Industrial Logistics Properties Trust (Form: 10-Q, Received: 07/29/2020 16:59:59)

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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 June 30, 2020

☐ 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 27, 2020: 65,209,564

Table of Contents

INDUSTRIAL LOGISTICS PROPERTIES TRUST

FORM 10-Q

June 30, 2020

INDEX



		Page
PART I	Financial Information	3

Item 1.	Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets — June 30, 2020 and December 31, 2019	3

	Condensed Consolidated Statements of Comprehensive Income — Three and Six Months Ended June 30, 2020 and 2019	4

	Condensed Consolidated Statements of Shareholders’ Equity — Three and Six Months Ended June 30, 2020 and 2019	5

	Condensed Consolidated Statements of Cash Flows — Six Months Ended June 30, 2020 and 2019	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	33

Item 4.	Controls and Procedures	35

	Warning Concerning Forward-Looking Statements	36

	Statement Concerning Limited Liability	39

PART II	Other Information	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 6.	Exhibits	43

	Signatures	44

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.

Table of Contents

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,
	2020			2019
ASSETS
Real estate properties:
Land	$	759,009		$	747,794
Buildings and improvements	1,644,996			1,588,170
Total real estate properties, gross	2,404,005			2,335,964
Accumulated depreciation	(153,979		)	(131,468		)
Total real estate properties, net	2,250,026			2,204,496
Acquired real estate leases, net	130,153			138,596
Cash and cash equivalents	33,256			28,415
Restricted cash	13,703			6,135
Rents receivable, including straight line rents of $62,399 and $58,336, respectively	67,292			62,782
Deferred leasing costs, net	6,161			6,581
Debt issuance costs, net	2,215			2,954
Due from related persons	1,023			1,504
Other assets, net	1,771			3,438
Total assets	$	2,505,600		$	2,454,901

LIABILITIES AND EQUITY
Revolving credit facility	$	320,000		$	310,000
Mortgage notes payable, net	1,048,226			1,096,608
Assumed real estate lease obligations, net	16,353			17,508
Accounts payable and other liabilities	18,002			16,475
Rents collected in advance	7,495			9,442
Security deposits	6,597			6,680
Due to related persons	2,316			2,498
Total liabilities	1,418,989			1,459,211

Commitments and contingencies

Equity:
Equity attributable to common shareholders:
Common shares of beneficial interest, $.01 par value: 100,000,000 shares authorized; 65,209,564 and 65,180,628 shares issued and outstanding, respectively	652			652
Additional paid in capital	1,007,223			999,302
Cumulative net income	169,822			142,155
Cumulative common distributions	(189,440		)	(146,419		)
Total equity attributable to common shareholders	988,257			995,690
Noncontrolling interest:
Total equity attributable to noncontrolling interest	98,354			—
Total equity	1,086,611			995,690
Total liabilities and equity	$	2,505,600		$	2,454,901

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

Table of Contents

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,
	2020			2019			2020			2019

Rental income	$	65,110		$	60,090		$	129,388		$	106,077

Expenses:
Real estate taxes	8,932			7,495			17,743			13,060
Other operating expenses	5,041			4,198			10,222			7,584
Depreciation and amortization	18,525			16,709			36,815			26,320
General and administrative	4,846			4,856			9,677			8,656
Total expenses	37,344			33,258			74,457			55,620

Interest income	2			138			113			499
Interest expense (including net amortization of debt issuance costs, premiums and discounts of $642, $494, $1,229 and $897, respectively)	(13,205		)	(13,924		)	(27,724		)	(21,520		)
Gain on early extinguishment of debt	120			—			120			—
Income before income tax expense and equity in earnings of an investee	14,683			13,046			27,440			29,436
Income tax expense	(126		)	(60		)	(189		)	(68		)
Equity in earnings of an investee	—			130			—			534
Net income	14,557			13,116			27,251			29,902
Net loss attributable to noncontrolling interest	264			—			416			—
Net income attributable to common shareholders	14,821			13,116			27,667			29,902

Other comprehensive income:
Equity in unrealized gains of an investee	—			71			—			137
Other comprehensive income	—			71			—			137
Comprehensive income attributable to common shareholders	$	14,821		$	13,187		$	27,667		$	30,039

Weighted average common shares outstanding - basic	65,089			65,039			65,082			65,035
Weighted average common shares outstanding - diluted	65,091			65,043			65,087			65,042

Per common share data (basic and diluted):
Net income attributable to common shareholders	$	0.23		$	0.20		$	0.42		$	0.46

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

Table of Contents

INDUSTRIAL LOGISTICS PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(dollars in thousands)

(unaudited)



													Total Equity			Total Equity
	Number of				Additional			Cumulative		Cumulative			Attributable to			Attributable to
	Common		Common		Paid In			Net		Common			Common			Noncontrolling			Total
	Shares		Shares		Capital			Income		Distributions			Shareholders			Interest			Equity
Balance at December 31, 2019	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.

Table of Contents

INDUSTRIAL LOGISTICS PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(dollars in thousands)

(unaudited)



										Cumulative
	Number of				Additional			Cumulative		Other		Cumulative
	Common		Common		Paid In			Net		Comprehensive		Common			Total
	Shares		Shares		Capital			Income		Income		Distributions			Equity
Balance at December 31, 2018	65,074,791		$	651	$	998,447		$	89,657	$	—	$	(60,482	)	$	1,028,273
Net income	—		—		—			16,786		—		—			16,786
Equity in unrealized gains of investee	—		—		—			—		66		—			66
Share grants	—		—		73			—		—		—			73
Distributions to common shareholders	—		—		—			—		—		(21,474		)	(21,474		)
Balance at March 31, 2019	65,074,791		651		998,520			106,443		66		(81,956		)	1,023,724
Net income	—		—		—			13,116		—		—			13,116
Equity in unrealized gains of investee	—		—		—			—		71		—			71
Share grants	15,000		—		345			—		—		—			345
Share repurchases	(1,362	)	—		(28		)	—		—		—			(28		)
Share forfeitures	(240	)	—		(1		)	—		—		—			(1		)
Distributions to common shareholders	—		—		—			—		—		(21,475		)	(21,475		)
Balance at June 30, 2019	65,088,189		$	651	$	998,836		$	119,559	$	137	$	(103,431	)	$	1,015,752

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

Table of Contents

INDUSTRIAL LOGISTICS PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)



	Six Months Ended June 30,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	27,251		$	29,902
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	22,789			16,197
Net amortization of debt issuance costs, premiums and discounts	1,229			897
Amortization of acquired real estate leases and assumed real estate lease obligations	13,025			8,854
Amortization of deferred leasing costs	610			460
Straight line rental income	(4,063		)	(2,981		)
Gain on early extinguishment of debt	(120		)	—
Other non-cash expenses	980			417
Equity in earnings of an investee	—			(534		)
Change in assets and liabilities:
Rents receivable	(447		)	128
Deferred leasing costs	(273		)	(261		)
Due from related persons	481			564
Other assets	1,380			1,620
Accounts payable and other liabilities	2,269			5,077
Rents collected in advance	(1,947		)	2,322
Security deposits	(83		)	384
Due to related persons	(182		)	1,486
Net cash provided by operating activities	62,899			64,532

CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions and deposits	(71,628		)	(852,152		)
Real estate improvements	(3,089		)	(3,144		)
Distributions in excess of earnings from Affiliates Insurance Company	287			—
Net cash used in investing activities	(74,430		)	(855,296		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of mortgage notes payable	—			650,000
Borrowings under revolving credit facility	180,000			653,000
Repayments of revolving credit facility	(170,000		)	(458,000		)
Repayment of mortgage note payable	(48,750		)	—
Payment of debt issuance costs	—			(5,517		)
Distributions to common shareholders	(43,021		)	(42,949		)
Proceeds from noncontrolling interest, net	107,640			—
Distributions to noncontrolling interest	(1,898		)	—
Repurchase of common shares	(31		)	(28		)
Net cash provided by financing activities	23,940			796,506

Increase in cash, cash equivalents and restricted cash	12,409			5,742
Cash, cash equivalents and restricted cash at beginning of period	34,550			9,608
Cash, cash equivalents and restricted cash at end of period	$	46,959		$	15,350

SUPPLEMENTAL DISCLOSURES:
Interest paid	$	26,914		$	17,663
Income taxes paid	$	199		$	64

NON-CASH INVESTING ACTIVITIES:
Real estate acquired by assumption of mortgage note payable	$	—		$	(56,980	)

NON-CASH FINANCING ACTIVITIES:
Assumption of mortgage note payable	$	—		$	56,980

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SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows:
Cash and cash equivalents	$	33,256	$	15,350
Restricted cash	13,703		—
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	46,959	$	15,350

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

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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 we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019, or our 2019 Annual Report. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. Reclassifications have been made to the prior year’s condensed consolidated financial statements to conform to the current year’s presentation.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets, impairments of real estate and related intangibles.

In February and March 2020, we entered into agreements related to a joint venture for 12 of our properties located in the mainland United States. We have determined that this joint venture is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification. We concluded that we must consolidate this VIE because we are the entity with the power to direct the activities that most significantly impact the VIE’s economic performance and we have the obligation to absorb losses of, and the right to receive benefits from, the VIE that could be significant to the VIE, and therefore are the primary beneficiary of the VIE. The assets of this VIE were $660,958 as of June 30, 2020 and consist primarily of the real estate owned by the joint venture. The liabilities of this VIE were $408,181 as of June 30, 2020 and consist primarily of mortgage debts secured by the properties owned by the joint venture. The joint venture investor's interest in this consolidated entity is reflected as noncontrolling interest in our condensed consolidated financial statements. See Note 11 for further information about this joint venture.

Note 2. Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. We adopted this standard which was effective as of January 1, 2020 using the modified retrospective approach. The implementation of this standard did not have a material impact in our condensed consolidated financial statements.

Note 3. Real Estate Properties

As of June 30, 2020, we owned 301 properties with a total of approximately 43,759,000 rentable square feet, including 226 buildings, leasable land parcels and easements with a total of approximately 16,756,000 rentable square feet of primarily industrial lands located on the island of Oahu, HI, or our Hawaii Properties, and 75 properties with a total of approximately 27,003,000 rentable square feet of industrial properties located in 30 other states, or our Mainland Properties, including 12 properties with approximately 9,227,000 rentable square feet owned by a joint venture in which we own a 61% equity interest.

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INDUSTRIAL LOGISTICS PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

We operate in one business segment: ownership and leasing of properties that include industrial and logistics buildings and leased industrial lands. For the three months ended June 30, 2020 and 2019, approximately 41.3% and 42.2%, respectively, of our rental income was from our Hawaii Properties. For the six months ended June 30, 2020 and 2019, approximately 41.2% and 47.9%, respectively, of our rental income was from our Hawaii Properties. In addition, a subsidiary of Amazon.com, Inc., which is a tenant at certain of our Mainland Properties, accounted for $10,399, or 16.0%, and $8,700, or 14.5%, of our rental income for the three months ended June 30, 2020 and 2019, respectively, and $20,061, or 15.5%, and $13,565, or 12.8%, of our rental income for the six months ended June 30, 2020 and 2019, respectively.

During the six months ended June 30, 2020, we completed the acquisition of an industrial property containing 820,384 rentable square feet for a purchase price of $71,628, including acquisition related costs of $147. This acquisition was accounted for as an asset acquisition. We allocated the purchase price for this acquisition based on the estimated fair value of the acquired assets as follows:



		Number	Rentable					Buildings		Acquired
		of	Square	Purchase				and		Real Estate
Date	Market Area	Properties	Feet	Price		Land		Improvements		Leases
February 2020	Phoenix, AZ	1	820,384	$	71,628	$	11,214	$	54,676	$	5,738
		1	820,384	$	71,628	$	11,214	$	54,676	$	5,738

During the six months ended June 30, 2020, we committed $687 for expenditures related to tenant improvements and leasing costs for leases executed during the period for approximately 363,000 square feet. Committed but unspent tenant related obligations based on existing leases as of June 30, 2020 were $561.

Certain of our industrial lands in Hawaii may require environmental remediation, especially if the use of those lands is changed; however, we do not have any present plans to change the use of those lands. As of both June 30, 2020 and December 31, 2019, accrued environmental remediation costs of $6,940 were included in accounts payable and other liabilities in our condensed consolidated balance sheets. These accrued environmental remediation costs relate to maintenance of our properties for current uses, and, because of the indeterminable timing of the remediation, these amounts have not been discounted to present value. In general, we do not have any insurance designated to limit any losses that we may incur as a result of known or unknown environmental conditions which are not caused by an insured event, such as fire or flood, although some of our tenants may maintain such insurance that may benefit us. Although we do not believe that there are environmental conditions at any of our properties that will have a material adverse effect on us, we cannot be sure that such conditions are not present at our properties or that costs we incur to remediate contamination will not have a material adverse effect on our business or financial condition. Charges for environmental remediation costs, if any, are included in other operating expenses in our condensed consolidated statements of comprehensive income.

Note 4. Leases

We are a lessor of industrial and logistics properties. Our leases provide our tenants with the contractual right to use and economically benefit from all the physical space specified in the leases; therefore, we have determined to evaluate our leases as lease arrangements.

Our leases provide for base rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. We do not include in our measurement of our lease receivables certain variable payments, including payments determined by changes in the index or market-based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. Such payments totaled $11,640 and $9,483 for the three months ended June 30, 2020 and 2019, respectively, of which tenant reimbursements totaled $11,395 and $9,483, respectively, and $23,160 and $17,764 for the six months ended June 30, 2020 and 2019, respectively, of which tenant reimbursements totaled $22,670 and $16,602, respectively.

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INDUSTRIAL LOGISTICS PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

We increased rental income to record revenue on a straight line basis by $2,096 and $2,002 for the three months ended June 30, 2020 and 2019, respectively, and $4,063 and $2,981 for the six months ended June 30, 2020 and 2019, respectively. Rents receivable include $62,399 and $58,336 of straight line rents at June 30, 2020 and December 31, 2019, respectively.

Certain of our tenants have requested relief from their obligations to pay rent due to us in response to the current economic conditions resulting from the COVID-19 pandemic. As of July 27, 2020, we granted requests for certain of our tenants to defer rent payments totaling $2,799. These tenants will be obligated to pay, in most cases, the deferred rents in 12 equal monthly installments commencing in September 2020. We have elected to use the FASB relief package regarding the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. The FASB relief package provides entities with the option to account for lease concessions resulting from the COVID-19 pandemic outside of the existing lease modification guidance if the resulting cash flows from the modified lease are substantially the same as the original lease. Because the deferred rents referenced above will be repaid over a 12-month period, the cash flows from the respective leases are substantially the same as before the rent deferrals. These deferred amounts did not impact our results for the three and six months ended June 30, 2020 and as of June 30, 2020, we recognized an increase in our accounts receivable related to these deferred amounts of $2,317.

Note 5. Indebtedness

As of June 30, 2020, our outstanding indebtedness consisted of the following:



										Net Book
										Value
	Principal Balance as of									of Collateral
	June 30,			December 31,			Interest			At June 30,
	2020 ⁽¹⁾			2019 ⁽¹⁾			Rate		Maturity	2020
Unsecured revolving credit facility ⁽²⁾	$	320,000		$	310,000		1.59	%	Dec 2021	$	—
Mortgage note payable (secured by one property in Florida)⁽³⁾	56,980			56,980			4.22	%	Oct 2023	104,893
Mortgage note payable (secured by 186 properties in Hawaii)	650,000			650,000			4.31	%	Feb 2029	491,937
Mortgage note payable (secured by 11 Mainland Properties) ⁽³⁾	350,000			350,000			3.33	%	Nov 2029	493,432
Mortgage note payable (secured by one property in Virginia)	—			48,750			N/A		N/A	N/A
	1,376,980			1,415,730						$	1,090,262
Unamortized debt issuance costs, premiums and discounts	(8,754		)	(9,122		)
	$	1,368,226		$	1,406,608

(1) The principal balances are the amounts stated in contracts. In accordance with GAAP, our carrying values and recorded interest expense may be different because of market conditions at the time we assumed certain of these debts.

(2) The maturity date of our revolving credit facility is December 29, 2021 and we have the option to extend the maturity date for two, six month periods through December 29, 2022.

(3) The properties encumbered by these mortgages are owned by a joint venture in which we own a 61% equity interest.

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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, 2020, interest payable on the amount outstanding under our revolving credit facility was LIBOR plus 140 basis points and our commitment fee was 25 basis points. As of June 30, 2020 and December 31, 2019, the interest rate payable on borrowings under our revolving credit facility was 1.59% and 3.26%, respectively. The weighted average interest rate for borrowings under our revolving credit facility was 2.04% and 3.76% for the three months ended June 30, 2020 and 2019, respectively, and 2.80% and 3.77% for the six months ended June 30, 2020 and June 30, 2019, respectively. As of June 30, 2020 and July 27, 2020, we had $320,000 outstanding under our revolving credit facility, and $430,000 available to borrow under our revolving credit facility.

Our credit agreement provides for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business manager and property manager. Our credit agreement also contains a number of covenants, including covenants that restrict our ability to incur debts or to make distributions in certain circumstances, and generally requires us to maintain certain financial ratios. We believe we were in compliance with the terms and conditions of the covenants under our credit agreement at June 30, 2020.

In May 2020, we prepaid at par plus accrued interest a mortgage note secured by one of our properties with an outstanding principal balance of approximately $48,750, an annual interest rate of 3.48% and a maturity date in November 2020. As a result of the prepayment of this mortgage note, we recorded a gain on early extinguishment of debt of $120 for the three and six months ended June 30, 2020 to write off unamortized debt premiums.

Note 6. Fair Value of Assets and Liabilities

Our financial instruments include cash and cash equivalents, restricted cash, rents receivable, our revolving credit facility, mortgage notes payable, accounts payable, rents collected in advance, security deposits and amounts due from or to related persons. At June 30, 2020 and December 31, 2019, the fair value of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or floating interest rates, except as follows:



	At June 30, 2020				At December 31, 2019
	Carrying		Estimated		Carrying		Estimated
	Value ⁽¹⁾		Fair Value		Value ⁽¹⁾		Fair Value
Mortgage notes payable	$	1,048,226	$	1,112,956	$	1,096,608	$	1,143,437


(1)	Includes unamortized debt issuance costs, premiums and discounts of $8,754 and $9,122 as of June 30, 2020 and December 31, 2019, 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.

Note 7. Shareholders’ Equity

Common Share Awards:

On February 21, 2020, in connection with the election of two of our Trustees we awarded to each such Trustee 3,000 of our common shares, valued at $23.54 per share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day.

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INDUSTRIAL LOGISTICS PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

On May 28, 2020, in accordance with our Trustee compensation arrangements, we awarded to each of our seven Trustees 3,500 of our common shares, valued at $18.77 per share, the closing price of our common shares on Nasdaq on that day.

Common Share Purchases:

During the six months ended June 30, 2020, we purchased our common shares from certain former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares, valued at the closing price of our common shares on Nasdaq on the purchase dates, as follows:



Date Purchased	Number of Shares	Price per Share
1/9/2020	420	$	22.01
3/13/2020	531	$	17.75
6/30/2020	613	$	20.55

Distributions:

During the six months ended June 30, 2020, we declared and paid a regular quarterly distribution to common shareholders as follows:



Record Date	Payment Date	Distribution Per Share	Total Distribution
January 27, 2020	February 20, 2020	$0.33	$21,510
April 16, 2020	May 21, 2020	$0.33	$21,511

On July 16, 2020, we declared a regular quarterly distribution of $0.33 per common share, or approximately $21,500, to shareholders of record on July 27, 2020. We expect to pay this distribution on or about August 20, 2020.

Note 8. Per Common Share Amounts

We calculate basic earnings per common share by dividing net income attributable to common shareholders by the weighted average number of our common shares outstanding during the period. We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares, and the related impact on earnings, are considered when calculating diluted earnings per share. The calculation of basic and diluted earnings per share is as follows:



	Three Months Ended June 30,						Six Months ended June 30,
	2020			2019			2020			2019
Numerators:
Net income attributable to common shareholders	$	14,821		$	13,116		$	27,667		$	29,902
Income attributable to unvested participating securities	(24		)	(8		)	(45		)	(19		)
Net income attributable to common shareholders used in calculating earnings per share	$	14,797		$	13,108		$	27,622		$	29,883

Denominators:
Weighted average common shares outstanding - basic	65,089			65,039			65,082			65,035
Effect of dilutive securities: unvested share awards	2			4			5			7
Weighted average common shares outstanding - diluted	65,091			65,043			65,087			65,042

Net income attributable to common shareholders per common share - basic	$	0.23		$	0.20		$	0.42		$	0.46
Net income attributable to common shareholders per common share - diluted	$	0.23		$	0.20		$	0.42		$	0.46

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INDUSTRIAL LOGISTICS PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

Note 9. Business and Property Management Agreements with RMR LLC

We have no employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have two agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to our property level operations.

Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $3,277 and $6,584 for the three and six months ended June 30, 2020, respectively, and $3,092 and $5,285 for the three and six months ended June 30, 2019, respectively. The net business management fees we recognized for the three and six months ended June 30, 2020 include $347 and $476, respectively, of management fees related to our subsidiary level management agreement with RMR LLC entered in connection with our joint venture arrangement, which arrangement is further described in Note 11. Based on our common share total return, as defined in our business management agreement, as of June 30, 2020 and 2019, no incentive fees are included in the net business management fees we recognized for the three or six months ended June 30, 2020 or 2019. The actual amount of annual incentive fees for 2020, if any, will be based on our common share total return, as defined in our business management agreement, for the period from January 12, 2018 to December 31, 2020 and will be payable in 2021. We did not incur any incentive fee payable to RMR LLC for the year ended December 31, 2019. We include business management fees in general and administrative expenses in our condensed consolidated statements of comprehensive income.

Pursuant to our property management agreement with RMR LLC, we recognized aggregate property management and construction supervision fees of $1,860 and $3,783 for the three and six months ended June 30, 2020, respectively, and $1,922 and $3,269 for the three and six months ended June 30, 2019, respectively. These amounts are included in other operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

We are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. We are generally not responsible for payment of RMR LLC’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR LLC’s centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit function, or as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC. We reimbursed RMR LLC $1,217 and $2,416 for these expenses and costs for the three and six months ended June 30, 2020, respectively, and $1,026 and $1,929 for the three and six months ended June 30, 2019, respectively. These amounts are included in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income.

See Note 10 for further information regarding our relationships, agreements and transactions with RMR LLC.

Note 10. Related Person Transactions

We have relationships and historical and continuing transactions with RMR LLC, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR LLC is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC. John Murray, our other Managing Trustee and our President and Chief Executive Officer, also serves as an executive officer of RMR LLC, and each of our other officers is also an officer and employee of RMR LLC. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as chair of the boards of trustees or boards of directors of several of these public companies and as a managing director or managing trustee of these public companies. Other officers of RMR LLC, including Mr. Murray and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies.

Our Manager, RMR LLC. We have two agreements with RMR LLC to provide management services to us. See Note 9 for further information regarding our management agreements with RMR LLC.

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INDUSTRIAL LOGISTICS PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

OPI. Office Properties Income Trust, or OPI, owed to us $1,023 and $1,504 as of June 30, 2020 and December 31, 2019, respectively, for rents that it collected on our behalf from certain of our tenants. A predecessor of OPI previously owned those properties and those tenants first became tenants at those properties prior to our ownership. OPI paid these amounts due to us or collected on our behalf in July 2020 and January 2020, respectively.

AIC. Until its dissolution on February 13, 2020, we, ABP Trust and five other companies to which RMR LLC provides management services owned Affiliates Insurance Company, or AIC, an Indiana insurance company, in equal amounts. Certain of our Trustees and certain trustees or directors of the other AIC shareholders served on the board of directors of AIC, until its dissolution.

We and the other AIC shareholders historically participated in a combined property insurance program arranged and insured or reinsured in part by AIC. The policies under that program expired on June 30, 2019, and we and the other AIC shareholders elected not to renew the AIC property insurance program; we have instead purchased standalone property insurance coverage with unrelated third party insurance providers.

As of June 30, 2020 and December 31, 2019, our investment in AIC had a carrying value of $11 and $298, respectively. These amounts are included in other assets in our condensed consolidated balance sheets. In June 2020, we received an additional liquidating distribution of approximately $287 from AIC in connection with its dissolution. We did not recognize any income related to our investment in AIC for the three and six months ended June 30, 2020, respectively, and recognized $130 and $534 related to our investment in AIC for the three and six months ended June 30, 2019, respectively, which amounts are presented as equity in earnings of an investee in our condensed consolidated statements of comprehensive income. Our other comprehensive income included our proportionate share of unrealized gains on securities, if any, which were owned by AIC, related to our investment in AIC.

For further information about these and other such relationships and certain other related person transactions, see our 2019 Annual Report.

Note 11. Noncontrolling Interest

In February and March 2020, we entered into agreements related to a joint venture for 12 of our Mainland Properties with an Asian institutional investor. We contributed to the joint venture 11 of these properties in February 2020 and the remaining property in March 2020. We received from the investor $82,035 and $26,231 in February and March 2020, respectively, for a 39% equity interest in the joint venture, and we retained the remaining 61% equity interest. The joint venture assumed $406,980 of then existing mortgage debts on the properties we contributed. We incurred transaction costs of $626 in connection with the formation of this joint venture.

We recognized a noncontrolling interest in our condensed consolidated balance sheets of $100,668 as of the completion of this transaction, which was equal to 39% of our aggregate carrying value of the total equity of the properties immediately prior to our respective contributions of the properties to the joint venture. The difference between the net proceeds received from this transaction and the noncontrolling interest recognized, which was $6,972, has been reflected as an increase in additional paid in capital in our condensed consolidated balance sheets. The portion of the joint venture's net loss not attributable to us, or $264 and $416 for the three and six months ended June 30, 2020, respectively, is reported as noncontrolling interest in our condensed consolidated statements of comprehensive income. During the three and six months ended June 30, 2020, the joint venture made aggregate cash distributions of $1,898 to the other joint venture investor, which are reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets. As of June 30, 2020, the joint venture held real estate assets with an aggregate net book value of $660,958, including restricted cash of $13,703, and had liabilities of $408,181.

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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 2019 Annual Report.

IMPACT OF COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic and, in response to the outbreak, the U.S. Health and Human Services Secretary declared a public health emergency in the United States and many states and municipalities declared public health emergencies. The virus that causes COVID-19 has continued to spread throughout the United States and the world. Various governmental and market responses attempting to contain and mitigate the spread of the virus have negatively impacted, and continue to negatively impact, the global economy, including the U.S. economy. As a result, most market observers believe the global economy and the U.S. economy are in a recession. Our business is focused on industrial and logistics properties. The industrial and logistics sector has fared better than some other industries thus far in response to the COVID-19 pandemic, including other real estate sectors, due to the demand for e-commerce. We believe that demand was initially supported in part by increased demand by businesses and households to stock up on supplies as the implications of the COVID-19 pandemic and resulting governmental and market responses materialized and e-commerce companies have benefited from the closure of certain retail consumer outlets during the second quarter of 2020. States and municipalities across the United States have been allowing certain businesses to re-open and easing certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time. Recently, economic data have indicated that the U.S. economy has increasingly improved since the lowest periods experienced in March and April 2020. However, certain areas of the United States have experienced increased numbers of COVID-19 infections following the re-openings of their economies and easing of restrictions or otherwise and, in some cases, certain states have imposed or re-imposed closings of certain business activities and other restrictions in response. It is unclear whether the increases in the number of COVID-19 infections will continue or amplify or whether any “second wave” of COVID-19 infection outbreaks will occur in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy, our tenants or our business.

We believe that the industrial and logistics sector and many of our tenants are critical to sustaining a resilient supply chain to support essential services and daily consumption across the United States. However, if economic conditions do not continue to improve or if they worsen, including in response to any increase in the number or severity of COVID-19 infections, demand for e-commerce may also decline. If that occurs, our tenants and their businesses may become increasingly negatively impacted, which may result in our tenants seeking assistance from us regarding their rent obligations owed to us, their being unable or unwilling to pay us rent, their ceasing to pay us rent and their ceasing to continue as going concerns.

We are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including:


•	our tenants and their ability to withstand the current, and possible future deteriorating, economic conditions and continue to pay us rent;


•	our operations, liquidity and capital needs and resources;


•	conducting financial modeling and sensitivity analyses;


•	actively communicating with our tenants and other key constituents and stakeholders in order to help assess market conditions, opportunities, best practices and mitigate risks and potential adverse impacts; and


•	monitoring, with the assistance of counsel and other specialists, possible government relief funding sources and other programs that may be available to us or our tenants to enable us and them to operate through the current economic conditions and enhance our tenants’ ability to pay us rent.

We believe that our current financial resources and our expectations as to the future performance of the industrial and logistics sector and our tenants will enable us to withstand the COVID-19 pandemic and its aftermath. As of July 27, 2020, we had:


•	$430,000 of availability under our revolving credit facility;


•	no outstanding debt scheduled to mature during the remainder of 2020 and our next debt maturity being our credit facility in December 2021, which maturity is subject to two six month extensions at our option;

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•	74.3% of our annualized rental revenues, as of June 30, 2020, derived from investment grade rated tenants, subsidiaries of investment grade rated parent entities or Hawaii land leases; and


•	only 3.0% of our annualized rental revenues, as of June 30, 2020, scheduled to expire over the next 12 months.

In light of the above resources, expectations and conditions, we believe that we are well positioned to weather the present disruptions facing the real estate industry. However, as a result of the COVID-19 pandemic and its aftermath, certain of our tenants have requested relief from their obligations to pay rent due to us. We evaluate these requests on a tenant by tenant basis. As of July 27, 2020, we granted requests for certain of our tenants to defer rent payments totaling $2,799 with respect to leases that represent, as of June 30, 2020, approximately 8.2% of our annualized rental revenues. As of June 30, 2020, we recognized an increase in our accounts receivable balance related to these deferred rent payments of $2,317. These tenants will be obligated to pay, in most cases, the deferred rents in 12 equal monthly installments commencing in September 2020. For the three months ended June 30, 2020, we collected approximately 97% of our contractual rents due after giving effect to such rent deferrals. These deferred amounts did not negatively impact our financial results, and we did not record any revenue reserves for these amounts, for the three and six months ended June 30, 2020, and will continue to be reflected in our financial results in the applicable future reporting periods, assuming these tenants will pay the deferred rents due to us.

We do not have any employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC. RMR LLC has implemented enhanced cleaning protocols and social distancing guidelines at its corporate headquarters and its regional offices, as well as business continuity plans to ensure that RMR LLC employees remain safe and able to support us and other companies managed by RMR LLC or its subsidiaries, including providing appropriate information technology such as notebook computers, smart phones, computer applications, information technology security applications and technology support.

All RMR LLC property management and engineering personnel have been trained on COVID-19 precaution procedures. As states and local communities across the United States moved to stay at home orders, RMR LLC worked to reduce and optimize our operating costs at our properties by:


•	deferring non-emergency work;


•	implementing energy reduction protocols for lighting and HVAC systems;


•	reducing non-essential building services and staff; and


•	reducing the frequency of trash removal.

RMR LLC’s property management teams have also established business continuity plans to ensure operational stability at our properties. RMR LLC regional management offices limit walk-in visitors and maintain maximum office occupancy limits as required by state and local guidelines, including weekly rotations of employees as needed.

As stay at home orders are lifted or loosened across the United States, RMR LLC has implemented additional procedures at our properties based on recommended guidelines from the U.S. Centers for Disease Control and Prevention and other regulatory agencies. For example:


•	focusing on sanitizing high touch points in common areas and restrooms;


•	shutting down certain building amenities;


•	prudently managing the execution or deferment of tenant work orders to limit RMR LLC staff and tenant interactions at our properties;


•	installing signage throughout our properties with social distancing reminders;


•	changing certain building HVAC systems and equipment, including adjusting outdoor air control programs to increase the amount of outside air delivered to interior spaces and to adjust control sequences to maintain space relative humidity in order to help minimize the concentration of the virus;


•	flushing domestic water systems to prepare for re-occupancy;


•	performing service calls and preventative maintenance after business hours to limit social interactions;

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•	requiring vendors to follow best practices under COVID-19 pandemic conditions, including providing RMR LLC with documented preventative measures for their employees and requiring staff to wear appropriate personal protective equipment when working at our properties; and


•	altering cleaning schedules to perform vacuuming at times intended to reduce the potential airborne spread of the virus.

RMR LLC has significantly reduced non-essential work travel and its regional leadership personnel have not been allowed to work in the same locations at the same time. RMR LLC also requires its employees who work at our properties to use personal protective equipment and business continuity bonus payments have been provided to certain essential workers at our properties.

There are extensive uncertainties surrounding the COVID-19 pandemic and its aftermath. These uncertainties include, among others:


•	the duration and severity of the negative economic impact;


•	the strength and sustainability of any economic recovery;

•

the timing and process for how the federal, state and local governments and other market participants may oversee and conduct the return of economic activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States; and


•	whether, following a recommencing of more normal levels of economic activities, the United States or other countries experience any “second wave” of COVID-19 infection outbreaks and, if so, the responses of governments, businesses and the general public to those events.

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 II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q.

OVERVIEW

We are a real estate investment trust, or REIT, organized under Maryland law. As of June 30, 2020, we owned 301 properties with approximately 43.8 million rentable square feet, including 226 buildings, leasable land parcels and easements with approximately 16.8 million rentable square feet located on the island of Oahu, HI, and 75 properties with approximately 27.0 million rentable square feet located in 30 other states, including 12 properties with approximately 9.2 million rentable square feet owned by a joint venture in which we own a 61% equity interest. As of June 30, 2020, our properties were approximately 98.8% leased (based on rentable square feet) to 263 different tenants with a weighted average remaining lease term (based on annualized rental revenues) of approximately 9.1 years. We define the term annualized rental revenues as used in this section as the annualized contractual rents, as of June 30, 2020, 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. Unless otherwise noted, the data presented in this section includes the 12 properties owned by a joint venture in which we own a 61% equity interest.

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Property Operations

As of June 30, 2020, 98.8% of our rentable square feet was leased, compared to 99.3% of our rentable square feet as of June 30, 2019. Occupancy data for our properties as of June 30, 2020 and 2019 is as follows (square feet in thousands):



	All Properties				Comparable Properties ⁽¹⁾
	As of June 30,				As of June 30,
	2020		2019		2020		2019
Total properties	301		298		270		270
Total rentable square feet ⁽²⁾	43,759		42,353		29,651		29,457
Percent leased ⁽³⁾	98.8	%	99.3	%	98.4	%	99.0	%


(1)	Consists of properties that we owned continuously since January 1, 2019.


(2)	Subject to modest adjustments when space is remeasured or reconfigured for new tenants and when land leases are converted to building leases.


(3)	Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of June 30, 2020, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

The average effective rental rates per square foot, as defined below, for our properties for the three and six months ended June 30, 2020 and 2019 are as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Average effective rental rates per square foot leased:⁽¹⁾
All properties	$	6.02	$	5.82	$	6.01	$	5.86
Comparable properties ⁽²⁾	$	6.12	$	5.88	$	6.16	$	5.95


(1)	Average effective rental rates per square foot leased represents annualized rental income during the period specified divided by the average rentable square feet leased during the period specified.


(2)	Comparable properties for the three months ended June 30, 2020 and 2019 consist of 277 buildings, leasable land parcels and easements that we owned continuously since April 1, 2019. Comparable properties for the six months ended June 30, 2020 and 2019 consist of 270 buildings, leasable land parcels and easements that we owned continuously since January 1, 2019.

During the three months ended June 30, 2020, we entered lease renewals for approximately 314,000 square feet at weighted average (by square feet) rental rates that were approximately 26.6% 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 20.1 years for lease renewals. Commitments for tenant improvements, leasing costs and concessions for leases entered during the three months ended June 30, 2020 totaled $229,000, or approximately $0.04 per square foot per year of the new weighted average lease term. Also, during the three months ended June 30, 2020, we completed rent resets for approximately 1,601,000 square feet of land at our Hawaii Properties at rent rates that were approximately 21.4% higher than the prior rental rates.

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As shown in the table below, approximately 0.2% of our total rented square feet and approximately 0.3% of our total annualized rental revenues as of June 30, 2020 are included in leases scheduled to expire by December 31, 2020.

As of June 30, 2020, our lease expirations by year are as follows (dollars and square feet in thousands):



									% of Total		Cumulative
			% of Total		Cumulative %		Annualized		Annualized		% of Total
		Rented	Rented		of Total Rented		Rental		Rental		Annualized
	Number of	Square Feet	Square Feet		Square Feet		Revenues		Revenues		Rental Revenues
Period / Year	Tenants	Expiring ⁽¹⁾	Expiring ⁽¹⁾		Expiring ⁽¹⁾		Expiring		Expiring		Expiring
7/1/2020-12/31/2020	6	72	0.2	%	0.2	%	$	646	0.3	%	0.3	%
2021	29	2,707	6.3	%	6.5	%	15,203		5.9	%	6.2	%
2022	64	2,749	6.4	%	12.9	%	21,357		8.3	%	14.5	%
2023	28	2,536	5.9	%	18.8	%	16,370		6.4	%	20.9	%
2024	30	10,277	23.8	%	42.6	%	44,151		17.2	%	38.1	%
2025	14	2,550	5.9	%	48.5	%	14,551		5.7	%	43.8	%
2026	4	951	2.2	%	50.7	%	6,449		2.5	%	46.3	%
2027	10	5,647	13.1	%	63.8	%	28,143		11.0	%	57.3	%
2028	20	2,888	6.7	%	70.5	%	20,385		8.0	%	65.3	%
2029	9	2,715	6.3	%	76.8	%	14,585		5.7	%	71.0	%
Thereafter	84	10,124	23.2	%	100.0	%	74,436		29.0	%	100.0	%
Total	298	43,216	100.0	%			$	256,276	100.0	%

Weighted average remaining lease term (in years):		8.2					9.1


(1)	Rented square feet is pursuant to existing leases as of June 30, 2020 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

The following chart shows the annualized rental revenues as of June 30, 2020 scheduled to reset at our Hawaii Properties:

Scheduled Rent Resets at Hawaii Properties

(dollars in thousands)



	Annualized
	Rental Revenues as of
	June 30, 2020
	Scheduled to Reset
7/1/2020 - 12/31/2020	$	—
2021	2,610
2022	3,857
2023	2,550
2024	2,100
2025 and thereafter	19,138
Total	$	30,255

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We generally receive rents from our tenants monthly in advance. As of June 30, 2020, tenants representing 1% or more of our total annualized rental revenues were as follows (square feet in thousands):



							% of Total
			No. of	Rented	% of Total		Annualized Rental
Tenant		States	Properties	Sq. Ft. ⁽¹⁾	Rented Sq. Ft. ⁽¹⁾		Revenues
1	Amazon.com Services, Inc.	AZ, FL, IN, SC, TN, VA	7	6,939	16.1	%	15.9	%
2	Federal Express Corporation / FedEx Ground Package System, Inc.	AR, CO, HI, IA, ID, IL, MN, MO, NC, ND, NV, OH, OK, UT	17	952	2.2	%	3.7	%
3	The Procter & Gamble Distributing LLC	OH	1	1,791	4.1	%	3.7	%
4	Restoration Hardware, Inc.	MD	1	1,195	2.8	%	2.4	%
5	American Tire Distributors, Inc.	CO, LA, NE, NY, OH	5	722	1.7	%	2.1	%
6	UPS Supply Chain Solutions Inc.	NH	1	614	1.4	%	1.9	%
7	Par Hawaii Refining, LLC	HI	3	3,148	7.3	%	1.9	%
8	Servco Pacific Inc.	HI	4	537	1.2	%	1.8	%
9	SKF USA Inc.	MO	1	431	1.0	%	1.6	%
10	EF Transit, Inc.	IN	1	535	1.2	%	1.5	%
11	Subaru of America, Inc.	IN	1	963	2.2	%	1.4	%
12	BJ's Wholesale Club, Inc.	NJ	1	634	1.5	%	1.4	%
13	Shurtech Brands, LLC	OH	1	645	1.5	%	1.4	%
14	Safeway Inc.	HI	2	146	0.3	%	1.3	%
15	Manheim Remarketing, Inc.	HI	1	338	0.8	%	1.2	%
16	Exel Inc.	SC	1	945	2.2	%	1.2	%
17	The Toro Company	IA	1	644	1.5	%	1.2	%
18	Trex Company, Inc.	NV, VA	2	646	1.5	%	1.2	%
19	Avnet, Inc.	OH	1	581	1.3	%	1.2	%
20	A.L. Kilgo Company, Inc.	HI	5	310	0.7	%	1.2	%
21	Cummins Inc.	KY	1	604	1.4	%	1.1	%
22	Warehouse Rentals Inc.	HI	5	278	0.6	%	1.0	%
23	Whirlpool Corporation	IN	1	805	1.9	%	1.0	%
24	Coca-Cola Bottling of Hawaii, LLC	HI	4	351	0.8	%	1.0	%
	Total		68	24,754	57.2	%	53.3	%


(1)	Rented square feet is pursuant to existing leases as of June 30, 2020 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

Mainland Properties. As of June 30, 2020, our Mainland Properties represented approximately 59.3% 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. Because of the capital many of the tenants in our Mainland Properties have invested in these properties and because many of these properties appear to be of strategic importance to the tenants’ businesses, we believe that it is likely that these tenants will renew or extend their leases prior to their expirations. However, as noted elsewhere in this Quarterly Report on Form 10-Q, the COVID-19 pandemic has had a substantial adverse impact on the global economy. Depending on the duration and severity of this pandemic and the resulting economic impact, our tenants’ businesses and operations may become significantly negatively impacted, which may result in their failing to pay rent to us or not renewing their leases with us upon 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 June 30, 2020, our Hawaii Properties represented approximately 40.7% of our annualized rental revenues. As of June 30, 2020, 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

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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. If the tenants at our Hawaii Properties are unable to withstand the economic downturn resulting from the COVID-19 pandemic, they may not seek to renew leases with us and we may be unable to obtain new tenants for those properties for an extended period or at all and the terms of any leases we may enter may be less favorable to us than the terms of our existing leases for our Hawaii Properties.

As of June 30, 2020, $7,668, or 3.0%, of our annualized rental revenues are due to expire through June 30, 2021 and 1.2% 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, and as noted elsewhere in this Quarterly Report on Form 10-Q, the COVID-19 pandemic and its economic impact may adversely impact our future leasing activities and our ability to lease our properties and to receive rents.

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 concerning the tenant that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources. RMR LLC also often uses a third party service to monitor the credit ratings of debt securities of our existing tenants whose debt securities are rated by a nationally recognized credit rating agency.

Investment Activities (dollars in thousands)

During the six months ended June 30, 2020, we acquired a property with 820,384 rentable square feet for a purchase price of $71,481, excluding acquisition related costs of $147.

For further information regarding our investment activities, see Note 3 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Financing Activities (dollars in thousands)

In February and March 2020, we entered into agreements related to a joint venture for 12 of our Mainland Properties. We received proceeds from the investor in an aggregate amount of $108,266, which includes certain costs associated with the formation of the joint venture, for a 39% equity interest in the joint venture and we retained the remaining 61% equity interest in the joint venture. The investment amount is based on an aggregate property valuation of $680,000, less $406,980 of existing mortgage debts on the properties at the time of the investment that the joint venture assumed. In February 2020, we formed the joint venture with 11 of the 12 properties and the investor initially paid us $82,035, and in March 2020, the twelfth property was added to the joint venture and the investor contributed an additional $26,231. We used the net proceeds from this transaction to reduce outstanding borrowings under our revolving credit facility. During the three and six months ended June 30, 2020, the joint venture made aggregate cash distributions of $4,867, including $1,898 to the other joint venture investor.

For further information regarding our financing activities, see Notes 5 and 11 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 Investment and Financing Liquidity and Resources” of this Quarterly Report on Form 10-Q.

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RESULTS OF OPERATIONS

Three Months Ended June 30, 2020, Compared to Three Months Ended June 30, 2019 (dollars and share amounts in thousands, except per share data)



	Comparable Properties Results ⁽¹⁾								Acquired Properties Results ⁽²⁾						Consolidated Results
	Three Months Ended June 30,								Three Months Ended June 30,						Three Months Ended June 30,
					$		%						$								$			%
	2020		2019		Change		Change		2020		2019		Change		2020			2019			Change			Change

Rental income	$	50,197	$	48,187	$	2,010	4.2	%	$	14,913	$	11,903	$	3,010	$	65,110		$	60,090		$	5,020		8.4	%

Operating expenses:
Real estate taxes	6,889		5,811		1,078		18.6	%	2,043		1,684		359		8,932			7,495			1,437			19.2	%
Other operating expenses	3,819		3,558		261		7.3	%	1,222		640		582		5,041			4,198			843			20.1	%
Total operating expenses	10,708		9,369		1,339		14.3	%	3,265		2,324		941		13,973			11,693			2,280			19.5	%

Net operating income⁽³⁾	$	39,489	$	38,818	$	671	1.7	%	$	11,648	$	9,579	$	2,069	51,137			48,397			2,740			5.7	%

Other expenses:
Depreciation and amortization															18,525			16,709			1,816			10.9	%
General and administrative															4,846			4,856			(10		)	(0.2	%)
Total other expenses															23,371			21,565			1,806			8.4	%
Interest income															2			138			(136		)	(98.6	%)
Interest expense															(13,205		)	(13,924		)	719			(5.2	%)
Gain on early extinguishment of debt															120			—			120			N/M
Income before income tax expense and equity earnings of an investee															14,683			13,046			1,637			12.5	%
Income tax expense															(126		)	(60		)	(66		)	110.0	%
Equity in earnings of an investee															—			130			(130		)	N/M
Net income															14,557			13,116			1,441			11.0	%
Net loss attributable to noncontrolling interest															264			—			264			N/M
Net income attributable to common shareholders															$	14,821		$	13,116		$	1,705		13.0	%

Weighted average common shares outstanding - basic															65,089			65,039			50			0.1	%
Weighted average common shares outstanding - diluted															65,091			65,043			48			0.1	%

Per common share data (basic and diluted):
Net income attributable to common shareholders															$	0.23		$	0.20		$	0.03		15.0	%

N/M - Not Meaningful


(1)	Consists of 277 buildings, leasable land parcels and easements that we owned continuously since April 1, 2019.


(2)	Consists of 24 properties that we acquired during the period from April 1, 2019 to June 30, 2020.


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

References to changes in the income and expense categories below relate to the comparison of results for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. Our acquisition activity reflects our acquisition of 24 properties during the period from April 1, 2019 to June 30, 2020.

Rental income. The increase in rental income is primarily a result of our acquisition activity and increases from leasing activity, rent resets and real estate tax expense reimbursements at certain of our comparable properties. Rental income includes non-cash straight line rent adjustments totaling $2,096 for the 2020 period and approximately $2,002 for the 2019 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $204 for the 2020 period and approximately $707 for the 2019 period.

Real estate taxes. The increase in real estate taxes primarily reflects higher tax assessments at certain of our comparable properties and our acquisition activity.

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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 increase in other operating expenses is primarily due to our acquisition activity. The increase in other operating expenses at our comparable properties is primarily due to increases in insurance expense and repairs and maintenance costs during the 2020 period at certain of our comparable properties.

Depreciation and amortization. The increase in depreciation and amortization primarily reflects our acquisition activity and an increase in depreciation of improvements made to certain of our properties after April 1, 2019, partially offset by certain leasing related assets becoming fully amortized in the 2020 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 primarily reflects a decrease in professional fees, partially offset by an increase in business management fees as a result of our acquisition activity in the 2019 and 2020 periods.

Interest income. Interest income represents interest earned on our cash balances. The decrease in interest income is primarily due to a decrease in average investable cash during the 2020 period as compared to the 2019 period.

Interest expense. The decrease in interest expense in the 2020 period reflects a lower average outstanding indebtedness as compared to the 2019 period.

Gain on early extinguishment of debt. We recorded a gain on early extinguishment of debt in connection with our prepayment of a mortgage note during the 2020 period.

Income tax expense. Income tax expense reflects state income taxes payable in certain jurisdictions where we are subject to state income taxes.

Equity in earnings of an investee. Equity in earnings of an investee represents our proportionate share of earnings from our investment in AIC. The decrease in equity in earnings of an investee is due to the dissolution of AIC in February 2020.

Net income. The increase in net income for the 2020 period compared to the 2019 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 that we do not own in our joint venture for 12 of our Mainland Properties.

Weighted average common shares outstanding - basic and diluted. The increase in weighted average common shares outstanding primarily reflects common shares awarded under our equity compensation plan since April 1, 2019.

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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Six Months Ended June 30, 2020, Compared to Six Months Ended June 30, 2019 (dollars and share amounts in thousands, except per share data)



	Comparable Properties Results ⁽¹⁾								Acquired Properties Results⁽²⁾						Consolidated Results
	Six Months Ended June 30,								Six Months Ended June 30,						Six Months Ended June 30,
					$		%						$								$			%
	2020		2019		Change		Change		2020		2019		Change		2020			2019			Change			Change

Rental income	$	89,906	$	86,839	$	3,067	3.5	%	$	39,482	$	19,238	$	20,244	$	129,388		$	106,077		$	23,311		22.0	%

Operating expenses:
Real estate taxes	12,498		10,446		2,052		19.6	%	5,245		2,614		2,631		17,743			13,060			4,683			35.9	%
Other operating expenses	6,680		6,391		289		4.5	%	3,542		1,193		2,349		10,222			7,584			2,638			34.8	%
Total operating expenses	19,178		16,837		2,341		13.9	%	8,787		3,807		4,980		27,965			20,644			7,321			35.5	%

Net operating income ⁽³⁾	$	70,728	$	70,002	$	726	1.0	%	$	30,695	$	15,431	$	15,264	101,423			85,433			15,990			18.7	%

Other expenses:
Depreciation and amortization															36,815			26,320			10,495			39.9	%
General and administrative															9,677			8,656			1,021			11.8	%
Total other expenses															46,492			34,976			11,516			32.9	%
Interest income															113			499			(386		)	(77.4	%)
Interest expense															(27,724		)	(21,520		)	(6,204		)	28.8	%
Gain on early extinguishment of debt															120			—			120			N/M
Income before income tax expense and equity earnings of an investee															27,440			29,436			(1,996		)	(6.8	%)
Income tax expense															(189		)	(68		)	(121		)	177.9	%
Equity in earnings of an investee															—			534			(534		)	N/M
Net income															27,251			29,902			(2,651		)	(8.9	%)
Net loss attributable to noncontrolling interest															416			—			416			N/M
Net income attributable to common shareholders															$	27,667		$	29,902		$	(2,235	)	(7.5	%)

Weighted average common shares outstanding - basic															65,082			65,035			47			0.1	%
Weighted average common shares outstanding - diluted															65,087			65,042			45			0.1	%

Per common share data (basic and diluted):
Net income attributable to common shareholders															$	0.42		$	0.46		$	(0.04	)	(8.7	%)

N/M - Not Meaningful


(1)	Consists of 270 buildings, leasable land parcels and easements that we owned continuously since January 1, 2019.


(2)	Consists of 31 properties that we acquired during the period from January 1, 2019 to June 30, 2020.


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

References to changes in the income and expense categories below relate to the comparison of results for the six months ended June 30, 2020, compared to the six months ended June 30, 2019. Our acquisition activity reflects our acquisition of 31 properties during the period from January 1, 2019 to June 30, 2020.

Rental income. The increase in rental income is primarily a result of our acquisition activity and increases from leasing activity and rent resets at certain of our comparable properties. Rental income includes non-cash straight line rent adjustments totaling approximately $4,063 for the 2020 period and approximately $2,981 for the 2019 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $404 for the 2020 period and approximately $820 for the 2019 period.

Real estate taxes. The increase in real estate taxes primarily reflects our acquisition activity and higher tax assessments at certain of our comparable properties.

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Other operating expenses. The increase in other operating expenses is primarily due to our acquisition activity. The increase in other operating expenses at our comparable properties is primarily due to increases in insurance expense, partially offset by a decrease in snow removal expenses during the 2020 period at certain of our comparable properties.

Depreciation and amortization. The increase in depreciation and amortization primarily reflects our acquisition activity and an increase in depreciation of improvements made to certain of our properties after January 1, 2019, partially offset by certain leasing related assets becoming fully amortized in the 2020 period.

General and administrative. The increase in general and administrative expenses primarily reflects an increase in business management fees as a result of our acquisition activity in the 2019 and 2020 periods.

Interest income. The decrease in interest income is primarily due to a decrease in average investable cash during the 2020 period as compared to the 2019 period.

Interest expense. The increase in interest expense in the 2020 period is primarily due to increased net borrowings used to fund our acquisition activity in the 2019 period.

Gain on early extinguishment of debt. We recorded a gain on early extinguishment of debt in connection with our prepayment of a mortgage note during the 2020 period.

Income tax expense. Income tax expense reflects state income taxes payable in certain jurisdictions where we are subject to state income taxes.

Net income. The decrease in net income for the 2020 period compared to the 2019 period reflects the changes noted above.

Net income attributable to common shareholders per common share - basic and diluted. The decrease in net income attributable to common shareholders per common share reflects the changes to net income attributable to common shareholders and weighted average common shares noted above.

Non-GAAP Financial Measures

We present certain “non-GAAP financial measures” within the meaning of applicable 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.

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Net Operating Income

We calculate NOI as shown below. We define NOI as income from our rental of real estate less our property operating expenses. The calculation of NOI excludes certain components of net income in order to provide results that are more closely related to our property level results of operations. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization expense. We use NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate NOI differently than we do.

The following table presents the reconciliation of net income to NOI for the three and six months ended June 30, 2020 and 2019 (dollars in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Reconciliation of Net Income to NOI:
Net income	$	14,557		$	13,116		$	27,251		$	29,902
Equity in earnings of an investee	—			(130		)	—			(534		)
Income tax expense	126			60			189			68
Income before income tax expense and equity earnings of an investee	14,683			13,046			27,440			29,436
Gain on early extinguishment of debt	(120		)	—			(120		)	—
Interest expense	13,205			13,924			27,724			21,520
Interest income	(2		)	(138		)	(113		)	(499		)
General and administrative	4,846			4,856			9,677			8,656
Depreciation and amortization	18,525			16,709			36,815			26,320
NOI	$	51,137		$	48,397		$	101,423		$	85,433

NOI:
Hawaii Properties	$	19,783		$	19,385		$	39,301		$	38,994
Mainland Properties	31,354			29,012			62,122			46,439
NOI	$	51,137		$	48,397		$	101,423		$	85,433

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, plus real estate depreciation and amortization 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, if any, and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. FFO attributable to common shareholders and Normalized FFO attributable to common shareholders are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our 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.

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The following table presents our calculation of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and reconciliations of net income attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three and six months ended June 30, 2020 and 2019 (dollars in thousands, except per share data):



	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
Reconciliation of Net Income attributable to common shareholders to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders:
Net income attributable to common shareholders	$	14,821		$	13,116	$	27,667		$	29,902
Depreciation and amortization	18,525			16,709		36,815			26,320
FFO adjustments attributable to noncontrolling interest	(2,657		)	—		(3,634		)	—
FFO attributable to common shareholders	30,689			29,825		60,848			56,222
Gain on early extinguishment of debt	(120		)	—		(120		)	—
Normalized FFO attributable to common shareholders	$	30,569		$	29,825	$	60,728		$	56,222

Per common share data (basic and diluted)
FFO attributable to common shareholders and Normalized FFO attributable to common shareholders	$	0.47		$	0.46	$	0.93		$	0.86

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. 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 based on our current expectations, including impacts from the COVID-19 pandemic and current economic downturn on us and our tenants and their willingness and ability to pay us rent when due. Our future cash flows from operating activities will depend primarily upon our ability to:


•	collect rents from our tenants when due;


•	maintain the occupancy of, and maintain 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.

We are carefully monitoring the developments of the COVID-19 pandemic and its impact on our tenants and our other stakeholders. With $320,000 of availability under our revolving credit facility as of July 27, 2020, no debt maturities during the remainder of 2020, 74.3% 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 3.0% of our annualized rental revenues as of June 30, 2020 from expiring leases over the next 12 months, we believe that we are currently well positioned to weather the present disruptions facing the real estate industry. Further, we are hopeful that our focus on industrial and logistics properties will enable us and our tenants to outperform the broader commercial and real estate industry if the demand for e-commerce continues at levels consistent with the demand since the COVID-19 pandemic materialized in the United States during the first quarter of 2020. However, even if that occurs, we expect that some of our tenants may experience significant downturns with respect to their businesses and liquidity. As a result of the COVID-19 pandemic and its resulting economic harm, certain of our tenants have requested relief from their obligations to pay rent due to us. We evaluate these requests on a tenant by tenant basis. As of July 27, 2020, we have granted requests to certain of our tenants to defer rent payments aggregating $2,799 for leases that represent approximately 8.2% of our annualized rental revenues as of June 30, 2020. These tenants will be obligated to pay, in most cases, the deferred rents in 12 equal monthly installments commencing in September 2020. As of June 30, 2020, we recognized an increase in our accounts receivable balance related to these deferred rent payments of $2,317.

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We expect to receive additional similar requests in the future, particularly if the current economic conditions do not continue to improve or if they worsen for an extended period. We may determine to grant additional relief in the future, which may vary from the type of relief we have granted to date, and could include more substantial relief, if we determine it prudent or appropriate to do so. In addition, if any of our tenants are unable to continue as going concerns as a result of the current economic conditions or otherwise, we will experience a reduction in rents received and we may be unable to find suitable replacement tenants for an extended period or at all and the terms of our leases with those replacement tenants may not be as favorable to us as the terms of our agreements with our existing tenants. Further, we do not know whether there will be any additional government funding programs in response to the COVID-19 pandemic and its aftermath and, if so, whether any of our tenants will qualify for, and receive assistance from any such government programs and, if they do, whether that assistance will be sufficient to enable them to pay rent to us. As a result of the uncertainties surrounding the COVID-19 pandemic and the duration and severity of the current economic downturn, we are unable to determine the ultimate impact on our tenants and their ability and willingness to pay us rent. As a result of the uncertainties surrounding the COVID-19 pandemic, we are unable to currently assess any additional impact this pandemic will have on our future cash flows.

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):



	Six Months Ended June 30,
	2020			2019
Cash and cash equivalents and restricted cash at beginning of period	$	34,550		$	9,608
Net cash provided by (used in):
Operating activities	62,899			64,532
Investing activities	(74,430		)	(855,296		)
Financing activities	23,940			796,506
Cash and cash equivalents and restricted cash at end of period	$	46,959		$	15,350

The decrease in net cash provided by operating activities for the six months ended June 30, 2020 compared to the same period in the prior year is primarily due to changes in our working capital, partially offset by an increase in consolidated property NOI due to our property acquisitions since July 1, 2019. Net cash used in investing activities for the six months ended June 30, 2020 decreased primarily due to the acquisitions of 28 properties in the 2019 period as compared to the acquisition of one property in the 2020 period. The decrease in net cash provided by financing activities for the six months ended June 30, 2020 compared to the same period in the prior year is primarily due to net proceeds from our mortgage financing and borrowings under our revolving credit facility to fund acquisitions in the 2019 period compared to the proceeds we received from our joint venture transaction in the 2020 period, partially offset by the prepayment of a mortgage note in the 2020 period.

Our Investment 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. Further, the COVID-19 pandemic has resulted in a reduction in investment activity generally and we may be limited in pursuing investments in the current uncertain economic conditions until economic conditions become more stable. We generally do not intend to purchase “turn around” properties, or properties that do not generate positive cash flows, and, to the extent we conduct construction or redevelopment activities on our properties, we currently intend to conduct those activities primarily to satisfy tenant requirements or on a build to suit basis for existing or new tenants.

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As of June 30, 2020, we had unrestricted cash and cash equivalents of $33,256. To maintain our qualification for taxation as a REIT under the Internal Revenue Code of 1986, as amended, we generally are required to distribute annually at least 90% of our REIT taxable income, 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 June 30, 2020, the interest rate premium on our revolving credit facility was 140 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 June 30, 2020, the annual interest rate payable on borrowings under our revolving credit facility was 1.59%. As of June 30, 2020 and July 27, 2020, we had $320,000 outstanding under our revolving credit facility, and $430,000 available to borrow under our revolving credit facility.

Our credit agreement includes a feature under which the maximum borrowing availability under the facility may be increased to up to $1,500,000 in certain circumstances.

As of June 30, 2020, our debt maturities (other than our revolving credit facility), include mortgage notes with an aggregate principal amount of $1,056,980, as follows:



	Debt Maturity
2023 ⁽¹⁾	56,980
2029 ⁽²⁾	1,000,000
Total	$	1,056,980

(1) The property encumbered by this mortgage is owned by a joint venture in which we own a 61% equity interest.

(2) The properties encumbered by the $350,000 mortgage loan we obtained in October 2019 are owned by a joint venture in which we own a 61% equity interest.

In February and March 2020, we entered into agreements related to the formation of a joint venture for 12 of our Mainland Properties. We received proceeds from the investor in an aggregate amount of $108,266, which includes certain costs associated with the formation of the joint venture, for a 39% equity interest in the joint venture and we retained the remaining 61% equity interest in the joint venture. The investment amount is based on an aggregate property valuation of $680,000, less $406,980 of existing mortgage debts on the properties at the time of the investment that the joint venture assumed. In February 2020, we formed the joint venture with 11 of the 12 properties and the investor initially paid us $82,035, and in March 2020, the twelfth property was added to the joint venture and the investor contributed an additional $26,231. We used the net proceeds from this transaction to reduce outstanding borrowings under our revolving credit facility. We may sell additional properties to the joint venture or sell some of our equity interests in the joint venture to additional investors as a source of financing in the future. In addition, this joint venture may issue additional equity interests to other investors. Further, we may seek to enter new joint ventures; however, the current economic conditions may delay, limit or prevent our ability or willingness to enter additional joint ventures.

We expect to use borrowings under our revolving credit facility and net proceeds from offerings of equity or debt securities to fund any future property acquisitions, development or redevelopment efforts. We may also assume mortgage notes in connection with future acquisitions. When significant amounts are outstanding under our revolving credit facility or the maturities of our revolving credit facility or our other debt approach, we intend to explore refinancing alternatives. Such alternatives may include incurring term debt, obtaining financing secured by mortgages on properties we own, issuing new equity or debt securities, extending the maturity date of our revolving credit facility, participating in joint ventures or selling properties. We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but we cannot be sure that there will be purchasers for such securities. Although we cannot be sure that we will be successful in completing any particular type of financing, we believe that we will have access to financing, such as debt or equity offerings, to fund capital expenditures, future acquisitions, development, redevelopment and other activities and to pay our obligations.

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The completion and the costs of any future financings will depend primarily upon our success in operating our business and upon market conditions. In particular, the feasibility and cost of any future debt financings will depend primarily on our then current credit qualities and on market conditions. We have no control over market conditions. Potential lenders in future debt transactions will evaluate our ability to fund required debt service and repay principal balances when they become due by reviewing our financial condition, results of operations, business practices and plans and our ability to maintain our earnings, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. We intend to conduct our business activities in a manner which will afford us reasonable access to capital for investment and financing activities. However, as noted elsewhere in this Quarterly Report on Form 10-Q, it is uncertain what the duration and severity of the current economic downturn resulting from the COVID-19 pandemic will be. A protracted and extensive downturn may have various negative consequences, including a decline in financing availability and increased costs for financing. Further, such conditions could also disrupt capital markets and limit our access to financing from public sources, particularly if the global financial markets experience significant disruptions.

During the six months ended June 30, 2020, we paid quarterly cash distributions to our shareholders totaling $43,021 using existing cash balances and borrowings under our revolving credit facility. For more information regarding the distribution we paid in 2020, see Note 7 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

During the three and six months ended June 30, 2020 and 2019, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Tenant improvements ⁽¹⁾	$	344	$	—	$	448	$	—
Leasing costs ⁽²⁾	—		238		189		394
Building improvements ⁽³⁾	741		1,834		1,978		1,893
Development, redevelopment and other activities⁽⁴⁾	—		2,553		1		2,713
	$	1,085	$	4,625	$	2,616	$	5,000


(1)	Tenant improvements include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space.


(2)	Leasing costs include leasing related costs, such as brokerage commissions and tenant inducements.


(3)	Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets.


(4)	Development, redevelopment and other activities generally include capital expenditure projects that (i) reposition a property or (ii) result in new sources of revenue.

As of June 30, 2020, we had estimated unspent leasing related obligations of $561.

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During the three months ended June 30, 2020, commitments made for expenditures, such as tenant improvements and leasing costs in connection with leasing space, were as follows:



	New Leases		Renewals		Totals
Square feet leased during the period (in thousands)	—		314		314
Total leasing costs and concession commitments⁽¹⁾	$	—	$	229	$	229
Total leasing costs and concession commitments per square foot ⁽¹⁾	$	—	$	0.73	$	0.73
Weighted average lease term by square feet (years)	—		20.1		20.1
Total leasing costs and concession commitments per square foot per year ⁽¹⁾	$	—	$	0.04	$	0.04


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

Off Balance Sheet Arrangements

As of June 30, 2020, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Debt Covenants (dollars in thousands)

Our principal debt obligations at June 30, 2020 were borrowings outstanding under our revolving credit facility, a $650,000 mortgage loan obtained in January 2019 that is secured by 186 of our properties, a $350,000 mortgage loan obtained in October 2019 that is secured by 11 properties that are owned by a joint venture in which we own a 61% equity interest, and a $56,980 mortgage note that is secured by another property owned by such joint venture, subject to certain limitations. The $650,000 mortgage loan agreement contains certain exceptions to the general non-recourse provisions that obligate us to indemnify the lenders for certain potential environmental losses relating to hazardous materials and violations of environmental law.

Our credit agreement provides for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as a change of control of us, which includes RMR LLC ceasing to act as our business and property manager. Our credit agreement contains covenants, including those that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, restrict our ability to make distributions to our shareholders in certain circumstances and generally require us to maintain certain financial ratios. As of June 30, 2020, we believe we were in compliance with all the covenants and other terms under our credit agreement.

Our credit agreement does not contain provisions for acceleration which could be triggered by our leverage ratio. However, under our credit agreement, our leverage ratio is used to determine the interest rates for calculating the amount of interest payable on outstanding borrowings and the fees we pay. Accordingly, if our leverage ratio increases above the applicable thresholds, our interest expense and related costs under our credit agreement would increase.

Our revolving credit facility has cross default provisions to other indebtedness that is recourse of $25,000 or more and indebtedness that is non-recourse of $50,000 or more.

The loan agreements governing our mortgage loans contain customary covenants and provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default. In addition, pursuant to the loan agreement and related documents governing our $650,000 mortgage loan, we are required to maintain a minimum consolidated net worth of at least $250,000 and liquidity of at least $15,000. As of June 30, 2020, we believe we were in compliance with all the covenants and other terms under the agreements governing our mortgage notes.

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Related Person Transactions

We have relationships and historical and continuing transactions with RMR LLC, RMR Inc. and others related to them. For example: we have no employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC; RMR Inc. is the managing member of RMR LLC; Adam Portnoy, the Chair of our Board of Trustees and one of our Managing Trustees, 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. We have relationships and historical and continuing transactions with other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also trustees, directors or officers of us, RMR LLC or RMR Inc. and some of our Trustees and officers serve as trustees, directors or officers of these companies.

For further information about these and other such relationships and related person transactions, see Notes 9 and 10 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2019 Annual Report, our definitive Proxy Statement for our 2020 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” of our 2019 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related persons, including our business and property management agreements with RMR LLC and our various agreements with OPI, are available as exhibits to our public filings with the SEC and accessible at the SEC’s website, www.sec.gov. We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.

Item 3. Quantitative and Qualitative Disclosures About Market Risk (dollars in thousands, except per share data)

We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives. Our strategy to manage exposure to changes in interest rates is materially unchanged since December 31, 2019. Other than as described below, we do not currently expect any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.

Fixed Rate Debt

At June 30, 2020, our outstanding fixed rate debt consisted of the following mortgage notes:



			Annual		Annual			Interest
	Principal		Interest		Interest			Payments
Debt	Balance ⁽¹⁾		Rate ⁽¹⁾		Expense ⁽¹⁾		Maturity	Due
Mortgage note (one property in Florida) ⁽²⁾	$	56,980	3.60	%	$	2,051	2023	Monthly
Mortgage notes (186 properties in Hawaii)	650,000		4.31	%	28,015		2029	Monthly
Mortgage notes (11 U.S. Mainland Properties) ⁽²⁾	350,000		3.33	%	11,655		2029	Monthly
	$	1,056,980			$	41,721


(1)	The principal balance, annual interest rate and annual interest expense are the amounts stated in the applicable contract. In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we assumed or issued this debt.


(2)	The properties encumbered by these mortgages are owned by a joint venture in which we own a 61% equity interest.

These mortgage notes require interest only payments until maturity. Because our mortgage notes require interest to be paid at a fixed rate, changes in market interest rates during the terms of these mortgage notes will not affect our interest obligations. If these mortgage notes are refinanced at interest rates which are one percentage point higher or lower than shown above, our annual interest cost would increase or decrease by approximately $10,570.

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Changes in market interest rates would affect the fair value of our fixed rate debt obligations. Increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt. Based on the balances outstanding at June 30, 2020 and discounted cash flow analyses through the maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligations, a hypothetical immediate one percentage point change in the interest rates would change the fair value of these obligations by approximately $78,147.

Floating Rate Debt

At June 30, 2020, our floating rate debt consisted of $320,000 outstanding under our revolving credit facility. Our revolving credit facility matures on December 29, 2021 and, subject to the payment of extension fees and satisfaction of other conditions, we have the option to extend the maturity date for two, six month periods. No principal repayments are required under our revolving credit facility prior to maturity, and prepayments may be made at any time without penalty.

Borrowings under our revolving credit facility are in U.S. dollars and require interest to be paid at LIBOR plus a premium that varies based on our leverage ratio. Accordingly, we are vulnerable to changes in the U.S. dollar based short term rates, specifically LIBOR. In addition, upon renewal or refinancing of this obligation, we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit risk. Generally, a change in interest rates would not affect the value of our floating rate debt but would affect our operating results. The following table presents the approximate impact a one percentage point increase in interest rates would have on our annual floating rate interest expense at June 30, 2020:



	Impact of an Increase in Interest Rates
					Total Interest		Annual
	Interest Rate		Outstanding		Expense		Earnings Per
	Per Year		Debt		Per Year		Share Impact ⁽¹⁾
At June 30, 2020	1.59	%	$	320,000	$	5,088	$	(0.08	)
One percentage point increase	2.59	%	$	320,000	$	8,288	$	(0.13	)


(1)	Based on the diluted weighted average common shares outstanding for the six months ended June 30, 2020.

The following table presents the approximate impact a one percentage point increase in interest rates would have on our annual floating rate interest expense at June 30, 2020 if we were fully drawn on our revolving credit facility:



	Impact of an Increase in Interest Rates
					Total Interest		Annual
	Interest Rate		Outstanding		Expense		Earnings Per
	Per Year		Debt		Per Year		Share Impact ⁽¹⁾
At June 30, 2020	1.59	%	$	750,000	$	11,925	$	(0.18	)
One percentage point increase	2.59	%	$	750,000	$	19,425	$	(0.30	)


(1)	Based on the diluted weighted average common shares outstanding for the six months ended June 30, 2020.

The foregoing tables show the impact of an immediate one percentage point change in floating interest rates. If interest rates were to change gradually over time, the impact would be spread over time. Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amounts of our revolving credit facility and any other floating rate debt.

LIBOR Phase Out

LIBOR is currently expected to be phased out in 2021. We are required to pay interest on borrowings under our revolving credit facility at floating rates based on LIBOR. Future debt that we may incur may also require that we pay interest based upon LIBOR. We currently expect that the determination of interest under our revolving credit facility would be revised as provided under our credit agreement or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR. Despite our current expectations, we cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest under our agreements would approximate the current calculation in accordance with LIBOR. We do not know what standard, if any, will replace LIBOR if it is phased out or transitioned.

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Item 4. Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our President and Chief Executive Officer and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Warning Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Also, whenever we use words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions, we are making forward-looking statements. These forward-looking statements are based upon our present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Forward-looking statements in this Quarterly Report on Form 10-Q relate to various aspects of our business, including:


•	The duration and severity of the economic downturn resulting from the COVID-19 pandemic and its impact on us and our tenants,


•	Our expectations about our ability and the ability of the industrial and logistics properties real estate sector and our tenants to operate throughout the COVID-19 pandemic and current economic conditions,


•	The likelihood and extent to which our tenants will be negatively impacted by the COVID-19 pandemic and its aftermath and be able and willing to pay us rent,


•	The likelihood that our tenants will pay rent or be negatively affected by cyclical economic conditions,


•	The likelihood that our tenants will renew or extend their leases or that we will be able to obtain replacement tenants on terms as favorable to us as the terms of our existing leases,


•	Our acquisitions of properties,


•	Our ability to compete for acquisitions and tenancies effectively,


•	The likelihood that our rents will increase when we renew or extend our leases, when we enter new leases, or when our rents reset at our Hawaii Properties,


•	Our ability to pay distributions to our shareholders and to sustain the amount of such distributions,


•	The future availability of borrowings under our revolving credit facility,


•	Our policies and plans regarding investments, financings and dispositions,


•	Our ability to raise debt or equity capital,


•	Our ability to pay interest on and principal of our debt,


•	Our ability to appropriately balance our use of debt and equity capital,


•	Our ability to enter into expanded or additional real estate joint ventures or to attract co-venturers and our ability to manage successfully and benefit from any real estate joint ventures we may enter into,


•	Changes in the security of cash flows from our properties,


•	Our expectations regarding the impact of the COVID-19 pandemic on our financial condition and operating results,


•	Our ability to maintain sufficient liquidity for the duration of the COVID-19 pandemic and resulting economic downturn,


•	Our ability to prudently pursue, and successfully and profitably complete, expansion and renovation projects at our properties and to realize our expected returns on those projects,


•	Our expectation that we benefit from our relationships with RMR LLC,


•	Our qualification for taxation as a REIT,


•	Changes in federal or state tax laws,


•	The credit qualities of our tenants,

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•	Changes in environmental laws or in their interpretations or enforcement as a result of climate change or otherwise, or our incurring environmental remediation costs or other liabilities,


•	Our sales of properties, and


•	Other matters.

Our actual results may differ materially from those contained in or implied by our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. Risks, uncertainties and other factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, FFO attributable to common shareholders, Normalized FFO attributable to common shareholders, NOI, cash flows, liquidity and prospects include, but are not limited to:


•	The impact of conditions in the economy, including the COVID-19 pandemic and its aftermath, and the capital markets on us and our tenants,


•	Competition within the real estate industry, particularly for industrial and logistics properties in those markets in which our properties are located,


•	Compliance with, and changes to, federal, state and local laws and regulations, accounting rules, tax laws and similar matters,


•	Limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our qualification for taxation as a REIT for U.S. federal income tax purposes,


•	Actual and potential conflicts of interest with our related parties, including our managing trustees, RMR LLC and others affiliated with them, and


•	Acts of terrorism, outbreaks of pandemics, including the COVID-19 pandemic, or other manmade or natural disasters beyond our control.

For example:

•

Our ability to make future distributions to our shareholders and to make payments of principal and interest on our indebtedness depends upon a number of factors, including our receipt of rent from our tenants, future earnings, the capital costs we incur to lease our properties and our working capital requirements. We may be unable to pay our debt obligations or to increase or maintain our current rate of distributions on our common shares and future distributions may be reduced or eliminated,

•

Our ability to grow our business and increase our distributions depends in large part upon our ability to buy properties and lease them for rents, less their property operating costs, that exceed our capital costs. We may be unable to identify properties that we want to acquire, and we may fail to reach agreement with the sellers and complete the purchases of any properties we do want to acquire. In addition, any properties we may acquire may not provide us with rents less property operating costs that exceed our capital costs or achieve our expected returns,


•	Contingencies in our acquisition and sale agreements may not be satisfied and any expected acquisitions and sales may not occur, may be delayed or the terms of such transactions may change,


•	Rents that we can charge at our properties may decline upon rent resets, lease renewals or lease expirations because of changing market conditions or otherwise,


•	Leasing for some of our properties depends on a single tenant and we may be adversely affected by the bankruptcy, insolvency, a downturn of business or a lease termination of a single tenant at these properties,

•

Certain of our Hawaii Properties are lands leased for rents that periodically reset based on then current fair market values. Rental income from our properties in Hawaii have generally increased during our and our predecessors’ ownership as the leases for those properties have been reset, extended or renewed. Although we expect that rents for our Hawaii Properties could increase in the future, subject to the impacts of the COVID-19 pandemic and the resulting economic downturn, we cannot be sure they will increase. Future rents from these properties could decrease or not increase to the extent they have in the past or by the amount we expect, particularly in the current economic conditions,

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•	It is difficult to accurately estimate leasing related obligations and costs of development and tenant improvement costs. Our leasing related obligations, development projects and tenant improvements may cost more and may take longer to complete than we currently expect and we may incur increasing amounts for these and similar purposes in the future,

•

Economic conditions in areas where our properties are located may decline in the future, including due to the COVID-19 pandemic and its aftermath. Such circumstances or other conditions may reduce demand for leasing industrial space. If the demand for leasing industrial space is reduced, we may be unable to renew leases with our tenants as leases expire or enter new leases at rental rates as high as expiring rents and our financial results may decline,


•	E-commerce retail sales may not continue to grow and increase the demand for industrial and logistics real estate as we expect,


•	Increasing development of industrial and logistics properties may reduce the demand for, and rents from, our properties,


•	We may not achieve or sustain our targeted capitalization rates for properties we acquire and we may incur losses with respect to those acquisitions,


•	Our belief that there is a likelihood that tenants may renew or extend our leases prior to their expirations whenever they have made significant investments in the leased properties, or because those properties may be of strategic importance to them, may not be realized,


•	Some of our tenants may not renew expiring leases, and we may be unable to obtain new tenants to maintain or increase the historical occupancy rates of, or rents from, our properties,


•	The competitive advantages we believe we have may not in fact exist or provide us with the advantages we expect. We may fail to maintain any of these advantages or our competition may obtain or increase their competitive advantages relative to us,


•	We intend to conduct our business activities in a manner that will afford us reasonable access to capital for investment and financing activities. However, we may not succeed in this regard and we may not have reasonable access to capital, including due to the COVID-19 pandemic and its aftermath,

•

Continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions. However, if challenging market conditions, including due to the COVID-19 pandemic and its aftermath, last for a long period or worsen, our tenants may experience liquidity constraints and as a result may be unable or unwilling to pay rent to us and our ability to operate our business effectively may be challenged. If our operating results and financial condition are significantly negatively impacted by the current economic conditions or otherwise, we may fail to satisfy those covenants and conditions,


•	Actual costs under our revolving credit facility will be higher than LIBOR plus a premium because of fees and expenses associated with such debt,


•	We may be unable to repay our debt obligations when they become due,


•	The maximum borrowing availability under our revolving credit facility may be increased to up to $1.5 billion in certain circumstances. However, increasing the maximum borrowing availability under our revolving credit facility is subject to our obtaining additional commitments from lenders, which may not occur,


•	We have the option to extend the maturity date of our revolving credit facility upon payment of a fee and meeting other conditions. However, the applicable conditions may not be met,


•	The premiums used to determine the interest rate payable on our revolving credit facility and the unused fee payable on our revolving credit facility are based on our leverage. Changes in our leverage may cause the interest and fees we pay to increase,


•	We may not reduce our level of indebtedness or maintain any reduction we may effect and increased leverage may restrict our ability to acquire properties and pursue business opportunities,


•	We may spend more for capital expenditures than we currently expect or than we have in the past,

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•	Our existing joint venture and any other joint ventures that we may enter may not be successful,

•

Our Board of Trustees considers, among other factors, our distribution rate compared to the trading price of our common shares and to the dividend yields of other industrial REITs when setting our distributions to shareholders. This may imply that we will maintain or seek to maintain a specific dividend yield on our common shares. However, the dividend yield is only one of many factors our Board of Trustees considers in its discretion when setting our distributions to shareholders. Further, various market and other factors impact trading prices for our and our competitors’ securities and the corresponding yields on those securities. As a result, the trading prices on our common shares and the yields on our common shares are subject to change and may fluctuate significantly. We do not intend to maintain or to seek to maintain any specific yield on our common shares,


•	We believe that we are well positioned to weather the present disruptions of the COVID-19 pandemic facing the real estate industry. However, the full extent of the future impact of the COVID-19 pandemic to us is unknown and we may not realize similar or better operating results in the future,

•

We face minimal lease expirations over the next 12 months and we have granted requests to certain of our tenants to defer rent payments in exchange for increased payments over, in most cases, a 12-month period commencing in September 2020. However, current market and economic conditions may deteriorate and such deterioration may result in an increase in tenant defaults and terminations, and these concessions and assistance given to our tenants may not allow them to continue to be successful during this challenging time,


•	The business and property management agreements between us and RMR LLC have continuing 20 year terms. However, those agreements permit early termination in certain circumstances. Accordingly, we cannot be sure that these agreements will remain in effect for continuing 20 year terms, and


•	We believe that our relationships with our related parties, including RMR LLC, RMR Inc. and others affiliated with them may benefit us and provide us with competitive advantages in operating and growing our business. However, the advantages we believe we may realize from these relationships may not materialize.

Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as the COVID-19 pandemic and its aftermath, acts of terrorism, natural disasters, changes in our tenants’ financial conditions, the market demand for leased space or changes in capital markets or the economy generally.

The information contained elsewhere in this Quarterly Report on Form 10-Q and in our 2019 Annual Report or in our other filings with the SEC, including under the caption “Risk Factors”, or incorporated herein or therein, identifies other important factors that could cause differences from our forward-looking statements. Our filings with the SEC are available on the SEC’s website at www.sec.gov.

You should not place undue reliance upon our forward-looking statements.

Except as required by law, we do not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

Statement Concerning Limited Liability

The Amended and Restated Declaration of Trust establishing Industrial Logistics Properties Trust, dated January 11, 2018, as filed with the State Department of Assessments and Taxation of Maryland, provides that no trustee, officer, shareholder, employee or agent of Industrial Logistics Properties Trust shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, Industrial Logistics Properties Trust. All persons dealing with Industrial Logistics Properties Trust in any way shall look only to the assets of Industrial Logistics Properties Trust for the payment of any sum or the performance of any obligation.

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PART II. Other Information

Item 1A. Risk Factors

Our business faces many risks, a number of which are described under the caption “Risk Factors” in our 2019 Annual Report. The COVID-19 pandemic may subject us to additional risks that are described below. The risks described in our 2019 Annual Report and below may not be the only risks we face. Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors contained in our 2019 Annual Report or described below occurs, our business, financial condition or results of operations could be adversely impacted and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in our 2019 Annual Report and below, and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q before deciding whether to invest in our securities.

The COVID-19 pandemic has resulted in a global economic recession that may materially adversely impact our business, operations, financial results and liquidity.

The strain of coronavirus that causes the viral disease known as COVID-19 has been declared a pandemic by the World Health Organization, and the U.S. Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak. The COVID-19 pandemic has had a substantial adverse impact on the global economy, including the U.S. economy, and has resulted in a global economic recession.

Although some of our tenants have benefitted to date from the increased reliance on e-commerce and logistics to support retailers and communities with essential services throughout the United States, challenges to the supply chain due to the COVID-19 pandemic, such as widespread illness that negatively impacts the workforce or other supply chain issues, may negatively impact our tenants’ businesses and operations. Further, the demand for e-commerce and logistics may decline, particularly if the current economic conditions do not continue to improve or if they worsen for an extended period. If that occurs, our tenants may become unable or unwilling to pay rent to us and we may be unable to replace any lost revenues we may experience. Further, these conditions could result in declining market rents where our properties are located, which may adversely affect our future rents.

We typically conduct aspects of our leasing activity at our properties. Accordingly, reductions in the ability and willingness of prospective tenants to visit our properties due to the COVID-19 pandemic could reduce rental revenue and ancillary operating revenue produced by our properties. Concerns relating to the outbreak could also cause on-site personnel not to report for work at our properties, which could adversely affect the management of our properties. As of June 30, 2020, leases for 0.3% of our total annualized rental revenues were scheduled to expire during the last six months of 2020 and only leases for an additional 5.9% are scheduled to expire in 2021. In addition, if tenants default on our leases, we may experience increased vacancies and we may be unable to replace those tenancies for an extended period or at all and the terms of any leases we may enter may not be as favorable to us as the terms of our existing leases.

We cannot predict the extent and duration of the COVID-19 pandemic or the severity and duration of its economic impact. Potential consequences of the current unprecedented measures taken in response to the spread of the virus that causes COVID-19, and current market disruptions and volatility affecting us include, but are not limited to:


•	increased risk of our tenants being unable to weather an extended cessation of normal economic activity and thereby impairing their ability to continue functioning as a going concern;


•	increased risk of default or bankruptcy of our tenants;


•	reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of the virus that causes COVID-19, which could impact the continued viability of our tenants and the demand for industrial and logistics properties;


•	our inability to execute improvements to our properties due to a construction moratorium or decrease in available construction workers or construction activity, including required inspectors and governmental personnel for permitting and other requirements, and due to our need to maintain our liquidity,


•	possible significant declines in the value of our properties;


•	our inability to accurately or reliably value our portfolio;

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•	our failure to pay interest or principal when due under our outstanding debt, which may result in the acceleration of payment for our outstanding debt and our possible loss of our revolving credit facility;


•	our inability to comply with certain financial covenants that could result in our defaulting under our debt agreements;


•	continued sudden and/or severe declines in the market price of our common shares;


•	our inability to access debt and equity capital on attractive terms, or at all;


•	our inability to sell properties we may identify for sale due to a general decline in business activity and demand for real estate transactions; and


•	our inability to grow our existing joint venture or to enter new joint ventures.

Further, the extent and strength of any economic recovery after the COVID-19 pandemic abates, including following any “second wave” or other intensifying of the pandemic, are uncertain and subject to various factors and conditions. Our business, operations and financial position may continue to be negatively impacted after the COVID-19 pandemic abates and may remain at depressed levels compared to prior to the outbreak of the COVID-19 pandemic and those conditions may continue for an extended period.

Future distributions to our shareholders may be reduced or eliminated as a result of the uncertainty and materially adverse impact of the COVID-19 pandemic and the resulting economic downturn and the form of payment could change.

We currently intend to continue to make regular quarterly distributions to our shareholders. However:


•	our ability to make or sustain the rate of distributions may continue to be adversely affected by the negative impact of the COVID-19 pandemic and its aftermath on our business, results of operations and liquidity;


•	our making of distributions is subject to compliance with restrictions contained in the agreements governing our debt and may be subject to restrictions in future debt obligations we may incur; during the continuance of any event of default under the agreements governing our debt, we may be limited or in some cases prohibited from making distributions to our shareholders; and

•

the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including our FFO attributable to common shareholders, our Normalized FFO attributable to common shareholders, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our dividend yield and our dividend yield compared to the dividend yields of other industrial REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.

For these reasons, among others, our distribution rate may decline or we may cease making distributions to our shareholders.

In order to preserve liquidity, we may elect to pay distributions to our shareholders in part in a form other than cash, such as issuing additional common shares of ours to our shareholders, as permitted by the applicable tax rules.

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Certain of our tenants have requested relief from their obligations to pay us rent in response to the current economic conditions resulting from the COVID-19 pandemic and we expect to receive additional similar requests in the future; we have provided certain limited relief in response to these requests and may determine to grant additional relief in the future if we determine it prudent or appropriate to do so.

The current economic conditions resulting from the COVID-19 pandemic significantly negatively impacted certain of our tenants’ businesses, operations and liquidity, and certain of our tenants have requested relief from their obligations to pay rent due to us. To date, we have granted some relief to our tenants, which principally consists of deferring an aggregate of approximately $2.8 million of rent payments in exchange for increased payments over, in most cases, a 12-month period commencing in September 2020. We expect to receive additional similar requests in the future, and we may determine to grant additional relief in the future, which may vary from the type of relief we have granted to date, and could include more substantial relief, if we determine it prudent or appropriate to do so. If conditions do not sufficiently and sustainably improve for these tenants, they may be unable to pay deferred or other rents owed to us when due or otherwise. In addition, if any of our tenants are unable to continue as going concerns as a result of the current economic conditions or otherwise, we will experience a reduction in rents received and we may be unable to find suitable replacement tenants for an extended period or at all and the terms of our leases with those replacement tenants may not be as favorable to us as the terms of our agreements with our existing tenants.

The COVID-19 pandemic and resulting economic recession may negatively impact our ability and willingness to grow our existing joint venture and to enter new joint ventures.

We currently have a joint venture for 12 of our Mainland Properties. If that joint venture is unable to obtain sufficient funding from its current or other investors, it will be limited in its ability to grow. In addition, our ability to enter new joint ventures may be limited in the current economic environment if investors are not willing to enter those arrangements due to liquidity or other concerns. Moreover, we may elect not to pursue additional joint ventures for our properties if, for example, we believe the valuations that investors place on our properties are below what we believe to be their actual valuations, which can occur in periods of economic instability such as the current economic environment in the United States and globally. If we are unable to grow our existing joint venture or enter new joint ventures, we may be limited in our ability to grow our business, to obtain financing and to pursue opportunities we believe would be beneficial to us.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer purchases of equity securities. The following table provides information about our purchases of our equity securities during the quarter ended June 30, 2020:

Maximum

Total Number of

Approximate Dollar

Shares Purchased

Value of Shares that

Number of

Average

as Part of Publicly

May Yet Be Purchased

Price Paid

Announced Plans

Under the Plans or

Calendar Month

Purchased ⁽¹⁾

per Share

or Programs

Programs

June 2020

613

20.55

—

Total

613

20.55

—

(1) This common share withholding and purchase was made to satisfy tax withholding and payment obligations of a former officer and employee of RMR LLC in connection with the vesting of awards of our common shares. We withheld and purchased these shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date.

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Item 6. Exhibits



Exhibit Number	Description

3.1	Composite Copy of Amended and Restated Declaration of Trust of the Company, dated as of January 11, 2018, as amended to date. (Filed herewith.)

3.2	Composite Copy of Amended and Restated Declaration of Trust of the Company, dated as of January 11, 2018, as amended to date (marked copy). (Filed herewith.)

3.3	Amended and Restated Bylaws of the Company, adopted March 25, 2019. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 26, 2019.)

4.1	Form of Common Share Certificate. (Incorporated by reference to Amendment No. 2 to the Company's Registration Statement on Form S-11, File No. 333-221708.)

10.1	Summary of Trustee Compensation. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 29, 2020.)

31.1	Rule 13a-14(a) Certification. (Filed herewith.)

31.2	Rule 13a-14(a) Certification. (Filed herewith.)

32.1	Section 1350 Certification. (Furnished herewith.)

101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH	XBRL Taxonomy Extension Schema Document. (Filed herewith.)

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)

101.LAB	XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)

104	Cover Page Interactive Data File. (Formatted as Inline XBRL and contained in Exhibit 101.)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	INDUSTRIAL LOGISTICS PROPERTIES TRUST


	By:	/s/ John G. Murray
		John G. Murray
		President and Chief Executive Officer
		Dated: July 29, 2020


	By:	/s/ Richard W. Siedel, Jr.
		Richard W. Siedel, Jr.
		Chief Financial Officer and Treasurer
		(principal financial officer and principal accounting officer)
		Dated: July 29, 2020

Exhibit 3.1

INDUSTRIAL LOGISTICS PROPERTIES TRUST

COMPOSITE DECLARATION OF TRUST

INCORPORATING:

Articles of Amendment and Restatement filed January 11, 2018

Articles of Amendment filed June 3, 2019

Articles of Amendment filed May 28, 2020

INDUSTRIAL LOGISTICS PROPERTIES TRUST

ARTICLES OF AMENDMENT AND RESTATEMENT

FIRST: Industrial Logistics Properties Trust, a Maryland real estate investment trust (the “Trust”), formed under Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland, hereby amends and restates its Declaration of Trust as currently in effect as provided herein, so that the following provisions are all the provisions of the Declaration of Trust of the Trust as so amended and restated:

ARTICLE I

FORMATION

Section 1.1 Formation. Industrial Logistics Properties Trust, a Maryland real estate investment trust (the “Trust”) is a real estate investment trust within the meaning of Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland (“Title 8”). The Trust shall not be deemed to be a general partnership, limited partnership, joint venture, joint stock company or a corporation, but nothing herein shall preclude the Trust from being treated for tax purposes as an association under the Internal Revenue Code of 1986, as amended, including the regulations and rulings promulgated thereunder, all as from time to time in effect, or any successor law, regulations and rulings (the “Code”); nor shall the trustees of the Trust (hereinafter, each a “Trustee” and, collectively, the “Trustees”) or shareholders of the Trust or any of them for any purpose be, nor be deemed to be, nor be treated in any way whatsoever as, liable or responsible hereunder as partners or joint venturers.

ARTICLE II

NAME

Section 2.1 Name. The name of the Trust is:

Industrial Logistics Properties Trust

The Board of Trustees of the Trust (the “Board of Trustees” or “Board”) may, in its sole discretion, change or use any other designation or name for the Trust.

ARTICLE III

PURPOSES AND POWERS

Section 3.1 Purposes. The purposes for which the Trust is formed are to engage in any lawful act or activity for which real estate investment trusts may be organized under the general laws of the State of Maryland as now or hereinafter in force including engaging in business as a real estate investment trust within the meaning of Sections 856 through 860 of the Code (a “REIT”).

Section 3.2 Powers. The Trust shall have all of the powers granted to real estate investment trusts by Title 8 and all other powers set forth in the Declaration of Trust that are not inconsistent with law and are appropriate to promote and attain the purposes set forth in the Declaration of Trust.

ARTICLE IV

RESIDENT AGENT

Section 4.1 Resident Agent. The name of the resident agent of the Trust in the State of Maryland is CSC-Lawyers Incorporating Service Company, whose address is 7 St. Paul Street, Suite 820, Baltimore, Maryland 21202. The resident agent is a Maryland corporation. The Trust may change such resident agent from time

to time as the Board of Trustees shall determine. The Trust may have such offices or places of business within or outside the State of Maryland as the Board of Trustees may from time to time determine.

ARTICLE V

BOARD OF TRUSTEES

Section 5.1 Powers. Subject to any express limitations contained in the Declaration of Trust or adopted by the Board in the Bylaws of the Trust (the “Bylaws”), (a) the business and affairs of the Trust shall be managed under the direction of the Board of Trustees, and (b) the Board shall have full, exclusive and absolute power, control and authority over any and all assets of the Trust. The Board may take any action as in its sole discretion it deems necessary or appropriate to conduct the business and affairs of the Trust. The Declaration of Trust shall be construed with the presumption in favor of the grant of power and authority to the Board. Any construction of the Declaration of Trust or determination by the Board concerning its powers and authority hereunder shall be conclusive. The enumeration and definition of particular powers of the Board of Trustees included in the Declaration of Trust or in the Bylaws shall in no way be construed or deemed by inference or otherwise in any manner to exclude or limit the powers conferred upon the Board or the Trustees under the general laws of the State of Maryland or any other applicable laws.

The Board, without any action by or approval of the shareholders of the Trust, shall have and may exercise, on behalf of the Trust, without limitation, the power to terminate the status of the Trust as a REIT, to determine that compliance with any restriction or limitations on ownership and transfers of Shares (as defined in Section 6.1) set forth in Article VII is no longer required in order for the Trust to qualify for taxation as a REIT, to adopt, amend and repeal Bylaws, to elect officers in the manner prescribed in the Bylaws, to solicit proxies from holders of Shares and to do any other acts and deliver any other documents necessary or appropriate to the foregoing powers.

Section 5.2 Manager. The Board of Trustees shall have the power to appoint, employ or contract with any Person (including any Trustee or any Person affiliated with any Trustee, any Person of which any Trustee is a trustee, director, officer or employee or any Person in which any Trustee has a material financial or other interest) as the Board in its sole discretion deems necessary or desirable as the Trust’s business manager (the “Manager”). The Board may grant or delegate such power and authority to the Manager as the Board in its sole discretion deems necessary or desirable. For purposes of the Declaration of Trust, the Manager shall be deemed to be an “agent” of the Trust.

Section 5.3 Initial Trustees; Classification; Number; Qualifications; Election; Vacancies.

(a) Initial Trustees. The initial Trustees are Adam D. Portnoy and Barry M. Portnoy. As of the time these Articles of Amendment and Restatement become effective (the “Effective Time”), the number of Trustees shall be increased from two to five, Adam D. Portnoy and Barry M. Portnoy shall be the Managing Trustees and Bruce M. Gans, M.D., Lisa Harris Jones and Joseph L. Morea shall be the Independent Trustees, with the terms of office as set forth herein.

(b) Classification¹. The Trustees are and shall remain divided into three classes until the Trust’s annual meeting of shareholders of the Trust held in calendar year 2023 (the “2023 Annual Meeting”). The terms of the Trustees shall be determined as follows: (i) at the annual meeting of shareholders of the Trust that is held in calendar year 2020 (the “2020 Annual Meeting”), the Trustees whose terms expire at the 2020 Annual Meeting (or such Trustees’ successor) shall be elected to hold office for a three-year term expiring at the 2023 Annual Meeting; (ii) at the annual meeting of shareholders of the Trust that is held in calendar year 2021 (the “2021 Annual Meeting”), the Trustees whose terms expire at the 2021 Annual Meeting (or such Trustees’ successors) shall be elected to hold office for one-year terms expiring at the annual meeting of shareholders of the Trust that is held in calendar year 2022 (the “2022 Annual Meeting”); (iii) at the 2022 Annual Meeting, the Trustees whose terms expire at the 2022 Annual Meeting (or such Trustees’ successors) shall be elected to hold office for one-year terms expiring at the 2023 Annual Meeting; and (iv) at the 2023 Annual Meeting, and at each annual

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¹This provision has been revised to reflect changes effectuated by the Articles of Amendment filed May 28, 2020.

meeting of shareholders of the Trust thereafter, all Trustees shall be elected to hold office for one-year terms expiring at the next annual meeting of shareholders following his or her election. For the avoidance of doubt, each Trustee elected or appointed to the Board of Trustees to serve a term that commenced before the 2021 Annual Meeting (an “Existing Trustee”), and each Trustee elected or appointed to the Board of Trustees to fill a vacancy resulting from the death, resignation or removal of an Existing Trustee, shall serve for the full term to which the Existing Trustee was elected or appointed.

(c) Number of Trustees. The number of Trustees may be increased or decreased only by the Board of Trustees, subject to the express voting powers of any class or series of Shares hereafter authorized and then outstanding; provided, however, that the number of Trustees shall in no event be less than three.

(d) Qualifications. A Trustee must be at least 21 years of age, not under legal disability, not have been convicted of a felony and meet the qualifications of an “Independent Trustee” or a “Managing Trustee,” as applicable. An “Independent Trustee” is one who is not an employee of the Manager, who is not involved in the Trust’s day to day activities and who meets the qualifications of an independent director under the applicable rules and requirements of the principal securities exchange upon which the Shares are listed for trading and the Securities and Exchange Commission, as those requirements may be amended from time to time. A “Managing Trustee” is one who has been an employee, officer or director of the Manager or its parent or involved in the Trust’s day to day activities for at least one year prior to his or her election as a Trustee. A majority of the Trustees holding office shall at all times be Independent Trustees, except for temporary periods due to vacancies. If the number of Trustees, at any time, is set at less than five, at least one Trustee shall be a Managing Trustee. So long as the number of Trustees shall be five or greater, at least two Trustees shall be Managing Trustees, except for temporary periods due to vacancies. The Board may at any time and from time to time, by amendment of the Bylaws, establish different or additional qualifications for Trustees, including, without limitation, by establishing qualifications for Independent Trustees or Managing Trustees different from or additional to the definitions in this Section 5.3(d) or altering the number of Independent Trustees and Managing Trustees. Nothing herein shall preclude any Trustee from also serving as an officer, representative, employee or agent of the Trust, or as a director, trustee, officer, owner, representative, employee or agent of the Manager, any affiliate of the Manager or any other Person, nor shall anything herein be construed to require that a Trustee own any Shares.

(e) Voting for Election of Trustees by Shareholders. Except as may be mandated by any applicable law or the listing requirements of the principal securities exchange on which the Shares are listed, and subject to the provisions of any class or series of Shares hereafter authorized and then outstanding, a plurality of all of the votes cast for the election of a Trustee at a meeting of shareholders of the Trust duly called and at which a quorum is present is required to elect a Trustee. In case of the failure to elect any Trustee at an annual meeting of shareholders of the Trust, the incumbent Trustee who was up for election at that meeting may hold over and continue to serve as a Trustee for the full term of the trusteeship in which he or she was nominated and until the election and qualification of his or her successor. The failure of shareholders of the Trust to elect Trustees at an annual meeting of shareholders of the Trust shall not cause vacancies on the Board of Trustees requiring the officers of the Trust to call a special meeting of shareholders of the Trust to elect Trustees pursuant to Section 8.1 unless all Trustees, including holdover Trustees, are unwilling or unable to continue to serve. ²

(f) Vacancies on the Board. Subject to the provisions of any class or series of Shares hereafter authorized and then outstanding, any vacancy in the position of Trustee as a result of any reason, including a vacancy caused by the death, resignation, retirement, removal or incapacity of any Trustee, or resulting from an increase in the number of Trustees, may be filled only by the affirmative vote of a majority of the Trustees then remaining in office, even if the remaining Trustees do not constitute a quorum, and any Trustee elected to fill a vacancy shall serve for the remainder of the full term of the trusteeship in which such vacancy occurred and until the election and qualification of his or her successor. If for any reason any or all of the Trustees cease to be Trustees, such event shall not terminate the Trust or affect the Declaration of Trust or the Bylaws.

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²This provision has been revised to reflect changes effectuated by the Articles of amendment file June 3, 2019.

Section 5.4 Resignation or Removal. Any Trustee may resign or retire as a Trustee by an instrument in writing signed by him or her and delivered to the Secretary of the Trust, and such resignation or retirement shall be effective upon such delivery or at a later date specified in the instrument. The acceptance of a resignation or retirement shall not be necessary to make it effective unless otherwise stated in the resignation or retirement. A Trustee judged incompetent or for whom a guardian or conservator has been appointed shall be deemed to have resigned as of the date of such adjudication or appointment. A Trustee may be removed, (1) only for cause, at a meeting of shareholders of the Trust properly called for that purpose, by the affirmative vote of 75% of all of the votes entitled to be cast for the election of such Trustee, or (2) with or without cause, by the affirmative vote of 75% of the remaining Trustees. For purposes of the provisions of the Declaration of Trust and the Bylaws regarding the removal of a Trustee, “cause” means, with respect to a particular Trustee, the incapacity of such Trustee, such Trustee’s conviction of a felony or a final, non-appealable judgment of a court or arbitration panel of competent jurisdiction holding that such Trustee caused demonstrable, material harm to the Trust through bad faith or active and deliberate dishonesty.

Section 5.5 Determinations by Board. The determination as to any of the following matters, made by or pursuant to the direction of the Board of Trustees, shall be final and conclusive and shall be binding upon the Trust and every holder of Shares: the amount of the net income of the Trust for any period and the amount of assets at any time legally available for the payment of dividends, acquisition of Shares or the payment of other distributions on Shares; the amount of paid in surplus, net assets, other surplus, cash flow, funds from operations, adjusted funds from operations, net profit, net assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created or shall have been set aside, paid or discharged); any interpretation or resolution of any ambiguity with respect to any provision of the Declaration of Trust (including any of the terms, preferences, conversion or other rights, voting or other powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of any class or series of Shares) or of the Bylaws; the number of issued and outstanding Shares of any class or series of the Trust; the fair value, or any sale, bid or asked price to be applied in determining the fair value, of any asset owned or held by the Trust or of any Shares; any matter relating to the acquisition, holding or disposition of any assets by the Trust; any interpretation of the terms and conditions of one or more agreements with any Person; the compensation of Trustees, officers, employees or agents of the Trust; or any other matter relating to the business and affairs of the Trust or required or permitted by applicable law, the Declaration of Trust or the Bylaws or otherwise to be determined by the Board of Trustees.

ARTICLE VI

SHARES OF BENEFICIAL INTEREST

Section 6.1 Authorized Shares. The beneficial interest of the Trust shall be divided into shares of beneficial interest (the “Shares”). The Trust has authority to issue 100,000,000 Shares, consisting of 100,000,000 common shares of beneficial interest, $.01 par value per share (“Common Shares”). If Shares of one class or series are classified or reclassified into Shares of another class or series of Shares pursuant to this Article VI, the number of authorized Shares of the former class or series shall be automatically decreased and the number of Shares of the latter class or series shall be automatically increased, in each case by the number of Shares so classified or reclassified, so that the aggregate number of Shares of all classes and series that the Trust has authority to issue shall not be more than the total number of Shares of beneficial interest set forth in the second sentence of this paragraph. The Board of Trustees, without any action by or approval of the shareholders of the Trust, may amend the Declaration of Trust from time to time to increase or decrease the aggregate number of Shares or the number of Shares of any class or series that the Trust has authority to issue.

Section 6.2 Common Shares. Subject to the provisions of Article VII, and except as may be otherwise specified in the Declaration of Trust, each Common Share shall entitle the holder thereof to, (a) one vote on each matter upon which holders of Common Shares are entitled to vote, and (b) one vote for each Trustee to be elected and for whose election the holder is entitled to vote. Subject to the provisions of any class or series of Shares hereafter authorized and then outstanding, there will be no cumulative voting for the election of Trustees by shareholders of the Trust. The Board of Trustees may, without any action by or approval of the shareholders of the Trust, reclassify any unissued Common Shares from time to time into one or more classes or series of Shares, and

such reclassified Shares may have powers, preferences and rights that are preferential, rank prior or are superior to those of any other class or series of a class of Shares, including the Common Shares.

Section 6.3 Classified or Reclassified Shares. Prior to issuance of classified or reclassified Shares of any class or series, the Board of Trustees by resolution shall, (a) designate that class or series, (b) specify the number of Shares to be included in that class or series, (c) set, subject to the provisions of Article VII, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for that class or series, and (d) cause the Trust to file articles supplementary with the State Department of Assessments and Taxation of Maryland (the “SDAT”) with respect to that class or series. Any of the terms of any class or series of Shares set pursuant to clause (c) of this Section 6.3 may be made dependent upon facts ascertainable outside the Declaration of Trust (including the occurrence of any event, determination or action by the Trust or any other Person or body) and may vary among holders thereof, provided that the manner in which such facts, events or variations shall operate upon the terms of such class or series of Shares is clearly and expressly set forth in the articles supplementary filed with the SDAT.

Section 6.4 Authorization by Board of Share Issuance. The Board of Trustees may authorize the issuance from time to time of Shares of any class or series, whether now or hereafter authorized, or securities, rights or warrants convertible into or exercisable for Shares of any class or series, whether now or hereafter authorized, for such consideration (whether in cash, property, past or future services, obligation for future payment or otherwise) as the Board of Trustees may deem advisable (or without consideration), subject to such restrictions or limitations, if any, as are set forth in the Declaration of Trust or the Bylaws.

Section 6.5 Declaration of Trust and Bylaws. All rights, powers and privileges of all holders of Shares and the terms of all Shares are subject to the provisions of the Declaration of Trust and the Bylaws. All Persons who acquire or receive Shares, or any interest therein, shall be held, by virtue of such acquisition or receipt, to have expressly assented and agreed to the Declaration of Trust and the Bylaws and to have acquired or received such Shares or interest subject to the provisions of the Declaration of Trust and the Bylaws. The Bylaws may contain any provision that is not inconsistent with law or the Declaration of Trust, including, without limitation, provisions, (a) for informational and other requirements for shareholders of the Trust proposing the nomination of one or more individuals for election as a Trustee or any other business for consideration at a meeting of shareholders of the Trust, (b) interpreting or carrying out the intent and purposes of the Declaration of Trust, and (c) for the forum with respect to any disputes, claims or controversies, including any disputes, claims or controversies brought by or on behalf of any present or former holder of Shares either on his, her or its own behalf, on behalf of the Trust or on behalf of any class or series of Shares or present or former holders of Shares, and such provisions in the case of (c) may provide that any such forum may or may not be exclusive or mandatory. The Board of Trustees shall have the exclusive power to make, alter, amend or repeal the Bylaws.

Section 6.6 Dividends and Distributions. The Board of Trustees may from time to time authorize and cause the Trust to declare and pay to holders of any class or series of Shares such dividends or other distributions, in cash or other assets of the Trust or in Shares or other securities of the Trust or from any other source as the Board of Trustees in its sole discretion shall determine. Shareholders of the Trust shall have no right to any dividend or other distribution unless and until authorized by the Board of Trustees and declared by the Trust. The exercise of the powers and rights of the Board of Trustees pursuant to this Section 6.6 shall be subject to the provisions of any class or series of Shares then outstanding.

Section 6.7 General Nature of Shares. All Shares shall be personal property entitling the shareholders of the Trust only to those rights provided in the Declaration of Trust and the Bylaws. The shareholders of the Trust shall have no interest in the assets of the Trust and shall have no right to compel any partition, division, dividend or other distribution of the Trust or of the assets of the Trust. The death of a shareholder of the Trust shall not terminate the Trust or affect its continuity nor give his or her legal representative any rights whatsoever, whether against or in respect of other shareholders, the Trustees or the trust estate or otherwise, except the sole right to demand and, subject to the provisions of the Declaration of Trust, the Bylaws and any requirements of law, to receive a new certificate for Shares registered in the name of such legal representative, in exchange for the certificate held by such shareholder. The Trust is entitled to treat as shareholders of the Trust only those Persons in whose names Shares are registered as holders of Shares on the beneficial interest ledger of the Trust.

Section 6.8 Fractional Shares. The Trust may, without any action by or approval of the shareholders of the Trust, issue fractional Shares, eliminate a fraction of a Share by rounding up or down to a full Share, arrange for the disposition of a fraction of a Share by the Person entitled to it or pay cash for the fair value of a fraction of a Share.

Section 6.9 Divisions and Combinations of Shares. To the maximum extent that Maryland law in effect from time to time permits, and subject to an express provision to the contrary in the terms of any class or series of Shares hereafter authorized and then outstanding, the Board of Trustees shall have the power to divide, split or combine (by issuing or redeeming, as applicable, Shares pro rata or by any other lawful means) the outstanding Shares of any class or series, without any action by or approval of the shareholders of the Trust.

ARTICLE VII

RESTRICTIONS ON TRANSFER AND OWNERSHIP OF SHARES

Section 7.1 Definitions. Capitalized terms used in this Article VII shall have the following meanings:

“Affiliate” shall mean, with respect to any Person, another Person controlled by, controlling or under common control with such Person.

“Beneficial Ownership” shall mean ownership of Shares by a Person, whether the interest in Shares is held directly or indirectly (including through a nominee), and shall include interests that would be treated as owned through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms “Beneficial Owner,” “Beneficially Owns” and “Beneficially Owned” shall have the correlative meanings.

“Charitable Beneficiary” shall mean one or more beneficiaries of a Charitable Trust as determined pursuant to Section 7.3(g), provided that each such organization shall be described in Sections 501(c)(3), 170(b)(1)(A) (other than clause (vii) or (viii) thereof) and 170(c)(2) of the Code and contributions to each such organization shall be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.

“Charitable Trust” shall mean any trust provided for in Section 7.2(a)(ii) and Section 7.3(a).

“Charitable Trustee” shall mean each Person, unaffiliated with the Trust and any Prohibited Owner, that is appointed by the Trust from time to time to serve as a trustee of a Charitable Trust as provided by Section 7.3(a).

“Code” shall have the meaning set forth in Section 1.1.

“Common Shares” shall have the meaning set forth in Section 6.1.

“Constructive Ownership” shall mean ownership of Shares by a Person, whether the interest in Shares is held directly or indirectly (including through a nominee), and shall include any interests that would be treated as owned through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, or treated as beneficially owned under Rule 13d-3 under the Exchange Act. The terms “Constructive Owner,” “Constructively Owns” and “Constructively Owned” shall have the correlative meanings.

“Excepted Holder” shall mean, (a) a shareholder of the Trust for whom an Excepted Holder Limit (if any) is created by the Board of Trustees pursuant to Section 7.2(e)(i), (b) SIR, (c) the Manager, (d) RMR, (e) the Managed Entities, (f) Affiliates of SIR, the Manager, RMR or the Managed Entities, and (g) on account of Constructive Ownership, Persons to whom SIR’s, the Manager’s, RMR’s or a Managed Entity’s share ownership is attributable or whose share ownership is attributable to SIR, the Manager or RMR.

“Excepted Holder Limit” shall mean, provided that and only so long as the affected Excepted Holder complies with all of the requirements (if any) established by the Board of Trustees pursuant

to Section 7.2(e), the percentage limit (if any) established by the Board of Trustees with respect to such Excepted Holder.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Managed Entities” shall mean the Persons to whom RMR, directly or indirectly, provides management services.

“Manager” shall have the meaning set forth in Section 5.2.

“Market Price” with respect to Shares on any date shall mean the last sale price for such Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such Shares, in either case as reported on the principal consolidated transaction reporting system with respect to such Shares, or if such Shares are not listed or admitted to trading on any National Securities Exchange, the last sale price in the over the counter market, or if no trading price is available for such Shares, the fair market value of such Shares as determined by the Board of Trustees.

“National Securities Exchange” shall mean a securities exchange registered with the Securities and Exchange Commission under Section 6(a) of the Exchange Act.

“Ownership Limit” shall mean, (a) with respect to Common Shares, 9.8% (in value or number of shares, whichever is more restrictive) of the Common Shares outstanding at the time of determination, and (b) with respect to any other class or series of Shares, 9.8% (in value or number of shares, whichever is more restrictive) of the Shares of such class or series outstanding at the time of determination.

“Person” shall have the meaning set forth in Section 13.5(a).

“Prohibited Owner” shall mean any Person that, but for the provisions of this Article VII, would Beneficially Own or Constructively Own Shares causing an Ownership Violation (as defined in Section 7.2(a)(ii)) and, if appropriate in the context, shall also mean any Person that would have been the holder of record on the books of the Trust or the Trust’s transfer agent of Shares that the Prohibited Owner would have so owned.

“REIT” shall have the meaning set forth in Section 3.1.

“RMR” shall mean The RMR Group Inc., a Maryland corporation, its successors and assigns, and their consolidated subsidiaries, together and each individually.

“SIR” shall mean Select Income REIT, a Maryland real estate investment trust, its successors and assigns, and their consolidated subsidiaries, together and each individually.

“Shares” shall have the meaning set forth in Section 6.1.

“Transfer” shall mean any issuance, sale, transfer, gift, assignment, devise or other disposition, as well as any other event (or any agreement to take any such action or cause any such event) that causes, or but for the

provisions of this Article VII would cause, any Person to acquire Beneficial Ownership or Constructive Ownership of Shares or the right to vote or receive distributions on Shares, including, (a) any change in the capital structure of the Trust which has the effect of increasing the total equity interest of any Person in the Trust, (b) a change in the relationship between two or more Persons which causes a change in ownership of Shares by application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, (c) the grant or exercise of any option or warrant (or any disposition of any option or warrant, or any event that causes any option or warrant not theretofore exercisable to become exercisable), pledge, security interest or similar right to acquire Shares, (d) any disposition of any securities or rights convertible into or exchangeable for Shares or any interest in Shares or any exercise of any such conversion or exchange right, and (e) transfers of interests in other entities that result in changes in Beneficial Ownership or Constructive Ownership of Shares, in each case, whether voluntary or involuntary, whether owned of record or Beneficially Owned or Constructively Owned, and whether by operation of law or otherwise. The terms “Transferring” and “Transferred” shall have the correlative meanings.

“Trust” shall have the meaning set forth in Section 1.1.

Section 7.2 Restrictions on Ownership.

(a) Ownership Limitations.

(i) Basic Restrictions. (A) No Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own Shares in excess of the Ownership Limit. (B) No Excepted Holder shall Beneficially Own or Constructively Own Shares in excess of the Excepted Holder Limit (if any) applicable to such Excepted Holder. (C) No Person shall Beneficially Own or Constructively Own Shares to the extent that such Beneficial Ownership or Constructive Ownership of Shares would result in the Trust failing to qualify for taxation as a REIT, including such Beneficial Ownership or Constructive Ownership resulting in the Trust (x) being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year), or (y) owning (actually or Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Trust (or its subsidiaries) from such tenant would cause the Trust to fail to satisfy any of the gross income requirements of Section 856(c) of the Code. (D) Subject to Section 7.6, notwithstanding any other provisions contained herein, any Transfer of Shares (whether or not such Transfer is the result of a transaction entered into through the facilities of a National Securities Exchange or automated interdealer quotation system) that, if effective, would result in Shares being beneficially owned by fewer than 100 Persons (determined under the principles of Section 856(a)(5) of the Code) shall be void ab initio, and the intended transferee shall acquire no rights in such Shares. The number and value of the outstanding Shares (or any class or series thereof) held or owned by any Person (including within the meaning of, (A) Section 542(a)(2) of the Code as modified by Section 856(h) of the Code, or (B) Section 856(d) of the Code) shall be determined by the Board of Trustees, which determination shall be conclusive for all purposes.

Section 7.2(a)(i)(A), Section 7.2(a)(i)(B) or Section 7.2(a)(i)(C), as applicable (any such violation an “Ownership Violation”), then: (A) that number of Shares, the Beneficial Ownership or Constructive Ownership (as applicable) of which otherwise would cause an Ownership Violation by such Person (rounded upward to the nearest whole share, and such excess shares, as so rounded, the “Excess Shares”), shall be automatically transferred to a Charitable Trust or Charitable Trusts for the benefit of a Charitable Beneficiary, as described in Section 7.3, effective as of the close of business on the business day prior to the date of such determination of such Transfer, and such Person shall acquire no rights in the Excess Shares; or (B) if the transfer to the Charitable Trust or Charitable Trusts described

in Section 7.2(a)(ii)(A) would not be effective for any reason to prevent an Ownership Violation, then the Transfer of that number of Shares that otherwise would cause an Ownership Violation by any Person (rounded up to the nearest whole share) shall be void ab initio, in which case the intended transferee shall acquire no rights in the Excess Shares.

In determining which Shares are to be transferred to a Charitable Trust in accordance with this Section 7.2(a)(ii) and Section 7.3, Shares shall be so transferred to a Charitable Trust in such manner that minimizes the aggregate value of the Shares that are transferred to the Charitable Trust (except to the extent that the Board of Trustees determines that the Shares transferred to the Charitable Trust shall be those directly or indirectly held or Beneficially Owned or Constructively Owned by a Person or Persons that caused or contributed to the application of this Section 7.2(a)(ii)), and to the extent not inconsistent therewith, on a pro rata basis.

(iii) Cooperation. The shareholder that would otherwise constitute a Prohibited Owner absent the application of the provisions of Section 7.2(a)(ii) shall use best efforts and take all actions necessary or requested by the Trust to cooperate with effecting the actions taken by the Board of Trustees pursuant to Section 7.2(a)(ii), including informing the Trust where and by whom any Excess Shares may be held and instructing its agents to cooperate in the prompt implementation and effectuation of the actions so taken by the Board of Trustees.

(b) Remedies for Breach. If the Board of Trustees shall at any time determine that a Transfer or other event has taken place that results in a violation of Section 7.2(a)(i) or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any Shares in violation of Section 7.2(a)(i) (whether or not such violation is intended), the Board of Trustees is authorized to take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or other event, including causing the Trust to redeem Shares, refusing to give effect to such Transfer on the books of the Trust or the Trust’s transfer agent or instituting proceedings to enjoin such Transfer or other event; provided, however, that any Transfer or attempted Transfer in violation of Section 7.2(a)(i) (or other event that results in a violation of Section 7.2(a)(i)) shall automatically result in the transfer to a Charitable Trust as described above, or, if applicable, shall be void ab initio as provided above irrespective of any action (or non-action) by the Board of Trustees. Such Person shall be liable, without limitation, for all costs incurred in connection therewith and pursuant to Section 8.7, including the costs and expenses of the Charitable Trustee under Section 7.4. This Section 7.2(b) shall not in any way limit the provisions of Section 7.2(a)(ii).

(c) Notice of Restricted Transfer. Any Person that acquires or attempts or intends to acquire Beneficial Ownership or Constructive Ownership of Shares that will or may violate Section 7.2(a)(i), or any Person that would have owned Excess Shares, shall immediately give written notice to the Trust of such event, or in the case of such a proposed or attempted transaction, shall give at least 15 days prior written notice to the Trust and provide to the Trust such other information as the Trust may request.

(d) Owners Required to Provide Information. Every Person that is a Beneficial Owner or Constructive Owner of five percent or more (or such lower percentage as required by the Code) of the Shares of any series or class outstanding at the time of determination, within 30 days after the end of each taxable year and also within three business days after a request from the Trust, shall give written notice to the Trust stating the name and address of such owner, the number of Shares Beneficially Owned and (if requested by the Trust) Constructively Owned by it, and a description of the manner in which such Shares are held; provided that a shareholder that holds Shares as nominee for another Person, which other Person is required to include in gross income the distributions received on such Shares (an “Actual Owner”), shall give written notice to the Trust stating the name and address of such Actual Owner and the number of Shares of such Actual Owner with respect to which the shareholder is the nominee. Each Person that is a Beneficial Owner or Constructive Owner of Shares and each Person (including the shareholder) that is holding Shares for a Beneficial Owner or Constructive Owner shall provide in writing to the Trust such information as the Trust may request in order to determine the Trust’s qualification for taxation as a REIT and the Trust’s compliance with other applicable laws or requirements of any governmental authority and to comply with the requirements of any taxing authority or other governmental authority or to determine such compliance.

(e) Exceptions.

(i) Subject to Section 7.2(a)(i)(C), the Board of Trustees, in its sole discretion, may exempt (prospectively or retroactively) any Person from any of the ownership limitations set forth in Section 7.2(a)(i) and establish, increase or decrease an Excepted Holder Limit for such Person if: (A) such Person provides to the Board of Trustees, for the benefit of the Trust, such representations and undertakings, if any, as the Board of Trustees may, in its sole discretion, determine to be necessary or advisable in order for it to make the determination that the Beneficial Ownership or Constructive Ownership of Shares by such Person in excess of the Ownership Limit will not now or in the future jeopardize the Trust’s ability to qualify for taxation as a REIT under the Code; (B) such Person’s ownership of Shares pursuant to an exception granted hereunder (together with the ownership of Shares by all other Persons as permitted under this Article VII, taking into account any previously granted exceptions pursuant hereto) would not cause a default under the terms of any contract to which the Trust or any of its

subsidiaries is a party or reasonably expects to become a party; (C) such Person’s ownership of Shares in excess of the Ownership Limit pursuant to the exception requested hereunder (together with the ownership of Shares by all other Persons as permitted under this Article VII, taking into account any previously granted exceptions pursuant hereto) is in the best interests of the Trust, as determined by the Board of Trustees; and (D) such Person agrees that any violation of such representations and undertakings or any attempted violation thereof will give rise to the application of the remedies set forth in Section 7.2(a)(ii) and Section 7.2(b) with respect to Shares held in excess of the Ownership Limit or the Excepted Holder Limit (as may be applicable) with respect to such Person unless the Board determines that the agreement set forth in this Section 7.2(e)(i)(D) is not necessary or advisable.

(ii) Prior to granting any exception pursuant to Section 7.2(e)(i), the Board of Trustees may require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board of Trustees in its sole discretion, as it may deem necessary or advisable in order to determine or ensure the Trust’s qualification for taxation as a REIT. Notwithstanding the receipt of any ruling or opinion, the Board of Trustees may impose such conditions or restrictions as it deems appropriate in connection with granting such exemption or waiver or creating any Excepted Holder Limit.

(iii) In determining whether to grant any exemption pursuant to Section 7.2(e)(i), the Board of Trustees may, but need not, consider, among other factors, (A) the general reputation and moral character of the Person, (B) whether the Person’s ownership of Shares would be direct or through ownership attribution, (C) whether the Person’s ownership of Shares would interfere with the conduct of the Trust’s business, including the Trust’s ability to make additional investments, (D) whether granting an exemption for the Person would adversely affect any of the Trust’s existing contractual arrangements or the execution of any of the Trust’s strategies or business policies, (E) whether the Person to which the exception would apply has been approved as an owner of the Trust by all regulatory or other governmental authorities with jurisdiction over the Trust, and (F) whether the Person to which the exemption would apply is attempting to change control of the Trust or affect its policies in a way that the Board of Trustees, in its sole discretion, considers adverse to the best interests of the Trust or the shareholders of the Trust. Nothing in this Section 7.2(e)(iii) shall be interpreted to mean that the Board of Trustees may not act in its sole discretion in making any determination under Section 7.2(e)(i).

(iv) An underwriter or initial purchaser that participates in a public offering, a private placement or a forward sale or distribution of Shares (or securities convertible into or exchangeable for Shares) may Beneficially Own or Constructively Own Shares (or securities convertible into or exchangeable for Shares) in excess of the Ownership Limit, but only to the extent necessary to facilitate such public offering, private placement or forward sale or distribution as determined by the Board of Trustees.

(f) Increase or Decrease in Ownership Limit. Subject to Section 7.2(a)(i)(C), the Board of Trustees may from time to time increase the Ownership Limit (or any portion thereof) for one or more Persons and decrease the Ownership Limit (or any portion thereof) for all other Persons; provided, however, that, (i) any such decreased Ownership Limit (or portion thereof) will not be effective for any Person whose ownership in

Shares is in excess of the decreased Ownership Limit (or portion thereof) until such time as such Person’s ownership in Shares equals or falls below the decreased Ownership Limit (or such decreased portion thereof), but any further Transfers of any Shares resulting in such Person’s Beneficial Ownership or Constructive Ownership thereof creating an increased excess over the decreased Ownership Limit (or portion thereof) will be in violation of the decreased Ownership Limit (or portion thereof), and (ii) any new Ownership Limit (or portion thereof) would not result in the Trust being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) if five unrelated individuals were to Beneficially Own the five largest amounts of Shares permitted to be Beneficially Owned under such new Ownership Limit, taking into account clause (i) of this proviso permitting ownership in excess of the decreased Ownership Limit (or portion thereof) in certain cases.

Section 7.3 Transfer of Shares.

(a) Ownership in Charitable Trust. Upon any purported Transfer or other event described in Section 7.2(a)(ii) that results in a transfer of Shares to a Charitable Trust, such Shares shall be deemed to have been transferred to the Charitable Trustee as trustee or trustees, as applicable, of a Charitable Trust for the exclusive benefit of one or more Charitable Beneficiaries (except to the extent otherwise provided in Section 7.3(e)). Such transfer to the Charitable Trustee shall be deemed to be effective as of the close of business on the business day prior to the purported Transfer or other event that results in the transfer to the Charitable Trust pursuant to Section 7.2(a)(ii). Any Charitable Trustee shall be appointed by the Trust and shall be a Person meeting the qualifications set forth in Section 7.1. Each Charitable Beneficiary shall be designated by the Trust as provided in Section 7.3(g).

(b) Status of Shares Held by a Charitable Trustee. Shares held in trust by a Charitable Trustee shall be issued and outstanding Shares of the Trust. Except to the extent otherwise provided in this Section 7.3, the Prohibited Owner shall:

(i) have no rights in any Shares held in trust by the Charitable Trustee;

(ii) not benefit economically from ownership of any Shares held in trust by the Charitable Trustee;

(iii) have no rights to dividends or other distributions with respect to any Shares held in trust by the Charitable Trustee;

(iv) not possess any rights to vote or other rights attributable to any Shares held in trust by the Charitable Trustee; and

(v) have no claim, cause of action or other recourse whatsoever against the purported transferor of any Shares held in trust by the Charitable Trustee.

(c) Ordinary Dividend and Voting Rights. The Charitable Trustee shall have all voting rights and rights to ordinary dividends or other distributions with respect to Shares held in trust by the Charitable Trustee, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary (except to the extent otherwise provided in Section 7.3(e)). Any ordinary dividend or other distribution paid with respect to any Shares which constituted Excess Shares at such time and prior to the discovery by the Trust that the Shares have been transferred to the Charitable Trustee shall be paid by the Prohibited Owner to the Charitable Trustee upon demand and any ordinary dividend or other distribution authorized but unpaid with respect to such Shares shall be paid when due to the Charitable Trustee. Any ordinary dividends or other distributions so paid to the Charitable Trustee shall be held in trust for the Charitable Beneficiary. The Prohibited Owner shall have no voting rights with respect to Shares held in trust by the Charitable Trustee and, effective as of the date that Shares have been transferred to the Charitable Trustee, the Charitable Trustee shall have the authority (at the Charitable Trustee’s sole discretion), (i) to rescind as void any vote cast by a Prohibited Owner with respect to such Shares at any time such Shares constituted Excess Shares with respect to such Prohibited Owner, and (ii) to recast such vote in accordance with the desires of the Charitable Trustee acting for the benefit of the Charitable Beneficiary; provided, however,

that if the Trust has already taken irreversible action, as determined by the Board of Trustees, then the Charitable Trustee shall not have the power to rescind and recast such vote. Notwithstanding the provisions of this Article VII, until the Trust has received notification that Shares have been transferred into a Charitable Trust, the Trust shall be entitled to rely on its share transfer and other shareholder records for purposes of preparing lists of shareholders of the Trust entitled to vote at meetings, determining the validity and authority of proxies, and otherwise conducting votes of shareholders of the Trust.

(d) Rights upon Liquidation. Upon any voluntary or involuntary liquidation, dissolution or winding up of or any distribution of the assets of the Trust, the Charitable Trustee shall be entitled to receive, ratably with each other holder of Shares of the class or series of Shares that is held in the Charitable Trust, that portion of the assets of the Trust available for distribution to the holders of such class or series (determined based upon the ratio that the number of Shares of such class or series of Shares held in trust by the Charitable Trustee bears to the total number of Shares of such class or series of Shares then outstanding). The Charitable Trustee shall distribute any such assets received in respect of the Shares held in trust by the Charitable Trustee in any liquidation, dissolution or winding up or distribution of the assets of the Trust, in accordance with Section 7.3(e).

(e) Extraordinary Distribution and Sale of Shares by Charitable Trustee. Unless otherwise directed by the Board of Trustees, within 20 days of receiving notice from the Trust that Shares have been transferred to the Charitable Trust, or as soon thereafter as reasonably practicable, the Charitable Trustee shall sell the Shares held in trust by the Charitable Trustee (together with the right to receive dividends or other distributions with respect to such Shares as to any Shares transferred to the Charitable Trustee as a result of the operation of Section 7.2(a)(ii)) to a Person, designated by the Charitable Trustee, whose ownership of the Shares will not violate the ownership limitations set forth in Section 7.2(a)(i). Upon such sale, the interest of the Charitable Beneficiary in the Shares sold shall terminate. Upon any such sale or any receipt by the Charitable Trust of an extraordinary dividend or other distribution, the Charitable Trustee shall distribute the net proceeds of the sale or extraordinary dividend or other distribution to the Prohibited Owner and to the Charitable Beneficiary as provided in this Section 7.3(e).

A Prohibited Owner shall receive the lesser of: (A) the price paid by the Prohibited Owner for the Shares or, if the Prohibited Owner did not give value for the Shares in connection with the event causing the Shares to become Excess Shares (for example, in the case of a gift, devise or other such transaction), the Market Price of the Shares on the day of the event causing the Shares to become Excess Shares, in each case reduced by any amounts previously received by the Prohibited Owner pursuant to this Section 7.3(e) in connection with prior extraordinary dividends or other distributions; and (B) the proceeds received by the Charitable Trustee (net of any commissions and other expenses of the Charitable Trustee and the Trust as provided in Section 7.4) from the sale or other disposition of the Shares held in trust by the Charitable Trustee plus any extraordinary dividends or other distributions received by the Charitable Trustee. The Charitable Trustee may reduce the amount payable to the Prohibited Owner by the amount of ordinary dividends or other distributions which have been paid to the Prohibited Owner and is owed by the Prohibited Owner to the Charitable Trustee pursuant to Section 7.3(c). Any net sales proceeds and any extraordinary dividends or other distributions in excess of the amount payable to the Prohibited Owner, less the costs, expenses and compensation of the Charitable Trustee and the Trust as provided in Section 7.4, shall be paid to the Charitable Beneficiary. If, prior to the discovery by the Trust that Shares have been transferred to the Charitable Trustee, such Shares are sold by a Prohibited Owner, then, (A) such Shares shall be deemed to have been sold on behalf of the Charitable Trust, and (B) to the extent that the Prohibited Owner received an amount for such Shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant to this Section 7.3(e), such excess shall be paid promptly to the Charitable Trustee upon demand.

(f) Trust’s Purchase Right in Excess Shares. Notwithstanding any transfer of Excess Shares to a Charitable Trust pursuant to this Article VII, Excess Shares shall be deemed to have been offered for sale to the Trust, or its designee, at a price per Share equal to the lesser of, (i) the price per Share in the transaction that resulted in such Shares becoming Excess Shares (or, if the Prohibited Owner did not give value for such Shares, such as in the case of a gift, devise or other such transaction, the Market Price per Share on the day of the event causing the Shares to become Excess Shares), and (ii) the Market Price per Share on the date the Trust, or its designee, accepts such offer. The Trust shall have the right to accept such offer until the Charitable Trustee, if

any, has sold the Shares held in trust by the Charitable Trustee, if any, pursuant to Section 7.3(e). Upon such a sale to the Trust, if a Charitable Trust has been established pursuant to this Article VII, the interest of the Charitable Beneficiary in the Shares sold shall terminate. The Charitable Trustee shall distribute the net proceeds of the sale in accordance with Section 7.3(e).

(g) Designation of Charitable Beneficiaries. By written notice to the Charitable Trustee, the Trust shall designate from time to time one or more nonprofit organizations to be the Charitable Beneficiary of the interest in the Charitable Trust such that, (i) Shares held in trust by the Charitable Trustee would not violate the restrictions set forth in Section 7.2(a)(i) in the hands of such Charitable Beneficiary, and (ii) contributions to each such organization shall be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code. The Charitable Beneficiary shall not obtain any enforceable right to the Charitable Trust or any of its trust corpus until so designated and thereafter any such rights remain subject to the provisions of this Article VII, including Section 7.3(h). Neither the failure of the Trust to make such designation nor the failure of the Trust to appoint the Charitable Trustee before the automatic transfer provided for in Section 7.2(a)(ii) shall make such transfer ineffective, provided that the Trust thereafter makes such designation and appointment. The Trust may, in its sole discretion, designate a substitute or additional nonprofit organization meeting the requirements of this Section 7.3(g) as the Charitable Beneficiary at any time and for any or no reason. Any determination by the Trust with respect to the application of this Article VII shall be binding on each Charitable Beneficiary.

(h) Retroactive Changes. Notwithstanding any other provisions of this Article VII, the Board of Trustees is authorized and empowered to retroactively amend, alter or repeal any rights which the Charitable Trust, the Charitable Trustee or the Charitable Beneficiary may have under this Article VII, including granting retroactive Excepted Holder status to any otherwise Prohibited Owner, with the effect of any transfer of Excess Shares to a Charitable Trust being fully and retroactively revoked; provided, however, that the Board of Trustees shall not have the authority or power to retroactively amend, alter or repeal any obligations to pay amounts incurred prior to such time and owed or payable to the Charitable Trustee pursuant to Section 7.4.

Section 7.4 Costs, Expenses and Compensation of Charitable Trustee and the Trust.

(a) The Charitable Trustee shall be indemnified by the Trust or from the proceeds from the sale of Shares held in trust by the Charitable Trustee, as further provided in this Article VII, for its costs and expenses reasonably incurred in connection with conducting its duties and satisfying its obligations pursuant to this Article VII.

(b) The Charitable Trustee shall be entitled to receive reasonable compensation for services provided by the Charitable Trustee in connection with serving as a Charitable Trustee, the amount and form of which shall be determined by agreement of the Board of Trustees and the Charitable Trustee.

(c) Costs, expenses and compensation payable to the Charitable Trustee pursuant to Section 7.4(a) and Section 7.4(b) may be funded from the Charitable Trust or by the Trust. The Trust shall be entitled to reimbursement on a first priority basis (after payment in full of amounts payable to the Charitable Trustee pursuant to Section 7.4(a) and Section 7.4(b)) from the Charitable Trust for any such amounts funded by the Trust.

(d) Costs and expenses incurred by the Trust in the process of enforcing the ownership limitation set forth in Section 7.2(a)(i), in addition to reimbursement of costs, expenses and compensation of the Charitable Trustee which have been funded by the Trust, may be collected from the Charitable Trust; provided, however, that the ability of the Trust to fund its costs from the Charitable Trust shall not relieve the Prohibited Owner from his or her obligation to reimburse the Trust for costs under Section 8.7, except to the extent the Trust has in fact been previously paid from the Charitable Trust; nor will the possibility of the Trust receiving payment from the Charitable Trust create a marshalling obligation which would require the Trust to reimburse itself from the Charitable Trust before enforcing the Trust’s claims under Section 8.7 or otherwise.

Section 7.5 Legend. Each certificate for Shares, if any, shall bear a legend describing the restrictions on transferability of Shares contained herein or, instead of a legend, the certificate may state that the

Trust will furnish a full statement about certain restrictions on transferability to a shareholder on request and without charge.

Section 7.6 Transactions on a National Securities Exchange. Nothing in this Article VII shall preclude the settlement of any transaction entered into through the facilities of a National Securities Exchange or any automated interdealer quotation system. The fact that the settlement of any transaction takes place shall not

negate the effect of any other provision of this Article VII and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Article VII.

Section 7.7 Authority and Enforcement. The Board of Trustees shall have all power and authority necessary or advisable to implement the provisions of this Article VII. The Trust is authorized specifically to seek equitable relief, including injunctive relief, to enforce the provisions of this Article VII. Nothing contained in this Article VII shall limit the authority of the Board of Trustees to take such other action as it deems necessary or advisable to protect the Trust and the interests of its shareholders in preserving the Trust’s qualification for taxation as a REIT.

Section 7.8 Non-Waiver. No delay or failure on the part of the Trust or the Board of Trustees in exercising any right hereunder shall operate as a waiver of any right of the Trust or the Board of Trustees, as the case may be, except to the extent specifically waived in writing.

Section 7.9 Enforceability. If any of the restrictions on Transfer of Shares contained in this Article VII are determined to be void, invalid or unenforceable by any court of competent jurisdiction, then, to the maximum extent permitted by law, the Prohibited Owner may be deemed, at the option of the Trust, to have acted as an agent of the Trust or the Charitable Trustee in acquiring such Shares and to hold such Shares on behalf of the Trust or the Charitable Trustee.

ARTICLE VIII

SHAREHOLDERS

Section 8.1 Meetings of Shareholders.

(a) There shall be an annual meeting of shareholders of the Trust, to be held on proper notice at such time and convenient location as shall be determined by or in the manner prescribed in the Bylaws, for the election of the Trustees, if required, and for the transaction of any other business within the powers of the Trust. Except as otherwise provided in the Declaration of Trust, meetings of the shareholders of the Trust, including the annual meeting and any special meetings, may be called only by the Board of Trustees. If there are no Trustees, the officers of the Trust shall promptly call a special meeting of shareholders of the Trust entitled to vote for the election of successor Trustees. Any meeting may be adjourned and reconvened as the Board of Trustees in its sole discretion shall determine or as shall be set forth in a provision of the Bylaws approved by the Board of Trustees.

(b) No business shall be transacted at a special meeting of shareholders of the Trust other than business that is brought before the meeting pursuant to the Trust’s notice of meeting by or at the direction of the Board of Trustees or otherwise properly brought before the meeting by or at the direction of the Board of Trustees.

(c) Nominations of individuals for election as Trustees and proposals of other business to be considered at an annual meeting of shareholders of the Trust may be made only, (i) pursuant to the Trust’s notice of meeting by or at the direction of our Board of Trustees or otherwise properly brought before the meeting by or at the direction of the Board of Trustees, or (ii) by a shareholder of the Trust who is entitled to vote at the meeting, is entitled to make nominations or proposals and has complied with the advance notice procedures, ownership and other requirements set forth in provisions of the Bylaws approved by the Board.

Section 8.2 No Shareholder Action by Written Consent. Shareholders of the Trust shall not be authorized or permitted to take any action, including whether required or permitted to be taken at a meeting of shareholders, by written consent, and actions of shareholders of the Trust may only be taken at a meeting of shareholders of the Trust called and held in accordance with the Declaration of Trust and the Bylaws.

Section 8.3 Voting Rights.

(a) Subject to the provisions of any class or series of Shares hereafter authorized and then outstanding, the shareholders of the Trust shall be entitled to vote only on the following matters: (a) the election of Trustees as provided in Section 5.3 and the removal of Trustees for cause as provided in Section 5.3; (b) an amendment of the Declaration of Trust to the extent shareholder approval is required by Section 10.3 and provided such amendment has first been approved by 60% of the Trustees then in office, including 60% of the Independent Trustees; (c) the termination of the Trust to the extent shareholder approval is required by Section 12.2 and provided such termination has first been approved by 60% of the Trustees then in office, including 60% of the Independent Trustees; (d) the merger, conversion or consolidation of the Trust to the extent shareholder approval is required by Title 8 and provided such merger, conversion or consolidation has first been approved by 60% of the Trustees then in office, including 60% of the Independent Trustees; (e) the sale, lease, exchange or other transfer of all or substantially all of the assets of the Trust to the extent shareholder approval is required by Title 8 and provided such merger, conversion or consolidation has first been approved by 60% of the Trustees then in office, including 60% of the Independent Trustees; and (f) such other matters with respect to which the Board of Trustees has first adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted to the shareholders of the Trust for approval or ratification. Except with respect to the foregoing matters, no action taken by the shareholders of the Trust at any meeting or otherwise shall in any way bind the Board of Trustees or the Trust.

(b) Except as otherwise provided in the Declaration of Trust or provisions of the Bylaws approved by the Board of Trustees or mandated by applicable law, and subject to the provisions of any class or series of Shares hereafter authorized and then outstanding, at a meeting of shareholders of the Trust duly called and at which a quorum is present, with respect to any matter submitted by the Board of Trustees to shareholders of the Trust for approval or otherwise voted upon by shareholders of the Trust, a majority of all the votes cast shall be required to approve the matter. Subject to the provisions of any class or series of Shares hereafter authorized and then outstanding, on any matter submitted to a vote of shareholders of the Trust, all Shares then entitled to vote shall, except as otherwise provided in the Declaration of Trust or provisions of the Bylaws approved by the Board of Trustees, be voted in the aggregate as a single class without regard to class or series of Shares, except that if the Board of Trustees has determined that the matter affects only the interests of one or more series or classes of Shares, only shareholders of such series or classes shall be entitled to vote thereon.

Section 8.4 Preemptive and Appraisal Rights. Except as is expressly provided by the Board of Trustees in the terms of classified or reclassified Shares pursuant to Section 6.2 or Section 6.3, or as may otherwise expressly be provided by a contract approved by the Board of Trustees, no holder of Shares of any class or series shall, as such holder, (a) have any preemptive right to purchase or subscribe for any additional Shares of any class or series or any other security of the Trust which the Trust may issue or sell, or (b) have any right to require the Trust to pay to such holder the fair value of such holder’s Shares in an appraisal or similar proceeding, whether at common law or otherwise, including any right to exercise the rights of an objecting shareholder provided for under Title 8 and Title 3, Subtitle 2 of the Maryland General Corporation Law or any successor statute (the “MGCL”).

Section 8.5 Extraordinary Actions. Except as specifically provided in Section 5.3 (relating to removal of Trustees) or provisions of the Bylaws approved by the Board, and subject to Section 8.6 and Section 10.3, notwithstanding any provision of law permitting or requiring any action to be taken or authorized by the affirmative vote of the holders of a greater number of votes, any such action shall be effective and valid if approved or declared advisable by the Board of Trustees and taken or approved by, (a) the affirmative vote of a majority of all of the votes entitled to be cast on the matter, or (b) if Maryland law hereafter permits the effectiveness of a vote described in this clause (b), the affirmative vote of a majority of all the votes cast on the matter.

Section 8.6 Board Approval. The submission of any action to shareholders of the Trust for their consideration shall first be approved or advised by the Board of Trustees, and shareholders of the Trust shall not otherwise be entitled to act thereon except as otherwise expressly required by law.

Section 8.7 Indemnification of the Trust. To the maximum extent permitted by Maryland law in effect from time to time, each shareholder will be liable to the Trust for, and shall indemnify and hold harmless the Trust (and any affiliates thereof) from and against, all costs, expenses, penalties, fines or other amounts, including reasonable attorneys’ and other professional fees, whether third party or internal, arising from such shareholder’s breach of or failure to fully comply with any covenant, condition or provision of the Declaration of Trust or the Bylaws or any action by or against the Trust in which such shareholder is not the prevailing party, and shall pay such amounts on demand, together with interest on such amounts, which interest will accrue at the lesser of 18% per annum and the maximum amount permitted by law, from the date such costs or other amounts are incurred until the receipt of payment.

Section 8.8 Compliance with Law. Each shareholder of the Trust shall comply with the Declaration of Trust and the Bylaws and shall comply, and assist the Trust in complying, with all applicable requirements of federal and state laws, including all rules and regulations promulgated thereunder, and the contractual obligations of the Trust, in connection with such shareholder’s ownership interest in the Trust and all other laws which apply to the Trust or any subsidiary of the Trust or their respective businesses, assets or operations and which require action or inaction on the part of such shareholder.

ARTICLE IX

LIABILITY LIMITATION, INDEMNIFICATION AND TRANSACTIONS WITH THE TRUST

Section 9.1 Limitation of Shareholder Liability. No present or former shareholder of the Trust shall be personally liable for any debt, claim, demand, judgment or obligation of any kind of the Trust solely by reason of being or having been a shareholder.

Section 9.2 Limitation of Trustee and Officer Liability. To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of trustees and officers of a real estate investment trust, no current or former Trustee or officer of the Trust shall be liable to the Trust or to any shareholder for money damages. Neither the amendment nor repeal of this Section 9.2, nor the adoption or amendment of any other provision of the Declaration of Trust inconsistent with this Section 9.2, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. In the absence of any Maryland statute limiting the liability of trustees and officers of a Maryland real estate investment trust for money damages in a suit by or on behalf of the Trust or by any shareholder, or arising by reason of his or her action on behalf of the Trust, no Trustee or officer of the Trust shall be liable to the Trust or to any shareholder for money damages except to the extent that, (a) the Trustee or officer actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received, or (b) a judgment or other final adjudication adverse to the Trustee or officer is entered in a proceeding based on a finding in the proceeding that the Trustee’s or officer’s action or failure to act was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.

Section 9.3 Express Exculpatory Clauses and Instruments. Any written instrument creating an obligation of the Trust shall, to the extent practicable, include a reference to the Declaration of Trust and provide that neither the shareholders of the Trust nor the Trustees nor any officers, employees or agents (including the Manager) of the Trust shall be liable thereunder and that all Persons shall look solely to the trust estate for the payment of any claim thereunder or for the performance thereof; provided, however, that the omission of such provision from any such instrument shall not render any shareholder, Trustee or officer, employee or agent (including the Manager) of the Trust liable, nor shall any shareholder, Trustee or officer, employee or agent (including the Manager) of the Trust be liable to any Person for such omission.

Section 9.4 Indemnification.

(a) The Trust shall, to the maximum extent permitted by Maryland law in effect from time to time, indemnify, and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse expenses in advance of final disposition of a proceeding to, (i) any individual who is a present or former Trustee or officer of the Trust and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity, or (ii) any individual who, while a present or former Trustee or officer of the Trust and at the request of the Trust, serves or has served as a trustee, director, officer, partner, member, manager, employee or agent of another real estate investment trust, corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity. The rights to indemnification and advancement of expenses provided in the Declaration of Trust and the Bylaws shall vest immediately upon election of a Trustee or officer and neither the amendment nor repeal of this Section 9.4, nor the adoption or amendment of any other provision of the Declaration of Trust or Bylaws inconsistent with this Section 9.4, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. The Trust shall have the power, with the approval of the Board of Trustees, to provide such indemnification and advancement of expenses, (x) to a person that served a predecessor of the Trust in any of the capacities described in (i) or (ii) above, and (y) to any employee or agent of the Trust or a predecessor of the Trust. Except as otherwise provided in a provision of the Bylaws approved by the Board of Trustees, this Section 9.4(a) shall not obligate the Trust to indemnify or advance expenses to any person referenced in (i) or (ii) above for any proceeding initiated by such person against the Trust unless such proceeding was authorized by the Board of Trustees or is a proceeding to enforce rights to indemnification.

(b) The Trust shall have the power, with the approval of the Board of Trustees, to obligate itself to indemnify, and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to any Person, including, (i) the Manager and its affiliates, and (ii) any present or former employee, manager or agent of the Trust, the Trust’s subsidiaries, the Manager, any former Manager or any affiliate of the Trust, the Trust’s subsidiaries, the Manager or any former Manager.

(c) The indemnification and payment or reimbursement of expenses provided in this Section 9.4 shall not be deemed exclusive of or limit in any way any other rights to which any Person seeking indemnification or payment or reimbursement of expenses may be or may become entitled under any statute, bylaw, resolution, insurance, agreement, vote of shareholders of the Trust or disinterested Trustees or otherwise.

Section 9.5 Transactions Between the Trust and its Trustees, Officers, Employees and Agents.

(a) Subject to any express restrictions adopted by the Board of Trustees in the Bylaws or by resolution, the Trust may enter into any contract or transaction of any kind, whether or not any of the Trustees, officers, employees or agents of the Trust or any affiliate of any of the foregoing Persons has a financial interest in such contract or transaction, with any Person, including any Trustee, officer, employee or agent of the Trust or any affiliate of any of the foregoing Persons or any Person in which any Trustee, officer, employee or agent of the Trust has a material financial interest.

(b) To the extent permitted by Maryland law, a contract or other transaction between the Trust and any Trustee or officer of the Trust, between the Trust and any Person in which any Trustee or officer of the Trust is a director, trustee, general partner or officer or has a material financial interest, or between the Trust and the Manager or any affiliate of the Manager, any Person to which the Manager or any affiliate of the Manager provides management services or any Person in which the Manager, any affiliate of the Manager or any Person to which the Manager or any affiliate of the Manager provides management services has a financial interest, shall not be void or voidable if:

(i) the fact of such other director, trustee, general partner or officer position or interest is disclosed to or known by:

(A) the Board of Trustees or a committee thereof, and the Board of Trustees or such committee authorizes, approves or ratifies the contract or transaction by the affirmative vote of a majority of disinterested Trustees, even if the disinterested Trustees constitute less than a quorum or, if there are no disinterested Trustees, then the approval shall be by a majority vote of the entire Board of Trustees and by a majority vote of the Independent Trustees; or

(B) shareholders of the Trust entitled to vote on the matter, and the contract or transaction is authorized, approved, or ratified by a majority of the votes cast by shareholders of the Trust entitled to vote on the matter other than the votes of Shares owned of record or beneficially by the interested Trustee, officer, corporation, trust, firm or other Person; or

(ii) the contract or other transaction is fair and reasonable to the Trust.

Common or interested Trustees or the Shares owned by them or by an interested officer, corporation, trust, firm or other Person may be counted in determining the presence of a quorum at a meeting of the Board of Trustees or a committee thereof or at a meeting of shareholders of the Trust, as the case may be, at which the contract or transaction is authorized, approved or ratified and may be counted for purposes of any other vote with respect to the contract or transaction. The presence of, or a vote cast by, a common or interested Trustee does not affect the validity of any action taken under clauses (i) or (ii) of this Section 9.5(b) if the contract or other transaction is otherwise authorized, approved or ratified as provided herein.

(c) The failure of a contract or other transaction described in Section 9.5(b) to satisfy the criteria set forth in clause (i), (ii) or (iii) of Section 9.5(b) shall not create any presumption that such contract or other transaction is void, voidable or otherwise invalid, and any such contract or other transaction shall be valid to the maximum extent permitted by Maryland law. To the maximum extent permitted by Maryland law, (i) the fixing by the Board of Trustees of compensation for a Trustee (whether as a Trustee or in any other capacity), and (ii) Section 9.4 or any provision of the Bylaws or any contract or transaction requiring or permitting indemnification (including advancement of expenses) in accordance with terms and procedures not materially less favorable to the Trust than those described in Section 2-418 (or any successor section thereto) of the MGCL (as in effect at the time such provision was adopted or such contract or transaction was entered into or as it may thereafter be in effect) shall be deemed to be fair and reasonable and have satisfied the criteria set forth in Section 9.5(b).

Section 9.6 Right of Trustees, Officers, Employees and Agents to Own Shares or Other Property and to Engage in Other Business. Subject to any express restrictions adopted by the Board of Trustees in the Bylaws or by resolution: the Manager and its affiliates and any Trustee or officer, employee or agent of the Trust may acquire, own, hold and dispose of Shares, for its, his or her individual account, and may exercise all rights of a shareholder to the same extent and in the same manner as if it, he or she were not the Manager or an affiliate of the Manager or a Trustee or officer, employee or agent of the Trust. The Manager and its affiliates and any Trustee or officer, employee or agent of the Trust may, in its, his or her personal capacity or in the capacity of trustee, officer, director, stockholder, partner, member, advisor or employee of any Person or otherwise, have business interests and engage in business activities similar to or in addition to those relating to the Trust, which interests and activities may be similar to and competitive with those of the Trust and may include the origination, acquisition, syndication,

holding, management, development, operation or disposition, for its, his or her own account, or for the account of such Person or others, including others to which the Manager or its affiliates provides management services, of interests in mortgages or other loans, debt obligations or securities secured by real property or interests in Persons directly or indirectly owning real property, interests in Persons directly or indirectly owning real property or interests in Persons engaged in the real estate business. Each Trustee, officer, employee and agent of the Trust shall be free of any obligation to present to the Trust any investment opportunity which comes to him or her in any capacity other than solely as a Trustee, officer, employee or agent of the Trust even if such opportunity is of a character which, if presented to the Trust, could be taken by the Trust. Any Trustee or officer, employee or agent of the Trust may be interested as a trustee, officer, director, stockholder, partner, member, advisor or employee of, or otherwise have a direct or indirect interest in, any Person who may be engaged to render advice or services or

provide goods to the Trust, and may receive compensation from such Person or compensation from the Trust in that capacity, as well as compensation as a Trustee, officer, employee or agent or otherwise hereunder.

Section 9.7 Persons Dealing with Trustees, Officers, Employees or Agents. Any act of the Trustees or of the officers, employees or agents of the Trust purporting to be done in their capacity as such, shall, as to any Persons dealing with such Trustees, officers, employees or agents, be conclusively deemed to be within the purposes of the Trust and within the powers of such Trustees or officers, employees or agents. No Person dealing with the Board or any of the Trustees or with the officers, employees or agents of the Trust shall be bound to see to the application of any funds or property passing into their hands or control. The receipt of the Board or any of the Trustees, or of authorized officers, employees or agents of the Trust, for moneys or other consideration, shall be binding upon the Trust.

Section 9.8 Reliance. Each Trustee, officer, employee and agent of the Trust shall, in the performance of his or her duties with respect to the Trust, be entitled to rely on any information, opinion, report or statement, including any financial statement or other financial data, prepared or presented by an officer or employee of the Trust or by the Manager, accountants, appraisers or other experts or consultants selected by the Board of Trustees or officers of the Trust, regardless of whether such counsel or expert may also be a Trustee.

ARTICLE X

AMENDMENTS

Section 10.1 General. The Trust reserves the right from time to time to make any amendment to the Declaration of Trust, now or hereafter authorized by law, including any amendment altering the terms or contract rights, as expressly set forth in the Declaration of Trust, of any Shares. All rights and powers conferred by the Declaration of Trust on shareholders of the Trust, Trustees and officers are granted subject to this reservation. All references to the Declaration of Trust shall include all amendments and supplements thereto.

Section 10.2 By Trustees. The Board of Trustees with the approval by two thirds of the Trustees then in office may amend the Declaration of Trust from time to time, in the manner provided by Title 8, without any action by or approval of the shareholders of the Trust, to qualify for taxation as a REIT or as a real estate investment trust under Title 8 and as otherwise provided in Section 8-501(e) of Title 8 and the Declaration of Trust, including, to the extent permitted by law, supplying any omission, curing any ambiguity, correcting any defective or inconsistent provision or error or clarifying the meaning and intent of the Declaration of Trust. If permitted by Maryland law as in effect from time to time, the Board of Trustees may amend the Declaration of Trust from time to time in any other respect, in accordance with such law, without any action by or approval of the shareholders of the Trust.

Section 10.3 By Shareholders. Except as otherwise provided in Section 10.2 and subject to the following sentence, any amendment to the Declaration of Trust must first be approved by 60% of the Trustees then in office, including 60% of the Independent Trustees then in office, and then shall be valid only if approved by, (a) the affirmative vote of a majority of all of the votes entitled to be cast on the matter, or (b) if Maryland law hereafter permits the effectiveness of a vote described in this clause (b), the affirmative vote of a majority of all of the votes cast on the matter. Any amendment to Section 5.3(b) or Section 5.4 or to this sentence of the Declaration of Trust shall be valid only if approved by the Board of Trustees and then by the affirmative vote of two thirds of all the votes entitled to be cast on the matter.

ARTICLE XI

MERGER, CONVERSION, CONSOLIDATION OR SALE OR TRANSFER OF TRUST ASSETS

Section 11.1 Merger, Conversion or Consolidation. Subject to the provisions of any class or series of Shares hereafter authorized and then outstanding, the Trust may, (a) merge with or into one or more other entities, (b) convert into another entity, or (c) consolidate with one or more other entities into a new entity. Any such action must first be approved by 60% of the Trustees then in office, including 60% of the Independent Trustees then

in office, and, to the extent a shareholder vote is required under Title 8, then approved by, (a) the affirmative vote of a majority of all the votes entitled to be cast on the matter, or (b) if Maryland law hereafter permits the effectiveness of a vote described in this clause (b), the affirmative vote of a majority of all of the votes cast on the matter.

Section 11.2 Sale or Transfer of All or Substantially All Trust Assets. Subject to the provisions of any class or series of Shares hereafter authorized and then outstanding, the Trust may sell, lease, exchange or otherwise transfer all or substantially all of the Trust’s assets. Any such action must first be approved by 60% of the Trustees then in office, including 60% of the Independent Trustees then in office, and, to the extent a shareholder vote is required under Title 8, then approved by, (a) the affirmative vote of a majority of all the votes entitled to be cast on the matter, or (b) if Maryland law hereafter permits the effectiveness of a vote described in this clause (b), the affirmative vote of a majority of all of the votes cast on the matter.

ARTICLE XII

DURATION AND TERMINATION OF TRUST

Section 12.1 Duration. The Trust shall continue perpetually unless terminated pursuant to Section 12.2.

Section 12.2 Termination.

(a) Subject to the provisions of any class or series of Shares hereafter authorized and then outstanding, the Trust may be terminated and its business and affairs wound up and remaining assets distributed to shareholders of the Trust upon: (i) the approval by 60% of the Trustees then in office, including 60% of the Independent Trustees then in office, which action is approved by, (A) the affirmative vote of a majority of all of the votes entitled to be cast on the matter, or (B) if Maryland law hereafter permits the effectiveness of a vote described in this clause (B), the affirmative vote of a majority of all of the votes cast on the matter; (ii) the sale or transfer of all or substantially all of the Trust’s assets, unless otherwise determined by the Board of Trustees; or (iii) the reduction of the number of the Trust’s shareholders to zero. Upon the termination of the Trust:

(i) The Trust shall carry on no business except for the purpose of winding up its affairs.

(ii) The Board of Trustees shall wind up the affairs of the Trust and all of the powers of the Board of Trustees under the Declaration of Trust shall continue, including the powers to fulfill or discharge the Trust’s contracts, collect its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part of the remaining assets of the Trust to one or more Persons at public or private sale for consideration which may consist in whole or in

part of cash, securities or other assets of any kind, discharge or pay its liabilities and do all other acts appropriate to liquidate its business.

(iii) After paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and agreements as the Board of Trustees deems necessary for its protection, the Trust may distribute the remaining assets of the Trust among the shareholders of the Trust so that, after payment in full or the setting apart for payment of such preferential amounts, if any, to which the holders of any Shares then outstanding shall be entitled, the remaining assets of the Trust shall, subject to any participating or similar rights of Shares then outstanding, be distributed ratably among the holders of Common Shares then outstanding.

(b) After termination of the Trust, the liquidation of its business and the distribution to the shareholders of the Trust as herein provided, a majority of the Trustees shall execute and file with the Trust’s records a document certifying that the Trust has been duly terminated and the Trustees shall be discharged from all liabilities and duties hereunder, and the rights and interests of all shareholders of the Trust shall cease.

ARTICLE XIII

MISCELLANEOUS

Section 13.1 Governing Law. The Declaration of Trust is executed and delivered with reference to the laws of the State of Maryland, and the rights of all parties and the validity, construction and effect of every provision hereof shall be subject to and construed according to the laws of the State of Maryland.

Section 13.2 Ambiguity. In the case of an ambiguity in the meaning or application of any provision of the Declaration of Trust or any definition contained in the Declaration of Trust, the Board of Trustees shall have the sole power to determine the meaning and application of such provision(s) with respect to any situation based on the facts known to it and such determination by the Board shall be final and binding unless a court, arbitration panel or other adjudicative body, in each case, of competent jurisdiction finds such determination of the Board to have been made in bad faith.

Section 13.3 Reliance by Third Parties. Any certificate shall be final and conclusive as to any person dealing with the Trust if executed by the Secretary or an Assistant Secretary of the Trust or a Trustee, and if certifying to: (a) the number or identity of Trustees, officers of the Trust or shareholders of the Trust; (b) the due authorization of the execution by or on behalf of the Trust of any document; (c) the action or vote taken, and the existence of a quorum, at a meeting of the Board of Trustees, a committee thereof, or the shareholders of the Trust; (d) any action taken by the Board, or a committee thereof, by written consent; (e) a copy of the Declaration of Trust or of the Bylaws as a true and complete copy as then in force; (f) an amendment or supplement to the Declaration of Trust; (g) the termination of the Trust; or (h) the existence of any fact relating to the affairs of the Trust. No purchaser, lender, transfer agent or other person shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the Trust on its behalf or by any Trustee, officer, employee or agent of the Trust.

Section 13.4 Severability.

(a) The provisions of the Declaration of Trust are severable, and if the Board of Trustees shall determine that any one or more of such provisions (the “Conflicting Provisions”) are in conflict with the Code, Title 8 or other applicable federal or state laws, the Conflicting Provisions, to the extent of the conflict, shall be deemed never to have constituted a part of the Declaration of Trust, even without any amendment of the Declaration of Trust pursuant to Article X and without affecting or impairing any of the remaining provisions of the Declaration of Trust or rendering invalid or improper any action taken or omitted (including the election of Trustees) prior to such determination. No Trustee shall be liable for making or failing to make such a determination. In the event of any such determination by the Board of Trustees, the Board shall amend the Declaration of Trust in the manner provided in Section 10.2.

(b) If any provision of the Declaration of Trust shall be held invalid or unenforceable in any jurisdiction, such holding shall apply only to the extent of any such invalidity or unenforceability in such jurisdiction and shall not in any manner affect, impair or render invalid or unenforceable such provision in any other jurisdiction or any other provision of the Declaration of Trust in any jurisdiction.

Section 13.5 Construction.

(a) In the Declaration of Trust, unless the context otherwise requires: (i) words used in the singular or in the plural include both the plural and singular; (ii) references to the Declaration of Trust and all expressions like “herein,” “hereof” and “hereunder” shall be deemed to refer to the Declaration of Trust as amended or supplemented from time to time, including as affected by any such amendments and supplements; (iii) “or,” “either” and “any” are not exclusive; (iv) “including” and its variants mean “including, without limitation,” and its variants; (v) references to “written,” “in writing” and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form; (vi) all pronouns and any variations thereof refer to the masculine, feminine or neuter as the context may require; (vii) “Articles” and “Sections” refer to Articles and Sections of the Declaration of Trust unless otherwise specified; (viii) “Dollars” and “$” mean U.S. Dollars; (ix) the word “extent” in the phrase “to the extent” shall mean the degree to which a subject or other thing extends and such

phrase shall not mean simply “if”; and (x) “Person” means and includes individuals, corporations, limited liability companies, real estate investment trusts, partnerships, statutory and other trusts, associations, firms, joint ventures and other entities, whether or not legal entities, as well as governments and agencies and political subdivisions thereof, and any quasigovernmental agencies or instrumentalities.

(b) The headings in the Declaration of Trust are for reference purposes only and shall not in any way affect the meaning or interpretation of the Declaration of Trust. References to any statute shall be deemed to refer to such statute as amended from time to time and to any rules or regulations promulgated thereunder and any successor statute or statutory provision. References to any Person include the successors and permitted assigns of that Person. References to any agreement, document or instrument are to that agreement, document or instrument as amended or otherwise modified from time to time in accordance with the terms thereof, and if applicable hereof.

(c) In defining or interpreting the powers and duties of the Trust and its Trustees and officers, reference may be made by the Trustees or officers, to the extent appropriate and not inconsistent with the Code, to Title 8 or to Titles 1 through 3 of the Corporations and Associations Article of the Annotated Code of Maryland. In furtherance and not in limitation of the foregoing, in accordance with the provisions of Title 3, Subtitles 6, 7 and 8, of the Corporations and Associations Article of the Annotated Code of Maryland, the Trust shall be included within the definition of “corporation” for purposes of such provisions.

Section 13.6 Independent Significance. Any action validly taken pursuant to one provision of the Declaration of Trust shall not be deemed invalid solely because it is identical or similar in substance to an action that could have been taken pursuant to another provision of the Declaration of Trust but fails to satisfy one or more requirements prescribed by such other provision.

Section 13.7 Election to be Subject to Part of Title 3, Subtitle 8. Notwithstanding any other provision contained in the Declaration of Trust or the Bylaws, the Trust hereby elects to be subject to Section 3-804(b) and (c) of Title 3, Subtitle 8 of the Maryland General Corporation Law.

SECOND: These Articles of Amendment and Restatement have been duly advised by the Board of Trustees and approved by the sole shareholder of the Trust as required by law.

THIRD: The name and address of the Trust’s current resident agent are as set forth in Article IV of these Articles of Amendment and Restatement.

FOURTH: The number of Trustees of the Trust and the names of those currently serving are as set forth in Article V of the foregoing amended and restated Declaration of Trust of the Trust.

FIFTH: These Articles of Amendment and Restatement shall become effective at 3:00 p.m. on January 11, 2018.

Exhibit 3.2

INDUSTRIAL LOGISTICS PROPERTIES TRUST

COMPOSITE DECLARATION OF TRUST

INCORPORATING:

Articles of Amendment and Restatement filed January 11, 2018

Articles of Amendment filed June 3, 2019

Articles of Amendment filed May 28, 2020

INDUSTRIAL LOGISTICS PROPERTIES TRUST

ARTICLES OF AMENDMENT AND RESTATEMENT

ARTICLE I

FORMATION

ARTICLE II

NAME

Section 2.1 Name. The name of the Trust is:

Industrial Logistics Properties Trust

The Board of Trustees of the Trust (the “Board of Trustees” or “Board”) may, in its sole discretion, change or use any other designation or name for the Trust.

ARTICLE III

PURPOSES AND POWERS

ARTICLE IV

RESIDENT AGENT

ARTICLE V

BOARD OF TRUSTEES

Section 5.3 Initial Trustees; Classification; Number; Qualifications; Election; Vacancies.

(b) Classification. ¹ The Trustees are and shall remain divided into three classes until the Trust’s annual meeting of shareholders of the Trust held in calendar year 2023 (the “2023 Annual Meeting”). The terms of the Trustees shall be determined as follows: (i) at the annual meeting of shareholders of the Trust that is held in calendar year 2020 (the “2020 Annual Meeting”), the Trustees whose terms expire at the 2020 Annual Meeting (or such Trustees’ successor) shall be elected to hold office for a three-year term expiring at the 2023 Annual Meeting; (ii) at the annual meeting of shareholders of the Trust that is held in calendar year 2021 (the “2021 Annual Meeting”), the Trustees whose terms expire at the 2021 Annual Meeting (or such Trustees’ successors) shall be elected to hold office for one-year terms expiring at the annual meeting of shareholders of the Trust that is held in calendar year 2022 (the “2022 Annual Meeting”); (iii) at the 2022 Annual Meeting, the Trustees whose terms expire at the 2022 Annual Meeting (or such Trustees’ successors) shall be elected to hold office for one-year terms expiring at the 2023 Annual Meeting; and (iv) at the 2023 Annual Meeting, and at each annual

^{___________________________________________}

¹ This provision has been revised to reflect changes effectuated by the Articles of Amendment filed May 28, 2020.

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As of and after the Effective Time, the terms for which Trustees severally serve shall be staggered into the following three classes (each a “Class”): (i) Class I, whose term shall continue until the first annual meeting of shareholders of the Trust held after the Effective Time and until their successors are elected and qualified; (ii) Class II, whose term shall continue until the second annual meeting of shareholders of the Trust held after the Effective Time and until their successors are elected and qualified; and (iii) Class III, whose term shall continue until the third annual meeting of shareholders of the Trust held after the Effective Time and until their successors are elected and qualified. The Trustees serving at the Effective Time shall be assigned to the following Classes:



Name of Trustee	Type of Trustee	Class
Lisa Harris Jones	Independent Trustee	I
Barry M. Portnoy	Managing Trustee	I
Bruce M. Gans, M.D.	Independent Trustee	II
Adam D. Portnoy	Managing Trustee	II
Joseph L. Morea	Independent Trustee	III

Beginning with the first annual meeting of shareholders of the Trust after the Effective Time, at each annual meeting of shareholders of the Trust, the successors of the Class of Trustees whose term continues until that meeting shall be elected to serve for a term continuing until the annual meeting of shareholders of the Trust held in the third year following the year of their election and the election and qualification of his or her successor.

The Board of Trustees may, without any action by or approval of the shareholders of the Trust, determine by resolution those Trustees in each Class that shall be elected by shareholders of a particular class or series of Shares and reassign Trustees from one Class to another Class at any time and from time to time. If the number of Trustees is changed, any increase or decrease shall be apportioned among the Classes by resolution of the Board of Trustees. Each Class shall consist of at least one Trustee. No reduction in the number of Trustees shall have the effect of removing any Trustee from serving as a Trustee unless the Trustee is specifically removed pursuant to Section 5.3 at the time of the decrease.

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(e) Voting for Election of Trustees by Shareholders. Except as may be mandated by any applicable law or the listing requirements of the principal securities exchange on which the Shares are listed and subject to the provisions of any class or series of Shares hereafter authorized and then outstanding, a plurality of all of the votes cast for the election of a Trustee at a meeting of shareholders of the Trust duly called and at which a quorum is present is required to elect a Trustee. In case of the failure to elect any Trustee at an annual meeting of shareholders of the Trust, the incumbent Trustee who was up for election at that meeting may hold over and continue to serve as a Trustee for the full term of the trusteeship in which he or she was nominated and until the election and qualification of his or her successor. The failure of shareholders of the Trust to elect Trustees at an annual meeting of shareholders of the Trust shall not cause vacancies on the Board of Trustees requiring the officers of the Trust to call a special meeting of shareholders of the Trust to elect Trustees pursuant to Section 8.1 unless all Trustees, including holdover Trustees, are unwilling or unable to continue to serve.¹²

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¹ ² This provision has been revised to reflect changes effectuated by the Articles of amendment file June 3, 2019.

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ARTICL VI

SHARES OF BENEFICIAL INTEREST

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Trust, reclassify any unissued Common Shares from time to time into one or more classes or series of Shares, and such reclassified Shares may have powers, preferences and rights that are preferential, rank prior or are superior to those of any other class or series of a class of Shares, including the Common Shares.

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certificate held by such shareholder. The Trust is entitled to treat as shareholders of the Trust only those Persons in whose names Shares are registered as holders of Shares on the beneficial interest ledger of the Trust.

ARTICLE VII

RESTRICTIONS ON TRANSFER AND OWNERSHIP OF SHARES

Section 7.1 Definitions. Capitalized terms used in this Article VII shall have the following meanings:

“Affiliate” shall mean, with respect to any Person, another Person controlled by, controlling or under common control with such Person.

“Charitable Trust” shall mean any trust provided for in Section 7.2(a)(ii) and Section 7.3(a).

“Code” shall have the meaning set forth in Section 1.1.

“Common Shares” shall have the meaning set forth in Section 6.1.

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“Excepted Holder Limit” shall mean, provided that and only so long as the affected Excepted Holder complies with all of the requirements (if any) established by the Board of Trustees pursuant to Section 7.2(e), the percentage limit (if any) established by the Board of Trustees with respect to such Excepted Holder.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Managed Entities” shall mean the Persons to whom RMR, directly or indirectly, provides management services.

“Manager” shall have the meaning set forth in Section 5.2.

“National Securities Exchange” shall mean a securities exchange registered with the Securities and Exchange Commission under Section 6(a) of the Exchange Act.

“Person” shall have the meaning set forth in Section 13.5(a).

“REIT” shall have the meaning set forth in Section 3.1.

“RMR” shall mean The RMR Group Inc., a Maryland corporation, its successors and assigns, and their consolidated subsidiaries, together and each individually.

“SIR” shall mean Select Income REIT, a Maryland real estate investment trust, its successors and assigns, and their consolidated subsidiaries, together and each individually.

“Shares” shall have the meaning set forth in Section 6.1.

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record or Beneficially Owned or Constructively Owned, and whether by operation of law or otherwise. The terms “Transferring” and “Transferred” shall have the correlative meanings.

“Trust” shall have the meaning set forth in Section 1.1.

Section 7.2 Restrictions on Ownership.

(a) Ownership Limitations.

(ii) Transfer in Trust or Voided Transfer. If any Transfer occurs (whether or not such Transfer is the result of a transaction entered into through the facilities of a National Securities Exchange or automated interdealer quotation system) which, if effective, would result in any Person Beneficially Owning or Constructively Owning Shares in violation of Section 7.2(a)(i)(A), Section 7.2(a)(i)(B) or Section 7.2(a)(i)(C), as applicable (any such violation an “Ownership Violation”), then: (A) that number of Shares, the Beneficial Ownership or Constructive Ownership (as applicable) of which otherwise would cause an Ownership Violation by such Person (rounded upward to the nearest whole share, and such excess shares, as so rounded, the “Excess Shares”), shall be automatically transferred to a Charitable Trust or Charitable Trusts for the benefit of a Charitable Beneficiary, as described in Section 7.3, effective as of the close of business on the business day prior to the date of such determination of such Transfer, and such Person shall acquire no rights in the Excess Shares; or (B) if the transfer to the Charitable Trust or Charitable Trusts described in Section 7.2(a)(ii)(A) would not be effective for any reason to prevent an Ownership Violation, then the Transfer of that number of Shares that otherwise would cause an Ownership Violation by any Person (rounded up to the nearest whole share) shall be void ab initio, in which case the intended transferee shall acquire no rights in the Excess Shares.

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(e) Exceptions.

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Section 7.3 Transfer of Shares.

(i) have no rights in any Shares held in trust by the Charitable Trustee;

(ii) not benefit economically from ownership of any Shares held in trust by the Charitable Trustee;

(iii) have no rights to dividends or other distributions with respect to any Shares held in trust by the Charitable Trustee;

(iv) not possess any rights to vote or other rights attributable to any Shares held in trust by the Charitable Trustee; and

(v) have no claim, cause of action or other recourse whatsoever against the purported transferor of any Shares held in trust by the Charitable Trustee

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Section 7.4 Costs, Expenses and Compensation of Charitable Trustee and the Trust.

Trust will furnish a full statement about certain restrictions on transferability to a shareholder on request and without charge.

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negate the effect of any other provision of this Article VII and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Article VII.

ARTICLE VIII

SHAREHOLDERS

Section 8.1 Meetings of Shareholders.

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Section 8.3 Voting Rights.

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ARTICLE IX

LIABILITY LIMITATION, INDEMNIFICATION AND TRANSACTIONS WITH THE TRUST

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Section 9.4 Indemnification.

Section 9.5 Transactions Between the Trust and its Trustees, Officers, Employees and Agents.

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(i) the fact of such other director, trustee, general partner or officer position or interest is disclosed to or known by:

(ii) the contract or other transaction is fair and reasonable to the Trust.

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engage in business activities similar to or in addition to those relating to the Trust, which interests and activities may be similar to and competitive with those of the Trust and may include the origination, acquisition, syndication, holding, management, development, operation or disposition, for its, his or her own account, or for the account of such Person or others, including others to which the Manager or its affiliates provides management services, of interests in mortgages or other loans, debt obligations or securities secured by real property or interests in Persons directly or indirectly owning real property, interests in Persons directly or indirectly owning real property or interests in Persons engaged in the real estate business. Each Trustee, officer, employee and agent of the Trust shall be free of any obligation to present to the Trust any investment opportunity which comes to him or her in any capacity other than solely as a Trustee, officer, employee or agent of the Trust even if such opportunity is of a character which, if presented to the Trust, could be taken by the Trust. Any Trustee or officer, employee or agent of the Trust may be interested as a trustee, officer, director, stockholder, partner, member, advisor or employee of, or otherwise have a direct or indirect interest in, any Person who may be engaged to render advice or services or

ARTICLE X

AMENDMENTS

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ARTICLE XI

MERGER, CONVERSION, CONSOLIDATION OR SALE OR TRANSFER OF TRUST ASSETS

ARTICLE XII

DURATION AND TERMINATION OF TRUST

Section 12.1 Duration. The Trust shall continue perpetually unless terminated pursuant to Section 12.2.

Section 12.2 Termination.

(i) The Trust shall carry on no business except for the purpose of winding up its affairs.

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part of cash, securities or other assets of any kind, discharge or pay its liabilities and do all other acts appropriate to liquidate its buisness.

ARTICLE XIII

MISCELLANEOUS

Section 13.4 Severability.

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Section 13.5 Construction.

SECOND: These Articles of Amendment and Restatement have been duly advised by the Board of Trustees and approved by the sole shareholder of the Trust as required by law.

THIRD: The name and address of the Trust’s current resident agent are as set forth in Article IV of these Articles of Amendment and Restatement.

FOURTH: The number of Trustees of the Trust and the names of those currently serving are as set forth in Article V of the foregoing amended and restated Declaration of Trust of the Trust.

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FIFTH: These Articles of Amendment and Restatement shall become effective at 3:00 p.m. on January 11, 2018.

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Exhibit 31.1

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, John G. Murray, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Industrial Logistics Properties Trust;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



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Date: July 29, 2020				/s/ John G. Murray
				John G. Murray
				President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, Richard W. Siedel, Jr., certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Industrial Logistics Properties Trust;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



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Date: July 29, 2020				/s/ Richard W. Siedel, Jr.
				Richard W. Siedel, Jr.
				Chief Financial Officer and Treasurer

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Sec. 1350

_______________________________________________

In connection with the filing by Industrial Logistics Properties Trust (the “Company”) of the Quarterly Report on Form 10-Q for the period ended June 30, 2020 (the “Report”), each of the undersigned hereby certifies, to the best of his knowledge:


1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



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/s/ John G. Murray			/s/ Richard W. Siedel, Jr.
John G. Murray			Richard W. Siedel, Jr.
President and Chief Executive Officer			Chief Financial Officer and Treasurer



Date: July 29, 2020