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 June 30, 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,	Massachusetts	02458-1634
(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 Class	Trading Symbol(s)	Name Of Each Exchange On Which Registered
Common Shares of Beneficial Interest	ILPT	The 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 filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller 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 July 26, 2021: 65,314,355

INDUSTRIAL LOGISTICS PROPERTIES TRUST

FORM 10-Q

June 30, 2021

INDEX

		Page
PART I	Financial Information	3
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets —June 30, 2021 and December 31, 2020	3
	Condensed Consolidated Statements of Comprehensive Income — Three and Six Months Ended June 30, 2021 and 2020	4
	Condensed Consolidated Statements of Shareholders’ Equity — Three and Six Months Ended June 30, 2021 and 2020	5
	Condensed Consolidated Statements of Cash Flows — Six Months Ended June 30, 2021 and 2020	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	33
	Warning Concerning Forward-Looking Statements	34
	Statement Concerning Limited Liability	38
PART II	Other Information	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.	Exhibits	40
	Signatures	41

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)

	June 30,		December 31,
	2021		2020
ASSETS
Real estate properties:
Land	$	712,909	$	709,099
Buildings and improvements	1,128,255		1,099,971
Total real estate properties, gross	1,841,164		1,809,070
Accumulated depreciation	(156,644)		(141,406)
Total real estate properties, net	1,684,520		1,667,664
Investment in unconsolidated joint venture	62,923		60,590
Acquired real estate leases, net	76,889		83,644
Cash and cash equivalents	30,512		22,834
Rents receivable, including straight line rents of $66,748 and $62,753, respectively	72,507		69,511
Deferred leasing costs, net	5,457		4,595
Debt issuance costs, net	738		1,477
Due from related persons	—		2,665
Other assets, net	1,141		2,765
Total assets	$	1,934,687	$	1,915,745
LIABILITIES AND SHAREHOLDERS' EQUITY
Revolving credit facility	$	244,000	$	221,000
Mortgage notes payable, net	645,851		645,579
Assumed real estate lease obligations, net	13,514		14,630
Accounts payable and other liabilities	14,473		14,716
Rents collected in advance	8,948		7,811
Security deposits	6,761		6,540
Due to related persons	2,064		2,279
Total liabilities	935,611		912,555
Commitments and contingencies
Shareholders' Equity:
Common shares of beneficial interest, $.01 par value: 100,000,000 shares authorized; 65,314,355 and 65,301,088 shares issued and outstanding, respectively	653		653
Additional paid in capital	1,011,636		1,010,819
Cumulative net income	262,394		224,226
Cumulative common distributions	(275,607)		(232,508)
Total shareholders' equity	999,076		1,003,190
Total liabilities and shareholders' equity	$	1,934,687	$	1,915,745

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

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INDUSTRIAL LOGISTICS PROPERTIES TRUST 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(amounts in thousands, except per share data)

(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Rental income	$	54,180	$	65,110	$	108,397	$	129,388
Expenses:
Real estate taxes	7,489		8,932		14,736		17,743
Other operating expenses	4,341		5,041		9,317		10,222
Depreciation and amortization	11,830		18,525		24,508		36,815
Acquisition and certain other transaction related costs	646		—		646		—
General and administrative	4,234		4,846		7,990		9,677
Total expenses	28,540		37,344		57,197		74,457
Interest income	—		2		—		113
Interest expense (including net amortization of debt issuance costs, premiums and discounts of $506, $642, $1,011 and $1,229, respectively)	(8,643)		(13,205)		(17,384)		(27,724)
Gain on early extinguishment of debt	—		120		—		120
Income before income tax expense and equity in earnings of investees	16,997		14,683		33,816		27,440
Income tax expense	(42)		(126)		(105)		(189)
Equity in earnings of investees	1,876		—		4,457		—
Net income	18,831		14,557		38,168		27,251
Net loss attributable to noncontrolling interest	—		264		—		416
Net income attributable to common shareholders	$	18,831	$	14,821	$	38,168	$	27,667
Weighted average common shares outstanding - basic	65,146		65,089		65,142		65,082
Weighted average common shares outstanding - diluted	65,207		65,091		65,192		65,087
Per common share data (basic and diluted):
Net income attributable to common shareholders	$	0.29	$	0.23	$	0.58	$	0.42

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)

	Number of			Additional				Cumulative
	Common	Common		Paid In		Cumulative		Common		Total
	Shares	Shares		Capital		Net Income		Distributions		Equity
Balance at December 31, 2020	65,301,088	$	653	$	1,010,819	$	224,226	$	(232,508)	$	1,003,190
Net income (loss)	—	—		—		19,337		—		19,337
Share grants	—	—		239		—		—		239
Distributions to common shareholders	—	—		—		—		(21,550)		(21,550)
Balance at March 31, 2021	65,301,088	653		1,011,058		243,563		(254,058)		1,001,216
Net income (loss)	—	—		—		18,831		—		18,831
Share grants	21,000	—		780		—		—		780
Share repurchases	(7,733)	—		(202)		—		—		(202)
Distributions to common shareholders	—	—		—		—		(21,549)		(21,549)
Balance at June 30, 2021	65,314,355	$	653	$	1,011,636	$	262,394	$	(275,607)	$	999,076

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

5

INDUSTRIAL LOGISTICS PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(dollars in thousands)

(unaudited)

										Total Equity		Total Equity
	Number of			Additional				Cumulative		Attributable to		Attributable to
	Common	Common		Paid In		Cumulative		Common		Common		Noncontrolling		Total
	Shares	Shares		Capital		Net Income		Distributions		Shareholders		Interest		Equity
Balance at December 31, 2019	65,180,628	$	652	$	999,302	$	142,155	$	(146,419)	$	995,690	$	—	$	995,690
Net income (loss)	—	—		—		12,846		—		12,846		(152)		12,694
Share grants	6,000	—		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, 2020	65,185,677	652		1,006,582		155,001		(167,929)		994,306		100,516		1,094,822
Net income (loss)	—	—		—		14,821		—		14,821		(264)		14,557
Share grants	24,500	—		654		—		—		654		—		654
Share repurchases	(613)	—		(13)		—		—		(13)		—		(13)
Distributions to common shareholders	—	—		—		—		(21,511)		(21,511)		—		(21,511)
Distributions to noncontrolling interest	—	—		—		—		—		—		(1,898)		(1,898)
Balance at June 30, 2020	65,209,564	$	652	$	1,007,223	$	169,822	$	(189,440)	$	988,257	$	98,354	$	1,086,611

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

(dollars in thousands)

(unaudited)

	Six Months Ended June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	38,168	$	27,251
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	15,257		22,789
Net amortization of debt issuance costs, premiums and discounts	1,011		1,229
Amortization of acquired real estate leases and assumed real estate lease obligations	8,503		13,025
Amortization of deferred leasing costs	402		610
Straight line rental income	(3,995)		(4,063)
Gain on early extinguishment of debt	—		(120)
Other non-cash expenses	1,019		980
Unconsolidated joint venture distributions	1,320		—
Equity in earnings of investees	(4,457)		—
Change in assets and liabilities:
Rents receivable	999		(447)
Deferred leasing costs	(1,205)		(273)
Due from related persons	2,665		481
Other assets	1,624		1,380
Accounts payable and other liabilities	153		2,269
Rents collected in advance	1,137		(1,947)
Security deposits	221		(83)
Due to related persons	(215)		(182)
Net cash provided by operating activities	62,607		62,899
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions and deposits	(34,081)		(71,628)
Real estate improvements	(1,351)		(3,089)
Proceeds from sale of joint venture	804		—
Distributions in excess of earnings from Affiliates Insurance Company	—		287
Net cash used in investing activities	(34,628)		(74,430)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility	36,000		180,000
Repayments of revolving credit facility	(13,000)		(170,000)
Repayment of mortgage note payable	—		(48,750)
Distributions to common shareholders	(43,099)		(43,021)
Proceeds from noncontrolling interest, net	—		107,640
Distributions to noncontrolling interest	—		(1,898)
Repurchase of common shares	(202)		(31)
Net cash (used in) provided by financing activities	(20,301)		23,940
Increase (decrease) in cash, cash equivalents and restricted cash	7,678		12,409
Cash, cash equivalents and restricted cash at beginning of period	22,834		34,550
Cash, cash equivalents and restricted cash at end of period	$	30,512	$	46,959

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

7

INDUSTRIAL LOGISTICS PROPERTIES TRUST 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(dollars in thousands)

(unaudited)

	Six Months Ended June 30,
	2021		2020
SUPPLEMENTAL DISCLOSURES:
Interest paid	$	16,184	$	26,914
Income taxes paid	$	167	$	199
NON-CASH INVESTING ACTIVITIES:
Real estate improvements accrued, not paid	$	174	$	1,137

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 June 30,
	2021		2020
Cash and cash equivalents	$	30,512	$	33,256
Restricted cash	—		13,703
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	30,512	$	46,959

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

8

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 June 30, 2021, our portfolio was comprised of 291 wholly owned properties containing approximately 35,201,000 rentable square feet, including 226 buildings, leasable land parcels and easements containing approximately 16,729,000 rentable square feet of primarily industrial lands located on the island of Oahu, Hawaii, or our Hawaii Properties, and 65 properties containing approximately 18,472,000 rentable square feet of industrial properties located in 31 other states, or our Mainland Properties. As of June 30, 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 June 30, 2021 and 2020, approximately 51.3% and 41.3%, respectively, of our rental income was from our Hawaii Properties. For the six months ended June 30, 2021 and 2020, approximately 50.8% and 41.2%, respectively, of our rental income was from our Hawaii Properties. In addition, subsidiaries of Amazon.com, Inc., which are tenants at certain of our Mainland Properties, accounted for $5,348, or 9.9%, and $10,399, or 16.0%, of our rental income for the three months ended June 30, 2021 and 2020, respectively, and $10,886, or 10.0%, and $20,061, or 15.5%, of our rental income for the six months ended June 30, 2021 and 2020, respectively.

During the six months ended June 30, 2021, we acquired one parcel of developable land and one property containing 357,504 rentable square feet for an aggregate purchase price of $34,081, including acquisition related costs of $381. These acquisitions were accounted for as asset acquisitions. We allocated the purchase prices for these acquisitions based on the estimated fair value of the acquired assets as follows:

		Number	Rentable					Buildings		Acquired
		of	Square	Purchase				and		Real Estate
Date	Market Area	Properties	Feet	Price		Land		Improvements		Leases
May 2021	Dallas, TX	1	—	$	2,319	$	2,319	$	—	$	—
June 2021	Columbus, OH	1	357,504	31,762		1,491		27,407		2,864
		2	357,504	$	34,081	$	3,810	$	27,407	$	2,864

During the six months ended June 30, 2021, we committed $4,547 for expenditures related to leasing related costs for leases executed during the period for approximately 1,184,000 square feet. Committed but unspent tenant related obligations based on existing leases as of June 30, 2021 were $1,730.

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 June 30, 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

9

INDUSTRIAL LOGISTICS PROPERTIES TRUST 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

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.

Joint Venture Activities

As of June 30, 2021, we have an equity investment in a joint venture that consists of the following:

		ILPT Carrying Value of
	ILPT	Investment at June 30,		Number of		Square
Joint Venture	Ownership	2021		Properties	Location	Feet
12 properties	22%	$	62,923	12	Nine states	9,226,729

The following table provides a summary of the mortgage debts of our joint venture:

			Principal Balance
			at June 30,
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%	11/7/2029	350,000
Weighted average/total	3.37%		$	406,980

(1) Includes the effect of mark to market purchase accounting.

(2) Amounts are not adjusted for our minority interest; none of the debt is recourse to us.

During the six months ended June 30, 2020, we entered into agreements related to a joint venture for 12 of our properties in the mainland United States, 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 six months ended June 30, 2020, we incurred transaction costs of $626 in connection with the formation of our joint venture.

We recognized a 39% noncontrolling interest in our condensed consolidated financial statements for the three and six months ended June 30, 2020. The portion of our joint venture's net loss not attributable to us, or $264 and $416 for the three and six months ended June 30, 2020, respectively, is reported as noncontrolling interest in our condensed consolidated statements of comprehensive income. During the three and six months ended June 30, 2020, our joint venture made aggregate cash distributions of $1,898 to the first joint venture investor, which were reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets.

In November 2020, we sold an additional 39% equity interest from our then remaining 61% equity interest to a second unrelated third party institutional investor and retained a 22% equity interest in our joint venture. Effective as 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 and six months ended June 30, 2021, we recorded an increase in the fair value of our investment in our joint venture of $1,876 and $4,457, respectively, as equity in earnings of investees in our condensed consolidated statements of comprehensive income. In addition, during the three and six months ended June 30, 2021, our joint venture made aggregate cash distributions of $660 and $1,320, respectively, to us. See Note 5 for more information regarding our joint venture.

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INDUSTRIAL LOGISTICS PROPERTIES TRUST 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

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 $9,383 and $11,640 for the three months ended June 30, 2021 and 2020, respectively, of which tenant reimbursements totaled $9,138 and $11,395, respectively, and $19,255 and $23,160 for the six months ended June 30, 2021 and 2020, respectively, of which tenant reimbursements totaled $18,765 and $22,670, respectively.

We increased rental income to record revenue on a straight line basis by $1,951 and $2,096 for the three months ended June 30, 2021 and 2020, respectively, and $3,995 and $4,063 for the six months ended June 30, 2021 and 2020, respectively. Rents receivable included $66,748 and $62,753 of straight line rents at June 30, 2021 and December 31, 2020, respectively.

During the year ended December 31, 2020, certain of our tenants requested, and we granted, 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 June 30, 2021 and December 31, 2020, deferred payments totaling $1,383 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 or six months ended June 30, 2021 or 2020.

Note 4. Indebtedness

As of June 30, 2021, our outstanding indebtedness consisted of the following:

								Net Book
								Value
	Principal Balance as of							of Collateral
	June 30,		December 31,		Interest			At June 30,
	2021 (1)		2020 (1)		Rate		Maturity	2021
Unsecured revolving credit facility (2)	$	244,000	$	221,000	1.40	%	Dec 2021	$	—
Mortgage notes payable (secured by 186 properties in Hawaii)	650,000		650,000		4.31	%	Feb 2029	491,357
	894,000		871,000					$	491,357
Unamortized debt issuance costs	(4,149)		(4,421)
	$	889,851	$	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.

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INDUSTRIAL LOGISTICS PROPERTIES TRUST 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

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, 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 June 30, 2021 and December 31, 2020, the interest rate payable on borrowings under our revolving credit facility was 1.40% and 1.70%, respectively. The weighted average interest rate for borrowings under our revolving credit facility was 1.41% and 2.04% for the three months ended June 30, 2021 and 2020, respectively, and 1.49% and 2.80% for the six months ended June 30, 2021 and June 30, 2020, respectively. As of June 30, 2021 and July 26, 2021, we had $244,000 outstanding under our revolving credit facility, and $506,000 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, 2021.

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.

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 June 30, 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 June 30, 2021				At December 31, 2020
	Carrying		Estimated		Carrying		Estimated
	Value (1)		Fair Value		Value (1)		Fair Value
Mortgage notes payable	$	645,851	$	719,023	$	645,579	$	730,119

(1)Includes unamortized debt issuance costs of $4,149 and $4,421 as of June 30, 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.

12

INDUSTRIAL LOGISTICS PROPERTIES TRUST 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

The table below presents certain of our assets measured on a recurring basis at fair value at June 30, 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 Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Recurring fair value measurements
Investment in unconsolidated joint venture (1)	$	62,923	$	—	$	—	$	62,923

(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

Common Share Awards

On June 2, 2021, in accordance with our Trustee compensation arrangements, we awarded to each of our six Trustees 3,500 of our common shares, valued at $25.62 per share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day.

Share Repurchases

During the six months ended June 30, 2021, we purchased an aggregate of 7,733 of our common shares valued at a weighted average share price of $26.14 per share, 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.

Distributions

During the six months ended June 30, 2021, we declared and paid regular quarterly distributions to common shareholders as follows:

Declaration Date	Record Date	Payment Date	Distribution Per Share		Total Distribution
January 14, 2021	January 25, 2021	February 18, 2021	$	0.33	$	21,550
April 15, 2021	April 26, 2021	May 20, 2021	0.33		21,549
			$	0.66	$	43,099

On July 15, 2021, we declared a regular quarterly distribution to common shareholders of record on July 26, 2021 of $0.33 per share, or approximately $21,550 in aggregate. We expect to pay this distribution to our shareholders on or about August 19, 2021.

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INDUSTRIAL LOGISTICS PROPERTIES TRUST 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

Note 7. 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 common 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:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Numerators:
Net income attributable to common shareholders	$	18,831	$	14,821	$	38,168	$	27,667
Income attributable to unvested participating securities	(47)		(24)		(95)		(45)
Net income attributable to common shareholder used in calculating earnings per share	$	18,784	$	14,797	$	38,073	$	27,622
Denominators:
Weighted average common shares for basic earnings per share	65,146		65,089		65,142		65,082
Effect of dilutive securities: unvested share awards	61		2		50		5
Weighted average common shares for diluted earnings per share	65,207		65,091		65,192		65,087
Net income attributable to common shareholders per common share - basic	$	0.29	$	0.23	$	0.58	$	0.42
Net income attributable to common shareholders per common share - diluted	$	0.29	$	0.23	$	0.58	$	0.42

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 $2,580 and $5,124 for the three and six months ended June 30, 2021, respectively, and $3,277 and $6,584 for the three and six months ended June 30, 2020, 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 paid to RMR LLC for those periods 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 June 30, 2021 and 2020, no incentive fees are included in the net business management fees we recognized for the three or six months ended June 30, 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 January 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 $1,591 and $3,185 for the three and six months ended June 30, 2021, respectively, and $1,860 and $3,783 for the three and six months ended June 30, 2020, respectively. Of these amounts, for the three and six months ended June 30, 2021, $1,571 and $3,153, respectively, were expensed to other operating expenses in our condensed consolidated financial statements and $20 and $32 were capitalized as building improvements in our condensed consolidated balance sheets and are being depreciated over the estimated useful lives of the related capital assets. For the three and six months ended June 30, 2020, $1,813 and $3,673, respectively, were expensed to other operating expenses in our condensed

14

INDUSTRIAL LOGISTICS PROPERTIES TRUST 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

consolidated financial statements and $47 and $110, respectively, were capitalized as building improvements in our condensed consolidated balance sheets and are being depreciated over the estimated useful lives of the related capital assets.

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 $1,125 and $2,267 for these expenses and costs for the three and six months ended June 30, 2021, respectively, and $1,217 and $2,416 for the three and six months ended June 30, 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 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 December 31, 2020, our joint venture owed to us $2,665 for post-closing adjustments relating to our sale of some of our equity interests in the joint venture to a second third party institutional investor in November 2020. Our joint venture paid these amounts due to us during the six months ended June 30, 2021.

TA. In May 2021, we acquired a property located in the Dallas, Texas market from TravelCenters of America Inc., or TA, for a purchase price of $2,319, including acquisition related costs of $119. RMR LLC provides management services to TA and Mr. Portnoy serves as the chair of the board of directors and as a managing director of TA. See Note 2 for further information regarding this acquisition.

15

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 June 30, 2021, our portfolio was comprised of 291 wholly owned properties containing approximately 35.2 million rentable square feet, including 226 buildings, leasable land parcels and easements containing approximately 16.7 million rentable square feet located on the island of Oahu, Hawaii, and 65 properties containing approximately 18.5 million rentable square feet located in 31 other states. As of June 30, 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 7.7 years. As of June 30, 2021, our consolidated properties were approximately 99.0% leased (based on rentable square feet) to 259 different tenants with a weighted average remaining lease term (based on annualized rental revenues) of approximately 9.2 years. We define the term annualized rental revenues as used in this section as the annualized contractual rents, as of June 30, 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, in part, 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 July 26, 2021, we granted requests to certain of our tenants to defer aggregate rent payments of $3,753 with respect to leases that represent, as of June 30, 2021, approximately 1.8% of our annualized rental revenues. As of June 30, 2021, we recognized $1,383 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 or six months ended June 30, 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.

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 June 30, 2021 and 2020 is as follows (square feet in thousands):

	All Properties				Comparable Properties (1)
	As of June 30,				As of June 30,
	2021		2020		2021		2020
Total properties	291		301		287		287
Total rentable square feet (2)	35,201		43,759		33,377		33,404
Percent leased (3)	99.0	%	98.8	%	98.9	%	98.4	%

(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 June 30, 2021, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

16

The average effective rental rates per square foot, as defined below, for our properties for the three and six months ended June 30, 2021 and 2020 are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Average effective rental rates per square foot leased: (1)
All properties	$	6.29	$	6.02	$	6.31	$	6.01
Comparable properties (2)	$	6.32	$	6.16	$	6.34	$	6.14

(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, 2021 and 2020 consist of 288 buildings, leasable land parcels and easements that we owned continuously since April 1, 2020 and exclude 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest. Comparable properties for the six months ended June 30, 2021 and 2020 consist of 287 buildings, leasable land parcels and easements that are owned continuously since January 1, 2020 and exclude 12 properties owned by an unconsolidated joint venture in which we own a 22% equity interest.

During the three and six months ended June 30, 2021, we entered into new and renewal leases as summarized in the following tables:

	Three Months Ended June 30, 2021
	New Leases			Renewals			Totals
Square feet leased during the period (in thousands)	114			371			485
Weighted average rental rate change (by rentable square feet)	12.3		%	14.7		%	14.2		%
Weighted average lease term by square feet (years) (2)	11.8			6.3			7.6
Total leasing costs and concession commitments (1)	$	691		$	600		$	1,291
Total leasing costs and concession commitments per square foot (1)	$	6.06		$	1.62		$	2.66
Total leasing costs and concession commitments per square foot per year (1)	$	0.51		$	0.26		$	0.35

	Six Months Ended June 30, 2021
	New Leases			Renewals			Totals
Square feet leased during the period (in thousands)	387			718			1,105
Weighted average rental rate change (by rentable square feet)	11.9		%	16.9		%	15.2		%
Weighted average lease term by square feet (years) (2)	9.5			10.1			9.9
Total leasing costs and concession commitments (1)	$	2,655		$	1,892		$	4,547
Total leasing costs and concession commitments per square foot (1)	$	6.86		$	2.64		$	4.11
Total leasing costs and concession commitments per square foot per year (1)	$	0.72		$	0.26		$	0.42

(1)Includes commitments made for leasing expenditures and concessions, such as leasing commissions, tenant improvements or other tenant inducements.

(2)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 7.6 years for the three months ended June 30, 2021 and 9.9 years for the six months ended June 30, 2021.

During the three and six months ended June 30, 2021, we completed rent resets for approximately 79,000 square feet of land at our Hawaii Properties at rental rates that were approximately 37.4% higher than the prior rental rates.

17

As shown in the table below, approximately 0.2% of our total leased square feet and approximately 0.4% of our total annualized rental revenues as of June 30, 2021 are included in leases scheduled to expire by December 31, 2021.

As of June 30, 2021, our lease expirations by year are as follows (dollars and square feet in thousands):

									% of Total		Cumulative
			% of Total		Cumulative %		Annualized		Annualized		% of Total
		Leased	Leased		of Total Leased		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
7/1/2021-12/31/2021	10	75	0.2	%	0.2	%	$	797	0.4	%	0.4	%
2022	58	2,602	7.5	%	7.7	%	18,662		8.7	%	9.1	%
2023	32	2,581	7.4	%	15.1	%	16,953		7.9	%	17.0	%
2024	34	6,775	19.4	%	34.5	%	29,505		13.8	%	30.8	%
2025	16	2,554	7.3	%	41.8	%	14,123		6.6	%	37.4	%
2026	8	1,033	3.0	%	44.8	%	7,202		3.4	%	40.8	%
2027	11	4,578	13.1	%	57.9	%	24,647		11.5	%	52.3	%
2028	21	2,817	8.1	%	66.0	%