The average effective rental rates per square foot, as defined below, for our properties for the three and six months ended March 31, 2018June 30, 2021 and 20172020 are as follows:
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| | | | | | | | | | | | % of Total | | Cumulative |
| | | | | | % of Total | | Cumulative % | | Annualized | | Annualized | | % of Total |
| | | | Rented | | Rented | | of Total Rented | | Rental | | Rental | | Annualized |
| | Number of | | Square Feet | | Square Feet | | Square Feet | | Revenues | | Revenues | | Rental Revenues |
Period/Year | | Tenants | | Expiring (1) | | Expiring (1) | | Expiring (1) | | Expiring | | Expiring | | Expiring |
4/1/2018 - 12/31/2018 | | 16 |
| | 314 |
| | 1.1 | % | | 1.1 | % | | $ | 1,177 |
| | 0.8 | % | | 0.8 | % |
2019 | | 16 |
| | 1,534 |
| | 5.4 | % | | 6.5 | % | | 4,410 |
| | 2.8 | % | | 3.6 | % |
2020 | | 19 |
| | 848 |
| | 3.0 | % | | 9.5 | % | | 4,292 |
| | 2.7 | % | | 6.3 | % |
2021 | | 20 |
| | 1,224 |
| | 4.3 | % | | 13.8 | % | | 7,139 |
| | 4.6 | % | | 10.9 | % |
2022 | | 63 |
| | 2,762 |
| | 9.7 | % | | 23.5 | % | | 20,823 |
| | 13.3 | % | | 24.2 | % |
2023 | | 18 |
| | 1,538 |
| | 5.4 | % | | 28.9 | % | | 11,665 |
| | 7.5 | % | | 31.7 | % |
2024 | | 12 |
| | 4,750 |
| | 16.6 | % | | 45.5 | % | | 15,698 |
| | 10.0 | % | | 41.7 | % |
2025 | | 8 |
| | 619 |
| | 2.2 | % | | 47.7 | % | | 3,115 |
| | 2.0 | % | | 43.7 | % |
2026 | | 3 |
| | 637 |
| | 2.2 | % | | 49.9 | % | | 3,472 |
| | 2.2 | % | | 45.9 | % |
2027 | | 12 |
| | 4,887 |
| | 17.1 | % | | 67.0 | % | | 23,840 |
| | 15.2 | % | | 61.1 | % |
Thereafter | | 81 |
| | 9,421 |
| | 33.0 | % | | 100.0 | % | | 60,877 |
| | 38.9 | % | | 100.0 | % |
Total | | 268 |
| | 28,534 |
| | 100.0 | % | | | | $ | 156,508 |
| | 100.0 | % | | |
| | | | | | | | | | | | | | |
Weighted average remaining lease term (in years): | | 10.3 |
| | | | | | 11.2 |
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(1) | Rented square feet is pursuant to existing leases as of March 31, 2018, 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 March 31, 2018,June 30, 2021, tenants representing 1% or more of our total annualized rental revenues were as follows (square feet in thousands):
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| | | | | | | | | | | % of Total |
| | | | | No. of | | Leased | | % of Total | | Annualized Rental |
Tenant | | | States | | Properties | | Sq. Ft. (1) | | Leased Sq. Ft. (1) | | Revenues |
1 | Amazon.com Services, Inc. / Amazon.com Services LLC | | | AZ, SC, TN, VA | | 4 | | 3,869 | | | 11.1 | % | | 9.9 | % |
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 | | | 2.7 | % | | 4.5 | % |
3 | Restoration Hardware, Inc. | | | MD | | 1 | | 1,195 | | | 3.4 | % | | 2.9 | % |
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 | % | | 2.3 | % |
7 | Par Hawaii Refining, LLC | | | HI | | 3 | | 3,148 | | | 9.0 | % | | 2.3 | % |
8 | EF Transit, Inc. | | | IN | | 1 | | 535 | | | 1.5 | % | | 1.9 | % |
9 | BJ's Wholesale Club, Inc. | | | NJ | | 1 | | 634 | | | 1.8 | % | | 1.7 | % |
10 | Shurtech Brands, LLC | | | OH | | 1 | | 645 | | | 1.9 | % | | 1.6 | % |
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 LLC | | | KS | | 1 | | 645 | | | 1.9 | % | | 1.5 | % |
14 | Manheim Remarketing, Inc. | | | HI | | 1 | | 338 | | | 1.0 | % | | 1.5 | % |
15 | Exel Inc. | | | SC | | 1 | | 945 | | | 2.7 | % | | 1.4 | % |
16 | Avnet, Inc. | | | OH | | 1 | | 581 | | | 1.7 | % | | 1.4 | % |
17 | Warehouse Rentals Inc. | | | HI | | 5 | | 278 | | | 0.8 | % | | 1.2 | % |
18 | YNAP Corporation | | | NJ | | 1 | | 167 | | | 0.5 | % | | 1.1 | % |
19 | ODW Logistics, Inc. | | | OH | | 3 | | 760 | | | 2.2 | % | | 1.1 | % |
20 | Honolulu Warehouse Co., Ltd. | | | HI | | 1 | | 298 | | | 0.9 | % | | 1.1 | % |
21 | Refresco Beverages US Inc. | | | MO, SC | | 2 | | 421 | | | 1.2 | % | | 1.1 | % |
22 | Hellmann Worldwide Logistics Inc. | | | FL | | 1 | | 240 | | | 0.7 | % | | 1.1 | % |
23 | General Mills Operations, LLC | | | MI | | 1 | | 158 | | | 0.5 | % | | 1.0 | % |
24 | AES Hawaii, Inc. | | | HI | | 2 | | 1,242 | | | 3.6 | % | | 1.0 | % |
| | | | | | | | | | | | |
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| Total | | | | | 66 | | 19,474 | | | 56.1 | % | | 49.7 | % |
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| | | | | | | | % of Total |
| | | | Rented | | % of Total | | Annualized Rental |
Tenant | | Property Type | | Sq. Ft. (1) | | Rented Sq. Ft. (1) | | Revenues |
1. | Amazon.com.dedc, LLC / Amazon.com.kydc LLC | | Mainland Industrial | | 3,048 |
| | 10.7 | % | | 10.2 | % |
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 | % | | 3.6 | % |
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 | % | | 1.8 | % |
13. | Manheim Remarketing, Inc. | | Hawaii Land and Easement | | 338 |
| | 1.2 | % | | 1.7 | % |
14. | Warehouse Rentals Inc. | | Hawaii Land and Easement | | 278 |
| | 1.0 | % | | 1.6 | % |
15. | Coca-Cola Bottling of Hawaii, LLC | | Hawaii Land and Easement | | 351 |
| | 1.2 | % | | 1.6 | % |
16. | A.L. Kilgo Company, Inc. | | Hawaii Land and Easement | | 310 |
| | 1.1 | % | | 1.5 | % |
17. | The Net-A-Porter Group LLC | | Mainland Industrial | | 167 |
| | 0.6 | % | | 1.4 | % |
18. | General Mills Operations, LLC | | Mainland Industrial | | 158 |
| | 0.6 | % | | 1.4 | % |
19. | Honolulu Warehouse Co., Ltd. | | Hawaii Land and Easement | | 298 |
| | 1.0 | % | | 1.4 | % |
20. | AES Hawaii, Inc. | | Hawaii Land and Easement | | 1,242 |
| | 4.4 | % | | 1.2 | % |
21. | Bradley Shopping Center Company | | Hawaii Land and Easement | | 334 |
| | 1.2 | % | | 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 | % | | 53.2 | % |
| |
(1) | Rented square feet is pursuant to existing leases as of March 31, 2018, 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. |
(1)Leased square feet is pursuant to existing leases as of June 30, 2021 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 June 30, 2021, our Mainland Properties represented approximately 49.4% of our annualized rental revenues. We generally will seek to renew or extend the terms of leases at our Mainland Properties when they expire. Because ofas their expirations approach. Due to 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.prior to their expirations. If we are unable to extend or renew our leases, it may be time consuming and expensive to relet some of these properties and the terms of any leases we may enter may be less favorable to us than the terms of our existing leases for those properties.
Hawaii Properties. Approximately 60.3% As of June 30, 2021, our Hawaii Properties represented approximately 50.6% of our annualized rental revenues as of March 31, 2018 were derived from our Hawaii Properties.revenues. As of March 31, 2018, a significant portionJune 30, 2021, 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'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. Accordingly, we cannot be sure that the historical increases achieved at our Hawaii Properties will continue in the future.
The following chart shows the annualized rental revenues as of March 31, 2018June 30, 2021 scheduled to reset at our Hawaii Properties:
Scheduled Rent Resets at Hawaii Properties
(dollars in thousands)
| | | | | | | | |
| | Annualized |
| | Rental Revenues as of |
| | June 30, 2021 |
| | Scheduled to Reset |
| | |
7/1/2021-12/31/2021 | | $ | 701 | |
2022 | | 3,237 | |
2023 | | 2,535 | |
2024 | | 2,103 | |
2025 | | 3,115 | |
2026 and thereafter | | 16,990 | |
Total | | $ | 28,681 | |
|
| | | | |
| | Annualized |
| | Rental Revenues as of |
| | March 31, 2018 |
| | Scheduled to Reset |
2018 | | $ | 237 |
|
2019 | | 10,903 |
|
2020 | | 2,500 |
|
2021 and thereafter | | 19,723 |
|
Total | | $ | 33,363 |
|
Since the leases at certainAs of June 30, 2021, $3,447, or 1.6%, of our Hawaii Properties were originally entered,annualized rental revenues are included in leases scheduled to expire through June 30, 2022 and 1.0% of our rentable square feet are currently vacant. Rental rates for which available space may be leased in the future will depend on prevailing market conditions when lease extensions, lease renewals or new leases are negotiated. Whenever we extend, renew, or enter new leases for our properties, we intend to seek rents that are equal to or higher than our historical rents for the same properties; 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.
Tenant Review Process. Our manager, RMR LLC, employs a tenant review process for us. RMR LLC assesses tenants on an individual basis based on various applicable credit criteria. In general, depending on facts and circumstances, RMR LLC evaluates the creditworthiness of a tenant based on information that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources. RMR 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.
Investing and Financing Activities (dollars in thousands)
During the six months ended June 30, 2021, we acquired one parcel of developable land located in the Dallas, Texas market and one property located near the Rickenbacker intermodal terminal and airport in Columbus, Ohio containing 357,504 rentable square feet for an aggregate purchase price of $33,700, excluding acquisition related costs of $381.
During the six months ended June 30, 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 and contributed those 12 properties to our joint venture. We received an aggregate of $108,266 from that investor for a 39% equity interest in our joint venture and we retained the remaining 61% equity interest in our joint venture. As of June 30, 2020, we incurred transaction costs of $626 in connection with the formation of our joint venture.
We recognized a 39% noncontrolling interest in our condensed consolidated financial statements for the three and six months ended June 30, 2020. The portion of our joint venture's net loss not attributable to us, or $264 and $416 for the three and six months ended June 30, 2020, respectively, is reported as longnoncontrolling interest in our condensed consolidated statements of comprehensive income. During the three and six months ended June 30, 2020, our joint venture made aggregate cash distributions of $4,867, including $1,898 to the first joint venture investor.
In November 2020, we sold an additional 39% equity interest from our then remaining 61% equity interest to a second unrelated third party institutional investor and retained a 22% equity interest in our joint venture. Effective as 40 or 50 years ago, the characteristics of the neighborhoodsdate 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.
During the three and six months ended June 30, 2021, we recorded an increase in the vicinityfair value 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; however, we may undertake such activities on a selective basis.
Investment Activities
Our strategy related to property acquisitions and dispositions is materially unchanged from that disclosedinvestment in our Annual Report. Our target investments include all industrialjoint venture of $1,876 and logistics buildings$4,457, respectively, as equity in top tier markets.earnings of investees in our condensed consolidated statements of
comprehensive income. In addition, during the three and six months ended June 30, 2021, our joint venture made aggregate cash distributions of $660 and $1,320, respectively, to top tier markets, our focus is on newer buildings, high credit quality tenants and longer lease terms. We expect to use the extensive nationwide resources of RMR LLC to locate and acquire properties.
us.
For further information regarding our investmentinvesting and financing activities, see Note 3Notes 2 and 5 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Financing Activities (dollars in thousands)
On January 17, 2018, we completed our IPO, in which we issued 20,000,000 of our common shares for net proceeds of $444,309, after deducting the underwriting discounts and commissions and expenses. Upon the completion of our 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 our 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 our IPO.
For further information regarding our financing activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our InvestmentInvesting and Financing Liquidity and Resources” of this Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2018,June 30, 2021, Compared to Three Months Ended March 31, 2017June 30, 2020 (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 |
| Three Months Ended June 30, | | Three Months Ended June 30, | | Three Months Ended June 30, |
| | | | | $ | | % | | | | | | $ | | | | | | $ | | % |
| 2021 | | 2020 | | Change | | Change | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change | | Change |
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Rental income | $ | 53,324 | | | $ | 51,816 | | | $ | 1,508 | | | 2.9 | % | | $ | 856 | | | $ | 13,294 | | | $ | (12,438) | | | $ | 54,180 | | | $ | 65,110 | | | $ | (10,930) | | | (16.8 | %) |
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Operating expenses: | | | | | | | | | | | | | | | | | | | | | |
Real estate taxes | 7,464 | | | 7,128 | | | 336 | | | 4.7 | % | | 25 | | | 1,804 | | | (1,779) | | | 7,489 | | | 8,932 | | | (1,443) | | | (16.2 | %) |
Other operating expenses | 4,263 | | | 3,906 | | | 357 | | | 9.1 | % | | 78 | | | 1,135 | | | (1,057) | | | 4,341�� | | | 5,041 | | | (700) | | | (13.9 | %) |
Total operating expenses | 11,727 | | | 11,034 | | | 693 | | | 6.3 | % | | 103 | | | 2,939 | | | (2,836) | | | 11,830 | | | 13,973 | | | (2,143) | | | (15.3 | %) |
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Net operating income (3) | $ | 41,597 | | | $ | 40,782 | | | $ | 815 | | | 2.0 | % | | $ | 753 | | | $ | 10,355 | | | $ | (9,602) | | | 42,350 | | | 51,137 | | | (8,787) | | | (17.2 | %) |
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Other expenses: | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | 11,830 | | | 18,525 | | | (6,695) | | | (36.1 | %) |
Acquisition and certain other transaction related costs | | 646 | | | — | | | 646 | | | N/M |
General and administrative | | 4,234 | | | 4,846 | | | (612) | | | (12.6 | %) |
Total other expenses | | 16,710 | | | 23,371 | | | (6,661) | | | (28.5 | %) |
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Interest income | | — | | | 2 | | | (2) | | | (100.0 | %) |
Interest expense | | (8,643) | | | (13,205) | | | 4,562 | | | (34.5 | %) |
Gain on early extinguishment of debt | | — | | | 120 | | | (120) | | | (100.0 | %) |
Income before income tax expense and equity in earnings of investees | | 16,997 | | | 14,683 | | | 2,314 | | | 15.8 | % |
Income tax expense | | (42) | | | (126) | | | 84 | | | (66.7 | %) |
Equity in earnings of investees | | 1,876 | | | — | | | 1,876 | | | N/M |
Net income | | 18,831 | | | 14,557 | | | 4,274 | | | 29.4 | % |
Net loss attributable to noncontrolling interest | | — | | | 264 | | | (264) | | | (100.0 | %) |
Net income attributable to common shareholders | | $ | 18,831 | | | $ | 14,821 | | | $ | 4,010 | | | 27.1 | % |
| | | | | | | | |
Weighted average common shares outstanding - basic | | $ | 65,146 | | | $ | 65,089 | | | $ | 57 | | | 0.1 | % |
Weighted average common shares outstanding - diluted | | $ | 65,207 | | | $ | 65,091 | | | $ | 116 | | | 0.2 | % |
| | | | | | | | |
Per common share data (basic and diluted): | | | | | | | | |
Net income attributable to common shareholders | | $ | 0.29 | | | $ | 0.23 | | | $ | 0.06 | | | 26.1 | % |
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| | Three Months Ended March 31, |
| | | | | | $ | | % |
| | 2018 | | 2017 | | Change | | Change |
Revenues: | | | | | | | | |
Rental income | | $ | 34,809 |
| | $ | 33,870 |
| | $ | 939 |
| | 2.8 | % |
Tenant reimbursements and other income | | 5,796 |
| | 5,570 |
| | 226 |
| | 4.1 | % |
Total revenues | | 40,605 |
| | 39,440 |
| | 1,165 |
| | 3.0 | % |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Real estate taxes | | 4,585 |
| | 4,339 |
| | 246 |
| | 5.7 | % |
Other operating expenses | | 3,545 |
| | 2,732 |
| | 813 |
| | 29.8 | % |
Total operating expenses | | 8,130 |
| | 7,071 |
| | 1,059 |
| | 15.0 | % |
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Net operating income (1) | | 32,475 |
| | 32,369 |
| | 106 |
| | 0.3 | % |
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Other expenses: | | | | | | | | |
Depreciation and amortization | | 6,873 |
| | 6,811 |
| | 62 |
| | 0.9 | % |
General and administrative | | 2,574 |
| | 4,636 |
| | (2,062 | ) | | (44.5 | )% |
Total other expenses | | 9,447 |
| | 11,447 |
| | (2,000 | ) | | (17.5 | )% |
Operating income | | 23,028 |
| | 20,922 |
| | 2,106 |
| | 10.1 | % |
Interest income | | 13 |
| | — |
| | 13 |
| | 100.0 | % |
Interest expense | | (3,802 | ) | | (555 | ) | | (3,247 | ) | | 585.0 | % |
Income before income tax expense | | 19,239 |
| | 20,367 |
| | (1,128 | ) | | (5.5 | )% |
Income tax expense | | (7 | ) | | (11 | ) | | 4 |
| | (36.4 | )% |
Net income | | $ | 19,232 |
| | $ | 20,356 |
| | $ | (1,124 | ) | | (5.5 | )% |
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Weighted average common shares outstanding - basic and diluted | | 61,445 |
| | 45,000 |
| | 16,445 |
| | 36.5 | % |
| | | | | | | | |
Net income per common share - basic and diluted | | $ | 0.31 |
| | $ | 0.45 |
| | $ | (0.14 | ) | | (31.1 | )% |
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Reconciliation of Net Income to Net Operating Income (1): | | |
Net income | $ | 19,232 |
| | $ | 20,356 |
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Income tax expense | 7 |
| | 11 |
| | | | |
Income before income tax expense | 19,239 |
| | 20,367 |
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Interest expense | 3,802 |
| | 555 |
| | | | |
Interest income | (13 | ) | | — |
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Operating income | | 23,028 |
| | 20,922 |
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General and administrative | 2,574 |
| | 4,636 |
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Depreciation and amortization | 6,873 |
| | 6,811 |
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NOI | | $ | 32,475 |
| | $ | 32,369 |
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NOI: | | | | | | | | |
Hawaii Properties | | $ | 18,922 |
| | $ | 18,568 |
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Mainland Properties | | 13,553 |
| | 13,801 |
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NOI | | $ | 32,475 |
| | $ | 32,369 |
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Reconciliation of Net Income to Funds From Operations and Normalized Funds From Operations (2): |
Net income | $ | 19,232 |
| | $ | 20,356 |
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Plus: depreciation and amortization | 6,873 |
| | 6,811 |
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FFO | 26,105 |
| | 27,167 |
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Plus: estimated business management incentive fees (3) | — |
| | 2,409 |
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Normalized FFO | $ | 26,105 |
| | $ | 29,576 |
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FFO per common share - basic and diluted | $ | 0.42 |
| | $ | 0.60 |
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Normalized FFO per common share - basic and diluted | $ | 0.42 |
| | $ | 0.66 |
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N/M - Not Meaningful
(1)Consists of 288 properties that we owned continuously since April 1, 2020 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 net operating income, or 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 condensed consolidated statements of comprehensive income. Other real estate companies and REITs may calculate NOI differently than we do. |
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(2) | We calculate funds from operations, or FFO, and normalized funds from operations, or 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. 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 condensed consolidated statements of comprehensive income. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do. |
(2)Consists of three properties that we acquired during the period from April 1, 2020 to June 30, 2021, one property we sold in 2020 and 12 properties we contributed during the six months ended June 30, 2020 to our joint venture in which we currently own a 22% equity interest. We consolidated our properties owned by the joint venture until November 2020.
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(3) | Incentive fees under our and SIR's business management agreements with RMR LLC are payable after the end of each calendar year, are calculated based on common share total return, as defined in the respective agreements, and are included in general and administrative expense in our condensed consolidated statements of income. In calculating net income in accordance with GAAP, we recognize estimated business management incentive fee expense, if any, in the first, second and third quarters. Although we recognize this expense, if any, in the first, second and third quarters for purposes of calculating net income, we do not include such expense in the calculation of Normalized FFO until the fourth quarter, when the amount of the business management incentive fee expense for the calendar year, if any, is determined. Normalized FFO for the three months ended March 31, 2017 excludes $2,409, which represents the portion of SIR's estimated business management incentive fee allocated to us for the period during which we were SIR's wholly owned subsidiary. |
(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 three months ended March 31, 2018,June 30, 2021 compared to the three months ended March 31, 2017.June 30, 2020.
Rental income. The increasedecrease in rental income wasis primarily a result of an increaseour acquisition and disposition activities, which includes the contribution of 12 properties to our joint venture that was deconsolidated in occupancy during 2017 andNovember 2020, partially offset by 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 $1,194$1,951 for the 20182021 period and approximately $1,470$2,096 for the 20172020 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $102$171 for the 20182021 period and approximately $96$204 for the 20172020 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, partially offset by insurance proceeds and tenant escalation true-ups recognized in the 2017 period.
Real estate taxes. The increasedecrease in real estate taxes primarily reflects our acquisition and disposition activities, partially offset by higher tax valuation and tax rate increasesassessments at certain of our comparable properties.
Other operating expenses. Other operating expenses primarily include propertyrepairs and maintenance, environmental remediation, utilities, insurance, bad debt,snow removal, legal and property management fees. The increasedecrease in other operating expenses is primarily reflects increasesdue to our acquisition and disposition activities and higher insurance costs during the 2020 period, partially offset by an increase in rent reservesrepairs and snow removalmaintenance costs at certain of our properties in the 2018 period, compared to lower than usual amounts for these expenses in the 2017 period.comparable properties.
Depreciation and amortization. The increasedecrease in depreciation and amortization primarily reflects increasedour acquisition and disposition activities and an increase in depreciation of capital improvements atmade to certain of our properties.properties after April 1, 2020, partially offset by certain leasing related assets becoming fully amortized in the 2021 period.
Acquisition and certain other transaction related costs. Acquisition and certain other transaction related costs consist of costs related to potential acquisitions that were not completed or other transactions.
General and administrative. Subsequent to our IPO, general General and administrative expenses primarily include fees paid under our business management agreement with RMR LLC, legal fees, audit fees, Trustee cash fees and expenses and equity compensation expense. Prior to our IPO, 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 decrease in general and administrative expenses is primarily reflects our allocated portion of estimateddue to a decrease in business management incentive fees recognized by SIRas a result of our net disposition of properties in the 2017 period, partially offset by increased costs related to our becoming a separate public company.2020 period.
Interest income. Interest income represents interest earned on our cash balances.The decrease in interest income is primarily due to a decrease in the interest rate earned on invested cash during the 2021 period as compared to the 2020 period.
Interest expense. The increasedecrease in interest expense is primarily reflects the change in our capital structure, including our IPO, which resulted in changes in borrowings under our revolving credit facilitydue to lower average outstanding indebtedness during the 20182021 period partially offset byas compared to the 2020 period.
Gain on early extinguishment of debt. We recorded a gain on early extinguishment of debt in connection with our prepayment of certaina mortgage notes in December 2017.note during the 2020 period.
Income tax expense. Income tax expense reflects state income taxes payable in certain jurisdictions despitewhere we are subject to state income taxes.
Equity in earnings of investees. Equity in earnings of investees is the change in the fair value of our expected status as a REIT for federal income tax purposes.investment in our joint venture.
Net income. The decreaseincrease in net income for the 20182021 period compared to the 20172020 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 - basic and diluted. The increase in weighted average common shares outstanding primarily reflects the issuance of 20,000,000 of our common shares in connection withawarded under our IPO.equity compensation plan since January 1, 2020.
Net income attributable to common shareholders per common share - basic and diluted. Net The 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.
Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020 (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 |
| Six Months Ended June 30, | | Six Months Ended June 30, | | Six Months Ended June 30, |
| | | | | $ | | % | | | | | | $ | | | | | | $ | | % |
| 2021 | | 2020 | | Change | | Change | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change | | Change |
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Rental income | $ | 104,298 | | | $ | 100,974 | | | $ | 3,324 | | | 3.3 | % | | $ | 4,099 | | | $ | 28,414 | | | $ | (24,315) | | | $ | 108,397 | | | $ | 129,388 | | | $ | (20,991) | | | (16.2 | %) |
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Operating expenses: | | | | | | | | | | | | | | | | | | | | | |
Real estate taxes | 14,310 | | | 13,904 | | | 406 | | | 2.9 | % | | 426 | | | 3,839 | | | (3,413) | | | 14,736 | | | 17,743 | | | (3,007) | | | (16.9 | %) |
Other operating expenses | 8,971 | | | 7,626 | | | 1,345 | | | 17.6 | % | | 346 | | | 2,596 | | | (2,250) | | | 9,317 | | | 10,222 | | | (905) | | | (8.9 | %) |
Total operating expenses | 23,281 | | | 21,530 | | | 1,751 | | | 8.1 | % | | 772 | | | 6,435 | | | (5,663) | | | 24,053 | | | 27,965 | | | (3,912) | | | (14.0 | %) |
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Net operating income (3) | $ | 81,017 | | | $ | 79,444 | | | $ | 1,573 | | | 2.0 | % | | $ | 3,327 | | | $ | 21,979 | | | $ | (18,652) | | | 84,344 | | | 101,423 | | | (17,079) | | | (16.8 | %) |
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Other expenses: | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | 24,508 | | | 36,815 | | | (12,307) | | | (33.4 | %) |
Acquisition and certain other transaction related costs | | 646 | | | — | | | 646 | | | N/M |
General and administrative | | 7,990 | | | 9,677 | | | (1,687) | | | (17.4 | %) |
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Total other expenses | | 33,144 | | | 46,492 | | | (13,348) | | | (28.7 | %) |
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Interest income | | — | | | 113 | | | (113) | | | (100.0 | %) |
Interest expense | | (17,384) | | | (27,724) | | | 10,340 | | | (37.3 | %) |
Gain on early extinguishment of debt | | — | | | 120 | | | (120) | | | (100.0 | %) |
Income before income tax expense and equity in earnings of investees | | 33,816 | | | 27,440 | | | 6,376 | | | 23.2 | % |
Income tax expense | | (105) | | | (189) | | | 84 | | | (44.4 | %) |
Equity in earnings of investees | | 4,457 | | | — | | | 4,457 | | | N/M |
Net income | | 38,168 | | | 27,251 | | | 10,917 | | | 40.1 | % |
Net loss attributable to noncontrolling interest | | — | | | 416 | | | (416) | | | (100.0 | %) |
Net income attributable to common shareholders | | $ | 38,168 | | | $ | 27,667 | | | $ | 10,501 | | | 38.0 | % |
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Weighted average common shares outstanding - basic | | 65,142 | | | 65,082 | | | 60 | | | 0.1 | % |
Weighted average common shares outstanding - diluted | | 65,192 | | | 65,087 | | | 105 | | | 0.2 | % |
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Per common share data (basic and diluted): | | | | | | | | |
Net income attributable to common shareholders | | $ | 0.58 | | | $ | 0.42 | | | $ | 0.16 | | | 38.1 | % |
N/M - Not Meaningful
(1)Consists of 287 buildings, leasable land parcels and easements that we owned continuously since January 1, 2020 and excludes 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.
(2)Consists of four properties that we acquired during the period from January 1, 2020 to June 30, 2021, one property we sold in 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 our properties owned by the joint venture until November 2020.
(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 six months ended June 30, 2021 compared to the six months ended June 30, 2020.
Rental income. The decrease in rental income is primarily a result of our acquisition and disposition activities, which includes the contribution of 12 properties to our joint venture that was deconsolidated in November 2020, partially offset by increases from leasing activity and rent resets at certain of our comparable properties. Rental income includes non-cash straight line rent adjustments totaling approximately $3,995 for the 2021 period and approximately $4,063 for the 2020 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $351 for the 2021 period and approximately $404 for the 2020 period.
Real estate taxes. The decrease in real estate taxes primarily reflects our acquisition and disposition activities, partially offset by higher tax assessments at certain of our comparable properties.
Other operating expenses. The decrease in other operating expenses is primarily due to our acquisition and disposition activities, partially offset by an increase in snow removal, repairs and maintenance and insurance costs during the 2021 period at certain of our comparable properties.
Depreciation and amortization. The decrease in depreciation and amortization primarily reflects our acquisition and disposition activities and an increase in depreciation of improvements made to certain of our properties after January 1, 2020, partially offset by certain leasing related assets becoming fully amortized in the 2021 period.
Acquisition and certain other transaction related costs. Acquisition and certain other transaction related costs consist of costs related to potential acquisitions that were not completed or other transactions.
General and administrative. The decrease in general and administrative expenses is primarily due to a decrease in business management fees as a result of our net disposition of properties in the 2020 period.
Interest income. The decrease in interest income is primarily due to a decrease in the interest rate earned on invested cash during the 2021 period as compared to the 2020 period.
Interest expense. The decrease in interest expense is primarily due to lower average outstanding indebtedness during the 2021 period as compared to the 2020 period.
Gain on early extinguishment of debt. We recorded a gain on early extinguishment of debt in connection with our prepayment of a mortgage note during the 2020 period.
Income tax expense. Income tax expense reflects state income taxes payable in certain jurisdictions where we are subject to state income taxes.
Equity in earnings of investees. Equity in earnings of investees is the change in the fair value of our investment in our joint venture.
Net income. The increase in net income for the 2021 period compared to the 2020 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 - basic and diluted. The increase in weighted average common shares outstanding primarily reflects common shares awarded under our equity compensation plan since January 1, 2020.
Net income attributable to common shareholders per common share - basic and diluted. The 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 the applicable rules of the Securities and Exchange Commission, or SEC, including net operating income, or NOI, funds from operations, or FFO, attributable to common shareholders and normalized funds from operations, or Normalized FFO, attributable to common shareholders. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered 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 and net income attributable to common shareholders as presented in our condensed 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 three and six months ended June 30, 2021 and 2020 (dollars in thousands):
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Reconciliation of Net Income to NOI: | | | | | | | |
Net income | $ | 18,831 | | | $ | 14,557 | | | $ | 38,168 | | | $ | 27,251 | |
Equity in earnings of investees | (1,876) | | | — | | | (4,457) | | | — | |
Income tax expense | 42 | | | 126 | | | 105 | | | 189 | |
Income before income tax expense and equity in earnings of investees | 16,997 | | | 14,683 | | | 33,816 | | | 27,440 | |
Gain on early extinguishment of debt | — | | | (120) | | | — | | | (120) | |
Interest expense | 8,643 | | | 13,205 | | | 17,384 | | | 27,724 | |
Interest income | — | | | (2) | | | — | | | (113) | |
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General and administrative | 4,234 | | | 4,846 | | | 7,990 | | | 9,677 | |
Acquisition and transaction related costs | 646 | | | — | | | 646 | | | — | |
Depreciation and amortization | 11,830 | | | 18,525 | | | 24,508 | | | 36,815 | |
NOI | | $ | 42,350 | | | $ | 51,137 | | | $ | 84,344 | | | $ | 101,423 | |
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NOI: | | | | | | | | |
Hawaii Properties | | $ | 20,693 | | | $ | 19,783 | | | $ | 40,684 | | | $ | 39,301 | |
Mainland Properties | | 21,657 | | | 31,354 | | | 43,660 | | | 62,122 | |
NOI | | $ | 42,350 | | | $ | 51,137 | | | $ | 84,344 | | | $ | 101,423 | |
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Funds From Operations 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. FFO attributable to common shareholders and
Normalized FFO attributable to common shareholders are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our distribution rate as a percentage of the trading price of our common shares, or dividend yield, and our dividend yield compared to the dividend yields of other industrial REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. Other real estate companies and REITs may calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders differently than we do.
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 three and six months ended June 30, 2021 and 2020 (dollars in thousands, except per share data):
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Reconciliation of Net Income attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders: | | | | | | | |
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Net income attributable to common shareholders | $ | 18,831 | | | $ | 14,821 | | | $ | 38,168 | | | $ | 27,667 | |
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Depreciation and amortization | 11,830 | | | 18,525 | | | 24,508 | | | 36,815 | |
Equity in earnings of unconsolidated joint venture | (1,876) | | | — | | | (4,457) | | | — | |
Share of FFO from unconsolidated joint venture | 1,170 | | | — | | | 2,406 | | | — | |
FFO adjustments attributable to noncontrolling interest | — | | | (2,657) | | | — | | | (3,634) | |
FFO attributable to common shareholders | $ | 29,955 | | | $ | 30,689 | | | $ | 60,625 | | | $ | 60,848 | |
Acquisition and certain other transaction related costs | | 646 | | | — | | | 646 | | | — | |
Gain on early extinguishment of debt | | — | | | (120) | | | — | | | (120) | |
Normalized FFO attributable to common shareholders | $ | 30,601 | | | $ | 30,569 | | | $ | 61,271 | | | $ | 60,728 | |
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Per common share data (basic and diluted) | | | | | | | |
FFO attributable to common shareholders | $ | 0.46 | | | $ | 0.47 | | | $ | 0.93 | | | $ | 0.93 | |
Normalized FFO attributable to common shareholders | $ | 0.47 | | | $ | 0.47 | | | $ | 0.94 | | | $ | 0.93 | |
LIQUIDITY AND CAPITAL RESOURCES
Our Operating Liquidity and Resources (dollars in thousands)
Our principal sources of funds to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders are rents from tenants at our properties and borrowings under our revolving credit facility. WeWith $506,000 of availability under our revolving credit facility as of July 26, 2021, 71.7% 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 1.6% of our annualized rental revenues as of June 30, 2021 from expiring leases over the next 12 months, we believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter. Our future cash flows from operating activities will depend primarily upon our ability to:
•collect rents from our tenants when due;
•maintain the occupancy of, and maintain or increase the rental rates at, our properties;
•control our operating cost increases; and
•purchase additional properties that produce cash flows in excess of our costs of acquisition capital and property operating expenses.expenses; and
•develop properties to produce cash flows in excess of our cost of capital.
Cash
The following is a summary of our sources and uses of cash flows provided by (used in) operating, investing and financing activities were $22,093, ($1,347) and ($899), respectively, for the three months ended March 31, 2018 and $23,996, ($1,521) and ($22,475), respectively, for the three months ended March 31, 2017. periods presented, as reflected in our condensed consolidated statements of cash flows (dollars in thousands):
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| | Six Months Ended June 30, |
| | 2021 | | 2020 |
Cash and cash equivalents and restricted cash at beginning of period | | $ | 22,834 | | | $ | 34,550 | |
Net cash provided by (used in): | | | | |
Operating activities | | 62,607 | | | 62,899 | |
Investing activities | | (34,628) | | | (74,430) | |
Financing activities | | (20,301) | | | 23,940 | |
Cash and cash equivalents and restricted cash at end of period | | $ | 30,512 | | | $ | 46,959 | |
The decrease in net cash provided by operating activities for the threesix months ended March 31, 2018June 30, 2021 compared to the same2020 period in the prior year is primarily due to reimbursements to SIR for the costs it incurredchanges in connection with our formation and the preparation for our IPO. Networking capital. The decrease in net cash used in investing activities for the threesix months ended March 31, 2018June 30, 2021 compared to the same2020 period inis primarily due to our acquisition of two properties for an aggregate purchase price of $34,081 during the prior year was essentially unchanged.2021 period as compared to one property for a purchase price of $71,628 during the 2020 period. The decreasechange in net cash used in financing activities for the threesix months ended March 31, 2018 compared toJune 30, 2021 from net cash provided by financing activities for the same2020 period in the prior year is primarily due to netthe proceeds we received from our IPOsale of equity interests in our joint venture and net contributions from SIR related to our property operations prior todebt repayments in the completion of our IPO,2020 period, partially offset by higher net activitiesborrowings under our revolving credit facility.
facility during the 2021 period to fund acquisitions.
Our InvestmentInvesting and Financing Liquidity and Resources (dollars in thousands, except per share and per square foot data)
Our future acquisitionsacquisition or development of propertiesactivity cannot be accurately projected because they dependsuch activity 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"“turn around” properties, or properties that do not generate positive cash flows, and, to the extentbut we conductmay undertake construction or redevelopment activities on our properties,properties. During the three months ended June 30, 2021, we currently intendacquired a developable land parcel for $2,319, including acquisition costs of $119. We expect to conduct those activities primarilyspend approximately $12,700 to satisfy tenant requirements orconstruct a building for lease on a build to suit basis for existing or new tenants.this land.
As of March 31, 2018,June 30, 2021, we had $19,847 of cash and cash equivalents.equivalents of $30,512. To qualifymaintain our qualification for taxation as a REIT under the IRC,Internal Revenue Code of 1986, as amended, 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 March 31, 2018,June 30, 2021, the interest rate premium on our revolving credit facility was 140130 basis points and our commitment fee was 25 basis points. After reporting our leverage as of March 31, 2018, the interest rate premium on our revolving credit facility will decrease to 130 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 March 31, 2018,June 30, 2021, the annual interest rate payable on borrowings under our revolving credit facility was 3.23%1.40%. As of March 31, 2018June 30, 2021 and AprilJuly 26, 2018,2021, we had $302,000 and $292,000, respectively,$244,000 outstanding under our revolving credit facility, and $448,000 and $458,000, respectively,$506,000 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.
As of June 30, 2021, our debt maturities (other than our revolving credit facility), consisted of mortgage notes with an aggregate principal amount of $650,000, which is scheduled to mature in 2029.
On January 17, 2018,During the six months ended June 30, 2020, we completed our IPO, in which we issued 20,000,000entered into agreements related to a joint venture for 12 of our common sharesproperties in the mainland United States with an Asian institutional investor and contributed those 12 properties to our joint venture. We received an aggregate of $108,266 from that investor for a 39% equity interest in our joint venture and we retained the remaining 61% equity interest in our joint venture. As of June 30, 2020, we incurred transaction costs of $626 in connection with the formation of our joint venture.
We recognized a 39% noncontrolling interest in our condensed consolidated financial statements for the three and six months ended June 30, 2020. The portion of our joint venture's net proceedsloss not attributable to us, or $264 and $416 for the three and six months ended June 30, 2020, respectively, is reported as noncontrolling interest in our condensed consolidated statements of $444,309, after deductingcomprehensive income. During the underwriting discountsthree and commissionssix months ended June 30, 2020, our joint venture made aggregate cash distribution of $4,867, including $1,898 to the first joint venture investor.
In November 2020, we sold an additional 39% equity interest from our then remaining 61% equity interest to a second unrelated third party institutional investor and expenses. retained a 22% equity interest in our joint venture. 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.
During the three months and six months ended June 30, 2021, we recorded an increase in the fair value of our investment in our joint venture of $1,876 and $4,457, respectively, as equity in earnings of investees in our condensed consolidated statements of comprehensive income. In addition, during the three and six months ended June 30, 2021, our joint venture made aggregate cash distributions of $660 and $1,320, respectively, to us.
For further information regarding our IPOinvesting and our application of the net proceeds,financing activities, see Note 9Notes 2 and 5 to the Notes to Condensed Consolidated Financial Statements included in Part 1,I, Item 1 of this Quarterly Report on Form 10-Q.
Our debt maturity (other than our revolving credit facility) as of March 31, 2018 was $48,750 in 2020.
We expect to use borrowings under our revolving credit facility, payments we may receive for pro rata equity contributions from the other investors in our joint venture in connection with properties we may contribute to our joint venture, equity contributions from the third party investors in our joint venture 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. Further, any issuances of our equity securities may be dilutive to our existing shareholders. Although we cannot be sure that we will be successful in completing any particular type of financing, we believe that we will have access to financing, such as debt 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 thatwhich will afford us reasonable access to capital for investmentinvesting and financing activities. However, as noted elsewhere in this Quarterly Report on Form 10-Q, it is uncertain what the duration and severity of the current economic impact 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.
During the six months ended June 30, 2021, we paid quarterly cash distributions to our shareholders totaling $43,099 using existing cash balances and borrowings under our revolving credit facility. For more information regarding the distribution we paid in 2021, see Note 6 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
On April 19, 2018,July 15, 2021, we declared a proratedregular quarterly distribution to common shareholders of $0.27record on July 26, 2021 of $0.33 per common share, or approximately $17,600, for the period from January 17, 2018 (the date we completed our IPO) through March 31, 2018 to shareholders of record on April 30, 2018. This prorated distribution is based upon a quarterly distribution of $0.33 per common share ($1.32 per common share per year).$21,550 in aggregate. We expect to pay this distribution to our shareholders on or about May 14, 2018August 19, 2021 using existing cash balances and borrowings under our revolving credit facility.
During the three and six months ended March 31, 2018June 30, 2021 and 2017,2020, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Tenant improvements and leasing costs (1) | | $ | 441 | | | $ | 344 | | | $ | 1,264 | | | $ | 637 | |
| | | | | | | | |
Building improvements (2) | | 560 | | | 741 | | | 792 | | | 1,978 | |
Development, redevelopment and other activities (3) | | 104 | | | — | | | 104 | | | 1 | |
| | $ | 1,105 | | | $ | 1,085 | | | $ | 2,160 | | | $ | 2,616 | |
|
| | | | | | | | |
| | Three Months Ended |
| | March 31, |
| | 2018 | | 2017 |
Tenant improvements (1) | | $ | 69 |
| | $ | 17 |
|
Leasing costs (2) | | 5 |
| | 429 |
|
Building improvements (3) | | 90 |
| | 309 |
|
Development, redevelopment and other activities (4) | | 378 |
| | 684 |
|
| | $ | 542 |
| | $ | 1,439 |
|
(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.
| |
(1) | Tenant improvements include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space. |
(2)Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets.
| |
(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. |
(3)Development, redevelopment and other activities generally include capital expenditure projects that reposition a property or result in new sources of revenues.
| |
(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. |
As of March 31, 2018,June 30, 2021, we had estimated unspent leasing related obligations of $243.
During the three months ended March 31, 2018, commitments made for expenditures, such as tenant improvements and leasing costs in connection with leasing space, were as follows:
|
| | | | | | | | | | | |
| New Leases | | Renewals | | Totals |
Square feet leased during the period (in thousands) | 1 |
| | 295 |
| | 296 |
|
Total leasing costs and concession commitments (1) | $ | 33 |
| | $ | 35 |
| | $ | 68 |
|
Total leasing costs and concession commitments per square foot (1) | $ | 33.00 |
| | $ | 0.12 |
| | $ | 0.23 |
|
Weighted average lease term by square feet (years) | 7.0 |
| | 30.4 |
| | 30.3 |
|
Total leasing costs and concession commitments per square foot per year (1) | $ | 4.71 |
| | $ | 0.00 |
| | $ | 0.01 |
|
| |
(1) | Includes commitments made for leasing expenditures and concessions, such as leasing commissions, tenant improvements or other tenant inducements. |
Off Balance Sheet Arrangements
As of March 31, 2018, 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 March 31, 2018.
$1,730.
Debt Covenants (dollars in thousands)
Our principal debt obligations at March 31, 2018June 30, 2021 were borrowings outstanding under our revolving credit facility and a $650,000 non-recourse, mortgage loan that is secured mortgage note assumed in connection with oneby 186 of our acquisitions. Ourproperties. The mortgage note isloan agreement contains certain exceptions to the general non-recourse subjectprovisions that obligate us to indemnify the lenders for certain limitations,potential environmental losses relating to hazardous materials and does not contain any material financial covenants. violations of 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 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 March 31, 2018,June 30, 2021, 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 mortgage loan contain customary covenants and 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 June 30, 2021, we believe we were in compliance with all the covenants and other terms under this mortgage 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; The RMR Group Inc., or RMR Inc., is the managing member of RMR LLC; and Adam D. Portnoy, one of our Managing Trustees, is the sole trustee of ABP Trust, which 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, of which we were a wholly owned subsidiary until January 17, 2018 and which remains our largest shareholder, owning, at March 31, 2018, approximately 69.2% of our outstanding common shares. For further information about these and other such relationships and related person transactions, see Notes 9, 108 and 119 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2020 Annual Report, our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders and our other filings with the Securities and Exchange Commission, or SEC. In addition, see the section captioned “Risk Factors” of our 2020 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related persons, including our business and property management agreements with RMR LLC and our various agreements with SIR, are available as exhibits to our 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk(dollars in thousands, except per share data)
We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives. Our strategy to manage exposure to changes in interest rates is materially unchanged since December 31, 2017.2020. 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
At March 31, 2018,June 30, 2021, 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 March 31, 2018June 30, 2021 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 $1,208.
$45,729.
Floating Rate Debt
At March 31, 2018,June 30, 2021, our floating rate debt consisted of $302,000$244,000 outstanding under our revolving credit facility. Our revolving credit facility matures 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 one percentage point increase in interest rates would have on our annual floating rate interest expense at March 31, 2018:June 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 June 30, 2021 | | 1.40 | % | | $ | 244,000 | | | $ | 3,416 | | | $ | (0.05) | |
One percentage point increase | | 2.40 | % | | $ | 244,000 | | | $ | 5,856 | | | $ | (0.09) | |
(1)Based on the diluted weighted average common shares outstanding for the six months ended June 30, 2021. |
| | | | | | | | | | | | | | | |
| | 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 March 31, 2018 | | 3.23 | % | | $ | 302,000 |
| | $ | 9,755 |
| | $ | 0.16 |
|
One percentage point increase | | 4.23 | % | | $ | 302,000 |
| | $ | 12,775 |
| | $ | 0.21 |
|
| |
(1) | Based on the diluted weighted average common shares outstanding for the three months ended March 31, 2018. |
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 March 31, 2018June 30, 2021 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 June 30, 2021 | | 1.40 | % | | $ | 750,000 | | | $ | 10,500 | | | $ | (0.16) | |
One percentage point increase | | 2.40 | % | | $ | 750,000 | | | $ | 18,000 | | | $ | (0.28) | |
|
| | | | | | | | | | | | | | | |
| | 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 March 31, 2018 | | 3.23 | % | | $ | 750,000 |
| | $ | 24,225 |
| | $ | 0.39 |
|
One percentage point increase | | 4.23 | % | | $ | 750,000 |
| | $ | 31,725 |
| | $ | 0.52 |
|
(1)Based on the diluted weighted average common shares outstanding for the six months ended June 30, 2021. | |
(1) | Based on the diluted weighted average common shares outstanding for the three months ended March 31, 2018. |
The foregoing tables show the impact of an immediate increaseone percentage point change in floating interest rates. If interest rates were to change gradually over time, the impact would be spread over time. Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amounts of our revolving credit facility and any other floating rate debt.
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 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 4. Controls andProcedures
As of the end of the period covered by this report,Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of 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 Securities Exchange Act of 1934, as amended. Based upon that evaluation, 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 March 31, 2018June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
WARNING CONCERNING FORWARD LOOKING STATEMENTSWarning Concerning Forward-Looking Statements
THIS QUARTERLY REPORT ON FORMThis Quarterly Report on Form 10-Q CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OFcontains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”and other securities laws. Also, whenever we use words such as “believe”, “EXPECT”“expect”, “ANTICIPATE”“anticipate”, “INTEND”“intend”, “PLAN”“plan”, “ESTIMATE”“estimate”, “WILL”“will”, “MAY” AND NEGATIVES OR DERIVATIVES OF THESE OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. FORWARD LOOKING STATEMENTS IN THIS REPORT RELATE TO VARIOUS ASPECTS OF OUR BUSINESS, INCLUDING:“may” and negatives or derivatives of these or similar expressions, we are making forward-looking statements. These forward-looking statements are based upon our present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Forward-looking statements in this Quarterly Report on Form 10-Q relate to various aspects of our business, including:
THE LIKELIHOOD THAT OUR TENANTS WILL PAY RENT OR BE NEGATIVELY AFFECTED BY CYCLICAL ECONOMIC CONDITIONS,•Our tenants’ ability and willingness to pay their rent obligations to us,
THE LIKELIHOOD THAT OUR TENANTS WILL RENEW OR EXTEND THEIR LEASES OR THAT WE WILL BE ABLE TO OBTAIN REPLACEMENT TENANTS,•The likelihood that our tenants will renew or extend their leases or that we will be able to obtain replacement tenants on terms as favorable to us as the terms of our existing leases,
OUR ACQUISITIONS OF PROPERTIES,•Our belief that the industrial and logistics sector and many of our tenants are critical to sustaining a resilient supply chain and that our business will benefit as a result,
OUR ABILITY TO COMPETE FOR ACQUISITIONS AND TENANCIES EFFECTIVELY,•Our acquisitions or sales of properties,
THE LIKELIHOOD THAT OUR RENTS WILL INCREASE WHEN WE RENEW OR EXTEND OUR LEASES, WHEN WE ENTER NEW LEASES, OR WHEN OUR RENTS RESET AT OUR HAWAII PROPERTIES,•Our ability to compete for acquisitions and tenancies effectively,
OUR ABILITY TO PAY DISTRIBUTIONS TO OUR SHAREHOLDERS AND TO SUSTAIN THE AMOUNT OF SUCH DISTRIBUTIONS,•The likelihood that our rents will increase when we renew or extend our leases, when we enter new leases, or when our rents reset at our Hawaii Properties,
THE FUTURE AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY,•Our ability to pay distributions to our shareholders and to sustain the amount of such distributions,
OUR POLICIES AND PLANS REGARDING INVESTMENTS, FINANCINGS AND DISPOSITIONS,•The future availability of borrowings under our revolving credit facility,
OUR ABILITY TO RAISE DEBT OR EQUITY CAPITAL,•Our policies and plans regarding investments, financings and dispositions,
OUR ABILITY TO PAY INTEREST ON AND PRINCIPAL OF OUR DEBT,•Our ability to raise debt or equity capital,
OUR ABILITY TO APPROPRIATELY BALANCE OUR USE OF DEBT AND EQUITY CAPITAL,•Our ability to pay interest on and principal of our debt,
CHANGES IN THE SECURITY OF CASH FLOWS FROM OUR PROPERTIES,•Our ability to appropriately balance our use of debt and equity capital,
OUR CREDIT RATINGS,•Our ability to expand our existing or enter into additional real estate joint ventures or to attract co-venturers and benefit from our existing joint venture or any real estate joint ventures we may enter into,
OUR EXPECTATION THAT WE BENEFIT FROM OUR RELATIONSHIPS WITH•Whether we may contribute additional properties to our joint venture and receive proceeds from the other investors in our joint venture in connection with those contributions,
•The credit qualities of our tenants,
•Changes in the security of cash flows from our properties,
•The duration and severity of the COVID-19 pandemic and its impact on us and our tenants,
•Our expectations about our ability and the ability of the industrial and logistics properties real estate sector and our tenants to operate throughout the COVID-19 pandemic and current economic conditions,
•Our ability to maintain sufficient liquidity for the duration of the COVID-19 pandemic and any resulting economic impact,
•Our ability to prudently pursue, and successfully and profitably complete, expansion and renovation projects at our properties and to realize our expected returns on those projects,
•Our expectation that we benefit from our relationships with RMR INC.,LLC,
OUR QUALIFICATION FOR TAXATION AS A•Our qualification for taxation as a REIT,
CHANGES IN FEDERAL OR STATE TAX LAWS,
CHANGES IN REAL ESTATE AND ZONING LAWS AND REGULATIONS, AND INTERPRETATIONS OF THOSE LAWS AND REGULATIONS, APPLICABLE TO OUR PROPERTIES,•Changes in federal or state tax laws,
THE CREDIT QUALITIES OF OUR TENANTS,•Changes in environmental laws or in their interpretations or enforcement as a result of climate change or otherwise, or our incurring environmental remediation costs or other liabilities, and
CHANGES IN ENVIRONMENTAL LAWS OR IN THEIR INTERPRETATIONS OR ENFORCEMENT AS A RESULT OF CLIMATE CHANGE OR OTHERWISE,•Other matters.
OUR SALES OF PROPERTIES, ANDOur actual results may differ materially from those contained in or implied by our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. Risks, uncertainties and other factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, FFO attributable to common shareholders, Normalized FFO attributable to common shareholders, NOI, cash flows, liquidity and prospects include, but are not limited to:
OTHER MATTERS.•The impact of economic conditions and the capital markets on us and our tenants,
OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FACTORS THAT COULD HAVE A•Competition within the real estate industry, particularly for industrial and logistics properties in those markets in which our properties are located,
•Compliance with, and changes to, federal, state and local laws and regulations, accounting rules, tax laws and similar matters,
MATERIAL ADVERSE EFFECT ON OUR FORWARD LOOKING STATEMENTS AND UPON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION, FFO, NORMALIZED FFO, NOI, CASH FLOWS, LIQUIDITY AND PROSPECTS INCLUDE, BUT ARE NOT LIMITED TO:•Limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our qualification for taxation as a REIT for U.S. federal income tax purposes,
THE IMPACT OF CONDITIONS AND CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS ON US AND OUR TENANTS,•Actual and potential conflicts of interest with our related parties, including our managing trustees, RMR LLC and others affiliated with them, and
COMPETITION WITHIN THE REAL ESTATE INDUSTRY, PARTICULARLY IN THOSE MARKETS IN WHICH OUR PROPERTIES ARE LOCATED,•Acts of terrorism, outbreaks of pandemics, including COVID-19, or other manmade or natural disasters beyond our control.
COMPLIANCE WITH, AND CHANGES TO, FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS, ACCOUNTING RULES, TAX LAWS AND SIMILAR MATTERS,For example:
LIMITATIONS IMPOSED ON OUR BUSINESS AND OUR ABILITY TO SATISFY COMPLEX RULES IN ORDER FOR US TO QUALIFY FOR TAXATION AS A REIT FOR U.S. FEDERAL INCOME TAX PURPOSES,•Our ability to make future distributions to our shareholders and to make payments of principal and interest on our indebtedness depends upon a number of factors, including our receipt of rent from our tenants, future earnings, the capital costs we incur to lease our properties and our working capital requirements. We may be unable to pay our debt obligations or to increase or maintain our current rate of distributions on our common shares and future distributions may be reduced or eliminated,
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST WITH OUR RELATED PARTIES, INCLUDING OUR MANAGING TRUSTEES,•Our ability to grow our business and increase our distributions depends in large part upon our ability to acquire properties and lease them for rents, less their property operating costs, that exceed our capital costs. We may be unable to identify properties that we want to acquire, and we may fail to reach agreement with the sellers and complete the purchases of any properties we do want to acquire. In addition, we might encounter unanticipated difficulties and expenditures relating to any acquired properties, and any properties we may acquire may not provide us with rents less property operating costs that exceed our capital costs or achieve our expected returns,
•Contingencies in our acquisition and sale agreements may not be satisfied and any expected acquisitions and sales may not occur, may be delayed or the terms of such transactions may change,
•Rents that we can charge at our properties may decline upon rent resets, lease renewals or lease expirations because of changing market conditions or otherwise,
•Leasing for some of our properties depends on a single tenant and we may be adversely affected by the bankruptcy, insolvency, a downturn of business or a lease termination of a single tenant at these properties,
•Certain of our Hawaii Properties are lands leased for rents that periodically reset based on then current fair market values. Rental income from our properties in Hawaii have generally increased during our and our predecessors’ ownership as the leases for those properties have been reset, extended or renewed. Although we expect that rents for our Hawaii Properties could increase in the future, subject to the impact of the COVID-19 pandemic, we
cannot be sure they will increase. Future rents from these properties could decrease or not increase to the extent they have in the past or by the amount we expect, particularly in the current economic conditions,
•Any possible development or redevelopment of our properties may not be successful and may cost more or take longer to complete than we currently expect. In addition, we may not realize the returns we expect from these projects and we may incur losses from these projects,
•It is difficult to accurately estimate leasing related obligations and costs of development and tenant improvement costs. Our leasing related obligations, development projects and tenant improvements may cost more and may take longer to complete than we currently expect and we may incur increasing amounts for these and similar purposes in the future,
•Economic conditions in areas where our properties are located may decline in the future. Such circumstances or other conditions may reduce demand for leasing industrial space. If the demand for leasing industrial space is reduced, we may be unable to renew leases with our tenants as leases expire or enter new leases at rental rates as high as expiring rents and our financial results may decline,
•E-commerce retail sales may not continue to grow and increase the demand for industrial and logistics real estate as we expect,
•Increasing development of industrial and logistics properties may reduce the demand for, and rents from, our properties,
•We may not achieve or sustain our targeted capitalization rates for properties we acquire and we may incur losses with respect to those acquisitions,
•Our belief that there is a likelihood that tenants may renew or extend our leases prior to their expirations whenever they have made significant investments in the leased properties, or because those properties may be of strategic importance to them, may not be realized,
•Some of our tenants may not renew expiring leases, and we may be unable to obtain new tenants to maintain or increase the historical occupancy rates of, or rents from, our properties, and we may need to make significant expenditures to lease our properties,
•The competitive advantages we believe we have may not in fact exist or provide us with the advantages we expect. We may fail to maintain any of these advantages or our competition may obtain or increase their competitive advantages relative to us,
•We intend to conduct our business activities in a manner that will afford us reasonable access to capital for investing and financing activities. However, we may not succeed in this regard and we may not have reasonable access to capital,
•Continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions. However, if challenging market conditions last for a long period or worsen, our tenants may experience liquidity constraints and as a result may be unable to pay rent to us and our ability to operate our business effectively may be challenged. If our operating results and financial condition are significantly negatively impacted by the current economic conditions or otherwise, we may fail to satisfy those covenants and conditions,
•Actual costs under our revolving credit facility will be higher than LIBOR plus a premium because of fees and expenses associated with such debt,
•The maximum borrowing availability under our revolving credit facility may be increased to up to $1.5 billion in certain circumstances. However, increasing the maximum borrowing availability under our revolving credit facility is subject to our obtaining additional commitments from lenders, which may not occur,
•We have the option to extend the maturity date of our revolving credit facility upon payment of a fee and meeting other conditions. However, the applicable conditions may not be met,
•The premiums used to determine the interest rate payable on our revolving credit facility and the unused fee payable on our revolving credit facility are based on our leverage. Changes in our leverage may cause the interest and fees we pay to increase,
•We may not reduce our level of indebtedness or maintain any reduction we may effect and increased leverage may restrict our ability to acquire properties and pursue business opportunities,
•We may spend more for capital expenditures than we currently expect or than we have in the past,
•Our existing joint venture and any other joint ventures that we may enter may not be successful,
•Our Board of Trustees considers, among other factors, our dividend yield and our dividend yield compared to the dividend yields of other industrial REITs when setting our distributions to shareholders. This may imply that we will maintain or seek to maintain a specific dividend yield on our common shares. However, the dividend yield is only one of many factors our Board of Trustees considers in its discretion when setting our distributions to shareholders. Further, various market and other factors impact trading prices for our and our competitors’ securities and the corresponding yields on those securities. As a result, the trading prices on our common shares and the yields on our common shares are subject to change and may fluctuate significantly. We do not intend to maintain or to seek to maintain any specific yield on our common shares,
•We believe that we are well positioned to weather the present disruptions of the COVID-19 pandemic facing the real estate industry. However, the full extent of the future impact of the COVID-19 pandemic to us is unknown and we may not realize similar or better operating results in the future,
•We face limited lease expirations in 2021 and we have granted requests to certain of our tenants to defer rent payments in exchange for increased payments over, in most cases, a 12-month period which began in September 2020. However, current market and economic conditions may deteriorate and such deterioration may result in an increase in tenant defaults and terminations, and these concessions and assistance given to our tenants may not allow them to continue to be successful during this challenging time,
•The business and property management agreements between us and RMR LLC have continuing 20 year terms. However, those agreements permit early termination in certain circumstances. Accordingly, we cannot be sure that these agreements will remain in effect for continuing 20 year terms, and
•We believe that our relationships with our related parties, including RMR LLC, RMR INC.Inc. and others affiliated with them may benefit us and provide us with competitive advantages in operating and growing our business. However, the advantages we believe we may realize from these relationships may not materialize.
Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as the COVID-19 pandemic and its aftermath, acts of terrorism, natural disasters, changes in our tenants’ financial conditions, the market demand for leased space or changes in capital markets or the economy generally.
The information contained elsewhere in this Quarterly Report on Form 10-Q and in our 2020 Annual Report or in our other filings with the SEC, including under the caption “Risk Factors”, SIR, AFFILIATES INSURANCE COMPANY, OR AIC, AND OTHERS AFFILIATED WITH THEM, ANDor incorporated herein or therein, identifies other important factors that could cause differences from our forward-looking statements. Our filings with the SEC are available on the SEC’s website at www.sec.gov.
ACTS OF TERRORISM, OUTBREAKS OF SO CALLED PANDEMICS OR OTHER MANMADE OR NATURAL DISASTERS BEYOND OUR CONTROL.You should not place undue reliance upon our forward-looking statements.
FOR EXAMPLE:Except as required by law, we do not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.
OUR ABILITY TO MAKE FUTURE DISTRIBUTIONS TO OUR SHAREHOLDERS AND TO MAKE PAYMENTS OF PRINCIPAL AND INTEREST ON OUR INDEBTEDNESS DEPENDS UPON A NUMBER OF FACTORS, INCLUDING OUR FUTURE EARNINGS, THE CAPITAL COSTS WE INCUR TO LEASE OUR PROPERTIES AND OUR WORKING CAPITAL REQUIREMENTS. WE MAY BE UNABLE TO PAY OUR DEBT OBLIGATIONS OR TO MAKE OR SUSTAIN DISTRIBUTIONS ON OUR COMMON SHARES AND FUTURE DISTRIBUTIONS MAY BE REDUCED OR ELIMINATED,OUR ABILITY TO GROW OUR BUSINESS AND INCREASE OUR DISTRIBUTIONS DEPENDS IN LARGE PART UPON OUR ABILITY TO BUY PROPERTIES AND LEASE THEM FOR RENTS, LESS THEIR PROPERTY OPERATING COSTS, THAT EXCEED OUR CAPITAL COSTS. WE MAY BE UNABLE TO IDENTIFY PROPERTIES THAT WE WANT TO ACQUIRE OR TO NEGOTIATE ACCEPTABLE PURCHASE PRICES, ACQUISITION FINANCING OR LEASE TERMS FOR NEW PROPERTIES,
CONTINGENCIES IN OUR ACQUISITION AND SALE AGREEMENTS MAY NOT BE SATISFIED AND ANY EXPECTED ACQUISITIONS AND SALES MAY NOT OCCUR, MAY BE DELAYED OR THE TERMS OF SUCH TRANSACTIONS MAY CHANGE, Statement Concerning Limited Liability
RENTS THAT WE CAN CHARGE AT OUR PROPERTIES MAY DECLINE BECAUSE OF CHANGING MARKET CONDITIONS OR OTHERWISE,
MOST OF OUR HAWAII PROPERTIES ARE LANDS LEASED FOR RENTS THAT ARE PERIODICALLY RESET BASED ON THEN CURRENT FAIR MARKET VALUES. REVENUES FROM OUR PROPERTIES IN HAWAII HAVE GENERALLY INCREASED DURING OUR AND OUR PREDECESSORS’ OWNERSHIP AS THE LEASES FOR THOSE PROPERTIES HAVE BEEN RESET OR RENEWED. ALTHOUGH WE EXPECT THAT RENTS FOR OUR HAWAII PROPERTIES WILL INCREASE IN THE FUTURE, WE CANNOT BE SURE THEY WILL. FUTURE RENTS FROM THESE PROPERTIES COULD DECREASE OR NOT INCREASE TO THE EXTENT THEY HAVE IN THE PAST,
OUR POSSIBLE REDEVELOPMENT OF CERTAIN OF OUR PROPERTIES MAY NOT BE REALIZED OR BE SUCCESSFUL,
OUR LEASING RELATED OBLIGATIONS MAY COST MORE OR LESS AND MAY TAKE LONGER TO COMPLETE THAN WE EXPECT, AND OUR LEASING RELATED OBLIGATIONS MAY INCREASE IN THE FUTURE,
THE UNEMPLOYMENT RATE OR ECONOMIC CONDITIONS IN AREAS WHERE OUR PROPERTIES ARE LOCATED MAY BECOME WORSE IN THE FUTURE. SUCH CIRCUMSTANCES OR OTHER CONDITIONS MAY REDUCE DEMAND FOR LEASING INDUSTRIAL SPACE. IF THE DEMAND FOR LEASING INDUSTRIAL SPACE IS REDUCED, WE MAY BE UNABLE TO RENEW LEASES WITH OUR TENANTS AS LEASES EXPIRE OR ENTER INTO NEW LEASES AT RENTAL RATES AS HIGH AS EXPIRING RENTS AND OUR FINANCIAL RESULTS MAY DECLINE,
E-COMMERCE RETAIL SALES MAY NOT CONTINUE TO GROW AND INCREASE THE DEMAND FOR INDUSTRIAL AND LOGISTICS REAL ESTATE AS WE EXPECT,
INCREASING DEVELOPMENT OF INDUSTRIAL AND LOGISTICS PROPERTIES MAY REDUCE THE DEMAND FOR, AND OUR RENTS FROM, OUR PROPERTIES,
OUR BELIEF THAT THERE IS A LIKELIHOOD THAT TENANTS MAY RENEW OR EXTEND OUR LEASES WHEN THEY EXPIRE WHENEVER THEY HAVE MADE SIGNIFICANT INVESTMENTS IN THE LEASED PROPERTIES, OR BECAUSE THOSE PROPERTIES MAY BE OF STRATEGIC IMPORTANCE TO THEM, MAY NOT BE REALIZED,
SOME OF OUR TENANTS MAY NOT RENEW EXPIRING LEASES, AND WE MAY BE UNABLE TO OBTAIN NEW TENANTS TO MAINTAIN OR INCREASE THE HISTORICAL OCCUPANCY RATES OF, OR RENTS FROM, OUR PROPERTIES,
THE COMPETITIVE ADVANTAGES WE BELIEVE WE HAVE MAY NOT IN FACT PROVIDE US WITH THE ADVANTAGES WE EXPECT. WE MAY FAIL TO MAINTAIN THESE ADVANTAGES OR OUR COMPETITION MAY OBTAIN OR INCREASE THEIR COMPETITIVE ADVANTAGES RELATIVE TO US,
OUR INCREASED OPERATING EXPENSES AS A PUBLIC COMPANY MAY BE GREATER THAN WE EXPECT,
WE INTEND TO CONDUCT OUR BUSINESS ACTIVITIES IN A MANNER THAT WILL AFFORD US REASONABLE ACCESS TO CAPITAL FOR INVESTMENT AND FINANCING ACTIVITIES. HOWEVER, WE MAY NOT SUCCEED IN THIS REGARD AND WE MAY NOT HAVE REASONABLE ACCESS TO CAPITAL,
CONTINUED AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY IS SUBJECT TO OUR SATISFYING CERTAIN FINANCIAL COVENANTS AND OTHER CREDIT FACILITY CONDITIONS THAT WE MAY BE UNABLE TO SATISFY,
ACTUAL COSTS UNDER OUR REVOLVING CREDIT FACILITY WILL BE HIGHER THAN LIBOR PLUS A PREMIUM BECAUSE OF FEES AND EXPENSES ASSOCIATED WITH SUCH DEBT,
WE MAY BE UNABLE TO REPAY OUR DEBT OBLIGATIONS WHEN THEY BECOME DUE,
THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY MAY BE INCREASED TO UP TO $1.5 BILLION IN CERTAIN CIRCUMSTANCES; HOWEVER, INCREASING THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY IS SUBJECT TO OUR OBTAINING ADDITIONAL COMMITMENTS FROM LENDERS, WHICH MAY NOT OCCUR,
WE HAVE THE OPTION TO EXTEND THE MATURITY DATE OF OUR REVOLVING CREDIT FACILITY UPON PAYMENT OF A FEE AND MEETING OTHER CONDITIONS. HOWEVER, THE APPLICABLE CONDITIONS MAY NOT BE MET,
OUR RIGHT TO ELECT TO HAVE INTEREST PAYABLE UNDER OUR REVOLVING CREDIT FACILITY CALCULATED AS LIBOR PLUS A PREMIUM BASED ON OUR CREDIT RATING IS SUBJECT TO OUR OBTAINING AN INVESTMENT GRADE CREDIT RATING, WHICH WE MAY NOT OBTAIN,
THE BUSINESS AND PROPERTY MANAGEMENT AGREEMENTS BETWEEN US AND RMR LLC HAVE CONTINUING 20 YEAR TERMS. HOWEVER, THOSE AGREEMENTS PERMIT EARLY TERMINATION IN CERTAIN CIRCUMSTANCES. ACCORDINGLY, WE CANNOT BE SURE THAT THESE AGREEMENTS WILL REMAIN IN EFFECT FOR CONTINUING 20 YEAR TERMS,
WE BELIEVE THAT OUR RELATIONSHIPS WITH OUR RELATED PARTIES, INCLUDING RMR LLC, RMR INC., SIR, AIC AND OTHERS AFFILIATED WITH THEM MAY BENEFIT US AND PROVIDE US WITH COMPETITIVE ADVANTAGES IN OPERATING AND GROWING OUR BUSINESS. HOWEVER, THE ADVANTAGES WE BELIEVE WE MAY REALIZE FROM THESE RELATIONSHIPS MAY NOT MATERIALIZE, AND
THE PREMIUMS USED TO DETERMINE THE INTEREST RATE PAYABLE ON OUR REVOLVING CREDIT FACILITY AND THE UNUSED FEE PAYABLE ON OUR REVOLVING CREDIT FACILITY ARE BASED ON OUR LEVERAGE. FUTURE CHANGES IN OUR LEVERAGE MAY CAUSE THE INTEREST AND FEES WE PAY TO INCREASE.
CURRENTLY UNEXPECTED RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH ARE BEYOND OUR CONTROL, SUCH AS ACTS OF TERRORISM, NATURAL DISASTERS, CHANGES IN OUR TENANTS’ FINANCIAL CONDITIONS, THE MARKET DEMAND FOR LEASED SPACE OR CHANGES IN CAPITAL MARKETS OR THE ECONOMY GENERALLY.
THE INFORMATION CONTAINED ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q AND IN OUR ANNUAL REPORT OR IN OUR OTHER FILINGS WITH THE SEC, INCLUDING UNDER THE CAPTION “RISK FACTORS”, OR INCORPORATED HEREIN OR THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM OUR FORWARD LOOKING STATEMENTS. OUR FILINGS WITH THE SEC ARE AVAILABLE ON THE SEC’S WEBSITE AT WWW.SEC.GOV.
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON OUR FORWARD LOOKING STATEMENTS.
EXCEPT AS REQUIRED BY LAW, WE DO NOT INTEND TO UPDATE OR CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
STATEMENT CONCERNING LIMITED LIABILITY
THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING INDUSTRIAL LOGISTICS PROPERTIES TRUST, DATED JANUARYThe Amended and Restated Declaration of Trust establishing Industrial Logistics Properties Trust, dated January 11, 2018, AS FILED WITH THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF INDUSTRIAL LOGISTICS PROPERTIES TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, INDUSTRIAL LOGISTICS PROPERTIES TRUST. ALL PERSONS DEALING WITH INDUSTRIAL LOGISTICS PROPERTIES TRUST IN ANY WAY SHALL LOOK ONLY TO THE ASSETS OF INDUSTRIAL LOGISTICS PROPERTIES TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.as filed with the State Department of Assessments and Taxation of Maryland, provides that no trustee, officer, shareholder, employee or agent of Industrial Logistics Properties Trust shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, Industrial Logistics Properties Trust. All persons dealing with Industrial Logistics Properties Trust in any way shall look only to the assets of Industrial Logistics Properties Trust for the payment of any sum or the performance of any obligation.
PART II.Other Information
Item 1A. Risk Factors
There have been no material changes to the risk factors from those we previously disclosedprovided in our 2020 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer purchases of equity securities. The following table provides information about our purchases of our equity securities during the quarter ended June 30, 2021:
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| | | | | | | | Maximum |
| | | | | | Total Number of | | Approximate Dollar |
| | | | | | Shares Purchased | | Value of Shares that |
| | Number of | | Average | | as Part of Publicly | | May Yet Be Purchased |
| | Shares | | Price Paid | | Announced Plans | | Under the Plans or |
Calendar Month | | Purchased (1) | | per Share | | or Programs | | Programs |
June 2021 | | 7,733 | | | $ | 26.14 | | | — | | | $ | — | |
| | | | | | | | |
| | | | | | | | |
Total | | 7,733 | | | $ | 26.14 | | | — | | | $ | — | |
(1)These common share withholdings and purchases were made to satisfy tax withholding and payment obligations of certain former officers and employees of RMR LLC in connection with the vesting of our common share awards. We withheld and purchased these common shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date.
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Exhibit Number | | Description |
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3.1 | | |
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3.2 | |
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3.2 | 4.1 | |
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4.1 | | |
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4.2 | 10.1 | |
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31.1 | |
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31.1 | |
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31.2 | | |
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32.1 | |
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32.1 | |
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101.1101.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. |
| The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 formatted in |
101.SCH | XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) related notes to these financial statements, tagged as blocks of text and in detail.Taxonomy Extension Schema Document. (Filed herewith.) |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.) |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.) |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.) |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.) |
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104 | Cover Page Interactive Data File. (Formatted as Inline XBRL and contained in Exhibit 101.) |
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SIGNATURES
Pursuant to the requirements 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.
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| INDUSTRIAL LOGISTICS PROPERTIES TRUST |
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| By: | /s/ John C. PopeoG. Murray |
| | John C. PopeoG. Murray |
| | President and Chief OperatingExecutive Officer |
| | Dated: April 27, 2018July 28, 2021 |
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| By: | /s/ Richard W. Siedel, Jr. |
| | Richard W. Siedel, Jr. |
| | Chief Financial Officer and Treasurer |
| | (principal financial officer and principal accounting officer) |
| | Dated: April 27, 2018July 28, 2021 |