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Exhibit 99.1
INDUSTRIAL LOGISTICS PROPERTIES TRUST
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Statements
In February and March 2020, we entered into agreements related to a joint venture for 12 of our properties in the mainland United States, or our joint venture, with an Asian institutional investor. We contributed 11 of these properties to our joint venture in February 2020 and the remaining property in March 2020. We received an aggregate of $108.7 million from the investor for a 39% equity interest in our joint venture, and we retained the remaining 61% equity interest.
On November 18, 2020, we sold a 39% equity interest in our joint venture from our remaining 61% equity interest for $108.8 million to a second unrelated third party institutional investor. Following the sale, we continue to own a 22% equity interest in our joint venture. The net cash proceeds to us from this transaction will be used to repay amounts outstanding under our $750 million unsecured revolving credit facility. Effective as of the date of the sale, our joint venture will be deconsolidated and will be accounted for using the equity method.
The accompanying unaudited pro forma condensed consolidated balance sheet at September 30, 2020 reflects our financial position as if the transactions described in the notes to the unaudited condensed consolidated pro forma financial statements were completed on September 30, 2020. The unaudited pro forma condensed consolidated statements of income for the nine months ended September 30, 2020 and the year ended December 31, 2019 present our results of operations as if transactions described in the notes to the unaudited condensed consolidated pro forma financial statements were completed on January 1, 2019.
These unaudited pro forma condensed consolidated financial statements should be read in connection with our unaudited financial statements for the nine months ended September 30, 2020, included in our Quarterly Report on Form 10-Q filed on October 28, 2020 with the Securities and Exchange Commission, or SEC, and our audited financial statements for the year ended December 31, 2019, included in our Annual Report on Form 10-K filed on February 24, 2020 with the SEC.
These unaudited pro forma condensed consolidated financial statements are provided for informational purposes only. Our financial position and results of operations may be significantly different than what is presented in these unaudited pro forma condensed consolidated financial statements. In the opinion of management, all adjustments necessary to reflect the effects of the transactions described in the notes to the unaudited pro forma condensed consolidated financial statements have been included.
Adjustments have been made to the unaudited pro forma consolidated balance sheet and the unaudited pro forma condensed consolidated statements of income to reflect factually supportable items that are directly attributable to these transactions, and with respect to the unaudited pro forma condensed consolidated statements of income, are expected to have a continuing impact on our financial results.
F-1
Industrial Logistics Properties Trust
Unaudited Pro Forma Condensed Consolidated Balance Sheet
September 30, 2020
(dollars in thousands)
| Historical | Sale of Interest | Deconsolidation | Pro Forma | |||||||||||||
| ASSETS | (A) | (B) | ||||||||||||||
| Real estate properties: | ||||||||||||||||
| Land | $ | 757,522 | $ | — | $ | (54,164 | ) | $ | 703,358 | |||||||
| Buildings and improvements | 1,632,842 | — | (566,660 | ) | 1,066,182 | |||||||||||
| Total real estate properties, gross | 2,390,364 | — | (620,824 | ) | 1,769,540 | |||||||||||
| Accumulated depreciation | (160,570 | ) | — | 26,541 | (134,029 | ) | ||||||||||
| Total real estate properties, net | 2,229,794 | — | (594,283 | ) | 1,635,511 | |||||||||||
| Assets of property held for sale | 10,136 | — | — | 10,136 | ||||||||||||
| Acquired real estate leases, net | 123,146 | — | (40,976 | ) | 82,170 | |||||||||||
| Investment in joint venture | — | 61,176 | — | 61,176 | ||||||||||||
| Cash and cash equivalents | 39,105 | — | — | 39,105 | ||||||||||||
| Restricted cash | 12,806 | — | (12,806 | ) | — | |||||||||||
| Rents receivable | 70,597 | — | (4,489 | ) | 66,108 | |||||||||||
| Deferred leasing costs, net | 6,037 | — | (1,106 | ) | 4,931 | |||||||||||
| Debt issuance costs, net | 1,846 | — | — | 1,846 | ||||||||||||
| Other assets, net | 5,527 | — | (1,959 | ) | 3,568 | |||||||||||
| Total assets | $ | 2,498,994 | $ | 61,176 | $ | (655,619 | ) | $ | 1,904,551 | |||||||
| LIABILITIES AND EQUITY | ||||||||||||||||
| Revolving credit facility | $ | 320,000 | $ | (108,812 | ) | $ | — | $ | 211,188 | |||||||
| Mortgage notes payable, net | 1,048,521 | — | (403,078 | ) | 645,443 | |||||||||||
| Liabilities of property held for sale | 227 | — | — | 227 | ||||||||||||
| Assumed real estate lease obligations, net | 15,778 | — | (606 | ) | 15,172 | |||||||||||
| Accounts payable and other liabilities | 19,162 | — | (3,616 | ) | 15,546 | |||||||||||
| Rents collected in advance | 8,098 | — | (1,454 | ) | 6,644 | |||||||||||
| Security deposits | 6,698 | — | (152 | ) | 6,546 | |||||||||||
| Due to related persons | 3,087 | — | — | 3,087 | ||||||||||||
| Total liabilities | 1,421,571 | (108,812 | ) | (408,906 | ) | 903,853 | ||||||||||
| Commitments and contingencies | ||||||||||||||||
| Equity: | ||||||||||||||||
| Equity attributable to common shareholders: | ||||||||||||||||
| Common shares of beneficial interest, $.01 par value | 653 | — | — | 653 | ||||||||||||
| Additional paid in capital | 1,010,139 | 153,034 | (153,034 | ) | 1,010,139 | |||||||||||
| Cumulative net income | 183,911 | 16,954 | — | 200,865 | ||||||||||||
| Cumulative common distributions | (210,959 | ) | — | — | (210,959 | ) | ||||||||||
| Total equity attributable to common shareholders | 983,744 | 169,988 | (153,034 | ) | 1,000,698 | |||||||||||
| Noncontrolling interest: | ||||||||||||||||
| Total equity attributable to noncontrolling interest | 93,679 | — | (93,679 | ) | — | |||||||||||
| Total equity | 1,077,423 | 169,988 | (246,713 | ) | 1,000,698 | |||||||||||
| Total liabilities and equity | $ | 2,498,994 | $ | 61,176 | $ | (655,619 | ) | $ | 1,904,551 | |||||||
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
F-2
Industrial Logistics Properties Trust
Unaudited Pro Forma Condensed Consolidated Statements of Income
For the Nine Months Ended September 30, 2020
(amounts in thousands, other than per share amounts)
| Historical | Sale of Interest | Deconsolidation | Pro Forma | |||||||||||||
| (C) | (D) | |||||||||||||||
| Rental income | $ | 194,494 | $ | — | $ | (38,857 | ) | $ | 155,637 | |||||||
| Expenses: | ||||||||||||||||
| Real estate taxes | 26,779 | — | (5,289 | ) | 21,490 | |||||||||||
| Other operating expenses | 15,733 | — | (3,546 | ) | 12,187 | |||||||||||
| Depreciation and amortization | 55,303 | — | (20,269 | ) | 35,034 | |||||||||||
| Acquisition and certain other transaction related costs | 178 | — | — | 178 | ||||||||||||
| General and administrative | 14,857 | (1,724 | ) | (823 | ) | 12,310 | ||||||||||
| Total expenses | 112,850 | (1,724 | ) | (29,927 | ) | 81,199 | ||||||||||
| Interest income | 113 | — | — | 113 | ||||||||||||
| Interest expense | (40,610 | ) | 2,079 | 10,868 | (27,663 | ) | ||||||||||
| Gain on early extinguishment of debt | 120 | — | — | 120 | ||||||||||||
| Income before income tax expense and equity in earnings of an investee | 41,267 | 3,803 | 1,938 | 47,008 | ||||||||||||
| Income tax expense | (202 | ) | — | — | (202 | ) | ||||||||||
| Equity in losses of an investee | — | (706 | ) | — | (706 | ) | ||||||||||
| Net income | 41,065 | 3,097 | 1,938 | 46,100 | ||||||||||||
| Net loss attributable to noncontrolling interest | 691 | — | (691 | ) | — | |||||||||||
| Net income attributable to common shareholders | $ | 41,756 | $ | 3,097 | $ | 1,247 | $ | 46,100 | ||||||||
| Weighted average common shares outstanding - basic | 65,092 | 65,092 | ||||||||||||||
| Weighted average common shares outstanding - diluted | 65,101 | 65,101 | ||||||||||||||
| Per common share data (basic and diluted): | ||||||||||||||||
| Net income attributable to common shareholders | $ | 0.64 | $ | 0.71 | ||||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
F-3
Industrial Logistics Properties Trust
Unaudited Condensed Consolidated Statements of Income
For the Year Ended December 31, 2019
(amounts in thousands, other than per share amounts)
| Historical | Sale of Interest | Deconsolidation | Pro Forma | |||||||||||||
| (E) | (F) | |||||||||||||||
| Rental income | $ | 229,234 | $ | — | $ | (39,706 | ) | $ | 189,528 | |||||||
| Expenses: | ||||||||||||||||
| Real estate taxes | 30,367 | — | (5,361 | ) | 25,006 | |||||||||||
| Other operating expenses | 17,643 | — | (3,360 | ) | 14,283 | |||||||||||
| Depreciation and amortization | 61,927 | — | (21,407 | ) | 40,520 | |||||||||||
| General and administrative | 17,189 | (2,757 | ) | — | 14,432 | |||||||||||
| Total expenses | 127,126 | (2,757 | ) | (30,128 | ) | 94,241 | ||||||||||
| Interest income | 743 | — | — | 743 | ||||||||||||
| Interest expense | (50,848 | ) | 3,602 | 4,105 | (43,141 | ) | ||||||||||
| Gain on early extinguishment of debt | — | — | — | — | ||||||||||||
| Income before income tax expense and equity in earnings of an investee | 52,003 | 6,359 | (5,473 | ) | 52,889 | |||||||||||
| Income tax expense | (171 | ) | — | — | (171 | ) | ||||||||||
| Equity in earnings of an investee | 666 | 702 | — | 1,368 | ||||||||||||
| Net income | 52,498 | 7,061 | (5,473 | ) | 54,086 | |||||||||||
| Net loss attributable to noncontrolling interest | — | — | — | — | ||||||||||||
| Net income attributable to common shareholders | $ | 52,498 | $ | 7,061 | $ | (5,473 | ) | $ | 54,086 | |||||||
| Weighted average common shares outstanding - basic | 65,049 | 65,049 | ||||||||||||||
| Weighted average common shares outstanding - diluted | 65,055 | 65,055 | ||||||||||||||
| Per common share data (basic and diluted): | ||||||||||||||||
| Net income attributable to common shareholders | $ | 0.81 | $ | 0.83 | ||||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
F-4
Industrial Logistics Properties Trust
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(dollars in thousands)
Unaudited Pro Forma Condensed Consolidated Balance Sheet at September 30, 2020 Adjustments
| (A) | As of September 30, 2020, we owned a 61% equity interest in our joint venture. The adjustments represent the effect of our sale on November 18, 2020 of a 39% equity interest in our joint venture from our 61% equity interest to an institutional investor for approximately $108,812 and the use of those proceeds to repay amounts outstanding under our $750,000 unsecured revolving credit facility as if the sale occurred on September 30, 2020. We adjusted retained earnings to recognize an estimated gain of $16,954. Following these transactions, we continue to own a 22% equity interest in our joint venture. |
| (B) | The adjustments represent the elimination of the assets, liabilities and noncontrolling interest related to the deconsolidation of our joint venture. |
Unaudited Pro Forma Condensed Consolidated Statement of Income for the nine months ended September 30, 2020 Adjustments
| (C) | The adjustments represent: |
| • | a decrease in general and administrative expenses based upon our contractual obligation under our business management agreement with The RMR Group LLC, or RMR LLC; |
| • | a decrease in interest expense due to the application of approximately $108,812 net proceeds against amounts outstanding under our unsecured revolving credit facility at the weighted average interest rate for the nine months ended September 30, 2020 of 2.51%; and |
| • | pro forma equity in losses of an investee representing our 22% equity interest in our joint venture for the nine months ended September 30, 2020. |
| (D) | The adjustments represent the historical income and expenses relating to our joint venture as of and for the nine months ended September 30, 2020. |
Unaudited Pro Forma Condensed Consolidated Statement of Income for the year ended December 31, 2019 Adjustments
| (E) | The adjustments represent: |
| • | a decrease in general and administrative expenses based upon our contractual obligation under our business management agreement with RMR LLC; |
| • | a decrease in interest expense due to the application of approximately $108,812 net proceeds against amounts outstanding under our unsecured revolving credit facility at the weighted average interest rate for the year ended December 31, 2019 of 3.68%; and |
| • | pro forma equity in earnings of an investee representing our 22% equity interest in our joint venture for the year ended December 31, 2019. |
| (F) | The adjustments represent the historical income and expenses relating to properties in our joint venture from January 1, 2019 to December 31, 2019 or for the period starting with the date of acquisition to December 31, 2019 for properties acquired after January 1, 2019. We owned three of the 12 properties on January 1, 2019, acquired three of the 12 properties in February 2019 and acquired six of the 12 properties in April 2019. |
F-5
