(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
(Address of Principal Executive Offices) | (Zip Code) |
Title of Each Class | Trading Symbol(s) | Name Of Each Exchange On Which Registered | ||
☒ | Accelerated filer | ☐ | ||
Non-accelerated filer | ☐ | Smaller reporting company | ||
Emerging growth company |
Page | ||
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
ASSETS | ||||||||
Real estate properties: | ||||||||
Land | $ | $ | ||||||
Buildings and improvements | ||||||||
Total real estate properties, gross | ||||||||
Accumulated depreciation | ( | ) | ( | ) | ||||
Total real estate properties, net | ||||||||
Acquired real estate leases, net | ||||||||
Cash and cash equivalents | ||||||||
Restricted cash | ||||||||
Rents receivable, including straight line rents of $62,399 and $58,336, respectively | ||||||||
Deferred leasing costs, net | ||||||||
Debt issuance costs, net | ||||||||
Due from related persons | ||||||||
Other assets, net | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND EQUITY | ||||||||
Revolving credit facility | $ | $ | ||||||
Mortgage notes payable, net | ||||||||
Assumed real estate lease obligations, net | ||||||||
Accounts payable and other liabilities | ||||||||
Rents collected in advance | ||||||||
Security deposits | ||||||||
Due to related persons | ||||||||
Total liabilities | ||||||||
Commitments and contingencies | ||||||||
Equity: | ||||||||
Equity attributable to common shareholders: | ||||||||
Common shares of beneficial interest, $.01 par value: 100,000,000 shares authorized; 65,209,564 and 65,180,628 shares issued and outstanding, respectively | ||||||||
Additional paid in capital | ||||||||
Cumulative net income | ||||||||
Cumulative common distributions | ( | ) | ( | ) | ||||
Total equity attributable to common shareholders | ||||||||
Noncontrolling interest: | ||||||||
Total equity attributable to noncontrolling interest | ||||||||
Total equity | ||||||||
Total liabilities and equity | $ | $ |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Rental income | $ | $ | $ | $ | ||||||||||||
Expenses: | ||||||||||||||||
Real estate taxes | ||||||||||||||||
Other operating expenses | ||||||||||||||||
Depreciation and amortization | ||||||||||||||||
General and administrative | ||||||||||||||||
Total expenses | ||||||||||||||||
Interest income | ||||||||||||||||
Interest expense (including net amortization of debt issuance costs, premiums and discounts of $642, $494, $1,229 and $897, respectively) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Gain on early extinguishment of debt | ||||||||||||||||
Income before income tax expense and equity in earnings of an investee | ||||||||||||||||
Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Equity in earnings of an investee | ||||||||||||||||
Net income | ||||||||||||||||
Net loss attributable to noncontrolling interest | ||||||||||||||||
Net income attributable to common shareholders | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||
Equity in unrealized gains of an investee | ||||||||||||||||
Other comprehensive income | ||||||||||||||||
Comprehensive income attributable to common shareholders | $ | $ | $ | $ | ||||||||||||
Weighted average common shares outstanding - basic | ||||||||||||||||
Weighted average common shares outstanding - diluted | ||||||||||||||||
Per common share data (basic and diluted): | ||||||||||||||||
Net income attributable to common shareholders | $ | $ | $ | $ |
Total Equity | Total Equity | ||||||||||||||||||||||||||||||
Number of | Additional | Cumulative | Cumulative | Attributable to | Attributable to | ||||||||||||||||||||||||||
Common | Common | Paid In | Net | Common | Common | Noncontrolling | Total | ||||||||||||||||||||||||
Shares | Shares | Capital | Income | Distributions | Shareholders | Interest | Equity | ||||||||||||||||||||||||
Balance at December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
Net income (loss) | — | — | — | — | ( | ) | |||||||||||||||||||||||||
Share grants | — | — | — | — | |||||||||||||||||||||||||||
Share repurchases | ( | ) | — | ( | ) | — | — | ( | ) | — | ( | ) | |||||||||||||||||||
Distributions to common shareholders | — | — | — | — | ( | ) | ( | ) | — | ( | ) | ||||||||||||||||||||
Contributions from noncontrolling interest | — | — | — | — | |||||||||||||||||||||||||||
Balance at March 31, 2020 | ( | ) | |||||||||||||||||||||||||||||
Net income (loss) | — | — | — | — | ( | ) | |||||||||||||||||||||||||
Share grants | — | — | — | — | |||||||||||||||||||||||||||
Share repurchases | ( | ) | — | ( | ) | — | — | ( | ) | — | ( | ) | |||||||||||||||||||
Distributions to common shareholders | — | — | — | — | ( | ) | ( | ) | — | ( | ) | ||||||||||||||||||||
Distributions to noncontrolling interest | — | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||
Balance at June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | $ |
Cumulative | |||||||||||||||||||||||||||
Number of | Additional | Cumulative | Other | Cumulative | |||||||||||||||||||||||
Common | Common | Paid In | Net | Comprehensive | Common | Total | |||||||||||||||||||||
Shares | Shares | Capital | Income | Income | Distributions | Equity | |||||||||||||||||||||
Balance at December 31, 2018 | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||
Net income | — | — | — | — | — | ||||||||||||||||||||||
Equity in unrealized gains of investee | — | — | — | — | — | ||||||||||||||||||||||
Share grants | — | — | — | — | — | ||||||||||||||||||||||
Distributions to common shareholders | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||
Balance at March 31, 2019 | ( | ) | |||||||||||||||||||||||||
Net income | — | — | — | — | — | ||||||||||||||||||||||
Equity in unrealized gains of investee | — | — | — | — | — | ||||||||||||||||||||||
Share grants | — | — | — | — | |||||||||||||||||||||||
Share repurchases | ( | ) | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||
Share forfeitures | ( | ) | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||
Distributions to common shareholders | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||
Balance at June 30, 2019 | $ | $ | $ | $ | $ | ( | ) | $ |
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | $ | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | ||||||||
Net amortization of debt issuance costs, premiums and discounts | ||||||||
Amortization of acquired real estate leases and assumed real estate lease obligations | ||||||||
Amortization of deferred leasing costs | ||||||||
Straight line rental income | ( | ) | ( | ) | ||||
Gain on early extinguishment of debt | ( | ) | ||||||
Other non-cash expenses | ||||||||
Equity in earnings of an investee | ( | ) | ||||||
Change in assets and liabilities: | ||||||||
Rents receivable | ( | ) | ||||||
Deferred leasing costs | ( | ) | ( | ) | ||||
Due from related persons | ||||||||
Other assets | ||||||||
Accounts payable and other liabilities | ||||||||
Rents collected in advance | ( | ) | ||||||
Security deposits | ( | ) | ||||||
Due to related persons | ( | ) | ||||||
Net cash provided by operating activities | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Real estate acquisitions and deposits | ( | ) | ( | ) | ||||
Real estate improvements | ( | ) | ( | ) | ||||
Distributions in excess of earnings from Affiliates Insurance Company | ||||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of mortgage notes payable | ||||||||
Borrowings under revolving credit facility | ||||||||
Repayments of revolving credit facility | ( | ) | ( | ) | ||||
Repayment of mortgage note payable | ( | ) | ||||||
Payment of debt issuance costs | ( | ) | ||||||
Distributions to common shareholders | ( | ) | ( | ) | ||||
Proceeds from noncontrolling interest, net | ||||||||
Distributions to noncontrolling interest | ( | ) | ||||||
Repurchase of common shares | ( | ) | ( | ) | ||||
Net cash provided by financing activities | ||||||||
Increase in cash, cash equivalents and restricted cash | ||||||||
Cash, cash equivalents and restricted cash at beginning of period | ||||||||
Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
SUPPLEMENTAL DISCLOSURES: | ||||||||
Interest paid | $ | $ | ||||||
Income taxes paid | $ | $ | ||||||
NON-CASH INVESTING ACTIVITIES: | ||||||||
Real estate acquired by assumption of mortgage note payable | $ | $ | ( | ) | ||||
NON-CASH FINANCING ACTIVITIES: | ||||||||
Assumption of mortgage note payable | $ | $ |
SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | ||||||||
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Restricted cash | ||||||||
Total cash, cash equivalents and restricted cash shown in the statements of cash flows | $ | $ |
Number | Rentable | Buildings | Acquired | |||||||||||||||||||||
of | Square | Purchase | and | Real Estate | ||||||||||||||||||||
Date | Market Area | Properties | Feet | Price | Land | Improvements | Leases | |||||||||||||||||
February 2020 | Phoenix, AZ | $ | $ | $ | $ | |||||||||||||||||||
$ | $ | $ | $ |
Net Book | |||||||||||||||||
Value | |||||||||||||||||
Principal Balance as of | of Collateral | ||||||||||||||||
June 30, | December 31, | Interest | At June 30, | ||||||||||||||
2020 (1) | 2019 (1) | Rate | Maturity | 2020 | |||||||||||||
Unsecured revolving credit facility (2) | $ | $ | % | Dec 2021 | $ | ||||||||||||
Mortgage note payable (secured by one property in Florida) (3) | % | Oct 2023 | |||||||||||||||
Mortgage note payable (secured by 186 properties in Hawaii) | % | Feb 2029 | |||||||||||||||
Mortgage note payable (secured by 11 Mainland Properties) (3) | % | Nov 2029 | |||||||||||||||
Mortgage note payable (secured by one property in Virginia) | N/A | N/A | N/A | ||||||||||||||
$ | |||||||||||||||||
Unamortized debt issuance costs, premiums and discounts | ( | ) | ( | ) | |||||||||||||
$ | $ |
At June 30, 2020 | At December 31, 2019 | |||||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||||
Value (1) | Fair Value | Value (1) | Fair Value | |||||||||||||
Mortgage notes payable | $ | $ | $ | $ |
(1) | Includes unamortized debt issuance costs, premiums and discounts of $ |
Date Purchased | Number of Shares | Price per Share | |||||
1/9/2020 | $ | ||||||
3/13/2020 | $ | ||||||
6/30/2020 | $ |
Record Date | Payment Date | Distribution Per Share | Total Distribution | |||
January 27, 2020 | February 20, 2020 | $ | $ | |||
April 16, 2020 | May 21, 2020 | $ | $ |
Three Months Ended June 30, | Six Months ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Numerators: | ||||||||||||||||
Net income attributable to common shareholders | $ | $ | $ | $ | ||||||||||||
Income attributable to unvested participating securities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net income attributable to common shareholders used in calculating earnings per share | $ | $ | $ | $ | ||||||||||||
Denominators: | ||||||||||||||||
Weighted average common shares outstanding - basic | ||||||||||||||||
Effect of dilutive securities: unvested share awards | ||||||||||||||||
Weighted average common shares outstanding - diluted | ||||||||||||||||
Net income attributable to common shareholders per common share - basic | $ | $ | $ | $ | ||||||||||||
Net income attributable to common shareholders per common share - diluted | $ | $ | $ | $ |
• | our tenants and their ability to withstand the current, and possible future deteriorating, economic conditions and continue to pay us rent; |
• | our operations, liquidity and capital needs and resources; |
• | conducting financial modeling and sensitivity analyses; |
• | actively communicating with our tenants and other key constituents and stakeholders in order to help assess market conditions, opportunities, best practices and mitigate risks and potential adverse impacts; and |
• | monitoring, with the assistance of counsel and other specialists, possible government relief funding sources and other programs that may be available to us or our tenants to enable us and them to operate through the current economic conditions and enhance our tenants’ ability to pay us rent. |
• | $430,000 of availability under our revolving credit facility; |
• | no outstanding debt scheduled to mature during the remainder of 2020 and our next debt maturity being our credit facility in December 2021, which maturity is subject to two six month extensions at our option; |
• | 74.3% of our annualized rental revenues, as of June 30, 2020, derived from investment grade rated tenants, subsidiaries of investment grade rated parent entities or Hawaii land leases; and |
• | only 3.0% of our annualized rental revenues, as of June 30, 2020, scheduled to expire over the next 12 months. |
• | deferring non-emergency work; |
• | implementing energy reduction protocols for lighting and HVAC systems; |
• | reducing non-essential building services and staff; and |
• | reducing the frequency of trash removal. |
• | focusing on sanitizing high touch points in common areas and restrooms; |
• | shutting down certain building amenities; |
• | prudently managing the execution or deferment of tenant work orders to limit RMR LLC staff and tenant interactions at our properties; |
• | installing signage throughout our properties with social distancing reminders; |
• | changing certain building HVAC systems and equipment, including adjusting outdoor air control programs to increase the amount of outside air delivered to interior spaces and to adjust control sequences to maintain space relative humidity in order to help minimize the concentration of the virus; |
• | flushing domestic water systems to prepare for re-occupancy; |
• | performing service calls and preventative maintenance after business hours to limit social interactions; |
• | requiring vendors to follow best practices under COVID-19 pandemic conditions, including providing RMR LLC with documented preventative measures for their employees and requiring staff to wear appropriate personal protective equipment when working at our properties; and |
• | altering cleaning schedules to perform vacuuming at times intended to reduce the potential airborne spread of the virus. |
• | the duration and severity of the negative economic impact; |
• | the strength and sustainability of any economic recovery; |
• | the timing and process for how the federal, state and local governments and other market participants may oversee and conduct the return of economic activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States; and |
• | whether, following a recommencing of more normal levels of economic activities, the United States or other countries experience any “second wave” of COVID-19 infection outbreaks and, if so, the responses of governments, businesses and the general public to those events. |
All Properties | Comparable Properties (1) | |||||||||||
As of June 30, | As of June 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Total properties | 301 | 298 | 270 | 270 | ||||||||
Total rentable square feet (2) | 43,759 | 42,353 | 29,651 | 29,457 | ||||||||
Percent leased (3) | 98.8 | % | 99.3 | % | 98.4 | % | 99.0 | % |
(1) | Consists of properties that we owned continuously since January 1, 2019. |
(2) | Subject to modest adjustments when space is remeasured or reconfigured for new tenants and when land leases are converted to building leases. |
(3) | Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of June 30, 2020, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Average effective rental rates per square foot leased: (1) | ||||||||||||||||
All properties | $ | 6.02 | $ | 5.82 | $ | 6.01 | $ | 5.86 | ||||||||
Comparable properties (2) | $ | 6.12 | $ | 5.88 | $ | 6.16 | $ | 5.95 |
(1) | Average effective rental rates per square foot leased represents annualized rental income during the period specified divided by the average rentable square feet leased during the period specified. |
(2) | Comparable properties for the three months ended June 30, 2020 and 2019 consist of 277 buildings, leasable land parcels and easements that we owned continuously since April 1, 2019. Comparable properties for the six months ended June 30, 2020 and 2019 consist of 270 buildings, leasable land parcels and easements that we owned continuously since January 1, 2019. |
% 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 | |||||||||||||||
7/1/2020-12/31/2020 | 6 | 72 | 0.2 | % | 0.2 | % | $ | 646 | 0.3 | % | 0.3 | % | ||||||||||
2021 | 29 | 2,707 | 6.3 | % | 6.5 | % | 15,203 | 5.9 | % | 6.2 | % | |||||||||||
2022 | 64 | 2,749 | 6.4 | % | 12.9 | % | 21,357 | 8.3 | % | 14.5 | % | |||||||||||
2023 | 28 | 2,536 | 5.9 | % | 18.8 | % | 16,370 | 6.4 | % | 20.9 | % | |||||||||||
2024 | 30 | 10,277 | 23.8 | % | 42.6 | % | 44,151 | 17.2 | % | 38.1 | % | |||||||||||
2025 | 14 | 2,550 | 5.9 | % | 48.5 | % | 14,551 | 5.7 | % | 43.8 | % | |||||||||||
2026 | 4 | 951 | 2.2 | % | 50.7 | % | 6,449 | 2.5 | % | 46.3 | % | |||||||||||
2027 | 10 | 5,647 | 13.1 | % | 63.8 | % | 28,143 | 11.0 | % | 57.3 | % | |||||||||||
2028 | 20 | 2,888 | 6.7 | % | 70.5 | % | 20,385 | 8.0 | % | 65.3 | % | |||||||||||
2029 | 9 | 2,715 | 6.3 | % | 76.8 | % | 14,585 | 5.7 | % | 71.0 | % | |||||||||||
Thereafter | 84 | 10,124 | 23.2 | % | 100.0 | % | 74,436 | 29.0 | % | 100.0 | % | |||||||||||
Total | 298 | 43,216 | 100.0 | % | $ | 256,276 | 100.0 | % | ||||||||||||||
Weighted average remaining lease term (in years): | 8.2 | 9.1 |
(1) | Rented square feet is pursuant to existing leases as of June 30, 2020 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any. |
Annualized | ||||
Rental Revenues as of | ||||
June 30, 2020 | ||||
Scheduled to Reset | ||||
7/1/2020 - 12/31/2020 | $ | — | ||
2021 | 2,610 | |||
2022 | 3,857 | |||
2023 | 2,550 | |||
2024 | 2,100 | |||
2025 and thereafter | 19,138 | |||
Total | $ | 30,255 |
% of Total | ||||||||||||||
No. of | Rented | % of Total | Annualized Rental | |||||||||||
Tenant | States | Properties | Sq. Ft. (1) | Rented Sq. Ft. (1) | Revenues | |||||||||
1 | Amazon.com Services, Inc. | AZ, FL, IN, SC, TN, VA | 7 | 6,939 | 16.1 | % | 15.9 | % | ||||||
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 | 2.2 | % | 3.7 | % | ||||||
3 | The Procter & Gamble Distributing LLC | OH | 1 | 1,791 | 4.1 | % | 3.7 | % | ||||||
4 | Restoration Hardware, Inc. | MD | 1 | 1,195 | 2.8 | % | 2.4 | % | ||||||
5 | American Tire Distributors, Inc. | CO, LA, NE, NY, OH | 5 | 722 | 1.7 | % | 2.1 | % | ||||||
6 | UPS Supply Chain Solutions Inc. | NH | 1 | 614 | 1.4 | % | 1.9 | % | ||||||
7 | Par Hawaii Refining, LLC | HI | 3 | 3,148 | 7.3 | % | 1.9 | % | ||||||
8 | Servco Pacific Inc. | HI | 4 | 537 | 1.2 | % | 1.8 | % | ||||||
9 | SKF USA Inc. | MO | 1 | 431 | 1.0 | % | 1.6 | % | ||||||
10 | EF Transit, Inc. | IN | 1 | 535 | 1.2 | % | 1.5 | % | ||||||
11 | Subaru of America, Inc. | IN | 1 | 963 | 2.2 | % | 1.4 | % | ||||||
12 | BJ's Wholesale Club, Inc. | NJ | 1 | 634 | 1.5 | % | 1.4 | % | ||||||
13 | Shurtech Brands, LLC | OH | 1 | 645 | 1.5 | % | 1.4 | % | ||||||
14 | Safeway Inc. | HI | 2 | 146 | 0.3 | % | 1.3 | % | ||||||
15 | Manheim Remarketing, Inc. | HI | 1 | 338 | 0.8 | % | 1.2 | % | ||||||
16 | Exel Inc. | SC | 1 | 945 | 2.2 | % | 1.2 | % | ||||||
17 | The Toro Company | IA | 1 | 644 | 1.5 | % | 1.2 | % | ||||||
18 | Trex Company, Inc. | NV, VA | 2 | 646 | 1.5 | % | 1.2 | % | ||||||
19 | Avnet, Inc. | OH | 1 | 581 | 1.3 | % | 1.2 | % | ||||||
20 | A.L. Kilgo Company, Inc. | HI | 5 | 310 | 0.7 | % | 1.2 | % | ||||||
21 | Cummins Inc. | KY | 1 | 604 | 1.4 | % | 1.1 | % | ||||||
22 | Warehouse Rentals Inc. | HI | 5 | 278 | 0.6 | % | 1.0 | % | ||||||
23 | Whirlpool Corporation | IN | 1 | 805 | 1.9 | % | 1.0 | % | ||||||
24 | Coca-Cola Bottling of Hawaii, LLC | HI | 4 | 351 | 0.8 | % | 1.0 | % | ||||||
Total | 68 | 24,754 | 57.2 | % | 53.3 | % |
(1) | Rented square feet is pursuant to existing leases as of June 30, 2020 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any. |
Comparable Properties Results (1) | Acquired Properties Results (2) | Consolidated Results | |||||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, | Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||
$ | % | $ | $ | % | |||||||||||||||||||||||||||||||||||||
2020 | 2019 | Change | Change | 2020 | 2019 | Change | 2020 | 2019 | Change | Change | |||||||||||||||||||||||||||||||
Rental income | $ | 50,197 | $ | 48,187 | $ | 2,010 | 4.2 | % | $ | 14,913 | $ | 11,903 | $ | 3,010 | $ | 65,110 | $ | 60,090 | $ | 5,020 | 8.4 | % | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||||||||||
Real estate taxes | 6,889 | 5,811 | 1,078 | 18.6 | % | 2,043 | 1,684 | 359 | 8,932 | 7,495 | 1,437 | 19.2 | % | ||||||||||||||||||||||||||||
Other operating expenses | 3,819 | 3,558 | 261 | 7.3 | % | 1,222 | 640 | 582 | 5,041 | 4,198 | 843 | 20.1 | % | ||||||||||||||||||||||||||||
Total operating expenses | 10,708 | 9,369 | 1,339 | 14.3 | % | 3,265 | 2,324 | 941 | 13,973 | 11,693 | 2,280 | 19.5 | % | ||||||||||||||||||||||||||||
Net operating income (3) | $ | 39,489 | $ | 38,818 | $ | 671 | 1.7 | % | $ | 11,648 | $ | 9,579 | $ | 2,069 | 51,137 | 48,397 | 2,740 | 5.7 | % | ||||||||||||||||||||||
Other expenses: | |||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 18,525 | 16,709 | 1,816 | 10.9 | % | ||||||||||||||||||||||||||||||||||||
General and administrative | 4,846 | 4,856 | (10 | ) | (0.2 | %) | |||||||||||||||||||||||||||||||||||
Total other expenses | 23,371 | 21,565 | 1,806 | 8.4 | % | ||||||||||||||||||||||||||||||||||||
Interest income | 2 | 138 | (136 | ) | (98.6 | %) | |||||||||||||||||||||||||||||||||||
Interest expense | (13,205 | ) | (13,924 | ) | 719 | (5.2 | %) | ||||||||||||||||||||||||||||||||||
Gain on early extinguishment of debt | 120 | — | 120 | N/M | |||||||||||||||||||||||||||||||||||||
Income before income tax expense and equity earnings of an investee | 14,683 | 13,046 | 1,637 | 12.5 | % | ||||||||||||||||||||||||||||||||||||
Income tax expense | (126 | ) | (60 | ) | (66 | ) | 110.0 | % | |||||||||||||||||||||||||||||||||
Equity in earnings of an investee | — | 130 | (130 | ) | N/M | ||||||||||||||||||||||||||||||||||||
Net income | 14,557 | 13,116 | 1,441 | 11.0 | % | ||||||||||||||||||||||||||||||||||||
Net loss attributable to noncontrolling interest | 264 | — | 264 | N/M | |||||||||||||||||||||||||||||||||||||
Net income attributable to common shareholders | $ | 14,821 | $ | 13,116 | $ | 1,705 | 13.0 | % | |||||||||||||||||||||||||||||||||
Weighted average common shares outstanding - basic | 65,089 | 65,039 | 50 | 0.1 | % | ||||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding - diluted | 65,091 | 65,043 | 48 | 0.1 | % | ||||||||||||||||||||||||||||||||||||
Per common share data (basic and diluted): | |||||||||||||||||||||||||||||||||||||||||
Net income attributable to common shareholders | $ | 0.23 | $ | 0.20 | $ | 0.03 | 15.0 | % |
(1) | Consists of 277 buildings, leasable land parcels and easements that we owned continuously since April 1, 2019. |
(2) | Consists of 24 properties that we acquired during the period from April 1, 2019 to June 30, 2020. |
(3) | See our definition of NOI and our reconciliation of net income to NOI below under the heading “Non-GAAP Financial Measures.” |
Comparable Properties Results (1) | Acquired Properties Results (2) | Consolidated Results | |||||||||||||||||||||||||||||||||||||||
Six Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||
$ | % | $ | $ | % | |||||||||||||||||||||||||||||||||||||
2020 | 2019 | Change | Change | 2020 | 2019 | Change | 2020 | 2019 | Change | Change | |||||||||||||||||||||||||||||||
Rental income | $ | 89,906 | $ | 86,839 | $ | 3,067 | 3.5 | % | $ | 39,482 | $ | 19,238 | $ | 20,244 | $ | 129,388 | $ | 106,077 | $ | 23,311 | 22.0 | % | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||||||||||
Real estate taxes | 12,498 | 10,446 | 2,052 | 19.6 | % | 5,245 | 2,614 | 2,631 | 17,743 | 13,060 | 4,683 | 35.9 | % | ||||||||||||||||||||||||||||
Other operating expenses | 6,680 | 6,391 | 289 | 4.5 | % | 3,542 | 1,193 | 2,349 | 10,222 | 7,584 | 2,638 | 34.8 | % | ||||||||||||||||||||||||||||
Total operating expenses | 19,178 | 16,837 | 2,341 | 13.9 | % | 8,787 | 3,807 | 4,980 | 27,965 | 20,644 | 7,321 | 35.5 | % | ||||||||||||||||||||||||||||
Net operating income (3) | $ | 70,728 | $ | 70,002 | $ | 726 | 1.0 | % | $ | 30,695 | $ | 15,431 | $ | 15,264 | 101,423 | 85,433 | 15,990 | 18.7 | % | ||||||||||||||||||||||
Other expenses: | |||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 36,815 | 26,320 | 10,495 | 39.9 | % | ||||||||||||||||||||||||||||||||||||
General and administrative | 9,677 | 8,656 | 1,021 | 11.8 | % | ||||||||||||||||||||||||||||||||||||
Total other expenses | 46,492 | 34,976 | 11,516 | 32.9 | % | ||||||||||||||||||||||||||||||||||||
Interest income | 113 | 499 | (386 | ) | (77.4 | %) | |||||||||||||||||||||||||||||||||||
Interest expense | (27,724 | ) | (21,520 | ) | (6,204 | ) | 28.8 | % | |||||||||||||||||||||||||||||||||
Gain on early extinguishment of debt | 120 | — | 120 | N/M | |||||||||||||||||||||||||||||||||||||
Income before income tax expense and equity earnings of an investee | 27,440 | 29,436 | (1,996 | ) | (6.8 | %) | |||||||||||||||||||||||||||||||||||
Income tax expense | (189 | ) | (68 | ) | (121 | ) | 177.9 | % | |||||||||||||||||||||||||||||||||
Equity in earnings of an investee | — | 534 | (534 | ) | N/M | ||||||||||||||||||||||||||||||||||||
Net income | 27,251 | 29,902 | (2,651 | ) | (8.9 | %) | |||||||||||||||||||||||||||||||||||
Net loss attributable to noncontrolling interest | 416 | — | 416 | N/M | |||||||||||||||||||||||||||||||||||||
Net income attributable to common shareholders | $ | 27,667 | $ | 29,902 | $ | (2,235 | ) | (7.5 | %) | ||||||||||||||||||||||||||||||||
Weighted average common shares outstanding - basic | 65,082 | 65,035 | 47 | 0.1 | % | ||||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding - diluted | 65,087 | 65,042 | 45 | 0.1 | % | ||||||||||||||||||||||||||||||||||||
Per common share data (basic and diluted): | |||||||||||||||||||||||||||||||||||||||||
Net income attributable to common shareholders | $ | 0.42 | $ | 0.46 | $ | (0.04 | ) | (8.7 | %) |
(1) | Consists of 270 buildings, leasable land parcels and easements that we owned continuously since January 1, 2019. |
(2) | Consists of 31 properties that we acquired during the period from January 1, 2019 to June 30, 2020. |
(3) | See our definition of NOI and our reconciliation of net income to NOI below under the heading “Non-GAAP Financial Measures.” |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||
Reconciliation of Net Income to NOI: | |||||||||||||||||||||||||||||
Net income | $ | 14,557 | $ | 13,116 | $ | 27,251 | $ | 29,902 | |||||||||||||||||||||
Equity in earnings of an investee | — | (130 | ) | — | (534 | ) | |||||||||||||||||||||||
Income tax expense | 126 | 60 | 189 | 68 | |||||||||||||||||||||||||
Income before income tax expense and equity earnings of an investee | 14,683 | 13,046 | 27,440 | 29,436 | |||||||||||||||||||||||||
Gain on early extinguishment of debt | (120 | ) | — | (120 | ) | — | |||||||||||||||||||||||
Interest expense | 13,205 | 13,924 | 27,724 | 21,520 | |||||||||||||||||||||||||
Interest income | (2 | ) | (138 | ) | (113 | ) | (499 | ) | |||||||||||||||||||||
General and administrative | 4,846 | 4,856 | 9,677 | 8,656 | |||||||||||||||||||||||||
Depreciation and amortization | 18,525 | 16,709 | 36,815 | 26,320 | |||||||||||||||||||||||||
NOI | $ | 51,137 | $ | 48,397 | $ | 101,423 | $ | 85,433 | |||||||||||||||||||||
NOI: | |||||||||||||||||||||||||||||
Hawaii Properties | $ | 19,783 | $ | 19,385 | $ | 39,301 | $ | 38,994 | |||||||||||||||||||||
Mainland Properties | 31,354 | 29,012 | 62,122 | 46,439 | |||||||||||||||||||||||||
NOI | $ | 51,137 | $ | 48,397 | $ | 101,423 | $ | 85,433 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||
Reconciliation of Net Income attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders: | |||||||||||||||||||||||||||||
Net income attributable to common shareholders | $ | 14,821 | $ | 13,116 | $ | 27,667 | $ | 29,902 | |||||||||||||||||||||
Depreciation and amortization | 18,525 | 16,709 | 36,815 | 26,320 | |||||||||||||||||||||||||
FFO adjustments attributable to noncontrolling interest | (2,657 | ) | — | (3,634 | ) | — | |||||||||||||||||||||||
FFO attributable to common shareholders | 30,689 | 29,825 | 60,848 | 56,222 | |||||||||||||||||||||||||
Gain on early extinguishment of debt | (120 | ) | — | (120 | ) | — | |||||||||||||||||||||||
Normalized FFO attributable to common shareholders | $ | 30,569 | $ | 29,825 | $ | 60,728 | $ | 56,222 | |||||||||||||||||||||
Per common share data (basic and diluted) | |||||||||||||||||||||||||||||
FFO attributable to common shareholders and Normalized FFO attributable to common shareholders | $ | 0.47 | $ | 0.46 | $ | 0.93 | $ | 0.86 |
• | 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. |
Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Cash and cash equivalents and restricted cash at beginning of period | $ | 34,550 | $ | 9,608 | ||||
Net cash provided by (used in): | ||||||||
Operating activities | 62,899 | 64,532 | ||||||
Investing activities | (74,430 | ) | (855,296 | ) | ||||
Financing activities | 23,940 | 796,506 | ||||||
Cash and cash equivalents and restricted cash at end of period | $ | 46,959 | $ | 15,350 |
Debt Maturity | |||
2023 (1) | 56,980 | ||
2029 (2) | 1,000,000 | ||
Total | $ | 1,056,980 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Tenant improvements (1) | $ | 344 | $ | — | $ | 448 | $ | — | ||||||||
Leasing costs (2) | — | 238 | 189 | 394 | ||||||||||||
Building improvements (3) | 741 | 1,834 | 1,978 | 1,893 | ||||||||||||
Development, redevelopment and other activities (4) | — | 2,553 | 1 | 2,713 | ||||||||||||
$ | 1,085 | $ | 4,625 | $ | 2,616 | $ | 5,000 |
(1) | Tenant improvements include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space. |
(2) | Leasing costs include leasing related costs, such as brokerage commissions and tenant inducements. |
(3) | Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets. |
(4) | Development, redevelopment and other activities generally include capital expenditure projects that (i) reposition a property or (ii) result in new sources of revenue. |
New Leases | Renewals | Totals | |||||||||
Square feet leased during the period (in thousands) | — | 314 | 314 | ||||||||
Total leasing costs and concession commitments (1) | $ | — | $ | 229 | $ | 229 | |||||
Total leasing costs and concession commitments per square foot (1) | $ | — | $ | 0.73 | $ | 0.73 | |||||
Weighted average lease term by square feet (years) | — | 20.1 | 20.1 | ||||||||
Total leasing costs and concession commitments per square foot per year (1) | $ | — | $ | 0.04 | $ | 0.04 |
(1) | Includes commitments made for leasing expenditures and concessions, such as leasing commissions, tenant improvements or other tenant inducements. |
Annual | Annual | Interest | |||||||||||||
Principal | Interest | Interest | Payments | ||||||||||||
Debt | Balance (1) | Rate (1) | Expense (1) | Maturity | Due | ||||||||||
Mortgage note (one property in Florida) (2) | $ | 56,980 | 3.60 | % | $ | 2,051 | 2023 | Monthly | |||||||
Mortgage notes (186 properties in Hawaii) | 650,000 | 4.31 | % | 28,015 | 2029 | Monthly | |||||||||
Mortgage notes (11 U.S. Mainland Properties) (2) | 350,000 | 3.33 | % | 11,655 | 2029 | Monthly | |||||||||
$ | 1,056,980 | $ | 41,721 |
(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. |
(2) | The properties encumbered by these mortgages are owned by a joint venture in which we own a 61% equity interest. |
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, 2020 | 1.59 | % | $ | 320,000 | $ | 5,088 | $ | (0.08 | ) | ||||||
One percentage point increase | 2.59 | % | $ | 320,000 | $ | 8,288 | $ | (0.13 | ) |
(1) | Based on the diluted weighted average common shares outstanding for the six months ended June 30, 2020. |
Impact of an Increase in Interest Rates | |||||||||||||||
Total Interest | Annual | ||||||||||||||
Interest Rate | Outstanding | Expense | Earnings Per | ||||||||||||
Per Year | Debt | Per Year | Share Impact (1) | ||||||||||||
At June 30, 2020 | 1.59 | % | $ | 750,000 | $ | 11,925 | $ | (0.18 | ) | ||||||
One percentage point increase | 2.59 | % | $ | 750,000 | $ | 19,425 | $ | (0.30 | ) |
(1) | Based on the diluted weighted average common shares outstanding for the six months ended June 30, 2020. |
• | The duration and severity of the economic downturn resulting from 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, |
• | The likelihood and extent to which our tenants will be negatively impacted by the COVID-19 pandemic and its aftermath and be able and willing to pay us rent, |
• | The likelihood that our tenants will pay rent or be negatively affected by cyclical economic conditions, |
• | 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 ability to compete for acquisitions and tenancies effectively, |
• | 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 pay distributions to our shareholders and to sustain the amount of such distributions, |
• | The future availability of borrowings under our revolving credit facility, |
• | Our policies and plans regarding investments, financings and dispositions, |
• | Our ability to raise debt or equity capital, |
• | Our ability to pay interest on and principal of our debt, |
• | Our ability to appropriately balance our use of debt and equity capital, |
• | Our ability to enter into expanded or additional real estate joint ventures or to attract co-venturers and our ability to manage successfully and benefit from any real estate joint ventures we may enter into, |
• | Changes in the security of cash flows from our properties, |
• | Our expectations regarding the impact of the COVID-19 pandemic on our financial condition and operating results, |
• | Our ability to maintain sufficient liquidity for the duration of the COVID-19 pandemic and resulting economic downturn, |
• | 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 LLC, |
• | Our qualification for taxation as a REIT, |
• | 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, |
• | Our sales of properties, and |
• | Other matters. |
• | The impact of conditions in the economy, including the COVID-19 pandemic and its aftermath, and the capital markets on us and our tenants, |
• | 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, |
• | 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, |
• | Actual and potential conflicts of interest with our related parties, including our managing trustees, RMR LLC and others affiliated with them, and |
• | Acts of terrorism, outbreaks of pandemics, including the COVID-19 pandemic, or other manmade or natural disasters beyond our control. |
• | 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, |
• | 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, and we may fail to reach agreement with the sellers and complete the purchases of any properties we do want to acquire. In addition, 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 impacts of the COVID-19 pandemic and the resulting economic downturn, 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, |
• | 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, including due to the COVID-19 pandemic and its aftermath. 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, |
• | 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 investment and financing activities. However, we may not succeed in this regard and we may not have reasonable access to capital, including due to the COVID-19 pandemic and its aftermath, |
• | 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, including due to the COVID-19 pandemic and its aftermath, last for a long period or worsen, our tenants may experience liquidity constraints and as a result may be unable or unwilling 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, |
• | 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, |
• | 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 distribution rate compared to the trading price of our common shares and 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 minimal lease expirations over the next 12 months 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 commencing 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. 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. |
• | increased risk of our tenants being unable to weather an extended cessation of normal economic activity and thereby impairing their ability to continue functioning as a going concern; |
• | increased risk of default or bankruptcy of our tenants; |
• | reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of the virus that causes COVID-19, which could impact the continued viability of our tenants and the demand for industrial and logistics properties; |
• | our inability to execute improvements to our properties due to a construction moratorium or decrease in available construction workers or construction activity, including required inspectors and governmental personnel for permitting and other requirements, and due to our need to maintain our liquidity, |
• | possible significant declines in the value of our properties; |
• | our inability to accurately or reliably value our portfolio; |
• | our failure to pay interest or principal when due under our outstanding debt, which may result in the acceleration of payment for our outstanding debt and our possible loss of our revolving credit facility; |
• | our inability to comply with certain financial covenants that could result in our defaulting under our debt agreements; |
• | continued sudden and/or severe declines in the market price of our common shares; |
• | our inability to access debt and equity capital on attractive terms, or at all; |
• | our inability to sell properties we may identify for sale due to a general decline in business activity and demand for real estate transactions; and |
• | our inability to grow our existing joint venture or to enter new joint ventures. |
• | our ability to make or sustain the rate of distributions may continue to be adversely affected by the negative impact of the COVID-19 pandemic and its aftermath on our business, results of operations and liquidity; |
• | our making of distributions is subject to compliance with restrictions contained in the agreements governing our debt and may be subject to restrictions in future debt obligations we may incur; during the continuance of any event of default under the agreements governing our debt, we may be limited or in some cases prohibited from making distributions to our shareholders; and |
• | the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including our FFO attributable to common shareholders, our Normalized FFO attributable to common shareholders, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our dividend yield and our dividend yield compared to the dividend yields of other industrial REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. |
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 2020 | 613 | $ | 20.55 | — | $ | — | ||||||||
Total | 613 | $ | 20.55 | — | $ | — |
Exhibit Number | Description |
3.1 | |
3.2 | |
3.3 | |
4.1 | |
10.1 | |
31.1 | |
31.2 | |
32.1 | |
101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | XBRL Taxonomy Extension Schema Document. (Filed herewith.) |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.) |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.) |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.) |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.) |
104 | Cover Page Interactive Data File. (Formatted as Inline XBRL and contained in Exhibit 101.) |
INDUSTRIAL LOGISTICS PROPERTIES TRUST | ||
By: | /s/ John G. Murray | |
John G. Murray | ||
President and Chief Executive Officer | ||
Dated: July 29, 2020 | ||
By: | /s/ Richard W. Siedel, Jr. | |
Richard W. Siedel, Jr. | ||
Chief Financial Officer and Treasurer | ||
(principal financial officer and principal accounting officer) | ||
Dated: July 29, 2020 |
Name of Trustee | Type of Trustee | Class | ||
Lisa Harris Jones | Independent Trustee | I | ||
Barry M. Portnoy | Managing Trustee | I | ||
Bruce M. Gans, M.D. | Independent Trustee | II | ||
Adam D. Portnoy | Managing Trustee | II | ||
Joseph L. Morea | Independent Trustee | III |
1. | I have reviewed this Quarterly Report on Form 10-Q of Industrial Logistics Properties Trust; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
5 | |||||
Date: July 29, 2020 | /s/ John G. Murray | ||||
John G. Murray | |||||
President and Chief Executive Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q of Industrial Logistics Properties Trust; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
5 | |||||
Date: July 29, 2020 | /s/ Richard W. Siedel, Jr. | ||||
Richard W. Siedel, Jr. | |||||
Chief Financial Officer and Treasurer |
1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/s/ John G. Murray | /s/ Richard W. Siedel, Jr. | ||
John G. Murray | Richard W. Siedel, Jr. | ||
President and Chief Executive Officer | Chief Financial Officer and Treasurer | ||
Date: July 29, 2020 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Jun. 30, 2020 |
Dec. 31, 2019 |
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Statement of Financial Position [Abstract] | ||
Straight line rents | $ 62,399 | $ 58,336 |
Common shares, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common shares, shares authorized (in shares) | 100,000,000 | 100,000,000 |
Common shares, shares issued (in shares) | 65,209,564 | 65,180,628 |
Common shares, shares outstanding (in shares) | 65,209,564 | 65,180,628 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
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Income Statement [Abstract] | ||||
Amortization of debt issuance costs and premium | $ 642 | $ 494 | $ 1,229 | $ 897 |
Basis of Presentation |
6 Months Ended |
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Jun. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying condensed consolidated financial statements of Industrial Logistics Properties Trust and its consolidated subsidiaries, or we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019, or our 2019 Annual Report. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. Reclassifications have been made to the prior year’s condensed consolidated financial statements to conform to the current year’s presentation. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets, impairments of real estate and related intangibles. In February and March 2020, we entered into agreements related to a joint venture for 12 of our properties located in the mainland United States. We have determined that this joint venture is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification. We concluded that we must consolidate this VIE because we are the entity with the power to direct the activities that most significantly impact the VIE’s economic performance and we have the obligation to absorb losses of, and the right to receive benefits from, the VIE that could be significant to the VIE, and therefore are the primary beneficiary of the VIE. The assets of this VIE were $660,958 as of June 30, 2020 and consist primarily of the real estate owned by the joint venture. The liabilities of this VIE were $408,181 as of June 30, 2020 and consist primarily of mortgage debts secured by the properties owned by the joint venture. The joint venture investor's interest in this consolidated entity is reflected as noncontrolling interest in our condensed consolidated financial statements. See Note 11 for further information about this joint venture.
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Recent Accounting Pronouncements |
6 Months Ended |
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Jun. 30, 2020 | |
Accounting Standards Update and Change in Accounting Principle [Abstract] | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. We adopted this standard which was effective as of January 1, 2020 using the modified retrospective approach. The implementation of this standard did not have a material impact in our condensed consolidated financial statements.
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Real Estate Properties |
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Real Estate [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate Properties | Real Estate Properties As of June 30, 2020, we owned 301 properties with a total of approximately 43,759,000 rentable square feet, including 226 buildings, leasable land parcels and easements with a total of approximately 16,756,000 rentable square feet of primarily industrial lands located on the island of Oahu, HI, or our Hawaii Properties, and 75 properties with a total of approximately 27,003,000 rentable square feet of industrial properties located in 30 other states, or our Mainland Properties, including 12 properties with approximately 9,227,000 rentable square feet owned by a joint venture in which we own a 61% equity interest. We operate in one business segment: ownership and leasing of properties that include industrial and logistics buildings and leased industrial lands. For the three months ended June 30, 2020 and 2019, approximately 41.3% and 42.2%, respectively, of our rental income was from our Hawaii Properties. For the six months ended June 30, 2020 and 2019, approximately 41.2% and 47.9%, respectively, of our rental income was from our Hawaii Properties. In addition, a subsidiary of Amazon.com, Inc., which is a tenant at certain of our Mainland Properties, accounted for $10,399, or 16.0%, and $8,700, or 14.5%, of our rental income for the three months ended June 30, 2020 and 2019, respectively, and $20,061, or 15.5%, and $13,565, or 12.8%, of our rental income for the six months ended June 30, 2020 and 2019, respectively. During the six months ended June 30, 2020, we completed the acquisition of an industrial property containing 820,384 rentable square feet for a purchase price of $71,628, including acquisition related costs of $147. This acquisition was accounted for as an asset acquisition. We allocated the purchase price for this acquisition based on the estimated fair value of the acquired assets as follows:
During the six months ended June 30, 2020, we committed $687 for expenditures related to tenant improvements and leasing costs for leases executed during the period for approximately 363,000 square feet. Committed but unspent tenant related obligations based on existing leases as of June 30, 2020 were $561. Certain of our industrial lands in Hawaii may require environmental remediation, especially if the use of those lands is changed; however, we do not have any present plans to change the use of those lands. As of both June 30, 2020 and December 31, 2019, accrued environmental remediation costs of $6,940 were included in accounts payable and other liabilities in our condensed consolidated balance sheets. These accrued environmental remediation costs relate to maintenance of our properties for current uses, and, because of the indeterminable timing of the remediation, these amounts have not been discounted to present value. In general, we do not have any insurance designated to limit any losses that we may incur as a result of known or unknown environmental conditions which are not caused by an insured event, such as fire or flood, although some of our tenants may maintain such insurance that may benefit us. Although we do not believe that there are environmental conditions at any of our properties that will have a material adverse effect on us, we cannot be sure that such conditions are not present at our properties or that costs we incur to remediate contamination will not have a material adverse effect on our business or financial condition. Charges for environmental remediation costs, if any, are included in other operating expenses in our condensed consolidated statements of comprehensive income.
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Leases |
6 Months Ended |
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Jun. 30, 2020 | |
Leases [Abstract] | |
Leases | Leases We are a lessor of industrial and logistics properties. Our leases provide our tenants with the contractual right to use and economically benefit from all the physical space specified in the leases; therefore, we have determined to evaluate our leases as lease arrangements. Our leases provide for base rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. We do not include in our measurement of our lease receivables certain variable payments, including payments determined by changes in the index or market-based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. Such payments totaled $11,640 and $9,483 for the three months ended June 30, 2020 and 2019, respectively, of which tenant reimbursements totaled $11,395 and $9,483, respectively, and $23,160 and $17,764 for the six months ended June 30, 2020 and 2019, respectively, of which tenant reimbursements totaled $22,670 and $16,602, respectively. We increased rental income to record revenue on a straight line basis by $2,096 and $2,002 for the three months ended June 30, 2020 and 2019, respectively, and $4,063 and $2,981 for the six months ended June 30, 2020 and 2019, respectively. Rents receivable include $62,399 and $58,336 of straight line rents at June 30, 2020 and December 31, 2019, respectively. Certain of our tenants have requested relief from their obligations to pay rent due to us in response to the current economic conditions resulting from the COVID-19 pandemic. As of July 27, 2020, we granted requests for certain of our tenants to defer rent payments totaling $2,799. These tenants will be obligated to pay, in most cases, the deferred rents in 12 equal monthly installments commencing in September 2020. We have elected to use the FASB relief package regarding the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. The FASB relief package provides entities with the option to account for lease concessions resulting from the COVID-19 pandemic outside of the existing lease modification guidance if the resulting cash flows from the modified lease are substantially the same as the original lease. Because the deferred rents referenced above will be repaid over a 12-month period, the cash flows from the respective leases are substantially the same as before the rent deferrals. These deferred amounts did not impact our results for the three and six months ended June 30, 2020 and as of June 30, 2020, we recognized an increase in our accounts receivable related to these deferred amounts of $2,317.
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Indebtedness |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Indebtedness | Indebtedness As of June 30, 2020, our outstanding indebtedness consisted of the following:
(1) The principal balances are the amounts stated in contracts. In accordance with GAAP, our carrying values and recorded interest expense may be different because of market conditions at the time we assumed certain of these debts. (2) The maturity date of our revolving credit facility is December 29, 2021 and we have the option to extend the maturity date for two, six month periods through December 29, 2022. (3) The properties encumbered by these mortgages are owned by a joint venture in which we own a 61% equity interest. We have a $750,000 unsecured revolving credit facility that is available for our general business purposes, including acquisitions. The maturity date of our revolving credit facility is December 29, 2021. We may borrow, repay and reborrow funds under our revolving credit facility until maturity, and no principal repayment is due until maturity. Interest on borrowings under our revolving credit facility is calculated at floating rates based on LIBOR plus a premium that varies based on our leverage ratio. We have the option to extend the maturity date of our revolving credit facility for two, six month periods, subject to payment of extension fees and satisfaction of other conditions. We are also required to pay a commitment fee on the unused portion of our revolving credit facility. The agreement governing our revolving credit facility, or our credit agreement, also includes a feature under which the maximum borrowing availability under our revolving credit facility may be increased to up to $1,500,000 in certain circumstances. As of June 30, 2020, interest payable on the amount outstanding under our revolving credit facility was LIBOR plus 140 basis points and our commitment fee was 25 basis points. As of June 30, 2020 and December 31, 2019, the interest rate payable on borrowings under our revolving credit facility was 1.59% and 3.26%, respectively. The weighted average interest rate for borrowings under our revolving credit facility was 2.04% and 3.76% for the three months ended June 30, 2020 and 2019, respectively, and 2.80% and 3.77% for the six months ended June 30, 2020 and June 30, 2019, respectively. As of June 30, 2020 and July 27, 2020, we had $320,000 outstanding under our revolving credit facility, and $430,000 available to borrow under our revolving credit facility. Our credit agreement provides for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business manager and property manager. Our credit agreement also contains a number of covenants, including covenants that restrict our ability to incur debts or to make distributions in certain circumstances, and generally requires us to maintain certain financial ratios. We believe we were in compliance with the terms and conditions of the covenants under our credit agreement at June 30, 2020. In May 2020, we prepaid at par plus accrued interest a mortgage note secured by one of our properties with an outstanding principal balance of approximately $48,750, an annual interest rate of 3.48% and a maturity date in November 2020. As a result of the prepayment of this mortgage note, we recorded a gain on early extinguishment of debt of $120 for the three and six months ended June 30, 2020 to write off unamortized debt premiums.
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Fair Value of Assets and Liabilities |
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Fair Value of Assets and Liabilities | Fair Value of Assets and Liabilities Our financial instruments include cash and cash equivalents, restricted cash, rents receivable, our revolving credit facility, mortgage notes payable, accounts payable, rents collected in advance, security deposits and amounts due from or to related persons. At June 30, 2020 and December 31, 2019, the fair value of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or floating interest rates, except as follows:
We estimate the fair value of our mortgage notes payable using discounted cash flow analyses and currently prevailing market rates as of the measurement date (Level 3 inputs). Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.
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Shareholders' Equity |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders' Equity | Shareholders’ Equity Common Share Awards: On February 21, 2020, in connection with the election of two of our Trustees we awarded to each such Trustee 3,000 of our common shares, valued at $23.54 per share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day. On May 28, 2020, in accordance with our Trustee compensation arrangements, we awarded to each of our seven Trustees 3,500 of our common shares, valued at $18.77 per share, the closing price of our common shares on Nasdaq on that day. Common Share Purchases: During the six months ended June 30, 2020, we purchased our common shares from certain former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares, valued at the closing price of our common shares on Nasdaq on the purchase dates, as follows:
Distributions: During the six months ended June 30, 2020, we declared and paid a regular quarterly distribution to common shareholders as follows:
On July 16, 2020, we declared a regular quarterly distribution of $0.33 per common share, or approximately $21,500, to shareholders of record on July 27, 2020. We expect to pay this distribution on or about August 20, 2020.
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Weighted Average Common Shares |
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Weighted Average Common Shares | Per Common Share Amounts We calculate basic earnings per common share by dividing net income attributable to common shareholders by the weighted average number of our common shares outstanding during the period. We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares, and the related impact on earnings, are considered when calculating diluted earnings per share. The calculation of basic and diluted earnings per share is as follows:
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Business and Property Management Agreements with RMR LLC |
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Jun. 30, 2020 | |
Related Party Transactions [Abstract] | |
Business and Property Management Agreements with RMR LLC | Business and Property Management Agreements with RMR LLC We have no employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have two agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to our property level operations. Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $3,277 and $6,584 for the three and six months ended June 30, 2020, respectively, and $3,092 and $5,285 for the three and six months ended June 30, 2019, respectively. The net business management fees we recognized for the three and six months ended June 30, 2020 include $347 and $476, respectively, of management fees related to our subsidiary level management agreement with RMR LLC entered in connection with our joint venture arrangement, which arrangement is further described in Note 11. Based on our common share total return, as defined in our business management agreement, as of June 30, 2020 and 2019, no incentive fees are included in the net business management fees we recognized for the three or six months ended June 30, 2020 or 2019. The actual amount of annual incentive fees for 2020, if any, will be based on our common share total return, as defined in our business management agreement, for the period from January 12, 2018 to December 31, 2020 and will be payable in 2021. We did not incur any incentive fee payable to RMR LLC for the year ended December 31, 2019. We include business management fees in general and administrative expenses in our condensed consolidated statements of comprehensive income. Pursuant to our property management agreement with RMR LLC, we recognized aggregate property management and construction supervision fees of $1,860 and $3,783 for the three and six months ended June 30, 2020, respectively, and $1,922 and $3,269 for the three and six months ended June 30, 2019, respectively. These amounts are included in other operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements. We are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. We are generally not responsible for payment of RMR LLC’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR LLC’s centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit function, or as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC. We reimbursed RMR LLC $1,217 and $2,416 for these expenses and costs for the three and six months ended June 30, 2020, respectively, and $1,026 and $1,929 for the three and six months ended June 30, 2019, respectively. These amounts are included in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income. See Note 10 for further information regarding our relationships, agreements and transactions with RMR LLC.
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Related Person Transactions |
6 Months Ended |
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Jun. 30, 2020 | |
Related Party Transactions [Abstract] | |
Related Person Transactions | Related Person Transactions We have relationships and historical and continuing transactions with RMR LLC, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR LLC is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC. John Murray, our other Managing Trustee and our President and Chief Executive Officer, also serves as an executive officer of RMR LLC, and each of our other officers is also an officer and employee of RMR LLC. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as chair of the boards of trustees or boards of directors of several of these public companies and as a managing director or managing trustee of these public companies. Other officers of RMR LLC, including Mr. Murray and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies. Our Manager, RMR LLC. We have two agreements with RMR LLC to provide management services to us. See Note 9 for further information regarding our management agreements with RMR LLC. OPI. Office Properties Income Trust, or OPI, owed to us $1,023 and $1,504 as of June 30, 2020 and December 31, 2019, respectively, for rents that it collected on our behalf from certain of our tenants. A predecessor of OPI previously owned those properties and those tenants first became tenants at those properties prior to our ownership. OPI paid these amounts due to us or collected on our behalf in July 2020 and January 2020, respectively. AIC. Until its dissolution on February 13, 2020, we, ABP Trust and five other companies to which RMR LLC provides management services owned Affiliates Insurance Company, or AIC, an Indiana insurance company, in equal amounts. Certain of our Trustees and certain trustees or directors of the other AIC shareholders served on the board of directors of AIC, until its dissolution. We and the other AIC shareholders historically participated in a combined property insurance program arranged and insured or reinsured in part by AIC. The policies under that program expired on June 30, 2019, and we and the other AIC shareholders elected not to renew the AIC property insurance program; we have instead purchased standalone property insurance coverage with unrelated third party insurance providers. As of June 30, 2020 and December 31, 2019, our investment in AIC had a carrying value of $11 and $298, respectively. These amounts are included in other assets in our condensed consolidated balance sheets. In June 2020, we received an additional liquidating distribution of approximately $287 from AIC in connection with its dissolution. We did not recognize any income related to our investment in AIC for the three and six months ended June 30, 2020, respectively, and recognized $130 and $534 related to our investment in AIC for the three and six months ended June 30, 2019, respectively, which amounts are presented as equity in earnings of an investee in our condensed consolidated statements of comprehensive income. Our other comprehensive income included our proportionate share of unrealized gains on securities, if any, which were owned by AIC, related to our investment in AIC. For further information about these and other such relationships and certain other related person transactions, see our 2019 Annual Report.
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Noncontrolling Interest |
6 Months Ended |
---|---|
Jun. 30, 2020 | |
Noncontrolling Interest [Abstract] | |
Noncontrolling Interest | Noncontrolling Interest In February and March 2020, we entered into agreements related to a joint venture for 12 of our Mainland Properties with an Asian institutional investor. We contributed to the joint venture 11 of these properties in February 2020 and the remaining property in March 2020. We received from the investor $82,035 and $26,231 in February and March 2020, respectively, for a 39% equity interest in the joint venture, and we retained the remaining 61% equity interest. The joint venture assumed $406,980 of then existing mortgage debts on the properties we contributed. We incurred transaction costs of $626 in connection with the formation of this joint venture. We recognized a noncontrolling interest in our condensed consolidated balance sheets of $100,668 as of the completion of this transaction, which was equal to 39% of our aggregate carrying value of the total equity of the properties immediately prior to our respective contributions of the properties to the joint venture. The difference between the net proceeds received from this transaction and the noncontrolling interest recognized, which was $6,972, has been reflected as an increase in additional paid in capital in our condensed consolidated balance sheets. The portion of the 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 noncontrolling interest in our condensed consolidated statements of comprehensive income. During the three and six months ended June 30, 2020, the joint venture made aggregate cash distributions of $1,898 to the other joint venture investor, which are reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets. As of June 30, 2020, the joint venture held real estate assets with an aggregate net book value of $660,958, including restricted cash of $13,703, and had liabilities of $408,181.
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Recent Accounting Pronouncements (Policies) |
6 Months Ended |
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Jun. 30, 2020 | |
Accounting Standards Update and Change in Accounting Principle [Abstract] | |
Organization and basis of presentation | The accompanying condensed consolidated financial statements of Industrial Logistics Properties Trust and its consolidated subsidiaries, or we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019, or our 2019 Annual Report. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. Reclassifications have been made to the prior year’s condensed consolidated financial statements to conform to the current year’s presentation.
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Use of estimates | The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets, impairments of real estate and related intangibles.
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Recent accounting pronouncements | In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. We adopted this standard which was effective as of January 1, 2020 using the modified retrospective approach. The implementation of this standard did not have a material impact in our condensed consolidated financial statements.
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Fair value of assets and liabilities | We estimate the fair value of our mortgage notes payable using discounted cash flow analyses and currently prevailing market rates as of the measurement date (Level 3 inputs). Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.
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Real Estate Properties (Tables) |
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Real Estate [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of real estate properties | We allocated the purchase price for this acquisition based on the estimated fair value of the acquired assets as follows:
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Indebtedness (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of outstanding indebtedness | As of June 30, 2020, our outstanding indebtedness consisted of the following:
(1) The principal balances are the amounts stated in contracts. In accordance with GAAP, our carrying values and recorded interest expense may be different because of market conditions at the time we assumed certain of these debts. (2) The maturity date of our revolving credit facility is December 29, 2021 and we have the option to extend the maturity date for two, six month periods through December 29, 2022. (3) The properties encumbered by these mortgages are owned by a joint venture in which we own a 61% equity interest. |
Fair Value of Assets and Liabilities (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of carrying value and the estimated fair market value of mortgage notes payable | At June 30, 2020 and December 31, 2019, the fair value of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or floating interest rates, except as follows:
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Shareholders' Equity (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of share repurchases | During the six months ended June 30, 2020, we purchased our common shares from certain former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares, valued at the closing price of our common shares on Nasdaq on the purchase dates, as follows:
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Schedule of distributions declared and paid | During the six months ended June 30, 2020, we declared and paid a regular quarterly distribution to common shareholders as follows:
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Weighted Average Common Shares (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of weighted average number of shares | We calculate basic earnings per common share by dividing net income attributable to common shareholders by the weighted average number of our common shares outstanding during the period. We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares, and the related impact on earnings, are considered when calculating diluted earnings per share. The calculation of basic and diluted earnings per share is as follows:
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Basis of Presentation - Narrative (Details) $ in Thousands |
Jun. 30, 2020
USD ($)
property
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Dec. 31, 2019
USD ($)
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---|---|---|
Variable Interest Entity [Line Items] | ||
Value of VIE assets, net | $ | $ 2,505,600 | $ 2,454,901 |
Twelve Mainland Properties | ||
Variable Interest Entity [Line Items] | ||
Number of properties contributed | property | 12 |
Leases - Narrative (Details) |
3 Months Ended | 6 Months Ended | ||||
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Jul. 27, 2020
USD ($)
payment
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Jun. 30, 2020
USD ($)
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Jun. 30, 2019
USD ($)
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Jun. 30, 2020
USD ($)
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Jun. 30, 2019
USD ($)
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Dec. 31, 2019
USD ($)
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Lessor, Lease, Description [Line Items] | ||||||
Certain variable payments | $ 11,640,000 | $ 9,483,000 | $ 23,160,000 | $ 17,764,000 | ||
Tenant reimbursements | 11,395,000 | 9,483,000 | 22,670,000 | 16,602,000 | ||
Straight line rental income | 2,096,000 | $ 2,002,000 | 4,063,000 | $ 2,981,000 | ||
Straight line rents | $ 62,399,000 | 62,399,000 | $ 58,336,000 | |||
Increase to accounts receivable from deferred payments | $ 2,317,000 | |||||
Subsequent Event | ||||||
Lessor, Lease, Description [Line Items] | ||||||
Amount of rent assistance provided | $ 2,799,000 | |||||
Number of monthly installment payments | payment | 12 | |||||
Deferred rent assistance repayment term | 12 months |
Fair Value of Assets and Liabilities (Details) - USD ($) $ in Thousands |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Fair Value of Financial Instruments | ||
Mortgage notes payable | $ 1,048,226 | $ 1,096,608 |
Carrying Value | ||
Fair Value of Financial Instruments | ||
Mortgage notes payable | 1,048,226 | 1,096,608 |
Estimated Fair Value | ||
Fair Value of Financial Instruments | ||
Mortgage notes payable | 1,112,956 | 1,143,437 |
Mortgage note payable | ||
Fair Value of Financial Instruments | ||
Unamortized premium | $ 8,754 | $ 9,122 |
Shareholders' Equity (Details) $ / shares in Units, $ in Thousands |
3 Months Ended | |||||||||||
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Jul. 16, 2020
USD ($)
$ / shares
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Jun. 30, 2020
$ / shares
shares
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May 28, 2020
employee
$ / shares
shares
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May 21, 2020
USD ($)
$ / shares
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Mar. 13, 2020
$ / shares
shares
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Feb. 21, 2020
employee
$ / shares
shares
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Feb. 20, 2020
USD ($)
$ / shares
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Jan. 09, 2020
$ / shares
shares
|
Jun. 30, 2020
USD ($)
$ / shares
|
Mar. 31, 2020
USD ($)
|
Jun. 30, 2019
USD ($)
|
Mar. 31, 2019
USD ($)
|
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Shareholders' Equity | ||||||||||||
Dividends paid (in dollars per share) | $ 0.33 | $ 0.33 | ||||||||||
Dividends paid | $ | $ 21,511 | $ 21,510 | $ 21,511 | $ 21,510 | $ 21,475 | $ 21,474 | ||||||
Common shares | ||||||||||||
Shareholders' Equity | ||||||||||||
Number of Shares (in shares) | shares | 613 | 531 | 420 | |||||||||
Price per Share (in dollars per share) | $ 20.55 | $ 17.75 | $ 22.01 | $ 20.55 | ||||||||
Trustees | ||||||||||||
Shareholders' Equity | ||||||||||||
Number of officers elected | employee | 2 | |||||||||||
Number of officers | employee | 7 | |||||||||||
Trustees | Common shares | ||||||||||||
Shareholders' Equity | ||||||||||||
Common shares granted (in shares) | shares | 3,000 | |||||||||||
Per share value of common shares granted (in dollars per share) | $ 18.77 | $ 23.54 | ||||||||||
Shares granted in period (in shares) | shares | 3,500 | |||||||||||
Subsequent Event | ||||||||||||
Shareholders' Equity | ||||||||||||
Dividends paid (in dollars per share) | $ 0.33 | |||||||||||
Dividends paid | $ | $ 21,500 |
Weighted Average Common Shares (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
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Numerators: | ||||
Net income attributable to common shareholders | $ 14,821 | $ 13,116 | $ 27,667 | $ 29,902 |
Income attributable to unvested participating securities | (24) | (8) | (45) | (19) |
Net income attributable to common shareholders used in calculating earnings per share | $ 14,797 | $ 13,108 | $ 27,622 | $ 29,883 |
Denominators: | ||||
Weighted average common shares for basic earnings per share (in shares) | 65,089 | 65,039 | 65,082 | 65,035 |
Effect of dilutive securities: unvested share awards (in shares) | 2 | 4 | 5 | 7 |
Weighted average common shares for diluted earnings per share (in shares) | 65,091 | 65,043 | 65,087 | 65,042 |
Net income attributable to common shareholders per common share - basic | $ 0.23 | $ 0.20 | $ 0.42 | $ 0.46 |
Net income attributable to common shareholders per common share - diluted | $ 0.23 | $ 0.20 | $ 0.42 | $ 0.46 |
Business and Property Management Agreements with RMR LLC (Details) |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2020
USD ($)
employee
agreement
|
Jun. 30, 2019
USD ($)
|
Jun. 30, 2020
USD ($)
employee
agreement
|
Jun. 30, 2019
USD ($)
|
Dec. 31, 2019
USD ($)
|
|
Related Party Transaction [Line Items] | |||||
Number of employees | employee | 0 | 0 | |||
Business management fees | $ 347,000 | $ 476,000 | |||
Incentive fee expense | $ 0 | ||||
Reit Management And Research L L C | |||||
Related Party Transaction [Line Items] | |||||
Number of management service agreements | agreement | 2 | 2 | |||
Business management fees | $ 3,277,000 | $ 3,092,000 | $ 6,584,000 | $ 5,285,000 | |
Construction supervision fees | 1,860,000 | 1,922,000 | 3,783,000 | 3,269,000 | |
Related party reimbursement expense | $ 1,217,000 | $ 1,026,000 | $ 2,416,000 | $ 1,929,000 |
Related Person Transactions - Narrative (Details) |
1 Months Ended | 3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|---|
Jun. 30, 2020
USD ($)
agreement
|
Jun. 30, 2020
USD ($)
agreement
|
Jun. 30, 2019
USD ($)
|
Jun. 30, 2020
USD ($)
agreement
|
Jun. 30, 2019
USD ($)
|
Dec. 31, 2019
USD ($)
|
|
Related Party Transaction [Line Items] | ||||||
Due from related persons | $ 1,023,000 | $ 1,023,000 | $ 1,023,000 | $ 1,504,000 | ||
Distributions in excess of earnings from Affiliates Insurance Company | 287,000 | $ 0 | ||||
Income in AIC investment | 0 | $ 130,000 | 0 | 534,000 | ||
AIC | ||||||
Related Party Transaction [Line Items] | ||||||
Investments in AIC | 11,000 | 11,000 | 11,000 | 298,000 | ||
Distributions in excess of earnings from Affiliates Insurance Company | 287,000 | |||||
Income in AIC investment | $ 130,000 | 0 | $ 534,000 | |||
Select Income REIT | ||||||
Related Party Transaction [Line Items] | ||||||
Due from related persons | $ 1,023,000 | $ 1,023,000 | $ 1,023,000 | $ 1,504,000 | ||
Reit Management And Research L L C | ||||||
Related Party Transaction [Line Items] | ||||||
Number of management service agreements | agreement | 2 | 2 | 2 |
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