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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 


For the quarterly period ended March 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

Commission File Number 001-38342 

INDUSTRIAL LOGISTICS PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland 82-2809631
(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.)
Two Newton Place,255 Washington Street,Suite 300,Newton,Massachusetts02458-1634
(Address of Principal Executive Offices)(Zip Code)

617-219-1460
(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name Of Each Exchange On Which Registered
Common Shares of Beneficial InterestILPTThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided in Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No
Number of registrant’s common shares of beneficial interest, $.01 par value per share, outstanding as of April 22, 2021: 65,301,088



INDUSTRIAL LOGISTICS PROPERTIES TRUST
 
FORM 10-Q
 
March 31, 2021
 
INDEX
 
  Page
   
   
 
   
 
   
 
   
 
   
   
   
   
 
   
 
   
   
   
 
 
References in this Quarterly Report on Form 10-Q to the Company, we, us or our include Industrial Logistics Properties Trust and its consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.
2

PART I Financial Information
 
Item 1.  Financial Statements
 
INDUSTRIAL LOGISTICS PROPERTIES TRUST 
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)
 
 March 31, December 31,
 20212020
ASSETS  
Real estate properties:  
Land $709,099 $709,099 
Buildings and improvements 1,100,183 1,099,971 
Total real estate properties, gross1,809,282 1,809,070 
Accumulated depreciation (149,003)(141,406)
Total real estate properties, net1,660,279 1,667,664 
Investment in unconsolidated joint venture62,511 60,590 
Acquired real estate leases, net 78,394 83,644 
Cash and cash equivalents26,147 22,834 
Rents receivable, including straight line rents of $64,797 and $62,753, respectively
70,411 69,511 
Deferred leasing costs, net 5,208 4,595 
Debt issuance costs, net1,108 1,477 
Due from related persons1,409 2,665 
Other assets, net3,552 2,765 
Total assets $1,909,019 $1,915,745 
LIABILITIES AND SHAREHOLDERS' EQUITY  
Revolving credit facility$217,000 $221,000 
Mortgage notes payable, net645,715 645,579 
Assumed real estate lease obligations, net 14,053 14,630 
Accounts payable and other liabilities14,720 14,716 
Rents collected in advance7,522 7,811 
Security deposits6,569 6,540 
Due to related persons2,224 2,279 
Total liabilities907,803 912,555 
Commitments and contingencies
Shareholders' Equity:
Common shares of beneficial interest, $.01 par value: 100,000,000 shares authorized; 65,301,088 shares issued and outstanding for both periods presented
653 653 
Additional paid in capital 1,011,058 1,010,819 
Cumulative net income243,563 224,226 
Cumulative common distributions(254,058)(232,508)
Total shareholders' equity1,001,216 1,003,190 
Total liabilities and shareholders' equity $1,909,019 $1,915,745 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

INDUSTRIAL LOGISTICS PROPERTIES TRUST 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in thousands, except per share data)
(unaudited)
 
 Three Months Ended March 31,
 20212020
Rental income$54,217 $64,278 
Expenses:  
Real estate taxes 7,247 8,811 
Other operating expenses 4,976 5,181 
Depreciation and amortization 12,678 18,290 
General and administrative3,756 4,831 
Total expenses 28,657 37,113 
 
Interest income 111 
Interest expense (including net amortization of debt issuance costs, premiums and discounts of $505 and $586, respectively)
(8,741)(14,519)
Income before income tax expense and equity in earnings of investees16,819 12,757 
Income tax expense(63)(63)
Equity in earnings of investees2,581  
Net income 19,337 12,694 
Net loss attributable to noncontrolling interest 152 
Net income attributable to common shareholders$19,337 $12,846 
Weighted average common shares outstanding - basic65,139 65,075 
Weighted average common shares outstanding - diluted65,177 65,082 
 
Per common share data (basic and diluted):
Net income attributable to common shareholders$0.30 $0.20 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



4

INDUSTRIAL LOGISTICS PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(dollars in thousands)
(unaudited)
Total EquityTotal Equity
Number ofAdditionalCumulativeAttributable toAttributable to
CommonCommonPaid InCumulativeCommonCommonNoncontrollingTotal
SharesSharesCapitalNet IncomeDistributionsShareholdersInterestEquity
Balance at December 31, 202065,301,088 $653 $1,010,819 $224,226 $(232,508)$1,003,190 $ $1,003,190 
Net income (loss)— — — 19,337 — 19,337 — 19,337 
Share grants — 239 — — 239 — 239 
Distributions to common shareholders— — — — (21,550)(21,550)— (21,550)
Balance at March 31, 202165,301,088 $653 $1,011,058 $243,563 $(254,058)$1,001,216 $ $1,001,216 
Balance at December 31, 201965,180,628 $652 $999,302 $142,155 $(146,419)$995,690 $ $995,690 
Net income (loss)— — — 12,846 — 12,846 (152)12,694 
Share grants6,000 — 326 — — 326 — 326 
Share repurchases(951)— (18)— — (18)— (18)
Distributions to common shareholders— — — — (21,510)(21,510)— (21,510)
Contributions from noncontrolling interest— — 6,972 — — 6,972 100,668 107,640 
Balance at March 31, 202065,185,677 $652 $1,006,582 $155,001 $(167,929)$994,306 $100,516 $1,094,822 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5

INDUSTRIAL LOGISTICS PROPERTIES TRUST 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
 Three Months Ended March 31,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income $19,337 $12,694 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 7,617 11,294 
Net amortization of debt issuance costs, premiums and discounts505 586 
Amortization of acquired real estate leases and assumed real estate lease obligations4,673 6,530 
Amortization of deferred leasing costs 211 273 
Straight line rental income (2,044)(1,967)
Other non-cash expenses239 326 
Unconsolidated joint venture distributions660  
Equity in earnings of investees(2,581) 
Change in assets and liabilities:
Rents receivable 1,144 (775)
Deferred leasing costs (771)(273)
Due from related persons1,256 481 
Other assets (787)(4,420)
Accounts payable and other liabilities508 3,196 
Rents collected in advance(289)1,289 
Security deposits29 12 
Due to related persons(55)199 
Net cash provided by operating activities 29,652 29,445 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions and deposits (71,628)
Real estate improvements(789)(2,307)
Net cash used in investing activities (789)(73,935)
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility9,000 125,000 
Repayments of revolving credit facility(13,000)(170,000)
Distributions to common shareholders(21,550)(21,510)
Proceeds from noncontrolling interest, net 107,640 
Repurchase of common shares (18)
Net cash (used in) provided by financing activities(25,550)41,112 
 
Increase (decrease) in cash, cash equivalents and restricted cash 3,313 (3,378)
Cash, cash equivalents and restricted cash at beginning of period 22,834 34,550 
Cash, cash equivalents and restricted cash at end of period $26,147 $31,172 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



6

INDUSTRIAL LOGISTICS PROPERTIES TRUST 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(dollars in thousands)
(unaudited)


 Three Months Ended March 31,
20212020
SUPPLEMENTAL DISCLOSURES:
Interest paid $8,240 $14,143 

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:
As of March 31,
20212020
Cash and cash equivalents$26,147 $19,870 
Restricted cash 11,302 
Total cash, cash equivalents and restricted cash shown in the statements of cash flows$26,147 $31,172 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7

INDUSTRIAL LOGISTICS PROPERTIES TRUST 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)


Note 1. Basis of Presentation

The accompanying condensed consolidated financial statements of Industrial Logistics Properties Trust and its consolidated subsidiaries, or the Company, ILPT, 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, 2020, or our 2020 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.
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.
Note 2. Real Estate Investments

As of March 31, 2021, our portfolio was comprised of 289 wholly owned properties containing approximately 34,870,000 rentable square feet, including 226 buildings, leasable land parcels and easements containing approximately 16,756,000 rentable square feet of primarily industrial lands located on the island of Oahu, Hawaii, or our Hawaii Properties, and 63 properties containing approximately 18,114,000 rentable square feet of industrial properties located in 30 other states, or our Mainland Properties. As of March 31, 2021, we also owned a 22% equity interest in an unconsolidated joint venture which owns 12 properties located in nine states totaling approximately 9,227,000 rentable square feet.
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 March 31, 2021 and 2020, approximately 50.2% and 41.1%, 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 $5,538, or 10.2%, and $9,662, or 15.0%, of our rental income for the three months ended March 31, 2021 and 2020, respectively.
During the three months ended March 31, 2021, we committed $3,256 for expenditures related to leasing related costs for leases executed during the period for approximately 620,000 square feet. Committed but unspent tenant related obligations based on existing leases as of March 31, 2021 were $1,704.
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 plans to change the use of those lands. As of both March 31, 2021 and December 31, 2020, 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.
In March 2021, we entered into an agreement to acquire a newly built property located near the Rickenbacker intermodal terminal and airport in Columbus, Ohio containing approximately 358,000 rentable square feet and net leased to a single tenant for a purchase price of $31,500, excluding acquisition related costs. This acquisition is expected to close during the second quarter of 2021. However, this acquisition is subject to conditions; accordingly, we cannot be sure that we will complete this acquisition, that this acquisition will not be delayed or that the terms will not change.
8

INDUSTRIAL LOGISTICS PROPERTIES TRUST 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)

Joint Venture Activities
As of March 31, 2021, we have an equity investment in a joint venture that consists of the following:
ILPT Carrying Value of
ILPTInvestment at March 31,Number ofSquare
Joint VentureOwnership2021PropertiesLocationFeet
12 properties
22%$62,511 12 
Nine states
9,226,729 
The following table provides a summary of the mortgage debts of our joint venture:
Principal Balance
at March 31,
Joint Venture
Coupon Rate (1)
Maturity Date
2021 (2)
Mortgage note payable (secured by one property in Florida)
3.60%10/1/2023$56,980 
Mortgage note payable (secured by 11 other properties in eight states)
3.33%11/7/2029350,000 
Weighted average/total3.37%$406,980 
(1) Includes the effect of mark to market purchase accounting.
(2) Amounts are not adjusted for our minority interest; none of the debt is recourse to us.
During the three months ended March 31, 2020, we entered into agreements related to a joint venture for 12 of our properties in the mainland United States, or our joint venture, with an Asian institutional investor, and contributed those 12 properties to our joint venture. We received an aggregate of $108,266 from that investor for a 39% equity interest in our joint venture and we retained the remaining 61% equity interest in our joint venture. During the three months ended March 31, 2020, we incurred transaction costs of $626 in connection with the formation of this joint venture.
We recognized a 39% noncontrolling interest in our condensed consolidated financial statements for the three months ended March 31, 2020. The portion of our joint venture's net loss not attributable to us, or $152 for the three months ended March 31, 2020, is reported as noncontrolling interest in our condensed consolidated statements of comprehensive income. No distributions were made by our joint venture during the three months ended March 31, 2020.
In November 2020, we sold an additional 39% equity interest from our remaining 61% equity interest to a second unrelated third party institutional investor and retained a 22% equity interest in our joint venture. Effective as of the date of the sale, we deconsolidated our joint venture and, since that time, we account for our joint venture using the equity method of accounting under the fair value option.
During the three months ended March 31, 2021, we recorded the change in the fair value of our investment in our joint venture of $2,581 as equity in earnings of investees in our condensed consolidated statements of comprehensive income. In addition, during the three months ended March 31, 2021, our joint venture made aggregate cash distributions of $660 to us. See Note 5 for more information regarding our joint venture.
Note 3. 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 $9,872 and
9

INDUSTRIAL LOGISTICS PROPERTIES TRUST 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)

$11,520 for the three months ended March 31, 2021 and 2020, respectively, of which tenant reimbursements totaled $9,627 and $11,275, respectively.
We increased rental income to record revenue on a straight line basis by $2,044 and $1,967 for the three months ended March 31, 2021 and 2020, respectively.
During the year ended December 31, 2020, certain of our tenants requested relief from their obligations to pay rent due to us in response to the economic conditions resulting from the COVID-19 pandemic. In most cases, the tenants granted deferrals were obligated to pay the deferred rents in 12 equal monthly installments beginning in September 2020. As of March 31, 2021 and December 31, 2020, deferred payments totaling $1,725 and $2,630, respectively, are included in rents receivable in our condensed consolidated balance sheets. These deferred amounts did not impact our operating results for the three months ended March 31, 2021.
Note 4. Indebtedness

As of March 31, 2021, our outstanding indebtedness consisted of the following:
Net Book
 Value
Principal Balance as of of Collateral
March 31,December 31,InterestAt March 31,
2021 (1)
2020 (1)
RateMaturity2021
Unsecured revolving credit facility (2)
$217,000 $221,000 1.41 %Dec 2021$ 
Mortgage notes payable (secured by 186 properties in Hawaii)
650,000 650,000 4.31 %Feb 2029491,336 
867,000 871,000 $491,336 
Unamortized debt issuance costs(4,285)(4,421)
$862,715 $866,579 

(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.

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 March 31, 2021, interest payable on the amount outstanding under our revolving credit facility was LIBOR plus 130 basis points and our commitment fee was 25 basis points. As of March 31, 2021 and December 31, 2020, the interest rate payable on borrowings under our revolving credit facility was 1.41% and 1.70%, respectively. The weighted average interest rate for borrowings under our revolving credit facility was 1.57% and 3.23% for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021 and April 22, 2021, we had $217,000 outstanding under our revolving credit facility, and $533,000 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 March 31, 2021.
10

INDUSTRIAL LOGISTICS PROPERTIES TRUST 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)

Note 5. 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 March 31, 2021 and December 31, 2020, 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:
 At March 31, 2021At December 31, 2020
 CarryingEstimatedCarryingEstimated
 
Value (1)
Fair Value
Value (1)
Fair Value
Mortgage notes payable$645,715 $706,152 $645,579 $730,119 
(1)Includes unamortized debt issuance costs of $4,285 and $4,421 as of March 31, 2021 and December 31, 2020, respectively.

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.
The table below presents certain of our assets measured on a recurring basis at fair value at March 31, 2021, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset:
Quoted Prices in Significant OtherSignificant
Active Markets forObservableUnobservable
Identical AssetsInputsInputs
 Total(Level 1)(Level 2)(Level 3)
Recurring fair value measurements
Investment in unconsolidated joint venture (1)
$62,511 $ $ $62,511 
(1) We own a 22% equity interest in a joint venture that owns 12 properties and is included in investment in unconsolidated joint venture in our condensed consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs). The significant unobservable inputs used in the fair value are discount rates of between 4.8% and 7.3%, exit capitalization rates of between 4.4% and 6.8%, holding periods of approximately 10 years and market rents. The assumptions are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from appraisers, industry publications and our experience. See Note 2 for further information regarding our investment in this joint venture.
Note 6. Shareholders’ Equity

Distributions:
During the three months ended March 31, 2021, we declared and paid a regular quarterly distribution to common shareholders as follows:
Record DatePayment DateDistribution Per ShareTotal Distribution
January 25, 2021February 18, 2021$0.33 $21,550 
On April 15, 2021, we declared a regular quarterly distribution of $0.33 per common share, or approximately $21,550, to shareholders of record on April 26, 2021. We expect to pay this distribution to our shareholders on or about May 20, 2021.
11

INDUSTRIAL LOGISTICS PROPERTIES TRUST 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)

Note 7. Per Common Share Amounts

The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands):
 Three Months Ended March 31,
 20212020
Weighted average common shares for basic earnings per share65,139 65,075 
Effect of dilutive securities: unvested share awards38 7 
Weighted average common shares for diluted earnings per share65,177 65,082 

Note 8. 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 $2,544 and $3,307 for the three months ended March 31, 2021 and 2020, respectively. The net business management fees we recognized for the three months ended March 31, 2020 include $129 of management fees paid to RMR LLC for that period by our joint venture we then owned a majority interest in and whose operating results we reported on a consolidated basis. Beginning in November 2020, our ownership in our joint venture was reduced to a minority interest; as a result, we ceased at that time to consolidate our joint venture’s operating results and, since then, we do not include the management fees it pays to RMR LLC in the management fees we pay to RMR LLC. Our joint venture is further described in Notes 2 and 9. Based on our common share total return, as defined in our business management agreement, as of March 31, 2021 and 2020, no incentive fees are included in the net business management fees we recognized for the three months ended March 31, 2021 or 2020. The actual amount of annual incentive fees for 2021, if any, will be based on our common share total return, as defined in our business management agreement, for the three year period ending December 31, 2021, and will be payable in 2022. We did not incur any incentive fee payable to RMR LLC for the year ended December 31, 2020. 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 $1,594 and $1,923 for the three months ended March 31, 2021 and 2020, respectively. Of these amounts, for the three months ended March 31, 2021 and 2020, $1,582 and $1,860, respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income and $12 and $63, respectively, were capitalized as building improvements in our condensed consolidated balance sheets.
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 $1,141 and $1,199 for these expenses and costs for the three months ended March 31, 2021 and 2020, 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 9 for further information regarding our relationships, agreements and transactions with RMR LLC.
Note 9. 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
12

INDUSTRIAL LOGISTICS PROPERTIES TRUST 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)

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 officer and employee of RMR LLC, and each of our other officers is also an officer and employee of RMR LLC. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as chair of the boards of trustees or boards of directors of several of these public companies and as a managing director or managing trustee of these public companies. Other officers of RMR LLC, including Mr. Murray and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies.
Our Manager, RMR LLC. We have two agreements with RMR LLC to provide management services to us. See Note 8 for further information regarding our management agreements with RMR LLC.
For further information about these and other such relationships and certain other related person transactions, see our 2020 Annual Report.
Our Joint Venture. As of March 31, 2021 and December 31, 2020, our joint venture owed to us $1,409 and $2,665, respectively, for post-closing adjustments relating to our sale of some of our equity interests to a second third party institutional investor in November 2020. These amounts are presented as due from related persons in our condensed consolidated balance sheets.
13

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following information should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and with our 2020 Annual Report.
OVERVIEW (dollars in thousands, except per share and per square foot data)
 
We are a real estate investment trust, or REIT, organized under Maryland law. As of March 31, 2021, our portfolio was comprised of 289 wholly owned properties containing approximately 34.9 million rentable square feet, including 226 buildings, leasable land parcels and easements containing approximately 16.8 million rentable square feet located on the island of Oahu, Hawaii, and 63 properties containing approximately 18.1 million rentable square feet located in 30 other states. As of March 31, 2021, we also owned a 22% equity interest in an unconsolidated joint venture which owns 12 properties located in nine states containing approximately 9.2 million rentable square feet that were 100% leased with an average (by annualized rental revenues) remaining lease term of 8.0 years. As of March 31, 2021, our consolidated properties were approximately 98.6% leased (based on rentable square feet) to 253 different tenants with a weighted average remaining lease term (based on annualized rental revenues) of approximately 9.4 years. We define the term annualized rental revenues as used in this section as the annualized contractual rents, as of March 31, 2021, including straight line rent adjustments and excluding lease value amortization, adjusted for tenant concessions including free rent and amounts reimbursed to tenants, plus estimated recurring expense reimbursements from tenants.
Our business is focused on industrial and logistics properties. The industrial and logistics sector has fared better than some other industries thus far during the COVID-19 pandemic, including other real estate sectors, due to the demand for e-commerce. Although, to date, the COVID-19 pandemic has not had a significant adverse impact on our business, certain of our tenants requested relief from their obligations to pay rent due to us in response to the economic conditions resulting from the COVID-19 pandemic. As of April 23, 2021, we granted requests to certain of our tenants to defer aggregate rent payments of $3,103 with respect to leases that represent, as of March 31, 2021, approximately 1.5% of our annualized rental revenues. As of March 31, 2021, we recognized $1,725 in our accounts receivable related to the remaining deferred amounts. In most cases, these tenants were obligated to pay the deferred rents in 12 equal monthly installments beginning in September 2020. These deferred amounts did not negatively impact our operating results for the three months ended March 31, 2021, and will continue to be reflected in our financial results in the applicable future reporting periods, assuming these tenants continue to pay the deferred rents due to us. Our manager, RMR LLC, has taken various actions in response to the COVID-19 pandemic to address its operating and financial impact on us and to protect the health and safety of our tenants and other persons who visit our properties. In addition, we are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business. See our 2020 Annual Report for further information regarding these actions and monitoring activities.
There are uncertainties surrounding the COVID-19 pandemic and, as a result of these uncertainties, we are unable to determine what the ultimate impact will be on our, our tenants’ and other stakeholders’ businesses, operations, financial results and financial position. For further information and risks relating to the COVID-19 pandemic on us and our business, see Part I, Item 1, “Business—Impact of COVID-19” and Part I, Item 1A, “Risk Factors”, of our 2020 Annual Report.
Property Operations
Occupancy data for our properties as of March 31, 2021 and 2020 is as follows (square feet in thousands):
All Properties
Comparable Properties (1)
As of March 31, As of March 31,
2021202020212020
Total properties289 301 287 287 
Total rentable square feet (2)
34,870 43,759 33,404 33,404 
Percent leased (3)
98.6 %98.9 %98.5 %98.5 %
(1)Consists of properties that we owned continuously since January 1, 2020 and excludes 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.
(2)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 March 31, 2021, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.
 
14

The average effective rental rates per square foot, as defined below, for our properties for the three months ended March 31, 2021 and 2020 are as follows:
Three Months Ended March 31,
20212020
Average effective rental rates per square foot leased: (1)
All properties$6.31 $6.02 
Comparable properties (2)
$6.35 $6.11 
(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)Consists of properties that we owned continuously since January 1, 2020 and excludes 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.

During the three months ended March 31, 2021, we entered new and renewal leases for approximately 620,000 square feet at weighted average (by square feet) rental rates that were approximately 16.0% higher than prior rates for the same land area or building area (with leasing rate increases for vacant space based upon the most recent rental rate for the same space). The weighted average (by square feet) lease term for leases that were in effect for the same land area or building area during the prior lease term was 11.7 years. Commitments for tenant improvements, leasing costs and concessions for leases entered during the three months ended March 31, 2021 totaled $3,256, or approximately $0.45 per square foot per year of the new weighted average lease term.
As shown in the table below, approximately 0.9% of both our total leased square feet and our total annualized rental revenues as of March 31, 2021 are included in leases scheduled to expire by December 31, 2021.
As of March 31, 2021, our lease expirations by year are as follows (dollars and square feet in thousands):
% of TotalCumulative
% of TotalCumulative %AnnualizedAnnualized% of Total
LeasedLeasedof Total LeasedRentalRentalAnnualized
Number ofSquare FeetSquare FeetSquare Feet Revenues RevenuesRental Revenues
Period / YearTenants
Expiring (1)
Expiring (1)
Expiring (1)
ExpiringExpiringExpiring
4/1/2021-12/31/202114 322 0.9 %0.9 %$2,165 1.0 %1.0 %
202260 2,683 7.8 %8.7 %19,499 9.2 %10.2 %
202331 2,575 7.5 %16.2 %16,871 8.0 %18.2 %
202431 6,709 19.5 %35.7 %28,638 13.6 %31.8 %
202515 2,364 6.9 %42.6 %13,156 6.2 %38.0 %
20261,028 3.0 %45.6 %7,121 3.4 %41.4 %
202711 4,578 13.3 %58.9 %24,696 11.7 %53.1 %
202820 2,459 7.2 %66.1 %17,881 8.5 %61.6 %
20291,697 4.9 %71.0 %5,393 2.6 %64.2 %
20301,232 3.6 %74.6 %9,516 4.5 %68.7 %
Thereafter82 8,719 25.4 %100.0 %66,147 31.3 %100.0 %
    Total288 34,366 100.0 %$211,083 100.0 %
Weighted average remaining lease term (in years):8.3 9.4 
(1)Leased square feet is pursuant to existing leases as of March 31, 2021 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.
15

We generally receive rents from our tenants monthly in advance. As of March 31, 2021, tenants representing 1% or more of our total annualized rental revenues were as follows (square feet in thousands):
% of Total
No. of Leased% of TotalAnnualized Rental
TenantStatesProperties
Sq. Ft. (1)
Leased Sq. Ft. (1)
Revenues
1Amazon.com Services, Inc.AZ, SC, TN, VA43,869 11.3 %10.0 %
2Federal Express Corporation / FedEx Ground Package System, Inc.AR, CO, HI, IA, ID, IL, MN, MO, NC, ND, NV, OH, OK, UT17952 2.8 %4.5 %
3Restoration Hardware, Inc.MD11,195 3.5 %2.9 %
4American Tire Distributors, Inc.CO, LA, NE, NY, OH5722 2.1 %2.5 %
5Servco Pacific Inc.HI6590 1.7 %2.4 %
6UPS Supply Chain Solutions Inc.NH1614 1.8 %2.3 %
7Par Hawaii Refining, LLCHI33,148 9.2 %2.3 %
8EF Transit, Inc.IN1535 1.6 %1.9 %
9BJ's Wholesale Club, Inc.NJ1634 1.8 %1.7 %
10Shurtech Brands, LLCOH1645 1.9 %1.6 %
11Coca-Cola Bottling of Hawaii, LLCHI4351 1.0 %1.6 %
12Safeway Inc.HI2146 0.4 %1.6 %
13ELC Distribution Center LLCKS1645 1.9 %1.5 %
14Manheim Remarketing, Inc.HI1338 1.0 %1.5 %
15Exel Inc.SC1945 2.8 %1.4 %
16Avnet, Inc.OH1581 1.7 %1.4 %
17Warehouse Rentals Inc.HI5278 0.8 %1.3 %
18YNAP CorporationNJ1167 0.5 %1.2 %
19ODW Logistics, Inc.OH3760 2.2 %1.1 %
20Honolulu Warehouse Co., Ltd.HI1298 0.9 %1.1 %
21Refresco Beverages US Inc.MO, SC2421 1.2 %1.1 %
22Hellmann Worldwide Logistics Inc.FL1240 0.7 %1.1 %
23AES Hawaii, Inc.HI21,242 3.6 %1.0 %
24General Mills Operations, LLCMI1158 0.5 %1.0 %
Total6619,474 56.9 %50.0 %
(1)Leased square feet is pursuant to existing leases as of March 31, 2021 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

Mainland Properties. As of March 31, 2021, our Mainland Properties represented approximately 49.2% of our annualized rental revenues. We generally will seek to renew or extend the terms of leases at our Mainland Properties as their expirations approach. Due to the capital many of the tenants in our Mainland Properties have invested in these properties and because many of these properties appear to be of strategic importance to the tenants’ businesses, we believe that it is likely that these tenants will renew or extend their leases prior to their expirations. If we are unable to extend or renew our leases, it may be time consuming and expensive to relet some of these properties and the terms of any leases we may enter may be less favorable to us than the terms of our existing leases for those properties.
Hawaii Properties. As of March 31, 2021, our Hawaii Properties represented approximately 50.8% of our annualized rental revenues. As of March 31, 2021, certain of our Hawaii Properties are lands leased for rents that periodically reset based on fair market values, generally every ten years. Revenues from our Hawaii Properties have generally increased under our or our predecessors’ ownership as rents under the leases for those properties have been reset or renewed. Lease renewals, lease extensions, new leases and rental rates for our Hawaii Properties in the future will depend on prevailing market conditions when these lease renewals, lease extensions, new leases and rental rates are set. As rent reset dates or lease expirations approach at our Hawaii Properties, we generally negotiate with existing or new tenants for new lease terms. If we are unable to reach an agreement with a tenant on a rent reset, our Hawaii Properties’ leases typically provide that rent is reset based on an appraisal process. Despite our and our predecessors’ prior experience with rent resets, lease extensions and new leases in Hawaii, our ability to increase rents when rents reset, leases are extended, or leases expire depends upon market conditions which are beyond our control. Accordingly, we cannot be sure that the historical increases achieved at our Hawaii Properties will continue in the future.
16

The following chart shows the annualized rental revenues as of March 31, 2021 scheduled to reset at our Hawaii Properties:
Scheduled Rent Resets at Hawaii Properties
(dollars in thousands)
 
Annualized
Rental Revenues as of
March 31, 2021
Scheduled to Reset
4/1/2021-12/31/2021$701 
20223,860 
20232,535 
20242,103 
20253,115 
2026 and thereafter17,018 
Total$29,332 
As of March 31, 2021, $2,725, or 1.3%, of our annualized rental revenues are included in leases scheduled to expire through March 31, 2022 and 1.4% of our rentable square feet are currently vacant. Rental rates for which available space may be leased in the future will depend on prevailing market conditions when lease extensions, lease renewals or new leases are negotiated. Whenever we extend, renew, or enter new leases for our properties, we intend to seek rents that are equal to or higher than our historical rents for the same properties; however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control.
Tenant Review Process. Our manager, RMR LLC, employs a tenant review process for us. RMR LLC assesses tenants on an individual basis based on various applicable credit criteria. In general, depending on facts and circumstances, RMR LLC evaluates the creditworthiness of a tenant based on information that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources. RMR LLC also often uses a third party service to monitor the credit ratings of debt securities of our existing tenants whose debt securities are rated by a nationally recognized credit rating agency.
Investing and Financing Activities (dollars in thousands)
In March 2021, we entered into an agreement to acquire a newly built property located near the Rickenbacker intermodal terminal and airport in Columbus, Ohio containing approximately 358,000 rentable square feet and net leased to a single tenant for a purchase price of $31,500, excluding acquisition related costs. This acquisition is expected to close during the second quarter of 2021. However, this acquisition is subject to conditions; accordingly, we cannot be sure that we will complete this acquisition, that this acquisition will not be delayed or that the terms will not change.
During the three months ended March 31, 2020, we entered into agreements related to a joint venture for 12 of our properties in the mainland United States with an Asian institutional investor and contributed those 12 properties to our joint venture. We received an aggregate of $108,266 from that investor for a 39% equity interest in our joint venture and we retained the remaining 61% equity interest in our joint venture. As of March 31, 2020, we incurred transaction costs of $626 in connection with the formation of this joint venture.
We recognized a 39% noncontrolling interest in our condensed consolidated financial statements for the three months ended March 31, 2020. The portion of our joint venture's net loss not attributable to us, or $152 for the three months ended March 31, 2020, is reported as noncontrolling interest in our condensed consolidated statements of comprehensive income. No distributions were made by our joint venture during the three months ended March 31, 2020.
17

In November 2020, we sold an additional 39% equity interest from our remaining 61% equity interest to a second unrelated third party institutional investor and retained a 22% equity interest in our joint venture. Effective as of the date of the sale, we deconsolidated our joint venture and, since that time, we account for our joint venture using the equity method of accounting under the fair value option.
During the three months ended March 31, 2021, we recorded the change in the fair value of our investment in our joint venture of $2,581 in our condensed consolidated statements of comprehensive income. In addition, during the three months ended March 31, 2021, our joint venture made aggregate cash distributions of $660 to us.
For further information regarding our investing and financing activities, see Notes 2 and 5 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investing and Financing Liquidity and Resources” of this Quarterly Report on Form 10-Q.
18

RESULTS OF OPERATIONS
 
Three Months Ended March 31, 2021, Compared to Three Months Ended March 31, 2020 (dollars and share amounts in thousands, except per share data)
Comparable Properties Results (1)
Non-Comparable Properties Results (2)
Consolidated Results
Three Months Ended March 31, Three Months Ended March 31, Three Months Ended March 31,
$%$$%
20212020ChangeChange20212020Change20212020ChangeChange
Rental income$52,181 $50,358 $1,823 3.6 %$2,036 $13,920 $(11,884)$54,217 $64,278 $(10,061)(15.7 %)
Operating expenses:
Real estate taxes7,036 6,996 40 0.6 %211 1,815 (1,604)7,247 8,811 (1,564)(17.8 %)
Other operating
    expenses
4,824 3,808 1,016 26.7 %152 1,373 (1,221)4,976 5,181 (205)(4.0 %)
Total operating
    expenses
11,860 10,804 1,056 9.8 %363 3,188 (2,825)12,223 13,992 (1,769)(12.6 %)
Net operating income (3)
$40,321 $39,554 $767 1.9 %$1,673 $10,732 $(9,059)41,994 50,286 (8,292)(16.5 %)
Other expenses:
Depreciation and amortization12,678 18,290 (5,612)(30.7 %)
General and administrative3,756 4,831 (1,075)(22.3 %)
Total other expenses16,434 23,121 (6,687)(28.9 %)
Interest income— 111 (111)(100.0 %)
Interest expense(8,741)(14,519)5,778 (39.8 %)
Income before income tax expense and equity in earnings of investees16,819 12,757 4,062 31.8 %
Income tax expense(63)(63)— — %
Equity in earnings of investees2,581 — 2,581 N/M
Net income19,337 12,694 6,643 52.3 %
Net loss attributable to noncontrolling interest— 152 (152)(100.0 %)
Net income attributable to common shareholders$19,337 $12,846 $6,491 50.5 %
Weighted average common shares outstanding - basic65,139 65,075 64 0.1 %
Weighted average common shares outstanding - diluted65,177 65,082 95 0.1 %
Per common share data (basic and diluted):
Net income attributable to common shareholders$0.30 $0.20 $0.1 50.0 %

N/M - Not Meaningful

(1)Consists of properties that we owned continuously since January 1, 2020 and excludes 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.

(2)Consists of two properties that we acquired during the period from January 1, 2020 to March 31, 2021, one property we sold in 2020 and 12 properties we contributed in the first quarter of 2020 to a joint venture in which we currently own a 22% equity interest. We consolidated our properties owned by the joint venture until November 2020.

(3)See our definition of NOI and our reconciliation of net income to NOI below under the heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of results for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.
Rental income. The decrease in rental income is primarily a result of our acquisition and disposition activities, which includes the contribution of 12 properties to our joint venture that was deconsolidated in November 2020, partially offset by increases from leasing activity and rent resets at certain of our comparable properties. Rental income includes non-cash straight line rent adjustments totaling approximately $2,044 for the 2021 period and approximately $1,967 for the 2020 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $180 for the 2021 period and approximately $200 for the 2020 period.
Real estate taxes. The decrease in real estate taxes primarily reflects our acquisition and disposition activities.
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Other operating expenses. Other operating expenses primarily include repairs and maintenance, utilities, insurance, snow removal, legal and property management fees. The decrease in other operating expenses is primarily due to our acquisition and disposition activities, partially offset by an increase in snow removal and insurance costs in the 2021 period at certain of our comparable properties.
Depreciation and amortization. The decrease in depreciation and amortization primarily reflects our acquisition and disposition activities, partially offset by certain leasing related assets becoming fully amortized in the 2021 period.
General and administrative. General and administrative expenses primarily include fees paid under our business management agreement with RMR LLC, legal fees, audit fees, Trustee fees and expenses and equity compensation expense. The decrease in general and administrative expenses is primarily due to a decrease in business management fees as a result of our net disposition of properties since April 1, 2020.
Interest income. Interest income represents interest earned on our cash balances. The decrease in interest income is primarily due to a decrease in the interest rate earned on invested cash during the 2021 period as compared to the 2020 period.
Interest expense. The decrease in interest expense is primarily due to lower average outstanding indebtedness during the 2021 period as compared to the 2020 period.
Income tax expense. Income tax expense primarily reflects state income taxes payable in certain jurisdictions.
Equity in earnings of investees. Equity in earnings of investees is the change in the fair value of our investment in our joint venture.
Net income. The increase in net income for the 2021 period compared to the 2020 period reflects the changes noted above.
Net loss attributable to noncontrolling interest. Net loss attributable to noncontrolling interest represents the net loss attributable to the 39% equity interest in our joint venture that we did not own during the 2020 period when we owned a 61% equity interest in the venture.
Weighted average common shares outstanding. The increase in weighted average common shares outstanding primarily reflects common shares awarded under our equity compensation plan since January 1, 2020.
Net income attributable to common shareholders per common share - basic and diluted. The increase in net income attributable to common shareholders per common share reflects the changes to net income attributable to common shareholders and weighted average common shares noted above.
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Non-GAAP Financial Measures

We present certain “non-GAAP financial measures” within the meaning of the applicable rules of the Securities and Exchange Commission, or SEC, including net operating income, or NOI, funds from operations, or FFO, attributable to common shareholders and Normalized FFO attributable to common shareholders. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income or net income attributable to common shareholders as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income and net income attributable to common shareholders as presented in our condensed consolidated statements of comprehensive income. We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income and net income attributable to common shareholders. We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.
Net Operating Income
We calculate NOI as shown below. We define NOI as income from our rental of real estate less our property operating expenses. The calculation of NOI excludes certain components of net income in order to provide results that are more closely related to our property level results of operations. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization expense. We use NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate NOI differently than we do.
The following table presents the reconciliation of net income to NOI for the three months ended March 31, 2021 and 2020 (dollars in thousands):
Three Months Ended March 31,
20212020
Reconciliation of Net Income to NOI:
Net income$19,337 $12,694 
Equity in earnings of investees(2,581)— 
Income tax expense63 63 
Income before income tax expense and equity earnings of investees16,819 12,757 
Interest expense8,741 14,519 
Interest income— (111)
General and administrative3,756 4,831 
Depreciation and amortization12,678 18,290 
NOI$41,994 $50,286 
NOI:
Hawaii Properties$19,992 $19,517 
Mainland Properties22,002 30,769 
NOI$41,994 $50,286 

Funds From Operations and Normalized Funds From Operations Attributable to Common Shareholders
We calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders as shown below. FFO attributable to common shareholders is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income attributable to common shareholders, calculated in accordance with GAAP, excluding any gain or loss on sale of real estate and equity in earnings of an unconsolidated joint venture, plus real estate depreciation and amortization of consolidated properties and our proportionate share of FFO of unconsolidated joint venture properties and minus FFO adjustments attributable to noncontrolling interest, as well as certain other adjustments currently not applicable to us. In calculating Normalized FFO attributable to common shareholders, we adjust for the items shown below including similar adjustments for our unconsolidated joint venture, if any. FFO attributable to common shareholders and
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Normalized FFO attributable to common shareholders are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our distribution rate as a percentage of the trading price of our common shares, or dividend yield, and our dividend yield compared to the dividend yields of other industrial REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. Other real estate companies and REITs may calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders differently than we do.
The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net income attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three months ended March 31, 2021 and 2020 (dollars in thousands, except per share data):
Three Months Ended March 31,
20212020
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$19,337 $12,846 
Depreciation and amortization12,678 18,290 
Equity in earnings of unconsolidated joint venture(2,581)— 
Share of FFO from unconsolidated joint venture1,236 — 
FFO adjustments attributable to noncontrolling interest— (977)
FFO attributable to common shareholders and Normalized FFO attributable to common shareholders$30,670 $30,159 
Weighted average common shares outstanding - basic65,139 65,075 
Weighted average common shares outstanding - diluted65,177 65,082 
Per common share data (basic and diluted)
FFO attributable to common shareholders and Normalized FFO attributable to common shareholders$0.47 $0.46 
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LIQUIDITY AND CAPITAL RESOURCES
 
Our Operating Liquidity and Resources (dollars in thousands) 
Our principal sources of funds to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders are rents from tenants at our properties and borrowings under our revolving credit facility. With $533,000 of availability under our revolving credit facility as of April 22, 2021, 72.3% of our annualized rental revenues derived from investment grade rated tenants, subsidiaries of investment grade rated parent entities or our Hawaii land leases and only 1.3% of our annualized rental revenues as of March 31, 2021 from expiring leases over the next 12 months, we believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter. Our future cash flows from operating activities will depend primarily upon our ability to: 
collect rents from our tenants when due;
maintain the occupancy of, and maintain or increase the rental rates at, our properties;
control our operating cost increases; and
purchase additional properties that produce cash flows in excess of our costs of acquisition capital and property operating expenses.

The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our condensed consolidated statements of cash flows (dollars in thousands):
 Three Months Ended March 31,
 20212020
Cash and cash equivalents and restricted cash at beginning of period$22,834 $34,550 
Net cash provided by (used in):
Operating activities29,652 29,445 
Investing activities(789)(73,935)
Financing activities(25,550)41,112 
Cash and cash equivalents and restricted cash at end of period$26,147 $31,172 
The increase in net cash provided by operating activities for the three months ended March 31, 2021 compared to the 2020 period is primarily due to changes in our working capital. The decrease in net cash used in investing activities for the three months ended March 31, 2021 compared to the 2020 period is primarily due to the acquisition of one property during the 2020 period compared to no property acquisitions during the 2021 period. The change in net cash provided by financing activities for the three months ended March 31, 2021 to net cash provided by financing activities for the 2020 period is primarily due to the proceeds we received from our sale of equity interests in our joint venture in the 2020 period.
Our Investing and Financing Liquidity and Resources (dollars in thousands, except per share and per square foot data)
Our future acquisition or development activity cannot be accurately projected because such activity depends upon available opportunities that come to our attention and upon our ability to successfully acquire, develop and operate properties, financing available to us, our cost of capital, other commitments we have made and alternative uses for the amounts that would be required for the acquisition or development, the extent of our leverage, and the expected impact of the acquisition or development on our debt covenants and certain other financial metrics. We generally do not intend to purchase “turn around” properties, or properties that do not generate positive cash flows, but we may conduct construction or redevelopment activities on our properties.
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As of March 31, 2021, we had cash and cash equivalents of $26,147. To maintain our qualification for taxation as a REIT under the Internal Revenue Code of 1986, as amended, we generally are required to distribute at least 90% of our REIT taxable income annually, subject to specified adjustments and excluding any net capital gain. This distribution requirement limits our ability to retain earnings and thereby provide capital for our operations or acquisitions. In order to fund cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions, to pay operating or capital expenses or to fund any future property acquisitions, development or redevelopment efforts, we maintain a $750,000 unsecured revolving credit facility with a group of lenders. The maturity date of our revolving credit facility is December 29, 2021. We have the option to extend the maturity date of our revolving credit facility for two, six month periods, subject to payment of extension fees and satisfaction of other conditions. We pay interest on borrowings under our revolving credit facility at the rate of LIBOR plus a premium that varies based on our leverage ratio. We are required to pay a commitment fee on the unused portion of our revolving credit facility. At March 31, 2021, the interest rate premium on our revolving credit facility was 130 basis points and our commitment fee was 25 basis points. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. As of March 31, 2021, the annual interest rate payable on borrowings under our revolving credit facility was 1.41%. As of March 31, 2021 and April 22, 2021, we had $217,000 outstanding under our revolving credit facility, and $533,000 available to borrow under our revolving credit facility.
Our credit agreement includes a feature under which the maximum borrowing availability under the facility may be increased to up to $1,500,000 in certain circumstances.
As of March 31, 2021, our debt maturities (other than our revolving credit facility), consisted of mortgage notes with an aggregate principal amount of $650,000, which is scheduled to mature in 2029.
During the three months ended March 31, 2020, we entered into agreements related to a joint venture for 12 of our properties in the mainland United States with an Asian institutional investor and contributed those 12 properties to our joint venture. We received an aggregate of $108,266 from that investor for a 39% equity interest in our joint venture and we retained the remaining 61% equity interest in our joint venture. As of March 31, 2020, we incurred transaction costs of $626 in connection with the formation of this joint venture.
We recognized a 39% noncontrolling interest in our condensed consolidated financial statements for the three months ended March 31, 2020. The portion of our joint venture's net loss not attributable to us, or $152 for the three months ended March 31, 2020, is reported as noncontrolling interest in our condensed consolidated statements of comprehensive income. No distributions were made by our joint venture during the three months ended March 31, 2020.
In November 2020, we sold an additional 39% equity interest from our remaining 61% equity interest to a second unrelated third party institutional investor and retained a 22% equity interest in our joint venture. Effective as of the date of the sale, we deconsolidated our joint venture and, since that time, we account for our joint venture using the equity method of accounting under the fair value option.
During the three months ended March 31, 2021, we recorded the change in the fair value of our investment in our joint venture of $2,581 as equity in earnings of investees in our condensed consolidated statements of comprehensive income. In addition, during the three months ended March 31, 2021, our joint venture made aggregate cash distributions of $660 to us.
For further information regarding our investing and financing activities, see Notes 2 and 5 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We expect to use borrowings under our revolving credit facility, payments we may recei