☒ 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~~2023

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

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.

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 25, 2023: 48,586,735

OFFICE PROPERTIES INCOME TRUST

~~September~~June 30, ~~2017~~2023

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.

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)

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

September 30, December 31,
2017 2016
ASSETS

Real estate properties:

Land $ 269,332
$ 267,855
Buildings and improvements 1,660,379
1,620,905
Total real estate properties, gross 1,929,711
1,888,760
Accumulated depreciation (331,069 ) (296,804 )
Total real estate properties, net 1,598,642
1,591,956

Equity investment in Select Income REIT 475,265
487,708
Assets of discontinued operations —
12,541
Acquired real estate leases, net 99,953
124,848
Deposit escrow for FPO acquisition 651,696
—
Cash and cash equivalents 551,707
29,941
Restricted cash 509
530
Rents receivable, net 47,461
48,458
Deferred leasing costs, net 22,250
21,079
Other assets, net 89,484
68,005
Total assets $ 3,536,967
$ 2,385,066

LIABILITIES AND SHAREHOLDERS’ EQUITY

Unsecured revolving credit facility $ 565,000
$ 160,000
Unsecured term loans, net 547,682
547,171
Senior unsecured notes, net 943,543
646,844
Mortgage notes payable, net 26,561
27,837
Liabilities of discontinued operations —
45
Accounts payable and other liabilities 63,525
54,019
Due to related persons 4,297
3,520
Assumed real estate lease obligations, net 8,832
10,626
Total liabilities 2,159,440
1,450,062

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
Additional paid in capital 1,968,249
1,473,533
Cumulative net income 126,410
96,329
Cumulative other comprehensive income 46,980
26,957
Cumulative common distributions (765,103 ) (662,527 )
Total shareholders’ equity 1,377,527
935,004
Total liabilities and shareholders’ equity $ 3,536,967
$ 2,385,066

Table of Contents

~~See accompanying notes.~~

~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(amounts in thousands, except per share data)

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

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(dollars in thousands)


	Number of Shares	Common Shares		Additional Paid In Capital		Cumulative Net Income		Cumulative Common Distributions		Total Shareholders’ Equity
Balance at December 31, 2022	48,565,644	$	486	$	2,619,532	$	169,606	$	(1,403,289)	$	1,386,335
Share grants	—	—		477		—		—		477
Share forfeitures and repurchases	(1,935)	—		(15)		—		—		(15)
Net loss	—	—		—		(446)		—		(446)
Distributions to common shareholders	—	—		—		—		(26,710)		(26,710)
Balance at March 31, 2023	48,563,709	486		2,619,994		169,160		(1,429,999)		1,359,641
Share grants	31,500	—		744		—		—		744
Share forfeitures and repurchases	(7,559)	—		(47)		—		—		(47)
Net loss	—	—		—		(12,242)		—		(12,242)
Distributions to common shareholders	—	—		—		—		(12,141)		(12,141)
Balance at June 30, 2023	48,587,650	$	486	$	2,620,691	$	156,918	$	(1,442,140)	$	1,335,955



Balance at December 31, 2021	48,425,665	$	484	$	2,617,169	$	175,715	$	(1,296,659)	$	1,496,709
Share grants	—	—		415		—		—		415
Share forfeitures	(400)	—		(1)		—		—		(1)
Net loss	—	—		—		(13,407)		—		(13,407)
Distributions to common shareholders	—	—		—		—		(26,634)		(26,634)
Balance at March 31, 2022	48,425,265	484		2,617,583		162,308		(1,323,293)		1,457,082
Share grants	31,500	1		1,078		—		—		1,079
Share forfeitures and repurchases	(1,690)	—		(21)		—		—		(21)
Net loss	—	—		—		(16,056)		—		(16,056)
Distributions to common shareholders	—	—		—		—		(26,634)		(26,634)
Balance at June 30, 2022	48,455,075	$	485	$	2,618,640	$	146,252	$	(1,349,927)	$	1,415,450

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

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

Table of Contents

~~See accompanying notes.~~

~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(~~amounts~~dollars in thousands)


	Six Months Ended June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(12,688)	$	(29,463)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	50,459		49,455
Net amortization of debt premiums, discounts and issuance costs	4,532		4,770
Amortization of acquired real estate leases and assumed real estate lease obligations, net	48,581		65,691
Amortization of deferred leasing costs	4,739		4,096
(Gain) loss on sale of real estate	(243)		9,488
Loss on impairment of real estate	—		21,820
Loss on early extinguishment of debt	—		77

Straight line rental income	(8,429)		(5,461)
Other non-cash expenses, net	673		943


Equity in net losses of investees	1,525		1,679





Change in assets and liabilities:


Rents receivable	3,440		6,770
Deferred leasing costs	(13,106)		(15,194)
Other assets	3,234		4,821
Accounts payable and other liabilities	5,748		(10,460)
Due to related persons	(237)		(119)
Net cash provided by operating activities	88,228		108,913

CASH FLOWS FROM INVESTING ACTIVITIES:

Real estate improvements	(138,724)		(89,144)

Distributions in excess of earnings from unconsolidated joint ventures	—		51
Contributions to unconsolidated joint ventures	(3,763)		(2,202)
Proceeds from sale of properties, net	12,527		74,183



Net cash used in investing activities	(129,960)		(17,112)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgage notes payable	(50,000)		(25,283)
Proceeds from issuance of mortgage notes payable	108,120		—
Repayment of senior unsecured notes	—		(300,000)



Borrowings on unsecured revolving credit facility	205,000		230,000
Repayments on unsecured revolving credit facility	(160,000)		—
Payment of debt issuance costs	(8,907)		—
Repurchase of common shares	(57)		(16)


Distributions to common shareholders	(38,851)		(53,268)
Net cash provided by (used in) financing activities	55,305		(148,567)

Increase (decrease) in cash, cash equivalents and restricted cash	13,573		(56,766)
Cash, cash equivalents and restricted cash at beginning of period	12,249		84,515
Cash, cash equivalents and restricted cash at end of period	$	25,822	$	27,749

Nine Months Ended September 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 30,081
$ 45,778
Adjustments to reconcile net income to cash provided by operating activities:

Depreciation 35,460
31,611
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 )
Amortization of acquired real estate leases 25,592
21,948
Amortization of deferred leasing costs 2,790
2,343
Other non-cash expenses, net 352
500
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
Change in assets and liabilities:

Restricted cash 21
508
Deferred leasing costs (2,846 ) (7,998 )
Rents receivable 3,839
(126 )
Other assets (7,045 ) (1,466 )
Accounts payable and accrued expenses 6,703
(150 )
Due to related persons 777
1,088
Net cash provided by operating activities 93,726
91,674

CASH FLOWS FROM INVESTING ACTIVITIES:

Real estate acquisitions and deposits (666,202 ) (83,705 )
Real estate improvements (29,377 ) (23,357 )
Distributions in excess of earnings from Select Income REIT 20,063
11,951
Proceeds from sale of properties, net 13,198
263
Net cash used in investing activities (662,318 ) (94,848 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayment of mortgage notes payable (1,150 ) (107,562 )
Proceeds from issuance of senior notes, after discounts 297,954
300,235
Proceeds from issuance of common shares, net 493,936
—
Borrowings on unsecured revolving credit facility 610,000
254,000
Repayments on unsecured revolving credit facility (205,000 ) (346,000 )
Payment of debt issuance costs (2,551 ) (464 )
Repurchase of common shares (255 ) (312 )
Distributions to common shareholders (102,576 ) (91,759 )
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
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~See accompanying notes.~~

Table of Contents

~~GOVERNMENT~~

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(dollars in thousands)


	Six Months Ended June 30,
	2023		2022
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	51,134	$	56,490
Income taxes paid	$	339	$	283

NON-CASH INVESTING ACTIVITIES:
Real estate improvements accrued, not paid	$	30,852	$	25,706


Capitalized interest	$	4,732	$	1,600

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,
	2023		2022
Cash and cash equivalents	$	25,212	$	26,006
Restricted cash (1)	610		1,743
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	25,822	$	27,749

(1)Restricted cash consists of amounts escrowed for future real estate taxes, insurance, leasing costs, capital expenditures and debt service, as required by certain of our mortgage debts.

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

Table of Contents

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,~~2022, or our 2022 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~~the related intangibles.

Pending Merger with Diversified Healthcare Trust

On April 11, 2023, we and Diversified Healthcare Trust, or DHC, entered into an Agreement and Plan of Merger, or the ~~valuation of intangible assets.~~

~~Note 2.Recent Accounting Pronouncements~~

~~On January 1, 2017, we adopted~~Merger Agreement, pursuant to which, on the ~~Financial Accounting Standards Board,~~terms and subject to the satisfaction or ~~FASB, 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 andactivities (collectively referred to as a “set”) to be considered a business: inputs, processes and outputs. As a result~~waiver of the ~~implementation of this update, certain property acquisitions, which under previous guidance were accounted foras 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 expenseconditions thereof, DHC will be merged 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~~and into us, 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~~us continuing as the ~~sale~~surviving entity in the merger, or the Merger.

Pursuant to the terms and subject to the conditions and limitations set forth in the Merger Agreement, at the date and time the Merger becomes effective, or the Effective Time, each common share of ~~real estate~~beneficial interest, $0.01 par value per share, of DHC, or~~equipment. In August 2015,~~ the ~~FASB~~DHC Common Shares, issued and outstanding as of immediately prior to the Effective Time will be automatically converted into the right to receive 0.147 (such ratio, the Exchange Ratio) of our common shares of beneficial interest, $0.01 par value per share, or our common shares, subject to adjustment for certain reclassifications, distributions, recapitalizations or similar transactions and other exceptional distributions as described in the Merger Agreement, with cash paid in lieu of fractional shares. Other than as provided ~~for a one-year deferral~~in the Merger Agreement, the Exchange Ratio is fixed and will not be adjusted to reflect changes in the market price of our common shares or the DHC Common Shares prior to the Effective Time. Our common shares issued and outstanding immediately prior to the Effective Time will remain issued and outstanding common shares of beneficial ownership 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 arecontinuing to evaluate ASU No. 2014-09 (and related clarifying guidance issued by~~surviving entity following 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. We~~currently 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~~Merger. In connection with the ~~sale but~~Merger, we expect to change our name to “Diversified Properties Trust” and, following the Effective Time, will change our ticker symbol to “DPT.”

The transactions contemplated by the Merger Agreement and the terms thereof were evaluated, negotiated and recommended to our Board of Trustees, or our Board, by a special committee of our Board, or the OPI Special Committee, and to DHC’s board of trustees, or the DHC Board, by a special committee of DHC’s Board, or the DHC Special Committee, each consisting of disinterested, independent trustees of us and DHC, respectively. Following the recommendations of the OPI Special Committee and the DHC Special Committee, our Board and the DHC Board each approved the Merger Agreement and the transactions contemplated thereby and resolved to recommend that the OPI and DHC shareholders, respectively, vote in favor of approval of the Merger and the transactions contemplated thereby. Our shareholders will be ~~recognized in its entirety upon adoption~~asked to vote on the approval of ~~ASU No. 2014-09. We currently expect to adopt~~ the ~~standard using~~Merger and related matters, including the ~~modified retrospective approach.~~

~~In January 2016, the FASB issued ASU No. 2016-01,~~ ~~Recognition and Measurement~~issuance of ~~Financial Assets and Financial Liabilities, which changes howentities measure certain equity investments and present changes~~our common shares in the ~~fair value~~Merger, at a special meeting of ~~financial liabilities measured under~~our shareholders.

The consummation of the ~~fair value option that are attributable to their own credit. This update~~Merger is ~~effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted~~ subject to the satisfaction or waiver of certain ~~conditions. Currently, changes~~closing conditions, including, among others: (1) the approval of the Merger by the affirmative vote of at least a majority of all the votes entitled to be cast by holders of outstanding DHC Common Shares at the meeting held for that purpose; (2) the approval of the Merger by the affirmative vote of at least a majority of all the votes entitled to be cast by holders of our outstanding common shares at the meeting held for that purpose; (3) the approval of the issuance of our common shares to be issued in ~~fair value~~the Merger, or the Share Issuance, by the affirmative vote of ~~these investments are recorded through other comprehensive income. ASU No. 2016-01 states~~at least a majority of all votes cast by holders of our outstanding common shares at the meeting held for that ~~these changes will be recorded through earnings. We are continuing to evaluate this guidance, but we expect~~purpose; (4) the ~~implementation~~absence of ~~this guidance~~

any statute, rule or regulation by any governmental entity of competent jurisdiction or any temporary, preliminary or permanent judgment, order or decree by any court of competent jurisdiction which would prohibit or make illegal or prevent the consummation of the Merger or any of the transactions contemplated by the Merger Agreement; (5)

Table of Contents

~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

~~will affect how changes~~the effectiveness of the registration statement on Form S-4, as amended, or the Form S-4, filed by us with the Securities and Exchange Commission, or the SEC, in connection with the Share Issuance; (6) the approval (subject to notice of issuance) of The Nasdaq Stock Market LLC, or Nasdaq, of the listing of our common shares to be issued in the ~~fair value~~Merger; (7) the replacement of ~~available for sale securities we hold are presented in~~ our ~~condensed consolidated~~existing revolving credit agreement, on terms that, among other things, would not be reasonably likely to be materially adverse to the business, operations or financial ~~statements.~~

~~In February 2016,~~condition of us after giving effect to the ~~FASB issued ASU No. 2016-02,~~ ~~Leases, which sets out~~Merger and would not delay or prevent 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~~consummation of the ~~leased asset~~Merger; (8) the receipt of certain tax opinions by us and DHC; and (9) the ~~lessee. This classificationwill determine whether~~other party’s representations and warranties being accurate (subject to certain customary materiality exceptions) and the ~~lease expense is recognized based on an effective interest method~~other party having performed or ~~on a straight line basis over the term of the lease. A lessee is alsorequired to record a right of use asset~~complied in all material respects with its agreements 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 on Financial Instruments, which requires that entities use a new forward looking “expected loss” model that generally will result~~covenants in the ~~earlier recognition of allowance for credit losses.~~ Merger Agreement.

The ~~measurement of expected credit losses is based upon historical experience, current conditions,~~Merger Agreement contains certain customary representations, warranties and covenants, including covenants providing that we and DHC will use reasonable best efforts to conduct our and supportable forecasts that affect the collectability of the reported amount. 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 the potential impact the adoption of ASU No. 2016-13 will haveits respective businesses 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~~all material respects 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 do not expect this guidance to have a material impact in our condensed consolidated financial statements and related disclosures.

~~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 changesordinary course during the period ~~for cash~~between the execution of the Merger Agreement and ~~cash equivalents only.~~the earlier of the Effective Time or the termination of the Merger Agreement, and to refrain from taking certain types of actions without the other party’s consent during the period between the execution of the Merger Agreement and the earlier of the Effective Time or the termination of the Merger Agreement, subject in each case to specified exceptions.

In ~~May 2017,~~connection with the ~~FASB issued ASU No. 2017-09,~~ ~~Scope~~execution of ~~Modification Accounting~~the Merger Agreement, we entered into a commitment letter, dated as of April 11, 2023, with JPMorgan Chase Bank, N.A., or JPM, pursuant to which ~~clarifies which changes~~JPM committed to provide, subject 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.~~ commitment letter, a senior secured bridge facility to us in an aggregate principal amount of $368,000. As of June 30, 2023, we have issued four mortgage notes with an aggregate principal balance of $108,120 secured by properties that previously collateralized the senior secured bridge facility, and as a result, we subsequently amended the commitment letter to reduce the principal amount of the senior secured bridge facility to $259,880. For more information regarding our mortgage notes, see Note 6.

Note 2. Per Common Share Amounts

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.~~

~~Table of Contents~~

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except~~calculate basic earnings per common share using the two class method. We calculate diluted earnings per share ~~data)~~

~~Note 3.Weighted Average Common Shares~~

~~The following table provides a reconciliation~~using the more dilutive of the ~~weighted average number of~~two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares, ~~used in~~together with the related impact on earnings, are considered when calculating diluted earnings per share. The calculation of basic and diluted earnings per share ~~(in thousands)~~is as follows (amounts in thousands, except per share data):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Numerators:
Net loss	$	(12,242)	$	(16,056)	$	(12,688)	$	(29,463)
Income attributable to unvested participating securities	(56)		(100)		(182)		(200)
Net loss used in calculating earnings per share	$	(12,298)	$	(16,156)	$	(12,870)	$	(29,663)

Denominators:
Weighted average common shares outstanding - basic and diluted	48,354		48,249		48,345		48,246



Net loss per common share - basic and diluted	$	(0.25)	$	(0.33)	$	(0.27)	$	(0.61)

Note 4.3. Real Estate Properties

As of ~~September~~June 30, ~~2017, we~~2023, our wholly owned 74 properties ~~(96 buildings),~~were comprised of 155 properties containing approximately 20,784,000 rentable square feet, with an undepreciated carrying value of ~~$1,929,711.~~$4,050,183, including $14,630 classified as held for sale. We also had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties containing approximately 444,000 rentable square feet. 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~~2023 and ~~2034. Our~~2053. 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,~~2023, we entered into 1423 leases for ~~436,102~~approximately 713,000 rentable square feet for a weighted (by rentable square feet) average lease term of ~~8.4~~10.3 years and we made commitments of $40,638 for ~~$7,902 of~~ leasing related costs. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, we entered into 4239 leases for ~~1,084,633~~approximately 916,000 rentable square feet for a weighted ~~(by~~

Table of Contents

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

(by rentable square feet) average lease term of ~~8.8~~9.5 years and we made commitments for ~~$12,609~~approximately $49,385 of leasing related costs. As of ~~September~~June 30, ~~2017,~~2023, we ~~have~~had 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.

We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of ~~our~~ long lived assets. Impairment indicators may include declining tenant occupancy, lack of progress releasing vacant space, tenant bankruptcies, low long term prospects for improvement in property performance, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an asset before the end of its estimated useful life and legislative, market or industry changes that could permanently reduce the value of a property. 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 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 consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining useful lives of our long lived assets. If we change our estimate of the remaining useful lives, we allocate the carrying value of the affected assets over their revised remaining useful lives.

~~Acquisition~~Disposition Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, we ~~acquired an office property (one building) located in Manassas, VA with 69,374~~sold five properties containing approximately 296,000 rentable square ~~feet. This property was 100% leased to Prince William County on the date of acquisition. This transaction was accounted~~feet for as an ~~acquisition of assets. The purchase price was $12,657, including capitalized acquisition costs of $37. Our allocation of the purchase~~aggregate sales price of ~~this acquisition based on the estimated fair values~~$13,075, excluding closing costs. The sales of ~~the acquired assets and assumed liabilities is~~these properties, as presented in the table ~~below.~~ below, do not represent significant dispositions individually or in the aggregate, nor do they represent a strategic shift in our business. As a result, the results of operations of these properties 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 2023	3	Richmond, VA	89,000	$	5,350	$	2,548
April 2023	1	Phoenix, AZ	107,000	4,900		511
June 2023	1	Vernon Hills, IL	100,000	2,825		(2,816)
	5		296,000	$	13,075	$	243

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
(1)Gross sales price is the gross contract price, excluding closing costs.

~~In September 2017,~~As of June 30, 2023, we ~~acquired transferable development rights that will allow us~~had two properties classified as held for sale in our condensed consolidated balance sheet. As of July 25, 2023, we have entered into an agreement to ~~expand a property we own in Washington, D.C.~~sell one of the properties classified as held for sale containing approximately 80,000 rentable square feet for a ~~purchase~~sales price of ~~$2,030,~~$10,500, excluding ~~acquisition~~closing costs. This pending sale is subject to conditions, and 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.

Unconsolidated Joint Ventures

~~FPO Acquisition~~We own interests in two joint ventures that own three properties. We account for these investments under the equity method of accounting. As of June 30, 2023 and December 31, 2022, our investments in unconsolidated joint ventures consisted of the following:

On October 2, 2017, we acquired First Potomac Realty Trust, or FPO, a Maryland REIT, pursuant to merger transactions, or collectively, the FPO Transaction, as a result of which, we acquired 39 office properties (74 buildings) with 6,454,382


		OPI Carrying Value of Investments at
Joint Venture	OPI Ownership	June 30, 2023		December 31, 2022		Number of Properties	Location	Rentable Square Feet
Prosperity Metro Plaza	51%	$	18,810	$	19,237	2	Fairfax, VA	329,000
1750 H Street, NW	50%	18,557		15,892		1	Washington, D.C.	115,000
Total		$	37,367	$	35,129	3		444,000

Table of Contents

~~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 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, 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.

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.

The following table ~~presents our pro forma results of operations for each~~provides a summary of the ~~nine months ended September 30, 2017~~mortgage debt of our two unconsolidated joint ventures:


Joint Venture	Interest Rate (1)	Maturity Date	Principal Balance at June 30, 2023 and December 31, 2022 (2)
Prosperity Metro Plaza	4.09%	12/1/2029	$	50,000
1750 H Street, NW (3)	3.69%	8/1/2027	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 ~~2016 as if the FPO Transaction and related financing activities had occurred on January 1, 2016. The historical FPO results of operations included in this pro forma financial information have been~~is not adjusted to ~~remove~~reflect the ~~results~~interests in the joint ventures we do not own. None of ~~operations~~the debt is recourse to us.

(3)In July 2023, the maturity date of ~~properties~~this mortgage loan was extended by three years at the same interest rate.

At June 30, 2023, the aggregate unamortized basis difference of our two unconsolidated joint ventures of $6,245 was primarily attributable to the difference between the amount we paid to purchase our interest in these joint ventures, including transaction costs, and ~~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.

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

~~Disposition Activities – Continuing Operations~~

On October 5, 2017, we sold one 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. During the three months ended September 30, 2017, we recorded a $230 loss on impairment of real estate to reduce thehistorical 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.~~comprehensive income (loss).

~~Table of Contents~~

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~Summarized balance sheet and 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 )

Note ~~5. Revenue Recognition~~4. Leases

~~We recognize rental~~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. Allowances for bad debts are recognized as a direct reduction of rental income. 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 a remote ~~contingencies~~contingency 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~~$4,256 and ~~$1,205~~$2,775 for the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively, and ~~$3,115~~$8,429 and ~~$1,789~~$5,461 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively. Rents receivable, ~~include $24,801~~excluding properties classified as held for sale, included $94,705 and ~~$21,686~~$86,305 of straight line rent receivables ~~net of allowance for doubtful accounts of $132 and $155,~~ at ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, 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 $22,190 and $43,560 for the three and six months ended June 30, 2023, respectively, of which tenant reimbursements totaled $20,853 and $40,919, respectively. For the three and six months ended June 30, 2022, such payments totaled $22,101 and $44,637, respectively, of which tenant reimbursements totaled $21,009 and $42,484, respectively.

Note 6.5. 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, 2023 and 2022, the U.S. ~~Government, 13~~government and certain state ~~governments,~~ and ~~four~~ other government tenants combined were responsible for ~~87.5%~~approximately 28.5% and ~~92.4%~~28.4%, respectively, of our annualized rental ~~income as of September 30, 2017 and 2016, respectively.~~income. The U.S. ~~Government~~government is our largest tenant by annualized rental income and ~~was responsible for 59.8%~~represented approximately 19.6% and ~~63.9%~~18.5% of our annualized rental income as of ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

Table of Contents

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

Geographic Concentration

At ~~September~~June 30, ~~2017,~~2023, our 74155 wholly owned properties ~~(96 buildings)~~ were located in 3130 states and the District of Columbia. Properties located in California, Virginia, ~~California,~~Illinois, the District of Columbia ~~Georgia, Maryland, New York~~ and ~~Massachusetts~~Georgia were responsible for ~~14.8%~~approximately 11.9%, ~~14.8%~~11.1%, ~~9.5%~~10.7%, ~~8.6%, 7.0%, 6.9%~~10.3% and ~~4.9%~~9.2% of our annualized rental income as of ~~September~~June 30, ~~2017,~~2023, respectively.

~~Table of Contents~~

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

Note 7.6. Indebtedness

Our principal debt obligations at ~~September~~June 30, ~~2017~~2023 were: (1) ~~$565,000~~$240,000 of outstanding borrowings under our $750,000 unsecured revolving credit facility; (2) an$2,212,000 aggregate outstanding principal amount of ~~$550,000 of~~senior unsecured ~~term loans;~~notes; and (3) an$108,120 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~~In June 2023, we exercised our ~~revolving credit facility is January 31, 2019 and, subject to the payment of an extension fee and meeting other conditions, we have an~~ option to extend the ~~stated~~ maturity date of our revolving credit facility by ~~one year~~six months to January 31, ~~2020.~~2024 and paid an extension fee of $469. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity and no principal repayment is due until maturity.

In March 2023, we amended our credit agreement to, among other things, replace LIBOR with the secured overnight financing rate, or SOFR, as the benchmark interest rate for calculating interest payable on the amounts outstanding under our revolving credit facility. We are required to pay interest at ~~the~~a rate of ~~LIBOR~~SOFR plus a premium, which was ~~125~~145 basis points per annum at ~~September~~June 30, ~~2017,~~2023, on ~~borrowings~~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 2530 basis points per annum at ~~September~~June 30, ~~2017.~~2023. 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,~~2023 and December 31, 2022, the annual interest rate payable on borrowings under our revolving credit facility was ~~2.4%~~6.6% and ~~the~~5.4%, respectively. The weighted average annual interest rate for borrowings under our revolving credit facility was ~~2.4%~~6.5% and ~~1.7%~~6.2% for the three and six months ended ~~September~~June 30, ~~2017 and 2016,~~2023, respectively, and ~~2.2%~~2.4% for both the three and ~~1.7% for the nine~~six months ended ~~September~~June 30, ~~2017 and 2016, respectively.~~2022. As of ~~September~~June 30, ~~2017~~2023 and ~~October 30, 2017,~~July 25, 2023, we had ~~$565,000~~$240,000 and ~~$545,000~~$230,000, 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 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 rateand $510,000 and $520,000, respectively, available 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.

borrowing.

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.~~2023.

Mortgage Note Issuances

~~On July 20, 2017,~~During the six months ended June 30, 2023, we issued ~~$300,000~~the following four mortgage notes with an aggregate principal balance of ~~4.000% senior unsecured notes due 2022 in~~$108,120 and a weighted average interest rate of 7.863%:


Issuance Date	Principal Balance		Interest Rate	Maturity
May 2023	$	30,680	7.210%	7/1/2033
June 2023	26,340		8.139%	7/1/2028
June 2023	42,700		8.272%	7/1/2028
June 2023	8,400		7.305%	7/1/2033


Total / Weighted Average	$	108,120	7.863%

Mortgage Note Repayment

In June 2023, we repaid at maturity, a mortgage note secured by one property with an ~~underwritten public offering. The net proceeds from this offering~~outstanding principal balance of ~~$295,403, after payment~~$50,000 and an annual interest rate of ~~the underwriters' discount and other offering expenses, were used to finance, in part, the FPO Transaction.~~

3.70%.

Table of Contents

~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

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 as a result of our issuance of the 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 we recognized a loss on extinguishment of debt of $1,715.

At ~~September~~June 30, ~~2017, three~~2023, four of our properties ~~(three buildings)~~ with ~~an aggregate~~a net book value of ~~$50,031~~$153,078 were encumbered by ~~three mortgages~~mortgage notes with an aggregate principal balance of ~~$26,358. These~~$108,120. 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.

Note 8.7. 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~~2023 and December 31, ~~2016,~~2022, 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 June 30, 2023				As of December 31, 2022
Financial Instrument	Carrying Value (1)		Fair Value		Carrying Value (1)		Fair Value


Senior unsecured notes, 4.25% interest rate, due in 2024	$	348,004	$	330,082	$	346,863	$	331,601
Senior unsecured notes, 4.50% interest rate, due in 2025	644,542		561,672		642,818		589,388
Senior unsecured notes, 2.650% interest rate, due in 2026	298,151		221,097		297,839		232,770
Senior unsecured notes, 2.400% interest rate, due in 2027	347,776		235,344		347,466		256,606
Senior unsecured notes, 3.450% interest rate, due in 2031	396,396		210,204		396,178		268,004

Senior unsecured notes, 6.375% interest rate, due in 2050	156,807		79,704		156,711		113,075
Mortgage notes payable (2) (3)	106,365		111,230		49,917		49,099
Total	$	2,298,041	$	1,749,333	$	2,237,792	$	1,840,543

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
(1)Includes unamortized debt premiums, discounts and issuance costs totaling $22,079 and $24,208 as of June 30, 2023 and December 31, 2022, respectively.

(2)Balances as of December 31, 2022 include a mortgage note secured by one property with an outstanding principal balance of $50,000 that was repaid in June 2023.


~~(1)~~	~~Carrying amount includes certain unamortized debt issuance costs and unamortized premiums and discounts.~~

~~(2)~~

We assumed these mortgages in connection with our acquisitions 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, to interest expense over the respective terms of the mortgages to reduce interest expense to the estimated market interest rates as of the date of acquisition.

(3)Balances as of June 30, 2023 include four mortgage notes issued during the six months ended June 30, 2023 with an aggregate outstanding principal balance of $108,120.

We estimated the fair ~~value~~values of our senior unsecured notes (except for our senior unsecured notes due ~~2019 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~~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~~values may differ materially from the actual fair ~~value.~~values.

Note 9.8. Shareholders’ Equity

~~Distributions~~

Share Awards

On ~~February 23, 2017,~~June 13, 2023, in accordance with our Trustee compensation agreements, we ~~paid a regular quarterly distribution~~awarded 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~~each 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~~

~~On May 17, 2017, we granted 3,000~~nine Trustees 3,500 of our common shares, valued at ~~$21.75~~$7.90 per share, the closing price of our common shares on ~~the~~ Nasdaq on that ~~day, to each of our~~day.

Share Purchases

During the three and 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.

Onmonths ended June 30, ~~2017,~~2023, we purchased ~~278~~an aggregate of 6,779 and 7,754 of our common shares, valued at ~~$18.31 per~~a weighted average share ~~the closing~~ price of ~~our common shares on the Nasdaq on that day,~~$6.48 and $7.37 from ~~a former employee of RMR LLC in satisfaction of tax withholding and payment obligations in connection with vesting of awards~~one of our ~~common shares.~~

~~On September 14, 2017, we granted an aggregate of 57,350 of our common shares to our~~Trustees and certain former 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.~~

On September 19, 2017, we purchased an aggregate of 13,636 of our common shares valued at $18.30 per share, the closing price of our common shares on the Nasdaq on that day, from our 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.~~

Table of Contents

~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

Distributions

During the six months ended June 30, 2023, 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 12, 2023	January 23, 2023	February 16, 2023	$	0.55	$	26,710
April 13, 2023	April 24, 2023	May 18, 2023	0.25		12,141


			$	0.80	$	38,851

On July 13, 2023, we declared a regular quarterly distribution payable to common shareholders of record on July 24, 2023 in the amount of $0.25 per share, or approximately $12,150. We expect to pay this distribution on or about August 17, 2023.

Note ~~10.~~9. Business and Property Management Agreements with RMR ~~LLC~~

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

Pursuant to our business management agreement with RMR, ~~LLC,~~ we recognized net business management fees of ~~$1,891~~$3,592 and ~~$2,572~~$7,543 for the three and six months ended ~~September~~June 30, ~~2017 and 2016,~~2023, respectively, and ~~$8,241~~$4,492 and ~~$7,614~~$9,202 for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017 and 2016,~~2022, 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.~~2023, no estimated incentive fees are included in the net business management fees we recognized for the three and six months ended June 30, 2023. The actual amount of annual incentive fees ~~payable to RMR LLC~~ for ~~2017,~~2023, if any, will be based on our common share total return ~~as defined,~~ for the three year period ending December 31, ~~2017,~~2023, and will be payable in ~~2018. The net~~January 2024. We did not incur an incentive fee payable to RMR for the year ended December 31, 2022. 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~~$6,163 and ~~$2,249~~$12,482 for the three and six months ended ~~September~~June 30, ~~2017 and 2016,~~2023, respectively, and ~~$7,371~~$6,394 and ~~$6,636~~$12,522 for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2022, respectively. Of these amounts, for the three and ~~2016, respectively. These amounts are included in~~six months ended June 30, 2023, $3,801 and $7,534, respectively, were expensed to other operating expenses ~~or have been capitalized, as appropriate,~~ in our condensed consolidated ~~financial statements.~~statements of comprehensive income (loss) and $2,362 and $4,948, respectively, were capitalized as building improvements in our condensed consolidated balance sheet. For the three and six months ended June 30, 2022, $4,015 and $8,241, respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $2,379 and $4,281, respectively, were capitalized as building improvements in our condensed consolidated balance sheet. The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets.

In connection with the Merger, on April 11, 2023, we and RMR entered into a Third Amended and Restated Property Management Agreement, or the Amended Property Management Agreement. For more information about the Amended Property Management Agreement, refer to Note 10.

We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR ~~LLC~~ on our behalf. We are generally not responsible for payment of RMR’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR’s centralized accounting personnel, our share of RMR’s costs for providing our internal audit function and as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by ~~RMR LLC, are generally incorporated into rents charged to our tenants.~~RMR. We reimbursed RMR ~~LLC $3,436~~$6,617 and ~~$3,221~~$12,964 for ~~property management related~~these expenses and costs for the three and six months ended ~~September~~June 30, ~~2017 and 2016,~~2023, respectively, and ~~$10,482~~$6,047 and ~~$9,132~~$12,013 for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017 and 2016, respectively, which~~2022, respectively. We included these amounts ~~are included~~ in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive ~~income. In addition, we~~income (loss).

Table of Contents

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

Management Agreements Between Our Joint Ventures and RMR. RMR provides management services to our two unconsolidated joint ventures. We are ~~responsible for~~not obligated to pay management fees to RMR under our ~~share of~~management agreements with RMR ~~LLC’s costs for providing our internal audit function. The amount recognized as expense for internal audit costs was $67 and $34~~ for the ~~three months ended September 30, 2017 and 2016, respectively, and $202 and $168 for~~services it provides regarding the ~~nine months ended September 30, 2017 and 2016, respectively. We include these amounts in general and administrative expenses in our condensed consolidated statements of comprehensive income.~~joint ventures. The joint ventures pay management fees directly to RMR.

Note ~~11.~~10. 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 D. 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~~the chair of ~~September 30, 2017, we owned 1,214,225 shares~~the board of ~~class A common stock~~directors, a managing director, the president and chief executive officer of RMR Inc. ~~See Note 8 for further information regarding~~and an officer and employee of RMR. Jennifer B. Clark, our ~~investment in~~other Managing Trustee and our Secretary, also serves as a managing director and the executive vice president, general counsel and secretary of RMR Inc.

~~SIR. As~~, an officer and employee of ~~September 30, 2017, we owned 24,918,421~~RMR and an officer of ~~SIR's common shares, or approximately 27.8%~~ABP Trust. Each of ~~its outstanding common shares. Our Managing~~our officers is an officer and employee of RMR. Some of our Independent Trustees also serve as independent trustees of other public companies to which RMR or its subsidiaries provide management services. Mr. Portnoy serves as chair of the boards and as a managing trustee of these public companies. Other officers of RMR serve as managing trustees or officers of ~~SIR,~~certain of these companies.

Our Manager, RMR. We have two agreements with RMR to provide management services to us. RMR also provides management services to our ~~President~~two unconsolidated joint ventures. See Note 9 for more information regarding our and ~~Chief Operating Officer~~our unconsolidated joint ventures’ management agreements with RMR.

Leases with RMR. We lease office space to RMR in certain of our properties for RMR’s property management offices. Pursuant to our lease agreements with RMR, we recognized rental income from RMR for leased office space of $244 and $467 for the three and six months ended June 30, 2023, respectively, and $285 and $569 for the three and six months ended June 30, 2022, respectively.

Sonesta. In June 2021, we entered into a 30-year lease agreement with a subsidiary of Sonesta International Hotels Corporation, or Sonesta, in connection with the redevelopment of an office property we own in Washington, D.C. as a mixed-use property. Sonesta’s lease is for the full-service hotel component of the property that includes approximately 230,000 rentable square feet, which represents approximately 54% of the total square feet upon completion of the redevelopment. We substantially completed the redevelopment in June 2023 and the term of the lease is estimated to commence in August 2023. Sonesta has two options to extend the term for 10 years each. Pursuant to the lease agreement, Sonesta will pay us annual base rent of approximately $6,436 beginning 18 months after the lease commences. The annual base rent will increase by 10% every five years throughout the term. Sonesta is also obligated to pay its pro rata share of the operating costs for the building. We estimate that the total cost to build the hotel space will be approximately $77,000, of which approximately $73,000 has been incurred as of June 30, 2023. Mr. Portnoy is a director and controlling shareholder of Sonesta and Ms. Clark is also a director of Sonesta.

Merger Agreement with Diversified Healthcare Trust. As described further in Note 1, on April 11, 2023, we and DHC entered into the Merger Agreement, pursuant to which, on the terms and subject to the satisfaction or waiver of the conditions thereof, DHC will be merged with and into us, with us continuing as the surviving entity in the merger. Subject to the satisfaction or waiver of the conditions to closing, the Merger is expected to close during the third quarter of 2023.

RMR serves as our and DHC’s manager and will continue to manage the surviving entity following the Merger. Contemporaneously with the execution of the Merger Agreement, on April 11, 2023, we and RMR entered into the Amended Property Management Agreement. The effectiveness of the Amended Property Management Agreement is conditioned upon and will be concurrent with the consummation of the Merger. If the Merger is not consummated, the Amended Property Management Agreement will not become effective and the Second Amended and Restated Property Management Agreement, or the Current Property Management Agreement, will remain in effect.

Pursuant to the Amended Property Management Agreement, at the Effective Time, properties currently owned by DHC that are subject to its existing property management agreement, including its medical office and life science properties, will become subject to the terms and conditions of the Amended Property Management Agreement. Also pursuant to the Amended Property Management Agreement, RMR will be entitled to a renovation and repositioning fee equal to 3% of the cost of any major capital projects and repositionings at senior living communities currently owned by DHC that the surviving entity may

Table of Contents

~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

~~one of our Independent Trustees also serves as the president and chief operating officer and an independent trustee of SIR, respectively.~~request RMR ~~LLC provides management services~~ to ~~SIR and us. See Note 12 for further information regarding our investment in SIR.~~

~~AIC~~. We, SIR, ABP Trust and four other companies to which RMR LLC provides management services currently own AIC, an Indiana insurance company, in equal amounts. We and the other AIC shareholders participate in a combined property insurance program arranged and reinsured in part by AIC. We paid aggregate annual premiums, including taxes and fees, of approximately $757 in connection with this insurance program for the policy year ending June 30, 2018, which amount may be adjustedoversee from time to time, asconsistent with DHC’s existing property management agreement with RMR. The terms of the Amended Property Management Agreement are otherwise consistent with the terms of the Current Property Management Agreement.

In addition, contemporaneously with the execution of the Merger Agreement, we, ~~acquire~~DHC and ~~dispose~~RMR entered into a letter agreement pursuant to which, on the terms and subject to conditions contained therein, DHC and RMR have acknowledged and agreed that, effective upon consummation of ~~properties that are included~~the Merger, DHC shall have terminated its business and property management agreements with RMR for convenience, and RMR shall have waived its right to receive payment of the termination fee pursuant to each such agreement upon such termination. The foregoing terminations and waivers apply only in ~~this insurance program.~~

Asrespect of ~~September 30, 2017~~the Merger and ~~December 31, 2016, our investment in AIC had a carrying value of $8,064 and $7,235, respectively. These amounts are included in~~do not apply to any other assets in our condensed consolidated balance sheets. We recognized income related to our investment in AIC, which amounts are presented as equity in earnings of investees in our condensed consolidated statements of comprehensive income. Our other comprehensive income includes our proportionate part of unrealized gains on securities which are owned and held for sale by AIC.

transaction or arrangement.

For ~~further~~more information about these and other such relationships and certain other related person transactions, ~~please~~ refer to our 2022 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~~Report and our joint proxy statement/prospectus that 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~~included in our ~~condensed consolidated statements of comprehensive income. We recorded $9,453 and $8,655 of equity in~~registration statement on Form S-4 filed with 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.

SEC.

Table of Contents

~~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

~~Table of Contents~~

~~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

~~Table of Contents~~

~~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

~~Table of Contents~~

~~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

~~Table of Contents~~

~~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

~~Table of Contents~~

~~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~~2022 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,~~2023, our wholly owned properties were comprised of 155 properties and we ~~owned 74~~had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties ~~(96 buildings)~~containing approximately 444,000 rentable square feet. As of June 30, 2023, our properties are located in 3130 states and the District of Columbia ~~that~~and contain approximately ~~11.5 million~~20,784,000 rentable square ~~feet,~~feet. As of ~~which 57.8% was~~June 30, 2023, 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~~268 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 6.4 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 19.6% of our annualized rental income as of ~~September~~June 30, ~~2017 and 2016, respectively.~~2023. 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, 2023, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

Certain changes in office space utilization that accelerated during the COVID-19 pandemic, including increased remote work arrangements and tenants consolidating their real estate footprint, continue to impact the market. The utilization and demand for office space continues to face headwinds and the duration and ultimate impact of current trends on the demands for office space at our properties remains uncertain and subject to change. Accordingly, we do not yet know what the full extent of the impacts will be on our or our tenants’ businesses and operations nor the long-term outlook for leasing vacant space.

In response to inflationary pressures, the U.S. Federal Reserve has increased the federal funds rate by 525 basis points since March 2022 and has indicated that there may be additional increases. The inflationary pressures and rising interest rates in the United States and globally have given rise to concerns that the U.S. economy may soon enter an economic recession and they have caused disruptions in the financial markets. Sustained inflationary pressures, increased interest rates, an economic recession or continued or intensified disruptions in the financial markets could adversely affect our and our tenants’ financial condition, could adversely impact the ability or willingness of our tenants to renew our leases or pay rent to us, would impair our ability to effectively deploy our capital or realize desirable returns on our investments, may restrict our access to, and would likely increase our cost of, capital and may cause the values of our properties and our securities to decline.

For more information about the risks relating to these dynamics and conditions and their impacts on us and our business, see Part I, Item IA, “Risk Factors”, of our 2022 Annual Report.

On ~~October 2, 2017,~~April 11, 2023, we ~~completed our acquisition of First Potomac Realty Trust, or FPO, a Maryland REIT, pursuant to a definitive~~and DHC entered into the Merger Agreement, ~~and Plan of Merger, by and among us and certain of our subsidiaries and FPO and its operating partnership, or the FPO Transaction,~~ pursuant to which, on the terms and subject to the satisfaction or waiver of the conditions thereof, DHC will be merged with and into us, with us continuing as the surviving entity. Upon the closing of the Merger, we ~~acquired 39~~would acquire DHC’s medical office, senior housing and wellness center portfolios, which, as of March 31, 2023, consisted of 376 properties, ~~(74 buildings) with 6,454,382~~including 105 medical office and life science properties containing approximately 8,809,000 rentable square feet, ~~including two~~261 senior living communities containing approximately 27,000 units and ten wellness centers containing approximately 812,000 rentable square feet. The combined company is expected to be a REIT with a diversified tenant base, a broad portfolio, greater scale and strong growth potential.

For more information and risks relating to the Merger, see Notes 1, 9 and 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 and Part II, Item 1A “Risk Factors,” of this Quarterly Report on Form 10-Q and our joint proxy statement/prospectus that is included in our registration statement on Form S-4 filed with the SEC, or the Form S-4.

Property Operations

Unless otherwise noted, the data presented in this section includes properties classified as held for sale as of June 30, 2023 and 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 the two joint ventureFor more information regarding our properties ~~which are 50% and 51% owned by FPO,~~classified 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~~held for ~~the FPO Transaction in the fourth quarter of 2017 upon completion of third party appraisals~~sale 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 9two unconsolidated joint ventures, see Note 3 to our ~~condensed consolidated financial statements.~~

The FPO Transaction significantly increased our property portfolio. Giving effect 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 related 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.~~10-Q.

Table of Contents

~~Property Operations~~

As of September 30, 2017, 95.0% of our rentable square feet was leased, compared to 95.0% of our rentable square feet as of September 30, 2016, which excludes one property (one building) classified as discontinued operations which was sold on August 31, 2017. Occupancy data for our properties as of ~~September~~June 30, ~~2017~~2023 and ~~2016 is~~2022 was as follows (square feet in thousands):


	All Properties (1)				Comparable Properties (2)
	June 30,				June 30,
	2023		2022		2023		2022
Total properties	155		172		148		148
Total rentable square feet (3)	20,784		22,491		19,591		19,541
Percent leased (4)	90.6	%	89.4	%	94.4	%	95.4	%

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 %
(1)Based on properties we owned on June 30, 2023 and 2022, respectively.

(2)Based on properties we owned continuously since January 1, 2022; 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.


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


~~(2)~~	Based on properties we owned on September 30, 2017 and which we owned continuously since January 1, 2016. Our comparable properties decreased from 71 properties (91 buildings) at September 30, 2016 as a result of the sale of one property (one building) in July 2016.


~~(3)~~	~~Subject to changes when space is re-measured or re-configured for tenants.~~


~~(4)~~	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.

(3)Subject to changes when space is remeasured or reconfigured for tenants.

(4)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.

The average ~~annualized~~ effective rental rate per square foot for our properties for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016 are~~2022 were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Average effective rental rate per square foot (1):
All properties (2)	$	29.39	$	28.80	$	29.12	$	29.11
Comparable properties (3)	$	29.53	$	29.29	$	29.24	$	29.11

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Average annualized effective rental rate per square foot ⁽¹⁾:

All properties ⁽²⁾
$ 25.89
$ 25.31
$ 25.74
$ 25.15
Comparable properties ⁽³⁾
$ 25.68
$ 25.32
$ 25.30
$ 24.95
(1)Average 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.


~~(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 30, 2017 and 2016, respectively, and excludes one property (one building) classified as discontinued operations which was sold on August 31, 2017.~~


~~(3)~~	~~Based on properties we owned on September 30, 2017 and which we owned continuously since July 1, 2016 and January 1, 2016, respectively.~~

(2)Based on properties we owned on June 30, 2023 and 2022, respectively.

(3)Based on properties we owned continuously since April 1, 2022 and January 1, 2022, 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,~~2023, changes in rentable square feet leased and available for lease at our properties ~~excluding one~~were as follows (square feet in thousands):


	Three Months Ended June 30, 2023			Six Months Ended June 30, 2023
	Leased	Available for Lease	Total	Leased	Available for Lease	Total
Beginning of period	18,905	1,990	20,895	19,004	1,965	20,969
Changes resulting from:

Disposition of properties	(100)	(107)	(207)	(100)	(196)	(296)
Lease expirations	(684)	684	—	(986)	986	—
Redevelopment expansion (1)	—	87	87	—	87	87
Lease renewals (2)	517	(517)	—	629	(629)	—
New leases (2)	196	(196)	—	287	(287)	—
Remeasurements (3)	—	9	9	—	24	24
End of period	18,834	1,950	20,784	18,834	1,950	20,784

(1)Represents additional rentable square feet resulting from the redevelopment of a property ~~(one building) classified as discontinued operations~~in Washington, D.C., which was ~~sold on August 31, 2017, were~~completed and available for lease as ~~follows:~~of June 30, 2023.

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

Leased ⁽¹⁾
for Lease Total
Leased ⁽¹⁾
for Lease Total
Beginning of period 10,937,046
578,941
11,515,987
10,881,289
561,224
11,442,513
Changes resulting from:

Acquisition of properties —
—
—
69,374
—
69,374
Lease expirations (426,847 ) 426,847
—
(1,088,995 ) 1,088,995
—
Lease renewals ⁽²⁾
416,660
(416,660 ) —
1,000,878
(1,000,878 ) —
New leases ⁽²⁾
19,442
(19,442 ) —
83,755
(83,755 ) —
Re-measurements ⁽³⁾
—
864
864
—
4,964
4,964
End of period 10,946,301
570,550
11,516,851
10,946,301
570,550
11,516,851


~~(1)~~	~~Rentable square footage excludes an expansion being constructed at an existing property we own prior to the commencement of the lease.~~


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


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

~~Leases at our properties totaling 426,847 and 1,088,995 rentable square feet expired~~ during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively. During the three and nine months ended September 30, 2017, we entered into leases totaling 436,102 and 1,084,633 rentable~~2023.

(3)Rentable square feet ~~including lease renewals~~are subject to changes when space is remeasured or reconfigured for tenants.

Table of 416,660 and 1,000,878 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% and 4.0%, respectively, when compared to the weighted (by rentable square feet) average prior rents for the same space. The weighted (by rentable square feet) average rental rates for leases of 42,944 and 131,189 rentable square feet entered into with non-government tenants during the three and nine months ended September 30, 2017 decreased by 11.1% and increased by 0.7%, respectively, when compared to the weighted (by rentable square feet) average rental rates previously charged for the same space.Contents

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, we entered into new and renewal leases as summarized in the following table (square feet in thousands):


	Three Months Ended June 30, 2023
	New Leases			Renewals			Total
Rentable square feet leased	196			517			713
Weighted average rental rate change (by rentable square feet)	6.1		%	2.8		%	3.7		%
Tenant leasing costs and concession commitments (1)	$	15,894		$	24,744		$	40,638
Tenant leasing costs and concession commitments per rentable square foot (1)	$	81.10		$	47.87		$	57.01
Weighted (by square feet) average lease term (years)	8.9			10.8			10.3
Total leasing costs and concession commitments per rentable square foot per year (1)	$	9.08		$	4.42		$	5.53


	Six Months Ended June 30, 2023
	New Leases			Renewals			Total
Rentable square feet leased	287			629			916
Weighted average rental rate change (by rentable square feet)	(2.8		%)	(3.7		%)	(3.4		%)
Tenant leasing costs and concession commitments (1)	$	20,889		$	28,496		$	49,385
Tenant leasing costs and concession commitments per rentable square foot (1)	$	72.91		$	45.32		$	53.95
Weighted (by square feet) average lease term (years)	8.4			10.1			9.5
Total leasing costs and concession commitments per rentable square foot per year (1)	$	8.70		$	4.51		$	5.66

(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, 2023, 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,~~2023, 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 June 30, 2023					Six Months Ended June 30, 2023
	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	$	27.34	$	28.72	206	$	28.55	$	29.24	314
Lease renewals	$	21.39	$	22.02	507	$	26.66	$	25.47	756
Total leasing activity	$	23.11	$	23.95	713	$	27.21	$	26.58	1,070

(1)Effective rental rates include 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 exclude lease value amortization.

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

Square Foot ⁽¹⁾

Square Foot ⁽¹⁾
Square Feet
Square Foot ⁽¹⁾

Square Foot ⁽¹⁾
Square Feet
New leases $ —
$ —
—
$ 22.67
$ 22.98
97,797
Lease renewals $ 22.74
$ 23.25
17,442
$ 13.65
$ 15.25
578,330
Total leasing activity $ 22.74
$ 23.25
17,442
$ 14.95
$ 16.36
676,127


~~(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.

Table of Contents

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, commitments made for expenditures, such as tenant improvements~~2023 and ~~leasing costs, in connection with leasing space at our properties were as follows:~~

Tenant leasing costs and concession commitments ⁽¹⁾ (in thousands)

Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾

Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾

Tenant leasing costs and concession commitments ⁽¹⁾ (in thousands)

Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾

Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾

~~During the three and nine months ended September 30, 2017 and 2016,~~2022, amounts capitalized at our properties for ~~tenant improvements, leasing~~lease related costs, building improvements and development, redevelopment and ~~redevelopment~~other activities were as ~~follows (dollars~~follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022


Lease related costs (1)	$	28,252	$	16,131	$	41,293	$	24,795
Building improvements (2)	5,355		4,702		9,937		7,485
Recurring capital expenditures	33,607		20,833		51,230		32,280
Development, redevelopment and other activities (3)	40,435		40,302		89,906		77,826
Total capital expenditures	$	74,042	$	61,135	$	141,136	$	110,106

(1)Lease related costs generally include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space and leasing related costs, such as brokerage commissions and other tenant inducements.

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

(3)Development, redevelopment and other activities generally include capital expenditure projects that reposition a property or result in ~~thousands):~~new sources of revenue.

Tenant improvements ⁽¹⁾

Leasing costs ⁽²⁾

Building improvements ⁽³⁾

Development, redevelopment and other activities ⁽⁴⁾

AsIn addition to the capital expenditures described above, we contributed $1,500 and $3,763 to one of ~~September~~our unconsolidated joint ventures during the three and six months ended June 30, ~~2017,~~2023, respectively. Also, as of June 30, 2023, we ~~have~~had estimated unspent leasing related obligations of ~~$26,631~~$151,798, of which we expect to spend $89,129 over the next 12 months.

As of June 30, 2023, we had leases at our properties totaling approximately 2,136,000 rentable square feet that were scheduled to expire through June 30, 2024. As of July 25, 2023, we expect tenants with leases totaling approximately 1,411,000 rentable square feet that are scheduled to expire through June 30, 2024, not to renew or to downsize their leased space upon expiration, and ~~have committed~~we cannot be sure as to ~~redevelop~~whether other tenants will renew their leases upon expiration. However, we are in advanced discussions to re-lease certain of this space to new tenants, some of which may offset expected vacancies, and ~~expand an~~we continue to proactively engage with our existing ~~property prior~~tenants and are focused on our overall tenant retention. Prevailing market conditions and our 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, all of which factors are beyond our control. Whenever we renew or enter into new leases for our properties, we intend to ~~commencement~~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 that 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 or lower rents upon lease renewal or reletting. Additionally, we may incur significant costs and make significant concessions to renew our leases with ~~an estimated remaining cost~~current tenants or lease our properties to ~~complete~~new tenants.

As of June 30, 2023, our lease expirations by year were 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
2023	45	1,476	7.8	%	7.8	%	$	48,939	9.0	%	9.0	%
2024	52	2,739	14.5	%	22.3	%	70,366		13.0	%	22.0	%
2025	39	2,091	11.1	%	33.4	%	47,557		8.8	%	30.8	%
2026	38	1,494	7.9	%	41.3	%	40,395		7.5	%	38.3	%
2027	36	2,059	10.9	%	52.2	%	52,515		9.7	%	48.0	%
2028	21	998	5.3	%	57.5	%	45,552		8.4	%	56.4	%
2029	25	988	5.2	%	62.7	%	28,854		5.3	%	61.7	%
2030	27	895	4.8	%	67.5	%	25,821		4.8	%	66.5	%
2031	16	906	4.8	%	72.3	%	25,546		4.7	%	71.2	%
2032 and thereafter	54	5,188	27.7	%	100.0	%	155,746		28.8	%	100.0	%
Total	353	18,834	100.0	%			$	541,291	100.0	%

Weighted average remaining lease term (in years)		6.0					6.4

(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, 2023, tenants occupying approximately 3.9% of our rentable square feet and responsible for approximately 3.8% of our annualized rental income as of ~~September~~June 30, ~~2017~~2023 had exercisable rights to terminate their leases before the stated terms of ~~$3,302.~~their leases expire. Also, in 2023, 2024, 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2035, 2037 and 2040, early termination rights become exercisable by other tenants who occupied an additional approximately 2.3%, 2.8%, 3.7%, 1.5%, 0.9%, 3.4%, 0.9%, 0.8%, 0.6%, 0.3%, 0.9%, 0.1% and 0.3% of our rentable square feet, respectively, and contributed an additional approximately 2.6%, 3.0%, 7.2%, 2.0%, 1.4%, 3.9%, 1.4%, 1.0%, 0.5%, 0.6%, 1.2%, 0.2% and 0.4% of our annualized rental income, respectively, as of June 30, 2023. In addition, as of June 30, 2023, pursuant to leases with 8 of our tenants, these tenants had rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These 8 tenants occupied approximately 4.8% of our rentable square feet and contributed approximately 5.0% of our annualized rental income as of June 30, 2023.

(2)Leased square feet is pursuant to leases existing as of June 30, 2023, 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 ~~believe that current~~generally will seek to renew or extend the terms of leases at properties with tenants when they expire. However, market and economic factors, along with increases in remote work, changes in space utilization and government ~~budgetary pressures have resulted in a decrease in government employment,~~spending and budget priorities, may cause our tenants not to renew or extend their leases when they expire, or to seek to renew their leases for less space than they currently occupy. If we are unable to extend or renew our leases, or we renew leases for reduced space, it may be time consuming and expensive to relet some of these properties.

Over the past several years, government tenants ~~reducing~~have reduced their space utilization per employee and ~~consolidation of~~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~~have generally renewed leases for mission critical space to avoid the costs and disruptions that may result from relocating their operations. However, efforts to ~~reduce~~manage 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 to government owned properties or inconsolidated leased space within a market, or renewing their leases for less space than they currently occupy. Also, our government ~~tenants'~~tenants’ desire to reconfigure leased office space to ~~reduce~~manage utilization per employee may require us to spend significant amounts for tenant improvements, and tenant relocations ~~have become~~are often 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.~~those circumstances. Increasing uncertainty with respect to government agency budgets and funding to implement relocations, consolidations and reconfigurations ~~recently~~ has, in some instances, resulted in delayed decisions by some of our

government tenants and ~~their reliance~~greater focus on short term lease renewals. ~~At present,~~Given the significant uncertainties, including the extent to which remote or alternative work arrangements and tenants consolidating their real estate footprint may continue or increase, we are unable to reasonably project what the financial impact of market conditions or changing government ~~financial~~ circumstances 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% of our annualized rental income as of September 30, 2017, expires in the fourth quarter of 2021. The IRS has also publicly stated that it plans to discontinue its tax return processing operations in Covington, KY in 2019. Our 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 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.~~

financial results for future periods.

As of ~~September~~June 30, ~~2017, lease expirations at~~2023, we derived 22.4% of our annualized rental income from our properties ~~by year are as follows (dollars in thousands):~~

~~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 rentable square feet for a purchase price of $12,620, excluding capitalized acquisition costs of $37, using cash on hand and borrowings under our revolving credit facility. We acquired this property at a capitalization 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 and below market lease amortization, based 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 and amortization expense, to (y) the acquisition purchase price, including the principal amount of assumed debt, if any, and excluding acquisition costs.

~~In September 2017, 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~~which includes Washington, D.C., Northern Virginia and suburban Maryland. Current economic conditions in this area or a possible recession, including as a result of ~~the FPO Transaction and we may acquire additional~~current inflationary conditions or otherwise, could reduce demand from tenants for our properties, reduce rents that our tenants in this area are willing to pay when our leases expire and

increase lease concessions for new leases and renewals. Additionally, there has been a decrease in demand for new leased office space by the ~~future. Outside of~~U.S. government in the metropolitan Washington, D.C. market area, ~~our strategy related to property acquisitions is materially unchanged from~~and that ~~disclosed in our Annual Report and we will continue to explore and evaluate~~could increase competition for ~~possible acquisition additional properties that are majority leased to~~ government tenants and adversely affect our ability to retain government ~~contractor tenants. Until~~tenants or maintain or increase our rents when our leases expire.

Our manager, RMR, employs a tenant review process for us. RMR assesses tenants on an individual basis based on various applicable credit criteria. In general, depending on facts and circumstances, RMR 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. We consider investment grade tenants to include: (a) investment grade rated tenants; (b) tenants with investment grade rated parent entities that 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, 2023, 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 9.8% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

As of June 30, 2023, tenants representing 1% or more of our total annualized rental income were as follows (square feet in thousands):


	Tenant	Credit Rating	Sq. Ft.	% of Leased Sq. Ft.		Annualized Rental Income		% of Total Annualized Rental Income
1	U.S. Government	Investment Grade	3,815	20.3	%	$	105,836	19.6	%
2	Alphabet Inc. (Google)	Investment Grade	386	2.0	%	22,119		4.1	%
3	Shook, Hardy & Bacon L.L.P.	Not Rated	596	3.2	%	19,216		3.5	%
4	IG Investments Holdings LLC	Not Rated	338	1.8	%	17,293		3.2	%
5	State of California	Investment Grade	519	2.8	%	16,205		3.0	%
6	Bank of America Corporation	Investment Grade	577	3.1	%	15,911		2.9	%
7	Commonwealth of Massachusetts	Investment Grade	311	1.6	%	12,260		2.3	%
8	Tyson Foods, Inc. (1)	Investment Grade	248	1.3	%	11,954		2.2	%
9	CareFirst Inc.	Not Rated	207	1.1	%	11,622		2.1	%
10	Northrop Grumman Corporation	Investment Grade	337	1.8	%	10,795		2.0	%
11	Sonesta International Hotels Corporation (2)	Not Rated	230	1.2	%	10,745		2.0	%
12	CommScope Holding Company Inc.	Non Investment Grade	228	1.2	%	9,582		1.8	%
13	Sonoma Biotherapeutics, Inc. (3)	Not Rated	107	0.6	%	8,032		1.5	%
14	State of Georgia	Investment Grade	308	1.6	%	7,345		1.4	%
15	PNC Bank	Investment Grade	441	2.3	%	6,927		1.3	%
16	Micro Focus International plc	Non Investment Grade	215	1.1	%	6,836		1.3	%
17	Compass Group plc	Investment Grade	267	1.4	%	6,697		1.2	%
18	ServiceNow, Inc.	Investment Grade	149	0.8	%	6,675		1.2	%
19	Allstate Insurance Co.	Investment Grade	468	2.5	%	6,484		1.2	%
20	Automatic Data Processing, Inc.	Investment Grade	289	1.5	%	6,196		1.1	%
21	Church & Dwight Co., Inc.	Investment Grade	250	1.3	%	6,043		1.1	%
22	Leidos Holdings Inc.	Investment Grade	159	0.8	%	5,950		1.1	%
23	Primerica, Inc.	Investment Grade	344	1.8	%	5,737		1.1	%
	Total		10,789	57.1	%	$	336,460	62.2	%

(1)In July 2023, we ~~have fully integrated~~received notice from Tyson Foods, Inc. exercising its option to terminate its lease at a property we own in Chicago, IL effective January 2025, prior to the ~~FPO~~stated lease expiration date of January 31, 2028. We will receive an early termination fee of approximately $8,600.

(2)In June 2021, we entered into a 30-year lease with Sonesta. The lease relates to the redevelopment of a property we own in Washington, D.C to a mixed use and Sonesta's lease relates to the hotel component of the property. We substantially completed the redevelopment in June 2023 and the Sonesta lease is estimated to commence in August 2023. For more information about our lease with Sonesta, see Note 10 to our Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report on Form 10-Q.

(3)In August 2022, we entered into an approximately 10-year lease with Sonoma Biotherapeutics, Inc. at a property we own in Seattle, WA that is currently undergoing redevelopment. The term of the lease is estimated to commence in the fourth quarter of 2023.

Disposition Activities

During the six months ended June 30, 2023, we sold five properties ~~into~~containing approximately 296,000 rentable square feet for an aggregate sales price of $13,075, excluding closing costs.

As a result of current commercial real estate market conditions, including rising interest rates, the pace of our ~~business~~dispositions has moderated and we expect that ~~our acquisition activities may be reduced. Also, as part of the long term financing plan for the FPO Transaction,~~trend to continue until commercial real estate industry conditions generally, and office market conditions specifically, improve. However, we ~~expect~~continue to ~~identify properties within~~evaluate our portfolio ~~for disposition. Generally, we identify~~to strategically recycle capital and are currently in various stages of marketing certain of our 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,~~decide to seek to sell additional properties in the future. As of July 25, 2023, we ~~sold a vacant office~~have entered into an agreement to sell one property ~~(one building) located in Falls Church, VA with 164,746~~containing approximately 80,000 rentable square feet ~~and~~for a ~~net book value~~sales price of ~~$12,901 as of the sale date for $13,523,~~$10,500, excluding closing costs. We cannot be sure we will sell any properties we are marketing for sale for prices in excess of their carrying values or otherwise. In addition, our pending 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 3 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

~~In October 2017, we sold a vacant office property (one building) located~~Segment Information

We operate in ~~Albuquerque, NM with 29,045 rentable square feet and a net book value~~one business segment: ownership of ~~$1,885, as~~real estate properties.

Table of ~~September 30, 2017 for $2,000, excluding closing costs.~~Contents

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

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 was $493,936, after payment of the underwriters' discount and other 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.

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 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 result of our issuance of the senior unsecured notes and the proceeds from the sale of our common shares in July 2017, each as described above, and we recognized a loss on extinguishment of debt of $1,715.

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

Three Months Ended ~~September~~June 30, ~~2017,~~2023, Compared to Three Months Ended ~~September~~June 30, ~~2016~~2022

Comparable Properties (1) Results

Three Months Ended June 30,

Consolidated Results

Three Months Ended June 30,

Net operating income (loss) (2)

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

n/m - not meaningful

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

Less: Estimated business management incentive fee ⁽⁶⁾

~~We refer to the 71 properties (91 buildings)~~ we owned on ~~September~~June 30, ~~2017~~2023 and which we ~~have~~ owned continuously since ~~July~~April 1, ~~2016~~2022 and excludes properties classified as ~~comparable properties. We refer to the~~held for sale and properties undergoing significant redevelopment, if any, and three properties ~~(five buildings)~~owned by two unconsolidated joint ventures in which we ~~acquired since July 1, 2016 as~~own 51% and 50% interests.

(2)Our definition of net operating income, or NOI, and our reconciliation of net loss to NOI are included below under 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.

heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three ~~month period~~months ended ~~September~~June 30, ~~2017,~~2023, compared to the three ~~month period~~months ended ~~September~~June 30, ~~2016.~~2022.

Rental income. The ~~increase~~decrease in rental income reflects ana decrease in rental income of $7,841 as a result of property disposition activities, partially offset by increases in rental income of $509 for comparable properties and $13 for properties undergoing significant redevelopment. The increase 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~~an increase in ~~rental rates and~~reimbursement revenue resulting from higher operating expenses, partially offset by reductions in occupied space at certain of our properties and lower early termination income recorded in the ~~2017~~2023 period. ~~Rental income increased $4,141 as a result of the acquired properties.~~ Rental income includes non-cash straight line rent adjustments totaling ~~$711~~$4,256 in the ~~2017~~2023 period and ~~$1,205~~$2,775 in the ~~2016~~2022 period, and amortization of acquired real estate leases and assumed real estate lease obligations totaling ~~($619)~~$61 in the ~~2017~~2023 period and ~~($370)~~$(233) in the ~~2016~~2022 period.

Real estate taxes. The ~~increase~~decrease in real estate taxes primarily reflects ~~an increase in real estate taxes~~a decrease of $1,093 related to property disposition activities, partially offset by increases of $383 for comparable properties and ~~the taxes~~$28 for ~~acquired properties.~~properties undergoing significant redevelopment. Real estate taxes for comparable properties increased ~~$763~~primarily due ~~primarily~~ to ~~the effect of higher real estate tax valuation assessments at certain of our properties~~refunds received in the ~~2017 period. Real estate taxes increased $507~~2022 period as a result of ~~the acquired~~successful real estate tax appeals for certain of our properties.

Utility expenses. The decrease in utility expenses primarily reflects a ~~decline~~decrease of $429 related to property disposition activities, partially offset by increases of $324 for comparable properties and $27 for properties undergoing significant redevelopment. The increase 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~~is primarily due to ~~a decrease~~the impact of inflation in ~~electricity usage at~~the 2023 period, as well as utility expenses that were previously paid directly by certain of our ~~buildings during the 2017 period. Utility expenses increased $316 as a result of the acquired properties.~~tenants that are now being paid by us pursuant to lease amendments executed in 2022 with those tenants.

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 in other operating expenses primarily reflects ~~an increase in expenses~~increases of $1,893 for ~~the~~ comparable properties and ~~the net effect~~$50 for properties undergoing significant redevelopment, partially offset by a decrease of ~~the acquired and disposed properties. Other~~$1,806 related to property disposition activities. The increase in other operating expenses ~~at the~~for comparable properties ~~increased $225~~is primarily ~~as a result~~due to the impact of inflation in the 2023 period, higher repairs and maintenance costs ~~during the 2017 period. Other~~and higher insurance costs, as well as other operating expenses ~~increased $746 as a result~~that were previously paid directly by certain of ~~the acquired properties and increased $42 as a result of the disposed property.~~our tenants that are now being paid by us pursuant to lease amendments executed in 2022 with those tenants.

Depreciation and amortization. The ~~increase~~decrease in depreciation and amortization primarily reflects ~~the depreciation~~decreases of $2,413 for comparable properties, $1,995 related to property disposition activities and $1,527 for properties undergoing significant redevelopment. Depreciation and amortization ~~from the acquired~~for comparable properties ~~and the effect of improvements made~~declined due to certain ~~of our comparable properties, partially offset by the effect of certain~~leasing related assets becoming fully ~~depreciated. Depreciation and amortization increased $1,921 as a result of the acquired properties. Depreciation and amortization at comparable properties increased $456 due primarily to~~depreciated since April 1, 2022, partially offset by depreciation and amortization of improvements made to certain of our properties ~~after July~~since April 1, ~~2016, partially offset by certain leasing related assets becoming fully depreciated after July 1, 2016.~~2022.

Loss on impairment of real estate. We recorded a ~~$230~~$4,773 loss on impairment of real estate in the ~~2017~~2022 period to reduce the carrying value of ~~one property (one building)~~six properties to ~~its~~their estimated fair ~~value.~~values less costs to sell.

Acquisition and transaction related costs. Acquisition and transaction related costs ~~include legal~~consist of costs related to our evaluation of potential acquisitions, dispositions and ~~diligence~~other strategic transactions, including costs incurred in connection with the Merger and related transactions. For more information regarding the Merger, see Notes 1, 9 and 10 to our ~~2016 property acquisition activities~~Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and our joint proxy statement/prospectus that ~~were expensed~~is included in ~~accordance with GAAP. Pursuant to changes in GAAP, beginning in 2017, we generally capitalize our asset acquisition related costs.~~the Form S-4.

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 ~~as a~~the result of ~~the reversal~~a decrease in base business management fees resulting from a decrease in average total market capitalization and a decrease in share based compensation in the ~~2017~~2023 period compared to the 2022 period.

Loss on sale of ~~$893~~real estate. We recorded a $2,305 net loss on sale of ~~previously accrued estimated business management incentive fee expense, partially offset by an increase in other business management fee expense~~real estate resulting from the sale of two properties in the ~~2017~~2023 period. We recorded an $11,637 net loss on sale of real estate resulting from the sale of two properties in the 2022 period.

~~Dividend~~Interest and other income. ~~Dividend income consists of dividends received from our investment in The RMR Group Inc., or RMR Inc.~~

~~Interest income.~~ The increase in interest and other income is primarily due to the ~~result~~effect of higher interest rates earned on cash balances invested in the ~~2017~~2023 period ~~due to our financing activities related~~compared to the ~~FPO Transaction.~~2022 period.

Interest expense. The increase in interest expense reflects higher average amounts outstanding ~~debt balances~~ and higher ~~weighted~~ average interest rates on borrowings under our revolving credit facility, as well as the issuance of four mortgage notes with an aggregate principal balance of $108,120 and a weighted average interest rate of 7.9% during the ~~2017~~2023 period, ~~compared to~~partially offset by the ~~2016 period.~~redemption of $300,000 of our senior unsecured notes with an interest rate of 4.0% in June 2022, higher capitalized interest and the repayment of two mortgage notes since July 1, 2022 with an aggregate principal balance of approximately $73,000 and a weighted average interest rate of 4.0%.

Loss on early extinguishment of ~~debt~~. debt. We recorded a loss on early extinguishment of debt of ~~$1,715~~$77 in the ~~2017~~2022 period ~~in connection~~from the write off of unamortized discounts and debt issuance costs associated with the ~~termination~~redemption of ~~the bridge loan facility described in Note 7 to~~ our ~~condensed consolidated financial statements included in Part 1, Item 1~~senior unsecured notes due July 2022.

Table of ~~this Quarterly Report on Form 10-Q.~~Contents

~~Gain on issuance of shares by Select~~

Income ~~REIT.~~ ~~Gain on issuance of shares by SIR~~tax (expense) benefit. Income tax (expense) benefit is aprimarily the result of ~~the issuance of common shares by SIR at prices above our then per share carrying value of our SIR common shares.~~

~~Income tax expense.~~ ~~The increase in income tax expense reflects higher~~ operating income earned in ~~certain~~ jurisdictions ~~in the 2017 period that is~~where we are subject to state income ~~taxes.~~taxes and can fluctuate based on the timing of our income, including as a result of gains or losses on the sale of real estate.

Equity in ~~earnings~~net losses of investees.Equity in ~~earnings~~net losses of investees represents our proportionate share of ~~earnings~~losses from our investments in ~~SIR~~two unconsolidated joint ventures.

Net loss. Net loss and ~~Affiliates Insurance Company, or AIC. The increase in the 2017 period is primarily the result of an increase in SIR's~~ 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~~loss per basic and diluted common share decreased in the ~~2017~~2023 period compared to the ~~2016~~2022 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 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.

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

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017,~~2023, Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2022

Comparable Properties (1) Results

Six Months Ended June 30,

Consolidated Results



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


				Page
PART II..			Financial Information

Item 1.			Financial Statements (unaudited)

			Condensed Consolidated Balance Sheets — ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016~~2022	23

			Condensed Consolidated Statements of Comprehensive Income (Loss) — Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022	34

			Condensed Consolidated Statements of Shareholders’ Equity — Three and Six Months Ended June 30, 2023 and 2022	5

			Condensed Consolidated Statements of Cash Flows ~~—Nine~~— Six Months Ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022	46

			Notes to Condensed Consolidated Financial Statements	58

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	2217

Item 3.			Quantitative and Qualitative Disclosures About Market Risk	3934

Item 4.			Controls and Procedures	4136

			Warning Concerning ~~Forward Looking~~Forward-Looking Statements	4237

			Statement Concerning Limited Liability	4538

PART IIII..			Other Information

Item 1.			Legal Proceedings	38

Item 1A.			Risk Factors	4639

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	4645

Item 6.			Exhibits	45

			~~Item 6.~~ Signatures	~~Exhibits~~	47

	~~Signatures~~	49


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

Rental income	$	133,997	$	141,316	$	266,419	$	288,670

Expenses:
Real estate taxes	15,901		16,583		31,234		33,228
Utility expenses	5,742		5,820		13,002		12,685
Other operating expenses	26,634		26,497		52,691		53,860
Depreciation and amortization	51,601		57,536		103,293		118,005
Loss on impairment of real estate	—		4,773		—		21,820
Acquisition and transaction related costs	11,181		224		14,399		224
General and administrative	5,785		7,083		11,710		12,789
Total expenses	116,844		118,516		226,329		252,611

Gain (loss) on sale of real estate	(2,305)		(11,637)		243		(9,488)


Interest and other income	337		16		501		17
Interest expense (including net amortization of debt premiums, discounts and issuance costs of $2,327, $2,366, $4,532 and $4,770, respectively)	(26,525)		(26,515)		(51,756)		(53,954)
Loss on early extinguishment of debt	—		(77)		—		(77)
Loss before income tax (expense) benefit and equity in net losses of investees	(11,340)		(15,413)		(10,922)		(27,443)
Income tax (expense) benefit	(211)		190		(241)		(341)
Equity in net losses of investees	(691)		(833)		(1,525)		(1,679)



Net loss	$	(12,242)	$	(16,056)	$	(12,688)	$	(29,463)














Weighted average common shares outstanding (basic and diluted)	48,354		48,249		48,345		48,246


Per common share amounts (basic and diluted):



Net loss	$	(0.25)	$	(0.33)	$	(0.27)	$	(0.61)



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	)



	June 30, 2023		December 31, 2022
ASSETS
Real estate properties:
Land	$	809,590	$	821,238
Buildings and improvements	3,225,963		3,114,836
Total real estate properties, gross	4,035,553		3,936,074
Accumulated depreciation	(605,789)		(561,458)
Total real estate properties, net	3,429,764		3,374,616
Assets of properties held for sale	11,731		2,516
Investments in unconsolidated joint ventures	37,367		35,129
Acquired real estate leases, net	318,975		369,333
Cash and cash equivalents	25,212		12,249
Restricted cash	610		—
Rents receivable	110,599		105,639

Deferred leasing costs, net	82,691		73,098
Other assets, net	10,619		7,397
Total assets	$	4,027,568	$	3,979,977

LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured revolving credit facility	$	240,000	$	195,000
Senior unsecured notes, net	2,191,676		2,187,875
Mortgage notes payable, net	106,365		49,917
Liabilities of properties held for sale	28		73
Accounts payable and other liabilities	134,425		140,151
Due to related persons	6,232		6,469
Assumed real estate lease obligations, net	12,887		14,157
Total liabilities	2,691,613		2,593,642

Commitments and contingencies

Shareholders’ equity:
Common shares of beneficial interest, $.01 par value: 200,000,000 shares authorized, 48,587,650 and 48,565,644 shares issued and outstanding, respectively	486		486
Additional paid in capital	2,620,691		2,619,532
Cumulative net income	156,918		169,606

Cumulative common distributions	(1,442,140)		(1,403,289)
Total shareholders’ equity	1,335,955		1,386,335
Total liabilities and shareholders’ equity	$	4,027,568	$	3,979,977



	September 30,			December 31,
	2017			2016
ASSETS
Real estate properties:
Land	$	269,332		$	267,855
Buildings and improvements	1,660,379			1,620,905
Total real estate properties, gross	1,929,711			1,888,760
Accumulated depreciation	(331,069		)	(296,804		)
Total real estate properties, net	1,598,642			1,591,956

Equity investment in Select Income REIT	475,265			487,708
Assets of discontinued operations	—			12,541
Acquired real estate leases, net	99,953			124,848
Deposit escrow for FPO acquisition	651,696			—
Cash and cash equivalents	551,707			29,941
Restricted cash	509			530
Rents receivable, net	47,461			48,458
Deferred leasing costs, net	22,250			21,079
Other assets, net	89,484			68,005
Total assets	$	3,536,967		$	2,385,066

LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured revolving credit facility	$	565,000		$	160,000
Unsecured term loans, net	547,682			547,171
Senior unsecured notes, net	943,543			646,844
Mortgage notes payable, net	26,561			27,837
Liabilities of discontinued operations	—			45
Accounts payable and other liabilities	63,525			54,019
Due to related persons	4,297			3,520
Assumed real estate lease obligations, net	8,832			10,626
Total liabilities	2,159,440			1,450,062

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
Additional paid in capital	1,968,249			1,473,533
Cumulative net income	126,410			96,329
Cumulative other comprehensive income	46,980			26,957
Cumulative common distributions	(765,103		)	(662,527		)
Total shareholders’ equity	1,377,527			935,004
Total liabilities and shareholders’ equity	$	3,536,967		$	2,385,066



	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



	Nine Months Ended September 30,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	30,081		$	45,778
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	35,460			31,611
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		)
Amortization of acquired real estate leases	25,592			21,948
Amortization of deferred leasing costs	2,790			2,343
Other non-cash expenses, net	352			500
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
Change in assets and liabilities:
Restricted cash	21			508
Deferred leasing costs	(2,846		)	(7,998		)
Rents receivable	3,839			(126		)
Other assets	(7,045		)	(1,466		)
Accounts payable and accrued expenses	6,703			(150		)
Due to related persons	777			1,088
Net cash provided by operating activities	93,726			91,674

CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions and deposits	(666,202		)	(83,705		)
Real estate improvements	(29,377		)	(23,357		)
Distributions in excess of earnings from Select Income REIT	20,063			11,951
Proceeds from sale of properties, net	13,198			263
Net cash used in investing activities	(662,318		)	(94,848		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgage notes payable	(1,150		)	(107,562		)
Proceeds from issuance of senior notes, after discounts	297,954			300,235
Proceeds from issuance of common shares, net	493,936			—
Borrowings on unsecured revolving credit facility	610,000			254,000
Repayments on unsecured revolving credit facility	(205,000		)	(346,000		)
Payment of debt issuance costs	(2,551		)	(464		)
Repurchase of common shares	(255		)	(312		)
Distributions to common shareholders	(102,576		)	(91,759		)
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



	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



	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	)



			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



	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



	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	%



	Three Months Ended September 30, 2017					Nine Months Ended September 30, 2017
			Available					Available
	Leased ⁽¹⁾		for Lease		Total	Leased ⁽¹⁾		for Lease		Total
Beginning of period	10,937,046		578,941		11,515,987	10,881,289		561,224		11,442,513
Changes resulting from:
Acquisition of properties	—		—		—	69,374		—		69,374
Lease expirations	(426,847	)	426,847		—	(1,088,995	)	1,088,995		—
Lease renewals ⁽²⁾	416,660		(416,660	)	—	1,000,878		(1,000,878	)	—
New leases ⁽²⁾	19,442		(19,442	)	—	83,755		(83,755	)	—
Re-measurements ⁽³⁾	—		864		864	—		4,964		4,964
End of period	10,946,301		570,550		11,516,851	10,946,301		570,550		11,516,851



	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
	Square Foot ⁽¹⁾		Square Foot ⁽¹⁾		Square Feet	Square Foot ⁽¹⁾		Square Foot ⁽¹⁾		Square Feet
New leases	$	—	$	—	—	$	22.67	$	22.98	97,797
Lease renewals	$	22.74	$	23.25	17,442	$	13.65	$	15.25	578,330
Total leasing activity	$	22.74	$	23.25	17,442	$	14.95	$	16.36	676,127



	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.~~



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Tenant improvements ⁽¹⁾	$	3,213	$	5,636	$	6,692	$	12,306
Leasing costs ⁽²⁾	$	1,993	$	655	$	4,051	$	8,002
Building improvements ⁽³⁾	$	2,640	$	3,009	$	8,883	$	8,691
Development, redevelopment and other activities ⁽⁴⁾	$	3,132	$	1,292	$	16,362	$	4,221


~~(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.~~



	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


~~(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.~~


	Comparable Properties (1) Results Three Months Ended June 30,								Non-Comparable Properties Results Three Months Ended June 30,				Consolidated Results Three Months Ended June 30,

	2023		2022		$ Change		% Change		2023		2022		2023		2022		$ Change		% Change
Rental income	$	133,467	$	132,958	$	509	0.4	%	$	530	$	8,358	$	133,997	$	141,316	$	(7,319)	(5.2	%)
Operating expenses:
Real estate taxes	15,588		15,205		383		2.5	%	313		1,378		15,901		16,583		(682)		(4.1	%)
Utility expenses	5,649		5,325		324		6.1	%	93		495		5,742		5,820		(78)		(1.3	%)
Other operating expenses	26,036		24,143		1,893		7.8	%	598		2,354		26,634		26,497		137		0.5	%
Total operating expenses	47,273		44,673		2,600		5.8	%	1,004		4,227		48,277		48,900		(623)		(1.3	%)
Net operating income (loss) (2)	$	86,194	$	88,285	$	(2,091)	(2.4	%)	$	(474)	$	4,131	85,720		92,416		(6,696)		(7.2	%)

Other expenses:
Depreciation and amortization													51,601		57,536		(5,935)		(10.3	%)
Loss on impairment of real estate													—		4,773		(4,773)		n/m
Acquisition and transaction related costs													11,181		224		10,957		n/m
General and administrative													5,785		7,083		(1,298)		(18.3	%)
Total other expenses													68,567		69,616		(1,049)		(1.5	%)

Loss on sale of real estate													(2,305)		(11,637)		9,332		(80.2	%)


Interest and other income													337		16		321		n/m
Interest expense													(26,525)		(26,515)		(10)		n/m
Loss on early extinguishment of debt													—		(77)		77		n/m

Loss before income tax (expense) benefit and equity in net losses of investees													(11,340)		(15,413)		4,073		(26.4	%)
Income tax (expense) benefit													(211)		190		(401)		n/m
Equity in net losses of investees													(691)		(833)		142		(17.0	%)






Net loss													$	(12,242)	$	(16,056)	$	3,814	(23.8	%)



Weighted average common shares outstanding (basic and diluted)													48,354		48,249		105		0.2	%


Per common share amounts (basic and diluted):
Net loss													$	(0.25)	$	(0.33)	$	0.08	(24.2	%)



										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


~~(1)~~	(1)Comparable properties consists of 148 properties ~~consist of 71 properties (91 buildings) we owned on September 30, 2017 and which we owned continuously since July 1, 2016.~~


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