our common shares. So long as SIR continues to retain significant ownership in us, the market price of our common shares may be adversely impacted.
We are dependent upon RMR LLC to manage our business and implement our growth strategy.
We have no employees. Personnel and services that we require are provided to us by RMR LLC pursuant to our management agreements with RMR LLC. Our ability to achieve our business objectives depends on RMR LLC and its ability to effectively manage our properties, to appropriately identify and complete our acquisitions and dispositions and to execute our growth strategy. Accordingly, our business is dependent upon RMR LLC’s business contacts, its ability to successfully hire, train, supervise and manage its personnel and its ability to maintain its operating systems. If we lose the services provided by RMR LLC or its key personnel, our business and growth prospects may decline. We may be unable to duplicate the quality and depth of management available to us by becoming internally managed or by hiring another manager. In the event RMR LLC 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 LLC under our management agreements, and as a result our expenses may increase.
Our management structure and agreements and relationships with SIR and RMR LLC and RMR LLC’s and its controlling shareholder’s relationships with others may create conflicts of interest, or the appearance of such conflicts, and may restricthas broad discretion in operating our investment activities.
day to day business.
Our manager, RMR LLC, is authorized to follow broad operating and investment guidelines and, therefore, has discretion in determiningidentifying the properties that will be appropriate investments for us, as well as our individual operating and investment decisions. Our Board of Trustees periodically reviews our operating and investment guidelines and our operating activities and investments but it does not review or approve each decision made by RMR LLC on our behalf. In addition, in conducting periodic reviews, our Board of Trustees relies primarily on information provided to it by RMR LLC. RMR LLC may exercise its discretion in a manner that results in investment returns that are substantially below expectations or that results in losses.
Our management structure and agreements and relationships with RMR LLC and RMR LLC’s and its controlling shareholder’s relationships with others may create conflicts of interest, or the perception of such conflicts, and may restrict our investment activities.
RMR LLC is a majority ownedmajority-owned subsidiary of RMR Inc. ABP Trust is the controlling shareholderThe Chair of RMR Inc. Oneour Board of Trustees and one of our Managing Trustees, Adam Portnoy, is the sole trustee of, and owns beneficial interest in, ABP Trust. Our former Managing Trustee, Barry Portnoy, served as a trustee and owned a majority of the beneficial interest in ABP Trust until his death on February 25, 2018. Adam Portnoy is a managing director and an officer and, as the sole trustee of ABP Trust, is the controlling shareholder of RMR Inc. and is ana managing director and the president and chief executive officer of RMR LLC. Adam Portnoy, as the sole trustee of ABP Trust, beneficially owns all the class A membership unitsInc. and an officer and employee of RMR LLC not owned by RMR Inc.LLC. RMR LLC or its subsidiariessubsidiary also actacts as the manager for SIR andto four other Nasdaq listed REITs: GOV,OPI, which primarily owns office properties that are majority leased to governmentsingle tenants and office properties in the metropolitan Washington, D.C. market area that may also be leased to private sectorhigh credit quality tenants, including government tenants; HPT, which owns hotels and travel centers; SNH,DHC, which primarily owns healthcare, senior living properties andcommunities, medical office buildings;and life science buildings and other healthcare related properties; SVC, which owns a diverse portfolio of hotels and net lease service and necessity-based retail properties; and TRMT, which primarily originatesfocuses on originating and investsinvesting in first mortgage whole loans secured by middle market and transitional commercial real estate. RMR LLC or its subsidiaries also provideprovides services to other publicly and privately owned companies, including: Five Star, which operates senior living communities;communities and provides rehabilitation and wellness services; TA, which operates and franchises travel centers, convenience storesstandalone truck service facilities and restaurants; and Sonesta, which operates, manages and franchises hotels, resorts and cruise ships. An affiliateboats. A subsidiary of RMR LLC is an investment adviser to the RMR Real Estate Income Fund, or RIF,RMRM, which recently converted from a closed endregistered investment company listed onto a publicly traded mortgage REIT. Mr. Portnoy serves as chair of the NYSE American, which primarily invests in securitiesboard of REITs that are nottrustees or board of directors, as applicable, of DHC, OPI, SVC, Five Star and TA and as managing director, managing trustee, director or trustee, as applicable, of the companies managed by RMR LLC.LLC or its subsidiaries.
Each ofJohn Murray, our executive officers is also an officer of RMR LLC, including one of our currentother Managing TrusteesTrustee and our President and Chief Executive Officer, Richard Siedel, Jr., our Chief Financial Officer and Treasurer, and Yael Duffy, our Vice President and Chief Operating Officer, John Popeo, whoare also officers and employees of RMR LLC. Mr. Murray is also a managing trustee and the president and chief executive officer of SVC and Mr. Siedel is also the chief financial officer and treasurer of SIR. Because our executive officersDHC. Messrs. Murray and Siedel and Ms. Duffy have duties to RMR LLC, and John PopeoMr. Murray has duties to SIR,SVC and Mr. Siedel has duties to DHC, as well as to us, and we do not have their undivided attention. They and other RMR LLC personnel may have conflicts in allocating their time and resources between us and RMR LLC and other companies to which RMR LLC providesor its subsidiaries provide services. OurSome of our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR LLC or its subsidiaries provide management services.
In addition, we may in the future enter into additional transactions with RMR LLC, its affiliates or entities managed by it or its subsidiaries. In addition to theirhis investments in RMR Inc. and RMR LLC, our current and former Managing Trustees holdAdam Portnoy holds equity investments in other companies to which RMR LLC or its subsidiaries provide management services and some of these companies including us, have significant cross ownership interests, including, for example: as of February 23, 2018, AdamDecember 31, 2020, Mr. Portnoy onebeneficially owned, in aggregate, 1.2% of our current Managing Trustees, and Barry Portnoy, our former Managing Trustee, owned, directly or indirectly, in aggregate 36.4%outstanding common shares, 6.3% of Five Star’s outstanding common stock 1.8%(including through ABP Trust), 1.5% of GOV’sOPI’s outstanding common shares, 1.5%1.1% of HPT’sDHC’s outstanding common shares, 1.9%2.3% of SIR’sRMRM’s outstanding common shares, 1.3%1.1% of SNH’sSVC’s outstanding common shares, and 10.7% of RIF’s outstanding common shares; SIR owns 69.2% of our outstanding common shares; GOV owns 27.8% of SIR’s outstanding common shares; HPT owns 8.6%4.5% of TA’s outstanding common shares; SNH owns 8.4% of Five Star’s outstanding common stock;shares (including through RMR LLC) and Tremont Realty Advisors LLC, a wholly owned subsidiary of RMR LLC, owns 19.2%19.4% of TRMT’s outstanding common shares.shares (including through Tremont Realty Advisors LLC). Our executive officers may also own equity investments in other companies to which RMR LLC or its subsidiaries provide management services. These multiple responsibilities, relationships and cross ownerships could create competition for the time and efforts of RMR LLC, our Managing Trustees and other RMR LLC personnel, including our executive officers, andmay give rise to conflicts of interest or the appearanceperception of such conflicts of interest with respect to matters involving us, RMR Inc., RMR LLC, our Managing Trustees, the other companies to which RMR LLC or its subsidiaries provide management services and their related parties. Conflicts of interest or the appearanceperception of conflicts of interest could have a material adverse impact on our reputation, business and the market price of our common shares and other securities and we may be subject to increased risk of litigation as a result.
In our management agreements with RMR LLC, we acknowledge that RMR LLC may engage in other activities or businesses and act as the manager to any other person or entity (including other REITs) even though such person or entity has investment policies and objectives similar to our policies and objectives and we are not entitled to preferential treatment in receiving information, recommendations and other services from RMR LLC. Accordingly, we may lose investment opportunities to, and may compete for tenants with, other businesses managed by RMR LLC or its subsidiaries.subsidiaries, including our existing joint venture. We cannot be sure that our Code of Conduct or our Governance Guidelines,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.
Our management agreements with RMR LLC were not negotiated on an arm’s length basis and their fee and expense structure may not create proper incentives for RMR LLC, which may increase the risk of an investment in our common shares.
As a result of our relationships with RMR LLC and its current and former controlling shareholder(s), our management agreements with RMR LLC were not negotiated on an arm’s length basis between unrelated parties, and therefore, while such agreements were negotiated with the use of a special committee and disinterested Trustees, the terms, including the fees payable to RMR LLC, may not be as favorable to us as they would have been if they were negotiated on an arm’s length basis between unrelated parties. 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 LLC, and our base business management fee is calculated based upon the lower of the historical costcosts of our real estate investments and our market capitalization. We pay RMR LLC substantial base management fees regardless of our financial results. These fee arrangements could incentivize RMR LLC to pursue acquisitions, capital transactions, tenancies and construction projects or to avoid disposing of our assets in order to increase or maintain its management fees.fees and might reduce RMR LLC’s incentive to devote its time and effort to seeking investments that provide attractive returns for us. If we do not effectively manage our investment, disposition and capital transactions and leasing, construction and other property management activities, we may pay increased management fees without proportional benefits to us. In addition, we payare obligated under our management agreements to reimburse RMR LLC substantial base management fees regardlessfor employment and related expenses of our financial results. RMR LLC’s entitlementemployees assigned to a base management fee mightwork exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR LLC’s centralized accounting personnel and our share of RMR LLC’s costs for providing our internal audit function. We are also required to pay for third party costs incurred with respect to us. Our obligation to reimburse RMR LLC for certain of its costs and to pay third party costs may reduce itsRMR LLC’s incentive to devote its time and effort to seeking investments that provide attractive returns for us.
efficiently manage those costs, which may increase our costs.
The termination of our management agreements with RMR LLC may require us to pay a substantial termination fee, including in the case of a termination for unsatisfactory performance, which may limit our ability to end our relationship with RMR LLC.
The terms of our management agreements with RMR LLC automatically extend on December 31st31 of each year so that such terms thereafter end on the 20th anniversary of the date of the extension. We have the right to terminate these agreements: (1) at any time on 60 days’ written notice for convenience, (2) immediately upon written notice for cause, as defined in the agreements, (3) on written notice given within 60 days after the end of any applicable calendar year for a performance reason, as defined in the agreements, and (4) by written notice during the 12 months following a manager change of control, as defined in the agreements. However, if we terminate a management agreement for convenience, or if RMR LLC terminates a management agreement with us for good reason, as defined in such agreement, we are obligated to pay RMR LLC a termination fee in an amount equal to the sum of the present values of the monthly future fees, as defined in the applicable agreement, payable to RMR LLC for the thenterm that was remaining term,before such termination, which, depending on the time of termination, would be between 19 and 20 years. Additionally, if we terminate a management agreement for a performance reason, as defined in the agreement, we are obligated to pay RMR LLC the termination fee calculated as described above, but assuming a remaining term of 10 years. These provisions substantially increase the cost to us of terminating the management agreements without cause, which may limit our ability to end our relationship with RMR LLC as our manager. The payment of the termination fee could have a material adverse effect on our financial condition, including our ability to pay dividends to our shareholders.
Our management arrangements with RMR LLC may discourage a change of control of us.
Our management agreements with RMR LLC have continuing 20 year terms that renew annually. As noted in the preceding risk factor, if we terminate either of these management agreements other than for cause or upon a change of control of our manager, we are obligated to pay RMR LLC a substantial termination fee. For these reasons, our management agreements with RMR LLC may discourage a change of control of us, including a change of control which might result in payment of a premium for our common shares.
We are party to transactions with related parties that may increase the risk of allegations of conflicts of interest, and such allegations may impair our ability to realize the benefits we expect from these transactions.
We are party to transactions with related parties, including with entities controlled by Adam Portnoy or to which RMR LLC or its subsidiaries provide management services. Our agreements with related parties or in respect of transactions among related parties may not be on terms as favorable to us as they would have been if they had been negotiated among unrelated parties. We are subject to the risk that our shareholders or the shareholders of RMR Inc. or other related parties may challenge any such related party transactions and the agreements entered into as part of them. If such a challenge were to be successful, we might not realize the benefits expected from the transactions being challenged. 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.
We may be at an increased risk for dissident shareholder activities due to perceived conflicts of interest arising from our management structure and relationships.
InCompanies with business dealings with related persons and entities may more often be the past, in particular following periodstarget of volatility in the overall market or declines in the market price of a company’s securities, shareholder litigation, dissident shareholder trustee nominations, and dissident shareholder proposals have often been instituted against companiesand shareholder litigation alleging conflicts of interest in their business dealings with affiliated and related persons and entities.dealings. Our relationships with SIR, RMR Inc., RMR LLC, the other businesses and entitiescompanies to which RMR LLC or its subsidiaries provide management services, Adam Portnoy and other related persons of RMR LLC 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 Trustee nominees,incumbent Trustees, vote against our say on pay vote or other management proposals or vote for shareholder proposals that we oppose. These recommendations mayby 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 ourfuture Board of Trustees elections, and impact our governance, which may increase shareholder activism and litigation. These activities, if instituted against us, could result in substantial costs, and diversion of our management’s attention and could have a material adverse impact on our reputation and business.
Risks Related to Our Organization and Structure
We may change our operational, financing and investment policies without shareholder approval.
Our Board of Trustees determines our operational, financing and investment policies and may amend or revise our policies, including our policies with respect to our intention to remain qualified for taxation as a REIT, acquisitions, dispositions, growth, operations, indebtedness, capitalization and distributions, or approve transactions that deviate from these policies, without a vote of, or notice to, our shareholders. Policy changes could adversely affect the market price of our common shares and our ability to make distributions to our shareholders. Our Board of Trustees may alter or eliminate our current policy on borrowing at any time without shareholder approval. In addition, a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk.
Ownership limitations and certain provisions in our declaration of trust, bylaws and contracts,agreements, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals.
Our declaration of trust prohibits any shareholder, other than SIR and RMR LLC and theirits affiliates (as defined under Maryland law) and certain persons who have been exempted by our Board of Trustees, from owning, directly and by attribution, more than 9.8% of the number or value of shares (whichever is more restrictive) of any class or series of our outstanding shares of beneficial interest, including our common shares. This provision of our declaration of trust is intended to, among other purposes, assist with our REIT compliance under the IRC and otherwise promote our orderly governance. However, this provision may also inhibit acquisitions of a significant stake in us and may deter, delay or prevent a change in control of us or unsolicited acquisition proposals that a shareholder may consider favorable. 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:
•the current division of our Trustees into classes until our 2023 annual meeting of shareholders, with three classes remaining with terms expiring in 2021, 2022 and 2023, respectively (although effective at our 2021 annual meeting of shareholders, Trustees of the class of trustees whose term expires at that meeting or expires at a subsequent annual meeting of one classshareholders will be elected annually, with all of our Trustees being elected annually as of our 2023 annual meeting of shareholders, and with a majority of our current Trustees having terms expiring each year, which could delay a changeat our 2022 annual meeting of controlshareholders);
•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; and
•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.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.
As changes occur in the marketplace for corporate governance policies, the above provisions may change, be removed, or new ones may be added.
Our rights and the rights of our shareholders to take action against our Trustees and officers are limited.
Our declaration of trust limits the liability of our Trustees and officers to us and our shareholders for money damages to the maximum extent permitted under Maryland law. Under current Maryland law, our Trustees and officers will not have any liability to us and our shareholders for money damages other than liability resulting from:
•actual receipt of an improper benefit or profit in money, property or services; or
•active and deliberate dishonesty by the Trustee or officer that was established by a final judgment as being material to the cause of action adjudicated.
Our declaration of trust and indemnification agreements require us to indemnify any present or former Trustee or officer, to the maximum extent permitted by Maryland law, any present or former Trustee or officer who is made or threatened to be made a party to a proceeding by reason of his or her service in these and certain other capacities. In addition, we may be obligated to pay or reimburse the expenses incurred by our present and former Trustees and officers without requiring a preliminary determination of their ultimate entitlement to indemnification. As a result, we and our shareholders may have more limited rights against our present and former Trustees and officers than might otherwise exist absent the provisions in our declaration of trust and indemnification
agreements or that might exist with other companies, which could limit our shareholders'shareholders’ recourse in the event of actions not in their best interest.
Disputes with RMR LLC and shareholder litigation against us or our Trustees and officersOPI (as successor by merger to SIR) may be referred to bindingmandatory arbitration proceedings, which follow different procedures than in-court litigation and may be more restrictive to those asserting claims than in-court litigation.
Our contractsagreements with RMR LLC and OPI (as successor by merger to SIR) provide that any dispute arising under those contracts maythereunder will be referred to mandatory, binding and final arbitration proceedings. Similarly, our bylaws provide that certain actions by our shareholders against us or against our Trustees and officers, other than disputes,proceedings if we, or any portion thereof, regarding the meaning, interpretation or validity of any provision of our declaration of trust or bylaws, may be referredother party to binding arbitration proceedings.such dispute unilaterally so demands. As a result, we and our shareholders would not be able to pursue litigation in courtsstate or federal court against RMR LLC or our Trustees and officers for disputes referred to arbitration in accordance with our bylaws.OPI if we or any other parties against whom the claim is made unilaterally demands the matter be resolved by arbitration. 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 commencebring such a proceeding.litigation.
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 they deem favorable for disputes with us or our Trustees, officers, manager, agents or employees.
Our bylaws currently provide that unless the dispute has been referred to binding arbitration, the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for: (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim for breach of a duty owed by any Trustee, officer, manager, agent or employee of ours to us or our shareholders; (3) any action asserting a claim against us or any Trustee, officer, manager, agent or employee of ours arising pursuant to Maryland law, our declaration of trust or bylaws brought by or on behalf of a shareholder;shareholder, either on his, her or its own behalf, on our behalf or on behalf of any series or class of our shareholders or shareholders against us or any Trustee, officer, manager, agent or employee of ours, including any disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of our declaration of trust or bylaws; or (4) any action asserting a claim against us or any Trustee, officer, manager, agent or employee of ours that is governed by the internal affairs doctrine. OurThe exclusive forum provision of our bylaws currently also provide thatdoes not apply to any action for which the Circuit Court for Baltimore City, Maryland will be the sole anddoes not have jurisdiction. The exclusive forum for any dispute, or portion thereof, regarding the meaning, interpretation or validity of any provision of our declaration of trustbylaws does not establish exclusive jurisdiction in the Circuit Court for Baltimore City, Maryland for claims that arise under the Securities Act, the Exchange Act or bylaws.other federal securities laws if there is exclusive or concurrent jurisdiction in the federal courts. Any person or entity purchasing or otherwise acquiring or holding any interest in our shares of beneficial interest shall be deemed to have notice of and to have consented to these provisions of our bylaws, as they may be amended from time to time. These choiceThe exclusive forum provision of forum provisionsour 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, agents or employees, which may discourage lawsuits against us and our Trustees, officers, manager, agents or agents. employees.
We may change our operational, financing and investment policies without shareholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations.
Our Board of Trustees determines our operational, financing and investment policies and may amend or revise our policies, including our policies with respect to our intention to qualify for taxation as a REIT, acquisitions, dispositions, growth, operations, indebtedness, capitalization and distributions, or approve transactions that deviate from these policies, without a vote of, or notice to, our shareholders. Policy changes could adversely affect the market price of our common shares and our ability to make 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. If this policy changes, we could become more highly leveraged, which could result in an increase in our debt service costs. Higher leverage also increases the risk of default on our obligations. In addition, a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk.
Risks Related to Our Taxation
Our failure to qualify or to remain qualified for taxation as a REIT under the IRC could have significant adverse consequences.
We intend to elect and qualify for taxation as a REIT under the IRC commencing with our taxable year ending December 31, 2018 and to maintain that qualification thereafter. As a REIT, we generally willdo not pay federal or most state income taxes as long as we distribute all of our REIT taxable income and meet other qualifications set forth in the IRC. However, actual qualification for taxation as a REIT under the IRC depends on our satisfying complex statutory requirements, for which there are only limited judicial and administrative interpretations. We believe that we have been organized and have operated, and will continue to be organized and to operate, in a manner that qualified and will allow us to qualify and continue to qualify for
taxationus to be taxed as a REIT under the IRC, pending our timely election with our first REIT income tax return.IRC. However, we cannot be sure that the IRS, upon review or audit, will agree with this conclusion. Furthermore, we cannot be sure that the federal government, or any state or other taxation authority, will continue to afford favorable income tax treatment to REITs and their shareholders.
Maintaining our qualification for taxation as a REIT under the IRC will require us to continue to satisfy tests concerning, among other things, the nature of our assets, the sources of our income and the amounts we distribute to our shareholders. In order to meet these requirements, it may be necessary for us to sell or forgo attractive investments.
If we failcease to qualify or to remain qualified for taxation as a REIT under the IRC, then our ability to raise capital might be adversely affected, we will be in breach under our credit agreement, we may be subject to material amounts of federal and state income taxes, our cash available for distribution to our shareholders could be reduced, and the market price of our common shares could decline. In addition, if we lose or revoke our qualification for taxation as a REIT under the IRC for a taxable year, we will generally be prevented from requalifying for taxation as a REIT for the next four taxable years.
Distributions to shareholders generally will not qualify for reduced tax rates applicable to “qualified dividends.”
Dividends payable by U.S. corporations to noncorporate shareholders, such as individuals, trusts and estates, are generally eligible for reduced federal income tax rates applicable to “qualified dividends.” Distributions paid by REITs generally are not treated as “qualified dividends” under the IRC and the reduced rates applicable to such dividends do not generally apply. However, for tax years beginning before 2026, REIT dividends paid to noncorporate shareholders are generally taxed at an effective tax rate lower than applicable ordinary income tax rates due to the availability of a deduction under the IRC for specified forms of income from passthrough entities. 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 ability to execute our business plan.
shareholders.
We generally will be required tomust distribute annually at least 90% of our REIT taxable income, subject to specified adjustments and excluding any net capital gain, in order to maintain our qualification for taxation as a REIT under the IRC. To the extent that we satisfy this distribution requirement, federal corporate income tax will not apply to the earnings that we distribute, but if we distribute less than 100% of our REIT taxable income, then we will be subject to federal corporate income tax on our undistributed taxable income. We intend to make distributions to our shareholders to comply with the REIT requirements of the IRC. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our shareholders in a calendar year is less than a minimum amount specified under federal tax laws.
From time to time, we may generate taxable income greater than our income for financial reporting purposes prepared in accordance with U.S. generally accepted accounting principles, or GAAP, or differences in timing between the recognition of taxable income and the actual receipt of cash may occur. If we do not have other funds available in these situations, among other things, we may borrow funds on unfavorable terms, sell investments at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions in order to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our shareholders’ equity. Thus, compliance with the REIT distribution requirements may hinder our ability to grow, which could cause the market price of our common shares to decline.
Even if we qualify and remain qualified for taxation as a REIT under the IRC, we may face other tax liabilities that reduce our cash flow.
Even if we qualify and 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. Also, someour income tax expense could increase if jurisdictions may in the future limitwhich we hold property modified their income tax treatment of REITs, such as by limiting or eliminateeliminating favorable income tax deductions including(including the dividends paid deduction). In fact, in 2019 the Hawaii state legislature passed a bill that would have eliminated the dividends paid deduction which could increase our incomeafforded to REITs under Hawaii tax expense. laws and otherwise required REITs to either file a composite tax return or pay withholding tax attributable to distributions to non-Hawaii resident shareholders. While this bill was ultimately vetoed by the governor of Hawaii, similar legislation has been reintroduced in this year's legislative session.
In addition, in order to meet the requirements for qualification and taxation as a REIT under the IRC, prevent the recognition of particular types of non-cash income, or avert the imposition of a 100% tax that applies to specified gains derived by a REIT from dealer property or inventory, we may hold or dispose of some of our assets and conduct some of our operations through our TRSs or other subsidiary corporations that will be subject to corporate level income tax at regular rates. In addition, while we intend that our transactions with our TRSs will be conducted on arm’s length bases, we may be subject to a 100% excise tax on a transaction that the IRS or
a court determines was not conducted at arm’s length. Any of these taxes couldwould decrease our cash available for distribution to our shareholders.
Legislative or other actions affecting REITs could materially and adversely affect us and our shareholders.
The rules dealing with U.S. federal, state, and local taxation are constantly under review by persons involved in the legislative process and by the IRS, the U.S. Department of the Treasury, and other taxation authorities. Changes to the tax laws, with or without retroactive application, could materially and adversely affect us and our shareholders. 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 qualify or to remain qualified for taxation as a REIT or the tax consequences of such qualification.
In addition, December 2017 legislation has made substantial changes to the IRC. Among those changes are a significant permanent reduction in the generally applicable corporate income tax rate, changes in the taxation of individuals and other noncorporate taxpayers that generally reduce their taxes on a temporary basis subject to “sunset” provisions, the elimination or modification of various deductions (including substantial limitation of the deduction for personal state and local taxes imposed on individuals), and preferential taxation of income derived by individuals from passthrough entities in comparison to earnings received directly by individuals. This legislation also imposes additional limitations on the deduction of net operating losses, which may in the future cause us to make additional distributions that will be taxable to our shareholders to the extent of our current or accumulated earnings and profits in order to comply with the REIT distribution requirements. The effect of these and other changes made in this legislation is highly uncertain, both in terms of their direct effect on the taxation of an investment in our common shares and their indirect effect on the value of properties owned by us. Furthermore, many of the provisions of the new law will require the issuance of administrative guidance in order to assess their effect. There may be a substantial delay before such guidance is promulgated, increasing the uncertainty as to the ultimate effect of the statutory amendments on us or our shareholders. It is also possible that there will be technical corrections legislation proposed with respect to the new law, the effect of which cannot be predicted and may be adversequalification to us orand our shareholders.
Risks Related to Our Securities
Our distributions to our shareholders may decline.
be reduced or eliminated and the form of payment could change.
We intend to continue to make regular quarterly distributions to our shareholders. However:
•our ability to make or sustain the rate of distributions willmay be adversely affected if any of the risks described in this Annual Report on Form 10-K occur;occur, including any negative impact caused by the prolonged duration of the COVID-19 pandemic and its aftermath on our business, results of operations and liquidity;
•our making of distributions is subject to compliance with restrictions contained in the agreements governing our credit agreementdebt and may be subject to restrictions in future debt obligations we may incur; during the continuance of any event of default
under the agreements governing our debt, we may be limited or in some cases prohibited from making distributions to our shareholders; 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 our financial condition, our results of operations, our liquidity, our capital requirements, our FFO attributable to common shareholders, our Normalized FFO restrictive covenants inattributable to common shareholders, requirements to maintain our financial or other contractual arrangements, general economic conditions in the United States, including Hawaii, requirements of the IRC to qualifyqualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and restrictions underequity capital, our dividend yield and our dividend yield compared to the lawsdividend yields of Maryland.
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.
For these reasons, among others, our distribution rate may decline or we may cease making distributions to our shareholders.
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.
Changes in market conditions could adversely affect the value of our securities.
As with other publicly traded equity securities and REIT securities, the value of our common shares and other securities depends on various market conditions that are subject to change from time to time, including:
•the extent of investor interest in our securities;
•the general reputation of REITs and externally managed companies and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate based companies or by other issuers less sensitive to rises in interest rates;
•our underlying asset value;
•investor confidence in the stock and bond markets, generally;
•market interest rates;
•national economic conditions;
•changes in tax laws;
changes in our credit ratings; and
•general market conditions.conditions, including factors unrelated to our operating performance; and
•perception of our environmental, social and governance policies relative to other companies.
We believe that one of the factors that investors consider important in deciding whether to buy or sell equity securities of a REIT is the distribution rate, considered as a percentage of the price of the equity securities, relative to market interest rates. Interest rates have been at historically low levels for an extended period of time. There is a general market perception that REIT shares outperform in low interest rate environments and underperform in rising interest rate environments when compared to the broader market. Since December 2016,The U.S. Federal Reserve has indicated that it does not expect to raise interest rates in response to the COVID-19 pandemic and current market conditions until at least the end of 2023. There can be no assurance, however, that the U.S. Federal Reserve has raised its benchmarkwill not raise rates prior to that time. If the U.S. Federal Reserve increases interest rate by 125 basis points, and there are some market expectations that market interest rates will rise further in the near to intermediate term. If market interest rates continue to increase, or if there continues to beis a market expectation of such increases, prospective purchasers of REIT equity securities may want to achieve a higher distribution rate. Thus, higher market interest rates, or the expectation of higher interest rates, could cause the value of our securities to decline.
Further issuances of debt or equity securities may be dilutive to currentadversely affect our shareholders.
The interests ofAs a REIT, we generally will not be able to retain sufficient cash to fund our existing shareholders could be diluted if we issue additional equity securities to finance futureoperations, repay our debts, invest in our properties and fund acquisitions and development or to repay indebtedness. Ourredevelopment efforts, and therefore, our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, which may include secured and unsecured debt, and equity financing, which may include common and preferred shares. The interests of our existing shareholders could be diluted if we issue additional equity securities. In addition, if we decide in the future to issue debt or equity securities that rank senior to our common shares, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Also, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common shares and may result in further dilution to our shareholders. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or even estimate the amount, timing or nature of our future capital offerings. Thus, our shareholders will bear the risk of our future offerings reducing the market price of our common shares and diluting the value of their common shares.
Item 1B.Unresolved Staff Comments
None.
Item 2.Properties
As of December 31, 2017, we2020, our portfolio was comprised of 289 wholly owned 266 properties located in 2531 states containing approximately 28.534.9 million rentable square feet, including 226 buildings, leasable land parcels and easements located on the island of Oahu, HI containing approximately 16.8 million rentable square feet and 40 buildings63 properties located in 2430 other states throughout the continental United States containing approximately 11.718.1 million rentable square feet. Most of our Hawaii Properties are lands leased to industrial and commercial tenants, many of whomwhich own buildings and operate their businesses on our lands.
The following table provides certain information about our wholly owned properties as of December 31, 20172020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | Undepreciated | | Depreciated | | Annualized |
| | | | Number of | | Carrying | | Carrying | | Rental |
State | | | | Properties | | Value (1) | | Value (1) | | Revenues |
| | | | | | | | | | |
AR | | | | 1 | | $ | 4,385 | | | $ | 3,869 | | | $ | 474 | |
AZ | | | | 1 | | 65,922 | | | 64,546 | | | 4,886 | |
| | | | | | | | | | |
CO | | | | 5 | | 41,189 | | | 36,992 | | | 3,928 | |
CT | | | | 2 | | 16,363 | | | 13,516 | | | 1,853 | |
FL | | | | 2 | | 45,222 | | | 42,035 | | | 2,553 | |
| | | | | | | | | | |
HI | | | | 226 | | 633,647 | | | 612,257 | | | 105,341 | |
IA | | | | 3 | | 25,136 | | | 18,065 | | | 2,930 | |
ID | | | | 1 | | 5,037 | | | 4,387 | | | 396 | |
IL | | | | 2 | | 4,641 | | | 4,134 | | | 663 | |
IN | | | | 5 | | 98,669 | | | 93,791 | | | 9,482 | |
KS | | | | 1 | | 38,441 | | | 38,438 | | | 3,219 | |
KY | | | | 1 | | 11,274 | | | 10,695 | | | 898 | |
LA | | | | 2 | | 15,824 | | | 13,839 | | | 1,268 | |
| | | | | | | | | | |
MD | | | | 1 | | 76,521 | | | 65,874 | | | 6,140 | |
MI | | | | 1 | | 43,229 | | | 37,223 | | | 2,184 | |
MN | | | | 2 | | 26,990 | | | 25,368 | | | 2,647 | |
MO | | | | 3 | | 19,484 | | | 18,435 | | | 1,837 | |
NC | | | | 1 | | 2,014 | | | 1,790 | | | 251 | |
ND | | | | 1 | | 3,923 | | | 3,446 | | | 351 | |
NE | | | | 1 | | 11,106 | | | 9,826 | | | 1,264 | |
NH | | | | 1 | | 49,213 | | | 47,074 | | | 4,913 | |
NJ | | | | 2 | | 72,356 | | | 62,947 | | | 5,954 | |
NV | | | | 2 | | 36,648 | | | 33,230 | | | 2,798 | |
NY | | | | 2 | | 21,085 | | | 18,865 | | | 2,852 | |
OH | | | | 10 | | 138,749 | | | 122,384 | | | 13,008 | |
OK | | | | 1 | | 7,400 | | | 6,692 | | | 788 | |
| | | | | | | | | | |
SC | | | | 4 | | 121,139 | | | 106,173 | | | 9,688 | |
SD | | | | 1 | | 17,402 | | | 16,670 | | | 1,527 | |
TN | | | | 2 | | 76,117 | | | 66,171 | | | 6,485 | |
| | | | | | | | | | |
UT | | | | 1 | | 8,433 | | | 7,408 | | | 1,090 | |
VA | | | | 1 | | 71,511 | | | 61,524 | | | 6,255 | |
| | | | | | | | | | |
| | | | | | | | | | |
Total | | | | 289 | | $ | 1,809,070 | | | $ | 1,667,664 | | | $ | 207,923 | |
(1)Excludes the value of real estate related intangibles. |
| | | | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | Undepreciated | | Depreciated | | Annualized |
| | Number of | | Carrying | | Carrying | | Rental |
State | | Properties | | Value (1) | | Value (1) | | Revenues |
AR | | 1 |
| | $ | 4,385 |
| | $ | 4,131 |
| | $ | 465 |
|
CO | | 4 |
| | 28,690 |
| | 26,881 |
| | 2,810 |
|
CT | | 2 |
| | 15,513 |
| | 13,616 |
| | 1,787 |
|
FL | | 1 |
| | 1,895 |
| | 1,193 |
| | 259 |
|
HI | | 226 |
| | 629,992 |
| | 613,583 |
| | 93,441 |
|
IA | | 3 |
| | 42,029 |
| | 35,583 |
| | 4,161 |
|
ID | | 1 |
| | 4,746 |
| | 4,436 |
| | 370 |
|
IL | | 2 |
| | 4,402 |
| | 4,169 |
| | 615 |
|
LA | | 2 |
| | 15,818 |
| | 14,840 |
| | 1,396 |
|
MD | | 1 |
| | 76,328 |
| | 71,112 |
| | 5,863 |
|
MI | | 1 |
| | 43,229 |
| | 40,269 |
| | 2,184 |
|
MN | | 1 |
| | 2,237 |
| | 2,081 |
| | 183 |
|
MO | | 1 |
| | 2,059 |
| | 1,923 |
| | 189 |
|
NC | | 1 |
| | 2,014 |
| | 1,904 |
| | 199 |
|
ND | | 1 |
| | 3,923 |
| | 3,688 |
| | 310 |
|
NE | | 1 |
| | 10,718 |
| | 10,097 |
| | 1,094 |
|
NJ | | 2 |
| | 71,637 |
| | 66,989 |
| | 5,688 |
|
NV | | 1 |
| | 18,700 |
| | 17,415 |
| | 1,489 |
|
NY | | 1 |
| | 11,284 |
| | 10,534 |
| | 1,089 |
|
OH | | 5 |
| | 77,551 |
| | 69,182 |
| | 8,265 |
|
OK | | 1 |
| | 6,912 |
| | 6,716 |
| | 787 |
|
SC | | 2 |
| | 99,818 |
| | 92,971 |
| | 7,685 |
|
TN | | 2 |
| | 75,457 |
| | 70,600 |
| | 6,398 |
|
UT | | 1 |
| | 8,413 |
| | 7,909 |
| | 1,122 |
|
VA | | 2 |
| | 85,852 |
| | 77,166 |
| | 7,795 |
|
Total | | 266 |
| | $ | 1,343,602 |
| | $ | 1,268,988 |
| | $ | 155,644 |
|
| |
(1) | Excludes the value of real estate intangibles. |
At December 31, 2017, one2020, 186 of our properties located on the island of Oahu, HI with a net bookan aggregate undepreciated carrying value of $66.6$505.2 million had a secured mortgage note we assumedwere encumbered by mortgages totaling $650.0 million. For more information regarding our mortgages
and our unconsolidated joint venture, see Notes 3, 5 and 6 to the Notes to Consolidated Financial Statements included in connection with our acquisitionPart IV, Item 15 of the property. The aggregate principal amount outstanding under the mortgage note as of December 31, 2017 was $48.8 million. The mortgage note is non-recourse, subject to certain limited exceptions and does not contain any material financial covenants.this Annual Report on Form 10-K.
Item 3.Legal Proceedings
From time to time, we may become involved in litigation matters incidental to the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, we are currently not a party to any litigation which we expect to have a material adverse effect on our business.
Item 4.Mine Safety Disclosures
Not applicable.
PART II
| |
Item 5. | 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) beginning on January 12, 2018..
The closing price of our common shares on Nasdaq on March 27, 2018, was $20.87 per common share. As of March 27, 2018,February 15, 2021, there were seven1,965 shareholders of record of our common shares.shares, although there is a larger number of beneficial owners.
We currently intend to pay regular quarterly distributions to our shareholders. Our expected regular quarterly distribution rate is $0.33 per common share. We intend to pay a pro rata initial distribution with respect to the period commencing with the IPO and ending March 31, 2018. Our first regular distribution is expected to be for the period beginning on April 1, 2018 and ending on June 30, 2018. We intend to maintain this distribution rate for at least 12 months following the IPO unless our actual or anticipated results of operations, cash flows or financial position, economic or market conditions or other factors differ materially from the assumptions used in our estimate. However, 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 our financial condition, our results of operations, our liquidity, our capital requirements, our FFO, our Normalized FFO, restrictive covenants in our financial or other contractual arrangements, economic conditions, requirements in the IRC to qualify for taxation as a REIT, restrictions under Maryland law and our expected needs for availability of cash to pay our obligations. Therefore, we cannot be sure that we pay distributions in the future or that the amount of any distributions that we do pay will not decrease.
Item 6.Selected Financial Data[Reserved.]
The following table sets forth selected financial data for the periods and dates indicated. This data should be read in conjunction with, and is qualified in its entirety by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K. The operating information for the years ended December 31, 2017, 2016 and 2015, and the balance sheet information as of December 31, 2017, 2016 and 2015, have been derived from the financial statements of SIR, as such information was allocated to us in connection with the preparation of our financial statements included elsewhere in this Annual Report on Form 10-K. The selected financial data below does not necessarily reflect what our results of operations and financial position would have been if we had operated as a stand alone company during all periods presented, and should not be relied upon as an indicator of our future performance. Amounts are in thousands, except for per share data.
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Operating information: | | | | | | |
REVENUES: | | | | | | |
Rental income | | $ | 134,826 |
| | $ | 132,518 |
| | $ | 128,302 |
|
Tenant reimbursements and other income | | 21,680 |
| | 20,792 |
| | 19,589 |
|
Total revenues | | 156,506 |
| | 153,310 |
| | 147,891 |
|
| | | | | | |
EXPENSES: | | | | | | |
Real estate taxes | | 17,868 |
| | 17,204 |
| | 16,316 |
|
Other operating expenses | | 10,913 |
| | 10,593 |
| | 8,478 |
|
Depreciation and amortization | | 27,315 |
| | 27,074 |
| | 25,285 |
|
Acquisition and transaction related costs | | 1,025 |
| | 35 |
| | 15,291 |
|
General and administrative | | 16,799 |
| | 9,200 |
| | 8,745 |
|
Total expenses | | 73,920 |
| | 64,106 |
| | 74,115 |
|
| | | | | | |
Operating income | | 82,586 |
| | 89,204 |
| | 73,776 |
|
| | | | | | |
Interest expense | | (2,439 | ) | | (2,262 | ) | | (2,092 | ) |
Income before income tax expense | | 80,147 |
| | 86,942 |
| | 71,684 |
|
Income tax expense | | (44 | ) | | (44 | ) | | (44 | ) |
Net income | | $ | 80,103 |
| | $ | 86,898 |
| | $ | 71,640 |
|
| | | | | | |
Weighted average common shares outstanding—basic and diluted | | 45,000 |
| | 45,000 |
| | 45,000 |
|
| | | | | | |
Net income per common share—basic and diluted | | $ | 1.78 |
| | $ | 1.93 |
| | $ | 1.59 |
|
|
| | | | | | | | | | | | |
| | As of December 31, |
| | 2017 | | 2016 | | 2015 |
Balance sheet information: | | | | | | |
Total real estate investments (before depreciation) (1) | | $ | 1,343,602 |
| | $ | 1,336,728 |
| | $ | 1,335,363 |
|
Total assets | | $ | 1,411,683 |
| | $ | 1,422,335 |
| | $ | 1,443,217 |
|
Total indebtedness, net | | $ | 799,427 |
| | $ | 64,269 |
| | $ | 64,577 |
|
Total shareholder's equity | | $ | 562,208 |
| | $ | 1,313,185 |
| | $ | 1,334,170 |
|
| |
(1) | Excludes the value of real estate intangibles. |
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 elsewhere in Part IV, Item 5 of this Annual Report on Form 10-K.
OVERVIEW
We are a REIT organized under Maryland law. As of December 31, 2017, we2020, our portfolio was comprised of 289 wholly owned 266 properties withcontaining approximately 28.534.9 million rentable square feet, including 226 buildings, leasable land parcels and easements withcontaining approximately 16.8 million rentable square feet located on the island of Oahu, HI, and 40 buildings with63 properties containing approximately 11.718.1 million rentable square feet located in 2430 other states. As of December 31, 2017,2020, we also owned a 22% equity interest in an unconsolidated joint venture, which owns 12 properties located in nine states in the mainland United States containing approximately 9.2 million rentable square feet that were 100% leased with an average (by annualized rental revenues) remaining lease term of 7.1 years.
As of December 31, 2020, our properties were approximately 99.9%98.5% leased (based on rentable square feet) to 243253 different tenants with a weighted average remaining lease term (based on annualized rental revenues) of approximately 11.19.5 years.
The COVID-19 Pandemic
Property Operations
To date, the COVID-19 pandemic has not had a significant impact on our business as the industrial and logistics sector has fared better than some other industries thus far in response to the COVID-19 pandemic, including other real estate sectors, due to the demand for e-commerce. We believe that demand was initially supported in part by increased demand by businesses and households to stock up on supplies as the implications of the COVID-19 pandemic and resulting governmental responses materialized and e-commerce companies have benefited from the closure of certain retail consumer outlets since the beginning of the second quarter of 2020 and the continued increased market demand for e-commerce. We believe that our current financial resources, our portfolio of high-quality industrial and logistics assets and our strong credit quality tenants, will enable us to withstand the COVID-19 pandemic. However, as a result of the COVID-19 pandemic and its aftermath, certain of our tenants have requested relief from their obligations to pay rent due to us. We evaluate these requests on a tenant by tenant basis. As of February 15, 2021, we granted requests to certain of our tenants to defer aggregate rent payments of $3.2 million with respect to leases that represent, as of December 31, 2020, approximately 9.6% of our annualized rental revenues. As of December 31, 2017, 99.9%2020, we recognized $2.6 million in our accounts receivable related to the remaining deferred amounts. In most cases, these tenants were obligated to pay the deferred rents in 12 equal monthly installments beginning in September 2020. For the year ended December 31, 2020, we collected approximately 97.6% of our rentable square feet was leased, comparedcontractual rents due after giving effect to 99.2%such rent deferrals.
For more information and risks relating to the COVID-19 pandemic on us and our rentable square feet as of December 31, 2016. business, 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."
Property Operations
Occupancy data for our properties as of December 31, 20172020 and 20162019 is as follows (square feet in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | All Properties | | Comparable Properties (1) |
| | As of December 31, | | As of December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Total properties | | 289 | | | 300 | | | 266 | | | 266 | |
Total rentable square feet (2) | | 34,870 | | | 42,939 | | | 28,273 | | | 28,273 | |
Percent leased (3) | | 98.5 | % | | 99.3 | % | | 98.3 | % | | 98.9 | % |
(1)Consists of properties that we owned continuously since January 1, 2019 and excludes 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.
(2)Subject to modest adjustments when space is remeasured or reconfigured for new tenants and when land leases are converted to building leases. |
| | | | | | |
| | All Properties |
| | As of December 31, |
| | 2017 | | 2016 |
Total properties | | 266 |
| | 266 |
|
Total rentable square feet (1) | | 28,540 |
| | 28,505 |
|
Percent leased (2) | | 99.9 | % | | 99.2 | % |
| |
(1) | Subject to modest adjustments when space is re-measured or re-configured for new tenants and when land leases are converted to building leases. |
| |
(2) | Percent leased includes (a) space being fitted out for occupancy pursuant to existing leases as of December 31, 2017, if any, and (b) space which is leased but is not occupied or is being offered for sublease by tenants, if any. |
(3)Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of December 31, 2020, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.
The average annualized effective rental rates per square foot, as defined below, for our properties for the years ended December 31, 20172020 and 20162019 are as follows:
| | | | | | | | | | | | | | |
| | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 |
Average effective rental rates per square foot leased: (1) | | | | |
All properties | | $ | 6.06 | | | $ | 5.83 | |
Comparable properties (2) | | $ | 6.23 | | | $ | 5.92 | |
(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. |
| | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 |
Average annualized effective rental rates per square foot leased (1) | | $ | 5.52 |
| | $ | 5.42 |
|
| |
(1) | Average annualized effective rental rates per square foot leased represents total revenues during the period specified divided by the average rentable square feet leased during the period specified. |
(2)Consists of properties that we owned continuously since January 1, 2019 and excludes 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.
During the year ended December 31, 2017,2020, excluding 12 properties owned by our unconsolidated joint venture, we entered lease renewalsnew and newrenewal leases for approximately 963,0001.1 million square feet at weighted average (by square feet) rental rates (per square foot) that were approximately 17.6%14.7% higher than prior rates for the same land area or building area (with leasing rate increases for vacant space based upon the most recent rental rate for the same space). Consolidated portfolio occupancy during this annual period increased from 99.2% as of December 31, 2016 to 99.9% as of December 31, 2017. The weighted average (by square feet) lease term per square foot for leases that were in effect for the same land area or building area during the prior lease term, which included commencement dates beginning in December 2003, was 13.611.4 years. Commitments for tenant improvements, leasing costs and concessions for leases entered during the year ended December 31, 20172020 totaled $1.3$2.1 million, or $0.10approximately $0.17 per square foot per year of the new weighted average lease term. Also, during the year ended December 31, 2017,2020, we completed six rent resets for approximately 1.9 million square feet of land at our Hawaii Properties for approximately 306,000 square feet of land, at rental rates that were approximately 41.5%20.1% higher than the prior rental rates.
As shown in the table below, approximately 1.2% of our total rented square feet and approximately 1.0%1.4% of our total annualized rental revenues as of December 31, 20172020 are included in leases scheduled to expire by December 31, 2018.2021. As of December 31, 2017,2020, our lease expirations by year are as follows (dollars and square feet in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | % of | | Cumulative |
| | | | | | % of Total | | Cumulative % | | | | Annualized | | % of |
| | | | Rented | | Rented | | of Total Rented | | 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 |
2021 | | 26 | | | 426 | | | 1.2 | % | | 1.2 | % | | $ | 2,935 | | | 1.4 | % | | 1.4 | % |
2022 | | 63 | | | 2,848 | | | 8.3 | % | | 9.5 | % | | 20,276 | | | 9.8 | % | | 11.2 | % |
2023 | | 29 | | | 2,538 | | | 7.4 | % | | 16.9 | % | | 16,446 | | | 7.9 | % | | 19.1 | % |
2024 | | 28 | | | 6,742 | | | 19.6 | % | | 36.5 | % | | 28,117 | | | 13.5 | % | | 32.6 | % |
2025 | | 14 | | | 2,318 | | | 6.8 | % | | 43.3 | % | | 12,910 | | | 6.2 | % | | 38.8 | % |
2026 | | 6 | | | 969 | | | 2.8 | % | | 46.1 | % | | 6,910 | | | 3.3 | % | | 42.1 | % |
2027 | | 11 | | | 4,578 | | | 13.3 | % | | 59.4 | % | | 24,445 | | | 11.8 | % | | 53.9 | % |
2028 | | 19 | | | 2,568 | | | 7.5 | % | | 66.9 | % | | 18,840 | | | 9.1 | % | | 63.0 | % |
2029 | | 8 | | | 1,697 | | | 4.9 | % | | 71.8 | % | | 5,393 | | | 2.6 | % | | 65.6 | % |
2030 | | 9 | | | 1,232 | | | 3.6 | % | | 75.4 | % | | 9,400 | | | 4.5 | % | | 70.1 | % |
Thereafter | | 76 | | | 8,422 | | | 24.6 | % | | 100.0 | % | | 62,251 | | | 29.9 | % | | 100.0 | % |
Total | | 289 | | | 34,338 | | | 100.0 | % | | | | $ | 207,923 | | | 100.0 | % | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Weighted average remaining lease term (in years) | 8.4 | | | | | | | 9.5 | | | | | |
(1)Rented square feet is pursuant to existing leases as of December 31, 2020, 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.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Cumulative |
| | | | | | % of Total | | Cumulative % | | Annualized | | % of | | % of |
| | | | Rented | | Rented | | of Total Rented | | Rental | | Annualized | | Annualized |
| | Number of | | Square Feet | | Square Feet | | Square Feet | | Revenues | | Rental Revenues | | Rental Revenues |
Year | | Tenants | | Expiring (1) | | Expiring (1) | | Expiring (1) | | Expiring | | Expiring | | Expiring |
2018 | | 19 |
| | 332 |
| | 1.2 | % | | 1.2 | % | | $ | 1,519 |
| | 1.0 | % | | 1.0 | % |
2019 | | 16 |
| | 1,534 |
| | 5.4 | % | | 6.6 | % | | 4,432 |
| | 2.8 | % | | 3.8 | % |
2020 | | 19 |
| | 849 |
| | 3.0 | % | | 9.6 | % | | 4,293 |
| | 2.8 | % | | 6.6 | % |
2021 | | 18 |
| | 1,207 |
| | 4.2 | % | | 13.8 | % | | 6,798 |
| | 4.4 | % | | 11.0 | % |
2022 | | 63 |
| | 2,762 |
| | 9.7 | % | | 23.5 | % | | 20,866 |
| | 13.4 | % | | 24.4 | % |
2023 | | 18 |
| | 1,538 |
| | 5.4 | % | | 28.9 | % | | 11,609 |
| | 7.5 | % | | 31.9 | % |
2024 | | 12 |
| | 4,750 |
| | 16.6 | % | | 45.5 | % | | 15,668 |
| | 10.1 | % | | 42.0 | % |
2025 | | 10 |
| | 623 |
| | 2.2 | % | | 47.7 | % | | 3,088 |
| | 2.0 | % | | 44.0 | % |
2026 | | 3 |
| | 637 |
| | 2.2 | % | | 49.9 | % | | 3,502 |
| | 2.2 | % | | 46.2 | % |
2027 | | 10 |
| | 4,881 |
| | 17.1 | % | | 67.0 | % | | 23,820 |
| | 15.3 | % | | 61.5 | % |
Thereafter | | 81 |
| | 9,420 |
| | 33.0 | % | | 100.0 | % | | 60,049 |
| | 38.5 | % | | 100.0 | % |
Total | | 269 |
| | 28,533 |
| | 100.0 | % | | | | $ | 155,644 |
| | 100.0 | % | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Weighted average remaining lease term (in years) | 10.4 |
| | | | | | 11.1 |
| | | | |
| |
(1) | Rented square feet is pursuant to existing leases as of December 31, 2017, 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. |
We generally receive rents from our tenants monthly in advance. As of December 31, 2017,2020, tenants representing 1% or more of our total annualized rental revenues were as follows (square feet in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | % of Total | | % of Total |
| | | | | No. of | | Rented | | Rented | | Annualized Rental |
| | | States | | Properties | | Sq. Ft. (1) | | Sq. Ft. (1) | | Revenues |
1 | Amazon.com Services, Inc. | | | AZ, SC, TN, VA | | 4 | | 3,869 | | | 11.3 | % | | 10.0 | % |
2 | Federal Express Corporation / FedEx Ground Package System, Inc. | | | AR, CO, HI, IA, ID, IL, MN, MO, NC, ND, NV, OH, OK, UT | | 17 | | 952 | | | 2.8 | % | | 4.6 | % |
3 | Restoration Hardware, Inc. | | | MD | | 1 | | 1,195 | | | 3.5 | % | | 3.0 | % |
4 | American Tire Distributors, Inc. | | | CO, LA, NE, NY, OH | | 5 | | 722 | | | 2.1 | % | | 2.5 | % |
5 | Servco Pacific Inc. | | | HI | | 6 | | 590 | | | 1.7 | % | | 2.4 | % |
6 | UPS Supply Chain Solutions Inc. | | | NH | | 1 | | 614 | | | 1.8 | % | | 2.4 | % |
7 | Par Hawaii Refining, LLC | | | HI | | 3 | | 3,148 | | | 9.2 | % | | 2.4 | % |
8 | EF Transit, Inc. | | | IN | | 1 | | 535 | | | 1.6 | % | | 1.9 | % |
9 | BJ's Wholesale Club, Inc. | | | NJ | | 1 | | 634 | | | 1.8 | % | | 1.7 | % |
10 | Shurtech Brands, LLC | | | OH | | 1 | | 645 | | | 1.9 | % | | 1.7 | % |
11 | Coca-Cola Bottling of Hawaii, LLC | | | HI | | 4 | | 351 | | | 1.0 | % | | 1.6 | % |
12 | Safeway Inc. | | | HI | | 2 | | 146 | | | 0.4 | % | | 1.6 | % |
13 | ELC Distribution Center | | | KS | | 1 | | 645 | | | 1.9 | % | | 1.5 | % |
14 | Manheim Remarketing, Inc. | | | HI | | 1 | | 338 | | | 1.0 | % | | 1.5 | % |
15 | Exel Inc. | | | SC | | 1 | | 945 | | | 2.8 | % | | 1.5 | % |
16 | A.L. Kilgo Company, Inc. | | | HI | | 5 | | 310 | | | 0.9 | % | | 1.5 | % |
17 | Avnet, Inc. | | | OH | | 1 | | 581 | | | 1.7 | % | | 1.5 | % |
18 | Warehouse Rentals Inc. | | | HI | | 5 | | 278 | | | 0.8 | % | | 1.3 | % |
19 | YNAP Corporation | | | NJ | | 1 | | 167 | | | 0.5 | % | | 1.1 | % |
20 | ODW Logistics, Inc. | | | OH | | 3 | | 760 | | | 2.2 | % | | 1.1 | % |
21 | Refresco Beverages US Inc. | | | MO, SC | | 2 | | 421 | | | 1.2 | % | | 1.1 | % |
22 | Honolulu Warehouse Co., Ltd. | | | HI | | 1 | | 298 | | | 0.9 | % | | 1.1 | % |
23 | Hellmann Worldwide Logistics Inc. | | | FL | | 1 | | 240 | | | 0.7 | % | | 1.1 | % |
24 | General Mills Operations, LLC | | | MI | | 1 | | 158 | | | 0.5 | % | | 1.1 | % |
25 | AES Hawaii, Inc. | | | HI | | 2 | | 1,242 | | | 3.6 | % | | 1.0 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Total | | | | | 71 | | 19,784 | | | 57.8 | % | | 52.2 | % |
(1)Rented square feet is pursuant to existing leases as of December 31, 2020 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. |
| | | | | | | | | | | | |
| | | | | | | % of Total | | % of |
| | | | | Rented | | Rented | | Annualized Rental |
Tenant | | Property Type | | Sq. Ft. (1) | | Sq. Ft. (1) | | Revenues |
1. | Amazon.com.dedc, LLC / Amazon.com.kydc LLC | | Mainland Industrial | | 3,048 |
| | 10.7 | % | | 10.3 | % |
2. | Restoration Hardware, Inc. | | Mainland Industrial | | 1,195 |
| | 4.2 | % | | 3.8 | % |
3. | Federal Express Corporation / FedEx Ground Package System, Inc. | | Mainland Industrial | | 674 |
| | 2.4 | % | | 3.7 | % |
4. | American Tire Distributors, Inc. | | Mainland Industrial | | 722 |
| | 2.5 | % | | 3.2 | % |
5. | Par Hawaii Refining, LLC | | Hawaii Land and Easement | | 3,148 |
| | 11.0 | % | | 2.8 | % |
6. | Servco Pacific Inc. | | Hawaii Land and Easement | | 537 |
| | 1.9 | % | | 2.3 | % |
7. | Shurtech Brands, LLC | | Mainland Industrial | | 645 |
| | 2.3 | % | | 2.2 | % |
8. | BJ's Wholesale Club, Inc. | | Mainland Industrial | | 634 |
| | 2.2 | % | | 2.2 | % |
9. | Safeway Inc. | | Hawaii Land and Easement | | 146 |
| | 0.5 | % | | 2.1 | % |
10. | Exel Inc. | | Mainland Industrial | | 945 |
| | 3.3 | % | | 2.0 | % |
11. | Trex Company, Inc. | | Mainland Industrial | | 646 |
| | 2.3 | % | | 1.9 | % |
12. | Avnet, Inc. | | Mainland Industrial | | 581 |
| | 2.0 | % | | 1.9 | % |
13. | Manheim Remarketing, Inc. | | Hawaii Land and Easement | | 338 |
| | 1.2 | % | | 1.7 | % |
14. | Coca-Cola Bottling of Hawaii, LLC | | Hawaii Land and Easement | | 351 |
| | 1.2 | % | | 1.6 | % |
15. | A.L. Kilgo Company, Inc. | | Hawaii Land and Easement | | 310 |
| | 1.1 | % | | 1.5 | % |
16. | The Net-A-Porter Group LLC | | Mainland Industrial | | 167 |
| | 0.6 | % | | 1.5 | % |
17. | General Mills Operations, LLC | | Mainland Industrial | | 158 |
| | 0.6 | % | | 1.4 | % |
18. | Honolulu Warehouse Co., Ltd. | | Hawaii Land and Easement | | 298 |
| | 1.0 | % | | 1.4 | % |
19. | AES Hawaii, Inc. | | Hawaii Land and Easement | | 1,242 |
| | 4.4 | % | | 1.2 | % |
20. | Bradley Shopping Center Company | | Hawaii Land and Easement | | 334 |
| | 1.2 | % | | 1.1 | % |
21. | Warehouse Rentals Inc. | | Hawaii Land and Easement | | 278 |
| | 1.0 | % | | 1.1 | % |
22. | Kaiser Foundation Health Plan, Inc. | | Hawaii Land and Easement | | 217 |
| | 0.8 | % | | 1.1 | % |
23. | The Toro Company | | Mainland Industrial | | 450 |
| | 1.6 | % | | 1.1 | % |
|
| |
| |
|
| |
|
| |
|
|
| Total | | | | 17,064 |
| | 60.0 | % | | 53.1 | % |
| |
(1) | Rented square feet is pursuant to existing leases as of December 31, 2017, 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. |
Mainland Properties. As of December 31, 2020, our Mainland Properties represented approximately 49.3% of our annualized rental revenues. We generally will seek to renew or extend the terms of leases at our Mainland Properties when they expire.as their expirations approach. Because of the capital many of the tenants in our Mainland Properties have invested in these properties and because many of these properties appear to be of strategic importance to the tenants’ businesses, we believe that it is likely that these tenants will renew or extend their leases when they expire. If we are unableprior to extend or renew our leases, it may be time consuming and expensive to relet some of these properties.their expirations.
Hawaii Properties. Approximately 60.0%As of December 31, 2020, our Hawaii Properties represented approximately 50.7% of our annualized rental revenues as of December 31, 2017 were derived from our Hawaii Properties.revenues. As of December 31, 2017, a significant portion2020, certain of our Hawaii Properties are lands leased for rents that are periodically reset based on fair market values, generally every five or ten years. Revenues from our Hawaii Properties have generally increased under our or our predecessors’ ownership as rents under the leases for those properties have been reset or renewed. Lease renewals, lease extensions, new leases and rental rates for which available space may be relet at our Hawaii Properties in the future will depend on prevailing market conditions when these lease renewals, lease extensions, new leases and rental rates are set. As rent reset dates or lease expirations approach at our Hawaii Properties, we generally negotiate with existing or new tenants for new lease terms. If we are unable to reach an agreement with a tenant on a rent reset, our Hawaii Properties’ leases typically provide that rent is reset based on an appraisal process. Despite our and our predecessors' prior experience with rent resets, lease extensions and new leases and rent resets 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.
Most of Accordingly, we cannot be sure that the historical increases achieved at our Hawaii Properties are leased for rents that are periodically reset based on their current fair market values, generally every five to ten years. will continue in the future.
The following chart shows the annualized rental revenues as of December 31, 20172020 scheduled to reset at our Hawaii Properties:
Scheduled Rent Resets at Hawaii Properties
(dollars in thousands)
| | | | | | | | | |
| | Annualized | |
| | Rental Revenues | |
| | as of December 31, 2020 | |
| | Scheduled to Reset | |
| | | |
2021 | | $ | 701 | | |
2022 | | 3,860 | | |
2023 | | 2,535 | | |
2024 | | 2,103 | | |
2025 | | 3,115 | | |
2026 and thereafter | | 16,990 | | |
Total | | $ | 29,304 | | |
|
| | | | |
| | Annualized |
| | Rental Revenues |
| | as of December 31, 2017 |
| | Scheduled to Reset |
2018 | | $ | 1,932 |
|
2019 | | 10,903 |
|
2020 | | 2,500 |
|
2021 and thereafter | | 17,299 |
|
Total | | $ | 32,634 |
|
As of December 31, 2020, $2.9 million, or 1.4%, of our annualized rental revenues are included in leases scheduled to expire by December 31, 2021 and 1.5% of our rentable square feet are currently vacant. Rental rates for which available space may be leased in the future will depend on prevailing market conditions when lease extensions, lease renewals or new leases are negotiated. Whenever we extend, renew or enter new leases for our properties, we intend to seek rents that are equal to or higher than our historical rents for the same properties; however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control.
control, and as noted elsewhere in this Annual Report on Form 10-K, the COVID-19 pandemic and its economic impact may adversely impact our future leasing activities and our ability to lease properties and to receive rents.
Since the leases at certain of our Hawaii Properties were originally entered, in some cases as long as 40 or 50 years ago, the characteristics of the neighborhoods in the vicinity of some of those properties have changed. In such circumstances, we and our predecessors have sometimes engaged in redevelopment activities to change the character of certain properties in order to increase rents. Because 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 of ours in the foreseeable future;near term; however, we may undertake such activities on a selective basis.
Tenant Review Process. Our manager, RMR LLC, employs a tenant review process substantially similar to the process it employs for SIR.us. RMR LLC assesses tenants on an individual basis and does not employ a uniform set ofbased on various applicable credit criteria. In general, depending on facts and circumstances, RMR LLC evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources. RMR LLC also often uses 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.
InvestmentInvesting and Financing Activities (dollars in thousands)
In January 2017,During the year ended December 31, 2020, we acquired two properties with a land parcel located in McAlester, OKcombined 1,465,846 rentable square feet for $226,an aggregate purchase price of $115,481, excluding $55 of acquisition related costs which is adjacentof $332.
During the year ended December 31, 2020, we sold one property located in Virginia containing 308,217 rentable square feet for a sales price of $10,775, excluding closing costs of $196.
In the first quarter of 2020, we entered into agreements related to a joint venture for 12 of our properties in the mainland United States, or our joint venture, with an Asian institutional investor. We contributed 11 of these properties to our joint venture in February 2020 and the remaining property in March 2020. We received proceeds from the investor in an aggregate amount of $107,942, which includes $734 of costs associated with the formation of our joint venture, for a 39% equity interest in our joint venture and we retained the remaining 61% equity interest in our joint venture.
In November 2020, we sold an additional 39% equity interest from our remaining 61% equity interest in our joint venture to a second unrelated third party institutional investor for $108,812, which includes certain costs associated with the initial formation of our joint venture. After giving effect to the sale, we continue to own that includes an existing building leased to FedEx Ground Package System, Inc. We substantially completed the development of a 35,000 square foot expansion22% equity interest in our joint venture. Effective as of the date of the sale, we deconsolidated our joint venture and account for our joint venture using the equity method of accounting under the fair value option. Our initial investment amount was based on an aggregate property valuation of $680,000, less $406,980 of existing building, andmortgage debts on the lease with respectproperties that our joint venture assumed. We used the net proceeds from this transaction to reduce outstanding borrowings under our revolving credit facility. During the year ended December 31, 2020, our joint venture made aggregate cash distributions of $14,049, $5,479 to the expansion became effective September 1, 2017.first joint venture investor and $8,570 to us.
In May 2020, we prepaid at par plus accrued interest a mortgage note secured by one of our properties with an outstanding principal balance of approximately $48,750, an annual interest rate of 3.48% and a maturity date in November 2020. As a result of the prepayment of this mortgage note, we recorded a gain on early extinguishment of debt of $120 for the year ended December 31, 2020 to write off unamortized premiums.
For more information regarding our investmentinvesting and financing activities, see "Business—Our Investment Policies" and "Business—Our Disposition Policies" in Part 1, 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 the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
Financing Activities (dollars in thousands)
On December 29, 2017, we obtained a $750,000 secured revolving credit facility. Upon the completionTable of the IPO, the secured revolving credit facility became a $750,000 unsecured revolving credit facility and the maturity date was extended to December 29, 2021. Following the IPO, borrowings under our revolving credit facility are available for our general business purposes, including acquisitions. We have the option to extend the maturity date of our revolving credit facility for two six month periods, subject to payment of extension fees and satisfaction of other conditions. Interest on borrowings under our revolving credit facility is calculated at floating rates based on LIBOR plus a premium that will vary based on our leverage ratio. If we later achieve an investment grade credit rating, we will then be able to elect to continue to have the interest premium based on our leverage ratio or we may instead elect to have the interest premium based on our credit rating, or a ratings election. We are required to pay a commitment fee on the unused portion of our revolving credit facility until and if such time as we make a ratings election, and thereafter we will be required to pay a facility fee in lieu of such commitment fee based on the maximum amount of our revolving credit facility. We may borrow, repay and reborrow funds under our revolving credit facility until maturity, and no principal repayment is due until maturity. Our credit agreement also includes a feature under which the maximum borrowing availability under our revolving credit facility may be increased to up to $1,500,000 in certain circumstances.Contents
On January 17, 2018, we completed the IPO, in which we issued 20,000,000 of our common shares for net proceeds of approximately $435,900, after deducting the underwriting discounts and commissions and estimated expenses including reimbursements to SIR for the costs it incurred in connection with our formation and the preparation for the IPO.
In connection with our formation, in September 2017, among other things, SIR contributed to us 266 properties (approximately 28.5 million rentable square feet) and we issued a $750,000 demand note to SIR. We also assumed three mortgage notes totaling $63,069, as of September 30, 2017, that were secured by three of our properties. In December 2017, we obtained a $750,000 secured revolving credit facility, and we used the proceeds of an initial borrowing under this credit facility to pay the SIR Note in full. Also in December 2017, SIR prepaid on our behalf two of the mortgage notes totaling $14,319 that had encumbered two of our Initial Properties. Upon the closing of the IPO, our secured revolving credit facility converted into a four year unsecured revolving credit facility, and we used substantially all of the net proceeds from the IPO to reduce amounts outstanding under our revolving credit facility. We also reimbursed SIR for costs that it incurred in connection with our formation and the preparation for the IPO.
For more information regarding our financing activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investment and Financing Liquidity and Resources” of this Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Year Ended December 31, 2017,2020, Compared to Year Ended December 31, 20162019 (dollars and share amounts in thousands, except per share data)
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| | Comparable Properties Results (1) | | Non -Comparable Properties Results (2) | | Consolidated Results |
| | Year Ended December 31, | | Year Ended December 31, | | Year Ended December 31, |
| | | | | | $ | | % | | | | | | $ | | | | | | $ | | % |
| | 2020 | | 2019 | | Change | | Change | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | | Change |
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Rental income | | $ | 173,295 | | | $ | 165,904 | | | $ | 7,391 | | | 4.5 | % | | $ | 81,280 | | | $ | 63,330 | | | $ | 17,950 | | | $ | 254,575 | | | $ | 229,234 | | | $ | 25,341 | | | 11.1 | % |
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Operating expenses: | | | | | | | | | | | | | | | | | | | | | | |
Real estate taxes | | 24,744 | | | 22,363 | | | 2,381 | | | 10.6 | % | | 10,441 | | | 8,004 | | | 2,437 | | | 35,185 | | | 30,367 | | | 4,818 | | | 15.9 | % |
Other operating expenses | | 13,458 | | | 12,570 | | | 888 | | | 7.1 | % | | 7,291 | | | 5,073 | | | 2,218 | | | 20,749 | | | 17,643 | | | 3,106 | | | 17.6 | % |
Total operating expenses | | 38,202 | | | 34,933 | | | 3,269 | | | 9.4 | % | | 17,732 | | | 13,077 | | | 4,655 | | | 55,934 | | | 48,010 | | | 7,924 | | | 16.5 | % |
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Net operating income (3) | | $ | 135,093 | | | $ | 130,971 | | | $ | 4,122 | | | 3.1 | % | | $ | 63,548 | | | $ | 50,253 | | | $ | 13,295 | | | 198,641 | | | 181,224 | | | 17,417 | | | 9.6 | % |
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Other expenses: | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | 70,518 | | | 61,927 | | | 8,591 | | | 13.9 | % |
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Acquisition and certain other transaction related costs | | 200 | | | — | | | 200 | | | N/M |
General and administrative | | 19,580 | | | 17,189 | | | 2,391 | | | 13.9 | % |
Total other expenses | | 90,298 | | | 79,116 | | | 11,182 | | | 14.1 | % |
Gain on sale of real estate | | 23,996 | | | — | | | 23,996 | | | N/M |
Interest income | | 113 | | | 743 | | | (630) | | | (84.8)% |
Interest expense | | (51,619) | | | (50,848) | | | (771) | | | 1.5% |
Gain on early extinguishment of debt | | 120 | | | — | | | 120 | | | N/M |
Income before income tax expense and equity earnings of investees | | 80,953 | | | 52,003 | | | 28,950 | | | 55.7 | % |
Income tax expense | | (277) | | | (171) | | | (106) | | | 62.0% |
Equity in earnings of investees | | 529 | | | 666 | | | (137) | | | (20.6)% |
Net income | | 81,205 | | | 52,498 | | | 28,707 | | | 54.7 | % |
Net loss attributable to noncontrolling interest | | 866 | | | — | | | 866 | | | N/M |
Net income attributable to common shareholders | | $ | 82,071 | | | $ | 52,498 | | | $ | 29,573 | | | 56.3 | % |
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Weighted average common shares outstanding - basic | | 65,104 | | | 65,049 | | | 55 | | | 0.1 | % |
Weighted average common shares outstanding - diluted | | 65,114 | | | 65,055 | | | 59 | | | 0.1 | % |
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Per common share data (basic and diluted): | | | | | | | | |
Net income attributable to common shareholders | | $ | 1.26 | | | $ | 0.81 | | | $ | 0.45 | | | 55.6 | % |
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| Year Ended December 31, |
| | | | | $ | | % |
| 2017 | | 2016 | | Change | | Change |
Revenues: | | | | | | | |
Rental income | $ | 134,826 |
| | $ | 132,518 |
| | $ | 2,308 |
| | 1.7 | % |
Tenant reimbursements and other income | 21,680 |
| | 20,792 |
| | 888 |
| | 4.3 | % |
Total revenues | 156,506 |
| | 153,310 |
| | 3,196 |
| | 2.1 | % |
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Operating expenses: | | | | | | | |
Real estate taxes | 17,868 |
| | 17,204 |
| | 664 |
| | 3.9 | % |
Other operating expenses | 10,913 |
| | 10,593 |
| | 320 |
| | 3.0 | % |
Total operating expenses | 28,781 |
| | 27,797 |
| | 984 |
| | 3.5 | % |
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Net operating income (1) | 127,725 |
| | 125,513 |
| | 2,212 |
| | 1.8 | % |
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Other expenses: | | | | | | | |
Depreciation and amortization | 27,315 |
| | 27,074 |
| | 241 |
| | 0.9 | % |
Acquisition and transaction related costs | 1,025 |
| | 35 |
| | 990 |
| | 2,828.6 | % |
General and administrative | 16,799 |
| | 9,200 |
| | 7,599 |
| | 82.6 | % |
Total other expenses | 45,139 |
| | 36,309 |
| | 8,830 |
| | 24.3 | % |
Operating income | 82,586 |
| | 89,204 |
| | (6,618 | ) | | (7.4 | )% |
Interest expense | (2,439 | ) | | (2,262 | ) | | (177 | ) | | 7.8 | % |
Income before income tax expense | 80,147 |
| | 86,942 |
| | (6,795 | ) | | (7.8 | )% |
Income tax expense | (44 | ) | | (44 | ) | | — |
| | 0.0 | % |
Net income | $ | 80,103 |
| | $ | 86,898 |
| | $ | (6,795 | ) | | (7.8 | )% |
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Weighted average common shares outstanding - basic and diluted | 45,000 |
| | 45,000 |
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| | 0.0 | % |
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Net income per common share - basic and diluted | $ | 1.78 |
| | $ | 1.93 |
| | $ | (0.15 | ) | | (7.8 | )% |
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Reconciliation of Net Income to NOI (1): | | | | | | | |
Net income | $ | 80,103 |
| | $ | 86,898 |
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Income tax expense | 44 |
| | 44 |
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Income before income tax expense | 80,147 |
| | 86,942 |
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Interest expense | 2,439 |
| | 2,262 |
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Operating income | 82,586 |
| | 89,204 |
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General and administrative | 16,799 |
| | 9,200 |
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Acquisition and transaction related costs | 1,025 |
| | 35 |
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Depreciation and amortization | 27,315 |
| | 27,074 |
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NOI | $ | 127,725 |
| | $ | 125,513 |
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NOI: | | | | | | | |
Hawaii Properties | $ | 73,155 |
| | $ | 71,332 |
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Mainland Properties | 54,570 |
| | 54,181 |
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NOI | $ | 127,725 |
| | $ | 125,513 |
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Reconciliation of Net Income to Funds From Operations and Normalized Funds From Operations (2): | 2017 | | 2016 | | | | |
Net income | $ | 80,103 |
| | $ | 86,898 |
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Plus: depreciation and amortization | 27,315 |
| | 27,074 |
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FFO | 107,418 |
| | 113,972 |
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Plus: acquisition and transaction related costs | 1,025 |
| | 35 |
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Normalized FFO | $ | 108,443 |
| | $ | 114,007 |
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FFO per common share - basic and diluted | $ | 2.39 |
| | $ | 2.53 |
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Normalized FFO per common share - basic and diluted | $ | 2.41 |
| | $ | 2.53 |
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N/M - not meaningful
(1)Consists of properties that we owned continuously since January 1, 2019 and excludes 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.
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(1) | The calculation of NOI excludes certain components of net income in order to provide results that are more closely related to our property level results of operations. We calculate NOI as shown above. We define NOI as income from our rental of real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization. We consider NOI to be an appropriate supplemental measure to net income because it may help both investors and management to understand the operations of our properties. We use NOI to evaluate individual and company wide property level performance, and we believe that NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are generated and incurred at the property level and may facilitate comparisons of our operating performance between periods and with other REITs. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income or operating income as an indicator of our operating performance or as a measure of our liquidity. This measure should be considered in conjunction with net income and operating income as presented in our consolidated statements of comprehensive income. Other real estate companies and REITs may calculate NOI differently than we do. |
(2)Consists of 23 properties that we acquired during the period from January 1, 2019 to December 31, 2019, one property we sold in December 2020 and 12 properties we contributed in the first quarter of 2020 to a joint venture in which we currently own a 22% equity interest. We consolidated the properties owned by the joint venture until November 2020.
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(2) | We calculate FFO and Normalized FFO as shown above. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or Nareit, which is net income, calculated in accordance with GAAP, plus real estate depreciation and amortization, as well as certain other adjustments currently not applicable to us. Our calculation of Normalized FFO differs from Nareit's definition of FFO because we include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year and we exclude acquisition and transaction related costs expensed under GAAP. We consider FFO and Normalized FFO to be appropriate supplemental measures of operating performance for a REIT, along with net income and operating income. We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO may facilitate a comparison of our operating performance between periods and with other REITs. FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to qualify for taxation as a REIT, limitations in our credit agreement, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income or operating income as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income and operating income as presented in our consolidated statements of comprehensive income. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do. |
(3)See our definition of NOI and our reconciliation of net income to NOI below under the heading "Non-GAAP Financial Measures."
References to changes in the income and expense categories below relate to the comparison of results for the year ended December 31, 2017,2020, compared to the year ended December 31, 2016.2019. For a comparison of consolidated results for the year ended December 31, 2019 compared to the year ended December 31, 2018, 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 fiscal year ended December 31, 2019.
Rental income. The increase in rental income is primarily reflects an increase in occupancy in 2017a result of our acquisition and disposition activities, and increases from leasing activity and rent resets at certain of our Hawaii Properties.comparable properties. Rental income includes non-cash straight line rent adjustments totaling approximately $5,762$9,041 for the 20172020 period and approximately $6,202$4,345 for the 20162019 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $390$791 for the 20172020 period and approximately $403$1,195 for the 20162019 period.
Tenant reimbursements and other income. The increase in tenant reimbursements and other income primarily reflects increases in real estate tax and other operating expense reimbursements from tenants at certain of our properties.
Real estate taxes. The increase in real estate taxes reflects tax valuation and tax rate increases at certain of our properties.
Other operating expenses. The increase in other operating expenses primarily reflects increases in other property related expenses at certain of our properties.
Depreciation and amortization. The increase in depreciation and amortization primarily reflects increased depreciation of capital improvements at our properties.
Acquisition and transaction related costs. Acquisition and transaction related costs reflect costs expensed under GAAP that are related to our property acquisitions and investment activity. The increase in acquisition and transaction related costs primarily reflects accounting fees related to the IPO that are required to be expensed under GAAP.
General and administrative. General and administrative expenses were primarily allocated to us by SIR based on the historical cost of our properties as a percentage of SIR’s historical cost of all of its properties. The increase in general and administrative expense reflects the related increase in SIR’s general and administrative expenses allocated to our properties primarily as a result of business management incentive fees recognized by SIR in the 2017 period.
Interest expense. Interest expense reflects interest on borrowings under our revolving credit facility in 2017, as well as interest expense related to mortgage notes securing properties acquired in 2015.
Income tax expense. Income tax expense reflects state income taxes payable in certain jurisdictions despite our expected status as a REIT for federal income tax purposes.
Net income. The decrease in net income for the 2017 period compared to the 2016 period reflects the changes noted above.
Net income per common share - basic and diluted. Net income per common share reflects the changes to net income noted above.
Year Ended December 31, 2016, Compared to Year Ended December 31, 2015(dollars and share amounts in thousands, except per share data)
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| | Comparable Properties Results (1) | | Acquired Properties Results (2) | | Consolidated Results |
| | Year Ended December 31, | | Year Ended December 31, | | Year Ended December 31, |
| | | | | | $ | | % | | | | | | $ | | | | | | $ | | % |
| | 2016 | | 2015 | | Change | | Change | | 2016 | | 2015 | | Change | | 2016 | | 2015 | | Change | | Change |
Revenues: | | | | | | | | | | | | | | | | | | | | | | |
Rental income | | $ | 87,554 |
| | $ | 86,649 |
| | $ | 905 |
| | 1.0 | % | | $ | 44,964 |
| | $ | 41,653 |
| | $ | 3,311 |
| | $ | 132,518 |
| | $ | 128,302 |
| | $ | 4,216 |
| | 3.3 | % |
Tenant reimbursements and other income | | 16,512 |
| | 15,925 |
| | 587 |
| | 3.7 | % | | 4,280 |
| | 3,664 |
| | 616 |
| | 20,792 |
| | 19,589 |
| | 1,203 |
| | 6.1 | % |
Total revenues | | 104,066 |
| | 102,574 |
| | 1,492 |
| | 1.5 | % | | 49,244 |
| | 45,317 |
| | 3,927 |
| | 153,310 |
| | 147,891 |
| | 5,419 |
| | 3.7 | % |
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Operating expenses: | | | | | | | | | | | | | | | | | | | | | | |
Real estate taxes | | 14,802 |
| | 14,208 |
| | 594 |
| | 4.2 | % | | 2,402 |
| | 2,108 |
| | 294 |
| | 17,204 |
| | 16,316 |
| | 888 |
| | 5.4 | % |
Other operating expenses: | | | | | | | | | | | | | | | | | | | | | | |
Provision for bad debts | | 257 |
| | (486 | ) | | 743 |
| | 152.9 | % | | — |
| | — |
| | — |
| | 257 |
| | (486 | ) | | 743 |
| | 152.9 | % |
Other expenses | | 6,766 |
| | 6,063 |
| | 703 |
| | 11.6 | % | | 3,570 |
| | 2,901 |
| | 669 |
| | 10,336 |
| | 8,964 |
| | 1,372 |
| | 15.3 | % |
Total other operating expenses | | 7,023 |
| | 5,577 |
| | 1,446 |
| | 25.9 | % | | 3,570 |
| | 2,901 |
| | 669 |
| | 10,593 |
| | 8,478 |
| | 2,115 |
| | 24.9 | % |
Total operating expenses | | 21,825 |
| | 19,785 |
| | 2,040 |
| | 10.3 | % | | 5,972 |
| | 5,009 |
| | 963 |
| | 27,797 |
| | 24,794 |
| | 3,003 |
| | 12.1 | % |
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NOI (3) | | $ | 82,241 |
| | $ | 82,789 |
| | $ | (548 | ) | | (0.7 | )% | | $ | 43,272 |
| | $ | 40,308 |
| | $ | 2,964 |
| | 125,513 |
| | 123,097 |
| | 2,416 |
| | 2.0 | % |
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Other expenses: | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | 27,074 |
| | 25,285 |
| | 1,789 |
| | 7.1 | % |
Acquisition related costs | | 35 |
| | 15,291 |
| | (15,256 | ) | | (99.8 | )% |
General and administrative | | 9,200 |
| | 8,745 |
| | 455 |
| | 5.2 | % |
Total other expenses | | 36,309 |
| | 49,321 |
| | (13,012 | ) | | (26.4 | )% |
Operating income | | 89,204 |
| | 73,776 |
| | 15,428 |
| | 20.9 | % |
Interest expense | | (2,262 | ) | | (2,092 | ) | | (170 | ) | | 8.1 | % |
Income before income tax expense | | 86,942 |
| | 71,684 |
| | 15,258 |
| | 21.3 | % |
Income tax expense | | (44 | ) | | (44 | ) | | — |
| | 0.0 | % |
Net income | | $ | 86,898 |
| | $ | 71,640 |
| | $ | 15,258 |
| | 21.3 | % |
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Weighted average common shares outstanding - basic and diluted | | 45,000 |
| | 45,000 |
| | — |
| | 0.0 | % |
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Net income per common share - basic and diluted | | $ | 1.93 |
| | $ | 1.59 |
| | $ | 0.34 |
| | 21.4 | % |
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Reconciliation of Net Income to NOI (3): | | | | | | | | |
Net income | | $ | 86,898 |
| | $ | 71,640 |
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Income tax expense | | 44 |
| | 44 |
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Income before income tax expense | | 86,942 |
| | 71,684 |
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Interest expense | | 2,262 |
| | 2,092 |
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Operating income | | 89,204 |
| | 73,776 |
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General and administrative | | 9,200 |
| | 8,745 |
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Acquisition related costs | | 35 |
| | 15,291 |
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Depreciation and amortization | | 27,074 |
| | 25,285 |
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NOI | | $ | 125,513 |
| | $ | 123,097 |
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NOI: | | | | | | | | |
Hawaii Properties | | $ | 71,332 |
| | $ | 72,013 |
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Mainland Properties | | 54,181 |
| | 51,084 |
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NOI | | $ | 125,513 |
| | $ | 123,097 |
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Reconciliation of Net Income to FFO and Normalized FFO (4): | | 2016 | | 2015 | | | | |
Net income | | $ | 86,898 |
| | $ | 71,640 |
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Plus: depreciation and amortization | | 27,074 |
| | 25,285 |
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FFO | | 113,972 |
| | 96,925 |
| | | | |
Plus: acquisition related costs | | 35 |
| | 15,291 |
| | | | |
Normalized FFO | | $ | 114,007 |
| | $ | 112,216 |
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FFO per common share - basic and diluted | | $ | 2.53 |
| | $ | 2.15 |
| | | | |
Normalized FFO per common share - basic and diluted | | $ | 2.53 |
| | $ | 2.49 |
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(1) Consists of 235 properties that we owned continuously since January 1, 2015.
(2) Consists of 31 properties we acquired during the period from January 1, 2015 to December 31, 2016.
(3) See footnote (1) on page 52 for the definition of NOI.
(4) See footnote (2) on page 52 for the definitions of FFO and Normalized FFO.
References to changes in the income and expense categories below relate to the comparison of results for the year ended December 31, 2016, compared to the year ended December 31, 2015. Our acquisition activity reflects our acquisition of 31 properties in January 2015.
Rental income. The increase in rental income primarily reflects our acquisition activity and increases from leasing activity and rent resets at certain of our comparable Hawaii Properties. Rental income includes non-cash straight line rent adjustments totaling approximately $6,202 for the 2016 period and approximately $6,344 for the 2015 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $403 for the 2016 period and approximately $486 for the 2015 period.
Tenant reimbursements and other income. The increase in tenant reimbursements and other income primarily reflects our acquisition activity and increases in real estate tax and operating expense reimbursements from tenants at certain of our comparable properties.
Real estate taxes. The increase in real estate taxes primarily reflects our acquisition and disposition activities and higher tax valuation and tax rate increasesassessments at certain of our comparable properties, and our acquisition activity.properties.
Other operating expenses:
Provision for bad debts. The increase in provision for bad debtsexpenses. Other operating expenses primarily reflects the recovery in 2015 of net amounts previously reserved for our comparable properties net of bad debt reserves recorded in 2015include repairs and 2016.
Other expenses. maintenance, utilities, insurance, snow removal and property management fees. The increase in other operating expenses is primarily reflects increasesdue to our acquisition and disposition activities. The increase in property management relatedother operating expenses repairsat our comparable properties is primarily due to an increase in insurance expense and repair and maintenance other general operatingcosts in the 2020 period, partially offset by higher snow removal and legal expenses and our acquisition activity.in the 2019 period.
Depreciation and amortization.The increase in depreciation and amortization primarily reflects our acquisition activity.and disposition activities and an increase in depreciation and amortization of improvements made to certain of our properties after January 1, 2020, partially offset by certain leasing related assets becoming fully amortized in the 2020 period.
Acquisition and certain other transaction related costs. Acquisition and certain other transaction related costs reflectconsist of costs related to our property acquisitions. The decrease in acquisition related costs primarily reflects costs related to our acquisition of certain Mainland Properties during the 2015 period.acquisitions that were not completed.
General and administrative. General and administrative expenses primarily include fees paid under our business management agreement with RMR LLC, legal fees, audit fees, Trustee fees and equity compensation expense. The increase in general and administrative expenseexpenses primarily reflects the relatedan increase in SIR’s general and administrative expenses allocated to our propertiesbusiness management fees as a result of our acquisitions.acquisition activity in the 2020 and 2019 periods as well as an increase in our equity compensation expenses.
Gain on sale of real estate. We recorded a $23,996 aggregate gain on sale of real estate in 2020, resulting from the deconsolidation of and sale of an equity interest in our joint venture and the sale of one other property in the 2020 period.
Interest expense. income. Interest expenseincome represents interest earned on our cash balances. The decrease in interest income is primarily relateddue to a decrease in average investable cash and lower interest rates earned on invested cash during the 2020 period as compared to the 2019 period.
Interest expense. The increase in interest expense in the 2020 period is primarily due to higher average outstanding indebtedness, partially offset by a lower weighted average interest rate on outstanding indebtedness, during the 2020 period as compared to the 2019 period.
Gain on early extinguishment of debt. We recorded a gain on early extinguishment of debt in connection with our prepayment of a mortgage notes securing properties we acquired in 2015.note during the 2020 period.
Income tax expense. Income tax expense primarily reflects state income taxes payable in certain jurisdictions despitejurisdictions.
Equity in earnings of investees. Equity in earnings of investees includes earnings from our expected status asunconsolidated joint venture following our sale of an equity interest in that joint venture to a REIT for federal income tax purposes.third party in November 2020. Following the sale, we own a 22% equity interest in the venture. Equity in earnings of investees also includes our proportionate share of earnings from our former investment in Affiliates Insurance Company, or AIC, in the 2019 period.
Net income.The increase in net income for the 20162020 period compared to the 20152019 period reflects the changes noted above.
Net loss attributable to noncontrolling interest. Net loss attributable to noncontrolling interest represents the net loss attributable to the 39% equity interest in our joint venture that we did not own during the 2020 period when we owned a 61% equity interest in the venture.
Weighted average common shares outstanding. The increase in weighted average common shares outstanding primarily reflects common shares awarded under our equity compensation plan since January 1, 2019.
Net income attributable to common shareholders per common share - basic and diluted. NetThe increase in net income attributable to common shareholders per common share reflects the changes to net income attributable to common shareholders and weighted average common shares noted above.
Non-GAAP Financial Measures
We present certain “non-GAAP financial measures” within the meaning of applicable SEC rules, including NOI, FFO attributable to common shareholders and Normalized FFO attributable to common shareholders. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income or net income attributable to common shareholders as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income or net income attributable to common shareholders as presented in our consolidated statements of comprehensive income. We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income and net income attributable to common shareholders. We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.
Net Operating Income
We calculate NOI as shown below. We define NOI as income from our rental of real estate less our property operating expenses. The calculation of NOI excludes certain components of net income in order to provide results that are more closely related to our property level results of operations. 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. Other real estate companies and REITs may calculate NOI differently than we do.
The following table presents the reconciliation of net income to NOI for the years ended December 31, 2020 and 2019 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2020 | | 2019 |
Reconciliation of Net Income to NOI: | | | | | | | |
Net income | | | | | $ | 81,205 | | | $ | 52,498 | |
Equity in earnings of investees | | | | | (529) | | | (666) | |
Income tax expense | | | | | 277 | | | 171 | |
Income before income tax expense and equity in earnings of investees | | | | | 80,953 | | | 52,003 | |
Gain on early extinguishment of debt | | | | | (120) | | | — | |
Interest expense | | | | | 51,619 | | | 50,848 | |
Interest income | | | | | (113) | | | (743) | |
Gain on sale of real estate | | | | | (23,996) | | | — | |
General and administrative | | | | | 19,580 | | | 17,189 | |
Acquisition and certain other transaction related costs | | | | | 200 | | | — | |
Depreciation and amortization | | | | | 70,518 | | | 61,927 | |
NOI | | | | | $ | 198,641 | | | $ | 181,224 | |
| | | | | | | |
NOI: | | | | | | | |
Hawaii Properties | | | | | $ | 79,028 | | | $ | 74,968 | |
Mainland Properties | | | | | 119,613 | | | 106,256 | |
NOI | | | | | $ | 198,641 | | | $ | 181,224 | |
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Funds From Operations Attributable to Common Shareholders and Normalized Funds From Operations Attributable to Common Shareholders
We calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders as shown below. FFO attributable to common shareholders is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income attributable to common shareholders, calculated in accordance with GAAP, excluding any gain or loss on sale of real estate and equity in earnings of an unconsolidated joint venture, plus real estate depreciation and amortization of consolidated properties and our proportionate share of FFO of unconsolidated joint venture properties and minus FFO adjustments attributable to noncontrolling interest, as well as certain other adjustments currently not applicable to us. In calculating Normalized FFO attributable to common shareholders, we adjust for the items shown below including similar adjustments for our unconsolidated joint venture, if any, and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. FFO attributable to common shareholders and Normalized FFO attributable to common shareholders are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our dividend yield and our dividend yield compared to the dividend yields of other industrial REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. Other real estate companies and REITs may calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders differently than we do.
The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net income attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the year ended December 31, 2020 and 2019 (dollars in thousands, except per share data):
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| | | Year Ended December 31, |
| | | | | 2020 | | 2019 |
Reconciliation of Net Income attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders: | | | | | | | |
Net income attributable to common shareholders | | | | | $ | 82,071 | | | $ | 52,498 | |
Depreciation and amortization | | | | | 70,518 | | | 61,927 | |
Equity in earnings of unconsolidated joint venture | | | | | (529) | | | — | |
Share of FFO from unconsolidated joint venture | | | | | 556 | | | — | |
Gain on sale of real estate | | | | | (23,996) | | | — | |
FFO adjustments attributable to noncontrolling interest | | | | | (7,656) | | | — | |
FFO attributable to common shareholders | | | | | 120,964 | | | 114,425 | |
Acquisition and certain other transaction related costs | | | | | 200 | | | — | |
Gain on early extinguishment of debt | | | | | (120) | | | — | |
Normalized FFO attributable to common shareholders | | | | | $ | 121,044 | | | $ | 114,425 | |
| | | | | | | |
Weighted average common shares outstanding - basic | | | | | 65,104 | | | 65,049 | |
Weighted average common shares outstanding - diluted | | | | | 65,114 | | | 65,055 | |
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Per common share data (basic and diluted) | | | | | | | |
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FFO attributable to common shareholders and Normalized FFO attributable to common shareholders | | | | | $ | 1.86 | | | $ | 1.76 | |
LIQUIDITY AND CAPITAL RESOURCES
Our Operating Liquidity and Resources (dollars in thousands)
Our principal sourcesources of funds to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders isare rents from tenants at our properties. The flow of funds fromproperties and borrowings under our Initial Properties has historically been sufficient to pay operating and capital expenses and debt service obligations relating to our Initial Properties and to make distributions to SIR. Our operating expenses as a public company are higher following the IPO. These additional
costs are currently estimated to be $2,000 per year. SIR currently pays similar types of costs in larger amounts because SIR has a bigger business than us.revolving credit facility. We believe that our operating cash flowsthese sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future.future thereafter based on our current expectations, including impacts from the COVID-19 pandemic and current economic downturn on us and our tenants and their ability to pay us rent when due. 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 andor increase the rental rates at, our properties;
•control our operating cost increases; and
•purchase additional properties that produce cash flows in excess of our costs of acquisition capital and property operating expenses.
OurWith $529,000 of availability under our revolving credit facility is availableas of December 31, 2020, $22,834 of cash on hand, 72.2% of our annualized rental revenues derived from investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases and only 1.4% of our annualized rental revenues as of December 31, 2020 from expiring leases over the next 12 months, we believe that we are currently well positioned to fund shortfalls,weather the present disruptions facing the real estate industry. Further, we are hopeful that our focus on industrial and logistics properties will enable us and our tenants to outperform the broader commercial and real estate industry if any,the demand for e-commerce continues at levels consistent with the demand since the COVID-19 pandemic materialized in the United States during the first quarter of 2020. However, even if that occurs, we expect that some of our tenants may experience significant downturns with respect to their businesses and liquidity. As a result of the COVID-19 pandemic and its resulting economic downturn, certain of our tenants have requested relief from their obligations to pay rent due to us. We evaluate these requests on a tenant by tenant basis. As of February 15, 2021, we granted requests to certain of our tenants to defer aggregate rent payments of $3,244 with respect to leases that represent, as of December 31, 2020, approximately 9.6% of our annualized rental revenues. In most cases, these tenants were obligated to pay the deferred rents in 12 equal monthly installments beginning in September 2020. As of December 31, 2020, we recognized $2,630 in our operating cash flowsaccounts receivable related to meet our operating expenses, pay debt service obligations and make distributions to our shareholders.
Cash flows provided by (used in) operating, investing and financing activities were $103,455, ($6,307) and ($97,148), respectively, forthe remaining deferred amounts. For the year ended December 31, 20172020, we collected approximately 97.6% of our contractual rents due after giving effect to such rent deferrals. We expect to receive additional similar requests in the future, particularly if the current economic conditions do not continue to improve or if they worsen for an extended period. We may determine to grant additional relief in the future, which may vary from the type of relief we have granted to date, and $109,255, ($1,356)could include more substantial relief, if we determine it prudent or appropriate to do so. In addition, if any of our tenants are unable to continue as going concerns as a result of the current economic conditions or otherwise, we may experience a reduction in rents received and ($107,899), respectively,we may be unable to find suitable replacement tenants for an extended period or at all. The terms of our leases with those replacement tenants may not be as favorable to us as the terms of our agreements with our existing tenants.
The following is a summary of our sources and uses of cash flows for the year ended December 31, 2016. periods presented, as reflected in our condensed consolidated statements of cash flows (dollars in thousands):
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| | Year Ended December 31, |
| | 2020 | | 2019 |
Cash and cash equivalents and restricted cash at beginning of period | | $ | 34,550 | | | $ | 9,608 | |
Net cash provided by (used in): | | | | |
Operating activities | | 114,564 | | | 116,300 | |
Investing activities | | (4,522) | | | (893,393) | |
Financing activities | | (121,758) | | | 802,035 | |
Cash and cash equivalents and restricted cash at end of period | | $ | 22,834 | | | $ | 34,550 | |
The decrease in net cash provided by operating activities for the year ended December 31, 20172020 compared to the same period in the prior year is primarily due to higher general and administrative expenses allocated from SIRchanges in 2017 and the timing of rents received at certain of our properties.working capital. The increasedecrease in net cash used in investing activities for the year ended December 31, 20172020 compared to the same period in the prior year is primarily due to our acquisition of 30 properties in the development2019 period compared to the acquisition of a 35,000 square foot expansion at one of our existing properties.two properties in the 2020 period. The decreasechange in net cash provided by financing activities in 2019 to net cash used in financing activities for the year ended December 31, 2017 compared to the same period in the prior year is2020 was primarily due to contributionsnet proceeds from SIR relatedour mortgage financing to our property operations,fund acquisitions in the 2019 period, partially offset by SIR’s repaymentthe proceeds we received from our first joint venture transaction and a prepayment of twoa mortgage notes on our behalf.
note in the 2020 period.
Our InvestmentInvesting and Financing Liquidity and Resources (dollars in thousands)
thousands, except per share and per square foot data)
Our future acquisitionsacquisition or development of propertiesactivity cannot be accurately projected because such acquisitions or development activities dependactivity depends upon available opportunities that come to our attention and upon our ability to successfully acquire, develop and operate such properties.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 our debt covenants and certain other financial metrics. We generally do not intend to purchase ‘‘turn around’’ properties, or properties that do not generate positive cash flows, and, to the extent we conduct construction or redevelopment activities on our properties, we currently intend to conduct suchthose activities primarily to satisfy tenant requirements or on a build to suit basis for existing or new tenants.
As of December 31, 2017,2020, we had no cash and cash equivalents. Upon the completionequivalents of the IPO and the application of the net proceeds therefrom, we had $2,000 of cash.$22,834. To qualifymaintain our qualification for taxation as a REIT under the IRC, we generally will beare required to distribute annually at least 90% of our REIT taxable income annually, subject to specified adjustments and excluding any net capital gain. This distribution requirement limits our ability to retain earnings and thereby provide capital for our operations or acquisitions. In order to fund cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions, to pay operating or capital expenses or to fund any future property acquisitions, development or redevelopment efforts, we maintain a $750,000 unsecured revolving credit facility with a group of lenders. The maturity date of our revolving credit facility is December 29, 2021. We have the option to extend the maturity date of our revolving credit facility for two, six month periods, subject to payment of extension fees and satisfaction of other conditions. We pay interest on borrowings under our revolving credit facility at the rate of LIBOR plus a premium that will varyvaries based on our leverage ratio. If we later achieve an investment grade credit rating, we will then be able to elect to continue to have the interest premium based on our leverage ratio or we may instead elect to have the interest premium based on our credit rating, or a ratings election. We are required to pay a commitment fee on the unused portion of our revolving credit facility until and if such time as we make a ratings election, and thereafter we will be required to pay a facility fee in lieu of such commitment fee based on the maximum amount of our revolving credit facility. At December 31, 2017,2020, the interest rate premium on our revolving credit facility was 140155 basis points and our commitment fee was 25 basis points. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. As of December 31, 2017,2020, the annual interest rate payable on borrowings under our revolving credit facility was 2.89%1.70%. As of December 31, 20172020 and March 27, 2018,February 15, 2021, we had $750,000 and $302,000, respectively,$221,000 outstanding under our revolving credit facility, and zero and $448,000, respectively,$529,000 available to borrow under our revolving credit facility.
Our credit agreement includes a feature under which the maximum borrowing availability under the facility may be increased to up to $1,500,000 in certain circumstances.
On January 17, 2018,29, 2019, we completed the IPO, in which we issued 20,000,000obtained a $650,000 mortgage loan secured by 186 of our common shares for netproperties (178 land parcels and eight buildings) containing approximately 9.6 million square feet located on the island of Oahu, HI. This non-amortizing loan matures on February 7, 2029 and requires monthly payments of interest only at a fixed rate of 4.31% per annum. We used the proceeds from this loan to reduce outstanding borrowings under our revolving credit facility and to fund acquisitions.
In connection with the acquisition of a portfolio of 20 industrial properties in April 2019, we assumed a $56,980 mortgage note secured by one property containing approximately 1.0 million square feet located in Ruskin, FL. This non-amortizing loan matures on October 1, 2023 and requires monthly payments of interest only at a fixed rate of 3.60% per annum.
In October 2019, we obtained a $350,000 mortgage loan secured by 11 of our properties located in mainland United States containing an aggregate of approximately $435,900, after deducting8.2 million rentable square feet and located in eight states. This non-amortizing loan matures in November 2029 and requires monthly payments of interest at a fixed rate of 3.33% per annum. We used the underwriting discountsproceeds from this loan to reduce outstanding borrowings under our revolving credit facility.
In May 2020, we prepaid at par plus accrued interest a mortgage note secured by one of our properties with an outstanding principal balance of approximately $48,750, an annual interest rate of 3.48% and commissions and estimated expenses including reimbursements to SIRa maturity date in November 2020. As a result of the prepayment of this mortgage note, we recorded a gain on early extinguishment of debt of $120 for the costs SIR incurredyear ended December 31, 2020 to write off unamortized debt premiums.
We no longer include the $56,980 secured mortgage note or the $350,000 mortgage loan in connection with our formation andconsolidated balance sheet following the preparation for the IPO. For more information regarding the IPO and our applicationdeconsolidation of the net proceeds,assets of our formerly majority-owned joint venture. For further information regarding our joint venture, see Notes 8 and 11Note 3 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
As of December 31, 2020, we had mortgage notes payable with an aggregate principal amount of $650,000, which is scheduled to mature in 2029.
In connectionthe first quarter of 2020, we entered into agreements related to a joint venture for 12 of our properties in the mainland United States with an Asian institutional investor. We contributed 11 of these properties to our joint venture in February 2020 and the remaining property in March 2020. We received proceeds from the investor in an aggregate amount of $107,942, which includes $734 of costs associated with the formation of our joint venture, for a 39% equity interest in September 2017, among other things, SIR contributedthe joint venture and we retained the remaining 61% equity interest in our joint venture. We recognized a noncontrolling interest in our consolidated balance sheet of $98,375 as of the completion of this transaction, which was equal to 39% of our aggregate carrying value of the total equity of the properties immediately prior to our respective contributions of the properties to our joint venture. The difference between the net proceeds received from this transaction and the noncontrolling interest recognized, which was $9,567, has been reflected as an increase in additional paid in capital in our consolidated balance sheet. The portion of our joint venture's net loss not attributable to us, 266 properties (approximately 28.5 million rentable square feet)or $866 for the year ended December 31, 2020, is reported as noncontrolling interest in our consolidated statements of comprehensive income. During the year ended December 31, 2020, our joint venture made aggregate cash distributions of $14,049, $5,479 to the first joint venture investor, which was reflected as a decrease in total equity attributable to noncontrolling interest and $8,570 to us. We determined that, while we owned a 61% equity interest in our joint venture, our joint venture was a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board Accounting Standards Codification. We concluded that we must consolidate this VIE, and we issueddid so, until we sold an additional 39% equity interest in the joint venture in November 2020. We reached this determination because we were the entity with the power to direct the activities that most significantly impacted the VIE's economic performance and we had the obligation to absorb losses of, and the right to receive benefits from, the VIE that could be significant to the VIE, and therefore were the primary beneficiary of the VIE. The joint venture investor's interest in this consolidated entity was reflected as noncontrolling interest in our consolidated financial statements.
In November 2020, we sold an additional 39% equity interest from our remaining 61% equity interest in our joint venture to a $750,000 demand notesecond unrelated third party institutional investor for $108,812, which includes certain costs associated with the formation of our joint venture. We deconsolidated the net assets of our joint venture and recognized a net gain on sale of $23,415 on this transaction, which is included in gain on sale of real estate in our consolidated statements of comprehensive income. After giving effect to SIR. We also assumed three mortgage notes totaling $63,069,the sale, we continue to own a 22% equity interest in our joint venture, but have determined that we are no longer the primary beneficiary. Effective as of September 30, 2017, that were secured by three of our properties. In December 2017, we obtained a $750,000 secured revolving credit facility, and we used the proceeds of an initial borrowing under this credit facility to pay the SIR Note in full. Also in December 2017, SIR prepaid on our behalf twodate of the sale, we deconsolidated our joint venture and, since that time, we account for our joint venture using the equity method of accounting under the fair value option. Our initial investment amount was based on an aggregate property valuation of $680,000, less $406,980 of existing mortgage notes totaling $14,319debts on the properties, that had encumbered two of our Initial Properties. Upon the closing of the IPO, our secured revolving credit facility converted into a four year unsecured revolving credit facility, and wejoint venture assumed. We used substantially all of the net proceeds from the IPOthis transaction to reduce amounts outstanding borrowings under our revolving credit facility. We also reimbursed SIRFor more information regarding the use of the equity method for costs that SIR incurredour joint venture, see Note 6 to the Notes to the Consolidated Financial Statements included in connection with our formation and the preparation for the IPO.
Our debt maturities (other than our revolving credit facility) asPart IV, of December 31, 2017 were $48,750 in 2020.
this Annual Report on Form 10-K.
We expect to use borrowings under our revolving credit facility and net proceeds from offerings of equity or debt securities to fund any future property acquisitions, development or redevelopment efforts. We may also assume mortgage debtnotes in connection with future acquisitions. When significant amounts are outstanding under our revolving credit facility or the maturities of our revolving credit facility or our other debt approach, we intend to explore refinancing alternatives. Such alternatives may include incurring term debt, obtaining financing secured by mortgages on properties we own, issuing new equity or debt securities, extending the maturity date of our revolving credit facility, or participating in joint venture arrangements.ventures or selling properties. We currently have an effective 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. 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 andor equity offerings, to fund capital expenditures, future acquisitions, development, redevelopment and other activities and to pay our obligations.
Although we have no present intention to do so, we also may sell properties that we own or place mortgages on properties that we own to raise capital.
The completion and the costs of any future financings will depend primarily upon our success in operating our business and upon market conditions. In particular, the feasibility and cost of any future debt financings will depend primarily on our then current credit qualities and on market conditions. We have no control over market conditions. Potential lenders in future debt transactions will evaluate our ability to fund required debt service and repay principal balances when they become due by reviewing our financial condition, results of operations, business practices and plans and our ability to maintain our earnings, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. We intend to conduct our business activities in a manner which will afford us reasonable access to capital for investment and financing activities. However, as noted elsewhere in this Annual Report on Form 10-K, it is uncertain what the duration and severity of the current economic downturn resulting from the COVID-19 pandemic will be. A protracted and extensive downturn may have various negative consequences, including a decline in financing availability and increased costs for financing. Further, such conditions could also disrupt capital markets and limit our access to financing from public sources, particularly if the global financial markets experience significant disruptions.
During the year ended December 31, 2020, we paid quarterly cash distributions to our shareholders totaling $86,089 using existing cash balances and borrowings under our revolving credit facility. For more information regarding the distributions we paid during 2020, see Note 7 to the Notes to the Consolidated Financial Statements included in Part IV, of this Annual Report on Form 10-K.
On January 14, 2021, we declared a regular quarterly distribution of $0.33 per common share, or $21,549, to shareholders of record on January 25, 2021. We paid this distribution to our shareholders on February 18, 2021 using existing cash balances and borrowings under our revolving credit facility.
During the years ended December 31, 20172020 and 2016,2019, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows:
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| | Year Ended December 31, |
| | 2020 | | 2019 |
Tenant improvements and leasing costs (1) | | $ | 2,880 | | | $ | 1,735 | |
Building improvements (2) | | 4,141 | | | 5,213 | |
Development, redevelopment and other activities (3) | | 26 | | | 13,026 | |
| | $ | 7,047 | | | $ | 19,974 | |
|
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| | Year Ended |
| | December 31, |
| | 2017 | | 2016 |
Tenant improvements (1) | | $ | 464 |
| | $ | 250 |
|
Leasing costs (2) | | 628 |
| | 668 |
|
Building improvements (3) | | 1,025 |
| | 843 |
|
Development, redevelopment and other activities (4) | | 5,205 |
| | 566 |
|
| | $ | 7,322 |
| | $ | 2,327 |
|
(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.
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(1) | Tenant improvements include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space. |
| |
(2) | Leasing costs include leasing related costs, such as brokerage commissions, legal costs and tenant inducements. |
| |
(3) | Building improvements generally include (i) expenditures to replace obsolete building components and (ii) expenditures that extend the useful life of existing assets. |
| |
(4) | Development, redevelopment and other activities generally include (i) capital expenditures that are identified at the time of a property acquisition and incurred within a short time period after acquiring the property and (ii) capital expenditure projects that reposition a property or result in new sources of revenues. |
(2)Building improvements generally include (i) expenditures to replace obsolete building components and (ii) expenditures that extend the useful life of existing assets.
(3)Development, redevelopment and other activities generally include capital expenditure projects that reposition a property or result in new sources of revenues.
As of December 31, 2017,2020, we had estimated unspent leasing related obligations of $278. $544, of which $373 is expected to be spent during the next 12 months.
During the year ended December 31,
2017,2020, commitments made for expenditures, such as tenant improvements and leasing costs in connection with leasing space, were as follows:
| | | New Leases | | Renewals | | Totals | | New Leases | | Renewals | | Totals |
Square feet leased during the period (in thousands) | 409 |
| | 554 |
| | 963 |
| Square feet leased during the period (in thousands) | 182 | | | 920 | | | 1,102 | |
Total leasing costs and concession commitments (1) | $ | 1,160 |
| | $ | 92 |
| | $ | 1,252 |
| Total leasing costs and concession commitments (1) | $ | 956 | | | $ | 1,150 | | | $ | 2,106 | |
Total leasing costs and concession commitments per square foot (1) | $ | 2.83 |
| | $ | 0.17 |
| | $ | 1.30 |
| Total leasing costs and concession commitments per square foot (1) | $ | 5.25 | | | $ | 1.25 | | | $ | 1.91 | |
Weighted average lease term by square feet (years) | 7.4 |
| | 18.1 |
| | 13.6 |
| Weighted average lease term by square feet (years) | 10.9 | | | 11.5 | | | 11.4 | |
Total leasing costs and concession commitments per square foot per year (1) | $ | 0.38 |
| | $ | 0.01 |
| | $ | 0.10 |
| Total leasing costs and concession commitments per square foot per year (1) | $ | 0.48 | | | $ | 0.11 | | | $ | 0.17 | |
| |
(1) | Includes commitments made for leasing expenditures and concessions, such as leasing commissions, tenant improvements or other tenant inducements. |
(1)Includes commitments made for leasing expenditures and concessions, such as leasing commissions, tenant improvements or other tenant inducements.
As of December 31, 2017, our contractual obligations were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| | | | Less than | | 1-3 | | 3-5 | | More than |
Contractual Obligations | | Total | | 1 Year | | Years | | Years | | 5 Years |
Borrowings under revolving credit facility (1) | | $ | 750,000 |
| | $ | — |
| | $ | — |
| | $ | 750,000 |
| | $ | — |
|
Mortgage note payable | | 48,750 |
| | — |
| | 48,750 |
| | — |
| | — |
|
Tenant related obligations (2) | | 278 |
| | 36 |
| | 100 |
| | — |
| | 142 |
|
Projected interest expense (3) | | 92,211 |
| | 23,620 |
| | 46,916 |
| | 21,675 |
| | — |
|
Total | | $ | 891,239 |
| | $ | 23,656 |
| | $ | 95,766 |
| | $ | 771,675 |
| | $ | 142 |
|
| |
(1) | We repaid certain amounts outstanding under our revolving credit facility on January 17, 2018 with part of the $435,900 of net proceeds from the IPO. Upon completion of the IPO, the maturity date of our revolving credit facility was extended to December 29, 2021 and we have the option to extend the maturity date for two six month periods through December 29, 2022. |
| |
(2) | Committed tenant related obligations include leasing commissions, tenant improvements or other tenant inducements and are based on leases in effect as of December 31, 2017. |
| |
(3) | Projected interest expense is attributable to only our debt obligations as of December 31, 2017 at existing rates and is not intended to project future interest costs which may result from debt prepayments, new debt issuances or changes in interest rates. Projected interest expense does not include interest which may become payable related to future borrowings under our revolving credit facility. |
Off Balance Sheet Arrangements
As of December 31, 2017, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We had no swaps or hedges as of December 31, 2017.
Debt Covenants(dollars in thousands)
Our principal debt obligations at December 31, 20172020 were borrowings outstanding under our revolving credit facility and a $650,000 non-recourse, mortgage loan obtained in January 2019 that is secured mortgage note assumed in connection with oneby 186 properties. The applicable loan agreement contains certain 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 our acquisitions. Our mortgage note is non-recourse, subject to certain limitations, and does not contain any material financial covenants. environmental law.
Our credit agreement provides for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as in the case of our credit agreement, a change of control of us, which includes RMR LLC ceasing to act as our business and property manager. Our credit agreement contains a number of covenants, whichincluding those that restrict our ability to incur debts, including debts secured by
mortgages on our properties, in excess of calculated amounts, restrict our ability to make distributions to our shareholders in certain circumstances and generally require us to maintain certain financial ratios. As of December 31, 2017,2020, we believe we were in compliance with all of the termscovenants and covenantsother terms under our credit agreement.
Our credit agreement does not contain provisions for acceleration which could be triggered by our leverage ratio. However, under our credit agreement, our leverage ratio is used to determine the feesinterest rates for calculating the amount of interest payable on outstanding borrowings and interest ratesthe fees we pay. Accordingly, if our leverage ratio increases above the applicable thresholds, our interest expense and related costs under our credit agreement would increase.
Our revolving credit facility has cross default provisions to other indebtedness that is recourse of $25,000 or more and indebtedness that is non-recourse of $50,000 or more.
The loan agreement and related documents governing our $650,000 mortgage loan contain customary covenants, provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default and require us to maintain a minimum consolidated net worth of at least $250,000 and liquidity of at least $15,000. As of December 31, 2020, we believe we were in compliance with all the covenants and other terms under this loan agreement.
Related Person Transactions
We have relationships and historical and continuing transactions with RMR LLC, RMR Inc. and others related to them. For example: we have no employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC; RMR Inc. is the managing member of RMR LLC; and ABP Trust, which is controlled by its current sole trustee, who is one of our Managing Trustees, is the controlling shareholder of RMR Inc. We also have relationships and historical and continuing transactions with other companies to which RMR LLC or its subsidiaries provide management services and which may have trustees, directors and officers who are also trustees, directors or officers of us, RMR LLC or RMR Inc., including: SIR, which owned 100% of our common shares until January 17, 2018 and which remains our largest shareholder, owning approximately 69.2% of our outstanding common shares at March 27, 2018; and GOV, which is SIR’s largest shareholder and at December 31, 2017 and March 27, 2018 owned approximately 27.8% of SIR’s outstanding common shares.
For furthermore information about these and other such relationships and related person transactions, see Notes 7, 8, 9 and 1110 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, which are incorporated herein by reference,and our other filings with the SEC, andincluding our prospectus dated January 11, 2018, which wasdefinitive Proxy Statement for our 2021 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC pursuant to Rule 424(b)(4) promulgated underwithin 120 days after the Securities Act.fiscal year ended December 31, 2020. For furthermore information about these transactions and relationships and 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.” Our filings with the SEC and copies of certain of our agreements with these related persons, including our business management agreement and property management agreement with RMR LLC and the Transaction Agreement, registration rights agreement and other agreements with SIR or RMR LLC related to the IPO, are available as exhibits to our public filings with the SEC and accessible at the SEC’s website, www.sec.gov. We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.
Critical Accounting Policies
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. 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.
We allocate the cost of each property investment to various property components such as land, buildings and improvements and intangibles based on their relative fair values, and each component generally has a different useful life. For acquired real estate, we record building, land and improvements, and, if applicable, the value of in-place leases, the fair market value of above or below market leases and customertenant relationships at their relative fair value. 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 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. 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. We amortize the value of acquired in place leases exclusive of the value of above market and below market acquired in place leases to expensedepreciation 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. 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 charges over future periods.
We periodically evaluate our properties for impairment. Impairment indicators may include declining tenant occupancy, our concerns about a tenant's financial condition (which may be endangeredaffected by a rent default or other information which comes to our attention) or our decision to dispose of an asset before the end of its estimated useful life and legislative, as well as market or industry changes that could permanently reduce the value of a property. If indicators of impairment are present, we evaluate the carrying value of the related property by comparing it to the expected future undiscounted cash flows to be generated from that property. If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to its fair value. This analysis requires us to judge whether indicators of impairment exist and to estimate likely future cash flows. The future net undiscounted cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. If we misjudge or estimate incorrectly or if future tenant operations, market or industry factors differ from our expectations we may record an impairment charge that is inappropriate or fail to record a charge when we should have done so, or the amount of any such charges may be inaccurate.
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. Competition, economic conditions and other factors may cause occupancy declines in the future. In the future, we may need to revise our carrying value assessments to incorporate information which is not now known, and such revisions could increase or decrease our depreciation expense related to properties we own or decrease the carrying values of our assets.
Impact of Inflation
Inflation in the past several years in the United States has been modest, but recently there have been indications of inflation in the U.S. economy and some market forecasts indicate an expectation of increased inflation in the near to intermediate term. Future inflation might have both positive and negative impacts on our business. Inflation might cause the value of our assets to increase.
Increases in operating costs as a result of inflation are likely to have modest, if any, impacts on our operating results. This is because most of the operating costs arising in our business are incurred at our properties and our tenants pay most of the property operating cost increases directly or indirectly when we pass through such costs as additional rent under our leases. Increased debt capital costs as a result of inflation are not directly or immediately paid by, or passed through, to our tenants; therefore, such cost increases are more likely to impact our financial results. Over time, however, inflationary debt capital cost increases may be mitigated by rent resets at our Hawaii Properties or as leases at our properties expire and new leases are entered which reflect inflationary increases in market rents.
To mitigate the adverse impact of any increased cost of debt capital in the event of material inflation, we may enter into interest rate hedge arrangements. The decision to enter into these agreements will be based on various factors, including the amount of our floating rate debt outstanding, our belief that material interest rate increases are likely to occur, the costs of, and our expected benefit from, these agreements and upon possible requirements of our borrowing arrangements. In periods of rapid U.S. inflation, our tenants’ operating costs may increase faster than revenues, which may have an adverse impact upon us if our tenants’ operating income becomes insufficient to pay our rent. To mitigate the adverse impact of tenant financial distress upon us, we require some of our tenants to provide guarantees or security for our rent.
Generally, we do not expect inflation to have a material adverse impact on our financial results for the next 12 months or for the currently foreseeable future thereafter.
Impact of ClimateChange
The political debateConcerns about climate change hashave resulted in various treaties, laws and regulations that are intended to limit carbon emissions. We believe theseemissions and address other environmental concerns. These and other laws being enacted or proposed may cause energy or other costs at our properties to increase in the future.increase. We do not expect the direct impact of these possible increases in energy costs resulting from laws designed to
address climate change to be material to our results of operations, because the increased costs either maywould be the responsibility of our tenants directly or in large partthe longer term, passed through and paid by us totenants of our tenants as additional rent. Also, althoughproperties. Although we do not believe it is likely in the foreseeable future, laws enacted to mitigate climate change may make some of our buildingsproperties obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants and results of operations.their ability to pay rent to us.
In an effort to reduce the effects of any increased energy costs in the future, we continuously study ways to improve the energy efficiency at all of our properties. Our property manager, RMR LLC, is a member of the Energy Star PartnerENERGY STAR program, a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy that is focused on promoting energy efficiency at commercial properties through its “ENERGY STAR” labelpartner program, and a member of the U.S. Green Building Council, a nonprofit organization focused on promoting energy efficiency at commercial properties through its leadership in energy and environmental design, or LEED®, green building program.
Some observers believe severe weather in different parts of the world over the last few years is evidence of global climate change. Severe weather may have an adverse effect on certain properties we own. Rising sea levels could cause flooding at some of our properties, including some of our Hawaii Properties, which may have an adverse effect on individual properties we own. We mitigate these risks by procuring, or requiring our tenants to procure, insurance coverage we believe adequate to protect us from material damages and losses resulting from the consequences of losses caused by climate change. 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.
Item 7A.Quantitative and Qualitative Disclosures About MarketRisk (dollarsin 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. 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.
Fixed Rate Debt
As of December 31, 2017,2020, our outstanding fixed rate debt consisted of the following secured mortgage note:notes:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Annual | | Annual | | | | Interest |
| | Principal | | Interest | | Interest | | | | Payments |
Debt | | Balance (1) | | Rate (1) | | Expense (1) | | Maturity | | Due |
| | | | | | | | | | |
| | | | | | | | | | |
Mortgage notes (186 properties in Hawaii) | | $ | 650,000 | | | 4.31 | % | | $ | 28,015 | | | 2029 | | Monthly |
| | | | | | | | | | |
| | $ | 650,000 | | | | | $ | 28,015 | | | | | |
|
| | | | | | | | | | | | | | | |
| | | | Annual | | Annual | | | | Interest |
| | Principal | | Interest | | Interest | | | | Payments |
Debt | | Balance (1) | | Rate (1) | | Expense (1) | | Maturity | | Due |
Mortgage note (one property in Chester, VA) | | $ | 48,750 |
| | 3.99 | % | | $ | 1,945 |
| | 2020 | | Monthly |
(1)The principal balance, annual interest rate and annual interest expense are the amounts stated in the applicable contract. 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.
| |
(1) | The principal balance, annual interest rate and annual interest expense are the amounts stated in the applicable contract. In accordance with GAAP, our carrying value and recorded interest expense may differ from these amounts because of market conditions at the time we assumed this debt. |
OurThese mortgage note requiresnotes require interest only payments until maturity. Because our mortgage note requiresnotes require interest to be paid at a fixed rate, changes in market interest rates during the termterms of thethese mortgage notenotes will not affect our interest obligations. If thisthese mortgage note isnotes are refinanced at an interest rate which is 100 basis pointsone percentage point higher or lower than shown above, our annual interest cost would increase or decrease by approximately $488.
$6,500.
Changes in market interest rates would affect the fair value of our fixed rate debt obligations. 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. Based on the balance outstanding at December 31, 20172020 and discounted cash flow analysisanalyses 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 100 basisone percentage point change in the interest raterates would change the fair value of this obligation by approximately $1,325.
$50,181.
Floating Rate Debt
At December 31, 2017,2020, our floating rate debt consisted of $750,000$221,000 outstanding under our revolving credit facility. Following the completion of the IPO, the maturity date of ourOur revolving credit facility was extended tomatures on December 29, 2021 and, subject to the payment of extension fees and satisfaction of other conditions, we have the option to extend the maturity date for
two, six month periods. No principal repayments are required under our revolving credit facility prior to maturity, and prepayments may be made at any time without penalty.
Borrowings under our revolving credit facility are in U.S. dollars and require interest to be paid at LIBOR plus a premium that is subject to adjustmentvaries based upon changes toon our leverage ratio. Accordingly, we are vulnerable to changes in the U.S. dollar based short term rates, specifically LIBOR. In addition, upon renewal or refinancing of this obligation, 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. The following table presents the approximate impact a 1%one percentage point increase in interest rates would have on our annual floating rate interest expense at December 31, 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2020 | | 1.70 | % | | $ | 221,000 | | | $ | 3,757 | | | $ | (0.06) | |
One percentage point increase | | 2.70 | % | | $ | 221,000 | | | $ | 5,967 | | | $ | (0.09) | |
(1) Based on the diluted weighted average common shares outstanding for the year ended December 31, 2020.
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, 2020 if we were fully drawn on our revolving credit facility:
|
| | | | | | | | | | | | | | | |
| | 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, 2017 | | 2.89 | % | | $ | 750,000 |
| | $ | 21,675 |
| | $ | 0.48 |
|
100 basis point increase | | 3.89 | % | | $ | 750,000 |
| | $ | 29,175 |
| | $ | 0.65 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2020 | | 1.70 | % | | $ | 750,000 | | | $ | 12,750 | | | $ | (0.20) | |
One percentage point increase | | 2.70 | % | | $ | 750,000 | | | $ | 20,250 | | | $ | (0.31) | |
(1) Based on the diluted weighted average common shares outstanding for the year ended December 31, 2020.
| |
(1) | Based on the diluted weighted average common shares outstanding for the year ended December 31, 2017, all of which were owned by SIR. |
The foregoing table shows the impact of an immediate 1%one percentage point change in floating interest rates. If that interest raterates were to change occurredgradually over time, the changeimpact would occurbe spread over time as well.time. Our exposure to changesfluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the amountoutstanding amounts of our revolving credit facility and any other floating rate debt.
LIBOR Phase Out
LIBOR is currently expected to be phased out for new contracts by December 31, 2021 and for pre-existing contracts by June 30, 2023. We are required to pay interest on borrowings under our revolving credit facility at floating rates based on LIBOR. Interest we may pay on any future debt that we may have outstanding.incur may also require that we pay interest based upon LIBOR. We currently expect that the determination of interest under our revolving credit facility would be revised as provided under our credit agreement or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR. Despite our current expectations, we cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest under our agreements would approximate the current calculation in accordance with LIBOR. We do not know what standard, if any, will replace LIBOR if it is phased out or transitioned.
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.
Item 9A.Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, our management carried out an evaluation, under the supervision and with the participation of our Managing Trustees, our President and Chief OperatingExecutive Officer and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Exchange Act. Based upon that evaluation, our Managing Trustees, our President and Chief OperatingExecutive Officer and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 20172020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management Report on Assessment of Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system is designed to provide reasonable assurance to our management and Board of Trustees regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
This Annual Report on Form 10-K does not include a reportOur management assessed the effectiveness of management's assessment regardingour internal control over financial reporting or an attestation report fromas of December 31, 2020. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 Framework). Based on this assessment, we believe that, as of December 31, 2020, our internal control over financial reporting was effective.
Deloitte & Touche LLP, the independent registered public accounting firm due to a transition period established by rules of the SEC for new public companies.
Item 9B.Other Information
On March 27, 2018, pursuant to a recommendation ofthat audited our Nominating and Governance Committee, our Board of Trustees elected John C. Popeo as the Managing Trustee in Class I of our Board of Trustees, effective immediately. Mr. Popeo was elected to fill the vacancy created by the death of Barry Portnoy and to serve the remainder of the term of our Class I
Trustees. Mr. Popeo will stand for election at our 2019 annual meeting of shareholders. For more information regarding Mr. Popeo, see Part III, Item 10 of this Annual Report on Form 10-K.
Our Board of Trustees is comprised of two Managing Trustees and three Independent Trustees. Mr. Popeo qualifies as a Managing Trustee in accordance with our declaration of trust and bylaws. Mr. Popeo has advised us that he has no arrangement or understanding with any other person pursuant to which he was selected as a Managing Trustee. Mr. Popeo is not expected to be appointed to any committees of our Board of Trustees.
In accordance with our publicly disclosed Trustee compensation policy, Mr. Popeo will not be entitled to any cash compensation for his service as a Managing Trustee, but he may receive awards of our common shares from time to time pursuant to our 2018 Equity Compensation Plan, or the 2018 Plan, at the discretion of our Compensation Committee. On March 27, 2018, pursuant to the 2018 Plan, our Compensation Committee awarded to Mr. Popeo 1,000 of our common shares. For information regarding our currently effective Trustee compensation, see “Executive Compensation—Compensation of the Trustees and Officers” in Part III, Item 11 of this Annual Report on Form 10-K.
We have relationships and historical and continuing transactions with RMR LLC, RMR Inc., SIR and others related to them. For information about these and other such relationships and related person transactions, see Notes 7, 8, 9 and 11 to our2020 Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. In addition, see “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K, for a descriptionhas issued an attestation report on our internal control over financial reporting. The report appears elsewhere herein.
Item 9B.Other Information
None.
PART III
Item 10.Directors, Executive Officers and Corporate Governance
The following table sets forth certain information regarding our Trustees and executive officers as of March 27, 2018.
|
| | |
Name | Age | Position(s) |
Adam D. Portnoy | 47 | Managing Trustee (Class Two term will expire in 2020) |
John C. Popeo | 57 | Managing Trustee (Class One term will expire in 2019), President and Chief Operating Officer |
Lisa Harris Jones | 50 | Independent Trustee (Class One term will expire in 2019) |
Bruce M. Gans | 71 | Independent Trustee (Class Two term will expire in 2020) |
Joseph L. Morea | 63 | Independent Trustee (Class Three term will expire in 2021) |
Richard W. Siedel, Jr. | 38 | Chief Financial Officer and Treasurer |
The following is a biographical summary of the experience of our Trustees and executive officers.
ADAM D. PORTNOY has been one of our Managing Trustees since our formation in 2017. Mr. Portnoy has been a managing director of RMR Inc. and its president and chief executive officer since shortly after its formation in 2015. Mr. Portnoy has been president and chief executive officer of RMR LLC since 2005 and was a director of RMR LLC from 2006 until June 5, 2015 when RMR LLC became a majority owned subsidiary of RMR Inc. and RMR Inc. became RMR LLC’s managing member. Mr. Portnoy serves as a managing trustee of HPT (since 2007), SNH (since 2007), GOV (since 2009), RIF, including its predecessor funds (since 2009), SIR (since 2011) and TRMT (since 2017), and managing director of Five Star (since 2018) and TA (since 2018). Mr. Portnoy has been a director of RMR Advisors LLC, since 2007 and served as its president from 2007 to September 2017 and its chief executive officer from 2015 to September 2017. Mr. Portnoy has been a director of Tremont Realty Advisors LLC since March 2016, and he was its president and chief executive officer from March 2016 through December 2017. Mr. Portnoy is an owner and has been a director of Sonesta, since 2012. Mr. Portnoy served as president and chief executive officer of RIF from 2007 to 2015 and as president of GOV from 2009 to 2011. Mr. Portnoy was a managing trustee of Equity Commonwealth from 2006 until 2014 and served as its president from 2011 to 2014. Prior to joining RMR LLC in 2003, Mr. Portnoy held various positions in the finance industry and public sector, including working as an investment banker at Donaldson, Lufkin & Jenrette and ABN AMRO as well as working in private equity at DLJ Merchant Banking Partners and at the International Finance Corporation (a member of The World Bank Group). In addition, Mr. Portnoy previously founded and served as chief executive officer of a privately financed telecommunications company. Mr. Portnoy currently serves as the honorary consul general of the Republic of Bulgaria in Massachusetts, and previously served on the board of governors for the National Association of Real Estate Investment Trusts and the board of trustees of Occidental College. Our Board of Trustees concluded that Mr. Portnoy is qualified to serve as a Managing Trustee based upon, among other things, his extensive experience in, and knowledge of, the commercial real estate industry and REITs, his leadership position with RMR LLC and demonstrated management ability, his public company director service, his experience in investment banking and private equity, his institutional knowledge of our properties through service on SIR’s board of trustees since SIR’s formation, and his qualifying as a Managing Trustee in accordance with the requirements of our declaration of trust and bylaws.
JOHN C. POPEO has been our President and Chief Operating Officer since our formation in 2017 and one of our Managing Trustees since March 27, 2018. Mr. Popeo has been an executive vice president of RMR LLC since 2008, and previously served as its chief financial officer and treasurer from 1997 to 2012, senior vice president from 2006 to 2008 and vice president from 1999 to 2006. Mr. Popeo has been chief financial officer and treasurer of SIR since 2011 and was chief financial officer and treasurer of Equity Commonwealth from 1999 to 2014. Prior to joining RMR LLC, Mr. Popeo was employed at the Beacon Companies and at other real estate companies and accounting firms in the Boston, Massachusetts area. Mr. Popeo is a certified public accountant. Our Board of Trustees concluded that Mr. Popeo is qualified to serve as a Managing Trustee based upon, among other things, his demonstrated leadership capability, his extensive experience in, and knowledge of, the commercial real estate industry and REITs, his leadership position with RMR LLC and demonstrated management ability, his experience in finance and accounting, his institutional knowledge earned through service as one of our executive officers since our formation and in leadership positions with RMR LLC, his institutional knowledge of our properties through service as SIR’s chief financial officer and treasurer, and his qualifying as a Managing Trustee in accordance with the requirements of our declaration of trust and bylaws.
LISA HARRIS JONES has been one of our Independent Trustees since January 2018. Ms. Harris Jones is the founding member of Harris Jones & Malone, LLC, a law firm based in Maryland. Since founding Harris Jones & Malone, LLC in 2000, Ms. Harris Jones has represented a wide range of clients, focusing her practice in government relations and
procurement at both the state and local levels. Prior to founding Harris, Jones & Malone, LLC, Ms. Harris Jones was associated with other Maryland law firms from 1993 to 1999, and she has represented the City of Baltimore and many of its agencies and related quasi-public entities in various real estate development and financing transactions. In addition to her professional accomplishments, Ms. Harris Jones has held leadership positions in many community service and civic organizations for which she has received recognitions and awards, including being the recipient of the YWCA Greater Baltimore Special Leadership Award in 2012. Ms. Harris Jones also serves as an independent trustee of SNH (since 2015) and as an independent director of TA (since 2013). Our Board of Trustees concluded that Ms. Harris Jones is qualified to serve as one of our Independent Trustees based upon, among other things, her public company director service, her professional skills and experience in legal and business finance matters, her experience in public policy and real estate matters, her financial sophistication and her qualifying as an Independent Trustee in accordance with the requirements of Nasdaq, the SEC and our declaration of trust and bylaws.
BRUCE M. GANS has been one of our Independent Trustees since January 2018. Dr. Gans has been executive vice president and chief medical officer at the Kessler Institute for Rehabilitation since 2001 and national medical director for rehabilitation at Select Medical, the parent company of the Kessler Institute, since 2003. He is also a professor of physical medicine and rehabilitation at Rutgers University-New Jersey Medical School. Dr. Gans serves as an independent director of Five Star (since 2001) and served as an independent trustee of HPT from 2009 until 2015. Dr. Gans has also served as president and chief executive officer of the Rehabilitation Institute of Michigan. In Dr. Gans’s extensive academic career, he has served as professor of physical medicine and rehabilitation at a number of universities, in addition to his current position at Rutgers University-New Jersey Medical School. Dr. Gans has also served as president of the American Academy of Physical Medicine and Rehabilitation, a medical society with more than 7,500 members, and as a leader in numerous other professional organizations. Our Board of Trustees concluded that Dr. Gans is qualified to serve as one of our Independent Trustees based upon, among other things, his public company director service, his financial sophistication and his qualifying as an Independent Trustee in accordance with the requirements of Nasdaq, the SEC and our declaration of trust and bylaws.
JOSEPH L. MOREA has been one of our Independent Trustees since January 2018. Mr. Morea was a vice chairman and managing director, serving as head of U.S. Equity Capital Markets, at RBC Capital Markets, an international investment bank, from 2003 until 2012. From 2008 to 2009, Mr. Morea also served as the head of U.S. Investment Banking for RBC Capital Markets. Previously, Mr. Morea was employed as an investment banker, including as a managing director and the co-head of the Investment Banking Division and head of U.S. Equity Capital Markets at PaineWebber, Inc., and a managing director of Equity Capital Markets at Smith Barney, Inc. Prior to working as an investment banker, Mr. Morea was employed as a certified public accountant. Mr. Morea serves as an independent director of TA (since 2015), an independent trustee of RIF (since 2016) and TRMT (since 2017), a director of Garrison Capital Inc. (since 2015) and a trustee of THL Credit Senior Loan Fund (since 2013) and Eagle Growth & Income Opportunities Fund (since 2015). Mr. Morea also served as a trustee of Equity Commonwealth from 2012 until 2014. Our Board of Trustees concluded that Mr. Morea is qualified to serve as one of our Independent Trustees based upon, among other things, his public company director service, his experience in investment banking and equity capital markets, his financial sophistication and his qualifying as an Independent Trustee in accordance with the requirements of Nasdaq, the SEC and our declaration of trust and bylaws.
RICHARD W. SIEDEL, JR. has been our Chief Financial Officer and Treasurer since our formation in 2017. Mr. Siedel has been a senior vice president of RMR LLC since 2016 and was a vice president of RMR LLC from 2015 to 2016. Mr. Siedel serves as chief financial officer and treasurer of SNH (since 2016) and was chief accounting officer of Five Star from 2014 through 2015. He previously served as controller of RMR LLC from 2013 to 2014. Mr. Siedel’s prior experience includes various accounting positions, including corporate controller at Sensata Technologies (NYSE: ST) from 2010 to 2013 and as an accountant at Ernst & Young LLP from 2001 to 2010.
There are no family relationships among our Trustees or executive officers.
Board of Trustees
Our business is managed by RMR LLC, subject to the oversight and direction of our Board of Trustees. Pursuant to our declaration of trust, our Board of Trustees consists of five members staggered into three classes. Our Board of Trustees believes that its members collectively have the experience, qualifications, attributes and skills to effectively oversee our management, including a high degree of personal and professional integrity, an ability to exercise sound business judgment on a broad range of issues, sufficient experience and background to have an appreciation of the issues affecting our business, a willingness and ability to devote the necessary time to their duties and a commitment to representing our best interests.
Our Board of Trustees is classified into three classes. Our first annual meeting of shareholders following the IPO will be in 2019. At each annual meeting of shareholders, the successors to Trustees whose terms then expire will be elected to serve
from the time of election and qualification until the third annual meeting following election. Our Trustees are classified as follows:
the Class I Managing Trustee is John C. Popeo and the Class I Independent Trustee is Lisa Harris Jones, each of whose term shall continue until our 2019 annual meeting of shareholders and until his or her successor is elected and qualified;
the Class II Managing Trustee is Adam D. Portnoy and the Class II Independent Trustee is Bruce M. Gans, each of whose term shall continue until our 2020 annual meeting of shareholders and until his successor is elected and qualified; and
the Class III Independent Trustee is Joseph L. Morea, whose term shall continue until our 2021 annual meeting of shareholders and until his successor is elected and qualified.
Our policy with respect to Trustee attendance at our annual meetings of shareholders can be found in our Governance Guidelines, which is available on our website, www.ilptreit.com, and also may be obtained free of charge by writing to Investor Relations, Industrial Logistics Properties Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634.
In accordance with our declaration of trust and bylaws, our Board of Trustees is comprised of five Trustees, including three Independent Trustees and two Managing Trustees. All Trustees play an active role in overseeing our business both at the Board and committee levels. As set forth in our Governance Guidelines, the core responsibility of our Trustees is to exercise sound, informed and independent business judgment in overseeing us and our strategic direction. Our Trustees are skilled and experienced leaders and currently serve or have served as members of senior management in public and private for profit organizations and law firms, and have also served in academia. Our Trustees may be called upon to provide solutions to various complex issues and are expected to, and do, ask hard questions of our officers and advisors. Our Board of Trustees is small, which facilitates informal discussions and communication from management to our Board of Trustees and among Trustees.
We do not have a Chairman of our Board of Trustees or a lead Independent Trustee. Our President and Treasurer are not members of our Board of Trustees, but they regularly attend Board and Board committee meetings, as does our Director of Internal Audit. Other officers of RMR LLC also sometimes attend Board meetings at the invitation of our Board of Trustees. Special meetings of our Board of Trustees may be called at any time by any Managing Trustee, the President or pursuant to the request of any two Trustees then in office. Our Managing Trustees, in consultation with our management and our Director of Internal Audit, set the agenda for Board meetings. Other Trustees may suggest agenda items. Discussions at Board meetings are led by the Managing Trustee or Independent Trustee who is most knowledgeable on a subject.
Pursuant to our Governance Guidelines, our Independent Trustees are expected to meet in regularly scheduled meetings at which only Independent Trustees are present. It is expected that these executive sessions may occur at least twice per year. Our Independent Trustees also meet separately with our officers, with our Director of Internal Audit and with our independent auditors. The presiding Trustee for purposes of leading Independent Trustee sessions is the Chair of our Audit Committee, unless our Independent Trustees determine otherwise.
Board Committees
Our Board of Trustees has established an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. Our Audit Committee, Compensation Committee and Nominating and Governance Committee have each adopted a written charter, each of which is available on our website, www.ilptreit.com. Shareholders may also request copies of the Board committee charters free of charge by writing to Investor Relations, Industrial Logistics Properties Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634.
Our Audit Committee, Compensation Committee and Nominating and Governance Committee are each comprised of Bruce M. Gans, Lisa Harris Jones and Joseph L. Morea, who are our Independent Trustees and meet the independence requirements under applicable SEC rules, Nasdaq listing standards, our declaration of trust, our bylaws and our Governance Guidelines. Our Director of Internal Audit, with the assistance of management, proposes the agenda for Board committee meetings under the oversight and direction of the applicable Board committee chairperson. In addition, the charter of each of our standing Board committees provides that such Board committee may form and delegate authority to subcommittees of one or more members when appropriate. Subcommittees will be subject to the provisions of the applicable Board committee’s charter.
Audit Committee
Our Audit Committee has been established in accordance with Section 3(a)(58)(A) of the Exchange Act. The purpose of our Audit Committee is to assist our Board of Trustees in fulfilling its responsibilities for oversight of: (1) our accounting and financial reporting processes; (2) the audits of our financial statements and internal control over financial reporting; (3) our compliance with legal and regulatory requirements; and (4) our internal audit function generally. Our Audit Committee takes a leading role in helping our Board of Trustees fulfill its responsibilities for oversight of our financial reporting, internal audit function, risk management and our compliance with legal and regulatory requirements. Under its charter, our Audit Committee is directly responsible for the appointment, compensation, retention and oversight, and the evaluation of the qualifications, performance and independence, of our independent auditors and the resolution of disagreements between management and our independent auditors regarding financial reporting. Our Audit Committee reviews the overall audit scope and plans of the audit with our independent auditors. Our independent auditors report directly to our Audit Committee. Our Audit Committee also has final authority and responsibility for the appointment and assignment of duties to our Director of Internal Audit. Our Audit Committee also reviews with management and our independent auditors our quarterly reports on Form 10-Q, annual reports on Form 10-K and earnings releases. Our Audit Committee reviews and assesses the adequacy of its charter at least annually and, when appropriate, recommends changes to our Board of Trustees.
Each member of our Audit Committee is financially literate, knowledgeable and qualified to review financial statements. Mr. Morea is our Audit Committee’s “financial expert.” The determination of our Board of Trustees that Mr. Morea is a financial expert was based on his experience as: (1) vice chairman and managing director of an international investment bank; (2) chief operating officer of the investment bank division at a national stock brokerage and asset management firm; (3) a member of our Audit Committee and of the audit committees of other public companies; and (4) a certified public accountant. Mr. Morea serves as the Chair of our Audit Committee.
Compensation Committee
The purpose of our Compensation Committee is to discharge directly, or assist our Board of Trustees in discharging, its responsibilities related to: (1) the evaluation of the performance and compensation of our business and property management services provider, our President and Chief Operating Officer, our Chief Financial Officer and Treasurer and any other executive officer that we may have; (2) the compensation of our Trustees; (3) the approval of the compensation paid to our Director of Internal Audit and the allocation of internal audit costs incurred by RMR LLC to us and other companies it manages; and (4) the approval, evaluation and administration of any of our equity compensation plans. Dr. Gans serves as the Chair of our Compensation Committee.
Under its charter, our Compensation Committee is responsible for the determination and approval of any compensation payable by us to our President, our Treasurer and any other executive officer based on such evaluation. Our Compensation Committee is also responsible for the evaluation and recommendation to our Board of Trustees of the cash compensation payable by us to the Trustees for Board and committee service and the annual evaluation of the performance of our Director of Internal Audit and the determination of his or her compensation. In addition, our Compensation Committee is responsible for the annual review of any business and property management agreement between us and our business and property management service provider, the proposal and approval of amendments to or termination of any business or property management agreement between us and any such provider and the review of amounts payable by us under any such management agreements.
Nominating and Governance Committee
The principal purposes of our Nominating and Governance Committee are: (1) to identify individuals qualified to become members of our Board of Trustees, consistent with criteria approved by our Board of Trustees, and to recommend candidates to the entire Board for nomination or selection as Trustees for each annual meeting of shareholders (or special meeting of shareholders at which Trustees are to be elected) or when vacancies occur; (2) to perform certain assessments of our Board of Trustees and our management; and (3) to develop and recommend to our Board of Trustees a set of governance guidelines applicable to us. Under its charter, our Nominating and Governance Committee also is responsible for overseeing the evaluation of our management to the extent not overseen by our Compensation Committee or another Committee of our Board of Trustees. Ms. Harris Jones serves as the Chair of our Nominating and Governance Committee.
Trustee Nominations
Our Nominating and Governance Committee is responsible for identifying and evaluating nominees for Trustee and for recommending to the Board nominees for election at each annual meeting of shareholders. Our Nominating and Governance Committee may consider candidates suggested by our Trustees, officers or shareholders or by others.
In its assessment of each potential candidate, including those recommended by our shareholders, our Nominating and Governance Committee considers the potential nominee’s integrity, experience, achievements, judgment, intelligence, competence, personal character, likelihood that a candidate will be able to serve on our Board of Trustees for an extended period and other matters that our Nominating and Governance Committee deems appropriate. Our Nominating and Governance Committee also takes into account the ability of a potential nominee to devote the time and effort necessary to fulfill his or her responsibilities to us. Our Board of Trustees and Nominating and Governance Committee require that each Trustee candidate be a person of high integrity with a proven record of success in his or her field. Each Trustee candidate must demonstrate the ability to make independent analytical inquiries, familiarity with and respect for corporate governance requirements and practices and a commitment to serving our long term best interests. In addition, our Nominating and Governance Committee may conduct interviews of potential Trustee candidates to assess intangible qualities, including the individual’s ability to ask appropriate questions and to work collegially. Our Board of Trustees does not have a specific diversity policy in connection with the selection of nominees for Trustee, but due consideration is given to the overall balance of diversity of our Board of Trustees, including perspectives, backgrounds and experiences.
Shareholders may recommend a Trustee nominee in writing by mail to the Chair of our Nominating and Governance Committee, c/o our Secretary at our principal executive offices. Our bylaws also provide that a shareholder may propose a nominee for election to our Board of Trustees provided that the shareholder complies with the advance notice and other requirements set forth in our bylaws, which include, among other things, requirements as to the shareholder’s timely delivery of advance notice, continuous requisite ownership of our common shares, holding of a share certificate for such common shares at the time of the advance notice and submission of specified information. Under our bylaws, a shareholder’s written notice of nominations of individuals for election to our Board of Trustees must be delivered to our Secretary at our principal executive offices not later than 5:00 p.m. (Eastern Time) on the 120th day nor earlier than the 150th day prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting; provided, however, that if the annual meeting is called for a date that is more than 30 days earlier or later than the first anniversary of the date of the preceding year’s annual meeting, the notice must be delivered by not later than 5:00 p.m. (Eastern Time) on the 10th day following the earlier of the day on which (1) notice of the date of the annual meeting is mailed or otherwise made available or (2) public announcement of the date of the annual meeting is first made by us; provided further, however, that for our annual meeting of shareholders to be held in 2019, written notice of nominations of individuals for election to our Board of Trustees by one or more of our shareholders must be delivered to our Secretary at our principal executive offices not later than 5:00 p.m. (Eastern Time) on October 31, 2018 nor earlier than October 2, 2018.
Section 16(a) Beneficial Ownership Reporting Compliance
We did not have any class of equity securities registered pursuant to Section 12 of the Exchange Act during the year ended December 31, 2017. As a result, none of our Trustees, officers or other affiliated persons were subject to Section 16 of the Exchange Act with respect to us during such period.
Code of Business Conduct and Ethics
We have a Code of Conduct that applies to our officers and Trustees, RMR Inc. and RMR LLC, senior level officers of RMR LLC, senior level officers and directors of RMR Inc. and certain other officers and employees of RMR LLC. Our Code of Conduct is posted on our website, www.ilptreit.com. A printed copy of our Code of Conduct is also available free of charge to any person who requests a copy by writing to Investor Relations, Industrial Logistics Properties Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634. We intend to disclose anysatisfy the requirements under Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers tofrom, provisions of our Code of Conduct applicablethat apply to our principal executive officer, principal financial officer, principal accounting officer or controller, (or any personor persons performing similar functions)functions, on our website.
Item 11.Executive Compensation
CompensationThe remainder of the Trusteesinformation required by Item 10 is incorporated by reference to our definitive Proxy Statement.
Item 11.Executive Compensation
The information required by Item 11 is incorporated by reference to our definitive Proxy Statement.
Item 12.Security Ownership of Certain Beneficial Owners and OfficersManagement and Related Stockholder Matters
Equity Compensation Plan Information.We will paymay grant common shares to our officers and other employees of RMR LLC under our 2018 Equity Compensation Plan, or the 2018 Plan. In addition, each of our Independent Trustees an annual fee (which, for 2018, is to be pro rated for the portion of the year beginning on the date our Independent Trustees were appointed and ending December 31, 2018) of $40,000 for services as
a Trustee, plus a fee of $1,250 for each meeting attended. Up to two $1,250 fees will be paid if two or more Board or Board committee meetings are held on the same day. Each Independent Trustee who serves as a chairperson of our Audit Committee, Compensation Committee or Nominating and Governance Committee will receive an additional annual fee (which, for 2018, is to be pro rated for the portion of the year beginning on the date our Independent Trustees were appointed and ending December 31, 2018) of $15,000, $10,000 and $10,000, respectively. In addition, we expect that each Independent Trustee and Managing Trustee will receive a grant of ourreceives common shares as part of his or her annual compensation for serving as determined by our Compensation Committee. All Trustees will be reimbursed for travel expenses they incur in connection with their duties as Trusteesa Trustee and for outsuch shares are awarded under the 2018 Plan. The terms of pocket costs they incur in connection with their attending certain continuing education programs.
We do not have any employees. RMR LLC provides services that otherwise would be provided by employees. Each of our Managing Trustees and each of our executive officers is an officer and an employee of RMR LLC. RMR LLC conducts our day to day operations on our behalf. RMR LLC compensates our Managing Trustees and executive officers directly and in its sole discretion in connection with their services to us and RMR LLC. We do not pay our executive officers salaries or bonuses or provide other compensatory benefits to them, except for the award of common sharesawards made under the 2018 Plan as discussed below. Noneare determined by the Compensation Committee of our executive officers has an employment agreement with us. In addition, exceptBoard of Trustees at the time of the awards. The following table is as of December 31, 2020:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Number of securities |
| | Number of securities | | | | remaining available for future |
| | to be issued upon | | Weighted-average | | issuance under equity |
| | exercise of | | exercise price of | | compensation plan (excluding |
| | outstanding options, | | outstanding options, | | securities reflected in |
| | warrants and rights | | warrants and rights | | column (a)) |
Plan category | | (a) | | (b) | | (c) |
Equity compensation plans approved by securityholders-2018 Plan | | None. | | None. | | 3,698,912 (1) |
Equity compensation plans not approved by securityholders | | None. | | None. | | None. |
Total | | None. | | None. | | 3,698,912 (1) |
(1)Consists of common shares available for issuance pursuant to the terms of the 2018 Plan. Share awards that mayare repurchased or forfeited will be grantedadded to the common shares available for issuance under the 2018 Plan, none of our executive officers has an agreement that provides for payments or benefitsPlan.
Payments by us upon or in connection with his or her termination of service as an executive officer of us or a change of control of us. Although our Compensation Committee reviews and approves our business management and property management agreements withto RMR LLC and our 2018 Plan, it is not involved in compensation decisions made by RMR LLC for its employees other than the employee serving as our Director of Internal Audit and the allocation of internal audit costs to us, which costs include internal audit employee costs. As described below, we may make awards under the 2018 Plan to employees of RMR LLC. Our allocation of payments to, and agreements with, RMR LLC are described in Notes 8, 96 and 1110 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
Equity Compensation Plan
Although we do not pay any cash compensation The remainder of the information required by Item 12 is incorporated by reference to our officers and have no employees, we have adopted the 2018 Plan to make awards to our Trustees, executive officers and other RMR LLC employees who may provide services to us. We have reserved 4,000,000 common shares for future issuance under the 2018 Plan. We will award common shares under the 2018 Plan to recognize such persons' scope of responsibilities, compensate demonstrated performance and leadership, motivate future performance, align such persons' interests with those of our other shareholders or motivate persons to remain employees of RMR LLC and to continue to be available to provide services to us through the term of the awards. On March 27, 2018, we granted 1,000 of our common shares, valued at $20.87 per common share, the closing price of our common shares on Nasdaq on that date, to each of our five Trustees as part of their compensation.definitive Proxy Statement.
Under its charter, our Compensation Committee administers the 2018 Plan. In setting common share awards under the 2018 Plan, our Compensation Committee will consider multiple factors, including some or all of the following primary factors: (1) the scope of responsibility of each individual; (2) the amount of common shares previously granted to each recipient; (3) the amount of common shares previously granted to persons performing similar services for us as are currently performed by each recipient; (4) the amount of equity compensation granted to persons performing similar services for other companies managed by RMR LLC; (5) the amount of equity compensation granted to persons performing similar services for other companies that our Compensation Committee may determine to be comparable to us; (6) the amount of time spent, the complexity of the duties and the value of services performed, by the particular recipient; (7) the fair market value of our common shares granted; and (8) the recommendations of our executive officers and Managing Trustees. We determine the fair market value of our common shares granted based on the closing price of our common shares on the date of grant.
In administering the 2018 Plan, our Compensation Committee may impose vesting and other conditions on granted common shares. In the event a recipient granted a common share award ceases to perform duties for us or ceases to be an officer or an employee of RMR LLC or any company which RMR LLC manages during the vesting period, the unvested common shares may be forfeited. As with other issued common shares, vested and unvested common shares awarded under the 2018 Plan will be entitled to distributions and will have voting rights.
We believe that the 2018 Plan is designed to align the interests of our Trustees and executive officers and employees of RMR LLC with those of our shareholders and to help achieve the goal of providing our shareholders dependable, long term returns.
Compensation Committee Interlocks and Insider Participation
No member of our Compensation Committee is a current or former executive officer or employee of ours or any of our subsidiaries. None of our executive officers serves as a member of the board of directors or board of trustees or compensation committee of any company that has one or more of its executive officers serving as a member of our Board of Trustees or Compensation Committee.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
For information regarding the 2018 Plan, which was adopted in January 2018, see “Executive Compensation—Equity Compensation Plan” in Part III, Item 11 of this Annual Report on Form 10-K.
Beneficial Ownership of Our Equity Securities
Trustees and Executive Officers
The following table sets forth certain information regarding the beneficial ownership of our then outstanding common shares by each Trustee and each of our named executive officers, and our Trustees and executive officers as a group, all as of March 27, 2018. Unless otherwise indicated, to our knowledge, voting power and investment power in our common shares are exercisable solely by the named person and the principal business address of the named person is c/o Industrial Logistics Properties Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458.
|
| | | | |
Name and Address | Aggregate Number of Shares | Percent of Outstanding Shares | Additional Information |
Adam D. Portnoy | 1,000 |
| Less than 1%
| As set forth in the below table, SIR beneficially owns 45,000,000 of our common shares. Adam Portnoy is a managing trustee of SIR and SIR is managed by RMR LLC. Mr. Portnoy and RMR LLC may not act to vote or sell the 45,000,000 common shares owned by SIR without authorization of the board of trustees of SIR, which is currently comprised of four trustees. As a result, Mr. Portnoy has determined that he does not beneficially own the 45,000,000 common shares owned by SIR and therefore the common shares owned by SIR are not referenced as beneficially owned by him in this table.
|
John C. Popeo | 1,000 |
| Less than 1%
| |
Lisa Harris Jones | 1,000 |
| Less than 1%
| |
Bruce M. Gans | 1,000 |
| Less than 1%
| |
Joseph L. Morea | 1,000 |
| Less than 1%
| |
Richard W. Siedel, Jr. | — |
| Less than 1%
| |
All Trustees and executive officers as a group (six persons) | 5,000 |
| Less than 1%
| See above note. |
Principal Shareholders
Set forth in the table below is information about the number of shares held by persons we know to be the beneficial owners of more than 5% of our outstanding common shares.
|
| | | | |
Name and Address | Aggregate Number of Shares | Percent of Outstanding Shares | Additional Information |
Select Income REIT Two Newton Place 255 Washington Street, Suite 300 Newton, Massachusetts 02458
| 45,000,000 |
| 69.2%
| Based on a Form 3 filed with the SEC on January 11, 2018, by SIR. Beneficial ownership of SIR is shown as of January 11, 2018. Based on information provided by SIR, the number of our outstanding common shares beneficially owned by SIR has not changed since January 11, 2018.
|
Item 13.Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is incorporated by reference to our definitive Proxy Statement.
For information regarding related person relationships and transactions, see Notes 7, 8, 9 and 11 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
Independence of Trustees
Under the corporate governance listing standards of Nasdaq, our Board of Trustees must consist of a majority of Independent Trustees. To be considered independent:
a trustee must not have a disqualifying relationship, as defined in the corporate governance section of Nasdaq rules; and
our Board of Trustees must affirmatively determine that the trustee otherwise has no relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a trustee. To facilitate the trustee independence assessment process, our Board of Trustees has adopted written Governance Guidelines.
Our bylaws also require that a majority of our Board of Trustees be Independent Trustees. Under our bylaws, Independent Trustees are Trustees who are not employees of RMR LLC, are not involved in our day to day activities and who meet the qualifications of independent directors under the applicable rules of Nasdaq and the SEC.
Our Board of Trustees affirmatively determines whether Trustees have a direct or indirect material relationship with us, including our subsidiaries, other than serving as our Trustees or trustees or directors of our subsidiaries. In making independence determinations, our Board of Trustees observes Nasdaq and SEC criteria, as well as the criteria in our bylaws. When assessing a Trustee’s relationship with us, our Board of Trustees considers all relevant facts and circumstances, not merely from the Trustee’s standpoint, but also from that of the persons or organizations with which the Trustee has an affiliation. Based on this review, our Board of Trustees has determined that Lisa Harris Jones, Bruce M. Gans and Joseph L. Morea currently qualify as independent trustees under applicable Nasdaq and SEC criteria and as Independent Trustees under our bylaws. In making these determinations, our Board of Trustees reviewed and discussed additional information provided by the Trustees and us with regard to each of the Trustees’ relationships with us, RMR Inc. or RMR LLC and the other companies to which RMR LLC or its subsidiaries provide management and advisory services. Our Board of Trustees has concluded that none of these three Trustees possessed or currently possesses any relationship that could impair his or her judgment in connection with his or her duties and responsibilities as a Trustee or that could otherwise be a direct or indirect material relationship under applicable Nasdaq and SEC standards.
Item 14. Principal Accountant Fees and Services
The following table shows the fees for audit and other services provided to usinformation required by Ernst & Young LLP for fiscal year ended December 31, 2017. Ernst & Young LLP did not provide us with any services during the year ended December 31, 2016.
|
| |
| 2017 Fees(1)
|
Audit Fees | $2,265,913 |
Audit Related Fees | — |
Tax Fees | — |
All Other Fees | — |
| |
(1)
| The amount of audit fees is based on the fees estimate provided by Ernst & Young LLP to and approved by our or SIR's Audit Committee for services provided to us by Ernst & Young LLP. The final amount of the fees for those services may vary from the estimate provided. The audit fees include $1,900,000 of fees associated with the IPO which were incurred by SIR; we reimbursed or will reimburse SIR for these fees. |
Audit Fees. This category includes fees associated with the annual financial statements audit and related audit procedures, work performed in connection with any registration statements and any applicable Current Reports on Form 8-K.
Audit Related Fees. This category consists of services that are reasonably related to the performance of the audit or review of financial statements and are not included in "Audit Fees." These services principally include due diligence in connection with acquisitions, consultation on accounting and internal control matters, audits in connection with proposed or consummated acquisitions, information systems audits and other attest services.
Tax Fees. This category consists of fees for tax services, including tax compliance, tax advice and tax planning.
All Other Fees. This category consists of services that are not included in the above categories.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
Our Audit Committee has established policies and procedures that are intended to control the services providedItem 14 is incorporated by our independent auditors and to monitor their continuing independence. Under these policies, no services may be undertaken by our independent auditors unless the engagement is specifically approved by our Audit Committee or the services are included within a category that has been approved by our Audit Committee. The maximum charge for services is established by our Audit Committee when the specific engagement or the category of services is approved. In certain circumstances, our management is required to notify our Audit Committee when approved services are undertaken and our Audit Committee or its Chair may approve amendments or modifications to the engagement or the maximum fees. Our Director of Internal Audit is responsible for reportingreference to our Audit Committee regarding compliance with these policies and procedures.definitive Proxy Statement.
Our Audit Committee will not approve engagements
All services for which we engaged its independent auditors in 2017 were approved by our Audit Committee. The total fees for audit and non-audit services provided by Ernst & Young LLP in 2017 are set forth above and include estimated fee amounts. Our Audit Committee approved the engagement of Ernst & Young LLP to provide these non-audit services because it determined that Ernst & Young LLP providing these services would not compromise Ernst & Young LLP’s independence and that the firm’s familiarity with our record keeping and accounting systems would permit the firm to provide these services with equal or higher quality, more efficiently and at a lower cost than we could obtain these services from other providers.
PART IV
Item 15. Exhibits and Financial Statement Schedules
| |
(a) | Index to Financial Statements and Financial Statement Schedules |
(a)Index to Financial Statements and Financial Statement Schedules
The following consolidated financial statements and financial statement schedules of Industrial Logistics Properties Trust are included on the pages indicated:
|
| | | | |
| |
| F-1 |
| F-2 |
| F-3 |
| F-4 |
| F-5 |
| F-6 |
Schedule II—Valuation and Qualifying Accounts | S-1 |
| S-2 |
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, or are inapplicable, and therefore have been omitted.
(b)Exhibits
Description |
| | |
Exhibit
Number 3.1 | | Description |
| | |
3.1 | | |
| | |
3.2 | | |
| | |
3.24.1 | | |
| | |
4.1 | | |
| | |
4.2 | | |
| | |
8.1 | | |
| | |
10.1 | | |
| | |
10.2 | | |
| | |
10.3 | | |
| | |
10.410.3 | | |
| | |
10.5 | | |
| | |
10.610.4 | | |
| | |
10.5 | | |
| | |
10.710.6 | | |
| | |
| | | | | | | | |
10.810.7 | | |
| | |
10.910.8 | | |
| | |
10.9 | | |
| | |
10.10 | | |
| | |
21.110.11 | | Loan Agreement, dated as of January 29, 2019, among certain of the Company’s subsidiaries, as co-borrowers, and Morgan Stanley Bank, N.A., Citi Real Estate Funding Inc., UBS AG and JPMorgan Chase Bank, National Association. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.) |
| | |
10.12 | | |
| | |
21.1 | | |
| | |
23.1 | | |
| | |
23.2 | | |
| | |
23.3 | | |
| | |
31.1 | | |
31.1 | | |
| | |
31.2 | | |
| | |
31.3 | | |
| | |
32.1 | | |
| | |
|
| | |
| | |
32.1 | | |
| | |
99.1 | | |
| | |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | |
101.SCH | | XBRL Taxonomy Extension Schema Document. (Filed herewith.) |
| | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.) |
| | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.) |
| | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.) |
| | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.) |
| | |
104 | | Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101.) |
(+) Management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
None.
Report of Independent Registered Public Accounting Firm
To the Trustees and ShareholderShareholders of Industrial Logistics Properties Trust
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetssheet of Industrial Logistics Properties Trust (the "Company") as of December 31, 2020, the related consolidated statements of comprehensive income, shareholders' equity, and cash flows, for the year then ended, and the related notes and the schedule listed in the Index at Item 15(a) (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 18, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment of Real Estate Properties - Refer to Notes 2 to the financial statements
Critical Audit Matter Description
The Company’s investments in real estate assets are evaluated for impairment periodically or when events or changes in circumstances indicate that the carrying amount of a real estate asset may not be recoverable. The Company’s evaluation of the recoverability of real estate assets involves the comparison of undiscounted future cash flows expected to be generated by each real estate asset over the Company’s estimated holding period to the respective carrying amount. The Company’s undiscounted future cash flows analysis and the assessment of expected remaining holding period requires management to make significant estimates and assumptions related to future occupancy levels, rental rates, estimated sale proceeds, and capitalization rates.
In the event that a real estate asset is not recoverable, the Company will adjust the real estate asset to its fair value based on third-party appraisals, broker selling estimates, sale agreements under negotiation, and/or final selling prices, when available, and recognize an impairment loss for the carrying amount in excess of fair value.
We identified the impairment of real estate assets as a critical audit matter because of the significant estimates and assumptions management makes to evaluate the recoverability of real estate assets. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s undiscounted future cash flows analysis and assessment of expected remaining holding period.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the undiscounted cash flows analysis and the assessment of the expected remaining hold period included the following, among others:
•We tested the effectiveness of controls over management’s evaluation of the recoverability of real estate property assets, including the key inputs utilized in estimating the undiscounted future cash flows.
•We evaluated the undiscounted cash flow analysis including estimates of future occupancy levels, rental rates, estimated sale proceeds, and capitalization rates for each real estate asset or group of assets with possible impairment indicators by (1) evaluating the source information and assumptions used by management and (2) testing the mathematical accuracy of the undiscounted future cash flows analysis.
•We evaluated the reasonableness of management’s undiscounted future cash flows analysis by comparing management’s projections to external market sources and evidence obtained in other areas of our audit.
•We held discussions with management about the current status of potential transactions and about management’s judgments to understand the probability of future events that could affect the hold period and other cash flow assumptions for the properties.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 18, 2021
We have served as the Company's auditor since 2020.
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of Industrial Logistics Properties Trust
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Industrial Logistic Properties Trust (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 18, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 18, 2021
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of Industrial Logistics Properties Trust
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Industrial Logistics Properties Trust (the Company) as of December 31, 2017 and 2016,2019, the related consolidated statements of comprehensive income, shareholder’sshareholders' equity and cash flows for each of the threetwo years in the period ended December 31, 2017,2019, and the related notes and the financial statement schedulesschedule listed in the Index at item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016,2019, and the results of its operations and its cash flows for each of the threetwo years in the period ended December 31, 2017,2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 24, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company'sCompany’s auditor since 2017.
from 2017 to 2020.
Boston, Massachusetts
March 28, 2018February 24, 2020
INDUSTRIAL LOGISTICS PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, exceptper sharedata)
| | | | | | December 31, | | | December 31, | |
| | 2017 | | 2016 | | | 2020 | | 2019 | |
ASSETS | | | | | ASSETS | | | | | | |
Real estate properties: | | | | | Real estate properties: | | | | |
Land | | $ | 642,706 |
| | $ | 642,425 |
| Land | | | $ | 709,099 | | | $ | 747,794 | | |
Buildings and improvements | | 700,896 |
| | 694,303 |
| Buildings and improvements | | | 1,099,971 | | | 1,588,170 | | |
| | 1,343,602 |
| | 1,336,728 |
| |
Total real estate properties, gross | | Total real estate properties, gross | | | 1,809,070 | | | 2,335,964 | | |
Accumulated depreciation | | (74,614 | ) | | (56,976 | ) | Accumulated depreciation | | | (141,406) | | | (131,468) | | |
| | 1,268,988 |
| | 1,279,752 |
| |
Total real estate properties, net | | Total real estate properties, net | | | 1,667,664 | | | 2,204,496 | | |
Investment in unconsolidated joint venture | | Investment in unconsolidated joint venture | | | 60,590 | | | 0 | | |
Acquired real estate leases, net | | 79,103 |
| | 89,625 |
| Acquired real estate leases, net | | | 83,644 | | | 138,596 | | |
Rents receivable, including straight line rents of $50,177 and $44,415, respectively, net of allowance for doubtful accounts of $1,241 and $583, respectively | | 51,672 |
| | 47,050 |
| |
Cash and cash equivalents | | Cash and cash equivalents | | | 22,834 | | | 28,415 | | |
Restricted cash | | Restricted cash | | | 0 | | | 6,135 | | |
Rents receivable, including straight line rents of $62,753 and $58,336, respectively | | Rents receivable, including straight line rents of $62,753 and $58,336, respectively | | | 69,511 | | | 62,782 | | |
Deferred leasing costs, net | | 5,254 |
| | 5,397 |
| Deferred leasing costs, net | | | 4,595 | | | 6,581 | | |
Debt issuance costs, net | | Debt issuance costs, net | | | 1,477 | | | 2,954 | | |
Due from related persons | | Due from related persons | | | 2,665 | | | 1,504 | | |
Other assets, net | | 6,666 |
| | 511 |
| Other assets, net | | | 2,765 | | | 3,438 | | |
Total assets | | $ | 1,411,683 |
| | $ | 1,422,335 |
| Total assets | | | $ | 1,915,745 | | | $ | 2,454,901 | | |
| | |
| | |
| | | | | | |
LIABILITIES AND SHAREHOLDER'S EQUITY | | |
| | |
| |
LIABILITIES AND SHAREHOLDERS' EQUITY | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | |
Revolving credit facility | | $ | 750,000 |
| | $ | — |
| Revolving credit facility | | | $ | 221,000 | | | $ | 310,000 | | |
| Mortgage notes payable, net | | 49,427 |
| | 64,269 |
| Mortgage notes payable, net | | | 645,579 | | | 1,096,608 | | |
Assumed real estate lease obligations, net | | 20,384 |
| | 22,472 |
| Assumed real estate lease obligations, net | | | 14,630 | | | 17,508 | | |
| Accounts payable and other liabilities | | 11,082 |
| | 10,231 |
| Accounts payable and other liabilities | | | 14,716 | | | 16,475 | | |
| Rents collected in advance | | 5,794 |
| | 6,537 |
| Rents collected in advance | | | 7,811 | | | 9,442 | | |
Security deposits | | 5,674 |
| | 5,641 |
| Security deposits | | | 6,540 | | | 6,680 | | |
| Due to related persons | | 7,114 |
| | — |
| Due to related persons | | | 2,279 | | | 2,498 | | |
Total liabilities | | 849,475 |
| | 109,150 |
| Total liabilities | | | 912,555 | | | 1,459,211 | | |
| | | | | | | | | | |
Commitments and contingencies | | | | | Commitments and contingencies | | | 0 | | 0 | |
| | | | | | | | |
Shareholder's equity: | | | | | |
Common shares of beneficial interest, $.01 par value: 100,000,000 and zero shares authorized, respectively; 45,000,000 and zero shares issued and outstanding, respectively | | 450 |
| | — |
| |
Shareholders' equity: | | Shareholders' equity: | | | | |
Common shares of beneficial interest, $.01 par value: 100,000,000 shares authorized; 65,301,088 and 65,180,628 shares issued and outstanding, respectively | | Common shares of beneficial interest, $.01 par value: 100,000,000 shares authorized; 65,301,088 and 65,180,628 shares issued and outstanding, respectively | | | 653 | | | 652 | | |
Additional paid in capital | | 546,489 |
| | — |
| Additional paid in capital | | | 1,010,819 | | | 999,302 | | |
Cumulative net income | | 15,269 |
| | — |
| Cumulative net income | | | 224,226 | | | 142,155 | | |
Ownership interest | | — |
| | 1,313,185 |
| |
Total shareholder's equity | | 562,208 |
| | 1,313,185 |
| |
Total liabilities and shareholder's equity | | $ | 1,411,683 |
| | $ | 1,422,335 |
| |
| Cumulative common distributions | | Cumulative common distributions | | | (232,508) | | | (146,419) | | |
| Total shareholders' equity | | Total shareholders' equity | | | 1,003,190 | | | 995,690 | | |
Total liabilities and shareholders' equity | | Total liabilities and shareholders' equity | | | $ | 1,915,745 | | | $ | 2,454,901 | | |
SeeThe accompanying notes.notes are an integral part of these consolidated financial statements.
INDUSTRIAL LOGISTICS PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in thousands, except per share data)
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | | | | | |
REVENUES: | | | | | | |
Rental income | | $ | 134,826 |
| | $ | 132,518 |
| | $ | 128,302 |
|
Tenant reimbursements and other income | | 21,680 |
| | 20,792 |
| | 19,589 |
|
Total revenues | | 156,506 |
| | 153,310 |
| | 147,891 |
|
EXPENSES: | | | | | | |
Real estate taxes | | 17,868 |
| | 17,204 |
| | 16,316 |
|
Other operating expenses | | 10,913 |
| | 10,593 |
| | 8,478 |
|
Depreciation and amortization | | 27,315 |
| | 27,074 |
| | 25,285 |
|
Acquisition and transaction related costs | | 1,025 |
| | 35 |
| | 15,291 |
|
General and administrative | | 16,799 |
| | 9,200 |
| | 8,745 |
|
Total expenses | | 73,920 |
| | 64,106 |
| | 74,115 |
|
| | | | | | |
Operating income | | 82,586 |
| | 89,204 |
| | 73,776 |
|
| | | | | | |
Interest expense (including amortization of debt premiums of ($494), ($292) and ($260), respectively) | | (2,439 | ) | | (2,262 | ) | | (2,092 | ) |
Income before income tax expense | | 80,147 |
| | 86,942 |
| | 71,684 |
|
Income tax expense | | (44 | ) | | (44 | ) | | (44 | ) |
Net income | | $ | 80,103 |
| | $ | 86,898 |
| | $ | 71,640 |
|
| | | | | | |
Weighted average common shares outstanding - basic and diluted | | 45,000 |
| | 45,000 |
| | 45,000 |
|
| | | | | | |
Net income per common share—basic and diluted | | $ | 1.78 |
| | $ | 1.93 |
| | $ | 1.59 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| | | | | | |
Rental income | | $ | 254,575 | | | $ | 229,234 | | | $ | 162,530 | |
| | | | | | |
Expenses: | | | | | | |
Real estate taxes | | 35,185 | | | 30,367 | | | 19,342 | |
Other operating expenses | | 20,749 | | | 17,643 | | | 13,005 | |
Depreciation and amortization | | 70,518 | | | 61,927 | | | 28,575 | |
Acquisition and certain other transaction related costs | | 200 | | | 0 | | | 0 | |
General and administrative | | 19,580 | | | 17,189 | | | 11,307 | |
| | | | | | |
Total expenses | | 146,232 | | | 127,126 | | | 72,229 | |
| | | | | | |
Gain on sale of real estate | | 23,996 | | | 0 | | | 0 | |
Interest income | | 113 | | | 743 | | | 200 | |
Interest expense (including net amortization of debt issuance costs, premiums and discounts of $2,481, $2,017 and $1,244, respectively) | | (51,619) | | | (50,848) | | | (16,081) | |
Gain on early extinguishment of debt | | 120 | | | 0 | | | 0 | |
Income before income tax expense and equity in earnings of investees | | 80,953 | | | 52,003 | | | 74,420 | |
Income tax expense | | (277) | | | (171) | | | (32) | |
Equity in earnings of investees | | 529 | | | 666 | | | 0 | |
Net income | | $ | 81,205 | | | $ | 52,498 | | | $ | 74,388 | |
Net loss attributable to noncontrolling interest | | 866 | | | 0 | | | 0 | |
Net income attributable to common shareholders | | $ | 82,071 | | | $ | 52,498 | | | $ | 74,388 | |
| | | | | | |
Weighted average common shares outstanding - basic | | 65,104 | | | 65,049 | | | 64,139 | |
Weighted average common shares outstanding - diluted | | 65,114 | | | 65,055 | | | 64,140 | |
| | | | | | |
Per common share data (basic and diluted): | | | | | | |
Net income attributable to common shareholders | | $ | 1.26 | | | $ | 0.81 | | | $ | 1.16 | |
SeeThe accompanying notes.notes are an integral part of these consolidated financial statements.
INDUSTRIAL LOGISTICS PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDER'SSHAREHOLDERS'EQUITY
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Total Equity | | Total Equity | | |
| | Number of | | | | Additional | | | | Cumulative | | | | | | Attributable to | | Attributable to | | Total |
| | Common | | Common | | Paid In | | Cumulative | | Common | | | | | | Common | | Noncontrolling | | Shareholders' |
| | Shares | | Shares | | Capital | | Net Income | | Distributions | | | | | | Shareholders | | Interest | | Equity |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2017 | | 45,000,000 | | | $ | 450 | | | $ | 546,489 | | | $ | 15,269 | | | $ | 0 | | | | | | | $ | 562,208 | | | $ | 0 | | | $ | 562,208 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | — | | | — | | | — | | | 74,388 | | | — | | | | | | | 74,388 | | | — | | | 74,388 | |
Contributions | | — | | | — | | | 16,162 | | | — | | | — | | | | | | | 16,162 | | | — | | | 16,162 | |
Distributions | | — | | | — | | | (9,187) | | | — | | | — | | | | | | | (9,187) | | | — | | | (9,187) | |
Issuance of common shares, net | | 20,000,000 | | | 200 | | | 444,109 | | | — | | | — | | | | | | | 444,309 | | | — | | | 444,309 | |
Share grants | | 77,400 | | | 1 | | | 926 | | | — | | | — | | | | | | | 927 | | | — | | | 927 | |
| | | | | | | | | | | | | | | | | | | | |
Share forfeitures | | (240) | | | — | | | — | | | — | | | — | | | | | | | — | | | — | | | 0 | |
Share repurchases | | (2,369) | | | — | | | (52) | | | — | | | — | | | | | | | (52) | | | — | | | (52) | |
| | | | | | | | | | | | | | | | | | | | |
Distributions to common shareholders | | — | | | — | | | — | | | — | | | (60,482) | | | | | | | (60,482) | | | — | | | (60,482) | |
Balance at December 31, 2018 | | 65,074,791 | | | 651 | | | 998,447 | | | 89,657 | | | (60,482) | | | | | | | 1,028,273 | | | 0 | | | 1,028,273 | |
Net income | | — | | | — | | | — | | | 52,498 | | | — | | | | | | | 52,498 | | | — | | | 52,498 | |
| | | | | | | | | | | | | | | | | | | | |
Share grants | | 119,200 | | | 1 | | | 1,110 | | | — | | | — | | | | | | | 1,111 | | | — | | | 1,111 | |
Share repurchases | | (11,963) | | | — | | | (253) | | | — | | | — | | | | | | | (253) | | | — | | | (253) | |
Share forfeitures | | (1,400) | | | — | | | (2) | | | — | | | — | | | | | | | (2) | | | — | | | (2) | |
Distributions to common shareholders | | — | | | — | | | — | | | — | | | (85,937) | | | | | | | (85,937) | | | — | | | (85,937) | |
Balance at December 31, 2019 | | 65,180,628 | | | 652 | | | 999,302 | | | 142,155 | | | (146,419) | | | | | | | 995,690 | | | 0 | | | 995,690 | |
Net income (loss) | | — | | | — | | | — | | | 82,071 | | | — | | | | | | | 82,071 | | | (866) | | | 81,205 | |
Share grants | | 139,100 | | | 1 | | | 2,335 | | | — | | | — | | | | | | | 2,336 | | | — | | | 2,336 | |
Share repurchases | | (18,060) | | | — | | | (382) | | | — | | | — | | | | | | | (382) | | | — | | | (382) | |
Share forfeitures | | (580) | | | — | | | (3) | | | — | | | — | | | | | | | (3) | | | — | | | (3) | |
Distributions to common shareholders | | — | | | — | | | — | | | — | | | (86,089) | | | | | | | (86,089) | | | — | | | (86,089) | |
Contributions from noncontrolling interest | | — | | | — | | | 9,567 | | | — | | | — | | | | | | | 9,567 | | | 98,375 | | | 107,942 | |
Distributions to noncontrolling interest | | — | | | — | | | — | | | — | | | — | | | | | | | — | | | (5,479) | | | (5,479) | |
Sale of interest in joint venture | | — | | | — | | | — | | | — | | | — | | | | | | | — | | | (92,030) | | | (92,030) | |
Balance at December 31, 2020 | | 65,301,088 | | | $ | 653 | | | $ | 1,010,819 | | | $ | 224,226 | | | $ | (232,508) | | | | | | | $ | 1,003,190 | | | $ | 0 | | | $ | 1,003,190 | |
The accompanying notes are an integral part of these consolidated financial statements.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Number of | | | | Additional | | Cumulative | | | | |
| | Common | | Common | | Paid In | | Net | | Ownership | | |
| | Shares | | Shares | | Capital | | Income | | Interest | | Total |
Balance at December 31, 2014 | | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 745,043 |
| | $ | 745,043 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 71,640 |
| | 71,640 |
|
Contributions | | — |
| | — |
| | — |
| | — |
| | 663,034 |
| | 663,034 |
|
Distributions | | — |
| | — |
| | — |
| | — |
| | (145,547 | ) | | (145,547 | ) |
Balance at December 31, 2015 | | — |
| | — |
| | — |
| | — |
| | 1,334,170 |
| | 1,334,170 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 86,898 |
| | 86,898 |
|
Contributions | | — |
| | — |
| | — |
| | — |
| | 46,210 |
| | 46,210 |
|
Distributions | | — |
| | — |
| | — |
| | — |
| | (154,093 | ) | | (154,093 | ) |
Balance at December 31, 2016 | | — |
| | — |
| | — |
| | — |
| | 1,313,185 |
|
| 1,313,185 |
|
Net income | | — |
| | — |
| | — |
| | 15,269 |
| | 64,834 |
|
| 80,103 |
|
Contributions | | — |
| | — |
| | 30,244 |
| | — |
| | 42,563 |
| | 72,807 |
|
Distributions | | — |
| | — |
| | (37,348 | ) | | — |
| | (116,539 | ) | | (153,887 | ) |
Issuance of common shares and reclassification of ownership interest | | 45,000,000 |
| | 450 |
| | 553,593 |
| | — |
| | (1,304,043 | ) | | (750,000 | ) |
Balance at December 31, 2017 | | 45,000,000 |
| | $ | 450 |
| | $ | 546,489 |
| | $ | 15,269 |
| | $ | — |
| | $ | 562,208 |
|
See accompanying notes.
INDUSTRIAL LOGISTICS PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income | | $ | 81,205 | | | $ | 52,498 | | | $ | 74,388 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation | | 43,821 | | | 38,177 | | | 18,781 | |
Net amortization of debt issuance costs, premiums and discounts | | 2,481 | | | 2,017 | | | 1,244 | |
Amortization of acquired real estate leases and assumed real estate lease obligations | | 24,573 | | | 21,465 | | | 8,592 | |
Amortization of deferred leasing costs | | 1,357 | | | 1,113 | | | 820 | |
| | | | | | |
| | | | | | |
Provision for losses on rents receivable | | 0 | | | 0 | | | 1,198 | |
| | | | | | |
Straight line rental income | | (9,041) | | | (4,345) | | | (4,739) | |
Gain on early extinguishment of debt | | (120) | | | 0 | | | 0 | |
| | | | | | |
| | | | | | |
Gain on sale of property | | (23,996) | | | 0 | | | 0 | |
Other non-cash expenses | | 2,331 | | | 1,109 | | | 927 | |
Equity in earnings of investees | | (529) | | | (666) | | | 0 | |
Distributions of earnings from Affiliates Insurance Company | | 0 | | | 666 | | | 0 | |
Change in assets and liabilities: | | | | | | |
| | | | | | |
Rents receivable | | (2,907) | | | (1,497) | | | (1,727) | |
Deferred leasing costs | | (2,443) | | | (1,457) | | | (1,745) | |
| | | | | | |
Other assets | | (1,068) | | | (594) | | | 3,591 | |
| | | | | | |
Due from related persons | | (3,871) | | | (114) | | | (1,390) | |
Accounts payable and other liabilities | | 2,613 | | | 3,095 | | | 1,618 | |
Rents collected in advance | | 279 | | | 3,438 | | | 210 | |
Security deposits | | 12 | | | 550 | | | 456 | |
Due to related persons | | (133) | | | 845 | | | (5,461) | |
Net cash provided by operating activities | | 114,564 | | | 116,300 | | | 96,763 | |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Real estate acquisitions and deposits | | (115,813) | | | (884,570) | | | (121,891) | |
Real estate improvements | | (5,857) | | | (17,157) | | | (5,004) | |
| | | | | | |
| | | | | | |
| | | | | | |
Proceeds from sale of properties | | 10,578 | | | 0 | | | 0 | |
Proceeds from sale of interest in joint venture | | 106,283 | | | 0 | | | 0 | |
Distributions in excess of earnings from Affiliates Insurance Company | | 287 | | | 8,334 | | | 0 | |
Investment in Affiliates Insurance Company | | 0 | | | 0 | | | (8,632) | |
| | | | | | |
Net cash used in investing activities | | (4,522) | | | (893,393) | | | (135,527) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income | | $ | 80,103 |
| | $ | 86,898 |
| | $ | 71,640 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation | | 17,738 |
| | 17,563 |
| | 16,381 |
|
Amortization of debt premiums | | (494 | ) | | (292 | ) | | (260 | ) |
Amortization of acquired real estate leases and assumed real estate lease obligations | | 8,434 |
| | 8,419 |
| | 7,707 |
|
Amortization of deferred leasing costs | | 771 |
| | 706 |
| | 730 |
|
Provision for losses on rents receivable | | 704 |
| | 257 |
| | (486 | ) |
Straight line rental income | | (5,762 | ) | | (6,202 | ) | | (6,344 | ) |
Change in assets and liabilities: | | | | | | |
Rents receivable | | 436 |
| | 301 |
| | (757 | ) |
Deferred leasing costs | | (693 | ) | | (910 | ) | | (851 | ) |
Other assets | | (4,431 | ) | | 56 |
| | (518 | ) |
Accounts payable and other liabilities | | 245 |
| | 295 |
| | 560 |
|
Rents collected in advance | | (743 | ) | | 2,122 |
| | (860 | ) |
Security deposits | | 33 |
| | 42 |
| | 534 |
|
Due to related persons | | 7,114 |
| | — |
| | — |
|
Net cash provided by operating activities | | 103,455 |
| | 109,255 |
| | 87,476 |
|
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Real estate acquisitions | | (281 | ) | | — |
| | (603,508 | ) |
Real estate improvements | | (6,026 | ) | | (1,356 | ) | | (1,455 | ) |
Net cash used in investing activities | | (6,307 | ) | | (1,356 | ) | | (604,963 | ) |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Borrowings under revolving credit facility | | 750,000 |
| | — |
| | — |
|
Repayment of mortgage notes payable | | (14,344 | ) | | (16 | ) | | — |
|
Repayment of SIR note | | (750,000 | ) | | — |
| | — |
|
Payment of debt issuance costs | | (1,724 | ) | | — |
| | — |
|
Contributions | | 72,807 |
| | 46,210 |
| | 663,034 |
|
Distributions | | (153,887 | ) | | (154,093 | ) | | (145,547 | ) |
Net cash (used in) provided by financing activities | | (97,148 | ) | | (107,899 | ) | | 517,487 |
|
| | | | | | |
Increase (decrease) in cash and cash equivalents | | — |
| | — |
| | — |
|
Cash and cash equivalents at beginning of period | | — |
| | — |
| | — |
|
Cash and cash equivalents at end of period | | $ | — |
| | $ | — |
| | $ | — |
|
INDUSTRIAL LOGISTICS PROPERTIES TRUSTCONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Proceeds from issuance of common shares, net | | 0 | | | 0 | | | 444,309 | |
Proceeds from issuance of mortgage notes payable | | 0 | | | 1,000,000 | | | 0 | |
Borrowings under revolving credit facility | | 234,000 | | | 744,000 | | | 193,000 | |
Repayments of revolving credit facility | | (323,000) | | | (847,000) | | | (530,000) | |
Repayment of mortgage note payable | | (48,750) | | | 0 | | | 0 | |
| | | | | | |
Payment of debt issuance costs | | 0 | | | (8,775) | | | (5,378) | |
Proceeds from noncontrolling interest, net | | 107,942 | | | 0 | | | 0 | |
Distributions to noncontrolling interest | | (5,479) | | | 0 | | | 0 | |
Distributions to common shareholders | | (86,089) | | | (85,937) | | | (60,482) | |
Repurchase of common shares | | (382) | | | (253) | | | (52) | |
Contributions | | 0 | | | 0 | | | 16,162 | |
Distributions | | 0 | | | 0 | | | (9,187) | |
Net cash (used in) provided by financing activities | | (121,758) | | | 802,035 | | | 48,372 | |
| | | | | | |
(Decrease) increase in cash, cash equivalents and restricted cash | | (11,716) | | | 24,942 | | | 9,608 | |
Cash, cash equivalents and restricted cash at beginning of period | | 34,550 | | | 9,608 | | | 0 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 22,834 | | | $ | 34,550 | | | $ | 9,608 | |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
SUPPLEMENTAL DISCLOSURES: | | | | | | |
Interest paid | | $ | 50,433 | | | $ | 46,072 | | | $ | 14,749 | |
Income taxes paid | | $ | 209 | | | $ | 164 | | | $ | 0 | |
Interest capitalized | | $ | 0 | | | $ | 187 | | | $ | 0 | |
| | | | | | |
NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | | | |
Decrease in assets and liabilities resulting from the deconsolidation of investments that were previously consolidated: | | | | | | |
Real estate, net | | $ | (631,879) | | | $ | 0 | | | $ | 0 | |
Mortgage notes, net | | $ | 403,160 | | | $ | 0 | | | $ | 0 | |
Real estate acquired by assumption of mortgage note payable | | $ | 0 | | | $ | (56,980) | | | $ | 0 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Assumption of mortgage note payable | | $ | 0 | | | $ | 56,980 | | | $ | 0 | |
| | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets to the amounts shown in the consolidated statements of cash flows:
| | | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2020 | | 2019 | | 2018 |
Cash and cash equivalents | | $ | 22,834 | | | $ | 28,415 | | | $ | 9,608 | |
Restricted cash | | 0 | | | 6,135 | | | 0 | |
Total cash, cash equivalents and restricted cash shown in the statements of cash flows | | $ | 22,834 | | | $ | 34,550 | | | $ | 9,608 | |
The accompanying notes are an integral part of these consolidated financial statements.
|
| | | | | | | | | | | | |
SUPPLEMENTAL DISCLOSURES: | | | | | | |
Interest paid | | $ | 2,752 |
| | $ | 2,554 |
| | $ | 2,136 |
|
| | | | | | |
NON-CASH INVESTING ACTIVITIES: | | | | | | |
Real estate acquired by assumption of mortgage notes payable | | $ | — |
| | $ | — |
| | $ | (63,110 | ) |
Working capital assumed | | $ | — |
| | $ | — |
| | $ | (922 | ) |
| | | | | | |
NON-CASH FINANCING ACTIVITIES: | | | | | | |
Distribution to SIR of ownership interest | | $ | (1,304,043 | ) | | $ | — |
| | $ | — |
|
Issuance of SIR note | | $ | 750,000 |
| | $ | — |
| | $ | — |
|
Issuance of common shares | | $ | 554,043 |
| | $ | — |
| | $ | — |
|
Assumption of mortgage notes payable | | $ | — |
| | $ | — |
| | $ | 63,110 |
|
See accompanying notes.
INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Note 1. Organization
Industrial Logistics Properties Trust, or, collectively with its consolidated subsidiaries, we, us or our, is a real estate investment trust, or REIT, formed under Maryland law on September 15, 2017, as a wholly owned subsidiary of Select Income REIT, or SIR. On September 29, 2017, SIR, contributed to us 266 propertiesa former publicly traded REIT that merged with a totalsubsidiary of approximately 28,540,000 rentable square feet,Office Properties Income Trust, or our Initial Properties. Two hundred twenty six (226) of these properties with a total of approximately 16,834,000 rentable square feet are locatedOPI, on the island of Oahu, Hawaii, or our Hawaii Properties. The remaining 40 properties have a total of approximately 11,706,000 rentable square feet and are located in 24 other states, or our Mainland Properties. In connection with our formation and this contribution of properties, we (1) issued to SIR 45,000,000 of our common shares of beneficial interest, $.01 par value per share, (2) issued to SIR a $750,000 non-interest bearing demand note, or the SIR Note, and (3) assumed three mortgage notes totaling $63,069, excluding premiums, that were secured by three of our Initial Properties. On January 17, 2018, we completed an initial public offering and listing on The Nasdaq Stock Market LLC, or Nasdaq, of 20,000,000 of our common shares, or the IPO.
December 31, 2018.
Until January 17, 2018, we were a wholly owned subsidiary of SIR and SIR managed and controlled our cash management function through a series of commingled centralized accounts. As a result, for the year ended December 31, 2018, the cash receipts collected by SIR on our behalf have been accounted for as distributions and the cash disbursements paid by SIR on our behalf have been accounted for as contributions within ownership interest through September 29, 2017. Subsequent to September 29, 2017, contributions and distributions have been accounted for as an increase or decrease, respectively, in additional paid in capital.
On January 17, 2018, we completed an initial public offering and listing on The Nasdaq Stock Market LLC, or Nasdaq, of 20,000,000 of our common shares, or our IPO. At that time, we owned 266 properties with a total of approximately 28,540,000 rentable square feet, or our Initial Properties (all square footage amounts included within these notes are unaudited). Our Initial Properties were contributed to us on September 29, 2017, by SIR. In connection with our formation and this contribution of properties, we (1) issued to SIR 45,000,000 of our common shares of beneficial interest, $.01 par value per share, or our common shares, (2) issued to SIR a $750,000 non-interest bearing demand note, or the SIR Note, which we repaid with proceeds from our IPO, and (3) assumed 3 mortgage notes totaling $63,069, excluding premiums, that were secured by 3 of our Initial Properties.
On December 27, 2018, SIR distributed all 45,000,000 of our common shares that SIR owned to SIR's shareholders of record as of the close of business on December 20, 2018. Note 2. Summary of Significant Accounting Policies
Basis of Presentation. These consolidated financial statements include the accounts of us and our subsidiaries. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated.
The consolidated accounts of our Initial Properties are presented at SIR’s historical basis and are consolidated for all periods presented as the transaction described in Note 1 has been accounted for as a reorganization of entities under common control in accordance with the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 805-50-30, Business Combinations. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Substantially all of the rental income received from our tenants and SIR’s other tenants was deposited in and commingled with SIR’s general funds during the periods presented. Generalprior to January 17, 2018. For the period from January 1, 2018 to January 17, 2018, $538 of general and administrative costs of SIR were primarily allocated to us based on the historical cost of our real estate investments as a percentage of SIR’s historical cost of all of its real estate investments. In accordance with applicable accounting guidance, we believe this method for allocating general and administrative expenses is reasonable. However, actual expenses may have been different from allocated expenses if we operated as a standalone company and those differences may be material.
Real Estate Properties. We record properties at our cost and have presented our Initial Properties at their historical cost basis. Our real estate investments in lands are not depreciated. We calculate depreciation on other real estate investments on a straight line basis over estimated useful lives generally ranging from seven to 40 years.
INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
We allocate the purchase prices of our properties to land, building and improvements based on determinations of the relative fair values of these assets assuming the properties are vacant. We determine the fair value of each property using methods similar to those used by independent appraisers.appraisers, which may involve estimated cash flows that are based on a number of factors, including capitalization rates and discount rates, among others. In some circumstances, we engage independent real estate appraisal firms to provide market information and evaluations which are relevant to our purchase price allocations and determinations of depreciable useful lives; however, we are ultimately responsible for the purchase price allocations and determinations of useful lives. We allocate a portion of the purchase price to above market and below market leases based on the present value (using an interest rate which reflects the risks associated with acquired in place leases at the time each property was acquired by us) of the difference, if any, between (i) the contractual amounts to be paid pursuant to the acquired in place leases and (ii) our estimates of fair market lease rates for the corresponding leases, measured over a period equal to the terms of the respective leases. The terms of below market leases that include bargain renewal options, if any, are further adjusted if we determine that renewal to be probable. We allocate a portion of the purchase price to acquired in place leases and tenant relationships based upon market estimates to lease up the property based on the leases in place at the time of purchase. In making these allocations, we consideredconsider factors such as estimated carrying costs during the expected lease up periods, including real estate taxes, insurance and other operating income and expenses and costs, such as leasing commissions, legal and other related expenses, to execute similar leases in current market conditions at the time a property was acquired by us. We allocate this aggregate value between acquired in place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease. However, we have not separated the value of tenant relationships from the value of acquired in place leases
because such value and related amortization expense is immaterial to the accompanying consolidated financial statements. If the value of tenant relationships becomes material in the future, we may separately allocate those amounts and amortize the allocated amount over the estimated life of the relationships.
We amortize capitalized above market lease values (included in acquired real estate leases in our consolidated balance sheets) and below market lease values (presented as assumed real estate lease obligations in our consolidated balance sheets) as a reduction or increase, respectively, to rental income over the terms of the associated leases. Such amortization resulted in increases in rental income of $390, $403$791, $1,195 and $486$401 during the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. We amortize the value of acquired in place leases (included in acquired real estate leases in our consolidated balance sheets), exclusive of the value of above market and below market acquired in place leases, or lease origination value, over the terms of the associated leases. Such amortization, which is included in depreciation and amortization expense, totaled $8,824, $8,823$25,364, $22,661 and $8,193$8,993 during the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. If a lease is terminated prior to its stated expiration, we write off the unamortized amounts relating to that lease.
As of December 31, 20172020 and 2016,2019, our acquired real estate leases and assumed real estate lease obligations were as follows:
| | | | | | | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 | | |
Acquired real estate leases: | | | | | | |
Capitalized above market lease values | | $ | 27,323 | | | $ | 28,723 | | | |
Less: accumulated amortization | | (18,400) | | | (18,303) | | | |
Capitalized above market lease values, net | | 8,923 | | | 10,420 | | | |
| | | | | | |
| | | | | | |
Lease origination value | | 135,453 | | | 186,758 | | | |
Less: accumulated amortization | | (60,732) | | | (58,582) | | | |
Lease origination value, net | | 74,721 | | | 128,176 | | | |
Acquired real estate leases, net | | $ | 83,644 | | | $ | 138,596 | | | |
| | | | | | |
Assumed real estate lease obligations: | | | | | | |
Capitalized below market lease values | | $ | 33,927 | | | $ | 36,278 | | | |
Less: accumulated amortization | | (19,297) | | | (18,770) | | | |
Assumed real estate lease obligations, net | | $ | 14,630 | | | $ | 17,508 | | | |
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
Acquired real estate leases: | | | | |
Capitalized above market lease values | | $ | 30,104 |
| | $ | 30,368 |
|
Less: accumulated amortization | | (16,440 | ) | | (15,005 | ) |
Capitalized above market lease values, net | | 13,664 |
| | 15,363 |
|
| | | | |
Lease origination value | | 93,646 |
| | 93,684 |
|
Less: accumulated amortization | | (28,207 | ) | | (19,422 | ) |
Lease origination value, net | | 65,439 |
| | 74,262 |
|
Acquired real estate leases, net | | $ | 79,103 |
| | $ | 89,625 |
|
| | | | |
Assumed real estate lease obligations: | | | | |
Capitalized below market lease values | | $ | 34,786 |
| | $ | 34,803 |
|
Less: accumulated amortization | | (14,402 | ) | | (12,331 | ) |
Assumed real estate lease obligations, net | | $ | 20,384 |
| | $ | 22,472 |
|
INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
As of December 31, 2017,2020, the weighted average amortization periods for capitalized above market lease values, lease origination value and capitalized below market lease values were 11.29.7 years, 8.66.4 years, and 13.711.9 years, respectively. Future amortization of net intangible acquired real estate lease assets and liabilities to be recognized over the current terms of the associated leases as of December 31, 20172020 are estimated to be $8,367 in 2018, $8,218 in 2019, $8,024 in 2020, $7,722$15,228 in 2021, $7,591$14,537 in 2022, $12,606 in 2023, $8,681 in 2024, $5,473 in 2025 and $18,797$12,489 thereafter.
We recognize impairment losses on real estate investments when indicators of impairment are present and the estimated undiscounted cash flow from our real estate investments is less than the carrying amount of such real estate investments. Impairment indicators may include declining tenant occupancy, lack of progress releasing vacant space, tenant bankruptcies, low long term prospects for improvement in property performance, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an asset before the end of its estimated useful life and legislative, market or industry changes that could permanently reduce the value of a property. We review our properties for impairment quarterly, or whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. If indicators of impairment are present, we evaluate the carrying value of the related property by comparing it to the expected future undiscounted cash flows expected to be generated from that property. The future net undiscounted cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. If the sum of these expected future undiscounted cash flows is less than the carrying value, we reduce the net carrying value of the property to its estimated fair value. The determination of undiscounted cash flow includes consideration of many factors including income to be earned from the investment, holding costs (exclusive of interest), estimated selling prices, and prevailing economic and market conditions. NoNaN impairments exist on any of our properties as of December 31, 20172020 and 2016.
We believe some of our properties may contain asbestos. We believe any asbestos on our properties is contained in accordance with applicable laws and regulations and we have no current plans to remove it. If we removed the asbestos or
demolished the affected properties, certain environmental regulations govern the manner in which the asbestos must be handled and removed, and we could incur substantial costs complying with such regulations. Due to the uncertainty of the timing and amount of costs we may incur, we cannot reasonably estimate such costs and we have not recognized a liability in our consolidated financial statements for these costs.
2019.
Certain of our industrial lands in Hawaii may require environmental remediation, especially if the use of those lands is changed; however, we do not have any present plans to change the use of those lands or to undertake this environmental cleanup. As of both December 31, 20172020 and 2016,2019, accrued environmental remediation costs of $7,002 and $7,160, respectively,$6,940, were included in accounts payable and other liabilities in our consolidated balance sheets. These accrued environmental remediation costs relate to maintenance of our properties for current uses, and, because of the indeterminable timing of the remediation, these amounts have not been discounted to present value. In general, we do not have any insurance designated to limit any losses that we may incur as a result of known or unknown environmental conditions which are not caused by an insured event, such as, for example, fire or flood, although some of our tenants may maintain such insurance that may benefit us. Although we do not believe that there are environmental conditions at any of our properties that will have a material adverse effect on us, we cannot be sure that such conditions are not present at our properties or that costs we incur to remediate contamination will not have a material adverse effect on our business or financial condition. Charges for environmental remediation costs, if any, are included in other operating expenses in our consolidated statements of comprehensive income.
Capitalization Policy. Costs directly related to the development of properties are capitalized. We capitalize development costs, including interest, real estate taxes, insurance, and other project costs, incurred during the period of development. Determinations of when a development project commences and capitalization begins, and when a development project is substantially complete and held available for occupancy and capitalization must cease, involve judgments. We begin the capitalization of costs during the pre-construction period, which we consider to begin when activities that are necessary to the development of the property commence. We consider a development project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year from cessation of major construction activity. No construction related development costs were capitalized
Cash and Cash Equivalents. We consider highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.
Restricted Cash. Restricted cash consists of amounts escrowed for future capital expenditures as required by us during the periods presented incertain of our consolidated financial statements.mortgage notes.
Deferred Leasing Costs. Deferred leasing costs include capitalized brokerage costs and, until January 1, 2019, legal and other fees associated with the successful negotiation of leases, which are amortized to depreciation and amortization expense on a straight line basis over the terms of the respective leases. Deferred leasing costs totaled $8,379$8,116 and $7,892$11,383 at December 31, 20172020 and 2016,2019, respectively, and accumulated amortization of deferred leasing costs totaled $3,125$3,521 and $2,495$4,802 at December 31, 20172020 and 2016,2019, respectively. Included in deferred leasing costs at December 31, 2017, was $22 of estimated costs associated with leases under negotiation. Future amortization of deferred leasing costs to be recognized during the current terms of our existing leases as of December 31, 2017,2020, are estimated to be $764 in 2018, $720 in 2019, $638 in 2020, $550$682 in 2021, $430$608 in 2022, $422 in 2023, $388 in 2024, $365 in 2025 and $2,152$2,130 thereafter.
INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
Debt Issuance Costs. Debt issuance costs include capitalized issuance costs related to borrowings, which are amortized to interest expense over the terms of the respective loans. As of both December 31, 2017,2020 and 2019, we had debt issuance costs for our revolving credit facility totaling $1,724.$5,907, and accumulated amortization of debt issuance costs for our revolving credit facility were $4,430 and $2,953 at December 31, 2020, and 2019, respectively. As of December 31, 2020, we had debt issuance costs, net of accumulated amortization, of $4,421 for certain of our mortgage notes payable obtained during 2019. Future amortization of debt issuance costs to be recognized with respect to our revolving credit facility and mortgage notes payable as of December 31, 2017 is2020 are estimated to be $431 for each year from 2018 through 2021.$2,024 in 2021, $547 in 2022, $547 in 2023, $547 in 2024, $547 in 2025 and $1,686 thereafter.
Other Assets. Other assets consist primarilyEquity Method Investments. We own a 22% equity interest in an unconsolidated joint venture which owns 12 properties, or our joint venture. The properties owned by our joint venture are encumbered by an aggregate $406,980 of costs relatedmortgage debts. We do not control the activities that are most significant to our formationjoint venture and, preparationas a result, we account for our investment in our joint venture under the equity method of accounting under the fair value option. See Notes 3 and 6 for more information regarding our joint venture.
We account for our investment in Affiliates Insurance Company, or AIC, until AIC was dissolved as described in Note 10, using the equity method of accounting. Significant influence was present through common representation on the boards of trustees or directors of us and AIC. We acquired shares of common stock of AIC from SIR on December 31, 2018 for $8,632. Until its dissolution on February 13, 2020, we owned a 14.3% ownership interest in AIC. As of December 31, 2020 and 2019, our investment in AIC had a carrying value of $12 and $298, respectively. See Note 10 for more information regarding our investment in AIC.
We periodically evaluate our equity method investments for possible indicators of other than temporary impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable. These indicators may include the length of time and the extent to which the market value of our investment is below our carrying value, the financial condition of our investees, our intent and ability to be a long term holder of the investment and other considerations. If the decline in fair value is judged to be other than temporary, we record an impairment charge to adjust the basis of the investment to its estimated fair value.
Revenue Recognition. We are a lessor of industrial and logistics properties. Our leases provide our tenants with the contractual right to use and economically benefit from all the physical space specified in the leases; therefore, we have determined to evaluate our leases as lease arrangements.
In February 2016, the FASB issued Accounting Standards Update, or ASU, No. 2016-02, Leases. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. In December 2018, the FASB issued ASU No. 2018-20 Leases (Topic 842), Narrow-Scope Improvements for Lessors. Collectively, these standards set out the principles for the IPO, debt issuancerecognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. ASU No. 2016-02 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. These standards were effective as of January 1, 2019. Upon adoption, we applied the package of practical expedients that has allowed us to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs prepaid insurancefor any expired or existing leases. Furthermore, we applied the optional transition method in ASU No. 2018-11, which has allowed us to initially apply the new leases standard at the adoption date and prepaid real estate taxes.recognize a cumulative effect adjustment to the opening balance of shareholders' equity in the adoption period, although we did not have an adjustment. Additionally, our leases met the criteria in ASU No. 2018-11 to not separate non-lease components from the related lease component; therefore, the accounting for these leases remained largely unchanged from the previous standard. The adoption of ASU No. 2016-02 and the related improvements did not have a material impact in our consolidated financial statements. Upon adoption, (i) allowances for bad debts are now recognized as a direct reduction of rental income, and (ii) legal costs associated with the execution of our leases, which were previously capitalized and amortized over the life of their respective leases, are expensed as incurred. Subsequent to January 1, 2019, provisions for credit losses are now included in "rental income" in our consolidated financial statements. For periods prior to January 1, 2019, we maintained an allowance for doubtful accounts for estimated losses resulting from the inability or unwillingness of certain tenants to make payments required under their leases. The computation of the allowance was based on
Revenue Recognition.INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
the tenants’ payment histories and then current credit profiles, as well as other considerations. Provisions for credit losses prior to January 1, 2019 were previously included in other operating expenses in our consolidated financial statements and prior periods were not reclassified to conform to the current presentation.
Our leases provide for base rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market based indices, is recognized on a straight line basis over the liveslease term when we have determined that the collectability of substantially all the lease agreements. We deferpayments is probable. Some of our leases have options to extend or terminate the recognitionlease exercisable at the option of contingent rental income,our tenants, which are considered when determining the lease term.
Certain of our leases contain non-lease components, such as percentage rents, until the specific targets that trigger the contingent rental income are achieved. Contingent rental income recognized for the years ended December 31, 2017, 2016 and 2015 totaled $650, $846 and $1,468, respectively. Tenant reimbursements and other income include property level operating expenses and capital expenditures reimbursed by our tenants as well as other incidental revenues. required lease payments. We have determined that all our leases qualify for the practical expedient to not separate the lease and non-lease components because (i) the lease components are operating leases and (ii) the timing and pattern of recognition of the non-lease components are the same as those of the lease components. We apply ASC 842, Leases, to the combined component. Income derived by our leases is recorded in rental income in our consolidated statements of comprehensive income.
Certain tenants are obligated to pay directly their obligations under their leases for insurance, real estate taxes and certain other expenses. These costs,obligations, which have been assumed by the tenants under the terms of their respective leases, are not reflected in our consolidated financial statements. To the extent any tenant responsible for these costsany such obligations under their respectivethe applicable lease defaults on itssuch lease or if it is deemed probable that the tenant will fail to pay for such costs,obligations, we would record a liability for such obligation.obligations.
Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability or unwillingness of certain tenants to make payments required under their leases. The computation of the allowance is based on the tenants’ payment histories and current credit profiles, as well as other considerations.
Income Taxes. Until January 17, 2018, we were a wholly owned subsidiary of SIR, which iswas taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the IRC. Accordingly, until January 17, 2018, we were a qualified REIT subsidiary and a disregarded entity for income tax purposes. We intend to qualifyhave qualified for taxation as a REIT under the IRC for U.S. federal income tax purposes commencing with our taxable year endingended December 31, 2018 and intend to maintain such qualification thereafter.qualification. Accordingly, we generally are not, and will not be, subject to U.S. federal income taxes provided we distribute our taxable income and meet certain otherorganization and operating requirements to qualify for taxation as a REIT. We may,are, however, be subject to certain state and local taxes.
Use of Estimates. Preparation of these financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires us to make estimates and assumptions that may affect the amounts reported in these consolidated financial statements and related notes. The actual results could differ from these estimates. Significant estimates in the consolidated financial statements include the allowance for doubtful accounts, purchase price allocations, useful lives of fixed assets and the assessments of the carrying values and impairments of long lived assets.
Ownership Interest. For the periods presented, our investment activities have been financed by SIR. Amounts invested in or advanced to us do not carry interest and have no specific repayment terms.
EarningsNet Income Per Common Share. We calculate basic earnings per common share by dividing net income by the weighted average number of common shares outstanding during the period. Basic earningsWe calculate diluted net income per share equalusing the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares and the related impact on earnings are considered when calculating diluted earnings per share as there are no common share equivalent securities outstanding.share.
Segment Reporting. We operate in 1 business segment: ownership and leasing of properties that include industrial and logistics buildings and leased industrial lands.
In connection with our formation and SIR’s contribution of our Initial Properties to us, we issued 45,000,000 of our common shares to SIR. All such shares and per share amounts for all periods presented in the accompanying consolidated financial statements and notes hereto have been adjusted retroactively, where applicable, to reflect this share issuance.
Reclassifications. Reclassifications have been made to the prior years' consolidated financial statements to conform to the current year's presentation. For the years ended December 31, 2016 and 2015, we reclassified $265 and $130, respectively, from other operating expenses to general and administrative expenses in our consolidated statements of comprehensive income.
New Accounting Pronouncements. On January 1, 2017, we adopted FASB Accounting Standards Update, or ASU, No. 2017-01, Clarifying the Definition of a Business. This update provides additional guidance on evaluating whether transactions should be accounted for as an acquisition (or disposal) of assets or of a business. This update defines three requirements for a set of assets and activities (collectively referred to as a “set”) to be considered a business: inputs, processes and outputs. As a result of the implementation of this update, certain property acquisitions which under previous guidance were accounted for as business combinations are now accounted for as acquisitions of assets. In an acquisition of assets, certain acquisition costs are capitalized as opposed to expensed under previous guidance.
In May 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers, which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU No. 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU No. 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. In August 2015, the FASB provided for a one-year deferral of the effective date for ASU No. 2014-09, which is now effective for us beginning January 1, 2018. A substantial portion of our revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU No. 2014-09. We have evaluated ASU No. 2014-09 (and related clarifying guidance issued by the FASB); and the adoption will not have a material impact on the amount or timing of our revenue recognition in our consolidated financial statements. We will adopt the standard using the modified retrospective approach.
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which changes how entities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. This update is effective for all prospective interim and annual periods beginning after December 15, 2017. We do not expect the adoption of ASU No. 2016-01 to have a material impact in our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation anddisclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as eitherfinance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classificationwill determine
whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is alsorequired to record a right of use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a termof 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using anapproach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. ASU No. 2016-02 is effective forreporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the potential impact the adoption of ASU No.2016-02 will have in our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-13 will have in our consolidated financial statements.
Note 3. Real Estate PropertiesInvestments
As of December 31, 2017, we2020, our portfolio was comprised of 289 wholly owned 266 properties with a total of approximately 28,540,00034,870,000 rentable square feet, including 16,834,000226 buildings, leasable land parcels and easements containing approximately 16,756,000 rentable square feet of primarily industrial lands inlocated on the island of Oahu, HI, or our Hawaii Properties, and 63 properties containing approximately 11,706,00018,114,000 rentable square feet of industrial properties located in 2430 other states.states, or our Mainland Properties. As discussedof December 31, 2020, we also owned a 22% equity interest in Notean unconsolidated joint venture which owns 12 properties located in 9 states in the mainland United States totaling approximately 9,227,000 rentable square feet that were 100% leased.
INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
We operate in 1 SIRbusiness segment: ownership and leasing of properties that include industrial and logistics buildings and leased industrial lands. For the years ended December 31, 2020, 2019 and 2018, approximately 42.2%, 43.9% and 59.7%, respectively, of our rental income were from our Hawaii Properties. In addition, a subsidiary of Amazon.com, Inc., which is a tenant at certain of our Mainland Properties, accounted for $38,241, $31,623 and $16,047 of our rental income for the years ended December 31, 2020, 2019 and 2018, respectively.
Joint Venture Activities
As of December 31, 2020, we have an equity investment in a joint venture that consists of the following:
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| | | | ILPT Carrying Value of | | | | | | |
| | ILPT | | Investment at December 31, | | Number of | | | | Square |
Joint Venture | | Ownership | | 2020 | | | | Properties | | Location | | Feet |
12 properties in 9 states | | 22% | | $ | 60,590 | | | | | 12 | | | Various | | 9,226,729 | |
The following table provides a summary of the mortgage debts of our joint venture:
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| | | | | | Principal Balance |
| | | | | | at December 31, |
Joint Venture | | Coupon Rate (1) | | Maturity Date | | 2020 (2) |
Mortgage note payable (secured by 1 property in Florida) | | 3.60% | | 10/1/2023 | | $ | 56,980 | |
Mortgage note payable (secured by 11 other properties in 8 states) | | 3.33% | | 11/7/2029 | | 350,000 | |
Weighted Average/Total | | 3.37% | | | | $ | 406,980 | |
(1) Includes the effect of mark to market purchase accounting.
(2) Amounts are not adjusted for our minority interest.
In the first quarter of 2020, we entered into agreements related to a joint venture for 12 of our properties in the mainland United States with an Asian institutional investor. We contributed 11 of these properties to our joint venture in February 2020 and the remaining property in March 2020. We received proceeds from the investor in an aggregate amount of $107,942, which includes $734 of costs associated with the formation of our joint venture, for a 39% equity interest in our joint venture and we retained the remaining 61% equity interest in our joint venture. We recognized a noncontrolling interest in our consolidated balance sheet of $98,375 as of the completion of this transaction, which was equal to 39% of our aggregate carrying value of the total equity of the properties immediately prior to our respective contributions of the properties to our joint venture. The difference between the net proceeds received from this transaction and the noncontrolling interest recognized, which was $9,567, has been reflected as an increase in additional paid in capital in our consolidated balance sheet. The portion of our joint venture's net loss not attributable to us, or $866 for the year ended December 31, 2020 is reported as noncontrolling interest in our consolidated statements of comprehensive income. During the year ended December 31, 2020, our joint venture made aggregate cash distributions of $14,049, $5,479 to the first joint venture investor, which was reflected as a decrease in total equity attributable to noncontrolling interest and $8,570 to us. We determined that, while we owned a 61% equity interest in our joint venture, our joint venture was a variable interest entity, or VIE, as defined under the Consolidation Topic of the FASB ASC. We concluded that we must consolidate this VIE, and we did so, until we sold an additional 39% equity interest in the joint venture in November 2020. We reached this determination because we were the entity with the power to direct the activities that most significantly impacted the VIE's economic performance and we had the obligation to absorb losses of, and the right to receive benefits from, the VIE that could be significant to the VIE, and therefore were the primary beneficiary of the VIE. The joint venture investor's interest in this consolidated entity was reflected as noncontrolling interest in our consolidated financial statements.
INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
In November 2020, we sold an additional 39% equity interest from our remaining 61% equity interest in our joint venture to a second unrelated third party institutional investor for $108,812, which includes certain costs associated with the formation of our joint venture. We deconsolidated the net assets of our joint venture and recognized a net gain on September 29, 2017.sale of $23,415 on this transaction, which is included in gain on sale of real estate in our consolidated statements of comprehensive income. After giving effect to the sale, we continue to own a 22% equity interest in our joint venture, but have determined that we are no longer the primary beneficiary. Effective as of the date of the sale, we deconsolidated our joint venture and, since that time, we account for our joint venture using the equity method of accounting under the fair value option. Our initial investment amount was based on an aggregate property valuation of $680,000, less $406,980 of existing mortgage debts on the properties that our joint venture assumed. We used the net proceeds from this transaction to reduce outstanding borrowings under our revolving credit facility. For more information regarding the use of the equity method for our joint venture, see Note 6 to the Notes to the Consolidated Financial Statements included in Part IV, of this Annual Report on Form 10-K.
2020 Disposition:
2017During the year ended December 31, 2020, we sold 1 property located in Virginia containing approximately 308,000 rentable square feet for a sales price of $10,775, excluding closing costs. The sale of this property, as presented in the following table, does not represent a significant disposition or a strategic shift. As a result, the results of operations of this property are included in continuing operations through the date of sale in our consolidated statements of comprehensive income. We did not dispose of any properties during the years ended December 31, 2019 and 2018.
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| | Number of | | | | Square | | Gross | | Gain on Sale of | | |
Date of Sale | | Properties | | Location | | Feet | | Sale Price (1) | | Real Estate | | |
December 2020 | | 1 | | Winchester, VA | | 308,217 | | | $ | 10,775 | | | $ | 581 | | | |
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| | | | | | | | | | | | |
(1) Gross sale price is the gross contract price, adjusted for purchase price adjustments, if any, and excluding closing costs.
2020 Acquisitions:
On January 13, 2017,During the year ended December 31, 2020, we acquired a land parcel adjacent to one of our2 properties located in McAlester, OK for $281, including $55 of acquisition related costs. In September 2017, we substantially completed the development of a 35,000 square foot expansion for the tenant at our McAlester, OK property which is located on this adjacent parcel.
2015 Acquisitions:
On January 29, 2015, we acquired a portfolio of 31 properties withcontaining a combined 9,144,8971,465,846 rentable square feet for an aggregate purchase price of $603,508, excluding$115,813, including acquisition related costs from Cole Corporate Income Trust, Inc., or CCIT, pursuant to SIR’s Agreement and Plan of Merger with CCIT. We$332. These acquisitions were accounted for this acquisition as a business combination andacquisitions of assets. We allocated the purchase price of this acquisitionprices for these acquisitions based on the estimated fair value of the acquired assets and assumed liabilities as follows:
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| | | | | | | | | | | | | | | | | | |
| | | | Number | | Rentable | | | | | | Buildings | | Acquired | | | | |
| | | | of | | Square | | Purchase | | | | and | | Real Estate | | | | |
Date | | Market Area | | Properties | | Feet | | Price | | Land | | Improvements | | Leases | | | | |
February 2020 | | Phoenix, AZ | | 1 | | 820,384 | | | $ | 71,628 | | | $ | 11,214 | | | $ | 54,676 | | | $ | 5,738 | | | | | |
December 2020 | | Kansas City, KS | | 1 | | 645,462 | | | 44,185 | | | 5,740 | | | 32,701 | | | 5,744 | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | 2 | | 1,465,846 | | | $ | 115,813 | | | $ | 16,954 | | | $ | 87,377 | | | $ | 11,482 | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Assumed | | Assumed | | |
| | | | Number | | | | | | | | | | Acquired | | Real Estate | | Mortgage | | Assumed |
| | | | of | | Square | | Purchase | | | | Building and | | Real Estate | | Lease | | Notes | | Working |
Date | | Location | | Properties | | Feet | | Price (1) | | Land | | Improvements | | Leases | | Obligations | | Payable (2) | | Capital, Net |
January 29, 2015 | | Various | | 31 | | 9,144,897 |
| | $ | 603,508 |
| | $ | 50,429 |
| | $ | 546,128 |
| | $ | 84,098 |
| | $ | (11,388 | ) | | $ | (64,837 | ) | | $ | (922 | ) |
| |
(1) | Purchase price excludes acquisition related costs. |
| |
(2) | Includes the fair value adjustment totaling $1,727 on $63,110 of mortgage principal. |
2020 Investments:
2017 Tenant Improvements and Leasing Costs:
WeDuring the year ended December 31, 2020, we committed $1,252$2,106 for expenditures related to tenant improvements and leasing costs for approximately 963,000 square feet of leases executed during 2017.the period for approximately 1,102,000 square feet. Committed, but unspent tenant related obligations underbased on existing leases as of December 31, 20172020, were $278.
Future Minimum Lease Payments:
The future minimum lease payments scheduled$544, of which $373 is expected to be received by usspent during the current termsnext 12 months.
INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
2019 Acquisitions:
During the year ended December 31, 2017 are2019, we completed the acquisition of 30 industrial properties containing a combined 13,288,180 rentable square feet for an aggregate purchase price of $941,550, including acquisition related costs of $4,800. These acquisitions were accounted for as acquisitions of assets. We allocated the purchase prices for these acquisitions based on the estimated fair value of the acquired assets and assumed liabilities as follows:
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| | | | | | | | | | | | | | | | Acquired | | |
| | | | Number | | Rentable | | | | | | Buildings | | Acquired | | Real Estate | | Discount |
| | | | of | | Square | | Purchase | | | | and | | Real Estate | | Lease | | on Assumed |
Date | | Market Area | | Properties | | Feet | | Price | | Land | | Improvements | | Leases | | Obligations | | Debt |
February 2019 | | 2 mainland states | | 7 | | 3,708,343 | | | $ | 250,276 | | | $ | 19,558 | | | $ | 205,811 | | | $ | 24,907 | | | $ | 0 | | | $ | 0 | |
April 2019 | | Indianapolis, IN | | 1 | | 493,500 | | | 30,517 | | | 2,817 | | | 24,836 | | | 2,864 | | | 0 | | | 0 | |
April 2019 | | 12 mainland states | | 20 | | 8,694,321 | | | 628,457 | | | 52,546 | | | 519,829 | | | 56,715 | | | (1,965) | | | 1,332 | |
August 2019 | | Columbus, OH | | 2 | | 392,016 | | | 32,300 | | | 2,393 | | | 27,363 | | | 2,544 | | | 0 | | | 0 | |
| | | | 30 | | 13,288,180 | | | $ | 941,550 | | | $ | 77,314 | | | $ | 777,839 | | | $ | 87,030 | | | $ | (1,965) | | | $ | 1,332 | |
|
| | | | |
| | Minimum |
| | Lease |
Year | | Payment |
2018 | | $ | 131,202 |
|
2019 | | 131,730 |
|
2020 | | 129,284 |
|
2021 | | 126,856 |
|
2022 | | 121,408 |
|
Thereafter | | 973,105 |
|
| | $ | 1,613,585 |
|
Note 4. TenantLeases
Rental income from operating leases, including payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. We increased rental income by $9,041, $4,345 and Geographic Concentration and Segment Information
We operate in one business segment: ownership and leasing of properties that include buildings and leased industrial lands. For$4,739 to record revenue on a straight line basis during the years ended December 31, 2017, 20162020, 2019 and 2015, approximately 60.2%, 59.5% and 60.7%, respectively,2018, respectively.
We do not include in our measurement of our total revenues were from our Hawaii Properties. In addition, two subsidiarieslease receivables certain variable payments, including payments determined by changes in the index or market-based indices after the inception of Amazon.com, Inc., which are tenants of our Mainland Properties, accounted for $15,938, $16,063the lease, certain tenant reimbursements and $14,930 of our total revenuesother income until the specific events that trigger the variable payments have occurred. Such payments totaled $45,858, $40,898 and $24,161 for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively, of which tenant reimbursements totaled $44,878, $38,755 and $23,219, respectively.
The following operating lease maturity analysis presents the future contractual lease payments to be received by us through 2064 as of December 31, 2020:
| | | | | | | | | |
| | | |
Year | | Amount | |
2021 | | $ | 169,312 | | |
2022 | | 167,850 | | |
2023 | | 150,817 | | |
2024 | | 132,497 | | |
2025 | | 117,143 | | |
Thereafter | | 991,913 | | |
| | $ | 1,729,532 | | |
As a result of the COVID-19 pandemic and its aftermath, certain of our tenants have requested relief from their obligations to pay rent due to us. We evaluate these requests on a tenant by tenant basis. As of February 15, 2021, we granted requests to certain of our tenants to defer aggregate rent payments of $3,244. In most cases, these tenants were obligated to pay the deferred rents in 12 equal monthly installments beginning in September 2020. We have elected to use the FASB relief package regarding the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. The FASB relief package provides entities with the option to account for lease concessions resulting from the COVID-19 pandemic outside of the existing lease modification guidance if the resulting cash flows from the modified lease are substantially the same as or less than the original lease. Because the deferred rent amounts referenced above will be repaid, the cash flows from the respective leases are substantially the same as before the rent deferrals. As of December 31, 2020, deferred payments totaling $2,630 are included in rents receivable in our condensed consolidated balance sheet. These deferred amounts did not negatively impact our financial results for the year ended December 31, 2020.
INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
Note 5. Indebtedness
As of December 31, 20172020 and 2016,2019, our outstanding indebtedness consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Net Book |
| | Principal Balance as of | | | | | | Value |
| | December 31, | | | | | | of Collateral |
| | | | | | Interest | | | | At December 31, |
| | 2020 (1) | | 2019 (1) | | Rate | | Maturity | | 2020 |
Unsecured revolving credit facility (2) | | $ | 221,000 | | | $ | 310,000 | | | 1.70 | % | | Dec 2021 | | $ | 0 | |
Mortgage notes payable (secured by 186 properties in Hawaii) | | 650,000 | | | 650,000 | | | 4.31 | % | | Feb 2029 | | 491,559 | |
Mortgage note payable (secured by 1 property in Virginia) | | 0 | | | 48,750 | | | 3.48 | % | | Nov 2020 | | 0 | |
Mortgage note payable (secured by 1 property in Florida) (3) | | 0 | | | 56,980 | | | 4.22 | % | | Oct 2023 | | 0 | |
| | | | | | | | | | |
Mortgage note payable (secured by 11 properties located in 8 states) (3) | | 0 | | | 350,000 | | | 3.33 | % | | Nov 2029 | | 0 | |
| | 871,000 | | | 1,415,730 | | | | | | | $ | 491,559 | |
Unamortized debt issuance costs, premiums and discounts | | (4,421) | | | (9,122) | | | | | | | |
| | $ | 866,579 | | | $ | 1,406,608 | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
Revolving credit facility, due in 2021 (1) | | $ | 750,000 |
| | $ | — |
|
Mortgage note payable, 4.50%, due in 2019 (2) (3) | | — |
| | 1,984 |
|
Mortgage note payable, 3.87%, due in 2020 (2) (3) | | — |
| | 12,360 |
|
Mortgage note payable, 3.99%, due in 2020 (2) | | 48,750 |
| | 48,750 |
|
Unamortized debt premiums | | 677 |
| | 1,175 |
|
Carrying value | | $ | 799,427 |
| | $ | 64,269 |
|
(1) The principal balances are the amounts stated in contracts. In accordance with GAAP, our carrying values and recorded interest expense may be different because of market conditions at the time we assumed certain of these debts.
| |
(1) | We repaid certain amounts outstanding under our revolving credit facility on January 17, 2018 with part of the $435,900 of net proceeds from the IPO. Upon completion of the IPO, the(2) The maturity date of our revolving credit facility was extended to December 29, 2021 and we have the option to extend the maturity date for two six month periods through December 29, 2022. |
| |
(2) | We assumed these mortgage notes in connection with our acquisition of certain properties. The stated interest rates for these mortgage debts are the contractually stated rates; we recorded the assumed mortgage notes at estimated fair value on the date of acquisition. We amortize the fair value premiums to interest expense over the respective terms of the mortgage notes to reduce interest expense to the estimated market interest rates as of the date of acquisition. |
| |
(3) | SIR prepaid these mortgage notes on our behalf on December 29, 2017. |
On December 29, 2017, we obtained a $750,000 secured revolving credit facility which initially had a maturity date of March 29, 2018. As of December 31, 2017, interest payable on the amount outstanding under our revolving credit facility was LIBOR plus 140 basis points. Uponis December 29, 2021 and we have the completionoption to extend the maturity date for 2, six month periods through December 29, 2022.
(3) The properties encumbered by these mortgages were contributed in the first quarter of the IPO,2020 to a joint venture, which we deconsolidated in November 2020 and in which we currently own a 22% equity interest. In 2019, these properties were consolidated into our secured revolving credit facility becamefinancial statements. See Note 3 for further information regarding our joint venture.
We have a $750,000 unsecured revolving credit facility and the maturity date was extended to December 29, 2021. Following the IPO, borrowings under our revolving credit facility arethat is available for our general business purposes, including acquisitions. We have the option to extend theThe maturity date of our revolving credit facility for two six month periods, subject to payment of extension fees and satisfaction of other conditions. Interest on borrowings under our revolving credit facility will be calculated at floating rates based on LIBOR plus a premium that will vary based on our leverage ratio. If we later achieve an investment grade credit rating, we will then be able to elect to continue to have the interest premium based on our leverage ratio or we may instead elect to have the interest premium based on our credit rating, or a ratings election. We are required to pay a commitment fee on the unused portion of our revolving credit facility until and if such time as we make a ratings election, and thereafter we will be
required to pay a facility fee in lieu of such commitment fee based on the maximum amount of our revolving credit facility.is December 29, 2021. We may borrow, repay and reborrow funds under our revolving credit facility until maturity, and no principal repayment is due until maturity. Interest on borrowings under our revolving credit facility is calculated at floating rates based on LIBOR plus a premium that varies based on our leverage ratio. We have the option to extend the maturity date of our revolving credit facility for 2, six month periods, subject to payment of extension fees and satisfaction of other conditions. We are also required to pay a commitment fee on the unused portion of our revolving credit facility. The agreement governing our revolving credit facility, or our credit agreement, also includes a feature under which the maximum borrowing availability under our revolving credit facility may be increased to up to $1,500,000 in certain circumstances. As of December 31, 20172020 and March 27,2019, interest payable on the amount outstanding under our revolving credit facility was LIBOR plus 155 basis points. As of December 31, 2020 and 2019, the interest rate payable on borrowings under our revolving credit facility was 1.70% and 3.26%, respectively. The weighted average interest rate for borrowings under our revolving credit facility was 2.36%, 3.68% and 3.33% for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020 and February 15, 2021, we had $750,000 and $302,000, respectively,$221,000 outstanding under our revolving credit facility, and zero and $448,000, respectively,$529,000 available to borrow under our revolving credit facility.
Our credit agreement provides for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, a change of control of us, which includes The RMR Group LLC, or RMR LLC ceasing to act as our business manager and property manager. Our credit agreement also contains a number of covenants, including covenants that restrict our ability to incur debts or to make distributions in certain circumstances, and generally requires us to maintain certain financial ratios. We believe we were in compliance with the terms and conditions of the covenants under our credit agreement at December 31, 2017.2020.
In January 2019, we obtained a $650,000 mortgage loan secured by 186 of our properties located on the island of Oahu, HI containing approximately 9.6 million square feet. This non-amortizing loan matures on February 7, 2029 and requires monthly
INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
payments of interest only at a fixed rate of 4.31% per annum. We used the principal amountproceeds from this loan to reduce outstanding borrowings under our revolving credit facility and to fund acquisitions.
In connection with the acquisition of a portfolio of 20 industrial properties in April 2019, as discussed in Note 3, we assumed a $56,980 mortgage note secured by 1 property containing approximately 1.0 million square feet located in Ruskin, FL. This non-amortizing loan matures on October 1, 2023 and requires monthly payments of interest only at a fixed rate of 3.60% per annum. We recorded a $1,332 discount in connection with this assumed mortgage note, which increased its effective interest rate to 4.22% per annum. We recorded this discount as we believed the interest rate payable on this mortgage note was $48,750.below the rate we would have had to pay for debt with the same maturity and similar other terms at the time we assumed this obligation.
In October 2019, we obtained a $350,000 mortgage loan secured by 11 of our properties located in 8 states containing an aggregate of approximately 8.2 million rentable square feet. This non-amortizing loan matures in November 2029 and requires monthly payments of interest at a fixed rate of 3.33% per annum. We used the proceeds from this loan to reduce outstanding borrowings under our revolving credit facility.
We no longer include the $56,980 secured mortgage note wasor the $350,000 mortgage loan in our consolidated balance sheet following the deconsolidation of the net assets of our formerly majority-owned joint venture discussed in Note 3.
In May 2020, we prepaid at par plus accrued interest a mortgage note secured by one1 of our properties with an outstanding principal balance of approximately $48,750, an annual interest rate of 3.48% and a net book valuematurity date in November 2020. As a result of $66,588. Thisthe prepayment of this mortgage note, is non-recourse, subjectwe recorded a gain on early extinguishment of debt of $120 for the year ended December 31, 2020 to certain limited exceptions, and does not contain any material financial covenants.
write off unamortized premiums.
The required principal payments due during the next five years and thereafter under all our outstanding debt as of December 31, 20172020 are as follows:
| | | | | | | | | | | |
| | Principal | |
Year | | Payment | |
2021 | | $ | 221,000 | | |
2022 | | 0 | | |
2023 | | 0 | | |
2024 | | 0 | | |
2025 | | 0 | | |
Thereafter | | 650,000 | | |
| | $ | 871,000 | | (1) |
|
| | | | | |
| | Principal | |
Year | | Payment | |
2018 | | $ | — |
| |
2019 | | — |
| |
2020 | | 48,750 |
| |
2021 | | 750,000 |
| |
2022 | | — |
| |
Thereafter | | — |
| |
| | $ | 798,750 |
| (1) |
(1) Total debt outstanding as of December 31, 2020, including unamortized debt issuance costs of $4,421, was 645,579.
| |
(1) | Total debt outstanding as of December 31, 2017, including unamortized debt premiums was $799,427. |
Note 6. Fair Value of Assets and Liabilities
Our financial instruments include cash and cash equivalents, restricted cash, rents receivable, our revolving credit facility, mortgage notes payable, accounts payable, security deposits, rents collected in advance security deposits and amounts due from or to related persons. At December 31, 20172020 and 2016,2019, the fair value of our financial instruments approximated their carrying values in our consolidated financial statements, due to theirthe short term nature of variableor floating interest rates, except for our mortgage notes payable, as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31, 2020 | | At December 31, 2019 |
| | Carrying | | Estimated | | Carrying | | Estimated |
| | Value (1) | | Fair Value | | Value (1) | | Fair Value |
Mortgage notes payable | | $ | 645,579 | | | $ | 730,119 | | | $ | 1,096,608 | | | $ | 1,143,437 | |
| | | | | | | | |
(1) Includes unamortized debt issuance costs, premiums and discounts of $4,421 and $9,122 as of December 31, 2020 and 2019, respectively.
|
| | | | | | | | | | | | | | | | |
| | As of December 31, 2017 | | As of December 31, 2016 |
| | Carrying | | Estimated | | Carrying | | Estimated |
| | Value (1) | | Fair Value | | Value (1) | | Fair Value |
Mortgage notes payable | | $ | 49,427 |
| | $ | 48,919 |
| | $ | 64,269 |
| | $ | 63,619 |
|
INDUSTRIAL LOGISTICS PROPERTIES TRUST
| |
(1) | Includes unamortized premiums of $677 and $1,175 as of December 31, 2017 and 2016, respectively. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
We estimate the fair value of our mortgage notes payable using discounted cash flow analyses and currently prevailing market rates as of the measurement date (Level 3 inputs). Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.
Note 7. Related Person Transactions
We have relationships and historical and continuing transactions with RMR LLC, The RMR Group Inc., or RMR Inc., and others related to them. RMR LLC is a majority owned subsidiary of RMR Inc. ABP Trust is the controlling shareholder of RMR Inc. Onetable below presents certain of our Managing Trustees, Adam Portnoy, isassets measured on a recurring basis at fair value at December 31, 2020, categorized by the sole trusteelevel of and owns beneficialinputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Quoted Prices in | | Significant Other | | Significant |
| | | | Active Markets for | | Observable | | Unobservable |
| | | | Identical Assets | | Inputs | | Inputs |
| | Total | | (Level 1) | | (Level 2) | | (Level 3) |
Recurring fair value measurements | | | | | | | | |
Investment in unconsolidated joint venture (1) | | $ | 60,590 | | | $ | 0 | | | $ | 0 | | | $ | 60,590 | |
| | | | | | | | |
(1) We own a 22% equity interest in ABP Trust. Our
former Managing Trustee, Barry Portnoy, served as a trustee and owned a majority of the beneficial interest in ABP Trust until his death on February 25, 2018. Adam Portnoy is a managing director and an officer and, as the sole trustee of ABP Trust, is the controlling shareholder of RMR Inc.joint venture that owns 12 properties and is an officerincluded in investment in unconsolidated joint venture in our consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs). The significant unobservable inputs used in the fair value are discount rates, exit capitalization rates, holding periods and market rents. The assumptions are based on the location, type and nature of RMR LLC. Adam Portnoy, as the sole trustee of ABP Trust, beneficially owns all the class A membership units of RMR LLC not owned by RMR Inc. Each ofeach property, and current and anticipated market conditions, which are derived from appraisers, industry publications and our executive officers is also an officer of RMR LLC. Our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves, and, until his death, Barry Portnoy served, as a managing director or managing trustee of all of the public companies to which RMR LLC or its subsidiaries provide management services, including SIR. In addition, officers of RMR LLC and RMR Inc. serve as our officers and officers of other companies to which RMR LLC or its subsidiaries provide management services, including SIR. Our other current Managing Trustee and President and Chief Operating Officer also serves as the chief financial officer and treasurer of SIR and as an officer of RMR LLC.
Note 8. Certain Historical Arrangements and Operations Prior to the IPO
In connection with the IPO, on September 29, 2017, SIR contributed to us 266 properties with a total of approximately 28,540,000 rentable square feet, including 16,834,000 rentable square feet of primarily industrial lands in Hawaii and approximately 11,706,000 rentable square feet of industrial and logistics properties in 24 other states. In connection with our formation and this contribution from SIR, we issued to SIR 45,000,000 of our common shares and the SIR Note, and we assumed three mortgage notes totaling $63,069, as of September 30, 2017, that were secured by three of our Initial Properties. In December 2017, we obtained a $750,000 secured revolving credit facility, and we used the proceeds of an initial borrowing under this credit facility to pay the SIR Note in full. Also in December 2017, SIR prepaid on our behalf two of the mortgage notes totaling approximately $14,319 that had encumbered two of our Initial Properties.experience. See Note 11 for further information regarding the IPO.
Neither we nor SIR have any employees. As a wholly owned subsidiary of SIR, until the closing of the IPO, we had historically received services from RMR LLC under SIR’s management agreements with RMR LLC. In connection with the IPO, we entered two agreements with RMR LLC to provide management services to us. See Note 93 for further information regarding our management agreementsjoint venture.
Note 7. Shareholders’ Equity
Common Share Awards:
We have common shares available for issuance under the terms of our 2018 Equity Compensation Plan, or the 2018 Plan. During the years ended December 31, 2020, 2019 and 2018, we awarded to our officers and other employees of RMR LLC annual share awards of 108,600, 104,200 and 54,400 of our common shares, respectively, valued at $2,460, $2,260 and $1,269, in aggregate, respectively. In accordance with our Trustee compensation arrangements, we awarded each of our then 7 Trustees 3,500 common shares in 2020 with an aggregate value of $460 ($66 per Trustee). Also in 2020, in connection with the election of 2 of our Trustees, we awarded 3,000 of our common shares to each such Trustee with an aggregate value of $141 ($71 per Trustee) as part of their annual compensation. During 2019, we awarded each of our then Trustees 3,000 common shares with an aggregate value of $281 ($56 per Trustee) as part of their annual compensation. During 2018, we awarded each of our then Trustees 1,000 of our common shares with an aggregate value of $104 ($21 per Trustee) as compensation for the period from our IPO to May 2018 and awarded each of our then Trustees 3,000 common shares with an aggregate value of $314 ($63 per Trustee) as part of their annual compensation. We awarded an additional 3,000 common shares in December 2018, with an aggregate value of $61 to one of our Managing Trustees, who was elected as a Managing Trustee in December 2018. The values of the share awards were based upon the closing price of our common shares trading on Nasdaq on the dates of awards. The common shares awarded to our Trustees vested immediately. The common shares awarded to our officers and certain other employees of RMR LLC.LLC vest in 5 equal annual installments beginning on the date of award. We recognize share forfeitures as they occur. We include the value of awarded shares in general and administrative expenses ratably over the vesting period.
A summary of shares awarded, vested and forfeited under the terms of the 2018 Plan for the year ended December 31, 2020, 2019 and 2018 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2020 | | December 31, 2019 | | December 31, 2018 |
| | | | | | | | | | | |
| | | Weighted | | | | Weighted | | | | Weighted |
| | | Average | | | | Average | | | | Average |
| Number | | Grant Date | | Number | | Grant Date | | Number | | Grant Date |
| of Shares | | Fair Value | | of Shares | | Fair Value | | of Shares | | Fair Value |
Unvested at beginning of year | 108,200 | | | $ | 22.08 | | | 43,280 | | | $ | 23.33 | | | 0 | | | $ | 0 | |
Granted | 139,100 | | | 22.01 | | | 119,200 | | | 21.32 | | | 77,400 | | | 22.60 | |
Vested | (84,520) | | | 21.41 | | | (52,880) | | | 20.78 | | | (33,880) | | | 21.64 | |
Forfeited | (580) | | | 22.20 | | | (1,400) | | | 22.39 | | | (240) | | | 23.33 | |
Unvested at end of year | 162,200 | | | $ | 22.37 | | | 108,200 | | | $ | 22.08 | | | 43,280 | | | $ | 23.33 | |
INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
The 162,200 unvested shares as of December 31, 2020 are scheduled to vest as follows: 63,260 shares in 2021, 43,460 shares in 2022, 36,160 shares in 2023 and 19,320 in 2024. As of December 31, 2020, the estimated future compensation expense for the unvested shares was approximately $2,903. The weighted average period over which the compensation expense will be recorded is approximately 22 months. During the years ended December 31, 2020, 2019 and 2018, we recorded $2,331, $1,109 and $927 respectively, of compensation expense related to the 2018 Plan.
At December 31, 2020, 3,698,912 common shares remain available for issuance under the 2018 Plan.
Common Share Purchases:
During the years ended December 31, 2017, 20162020, 2019 and 2015, the base management fees paid by SIR to2018, we repurchased 18,060, 11,963 and 2,369 of our common shares, respectively, at weighted average prices of $21.16, $21.19 and 22.08 per common share, respectively, from our Trustees and current and former officers and employees of RMR LLC were calculated based on a formula amount equal toin satisfaction of tax withholding and payment obligations in connection with the lesser of: (i) the historical costvesting of SIR’s properties; and (ii) the average market capitalization of SIR, as defined in SIR’s business management agreement with RMR LLC, and RMR LLC was eligible to receive an annual incentive management fee based on SIR’s total shareholder returns. For all periods presented in our consolidated financial statements, base management fees have been calculated based on the historical costawards of our properties. Base management fees allocated to us forcommon shares.
Distributions:
During the years ended December 31, 2017, 20162020, 2019 and 2015 were $6,823, $6,789 and $6,668, respectively, and incentive management fees allocated2018, we paid distributions on our common shares as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | Annual Per | | | | Characterization of Distribution |
| | Share | | Total | | Return of | | Ordinary | | |
Year | | Distribution | | Distribution | | Capital | | Income | | |
2020 | | $ | 1.32 | | | $ | 86,089 | | | 29.0 | % | | 71.0 | % | | |
2019 | | $ | 1.32 | | | $ | 85,937 | | | 21.8 | % | | 78.2 | % | | |
2018 | | $ | 0.93 | | | $ | 60,482 | | | 0 | % | | 100.0 | % | | |
On January 14, 2021, we declared a regular quarterly distribution of $0.33 per common share, or $21,549, to us, basedshareholders of record on the percentage ofJanuary 25, 2021. We paid this distribution to our base management fees compared to the total base management fees paid by SIR, for the year ended December 31, 2017 were $7,660. No incentive management fees were payable by SIR for the years ended December 31, 2016 and 2015. General and administrative expenses incurred by SIR, which were not directly allocated to us and which include our share of costsshareholders on February 18, 2021.
Note 8. Per Common Share Amounts
The following table provides a reconciliation of the internal audit function provided by RMR LLC toweighted average number of common shares used in the companies it or its subsidiaries manage, were allocated to us based on the percentagecalculation of our base management fees compared to the total base management fees paid by SIR. The amounts allocated for internal audit costs for the years ended December 31, 2017, 2016basic and 2015 were $84, $74 and $83, respectively.diluted earnings per share (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
Weighted average common shares for basic earnings per share | | 65,104 | | | 65,049 | | | 64,139 | |
Effect of dilutive securities: unvested share awards | | 10 | | | 6 | | | 1 | |
Weighted average common shares for diluted earnings per share | | 65,114 | | | 65,055 | | | 64,140 | |
RMR LLC is also paid by SIR property management fees equal to 3.0% of gross collected rents and construction supervision fees equal to 5.0% of construction costs. The aggregate property management and construction supervision fees allocated to us for the years ended December 31, 2017, 2016 and 2015 were $4,244, $4,182 and $4,156, respectively. These amounts were calculated based upon services provided at or for our Initial Properties. These amounts are included in other operating expenses or have been capitalized, as appropriate, in our consolidated financial statements.
We are generally responsible for all of our operating expenses, including certain expenses incurred by RMR LLC on our behalf. Our property level operating costs are generally incorporated into rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC. The total of these property management related reimbursements paid to RMR LLC for costs incurred by RMR LLC related to our Initial Properties for the years ended December 31, 2017, 2016 and 2015 were $2,512, $2,448 and $1,605, respectively. These amounts are included in other operating expenses in our consolidated financial statements for these periods. We are generally not responsible for payment of RMR LLC’s employment, office or administration expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC employees assigned to work exclusively or partly at our owned properties, our share of the wages, benefits and other related costs of centralized accounting personnel and our share of the staff employed by RMR LLC who perform our internal audit function.
SIR has historically insured our properties through a combined property insurance program arranged and insured or reinsured in part by Affiliates Insurance Company, an Indiana insurance company, or AIC, owned by SIR, ABP Trust and five other companies to which RMR LLC provides management services. The annual insurance premiums, including taxes and fees, of $320, $351 and $517, were allocated to us for insurance applicable to our Initial Properties in this insurance program for the policy years ended June 30, 2018, 2017 and 2016, respectively. These amounts were adjusted from time to time during each policy year as SIR acquired or disposed of properties that were included in this insurance program.
SIR, RMR Inc., and certain other companies to which RMR LLC or its subsidiaries provide management services have historically participated in a combined directors’ and officers’ liability insurance policy. The cost of this insurance SIR allocated to us was $116, $93 and $52 for the years ended December 31, 2017, 2016 and 2015, respectively, and is included in general and administrative expenses in our consolidated statements of comprehensive income.
See Notes 9 and 11 for further information regarding our relationship, agreements and transactions with RMR LLC and SIR.
Note 9. Business and Property Management Agreements with RMR LLC
We have no0 employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. On January 17, 2018, we entered two managementWe have 2 agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally,generally; and (2) a property management agreement, which relates to our property level operations. See Notes 7 and 8 for further information regarding our relationship, agreements and transactions with RMR LLC prior to the IPO.
Management Agreements with RMR LLC. Our management agreements with RMR LLC provide for an annual base management fee, an annual incentive management fee and property management and construction supervision fees, payable in cash, among other terms:
•Base Management Fee. The annual base management fee payable to RMR LLC by us for each applicable period is equal to the lesser of:
◦the sum of (i) 0.5% of the average aggregate historical cost of the real estate assets acquired from a REIT to which RMR LLC provided business management or property management services, or the Transferred
INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
Assets, plus (ii) 0.7% of the average aggregate historical cost of our real estate investments excluding the Transferred Assets up to $250,000, plus (iii) 0.5% of the average aggregate historical cost of our real estate investments excluding the Transferred Assets exceeding $250,000; and
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◦ | the sum of (a) 0.5% of the average aggregate historical cost of the real estate assets acquired from a REIT to which RMR LLC provided business management or property management services, or the Transferred Assets, which includes our Initial Properties we acquired from SIR, plus (b) 0.7% of the average aggregate historical cost of our real estate investments excluding the Transferred Assets up to $250,000, plus (c) 0.5% of the average aggregate historical cost of our real estate investments excluding the Transferred Assets exceeding $250,000; and |
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◦ | the sum of (a) 0.7% of the average closing price per share of our common shares on the stock exchange on which such shares are principally traded, during such period, multiplied by the average number of our common shares outstanding during such period, plus the daily weighted average of the aggregate liquidation preference of each class of our preferred shares outstanding during such period, plus the daily weighted average of the aggregate principal amount of our consolidated indebtedness during such period, or, together, our Average Market Capitalization, up to $250,000, plus (b) 0.5% of our Average Market Capitalization exceeding $250,000. |
◦the sum of (i) 0.7% of the average closing price per share of our common shares on the stock exchange on which such shares are principally traded during such period, multiplied by the average number of our common shares outstanding during such period, plus the daily weighted average of the aggregate liquidation preference of each class of our preferred shares outstanding during such period, plus the daily weighted average of the aggregate principal amount of our consolidated indebtedness during such period, or, together, our Average Market Capitalization, up to $250,000, plus (ii) 0.5% of our Average Market Capitalization exceeding $250,000.
The average aggregate historical cost of our real estate investments includes our consolidated assets invested, directly or indirectly, in equity interests in or loans secured by real estate and personal property owned in connection with such real estate (including acquisition related costs and costs which may be allocated to intangibles or are unallocated), all before reserves for depreciation, amortization, impairment charges or bad debts or other similar non-cash reserves.
•Incentive Management Fee. The incentive management fee which may be earned by RMR LLC for an annual period is calculated as follows:
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◦ | An amount, subject to a cap, based on the value of our common shares outstanding, equal to 12% of the product of: |
◦An amount, subject to a cap, based on the value of our common shares outstanding, equal to 12.0% of the product of:
–if the relevant measurement period ends on or before December 31, 2020, $1,560,000 (our unadjusted equity market capitalization as calculated at our IPO) or, if the relevant measurement period ends thereafter, our equity market capitalization on the last trading day of the calendar year immediately prior to the relevant measurement period, and
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– | if the relevant measurement period ends on or before December 31, 2020, $1,560,000 (our equity market capitalization as calculated at the IPO) or, if the relevant measurement period ends thereafter, our equity market capitalization on the last trading day of the calendar year immediately prior to the relevant measurement period, and |
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– | the amount (expressed as a percentage) by which the total return per share, as defined in the business management agreement and further described below, of our common shareholders (i.e., share price appreciation plus dividends) exceeds the total shareholder return of the SNL U.S. REIT Equity Index, or the benchmark return per share, for the relevant measurement period. |
–the amount (expressed as a percentage) by which the total return per share, as defined in the business management agreement and further described below, of our common shareholders (i.e., share price appreciation plus dividends) exceeds the total shareholder return of the applicable market index, or the benchmark return per share, for the relevant measurement period. Effective as of January 1, 2019, we amended our business management agreement with RMR LLC so that the SNL U.S. Industrial REIT Index will be used for periods beginning on and after January 1, 2019, with the SNL U.S. REIT Equity Index used for periods ending on or prior to December 31, 2018.
For purposes of the total return per share of our common shareholders, share price appreciation for a measurement period is determined by subtracting (1)(i) if the measurement period ends on or before December 31, 2020, $24.00 per common share (our unadjusted initial share price, as defined under the business management agreement, based on our IPO price of our common shares) or, if the measurement period ends after December 31, 2020, the closing price of our common shares on Nasdaq on the last trading day of the year immediately before the first year of the applicable measurement period from (2)(ii) the average closing price of our common shares on the 10 consecutive trading days having the highest average closing prices during the final 30 trading days in the last year of the measurement period.
◦The calculation of the incentive management fee (including the determinations of our equity market capitalization, initial share price and the total return per share of our common shareholders) is subject to adjustments if we issue or repurchase our common shares, or our common shares are forfeited, during the measurement period.
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◦ | The calculation of the incentive management fee (including the determinations of our equity market capitalization and the total return per share of our common shareholders) is subject to adjustments if additional common shares are issued during the measurement period. |
◦No incentive management fee is payable by us unless our total return per share during the measurement period is positive.
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◦ | No incentive management fee is payable by us unless our total return per share during the measurement period is positive. |
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◦ | The measurement periods are generally three year periods ending with the year for which the incentive management fee is being calculated, with shorter periods applicable in the case of the calculation of the incentive fee for 2020 (the period beginning on January 12, 2018, the first day our common shares began trading, and ending on December 31, 2020), 2019 (the period beginning on January 12, 2018 and ending on December 31, 2019) and 2018 (the period beginning on January 12, 2018 and ending on December 31, 2018). |
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◦ | If our total return per share exceeds 12% per year in any measurement period, the benchmark return per share is adjusted to be the lesser of the total shareholder return of the SNL U.S. REIT Equity Index for such measurement period and 12% per year, or the adjusted benchmark return per share. In instances where the adjusted benchmark return per share applies, the incentive management fee will be reduced if our total return per share is between 200 basis points and 500 basis points below the SNL U.S. REIT Equity Index by a low return factor, as defined in the business management agreement, and there will be no incentive management fee paid if, in these instances, our total return per share is more than 500 basis points below the SNL U.S. REIT Equity Index. |
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◦ | The incentive management fee is subject to a cap. The cap is equal to the value of the number of our common shares which would, after issuance, represent 1.5% of the number of our common shares then outstanding multiplied by the average closing price of our common shares during the 10 consecutive trading days having the highest average closing prices during the final 30 trading days of the relevant measurement period. |
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◦ | Incentive management fees we paid to RMR LLC for any period may be subject to “clawback” if our financial statements for that period are restated due to material non-compliance with any financial reporting requirements under the securities laws as a result of the bad faith, fraud, willful misconduct or gross negligence of RMR LLC and the amount of the incentive management fee we paid was greater than the amount we would have paid based on the restated financial statements. |
◦The measurement periods are generally three year periods ending with the year for which the incentive management fee is being calculated, with shorter periods applicable in the case of the calculation of the incentive fee for 2020 (the period beginning on January 12, 2018, the first day our common shares began
INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
trading, and ending on December 31, 2020), 2019 (the period beginning on January 12, 2018 and ending on December 31, 2019) and 2018 (the period beginning on January 12, 2018 and ending on December 31, 2018).
◦If our total return per share exceeds 12.0% per year in any measurement period, the benchmark return per share is adjusted to be the lesser of the total shareholder return of the applicable market index for such measurement period and 12.0% per year, or the adjusted benchmark return per share. In instances where the adjusted benchmark return per share applies, the incentive management fee will be reduced if our total return per share is between 200 basis points and 500 basis points below the applicable market index, by a low return factor, as defined in the business management agreement, and there will be no incentive management fee paid if, in these instances, our total return per share is more than 500 basis points below the applicable market index.
◦The incentive management fee is subject to a cap. The cap is equal to the value of the number of our common shares which would, after issuance, represent 1.5% of the number of our common shares then outstanding multiplied by the average closing price of our common shares during the 10 consecutive trading days having the highest average closing prices during the final 30 trading days of the relevant measurement period.
◦Incentive management fees we paid to RMR LLC for any period may be subject to “clawback” if our financial statements for that period are restated due to material non-compliance with any financial reporting requirements under the securities laws as a result of the bad faith, fraud, willful misconduct or gross negligence of RMR LLC and the amount of the incentive management fee we paid was greater than the amount we would have paid based on the restated financial statements.
Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $12,983 and $11,897 for the years ended December 31, 2020 and 2019, respectively, and $7,269 for the period from January 17, 2018 through December 31, 2018. The net business management fees we recognized for the year ended December 31, 2020 include $1,005 of management fees paid to RMR LLC by our joint venture that was a consolidated subsidiary of ours until November 2020. See Note 3 for further information regarding our joint venture. The net business management fees we recognized are included in general and administrative expenses in our consolidated statements of comprehensive income for the years ended December 31, 2020, 2019 and 2018. We did 0t incur any incentive management fee pursuant to our business management agreement for the periods ended December 31, 2020, 2019 and 2018.
•Property Management and Construction Supervision Fees. The property management fees payable to RMR LLC by us for each applicable period are equal to 3.0% of gross collected rents and the construction supervision fees payable to RMR LLC by us for each applicable period are equal to 5.0% of construction costs.
Pursuant to our property management agreement with RMR LLC, we recognized aggregate property management and construction supervision fees of $7,472 and $7,548 for the years ended December 31, 2020 and 2019, respectively, and $4,680 for the period from January 17, 2018 through December 31, 2018. For the years ended December 31, 2020 and 2019 and for the period from January 17, 2018 through December 31, 2018, $7,267, $6,697 and $4,467, respectively, of the total net property management and construction supervision fees were expensed to other operating expenses in our consolidated statements of comprehensive income and $205, $851 and $213, respectively, were capitalized as building improvements in our consolidated balance sheets.
•Expense Reimbursement. We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. Our property level operating expenses are generally incorporated
into rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC. We are generally not responsible for payment of RMR LLC’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR LLC’s centralized accounting personnel, and our share of RMR LLC’s costs for providing our internal audit function.function and as otherwise agreed. Our Audit Committee appoints our Director of Internal Audit and our Compensation Committee approves the costs of our internal audit function.
Our property level operating expenses are generally incorporated into rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC. We reimbursed RMR LLC $4,948 and $4,269 for these expenses and costs for the years ended December 31, 2020 and 2019, respectively, and
INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
$2,908 for the period from January 17, 2018 through December 31, 2018. These amounts are included in other operating expenses and general and administrative expenses, as applicable, for these periods.
•Term. Our management agreements with RMR LLC have terms that end on December 31, 2037,2040, and automatically extend on December 31st of each year for an additional year, so that the terms of our management agreements thereafter end on the 20th anniversary of the date of the extension.
•Termination Rights. We have the right to terminate one or both of our management agreements with RMR LLC: (1)(i) at any time on 60 days’ written notice for convenience, (2)(ii) immediately on written notice for cause, as defined therein, (3)(iii) on written notice given within 60 days after the end of an applicable calendar year for a performance reason, as defined therein, and (4)(iv) by written notice during the 12 months following a change of control of RMR LLC, as defined therein. RMR LLC has the right to terminate the management agreements for good reason, as defined therein.
•Termination Fee. If we terminate one or both of our management agreements with RMR LLC for convenience, or if RMR LLC terminates one or both of our management agreements for good reason, we have agreed to pay RMR LLC a termination fee in an amount equal to the sum of the present values of the monthly future fees, as defined therein, for the terminated management agreement(s) for the term that was remaining prior to such termination, which, depending on the time of termination would be between 19 and 20 years. If we terminate one or both of our management agreements with RMR LLC for a performance reason, we have agreed to pay RMR LLC the termination fee calculated as described above, but assuming a 10 year term was remaining prior to the termination. We are not required to pay any termination fee if we terminate our management agreements with RMR LLC for cause or as a result of a change of control of RMR LLC.
•Transition Services. RMR LLC has agreed to provide certain transition services to us for 120 days following an applicable termination by us or notice of termination by RMR LLC, including cooperating with us and using commercially reasonable efforts to facilitate the orderly transfer of the management and real estate investment services provided under our business management agreement and to facilitate the orderly transfer of the management of the managed properties under our property management agreement, as applicable.
Vendors.•Vendors. Pursuant to our management agreements with RMR LLC, RMR LLC may from time to time negotiate on our behalf with certain third party vendors and suppliers for the procurement of goods and services to us. As part of this arrangement, we may enter into agreements with RMR LLC and other companies to which RMR LLC providesor its subsidiaries provide management services for the purpose of obtaining more favorable terms from such vendors and suppliers.
•Investment Opportunities. Under our business management agreement with RMR LLC, we acknowledge that RMR LLC may engage in other activities or businesses and act as the manager to any other person or entity (including other REITs) even though such person or entity has investment policies and objectives similar to ours and we are not entitled to preferential treatment in receiving information, recommendations and other services from RMR LLC.
Management Agreements between Our Joint Venture and RMR LLC. As described further in Note 10. Selected Quarterly Financial Data (Unaudited)
The following is3, we own a summary22% equity interest in our joint venture. In November 2020, our joint venture entered into (1) an amended and restated asset management agreement with RMR LLC, which provides for an asset management fee of 1.0% of average invested capital for our unaudited quarterly results of operations for 2017joint venture, and 2016:
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| | 2017 |
| | First | | Second | | Third | | Fourth |
| | Quarter | | Quarter | | Quarter | | Quarter |
Total revenues | | $ | 39,440 |
| | $ | 38,605 |
| | $ | 39,066 |
| | $ | 39,395 |
|
Net income | | $ | 20,356 |
| | $ | 21,575 |
| | $ | 22,903 |
| | $ | 15,269 |
|
Net income per common share - basic and diluted | | $ | 0.45 |
| | $ | 0.48 |
| | $ | 0.51 |
| | $ | 0.34 |
|
|
| | | | | | | | | | | | | | | | |
| | 2016 |
| | First | | Second | | Third | | Fourth |
| | Quarter | | Quarter | | Quarter | | Quarter |
Total revenues | | $ | 39,220 |
| | $ | 37,956 |
| | $ | 38,075 |
| | $ | 38,059 |
|
Net income | | $ | 22,339 |
| | $ | 21,650 |
| | $ | 21,006 |
| | $ | 21,903 |
|
Net income per common share - basic and diluted | | $ | 0.50 |
| | $ | 0.48 |
| | $ | 0.47 |
| | $ | 0.49 |
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Note 11. Subsequent Events
Initial Public Offering:
On January 11, 2018, we priced the IPO, consisting of 20,000,000 common shares, at a price to the public of $24.00 per common share,(2) an amended and restated master property management agreement with RMR LLC, which provides for a totalproperty management fee of $480,000 in3% of gross proceeds. In connection with the IPO, we entered into various agreementscollected rents and arrangements, including the following:
Underwriting Agreement. On January 11, 2018, we,5% of construction costs supervised by RMR LLC for our joint venture. Prior to November 2020, our joint venture was our consolidated subsidiary and, as such, we were obligated to pay fees under our management agreements with RMR LLC regarding our joint venture; however, any fees paid by that joint venture were credited against the representatives of the several underwriters named therein entered an underwriting agreement, or the Underwriting Agreement, providing for the offer and salefees payable by us to RMR LLC. Starting in November 2020, our joint venture is no longer our consolidated subsidiary and, the purchase by the several underwriters named therein, of 20,000,000 common shares atas a price to the public of $24.00 per common share. We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, and to contribute to payments the underwriters may beresult, we are no longer required to make because of any of those liabilities. Under the Underwriting Agreement, subjectpay management fees to certain exceptions, we may not, without the prior written approval of the designated underwriter, offer, sell, contact to sell, pledge, or otherwise dispose of, directly or indirectly, or hedge common shares or securities convertible into or exchangeable or exercisable for common shares until after July 10, 2018.
Transaction Agreement. On January 17, 2018, we and SIR entered a transaction agreement, or the Transaction Agreement, to govern our relationship with SIR. Pursuant to the Transaction Agreement:
our current assets and current liabilities were settled between SIR (for the periods ending on and before the closing of the IPO) and us (for periods ending after the closing of the IPO);
SIR will indemnify us with respect to any of its liabilities, and we will indemnify SIR with respect to any of our liabilities, after giving effect to the settlement between us and SIR of our current assets and current liabilities; and
we and SIR will cooperate to enforce the ownership limitations in our and its respective declaration of trust as may be appropriate to qualify for and maintain qualification for taxation as a REIT under the IRC and otherwise to ensure each receives the economics of its assets and liabilities and to file future tax returns, including appropriate allocations of taxable income, expenses and other tax attributes.
Registration Rights Agreement. On January 17, 2018, we and SIR entered a registration rights agreement, or the Registration Rights Agreement. The Registration Rights Agreement grants SIR demand and piggyback registration rights, subject to certain limitations,RMR LLC with respect to our common sharesjoint venture and fees our joint venture pays to RMR LLC are no longer credited against amounts we owe to RMR LLC.
INDUSTRIAL LOGISTICS PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
Note 10. Related Person Transactions
We have relationships and historical and continuing transactions with RMR LLC, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR LLC is a majority owned by SIR,subsidiary of RMR Inc. 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 SIR may exercise after July 16, 2018.is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC. John Murray, our other Managing Trustee and our President and Chief Executive Officer, also serves as an officer and employee of RMR LLC, and each of our other officers is also an officer and employee of RMR LLC. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as chair of the boards of trustees or boards of directors of several of these public companies and as a managing director or managing trustee of these public companies. Other officers of RMR LLC, including Mr. Murray and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies.
Other:
OurOur Manager, RMR LLC. We have two2 agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally, and (2) a property management agreement, which relates to our property level operations.us. See Note 9 for further information regarding our management agreements with RMR LLC.
SIRShare Awards to RMR LLC Employees. Until January 17, 2018,As described in Note 7, we were a wholly owned subsidiaryaward shares to our officers and other employees of SIR.RMR LLC annually. Generally, one fifth of these awards vest on the grant date and one fifth vests on each of the next four anniversaries of the grant dates. In certain instances, we may accelerate the vesting of an award, such as in connection with the IPO,award holder’s retirement as an officer of us or an officer or employee of RMR LLC. These awards to RMR LLC employees are in addition to the share awards to our Managing Trustees, as Trustee compensation, and the fees we and SIR entered the Transaction Agreement.paid to RMR LLC. See Note 87 for further information regarding our relationship,share awards and activity as well as certain share purchases we made in connection with share award recipients satisfying tax withholding obligations on the vesting of share awards.
SIR and OPI. Effective December 31, 2018, SIR merged with and into a subsidiary of OPI. Adam Portnoy is also a managing trustee of OPI and was a managing trustee of SIR prior to its merger with OPI’s subsidiary. RMR LLC provided management services to SIR until its merger with OPI’s subsidiary and continues to provide management services to OPI and to us. On December 27, 2018, SIR distributed all 45,000,000 of our common shares that it owned to SIR’s shareholders of record on December 20, 2018. As a result of the merger, OPI succeeded to all of SIR’s rights and obligations, including with respect to SIR’s agreements with us.
OPI owed to us $1,504 as of December 31, 2019 for rents that it collected on our behalf from certain of our tenants. A predecessor of OPI owned those properties and transactions with SIR.those tenants first became tenants at those properties prior to our ownership. OPI paid these amounts due to us or collected on our behalf in January 2020.
AIC.AIC. Until its dissolution on February 13, 2020, we, ABP Trust SIR and five other companies to which RMR LLC provides management services currently ownowned AIC an Indiana insurance company, in equal amounts. All of our Trustees (other than John Popeo) and most of the trustees and
directors of the other AIC shareholders currently serve on the board of directors of AIC. John Popeo also serves as treasurer of AIC.
SIRWe and the other AIC shareholders participatehistorically participated in a combined property insurance program arranged and insured or reinsured in part by AIC. AIC until June 30, 2019.
In connection with AIC’s dissolution, we and each other AIC shareholder received an initial liquidating distribution of $9,000 from AIC in December 2019 and an additional liquidating distribution of approximately $287 in June 2020.
We will payrecognized income related to SIR our pro rata costsinvestment in AIC of the portion of the insurance policy covering our Initial Properties$666 for the remainder of the insurance policy. See Note 8 for further information.
Directors’ and Officers’ Liability Insurance. SIR, RMR Inc. and certain other companies to which RMR LLC or its subsidiaries provide management services participate in a combined directors’ and officers’ liability insurance policy. This combined policy expires in September 2019. As a majority owned subsidiary of SIR, we are provided coverage under this policy.
INDUSTRIAL LOGISTICS PROPERTIES TRUST
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
year ended December 31, 20172019, which is presented as equity in earnings of investees in our consolidated statement of comprehensive income. We did not recognize any income related to our investment in AIC for the years ended December 31, 2020 or 2018.
(dollarsOur Joint Venture. As of December 31, 2020, our joint venture owed to us $2,665 for post-closing adjustments relating to our sale of some of our equity interests to a second third party institutional investor in thousands)November 2020. This amount is presented as due from related persons in our consolidated balance sheet.
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| | | | | | | | | | | | | | | | |
| | Balance at | | Charged to | | | | Balance |
| | Beginning | | Costs and | | | | at End |
Description | | of Period | | Expenses | | Deductions | | of Period |
Year ended December 31, 2015: | | | | | | | | |
Allowance for doubtful accounts | | $ | 1,147 |
| | $ | (486 | ) | | $ | (248 | ) | | $ | 413 |
|
Year ended December 31, 2016: | | | | | | | | |
Allowance for doubtful accounts | | $ | 413 |
| | $ | 257 |
| | $ | (87 | ) | | $ | 583 |
|
Year ended December 31, 2017: | | | | | | | | |
Allowance for doubtful accounts | | $ | 583 |
| | 704 |
| | (46 | ) | | $ | 1,241 |
|
INDUSTRIAL LOGISTICS PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 20172020
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Initial Cost to | | Costs | | | | Gross Amount Carried at | | | | | | | |
| | | | | | | | | | | Company | | Capitalized | | | | Close of Period(4) | | | | | | Original | |
| | | | | | | | | | | | Buildings and | | Subsequent to | | | | | Buildings and | | | Accumulated | | Date | | Construction | |
| Property | | Location | | State | | Property Type | | Encumbrances(1) | | Land | Equipment | | Acquisition | | | | Land | Equipment | Total(2) | | Depreciation(3) | | Acquired | | Date | |
1 | 4501 Industrial Drive | | Fort Smith | | AR | | Mainland Properties | | 0 | | $ | 900 | | $ | 3,485 | | | $ | 0 | | | | | $ | 900 | | $ | 3,485 | | $ | 4,385 | | | $ | (516) | | | 1/29/2015 | | 2013 | | |
2 | 16920 West Commerce Drive | | Goodyear | | AZ | | Mainland Properties | | 0 | | 11,214 | | 54,676 | | | 32 | | | | | 11,214 | | 54,708 | | 65,922 | | | (1,376) | | | 2/14/2020 | | 2008 | | |
3 | 955 Aeroplaza Drive | | Colorado Springs | | CO | | Mainland Properties | | 0 | | 800 | | 7,412 | | | 39 | | | | | 800 | | 7,451 | | 8,251 | | | (1,103) | | | 1/29/2015 | | 2012 | | |
4/5 | 13400 East 39th Avenue and 3800 Wheeling Street | | Denver | | CO | | Mainland Properties | | 0 | | 3,100 | | 12,955 | | | 4 | | | | | 3,100 | | 12,959 | | 16,059 | | | (1,917) | | | 1/29/2015 | | 1973 | | |
6 | 3870 Ronald Reagan Boulevard | | Johnstown | | CO | | Mainland Properties | | 0 | | 2,780 | | 9,722 | | | 0 | | | | | 2,780 | | 9,722 | | 12,502 | | | (559) | | | 4/9/2019 | | 2007 | | |
7 | 150 Greenhorn Drive | | Pueblo | | CO | | Mainland Properties | | 0 | | 200 | | 4,177 | | | 0 | | | | | 200 | | 4,177 | | 4,377 | | | (618) | | | 1/29/2015 | | 2013 | | |
8 | 2 Tower Drive | | Wallingford | | CT | | Mainland Properties | | 0 | | 1,471 | | 2,165 | | | 858 | | | | | 1,471 | | 3,023 | | 4,494 | | | (854) | | | 10/24/2006 | | 1978 | | |
9 | 235 Great Pond Road | | Windsor | | CT | | Mainland Properties | | 0 | | 2,400 | | 9,469 | | | 0 | | | | | 2,400 | | 9,469 | | 11,869 | | | (1,993) | | | 7/20/2012 | | 2004 | | |
10 | 10450 Doral Boulevard | | Doral | | FL | | Mainland Properties | | 0 | | 15,225 | | 28,102 | | | 0 | | | | | 15,225 | | 28,102 | | 43,327 | | | (2,342) | | | 6/27/2018 | | 1996 | | |
11 | 2100 NW 82nd Avenue | | Miami | | FL | | Mainland Properties | | | | 144 | | 1,297 | | | 454 | | | | | 144 | | 1,751 | | 1,895 | | | (845) | | | 3/19/1998 | | 1987 | | |
12 | 1000 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,252 | | 0 | | | 0 | | | | | 2,252 | | 0 | | 2,252 | | | 0 | | | 12/5/2003 | | — | | |
13 | 1001 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 15,155 | | 3,312 | | | 91 | | | | | 15,155 | | 3,403 | | 18,558 | | | (1,439) | | | 12/5/2003 | | — | | |
14 | 1024 Kikowaena Place | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,818 | | 0 | | | 0 | | | | | 1,818 | | 0 | | 1,818 | | | 0 | | | 12/5/2003 | | — | | |
15 | 1024 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,385 | | 0 | | | 0 | | | | | 1,385 | | 0 | | 1,385 | | | 0 | | | 12/5/2003 | | — | | |
16 | 1027 Kikowaena Place | | Honolulu | | HI | | Hawaii Properties | | (A) | | 5,444 | | 0 | | | 0 | | | | | 5,444 | | 0 | | 5,444 | | | 0 | | | 12/5/2003 | | — | | |
17 | 1030 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 5,655 | | 0 | | | 0 | | | | | 5,655 | | 0 | | 5,655 | | | 0 | | | 12/5/2003 | | — | | |
18 | 1038 Kikowaena Place | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,576 | | 0 | | | 0 | | | | | 2,576 | | 0 | | 2,576 | | | 0 | | | 12/5/2003 | | — | | |
19 | 1045 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 819 | | 0 | | | 0 | | | | | 819 | | 0 | | 819 | | | 0 | | | 12/5/2003 | | — | | |
20 | 1050 Kikowaena Place | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,404 | | 873 | | | 0 | | | | | 1,404 | | 873 | | 2,277 | | | (372) | | | 12/5/2003 | | — | | |
21 | 1052 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,703 | | 0 | | | 240 | | | | | 1,703 | | 240 | | 1,943 | | | (92) | | | 12/5/2003 | | — | | |
22 | 1055 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,216 | | 0 | | | 0 | | | | | 1,216 | | 0 | | 1,216 | | | 0 | | | 12/5/2003 | | — | | |
23 | 106 Puuhale Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,113 | | 0 | | | 274 | | | | | 1,113 | | 274 | | 1,387 | | | (81) | | | 12/5/2003 | | 1966 | | |
24 | 1062 Kikowaena Place | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,049 | | 598 | | | 61 | | | | | 1,049 | | 659 | | 1,708 | | | (256) | | | 12/5/2003 | | — | | |
25 | 1122 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 5,781 | | 0 | | | 0 | | | | | 5,781 | | 0 | | 5,781 | | | 0 | | | 12/5/2003 | | — | | |
26 | 113 Puuhale Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,729 | | 0 | | | 0 | | | | | 3,729 | | 0 | | 3,729 | | | 0 | | | 12/5/2003 | | — | | |
27 | 1150 Kikowaena Place | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,445 | | 0 | | | 0 | | | | | 2,445 | | 0 | | 2,445 | | | 0 | | | 12/5/2003 | | — | | |
28 | 120 Mokauea Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,953 | | 0 | | | 1,029 | | | | | 1,953 | | 1,029 | | 2,982 | | | (150) | | | 12/5/2003 | | 1970 | | |
29 | 120 Sand Island Access Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,132 | | 11,307 | | | 1,423 | | | | | 1,132 | | 12,730 | | 13,862 | | | (4,965) | | | 11/23/2004 | | 2004 | | |
30 | 120B Mokauea Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,953 | | 0 | | | 0 | | | | | 1,953 | | 0 | | 1,953 | | | 0 | | | 12/5/2003 | | 1970 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost to | Costs | | Gross Amount Carried at | | | |
| | | | | | Company | Capitalized | | Close of Period(4) | | | Original |
| | | | | | | Buildings and | Subsequent to | | | Buildings and | | Accumulated | Date | Construction |
| Property | Location | State | Property Type | Encumbrances(1) | Land | Equipment | Acquisition | | Land | Equipment | Total(2) | Depreciation(3) | Acquired | Date |
1. | 4501 Industrial Drive | Fort Smith | AR | Mainland Industrial | $ | — |
| $ | 900 |
| $ | 3,485 |
| — |
| | $ | 900 |
| $ | 3,485 |
| $ | 4,385 |
| $ | 254 |
| 1/29/2015 | 2013 |
|
2. | 955 Aeroplaza Drive | Colorado Springs | CO | Mainland Industrial | — |
| 800 |
| 7,412 |
| — |
| | 800 |
| 7,412 |
| 8,212 |
| 540 |
| 1/29/2015 | 2012 |
|
3./4. | 13400 East 39th Avenue and 3800 Wheeling Street | Denver | CO | Mainland Industrial | — |
| 3,100 |
| 12,955 |
| 46 |
| | 3,100 |
| 13,001 |
| 16,101 |
| 964 |
| 1/29/2015 | 1973 |
|
5. | 150 Greenhorn Drive | Pueblo | CO | Mainland Industrial | — |
| 200 |
| 4,177 |
| — |
| | 200 |
| 4,177 |
| 4,377 |
| 305 |
| 1/29/2015 | 2013 |
|
6. | 2 Tower Drive | Wallingford | CT | Mainland Industrial | — |
| 1,471 |
| 2,165 |
| 8 |
| | 1,471 |
| 2,173 |
| 3,644 |
| 615 |
| 10/24/2006 | 1978 |
|
7. | 235 Great Pond Drive | Windsor | CT | Mainland Industrial | — |
| 2,400 |
| 9,469 |
| — |
| | 2,400 |
| 9,469 |
| 11,869 |
| 1,282 |
| 7/20/2012 | 2004 |
|
8. | 2100 NW 82nd Avenue | Miami | FL | Mainland Industrial | — |
| 144 |
| 1,297 |
| 454 |
| | 144 |
| 1,751 |
| 1,895 |
| 702 |
| 3/19/1998 | 1987 |
|
9. | 1000 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,252 |
| — |
| — |
| | 2,252 |
| — |
| 2,252 |
| — |
| 12/5/2003 | — |
|
10. | 1001 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 15,155 |
| 3,312 |
| 91 |
| | 15,155 |
| 3,403 |
| 18,558 |
| 1,183 |
| 12/5/2003 | — |
|
11. | 1024 Kikowaena Place | Honolulu | HI | Hawaii Land and Easement | — |
| 1,818 |
| — |
| — |
| | 1,818 |
| — |
| 1,818 |
| — |
| 12/5/2003 | — |
|
12. | 1024 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,385 |
| — |
| — |
| | 1,385 |
| — |
| 1,385 |
| — |
| 12/5/2003 | — |
|
13. | 1027 Kikowaena Place | Honolulu | HI | Hawaii Land and Easement | — |
| 5,444 |
| — |
| — |
| | 5,444 |
| — |
| 5,444 |
| — |
| 12/5/2003 | — |
|
14. | 1030 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 5,655 |
| — |
| — |
| | 5,655 |
| — |
| 5,655 |
| — |
| 12/5/2003 | — |
|
15. | 1038 Kikowaena Place | Honolulu | HI | Hawaii Land and Easement | — |
| 2,576 |
| — |
| — |
| | 2,576 |
| — |
| 2,576 |
| — |
| 12/5/2003 | — |
|
16. | 1045 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 819 |
| — |
| — |
| | 819 |
| — |
| 819 |
| — |
| 12/5/2003 | — |
|
17. | 1050 Kikowaena Place | Honolulu | HI | Hawaii Land and Easement | — |
| 1,404 |
| 873 |
| — |
| | 1,404 |
| 873 |
| 2,277 |
| 307 |
| 12/5/2003 | — |
|
18. | 1052 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,703 |
| — |
| 240 |
| | 1,703 |
| 240 |
| 1,943 |
| 74 |
| 12/5/2003 | — |
|
19. | 1055 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,216 |
| — |
| — |
| | 1,216 |
| — |
| 1,216 |
| — |
| 12/5/2003 | — |
|
20. | 106 Puuhale Road | Honolulu | HI | Hawaii Building | — |
| 1,113 |
| — |
| 229 |
| | 1,113 |
| 229 |
| 1,342 |
| 43 |
| 12/5/2003 | 1966 |
|
21. | 1062 Kikowaena Place | Honolulu | HI | Hawaii Land and Easement | — |
| 1,049 |
| 599 |
| — |
| | 1,049 |
| 599 |
| 1,648 |
| 210 |
| 12/5/2003 | — |
|
22. | 1122 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 5,782 |
| — |
| — |
| | 5,782 |
| — |
| 5,782 |
| — |
| 12/5/2003 | — |
|
23. | 113 Puuhale Road | Honolulu | HI | Hawaii Land and Easement | — |
| 3,729 |
| — |
| — |
| | 3,729 |
| — |
| 3,729 |
| — |
| 12/5/2003 | — |
|
24. | 1150 Kikowaena Place | Honolulu | HI | Hawaii Land and Easement | — |
| 2,445 |
| — |
| — |
| | 2,445 |
| — |
| 2,445 |
| — |
| 12/5/2003 | — |
|
25. | 120 Mokauea Street | Honolulu | HI | Hawaii Building | — |
| 1,953 |
| — |
| 655 |
| | 1,953 |
| 655 |
| 2,608 |
| 82 |
| 12/5/2003 | 1970 |
|
26. | 120 Sand Island Access Road | Honolulu | HI | Hawaii Building | — |
| 1,130 |
| 11,307 |
| 1,298 |
| | 1,130 |
| 12,605 |
| 13,735 |
| 4,003 |
| 11/23/2004 | 2004 |
|
27. | 120B Mokauea Street | Honolulu | HI | Hawaii Building | — |
| 1,953 |
| — |
| — |
| | 1,953 |
| — |
| 1,953 |
| — |
| 12/5/2003 | 1970 |
|
28. | 125 Puuhale Road | Honolulu | HI | Hawaii Land and Easement | — |
| 1,630 |
| — |
| — |
| | 1,630 |
| — |
| 1,630 |
| — |
| 12/5/2003 | — |
|
29. | 125B Puuhale Road | Honolulu | HI | Hawaii Land and Easement | — |
| 2,815 |
| — |
| — |
| | 2,815 |
| — |
| 2,815 |
| — |
| 12/5/2003 | — |
|
30. | 1330 Pali Highway | Honolulu | HI | Hawaii Land and Easement | — |
| 1,423 |
| — |
| — |
| | 1,423 |
| — |
| 1,423 |
| — |
| 12/5/2003 | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Initial Cost to | | Costs | | | | Gross Amount Carried at | | | | | | | |
| | | | | | | | | | | Company | | Capitalized | | | | Close of Period(4) | | | | | | Original | |
| | | | | | | | | | | | Buildings and | | Subsequent to | | | | | Buildings and | | | Accumulated | | Date | | Construction | |
| Property | | Location | | State | | Property Type | | Encumbrances(1) | | Land | Equipment | | Acquisition | | | | Land | Equipment | Total(2) | | Depreciation(3) | | Acquired | | Date | |
31 | 125 Puuhale Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,630 | | 0 | | | 0 | | | | | 1,630 | | 0 | | 1,630 | | | 0 | | | 12/5/2003 | | — | | |
32 | 125B Puuhale Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,815 | | 0 | | | 0 | | | | | 2,815 | | 0 | | 2,815 | | | 0 | | | 12/5/2003 | | — | | |
33 | 1330 Pali Highway | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,423 | | 0 | | | 0 | | | | | 1,423 | | 0 | | 1,423 | | | 0 | | | 12/5/2003 | | — | | |
34 | 1360 Pali Highway | | Honolulu | | HI | | Hawaii Properties | | (A) | | 9,170 | | 0 | | | 161 | | | | | 9,170 | | 161 | | 9,331 | | | (124) | | | 12/5/2003 | | — | | |
35 | 140 Puuhale Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,100 | | 0 | | | 0 | | | | | 1,100 | | 0 | | 1,100 | | | 0 | | | 12/5/2003 | | — | | |
36 | 142 Mokauea Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,182 | | 0 | | | 1,576 | | | | | 2,182 | | 1,576 | | 3,758 | | | (435) | | | 12/5/2003 | | 1972 | | |
37 | 148 Mokauea Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,476 | | 0 | | | 0 | | | | | 3,476 | | 0 | | 3,476 | | | 0 | | | 12/5/2003 | | — | | |
38 | 150 Puuhale Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 4,887 | | 0 | | | 0 | | | | | 4,887 | | 0 | | 4,887 | | | 0 | | | 12/5/2003 | | — | | |
39 | 151 Puuhale Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,956 | | 0 | | | 0 | | | | | 1,956 | | 0 | | 1,956 | | | 0 | | | 12/5/2003 | | — | | |
40 | 158 Sand Island Access Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,488 | | 0 | | | 0 | | | | | 2,488 | | 0 | | 2,488 | | | 0 | | | 12/5/2003 | | — | | |
41 | 165 Sand Island Access Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 758 | | 0 | | | 0 | | | | | 758 | | 0 | | 758 | | | 0 | | | 12/5/2003 | | — | | |
42 | 179 Sand Island Access Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,480 | | 0 | | | 0 | | | | | 2,480 | | 0 | | 2,480 | | | 0 | | | 12/5/2003 | | — | | |
43 | 180 Sand Island Access Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,655 | | 0 | | | 0 | | | | | 1,655 | | 0 | | 1,655 | | | 0 | | | 12/5/2003 | | — | | |
44 | 1926 Auiki Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,872 | | 0 | | | 1,722 | | | | | 2,872 | | 1,722 | | 4,594 | | | (582) | | | 12/5/2003 | | 1959 | | |
45 | 1931 Kahai Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,779 | | 0 | | | 0 | | | | | 3,779 | | 0 | | 3,779 | | | 0 | | | 12/5/2003 | | — | | |
46 | 197 Sand Island Access Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,238 | | 0 | | | 0 | | | | | 1,238 | | 0 | | 1,238 | | | 0 | | | 12/5/2003 | | — | | |
47 | 2001 Kahai Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,091 | | 0 | | | 0 | | | | | 1,091 | | 0 | | 1,091 | | | 0 | | | 12/5/2003 | | — | | |
48 | 2019 Kahai Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,377 | | 0 | | | 0 | | | | | 1,377 | | 0 | | 1,377 | | | 0 | | | 12/5/2003 | | — | | |
49 | 2020 Auiki Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,385 | | 0 | | | 0 | | | | | 2,385 | | 0 | | 2,385 | | | 0 | | | 12/5/2003 | | — | | |
50 | 204 Sand Island Access Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,689 | | 0 | | | 0 | | | | | 1,689 | | 0 | | 1,689 | | | 0 | | | 12/5/2003 | | — | | |
51 | 207 Puuhale Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,024 | | 0 | | | 0 | | | | | 2,024 | | 0 | | 2,024 | | | 0 | | | 12/5/2003 | | — | | |
52 | 2103 Kaliawa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,212 | | 0 | | | 0 | | | | | 3,212 | | 0 | | 3,212 | | | 0 | | | 12/5/2003 | | — | | |
53 | 2106 Kaliawa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,568 | | 0 | | | 169 | | | | | 1,568 | | 169 | | 1,737 | | | (89) | | | 12/5/2003 | | — | | |
54 | 2110 Auiki Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 837 | | 0 | | | 0 | | | | | 837 | | 0 | | 837 | | | 0 | | | 12/5/2003 | | — | | |
55 | 212 Mohonua Place | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,067 | | — | | | 0 | | | | | 1,067 | | 0 | | 1,067 | | | 0 | | | 12/5/2003 | | — | | |
56 | 2122 Kaliawa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,365 | | 0 | | | 0 | | | | | 1,365 | | 0 | | 1,365 | | | 0 | | | 12/5/2003 | | — | | |
57 | 2127 Auiki Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,906 | | 0 | | | 67 | | | | | 2,906 | | 67 | | 2,973 | | | (29) | | | 12/5/2003 | | — | | |
58 | 2135 Auiki Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 825 | | 0 | | | 0 | | | | | 825 | | 0 | | 825 | | | 0 | | | 12/5/2003 | | — | | |
59 | 2139 Kaliawa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 885 | | 0 | | | 0 | | | | | 885 | | 0 | | 885 | | | 0 | | | 12/5/2003 | | — | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost to | Costs | | Gross Amount Carried at | | | |
| | | | | | Company | Capitalized | | Close of Period(4) | | | Original |
| | | | | | | Buildings and | Subsequent to | | | Buildings and | | Accumulated | Date | Construction |
| Property | Location | State | Property Type | Encumbrances(1) | Land | Equipment | Acquisition | | Land | Equipment | Total(2) | Depreciation(3) | Acquired | Date |
31. | 1360 Pali Highway | Honolulu | HI | Hawaii Land and Easement | — |
| 9,170 |
| — | 161 |
| | 9,170 |
| 161 |
| 9,331 |
| 92 |
| 12/5/2003 | — |
|
32. | 140 Puuhale Road | Honolulu | HI | Hawaii Land and Easement | — |
| 1,100 |
| — | — |
| | 1,100 |
| — |
| 1,100 |
| — |
| 12/5/2003 | — |
|
33. | 142 Mokauea Street | Honolulu | HI | Hawaii Building | — |
| 2,182 |
| — | 1,455 |
| | 2,182 |
| 1,455 |
| 3,637 |
| 318 |
| 12/5/2003 | 1972 |
|
34. | 148 Mokauea Street | Honolulu | HI | Hawaii Land and Easement | — |
| 3,476 |
| — | — |
| | 3,476 |
| — |
| 3,476 |
| — |
| 12/5/2003 | — |
|
35. | 150 Puuhale Road | Honolulu | HI | Hawaii Land and Easement | — |
| 4,887 |
| — | — |
| | 4,887 |
| — |
| 4,887 |
| — |
| 12/5/2003 | — |
|
36. | 151 Puuhale Road | Honolulu | HI | Hawaii Land and Easement | — |
| 1,956 |
| — | — |
| | 1,956 |
| — |
| 1,956 |
| — |
| 12/5/2003 | — |
|
37. | 158 Sand Island Access Road | Honolulu | HI | Hawaii Land and Easement | — |
| 2,488 |
| — | — |
| | 2,488 |
| — |
| 2,488 |
| — |
| 12/5/2003 | — |
|
38. | 165 Sand Island Access Road | Honolulu | HI | Hawaii Land and Easement | — |
| 758 |
| — | — |
| | 758 |
| — |
| 758 |
| — |
| 12/5/2003 | — |
|
39. | 179 Sand Island Access Road | Honolulu | HI | Hawaii Land and Easement | — |
| 2,480 |
| — | — |
| | 2,480 |
| — |
| 2,480 |
| — |
| 12/5/2003 | — |
|
40. | 180 Sand Island Access Road | Honolulu | HI | Hawaii Land and Easement | — |
| 1,655 |
| — | — |
| | 1,655 |
| — |
| 1,655 |
| — |
| 12/5/2003 | — |
|
41. | 1926 Auiki Street | Honolulu | HI | Hawaii Building | — |
| 2,872 |
| — | 1,534 |
| | 2,874 |
| 1,532 |
| 4,406 |
| 418 |
| 12/5/2003 | 1959 |
|
42. | 1931 Kahai Street | Honolulu | HI | Hawaii Land and Easement | — |
| 3,779 |
| — | — |
| | 3,779 |
| — |
| 3,779 |
| — |
| 12/5/2003 | — |
|
43. | 197 Sand Island Access Road | Honolulu | HI | Hawaii Land and Easement | — |
| 1,238 |
| — | — |
| | 1,238 |
| — |
| 1,238 |
| — |
| 12/5/2003 | — |
|
44. | 2001 Kahai Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,091 |
| — | — |
| | 1,091 |
| — |
| 1,091 |
| — |
| 12/5/2003 | — |
|
45. | 2019 Kahai Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,377 |
| — | — |
| | 1,377 |
| — |
| 1,377 |
| — |
| 12/5/2003 | — |
|
46. | 2020 Auiki Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,385 |
| — | — |
| | 2,385 |
| — |
| 2,385 |
| — |
| 12/5/2003 | — |
|
47. | 204 Sand Island Access Road | Honolulu | HI | Hawaii Land and Easement | — |
| 1,689 |
| — | — |
| | 1,689 |
| — |
| 1,689 |
| — |
| 12/5/2003 | — |
|
48. | 207 Puuhale Road | Honolulu | HI | Hawaii Land and Easement | — |
| 2,024 |
| — | — |
| | 2,024 |
| — |
| 2,024 |
| — |
| 12/5/2003 | — |
|
49. | 2103 Kaliawa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 3,212 |
| — | — |
| | 3,212 |
| — |
| 3,212 |
| — |
| 12/5/2003 | — |
|
50. | 2106 Kaliawa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,568 |
| — | 169 |
| | 1,568 |
| 169 |
| 1,737 |
| 55 |
| 12/5/2003 | — |
|
51. | 2110 Auiki Street | Honolulu | HI | Hawaii Land and Easement | — |
| 837 |
| — | — |
| | 837 |
| — |
| 837 |
| — |
| 12/5/2003 | — |
|
52. | 212 Mohonua Place | Honolulu | HI | Hawaii Land and Easement | — |
| 1,067 |
| — | — |
| | 1,067 |
| — |
| 1,067 |
| — |
| 12/5/2003 | — |
|
53. | 2122 Kaliawa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,365 |
| — | — |
| | 1,365 |
| — |
| 1,365 |
| — |
| 12/5/2003 | — |
|
54. | 2127 Auiki Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,906 |
| — | 97 |
| | 2,906 |
| 97 |
| 3,003 |
| 18 |
| 12/5/2003 | — |
|
55. | 2135 Auiki Street | Honolulu | HI | Hawaii Land and Easement | — |
| 825 |
| — | — |
| | 825 |
| — |
| 825 |
| — |
| 12/5/2003 | — |
|
56. | 2139 Kaliawa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 885 |
| — | — |
| | 885 |
| — |
| 885 |
| — |
| 12/5/2003 | — |
|
57. | 214 Sand Island Access Road | Honolulu | HI | Hawaii Building | — |
| 1,864 |
| — | 403 |
| | 1,864 |
| 403 |
| 2,267 |
| 29 |
| 12/5/2003 | 1981 |
|
58. | 2140 Kaliawa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 931 |
| — | — |
| | 931 |
| — |
| 931 |
| — |
| 12/5/2003 | — |
|
59. | 2144 Auiki Street | Honolulu | HI | Hawaii Building | — |
| 2,640 |
| — | 6,857 |
| | 2,640 |
| 6,857 |
| 9,497 |
| 1,867 |
| 12/5/2003 | 1953 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Initial Cost to | | Costs | | | | Gross Amount Carried at | | | | | | | |
| | | | | | | | | | | Company | | Capitalized | | | | Close of Period(4) | | | | | | Original | |
| | | | | | | | | | | | Buildings and | | Subsequent to | | | | | Buildings and | | | Accumulated | | Date | | Construction | |
| Property | | Location | | State | | Property Type | | Encumbrances(1) | | Land | Equipment | | Acquisition | | | | Land | Equipment | Total(2) | | Depreciation(3) | | Acquired | | Date | |
60 | 214 Sand Island Access Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,864 | | 0 | | | 542 | | | | | 1,864 | | 542 | | 2,406 | | | (95) | | | 12/5/2003 | | 1981 | | |
61 | 2140 Kaliawa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 931 | | 0 | | | 0 | | | | | 931 | | 0 | | 931 | | | 0 | | | 12/5/2003 | | — | | |
62 | 2144 Auiki Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,640 | | 0 | | | 7,196 | | | | | 2,640 | | 7,196 | | 9,836 | | | (2,481) | | | 12/5/2003 | | 1953 | | |
63 | 215 Puuhale Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,117 | | 0 | | | 0 | | | | | 2,117 | | 0 | | 2,117 | | | 0 | | | 12/5/2003 | | — | | |
64 | 218 Mohonua Place | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,741 | | 0 | | | 0 | | | | | 1,741 | | 0 | | 1,741 | | | 0 | | | 12/5/2003 | | — | | |
65 | 220 Puuhale Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,619 | | 0 | | | 0 | | | | | 2,619 | | 0 | | 2,619 | | | 0 | | | 12/5/2003 | | — | | |
66 | 2250 Pahounui Drive | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,862 | | 0 | | | 0 | | | | | 3,862 | | 0 | | 3,862 | | | 0 | | | 12/5/2003 | | — | | |
67 | 2264 Pahounui Drive | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,632 | | 0 | | | 0 | | | | | 1,632 | | 0 | | 1,632 | | | 0 | | | 12/5/2003 | | — | | |
68 | 2276 Pahounui Drive | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,619 | | 0 | | | 0 | | | | | 1,619 | | 0 | | 1,619 | | | 0 | | | 12/5/2003 | | — | | |
69 | 228 Mohonua Place | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,865 | | 0 | | | 0 | | | | | 1,865 | | 0 | | 1,865 | | | 0 | | | 12/5/2003 | | — | | |
70 | 2308 Pahounui Drive | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,314 | | 0 | | | 0 | | | | | 3,314 | | 0 | | 3,314 | | | 0 | | | 12/5/2003 | | — | | |
71 | 231 Sand Island Access Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 752 | | 0 | | | 0 | | | | | 752 | | 0 | | 752 | | | 0 | | | 12/5/2003 | | — | | |
72 | 231B Sand Island Access Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,539 | | 0 | | | 0 | | | | | 1,539 | | 0 | | 1,539 | | | 0 | | | 12/5/2003 | | — | | |
73 | 2344 Pahounui Drive | | Honolulu | | HI | | Hawaii Properties | | (A) | | 6,709 | | 0 | | | 0 | | | | | 6,709 | | 0 | | 6,709 | | | 0 | | | 12/5/2003 | | — | | |
74 | 238 Sand Island Access Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,273 | | 0 | | | 0 | | | | | 2,273 | | 0 | | 2,273 | | | 0 | | | 12/5/2003 | | — | | |
75 | 2635 Waiwai Loop A | | Honolulu | | HI | | Hawaii Properties | | (A) | | 934 | | 350 | | | 683 | | | | | 934 | | 1,033 | | 1,967 | | | (243) | | | 12/5/2003 | | — | | |
76 | 2635 Waiwai Loop B | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,177 | | 105 | | | 682 | | | | | 1,177 | | 787 | | 1,964 | | | (139) | | | 12/5/2003 | | — | | |
77 | 2760 Kam Highway | | Honolulu | | HI | | Hawaii Properties | | (A) | | 703 | | 0 | | | 185 | | | | | 703 | | 185 | | 888 | | | 0 | | | 12/5/2003 | | — | | |
78 | 2804 Kilihau Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,775 | | 2 | | | 0 | | | | | 1,775 | | 2 | | 1,777 | | | 0 | | | 12/5/2003 | | — | | |
79 | 2806 Kaihikapu Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 0 | | | 0 | | | | | 1,801 | | 0 | | 1,801 | | | 0 | | | 12/5/2003 | | — | | |
80 | 2808 Kam Highway | | Honolulu | | HI | | Hawaii Properties | | (A) | | 310 | | 0 | | | 0 | | | | | 310 | | 0 | | 310 | | | 0 | | | 12/5/2003 | | — | | |
81 | 2809 Kaihikapu Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,837 | | 0 | | | 0 | | | | | 1,837 | | 0 | | 1,837 | | | 0 | | | 12/5/2003 | | — | | |
82 | 2810 Paa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,340 | | 0 | | | 0 | | | | | 3,340 | | 0 | | 3,340 | | | 0 | | | 12/5/2003 | | — | | |
83 | 2810 Pukoloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 27,699 | | 0 | | | 0 | | | | | 27,699 | | 0 | | 27,699 | | | 0 | | | 12/5/2003 | | — | | |
84 | 2812 Awaawaloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 3 | | | 0 | | | | | 1,801 | | 3 | | 1,804 | | | (2) | | | 12/5/2003 | | — | | |
85 | 2814 Kilihau Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,925 | | 0 | | | 0 | | | | | 1,925 | | 0 | | 1,925 | | | 0 | | | 12/5/2003 | | — | | |
86 | 2815 Kaihikapu Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,818 | | 0 | | | 6 | | | | | 1,818 | | 6 | | 1,824 | | | (2) | | | 12/5/2003 | | — | | |
87 | 2815 Kilihau Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 287 | | 0 | | | 0 | | | | | 287 | | 0 | | 287 | | | 0 | | | 12/5/2003 | | — | | |
88 | 2816 Awaawaloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,009 | | 27 | | | 0 | | | | | 1,009 | | 27 | | 1,036 | | | (12) | | | 12/5/2003 | | — | | |
89 | 2819 Mokumoa Street - A | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,821 | | 0 | | | 0 | | | | | 1,821 | | 0 | | 1,821 | | | 0 | | | 12/5/2003 | | — | | |
90 | 2819 Mokumoa Street - B | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,816 | | 0 | | | 0 | | | | | 1,816 | | 0 | | 1,816 | | | 0 | | | 12/5/2003 | | — | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost to | Costs | | Gross Amount Carried at | | | |
| | | | | | Company | Capitalized | | Close of Period(4) | | | Original |
| | | | | | | Buildings and | Subsequent to | | | Buildings and | | Accumulated | Date | Construction |
| Property | Location | State | Property Type | Encumbrances(1) | Land | Equipment | Acquisition | | Land | Equipment | Total(2) | Depreciation(3) | Acquired | Date |
60. | 215 Puuhale Road | Honolulu | HI | Hawaii Land and Easement | — |
| 2,117 |
| — |
| — |
| | 2,117 |
| — |
| 2,117 |
| — |
| 12/5/2003 | — |
|
61. | 218 Mohonua Place | Honolulu | HI | Hawaii Land and Easement | — |
| 1,741 |
| — |
| — |
| | 1,741 |
| — |
| 1,741 |
| — |
| 12/5/2003 | — |
|
62. | 220 Puuhale Road | Honolulu | HI | Hawaii Land and Easement | — |
| 2,619 |
| — |
| — |
| | 2,619 |
| — |
| 2,619 |
| — |
| 12/5/2003 | — |
|
63. | 2250 Pahounui Drive | Honolulu | HI | Hawaii Land and Easement | — |
| 3,862 |
| — |
| — |
| | 3,862 |
| — |
| 3,862 |
| — |
| 12/5/2003 | — |
|
64. | 2264 Pahounui Drive | Honolulu | HI | Hawaii Land and Easement | — |
| 1,632 |
| — |
| — |
| | 1,632 |
| — |
| 1,632 |
| — |
| 12/5/2003 | — |
|
65. | 2276 Pahounui Drive | Honolulu | HI | Hawaii Land and Easement | — |
| 1,619 |
| — |
| — |
| | 1,619 |
| — |
| 1,619 |
| — |
| 12/5/2003 | — |
|
66. | 228 Mohonua Place | Honolulu | HI | Hawaii Land and Easement | — |
| 1,865 |
| — |
| — |
| | 1,865 |
| — |
| 1,865 |
| — |
| 12/5/2003 | — |
|
67. | 2308 Pahounui Drive | Honolulu | HI | Hawaii Land and Easement | — |
| 3,314 |
| — |
| — |
| | 3,314 |
| — |
| 3,314 |
| — |
| 12/5/2003 | — |
|
68. | 231 Sand Island Access Road | Honolulu | HI | Hawaii Land and Easement | — |
| 752 |
| — |
| — |
| | 752 |
| — |
| 752 |
| — |
| 12/5/2003 | — |
|
69. | 231B Sand Island Access Road | Honolulu | HI | Hawaii Land and Easement | — |
| 1,539 |
| — |
| — |
| | 1,539 |
| — |
| 1,539 |
| — |
| 12/5/2003 | — |
|
70. | 2344 Pahounui Drive | Honolulu | HI | Hawaii Land and Easement | — |
| 6,709 |
| — |
| — |
| | 6,709 |
| — |
| 6,709 |
| — |
| 12/5/2003 | — |
|
71. | 238 Sand Island Access Road | Honolulu | HI | Hawaii Land and Easement | — |
| 2,273 |
| — |
| — |
| | 2,273 |
| — |
| 2,273 |
| — |
| 12/5/2003 | — |
|
72. | 2635 Waiwai Loop A | Honolulu | HI | Hawaii Land and Easement | — |
| 934 |
| 350 |
| — |
| | 934 |
| 350 |
| 1,284 |
| 123 |
| 12/5/2003 | — |
|
73. | 2635 Waiwai Loop B | Honolulu | HI | Hawaii Land and Easement | — |
| 1,177 |
| 105 |
| — |
| | 1,177 |
| 105 |
| 1,282 |
| 37 |
| 12/5/2003 | — |
|
74. | 2760 Kam Highway | Honolulu | HI | Hawaii Land and Easement | — |
| 703 |
| — |
| — |
| | 703 |
| — |
| 703 |
| — |
| 12/5/2003 | — |
|
75. | 2804 Kilihau Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,775 |
| 2 |
| — |
| | 1,775 |
| 2 |
| 1,777 |
| 2 |
| 12/5/2003 | — |
|
76. | 2806 Kaihikapu Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| — |
| — |
| | 1,801 |
| — |
| 1,801 |
| — |
| 12/5/2003 | — |
|
77. | 2808 Kam Highway | Honolulu | HI | Hawaii Land and Easement | — |
| 310 |
| — |
| — |
| | 310 |
| — |
| 310 |
| — |
| 12/5/2003 | — |
|
78. | 2809 Kaihikapu Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,837 |
| — |
| — |
| | 1,837 |
| — |
| 1,837 |
| — |
| 12/5/2003 | — |
|
79. | 2810 Paa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 3,340 |
| — |
| — |
| | 3,340 |
| — |
| 3,340 |
| — |
| 12/5/2003 | — |
|
80. | 2810 Pukoloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 27,699 |
| — |
| — |
| | 27,699 |
| — |
| 27,699 |
| — |
| 12/5/2003 | — |
|
81. | 2812 Awaawaloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| 2 |
| — |
| | 1,801 |
| 2 |
| 1,803 |
| 2 |
| 12/5/2003 | — |
|
82. | 2814 Kilihau Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,925 |
| — |
| — |
| | 1,925 |
| — |
| 1,925 |
| — |
| 12/5/2003 | — |
|
83. | 2815 Kaihikapu Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,818 |
| — |
| 6 |
| | 1,818 |
| 6 |
| 1,824 |
| 2 |
| 12/5/2003 | — |
|
84. | 2815 Kilihau Street | Honolulu | HI | Hawaii Land and Easement | — |
| 287 |
| — |
| — |
| | 287 |
| — |
| 287 |
| — |
| 12/5/2003 | — |
|
85. | 2816 Awaawaloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,009 |
| 27 |
| — |
| | 1,009 |
| 27 |
| 1,036 |
| 10 |
| 12/5/2003 | — |
|
86. | 2819 Mokumoa Street - A | Honolulu | HI | Hawaii Land and Easement | — |
| 1,821 |
| — |
| — |
| | 1,821 |
| — |
| 1,821 |
| — |
| 12/5/2003 | — |
|
87. | 2819 Mokumoa Street - B | Honolulu | HI | Hawaii Land and Easement | — |
| 1,816 |
| — |
| — |
| | 1,816 |
| — |
| 1,816 |
| — |
| 12/5/2003 | — |
|
88. | 2819 Pukoloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,090 |
| — |
| 34 |
| | 2,090 |
| 34 |
| 2,124 |
| 8 |
| 12/5/2003 | — |
|
89. | 2821 Kilihau Street | Honolulu | HI | Hawaii Land and Easement | — |
| 287 |
| — |
| — |
| | 287 |
| — |
| 287 |
| — |
| 12/5/2003 | — |
|
90. | 2826 Kaihikapu Street | Honolulu | HI | Hawaii Land and Easement | — |
| 3,921 |
| — |
| — |
| | 3,921 |
| — |
| 3,921 |
| — |
| 12/5/2003 | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Initial Cost to | | Costs | | | | Gross Amount Carried at | | | | | | |
| | | | | | | | | | | Company | | Capitalized | | | | Close of Period(4) | | | | | | Original |
| | | | | | | | | | | | Buildings and | | Subsequent to | | | | | Buildings and | | | Accumulated | | Date | | Construction |
| Property | | Location | | State | | Property Type | | Encumbrances(1) | | Land | Equipment | | Acquisition | | | | Land | Equipment | Total(2) | | Depreciation(3) | | Acquired | | Date |
91 | 2819 Pukoloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,090 | | 0 | | | 34 | | | | | 2,090 | | 34 | | 2,124 | | | (10) | | | 12/5/2003 | | — | |
92 | 2821 Kilihau Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 287 | | 0 | | | 0 | | | | | 287 | | 0 | | 287 | | | 0 | | | 12/5/2003 | | — | |
93 | 2826 Kaihikapu Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,921 | | 0 | | | 0 | | | | | 3,921 | | 0 | | 3,921 | | | 0 | | | 12/5/2003 | | — | |
94 | 2827 Kaihikapu Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 0 | | | 0 | | | | | 1,801 | | 0 | | 1,801 | | | 0 | | | 12/5/2003 | | — | |
95 | 2828 Paa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 12,448 | | 0 | | | 0 | | | | | 12,448 | | 0 | | 12,448 | | | 0 | | | 12/5/2003 | | — | |
96 | 2829 Awaawaloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,720 | | 2 | | | 8 | | | | | 1,720 | | 10 | | 1,730 | | | (2) | | | 12/5/2003 | | — | |
97 | 2829 Kilihau Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 287 | | 0 | | | 0 | | | | | 287 | | 0 | | 287 | | | 0 | | | 12/5/2003 | | — | |
98 | 2829 Pukoloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,088 | | 0 | | | 0 | | | | | 2,088 | | 0 | | 2,088 | | | 0 | | | 12/5/2003 | | — | |
99 | 2830 Mokumoa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,146 | | 0 | | | 0 | | | | | 2,146 | | 0 | | 2,146 | | | 0 | | | 12/5/2003 | | — | |
100 | 2831 Awaawaloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 860 | | 0 | | | 7 | | | | | 860 | | 7 | | 867 | | | 0 | | | 12/5/2003 | | — | |
101 | 2831 Kaihikapu Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,272 | | 529 | | | 55 | | | | | 1,272 | | 584 | | 1,856 | | | (248) | | | 12/5/2003 | | — | |
102 | 2833 Kilihau Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 601 | | 0 | | | 0 | | | | | 601 | | 0 | | 601 | | | 0 | | | 12/5/2003 | | — | |
103 | 2833 Paa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,701 | | 0 | | | 0 | | | | | 1,701 | | 0 | | 1,701 | | | 0 | | | 12/5/2003 | | — | |
104 | 2833 Paa Street #2 | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,675 | | 0 | | | 0 | | | | | 1,675 | | 0 | | 1,675 | | | 0 | | | 12/5/2003 | | — | |
105 | 2836 Awaawaloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,353 | | 0 | | | 0 | | | | | 1,353 | | 0 | | 1,353 | | | 0 | | | 12/5/2003 | | — | |
106 | 2838 Kilihau Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 4,262 | | 0 | | | 0 | | | | | 4,262 | | 0 | | 4,262 | | | 0 | | | 12/5/2003 | | — | |
107 | 2839 Kilihau Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 627 | | 0 | | | 0 | | | | | 627 | | 0 | | 627 | | | 0 | | | 12/5/2003 | | — | |
108 | 2839 Mokumoa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,942 | | 0 | | | 0 | | | | | 1,942 | | 0 | | 1,942 | | | 0 | | | 12/5/2003 | | — | |
109 | 2840 Mokumoa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,149 | | 0 | | | 0 | | | | | 2,149 | | 0 | | 2,149 | | | 0 | | | 12/5/2003 | | — | |
110 | 2841 Pukoloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,088 | | 0 | | | 0 | | | | | 2,088 | | 0 | | 2,088 | | | 0 | | | 12/5/2003 | | — | |
111 | 2844 Kaihikapu Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,960 | | 14 | | | 0 | | | | | 1,960 | | 14 | | 1,974 | | | (13) | | | 12/5/2003 | | — | |
112 | 2846-A Awaawaloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,181 | | 954 | | | 0 | | | | | 2,181 | | 954 | | 3,135 | | | (407) | | | 12/5/2003 | | — | |
113 | 2847 Awaawaloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 582 | | 303 | | | 0 | | | | | 582 | | 303 | | 885 | | | (129) | | | 12/5/2003 | | — | |
114 | 2849 Kaihikapu Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 860 | | 0 | | | 0 | | | | | 860 | | 0 | | 860 | | | 0 | | | 12/5/2003 | | — | |
115 | 2850 Awaawaloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 287 | | 172 | | | 0 | | | | | 287 | | 172 | | 459 | | | (73) | | | 12/5/2003 | | — | |
116 | 2850 Mokumoa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,143 | | 0 | | | 0 | | | | | 2,143 | | 0 | | 2,143 | | | 0 | | | 12/5/2003 | | — | |
117 | 2850 Paa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 22,827 | | 0 | | | 0 | | | | | 22,827 | | 0 | | 22,827 | | | 0 | | | 12/5/2003 | | — | |
118 | 2855 Kaihikapu Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,807 | | 0 | | | 0 | | | | | 1,807 | | 0 | | 1,807 | | | 0 | | | 12/5/2003 | | — | |
119 | 2855 Pukoloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,934 | | 0 | | | 0 | | | | | 1,934 | | 0 | | 1,934 | | | 0 | | | 12/5/2003 | | — | |
120 | 2857 Awaawaloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 983 | | 0 | | | 0 | | | | | 983 | | 0 | | 983 | | | 0 | | | 12/5/2003 | | — | |
121 | 2858 Kaihikapu Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 0 | | | 0 | | | | | 1,801 | | 0 | | 1,801 | | | 0 | | | 12/5/2003 | | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost to | Costs | | Gross Amount Carried at | | | |
| | | | | | Company | Capitalized | | Close of Period(4) | | | Original |
| | | | | | | Buildings and | Subsequent to | | | Buildings and | | Accumulated | Date | Construction |
| Property | Location | State | Property Type | Encumbrances(1) | Land | Equipment | Acquisition | | Land | Equipment | Total(2) | Depreciation(3) | Acquired | Date |
91. | 2827 Kaihikapu Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| — |
| — |
| | 1,801 |
| — |
| 1,801 |
| — |
| 12/5/2003 | — |
|
92. | 2828 Paa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 12,448 |
| — |
| — |
| | 12,448 |
| — |
| 12,448 |
| — |
| 12/5/2003 | — |
|
93. | 2829 Awaawaloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,720 |
| 3 |
| — |
| | 1,720 |
| 3 |
| 1,723 |
| 2 |
| 12/5/2003 | — |
|
94. | 2928 Kaihikapu Street - A | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| — |
| — |
| | 1,801 |
| — |
| 1,801 |
| — |
| 12/5/2003 | — |
|
95. | 2829 Kilihau Street | Honolulu | HI | Hawaii Land and Easement | — |
| 287 |
| — |
| — |
| | 287 |
| — |
| 287 |
| — |
| 12/5/2003 | — |
|
96. | 2829 Pukoloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,088 |
| — |
| — |
| | 2,088 |
| — |
| 2,088 |
| — |
| 12/5/2003 | — |
|
97. | 2830 Mokumoa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,146 |
| — |
| — |
| | 2,146 |
| — |
| 2,146 |
| — |
| 12/5/2003 | — |
|
98. | 2831 Awaawaloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 860 |
| — |
| — |
| | 860 |
| — |
| 860 |
| — |
| 12/5/2003 | — |
|
99. | 2831 Kaihikapu Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,272 |
| 529 |
| 55 |
| | 1,272 |
| 584 |
| 1,856 |
| 204 |
| 12/5/2003 | — |
|
100. | 2833 Kilihau Street | Honolulu | HI | Hawaii Land and Easement | — |
| 601 |
| — |
| — |
| | 601 |
| — |
| 601 |
| — |
| 12/5/2003 | — |
|
101. | 2833 Paa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,701 |
| — |
| — |
| | 1,701 |
| — |
| 1,701 |
| — |
| 12/5/2003 | — |
|
102. | 2833 Paa Street #2 | Honolulu | HI | Hawaii Land and Easement | — |
| 1,675 |
| — |
| — |
| | 1,675 |
| — |
| 1,675 |
| — |
| 12/5/2003 | — |
|
103. | 2836 Awaawaloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,353 |
| — |
| — |
| | 1,353 |
| — |
| 1,353 |
| — |
| 12/5/2003 | — |
|
104. | 2838 Kilihau Street | Honolulu | HI | Hawaii Land and Easement | — |
| 4,262 |
| — |
| — |
| | 4,262 |
| — |
| 4,262 |
| — |
| 12/5/2003 | — |
|
105. | 2839 Kilihau Street | Honolulu | HI | Hawaii Land and Easement | — |
| 627 |
| — |
| — |
| | 627 |
| — |
| 627 |
| — |
| 12/5/2003 | — |
|
106. | 2839 Mokumoa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,942 |
| — |
| — |
| | 1,942 |
| — |
| 1,942 |
| — |
| 12/5/2003 | — |
|
107. | 2840 Mokumoa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,149 |
| — |
| — |
| | 2,149 |
| — |
| 2,149 |
| — |
| 12/5/2003 | — |
|
108. | 2841 Pukoloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,088 |
| — |
| — |
| | 2,088 |
| — |
| 2,088 |
| — |
| 12/5/2003 | — |
|
109. | 2844 Kaihikapu Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,960 |
| 14 |
| — |
| | 1,960 |
| 14 |
| 1,974 |
| 11 |
| 12/5/2003 | — |
|
110. | 2846-A Awaawaloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,181 |
| 954 |
| — |
| | 2,181 |
| 954 |
| 3,135 |
| 335 |
| 12/5/2003 | — |
|
111. | 2847 Awaawaloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 582 |
| 303 |
| — |
| | 582 |
| 303 |
| 885 |
| 106 |
| 12/5/2003 | — |
|
112. | 2849 Kaihikapu Street | Honolulu | HI | Hawaii Land and Easement | — |
| 860 |
| — |
| — |
| | 860 |
| — |
| 860 |
| — |
| 12/5/2003 | — |
|
113. | 2850 Awaawaloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 286 |
| 172 |
| — |
| | 286 |
| 172 |
| 458 |
| 61 |
| 12/5/2003 | — |
|
114. | 2850 Mokumoa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,143 |
| — |
| — |
| | 2,143 |
| — |
| 2,143 |
| — |
| 12/5/2003 | — |
|
115. | 2850 Paa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 22,827 |
| — |
| — |
| | 22,827 |
| — |
| 22,827 |
| — |
| 12/5/2003 | — |
|
116. | 2855 Kaihikapu Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,807 |
| — |
| — |
| | 1,807 |
| — |
| 1,807 |
| — |
| 12/5/2003 | — |
|
117. | 2855 Pukoloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,934 |
| — |
| — |
| | 1,934 |
| — |
| 1,934 |
| — |
| 12/5/2003 | — |
|
118. | 2857 Awaawaloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 983 |
| — |
| — |
| | 983 |
| — |
| 983 |
| — |
| 12/5/2003 | — |
|
119. | 2858 Kaihikapu Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| — |
| — |
| | 1,801 |
| — |
| 1,801 |
| — |
| 12/5/2003 | — |
|
120. | 2861 Mokumoa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 3,867 |
| — |
| — |
| | 3,867 |
| — |
| 3,867 |
| — |
| 12/5/2003 | — |
|
121. | 2864 Awaawaloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,836 |
| — |
| 7 |
| | 1,836 |
| 7 |
| 1,843 |
| 3 |
| 12/5/2003 | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Initial Cost to | | Costs | | | | Gross Amount Carried at | | | | | | |
| | | | | | | | | | | Company | | Capitalized | | | | Close of Period(4) | | | | | | Original |
| | | | | | | | | | | | Buildings and | | Subsequent to | | | | | Buildings and | | | Accumulated | | Date | | Construction |
| Property | | Location | | State | | Property Type | | Encumbrances(1) | | Land | Equipment | | Acquisition | | | | Land | Equipment | Total(2) | | Depreciation(3) | | Acquired | | Date |
122 | 2861 Mokumoa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,867 | | 0 | | | 0 | | | | | 3,867 | | 0 | | 3,867 | | | 0 | | | 12/5/2003 | | — | |
123 | 2864 Awaawaloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,836 | | 0 | | | 7 | | | | | 1,836 | | 7 | | 1,843 | | | (5) | | | 12/5/2003 | | — | |
124 | 2864 Mokumoa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,092 | | 0 | | | 0 | | | | | 2,092 | | 0 | | 2,092 | | | 0 | | | 12/5/2003 | | — | |
125 | 2865 Pukoloa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,934 | | 0 | | | 0 | | | | | 1,934 | | 0 | | 1,934 | | | 0 | | | 12/5/2003 | | — | |
126 | 2868 Kaihikapu Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 0 | | | 0 | | | | | 1,801 | | 0 | | 1,801 | | | 0 | | | 12/5/2003 | | — | |
127 | 2869 Mokumoa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,794 | | 0 | | | 0 | | | | | 1,794 | | 0 | | 1,794 | | | 0 | | | 12/5/2003 | | — | |
128 | 2875 Paa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,330 | | 0 | | | 0 | | | | | 1,330 | | 0 | | 1,330 | | | 0 | | | 12/5/2003 | | — | |
129 | 2879 Mokumoa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,789 | | 0 | | | 0 | | | | | 1,789 | | 0 | | 1,789 | | | 0 | | | 12/5/2003 | | — | |
130 | 2879 Paa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,691 | | 0 | | | 44 | | | | | 1,691 | | 44 | | 1,735 | | | (13) | | | 12/5/2003 | | — | |
131 | 2886 Paa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,205 | | 0 | | | 0 | | | | | 2,205 | | 0 | | 2,205 | | | 0 | | | 12/5/2003 | | — | |
132 | 2889 Mokumoa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,783 | | 5 | | | 0 | | | | | 1,783 | | 5 | | 1,788 | | | 0 | | | 12/5/2003 | | — | |
133 | 2906 Kaihikapu Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,814 | | 2 | | | 0 | | | | | 1,814 | | 2 | | 1,816 | | | (1) | | | 12/5/2003 | | — | |
134 | 2908 Kaihikapu Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,798 | | 23 | | | 0 | | | | | 1,798 | | 23 | | 1,821 | | | (2) | | | 12/5/2003 | | — | |
135 | 2915 Kaihikapu Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,579 | | 0 | | | 0 | | | | | 2,579 | | 0 | | 2,579 | | | 0 | | | 12/5/2003 | | — | |
136 | 2927 Mokumoa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,778 | | 0 | | | 0 | | | | | 1,778 | | 0 | | 1,778 | | | 0 | | | 12/5/2003 | | — | |
137 | 2928 Kaihikapu Street - A | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 0 | | | 0 | | | | | 1,801 | | 0 | | 1,801 | | | 0 | | | 12/5/2003 | | — | |
138 | 2928 Kaihikapu Street - B | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,948 | | 0 | | | 0 | | | | | 1,948 | | 0 | | 1,948 | | | 0 | | | 12/5/2003 | | — | |
139 | 2960 Mokumoa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,977 | | 0 | | | 0 | | | | | 1,977 | | 0 | | 1,977 | | | 0 | | | 12/5/2003 | | — | |
140 | 2965 Mokumoa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,140 | | 0 | | | 0 | | | | | 2,140 | | 0 | | 2,140 | | | 0 | | | 12/5/2003 | | — | |
141 | 2969 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 4,038 | | 15 | | | 0 | | | | | 4,038 | | 15 | | 4,053 | | | (9) | | | 12/5/2003 | | — | |
142 | 2970 Mokumoa Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,722 | | 0 | | | 0 | | | | | 1,722 | | 0 | | 1,722 | | | 0 | | | 12/5/2003 | | — | |
143 | 33 S. Vineyard Boulevard | | Honolulu | | HI | | Hawaii Properties | | (A) | | 844 | | 0 | | | 0 | | | | | 844 | | 0 | | 844 | | | 0 | | | 12/5/2003 | | — | |
144 | 525 N. King Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,342 | | 0 | | | 0 | | | | | 1,342 | | 0 | | 1,342 | | | 0 | | | 12/5/2003 | | — | |
145 | 609 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 616 | | 0 | | | 0 | | | | | 616 | | 0 | | 616 | | | 0 | | | 12/5/2003 | | — | |
146 | 619 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,401 | | 2 | | | 12 | | | | | 1,401 | | 14 | | 1,415 | | | (2) | | | 12/5/2003 | | — | |
147 | 645 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 882 | | 0 | | | 0 | | | | | 882 | | 0 | | 882 | | | 0 | | | 12/5/2003 | | — | |
148 | 659 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 860 | | 20 | | | 0 | | | | | 860 | | 20 | | 880 | | | (18) | | | 12/5/2003 | | — | |
149 | 659 Puuloa Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,807 | | 0 | | | 0 | | | | | 1,807 | | 0 | | 1,807 | | | 0 | | | 12/5/2003 | | — | |
150 | 660 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,783 | | 4 | | | 7 | | | | | 1,783 | | 11 | | 1,794 | | | (3) | | | 12/5/2003 | | — | |
151 | 667 Puuloa Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 860 | | 2 | | | 0 | | | | | 860 | | 2 | | 862 | | | (2) | | | 12/5/2003 | | — | |
152 | 669 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 14 | | | 62 | | | | | 1,801 | | 76 | | 1,877 | | | (26) | | | 12/5/2003 | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost to | Costs | | Gross Amount Carried at | | | |
| | | | | | Company | Capitalized | | Close of Period(4) | | | Original |
| | | | | | | Buildings and | Subsequent to | | | Buildings and | | Accumulated | Date | Construction |
| Property | Location | State | Property Type | Encumbrances(1) | Land | Equipment | Acquisition | | Land | Equipment | Total(2) | Depreciation(3) | Acquired | Date |
122. | 2864 Mokumoa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,092 |
| — |
| — |
| | 2,092 |
| — |
| 2,092 |
| — |
| 12/5/2003 | — |
|
123. | 2865 Pukoloa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,934 |
| — |
| — |
| | 1,934 |
| — |
| 1,934 |
| — |
| 12/5/2003 | — |
|
124. | 2868 Kaihikapu Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| — |
| — |
| | 1,801 |
| — |
| 1,801 |
| — |
| 12/5/2003 | — |
|
125. | 2869 Mokumoa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,794 |
| — |
| — |
| | 1,794 |
| — |
| 1,794 |
| — |
| 12/5/2003 | — |
|
126. | 2875 Paa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,330 |
| — |
| — |
| | 1,330 |
| — |
| 1,330 |
| — |
| 12/5/2003 | — |
|
127. | 2879 Mokumoa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,789 |
| — |
| — |
| | 1,789 |
| — |
| 1,789 |
| — |
| 12/5/2003 | — |
|
128. | 2879 Paa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,691 |
| — |
| 45 |
| | 1,691 |
| 45 |
| 1,736 |
| 10 |
| 12/5/2003 | — |
|
129. | 2886 Paa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,205 |
| — |
| — |
| | 2,205 |
| — |
| 2,205 |
| — |
| 12/5/2003 | — |
|
130. | 2889 Mokumoa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,783 |
| — |
| — |
| | 1,783 |
| — |
| 1,783 |
| — |
| 12/5/2003 | — |
|
131. | 2906 Kaihikapu Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,814 |
| 2 |
| — |
| | 1,814 |
| 2 |
| 1,816 |
| 1 |
| 12/5/2003 | — |
|
132. | 2908 Kaihikapu Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,798 |
| 12 |
| — |
| | 1,798 |
| 12 |
| 1,810 |
| 1 |
| 12/5/2003 | — |
|
133. | 2915 Kaihikapu Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,579 |
| — |
| — |
| | 2,579 |
| — |
| 2,579 |
| — |
| 12/5/2003 | — |
|
134. | 2927 Mokumoa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,778 |
| — |
| — |
| | 1,778 |
| — |
| 1,778 |
| — |
| 12/5/2003 | — |
|
135. | 2928 Kaihikapu Street - B | Honolulu | HI | Hawaii Land and Easement | — |
| 1,948 |
| — |
| — |
| | 1,948 |
| — |
| 1,948 |
| — |
| 12/5/2003 | — |
|
136. | 2960 Mokumoa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,977 |
| — |
| — |
| | 1,977 |
| — |
| 1,977 |
| — |
| 12/5/2003 | — |
|
137. | 2965 Mokumoa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,140 |
| — |
| — |
| | 2,140 |
| — |
| 2,140 |
| — |
| 12/5/2003 | — |
|
138. | 2969 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 4,038 |
| 15 |
| — |
| | 4,038 |
| 15 |
| 4,053 |
| 8 |
| 12/5/2003 | — |
|
139. | 2970 Mokumoa Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,722 |
| — |
| — |
| | 1,722 |
| — |
| 1,722 |
| — |
| 12/5/2003 | — |
|
140. | 33 S. Vineyard Boulevard | Honolulu | HI | Hawaii Land and Easement | — |
| 844 |
| — |
| 6 |
| | 844 |
| 6 |
| 850 |
| 5 |
| 12/5/2003 | — |
|
141. | 525 N. King Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,342 |
| — |
| — |
| | 1,342 |
| — |
| 1,342 |
| — |
| 12/5/2003 | — |
|
142. | 609 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 616 |
| — |
| 8 |
| | 616 |
| 8 |
| 624 |
| 4 |
| 12/5/2003 | — |
|
143. | 619 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,401 |
| 2 |
| 12 |
| | 1,401 |
| 14 |
| 1,415 |
| — |
| 12/5/2003 | — |
|
144. | 645 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 882 |
| — |
| — |
| | 882 |
| — |
| 882 |
| — |
| 12/5/2003 | — |
|
145. | 659 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 860 |
| 20 |
| — |
| | 860 |
| 20 |
| 880 |
| 15 |
| 12/5/2003 | — |
|
146. | 659 Puuloa Road | Honolulu | HI | Hawaii Land and Easement | — |
| 1,807 |
| — |
| — |
| | 1,807 |
| — |
| 1,807 |
| — |
| 12/5/2003 | — |
|
147. | 660 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,783 |
| 3 |
| — |
| | 1,783 |
| 3 |
| 1,786 |
| 2 |
| 12/5/2003 | — |
|
148. | 667 Puuloa Road | Honolulu | HI | Hawaii Land and Easement | — |
| 860 |
| 2 |
| — |
| | 860 |
| 2 |
| 862 |
| 2 |
| 12/5/2003 | — |
|
149. | 669 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| 14 |
| 83 |
| | 1,801 |
| 97 |
| 1,898 |
| 37 |
| 12/5/2003 | — |
|
150. | 673 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| — |
| — |
| | 1,801 |
| — |
| 1,801 |
| — |
| 12/5/2003 | — |
|
151. | 675 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,081 |
| — |
| — |
| | 1,081 |
| — |
| 1,081 |
| — |
| 12/5/2003 | — |
|
152. | 679 Puuloa Road | Honolulu | HI | Hawaii Land and Easement | — |
| 1,807 |
| 3 |
| — |
| | 1,807 |
| 3 |
| 1,810 |
| 2 |
| 12/5/2003 | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Initial Cost to | | Costs | | | | Gross Amount Carried at | | | | | | |
| | | | | | | | | | | Company | | Capitalized | | | | Close of Period(4) | | | | | | Original |
| | | | | | | | | | | | Buildings and | | Subsequent to | | | | | Buildings and | | | Accumulated | | Date | | Construction |
| Property | | Location | | State | | Property Type | | Encumbrances(1) | | Land | Equipment | | Acquisition | | | | Land | Equipment | Total(2) | | Depreciation(3) | | Acquired | | Date |
153 | 673 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 0 | | | 0 | | | | | 1,801 | | 0 | | 1,801 | | | 0 | | | 12/5/2003 | | — | |
154 | 675 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,081 | | 0 | | | 0 | | | | | 1,081 | | 0 | | 1,081 | | | 0 | | | 12/5/2003 | | — | |
155 | 679 Puuloa Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,807 | | 3 | | | 0 | | | | | 1,807 | | 3 | | 1,810 | | | (3) | | | 12/5/2003 | | — | |
156 | 685 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 0 | | | 0 | | | | | 1,801 | | 0 | | 1,801 | | | 0 | | | 12/5/2003 | | — | |
157 | 689 Puuloa Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 20 | | | 0 | | | | | 1,801 | | 20 | | 1,821 | | | (18) | | | 12/5/2003 | | — | |
158 | 692 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,796 | | 2 | | | 0 | | | | | 1,796 | | 2 | | 1,798 | | | 0 | | | 12/5/2003 | | — | |
159 | 697 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 994 | | 811 | | | 0 | | | | | 994 | | 811 | | 1,805 | | | (347) | | | 12/5/2003 | | — | |
160 | 702 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,784 | | 3 | | | 1 | | | | | 1,784 | | 4 | | 1,788 | | | (3) | | | 12/5/2003 | | — | |
161 | 704 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,390 | | 685 | | | 0 | | | | | 2,390 | | 685 | | 3,075 | | | (292) | | | 12/5/2003 | | — | |
162 | 709 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 0 | | | 0 | | | | | 1,801 | | 0 | | 1,801 | | | 0 | | | 12/5/2003 | | — | |
163 | 719 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,960 | | 0 | | | 0 | | | | | 1,960 | | 0 | | 1,960 | | | 0 | | | 12/5/2003 | | — | |
164 | 729 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 0 | | | 0 | | | | | 1,801 | | 0 | | 1,801 | | | 0 | | | 12/5/2003 | | — | |
165 | 733 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,403 | | 0 | | | — | | | | | 3,403 | | 0 | | 3,403 | | | 0 | | | 12/5/2003 | | — | |
166 | 739 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 0 | | | 0 | | | | | 1,801 | | 0 | | 1,801 | | | 0 | | | 12/5/2003 | | — | |
167 | 759 Puuloa Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,766 | | 3 | | | 0 | | | | | 1,766 | | 3 | | 1,769 | | | (3) | | | 12/5/2003 | | — | |
168 | 761 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,757 | | 2 | | | 0 | | | | | 3,757 | | 2 | | 3,759 | | | (1) | | | 12/5/2003 | | — | |
169 | 766 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 0 | | | 0 | | | | | 1,801 | | 0 | | 1,801 | | | 0 | | | 12/5/2003 | | — | |
170 | 770 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 0 | | | 0 | | | | | 1,801 | | 0 | | 1,801 | | | 0 | | | 12/5/2003 | | — | |
171 | 789 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,608 | | 3 | | | 0 | | | | | 2,608 | | 3 | | 2,611 | | | (3) | | | 12/5/2003 | | — | |
172 | 80 Sand Island Access Road | | Honolulu | | HI | | Hawaii Properties | | (A) | | 7,972 | | 0 | | | 0 | | | | | 7,972 | | 0 | | 7,972 | | | 0 | | | 12/5/2003 | | — | |
173 | 803 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,804 | | 0 | | | 0 | | | | | 3,804 | | 0 | | 3,804 | | | 0 | | | 12/5/2003 | | — | |
174 | 808 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,279 | | 0 | | | 0 | | | | | 3,279 | | 0 | | 3,279 | | | 0 | | | 12/5/2003 | | — | |
175 | 812 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,960 | | 25 | | | 625 | | | | | 2,610 | | 0 | | 2,610 | | | 0 | | | 12/5/2003 | | — | |
176 | 819 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 4,821 | | 583 | | | 11 | | | | | 4,821 | | 594 | | 5,415 | | | (261) | | | 12/5/2003 | | — | |
177 | 822 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,795 | | 15 | | | 0 | | | | | 1,795 | | 15 | | 1,810 | | | (14) | | | 12/5/2003 | | — | |
178 | 830 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 25 | | | 0 | | | | | 1,801 | | 25 | | 1,826 | | | (22) | | | 12/5/2003 | | — | |
179 | 855 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,265 | | 0 | | | 0 | | | | | 3,265 | | 0 | | 3,265 | | | 0 | | | 12/5/2003 | | — | |
180 | 842 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,795 | | 14 | | | 0 | | | | | 1,795 | | 14 | | 1,809 | | | (12) | | | 12/5/2003 | | — | |
181 | 846 Ala Lilikoi Boulevard B | | Honolulu | | HI | | Hawaii Properties | | (A) | | 234 | | 0 | | | 0 | | | | | 234 | | 0 | | 234 | | | 0 | | | 12/5/2003 | | — | |
182 | 848 Ala Lilikoi Boulevard A | | Honolulu | | HI | | Hawaii Properties | | (A) | | 9,426 | | 0 | | | 0 | | | | | 9,426 | | 0 | | 9,426 | | | 0 | | | 12/5/2003 | | — | |
183 | 850 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 2,682 | | 2 | | | 0 | | | | | 2,682 | | 2 | | 2,684 | | | (2) | | | 12/5/2003 | | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost to | Costs | | Gross Amount Carried at | | | |
| | | | | | Company | Capitalized | | Close of Period(4) | | | Original |
| | | | | | | Buildings and | Subsequent to | | | Buildings and | | Accumulated | Date | Construction |
| Property | Location | State | Property Type | Encumbrances(1) | Land | Equipment | Acquisition | | Land | Equipment | Total(2) | Depreciation(3) | Acquired | Date |
153. | 685 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| — |
| — |
| | 1,801 |
| — |
| 1,801 |
| — |
| 12/5/2003 | — |
|
154. | 673 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| 20 |
| — |
| | 1,801 |
| 20 |
| 1,821 |
| 15 |
| 12/5/2003 | — |
|
155. | 692 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,798 |
| — |
| — |
| | 1,798 |
| — |
| 1,798 |
| — |
| 12/5/2003 | — |
|
156. | 697 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 994 |
| 811 |
| — |
| | 994 |
| 811 |
| 1,805 |
| 286 |
| 12/5/2003 | — |
|
157. | 702 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,783 |
| 4 |
| — |
| | 1,783 |
| 4 |
| 1,787 |
| 3 |
| 12/5/2003 | — |
|
158. | 704 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,390 |
| 685 |
| — |
| | 2,390 |
| 685 |
| 3,075 |
| 241 |
| 12/5/2003 | — |
|
159. | 709 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| — |
| — |
| | 1,801 |
| — |
| 1,801 |
| — |
| 12/5/2003 | — |
|
160. | 719 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,960 |
| — |
| — |
| | 1,960 |
| — |
| 1,960 |
| — |
| 12/5/2003 | — |
|
161. | 729 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| — |
| — |
| | 1,801 |
| — |
| 1,801 |
| — |
| 12/5/2003 | — |
|
162. | 733 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 3,403 |
| — |
| — |
| | 3,403 |
| — |
| 3,403 |
| — |
| 12/5/2003 | — |
|
163. | 739 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| — |
| — |
| | 1,801 |
| — |
| 1,801 |
| — |
| 12/5/2003 | — |
|
164. | 759 Puuloa Road | Honolulu | HI | Hawaii Land and Easement | — |
| 1,766 |
| 3 |
| — |
| | 1,766 |
| 3 |
| 1,769 |
| 2 |
| 12/5/2003 | — |
|
165. | 761 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 3,757 |
| 1 |
| — |
| | 3,757 |
| 1 |
| 3,758 |
| 1 |
| 12/5/2003 | — |
|
166. | 766 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| — |
| — |
| | 1,801 |
| — |
| 1,801 |
| — |
| 12/5/2003 | — |
|
167. | 770 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| — |
| — |
| | 1,801 |
| — |
| 1,801 |
| — |
| 12/5/2003 | — |
|
168. | 789 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,608 |
| 3 |
| — |
| | 2,608 |
| 3 |
| 2,611 |
| 2 |
| 12/5/2003 | — |
|
169. | 80 Sand Island Access Road | Honolulu | HI | Hawaii Land and Easement | — |
| 7,972 |
| — |
| — |
| | 7,972 |
| — |
| 7,972 |
| — |
| 12/5/2003 | — |
|
170. | 803 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 3,804 |
| — |
| — |
| | 3,804 |
| — |
| 3,804 |
| — |
| 12/5/2003 | — |
|
171. | 808 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 3,279 |
| — |
| — |
| | 3,279 |
| — |
| 3,279 |
| — |
| 12/5/2003 | — |
|
172. | 812 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,960 |
| 25 |
| 628 |
| | 2,613 |
| — |
| 2,613 |
| — |
| 12/5/2003 | — |
|
173. | 819 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 4,821 |
| 583 |
| 30 |
| | 4,821 |
| 613 |
| 5,434 |
| 215 |
| 12/5/2003 | — |
|
174. | 822 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,795 |
| 15 |
| — |
| | 1,795 |
| 15 |
| 1,810 |
| 12 |
| 12/5/2003 | — |
|
175. | 830 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| 25 |
| — |
| | 1,801 |
| 25 |
| 1,826 |
| 18 |
| 12/5/2003 | — |
|
176. | 842 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,795 |
| 14 |
| — |
| | 1,795 |
| 14 |
| 1,809 |
| 10 |
| 12/5/2003 | — |
|
177. | 846 Ala Lilikoi Boulevard B | Honolulu | HI | Hawaii Land and Easement | — |
| 234 |
| — |
| — |
| | 234 |
| — |
| 234 |
| — |
| 12/5/2003 | — |
|
178. | 848 Ala Lilikoi Boulevard A | Honolulu | HI | Hawaii Land and Easement | — |
| 9,426 |
| — |
| — |
| | 9,426 |
| — |
| 9,426 |
| — |
| 12/5/2003 | — |
|
179. | 850 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 2,682 |
| 2 |
| — |
| | 2,682 |
| 2 |
| 2,684 |
| 2 |
| 12/5/2003 | — |
|
180. | 852 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,801 |
| — |
| — |
| | 1,801 |
| — |
| 1,801 |
| — |
| 12/5/2003 | — |
|
181. | 855 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,834 |
| — |
| — |
| | 1,834 |
| — |
| 1,834 |
| — |
| 12/5/2003 | — |
|
182. | 841 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 3,265 |
| — |
| — |
| | 3,265 |
| — |
| 3,265 |
| — |
| 12/5/2003 | — |
|
183. | 865 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,846 |
| — |
| — |
| | 1,846 |
| — |
| 1,846 |
| — |
| 12/5/2003 | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Initial Cost to | | Costs | | | | Gross Amount Carried at | | | | | | |
| | | | | | | | | | | Company | | Capitalized | | | | Close of Period(4) | | | | | | Original |
| | | | | | | | | | | | Buildings and | | Subsequent to | | | | | Buildings and | | | Accumulated | | Date | | Construction |
| Property | | Location | | State | | Property Type | | Encumbrances(1) | | Land | Equipment | | Acquisition | | | | Land | Equipment | Total(2) | | Depreciation(3) | | Acquired | | Date |
184 | 852 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,801 | | 0 | | | 0 | | | | | 1,801 | | 0 | | 1,801 | | | 0 | | | 12/5/2003 | | — | |
185 | 855 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,834 | | 0 | | | 0 | | | | | 1,834 | | 0 | | 1,834 | | | 0 | | | 12/5/2003 | | — | |
186 | 865 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,846 | | 0 | | | 0 | | | | | 1,846 | | 0 | | 1,846 | | | 0 | | | 12/5/2003 | | — | |
187 | 889 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 5,888 | | 315 | | | 0 | | | | | 5,888 | | 315 | | 6,203 | | | (64) | | | 11/21/2012 | | — | |
188 | 905 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,148 | | 0 | | | 0 | | | | | 1,148 | | 0 | | 1,148 | | | 0 | | | 12/5/2003 | | — | |
189 | 918 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,820 | | 0 | | | 0 | | | | | 3,820 | | 0 | | 3,820 | | | 0 | | | 12/5/2003 | | — | |
190 | 930 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 3,654 | | 0 | | | 0 | | | | | 3,654 | | 0 | | 3,654 | | | 0 | | | 12/5/2003 | | — | |
191 | 944 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,219 | | 0 | | | 0 | | | | | 1,219 | | 0 | | 1,219 | | | 0 | | | 12/5/2003 | | — | |
192 | 949 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 11,568 | | 0 | | | 0 | | | | | 11,568 | | 0 | | 11,568 | | | 0 | | | 12/5/2003 | | — | |
193 | 950 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,724 | | 0 | | | 0 | | | | | 1,724 | | 0 | | 1,724 | | | 0 | | | 12/5/2003 | | — | |
194 | 960 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 614 | | 0 | | | 0 | | | | | 614 | | 0 | | 614 | | | 0 | | | 12/5/2003 | | — | |
195 | 960 Mapunapuna Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 1,933 | | 0 | | | 0 | | | | | 1,933 | | 0 | | 1,933 | | | 0 | | | 12/5/2003 | | — | |
196 | 970 Ahua Street | | Honolulu | | HI | | Hawaii Properties | | (A) | | 817 | | 0 | | | 0 | | | | | 817 | | 0 | | 817 | | | 0 | | | 12/5/2003 | | — | |
197 | 91-027 Kaomi Loop | | Kapolei | | HI | | Hawaii Properties | | 0 | | 2,667 | | 0 | | | 0 | | | | | 2,667 | | 0 | | 2,667 | | | 0 | | | 6/15/2005 | | — | |
198 | 91-064 Kaomi Loop | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,826 | | 0 | | | 0 | | | | | 1,826 | | 0 | | 1,826 | | | 0 | | | 6/15/2005 | | — | |
199 | 91-080 Hanua | | Kapolei | | HI | | Hawaii Properties | | 0 | | 2,187 | | 0 | | | 0 | | | | | 2,187 | | 0 | | 2,187 | | | 0 | | | 6/15/2005 | | — | |
200 | 91-083 Hanua | | Kapolei | | HI | | Hawaii Properties | | 0 | | 716 | | 0 | | | 0 | | | | | 716 | | 0 | | 716 | | | 0 | | | 6/15/2005 | | — | |
201 | 91-086 Kaomi Loop | | Kapolei | | HI | | Hawaii Properties | | 0 | | 13,884 | | 0 | | | 0 | | | | | 13,884 | | 0 | | 13,884 | | | 0 | | | 6/15/2005 | | — | |
202 | 91-087 Hanua | | Kapolei | | HI | | Hawaii Properties | | 0 | | 381 | | 0 | | | 0 | | | | | 381 | | 0 | | 381 | | | 0 | | | 6/15/2005 | | — | |
203 | 91-091 Hanua | | Kapolei | | HI | | Hawaii Properties | | 0 | | 552 | | 0 | | | 0 | | | | | 552 | | 0 | | 552 | | | 0 | | | 6/15/2005 | | — | |
204 | 91-102 Kaomi Loop | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,599 | | 0 | | | 0 | | | | | 1,599 | | 0 | | 1,599 | | | 0 | | | 6/15/2005 | | — | |
205 | 91-110 Kaomi Loop | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,293 | | 0 | | | 0 | | | | | 1,293 | | 0 | | 1,293 | | | 0 | | | 6/15/2005 | | — | |
206 | 91-119 Olai | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,981 | | 0 | | | 0 | | | | | 1,981 | | 0 | | 1,981 | | | 0 | | | 6/15/2005 | | — | |
207 | 91-141 Kalaeloa | | Kapolei | | HI | | Hawaii Properties | | 0 | | 11,624 | | 0 | | | 0 | | | | | 11,624 | | 0 | | 11,624 | | | 0 | | | 6/15/2005 | | — | |
208 | 91-150 Kaomi Loop | | Kapolei | | HI | | Hawaii Properties | | 0 | | 3,159 | | 0 | | | 0 | | | | | 3,159 | | 0 | | 3,159 | | | 0 | | | 6/15/2005 | | — | |
209 | 91-171 Olai | | Kapolei | | HI | | Hawaii Properties | | 0 | | 218 | | 0 | | | 13 | | | | | 218 | | 13 | | 231 | | | (3) | | | 6/15/2005 | | — | |
210 | 91-174 Olai | | Kapolei | | HI | | Hawaii Properties | | 0 | | 962 | | 0 | | | 47 | | | | | 962 | | 47 | | 1,009 | | | (22) | | | 6/15/2005 | | — | |
211 | 91-175 Olai | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,243 | | 0 | | | 43 | | | | | 1,243 | | 43 | | 1,286 | | | (23) | | | 6/15/2005 | | — | |
212 | 91-185 Kalaeloa | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,761 | | 0 | | | 0 | | | | | 1,761 | | 0 | | 1,761 | | | 0 | | | 6/15/2005 | | — | |
213 | 91-202 Kalaeloa | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,722 | | 0 | | | 326 | | | | | 1,722 | | 326 | | 2,048 | | | (61) | | | 6/15/2005 | | 1964 | |
214 | 91-120 Kauhi | | Kapolei | | HI | | Hawaii Properties | | 0 | | 567 | | 0 | | | 0 | | | | | 567 | | 0 | | 567 | | | 0 | | | 6/15/2005 | | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost to | Costs | | Gross Amount Carried at | | | |
| | | | | | Company | Capitalized | | Close of Period(4) | | | Original |
| | | | | | | Buildings and | Subsequent to | | | Buildings and | | Accumulated | Date | Construction |
| Property | Location | State | Property Type | Encumbrances(1) | Land | Equipment | Acquisition | | Land | Equipment | Total(2) | Depreciation(3) | Acquired | Date |
184. | 889 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 5,888 |
| 315 |
| — |
| | 5,888 |
| 315 |
| 6,203 |
| 40 |
| 11/21/2012 | — |
|
185. | 905 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,148 |
| — |
| — |
| | 1,148 |
| — |
| 1,148 |
| — |
| 12/5/2003 | — |
|
186. | 918 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 3,820 |
| — |
| — |
| | 3,820 |
| — |
| 3,820 |
| — |
| 12/5/2003 | — |
|
187. | 930 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 3,654 |
| — |
| — |
| | 3,654 |
| — |
| 3,654 |
| — |
| 12/5/2003 | — |
|
188. | 944 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,219 |
| — |
| — |
| | 1,219 |
| — |
| 1,219 |
| — |
| 12/5/2003 | — |
|
189. | 949 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 11,568 |
| — |
| — |
| | 11,568 |
| — |
| 11,568 |
| — |
| 12/5/2003 | — |
|
190. | 950 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,724 |
| — |
| — |
| | 1,724 |
| — |
| 1,724 |
| — |
| 12/5/2003 | — |
|
191. | 960 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 614 |
| — |
| — |
| | 614 |
| — |
| 614 |
| — |
| 12/5/2003 | — |
|
192. | 960 Mapunapuna Street | Honolulu | HI | Hawaii Land and Easement | — |
| 1,933 |
| — |
| — |
| | 1,933 |
| — |
| 1,933 |
| — |
| 12/5/2003 | — |
|
193. | 970 Ahua Street | Honolulu | HI | Hawaii Land and Easement | — |
| 817 |
| — |
| — |
| | 817 |
| — |
| 817 |
| — |
| 12/5/2003 | — |
|
194. | 91-027 Kaomi Loop | Kapolei | HI | Hawaii Land and Easement | — |
| 2,667 |
| — |
| — |
| | 2,667 |
| — |
| 2,667 |
| — |
| 6/15/2005 | — |
|
195. | 91-064 Kaomi Loop | Kapolei | HI | Hawaii Land and Easement | — |
| 1,826 |
| — |
| — |
| | 1,826 |
| — |
| 1,826 |
| — |
| 6/15/2005 | — |
|
196. | 91-080 Hanua | Kapolei | HI | Hawaii Land and Easement | — |
| 2,187 |
| — |
| — |
| | 2,187 |
| — |
| 2,187 |
| — |
| 6/15/2005 | — |
|
197. | 91-083 Hanua | Kapolei | HI | Hawaii Land and Easement | — |
| 716 |
| — |
| — |
| | 716 |
| — |
| 716 |
| — |
| 6/15/2005 | — |
|
198. | 91-086 Kaomi Loop | Kapolei | HI | Hawaii Land and Easement | — |
| 13,884 |
| — |
| — |
| | 13,884 |
| — |
| 13,884 |
| — |
| 6/15/2005 | — |
|
199. | 91-087 Hanua | Kapolei | HI | Hawaii Land and Easement | — |
| 381 |
| — |
| — |
| | 381 |
| — |
| 381 |
| — |
| 6/15/2005 | — |
|
200. | 91-091 Hanua | Kapolei | HI | Hawaii Land and Easement | — |
| 552 |
| — |
| — |
| | 552 |
| — |
| 552 |
| — |
| 6/15/2005 | — |
|
201. | 91-102 Kaomi Loop | Kapolei | HI | Hawaii Land and Easement | — |
| 1,599 |
| — |
| — |
| | 1,599 |
| — |
| 1,599 |
| — |
| 6/15/2005 | — |
|
202. | 91-110 Kaomi Loop | Kapolei | HI | Hawaii Land and Easement | — |
| 1,293 |
| — |
| — |
| | 1,293 |
| — |
| 1,293 |
| — |
| 6/15/2005 | — |
|
203. | 91-119 Olai | Kapolei | HI | Hawaii Land and Easement | — |
| 1,981 |
| — |
| — |
| | 1,981 |
| — |
| 1,981 |
| — |
| 6/15/2005 | — |
|
204. | 91-210 Kauhi | Kapolei | HI | Hawaii Land and Easement | — |
| 567 |
| — |
| — |
| | 567 |
| — |
| 567 |
| — |
| 6/15/2005 | — |
|
205. | 91-141 Kalaeloa | Kapolei | HI | Hawaii Land and Easement | — |
| 11,624 |
| — |
| — |
| | 11,624 |
| — |
| 11,624 |
| — |
| 6/15/2005 | — |
|
206. | 91-150 Kaomi Loop | Kapolei | HI | Hawaii Land and Easement | — |
| 3,159 |
| — |
| — |
| | 3,159 |
| — |
| 3,159 |
| — |
| 6/15/2005 | — |
|
207. | 91-171 Olai | Kapolei | HI | Hawaii Land and Easement | — |
| 218 |
| — |
| 12 |
| | 218 |
| 12 |
| 230 |
| — |
| 6/15/2005 | — |
|
208. | 91-174 Olai | Kapolei | HI | Hawaii Land and Easement | — |
| 962 |
| — |
| 47 |
| | 962 |
| 47 |
| 1,009 |
| 13 |
| 6/15/2005 | — |
|
209. | 91-175 Olai | Kapolei | HI | Hawaii Land and Easement | — |
| 1,243 |
| — |
| 43 |
| | 1,243 |
| 43 |
| 1,286 |
| 15 |
| 6/15/2005 | — |
|
210. | 91-185 Kalaeloa | Kapolei | HI | Hawaii Land and Easement | — |
| 1,761 |
| — |
| — |
| | 1,761 |
| — |
| 1,761 |
| — |
| 6/15/2005 | — |
|
211. | 91-202 Kalaeloa | Kapolei | HI | Hawaii Building | — |
| 1,722 |
| — |
| 326 |
| | 1,722 |
| 326 |
| 2,048 |
| 37 |
| 6/15/2005 | 1964 |
|
212. | 91-210 Olai | Kapolei | HI | Hawaii Land and Easement | — |
| 706 |
| — |
| — |
| | 706 |
| — |
| 706 |
| — |
| 6/15/2005 | — |
|
213. | 91-218 Olai | Kapolei | HI | Hawaii Land and Easement | — |
| 1,622 |
| — |
| 62 |
| | 1,622 |
| 62 |
| 1,684 |
| 14 |
| 6/15/2005 | — |
|
214. | 91-220 Kalaeloa | Kapolei | HI | Hawaii Building | — |
| 242 |
| 1,457 |
| 172 |
| | 242 |
| 1,629 |
| 1,871 |
| 492 |
| 6/15/2005 | 1991 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Initial Cost to | | Costs | | | | Gross Amount Carried at | | | | | | |
| | | | | | | | | | | Company | | Capitalized | | | | Close of Period(4) | | | | | | Original |
| | | | | | | | | | | | Buildings and | | Subsequent to | | | | | Buildings and | | | Accumulated | | Date | | Construction |
| Property | | Location | | State | | Property Type | | Encumbrances(1) | | Land | Equipment | | Acquisition | | | | Land | Equipment | Total(2) | | Depreciation(3) | | Acquired | | Date |
215 | 91-210 Olai | | Kapolei | | HI | | Hawaii Properties | | 0 | | 706 | | 0 | | | 0 | | | | | 706 | | 0 | | 706 | | | 0 | | | 6/15/2005 | | — | |
216 | 91-218 Olai | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,622 | | 0 | | | 62 | | | | | 1,622 | | 62 | | 1,684 | | | (26) | | | 6/15/2005 | | — | |
217 | 91-220 Kalaeloa | | Kapolei | | HI | | Hawaii Properties | | 0 | | 242 | | 1,457 | | | 141 | | | | | 242 | | 1,598 | | 1,840 | | | (594) | | | 6/15/2005 | | 1991 | |
218 | 91-222 Olai | | Kapolei | | HI | | Hawaii Properties | | 0 | | 2,035 | | 0 | | | 0 | | | | | 2,035 | | 0 | | 2,035 | | | 0 | | | 6/15/2005 | | — | |
219 | 91-238 Kauhi | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,390 | | 0 | | | 9,331 | | | | | 1,390 | | 9,331 | | 10,721 | | | (3,078) | | | 6/15/2005 | | 1981 | |
220 | 91-241 Kalaeloa | | Kapolei | | HI | | Hawaii Properties | | 0 | | 426 | | 3,983 | | | 865 | | | | | 426 | | 4,848 | | 5,274 | | | (1,740) | | | 6/15/2005 | | 1990 | |
221 | 91-250 Komohana | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,506 | | 0 | | | 0 | | | | | 1,506 | | 0 | | 1,506 | | | 0 | | | 6/15/2005 | | — | |
222 | 91-252 Kauhi | | Kapolei | | HI | | Hawaii Properties | | 0 | | 536 | | 0 | | | 0 | | | | | 536 | | 0 | | 536 | | | 0 | | | 6/15/2005 | | — | |
223 | 91-255 Hanua | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,230 | | 0 | | | 37 | | | | | 1,230 | | 37 | | 1,267 | | | (5) | | | 6/15/2005 | | — | |
224 | 91-259 Olai | | Kapolei | | HI | | Hawaii Properties | | 0 | | 2,944 | | 0 | | | 0 | | | | | 2,944 | | 0 | | 2,944 | | | 0 | | | 6/15/2005 | | — | |
225 | 91-265 Hanua | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,569 | | 0 | | | 0 | | | | | 1,569 | | 0 | | 1,569 | | | 0 | | | 6/15/2005 | | — | |
226 | 91-300 Hanua | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,381 | | 0 | | | 18 | | | | | 1,381 | | 18 | | 1,399 | | | 0 | | | 6/15/2005 | | 1994 | |
227 | 91-329 Kauhi | | Kapolei | | HI | | Hawaii Properties | | 0 | | 294 | | 2,297 | | | 2,701 | | | | | 294 | | 4,998 | | 5,292 | | | (1,718) | | | 6/15/2005 | | 1980 | |
228 | 91-349 Kauhi | | Kapolei | | HI | | Hawaii Properties | | 0 | | 649 | | 0 | | | 0 | | | | | 649 | | 0 | | 649 | | | 0 | | | 6/15/2005 | | — | |
229 | 91-399 Kauhi | | Kapolei | | HI | | Hawaii Properties | | 0 | | 27,405 | | 0 | | | 0 | | | | | 27,405 | | 0 | | 27,405 | | | 0 | | | 6/15/2005 | | — | |
230 | 91-400 Komohana | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,494 | | 0 | | | 0 | | | | | 1,494 | | 0 | | 1,494 | | | 0 | | | 6/15/2005 | | — | |
231 | 91-410 Komohana | | Kapolei | | HI | | Hawaii Properties | | 0 | | 418 | | 0 | | | 12 | | | | | 418 | | 12 | | 430 | | | (3) | | | 6/15/2005 | | — | |
232 | 91-416 Komohana | | Kapolei | | HI | | Hawaii Properties | | 0 | | 713 | | 0 | | | 11 | | | | | 713 | | 11 | | 724 | | | (3) | | | 6/15/2005 | | — | |
233 | AES HI Easement | | Kapolei | | HI | | Hawaii Properties | | 0 | | 1,250 | | 0 | | | 0 | | | | | 1,250 | | 0 | | 1,250 | | | 0 | | | 6/15/2005 | | — | |
234 | Other Easements & Lots | | Kapolei | | HI | | Hawaii Properties | | 0 | | 358 | | 0 | | | 1,395 | | | | | 358 | | 1,395 | | 1,753 | | | (518) | | | 6/15/2005 | | — | |
235 | Tesaro 967 Easement | | Kapolei | | HI | | Hawaii Properties | | 0 | | 6,593 | | 0 | | | 0 | | | | | 6,593 | | 0 | | 6,593 | | | 0 | | | 6/15/2005 | | — | |
236 | Texaco Easement | | Kapolei | | HI | | Hawaii Properties | | 0 | | 2,657 | | 0 | | | 0 | | | | | 2,657 | | 0 | | 2,657 | | | 0 | | | 6/15/2005 | | — | |
237 | 94-240 Pupuole Street | | Waipahu | | HI | | Hawaii Properties | | (A) | | 717 | | 0 | | | 0 | | | | | 717 | | 0 | | 717 | | | 0 | | | 12/5/2003 | | — | |
238 | 951 Trails Road | | Eldridge | | IA | | Mainland Properties | | 0 | | 470 | | 7,480 | | | 1,188 | | | | | 470 | | 8,668 | | 9,138 | | | (2,853) | | | 4/2/2007 | | 1994 | |
239 | 3425 Maple Drive | | Fort Dodge | | IA | | Mainland Properties | | 0 | | 100 | | 2,000 | | | 0 | | | | | 100 | | 2,000 | | 2,100 | | | (99) | | | 4/9/2019 | | 2014 | |
240 | 2300 North 33rd Avenue East | | Newton | | IA | | Mainland Properties | | 0 | | 500 | | 13,236 | | | 162 | | | | | 500 | | 13,398 | | 13,898 | | | (4,119) | | | 9/29/2008 | | 2008 | |
241 | 7121 South Fifth Avenue | | Pocatello | | ID | | Mainland Properties | | 0 | | 400 | | 4,201 | | | 436 | | | | | 400 | | 4,637 | | 5,037 | | | (650) | | | 1/29/2015 | | 2007 | |
242 | 1230 West 171st Street | | Harvey | | IL | | Mainland Properties | | 0 | | 800 | | 1,673 | | | 0 | | | | | 800 | | 1,673 | | 2,473 | | | (248) | | | 1/29/2015 | | 2004 | |
243 | 5156 American Road | | Rockford | | IL | | Mainland Properties | | 0 | | 400 | | 1,529 | | | 239 | | | | | 400 | | 1,768 | | 2,168 | | | (259) | | | 1/29/2015 | | 1996 | |
244 | 3201 Bearing Drive | | Franklin | | IN | | Mainland Properties | | 0 | | 1,100 | | 15,403 | | | (2) | | | | | 1,100 | | 15,401 | | 16,501 | | | (888) | | | 4/9/2019 | | 1973 | |
245 | 2482 Century Drive | | Goshen | | IN | | Mainland Properties | | 0 | | 840 | | 9,061 | | | 7 | | | | | 840 | | 9,068 | | 9,908 | | | (447) | | | 4/9/2019 | | 2005 | |
246 | 6825 West County Road 400 North | | Greenfield | | IN | | Mainland Properties | | | | 918 | | 14,300 | | | 665 | | | | | 918 | | 14,965 | | 15,883 | | | (796) | | | 2/14/2019 | | 2008 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost to | Costs | | Gross Amount Carried at | | | |
| | | | | | Company | Capitalized | | Close of Period(4) | | | Original |
| | | | | | | Buildings and | Subsequent to | | | Buildings and | | Accumulated | Date | Construction |
| Property | Location | State | Property Type | Encumbrances(1) | Land | Equipment | Acquisition | | Land | Equipment | Total(2) | Depreciation(3) | Acquired | Date |
215. | 91-222 Olai | Kapolei | HI | Hawaii Land and Easement | — |
| 2,035 |
| — |
| — |
| | 2,035 |
| — |
| 2,035 |
| — |
| 6/15/2005 | — |
|
216. | 91-238 Kauhi | Kapolei | HI | Hawaii Building | — |
| 1,390 |
| — |
| 9,209 |
| | 1,390 |
| 9,209 |
| 10,599 |
| 2,374 |
| 6/15/2005 | 1981 |
|
217. | 91-241 Kalaeloa | Kapolei | HI | Hawaii Building | — |
| 426 |
| 3,983 |
| 828 |
| | 426 |
| 4,811 |
| 5,237 |
| 1,434 |
| 6/15/2005 | 1990 |
|
218. | 91-250 Komohana | Kapolei | HI | Hawaii Land and Easement | — |
| 1,506 |
| — |
| — |
| | 1,506 |
| — |
| 1,506 |
| — |
| 6/15/2005 | — |
|
219. | 91-252 Kauhi | Kapolei | HI | Hawaii Land and Easement | — |
| 536 |
| — |
| — |
| | 536 |
| — |
| 536 |
| — |
| 6/15/2005 | — |
|
220. | 91-255 Hanua | Kapolei | HI | Hawaii Land and Easement | — |
| 1,230 |
| — |
| 44 |
| | 1,230 |
| 44 |
| 1,274 |
| 25 |
| 6/15/2005 | — |
|
221. | 91-259 Olai | Kapolei | HI | Hawaii Land and Easement | — |
| 2,944 |
| — |
| — |
| | 2,944 |
| — |
| 2,944 |
| — |
| 6/15/2005 | — |
|
222. | 91-265 Hanua | Kapolei | HI | Hawaii Land and Easement | — |
| 1,569 |
| — |
| — |
| | 1,569 |
| — |
| 1,569 |
| — |
| 6/15/2005 | — |
|
223. | 91-300 Hanua | Kapolei | HI | Hawaii Land and Easement | — |
| 1,381 |
| — |
| — |
| | 1,381 |
| — |
| 1,381 |
| — |
| 6/15/2005 | — |
|
224. | 91-329 Kauhi | Kapolei | HI | Hawaii Building | — |
| 294 |
| 2,297 |
| 2,236 |
| | 294 |
| 4,533 |
| 4,827 |
| 1,181 |
| 6/15/2005 | 1980 |
|
225. | 91-349 Kauhi | Kapolei | HI | Hawaii Land and Easement | — |
| 649 |
| — |
| — |
| | 649 |
| — |
| 649 |
| — |
| 6/15/2005 | — |
|
226. | 91-399 Kauhi | Kapolei | HI | Hawaii Land and Easement | — |
| 27,405 |
| — |
| — |
| | 27,405 |
| — |
| 27,405 |
| — |
| 6/15/2005 | — |
|
227. | 91-400 Komohana | Kapolei | HI | Hawaii Land and Easement | — |
| 1,494 |
| — |
| — |
| | 1,494 |
| — |
| 1,494 |
| — |
| 6/15/2005 | — |
|
228. | 91-410 Komohana | Kapolei | HI | Hawaii Land and Easement | — |
| 418 |
| — |
| 11 |
| | 418 |
| 11 |
| 429 |
| — |
| 6/15/2005 | — |
|
229. | 91-416 Komohana | Kapolei | HI | Hawaii Land and Easement | — |
| 713 |
| — |
| 11 |
| | 713 |
| 11 |
| 724 |
| — |
| 6/15/2005 | — |
|
230. | AES HI Easement | Kapolei | HI | Hawaii Land and Easement | — |
| 1,250 |
| — |
| — |
| | 1,250 |
| — |
| 1,250 |
| — |
| 6/15/2005 | — |
|
231. | Other Easements & Lots | Kapolei | HI | Hawaii Land and Easement | — |
| 358 |
| — |
| 1,246 |
| | 358 |
| 1,246 |
| 1,604 |
| 285 |
| 6/15/2005 | — |
|
232. | Tesaro 967 Easement | Kapolei | HI | Hawaii Land and Easement | — |
| 6,593 |
| — |
| — |
| | 6,593 |
| — |
| 6,593 |
| — |
| 6/15/2005 | — |
|
233. | Texaco Easement | Kapolei | HI | Hawaii Land and Easement | — |
| 2,653 |
| — |
| — |
| | 2,653 |
| — |
| 2,653 |
| — |
| 6/15/2005 | — |
|
234. | 94-240 Pupuole Street | Waipahu | HI | Hawaii Land and Easement | — |
| 717 |
| — |
| — |
| | 717 |
| — |
| 717 |
| — |
| 12/5/2003 | — |
|
235. | 5500 SE Delaware Avenue | Ankeny | IA | Mainland Industrial | — |
| 2,200 |
| 16,994 |
| — |
| | 2,200 |
| 16,994 |
| 19,194 |
| 1,239 |
| 1/29/2015 | 2012 |
|
236. | 951 Trails Road | Eldridge | IA | Mainland Industrial | — |
| 470 |
| 7,480 |
| 745 |
| | 470 |
| 8,225 |
| 8,695 |
| 2,109 |
| 4/2/2007 | 1994 |
|
237. | 2300 N 33rd Avenue | Newton | IA | Mainland Industrial | — |
| 500 |
| 13,236 |
| 404 |
| | 500 |
| 13,640 |
| 14,140 |
| 3,098 |
| 9/29/2008 | 2008 |
|
238. | 7121 South Fifth Avenue | Pocatello | ID | Mainland Industrial | — |
| 400 |
| 4,201 |
| 145 |
| | 400 |
| 4,346 |
| 4,746 |
| 310 |
| 1/29/2015 | 2007 |
|
239. | 1230 West 171st Street | Harvey | IL | Mainland Industrial | — |
| 800 |
| 1,673 |
| — |
| | 800 |
| 1,673 |
| 2,473 |
| 122 |
| 1/29/2015 | 2004 |
|
240. | 5156 American Road | Rockford | IL | Mainland Industrial | — |
| 400 |
| 1,529 |
| — |
| | 400 |
| 1,529 |
| 1,929 |
| 111 |
| 1/29/2015 | 1996 |
|
241. | 17200 Manchac Park Lane | Baton Rouge | LA | Mainland Industrial | — |
| 1,700 |
| 8,860 |
| — |
| | 1,700 |
| 8,860 |
| 10,560 |
| 646 |
| 1/29/2015 | 2014 |
|
242. | 209 South Bud Street | Lafayette | LA | Mainland Industrial | — |
| 700 |
| 4,549 |
| 9 |
| | 700 |
| 4,558 |
| 5,258 |
| 332 |
| 1/29/2015 | 2010 |
|
243. | 4000 Principio Parkway | North East | MD | Mainland Industrial | — |
| 4,200 |
| 71,518 |
| 610 |
| | 4,200 |
| 72,128 |
| 76,328 |
| 5,216 |
| 1/29/2015 | 2012 |
|
244. | 3800 Midlink Drive | Kalamazoo | MI | Mainland Industrial | — |
| 2,630 |
| 40,599 |
| — |
| | 2,630 |
| 40,599 |
| 43,229 |
| 2,960 |
| 1/29/2015 | 2014 |
|
245. | 2401 Cram Avenue SE | Bemidji | MN | Mainland Industrial | — |
| 100 |
| 2,137 |
| — |
| | 100 |
| 2,137 |
| 2,237 |
| 156 |
| 1/29/2015 | 2013 |
|
246. | 110 Stanbury Industrial Drive | Brookfield | MO | Mainland Industrial | — |
| 200 |
| 1,859 |
| — |
| | 200 |
| 1,859 |
| 2,059 |
| 136 |
| 1/29/2015 | 2012 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Initial Cost to | | Costs | | | | Gross Amount Carried at | | | | | | |
| | | | | | | | | | | Company | | Capitalized | | | | Close of Period(4) | | | | | | Original |
| | | | | | | | | | | | Buildings and | | Subsequent to | | | | | Buildings and | | | Accumulated | | Date | | Construction |
| Property | | Location | | State | | Property Type | | Encumbrances(1) | | Land | Equipment | | Acquisition | | | | Land | Equipment | Total(2) | | Depreciation(3) | | Acquired | | Date |
247 | 900 Commerce Parkway West Drive | | Greenwood | | IN | | Mainland Properties | | | | 1,483 | | 16,253 | | | 0 | | | | | 1,483 | | 16,253 | | 17,736 | | | (873) | | | 2/14/2019 | | 2007 |
248 | 9347 E Pendleton Pike | | Lawrence | | IN | | Mainland Properties | | | | 3,763 | | 34,877 | | | 1 | | | | | 3,763 | | 34,878 | | 38,641 | | | (1,874) | | | 2/14/2019 | | 2009 |
249 | 17001 West Mercury Street | | Gardner | | KS | | Mainland Properties | | | | 5,740 | | 32,701 | | | 0 | | | | | 5,740 | | 32,701 | | 38,441 | | | (3) | | | 12/30/2020 | | 2018 |
250 | 1985 International Way | | Hebron | | KY | | Mainland Properties | | | | 1,453 | | 8,546 | | | 1,275 | | | | | 1,453 | | 9,821 | | 11,274 | | | (579) | | | 2/14/2019 | | 1997 |
251 | 17200 Manchac Park Lane | | Baton Rouge | | LA | | Mainland Properties | | | | 1,700 | | 8,860 | | | 0 | | | | | 1,700 | | 8,860 | | 10,560 | | | (1,310) | | | 1/29/2015 | | 2014 |
252 | 209 South Bud Street | | Lafayette | | LA | | Mainland Properties | | | | 700 | | 4,549 | | | 15 | | | | | 700 | | 4,564 | | 5,264 | | | (675) | | | 1/29/2015 | | 2010 |
253 | 4000 Principio Parkway | | North East | | MD | | Mainland Properties | | | | 4,200 | | 71,518 | | | 803 | | | | | 4,200 | | 72,321 | | 76,521 | | | (10,647) | | | 1/29/2015 | | 2012 |
254 | 3800 Midlink Drive | | Kalamazoo | | MI | | Mainland Properties | | | | 2,630 | | 40,599 | | | 0 | | | | | 2,630 | | 40,599 | | 43,229 | | | (6,006) | | | 1/29/2015 | | 2014 |
255 | 2401 Cram Avenue SE | | Bemidji | | MN | | Mainland Properties | | | | 100 | | 2,137 | | | 0 | | | | | 100 | | 2,137 | | 2,237 | | | (316) | | | 1/29/2015 | | 2013 |
256 | 10100 89th Avenue N | | Maple Grove | | MN | | Mainland Properties | | | | 3,469 | | 21,284 | | | 0 | | | | | 3,469 | | 21,284 | | 24,753 | | | (1,306) | | | 10/16/2018 | | 2015 |
257 | 110 Stanbury Industrial Drive | | Brookfield | | MO | | Mainland Properties | | | | 200 | | 1,859 | | | 0 | | | | | 200 | | 1,859 | | 2,059 | | | (275) | | | 1/29/2015 | | 2012 |
258 | 3502 Enterprise Avenue | | Joplin | | MO | | Mainland Properties | | | | 1,380 | | 12,121 | | | 0 | | | | | 1,380 | | 12,121 | | 13,501 | | | (598) | | | 4/9/2019 | | 2014 |
259 | 5501 Providence Hill Drive | | St. Joseph | | MO | | Mainland Properties | | | | 400 | | 3,500 | | | 24 | | | | | 400 | | 3,524 | | 3,924 | | | (176) | | | 4/9/2019 | | 2014 |
260 | 628 Patton Avenue | | Asheville | | NC | | Mainland Properties | | | | 500 | | 1,514 | | | 0 | | | | | 500 | | 1,514 | | 2,014 | | | (224) | | | 1/29/2015 | | 1987 |
261 | 3900 NE 6th Street | | Minot | | ND | | Mainland Properties | | | | 700 | | 3,223 | | | 0 | | | | | 700 | | 3,223 | | 3,923 | | | (477) | | | 1/29/2015 | | 2013 |
262 | 1415 West Commerce Way | | Lincoln | | NE | | Mainland Properties | | | | 2,200 | | 8,518 | | | 388 | | | | | 2,200 | | 8,906 | | 11,106 | | | (1,280) | | | 1/29/2015 | | 1971 |
263 | 52 Pettengill Road | | Londonderry | | NH | | Mainland Properties | | | | 5,871 | | 43,335 | | | 7 | | | | | 5,871 | | 43,342 | | 49,213 | | | (2,139) | | | 4/9/2019 | | 2015 |
264 | 309 Dulty's Lane | | Burlington | | NJ | | Mainland Properties | | | | 1,600 | | 51,400 | | | 0 | | | | | 1,600 | | 51,400 | | 53,000 | | | (7,603) | | | 1/29/2015 | | 2001 |
265 | 725 Darlington Avenue | | Mahwah | | NJ | | Mainland Properties | | | | 8,492 | | 9,451 | | | 1,413 | | | | | 8,492 | | 10,864 | | 19,356 | | | (1,806) | | | 4/9/2014 | | 1999 |
266 | 2375 East Newlands Road | | Fernley | | NV | | Mainland Properties | | | | 1,100 | | 17,314 | | | 286 | | | | | 1,100 | | 17,600 | | 18,700 | | | (2,628) | | | 1/29/2015 | | 2007 |
267 | 7000 West Post Road | | Las Vegas | | NV | | Mainland Properties | | | | 4,230 | | 13,472 | | | 246 | | | | | 4,230 | | 13,718 | | 17,948 | | | (790) | | | 4/9/2019 | | 2010 |
268 | 55 Commerce Avenue | | Albany | | NY | | Mainland Properties | | | | 1,000 | | 10,105 | | | 179 | | | | | 1,000 | | 10,284 | | 11,284 | | | (1,535) | | | 1/29/2015 | | 2013 |
269 | 158 West Yard Road | | Feura Bush | | NY | | Mainland Properties | | | | 1,870 | | 7,931 | | | 0 | | | | | 1,870 | | 7,931 | | 9,801 | | | (685) | | | 4/9/2019 | | 1989 |
270 | 32150 Just Imagine Drive | | Avon | | OH | | Mainland Properties | | | | 2,200 | | 23,280 | | | 0 | | | | | 2,200 | | 23,280 | | 25,480 | | | (6,742) | | | 5/29/2009 | | 1996 |
271 | 1415 Industrial Drive | | Chillicothe | | OH | | Mainland Properties | | | | 1,200 | | 3,265 | | | 0 | | | | | 1,200 | | 3,265 | | 4,465 | | | (483) | | | 1/29/2015 | | 2012 |
272/273/274 | 1580, 1590 & 1600 Williams Road | | Columbus | | OH | | Mainland Properties | | | | 2,060 | | 29,143 | | | 0 | | | | | 2,060 | | 29,143 | | 31,203 | | | (1,678) | | | 4/9/2019 | | 1992 |
275 | 5300 Centerpoint Parkway | | Groveport | | OH | | Mainland Properties | | | | 2,701 | | 29,863 | | | 68 | | | | | 2,701 | | 29,931 | | 32,632 | | | (4,419) | | | 1/29/2015 | | 2014 |
276 | 200 Orange Point Drive | | Lewis Center | | OH | | Mainland Properties | | | | 1,300 | | 8,613 | | | 162 | | | | | 1,300 | | 8,775 | | 10,075 | | | (1,312) | | | 1/29/2015 | | 2013 |
277/278 | 2353 & 2373 Global Drive | | Obetz | | OH | | Mainland Properties | | | | 2,393 | | 27,363 | | | 8 | | | | | 2,393 | | 27,371 | | 29,764 | | | (1,061) | | | 8/23/2019 | | 2018 |
279 | 301 Commerce Drive | | South Point | | OH | | Mainland Properties | | | | 600 | | 4,530 | | | 0 | | | | | 600 | | 4,530 | | 5,130 | | | (670) | | | 1/29/2015 | | 2013 |
280 | 2820 State Highway 31 | | McAlester | | OK | | Mainland Properties | | | | 581 | | 2,237 | | | 4,582 | | | | | 581 | | 6,819 | | 7,400 | | | (708) | | | 1/29/2015 | | 2012 |
281 | 1990 Hood Road | | Greer | | SC | | Mainland Properties | | | | 400 | | 10,702 | | | 0 | | | | | 400 | | 10,702 | | 11,102 | | | (528) | | | 4/9/2019 | | 2015 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Initial Cost to | Costs | | Gross Amount Carried at | | | |
| | | | | | Company | Capitalized | | Close of Period(4) | | | Original |
| | | | | | | Buildings and | Subsequent to | | | Buildings and | | Accumulated | Date | Construction |
| Property | Location | State | Property Type | Encumbrances(1) | Land | Equipment | Acquisition | | Land | Equipment | Total(2) | Depreciation(3) | Acquired | Date |
247. | 628 Patton Avenue | Asheville | NC | Mainland Industrial | — |
| 500 |
| 1,514 |
| — |
| | 500 |
| 1,514 |
| 2,014 |
| 110 |
| 1/29/2015 | 1994 |
248. | 3900 NE 6th Street | Minot | ND | Mainland Industrial | — |
| 700 |
| 3,223 |
| — |
| | 700 |
| 3,223 |
| 3,923 |
| 235 |
| 1/29/2015 | 2013 |
249. | 1415 West Commerce Way | Lincoln | NE | Mainland Industrial | — |
| 2,200 |
| 8,518 |
| — |
| | 2,200 |
| 8,518 |
| 10,718 |
| 621 |
| 1/29/2015 | 1971 |
250. | 309 Dulty's Lane | Burlington | NJ | Mainland Industrial | — |
| 1,600 |
| 51,400 |
| — |
| | 1,600 |
| 51,400 |
| 53,000 |
| 3,747 |
| 1/29/2015 | 2001 |
251. | 725 Darlington Avenue | Mahwah | NJ | Mainland Industrial | — |
| 8,492 |
| 9,451 |
| 694 |
| | 8,492 |
| 10,145 |
| 18,637 |
| 901 |
| 4/9/2014 | 1999 |
252. | 2375 East Newlands Road | Fernley | NV | Mainland Industrial | — |
| 1,100 |
| 17,314 |
| 286 |
| | 1,100 |
| 17,600 |
| 18,700 |
| 1,285 |
| 1/29/2015 | 2007 |
253. | 55 Commerce Avenue | Albany | NY | Mainland Industrial | — |
| 1,000 |
| 10,105 |
| 179 |
| | 1,000 |
| 10,284 |
| 11,284 |
| 750 |
| 1/29/2015 | 2013 |
254. | 32150 Just Imagine Drive | Avon | OH | Mainland Industrial | — |
| 2,200 |
| 23,280 |
| — |
| | 2,200 |
| 23,280 |
| 25,480 |
| 4,995 |
| 5/29/2009 | 1996 |
255. | 1415 Industrial Drive | Chillicothe | OH | Mainland Industrial | — |
| 1,200 |
| 3,265 |
| — |
| | 1,200 |
| 3,265 |
| 4,465 |
| 238 |
| 1/29/2015 | 2012 |
256. | 5300 Centerpoint Parkway | Groveport | OH | Mainland Industrial | — |
| 2,700 |
| 29,863 |
| — |
| | 2,700 |
| 29,863 |
| 32,563 |
| 2,178 |
| 1/29/2015 | 2014 |
257. | 200 Orange Point Drive | Lewis Center | OH | Mainland Industrial | — |
| 1,300 |
| 8,613 |
| — |
| | 1,300 |
| 8,613 |
| 9,913 |
| 628 |
| 1/29/2015 | 2013 |
258. | 301 Commerce Drive | South Point | OH | Mainland Industrial | — |
| 600 |
| 4,530 |
| — |
| | 600 |
| 4,530 |
| 5,130 |
| 330 |
| 1/29/2015 | 2013 |
259. | 2820 State Highway 31 | McAlester | OK | Mainland Industrial | — |
| 581 |
| 2,237 |
| 4,094 |
| | 581 |
| 6,331 |
| 6,912 |
| 196 |
| 1/29/2015 | 2012 |
260. | 996 Paragon Way | Rock Hill | SC | Mainland Industrial | — |
| 2,600 |
| 35,920 |
| — |
| | 2,600 |
| 35,920 |
| 38,520 |
| 2,619 |
| 1/29/2015 | 2014 |
261. | 510 John Dodd Road | Spartanburg | SC | Mainland Industrial | — |
| 3,300 |
| 57,998 |
| — |
| | 3,300 |
| 57,998 |
| 61,298 |
| 4,228 |
| 1/29/2015 | 2012 |
262. | 4836 Hickory Hill Road | Memphis | TN | Mainland Industrial | — |
| 1,402 |
| 10,769 |
| 527 |
| | 1,402 |
| 11,296 |
| 12,698 |
| 829 |
| 12/23/2014 | 1984 |
263. | 2020 Joe B. Jackson Parkway | Murfreesboro | TN | Mainland Industrial | — |
| 7,500 |
| 55,259 |
| — |
| | 7,500 |
| 55,259 |
| 62,759 |
| 4,028 |
| 1/29/2015 | 2012 |
264. | 1095 South 4800 West | Salt Lake City | UT | Mainland Industrial | — |
| 1,500 |
| 6,913 |
| — |
| | 1,500 |
| 6,913 |
| 8,413 |
| 504 |
| 1/29/2015 | 2012 |
265. | 1901 Meadowville Technology Parkway | Chester | VA | Mainland Industrial | 49,427 |
| 4,000 |
| 67,511 |
| — |
| | 4,000 |
| 67,511 |
| 71,511 |
| 4,922 |
| 1/29/2015 | 2012 |
266. | 181 Battaile Drive | Winchester | VA | Mainland Industrial | — |
| 1,487 |
| 12,854 |
| — |
| | 1,487 |
| 12,854 |
| 14,341 |
| 3,764 |
| 4/20/2006 | 1987 |
| | | | | $ | 49,427 |
| $ | 642,051 |
| $ | 665,000 |
| $ | 36,551 |
|
| $ | 642,706 |
| $ | 700,896 |
| $ | 1,343,602 |
| $ | 74,614 |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Initial Cost to | | Costs | | | | Gross Amount Carried at | | | | | | |
| | | | | | | | | | | Company | | Capitalized | | | | Close of Period(4) | | | | | | Original |
| | | | | | | | | | | | Buildings and | | Subsequent to | | | | | Buildings and | | | Accumulated | | Date | | Construction |
| Property | | Location | | State | | Property Type | | Encumbrances(1) | | Land | Equipment | | Acquisition | | | | Land | Equipment | Total(2) | | Depreciation(3) | | Acquired | | Date |
282 | 996 Paragon Way | | Rock Hill | | SC | | Mainland Properties | | 0 | | 2,600 | | 35,920 | | | 3 | | | | | 2,600 | | 35,923 | | 38,523 | | | (5,313) | | | 1/29/2015 | | 2014 |
283 | 700 Marine Drive | | Rock Hill | | SC | | Mainland Properties | | 0 | | 820 | | 8,381 | | | 668 | | | | | 820 | | 9,049 | | 9,869 | | | (516) | | | 4/9/2019 | | 1986 |
284 | 510 John Dodd Road | | Spartanburg | | SC | | Mainland Properties | | 0 | | 3,300 | | 57,998 | | | 347 | | | | | 3,300 | | 58,345 | | 61,645 | | | (8,609) | | | 1/29/2015 | | 2012 |
285 | 5001 West Delbridge Street | | Sioux Falls | | SD | | Mainland Properties | | 0 | | 2,570 | | 14,832 | | | 0 | | | | | 2,570 | | 14,832 | | 17,402 | | | (732) | | | 4/9/2019 | | 2016 |
286 | 4836 Hickory Hill Road | | Memphis | | TN | | Mainland Properties | | 0 | | 1,402 | | 10,769 | | | 1,033 | | | | | 1,402 | | 11,802 | | 13,204 | | | (1,772) | | | 12/23/2014 | | 1984 |
287 | 2020 Joe B. Jackson Parkway | | Murfreesboro | | TN | | Mainland Properties | | | | 7,500 | | 55,259 | | | 154 | | | | | 7,500 | | 55,413 | | 62,913 | | | (8,174) | | | 1/29/2015 | | 2012 |
288 | 1095 South 4800 West | | Salt Lake City | | UT | | Mainland Properties | | 0 | | 1,500 | | 6,913 | | | 20 | | | | | 1,500 | | 6,933 | | 8,433 | | | (1,025) | | | 1/29/2015 | | 2012 |
289 | 1901 Meadowville Technology Parkway | | Chester | | VA | | Mainland Properties | | | | 4,000 | | 67,511 | | | 0 | | | | | 4,000 | | 67,511 | | 71,511 | | | (9,987) | | | 1/29/2015 | | 2012 |
| | | | | | | | | 0 | | $ | 708,449 | | $ | 1,052,875 | | | $ | 47,746 | | | | | $ | 709,099 | | $ | 1,099,971 | | $ | 1,809,070 | | | $ | (141,406) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
(1) | Represents mortgage debt and includes the unamortized balance of the fair value adjustments totaling $677. |
| |
(2) | Excludes value of real estate intangibles. |
| |
(3) | Depreciation on buildings and improvements is provided for periods ranging up to 40 years and on equipment up to seven years. |
| |
(4) | The total aggregate cost for U.S. federal income tax purposes is approximately $1,378,104. |
(1) Represents mortgage notes and includes the unamortized balance of debt issuance costs totaling $4,421. Certain of our properties are encumbered as follows:
| | | | | | | | | | | | | |
| Encumbrance | | Undepreciated Cost | | |
| | | | | |
(A) - 186 properties encumbered by 1 mortgage loan | $ | 645,579 | | | $ | 505,155 | | | |
| | | | | |
| | | | | |
| | | | | |
(2) Excludes value of real estate intangibles.
(3) Depreciation on buildings and improvements is provided for periods ranging up to 40 years and on equipment up to seven years.
(4) The total aggregate cost for U.S. federal income tax purposes is approximately $1,924,900.
INDUSTRIAL LOGISTICS PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
December 31, 20172020
(dollars in thousands)
Analysis of the carrying amount of real estate properties and accumulated depreciation:
| | | | | | | | | | | | | | |
| | Real Estate | | Accumulated |
| | Properties | | Depreciation |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Balance at December 31, 2017 | | $ | 1,343,602 | | | $ | (74,614) | |
Additions | | 118,898 | | | (18,781) | |
Disposals | | (104) | | | 104 | |
Balance at December 31, 2018 | | 1,462,396 | | | (93,291) | |
Additions | | 873,568 | | | (38,177) | |
| | | | |
Balance at December 31, 2019 | | 2,335,964 | | | (131,468) | |
Additions | | 109,020 | | | (43,821) | |
Disposals | | (635,914) | | | 33,883 | |
Balance at December 31, 2020 | | $ | 1,809,070 | | | $ | (141,406) | |
|
| | | | | | | | |
| | Real Estate | | Accumulated |
| | Properties | | Depreciation |
Balance at December 31, 2014 | | $ | 737,296 |
| | $ | (23,474 | ) |
Additions | | 598,215 |
| | (16,381 | ) |
Disposals | | (148 | ) | | 148 |
|
Balance at December 31, 2015 | | 1,335,363 |
| | (39,707 | ) |
Additions | | 1,659 |
| | (17,563 | ) |
Disposals | | (294 | ) | | 294 |
|
Balance at December 31, 2016 | | 1,336,728 |
| | (56,976 | ) |
Additions | | 6,974 |
| | (17,738 | ) |
Disposals | | (100 | ) | | 100 |
|
Balance at December 31, 2017 | | $ | 1,343,602 |
| | $ | (74,614 | ) |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | | | |
| | |
| INDUSTRIAL LOGISTICS PROPERTIES TRUST |
| | |
| By: | /s/ John C. PopeoG. Murray |
| | John C. PopeoG. Murray Managing Trustee, President and Chief OperatingExecutive Officer
|
| | |
| | Dated: March 28, 2018February 18, 2021 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Signature | Signature | | Title | | | | Date | |
| | | | | | | | | | |
/s/ John C. PopeoG. Murray | | Managing Trustee, President and Chief OperatingExecutive Officer | March 28, 2018 | February 18, 2021 |
John C. PopeoG. Murray | Officer (principal executive officer) | | | |
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/s/ Richard W. Siedel, Jr. | | Chief Financial Officer and Treasurer (principal | March 28, 2018 | February 18, 2021 |
Richard W. Siedel, Jr.
| | financial officer and principal accounting officer) | | |
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/s/ Adam D. Portnoy | | Managing Trustee | March 28, 2018 | February 18, 2021 |
Adam D. Portnoy | | | | |
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/s/ Bruce M. Gans, M.D. | | Independent Trustee | March 28, 2018 | February 18, 2021 |
Bruce M. Gans, M.D. | | | | |
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/s/ Lisa Harris Jones | | Independent Trustee | March 28, 2018 | February 18, 2021 |
Lisa Harris Jones
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/s/ Joseph L. Morea | | Independent Trustee | March 28, 2018 | February 18, 2021 |
Joseph L. Morea | | | | |
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/s/ Kevin C. Phelan | | Independent Trustee | | February 18, 2021 |
Kevin C. Phelan | | | | |