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 ~~September~~June 30, ~~2017~~2020

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

Commission File Number 1-34364

~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

(Exact Name of Registrant as Specified in Its Charter)



Maryland		26-4273474
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts02458-1634

(Address of Principal Executive Offices) (Zip Code)

~~617-219-1440~~617-219-1440

(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	OPI	The Nasdaq Stock Market LLC
5.875% Senior Notes due 2046	OPINI	The Nasdaq Stock Market LLC
6.375% Senior Notes due 2050	OPINL	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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ 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	☐
~~(Do not check if a 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 pursuant to 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 ~~October 30, 2017: 99,145,921~~July 29, 2020: 48,227,800

~~GOVERNMENT~~

Table of Contents

OFFICE PROPERTIES INCOME TRUST

FORM 10-Q

~~September~~June 30, ~~2017~~2020

INDEX



		Page
PART II..	Financial Information

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets — ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~	2

	~~Condensed Consolidated Statements of Comprehensive Income — Three and Nine Months Ended September 30, 2017 and 2016~~2019	3

	Condensed Consolidated Statements of ~~Cash Flows —Nine~~Comprehensive Income (Loss) — Three and Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	4

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

	~~Item 2.~~ 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	2217

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	39

	~~Item 4.~~ Warning Concerning Forward-Looking Statements	~~Controls and Procedures~~	4140

	~~Warning Concerning Forward Looking Statements~~	42

	Statement Concerning Limited Liability	4544

PART IIII..	Other Information

Item 1A.	Risk Factors	4644

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4647

Item 6.	Exhibits	47

	Signatures	49

References in this Quarterly Report on Form 10-Q to “the Company”, ~~“GOV”~~“OPI”, “we”, “us” or “our” include ~~Government~~Office Properties Income 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

~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(~~amounts~~dollars in thousands, except per share data)

(unaudited)


	September 30,			December 31,			June 30,			December 31,
	2017			2016			2020			2019
ASSETS
Real estate properties:
Land	$	269,332		$	267,855		$	843,418		$	840,550
Buildings and improvements	1,660,379			1,620,905			2,691,482			2,652,681
Total real estate properties, gross	1,929,711			1,888,760			3,534,900			3,493,231
Accumulated depreciation	(331,069		)	(296,804		)	(422,716		)	(387,656		)
Total real estate properties, net	1,598,642			1,591,956			3,112,184			3,105,575

Equity investment in Select Income REIT	475,265			487,708
Assets of discontinued operations	—			12,541
Assets of properties held for sale							—			70,877
Investments in unconsolidated joint ventures							39,067			39,756
Acquired real estate leases, net	99,953			124,848			645,589			732,382
Deposit escrow for FPO acquisition	651,696			—
Cash and cash equivalents	551,707			29,941			24,485			93,744
Restricted cash	509			530			5,616			6,952
Rents receivable, net	47,461			48,458
Rents receivable							95,005			83,556
Deferred leasing costs, net	22,250			21,079			45,029			40,107
Other assets, net	89,484			68,005			10,688			20,187
Total assets	$	3,536,967		$	2,385,066		$	3,977,663		$	4,193,136

LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured revolving credit facility	$	565,000		$	160,000		$	200,000		$	—
Unsecured term loans, net	547,682			547,171
Senior unsecured notes, net	943,543			646,844			1,766,387			2,017,379
Mortgage notes payable, net	26,561			27,837			210,539			309,946
Liabilities of discontinued operations	—			45
Liabilities of properties held for sale							—			14,693
Accounts payable and other liabilities	63,525			54,019			115,593			125,048
Due to related persons	4,297			3,520			6,856			7,141
Assumed real estate lease obligations, net	8,832			10,626			11,858			13,175
Total liabilities	2,159,440			1,450,062			2,311,233			2,487,382

Commitments and contingencies

Shareholders’ equity:
Common shares of beneficial interest, $.01 par value: 150,000,000 and 100,000,000 shares
authorized, respectively, 99,145,921 and 71,177,906 shares issued and outstanding, respectively	991			712
Common shares of beneficial interest, $.01 par value: 200,000,000 shares authorized, 48,227,800 and 48,201,941 shares issued and outstanding, respectively							482			482
Additional paid in capital	1,968,249			1,473,533			2,613,868			2,612,425
Cumulative net income	126,410			96,329			189,356			177,217
Cumulative other comprehensive income	46,980			26,957
Cumulative other comprehensive loss							(85		)	(200		)
Cumulative common distributions	(765,103		)	(662,527		)	(1,137,191		)	(1,084,170		)
Total shareholders’ equity	1,377,527			935,004			1,666,430			1,705,754
Total liabilities and shareholders’ equity	$	3,536,967		$	2,385,066		$	3,977,663		$	4,193,136

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

~~GOVERNMENT~~

Table of Contents

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(amounts in thousands, except per share data)

(unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016

Rental income $ 70,179
$ 64,478
$ 209,362
$ 192,150

Expenses:

Real estate taxes 8,862
7,591
24,980
22,810
Utility expenses 5,408
5,483
14,186
13,330
Other operating expenses 14,867
13,854
44,046
40,031
Depreciation and amortization 20,781
18,404
61,949
54,713
Loss on impairment of real estate 230
—
230
—
Acquisition related costs —
147
—
363
General and administrative 3,266
3,816
12,314
11,350
Total expenses 53,414
49,295
157,705
142,597

Operating income 16,765
15,183
51,657
49,553
Dividend income 304
304
911
667
Interest income 1,715
47
1,843
63
Interest expense (including net amortization of debt premiums and discounts
and debt issuance costs of $990, $805, $2,605 and $2,024, respectively) (16,055 ) (12,608 ) (43,599 ) (32,286 )
(Loss) gain on early extinguishment of debt (1,715 ) —
(1,715 ) 104
Gain on issuance of shares by Select Income REIT 51
72
72
88
Income from continuing operations before income taxes

and equity in earnings of investees 1,065
2,998
9,169
18,189
Income tax expense (22 ) (13 ) (65 ) (63 )
Equity in earnings of investees 9,484
8,668
20,804
28,002
Income from continuing operations 10,527
11,653
29,908
46,128
Income (loss) from discontinued operations 462
(154 ) 173
(429 )
Income before gain on sale of property 10,989
11,499
30,081
45,699
Gain on sale of property —
79
—
79
Net income 10,989
11,578
30,081
45,778

Other comprehensive income:

Unrealized gain on investment in available for sale securities 3,279
8,463
14,389
28,571
Equity in unrealized gain of investees 1,351
3,273
5,634
10,423
Other comprehensive income 4,630
11,736
20,023
38,994
Comprehensive income $ 15,619
$ 23,314
$ 50,104
$ 84,772

Weighted average common shares outstanding (basic) 96,883
71,054
79,778
71,041
Weighted average common shares outstanding (diluted) 96,958
71,084
79,852
71,064

Per common share amounts (basic and diluted):

Income from continuing operations $ 0.11
$ 0.16
$ 0.37
$ 0.65
Income (loss) from discontinued operations $ —
$ —
$ —
$ (0.01 )
Net income $ 0.11
$ 0.16
$ 0.38
$ 0.64



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019

Rental income	$	145,603		$	176,032		$	295,488		$	350,809

Expenses:
Real estate taxes	15,781			18,147			32,588			36,539
Utility expenses	5,201			7,470			12,213			16,851
Other operating expenses	25,787			29,692			51,667			59,828
Depreciation and amortization	64,170			73,913			127,113			151,434
Loss on impairment of real estate	—			2,380			—			5,584
Acquisition and transaction related costs	—			98			—			682
General and administrative	7,204			8,744			14,313			17,467
Total expenses	118,143			140,444			237,894			288,385

Gain (loss) on sale of real estate	66			(17		)	10,822			22,075
Dividend income	—			980			—			1,960
Loss on equity securities	—			(66,135		)	—			(44,007		)
Interest and other income	30			241			736			489
Interest expense (including net amortization of debt premiums, discounts and issuance costs of $2,402, $2,863, $4,685 and $5,704, respectively)	(25,205		)	(35,348		)	(52,364		)	(72,481		)
Loss on early extinguishment of debt	(557		)	(71		)	(3,839		)	(485		)
Income (loss) before income tax (expense) benefit and equity in net losses of investees	1,794			(64,762		)	12,949			(30,025		)
Income tax (expense) benefit	(235		)	130			(274		)	(353		)
Equity in net losses of investees	(260		)	(142		)	(536		)	(377		)
Net income (loss)	1,299			(64,774		)	12,139			(30,755		)
Other comprehensive income (loss):
Unrealized gain (loss) on financial instrument	176			(269		)	115			(367		)
Equity in unrealized gain of investees	—			71			—			137
Other comprehensive income (loss)	176			(198		)	115			(230		)
Comprehensive income (loss)	$	1,475		$	(64,972	)	$	12,254		$	(30,985	)

Weighted average common shares outstanding (basic and diluted)	48,106			48,049			48,101			48,040

Per common share amounts (basic and diluted):
Net income (loss)	$	0.03		$	(1.35	)	$	0.25		$	(0.64	)

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

~~GOVERNMENT~~

Table of Contents

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(dollars in thousands)

(unaudited)



	Number of Shares		Common Shares		Additional Paid In Capital			Cumulative Net Income		Cumulative Other Comprehensive Income (Loss)			Cumulative Common Distributions			Total Shareholders’ Equity
Balance at December 31, 2019	48,201,941		$	482	$	2,612,425		$	177,217	$	(200	)	$	(1,084,170	)	$	1,705,754
Share grants	—		—		379			—		—			—			379
Share repurchases	(1,012	)	—		(27		)	—		—			—			(27		)
Net current period other comprehensive loss	—		—		—			—		(61		)	—			(61		)
Net income	—		—		—			10,840		—			—			10,840
Distributions to common shareholders	—		—		—			—		—			(26,511		)	(26,511		)
Balance at March 31, 2020	48,200,929		482		2,612,777			188,057		(261		)	(1,110,681		)	1,690,374
Share grants	28,000		—		1,121			—		—			—			1,121
Share repurchases	(1,129)		—		(30		)	—		—			—			(30		)
Net current period other comprehensive income	—		—		—			—		176			—			176
Net income	—		—		—			1,299		—			—			1,299
Distributions to common shareholders	—		—		—			—		—			(26,510		)	(26,510		)
Balance at June 30, 2020	48,227,800		$	482	$	2,613,868		$	189,356	$	(85	)	$	(1,137,191	)	$	1,666,430

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

Table of Contents

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(dollars in thousands)

(unaudited)



	Number of Shares	Common Shares		Additional Paid In Capital			Cumulative Net Income (Loss)			Cumulative Other Comprehensive Income (Loss)			Cumulative Common Distributions			Total Shareholders’ Equity
Balance at December 31, 2018	48,082,903	$	481	$	2,609,801		$	146,882		$	106		$	(978,302	)	$	1,778,968
Share grants	9,000	—		865			—			—			—			865
Amount reclassified from cumulative other comprehensive income to net income	—	—		—			—			(371		)	—			(371		)
Net current period other comprehensive loss	—	—		—			—			(32		)	—			(32		)
Net income	—	—		—			34,019			—			—			34,019
Distributions to common shareholders	—	—		—			—			—			(26,445		)	(26,445		)
Balance at March 31, 2019	48,091,903	481		2,610,666			180,901			(297		)	(1,004,747		)	1,787,004
Share grants	24,000	—		971			—			—			—			971
Share repurchases	(2,245)	—		(63		)	—			—			—			(63		)
Share forfeitures	(214)	—		(4		)	—			—			—			(4		)
Net current period other comprehensive loss	—	—		—			—			(198		)	—			(198		)
Net loss	—	—		—			(64,774		)	—			—			(64,774		)
Distributions to common shareholders	—	—		—			—			—			(26,450		)	(26,450		)
Balance at June 30, 2019	48,113,444	$	481	$	2,611,570		$	116,127		$	(495	)	$	(1,031,197	)	$	1,696,486

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

Table of Contents

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(~~amounts~~dollars in thousands)

(unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2020				2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	30,081		$	45,778
Adjustments to reconcile net income to cash provided by operating activities:
Net income (loss)							$	12,139			$	(30,755	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	35,460			31,611			41,318				46,091
Net amortization of debt premiums and discounts and debt issuance costs	2,605			2,024
Gain on sale of property	—			(79		)
Loss (gain) on early extinguishment of debt	1,715			(104		)
Straight line rental income	(3,115		)	(1,789		)
Net amortization of debt premiums, discounts and issuance costs							4,685				5,704
Amortization of acquired real estate leases	25,592			21,948			85,726				105,460
Amortization of deferred leasing costs	2,790			2,343			3,380				2,771
Gain on sale of real estate							(10,822		)		(22,075		)
Loss on impairment of real estate							—				5,584
Loss on early extinguishment of debt							2,701				485
Straight line rental income							(9,051		)		(12,461		)
Other non-cash expenses, net	352			500			957				1,288
Loss on impairment of real estate	230			—
Increase in carrying value of property included in discontinued operations	(619		)	—
Equity in earnings of investees	(20,804		)	(28,002		)
Gain on issuance of shares by Select Income REIT	(72		)	(88		)
Distributions of earnings from Select Income REIT	18,062			25,676
Loss on equity securities							—				44,007
Equity in net losses of investees							536				377
Change in assets and liabilities:
Restricted cash	21			508
Rents receivable							(2,162		)		15,886
Deferred leasing costs	(2,846		)	(7,998		)	(8,803		)		(15,208		)
Rents receivable	3,839			(126		)
Other assets	(7,045		)	(1,466		)	5,300				6,104
Accounts payable and accrued expenses	6,703			(150		)
Accounts payable and other liabilities							(14,429		)		(16,858		)
Due to related persons	777			1,088			(285		)		(28,610		)
Net cash provided by operating activities	93,726			91,674			111,190				107,790

CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions and deposits	(666,202		)	(83,705		)
Real estate acquisitions							(11,864		)		—
Real estate improvements	(29,377		)	(23,357		)	(32,050		)		(21,126		)
Distributions in excess of earnings from Select Income REIT	20,063			11,951
Distributions in excess of earnings from unconsolidated joint ventures							153				1,121
Distributions in excess of earnings from Affiliates Insurance Company							287				—
Proceeds from sale of properties, net	13,198			263			81,528				288,885
Net cash used in investing activities	(662,318		)	(94,848		)
Proceeds from repayment of mortgage note receivable							2,880				—
Net cash provided by investing activities							40,934				268,880

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgage notes payable	(1,150		)	(107,562		)	(114,413		)		(9,970		)
Proceeds from issuance of senior notes, after discounts	297,954			300,235
Proceeds from issuance of common shares, net	493,936			—
Repayment of unsecured term loans							—				(218,000		)
Repayment of senior unsecured notes							(400,000		)		—
Proceeds from issuance of senior notes, net of discounts							145,275				—
Borrowings on unsecured revolving credit facility	610,000			254,000			481,467				85,000
Repayments on unsecured revolving credit facility	(205,000		)	(346,000		)	(281,467		)		(195,000		)
Payment of debt issuance costs	(2,551		)	(464		)	(503		)	��	—
Repurchase of common shares	(255		)	(312		)	(57		)		(63		)
Distributions to common shareholders	(102,576		)	(91,759		)	(53,021		)		(52,895		)
Net cash provided by financing activities	1,090,358			8,138

Increase in cash and cash equivalents	521,766			4,964
Cash and cash equivalents at beginning of period	29,941			8,785
Cash and cash equivalents at end of period	$	551,707		$	13,749
Net cash used in financing activities							(222,719		)		(390,928		)

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

Table of Contents

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(dollars in thousands)

(unaudited)

Supplemental cash flow information:
Interest paid $ 42,019
$ 32,599
Income taxes paid $ 100
$ 94
Non-cash investing activities:

Sale of property $ —
$ 3,600
Mortgage note receivable related to sale of property $ —
$ (3,600 )



	Six Months Ended June 30,
	2020			2019
Decrease in cash, cash equivalents and restricted cash	$	(70,595	)	$	(14,258	)
Cash, cash equivalents and restricted cash at beginning of period	100,696			38,943
Cash, cash equivalents and restricted cash at end of period	$	30,101		$	24,685

~~See accompanying notes.~~



	Six Months Ended June 30,
	2020		2019
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	53,811	$	68,640
Income taxes paid	$	—	$	457

SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows:



	As of June 30,
	2020		2019
Cash and cash equivalents	$	24,485	$	21,102
Restricted cash	5,616		3,583
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	30,101	$	24,685

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

Table of Contents

~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 1.Basis of Presentation

The accompanying condensed consolidated financial statements of ~~Government~~Office Properties Income Trust and its subsidiaries, or ~~GOV,~~OPI, 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, ~~2016,~~2019, or our 2019 Annual Report. In the opinion of ~~our~~ management, all adjustments, ~~which include only~~consisting of normal recurring ~~adjustments~~accruals considered necessary for a fair ~~presentation,~~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 years’ condensed consolidated financial statements to conform to the current year’s presentation.~~

The preparation of these 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 and assessment of impairment of real estate and ~~equity method investments and~~ the ~~valuation of intangible assets.~~

related intangibles.

Note 2.Recent Accounting Pronouncements

~~On January 1, 2017, we adopted~~In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. ~~2017-01,~~ ~~Clarifying the Definition of a Business, which provides additional guidance on evaluating whether~~a~~transaction should be accounted for as an acquisition (or disposal) of assets or of a business. This update defines three requirements for a set of assets and~~activities (collectively referred to as a “set”) to be considered a business: inputs, processes and outputs. As a result of the implementation of this update, certain property acquisitions, which under previous guidance were accounted for~~as business combinations, are now accounted for as acquisitions of assets. In an acquisition of assets, certain acquisition costs are capitalized as opposed to expensedunder the previous guidance.~~

~~On January 1, 2017, we adopted FASB ASU No. 2016-09,~~ ~~Compensation - Stock Compensation~~, which identifies areas for simplification involving several aspects of accounting for share based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the condensed statement of cash flows. The adoption of ASU No. 2016-09 did not have a material impact in our condensed consolidated financial statements.

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue From Contracts With Customers, which outlines a comprehensive model forentities to use in accounting for revenue arising from contracts with customers. ASU No. 2014-09 states that “an entity recognizes revenue to depict the transfer ofpromised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods orservices.” While ASU No. 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate orequipment. In August 2015, the FASB provided for a one-year deferral of the effective date for ASU No. 2014-09, which is now effective for us beginning January 1,2018. A substantial portion of our revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU No. 2014-09. We are~~continuing to evaluate ASU No. 2014-09 (and related clarifying guidance issued by the FASB); however, we do not expect its adoption to have a significant impact on the amount or timing of our revenue recognition in our consolidated financial statements with the exception of profit recognition on real estate sales. Wecurrently have recorded a deferred gain on sale of real estate of $712 that under current guidance would be recognized upon repayment of a promissory note we received in connection with the sale but will be recognized in its entirety upon adoption of ASU No. 2014-09. We currently expect to adopt the standard using the modified retrospective approach.

~~In January 2016, the FASB issued ASU No. 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities, which changes how~~entities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. This update is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted subject to certain conditions. Currently, changes in fair value of these investments are recorded through other comprehensive income. ASU No. 2016-01 states that these changes will be recorded through earnings. We are continuing to evaluate this guidance, but we expect the implementation of this guidance

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

~~will affect how changes in the fair value of available for sale securities we hold are presented in our condensed consolidated financial statements.~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases, which sets out the principles for the recognition, measurement, presentation anddisclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as eitherfinance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classificationwill determine whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is alsorequired to record a right of use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a termof 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using anapproach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. ASU No. 2016-02 is effective forreporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the potential impact the adoption of ASU No.2016-02 will have in our condensed consolidated financial statements.~~

~~In June 2016, the FASB issued ASU No.~~ 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses onFinancial 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 ASU No. 2016-13 ~~is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently assessing~~on January 1, 2020 using the ~~potential impact the adoption~~modified retrospective approach. The implementation of ~~ASU No. 2016-13 will have in our condensed consolidated financial statements.~~

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We dothis standard did not ~~expect this guidance to~~ have a material impact in our condensed consolidated financial ~~statements and related disclosures.~~statements.

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Restricted Cash~~, which clarifies how companies should present restricted cash and restricted cash equivalents. Companies will show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The new standard requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheets. ASU No. 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Upon the adoption of ASU No. 2016-18, we will reconcile both cash and cash equivalents and restricted cash and restricted cash equivalents, whereas under the current guidance we explain the changes during the period for cash and cash equivalents only.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Scope of Modification Accounting~~, which clarifies which changes to the terms or conditions of a share based payment award are subject to the guidance on modification accounting under ASC 718. Entities would apply the modification accounting guidance unless the value, vesting requirements and classification of a share based payment award are the same immediately before and after a change to the terms or conditions of the award. ASU No. 2017-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are continuing to evaluate ASU No. 2017-09; however, we do not expect its adoption to have a material impact in our condensed consolidated financial statements.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

Note 3.~~Weighted Average~~ Per Common ~~Shares~~Share Amounts

~~The following table provides a reconciliation of~~We calculate basic earnings per common share by dividing net income (loss) by the weighted average number of our common shares ~~used~~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, together with the related impact on earnings, are considered when calculating diluted earnings per share. For the three and six months ended June 30, 2020 and 2019, certain unvested common shares were not included in the calculation of ~~basic and~~ diluted earnings per share ~~(in thousands):~~

For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2017 2016 2017 2016
Weighted average common shares for basic earnings per share 96,883
71,054
79,778
71,041
Effect of dilutive securities: unvested share awards 75
30
74
23
Weighted average common shares for diluted earnings per share 96,958
71,084
79,852
71,064

because to do so would have been antidilutive.

Note 4. Real Estate Properties

As of ~~September~~June 30, ~~2017, we~~2020, our wholly owned 74 properties ~~(96 buildings),~~were comprised of 184 properties with approximately 24,909,000 rentable square feet, with an aggregate undepreciated carrying value of ~~$1,929,711.~~$3,534,900 and we had noncontrolling ownership interests in 3 properties totaling approximately 444,000 rentable square feet through 2 unconsolidated joint ventures in which we own 51% and 50% interests. We generally lease space at our properties on a gross lease, or modified gross lease or net lease basis pursuant to fixed term contracts expiring between ~~2017~~2020 and ~~2034. Our~~2040. Some of our leases generally require us to pay all or some property operating expenses and to provide all or most property management services. During the three months ended ~~September~~June 30, ~~2017,~~2020, we entered into 1416 leases for ~~436,102~~approximately 642,000 rentable square feet for a weighted (by rentable square feet) average lease term of ~~8.4~~6.1 years and we made commitments for ~~$7,902~~approximately $16,529 of leasing related costs. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, we entered into 4243 leases for ~~1,084,633~~approximately 1,231,000 rentable square feet for a weighted (by rentable square feet) average lease term of ~~8.8~~5.4 years and we made commitments for ~~$12,609~~approximately $29,459 of leasing related costs.

As of ~~September~~June 30, ~~2017,~~2020, we have estimated unspent leasing related obligations of $26,631, and we have committed to redevelop and expand an existing property prior to commencement of the lease with an estimated remaining cost to complete as of September 30, 2017 of $3,302. During the nine months ended September 30, 2017, we capitalized $328 of interest expense related to the redevelopment and expansion of that existing property.

$61,720.

We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of our long lived assets. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. The future net undiscounted cash

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. We determine the amount of any impairment loss by comparing the historical carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. In addition to the consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining lives of our long lived assets. If we change our estimate of the remaining lives, we allocate the carrying value of the affected assets over their revised remaining lives.

Acquisition Activities

~~During the nine months ended September 30, 2017,~~In February 2020, we acquired ~~an office~~a property ~~(one building) located~~adjacent to a property we own in ~~Manassas, VA with 69,374 rentable square feet.~~Boston, MA for $11,864, including $364 of acquisition related costs. This ~~property was 100% leased to Prince William County on the date of acquisition. This transaction~~acquisition was accounted for as an ~~acquisition of assets.~~asset acquisition. The ~~purchase price was $12,657, including capitalized acquisition costs of $37. Our allocation of the~~ purchase price of this acquisition ~~based on the estimated fair values of the acquired assets~~was allocated to land and ~~assumed liabilities is presented~~building in the ~~table below.~~

Number
of Buildings Other
Acquisition Properties/ Square Purchase and Assumed
Date Location Type Buildings Feet Price Land Improvements Assets
Jan-17 Manassas, VA Office 1/1 69,374
$ 12,657
$ 1,562
$ 8,253
$ 2,842

amounts of $2,618 and $9,246, respectively.

In ~~September 2017,~~July 2020, we ~~acquired transferable development rights that will allow us~~entered into an agreement to ~~expand a~~acquire an office property ~~we own~~located in ~~Washington, D.C.~~Denver, CO with approximately 68,000 rentable square feet for a purchase price of ~~$2,030,~~$38,100, excluding acquisition related costs. This acquisition is expected to occur before the end of the third quarter. However, this acquisition is subject to due diligence and other closing conditions; accordingly, we cannot be sure that we will complete this acquisition, that this acquisition will not be delayed or that the terms will not change.

Disposition Activities

~~FPO Acquisition~~During the six months ended June 30, 2020, we sold 6 properties with a combined 734,784 rentable square feet for an aggregate sales price of $85,363, excluding closing costs and including the repayment of one mortgage note with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021.

~~On October 2, 2017, we acquired First Potomac Realty Trust,~~The sales of these properties, as presented in the table below, do not represent significant dispositions individually or ~~FPO,~~in the aggregate nor do they represent a ~~Maryland REIT, pursuant to merger transactions, or collectively, the FPO Transaction, as~~strategic shift in our business. As a result, the results of ~~which, we acquired 39 office~~operations of these properties ~~(74 buildings) with 6,454,382~~

are included in continuing operations through the date of sale in our condensed consolidated statements of comprehensive income (loss).



Date of Sale	Number of Properties	Location	Rentable Square Feet	Gross Sales Price ⁽¹⁾		Gain (Loss) on Sale of Real Estate
January 2020	2	Stafford, VA	64,656	$	14,063	$	4,704
January 2020	1	Windsor, CT	97,256	7,000		314
February 2020	1	Lincolnshire, IL	222,717	12,000		1,176
March 2020	1	Trenton, NJ	267,025	30,100		(192		)
March 2020	1	Fairfax, VA	83,130	22,200		4,820
	6		734,784	$	85,363	$	10,822


(1)	Gross sales price is equal to the gross contract price, includes purchase price adjustments, if any, and excludes closing costs.

In July 2020, we entered into an agreement to sell a 4 property business park located in Fairfax, VA containing approximately 171,000 rentable square feet for a gross sales price of $25,400, excluding closing costs. This sale is expected to occur before the end of the third quarter. However, this sale is subject to conditions; accordingly, we cannot be sure that we will complete this sale or that this sale will not be delayed or the terms will not change.

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~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

~~rentable square feet, including two properties owned by~~Unconsolidated Joint Ventures

We own interests in 2 joint ventures that own 3 properties. We account for these investments under the equity method of accounting. As of June 30, 2020 and December 31, 2019, our investments in ~~which we acquired FPO's 50% and 51% interests. The estimated aggregate transaction value~~unconsolidated joint ventures consisted of the FPO Transaction was $1,374,624, including $651,696 in cash consideration paid to FPO shareholders, the repayment of $483,000 of FPO debt, the assumption of $167,549 of FPO mortgage debt and an additional $82,000 of mortgage debt that encumber two joint venture properties that are 50% and 51% owned by FPO and the payment of certain transaction fees and expenses, net of FPO cash on hand. We currently expect to complete our purchase price allocation for the FPO Transaction in the fourth quarter of 2017 upon completion of third party appraisals and our analysis of acquired in place leases and building valuations.following:

We financed the cash payments for the FPO Transaction with borrowings under our revolving credit facility and with cash on hand, including net proceeds from our public offerings of common shares and senior unsecured notes, as described further in Notes 7 and 9.



		OPI Carrying Value of Investments at
Joint Venture	OPI Ownership	June 30, 2020		December 31, 2019		Number of Properties	Location	Rentable Square Feet
Prosperity Metro Plaza	51%	$	22,304	$	22,483	2	Fairfax, VA	328,655
1750 H Street, NW	50%	16,763		17,273		1	Washington, D.C.	115,411
Total		$	39,067	$	39,756	3		444,066

The following table ~~presents our pro forma results of operations for each~~provides a summary of the ~~nine months ended September 30, 2017 and 2016 as if the FPO Transaction and related financing activities had occurred on January 1, 2016. The historical FPO results~~mortgage debt of ~~operations included in this pro forma financial information have been adjusted to remove the results of operations of properties and~~our two unconsolidated joint venture interests FPO sold since January 1, 2016. The effect of these adjustments was to decrease pro forma rental income $804 and $8,330 for the nine months ended September 30, 2017 and 2016, respectively, and to decrease (increase) net income (loss) $47,019 and ($2,458) for the nine months ended September 30, 2017 and 2016, respectively. This pro forma financial information is not necessarily indicative of what our actual results of operations would have been for the periods presented, nor does it represent the results of operations for any future period. Differences could result from numerous factors, including changes to our preliminary purchase price allocation for the FPO Transaction, future changes in our portfolio of investments, changes in interest rates, changes in our capital structure, changes in net property level operating expenses, changes in property level revenues, including rents expected to be received on our existing leases or leases we may enter into during and after 2017, and other reasons.ventures:

Nine Months Ended September 30,
2017 2016
Rental income $ 328,255
$ 311,167
Net income (loss) (4,733 ) 19,411
Net income (loss) per share $ (0.05 ) $ 0.20



Joint Venture	Interest Rate ⁽¹⁾	Maturity Date	Principal Balance at June 30, 2020 and December 31, 2019 ⁽²⁾
Prosperity Metro Plaza	4.09%	12/1/2029	$	50,000
1750 H Street, NW	3.69%	8/1/2024	32,000
Weighted Average / Total	3.93%		$	82,000


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


(2)	Reflects the entire balance of the debt secured by the properties and is not adjusted to reflect the interests in the joint ventures we do not own. None of the debt is recourse to us.

~~Disposition Activities – Continuing Operations~~

~~On October 5, 2017,~~At June 30, 2020, the aggregate unamortized basis difference of our two unconsolidated joint ventures of $7,706 is primarily attributable to the difference between the amount we ~~sold one vacant office property (one building) located~~paid to purchase our interest in ~~Albuquerque, NM with 29,045 rentable square feet~~these joint ventures, including transaction costs, and ~~a net book value of $1,885 as of September 30, 2017 for $2,000, excluding closing costs. During~~ the ~~three months ended September 30, 2017, we recorded a $230 loss on impairment of real estate to reduce the~~historical carrying value of ~~this property to its estimated fair value.~~

~~Disposition Activities – Discontinued Operations~~

~~In August 2017, we sold one vacant office property (one building) in Falls Church, VA with 164,746 rentable square feet and a~~the net ~~book value~~assets of ~~$12,901 as~~these joint ventures. This difference is being amortized over the remaining useful life of the ~~date~~related properties and the resulting amortization expense is included in equity in net losses of ~~sale for $13,523, excluding closing costs.~~ ~~Results of operations for this property, which qualified as held for sale prior to our adoption in 2014 of ASU No. 2014-8,~~ ~~Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, are classified as discontinued operations~~investees in our condensed consolidated ~~financial statements. During the three months ended~~ ~~September 30, 2017, we recorded an adjustment~~statements of ~~$619 to increase the carrying value of this property to its estimated fair value less costs to sell.~~

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

~~Summarized balance sheet and~~comprehensive income ~~statement information for this property is as follows:~~

~~Balance Sheets~~

September 30, December 31,
2017 2016
Real estate properties, net $ —
$ 12,260
Other assets —
281
Assets of discontinued operations $ —
$ 12,541

Other liabilities $ —
$ 45
Liabilities of discontinued operations $ —
$ 45

~~Statements of Operations~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Rental income $ 4
$ 6
$ 17
$ 62
Real estate taxes (40 ) (27 ) (88 ) (73 )
Utility expenses (17 ) (34 ) (97 ) (113 )
Other operating expenses (87 ) (70 ) (202 ) (219 )
General and administrative (17 ) (29 ) (76 ) (86 )
Increase in carrying value of property 619
—
619
—
Income (loss) from discontinued operations $ 462
$ (154 ) $ 173
$ (429 )

(loss).

Note 5. Leases

Revenue ~~Recognition~~

~~We recognize rental~~Recognition. Our leases provide for base rent payments and in addition may include variable payments. Rental income from operating leases, ~~that contain fixed contractual rent changes~~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 ~~agreements. Certain~~payments is probable. Some of our leases ~~with government~~have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. In certain circumstances, some leases provide the tenant with the right to terminate ~~before the lease expiration date~~ if the legislature or other funding authority does not appropriate the funding necessary for the ~~government~~ tenant to meet its lease obligations; we have determined the fixed non-cancelable lease term of these leases to be the full term of the lease because we believe the occurrence of early terminations to be remote contingencies based on both our historical experience and our assessments of the likelihood of lease cancellation on a separate lease basis.

We increased rental income to record revenue on a straight line basis by ~~$711~~$3,468 and ~~$1,205~~$5,667 for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~$3,115~~$9,051 and ~~$1,789~~$12,461 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Rents receivable, excluding properties classified as held for sale, include ~~$24,801~~$63,829 and ~~$21,686~~$54,837 of straight line rent receivables ~~net of allowance for doubtful accounts of $132 and $155,~~ at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

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 $18,302 and $38,048 for the three and six months ended June 30, 2020, respectively, of which tenant reimbursements totaled $17,229 and $35,851, respectively. For the three and six months ended June 30, 2019, such payments totaled $22,696 and $46,090, respectively, of which tenant reimbursements totaled $21,540 and $43,663, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

As a result of the COVID-19 pandemic, some of our tenants have requested rent assistance. As of July 27, 2020, we have granted temporary rent assistance totaling $2,475 to 23 of our tenants who represent approximately 3.7% of our annualized rental income, as defined below, as of June 30, 2020, pursuant to a deferred payment plan whereby these tenants will be obligated to pay, in most cases, the deferred rent over a 12-month period beginning 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 or less than the original lease. Because the deferred rent amounts 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. The 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 payments of $2,222.

Right of Use Asset and Lease Liability. For leases where we are the lessee, we are required to record a right of use asset and lease liability for all leases with an initial term greater than 12 months. As of June 30, 2020, we had 1 lease that met these criteria where we are the lessee, which expires on January 31, 2021. We sublease a portion of the space, which sublease expires on January 31, 2021. The values of the right of use asset and related liability representing our future obligation under the lease arrangement for which we are the lessee were $1,167 and $1,190, respectively, as of June 30, 2020, and $2,149 and $2,179, respectively, as of December 31, 2019. The right of use asset and related lease liability are included within other assets, net and accounts payable and other liabilities, respectively, within our condensed consolidated balance sheets. Rent expense incurred under the lease, net of sublease revenue, was $446 and $381 for the three months ended June 30, 2020 and 2019, respectively, and $892 and $815 for the six months ended June 30, 2020 and 2019, respectively.

Note 6. Concentration

Tenant ~~and Credit~~ Concentration

We define annualized rental income as the annualized contractual base rents from our tenants pursuant to our lease agreements as of the measurement date, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization. ~~The~~As of June 30, 2020, the U.S. Government, 1311 state governments and ~~four~~2 other government tenants combined were responsible for ~~87.5% and 92.4%~~approximately 35.1% of our annualized rental ~~income as~~income. As of ~~September~~June 30, ~~2017~~2019, the U.S. Government, 13 state governments and ~~2016, respectively.~~3 other government tenants combined were responsible for approximately 35.7% of our annualized rental income. The U.S. Government is our largest tenant by annualized rental income and was responsible for ~~59.8%~~approximately 25.2% and ~~63.9%~~25.6% of our annualized rental income as of ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

Geographic Concentration

At ~~September~~June 30, ~~2017,~~2020, our 74184 wholly owned properties ~~(96 buildings)~~ were located in 3134 states and the District of Columbia. Properties located in Virginia, California, the District of Columbia, ~~Georgia,~~Texas and Maryland ~~New York and Massachusetts~~ were responsible for ~~14.8%~~15.1%, ~~14.8%~~12.1%, ~~9.5%~~10.9%, ~~8.6%, 7.0%, 6.9%~~8.3% and ~~4.9%~~6.7% of our annualized rental income as of ~~September~~June 30, ~~2017,~~2020, respectively.

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~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

Note 7. Indebtedness

Our principal debt obligations at ~~September~~June 30, ~~2017~~2020 were: (1) ~~$565,000~~$200,000 of outstanding borrowings under our $750,000 unsecured revolving credit facility; (2) an$1,810,000 aggregate outstanding principal amount of ~~$550,000 of~~senior unsecured ~~term loans;~~notes; and (3) an$211,796 aggregate outstanding principal amount of ~~$960,000 of public issuances of senior unsecured notes; and (4) $26,358 aggregate principal amount of~~ mortgage notes.

Our $750,000 revolving credit facility ~~our $300,000 term loan and our $250,000 term loan are~~is governed by a credit agreement, or our credit agreement, with a syndicate of institutional lenders that ~~includes a number of features common to all of these credit arrangements. This credit agreement also~~ includes a feature under which the maximum aggregate borrowing availability may be increased to up to ~~$2,500,000 on a combined basis~~$1,950,000 in certain circumstances.

Our $750,000 revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is January 31, ~~2019~~2023 and, subject to ~~the~~our payment of an extension fee and meeting certain other conditions, we have anthe option to extend the stated maturity date of our revolving credit facility by ~~one year to January 31, 2020.~~2 additional six month periods. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity and no principal repayment is due until maturity. We are required to pay interest at ~~the~~a rate of LIBOR plus a premium, which was ~~125~~110 basis points per annum at ~~September~~June 30, ~~2017,~~2020, on ~~borrowings~~the amount outstanding under our revolving credit facility. We also pay a facility fee on the total

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at ~~September~~June 30, ~~2017.~~2020. Both the interest rate premium and ~~the~~ facility fee are subject to adjustment based upon changes to our credit ratings. As of ~~September~~June 30, ~~2017,~~2020 and December 31, 2019, the annual interest rate payable on borrowings under our revolving credit facility was ~~2.4%~~1.2% and ~~the~~2.7%, respectively. The weighted average annual interest rate for borrowings under our revolving credit facility was ~~2.4%~~1.3% and ~~1.7%~~3.5% for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~2.2%~~2.1% and ~~1.7%~~3.5% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. As of ~~September~~June 30, ~~2017~~2020 and ~~October 30, 2017,~~July 29, 2020, we had ~~$565,000~~$200,000 and ~~$545,000~~$180,000, respectively, outstanding under our revolving credit facility, ~~respectively.~~

Our $300,000 term loan, which matures on March 31, 2020, is prepayable without penalty at any time. We are required to pay interest at the rate of LIBOR plus a premium, which was 140 basis points per annum at September 30, 2017, on the amount outstandingand $550,000 and $570,000, respectively, available for borrowing under our ~~$300,000 term loan. The interest rate premium is subject to adjustment based upon changes to our~~revolving credit ratings. As of September 30, 2017, the annual interest rate for the amount outstanding under our $300,000 term loan was 2.6%. The weighted average annual interest rate under our $300,000 term loan was 2.6% and 1.9% for the three months ended September 30, 2017 and 2016, respectively, and 2.4% and 1.9% for the nine months ended September 30, 2017 and 2016, respectively.

Our $250,000 term loan, which matures on March 31, 2022, is prepayable without penalty at any time. We are required to pay interest at the rate of LIBOR plus a premium, which was 180 basis points per annum as of September 30, 2017, on the amount outstanding under our $250,000 term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of September 30, 2017, the annual interest rate for the amount outstanding under our $250,000 term loan was 3.0%. The weighted average annual interest rate under our $250,000 term loan was 3.0% and 2.3%, respectively, for the three months ended September 30, 2017 and 2016 and 2.8% and 2.3% for the nine months ended September 30, 2017 and 2016, respectively.

facility.

Our credit agreement and senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business and property manager. Our credit agreement and ~~our~~ senior unsecured notes indentures and their supplements also contain ~~a number of~~ covenants, including covenants that restrict our ability to incur debts, require us to ~~maintain~~comply with certain financial ~~ratios~~covenants and, in the case of our credit agreement, restrict our ability to make distributions under certain circumstances. We believe we were in compliance with the terms and conditions of the respective covenants under our credit agreement and senior unsecured notes indentures and their supplements at ~~September~~June 30, ~~2017.~~2020.

~~On July 20, 2017,~~In January 2020, we ~~issued $300,000~~redeemed, at par plus accrued interest, all $400,000 of ~~4.000%~~our 3.60% senior unsecured notes due 2022 in an underwritten public offering. The net proceeds from this offering of $295,403, after payment of the underwriters' discount and other offering expenses, were used to finance, in part, the FPO Transaction.

~~Table of Contents~~

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

Concurrently with our entering into the FPO merger agreement, we entered a commitment letter with a group of institutional lenders for a 364-day senior unsecured bridge loan facility in an initial aggregate principal amount of up to $750,000. On July 20, 2017, we and the lenders terminated this commitment letter and bridge loan facility as2020. As a result of the redemption of our ~~issuance of the~~3.60% senior unsecured notes ~~described above and the proceeds from the sale of our common shares in July 2017 (see Note 9 for more information regarding this sale), and~~due 2020, we recognized a loss on early extinguishment of debt of ~~$1,715.~~$61 during the six months ended June 30, 2020, to write off unamortized discounts.

In March 2020, in connection with the sale of 1 property, we prepaid, at a premium plus accrued interest, a mortgage note secured by that property with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021, which was classified in liabilities of properties held for sale in our condensed consolidated balance sheet as of December 31, 2019. As a result of the prepayment of this mortgage note, we recognized a loss on early extinguishment of debt of $508 during the six months ended June 30, 2020, from a prepayment penalty and the write off of unamortized debt issuance costs.

In March 2020, we prepaid, at a premium plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $66,780, an annual interest rate of 4.0% and a maturity date in September 2030. As a result of the prepayment of this mortgage note, we recognized a loss on early extinguishment of debt of $2,713 during the six months ended June 30, 2020, from a prepayment penalty and the write off of unamortized discounts.

In April 2020, we prepaid, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $32,677, an annual interest rate of 5.7% and a maturity date in July 2020. As a result of the prepayment of this mortgage note, we recognized a gain on early extinguishment of debt of $163 during the six months ended June 30, 2020, from the write off of unamortized premiums.

In June 2020, we issued $150,000 of our 6.375% senior unsecured notes due 2050 in an underwritten public offering, raising net proceeds of $144,772, after deducting underwriters’ discounts and estimated offering expenses. In connection with this offering, we granted the underwriters a 30 day option to purchase up to an additional $22,500 aggregate principal amount of these notes. In July 2020, the underwriters partially exercised this option for an additional $12,000 of these notes. These notes require quarterly payments of interest only through maturity and may be repaid at par (plus accrued and unpaid interest) on or after June 23, 2025.

At ~~September~~June 30, ~~2017, three~~2020, 8 of our consolidated properties ~~(three buildings)~~ with an aggregate net book value of ~~$50,031~~$354,773 were encumbered by ~~three mortgages~~mortgage notes with an aggregate principal ~~balance~~amount of ~~$26,358. These~~$211,796. Our mortgage notes are non-recourse, subject to certain limited exceptions and do not contain any material financial covenants.

As described in Note 4, in connection with the FPO Transaction we assumed five mortgage notes with an aggregate principal balance of $167,549. These mortgage notes are secured by five properties (five buildings). In connection with the FPO Transaction we also assumed two mortgage notes with an aggregate principal balance of $82,000, which are secured by two properties owned by joint ventures in which we acquired FPO's 50% and 51% interests.

Table of Contents

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

Note 8. Fair Value of Assets and Liabilities

The table below presents certain of our assets measured at fair value at September 30, 2017, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset:

Fair Value at Reporting Date Using
Quoted Prices in Significant
Estimated Active Markets for Significant Other Unobservable
Fair Identical Assets Observable Inputs Inputs
Description Value (Level 1) (Level 2) (Level 3)
Recurring Fair Value Measurements Assets:
Investment in RMR Inc. ⁽¹⁾
$ 62,351
$ 62,351
$ —
$ —
Non-Recurring Fair Value Measurements Assets:

One property ⁽²⁾
$ 1,885
$ —
$ 1,885
$ —

~~(1)~~

Our 1,214,225 shares of class A common stock of The RMR Group Inc., or RMR Inc., which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs as defined in the fair value hierarchy under GAAP). Our historical cost basis for these shares is $26,888 as of September 30, 2017. The net unrealized gain of $35,463 for these shares as of September 30, 2017 is included in cumulative other comprehensive income in our condensed consolidated balance sheets.


~~(2)~~	We estimated the fair value of this property at September 30, 2017 based upon the selling price agreed to with a third party (Level 2 inputs as defined in the fair value hierarchy under GAAP). See Note 4 for further details.

~~Table of Contents~~

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

~~In addition to the assets described in the table above, our~~ financial instruments include our cash and cash equivalents, restricted cash, rents receivable, ~~mortgage notes receivable,~~ accounts payable, ~~our~~a revolving credit facility, ~~term loans,~~ senior unsecured notes, mortgage notes payable, amounts due to related persons, other accrued expenses and security deposits. At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or ~~variable~~floating interest rates, except as follows:

As of September 30, 2017 As of December 31, 2016

Carrying Amount ⁽¹⁾
Fair Value
Carrying Amount ⁽¹⁾
Fair Value
Senior unsecured notes, 3.75% interest rate, due in 2019 $ 347,810
$ 357,625
$ 346,952
$ 354,078
Senior unsecured notes, 4.000% interest rate, due in 2022 295,587
302,655
—
—
Senior unsecured notes, 5.875% interest rate, due in 2046 300,146
325,500
299,892
292,268
Mortgage note payable, 5.88% interest rate, due in 2021 ⁽²⁾
13,677
14,388
13,841
14,492
Mortgage note payable, 7.00% interest rate, due in 2019 ⁽²⁾
8,490
8,739
8,778
9,188
Mortgage note payable, 8.15% interest rate, due in 2021 ⁽²⁾
4,394
4,665
5,218
5,575
$ 970,104
$ 1,013,572
$ 674,681
$ 675,601



	As of June 30, 2020				As of December 31, 2019
Financial Instrument	Carrying Value ⁽¹⁾		Fair Value		Carrying Value ⁽¹⁾		Fair Value
Senior unsecured notes, 3.60% interest rate, due in 2020 ⁽²⁾	$	—	$	—	$	399,934	$	400,048
Senior unsecured notes, 4.00% interest rate, due in 2022	298,118		299,565		297,657		306,096
Senior unsecured notes, 4.15% interest rate, due in 2022	298,324		299,199		297,795		307,221
Senior unsecured notes, 4.25% interest rate, due in 2024	341,159		347,069		340,018		364,602
Senior unsecured notes, 4.50% interest rate, due in 2025	382,919		399,232		381,055		419,578
Senior unsecured notes, 5.875% interest rate, due in 2046	301,091		288,176		300,920		322,028
Senior unsecured notes, 6.375% interest rate, due in 2050 ⁽³⁾	144,776		147,780		—		—
Mortgage notes payable ⁽⁴⁾	210,539		214,129		323,074		331,675
Total	$	1,976,926	$	1,995,150	$	2,340,453	$	2,451,248


(1)	~~Carrying amount includes certain~~Includes unamortized debt premiums, discounts and issuance costs totaling $44,870 and ~~unamortized premiums~~$45,756 as of June 30, 2020 and ~~discounts.~~December 31, 2019, respectively.


(2)	~~We assumed~~These senior unsecured notes were redeemed in January 2020.

(3)

These senior unsecured notes were issued in June 2020. In July 2020, we issued an additional $12,000 of these ~~mortgages~~senior unsecured notes in connection with ~~our acquisitions~~the underwriters partial exercise of the encumbered properties. The stated interest rates for these mortgage debts are the contractually stated rates. We recorded the assumed mortgages at estimated fair value on the date of acquisition and we are amortizing the fair value premiums, if any,their option to ~~interest expense over the respective terms of the mortgages to reduce interest expense to the estimated market interest rates~~purchase additional notes.

(4)

Balance as of ~~the date~~December 31, 2019 includes one mortgage note with a carrying value of ~~acquisition.~~$13,128 net of unamortized issuance costs totaling $38 which is classified in liabilities of properties held for sale in our condensed consolidated balance sheet. This mortgage note was secured by a property in Fairfax, VA that was sold in March 2020. The mortgage note was repaid at closing.

We estimated the fair value of our senior unsecured notes (except for our senior unsecured notes due ~~2019~~2046 and ~~due 2022~~2050) using an average of the bid and ask price of the notes ~~as of the measurement date~~ (Level 2 inputs as defined in the fair value hierarchy under GAAP). as of the measurement date. We estimated the fair value of our senior unsecured notes due 2046 and 2050 based on the closing price on The Nasdaq Stock Market LLC, or Nasdaq, (Level 1 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. We estimated the fair values of our mortgage notes payable by using discounted cash flow analyses and currently prevailing market ~~terms as of the measurement date~~rates (Level 3 inputs as defined in the fair value hierarchy under GAAP). as of the measurement date. Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.

Note 9. Shareholders’ Equity

~~Distributions~~

On February 23, 2017, we paid a regular quarterly distribution to common shareholders of record on January 23, 2017 of $0.43 per share, or $30,606. On May 22, 2017, we paid a regular quarterly distribution to common shareholders of record on April 21, 2017 of $0.43 per share, or $30,606. On August 21, 2017, we paid a regular quarterly distribution to common shareholders of record on July 24, 2017 of $0.43 per share, or $41,364. On October 12, 2017, we declared a regular quarterly distribution payable to common shareholders of record on October 23, 2017 of $0.43 per share, or $42,633. We expect to pay this distribution on or about November 20, 2017 using cash on hand and borrowings under our revolving credit facility.

~~Sale of Shares~~

On July 5, 2017, we sold 25,000,000 of our common shares at a price of $18.50 per share in an underwritten public offering. On August 3, 2017, we sold 2,907,029 of our common shares at a price of $18.50 per share pursuant to an overallotment option granted to the underwriters for the July offering. The aggregate net proceeds from these sales were $493,936, after payment of the underwriters' discount and other offering expenses.

Share ~~Grants and Purchases~~

Awards

On May ~~17, 2017,~~27, 2020, in accordance with our Trustee compensation arrangements, we ~~granted 3,000~~awarded to each of our eight Trustees 3,500 of our common shares, valued at ~~$21.75~~$26.61 per share, the closing price of our common shares on ~~the Nasdaq on that day, to each of our six Trustees as part of their annual compensation.~~

~~Table of Contents~~

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

On May 17, 2017, we withheld 450 of our common shares awarded to one of our Trustees to fund that Trustee's resulting minimum required tax withholding obligation. The aggregate value of the withheld shares was $10, which is reflected as a decrease to shareholders' equity in our condensed consolidated balance sheets.

On June 30, 2017, we purchased 278 of our common shares valued at $18.31 per share, the closing price of our common shares on the Nasdaq on that day, from a former employee of RMR LLC in satisfaction of tax withholding and payment obligations in connection with vesting of awards of our common shares.

On September 14, 2017, we granted an aggregate of 57,350 of our common shares to our officers and certain other employees of RMR LLC, valued at $18.61 per share, the closing price of our common shares on the Nasdaq on that day.

Share Purchases

~~On September 19, 2017,~~During the three and six months ended June 30, 2020, we purchased an aggregate of ~~13,636~~1,129 and 2,141 of our common shares, respectively, valued at ~~$18.30~~weighted average share prices of $26.27 and $26.52 per share, ~~the closing price~~respectively, from one of our ~~common shares on the Nasdaq on that day, from our~~Trustees and certain former officers and ~~certain other~~ employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

~~Cumulative Other Comprehensive Income~~

Cumulative other comprehensive income represents the unrealized gain on the RMR Inc. shares we own and our share of the comprehensive income of our equity method investees, Select Income REIT, or SIR, and Affiliates Insurance Company, or AIC. The following table presents changes in the amounts we recognized in cumulative other comprehensive income by component for the three and nine months ended September 30, 2017:

Three Months Ended September 30, 2017
Unrealized Gain Equity in
on Investment Unrealized Gain
in Available for of
Sale Securities Investees Total
Balance at June 30, 2017 $ 32,184
$ 10,166
$ 42,350
Other comprehensive income before reclassifications 3,279
1,355
4,634
Amounts reclassified from cumulative other comprehensive loss to net income ⁽¹⁾
—
(4 ) (4 )
Net current period other comprehensive income 3,279
1,351
4,630
Balance at September 30, 2017 $ 35,463
$ 11,517
$ 46,980

Nine Months Ended September 30, 2017
Unrealized Gain Equity in
on Investment Unrealized Gain
in Available for of
Sale Securities Investees Total
December 31, 2016 $ 21,074
$ 5,883
$ 26,957
Other comprehensive income before reclassifications 14,389
5,626
20,015
Amounts reclassified from cumulative other comprehensive income to net income ⁽¹⁾
—
8
8
Net current period other comprehensive income 14,389
5,634
20,023
Balance at September 30, 2017 $ 35,463
$ 11,517
$ 46,980


~~(1)~~	~~Amounts reclassified from cumulative other comprehensive income (loss) are included in equity in earnings of investees in our condensed consolidated statements of comprehensive income.~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

Distributions

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



Declaration Date	Record Date	Paid Date	Distributions Per Common Share		Total Distributions
January 16, 2020	January 27, 2020	February 20, 2020	$	0.55	$	26,511
April 2, 2020	April 13, 2020	May 21, 2020	0.55		26,510
			$	1.10	$	53,021

On July 16, 2020, we declared a regular quarterly distribution to common shareholders of record on July 27, 2020 of $0.55 per share, or approximately $26,500. We expect to pay this distribution on or about August 20, 2020.

Note 10. Business and Property Management Agreements with RMR LLC

We have no0 employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have ~~two~~2 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 ~~$1,891~~$4,302 and ~~$2,572~~$5,322 for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~$8,241~~$9,001 and ~~$7,614~~$11,044 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. ~~As of September 30, 2017, no annual incentive fees were estimated, based~~Based on our common share total return, as defined ~~as of September 30, 2017, to be payable to RMR LLC for 2017. The~~in our business management ~~fee for the three months ended September 30, 2017 includes the reversal of $893 of estimated incentive fees accrued~~agreement, as of June 30, ~~2017.~~2020 and 2019, no estimated 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 ~~payable to RMR LLC~~ for ~~2017,~~2020, if any, will be based on our common share total return, as defined in our business management agreement, for the three year period ending December 31, ~~2017,~~2020, and will be payable in ~~2018. The net~~2021. We did 0t incur an incentive fee payable to RMR LLC for the year ended December 31, 2019. We include business management fees ~~we recognized are included~~ in general and administrative expenses in our condensed consolidated statements of comprehensive ~~income.~~

income (loss).

Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of ~~$2,338~~$5,128 and ~~$2,249~~$5,534 for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~$7,371~~$10,192 and ~~$6,636~~$10,983 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~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 of our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. ~~Our property level operating~~We are generally not responsible for payment of RMR LLC’s employment, office or administrative expenses ~~including certain payroll~~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 ~~incurred by~~of RMR LLC, are generally incorporated into rents charged to our tenants. We reimbursed RMR LLC $3,436 and $3,221 for property management related expenses for the three months ended September 30, 2017 and 2016, respectively, and $10,482 and $9,132 for the nine months ended September 30, 2017 and 2016, respectively, which amounts are included in other operating expenses in our condensed consolidated statements of comprehensive income. In addition, we are responsible forLLC’s centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit ~~function. The amount recognized~~function and as ~~expense~~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 $6,259 and $6,533 for ~~internal audit~~these expenses and costs ~~was $67 and $34~~ for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~$202~~$12,250 and ~~$168~~$13,157 for these expenses and costs for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. We ~~include~~included these amounts in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive ~~income.~~income (loss).

Note 11. Related Person Transactions

We have relationships and historical and continuing transactions with RMR LLC, The RMR Group Inc., or RMR Inc., ~~SIR, AIC~~ and others related to them, including other companies to which RMR LLC ~~provides~~or its subsidiaries provide management services and some of which have trustees, directors ~~and~~or officers who are also our Trustees or officers.

~~Our Manager, RMR LLC.~~ ~~See Note 10 for further information regarding our management agreements with RMR LLC.~~

We have historically granted share awards to certain RMR LLC employees under our equity compensation plans. In September 2017 and 2016, we granted annual share awards of 57,350 and 53,400 of our common shares, respectively, to our officers and to other employees of RMR LLC. In September 2017 and 2016, we purchased 13,636 and 13,209 of our common shares, respectively, at the closing price of our common shares on the Nasdaq on the date of purchase from our officers and other employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares. We include amounts recognized as expense for share awards to RMR LLC employees in general and administrative expenses in our condensed consolidated statements of comprehensive income.

~~RMR Inc.~~ RMR LLC is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and ~~RMR Inc.~~one of our Managing Trustees, Adam Portnoy, is the ~~managing member~~sole trustee, an officer and the controlling shareholder of ~~RMR LLC. The~~ABP Trust, which is the controlling shareholder of RMR Inc., ~~ABP Trust, is owned by our Managing Trustees. As of September 30, 2017, we owned 1,214,225 shares of class A common stock~~a managing director, the president and chief executive officer of RMR Inc. ~~See Note 8 for further information regarding our investment in~~and an officer and employee of RMR ~~Inc.~~LLC. David Blackman,

~~SIR~~. As of September 30, 2017, we owned 24,918,421 of SIR's common shares, or approximately 27.8% of its outstanding common shares. Our Managing Trustees also serve as managing trustees of SIR, our President and Chief Operating Officer and

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

~~one~~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 ~~president~~boards of trustees or boards of directors of several of these public companies and ~~chief operating officer and an independent~~as a managing director or managing trustee of ~~SIR, respectively.~~these public companies. Other officers of RMR LLC, ~~provides~~including Mr. Blackman 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 2 agreements with RMR LLC to provide management services to ~~SIR and~~ us. ~~See Note 12 for further~~For more information regarding our ~~investment~~management agreements with RMR LLC, see Note 10.

Leases with RMR LLC. We lease office space to RMR LLC in ~~SIR.~~certain of our properties for RMR LLC’s property management offices. Pursuant to our lease agreements with RMR LLC, we recognized rental income from RMR LLC for leased office space of $274 and $287 for the three months ended June 30, 2020 and 2019, respectively, and $554 and $566 for the six months ended June 30, 2020 and 2019, respectively.

Affiliates Insurance Company, or AIC. ~~We, SIR,~~Until its dissolution on February 13, 2020 we, ABP Trust and ~~four~~5 other companies to which RMR LLC provides management services ~~currently own~~owned AIC ~~an Indiana insurance company,~~ in equal amounts. We and the other AIC shareholders ~~participate~~historically participated in a combined property insurance program arranged and insured or reinsured in part by AIC. ~~We paid aggregate annual premiums, including taxes and fees, of approximately $757 in connection with this insurance~~The policies under that program ~~for the policy year ending~~expired on June 30, ~~2018, which amount may be adjusted from time~~2019, and we and the other AIC shareholders elected not to ~~time as~~renew the AIC property insurance program; we ~~acquire and dispose of properties that are included in this~~have instead purchased standalone property insurance ~~program.~~coverage with unrelated third party insurance providers.

As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, our investment in AIC had a carrying value of ~~$8,064~~$11 and ~~$7,235,~~$298, respectively. These amounts are included in other assets, net 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 ~~recognized~~did 0t recognize any income related to our investment in AIC ~~which~~for the three or six months ended June 30, 2020, respectively, and we recognized income of $130 and $534 for the three and six months ended June 30, 2019, respectively. These amounts are ~~presented as~~included in equity in ~~earnings~~net losses of investees in our condensed consolidated statements of comprehensive ~~income.~~income (loss). Our other comprehensive ~~income~~loss for the 2019 period includes our proportionate part of unrealized gains (losses) on fixed income securities, which are owned ~~and held for sale~~ by AIC, related to our investment in AIC.

For ~~further~~more information about these and other such relationships and certain other related person transactions, ~~please~~ refer to our 2019 Annual Report.

~~Note 12. Equity Investment in Select Income REIT~~

As described in Note 11, as of September 30, 2017, we owned 24,918,421, or approximately 27.8%, of the then outstanding SIR common shares. SIR is a REIT which owns properties that are primarily leased to single tenants.

We account for our investment in SIR under the equity method. Under the equity method, we record our proportionate share of SIR’s net income as equity in earnings of an investee in our condensed consolidated statements of comprehensive income. We recorded $9,453 and $8,655 of equity in the earnings of SIR for the three months ended September 30, 2017 and 2016, respectively, and $20,271 and $27,895 of equity in the earnings of SIR for the nine months ended September 30, 2017 and 2016, respectively. Our other comprehensive income includes our proportionate share of SIR’s unrealized gains of $1,236 and $3,192 for the three months ended September 30, 2017 and 2016, respectively, and $5,339 and $10,248 for the nine months ended September 30, 2017 and 2016, respectively.

The adjusted GAAP cost basis of our investments in SIR was less than our proportionate share of SIR’s total shareholders’ equity book value on the dates we acquired the shares. As of September 30, 2017, our remaining basis difference was $87,976 and, as required under GAAP, we are accreting this basis difference to earnings over the estimated remaining useful lives of certain real estate assets and intangible assets and liabilities owned by SIR. This accretion increased our equity in the earnings of SIR by $736 and $740 for the three months ended September 30, 2017 and 2016, respectively, and $2,209 and $2,219 for the nine months ended September 30, 2017 and 2016, respectively.

As of September 30, 2017, our investment in SIR had a carrying value of $475,265 and a market value, based on the closing price of SIR common shares on the Nasdaq on September 30, 2017, of $583,589. We periodically evaluate our equity investment in SIR for possible indicators of other than temporary impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable. These indicators may include the length of time the market value of our investment is below our cost basis, the financial condition of SIR, our intent and ability to be a long term holder of the investment and other considerations. If the decline in fair value is judged to be other than temporary, we may record an impairment charge to adjust the basis of the investment to its fair value.

We received cash distributions from SIR totaling $12,708 during each of the three months ended September 30, 2017 and 2016 and $38,125 and $37,627 during the nine months ended September 30, 2017 and 2016, respectively.

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~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

The following are summarized financial data of SIR as reported in SIR’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, or the SIR Quarterly Report. References in our condensed consolidated financial statements to the SIR Quarterly Report are included as references to the source of the data only, and the information in the SIR Quarterly Report is not incorporated by reference into our condensed consolidated financial statements.

~~Condensed Consolidated Balance Sheets~~

September 30, December 31,
2017 2016
Real estate properties, net $ 3,922,568
$ 3,899,792
Acquired real estate leases, net 493,780
506,298
Properties held for sale 5,829
—
Cash and cash equivalents 18,155
22,127
Rents receivable, net 122,292
124,089
Other assets, net 114,771
87,376
Total assets $ 4,677,395
$ 4,639,682

Unsecured revolving credit facility $ 102,000
$ 327,000
Unsecured term loan, net 348,746
348,373
Senior unsecured notes, net 1,776,087
1,430,300
Mortgage notes payable, net 227,772
245,643
Assumed real estate lease obligations, net 70,989
77,622
Other liabilities 129,502
136,782
Shareholders' equity 2,022,299
2,073,962
Total liabilities and shareholders' equity $ 4,677,395
$ 4,639,682

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~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

~~Condensed Consolidated Statements of Income~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Rental income $ 98,635
$ 96,037
$ 293,020
$ 290,512
Tenant reimbursements and other income 19,379
18,999
57,158
56,660
Total revenues 118,014
115,036
350,178
347,172

Real estate taxes 11,489
10,755
33,168
31,565
Other operating expenses 14,649
14,394
41,039
39,987
Depreciation and amortization 34,713
33,366
102,770
100,240
Acquisition related costs —
13
—
71
General and administrative 1,589
7,553
24,658
21,903
Write-off of straight line rents receivable, net —
—
12,517
—
Loss on asset impairment —
—
4,047
—
Loss on impairment of real estate assets —
—
229
—
Total expenses 62,440
66,081
218,428
193,766
Operating income 55,574
48,955
131,750
153,406

Dividend income 397
397
1,190
872
Interest expense (24,383 ) (20,690 ) (68,278 ) (61,883 )
Income before income tax expense and equity in earnings of an investee 31,588
28,662
64,662
92,395
Income tax expense (177 ) (107 ) (364 ) (370 )
Equity in earnings of an investee 31
13
533
107
Net income 31,442
28,568
64,831
92,132
Net income allocated to noncontrolling interest —
—
—
(33 )
Net income attributed to SIR $ 31,442
$ 28,568
$ 64,831
$ 92,099

Weighted average common shares outstanding (basic) 89,355
89,308
89,341
89,295
Weighted average common shares outstanding (diluted) $ 89,379
$ 89,334
$ 89,364
$ 89,318
Net income attributed to SIR per common share (basic and diluted) $ 0.35
$ 0.32
$ 0.73
$ 1.03

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~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

~~Note 13. Segment Information~~

~~We operate in two separate reportable business segments: direct ownership of real estate properties and our equity method investment in SIR.~~

Three Months Ended September 30, 2017
Investment Investment
in Real Estate in SIR Corporate Consolidated
Rental income $ 70,179
$ —
$ —
$ 70,179

Expenses:

Real estate taxes 8,862
—
—
8,862
Utility expenses 5,408
—
—
5,408
Other operating expenses 14,867
—
—
14,867
Depreciation and amortization 20,781
—
—
20,781
Loss on impairment of real estate 230
—
—
230
General and administrative —
—
3,266
3,266
Total expenses 50,148
—
3,266
53,414

Operating income (loss) 20,031
—
(3,266 ) 16,765
Dividend income —
—
304
304
Interest income 54
—
1,661
1,715
Interest expense (401 ) —
(15,654 ) (16,055 )
Loss on early extinguishment of debt —
(1,715 ) (1,715 )
Gain on issuance of shares by Select Income REIT —
51
—
51
Income (loss) from continuing operations before

income taxes and equity in earnings of investees 19,684
51
(18,670 ) 1,065
Income tax expense —
—
(22 ) (22 )
Equity in earnings of investees —
9,453
31
9,484
Income (loss) from continuing operations 19,684
9,504
(18,661 ) 10,527
Income from discontinued operations 462
—
—
462
Net income (loss) $ 20,146
$ 9,504
$ (18,661 ) $ 10,989

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~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

Nine Months Ended September 30, 2017
Investment Investment
in Real Estate in SIR Corporate Consolidated
Rental income $ 209,362
$ —
$ —
$ 209,362

Expenses:
Real estate taxes 24,980
—
—
24,980
Utility expenses 14,186
—
—
14,186
Other operating expenses 44,046
—
—
44,046
Depreciation and amortization 61,949
—
—
61,949
Loss on impairment of real estate 230
—
—
230
General and administrative —
—
12,314
12,314
Total expenses 145,391
—
12,314
157,705

Operating income (loss) 63,971
—
(12,314 ) 51,657
Dividend income —
—
911
911
Interest income 148
—
1,695
1,843
Interest expense (1,238 ) —
(42,361 ) (43,599 )
Loss on early extinguishment of debt (1,715 ) —
—
(1,715 )
Gain on issuance of shares by Select Income REIT —
72
—
72
Income (loss) from continuing operations before income taxes and
equity in earnings of investees 61,166
72
(52,069 ) 9,169
Income tax expense —
—
(65 ) (65 )
Equity in earnings of investees —
20,271
533
20,804
Income (loss) from continuing operations 61,166
20,343
(51,601 ) 29,908
Income from discontinued operations 173
—
—
173
Net income (loss) $ 61,339
$ 20,343
$ (51,601 ) $ 30,081

As of September 30, 2017
Investment Investment
in Real Estate in SIR Corporate Consolidated
Total Assets $ 1,780,753
$ 475,265
$ 1,280,949
$ 3,536,967

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~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

Three Months Ended September 30, 2016
Investment Investment
in Real Estate in SIR Corporate Consolidated
Rental income $ 64,478
$ —
$ —
$ 64,478

Expenses:
Real estate taxes 7,591
—
—
7,591
Utility expenses 5,483
—
—
5,483
Other operating expenses 13,854
—
—
13,854
Depreciation and amortization 18,404
—
—
18,404
Acquisition related costs 147
—
—
147
General and administrative —
—
3,816
3,816
Total expenses 45,479
—
3,816
49,295

Operating income (loss) 18,999
—
(3,816 ) 15,183
Dividend income —
—
304
304
Interest income —
—
47
47
Interest expense (429 ) —
(12,179 ) (12,608 )
Gain on issuance of shares by Select Income REIT —
72
—
72
Income (loss) from continuing operations before income taxes and
equity in earnings of investees 18,570
72
(15,644 ) 2,998
Income tax expense —
—
(13 ) (13 )
Equity in earnings of investees —
8,655
13
8,668
Income (loss) from continuing operations 18,570
8,727
(15,644 ) 11,653
Loss from discontinued operations (154 ) —
—
(154 )
Income (loss) before gain on sale of property 18,416
8,727
(15,644 ) 11,499
Gain on sale of property 79
—
—
79
Net income (loss) $ 18,495
$ 8,727
$ (15,644 ) $ 11,578

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~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

Nine Months Ended September 30, 2016
Investment Investment
in Real Estate in SIR Corporate Consolidated
Rental income $ 192,150
$ —
$ —
$ 192,150

Expenses:
Real estate taxes 22,810
—
—
22,810
Utility expenses 13,330
—
—
13,330
Other operating expenses 40,031
—
—
40,031
Depreciation and amortization 54,713
—
—
54,713
Acquisition related costs 363
—
—
363
General and administrative —
—
11,350
11,350
Total expenses 131,247
—
11,350
142,597

Operating income (loss) 60,903
—
(11,350 ) 49,553
Dividend income —
—
667
667
Interest income —
—
63
63
Interest expense (1,953 ) —
(30,333 ) (32,286 )
Gain on early extinguishment of debt 104
—
—
104
Gain on issuance of shares by Select Income REIT —
88
—
88
Income (loss) from continuing operations before income taxes and
equity in earnings of investees 59,054
88
(40,953 ) 18,189
Income tax expense —
—
(63 ) (63 )
Equity in earnings of investees —
27,895
107
28,002
Income (loss) from continuing operations 59,054
27,983
(40,909 ) 46,128
Loss from discontinued operations (429 ) —
—
(429 )
Income (loss) before gain on sale of property 58,625
27,983
(40,909 ) 45,699
Gain on sale of property 79
—
—
79
Net income (loss) $ 58,704
$ 27,983
$ (40,909 ) $ 45,778

As of December 31, 2016
Investment Investment
in Real Estate in SIR Corporate Consolidated
Total Assets $ 1,807,560
$ 487,708
$ 89,798
$ 2,385,066

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 Part I, Item 1 of this Quarterly Report on Form 10-Q and with our ~~Annual Report on Form 10-K for the year ended December 31, 2016, or our~~2019 Annual Report.

OVERVIEW (dollars in thousands, except per share and per square foot data)

We are a real estate investment trust, or REIT, organized under Maryland law. As of ~~September~~June 30, ~~2017,~~2020, our wholly owned properties were comprised of 184 properties and we ~~owned 74~~had noncontrolling ownership interests in three properties ~~(96 buildings)~~totaling approximately 444,000 rentable square feet through two unconsolidated joint ventures in which we own 51% and 50% interests. As of June 30, 2020, our properties are located in 3134 states and the District of Columbia ~~that~~and contain approximately ~~11.5 million~~24,909,000 rentable square ~~feet,~~feet. As of ~~which 57.8% was~~June 30, 2020, our properties were leased to ~~the U.S. Government, 21.8% was leased to 13 state governments, 3.2% was leased to four other government~~357 different tenants ~~3.6% was leased to government contractor tenants, 8.6% was leased to various other non-governmental organizations and 5.0% was available for~~with a weighted average remaining lease asterm (based on annualized rental income) of ~~September 30, 2017.~~approximately 5.5 years. The U.S. Government ~~13 state governments and four other government tenants combined were responsible for 87.5% and 92.4%~~is our largest tenant, representing approximately 25.2% of our annualized rental income as of ~~September~~June 30, ~~2017 and 2016, respectively.~~2020. The term annualized rental income as used herein is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of ~~the measurement date,~~June 30, 2020, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

COVID-19 Pandemic

~~On October 2, 2017,~~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 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. 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 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 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.

Our business is focused on leasing office space to primarily single tenants and those with high credit quality characteristics such as government entities. Although, to date, the COVID-19 pandemic has not had a significant impact on our business, we ~~completed our acquisition of First Potomac Realty Trust, or FPO, a Maryland REIT, pursuant to a definitive Agreement and Plan of Merger, by and among us and certain~~have received requests from some of our ~~subsidiaries~~tenants for rent assistance. As of July 27, 2020, we have granted temporary rent assistance totaling $2,475 to 23 tenants who represent approximately 3.7% of our annualized rental income as of June 30, 2020. As of June 30, 2020, we recognized an increase in our accounts receivable related to these deferred payments of $2,222. This assistance generally entails a deferral of, in most cases, one month of rent until September 2020 when the deferred rent amounts will begin to be payable over a 12-month period. For the quarter ended June 30, 2020, we collected approximately 98% of contractual rent obligations and ~~FPO~~99% of contractual rent obligations after giving effect to such rent deferrals.

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

our tenants and ~~its operating partnership, or~~their ability to withstand the ~~FPO Transaction, pursuant~~current 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;

monitoring applicable states and municipalities to which we ~~acquired 39~~lease property and their responses to the COVID-19 pandemic and economic slowdown, including budgetary 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.

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We believe that our current financial resources, the characteristics of our portfolio, including the diversity of our tenant base, both geographically and by industry, and the financial strength and resources of our tenants, will enable us to withstand the COVID-19 pandemic and perhaps present opportunities for us to strategically deploy our capital. As of July 29, 2020, we had:

$570,000 of availability under our revolving credit facility;

only approximately $40,000 of debt maturities until 2022; and

62.8% of our annualized rental income, as of June 30, 2020, derived from investment grade tenants (as described below).

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 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.

With respect to our properties, RMR LLC has implemented enhanced cleaning protocols and has taken measures to reduce the possibility of persons gathering in groups and in close proximity to each other, for the purpose of mitigating the potential for spreading of COVID-19 infections. Included among these protocols and measures are the following:

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

shutting down certain building amenities; and

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

All RMR LLC property management and engineering personnel have been trained on COVID-19 precaution procedures. As states and local communities across the country 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. As stay at home orders have been 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:

installing signage throughout our properties with social distancing reminders;

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

flushing domestic water systems to prepare for re-occupancy;

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

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

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

RMR LLC has significantly reduced all 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. RMR LLC’s regional management offices are currently limiting walk-in visitors and maintain maximum office ~~properties (74 buildings) with 6,454,382 rentable square feet,~~occupancy limits as required by state and local guidelines, including ~~two~~weekly rotations of employees as needed.

There are extensive uncertainties surrounding the COVID-19 pandemic. 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 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.

Property Operations

Unless otherwise noted, the data presented in this section excludes three properties owned by two unconsolidated joint ventures in which we ~~acquired FPO's~~own 51% and 50% ~~and 51%~~ interests. The estimated aggregate transaction value of the FPO Transaction was approximately $1,374,624, including $651,696 in cash consideration paid to FPO shareholders, the repayment of $483,000 of FPO debt, the assumption of $167,549 of FPO mortgage debt and an additional $82,000 of mortgage debt that encumbers theFor more information regarding our two unconsolidated joint venture properties which are 50% and 51% owned by FPO, as well as the payment of certain transaction fees and expenses, net of FPO cash on hand. We currently expect to complete our purchase price allocation for the FPO Transaction in the fourth quarter of 2017 upon completion of third party appraisals and our analysis of acquired in place leases and building valuations.

We financed the cash portion of the FPO Transaction consideration with borrowings under our revolving credit facility and with cash on hand, which included net proceeds from our public offerings of common shares and notes, as described further in Notes 7 and 9 to our condensed consolidated financial statements.

~~The FPO Transaction significantly increased our property portfolio. Giving effect~~ventures, see Note 4 to the completion of the FPO Transaction, we owned113 properties (170 buildings) that contain approximately 18.0 million square feet, including two properties owned by joint ventures in which we acquired FPO's 50% and 51% interests. Because the FPO Transaction was completed after the end of the 2017 third fiscal quarter, our results of operations for the three and nine months ending September 30, 2017 and 2016 do not include the properties and joint venture interests we acquired as part of the FPO Transaction. See "Acquisition and Disposition Activities" below for additional information relatedNotes to ~~the FPO Transaction.~~

As of September 30, 2017, we owned 24,918,421 common shares, or approximately 27.8% of the then outstanding common shares, of Select Income REIT, or SIR. SIR is a REIT which owns properties that are primarily leased to single tenants. See Notes 11 and 12 to our condensed consolidated financial statementsCondensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form ~~10-Q for more information regarding our investment in SIR. We account for our investment in SIR under the equity method.~~

~~Property Operations~~

10-Q.

As of ~~September~~June 30, ~~2017, 95.0%~~2020, 91.7% of our rentable square feet was leased, compared to ~~95.0%~~91.6% of our rentable square feet as of ~~September~~June 30, ~~2016, which excludes one property (one building) classified as discontinued operations which was sold on August 31, 2017.~~2019. Occupancy data for our properties as of ~~September~~June 30, ~~2017~~2020 and ~~2016 is~~2019 was as follows (square feet in thousands):

Comparable

All Properties⁽¹⁾

Properties ⁽²⁾
September 30, September 30,
2017 2016 2017 2016
Total properties 74
71
70
70
Total buildings 96
91
90
90
Total square feet ⁽³⁾
11,517
10,950
10,617
10,612
Percent leased ⁽⁴⁾
95.0 % 95.0 % 95.0 % 95.2 %



	All Properties ⁽¹⁾				Comparable Properties ⁽²⁾
	June 30,				June 30,
	2020		2019		2020		2019
Total properties ⁽³⁾	184		209		182		182
Total rentable square feet ⁽⁴⁾	24,909		29,309		24,622		24,711
Percent leased ⁽⁵⁾	91.7	%	91.6	%	92.8	%	93.4	%


(1)	Based on properties we owned on ~~September~~June 30, ~~2017~~2020 and ~~2016, respectively, and excludes one property (one building) classified as discontinued operations which was sold on August 31, 2017.~~2019, respectively.

(2)

Based on properties we owned ~~on September 30, 2017 and which we owned~~ continuously since January 1, ~~2016. Our comparable~~2019; excludes properties ~~decreased from 71~~classified as held for sale and properties ~~(91 buildings) at September 30, 2016 as a result of the sale of one property (one building)~~undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in ~~July 2016.~~which we own 51% and 50% interests.


(3)	Includes one leasable land parcel.


(4)	Subject to changes when space is ~~re-measured~~remeasured or ~~re-configured~~reconfigured for tenants.


~~(4)~~(5)	Percent leased includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any, as of the measurement date.

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The average ~~annualized~~ effective rental rate per square foot for our properties for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
Average annualized effective rental rate per square foot ⁽¹⁾:
Average effective rental rate per square foot ⁽¹⁾:
All properties ⁽²⁾	$	25.89	$	25.31	$	25.74	$	25.15	$	25.71	$	26.37	$	25.87	$	26.20
Comparable properties ⁽³⁾	$	25.68	$	25.32	$	25.30	$	24.95	$	25.77	$	25.87	$	25.93	$	25.98


(1)	Average ~~annualized~~ effective rental rate per square foot represents annualized total rental income during the period specified divided by the average rentable square feet leased during the period specified. ~~Excludes one property (one building) classified as discontinued operations which was sold on August 31, 2017.~~


(2)	Based on properties we owned on ~~September~~June 30, ~~2017~~2020 and ~~2016, respectively, and excludes one property (one building) classified as discontinued operations which was sold on August 31, 2017.~~2019, respectively.


(3)	Based on properties we owned ~~on September 30, 2017 and which we owned~~ continuously since ~~July~~April 1, ~~2016~~2019 and January 1, ~~2016, respectively.~~2019, respectively; excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, changes in rentable square feet leased and available for lease at our properties ~~excluding one property (one building) classified as discontinued operations which was sold on August 31, 2017,~~ were as ~~follows:~~

follows (square feet in thousands):


	Three Months Ended September 30, 2017					Nine Months Ended September 30, 2017
			Available					Available			Three Months Ended June 30, 2020					Six Months Ended June 30, 2020
	Leased ⁽¹⁾		for Lease		Total	Leased ⁽¹⁾		for Lease		Total	Leased		Available for Lease		Total	Leased		Available for Lease		Total
Beginning of period	10,937,046		578,941		11,515,987	10,881,289		561,224		11,442,513	22,789		2,117		24,906	23,761		1,965		25,726
Changes resulting from:
Acquisition of properties	—		—		—	69,374		—		69,374	—		—		—	—		13		13
Disposition of properties											—		—		—	(693	)	(42	)	(735	)
Lease expirations	(426,847	)	426,847		—	(1,088,995	)	1,088,995		—	(590	)	590		—	(1,458	)	1,458		—
Lease renewals ⁽²⁾⁽¹⁾	416,660		(416,660	)	—	1,000,878		(1,000,878	)	—	564		(564	)	—	1,072		(1,072	)	—
New leases ⁽²⁾⁽¹⁾	19,442		(19,442	)	—	83,755		(83,755	)	—	78		(78	)	—	159		(159	)	—
Re-measurements ⁽³⁾	—		864		864	—		4,964		4,964
Remeasurements ⁽²⁾											(2	)	5		3	(2	)	(93	)	(95	)
End of period	10,946,301		570,550		11,516,851	10,946,301		570,550		11,516,851	22,839		2,070		24,909	22,839		2,070		24,909


(1)	~~Rentable square footage excludes an expansion being constructed at an existing property we own prior to~~Based on leases entered during the ~~commencement of the lease.~~three and six months ended June 30, 2020.


(2)	~~Based on leases entered into during the three and nine months ended September 30, 2017.~~


~~(3)~~	Rentable square feet isare subject to changes when space is ~~re-measured~~remeasured or ~~re-configured~~reconfigured for tenants.

Leases at our properties totaling ~~426,847~~approximately 590,000 and ~~1,088,995~~1,458,000 rentable square feet expired during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, respectively. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, we entered ~~into~~ leases totaling ~~436,102~~approximately 642,000 and ~~1,084,633~~1,231,000 rentable square feet, respectively, including lease renewals of ~~416,660~~approximately 564,000 and ~~1,000,878~~1,072,000 rentable square feet, respectively, and new leases of approximately 78,000 and 159,000 rentable square feet, respectively. The weighted (by rentable square feet) average ~~rental rates for leases of 393,158 and 953,444 rentable square feet entered into with government tenants during the three and nine months ended September 30, 2017 increased by 0.2%~~rents were 3.9% and 4.0%, respectively, ~~when compared to~~above prior rents for the same space and the weighted (by rentable square feet) average ~~prior rents~~lease term for ~~the same space. The weighted (by rentable square feet) average rental rates for~~new and renewal leases ~~of 42,944 and 131,189 rentable square feet~~ entered ~~into with non-government tenants~~ during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 decreased by 11.1%~~2020 was 6.1 years and ~~increased by 0.7%, respectively, when compared to the weighted (by rentable square feet) average rental rates previously charged for the same space.~~5.4 years, respectively.

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During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, commitments made for expenditures, such as tenant improvements and leasing costs, in connection with leasing space at our properties were as follows (square feet in thousands):



	Three Months Ended June 30, 2020
	New Leases		Renewals		Total
Rentable square feet leased	78		564		642
Tenant leasing costs and concession commitments ⁽¹⁾	$	8,158	$	8,371	$	16,529
Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾	$	104.83	$	14.85	$	25.76
Weighted (by square feet) average lease term (years)	12.8		5.1		6.1
Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾	$	8.16	$	2.90	$	4.25



	Six Months Ended June 30, 2020
	New Leases		Renewals		Total
Rentable square feet leased	159		1,072		1,231
Tenant leasing costs and concession commitments ⁽¹⁾	$	14,318	$	15,141	$	29,459
Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾	$	90.11	$	14.12	$	23.93
Weighted (by square feet) average lease term (years)	11.8		4.5		5.4
Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾	$	7.64	$	3.14	$	4.40


(1)	Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.

During the three and six months ended June 30, 2020, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as ~~follows:~~follows (square feet in thousands):


	Three Months Ended September 30, 2017					Nine Months Ended September 30, 2017
	Old Effective		New Effective			Old Effective		New Effective
	Rent Per		Rent Per		Rentable	Rent Per		Rent Per		Rentable	Three Months Ended June 30, 2020					Six Months Ended June 30, 2020
	Square Foot ⁽¹⁾		Square Foot ⁽¹⁾		Square Feet	Square Foot ⁽¹⁾		Square Foot ⁽¹⁾		Square Feet	Old Effective Rent Per Square Foot ⁽¹⁾		New Effective Rent Per Square Foot ⁽¹⁾		Rentable Square Feet	Old Effective Rent Per Square Foot ⁽¹⁾		New Effective Rent Per Square Foot ⁽¹⁾		Rentable Square Feet
New leases	$	—	$	—	—	$	22.67	$	22.98	97,797	$	30.82	$	30.29	50	$	29.03	$	28.07	150
Lease renewals	$	22.74	$	23.25	17,442	$	13.65	$	15.25	578,330	$	32.48	$	32.85	280	$	37.32	$	38.25	848
Total leasing activity	$	22.74	$	23.25	17,442	$	14.95	$	16.36	676,127	$	32.23	$	32.46	330	$	36.07	$	36.72	998


(1)	Effective rental rate includes contractual base rents from our tenants pursuant to our lease agreements, plus straight line rent adjustments and estimated expense reimbursements to be paid to us, and excluding lease value amortization.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, commitments made for expenditures, such as tenant improvements~~2020 and ~~leasing costs, in connection with leasing space at our properties were as follows:~~

Government Non-Government
Three Months Ended September 30, 2017 Leases Leases Total
Rentable square feet leased during the period 393,158
42,944
436,102
Tenant leasing costs and concession commitments ⁽¹⁾ (in thousands)
$ 6,629
$ 1,273
$ 7,902
Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾
$ 16.86
$ 29.64
$ 18.12
Weighted (by square feet) average lease term (years) 8.5
7.2
8.4
Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾
$ 1.98
$ 4.10
$ 2.16

Government Non-Government
Nine Months Ended September 30,2017 Leases Leases Total
Rentable square feet leased during the period 953,444
131,189
1,084,633
Tenant leasing costs and concession commitments ⁽¹⁾ (in thousands)
$ 9,120
$ 3,489
$ 12,609
Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾
$ 9.57
$ 26.59
$ 11.62
Weighted (by square feet) average lease term (years) 9.2
5.6
8.8
Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾
$ 1.04
$ 4.77
$ 1.32


~~(1)~~	~~Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.~~

~~During the three and nine months ended September 30, 2017 and 2016,~~2019, amounts capitalized at our properties for tenant improvements, leasing costs, building improvements and development, redevelopment and ~~redevelopment~~other activities were as ~~follows (dollars in thousands):~~follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
Tenant improvements ⁽¹⁾	$	3,213	$	5,636	$	6,692	$	12,306	$	7,764	$	7,123	$	10,731	$	12,035
Leasing costs ⁽²⁾	$	1,993	$	655	$	4,051	$	8,002	4,157		6,760		8,303		14,085
Building improvements ⁽³⁾	$	2,640	$	3,009	$	8,883	$	8,691	10,005		7,317		19,235		11,625
Recurring capital expenditures									21,926		21,200		38,269		37,745
Development, redevelopment and other activities ⁽⁴⁾	$	3,132	$	1,292	$	16,362	$	4,221	2,578		959		5,739		1,185
Total capital expenditures									$	24,504	$	22,159	$	44,008	$	38,930


(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 other 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 ~~(i) capital expenditures that are identified at the time of a property acquisition and incurred within a short time period after acquiring the property, and (ii)~~ capital expenditure projects that reposition a property or result in new sources of revenue.

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As of ~~September~~June 30, ~~2017,~~2020, we have estimated unspent leasing related obligations of ~~$26,631~~$61,720.

As of June 30, 2020, we had leases at our properties totaling approximately 707,000 rentable square feet that were scheduled to expire through December 31, 2020. As of July 29, 2020, tenants with leases totaling approximately 167,000 rentable square feet that are scheduled to expire through December 31, 2020, have notified us that they do not plan to renew their leases upon expiration and we cannot be sure as to whether other tenants may or may not renew their leases upon expiration. As a result of the COVID-19 pandemic and its economic impact, overall new leasing volume for 2020 has slowed and we expect that trend may continue until market conditions meaningfully improve for a sustained period. However, we also believe that the current market conditions may result in our overall tenant retention levels increasing. Prevailing market conditions and government and other tenants’ needs at the time we negotiate and enter leases or lease renewals will generally determine rental rates and demand for leased space at our properties, and market conditions and our tenants’ needs are beyond our control. Whenever we extend, renew or enter into new leases for our properties, we intend to seek rents which 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. We cannot be sure of the rental rates which will result from our ongoing negotiations regarding lease renewals or any new or renewed leases we may enter; also, we may experience material declines in our rental income due to vacancies upon lease expirations or early terminations.

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



Year ⁽¹⁾	Number of Leases Expiring	Leased Square Feet Expiring ⁽²⁾	Percent of Total		Cumulative Percent of Total		Annualized Rental Income Expiring		Percent of Total		Cumulative Percent of Total
2020	46	707	3.1	%	3.1	%	$	17,436	3.0	%	3.0	%
2021	55	1,998	8.7	%	11.8	%	57,408		9.9	%	12.9	%
2022	77	1,986	8.7	%	20.5	%	55,597		9.6	%	22.5	%
2023	65	2,710	11.9	%	32.4	%	73,280		12.6	%	35.1	%
2024	57	3,869	16.9	%	49.3	%	101,042		17.4	%	52.5	%
2025	51	2,026	8.9	%	58.2	%	43,530		7.5	%	60.0	%
2026	28	1,699	7.4	%	65.6	%	45,446		7.8	%	67.8	%
2027	30	2,026	8.9	%	74.5	%	51,481		8.9	%	76.7	%
2028	13	872	3.8	%	78.3	%	25,582		4.4	%	81.1	%
2029 and thereafter	51	4,946	21.7	%	100.0	%	109,427		18.9	%	100.0	%
Total	473	22,839	100.0	%			$	580,229	100.0	%

Weighted average remaining lease term (in years)		5.8					5.5

(1)

The year of lease expiration is pursuant to current contract terms. Some of our leases allow the tenants to vacate the leased premises before the stated expirations of their leases with little or no liability. As of June 30, 2020, tenants occupying approximately 11.5% of our rentable square feet and responsible for approximately 8.6% of our annualized rental income as of June 30, 2020 currently have exercisable rights to terminate their leases before the stated terms of their leases expire. Also, in 2020, 2021, 2022, 2023, 2024, 2025, 2026, 2027, 2028, 2030 and 2035, early termination rights become exercisable by other tenants who currently occupy an additional approximately 2.3%, 1.6%, 2.3%, 1.3%, 1.0%, 2.2%, 1.0%, 0.5%, 1.1%, 0.1% and 0.1% of our rentable square feet, respectively, and contribute an additional approximately 2.8%, 1.8%, 2.4%, 1.5%, 1.6%, 3.9%, 1.3%, 0.7%, 1.4%, 0.2% and 0.1% of our annualized rental income, respectively, as of June 30, 2020. In addition, as of June 30, 2020, pursuant to leases with 14 of our tenants, these tenants have rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These 14 tenants occupy approximately 5.4% of our rentable square feet and contribute approximately 5.8% of our annualized rental income as of June 30, 2020.


(2)	Leased square feet is pursuant to leases existing as of June 30, 2020, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any. Square feet measurements are subject to changes when space is remeasured or reconfigured for new tenants.

We generally will seek to renew or extend the terms of leases in our single tenant properties when they expire. Because of the capital many of the tenants in these properties have ~~committed~~invested in the properties and because many of these properties appear to ~~redevelop and expand an existing property~~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 ~~commencement~~when they expire. If we are unable to extend or renew our leases, it may be time consuming and expensive to relet some of ~~the lease with an estimated remaining cost to complete as of September 30, 2017 of $3,302.~~

these properties.

We believe that current government budgetary ~~pressures~~methodology, spending priorities and the current U.S. presidential administration’s views on the size and scope of government employment have resulted in a decrease in government ~~employment,~~employment. Furthermore, for the past six years, government tenants ~~reducing~~have reduced their space utilization per employee and ~~consolidation~~

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consolidated government tenants into existing government owned ~~properties, thereby reducing~~properties. This activity has reduced the demand for government leased space. Our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants frequently renew leases to avoid the costs and disruptions that may result from relocating their operations. However, efforts to reduce space utilization rates may result in our tenants exercising early termination rights under our leases, vacating our properties upon expiration of our leases in order to relocate, or in renewing their leases for less space than they currently occupy. Also, our government ~~tenants' desire~~tenants’ desires to reconfigure leased office space to reduce utilization per employee may require us to spend significant amounts for tenant improvements, and tenant relocations have become more prevalent than our past experiences in instances where efforts by government tenants to reduce their space utilization require a significant reconfiguration of currently leased space. Increasing uncertainty with respect to government agency budgets and funding to implement relocations, consolidations and reconfigurations ~~recently~~ has resulted in delayed decisions by some of our

government tenants and their reliance on short term lease ~~renewals. At present,~~renewals; however, recent activity prior to the outbreak of the COVID-19 pandemic suggested that the government had begun to shift its leasing strategy to include longer term leases and was actively exploring 10 to 20 year lease terms at renewal, in some instances. We believe the reduction in government tenant space utilization and the consolidation of government tenants into government owned real estate is substantially complete; however, these activities may impact us for some time into the future. It is also possible that as a result of the COVID-19 pandemic, government tenants may seek to increase space utilization rates in order to provide greater physical distancing for employees. However, the COVID-19 pandemic and its aftermath have had negative impacts on government budgets and resources and it is unclear what the effect of these impacts will be on government demand for leasing office space. Given the significant uncertainties as to the COVID-19 pandemic, its economic impact and its aftermath, we are unable to reasonably project what the financial impact of market conditions or changing government ~~financial~~ circumstances, including as a result of the COVID-19 pandemic, will be on our financial results for future periods.

The Internal Revenue Service, or IRS, has publicly stated that it plans to discontinue its tax return processing operations at our property located in Fresno, CA in 2021. The IRS lease for this property, which accounted for approximately 3.0%As of June 30, 2020, we derive 24.2% of our annualized rental income ~~as of September 30, 2017, expires~~from our properties located in the ~~fourth quarter~~metropolitan Washington, D.C. market area, which includes Washington, D.C., Northern Virginia and suburban Maryland. A downturn in economic conditions in this area, including as a result of ~~2021. The IRS~~the COVID-19 pandemic, could result in reduced demand from tenants for our properties or reduce the rents that our tenants in this area are willing to pay when our leases expire or terminate and when renewal or new terms are negotiated. Additionally, in recent years there has been a decrease in demand for new leased office space by the U.S. Government in the metropolitan Washington, D.C. market area, and that could increase competition for government tenants and adversely affect our ability to retain government tenants when our leases expire.

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 ~~publicly stated~~often uses a third party service to monitor the credit ratings, both actual and implied, of our existing tenants. We consider investment grade tenants to include: (a) investment grade rated tenants; (b) tenants with investment grade rated parent entities that ~~it plans~~guarantee the tenant’s lease obligations; and/or (c) tenants with investment grade rated parent entities that do not guarantee the tenant’s lease obligations. As of June 30, 2020, tenants contributing 53.1% of annualized rental income were investment grade rated (or their payment obligations were guaranteed by an investment grade rated parent) and tenants contributing an additional 9.7% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

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As of June 30, 2020, tenants representing 1% or more of our total annualized rental income were as follows:



	Tenant	Credit Rating	Annualized Rental Income		% of Total Annualized Rental Income
1	U.S. Government	Investment Grade	$	146,308	25.2	%
2	Shook, Hardy & Bacon L.L.P.	Not Rated	19,199		3.3	%
3	State of California	Investment Grade	19,144		3.3	%
4	Bank of America Corporation	Investment Grade	16,520		2.8	%
5	WestRock Company	Investment Grade	12,864		2.2	%
6	F5 Networks, Inc.	Not Rated	12,777		2.2	%
7	CareFirst Inc.	Non Investment Grade	11,684		2.0	%
8	Northrop Grumman Corporation	Investment Grade	11,320		2.0	%
9	Tyson Foods, Inc.	Investment Grade	11,011		1.9	%
10	Commonwealth of Massachusetts	Investment Grade	9,769		1.7	%
11	Micro Focus International plc	Non Investment Grade	8,710		1.5	%
12	CommScope Holding Company Inc	Non Investment Grade	8,097		1.4	%
13	Technicolor SA	Non Investment Grade	7,856		1.4	%
14	State of Georgia	Investment Grade	7,173		1.2	%
15	PNC Bank	Investment Grade	6,902		1.2	%
16	ServiceNow, Inc.	Not Rated	6,481		1.1	%
17	Allstate Insurance Co.	Investment Grade	6,473		1.1	%
18	Compass Group plc	Investment Grade	6,399		1.1	%
19	Automatic Data Processing, Inc.	Investment Grade	6,047		1.0	%
20	Church & Dwight Co., Inc.	Investment Grade	6,019		1.0	%
21	Tailored Brands, Inc.	Non Investment Grade	5,898		1.0	%
	Total		$	346,651	59.6	%

Acquisition Activities

During the six months ended June 30, 2020, we acquired a property adjacent to ~~discontinue its tax return processing operations~~a property we own in ~~Covington, KY in 2019. Our~~Boston, MA for $11,500, excluding acquisition related costs.

In July 2020, we entered into an agreement to acquire an office property located in ~~Florence, KY is leased to the IRS and we believe it is used to support the Covington, KY operations. This IRS lease, which accounted for~~Denver, CO containing approximately 0.9% of our annualized rental income as of September 30, 2017, expires in the second quarter of 2022, but is subject to possible early termination by our tenant. Despite its public announcements, the IRS has not sent us any official notices of its intentions regarding the Fresno, CA or Covington, KY properties.

As of September 30, 2017, we had leases totaling 787,271 rentable square feet that were scheduled to expire through September 30, 2018. As of October 30, 2017, tenants with leases totaling 196,753 rentable square feet that are scheduled to expire through September 30, 2018, have notified us that they do not plan to renew their leases upon expiration and we cannot be sure as to whether other tenants may or may not renew their leases upon expiration. Based upon current market conditions and tenant negotiations for leases scheduled to expire through September 30, 2018, we expect that the rental rates we are likely to achieve on new or renewed leases for space under leases expiring through September 30, 2018 will, in the aggregate and on a weighted (by annualized revenues) average basis, be lower than the rates currently being paid, thereby generally resulting in lower revenue from the same space. We cannot be sure of the rental rates which will result from our ongoing negotiations regarding lease renewals or any new leases we may enter into; also, we may experience material declines in our rental income due to vacancies upon lease expirations or early terminations. Prevailing market conditions and government and other tenants' needs at the time we negotiate and enter leases will generally determine rental rates and demand for leased space at our properties, and market conditions and government and other tenants' needs are beyond our control.

~~As of September 30, 2017, lease expirations at our properties by year are as follows (dollars in thousands):~~

Number Expirations Annualized
of of Leased Cumulative Rental Cumulative
Tenants Square Percent Percent Income Percent Percent
Year ⁽¹⁾
Expiring
Feet ⁽²⁾
of Total of Total Expiring of Total of Total
2017 20
434,049
4.0 % 4.0 % $ 10,004
3.6 % 3.6 %
2018 37
704,708
6.4 % 10.4 % 22,913
8.3 % 11.9 %
2019 45
1,940,016
17.7 % 28.1 % 59,116
21.5 % 33.4 %
2020 39
1,447,413
13.2 % 41.3 % 40,155
14.6 % 48.0 %
2021 37
1,061,519
9.7 % 51.0 % 20,732
7.5 % 55.5 %
2022 31
940,554
8.6 % 59.6 % 22,505
8.2 % 63.7 %
2023 18
595,662
5.4 % 65.0 % 13,685
5.0 % 68.7 %
2024 16
993,635
9.1 % 74.1 % 22,696
8.2 % 76.9 %
2025 15
801,648
7.3 % 81.4 % 16,572
6.0 % 82.9 %
2026 and thereafter 32
2,027,097

⁽³⁾
18.6 % 100.0 % 47,042
17.1 % 100.0 %
Total 290
10,946,301
100.0 % $ 275,420
100.0 %

Weighted average remaining lease term (in years) 5.1 4.7

~~(1)~~

The year of lease expiration is pursuant to current contract terms. Some government tenants have the right to vacate their space before the stated expirations of their leases. As of September 30, 2017, government tenants occupying approximately 13.2% of our rentable square feet and responsible for approximately 10.2% of our annualized rental income as of September 30, 2017 have currently exercisable rights to terminate their leases before the stated terms of their leases expire. Also, in 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2026 and 2027, early termination rights become exercisable by other tenants who currently occupy an additional approximately 0.1%, 1.6%, 4.9%, 8.0%, 1.5%, 3.6%, 0.6%, 0.9% and 0.6% of our rentable square feet, respectively, and contribute an additional approximately 0.0%, 2.2%, 5.1%, 8.3%, 1.5%, 2.9%, 0.7%, 1.2% and 0.6% of our annualized rental income, respectively, as of September 30, 2017. In addition, as of September 30, 2017, 15 of our government tenants have currently exercisable rights to terminate their leases if the legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These 15 tenants occupy approximately 17.3% of our rentable square feet and contribute approximately 16.8% of our annualized rental income as of September 30, 2017.


~~(2)~~	Leased square feet is pursuant to leases existing as of September 30, 2017, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any. Square feet measurements are subject to changes when space is re-measured or re-configured for new tenants.


~~(3)~~	~~Leased square footage excludes an expansion being constructed at an existing property we own prior to the commencement of the lease.~~

~~Acquisition and Disposition Activities (dollar amounts in thousands)~~

~~In January 2017, we acquired an office property (one building) located in Manassas, VA with 69,374~~68,000 rentable square feet for a purchase price of ~~$12,620,~~$38,100, excluding ~~capitalized~~ acquisition related costs. This acquisition is expected to occur before the end of the third quarter. However, this acquisition is subject to due diligence and other closing conditions; accordingly, we cannot be sure that we will complete this acquisition, that this acquisition will not be delayed or that the terms will not change.

For more information about our acquisition activities, see Note 4 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Disposition Activities

During the six months ended June 30, 2020, we sold six properties with a combined 734,784 rentable square feet for an aggregate sales price of $85,363, excluding closing costs and including the repayment of ~~$37,~~one mortgage note with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021, as part of our capital recycling program. Through our capital recycling program, we seek to selectively sell certain properties from time to time to fund future acquisitions and to maintain leverage consistent with our current investment grade ratings with a goal of (1) improving the asset quality of our portfolio by reducing the average age of our properties, lengthening the weighted average lease term of our leases and increasing the likelihood of retaining our tenants and (2) increasing our cash available for distribution. Given the current economic conditions surrounding the COVID-19 pandemic, we are carefully considering our capital allocation strategy and believe we are well positioned to opportunistically recycle and deploy capital during 2020.

In July 2020, we entered into an agreement to sell a four property business park located in Fairfax, VA containing approximately 171,000 rentable square for a gross sales price of $25,400, excluding closing costs. This sale is expected to occur

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before the end of the third quarter. However, this sale is subject to conditions; accordingly, we cannot be sure that we will complete this sale or that this sale will not be delayed or the terms will not change.

For more information about our disposition activities, see Note 4 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Financing Activities

In January 2020, we redeemed, at par plus accrued interest, all $400,000 of our 3.60% senior unsecured notes due 2020 using cash on hand, proceeds from property sales and borrowings under our revolving credit facility.

In March 2020, in connection with the sale of one property, we prepaid, at a premium plus accrued interest, a mortgage note secured by that property with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021, which was classified in liabilities of properties held for sale in our condensed consolidated balance sheet as of December 31, 2019.

In April 2020, we prepaid, at par plus accrued interest, a mortgage note secured by one property ~~at a capitalization~~with an outstanding principal balance of $32,677, an annual interest rate of ~~8.6%. We calculate the capitalization rate for property acquisitions as the ratio of (x) annual straight line rental income, excluding the impact of above~~5.7% and ~~below market lease amortization, based~~a maturity date in July 2020 using cash on ~~leases in effect on the acquisition date, less estimated annual property operating expenses that we expected to pay as of the acquisition date, excluding depreciation~~hand and ~~amortization expense, to (y) the acquisition purchase price, including the principal amount of assumed debt, if any, and excluding acquisition costs.~~

borrowings under our revolving credit facility.

In ~~September 2017,~~June 2020, we ~~acquired transferable development rights that would allow us to expand a property we own in Washington, D.C. for a purchase price of $2,030, excluding acquisition costs.~~

As described above, we completed the FPO Transaction on October 2, 2017. Pursuant to that transaction, we acquired 39 office properties (74 buildings) with 6,454,382 rentable square feet, including two properties owned by joint ventures in which we acquired FPO's 50% and 51% interests. The estimated aggregate transaction value of the FPO Transaction was $1,374,624.

Our ownership and operation of office properties in the metropolitan Washington, D.C. market area increased significantly as a result of the FPO Transaction and we may acquire additional properties in this area in the future. Outside of the metropolitan Washington, D.C. market area, our strategy related to property acquisitions is materially unchanged from that disclosed in our Annual Report and we will continue to explore and evaluate for possible acquisition additional properties that are majority leased to government tenants and government contractor tenants. Until we have fully integrated the FPO properties into our business we expect that our acquisition activities may be reduced. Also, as part of the long term financing plan for the FPO Transaction, we expect to identify properties within our portfolio for disposition. Generally, we identify properties for sale based on market conditions in the area where the property is located, our expectations regarding property future financial performance, our expectation regarding lease renewals, our plans with regard to particular properties or alternative opportunities we may wish to pursue. Our plans for particular properties and other strategic considerations may cause us to change our acquisition and disposition strategies, and we may do so at any time and without shareholder approval.

In August 2017, we sold a vacant office property (one building) located in Falls Church, VA with 164,746 rentable square feet and a net book value of $12,901 as of the sale date for $13,523, excluding closing costs.

In October 2017, we sold a vacant office property (one building) located in Albuquerque, NM with 29,045 rentable square feet and a net book value of $1,885, as of September 30, 2017 for $2,000, excluding closing costs.

~~Financing Activities (dollar amounts in thousands except per share amounts)~~

~~On July 5, 2017, we sold 25,000,000~~issued $150,000 of our ~~common shares at a price of $18.50 per share~~6.375% senior unsecured notes due 2050 in an underwritten public ~~offering. On August 3, 2017,~~offering, raising net proceeds of $144,772, after deducting underwriters’ discounts and estimated offering expenses. In connection with this offering, we ~~sold 2,907,029 of our common shares at~~granted the underwriters a ~~price of $18.50 per share pursuant~~30 day option to purchase up to an ~~overallotment option granted to~~additional $22,500 aggregate principal amount of these notes. In July 2020, the underwriters partially exercised this option for an additional $12,000 of these notes. We used the ~~July offering. The~~ aggregate net proceeds from ~~these sales was $493,936, after payment of the underwriters' discount and other~~this offering ~~expenses. We used part of the proceeds from these sales~~ to repay amounts outstanding under our revolving credit facility and ~~used the remaining proceeds to finance, in part, the FPO Transaction.~~

for general business purposes. These notes require quarterly payments of interest only through maturity and may be repaid at par (plus accrued and unpaid interest) on or after June 23, 2025.

In July 2017, we issued $300,000 of 4.000% senior unsecured notes due 2022 in an underwritten public offering. The net proceeds from this offering of $295,403, after payment of the underwriters' discount and other offering expenses, were used to finance, in part, the FPO Transaction.

~~Concurrently with our entering into the FPO merger agreement, we entered~~August 2020, a commitment letter with a group of institutional lenders for a 364-day senior unsecured bridge loan facility in an initial aggregate principal amount of $750,000. On July 20, 2017, we and the lenders terminated this commitment letter and bridge loan facility as a resultmortgage note secured by one of our ~~issuance~~properties with an outstanding principal balance of $39,635 and an annual interest rate of 2.2% is scheduled to mature. We will be obligated to pay at that time the ~~senior unsecured notes~~outstanding principal at par plus accrued interest. We plan to use cash on hand and borrowings under our revolving credit facility to fund the ~~proceeds from the sale~~repayment of ~~our common shares~~this mortgage.

Segment Information

We operate in ~~July 2017, each as described above, and we recognized a loss on extinguishment~~one business segment: ownership of ~~debt~~real estate properties.

Table of ~~$1,715.~~Contents

RESULTS OF OPERATIONS(amounts in thousands, except per share amounts)

Three Months Ended ~~September~~June 30, ~~2017,~~2020, Compared to Three Months Ended ~~September~~June 30, ~~2016~~2019

Acquired Properties Disposed Property

Results ⁽²⁾

Results ⁽³⁾

Comparable Properties Results ⁽¹⁾
Three Months Ended Three Months Ended Consolidated Results
Three Months Ended September 30, September 30, September 30, Three Months Ended September 30,
$ % $ %
2017 2016 Change Change 2017 2016 2017 2016 2017 2016 Change Change
Rental income $ 66,038
$ 64,478
$ 1,560
2.4 % $ 4,141
$ —
$ —
$ —
$ 70,179
$ 64,478
$ 5,701
8.8 %
Operating expenses:

Real estate taxes 8,354
7,591
763
10.1 % 507
—
1
—
8,862
7,591
1,271
16.7 %
Utility expenses 5,092
5,483
(391 ) (7.1 %) 316
—
—
—
5,408
5,483
(75 ) (1.4 %)
Other operating expenses 14,079
13,854
225
1.6 % 746
—
42
—
14,867
13,854
1,013
7.3 %
Total operating expenses 27,525
26,928
597
2.2 % 1,569
—
43
—
29,137
26,928
2,209
8.2 %
Net operating income ⁽⁴⁾
$ 38,513
$ 37,550
$ 963
2.6 % $ 2,572
$ —
$ (43 ) $ —
41,042
37,550
3,492
9.3 %

Other expenses:

Depreciation and amortization

20,781
18,404
2,377
12.9 %
Loss on impairment of real estate

230
—
230
nm
Acquisition related costs

—
147
(147 ) nm
General and administrative

3,266
3,816
(550 ) (14.4 %)
Total other expenses

24,277
22,367
1,910
8.5 %
Operating income

16,765
15,183
1,582
10.4 %
Dividend income

304
304
—
— %
Interest income

1,715
47
1,668
nm
Interest expense (including net amortization of debt premiums and discounts and debt issuance costs of $990 and $805, respectively) (16,055 ) (12,608 ) (3,447 ) 27.3 %
Loss on early extinguishment of debt (1,715 ) —
(1,715 ) nm
Gain on issuance of shares by Select Income REIT 51
72
(21 ) (29.2 %)
Income from continuing operations before income taxes and equity in earnings of investees 1,065
2,998
(1,933 ) (64.5 %)
Income tax expense (22 ) (13 ) (9 ) 69.2 %
Equity in earnings of investees 9,484
8,668
816
9.4 %
Income from continuing operations 10,527
11,653
(1,126 ) (9.7 %)
Income (loss) from discontinued operations 462
(154 ) 616
nm
Income before gain on sale of property 10,989
11,499
(510 ) (4.4 %)
Gain on sale of property —
79
(79 ) nm
Net income $ 10,989
$ 11,578
$ (589 ) (5.1 %)

Weighted average common shares outstanding (basic) 96,883
71,054
25,829
36.4 %
Weighted average common shares outstanding (diluted) 96,958
71,084
25,874
36.4 %

Per common share amounts (basic and diluted):

Income from continuing operations $ 0.11
$ 0.16
$ (0.05 ) (31.3 %)
Income (loss) from discontinued operations $ —
$ —
$ —
— %
Net income $ 0.11
$ 0.16
$ (0.05 ) (31.3 %)

Reconciliation of Net Income to NOI: ⁽⁴⁾

Net income $ 10,989
$ 11,578

Gain on sale of property —
(79 )
Income before gain on sale of property 10,989
11,499

(Income) loss from discontinued operations (462 ) 154

Income from continuing operations 10,527
11,653

Equity in earnings of investees (9,484 ) (8,668 )
Income tax expense 22
13

Gain on issuance of shares by Select Income REIT (51 ) (72 )
Loss on early extinguishment of debt 1,715
—

Interest expense 16,055
12,608

Interest income (1,715 ) (47 )
Dividend income (304 ) (304 )
Operating income 16,765
15,183

General and administrative 3,266
3,816

Acquisition related costs —
147

Loss on impairment of real estate 230
—

Depreciation and amortization 20,781
18,404

Net operating income $ 41,042
$ 37,550



										Non-Comparable
										Properties Results
	Comparable Properties Results ⁽¹⁾									Three Months Ended					Consolidated Results
	Three Months Ended June 30,									June 30,					Three Months Ended June 30,
					$			%													$			%
	2020		2019		Change			Change		2020			2019		2020			2019			Change			Change
Rental income	$	145,935	$	147,567	$	(1,632	)	(1.1	%)	$	(332	)	$	28,465	$	145,603		$	176,032		$	(30,429	)	(17.3	%)
Operating expenses:
Real estate taxes	15,938		15,860		78			0.5	%	(157		)	2,287		15,781			18,147			(2,366		)	(13.0	%)
Utility expenses	5,055		6,352		(1,297		)	(20.4	%)	146			1,118		5,201			7,470			(2,269		)	(30.4	%)
Other operating expenses	25,556		25,635		(79		)	(0.3	%)	231			4,057		25,787			29,692			(3,905		)	(13.2	%)
Total operating expenses	46,549		47,847		(1,298		)	(2.7	%)	220			7,462		46,769			55,309			(8,540		)	(15.4	%)
Property net operating income ⁽²⁾	$	99,386	$	99,720	$	(334	)	(0.3	%)	$	(552	)	$	21,003	98,834			120,723			(21,889		)	(18.1	%)

Other expenses:
Depreciation and amortization															64,170			73,913			(9,743		)	(13.2	%)
Loss on impairment of real estate															—			2,380			(2,380		)	n/m
Acquisition and transaction related costs															—			98			(98		)	n/m
General and administrative															7,204			8,744			(1,540		)	(17.6	%)
Total other expenses															71,374			85,135			(13,761		)	(16.2	%)
Gain (loss) on sale of real restate															66			(17		)	83			n/m
Dividend income															—			980			(980		)	n/m
Loss on equity securities															—			(66,135		)	66,135			n/m
Interest and other income															30			241			(211		)	(87.6	%)
Interest expense															(25,205		)	(35,348		)	10,143			(28.7	%)
Loss on early extinguishment of debt															(557		)	(71		)	(486		)	n/m
Income (loss) before income tax (expense) benefit and equity in net losses of investees															1,794			(64,762		)	66,556			102.8	%
Income tax (expense) benefit															(235		)	130			(365		)	n/m
Equity in net losses of investees															(260		)	(142		)	(118		)	83.1	%
Net income (loss)															$	1,299		$	(64,774	)	$	66,073		102.0	%

Weighted average common shares outstanding (basic and diluted)															48,106			48,049			57			0.1	%

Per common share amounts (basic and diluted):
Net income (loss)															$	0.03		$	(1.35	)	$	1.38		102.2	%

Reconciliation of Net Income to Funds From Operations and Normalized Funds From Operations ⁽⁵⁾

2017 2016
Net income $ 10,989
$ 11,578

Plus: Depreciation and amortization 20,781
18,404

Plus: FFO attributable to Select Income REIT investment 18,429
17,264

Plus: Loss on impairment of real estate 230
—

Less: Equity in earnings from Select Income REIT (9,453 ) (8,655 )
Less: Increase in carrying value of property included in discontinued operations (619 ) —

Less: Gain on sale of property —
(79 )
Funds from operations 40,357
38,512

Plus: Acquisition related costs —
147

Plus: Loss on early extinguishment of debt 1,715
—

Plus: Normalized FFO attributable to Select Income REIT investment 16,903
17,267

Less: FFO attributable to Select Income REIT investment (18,429 ) (17,264 )
Less: Gain on issuance of shares by Select Income REIT (51 ) (72 )
Less: Estimated business management incentive fee ⁽⁶⁾
(893 ) —

Normalized funds from operations $ 39,602
$ 38,590

Funds from operations per common share (basic and diluted) $ 0.42
$ 0.54

Normalized funds from operations per common share (basic and diluted) $ 0.41
$ 0.54

n/m - not meaningful

(1)

Comparable properties ~~consist~~consists of 71182 properties ~~(91 buildings)~~ we owned on ~~September~~June 30, ~~2017~~2020 and which we owned continuously since ~~July~~April 1, ~~2016.~~2019 and excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.


(2)	~~Acquired properties consist~~Our definition of ~~three properties (five buildings) we acquired since July 1, 2016.~~


~~(3)~~	~~Disposed~~ property ~~consists of one property (one building) which we sold in July 2016 and excludes one property (one building) classified as discontinued operations which was sold in August 2017.~~

~~(4)~~

~~The calculation of~~ net operating income, or Property NOI, ~~excludes certain components~~and our reconciliation of net income ~~in order~~(loss) to ~~provide results that are more closely related to our property level results of operations. We define~~Property NOI as income from our rental of real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization. We consider NOI to be an appropriate supplemental measure to net income because it may help both investors and management to understand the operations of our properties. We use NOI to evaluate individual and company wide property level performance, and we believe that NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are generated and incurred at the property level and may facilitate comparisons of our operating performance between periods and with other REITs. NOI does not represent cash generated by operating activities in accordance with U.S. generally accepted accounting principles, or GAAP, and should not be considered an alternative to net income or operating income as an indicator of our operating performance or as a measure of our liquidity. This measure should be considered in conjunction with net income and operating income as presented in our condensed consolidated statements of comprehensive income. Other REITs and real estate companies may calculate NOI differently than we do.

~~(5)~~

We calculate funds from operations, or FFO, and normalized funds from operations, or Normalized FFO, as shown above. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or NAREIT, which is net income, calculated in accordance with GAAP, plus real estate depreciation and amortization and the difference between FFO attributable to an equity investment and equity in earnings of an equity investee but excluding impairment charges on and increases in the carrying value of real estate assets, any gain or loss on sale of properties, as well as certain other adjustments currently not applicable to us. Our calculation of Normalized FFO differs from NAREIT's definition of FFO because we include SIR's Normalized FFO attributable to our equity investment in SIR, net of FFO attributable to our equity investment in SIR, we include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as 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, and we exclude acquisition related costs expensed under GAAP, gains and losses on issuance of shares by SIR and gains and losses on early extinguishment of debt. We consider FFO and Normalized FFO to be appropriate supplemental measures of operating performance for a REIT, along with net income and operating income. We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO may facilitate a comparison of our operating performance between periods and with other REITs. FFO and Normalized FFO 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 our credit agreement and public debt covenants, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance, our receipt of distributions from SIR and our expected needs and availability of cash to pay our obligations. FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income or operating income as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income and operating income as presented in our condensed consolidated statements of comprehensive income. Other REITs and real estate companies may calculate FFO and Normalized FFO differently than we do.

~~(6)~~

~~Incentive fees under our business management agreement are payable after the end of each calendar year, are calculated based on common share total return, as defined, and~~ are included in general and administrative expenses in our condensed consolidated statements of comprehensive income. In calculating net income in accordance with GAAP, we recognize estimated business management incentive fee expense, if any, inbelow under the first, second and third quarters. Although we recognize this expense, if any, in the first, second and third quarters for purposes of calculating net income, we do not include such expense in the calculation of Normalized FFO until the fourth quarter, when the amount of the business management incentive fee expense for the calendar year, if any, is determined. General and administrative expenses for the three months ended September 30, 2017 includes the reversal of $893 of previously accrued estimated business management fees.heading “Non-GAAP Financial Measures.”

We refer to the 71 properties (91 buildings) we owned on September 30, 2017 and which we have owned continuously since July 1, 2016 as comparable properties. We refer to the three properties (five buildings) which we acquired since July 1, 2016 as the acquired properties. We refer to the one property (one building) we sold in July 2016 as the disposed property.

Our condensed consolidated statements of comprehensive income for the three months ended September 30, 2017 include the operating results of three acquired properties (five buildings) for the entire period, as we acquired those properties prior to July 1, 2017 and exclude the operating results of the one disposed property (one building) for the entire period, as we sold that property prior to July 1, 2017. Our condensed consolidated statements of comprehensive income for the three months ended September 30, 2016 exclude the operating results of three acquired properties (five buildings) for the entire period, as we acquired those properties after September 30, 2016 and include the operating results of the one disposed property (one building) for less than the entire period as we sold that property during the three months ended September 30, 2016.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three month period ended ~~September~~June 30, ~~2017,~~2020, compared to the three month period ended ~~September~~June 30, ~~2016.~~2019.

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Rental income. The decrease in rental income reflects decreases in rental income of $26,778 as a result of property dispositions, $2,037 related to a property undergoing significant redevelopment and $1,632 related to comparable properties, offset by an increase in rental income ~~reflects an increase~~of $18 related to acquired properties. The decrease in rental income for comparable properties ~~and the rental income from the acquired properties. Rental income from comparable properties increased $1,560~~is primarily due to ~~increases~~termination fee revenue recorded at one property in ~~rental rates and~~the 2019 period, increased revenue reserves of $579 in ~~occupied space at certain~~the 2020 period primarily due to two of our ~~properties~~tenants that represent approximately 0.24% of our annualized revenue as of June 30, 2020 being unable to pay us rent due to the impact of the COVID-19 pandemic and reductions in ~~the 2017 period. Rental~~reimbursement income ~~increased $4,141~~due to reductions in expenses that are reimbursable to us by our tenants as a result of the ~~acquired properties.~~COVID-19 pandemic. Rental income includes non-cash straight line rent adjustments totaling ~~$711~~$3,468 in the ~~2017~~2020 period and ~~$1,205~~$5,667 in the ~~2016~~2019 period, and amortization of acquired leases and assumed lease obligations totaling ~~($619)~~$(1,405) in the ~~2017~~2020 period and ~~($370)~~$(1,446) in the ~~2016~~2019 period.

Real estate taxes. The ~~increase~~decrease in real estate taxes primarily reflects ~~an increase~~a decrease in real estate taxes associated with property dispositions of $2,467, offset by increases in real estate taxes of $78 for comparable properties, ~~and the taxes~~$13 for acquired ~~properties.~~properties and $10 for a property undergoing significant redevelopment. Real estate taxes for comparable properties increased ~~$763~~primarily due ~~primarily~~ to the effect of higher real estate tax rates and valuation assessments for certain of our properties in the 2020 period.

Utility expenses. The decrease in utility expenses reflects a decrease in utility expenses for comparable properties of $1,297 and a decrease associated with property dispositions of $1,080, offset by an increase in utility expenses for a property undergoing significant redevelopment of $108. Utility expenses for comparable properties declined primarily due to a decrease in electricity and water usage resulting from cost savings initiatives implemented by our manager, RMR LLC, in response to decreased space utilization at our properties as a result of the COVID-19 pandemic, as well as the implementation of real time energy management programs at certain of our properties in the ~~2017~~2020 period. ~~Real estate taxes increased $507 as a result of the acquired properties.~~

~~Utility expenses.~~ The decrease in utility expenses reflects a decline in utility expenses for the comparable properties partially offset by the net effect of the acquired and disposed properties. Utility expenses at comparable properties decreased $391 primarily due to a decrease in electricity usage at certain of our buildings during the 2017 period. Utility expenses increased $316 as a result of the acquired properties.

Other operating expenses. Other operating expenses consist of salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense, other direct costs of operating our properties and property management fees. The ~~increase~~decrease in other operating expenses primarily reflects a decrease in other operating expenses related to property dispositions of $3,748, a decrease of $106 related to a property undergoing significant redevelopment and a decrease of $79 for comparable properties, offset by an increase ~~in expenses for the comparable properties and the net effect~~ of ~~the~~$28 related to acquired ~~and disposed~~ properties. Other operating expenses ~~at the~~for comparable properties ~~increased $225~~decreased primarily due to lower cleaning and repairs and maintenance costs as a result of ~~higher repairs and maintenance costs during the 2017 period. Other operating expenses increased $746~~cost savings initiatives implemented by our manager, RMR LLC, in response to decreased space utilization at our properties as a result of the ~~acquired properties and increased $42 as a result of the disposed property.~~COVID- 19 pandemic, partially offset by higher insurance costs.

Depreciation and amortization. The decrease in depreciation and amortization primarily reflects a decrease related to property dispositions of $7,783, a decrease for comparable properties of $1,130 and a decrease related to a property undergoing significant redevelopment of $888, offset by an increase in depreciation and amortization ~~reflects the depreciation and amortization from the acquired properties and the effect~~expense of ~~improvements made~~$58 related to ~~certain of our comparable properties, partially offset by the effect of certain assets becoming fully depreciated. Depreciation and amortization increased $1,921 as a result of the~~ acquired properties. Depreciation and amortization atfor comparable properties ~~increased $456~~and the property undergoing significant redevelopment declined due ~~primarily~~ to ~~depreciation and amortization of improvements made to certain of our properties after July 1, 2016, partially offset by~~ certain leasing related assets becoming fully depreciated ~~after July 1, 2016.~~in the 2020 period.

Loss on impairment of real estate. We In the 2019 period, we recorded a ~~$230~~$2,380 loss on impairment of real estate ~~in the 2017 period~~ to reduce the carrying value of one property ~~(one building)~~ to its estimated fair ~~value.~~value less costs to sell.

Acquisition and transaction related costs.Acquisition and transaction related costs ~~include legal and diligence~~in the 2019 period consists of post-merger activity costs incurred in 2019 in connection with our ~~2016 property~~ acquisition ~~activities that were expensed~~of Select Income REIT, or SIR, on December 31, 2018 in ~~accordance with GAAP. Pursuant to changes in GAAP, beginning in 2017, we generally capitalize our asset acquisition~~a merger transaction and other related ~~costs.~~transactions.

General and administrative. General and administrative expenses consist of fees pursuant to our business management agreement, equity compensation expense, legal and accounting fees, Trustees’ fees and expenses, securities listing and transfer agency fees and other costs relating to our status as a publicly traded company. The decrease in general and administrative expenses is primarily reflects a decrease in business management fees mostly as a result of property sales during 2019 and 2020 and lower legal expenses.

Gain (loss) on sale of real estate. Gain (loss) on sale of real estate reflects activity related to property sales during the ~~reversal~~2019 and 2020 periods.

Dividend income. Dividend income in the ~~2017~~2019 period consists of ~~$893 of previously accrued estimated business management incentive fee expense, partially offset by~~distributions received in connection with our former investment in RMR Inc. that we sold on July 1, 2019.

Loss on equity securities. Loss on equity securities represents an ~~increase in other business management fee expense~~unrealized loss in the ~~2017 period.~~

~~Dividend income.~~ ~~Dividend income consists of dividends received from~~2019 period to adjust our former investment in ~~The RMR Group Inc., or~~ RMR Inc. to its fair value.

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Interest and other income. The ~~increase~~decrease in interest and other income is primarily due to the ~~result~~effect of ~~higher~~lower cash balances invested in the ~~2017~~2020 period ~~due to our financing activities related~~compared to the ~~FPO Transaction.~~2019 period and lower returns on cash invested.

Interest expense. The ~~increase~~decrease in interest expense ~~reflects higher~~is primarily due to lower average outstanding debt balances in the 2020 period resulting from debt repayment activity in 2019 and ~~higher weighted average interest rates on borrowings~~2020, including the repayment of our term loans during 2019, the ~~2017 period compared to~~redemption of all $350,000 of our 3.75% senior unsecured notes in July 2019, the ~~2016 period.~~redemption of all $400,000 of our 3.60% senior unsecured notes in January 2020 and the repayment of three mortgage notes with an aggregate principal balance of $112,552 during 2020.

Loss on early extinguishment of debt. We recorded a net loss on early extinguishment of debt. of $557 in the 2020 period resulting from a loss on the settlement of a mortgage note receivable related to a property sold in 2016, partially offset by the write off of unamortized premiums associated with the prepayment of a mortgage note. We recorded a loss on early extinguishment of debt of ~~$1,715~~$71 in the ~~2017~~2019 period ~~in connection~~from the write off of debt issuance costs associated with the ~~termination~~repayment of ~~the bridge loan facility described in Note 7 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.~~

~~Gain on issuance of shares by Select Income REIT.~~ ~~Gain on issuance of shares by SIR is a result of the issuance of common shares by SIR at prices above our then per share carrying value~~certain of our ~~SIR common shares.~~term loans.

Income tax ~~expense.~~(expense) benefit. The increase in income tax expense reflects higher operating income in certain jurisdictions in the ~~2017~~2020 period ~~that is~~where we are subject to state income taxes. Income tax benefit, in the 2019 period, is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes.

Equity in ~~earnings~~net losses of investees.Equity in ~~earnings~~net losses of investees represents our proportionate share of earnings and losses from our investments in ~~SIR~~two unconsolidated joint ventures and, ~~Affiliates Insurance Company, or AIC. The increase~~ in the ~~2017~~2019 period, ~~is primarily the result of an increase~~our investment in ~~SIR's net~~AIC.

Net income ~~for the 2017 period.~~

~~Income~~ (loss) ~~from discontinued operations.~~ Income (loss) from discontinued operations reflects operating results for one property (one building) included in discontinued operations. During the 2017 period, we recorded an adjustment of $619 to increase the carrying value of this property to its estimated fair value less costs to sell. We sold this property on August 31, 2017.

~~Gain on sale of property.~~ ~~Gain on sale of property represents the portion of the gain recognized from the sale of a property accounted for under the installment method during the 2016 period.~~

~~Net income.~~. Our net income ~~decreased~~(loss) and net income (loss) per basic and diluted common share increased in the ~~2017~~2020 period compared to the ~~2016~~2019 period primarily as a result of the changes noted above. ~~The percentage decrease in net income per common share (basic and diluted) is higher primarily as a result~~

Table of ~~the higher number of weighted average common shares outstanding as result of our issuance of common shares in an underwritten public offering during the 2017 period.~~Contents

RESULTS OF OPERATIONS(amounts in thousands, except per share amounts)

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017,~~2020, Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2019

Acquired Properties Disposed Property

Results ⁽²⁾

Results ⁽³⁾

Comparable Properties Results ⁽¹⁾
Nine Months Ended Nine Months Ended Consolidated Results
Nine Months Ended September 30, September 30, September 30, Nine Months Ended September 30,
$ % $ %
2017 2016 Change Change 2017 2016 2017 2016 2017 2016 Change Change
Rental income $ 189,558
$ 186,298
$ 3,260
1.7 % $ 19,804
$ 5,852
$ —
$ —
$ 209,362
$ 192,150
$ 17,212
9.0 %
Operating expenses:
Real estate taxes 22,916
22,259
657
3.0 % 2,064
524
—
27
24,980
22,810
2,170
9.5 %
Utility expenses 12,788
12,889
(101 ) (0.8 %) 1,398
417
—
24
14,186
13,330
856
6.4 %
Other operating expenses 40,424
38,535
1,889
4.9 % 3,587
1,438
35
58
44,046
40,031
4,015
10.0 %
Total operating expenses 76,128
73,683
2,445
3.3 % 7,049
2,379
35
109
83,212
76,171
7,041
9.2 %
Net operating income ⁽⁴⁾
$ 113,430
$ 112,615
$ 815
0.7 % $ 12,755
$ 3,473
$ (35 ) $ (109 ) 126,150
115,979
10,171
8.8 %

Other expenses:
Depreciation and amortization 61,949
54,713
7,236
13.2 %
Loss on impairment of real estate 230
—
230
nm
Acquisition related costs —
363
(363 ) nm
General and administrative 12,314
11,350
964
8.5 %
Total other expenses 74,493
66,426
8,067
12.1 %
Operating income 51,657
49,553
2,104
4.2 %
Dividend income 911
667
244
36.6 %
Interest income 1,843
63
1,780
nm
Interest expense (including net amortization of debt premium and discounts and debt issuance costs of $2,605 and $2,024, respectively) (43,599 ) (32,286 ) (11,313 ) 35.0 %
(Loss) gain on early extinguishment of debt (1,715 ) 104
(1,819 ) nm
Gain on issuance of shares by Select Income REIT 72
88
(16 ) (18.2 %)
Income from continuing operations before income taxes and equity in earnings of investees 9,169
18,189
(9,020 ) (49.6 %)
Income tax expense (65 ) (63 ) (2 ) 3.2 %
Equity in earnings of investees 20,804
28,002
(7,198 ) (25.7 %)
Income from continuing operations 29,908
46,128
(16,220 ) (35.2 %)
Income (loss) from discontinued operations 173
(429 ) 602
nm
Income before gain on sale of property 30,081
45,699
(15,618 ) (34.2 %)
Gain on sale of property —
79
(79 ) nm
Net income $ 30,081
$ 45,778
$ (15,697 ) (34.3 %)

Weighted average common shares outstanding (basic) 79,778
71,041
8,737
12.3 %
Weighted average common shares outstanding (diluted) 79,852
71,064
8,788
12.4 %

Per common share amounts (basic and diluted):
Income from continuing operations $ 0.37
$ 0.65
$ (0.28 ) (43.1 %)
Income (loss) from discontinued operations $ —
$ (0.01 ) $ 0.01
— %
Net income $ 0.38
$ 0.64
$ (0.26 ) (40.6 %)

Reconciliation of Net Income to NOI: ⁽⁴⁾

Net income $ 30,081
$ 45,778

Gain on sale of property —
(79 )
Income before gain on sale of property 30,081
45,699

(Income) loss from discontinued operations (173 ) 429

Income from continuing operations 29,908
46,128

Equity in earnings of investees (20,804 ) (28,002 )
Income tax expense 65
63

Gain on issuance of shares by Select Income REIT (72 ) (88 )
Loss (gain) on early extinguishment of debt 1,715
(104 )
Interest expense 43,599
32,286

Interest income (1,843 ) (63 )
Dividend income (911 ) (667 )
Operating income 51,657
49,553

General and administrative 12,314
11,350

Acquisition related costs —
363

Loss on impairment of real estate 230
—

Depreciation and amortization 61,949
54,713

Net operating income $ 126,150
$ 115,979



										Non-Comparable
										Properties Results
	Comparable Properties Results ⁽¹⁾									Six Months Ended				Consolidated Results
	Six Months Ended June 30,									June 30,				Six Months Ended June 30,
					$			%												$			%
	2020		2019		Change			Change		2020		2019		2020			2019			Change			Change
Rental income	$	293,446	$	296,162	$	(2,716	)	(0.9	%)	$	2,042	$	54,647	$	295,488		$	350,809		$	(55,321	)	(15.8	%)
Operating expenses:
Real estate taxes	32,103		31,887		216			0.7	%	485		4,652		32,588			36,539			(3,951		)	(10.8	%)
Utility expenses	11,929		14,066		(2,137		)	(15.2	%)	284		2,785		12,213			16,851			(4,638		)	(27.5	%)
Other operating expenses	50,662		51,021		(359		)	(0.7	%)	1,005		8,807		51,667			59,828			(8,161		)	(13.6	%)
Total operating expenses	94,694		96,974		(2,280		)	(2.4	%)	1,774		16,244		96,468			113,218			(16,750		)	(14.8	%)
Property NOI ⁽²⁾	$	198,752	$	199,188	$	(436	)	(0.2	%)	$	268	$	38,403	199,020			237,591			(38,571		)	(16.2	%)

Other expenses:
Depreciation and amortization														127,113			151,434			(24,321		)	(16.1	%)
Loss on impairment of real estate														—			5,584			(5,584		)	n/m
Acquisition and transaction related costs														—			682			(682		)	n/m
General and administrative														14,313			17,467			(3,154		)	(18.1	%)
Total other expenses														141,426			175,167			(33,741		)	(19.3	%)
Gain on sale of real estate														10,822			22,075			(11,253		)	(51.0	%)
Dividend income														—			1,960			(1,960		)	n/m
Loss on equity securities														—			(44,007		)	44,007			n/m
Interest and other income														736			489			247			50.5	%
Interest expense														(52,364		)	(72,481		)	20,117			(27.8	%)
Loss on early extinguishment of debt														(3,839		)	(485		)	(3,354		)	n/m
Income (loss) before income tax expense and equity in net losses of investees														12,949			(30,025		)	42,974			143.1	%
Income tax expense														(274		)	(353		)	79			(22.4	%)
Equity in net losses of investees														(536		)	(377		)	(159		)	42.2	%
Net income (loss)														$	12,139		$	(30,755	)	$	42,894		139.5	%

Weighted average common shares outstanding (basic and diluted)														48,101			48,040			61			0.1	%

Per common share amounts (basic and diluted):
Net income (loss)														$	0.25		$	(0.64	)	$	0.89		139.1	%

Calculation of Funds From Operations and Normalized Funds From Operations ⁽⁵⁾

2017 2016
Net income $ 30,081
$ 45,778

Plus: Depreciation and amortization 61,949
54,713

Plus: FFO attributable to Select Income REIT investment 47,982
53,609

Plus: Loss on impairment of real estate 230
—

Less: Equity in earnings from Select Income REIT (20,271 ) (27,895 )
Less: Gain on sale of property —
(79 )
Less: Increase in carrying value of property included in discontinued operations (619 ) —

Funds from operations 119,352
126,126

Plus: Acquisition related costs —
363

Plus: Normalized FFO attributable to Select Income REIT investment 48,900
53,629

Less: FFO attributable to Select Income REIT investment (47,982 ) (53,609 )
Less: Loss (gain) on early extinguishment of debt 1,715
(104 )
Less: Gain on issuance of shares by Select Income REIT (72 ) (88 )
Normalized funds from operations $ 121,913
$ 126,317

Funds from operations per common share (basic) $ 1.50
$ 1.78

Funds from operations per common share (diluted) $ 1.49
$ 1.77

Normalized funds from operations per common share (basic and diluted) $ 1.53
$ 1.78

n/m - not meaningful

(1)

Comparable properties ~~consist~~consists of 70182 properties ~~(90 buildings)~~ we owned on ~~September~~June 30, ~~2017~~2020 and which we owned continuously since January 1, ~~2016.~~2019 and excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.


(2)	~~Acquired properties consist of four properties (six buildings) we acquired since January 1, 2016.~~


~~(3)~~	~~Disposed property consists of one property (one building) which we sold in July 2016 and excludes one property (one building) classified as discontinued operations which was sold in August 2017.~~


~~(4)~~	~~See footnote (4) on page 29 for a~~Our definition of ~~NOI.~~Property NOI and our reconciliation of net income (loss) to Property NOI are included below under the heading “Non-GAAP Financial Measures.”


~~(5)~~	~~See footnote (5) on page 29 for a definition of FFO and Normalized FFO.~~

We refer to the 70 properties (90 buildings) we owned on September 30, 2017 and which we have owned continuously since January 1, 2016 as comparable properties. We refer to the four properties (six buildings) which we acquired since January 1, 2016 as the acquired properties. We refer to one property (one building) we sold in July 2016 as the disposed property.

Our condensed consolidated statements of comprehensive income for the nine months ended September 30, 2017 include the operating results of three acquired properties (five buildings) for the entire period, as we acquired those properties prior to January 1, 2017, one property (one building) for less than the entire period, as we acquired the property after January 1, 2017, and exclude the operating results of the disposed property for the entire period, as we sold that property prior to January 1, 2017. Our condensed consolidated statements of comprehensive income for the nine months ended September 30, 2016 exclude the operating results of three acquired properties (five buildings) for the entire period, as we acquired these properties after September 30, 2016, one property (one building) for less than the entire period, as we acquired that property after January 1, 2016 and include the operating results of the disposed property for less than the entire period, as we sold that property prior to September 30, 2016.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the ~~nine~~six month period ended ~~September~~June 30, ~~2017,~~2020, compared to the ~~nine~~six month period ended ~~September~~June 30, ~~2016.~~2019.

Rental income. The decrease in rental income reflects decreases in rental income of $48,553 as a result of property dispositions, $4,085 related to a property undergoing significant redevelopment and $2,716 related to comparable properties, offset by an increase in rental income ~~reflects an increase~~of $33 related to acquired properties. The decrease in rental income for comparable properties ~~and the rental income from the acquired properties. Rental income from comparable properties increased $3,260~~is primarily due to ~~increases~~termination fee revenue recorded at certain of our comparable properties in ~~rental rates~~the 2019 period and reductions in occupied space at certain of our comparable properties in the ~~2017~~2020 period. ~~Rental income increased $13,952 as a result of the acquired properties.~~ Rental income includes non-cash

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straight line rent adjustments totaling ~~$3,115~~$9,051 in the ~~2017~~2020 period and ~~$1,789~~$12,461 in the ~~2016~~2019 period, and amortization of acquired leases and assumed lease obligations totaling ~~($1,863)~~$(2,837) in the ~~2017~~2020 period and ~~($1,103)~~$(2,593) in the ~~2016~~2019 period.

Real estate taxes. The ~~increase~~decrease in real estate taxes primarily reflects ~~an increase~~a decrease in real estate taxes associated with property dispositions of $4,206, offset by increases in real estate taxes of $216 for ~~the~~ comparable properties, ~~and the net effect of the~~$22 for acquired properties and ~~the disposed property.~~$17 for a property undergoing significant redevelopment. Real estate taxes for ~~the~~ comparable properties increased ~~$657~~primarily due ~~primarily~~ to the effect of higher real estate tax rates and valuation assessments for certain of our properties in the 2020 period.

Utility expenses. The decrease in utility expenses reflects a decrease in utility expenses associated with property dispositions of $2,609 and a decrease in utility expenses for comparable properties of $2,137, offset by an increase in utility expenses for a property undergoing significant redevelopment of $108. Utility expenses for comparable properties declined primarily due to a decrease in electricity and water usage resulting from cost savings initiatives implemented by our manager, RMR LLC, in response to decreased space utilization at our properties as a result of the COVID-19 pandemic, as well as the implementation of real time energy management programs at certain of our properties in the ~~2017~~2020 period. ~~Real estate taxes increased $1,540~~

Other operating expenses. The decrease in other operating expenses primarily reflects a decrease in other operating expenses related to property dispositions of $7,565, a decrease of $359 for comparable properties and a decrease of $275 related to a property undergoing significant redevelopment, offset by an increase in other operating expenses related to acquired properties of $38. Other operating expenses for comparable properties decreased primarily due to lower snow removal costs, as well as lower cleaning and repairs and maintenance costs resulting from cost savings initiatives implemented by our manager, RMR LLC, in response to decreased space utilization at our properties as a result of the ~~acquired properties. We also realized a decrease of $27 in real estate taxes as a result of the disposed property.~~

~~Utility expenses.~~ ~~The increase in utility expenses reflects an increase in utility expenses for the acquired properties~~COVID-19 pandemic, partially offset by higher insurance costs in the ~~combined impact~~2020 period.

Depreciation and amortization. The decrease in depreciation and amortization primarily reflects a decrease related to property dispositions of ~~utility expense decreases at the~~$15,818, a decrease for comparable properties of $6,811 and a decrease related to a property undergoing significant redevelopment of $1,776, offset by an increase related to acquired properties of $84. Depreciation and amortization for comparable properties and the ~~disposed property. Utility expenses at the comparable properties decreased $101 primarily~~property undergoing significant redevelopment declined due to ~~a decrease in electricity usage at certain of our~~

~~properties during the 2017 period. Utility expenses increased $981 as a result of the acquired properties. We also realized a decrease of $24 in utility expenses as a result of the disposed property.~~

~~Other operating expenses.~~ The increase in other operating expenses reflects an increase in expenses for the comparable properties and the acquired properties partially offset by a decrease as a result of the disposed property. Other operating expenses at comparable properties increased $1,889 primarily as a result of higher repairs and maintenance costs during the 2017 period. Other operating expenses increased $2,149 as a result of the acquired properties. We also realized a decrease of $23 in other operating expenses as a result of the disposed property.

~~Depreciation and amortization.~~ The increase in depreciation and amortization reflects the depreciation and amortization from the acquired properties and the effect of improvements made to certain of our properties since January 1, 2016, partially offset by the effect of certain assets becoming fully depreciated. Depreciation and amortization increased $5,974 as a result of the acquired properties. Depreciation and amortization at comparable properties increased $1,262 due primarily to depreciation and amortization of improvements made to certain of our properties after January 1, 2016, partially offset by certain leasing related assets becoming fully depreciated in ~~2016 and 2017.~~ the 2020 period.

Loss on impairment of real estate. We In the 2019 period, we recorded a ~~$230~~$5,137 loss on impairment of real estate ~~in the 2017 period~~ to reduce the carrying value of one property ~~(one building)~~ to its estimated fair ~~value.~~value less costs to sell and a $447 loss on impairment of real estate related to the sale of a portfolio of 34 properties.

Acquisition and transaction related costs.Acquisition and transaction related costs ~~include legal and diligence~~in the 2019 period consists of post-merger activity costs incurred in 2019 in connection with our ~~2016 property~~ acquisition ~~activities that were expensed~~of SIR on December 31, 2018 in ~~accordance with GAAP. Pursuant to changes in GAAP, beginning in 2017, we generally capitalize our asset acquisitions~~a merger transaction and other related ~~costs.~~transactions.

General and administrative.The ~~increase~~decrease in general and administrative expenses is primarily reflects a decrease in business management fees mostly as a result of ~~an increase in business management fees~~property sales during 2019 and 2020 and lower legal expenses.

Gain on sale of real estate. We recorded a $10,822 net gain on sale of real estate resulting from the sale of six properties during the 2020 period. We recorded a $22,075 gain on sale of real estate resulting from the sale of one property during the 2019 period.

Dividend income. Dividend income in the ~~2017 period.~~

~~Dividend income.~~ ~~Dividend income~~2019 period consists of ~~dividends~~distributions received ~~from~~in connection with our former investment in RMR Inc. that we sold on July 1, 2019.

Loss on equity securities. Loss on equity securities represents an unrealized loss in the 2019 period to adjust our former investment in RMR Inc. to its fair value.

Interest and other income. The increase in interest and other income is primarily due to a settlement we received resulting from a dispute with a vendor, partially offset by the ~~result~~effect of ~~higher~~lower cash balances invested in the ~~2017~~2020 period ~~due to our financing activities related~~compared to the ~~FPO Transaction.~~2019 period and lower returns on cash invested.

Interest expense. The ~~increase~~decrease in interest expense ~~reflects higher~~is primarily due to lower average outstanding debt balances in the 2020 period resulting from debt repayment activity in 2019 and ~~higher weighted average interest rates on borrowings~~2020, including the repayment of our term loans during 2019, the ~~2017 period compared to~~redemption of all $350,000 of our 3.75% senior unsecured notes in July 2019, the ~~2016~~redemption of all $400,000 of our 3.60% senior unsecured notes in January 2020 and the repayment of three mortgage notes with an aggregate principal balance of $112,552 in the 2020 period.

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Loss ~~(gain)~~ on early extinguishment of ~~debt~~.debt. We recorded a loss on early extinguishment of debt of ~~$1,715~~$3,839 in the ~~2017~~2020 period ~~in connection~~from prepayment fees incurred, the write off of unamortized discounts, premiums and debt issuance costs associated with the ~~termination~~prepayment of three mortgage notes and a loss on the ~~bridge loan facility. For more information, see Note 7~~settlement of a mortgage note receivable related to ~~our condensed consolidated financial statements included~~a property sold in ~~Part 1, Item 1 of this Quarterly Report on Form 10-Q.~~2016. We recorded a ~~net gain~~loss on early extinguishment of debt of ~~$104~~$485 in the ~~2016~~2019 period ~~in connection~~from the write off of debt issuance costs associated with the ~~prepayment~~repayment of ~~two mortgage notes.~~

Income tax expense. The ~~increase~~decrease in income tax expense reflects lower operating income in certain jurisdictions in the ~~2017~~2020 period ~~that is~~where we are subject to state income taxes.

Equity in ~~earnings~~net losses of investees.Equity in ~~earnings~~net losses of investees represents our proportionate share of earnings and losses from our investments in ~~SIR~~two unconsolidated joint ventures and, ~~AIC. The decrease~~ in the ~~2017~~2019 period, ~~is the result of a decline~~our investment in ~~SIR's net~~AIC.

Net income ~~for the 2017 period.~~

~~Gain on sale of property.~~ ~~Gain on sale of property represents the portion of the gain recognized from the sale of a property accounted for under the installment method during the 2016 period.~~

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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 Property NOI, funds from operations, or FFO, and normalized funds from operations, or Normalized FFO. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income ~~per common~~(loss) as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income (loss) as presented in our condensed consolidated statements of comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss). 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 Property 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.

Property Net Operating Income

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

The following table presents the reconciliation of net income (loss) to Property NOI for the three and six months ended June 30, 2020 and 2019.



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net income (loss)	$	1,299		$	(64,774	)	$	12,139		$	(30,755	)
Equity in net losses of investees	260			142			536			377
Income tax expense (benefit)	235			(130		)	274			353
Income before income tax expense (benefit) and equity in net losses of investees	1,794			(64,762		)	12,949			(30,025		)
Loss on early extinguishment of debt	557			71			3,839			485
Interest expense	25,205			35,348			52,364			72,481
Interest and other income	(30		)	(241		)	(736		)	(489		)
Loss on equity securities	—			66,135			—			44,007
Dividend income	—			(980		)	—			(1,960		)
(Gain) loss on sale of real estate	(66		)	17			(10,822		)	(22,075		)
General and administrative	7,204			8,744			14,313			17,467
Acquisition and transaction related costs	—			98			—			682
Loss on impairment of real estate	—			2,380			—			5,584
Depreciation and amortization	64,170			73,913			127,113			151,434
Property NOI	$	98,834		$	120,723		$	199,020		$	237,591

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Funds From Operations and Normalized Funds From Operations

We calculate FFO and Normalized FFO as shown below. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share ~~(basic~~of the real estate depreciation and ~~diluted) is higher primarily~~amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets, any gain or loss on sale of real estate and equity securities, as well as certain other adjustments currently not applicable to us. In calculating Normalized FFO, we adjust for the other items shown below 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 and Normalized FFO 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 ~~result~~REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, 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 and Normalized FFO differently than we do.

The following table presents the ~~higher~~

~~number~~reconciliation of ~~weighted average common shares outstanding~~net income (loss) to FFO and Normalized FFO for the ~~2017 period as result of our issuance of common shares in an underwritten public offering during the 2017 period.~~three and six months ended June 30, 2020 and 2019.



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net income (loss)	$	1,299		$	(64,774	)	$	12,139		$	(30,755	)
Add (less): Depreciation and amortization:
Consolidated properties	64,170			73,913			127,113			151,434
Unconsolidated joint venture properties	1,237			1,410			2,478			3,161
Loss on impairment of real estate	—			2,380			—			5,584
(Gain) loss on sale of real estate	(66		)	17			(10,822		)	(22,075		)
Loss on equity securities	—			66,135			—			44,007
FFO	66,640			79,081			130,908			151,356
Add (less): Acquisition and transaction related costs	—			98			—			682
Loss on early extinguishment of debt	557			71			3,839			485
Normalized FFO	$	67,197		$	79,250		$	134,747		$	152,523

FFO per common share (basic and diluted)	$	1.39		$	1.65		$	2.72		$	3.15
Normalized FFO per common share (basic and diluted)	$	1.40		$	1.65		$	2.80		$	3.17

LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources (dollar amounts in thousands)

Our principal sources of funds to meet operating and capital expenses, pay debt service obligations and ~~pay~~make distributions onto our ~~common shares~~shareholders are the operating cash flows we generate ~~as rental income~~ from our properties, ~~the distributions we receive~~net proceeds from ~~our investments in SIR and RMR Inc.~~property sales and borrowings under our revolving credit facility. We believe that these sources of funds will be sufficient to meet our operating and capital expenses, ~~and~~pay debt service obligations and ~~pay~~make distributions onto our ~~common shares~~shareholders for the next 12 months and for the foreseeable future thereafter. Our future cash flows from operating activities will depend primarily upon:

our ability to collect rent from our tenants;

•our ability to maintain or increase the occupancy of, and the rental rates at, our properties;

•our ability to control operating and capital expenses at our properties;

our ability to successfully sell properties that we market for sale; and

our ability to purchase additional properties which produce cash flows from operations in excess of our cost of acquisition capital and property operating ~~expenses;~~expenses and capital expenses.

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With $570,000 available under our ~~receipt~~revolving credit facility as of ~~distributions~~July 29, 2020 and only approximately $40,000 of debt maturities until 2022, we believe that we are well positioned to weather the present disruptions facing the real estate industry and the economy generally. As a result of the COVID-19 pandemic, we have received requests from some of our ~~investments~~tenants for rent assistance. As of July 27, 2020, we have granted temporary rent assistance totaling $2,475 to 23 tenants who represent approximately 3.7% of our annualized rental income as of June 30, 2020. This assistance generally entails a deferral of, in ~~SIR~~most cases, one month of rent until September 2020 when the deferred rent amounts will begin to be payable over a 12-month period. Our liquidity has been and ~~RMR Inc.~~will be temporarily impacted by these rent deferrals as follows: $446, $817, $959, $134, $59 and $59 of granted deferrals in April, May, June, July, August and September 2020, respectively, until these deferrals begin to become obligated to be repaid. In addition, we also anticipate that our general and administrative expenses will be reduced because of the lower fees we will pay to our manager as a result of the decline in our share price since the COVID-19 pandemic began. Although some of our tenants have sought temporary rent assistance, we also believe that overall tenant retention levels may increase. Also, we believe we will benefit from the approximately 62.8% of our annualized rental income as of June 30, 2020 paid by investment grade tenants, the majority of which is made up of government tenants, and the diversity of our tenant base, both geographically and by industry, which may help mitigate the economic impact of the COVID-19 pandemic.

On July 16, 2020, we announced a regular quarterly cash distribution of $0.55 per common share ($2.20 per common share per year), maintaining our previous distribution rate. At this time, we continue to expect that the quarterly distribution rate will remain unchanged for 2020. We determine our distribution payout ratio with consideration for our expected capital expenditures as well as cash flows from operations and debt obligations.

In early 2020, we completed our previously announced disposition program and transitioned to a capital recycling program through which we expect to accretively grow our property portfolio. Pursuant to our capital recycling program, we plan to sell certain properties from time to time to fund future acquisitions and to maintain leverage consistent with our current investment grade ratings with a goal of (1) improving the asset quality of our portfolio by reducing the average age of our properties, lengthening the weighted average term of our leases and increasing the likelihood of retaining our tenants and (2) increasing our cash available for distribution. During the six months ended June 30, 2020, we sold six properties for $85,363, excluding closing costs. In July 2020, we entered into an agreement to sell a four property business park for $25,400, excluding closing costs, and an agreement to purchase an office property for $38,100, excluding acquisition related costs, as part of this program. These transactions are expected to occur before the end of the third quarter. However, these transactions are subject to conditions; accordingly, we cannot be sure that we will complete these transactions or that these transactions will not be delayed or the terms will not change. Given the current economic conditions, we are carefully considering our capital allocation strategy and believe we are well positioned to opportunistically recycle and deploy capital in 2020.

Our future purchases of properties cannot be accurately projected because such purchases depend upon purchase opportunities which come to our attention and our ability to successfully complete the acquisitions. We generally do not intend to purchase “turn around” properties, or properties which do not generate positive cash flows.

Our changes in cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to the same period in ~~2016~~2019 were as follows: (i) cash flows provided by operating activities increased from ~~$91,674~~$107,790 in ~~2016~~the 2019 period to ~~$93,726~~$111,190 in the ~~2017~~2020 period; (ii) cash ~~used in~~flows provided by investing activities ~~increased~~decreased from ~~$94,848~~$268,880 in the ~~2016~~2019 period to ~~$662,318~~$40,934 in the ~~2017~~2020 period; and (iii) cash ~~provided by~~flows used in financing activities ~~increased~~decreased from ~~$8,138~~$390,928 in the ~~2016~~2019 period to ~~$1,090,358~~$222,719 in the ~~2017~~2020 period.

The increase in cash provided by operating activities for the ~~nine month~~2020 period ~~ended September 30, 2017~~ as compared to the ~~corresponding prior year~~2019 period was ~~due primarily to an increase in property NOI from our acquisition activities and~~a result of favorable changes in working capital ~~partially offset by a~~in the 2020 period compared to the 2019 period. The decrease in ~~distributions we~~cash provided by investing activities in the 2020 period as compared to the 2019 period is primarily due to lower cash proceeds received from our ~~investment in SIR classified as an operating activity as a result~~sales of ~~a decrease in our equity in earnings of SIR and an increase in interest paid~~properties in the ~~2017~~2020 period compared to the 2019 period and higher real estate acquisition and improvement activities in the 2020 period. The ~~increase~~decrease in cash used in ~~investing~~financing activities ~~for~~in the ~~nine month~~2020 period ~~ended September 30, 2017~~ as compared to the ~~corresponding prior year~~2019 period ~~was~~is primarily due primarily to our deposit in escrow of some of the FPO Transaction cash consideration. The increase in cash provided by financing activities for the nine month period ended September 30, 2017 as compared to the ~~corresponding prior year period was due primarily to~~issuance of $150,000 of our ~~FPO Transaction related financing activities during the 2017 period, including issuances of common shares and~~6.375% senior unsecured notes due 2050 in the 2020 period and a decrease in net debt repayment activity, due to repayments of our unsecured term loans and net repayment activity on our revolving credit facility using cash on hand and proceeds from sales of properties in the 2019 period compared to increased borrowings under our revolving credit ~~facility.~~

facility in the 2020 period in order to facilitate the repayment of other debts, including the redemption of all $400,000 of our 3.60% senior unsecured notes in January 2020.

Our Investment and Financing Liquidity and Resources (dollar amounts in thousands, except per share and per square foot amounts)

In order to fund acquisitions and to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $750,000 ~~unsecured~~ revolving credit facility. The maturity date of our revolving credit facility is January 31, ~~2019~~2023 and, subject to our payment of an extension fee and meeting certain other conditions, we have anthe option to extend the stated maturity date of our revolving credit facility by ~~one year to January 31, 2020.~~two additional six month periods. We can borrow,

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repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. We are required to pay interest at a rate of LIBOR plus a premium, which was ~~125~~110 basis points per annum at ~~September~~June 30, ~~2017,~~2020, on the amount outstanding under our revolving credit facility. We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at ~~September~~June 30, ~~2017.~~2020. Both the interest rate premium and ~~the~~ facility fee are subject to adjustment based upon changes to our credit ratings. ~~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 ~~September~~June 30, ~~2017,~~2020, the annual interest rate payable on borrowings under our revolving credit facility was ~~2.4%~~1.2%. As of ~~September~~June 30, ~~2017~~2020 and ~~October 30, 2017,~~July 29, 2020, we had ~~$565,000~~$200,000 and ~~$545,000,~~$180,000, respectively, outstanding under our revolving credit ~~facility.~~

~~Our~~facility, and $550,000 and $570,000, respectively, available for borrowing under our revolving credit ~~facility is governed by a credit agreement with a syndicate of institutional lenders, which also governs our two unsecured term loans:~~

Our $300,000 term loan, which matures on March 31, 2020, is prepayable without penalty at any time. We are required to pay interest at LIBOR plus a premium, which was 140 basis points per annum at September 30, 2017, on the amount outstanding under our $300,000 term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of September 30, 2017, the annual interest rate for the amount outstanding under our $300,000 term loan was 2.6%.

Our $250,000 term loan, which matures on March 31, 2022, is prepayable without penalty at any time. We are required to pay interest at LIBOR plus a premium, which was 180 basis points per annum at September 30, 2017, on the amount outstanding under our $250,000 term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of September 30, 2017, the annual interest rate for the amount outstanding under our $250,000 term loan was 3.0%.

facility.

Our credit agreement ~~also~~ includes a feature under which the maximum borrowing availability may be increased to up to ~~$2,500,000 on a combined basis~~$1,950,000 in certain circumstances.

Our credit agreement ~~for our revolving credit facility and term loans~~ provides that, with certain exceptions, a subsidiary of ours is required to guaranty our obligations under ~~the~~our $750,000 revolving credit facility ~~and term loans~~ only if that subsidiary has separately incurred debt (other than nonrecourse debt), within the meaning specified in ~~the~~our credit agreement, or provided a guarantee of debt incurred by us or any of our other subsidiaries.

In January 2020, we redeemed, at par plus accrued interest, all $400,000 of our 3.60% senior unsecured notes that had a maturity date in February 2020 using cash on hand, proceeds from property sales and borrowings under our revolving credit facility.

~~Our $350,000~~In March 2020, in connection with the sale of ~~3.75%~~one property in Fairfax, VA, we prepaid, at a premium plus accrued interest, a mortgage note secured by that property with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021.

Also in March 2020, we prepaid, at a premium plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $66,780, an annual interest rate of 4.0% and a maturity date in September 2030 using cash on hand and borrowings under our revolving credit facility.

In June 2020, we issued $150,000 of our 6.375% senior unsecured notes due ~~2019 are governed by~~2050 in an ~~indenture~~underwritten public offering, raising net proceeds of $144,772, after deducting underwriters’ discounts and estimated offering expenses. In connection with this offering, we granted the underwriters a ~~supplement~~30 day option to ~~that indenture~~purchase up to an additional $22,500 aggregate principal amount of these notes. In July 2020, the underwriters partially exercised this option for an additional $12,000 of these notes. We used the aggregate net proceeds from this offering to repay amounts outstanding under our revolving credit facility and require semi-annual payments of interest only through maturity in August 2019 and may be repaid at par (plus accrued and unpaid interest) on or after July 15, 2019 or before that date together with a make whole premium.

~~Our $310,000 of 5.875% senior unsecured~~for general business purposes. These notes ~~due 2046 are governed by an indenture and a supplement to that indenture and~~ require quarterly payments of interest only through maturity and may be repaid at par (plus accrued and unpaid interest) on or after ~~May 26, 2021.~~June 23, 2025.

~~Our $300,000 of 4.000% senior unsecured notes due 2022 are governed by an indenture and a supplement~~In addition, in August 2020, we plan to ~~that indenture and require semi-annual payments of interest only through~~repay at maturity, ~~in July 2022 and may be repaid~~ at par ~~(plus~~plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $39,635 and ~~unpaid interest)~~an annual interest rate of 2.2% using cash on ~~or after June 15, 2022.~~

hand and borrowings under our revolving credit facility.

As of ~~September~~June 30, ~~2017,~~2020, our debt maturities (other than our revolving credit facility), consisting of senior unsecured notes and mortgage notes, are as follows: ~~$399 in 2017, $1,671 in 2018, $359,439 in 2019, $301,619 in 2020, $13,230 in 2021 and $860,000 thereafter.~~



Year	Debt Maturities
2020	$	40,953
2021	1,541
2022	625,518
2023	143,784
2024	350,000
2025 and thereafter	860,000
Total	$	2,021,796

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None of our unsecured debt obligations require sinking fund payments prior to their maturity dates. Our ~~$26,358~~$211,796 in mortgage debts, generally require monthly payments of principal and interest through maturity.

In addition to our debt obligations, as of ~~September~~June 30, ~~2017,~~2020, we have estimated unspent leasing related obligations of ~~$26,631 and have committed to redevelop and expand an existing property prior to the commencement of the lease with an estimated remaining cost to complete of approximately $3,302.~~

~~As of September 30, 2017, we had $551,707 of cash and cash equivalents. On October 2, 2017, we used our available cash on hand to fund some of the FPO Transaction cash consideration.~~

In connection with the FPO Transaction, we assumed five mortgage notes with an aggregate principal balance of $167,549. These mortgage notes are secured by five properties (five buildings). In connection with the FPO Transaction, we also assumed two mortgage notes with an aggregate principal balance of $82,000, which are secured by two properties owned by joint ventures in which we acquired FPO's 50% and 51%interests.

$61,720.

We currently expect to use cash balances, borrowings under our revolving credit facility, net proceeds from ~~our~~ property sales, ~~distributions received from our investments in SIR and RMR Inc., assumption~~incurrences or assumptions of mortgage debt and net proceeds from offerings of ~~equity~~debt or ~~debt~~equity securities to fund our future operations, capital expenditures, distributions to our shareholders and property acquisitions. When significant amounts are outstanding under our revolving credit facility or the maturities of our indebtedness approach, we expect to explore refinancing alternatives. Such alternatives may include incurring ~~additional~~ term debt, issuing ~~equity~~debt or ~~debt~~equity securities, extending the maturity date of our revolving credit facility and entering into a new

revolving credit facility. We may assume additional mortgage debt in connection with our acquisitions or elect to place new mortgages on properties we own as a source of financing. We may also seek to participate in additional joint venture or other arrangements that may provide us with additional sources of financing. Although we cannot be sure that we will be successful in consummating any particular type of financing, we believe that we will have access to financing, such as debt and equity offerings, to fund future acquisitions and capital expenditures and to pay our obligations. We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.

To partially finance the FPO Transaction, we entered into a commitment letter with Citigroup Global Markets Inc., or Citigroup, pursuant to which, on and subject to the terms and conditions of the commitment letter, Citigroup and a group of institutional lenders committed to provide us a bridge loan facility. On July 20, 2017, we and the lenders terminated this commitment letter and bridge loan facility after we raised the necessary funding for the FPO Transaction by our issuance of senior unsecured notes and the proceeds from the sale of our common shares in July 2017. As a result of the termination of this bridge loan facility we recognized a loss on extinguishment of debt of $1,715.

Our ability to obtain, and the costs of, our future debt financings will depend primarily on credit market conditions and our creditworthiness. We have no control over market conditions. Potential investors and lenders likely will evaluate our ability to pay distributions to shareholders, fund required debt service and repay debts when they become due by reviewing our business practices and plans to balance our use of debt and equity capital so that our financial profile and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. Similarly, our ability to raise equity capital in the future will depend primarily upon equity capital market conditions and our ability to conduct our business to maintain and grow our operating cash flows. We intend to conduct our business in a manner ~~which~~that will afford us reasonable access to capital for investment and financing activities, but we cannot be sure that we will be able to successfully carry out this intention.

~~In June 2017, both Moody's Investors Service, or Moody's,~~ For instance, it is uncertain what the duration and ~~Standard & Poor's Ratings Services, or S&P, updated our ratings outlook to negative as a result~~severity of ~~uncertainties arising~~the current economic impact resulting from the ~~FPO Transaction. Negative outlooks~~COVID-19 pandemic will be. A protracted and extensive economic recession may ~~imply that~~cause a decline in financing availability and increased costs for financings. Further, such conditions could also disrupt capital markets and limit our ~~debt ratings may be downgraded unless we are successful in reorganizing our financial profile.~~access to financing from public sources.

~~On February 23, 2017 and May 22, 2017,~~During the six months ended June 30, 2020, we paid ~~a regular~~ quarterly ~~distribution~~distributions to our common shareholders of record on January 23, 2017 and April 21, 2017, of $0.43 per share, or $30,606 on each of those dates. On August 21, 2017, we paid a regular distribution to common shareholders of record on July 24, 2017, of $0.43 per share, or $41,364. We funded these distributionstotaling $53,021 using cash on hand and borrowings under our revolving credit facility. On ~~October 12, 2017,~~July 16, 2020, we declared a regular quarterly distribution payable to common shareholders of record on ~~October 23, 2017~~July 27, 2020 of ~~$0.43~~$0.55 per share, or ~~$42,633.~~approximately $26,500. We expect to pay this distribution on or about ~~November~~August 20, ~~2017~~2020 using cash on hand and borrowings under our revolving credit facility.

For more information regarding the distributions we paid during 2020, see Note 9 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Off Balance Sheet Arrangements (dollars in thousands)

AsWe own 51% and 50% interests in two unconsolidated joint ventures which own three properties. The properties owned by these joint ventures are encumbered by an aggregate $82,000 principal amount of ~~September~~mortgage indebtedness. We do not control the activities that are most significant to these joint ventures and, as a result, we account for our investments in these joint ventures under the equity method of accounting. For more information on the financial condition and results of operations of these joint ventures, see Note 4 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Other than these joint ventures, as of June 30, ~~2017,~~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 ~~September~~June 30, ~~2017~~2020 consisted of borrowings under our $750,000 ~~unsecured~~ revolving credit facility, ~~our $300,000 term loan, our $250,000 term loan,~~ an aggregate outstanding principal ~~amount~~balance of ~~$960,000~~$1,810,000 of public issuances of senior unsecured notes and ~~three secured~~ mortgage notes with an aggregate outstanding principal balance of $211,796, that were assumed in connection with certain of our acquisitions. Also, the three properties owned by two joint ventures in which we own 51% and 50% interests secure two additional mortgage notes. Our publicly issued senior unsecured notes are governed by indentures and their supplements. In addition, as noted elsewhere in this Quarterly Report on Form 10-Q, on October 2, 2017, we assumed five secured mortgage notes in connection with the FPO Transaction. Also, the two joint venture properties acquired in the FPO Transaction secure two additional mortgage notes. Our credit agreement and our senior unsecured notes indentures and their supplements ~~and the credit agreement for our revolving credit facility and our two term loans~~ provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes ~~the RMR Group LLC, or~~ RMR LLC ceasing to act as our business and property manager. Our credit agreement and our senior unsecured notes indentures and their supplements ~~and our credit agreement~~ also contain a number of covenants, ~~which generally~~including those that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, require us to ~~maintain various~~

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comply with certain financial ~~ratios,~~covenants and, in the case of our credit agreement, restrict our ability to make distributions to our shareholders inunder certain circumstances. ~~Our mortgage notes are non-recourse, subject to certain limited exceptions, and do not contain any material financial covenants.~~ As of ~~September~~June 30, ~~2017,~~2020, we believe we were in compliance with the terms and conditions of our respective covenants under our credit agreement and senior unsecured notes indentures and their supplements. Our mortgage notes are non-recourse, subject to certain limited exceptions, and do not contain any material financial covenants.

Neither our credit agreement nor our senior unsecured notes indentures and their supplements contain provisions for acceleration which could be triggered by our ~~debt~~credit ratings. However, under our credit agreement our highest senior ~~debt~~credit rating is used to determine the fees and interest rates we pay. Accordingly, if that ~~debt~~credit rating is downgraded, our interest expense and related costs under our credit agreement would increase. As noted above, in June 2017, both Moody's and S&P updated our rating outlook to negative, which may imply that downgrades to our credit rating will occur unless we are successful in reorganizing our financial profile.

Our credit agreement 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. Similarly, our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $25,000 (or up to $50,000 in certain circumstances).

Related Person Transactions

We have relationships and historical and continuing transactions with RMR LLC, RMR Inc.~~, SIR, AIC~~ 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 owned by our Managing Trustees,~~ is the controlling shareholder of RMR Inc.;, a managing director, the president and ~~we own shares of class A common stock~~chief executive officer of RMR Inc. and an officer and employee of RMR LLC; David Blackman, 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 ~~also~~ have relationships and historical and continuing transactions with other companies to which RMR LLC ~~provides~~or its subsidiaries provide management services and some of which ~~may~~ have trustees, directors ~~and~~or officers who are also trustees, directors or officers of us, RMR LLC or RMR Inc.~~, including: SIR,~~ and some of ~~which we are the largest shareholder, owning, at September 30, 2017, approximately 27.8%~~our Trustees and officers serve as trustees, directors or officers of the outstanding SIR common shares; and AIC, of which we, SIR, ABP Trust and four other companies to which RMR LLC provides management services each own 14.3% and which arranges and reinsures in part a combined property insurance program for us and its six other shareholders. these companies.

For ~~further~~more information about these and other such relationships and related person transactions, see Notes 10 and 11 ~~and 12~~ to ~~our condensed consolidated financial statements~~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 ~~2017~~2020 Annual Meeting of Shareholders and our other filings with the ~~Securities and Exchange Commission, or~~ 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 shareholders agreement with AIC and its six other shareholders,~~ are available as exhibits to our public filings with the SEC and accessible at the SEC’s website, ~~www.sec.gov~~.www.sec.gov. We may engage in additional transactions with related persons, including businesses to which RMR LLC or its ~~affiliates~~subsidiaries provide management services.

Item 3. Quantitative and Qualitative Disclosures About Market Risk(dollar amounts 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 has not materially changed since December 31, ~~2016.~~2019. Other than as described below, we do not currently foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.

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Fixed Rate Debt

At ~~September~~June 30, ~~2017,~~2020, our outstanding fixed rate debt consisted of the following:


			Annual		Annual			Interest
	Principal		Interest		Interest			Payments
Debt	Balance ⁽¹⁾		Rate ⁽¹⁾		Expense ⁽¹⁾		Maturity	Due	Principal Balance ⁽¹⁾		Annual Interest Rate ⁽¹⁾	Annual Interest Expense ⁽¹⁾		Maturity	Interest Payments Due
Senior unsecured notes	$	350,000	3.750	%	$	13,125	2019	Semi-annually	$	300,000	4.150%	$	12,450	2022	Semi-annually
Senior unsecured notes	310,000		5.875	%	18,213		2046	Quarterly	300,000		4.000%	12,000		2022	Semi-annually
Senior unsecured notes	300,000		4.000	%	12,000		2022	Semi-annually	350,000		4.250%	14,875		2024	Semi-annually
Mortgage note	13,756		5.877	%	820		2021	Monthly
Mortgage note	8,288		7.000	%	588		2019	Monthly
Mortgage note	4,314		8.150	%	356		2021	Monthly
	$	986,358			$	45,102
Senior unsecured notes									400,000		4.500%	18,000		2025	Semi-annually
Senior unsecured notes									310,000		5.875%	18,213		2046	Quarterly
Senior unsecured notes ⁽²⁾									150,000		6.375%	9,563		2050	Quarterly
Mortgage note (one property in Philadelphia, PA)									39,698		2.173%	863		2020	Monthly
Mortgage note (one property in Lakewood, CO)									1,030		8.150%	84		2021	Monthly
Mortgage note (one property in Washington, D.C.)									26,167		4.220%	1,104		2022	Monthly
Mortgage note (three properties in Seattle, WA)									71,000		3.550%	2,521		2023	Monthly
Mortgage note (one property in Chicago, IL)									50,000		3.700%	1,850		2023	Monthly
Mortgage note (one property in Washington, D.C.)									23,901		4.800%	1,147		2023	Monthly
Total									$	2,021,796		$	92,670

(1)

The principal balances and interest rates are the amounts stated in the applicable contracts. In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we issued or assumed these debts. For more information, see Notes 7 and 8 to ~~our condensed consolidated financial statements~~the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.


(2)	In July 2020, we issued an additional $12,000 of these senior unsecured notes in connection with the underwriters partial exercise of their option to purchase additional notes.

Our ~~$350,000 and $300,000~~ senior unsecured notes require semi-annual ~~interest payments through maturity and our $310,000 senior unsecured notes require~~or quarterly interest payments through maturity. Our mortgages generally require principal and interest payments through maturity pursuant to amortization schedules. Because these debts require interest to be paid at a fixed rate, changes in market interest rates during the term of these debts will not affect our interest obligations. If these debts were refinanced at interest rates which are ~~100 basis points~~one percentage point higher or lower than shown above, our ~~per annum~~annual interest cost would increase or decrease ~~respectively,~~ by approximately ~~$10,098.~~

$20,218.

Changes in market interest rates also 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 ~~September~~June 30, ~~2017,~~2020, and discounted cash flow analyses through the respective maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligations, a hypothetical immediate ~~100 basis~~one percentage point increase in interest rates would change the fair value of those obligations by approximately ~~$59,302.~~

$96,698.

Some of our fixed rate secured debt arrangements allow us to make repayments earlier than the stated maturity date. In some cases, we are not allowed to make early repayment prior to a cutoff date and we are generally allowed to make prepayments only at a premium equal to a make whole amount, as defined, which is generally designed to preserve a stated yield to the note holder. These prepayment rights may afford us opportunities to mitigate the risk of refinancing our debts at maturity at higher rates by refinancing prior to maturity.

~~On October 2, 2017,~~At June 30, 2020, we owned 51% and 50% interests in ~~connection with the FPO Transaction, we assumed~~two joint venture arrangements which own three properties that are secured by fixed rate debt consisting 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 (one building) in Washington, DC) $ 66,780
4.050 % $ 2,705
2030 Monthly
Mortgage note (one property (one building) in Washington, DC) 34,974
4.800 % 1,679
2023 Monthly
Mortgage note (one property (one building) in Washington, DC) 34,598
�� 5.720 % 1,979
2020 Monthly
Mortgage note (one property (one building) in Washington, DC) 27,978
4.220 % 1,181
2022 Monthly
Mortgage note (one property (one building) in Chesapeake, VA) 3,219
4.260 % 137
2020 Monthly
$ 167,549
$ 7,681



Debt	Our JV Ownership Interest	Principal Balance ⁽¹⁾⁽²⁾		Annual Interest Rate ⁽¹⁾	Annual Interest Expense ⁽¹⁾		Maturity	Interest Payments Due
Mortgage note (two properties in Fairfax, VA)	51%	$	50,000	4.09%	$	2,045	2029	Monthly
Mortgage note (one property in Washington, D.C.)	50%	32,000		3.69%	1,181		2024	Monthly
Total		$	82,000		$	3,226


(1)	The principal ~~balance, annual~~balances and interest ~~rate and annual interest expense~~rates are the amounts stated in the applicable ~~contract.~~contracts. In accordance with GAAP, ~~our carrying value and~~the joint ventures’ recorded interest expense may differ from these amounts because of market conditions at the time ~~we assumed this~~they incurred the debt.

Also, in connection with the FPO Transaction, we acquired FPO's 50% and 51% interests in two joint venture arrangements which own properties that are secured by fixed rate debt consisting of the following mortgage notes, which we assumed:

Our JV Annual Annual Interest
Ownership Principal Interest Interest Payments
Debt Interest
Balance⁽¹⁾⁽²⁾

Rate⁽¹⁾

Expense⁽¹⁾
Maturity Due
Mortgage note (one property) one building in Washington, DC 50% $ 32,000
3.920 % $ 1,254
2024 Monthly
Mortgage note (one property) one building in Fairfax, VA 51% 50,000
3.910 % 1,955
2029 Monthly
$ 82,000
$ 3,209


~~(1)~~	The principal balance, annual interest rate and annual interest expense are the amounts stated in the applicable contract. In accordance with GAAP, our recorded interest expense may differ from these amounts because of market conditions at the time we acquired the joint venture interests.


(2)	Reflects the entire balance of the debt secured by the properties and is not adjusted to reflect the ~~part of~~interests in the joint ~~venture arrangement interests~~ventures we do not own.

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Floating Rate Debt

At ~~September~~June 30, ~~2017,~~2020, our floating rate debt consisted of ~~$565,000~~$200,000 of borrowings under our $750,000 revolving credit ~~facility, our $300,000 term loan and our $250,000 term loan.~~facility. Our revolving credit facility matures inon January ~~2019~~31, 2023 and, subject to the payment of an extension fee and ~~our~~ meeting certain other conditions, we have the option to extend the stated maturity by ~~one year to January 2020.~~two six month periods. No principal repayments are required under our revolving credit facility ~~or our term loans~~ prior to maturity, and we can borrow, repay and reborrow funds available under our revolving credit facility, subject to conditions, at any time without penalty. Our $300,000 term loan matures on March 31, 2020. Our $250,000 term loan matures on March 31, 2022. Amounts outstanding under our term loans may be repaid without penalty at any time, but after they are repaid amounts may not be redrawn.

Borrowings under our $750,000 revolving credit facility ~~and term loans~~ are in U.S. dollars and require interest to be paid at a rate of LIBOR plus premiums that are subject to adjustment based upon changes to our credit ratings. Accordingly, we are vulnerable to changes in U.S. dollar based short term rates, specifically ~~LIBOR.~~LIBOR, and to changes in our credit ratings. In addition, upon renewal or refinancing of our revolving credit facility, ~~or term loans,~~ we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit characteristics. Generally, a change in interest rates would not affect the value of our floating rate debt but would affect our operating results.

Impact of Changes in Interest Rates
Annual Outstanding Total Interest Annual Earnings

Interest Rate ⁽¹⁾
Debt Expense Per Year
Per Share Impact ⁽²⁾
At September 30, 2017 2.6 % $ 1,115,000
$ 29,393
$ 0.37
100 bps increase 3.6 % $ 1,115,000
$ 40,698
$ 0.51



	Impact of Changes in Interest Rates
	Annual Interest Rate ⁽¹⁾		Outstanding Debt		Total Interest Expense Per Year		Annual Earnings Per Share Impact ⁽²⁾
At June 30, 2020	1.2	%	$	200,000	$	2,400	$	0.05
One percentage point increase	2.2	%	$	200,000	$	4,400	$	0.09


(1)	Weighted based on the ~~respective~~ interest ~~rates~~rate and outstanding borrowings under our revolving credit facility ~~and term loans~~ as of ~~September~~June 30, ~~2017.~~2020.


(2)	Based on the weighted average shares outstanding (diluted) for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020.

The following table presents the impact a ~~100 basis~~one percentage point increase in interest rates would have on our annual floating rate interest expense as of ~~September~~June 30, ~~2017~~2020 if we were fully drawn on our revolving credit ~~facility and our term loans remained outstanding:~~facility:

Impact of Changes in Interest Rates
Annual Outstanding Total Interest Annual Earnings

Interest Rate ⁽¹⁾
Debt Expense Per Year
Per Share Impact ⁽²⁾
At September 30, 2017 2.6 % $ 1,300,000
$ 34,269
$ 0.43
100 bps increase 3.6 % $ 1,300,000
$ 47,450
$ 0.59



	Impact of an Increase in Interest Rates
	Annual Interest Rate ⁽¹⁾		Outstanding Debt		Total Interest Expense Per Year		Annual Earnings Per Share Impact ⁽²⁾
At June 30, 2020	1.2	%	$	750,000	$	9,000	$	0.19
One percentage point increase	2.2	%	$	750,000	$	16,500	$	0.34


(1)	Weighted based on the ~~respective~~ interest ~~rates~~rate and outstanding borrowings under our revolving credit facility ~~(assuming fully drawn) and our term loans~~ as of ~~September~~June 30, ~~2017.~~2020.


(2)	Based on the weighted average shares outstanding (diluted) for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020.

The foregoing tables show the impact of an immediate ~~change~~increase in floating interest rates as of ~~September~~June 30, ~~2017.~~2020. If interest rates were to ~~change~~increase 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 amount under our revolving credit facility ~~our term loans~~ or our other floating rate debt, if any. Although we have no present plans to do so, we may in the future enter into hedge arrangements from time to time to mitigate our exposure to changes in interest rates.

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 a floating rate 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.

Item 4. Controls and Procedures

As of the end of the period covered by this ~~report,~~Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our ~~Managing Trustees, our~~ President and Chief ~~Operating~~Executive Officer and our Chief Financial Officer

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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 ~~Managing Trustees, our~~ President and Chief ~~Operating~~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 ~~September~~June 30, ~~2017~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~WARNING CONCERNING FORWARD LOOKING STATEMENTS~~Warning Concerning Forward-Looking Statements

~~THIS QUARTERLY REPORT ON FORM~~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~~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”~~and other securities laws. Also, whenever we use words such as “believe”, ~~“EXPECT”~~“expect”, ~~“ANTICIPATE”~~“anticipate”, ~~“INTEND”~~“intend”, ~~“PLAN”~~“plan”, ~~“ESTIMATE”~~“estimate”, ~~“WILL”~~“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 REPORT RELATE TO VARIOUS ASPECTS OF OUR BUSINESS, INCLUDING:“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 impact resulting from the COVID-19 pandemic and its impact on us and our tenants,

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,

Our expectations about the financial strength of our tenants,

Our expectations that the diversity and other characteristics of our property portfolio and our financial resources will result in our ability to successfully withstand the current economic conditions,

Our sales and acquisitions of properties,

Our ability to compete for acquisitions and tenancies effectively,

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

The likelihood that our tenants will renew or extend their leases and not exercise early termination options pursuant to their leases or that we will obtain replacement tenants on terms as favorable to us as our prior leases,

The likelihood that our rents will increase when we renew or extend our leases or enter new leases,

The expectation that, as a result of the COVID-19 pandemic, leasing activity may continue to slow, but overall tenant retention levels may increase,

Our belief that we are in a position to opportunistically recycle and deploy capital during 2020,

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

Our expectations regarding our future financial performance including FFO, Normalized FFO, Property NOI, and cash basis NOI,

Our policies and plans regarding investments, financings and dispositions,

Our expectations regarding occupancy at our properties,

The future availability of borrowings under our revolving credit facility,

Our expectation that there will be opportunities for us to acquire, and that we will acquire, additional properties primarily leased to single tenants and tenants with high credit quality characteristics like government entities,

Our expectations regarding demand for leased space,

Our expectations regarding capital expenditures,

Our ability to raise debt or equity capital,

~~OUR ACQUISITIONS AND SALES OF PROPERTIES,~~40

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~~OUR ABILITY TO COMPETE FOR ACQUISITIONS AND TENANCIES EFFECTIVELY,~~

~~THE LIKELIHOOD THAT OUR TENANTS WILL PAY RENT OR BE NEGATIVELY AFFECTED BY CYCLICAL ECONOMIC CONDITIONS OR GOVERNMENT BUDGET CONSTRAINTS,~~Our ability to pay interest on and principal of our debt,

~~THE LIKELIHOOD THAT OUR TENANTS WILL RENEW OR EXTEND THEIR LEASES AND NOT EXERCISE EARLY TERMINATION OPTIONS PURSUANT TO THEIR LEASES OR THAT WE WILL OBTAIN REPLACEMENT TENANTS,~~Our ability to appropriately balance our use of debt and equity capital,

~~THE LIKELIHOOD THAT OUR RENTS WILL INCREASE WHEN WE RENEW OR EXTEND OUR LEASES OR ENTER NEW LEASES,~~Our ability to successfully execute our capital recycling program,

~~OUR ABILITY TO PAY DISTRIBUTIONS TO OUR SHAREHOLDERS AND THE AMOUNT OF SUCH DISTRIBUTIONS,~~Our ability to maintain sufficient liquidity during the duration of the COVID-19 pandemic and resulting economic downturn,

~~OUR EXPECTATION THAT WE BENEFIT FINANCIALLY FROM OUR OWNERSHIP INTEREST IN SIR,~~Our credit ratings,

~~OUR POLICIES AND PLANS REGARDING INVESTMENTS, FINANCINGS AND DISPOSITIONS,~~

~~THE FUTURE AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY,~~

OUR EXPECTATION THAT THERE WILL BE OPPORTUNITIES FOR US TO ACQUIRE, AND THAT WE WILL ACQUIRE, ADDITIONAL PROPERTIES INCLUDING PROPERTIES THAT ARE MAJORITY LEASED TO GOVERNMENT TENANTS OR GOVERNMENT CONTRACTOR TENANTS,

~~OUR EXPECTATIONS REGARDING DEMAND FOR LEASED SPACE BY THE U.S. GOVERNMENT AND STATE AND LOCAL GOVERNMENTS,~~

~~OUR ABILITY TO RAISE EQUITY OR DEBT 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 CREDIT RATINGS,~~

~~OUR EXPECTED BENEFITS FROM THE FPO TRANSACTION,~~

~~OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP OF~~Our expectation that we benefit from our relationships with RMR ~~INC.~~LLC and RMR Inc.,

~~OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP OF AIC AND FROM OUR PARTICIPATION IN INSURANCE PROGRAMS ARRANGED BY AIC,~~The credit qualities of our tenants,

~~THE CREDIT QUALITIES OF OUR TENANTS,~~Our qualification for taxation as a REIT,

~~OUR QUALIFICATION FOR TAXATION AS A REIT, AND~~Changes in federal or state tax laws, and

~~OTHER MATTERS.~~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, Normalized FFO, Property 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,

OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FORWARD LOOKING STATEMENTS AND UPON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION, FFO, NORMALIZED FFO, NOI, CASH FLOWS, LIQUIDITY AND PROSPECTS INCLUDE, BUT ARE NOT LIMITED TO: Competition within the real estate industry, particularly in those markets in which our properties are located,

~~THE IMPACT OF CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS ON US AND OUR TENANTS,~~The impact of changes in the real estate needs and financial conditions of our tenants,

~~COMPETITION WITHIN THE REAL ESTATE INDUSTRY, PARTICULARLY WITH RESPECT TO THOSE MARKETS IN WHICH OUR PROPERTIES ARE LOCATED AND WITH RESPECT TO GOVERNMENT TENANCIES,~~Compliance with, and changes to, federal, state and local laws and regulations, accounting rules, tax laws and similar matters,

~~THE IMPACT OF CHANGES IN THE REAL ESTATE NEEDS AND FINANCIAL CONDITIONS OF THE~~The impact of any U.S. ~~GOVERNMENT AND STATE AND LOCAL GOVERNMENTS,~~government shutdown on our ability to collect rents or pay our operating expenses, debt obligations and distributions to shareholders on a timely basis,

~~COMPLIANCE WITH, AND CHANGES TO, FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS, ACCOUNTING RULES, TAX LAWS AND SIMILAR MATTERS,~~

~~ACTUAL AND POTENTIAL CONFLICTS OF INTEREST WITH OUR RELATED PARTIES, INCLUDING OUR MANAGING TRUSTEES,~~Actual and potential conflicts of interest with our related parties, including our Managing Trustees, RMR LLC, RMR ~~INC.~~Inc., ~~SIR, AIC AND OTHERS AFFILIATED WITH THEM,~~and others affiliated with them,

~~LIMITATIONS IMPOSED ON OUR BUSINESS AND OUR ABILITY TO SATISFY COMPLEX RULES IN ORDER FOR US TO QUALIFY FOR TAXATION AS A~~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~~for U.S. ~~FEDERAL INCOME TAX PURPOSES, AND~~federal income tax purposes, and

~~ACTS OF TERRORISM, OUTBREAKS OF SO CALLED PANDEMICS OR OTHER MANMADE OR NATURAL DISASTERS BEYOND OUR CONTROL.~~Acts of terrorism, outbreaks of pandemics, including the COVID-19 pandemic, or other manmade or natural disasters beyond our control.

For example:

~~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, our 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 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 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,

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 FUTURE EARNINGS, THE CAPITAL COSTS WE INCUR TO LEASE OUR PROPERTIES, OUR WORKING CAPITAL REQUIREMENTS AND OUR RECEIPT OF DISTRIBUTIONS FROM SIR. WE MAY BE UNABLE TO PAY OUR DEBT OBLIGATIONS OR TO 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 DISTRIBUTIONS TO OUR SHAREHOLDERS DEPENDS IN LARGE PART UPON OUR ABILITY TO BUY PROPERTIES AND LEASE THEM FOR RENTS, LESS THEIR PROPERTY OPERATING EXPENSES, THAT EXCEED OUR CAPITAL COSTS. WE MAY BE UNABLE TO IDENTIFY PROPERTIES THAT WE WANT TO ACQUIRE OR TO NEGOTIATE ACCEPTABLE PURCHASE PRICES, ACQUISITION FINANCING OR LEASE TERMS FOR NEW PROPERTIES,

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~~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,~~

SOME GOVERNMENT TENANTS MAY EXERCISE THEIR RIGHTS TO VACATE THEIR SPACE BEFORE THE STATED EXPIRATIONS OF THEIR LEASES, AND WE MAY BE UNABLE TO OBTAIN NEW TENANTS TO MAINTAIN THE HISTORICAL OCCUPANCY RATES OF, OR RENTS FROM, OUR PROPERTIES,

~~RENTS THAT WE CAN CHARGE AT OUR PROPERTIES MAY DECLINE BECAUSE OF CHANGING MARKET CONDITIONS OR OTHERWISE,~~

~~CONTINGENCIES IN OUR ACQUISITION AND SALE AGREEMENTS MAY NOT BE SATISFIED AND OUR PENDING ACQUISITIONS AND SALES MAY NOT OCCUR, MAY BE DELAYED OR THE TERMS OF SUCH TRANSACTIONS MAY CHANGE,~~We may fail to maintain, or we may elect to change, our target payout ratio for distributions to shareholders of 75% of cash available for distribution. Further, our Board of Trustees considers many factors when setting distribution rates including our historical and projected income, Normalized FFO, cash available for distribution, the then current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid to maintain our qualification for taxation as a REIT and other factors deemed relevant by our Board of Trustees. Accordingly, future distribution rates may be increased or decreased and there is no assurance as to the rate at which future distributions will be paid,

We plan to selectively sell certain properties from time to time to fund future acquisitions and to strategically update, rebalance and reposition our investment portfolio, which we refer to as our capital recycling program. We cannot be sure we will sell any of these properties or what the terms of any sales may be nor that we will acquire replacement properties that improve our asset quality or our ability to increase our distributions to shareholders,

~~CONTINUED AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY IS SUBJECT TO OUR SATISFYING CERTAIN FINANCIAL COVENANTS AND OTHER CREDIT FACILITY CONDITIONS THAT WE MAY BE UNABLE TO SATISFY,~~We may not succeed in maintaining our leverage consistent with our current investment grade ratings or levels that the market or credit rating agencies believe are appropriate,

~~ACTUAL COSTS UNDER OUR REVOLVING CREDIT FACILITY OR OTHER FLOATING RATE CREDIT FACILITIES WILL BE HIGHER THAN~~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,

Some government tenants may exercise their rights to vacate their space before the stated expirations of their leases, and we may be unable to obtain new tenants to maintain the historical occupancy rates of, or rents from, our properties,

Rents that we can charge at our properties may decline upon renewals or 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,

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,

Our belief that our overall tenant retention levels may increase as a result of the COVID-19 pandemic may not be realized. In addition, if the COVID-19 pandemic and the current economic conditions continue for an extended period or worsen, our tenants may become unable to pay rent or they may elect to not renew their leases with us. Further, some of our government leases provide the tenant with certain rights to terminate their lease early. Budgetary and other fiscal pressures may result in some governmental tenants terminating their leases early or not renewing their leases. In addition, the COVID-19 pandemic has caused changes in workplace practices, including increased remote work arrangements. To the extent those practices become permanent or increased, leasing demand for office space may decline. As a result of these factors, our tenant retention levels may not increase and they could decline,

Our belief that we are well positioned to opportunistically recycle and deploy capital during 2020 may not be realized. We may fail to identify and execute on opportunities to deploy capital and any deployment of capital we may make may not result in the returns that we expect,

Our belief that the reduction in government tenant space utilization and the consolidation of government tenants into government owned real estate is substantially complete may prove misplaced if these prior trends continue or do not moderate to the extent we expect, including in response to the COVID-19 pandemic and its aftermath,

Our perception that recent activity suggests that the government has begun to shift its leasing strategy to include longer term leases and that the government is actively exploring 10 to 20 year lease terms at renewal, in some instances, may mistakenly imply that these activities are indicative of a trend or broader change in government leasing strategy or practices. Further, even if they may be indicative of such a trend or change, that trend or change may not be sustained by the government, including in response to the COVID-19 pandemic and its aftermath,

Contingencies in our acquisition and sale agreements may not be satisfied and any expected acquisitions and sales and any related lease arrangements we expect to enter may not occur, may be delayed or the terms of such transactions or arrangements may change,

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We expect to pursue accretively growing our property portfolio. However, we may not succeed in making acquisitions that are accretive and future acquisitions could be dilutive,

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,

Continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions that we may be unable to satisfy,

Actual costs under our revolving credit facility will be higher than LIBOR ~~PLUS A PREMIUM BECAUSE OF FEES AND EXPENSES ASSOCIATED WITH SUCH FACILITIES,~~plus a premium because of fees and expenses associated with such debt,

THE INTEREST RATES PAYABLE UNDER OUR FLOATING RATE DEBT OBLIGATIONS DEPEND UPON OUR CREDIT RATINGS. BOTH MOODY'S AND S&P HAVE RECENTLY UPDATED OUR RATING OUTLOOK TO NEGATIVE WHICH MAY IMPLY THAT OUR CREDIT RATINGS MAY BE DOWNGRADED. IF OUR CREDIT RATINGS ARE DOWNGRADED, OUR BORROWING COSTS WILL INCREASE,The interest rates payable under our floating rate debt obligations depend upon our credit ratings. If our credit ratings are downgraded, our borrowing costs will increase,

OUR ABILITY TO ACCESS DEBT CAPITAL AND THE COST OF OUR DEBT CAPITAL WILL DEPEND IN PART ON OUR CREDIT RATINGS. BOTH MOODY'S AND S&P HAVE RECENTLY UPDATED OUR RATING OUTLOOK TO NEGATIVE, WHICH MAY IMPLY THAT OUR CREDIT RATINGS MAY BE DOWNGRADED. IF OUR CREDIT RATINGS ARE DOWNGRADED, WE MAY NOT BE ABLE TO ACCESS DEBT CAPITAL OR THE DEBT CAPITAL WE CAN ACCESS MAY BE EXPENSIVE, Our ability to access debt capital and the cost of our debt capital will depend in part on our credit ratings. If our credit ratings are downgraded, we may not be able to access debt capital or the debt capital we can access may be expensive,

~~WE MAY BE UNABLE TO REPAY OUR DEBT OBLIGATIONS WHEN THEY BECOME DUE,~~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 $1.95 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,

THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOANS MAY BE INCREASED TO UP TO $2.5 BILLION ON A COMBINED BASIS IN CERTAIN CIRCUMSTANCES; HOWEVER, INCREASING THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOANS 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,

We may incur significant costs to prepare a property for a tenant, particularly for single tenant properties,

~~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,~~We may spend more for capital expenditures than we currently expect,

~~THE BUSINESS AND PROPERTY MANAGEMENT AGREEMENTS BETWEEN US AND~~We may fail to obtain development rights or entitlements that we may seek for development and other projects we may wish to conduct at our properties,

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

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

We believe that the near term impact of the COVID-19 pandemic to us will not be material due to the strength of our tenant base. However, if the COVID-19 pandemic and the current economic conditions continue for an extended period of time or worsen, our tenants may be significantly adversely impacted, which may result in those tenants seeking relief from their rent obligations, their inability to pay rent, the termination of their leases or our tenants not renewing their leases or renewing their leases for less space. Therefore, the impact we experience in the near term may be worse than we currently expect and our results of operations and financial position may be negatively affected,

We have granted requests to some of our tenants to defer payments over, in most cases, a 12-month period commencing in September 2020. However, current market and economic conditions may deteriorate further and the rent assistance granted by us may not be sufficient to ensure that tenants will be able to meet their rent payment obligations under their leases with us, which may result in an increase in tenant defaults and terminations,

The business and property management agreements between us and RMR LLC ~~HAVE CONTINUING~~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~~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,~~year terms,

~~WE BELIEVE THAT OUR RELATIONSHIPS WITH OUR RELATED PARTIES, INCLUDING~~

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We believe that our relationships with our related parties, including RMR LLC, RMR ~~INC.~~Inc., SIR, AIC 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,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, and

WE MAY FAIL TO EXECUTE SUCCESSFULLY ON OUR EXPANDED BUSINESS STRATEGY OR INCREASED SCALE RESULTING FROM THE FPO TRANSACTION AND THEREFORE MAY NOT REALIZE THE BENEFITS WE EXPECT FROM THE FPO TRANSACTION,It is difficult to accurately estimate leasing related obligations and costs of development and tenant improvement costs. Our unspent leasing related obligations and development costs may cost more and may take longer to complete than we currently expect, and we may incur increased amounts for these and similar purposes in the future.

~~SIR MAY REDUCE THE AMOUNT OF ITS DISTRIBUTIONS TO ITS SHAREHOLDERS, INCLUDING US,~~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, changes in our tenants’ needs for leased space, the ability of the U.S. government to approve spending bills to fund the U.S. government’s obligations, acts of terrorism, natural disasters or changes in capital markets or the economy generally.

~~RMR INC. MAY REDUCE THE AMOUNT OF ITS DISTRIBUTION TO ITS SHAREHOLDERS, INCLUDING US,~~The information contained elsewhere in this Quarterly Report on Form 10-Q and 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.

WE MAY BE UNABLE TO SELL OUR SIR COMMON SHARES FOR AN AMOUNT EQUAL TO OUR CARRYING VALUE OF THOSE SHARES AND ANY SUCH SALE MAY BE AT A DISCOUNT TO MARKET PRICE BECAUSE OF THE LARGE SIZE OF OUR SIR HOLDINGS OR OTHERWISE; WE MAY REALIZE A LOSS ON OUR INVESTMENT IN OUR SIR SHARES, ANDYou should not place undue reliance upon our forward-looking statements.

WE EXPECT TO SPEND, AS OF SEPTEMBER 30, 2017, AN ADDITIONAL $3.3 MILLION TO COMPLETE THE REDEVELOPMENT AND EXPANSION OF A PROPERTY WE OWN PRIOR TO THE COMMENCEMENT OF THE LEASE FOR THAT PROPERTY. IN ADDITION, AS OF SEPTEMBER 30 2017, WE HAVE ESTIMATED UNSPENT LEASING RELATED OBLIGATIONS OF $26.6 MILLION, EXCLUDING THE ESTIMATED

DEVELOPMENT COSTS NOTED IN THE PRECEDING SENTENCE. IT IS DIFFICULT TO ACCURATELY ESTIMATE DEVELOPMENT AND TENANT SPACE PREPARATION COSTS. THIS DEVELOPMENT PROJECT AND OUR UNSPENT LEASING RELATED OBLIGATIONS MAY COST MORE OR LESS AND MAY TAKE LONGER TO COMPLETE THAN WE CURRENTLY EXPECT, AND WE MAY INCUR INCREASING AMOUNTS FOR THESE AND SIMILAR PURPOSES IN THE FUTURE.

CURRENTLY UNEXPECTED RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH ARE BEYOND OUR CONTROL, SUCH AS CHANGES IN OUR TENANTS’ NEEDS FOR LEASED SPACE, ACTS OF TERRORISM, NATURAL DISASTERS OR CHANGES IN CAPITAL MARKETS OR THE ECONOMY GENERALLY.

THE INFORMATION CONTAINED ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q AND IN OUR 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.~~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

~~STATEMENT CONCERNING LIMITED LIABILITY~~

~~THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING GOVERNMENT PROPERTIES INCOME TRUST, DATED JUNE~~The amended and restated declaration of trust establishing Office Properties Income Trust, dated June 8, 2009, AS AMENDED, AS FILED WITH THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF GOVERNMENT PROPERTIES INCOME TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, GOVERNMENT PROPERTIES INCOME TRUST. ALL PERSONS DEALING WITH GOVERNMENT PROPERTIES INCOME TRUST IN ANY WAY SHALL LOOK ONLY TO THE ASSETS OF GOVERNMENT PROPERTIES INCOME TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.as amended, as filed with the State Department of Assessments and Taxation of Maryland, provides that no trustee, officer, shareholder, employee or agent of Office Properties Income Trust shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, Office Properties Income Trust. All persons dealing with Office Properties Income Trust in any way shall look only to the assets of Office Properties Income Trust for the payment of any sum or the performance of any obligation.

Part II. Other Information

Item 1A.Risk Factors

~~There have been no material changes to risk factors from those we previously disclosed~~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 ~~for~~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 viral disease outbreak known as COVID-19 has been declared a pandemic by the ~~quarter ended~~World Health Organization and in response to the outbreak, the U.S. Health and Human Services Secretary has declared a public health emergency in the United States and many states and municipalities have declared public health emergencies. The COVID-19 pandemic has had a devastating impact on the global economy, including the U.S. economy, and has resulted in a global economic recession.

Economic downturns and recessions in the United States have historically negatively impacted the commercial office real estate market, including by causing increased tenant defaults, decreased occupancies and reduced rental rates. We expect that the current economic conditions may have similar negative impacts on our business and that the extent of those negative consequences will depend to a large extent on the duration and depth of the economic downturn in the United States and the strength and sustainability of any economic recovery that may follow.

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While we have not yet experienced a material adverse impact on our occupancy resulting from the COVID-19 pandemic as of the date of this Quarterly Report on Form 10-Q, if the outbreak continues to weaken national, regional and local economies, it could negatively impact our occupancy levels and result in significant tenant defaults in the payment of rent owed to us. Although, as of June 30, ~~2017.~~2020, 35.1% of our total annualized rental income was from leases with governmental agencies, including 25.2% of our total annualized rental income from leases with the U.S. federal government, the balance of our rents comes from nongovernmental tenants. Further, as of June 30, 2020, tenants occupying approximately 11.5% of our rentable square feet and responsible for approximately 8.6% of our annualized rental income as of June 30, 2020 currently have exercisable rights to terminate their leases before the stated terms of their leases expire. Also, during the second half of 2020 and in 2021 and 2022, early termination rights become exercisable by other tenants who currently occupy an additional approximately 2.3%, 1.6% and 2.3% of our rentable square feet, respectively, and contribute an additional approximately 2.8%, 1.8% and 2.4% of our annualized rental income, respectively, as of June 30, 2020. In addition, as of June 30, 2020, pursuant to leases with 14 of our tenants, these tenants have rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These 14 tenants occupy approximately 5.4% of our rentable square feet and contribute approximately 5.8% of our annualized rental income as of June 30, 2020. Additionally, we typically conduct aspects of our leasing activity at our properties. Reductions in the ability and willingness of prospective tenants to visit our properties due to the COVID-19 outbreak, or the extent to which federal, state and municipal orders limit the extent to which our manager’s employees can visit our properties, could have an impact on our leasing activity which could reduce rental income and tenant reimbursements and other income produced by our properties. We have experienced a slowdown in our leasing activity thus far in 2020 due to the COVID-19 pandemic and expect this slowdown may continue until market conditions improve for a sustained period. Concerns relating to such an outbreak could also cause on-site personnel not to report for work at our properties, which could adversely affect the management of our properties.

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:

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

possible significant declines in the value of our properties;

our inability to accurately or reliably value our portfolio;

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

our need to reduce or eliminate the distributions we pay to our shareholders and our need to maintain such reduction or elimination for an extended period of time;

our failure to pay interest and 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 facilities;

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

increased risk of default or bankruptcy of our tenants;

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;

downgrades of our credit ratings by nationally recognized credit rating agencies;

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, as a result, our inability to redeploy our capital into investments we believe are more beneficial to us;

our inability to make 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; and

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 office space at our properties.

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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 related 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 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 our credit agreement and may be subject to restrictions in future debt obligations we may incur; during the continuance of any event of default under our credit agreement, we may be limited or in some cases prohibited from making distributions to our shareholders; and

our distribution rates are set and reset from time to by our Board of Trustees. Our Board of Trustees considers many factors when setting distribution rates including our historical and projected income, Normalized FFO, cash available for distribution, the then current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid to maintain our qualification for taxation as a REIT and other factors deemed relevant by our Board of Trustees. Accordingly, future distribution rates may be increased or decreased and there is no assurance as to the rate at which future distributions will be paid.

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

In addition, 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.

Some of our tenants have requested assistance 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 assistance in response to these requests and may determine to grant additional assistance 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. As ~~described above,~~a result of the ~~FPO Transaction was completed~~COVID-19 pandemic, we have received requests from some of our tenants for rent assistance. As of July 27, 2020, we have granted temporary rent assistance totaling $2,475 to 23 tenants who represent approximately 3.7% of our annualized rental income as of June 30, 2020. This assistance generally entails a deferral of, in most cases, one month of rent until September 2020 when the deferred rent amounts will begin to be payable over a 12-month period. We expect to receive additional similar requests in the future, and we may determine to grant additional assistance in the future, which may vary from the type of assistance we have granted to date, and could include more substantial assistance, 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 rent 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 may have significant impacts on ~~October 2, 2017.~~workplace practices and those changes could be detrimental to our business.

Temporary closures of businesses and stay in place orders and the resulting remote working arrangements for nonessential personnel in response to the COVID-19 pandemic may result in long-term changed work practices that could negatively impact us and our business. For example, the increased adoption of and familiarity with remote work practices could result in decreased demand for office space. If so, our business, operating results, financial condition and prospects may be materially adversely impacted.

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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 ~~September~~June 30, ~~2017:~~2020:



							Maximum							Maximum
					Total Number of		Approximate Dollar					Total Number of		Approximate Dollar
					Shares Purchased		Value of Shares that					Shares Purchased		Value of Shares that
	Number of		Average		as Part of Publicly		May Yet Be Purchased	Number of				as Part of Publicly		May Yet Be Purchased
	Shares	Price			Announced Plans		Under the Plans or	Shares	Average Price			Announced Plans		Under the Plans or
Calendar Month	Purchased ⁽¹⁾	Paid per Share		or Programs		Programs		Purchased ⁽¹⁾	Paid per Share		or Programs		Programs
September 2017	13,636	$	18.30	$	—	$	—
May 2020								525	$	26.61		—	$	—
June 2020								604		25.97		—		—
Total	13,636	$	18.30	$	—	$	—	1,129	$	26.27		—	$	—

(1)

These common share withholdings and purchases were made to satisfy ~~employee~~ tax withholding and payment obligations of one of our ~~officers~~Trustees and ~~certain other~~a former officer and employee of RMR LLC ~~employees~~ in connection with ~~the vesting of~~ awards of our common ~~shares.~~shares and the vesting of those and prior awards of common shares to them. We withheld and purchased these shares at their fair market ~~value~~values based upon the trading ~~price~~prices of our common shares at the close of trading on ~~the~~ Nasdaq on the purchase ~~date.~~dates.

Item 6. Exhibits



Exhibit Number	Description



3.1	Composite Copy of Amended and Restated Declaration of Trust, dated June 8, 2009, as amended to date. ~~(Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.~~(Filed herewith.)

3.2	Composite Copy of Amended and Restated Declaration of Trust, dated June 8, 2009, as amended to date (marked copy). (Filed herewith.)

3.3	Amended and Restated Bylaws of the Company, adopted ~~September 7, 2016.~~March 27, 2019. (Incorporated by reference to the Company’s Current Report on Form 8-K ~~dated September 7, 2016.~~filed on March 28, 2019.)

4.1	Form of Common Share Certificate. (Incorporated by reference to ~~Amendment No. 2 to~~ the ~~Company’s Registration Statement~~Company's Annual Report on Form ~~S-11/A, File No. 333-157455.~~10-K for the year ended December 31, 2018.)

4.2	Indenture, dated as of August 18, 2014, between the Company and U.S. Bank National Association. (Incorporated by reference to the Company’s Current Report on Form 8-K ~~dated~~filed on August 18, 2014.)

4.3	Supplemental Indenture No. 1, dated as of August 18, 2014, between the Company and U.S. Bank National Association, relating to the Company’s 3.75% Senior Notes due 2019, including form thereof. (Incorporated by reference to the Company’s Current Report on Form 8-K dated August 18, 2014.)

~~4.4~~	Supplemental Indenture No. 2, dated as of May 26, 2016, between the Company and U.S. Bank National Association, relating to the Company’s 5.875% Senior Notes due 2046, including form thereof. (Incorporated by reference to the Company’s Current Report on Form 8-K ~~dated~~filed on May 26, 2016.)

~~4.5~~4.4	Authentication Order, dated as of June 22, 2016, from the Company to U.S. Bank National Association, relating to the Company’s 5.875% Senior Notes due 2046. (Incorporated by reference to the Company’s Registration Statement on Form 8-A ~~dated~~filed on June 30, 2016.)

~~4.6~~4.5	Indenture, dated as of July 20, 2017, between the Company and U.S. Bank National Association. (Incorporated by reference to the Company’s Current Report on Form 8-K ~~dated~~filed on July ~~20,~~21, 2017.)

~~4.7~~4.6	First Supplemental Indenture, ~~No. 1,~~ dated as of July 20, 2017, between the Company and U.S. Bank National Association, relating to the Company’s 4.000% Senior Notes due 2022, including form thereof. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on July 21, 2017.)

4.7	Second Supplemental Indenture, dated ~~July 20, 2017.~~as of June 23, 2020, between the Company and U.S. Bank National Association, relating to the Company’s 6.375% Senior Notes due 2050, including form thereof. (Incorporated by reference to the Company’s Registration Statement on Form 8-A filed on June 23, 2020.)

4.8	Indenture, dated as of February 3, 2015, between the Company (as successor to Select Income REIT) and U.S. Bank National Association. (Incorporated by reference to Select Income REIT’s Current Report on Form 8-K filed on February 3, 2015.)

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4.9	First Supplemental Indenture, dated as of February 3, 2015, between the Company (as successor to Select Income REIT) and U.S. Bank National Association, including the forms of 4.15% Senior Notes due 2022 and 4.50% Senior Notes due 2025. (Incorporated by reference to Select Income REIT’s Current Report on Form 8-K filed on February 3, 2015.)

4.10	Second Supplemental Indenture, dated as of May 15, 2017, between the Company (as successor to Select Income REIT) and U.S. Bank National Association, including the form of 4.250% Senior Notes due 2024. (Incorporated by reference to Select Income REIT’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed by Select Income REIT on July 25, 2017.)

4.11	Third Supplemental Indenture, dated as of December 31, 2018, among Select Income REIT, the Company and U.S. Bank National Association. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 31, 2018.)

4.12	Registration Rights and Lock-Up Agreement, dated as of June 5, 2015, among the Company, ABP Trust ~~Barry M. Portnoy~~(f/k/a Reit Management & Research Trust) and Adam D. Portnoy. (Incorporated by reference to the Company’s Current Report on Form ~~8-K dated~~8‑K filed on June 5,8, 2015.)

10.1	~~First Amendment~~Amended and Restated Office Properties Income Trust 2009 Incentive Share Award Plan. (Incorporated by reference to ~~Credit Agreement, dated as of September 22, 2017, by and among~~ the ~~Company, Wells Fargo Bank, National Association, as Administrative Agent, and each of the other financial institutions party thereto. (Filed herewith.~~Company’s Current Report on Form 8-K filed on May 28, 2020.)

~~12.1~~10.2	~~Computation~~Summary of ~~Ratio of Earnings~~Trustee Compensation. (Incorporated by reference to ~~Fixed Charges. (Filed herewith.~~the Company’s Current Report on Form 8-K filed on May 28, 2020.)

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

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




~~31.3~~	~~Rule 13a-14(a) Certification. (Filed herewith.)~~

~~31.4~~	~~Rule 13a-14(a) Certification. (Filed herewith.)~~

32.1	Section 1350 Certification. (Furnished herewith.)

~~99.1~~101.INS	~~Letter dated as of October 2, 2017, between~~XBRL Instance Document - the ~~Company and The RMR Group LLC, regarding Second Amended and Restated Business Management Agreement. (Filed herewith.)~~ instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
~~101.1~~	~~The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 formatted in~~ XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements, tagged as blocks of text and in detail.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.)

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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.



	~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST


	By:	/s/ David M. Blackman
		David M. Blackman
		President and Chief ~~Operating~~Executive Officer
		Dated: ~~October 31, 2017~~July 30, 2020

	By:	/s/ ~~Mark L. Kleifges~~Matthew C. Brown
		~~Mark L. Kleifges~~ Matthew C. Brown
		Chief Financial Officer and Treasurer
		(principal financial officer and principal accounting officer)
		Dated: ~~October 31, 2017~~July 30, 2020



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016

Rental income	$	70,179		$	64,478		$	209,362		$	192,150

Expenses:
Real estate taxes	8,862			7,591			24,980			22,810
Utility expenses	5,408			5,483			14,186			13,330
Other operating expenses	14,867			13,854			44,046			40,031
Depreciation and amortization	20,781			18,404			61,949			54,713
Loss on impairment of real estate	230			—			230			—
Acquisition related costs	—			147			—			363
General and administrative	3,266			3,816			12,314			11,350
Total expenses	53,414			49,295			157,705			142,597

Operating income	16,765			15,183			51,657			49,553
Dividend income	304			304			911			667
Interest income	1,715			47			1,843			63
Interest expense (including net amortization of debt premiums and discounts
and debt issuance costs of $990, $805, $2,605 and $2,024, respectively)	(16,055		)	(12,608		)	(43,599		)	(32,286		)
(Loss) gain on early extinguishment of debt	(1,715		)	—			(1,715		)	104
Gain on issuance of shares by Select Income REIT	51			72			72			88
Income from continuing operations before income taxes
and equity in earnings of investees	1,065			2,998			9,169			18,189
Income tax expense	(22		)	(13		)	(65		)	(63		)
Equity in earnings of investees	9,484			8,668			20,804			28,002
Income from continuing operations	10,527			11,653			29,908			46,128
Income (loss) from discontinued operations	462			(154		)	173			(429		)
Income before gain on sale of property	10,989			11,499			30,081			45,699
Gain on sale of property	—			79			—			79
Net income	10,989			11,578			30,081			45,778

Other comprehensive income:
Unrealized gain on investment in available for sale securities	3,279			8,463			14,389			28,571
Equity in unrealized gain of investees	1,351			3,273			5,634			10,423
Other comprehensive income	4,630			11,736			20,023			38,994
Comprehensive income	$	15,619		$	23,314		$	50,104		$	84,772

Weighted average common shares outstanding (basic)	96,883			71,054			79,778			71,041
Weighted average common shares outstanding (diluted)	96,958			71,084			79,852			71,064

Per common share amounts (basic and diluted):
Income from continuing operations	$	0.11		$	0.16		$	0.37		$	0.65
Income (loss) from discontinued operations	$	—		$	—		$	—		$	(0.01	)
Net income	$	0.11		$	0.16		$	0.38		$	0.64



Supplemental cash flow information:
Interest paid	$	42,019	$	32,599
Income taxes paid	$	100	$	94
Non-cash investing activities:
Sale of property	$	—	$	3,600
Mortgage note receivable related to sale of property	$	—	$	(3,600	)



	For the Three Months		For the Nine Months
	Ended September 30,		Ended September 30,
	2017	2016	2017	2016
Weighted average common shares for basic earnings per share	96,883	71,054	79,778	71,041
Effect of dilutive securities: unvested share awards	75	30	74	23
Weighted average common shares for diluted earnings per share	96,958	71,084	79,852	71,064



			Fair Value at Reporting Date Using
			Quoted Prices in				Significant
	Estimated		Active Markets for		Significant Other		Unobservable
	Fair		Identical Assets		Observable Inputs		Inputs
Description	Value		(Level 1)		(Level 2)		(Level 3)
Recurring Fair Value Measurements Assets:
Investment in RMR Inc. ⁽¹⁾	$	62,351	$	62,351	$	—	$	—
Non-Recurring Fair Value Measurements Assets:
One property ⁽²⁾	$	1,885	$	—	$	1,885	$	—



	As of September 30, 2017				As of December 31, 2016
	Carrying Amount ⁽¹⁾		Fair Value		Carrying Amount ⁽¹⁾		Fair Value
Senior unsecured notes, 3.75% interest rate, due in 2019	$	347,810	$	357,625	$	346,952	$	354,078
Senior unsecured notes, 4.000% interest rate, due in 2022	295,587		302,655		—		—
Senior unsecured notes, 5.875% interest rate, due in 2046	300,146		325,500		299,892		292,268
Mortgage note payable, 5.88% interest rate, due in 2021 ⁽²⁾	13,677		14,388		13,841		14,492
Mortgage note payable, 7.00% interest rate, due in 2019 ⁽²⁾	8,490		8,739		8,778		9,188
Mortgage note payable, 8.15% interest rate, due in 2021 ⁽²⁾	4,394		4,665		5,218		5,575
	$	970,104	$	1,013,572	$	674,681	$	675,601



	Three Months Ended September 30, 2017
	Unrealized Gain		Equity in
	on Investment		Unrealized Gain
	in Available for		of
	Sale Securities		Investees			Total
Balance at June 30, 2017	$	32,184	$	10,166		$	42,350
Other comprehensive income before reclassifications	3,279		1,355			4,634
Amounts reclassified from cumulative other comprehensive loss to net income ⁽¹⁾	—		(4		)	(4		)
Net current period other comprehensive income	3,279		1,351			4,630
Balance at September 30, 2017	$	35,463	$	11,517		$	46,980



	Three Months Ended September 30, 2017
	Investment			Investment
	in Real Estate			in SIR		Corporate			Consolidated
Rental income	$	70,179		$	—	$	—		$	70,179

Expenses:
Real estate taxes	8,862			—		—			8,862
Utility expenses	5,408			—		—			5,408
Other operating expenses	14,867			—		—			14,867
Depreciation and amortization	20,781			—		—			20,781
Loss on impairment of real estate	230			—		—			230
General and administrative	—			—		3,266			3,266
Total expenses	50,148			—		3,266			53,414

Operating income (loss)	20,031			—		(3,266		)	16,765
Dividend income	—			—		304			304
Interest income	54			—		1,661			1,715
Interest expense	(401		)	—		(15,654		)	(16,055		)
Loss on early extinguishment of debt	—					(1,715		)	(1,715		)
Gain on issuance of shares by Select Income REIT	—			51		—			51
Income (loss) from continuing operations before
income taxes and equity in earnings of investees	19,684			51		(18,670		)	1,065
Income tax expense	—			—		(22		)	(22		)
Equity in earnings of investees	—			9,453		31			9,484
Income (loss) from continuing operations	19,684			9,504		(18,661		)	10,527
Income from discontinued operations	462			—		—			462
Net income (loss)	$	20,146		$	9,504	$	(18,661	)	$	10,989



	Three Months Ended September 30, 2016
	Investment			Investment
	in Real Estate			in SIR		Corporate			Consolidated
Rental income	$	64,478		$	—	$	—		$	64,478

Expenses:
Real estate taxes	7,591			—		—			7,591
Utility expenses	5,483			—		—			5,483
Other operating expenses	13,854			—		—			13,854
Depreciation and amortization	18,404			—		—			18,404
Acquisition related costs	147			—		—			147
General and administrative	—			—		3,816			3,816
Total expenses	45,479			—		3,816			49,295

Operating income (loss)	18,999			—		(3,816		)	15,183
Dividend income	—			—		304			304
Interest income	—			—		47			47
Interest expense	(429		)	—		(12,179		)	(12,608		)
Gain on issuance of shares by Select Income REIT	—			72		—			72
Income (loss) from continuing operations before income taxes and
equity in earnings of investees	18,570			72		(15,644		)	2,998
Income tax expense	—			—		(13		)	(13		)
Equity in earnings of investees	—			8,655		13			8,668
Income (loss) from continuing operations	18,570			8,727		(15,644		)	11,653
Loss from discontinued operations	(154		)	—		—			(154		)
Income (loss) before gain on sale of property	18,416			8,727		(15,644		)	11,499
Gain on sale of property	79			—		—			79
Net income (loss)	$	18,495		$	8,727	$	(15,644	)	$	11,578



	Nine Months Ended September 30, 2016
	Investment			Investment
	in Real Estate			in SIR		Corporate			Consolidated
Rental income	$	192,150		$	—	$	—		$	192,150

Expenses:
Real estate taxes	22,810			—		—			22,810
Utility expenses	13,330			—		—			13,330
Other operating expenses	40,031			—		—			40,031
Depreciation and amortization	54,713			—		—			54,713
Acquisition related costs	363			—		—			363
General and administrative	—			—		11,350			11,350
Total expenses	131,247			—		11,350			142,597

Operating income (loss)	60,903			—		(11,350		)	49,553
Dividend income	—			—		667			667
Interest income	—			—		63			63
Interest expense	(1,953		)	—		(30,333		)	(32,286		)
Gain on early extinguishment of debt	104			—		—			104
Gain on issuance of shares by Select Income REIT	—			88		—			88
Income (loss) from continuing operations before income taxes and
equity in earnings of investees	59,054			88		(40,953		)	18,189
Income tax expense	—			—		(63		)	(63		)
Equity in earnings of investees	—			27,895		107			28,002
Income (loss) from continuing operations	59,054			27,983		(40,909		)	46,128
Loss from discontinued operations	(429		)	—		—			(429		)
Income (loss) before gain on sale of property	58,625			27,983		(40,909		)	45,699
Gain on sale of property	79			—		—			79
Net income (loss)	$	58,704		$	27,983	$	(40,909	)	$	45,778



					Comparable
	All Properties⁽¹⁾				Properties ⁽²⁾
	September 30,				September 30,
	2017		2016		2017		2016
Total properties	74		71		70		70
Total buildings	96		91		90		90
Total square feet ⁽³⁾	11,517		10,950		10,617		10,612
Percent leased ⁽⁴⁾	95.0	%	95.0	%	95.0	%	95.2	%



	Government		Non-Government
Three Months Ended September 30, 2017	Leases		Leases		Total
Rentable square feet leased during the period	393,158		42,944		436,102
Tenant leasing costs and concession commitments ⁽¹⁾ (in thousands)	$	6,629	$	1,273	$	7,902
Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾	$	16.86	$	29.64	$	18.12
Weighted (by square feet) average lease term (years)	8.5		7.2		8.4
Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾	$	1.98	$	4.10	$	2.16



	Government		Non-Government
Nine Months Ended September 30,2017	Leases		Leases		Total
Rentable square feet leased during the period	953,444		131,189		1,084,633
Tenant leasing costs and concession commitments ⁽¹⁾ (in thousands)	$	9,120	$	3,489	$	12,609
Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾	$	9.57	$	26.59	$	11.62
Weighted (by square feet) average lease term (years)	9.2		5.6		8.8
Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾	$	1.04	$	4.77	$	1.32



	Number	Expirations						Annualized
	of	of Leased				Cumulative		Rental				Cumulative
	Tenants	Square		Percent		Percent		Income		Percent		Percent
Year ⁽¹⁾	Expiring	Feet ⁽²⁾		of Total		of Total		Expiring		of Total		of Total
2017	20	434,049		4.0	%	4.0	%	$	10,004	3.6	%	3.6	%
2018	37	704,708		6.4	%	10.4	%	22,913		8.3	%	11.9	%
2019	45	1,940,016		17.7	%	28.1	%	59,116		21.5	%	33.4	%
2020	39	1,447,413		13.2	%	41.3	%	40,155		14.6	%	48.0	%
2021	37	1,061,519		9.7	%	51.0	%	20,732		7.5	%	55.5	%
2022	31	940,554		8.6	%	59.6	%	22,505		8.2	%	63.7	%
2023	18	595,662		5.4	%	65.0	%	13,685		5.0	%	68.7	%
2024	16	993,635		9.1	%	74.1	%	22,696		8.2	%	76.9	%
2025	15	801,648		7.3	%	81.4	%	16,572		6.0	%	82.9	%
2026 and thereafter	32	2,027,097	⁽³⁾	18.6	%	100.0	%	47,042		17.1	%	100.0	%
Total	290	10,946,301		100.0	%			$	275,420	100.0	%

Weighted average remaining lease term (in years)		5.1						4.7



										Acquired Properties				Disposed Property
										Results ⁽²⁾				Results ⁽³⁾
	Comparable Properties Results ⁽¹⁾									Three Months Ended				Three Months Ended					Consolidated Results
	Three Months Ended September 30,									September 30,				September 30,					Three Months Ended September 30,
					$			%																	$			%
	2017		2016		Change			Change		2017		2016		2017			2016		2017			2016			Change			Change
Rental income	$	66,038	$	64,478	$	1,560		2.4	%	$	4,141	$	—	$	—		$	—	$	70,179		$	64,478		$	5,701		8.8	%
Operating expenses:
Real estate taxes	8,354		7,591		763			10.1	%	507		—		1			—		8,862			7,591			1,271			16.7	%
Utility expenses	5,092		5,483		(391		)	(7.1	%)	316		—		—			—		5,408			5,483			(75		)	(1.4	%)
Other operating expenses	14,079		13,854		225			1.6	%	746		—		42			—		14,867			13,854			1,013			7.3	%
Total operating expenses	27,525		26,928		597			2.2	%	1,569		—		43			—		29,137			26,928			2,209			8.2	%
Net operating income ⁽⁴⁾	$	38,513	$	37,550	$	963		2.6	%	$	2,572	$	—	$	(43	)	$	—	41,042			37,550			3,492			9.3	%

Other expenses:
Depreciation and amortization																			20,781			18,404			2,377			12.9	%
Loss on impairment of real estate																			230			—			230			nm
Acquisition related costs																			—			147			(147		)	nm
General and administrative																			3,266			3,816			(550		)	(14.4	%)
Total other expenses																			24,277			22,367			1,910			8.5	%
Operating income																			16,765			15,183			1,582			10.4	%
Dividend income																			304			304			—			—	%
Interest income																			1,715			47			1,668			nm
Interest expense (including net amortization of debt premiums and discounts and debt issuance costs of $990 and $805, respectively)																			(16,055		)	(12,608		)	(3,447		)	27.3	%
Loss on early extinguishment of debt																			(1,715		)	—			(1,715		)	nm
Gain on issuance of shares by Select Income REIT																			51			72			(21		)	(29.2	%)
Income from continuing operations before income taxes and equity in earnings of investees																			1,065			2,998			(1,933		)	(64.5	%)
Income tax expense																			(22		)	(13		)	(9		)	69.2	%
Equity in earnings of investees																			9,484			8,668			816			9.4	%
Income from continuing operations																			10,527			11,653			(1,126		)	(9.7	%)
Income (loss) from discontinued operations																			462			(154		)	616			nm
Income before gain on sale of property																			10,989			11,499			(510		)	(4.4	%)
Gain on sale of property																			—			79			(79		)	nm
Net income																			$	10,989		$	11,578		$	(589	)	(5.1	%)

Weighted average common shares outstanding (basic)																			96,883			71,054			25,829			36.4	%
Weighted average common shares outstanding (diluted)																			96,958			71,084			25,874			36.4	%

Per common share amounts (basic and diluted):
Income from continuing operations																			$	0.11		$	0.16		$	(0.05	)	(31.3	%)
Income (loss) from discontinued operations																			$	—		$	—		$	—		—	%
Net income																			$	0.11		$	0.16		$	(0.05	)	(31.3	%)

Reconciliation of Net Income to NOI: ⁽⁴⁾
Net income																			$	10,989		$	11,578
Gain on sale of property																			—			(79		)
Income before gain on sale of property																			10,989			11,499
(Income) loss from discontinued operations																			(462		)	154
Income from continuing operations																			10,527			11,653
Equity in earnings of investees																			(9,484		)	(8,668		)
Income tax expense																			22			13
Gain on issuance of shares by Select Income REIT																			(51		)	(72		)
Loss on early extinguishment of debt																			1,715			—
Interest expense																			16,055			12,608
Interest income																			(1,715		)	(47		)
Dividend income																			(304		)	(304		)
Operating income																			16,765			15,183
General and administrative																			3,266			3,816
Acquisition related costs																			—			147
Loss on impairment of real estate																			230			—
Depreciation and amortization																			20,781			18,404
Net operating income																			$	41,042		$	37,550



	Our JV			Annual		Annual			Interest
	Ownership	Principal		Interest		Interest			Payments
Debt	Interest	Balance⁽¹⁾⁽²⁾		Rate⁽¹⁾		Expense⁽¹⁾		Maturity	Due
Mortgage note (one property) one building in Washington, DC	50%	$	32,000	3.920	%	$	1,254	2024	Monthly
Mortgage note (one property) one building in Fairfax, VA	51%	50,000		3.910	%	1,955		2029	Monthly
		$	82,000			$	3,209



	Impact of Changes in Interest Rates
	Annual		Outstanding		Total Interest		Annual Earnings
	Interest Rate ⁽¹⁾		Debt		Expense Per Year		Per Share Impact ⁽²⁾
At September 30, 2017	2.6	%	$	1,115,000	$	29,393	$	0.37
100 bps increase	3.6	%	$	1,115,000	$	40,698	$	0.51