UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30, 2019~~March 31, 2020

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

Commission File Number 1-34364

OFFICE PROPERTIES INCOME TRUST

(Exact Name of Registrant as Specified in Its Charter)



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

Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634

(Address of Principal Executive Offices) (Zip Code)

617-219-1440

(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol(s)	Name Of Each Exchange On Which Registered
Common Shares of Beneficial Interest	OPI	The Nasdaq Stock Market LLC
5.875% Senior Notes due 2046	OPINI	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided 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 31, 2019: 48,202,778~~April 30, 2020: 48,200,929

Table of Contents

OFFICE PROPERTIES INCOME TRUST

FORM 10-Q

~~September 30, 2019~~March 31, 2020

INDEX



		Page
PART I.	Financial Information

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets — ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	3

	Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ — Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	4

	Condensed Consolidated Statements of Shareholders' Equity — Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	5

	Condensed Consolidated Statements of Cash Flows — ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	76

	Notes to Condensed Consolidated Financial Statements	98

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2215

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4031

Item 4.	Controls and Procedures	4233

	Warning Concerning Forward-Looking Statements	4333

	Statement Concerning Limited Liability	4638

PART II.	Other Information

Item 1A.	Risk Factors	4638

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4640

Item 6.	Exhibits	4741

	Signatures	4943

References in this Quarterly Report on Form 10-Q to “the Company”, “OPI”, “we”, “us” or “our” include Office Properties Income Trust and its consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.

Table of Contents

PART I. Financial Information

Item 1. Financial Statements

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(unaudited)


	September 30,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
ASSETS
Real estate properties:
Land	$	854,083		$	924,164		$	843,418		$	840,550
Buildings and improvements	2,702,657			3,020,472			2,672,467			2,652,681
Total real estate properties, gross	3,556,740			3,944,636			3,515,885			3,493,231
Accumulated depreciation	(375,565		)	(375,147		)	(403,229		)	(387,656		)
Total real estate properties, net	3,181,175			3,569,489			3,112,656			3,105,575
Assets of properties held for sale	155,395			253,501			—			70,877
Investments in unconsolidated joint ventures	40,502			43,665			39,429			39,756
Acquired real estate leases, net	808,817			1,056,558			689,512			732,382
Cash and cash equivalents	29,002			35,349			29,657			93,744
Restricted cash	4,031			3,594			4,349			6,952
Rents receivable, net	70,234			72,051
Rents receivable							90,462			83,556
Deferred leasing costs, net	37,890			25,672			42,612			40,107
Other assets, net	33,203			178,704			20,028			20,187
Total assets	$	4,360,249		$	5,238,583		$	4,028,705		$	4,193,136

LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured revolving credit facility	$	210,000		$	175,000		$	348,000		$	—
Unsecured term loans, net	—			387,152
Senior unsecured notes, net	2,015,099			2,357,497			1,619,528			2,017,379
Mortgage notes payable, net	311,025			335,241			244,252			309,946
Liabilities of properties held for sale	16,240			4,271			—			14,693
Accounts payable and other liabilities	118,338			145,536			106,066			125,048
Due to related persons	7,674			34,887			7,973			7,141
Assumed real estate lease obligations, net	15,260			20,031			12,512			13,175
Total liabilities	2,693,636			3,459,615			2,338,331			2,487,382

Commitments and contingencies

Shareholders’ equity:
Common shares of beneficial interest, $.01 par value: 200,000,000 shares authorized, 48,203,332 and 48,082,903 shares issued and outstanding, respectively	482			481
Common shares of beneficial interest, $.01 par value: 200,000,000 shares authorized, 48,200,929 and 48,201,941 shares issued and outstanding, respectively							482			482
Additional paid in capital	2,612,062			2,609,801			2,612,777			2,612,425
Cumulative net income	112,188			146,882			188,057			177,217
Cumulative other comprehensive income (loss)	(461		)	106
Cumulative other comprehensive loss							(261		)	(200		)
Cumulative common distributions	(1,057,658		)	(978,302		)	(1,110,681		)	(1,084,170		)
Total shareholders’ equity	1,666,613			1,778,968			1,690,374			1,705,754
Total liabilities and shareholders’ equity	$	4,360,249		$	5,238,583		$	4,028,705		$	4,193,136

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

Table of Contents

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(amounts in thousands, except per share data)

(unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018

Rental income $ 167,411
$ 106,102
$ 518,220
$ 322,904

Expenses:
Real estate taxes 18,824
12,072
55,363
37,402
Utility expenses 9,518
7,783
26,369
20,490
Other operating expenses 30,376
21,785
90,204
66,221
Depreciation and amortization 74,939
42,569
226,373
129,444
Loss on impairment of real estate 8,521
—
14,105
5,800
Acquisition and transaction related costs —
3,813
682
3,813
General and administrative 7,990
22,383
25,457
36,438
Total expenses 150,168
110,405
438,553
299,608

Gain on sale of real estate 11,463
—
33,538
17,329
Dividend income —
304
1,960
912
Gain (loss) on equity securities, net —
17,425
(44,007 ) 40,677
Interest income 358
140
847
405
Interest expense (including amortization of debt premiums, discounts and issuance costs of $2,560, $893, $8,264 and $2,749, respectively) (32,367 ) (23,374 ) (104,848 ) (69,444 )
Loss on early extinguishment of debt (284 ) —
(769 ) —
Income (loss) from continuing operations before income tax expense
and equity in net income (loss) of investees (3,587 ) (9,808 ) (33,612 ) 13,175
Income tax expense (156 ) (9 ) (509 ) (124 )
Equity in net income (loss) of investees (196 ) 94
(573 ) (1,112 )
Income (loss) from continuing operations (3,939 ) (9,723 ) (34,694 ) 11,939
Income from discontinued operations —
9,274
—
23,872
Net income (loss) (3,939 ) (449 ) (34,694 ) 35,811
Other comprehensive income (loss):

Unrealized gain (loss) on financial instrument 80
—
(287 ) —
Equity in unrealized gain (loss) of investees (46 ) 126
91
119
Other comprehensive income (loss) 34
126
(196 ) 119
Comprehensive income (loss) $ (3,905 ) $ (323 ) $ (34,890 ) $ 35,930

Net income (loss) $ (3,939 ) $ (449 ) $ (34,694 ) $ 35,811
Preferred units of limited partnership distributions —
—
—
(371 )
Net income (loss) available for common shareholders $ (3,939 ) $ (449 ) $ (34,694 ) $ 35,440

Weighted average common shares outstanding (basic) 48,073
24,768
48,051
24,764
Weighted average common shares outstanding (diluted) 48,073
24,768
48,051
24,769

Per common share amounts (basic and diluted):

Income (loss) from continuing operations $ (0.08 ) $ (0.39 ) $ (0.72 ) $ 0.47
Income from discontinued operations $ —
$ 0.37
$ —
$ 0.96
Net income (loss) available for common shareholders $ (0.08 ) $ (0.02 ) $ (0.72 ) $ 1.43



	Three Months Ended March 31,
	2020			2019

Rental income	$	149,885		$	174,777

Expenses:
Real estate taxes	16,807			18,392
Utility expenses	7,012			9,381
Other operating expenses	25,880			30,136
Depreciation and amortization	62,943			77,521
Loss on impairment of real estate	—			3,204
Acquisition and transaction related costs	—			584
General and administrative	7,109			8,723
Total expenses	119,751			147,941

Gain on sale of real estate	10,756			22,092
Dividend income	—			980
Gain on equity securities	—			22,128
Interest and other income	706			248
Interest expense (including net amortization of debt premiums, discounts and issuance costs of $2,283 and $2,841, respectively)	(27,159		)	(37,133		)
Loss on early extinguishment of debt	(3,282		)	(414		)
Income before income tax expense and equity in net losses of investees	11,155			34,737
Income tax expense	(39		)	(483		)
Equity in net losses of investees	(276		)	(235		)
Net income	10,840			34,019
Other comprehensive income (loss):
Unrealized loss on financial instrument	(61		)	(98		)
Equity in unrealized gain of investees	—			66
Other comprehensive loss	(61		)	(32		)
Comprehensive income	$	10,779		$	33,987

Weighted average common shares outstanding (basic)	48,095			48,031
Weighted average common shares outstanding (diluted)	48,095			48,046

Per common share amounts (basic and diluted):
Net income	$	0.23		$	0.71

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

Table of Contents

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(dollars in thousands)

(unaudited)


	Number of Shares		Common Shares		Additional Paid In Capital			Cumulative Net Income			Cumulative Other Comprehensive Income (Loss)			Cumulative Common Distributions			Total			Number of Shares		Common Shares		Additional Paid In Capital			Cumulative Net Income		Cumulative Other Comprehensive Income (Loss)			Cumulative Common Distributions			Total Shareholders’ Equity
Balance at December 31, 2019																				48,201,941		$	482	$	2,612,425		$	177,217	$	(200	)	$	(1,084,170	)	$	1,705,754
Share grants																				—		—		379			—		—			—			379
Share repurchases																				(1,012	)	—		(27		)	—		—			—			(27		)
Net current period other comprehensive loss																				—		—		—			—		(61		)	—			(61		)
Net income																				—		—		—			10,840		—			—			10,840
Distributions to common shareholders																				—		—		—			—		—			(26,511		)	(26,511		)
Balance at March 31, 2020																				48,200,929		$	482	$	2,612,777		$	188,057	$	(261	)	$	(1,110,681	)	$	1,690,374

Balance at December 31, 2018	48,082,903		$	481	$	2,609,801		$	146,882		$	106		$	(978,302	)	$	1,778,968		48,082,903		$	481	$	2,609,801		$	146,882	$	106		$	(978,302	)	$	1,778,968
Share grants	9,000		—		865			—			—			—			865			9,000		—		865			—		—			—			865
Amounts reclassified from cumulative other
comprehensive income to net income	—		—		—			—			(371		)	—			(371		)
Amount reclassified from cumulative other comprehensive income to net income																				—		—		—			—		(371		)	—			(371		)
Net current period other comprehensive loss	—		—		—			—			(32		)	—			(32		)	—		—		—			—		(32		)	—			(32		)
Net income available for common shareholders	—		—		—			34,019			—			—			34,019
Net income																				—		—		—			34,019		—			—			34,019
Distributions to common shareholders	—		—		—			—			—			(26,445		)	(26,445		)	—		—		—			—		—			(26,445		)	(26,445		)
Balance at March 31, 2019	48,091,903		481		2,610,666			180,901			(297		)	(1,004,747		)	1,787,004			48,091,903		$	481	$	2,610,666		$	180,901	$	(297	)	$	(1,004,747	)	$	1,787,004
Share grants	24,000		—		971			—			—			—			971
Share repurchases	(2,245	)	—		(63		)	—			—			—			(63		)
Share forfeitures	(214	)	—		(4		)	—			—			—			(4		)
Net current period other comprehensive loss	—		—		—			—			(198		)	—			(198		)
Net loss available for common shareholders	—		—		—			(64,774		)	—			—			(64,774		)
Distributions to common shareholders	—		—		—			—			—			(26,450		)	(26,450		)
Balance at June 30, 2019	48,113,444		481		2,611,570			116,127			(495		)	(1,031,197		)	1,696,486
Share grants	103,100		1		888			—			—			—			889
Share repurchases	(13,212	)	—		(396		)	—			—			—			(396		)
Net current period other comprehensive income	—		—		—			—			34			—			34
Net loss available for common shareholders	—		—		—			(3,939		)	—			—			(3,939		)
Distributions to common shareholders	—		—		—			—			—			(26,461		)	(26,461		)
Balance at September 30, 2019	48,203,332		$	482	$	2,612,062		$	112,188		$	(461	)	$	(1,057,658	)	$	1,666,613

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

~~Table of Contents~~

~~OFFICE PROPERTIES INCOME TRUST~~

~~CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY~~

~~(dollars in thousands)~~

~~(unaudited)~~

Number
of Shares
Common Shares
Additional
Paid In Capital

Cumulative
Net Income

Cumulative
Other
Comprehensive
Income (Loss)

Cumulative
Common
Distributions
Total
Balance at December 31, 2017 24,786,479 $ 248
$ 1,968,960
$ 108,144
$ 60,427
$ (807,736 ) $ 1,330,043
Cumulative adjustment upon adoption of ASU No. 2016-01 —
—
—
60,281
(60,281 ) —
—
Adjustment upon adoption of ASU No. 2014-09 —
—
—
712
—
—
712
Balance at January 1, 2018 24,786,479 248
1,968,960
169,137
146
(807,736 ) 1,330,755
Share repurchases (153 ) —
(11 ) —
—
—
(11 )
Net current period other comprehensive loss —
—
—
—
(41 ) —
(41 )
Net income available for common shareholders —
—
—
6,287
—
—
6,287
Distributions to common shareholders —
—
—
—
—
(42,632 ) (42,632 )
Balance at March 31, 2018 24,786,326 248
1,968,949
175,424
105
(850,368 ) 1,294,358
Share grants 5,250
—
297
—
—
—
297
Share repurchases (113) —
(7 ) —
—
—
(7 )
Equity in unrealized gain of investees —
—
—
—
34
—
34
Net income available for common shareholders —
—
—
29,602
—
—
29,602
Distributions to common shareholders —
—
—
—
—
(42,634 ) (42,634 )
Balance at June 30, 2018 24,791,463 248
1,969,239
205,026
139
(893,002 ) 1,281,650
Share grants 14,675 —
887
—
—
—
887
Share repurchases and forfeitures (4,838 ) —
(212 ) —
—
—
(212 )
Equity in unrealized gain of investees —
—
—
—
126
—
126
Net loss available for common shareholders —
—
—
(449 ) —
—
(449 )
Distributions to common shareholders —
—
—
—
—
(42,641 ) (42,641 )
Balance at September 30, 2018 24,801,300 $ 248
$ 1,969,914
$ 204,577
$ 265
$ (935,643 ) $ 1,239,361

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

Table of Contents

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

Nine Months Ended September 30,
2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) $ (34,694 ) $ 35,811
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation 68,095
51,121
Amortization of debt premiums, discounts and issuance costs 8,264
2,749
Amortization of acquired real estate leases 157,108
77,434
Amortization of deferred leasing costs 4,329
3,524
Gain on sale of real estate (33,538 ) (17,329 )
Loss on impairment of real estate 14,105
5,800
Loss on early extinguishment of debt 769
—
Straight line rental income (19,365 ) (7,825 )
Other non-cash expenses, net 1,907
189
(Gain) loss on equity securities, net 44,007
(40,677 )
Equity in losses of investees 573
1,112
Equity in earnings of Select Income REIT included in discontinued operations —
(23,843 )
Net gain on issuance of shares by Select Income REIT included in discontinued operations —
(29 )
Distributions of earnings from Select Income REIT —
23,843
Change in assets and liabilities:

Rents receivable 17,185
7,535
Deferred leasing costs (22,759 ) (5,937 )
Other assets (32 ) (1,393 )
Accounts payable and other liabilities (30,603 ) (10,361 )
Due to related persons (27,213 ) 18,441
Net cash provided by operating activities 148,138
120,165

CASH FLOWS FROM INVESTING ACTIVITIES:

Real estate improvements (39,010 ) (32,625 )
Distributions in excess of earnings from Select Income REIT —
14,281
Distributions in excess of earnings from unconsolidated joint ventures 1,973
3,046
Proceeds from sale of properties, net 572,131
142,189
Proceeds from sale of RMR Inc. common shares, net 104,674
—
Net cash provided by investing activities 639,768
126,891

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayment of mortgage notes payable (11,001 ) (2,732 )
Repayment of unsecured term loans (388,000 ) —
Repayment of senior unsecured notes (350,000 ) —
Borrowings on unsecured revolving credit facility 420,000
95,000
Repayments on unsecured revolving credit facility (385,000 ) (198,000 )
Repurchase of common shares (459 ) (232 )
Redemption of preferred units of limited partnership —
(20,221 )
Preferred units of limited partnership distributions —
(646 )
Distributions to common shareholders (79,356 ) (127,907 )
Net cash used in financing activities (793,816 ) (254,738 )

Decrease in cash, cash equivalents and restricted cash (5,910 ) (7,682 )
Cash, cash equivalents and restricted cash at beginning of period 38,943
19,680
Cash, cash equivalents and restricted cash at end of period $ 33,033
$ 11,998



	Three Months Ended March 31,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	10,840		$	34,019
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	20,499			23,629
Net amortization of debt premiums, discounts and issuance costs	2,283			2,841
Amortization of acquired real estate leases	42,457			53,837
Amortization of deferred leasing costs	1,665			1,350
Gain on sale of real estate	(10,756		)	(22,092		)
Loss on impairment of real estate	—			3,204
Loss on early extinguishment of debt	2,144			414
Straight line rental income	(5,583		)	(6,794		)
Other non-cash expenses, net	107			593
Gain on equity securities	—			(22,128		)
Equity in net losses of investees	276			235
Change in assets and liabilities:
Rents receivable	(1,087		)	14,390
Deferred leasing costs	(4,466		)	(7,985		)
Other assets	180			2,873
Accounts payable and other liabilities	(21,790		)	(30,387		)
Due to related persons	832			(29,257		)
Net cash provided by operating activities	37,601			18,742

CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions	(11,864		)	—
Real estate improvements	(14,525		)	(12,969		)
Distributions in excess of earnings from unconsolidated joint ventures	51			521
Proceeds from sale of properties, net	68,433			262,779
Net cash provided by investing activities	42,095			250,331

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgage notes payable	(67,848		)	(8,954		)
Repayment of unsecured term loans	—			(153,000		)
Repayment of senior unsecured notes	(400,000		)	—
Borrowings on unsecured revolving credit facility	418,467			85,000
Repayments on unsecured revolving credit facility	(70,467		)	(180,000		)
Repurchase of common shares	(27		)	—
Distributions to common shareholders	(26,511		)	(26,445		)
Net cash used in financing activities	(146,386		)	(283,399		)

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

Table of Contents

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(dollars in thousands)

(unaudited)

Nine Months Ended September 30,
2019 2018
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 114,226
$ 72,651
Income taxes paid $ 491
$ 44



	Three Months Ended March 31,
	2020			2019
Decrease in cash, cash equivalents and restricted cash	$	(66,690	)	$	(14,326	)
Cash, cash equivalents and restricted cash at beginning of period	100,696			38,943
Cash, cash equivalents and restricted cash at end of period	$	34,006		$	24,617



	Three Months Ended March 31,
	2020			2019
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	37,715		$	49,545
Income taxes paid	$	—		$	7

NON-CASH INVESTING ACTIVITIES:
Sale of properties	$	13,095		$	—

NON-CASH FINANCING ACTIVITIES:
Repayment of mortgage notes payable related to properties sold	$	(13,095	)	$	—

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 March 31,
	2020		2019
Cash and cash equivalents	$	29,657	$	20,153
Restricted cash	4,349		4,464
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	34,006	$	24,617

September 30,
2019 2018
Cash and cash equivalents $ 29,002
$ 9,644
Restricted cash ⁽¹⁾
4,031
2,354
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows $ 33,033
$ 11,998


~~(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.

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OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Note 1. Basis of Presentation

The accompanying condensed consolidated financial statements of Office Properties Income Trust and its subsidiaries, or 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, ~~2018,~~2019, or our ~~2018~~2019 Annual Report. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. ~~Reclassifications have been made to the prior 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 the related intangibles.

Note 2. Recent Accounting Pronouncements

In ~~February~~June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ~~ASU, No. 2016-02,~~ ~~Leases. In July 2018, the FASB issued ASU No. 2018-10,~~ ~~Codification Improvements to Topic 842, Leases~~ ~~and ASU No. 2018-11,~~ ~~Leases (Topic 842): Targeted Improvements. In December 2018, the FASB issued ASU No. 2018-20~~ ~~Leases (Topic 842), Narrow-Scope Improvements for Lessors~~. Collectively, these standards set out the principles for the recognition, measurement, presentation and disclosure 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 either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. ASU No. 2016-02 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. These standards were effective as of January 1, 2019. Upon adoption, we applied the package of practical expedients that has allowed us to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. Furthermore, we applied the optional transition method in ASU No. 2018-11, which has allowed us to initially apply the new leases standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the adoption period, although we did not have an adjustment. Additionally, our leases met the criteria in ASU No. 2018-11 to not separate non-lease components from the related lease component; therefore, the accounting for these leases remained largely unchanged from the previous standard. The adoption of ASU No. 2016-02 and the related improvements did not have a material impact in our condensed consolidated financial statements. Upon adoption, (i) allowances for bad debts are now recognized as a direct reduction of rental income, and (ii) legal costs associated with the execution of our leases, which were previously capitalized and amortized over the life of their respective leases, are expensed as incurred. Subsequent to January 1, 2019, provisions for credit losses are now included in "rental income" in our condensed consolidated financial statements. Provisions for credit losses prior to January 1, 2019 were previously included in other operating expenses in our condensed consolidated financial statements and prior periods are not reclassified to conform to the current presentation.

~~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 in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. We adopted ASU No. 2016-13 ~~will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently assessing~~on January 1, 2020 using the ~~potential~~modified retrospective approach. The implementation of this standard did not have a material impact ~~the adoption of ASU No. 2016-13 will have~~ in our condensed consolidated financial statements although lease related receivables are governed by the lease standards referred to above and are not subject to ASU No. 2016-13. We currently expect to adopt the standard using the modified retrospective approach.statements.

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~~OFFICE PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

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

Note 3. Weighted Average Common Shares

The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands):


	For the Three Months		For the Nine Months		For the Three Months
	Ended September 30,		Ended September 30,		Ended March 31,
	2019	2018	2019	2018	2020	2019
Weighted average common shares for basic earnings per share	48,073	24,768	48,051	24,764	48,095	48,031
Effect of dilutive securities: unvested share awards	—	—	—	5	—	15
Weighted average common shares for diluted earnings per share ⁽¹⁾	48,073	24,768	48,051	24,769	48,095	48,046

(1)

~~For the three and nine months ended September 30, 2019, 22and 11 unvested common shares, respectively, were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.~~ For the three months ended ~~September 30, 2018, 8~~March 31, 2020, certain unvested common shares were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

Note 4. Real Estate Properties

As of ~~September 30, 2019,~~March 31, 2020, our wholly owned properties were comprised of ~~200~~184 properties with approximately ~~27,290,000~~24.9 million rentable square feet, with an aggregate undepreciated carrying value of ~~$3,727,607, including $170,867 classified as held for sale,~~$3,515,885 and we had a noncontrolling ownership ~~interest~~interests in 3 properties totaling approximately ~~443,867~~0.4 million rentable square feet through 2 unconsolidated joint ventures in which we own ~~50%~~51% and ~~51%~~50% interests. We generally lease space at our properties on a gross lease, modified gross lease or net lease basis pursuant to fixed term contracts expiring between ~~2019~~2020 and ~~2039.~~2040. Some of our leases generally require us to pay all or some property operating expenses and to provide all or most property management services. During the three months ended ~~September 30, 2019,~~March 31, 2020, we entered into 2227 leases for ~~759,162~~0.6 million rentable square feet for a weighted (by rentable square feet) average lease term of ~~12.7~~4.8 years and we made commitments for approximately $12,930 of leasing cost commitments of $17,567. During the nine months ended September 30, 2019, we entered into 78 leases for 2,155,394 rentable square feet, for a weighted (by rentable square feet) average lease term of 9.1 years and we made leasing cost commitments of $61,748. related costs.

As of ~~September 30, 2019,~~March 31, 2020, we have estimated unspent leasing related obligations of ~~$56,494.~~$57,348.

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OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of our long lived assets. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. The future net undiscounted cash 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 ~~evaluating for~~the consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining lives of our long lived assets. If we change our estimate of the remaining lives, we allocate the carrying value of the affected assets over their revised remaining lives.

Acquisition Activities

~~Table~~In February 2020, we acquired a property adjacent to a property we own in Boston, MA for $11,864, including $364 of ~~Contents~~

~~OFFICE PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(dollars~~acquisition related costs. This acquisition was accounted for as an asset acquisition. The purchase price of this acquisition was allocated to land and building in ~~thousands, except per share data)~~

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

Disposition Activities

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we sold 476 properties with a combined ~~4,610,104~~0.7 million rentable square feet for an aggregate sales price of ~~$584,865,~~$85,363, excluding closing ~~costs.~~costs and including the repayment of one mortgage note with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021. The sales of these properties, as presented in the table 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).~~income.

Date of Sale Number of Properties Location Rentable Square Feet
Gross
Sales Price ⁽¹⁾
Feb 2019⁽²⁾
34 Northern Virginia and Maryland 1,635,868
$ 198,500
Mar 2019 ⁽³⁾
1 Washington, D.C. 129,035
70,000
May 2019 ⁽⁴⁾
1 Buffalo, NY 121,711
16,900
May 2019 1 Maynard, MA 287,037
5,000
June 2019 1 Kapolei, HI 416,956
7,100
July 2019 1 San Jose, CA 71,750
14,000
July 2019 ⁽⁵⁾
1 Nashua, NH 321,800
25,000
August 2019 1 Arlington, TX 182,630
14,900
August 2019 1 Rochester, NY 94,800
4,765
August 2019 1 Hanover, PA 502,300
5,500
August 2019 1 San Antonio, TX 618,017
198,000
September 2019 1 Topeka, KS 143,934
15,600
September 2019 ⁽⁶⁾
1 Falling Waters, WV 40,348
650
September 2019 ⁽⁷⁾
1 San Diego, CA 43,918
8,950
47 4,610,104
$ 584,865



Date of Sale	Number of Properties	Location	Rentable Square Feet	Gross Sales Price ⁽¹⁾		Gain (Loss) on Sale of Real Estate
January 2020	2	Stafford, VA	64,656	$	14,063	$	4,704
January 2020	1	Windsor, CT	97,256	7,000		314
February 2020	1	Lincolnshire, IL	222,717	12,000		1,176
March 2020	1	Trenton, NJ	267,025	30,100		(192		)
March 2020	1	Fairfax, VA	83,130	22,200		4,754
	6		734,784	$	85,363	$	10,756


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


~~(2)~~	~~We recorded a $447 loss on impairment of real estate during 2019 as a result of this sale.~~


~~(3)~~	~~We recorded a $22,075 gain on sale of real estate during 2019 as a result of this sale.~~


~~(4)~~	~~We recorded a $5,137 loss on impairment of real estate during 2019 as a result of this sale.~~


~~(5)~~	~~We recorded a $8,401 gain on sale of real estate during 2019 as a result of this sale.~~


~~(6)~~	~~We recorded a $2,179 loss on impairment of real estate during 2019 as a result of this sale.~~


~~(7)~~	~~We recorded a $3,062 gain on sale of real estate during 2019 as a result of this sale.~~

Unconsolidated Joint Ventures

We own interests in 2 joint ventures that own 3 properties. We account for these investments under the equity method of accounting. As of March 31, 2020 and December 31, 2019, our investments in unconsolidated joint ventures consisted of the following:



		OPI Carrying Value of Investments at
Joint Venture	OPI Ownership	March 31, 2020		December 31, 2019		Number of Properties	Location	Rentable Square Feet
Prosperity Metro Plaza	51%	$	22,405	$	22,483	2	Fairfax, VA	328,456
1750 H Street, NW	50%	17,024		17,273		1	Washington, D.C.	115,411
Total		$	39,429	$	39,756	3		443,867

119

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

As of September 30, 2019, we had 15 properties with an aggregate undepreciated carrying value of $170,867 classified as held for sale in our condensed consolidated balance sheet. The operating results of these properties are included in continuing operations in our condensed consolidated statements of comprehensive income (loss). As of October 31, 2019, 3 of the 15 properties held for sale were sold and 10 of the 15 properties held for sale were under contract to be sold as summarized in the table below:

Location Number of Properties Square Feet
Gross
Sales Price ⁽¹⁾
San Jose, CA 1 75,621
$ 13,000
Windsor, CT 1 97,256
7,000
Kansas City, KS⁽²⁾
1 170,817
11,700
DC Metro - MD ⁽³⁾
4 457,279
66,600
Columbia, SC ⁽⁴⁾
3 180,703
10,750
Fairfax, VA 1 83,130
23,000
Stafford, VA 2 64,656
14,563
13 1,129,462
$ 146,613


~~(1)~~	~~Gross sales price includes purchase price adjustments, if any, and excludes closing costs.~~


~~(2)~~	~~We recorded a $2,408 loss on impairment of real estate to adjust the carrying value of this property to its estimated fair value less costs to sell.~~


~~(3)~~	~~We recorded a $688 loss on impairment of real estate to adjust the carrying value of these 4 properties to their estimated fair value less costs to sell.~~


~~(4)~~	We recorded a $3,246 loss on impairment of real estate to adjust the carrying value of these 3 properties to their estimated fair value less costs to sell. The sale of these properties was completed in October 2019.

In addition to the properties discussed above, we are currently marketing for sale 6 properties comprising approximately 587,000 square feet. We have determined that these properties were not impaired nor did they meet the held for sale criteria as of September 30, 2019. We cannot be sure we will sell any of our properties that we are marketing for sale, that we sell them for prices in excess of our carrying values or that we will not recognize impairment losses with respect to these properties. In addition, our pending sales are subject to conditions; accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or their terms will not change.

~~Acquisition Activities~~

~~In July 2019, we entered into an agreement to acquire a land parcel near one of our properties located in Boston, MA for $2,900, excluding acquisition related costs.~~

~~Pro Forma Financial Information~~

On December 31, 2018, we acquired Select Income REIT, or SIR, in a merger of SIR with and into our wholly owned subsidiary that closed on December 31, 2018, or the Merger, pursuant to an agreement and plan of merger, or the Merger Agreement, that we and SIR entered into on September 14, 2018, as a result of which we acquired 99 properties with approximately 16.5 million rentable square feet. The aggregate transaction value of the Merger was $2,415,053, excluding closing costs of approximately $27,497 ($14,508 of which was paid by us and $12,989 of which was paid by SIR) and including the repayment or assumption of $1,719,772 of SIR debt.

As a condition of the Merger, on October 9, 2018, we sold all of the 24,918,421 common shares of SIR we then owned, or the Secondary Sale, in an underwritten public offering at a price to the public of $18.25 per share, raising net proceeds of $435,125, after deducting underwriting discounts and offering expenses. We used the net proceeds from the Secondary Sale to repay amounts outstanding under our revolving credit facility.

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~~OFFICE PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

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

In addition, as a condition of the Merger, on December 27, 2018, SIR paid a pro rata distribution to SIR's shareholders of record as of the close of business on December 20, 2018 of all 45,000,000 common shares of beneficial interest of Industrial Logistics Properties Trust, or ILPT, that SIR owned, or the ILPT Distribution.

~~For further information about these transactions, refer to our 2018 Annual Report.~~

The following table presents our pro forma results of operations for the nine months ended September 30, 2018 as if the Merger, the Secondary Sale and the ILPT Distribution had occurred on January 1, 2018. The SIR results of operations included in this pro forma financial information have been adjusted to remove ILPT's results of operations for the nine months ended September 30, 2018. The effect of the adjustments to remove ILPT's results of operations was to decrease pro forma rental income by $120,456 for the nine months ended September 30, 2018 and to decrease net income by $38,818 for the nine months ended September 30, 2018 from the amounts that would have otherwise been included in the pro forma results.

This unaudited pro forma financial information is not necessarily indicative of what our actual results of operations would have been for the period presented or for any future period. Differences could result from numerous factors, including future changes in our portfolio of investments, capital structure, property level operating expenses and revenues, including rents expected to be received pursuant to our existing leases or leases we may enter into, changes in interest rates and other reasons. Actual future results are likely to be different from amounts presented in this unaudited pro forma financial information and such differences could be significant.

Nine Months Ended September 30, 2018
Rental income $ 563,213
Net income $ 37,531
Net income per common share $ 0.78

~~During the nine months ended September 30, 2018, we did not recognize any revenue or operating income from the assets acquired and liabilities assumed in the Merger.~~

~~Unconsolidated Joint Ventures~~

We own noncontrolling interests in 2 joint ventures that own 3 properties. We account for these investments under the equity method of accounting. As of September 30, 2019 and December 31, 2018, our investments in unconsolidated joint ventures consisted of the following:

OPI Carrying Value of Investment at
Joint Venture OPI Ownership September 30,
2019 December 31, 2018 Number of Properties Location Square Feet
Prosperity Metro Plaza 51% $ 22,857
$ 23,969
2 Fairfax, VA 328,456
1750 H Street, NW 50% 17,645
19,696
1 Washington, D.C. 115,411
Total $ 40,502
$ 43,665
3 443,867

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~~OFFICE PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

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

The following table provides a summary of the mortgage debt of our two unconsolidated joint ventures:


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


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


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

At ~~September 30, 2019,~~March 31, 2020, the aggregate unamortized basis difference of our two unconsolidated joint ventures of ~~$8,074~~$7,828 is primarily attributable to the difference between the amount we paid to purchase our interest in these joint ventures, including transaction costs, and the historical carrying value of the net assets of these joint ventures. This difference is being amortized over the remaining useful life of the related properties ~~owned by these joint ventures~~ and the resulting amortization expense is included in equity in net losses of investees in our condensed consolidated statements of comprehensive ~~income (loss).~~

income.

Note 5. Leases

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

Our leases provide for base rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. In certain circumstances, some leases provide the tenant with the right to terminate if the legislature or other funding authority does not appropriate the funding necessary for the tenant to meet its lease obligations; we have determined the fixed non-cancelable lease term of these leases to be the full term of the lease because we believe the occurrence of early terminations to be remote contingencies based on both our historical experience and our assessments of the likelihood of lease cancellation on a separate lease basis.

We increased rental income to record revenue on a straight line basis by ~~$6,904~~$5,583 and ~~$1,990~~$6,794 for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $19,365 and $7,825 for the nine months ended September 30, 2019 and 2018,~~ respectively. Rents receivable, excluding properties classified as held for sale, include ~~$47,148~~$60,365 and ~~$34,006~~$54,837 of straight line rent receivables at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

We do not include in our measurement of our lease receivables certain variable payments, including payments determined by changes in the index or market-based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. Such payments totaled ~~$23,092~~$19,746 and ~~$69,182~~$23,394 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, respectively, of which tenant reimbursements totaled ~~$21,914~~$18,622 and ~~$65,577,~~$22,124, respectively.

~~Certain~~As a result of the COVID-19 pandemic, some of our ~~leases contain non-lease components, such as property level operating expenses and capital expenditures reimbursed by~~tenants have requested rent assistance. As of April 28, 2020, we have granted temporary rent assistance totaling $1,403 to 18 of our tenants ~~as well as other required lease payments. We have determined that all~~who represent approximately 2.4% of our leases qualify for the practical expedient to not separate the lease and non-lease components because (i) the lease components are operating leases and (ii) the timing and pattern of recognition of the non-lease components are the same as those of the lease components. We apply Accounting Standards Codification 842, ~~Leases, to the combined component. Income derived by our leases is recorded in~~annualized rental income, ~~in our condensed consolidated statements~~as defined below, as of ~~comprehensive income (loss).~~

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~~OFFICE PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

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

~~Certain~~March 31, 2020, pursuant to a deferred payment plan whereby these tenants ~~are~~will be obligated to pay, ~~directly their obligations under their leases for insurance, real estate taxes and certain other expenses.~~in most cases, the deferred rent over a 12-month period beginning in September 2020. These ~~obligations, which have been assumed by the tenants under the terms of their respective leases, are~~deferred amounts did not ~~reflected in~~impact our condensed consolidated financial statements. To the extent any tenant responsible for any such obligations under the applicable lease defaults on such lease or if it is deemed probable that the tenant will fail to pay for such obligations, we would record a liability for such obligations.2020 first quarter results.

~~The following table presents our operating lease maturity analysis as of September 30, 2019:~~

Year Amount
2019 $ 130,897
2020 498,567
2021 476,585
2022 436,876
2023 390,567
Thereafter 1,396,144
Total $ 3,329,636

Right of Use Asset and Lease Liability. For leases where we are the lessee, we are required to record a right of use asset and lease liability for all leases with a term greater than 12 months. As of ~~September 30, 2019,~~March 31, 2020, we had 1 lease that met ~~this criterion~~these criteria where we are the lessee, which expires on January 31, 2021. We sublease a portion of the space, which sublease expires on January 31, 2021. The ~~value~~values of the right of use asset and related liability representing our future obligation under the lease arrangement for which we are the lessee were ~~$2,633~~$1,660 and ~~$2,662,~~$1,687, respectively, as of ~~September 30,~~March 31, 2020, and $2,149 and $2,179, respectively, as of December 31, 2019. The right of use asset and related lease liability are included within other assets, net and accounts payable and other liabilities, respectively, within our condensed consolidated balance sheets. Rent expense incurred under the lease, net of sublease revenue, was $446 and $434 for the three months ended March 31, 2020 and 2019, respectively.

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OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

Note 6. Concentration

Tenant 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. As of ~~September 30,~~March 31, 2020, the U.S. Government, 10 state governments and 2 other government tenants combined were responsible for approximately 34.6% of our annualized rental income. As of March 31, 2019, the U.S. Government, 13 state governments and 3 other government tenants combined were responsible for approximately ~~36.3% of our annualized rental income, and as of September 30, 2018, the U.S. Government, 13 state governments and 3 other government tenants combined were responsible for approximately 62.5%~~35.9% of our annualized rental income. The U.S. Government is our largest tenant by annualized rental income and was responsible for approximately ~~25.8%~~25.0% and ~~45.6%~~25.8% of our annualized rental income as of ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

Geographic Concentration

At ~~September 30, 2019,~~March 31, 2020, our ~~200~~184 wholly owned properties were located in 3634 states and the District of Columbia. Properties located in Virginia, California, the District of Columbia, Texas and Maryland were responsible for ~~15.8%~~15.2%, ~~11.6%~~12.1%, ~~9.8%~~11.0%, ~~9.7%~~8.2% and ~~7.4%~~6.4% of our annualized rental income as of ~~September 30, 2019,~~March 31, 2020, respectively. ~~Properties located in the metropolitan Washington, D.C. market area were responsible for approximately 24.6% of our annualized rental income as of September 30, 2019.~~

Note 7. Indebtedness

Our principal debt obligations at ~~September 30, 2019~~March 31, 2020 were: (1) ~~$210,000~~$348,000 of outstanding borrowings under our $750,000 unsecured revolving credit facility; (2) ~~$2,060,000~~$1,660,000 aggregate outstanding principal amount of senior unsecured notes; and (3) ~~$327,262~~$245,266 aggregate outstanding principal amount of mortgage ~~notes, including one mortgage note with an outstanding principal balance of $13,236 classified in liabilities of properties held for sale in our condensed consolidated balance sheet.~~

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~~OFFICE PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

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

notes.

Our $750,000 revolving credit facility is governed by a credit agreement, or our credit agreement, with a syndicate of institutional lenders that includes a feature under which the maximum aggregate borrowing availability may be increased to up to $1,950,000 in certain circumstances.

Our $750,000 revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is January 31, 2023 and, subject to our payment of an extension fee and meeting certain other conditions, we have the option to extend the stated maturity date of our revolving credit facility by 2 additional six month periods. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity and no principal repayment is due until maturity. We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at ~~September 30, 2019,~~March 31, 2020, on the amount outstanding under our revolving credit facility. We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at ~~September 30, 2019.~~March 31, 2020. Both the interest rate premium and ~~the~~ facility fee are subject to adjustment based upon changes to our credit ratings. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the annual interest rate payable on borrowings under our revolving credit facility was ~~3.0%~~1.8% and ~~3.6%~~2.7%, respectively. The weighted average annual interest rate for borrowings under our revolving credit facility was ~~3.3%~~2.6% and ~~3.2%~~3.5% for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and 3.4% and 3.0% for the nine months ended September 30, 2019 and 2018,~~ respectively. As of ~~September~~March 31, 2020 and April 30, ~~2019 and October 31, 2019,~~2020, we had ~~$210,000~~$348,000 and ~~$185,000,~~$355,000, respectively, outstanding under our revolving credit facility, and ~~$540,000~~$402,000 and ~~$565,000,~~$395,000, respectively, available for borrowing under our revolving credit facility.

~~The remaining outstanding balance~~In January 2020, we redeemed, at par plus accrued interest, all $400,000 of our $300,000 term loan, which was scheduled to mature on March 31, 2020, was repaid in full on August 23, 2019, without penalty, using cash on hand, proceeds from the sale of properties and the proceeds from our sale of our 2,801,060 shares of class A common stock of The RMR Group Inc., or RMR Inc., as described in Note 11. The weighted average annual interest rate under this term loan was 3.7% and 3.5% for the period from July 1, 2019 to August 23, 2019 and the three months ended September 30, 2018, respectively, and 3.9% and 3.3% for the period from January 1, 2019 to August 23, 2019 and the nine months ended September 30, 2018, respectively.

Our $250,000 term loan, which was scheduled to mature on March 31, 2022 and had a principal balance of $88,000 as of December 31, 2018, was repaid in full on February 11, 2019, without penalty, using proceeds from the sale of a property portfolio. The weighted average annual interest rate under this term loan was 4.3% for the period from January 1, 2019 to February 11, 2019, and 3.9% and 3.7% for the three and nine months ended September 30, 2018, respectively.

3.60% senior unsecured notes due 2020. As a result of the ~~principal payments~~redemption of our ~~term loans,~~3.60% senior unsecured notes due 2020, we recognized a loss on early extinguishment of debt of ~~$158 and $643 for~~$61 during the three ~~and nine~~ months ended ~~September 30, 2019, respectively,~~March 31, 2020, to write off unamortized ~~debt issuance costs.~~

On July 15, 2019, we redeemed, at par plus accrued interest, all $350,000 of our 3.75% senior unsecured notes that had a maturity date in August 2019 using cash on hand and borrowings under our revolving credit facility. As a result of the redemption of our 3.75% senior unsecured notes, we recognized a loss on early extinguishment of debt of $126 for the three and nine months ended September 30, 2019 to write off unamortized debt issuance costs and discounts.

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 senior unsecured notes indentures and their supplements also contain covenants, including ~~those~~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 30, 2019.~~

On March ~~1, 2019, we repaid at maturity, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $7,890 using cash on hand.~~

At September 30, 2019, 11 of our consolidated properties with an aggregate net book value of $601,003 were encumbered by mortgage notes with an aggregate principal amount of $327,262, including one mortgage note with an outstanding principal balance of $13,236 classified in liabilities of properties held for sale in our condensed consolidated31, 2020.

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OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

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

In March 2020, we prepaid, at a premium plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $66,780, an annual interest rate of 4.0% and a maturity date in September 2030. As a result of the prepayment of this mortgage note, we recognized a loss on early extinguishment of debt of $2,713 during the three months ended March 31, 2020, from a prepayment penalty and the write off of unamortized discounts.

In April 2020, we prepaid, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $32,677, an annual interest rate of 5.7% and a maturity date in July 2020.

At March 31, 2020, 9 of our consolidated properties with an aggregate net book value of $495,229 were encumbered by mortgage notes with an aggregate principal amount of $245,266. Our mortgage notes are non-recourse, subject to certain limited exceptions and do not contain any material financial covenants.

Note 8. Fair Value of Assets and Liabilities

The table below presents certain of our assets measured at fair value at September 30, 2019, 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
Description Total Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)
Non-Recurring Fair Value Measurements Assets:

Assets of properties held for sale ⁽¹⁾
$ 89,050
$ —
$ 89,050
$ —

~~(1)~~

During the three months ended September 30, 2019, we recorded impairment charges of $6,342 to reduce the carrying value of 8 properties that are classified as held for sale in our condensed consolidated balance sheet to their estimated fair value less costs to sell based upon negotiated sales prices with third party buyers (Level 2 inputs as defined in the fair value hierarchy under GAAP). See Note 4 for further details.

~~In addition to the assets described in the table above, our~~Our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, a mortgage note receivable, accounts payable, a revolving credit facility, senior unsecured notes, mortgage notes payable, amounts due to related persons, other accrued expenses and security deposits. At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or floating interest rates, except as follows:


	As of September 30, 2019				As of December 31, 2018				As of March 31, 2020				As of December 31, 2019
Financial Instrument	Carrying Amount ⁽¹⁾		Fair Value		Carrying Amount ⁽¹⁾		Fair Value		Carrying Value ⁽¹⁾		Fair Value		Carrying Value ⁽¹⁾		Fair Value
Senior unsecured notes, 3.75% interest rate, due in 2019	$	—	$	—	$	349,239	$	348,903
Senior unsecured notes, 3.60% interest rate, due in 2020	399,738		401,348		399,146		399,146		$	—	$	—	$	399,934	$	400,048
Senior unsecured notes, 4.00% interest rate, due in 2022	297,426		306,341		296,735		295,047		297,887		294,464		297,657		306,096
Senior unsecured notes, 4.15% interest rate, due in 2022	297,530		306,747		296,736		296,736		298,059		292,616		297,795		307,221
Senior unsecured notes, 4.25% interest rate, due in 2024	339,447		359,704		337,736		337,736		340,588		337,227		340,018		364,602
Senior unsecured notes, 4.50% interest rate, due in 2025	380,124		413,982		377,329		377,329		381,987		361,020		381,055		419,578
Senior unsecured notes, 5.875% interest rate, due in 2046	300,834		328,352		300,576		274,288		301,007		248,000		300,920		322,028
Mortgage notes payable ⁽²⁾	324,223		335,481		335,241		336,365		244,252		254,619		323,074		331,675
Total	$	2,339,322	$	2,451,955	$	2,692,738	$	2,665,550	$	1,863,780	$	1,787,946	$	2,340,453	$	2,451,248


(1)	Includes unamortized debt premiums, discounts and issuance costs totaling ~~$47,940~~$41,486 and ~~$55,524~~$45,756 as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

(2)

~~Includes~~Balance as of December 31, 2019 includes one mortgage note with a carrying value of ~~$13,198~~$13,128 net of unamortized issuance costs totaling $38 ~~and~~ which is classified in liabilities of properties held for sale in our condensed consolidated balance ~~sheet as of September 30, 2019.~~sheet. This mortgage note was secured by a property in Fairfax, VA that was sold in March 2020. The mortgage note was repaid at closing.

We estimated the fair value of our senior unsecured notes (except for our senior unsecured notes due in 2046) 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 based on the closing price on The Nasdaq Stock Market LLC, or Nasdaq, ~~as of the measurement date~~ (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 rates ~~as of the measurement date~~ (Level 3 inputs as defined in the fair value hierarchy under GAAP). as of the measurement date. Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.

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OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

Note 9. Shareholders’ Equity

Share ~~Awards~~

Purchases

On ~~February 27, 2019, in connection with the election~~January 9, 2020 and March 13, 2020, we purchased an aggregate of ~~3 of our Trustees we granted each Trustee 3,000~~410 and 602 of our common shares, respectively, valued at ~~$29.95~~$32.89 and $22.65 per share, respectively, the closing ~~price~~prices of our common shares on Nasdaq on ~~that day.~~

On May 29, 2019, in accordance with our Trustee compensation arrangements, we granted 3,000 of our common shares, valued at $23.97 per share, the closing price of our common shares on Nasdaq on that day, to each of our 8 Trustees as part of their annual compensation.

~~On September 18, 2019, we granted an aggregate of 103,100 of our common shares, valued at $29.87 per share, the closing price of our common shares on Nasdaq on that day, to our~~those days, from certain former officers and ~~certain other employees of RMR LLC under our equity compensation plan.~~

~~Share Purchases~~

On April 5, 2019, we purchased 1,795 of our common shares valued at $28.96 per share, the closing price of our common shares on Nasdaq on that day, from a former officer of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

On May 29, 2019, we purchased 450 of our common shares valued at $23.97 per share, the closing price of our common shares on Nasdaq on that day, from one of our Trustees in satisfaction of tax withholding and payment obligations in connection with an award of our common shares.

On July 3, 2019, we purchased 1,779 of our common shares valued at $27.73 per share, the closing price of our common shares on Nasdaq on that day, from a former officer in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

On September 25, 2019, we purchased an aggregate of 11,433 of our common shares, valued at $30.41 per share, the closing price of our common shares on 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.

Distributions

~~On February 21, 2019,~~During the three months ended March 31, 2020, we declared and paid a regular quarterly distribution to common shareholders ~~of record on January 28, 2019 of $0.55 per share, or $26,445.~~ as follows:

Declaration Date

Record Date

Paid Date

Distribution Per Common Share

Total Distribution

January 16, 2020

January 27, 2020

February 20, 2020

0.55

26,511

On ~~May 16, 2019, we paid a regular quarterly distribution to common shareholders of record on~~ April 29, 2019 of $0.55 per share, or $26,450. On August 15, 2019, we paid a regular quarterly distribution to common shareholders of record on July 29, 2019 of $0.55 per share, or $26,461. On October 17, 2019,2, 2020, we declared a regular quarterly distribution to common shareholders of record on ~~October 28, 2019~~April 13, 2020 of $0.55 per share, or approximately $26,500. We expect to pay this distribution on or about ~~November 14, 2019.~~

~~Cumulative Other Comprehensive Income (Loss)~~

Cumulative other comprehensive income (loss) represents our share of the comprehensive income (loss) of Affiliates Insurance Company, an Indiana insurance company, or AIC. See Note 11 for further information regarding this investment.

May 21, 2020.

Note 10. Business and Property Management Agreements with RMR LLC

We have 0 employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have 2 agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to our property level operations. Prior to completion of the Merger, SIR had similar business and property management agreements with RMR LLC, which agreements were terminated in connection with the Merger. See Notes 4 and 11 for further information regarding our relationship, agreements and transactions with SIR and RMR LLC.

~~Table of Contents~~

~~OFFICE PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

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

Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of ~~$5,159~~$4,699 and ~~$20,575~~$5,722 for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $16,203 and $30,059 for the nine months ended September 30, 2019 and 2018,~~ respectively. Based on our common share total return, as defined in our business management agreement, as of ~~September 30,~~March 31, 2020 and 2019, no estimated ~~2019~~ incentive fees are included in the net business management fees we recognized for the three ~~and nine~~ months ended ~~September 30, 2019, respectively.~~March 31, 2020 or 2019. The actual amount of annual incentive fees for ~~2019,~~2020, if any, will be based on our common share total return, as defined in our business management agreement, for the three year period ending December 31, ~~2019,~~2020, and will be payable in ~~2020. The net business management fees recognized~~2021. We did 0t incur an incentive fee payable to RMR LLC for the ~~three and nine months~~year ended ~~September 30, 2018 included $16,236 and $16,973, respectively, of estimated business management incentive fees.~~December 31, 2019. We include business management fees in general and administrative expenses in our condensed consolidated statements of comprehensive ~~income (loss).~~

income.

Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of ~~$5,622~~$5,064 and ~~$3,415~~$5,449 for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $16,605 and $10,201 for the nine months ended September 30, 2019 and 2018,~~ respectively. These amounts are included in other operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

In January 2019, we paid RMR LLC $2,185 for SIR’s 2018 business management, property management and construction supervision fees that it had accrued, but not paid, as of December 31, 2018. We also paid RMR LLC a business management incentive fee of $25,817, which represented the incentive fee incurred, but not paid, by SIR for the year ended December 31, 2018. We had assumed the obligation to pay these amounts as a result of the Merger.

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 LLC’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR ~~LLC's~~LLC’s centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit function orand as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC. We reimbursed RMR LLC ~~$6,850~~$5,991 and ~~$5,150~~$6,624 for these expenses and costs for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $20,007 and $15,294 for these expenses and costs for the nine months ended September 30, 2019 and 2018,~~ respectively. We included these amounts in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive ~~income (loss).~~

income.

Note 11. Related Person Transactions

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

~~Our Manager, RMR LLC.~~ ~~We have 2 agreements with RMR LLC to provide management services to us. See Note 10 for further information regarding our management agreements with RMR LLC.~~

See Note 9 for further information relating to our awards of common shares to our officers and certain other employees of RMR LLC in September 2019 and our repurchases of common shares from our current and former officers, and certain other current and former employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares to them. We include amounts recognized as expense for awards of our common shares to our officers and to other RMR LLC employees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

~~Leases with RMR LLC.~~ We lease office space to RMR LLC in certain of our properties for RMR LLC's property management offices. Pursuant to our lease agreements with RMR LLC, we recognized rental income from RMR LLC for leased office space of $288 and $263 for the three months ended September 30, 2019 and 2018, respectively, and $854 and $763 for the nine months ended September 30, 2019 and 2018, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

~~RMR Inc.~~ some of which have trustees, directors or officers who are also our Trustees or officers. RMR LLC is a majority owned subsidiary of RMR Inc. ~~and RMR Inc. is the managing member of RMR LLC. Adam D. Portnoy, the~~The Chair of our Board of Trustees and one of our Managing Trustees, Adam Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director, the president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC. David M. Blackman, our other Managing Trustee and ~~our~~ President and Chief Executive Officer, also serves as an executive officer ~~and employee~~ of RMR LLC, and each of our other officers is ~~an officer and employee of RMR LLC.~~

On July 1, 2019, we sold all of the 2,801,060 shares of class A common stock of RMR Inc. that we owned in an underwritten public offering at a price to the public of $40.00 per share pursuant to an underwriting agreement among us, RMR Inc., certain other real estate investment trusts, or REITs, managed by RMR LLC that also sold their class A common stock of RMR Inc. in the offering, and the underwriters named therein. We received net proceeds of $104,674 from this sale, after deducting underwriting discounts and commissions and other offering expenses.

~~SIR~~. As described further in Note 4, we completed the Merger effective December 31, 2018. Our Managing Trustees and three of our Independent Trustees previously served as managing trustees and independent trustees, respectively, of SIR, our President and Chief Executive Officer also served as SIR’s president and chief executive officer, and each of SIR’s officers was also an officer and employee of RMR LLC. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC ~~provides~~or its subsidiaries provide management services. Adam Portnoy serves as chair of the boards of trustees or boards of directors of several of these public companies and as a managing director or managing trustee of these public companies. Other officers of RMR LLC, including Mr. Blackman and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies.

Our Manager, RMR LLC. We have 2 agreements with RMR LLC to provide management services to ~~us and provided management services to SIR until it ceased to exist. See Notes 4 and 12 for further~~us. For more information regarding ~~the Merger and~~ our ~~former equity method investment in SIR.~~management agreements with RMR LLC, see Note 10.

Leases with RMR LLC. We lease office space to RMR LLC in certain of our properties for RMR LLC’s property management offices. Pursuant to our lease agreements with RMR LLC, we recognized rental income from RMR LLC for leased office space of $280 and $279 for the three months ended March 31, 2020 and 2019, respectively.

Affiliates Insurance Company, or AIC. ~~We,~~Until its dissolution on February 13, 2020 we, ABP Trust and 5 other companies to which RMR LLC provides management services ~~currently own~~owned AIC in equal amounts. We and the other AIC shareholders historically participated in a combined property insurance program arranged and insured or reinsured in part by AIC. The policies under that program expired on June 30, 2019, and we and the other AIC shareholders elected not to renew the AIC property insurance program; we have instead purchased standalone property insurance coverage with unrelated third party insurance providers.

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, our investment in AIC had a carrying value of ~~$9,459 and $8,751, respectively.~~$298. These amounts are included in other assets, net in our condensed consolidated balance sheets. We ~~recognized~~did 0t recognize any income ~~of $83 and $831~~related to our investment in AIC for the three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018, respectively, and $617 and $882~~recognized income of $404 for the ~~nine~~three months ended ~~September 30,~~March 31, 2019, ~~and 2018, respectively,~~ which ~~are~~is presented as equity in net ~~income (loss)~~losses of investees in our condensed consolidated statements of comprehensive ~~income (loss).~~income. Our other comprehensive ~~income (loss)~~loss for the 2019 period includes our proportionate part of unrealized gains (losses) on fixed income securities, which are owned by AIC, related to our investment in AIC.

~~AIC is in the process of dissolving. In connection with its dissolution, we expect to receive a capital distribution in the fourth quarter of 2019.~~

For ~~further~~more information about these and other such relationships and certain other related person transactions, refer to our ~~2018~~2019 Annual Report.

~~Note 12. Discontinued Operations~~

We previously accounted for our investment in SIR under the equity method and had previously reported our investment in SIR as a reportable segment. As a result of the Secondary Sale and the elimination of a reportable segment, our former equity method investment in SIR is classified as discontinued operations in our condensed consolidated financial statements. See Note 4 for further information regarding the Secondary Sale. For the three and nine months ended September 30, 2018, we recorded $9,253 and $23,843, respectively, of equity in earnings of SIR which is included in income from discontinued operations in our condensed consolidated statement of comprehensive income (loss).

~~Table of Contents~~

~~OFFICE PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

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

The following table presents a summarized income statement of SIR as reported in SIR’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, 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.

Three Months Ended Nine Months Ended
September 30, 2018 September 30, 2018
Rental income $ 101,833
$ 298,003
Tenant reimbursements and other income 20,048
60,514
Total revenues 121,881
358,517

Real estate taxes 12,518
36,748
Other operating expenses 14,814
43,714
Depreciation and amortization 35,371
105,326
Acquisition and transaction related costs 3,796
3,796
General and administrative 15,331
47,353
Write-off of straight line rent receivable, net —
10,626
Loss on impairment of real estate assets 9,706
9,706
Total expenses 91,536
257,269

Gain on sale of real estate 4,075
4,075
Dividend income 397
1,190
Unrealized gain on equity securities 22,771
53,159
Interest income 133
753
Interest expense (23,287 ) (69,446 )
Loss on early extinguishment of debt —
(1,192 )
Income before income tax expense and equity in earnings of an investee 34,434
89,787
Income tax expense (185 ) (446 )
Equity in earnings of an investee 831
882
Net income 35,080
90,223
Net income allocated to noncontrolling interest (5,597 ) (15,841 )
Net income attributed to SIR $ 29,483
$ 74,382

Weighted average common shares outstanding (basic) 89,410
89,395
Weighted average common shares outstanding (diluted) 89,437
89,411
Net income attributed to SIR per common share (basic and diluted) $ 0.33
$ 0.83

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

The following information should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our ~~2018~~2019 Annual Report.

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

We are a real estate investment trust, or REIT, organized under Maryland law. As of ~~September 30, 2019,~~March 31, 2020, our wholly owned properties were comprised of ~~200~~184 properties and we had a noncontrolling ownership ~~interest~~interests in three properties totaling ~~443,867~~0.4 million rentable square feet through two unconsolidated joint ventures in which we own ~~50%~~51% and ~~51%~~50% interests. As of ~~September 30, 2019,~~March 31, 2020, our properties are located in 3634 states and the District of Columbia and contain approximately ~~27.3~~24.9 million rentable square feet. As of ~~September 30, 2019,~~March 31, 2020, our properties were leased to ~~403~~359 different tenants, with a weighted average remaining lease term (based on annualized rental income) of approximately ~~5.7~~5.6 years. The U.S. Government is our largest tenant, ~~by annualized rental income and represents~~representing approximately ~~25.8%~~25.0% of our annualized rental income as of ~~September 30, 2019.~~March 31, 2020. The term annualized rental income as used herein is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of ~~the measurement date,~~March 31, 2020, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

COVID-19 Pandemic

~~Merger~~In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic and, in response to the outbreak, the U.S. Health and Human Services Secretary declared a public health emergency in the United States and many states and municipalities declared public health emergencies. The COVID-19 virus has continued to spread throughout the United States and the world. Various governmental responses in an attempt to contain and mitigate the spread of the COVID-19 virus have negatively impacted, and continue to negatively impact, the global economy, including the U.S. economy. As a result, most market observers believe the global economy will be in a recession. Our business is focused on leasing office space to primarily single tenants and those with ~~Select Income REIT~~high credit quality characteristics such as government entities. Although the COVID-19 pandemic did not have a significant impact on our business during the three months ended March 31, 2020, we have received requests from some of our tenants for rent assistance. As of April 28, 2020, we have granted temporary rent assistance totaling $1,403 to 18 tenants who represent 2.4% of our annualized rental income as of March 31, 2020. This assistance generally entails a deferral of, in most cases, one month of rent until September 2020 when the deferred rent amounts will begin to be payable over a 12-month period.

~~On December~~We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including:

our tenants and their ability to withstand the current economic conditions and continue to pay us rent;

our operations, liquidity and capital needs and resources;

conducting financial modeling and sensitivity analyses;

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

monitoring applicable states and municipalities to which we lease property and their responses to the COVID-19 pandemic and economic slowdown, including budgetary impacts; and

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

We believe that our current financial resources, the characteristics of our portfolio, including the diversity of our tenant base, both geographically and by industry, and the financial strength and resources of our tenants, will enable us to withstand the COVID-19 pandemic and perhaps present opportunities for us to strategically deploy our capital. As of April 30, 2020, we had:

$395,000 of availability under our revolving credit facility;

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

62.2% of our annualized rental income, as of March 31, ~~2018,~~2020, derived from investment grade tenants (as described below).

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

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

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

shutting down certain building amenities; and

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

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

deferring non-emergency work;

implementing energy reduction protocols for lighting and HVAC systems;

reducing non-essential building services and staff; and

reducing the frequency of trash removal.

RMR LLC’s property management teams have also established business continuity plans to ensure operational stability at our properties. RMR LLC has suspended all non-essential work travel, its regional leadership personnel have not been allowed to work in the same locations at the same time, and RMR LLC requires its employees who work at our properties to use personal protective equipment and business continuity bonus pay is provided to those individuals.

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

the duration and severity of the economic impact;

the strength and sustainability of any economic recovery;

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

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

As a result of ~~which~~these uncertainties, we ~~acquired 99 properties with approximately 16.5 million rentable square feet. The aggregate transaction value for~~are unable to determine what the ~~Merger was $2,415,053, excluding closing costs of $27,497 ($14,508 of which was paid by~~ultimate impact will be on us and ~~$12,989 of which was paid by SIR)~~our tenants’ and ~~including the repayment or assumption of $1,719,772 of SIR debt.~~

~~As a condition of the Merger, on October 9, 2018, we sold all 24,918,421 common shares of SIR we then owned in the Secondary Sale at a price~~other stakeholders’ businesses, operations, financial results and financial position. For further information and risks relating to the ~~public~~COVID-19 pandemic on us and our business, see Part II, Item 1A “Risk Factors,” in this Quarterly Report on Form 10-Q.

Table of ~~$18.25 per share, raising net proceeds of $435,125, after deducting underwriting discounts and offering expenses.~~Contents

Property Operations

Unless otherwise noted, the data presented in this section ~~include properties classified as held for sale as of September 30, 2019 and exclude~~excludes three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests. ~~See~~For more information regarding our two unconsolidated joint ventures, see Note 4 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form ~~10-Q for more information regarding our properties classified as held for sale and our unconsolidated joint ventures.~~

10-Q.

As of ~~September 30, 2019, 93.3%~~March 31, 2020, 91.5% of our rentable square feet was leased, compared to ~~93.3%~~89.6% of our rentable square feet as of ~~September 30, 2018.~~March 31, 2019. Occupancy data for our properties as of ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ was as follows (square feet in thousands):


	All Properties ⁽¹⁾				Comparable Properties ⁽²⁾				All Properties ⁽¹⁾				Comparable Properties ⁽²⁾
	September 30,				September 30,				March 31,				March 31,
	2019		2018		2019		2018		2020		2019		2020		2019
Total properties ⁽³⁾	200		164		109		109		184		212		182		182
Total rentable square feet ⁽³⁾⁽⁴⁾	27,290		17,046		13,073		13,069
Total rentable square feet ⁽⁴⁾									24,906		30,134		24,619		24,711
Percent leased ⁽⁵⁾	93.3	%	93.3	%	93.0	%	94.4	%	91.5	%	89.6	%	92.6	%	93.2	%


(1)	Based on properties we owned on ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.


(2)	Based on properties we owned continuously since January 1, ~~2018.~~2019; 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.


(3)	Includes one leasable land parcel as of ~~September 30,~~March 31, 2020 and two leasable land parcels as of March 31, 2019.


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


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

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The average effective rental rate per square foot for our properties for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
Average effective rental rate per square foot ⁽¹⁾:
All properties ⁽²⁾	$	26.49	$	26.86	$	27.21	$	26.81	$	26.03	$	25.96
Comparable properties ⁽³⁾	$	29.07	$	29.28	$	29.07	$	29.33	$	26.09	$	26.09


(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.


(2)	Based on properties we owned on ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.


(3)	Based on properties we owned continuously since ~~July 1, 2018 and~~ January 1, ~~2018, respectively.~~2019; 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~~ months ended ~~September 30, 2019,~~March 31, 2020, changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands):


	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019						Three Months Ended March 31, 2020
	Leased		Available for Lease		Total		Leased		Available for Lease		Total		Leased		Available for Lease		Total
Beginning of period	26,860		2,449		29,309		29,024		2,876		31,900		23,761		1,965		25,726
Changes resulting from:
Acquisition of properties													—		13		13
Disposition of properties	(1,398	)	(622	)	(2,020	)	(2,999	)	(1,611	)	(4,610	)	(693	)	(42	)	(735	)
Lease expirations	(750	)	750		—		(2,709	)	2,709		—		(868	)	868		—
Lease renewals ⁽¹⁾	664		(664	)	—		1,817		(1,817	)	—		508		(508	)	—
New leases ⁽¹⁾	95		(95	)	—		338		(338	)	—		81		(81	)	—
Remeasurements ⁽²⁾	1		—		1		1		(1	)	—		—		(98	)	(98	)
End of period	25,472		1,818		27,290		25,472		1,818		27,290		22,789		2,117		24,906


(1)	Based on leases entered during the three ~~and nine~~ months ended ~~September 30, 2019, respectively.~~March 31, 2020.


(2)	Rentable square feet are subject to changes when space is remeasured or reconfigured for tenants.

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Leases at our properties totaling approximately ~~0.8 million and 2.7~~0.9 million rentable square feet expired during the three ~~and nine~~ months ended ~~September 30, 2019, respectively.~~March 31, 2020. During the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, we entered leases totaling approximately ~~0.8 million and 2.2~~0.6 million rentable square feet, ~~respectively,~~ including lease renewals of approximately ~~0.7 million and 1.8~~0.5 million rentable square feet ~~respectively,~~ and new leases of approximately 0.1 million ~~and 0.3 million~~ rentable square ~~feet, respectively.~~feet. The weighted (by rentable square feet) average rents were 4.1% above prior rents for the same space and the weighted (by rentable square feet) average lease term for new and renewal leases entered during the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 was ~~12.7 and 9.1 years, respectively.~~

4.8 years.

During the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, commitments made for expenditures, such as tenant improvements and leasing costs, in connection with leasing space at our properties were as follows (square feet in thousands):



	Three Months Ended March 31, 2020
	New Leases		Renewals		Total
Rentable square feet leased	81		508		589
Tenant leasing costs and concession commitments ⁽¹⁾	$	6,160	$	6,770	$	12,930
Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾	$	75.98	$	13.32	$	21.94
Weighted (by square feet) average lease term (years)	10.8		3.8		4.8
Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾	$	7.04	$	3.49	$	4.60


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

During the three months ended March 31, 2020, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as follows (square feet in thousands):


	Three Months Ended September 30, 2019					Nine Months Ended September 30, 2019					Three Months Ended March 31, 2020
	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	Old Effective Rent Per Square Foot ⁽¹⁾		New Effective Rent Per Square Foot ⁽¹⁾		Rentable Square Feet
New leases	$	33.30	$	31.12	93	$	32.44	$	31.98	207	$	28.13	$	26.95	100
Lease renewals	$	23.99	$	25.29	651	$	30.61	$	32.48	1,840	$	39.71	$	40.92	568
Total leasing activity	$	25.15	$	26.02	744	$	30.79	$	32.43	2,047	$	37.98	$	38.83	668


(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.

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During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~commitments made for expenditures, such as tenant improvements and leasing costs, in connection with leasing space at our properties were as follows (square feet in thousands):~~

Three Months Ended September 30, 2019
New Leases Renewals Total
Rentable square feet leased 95
664
759
Tenant leasing costs and concession commitments ⁽¹⁾
$ 8,275
$ 9,292
$ 17,567
Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾
$ 87.46
$ 13.98
$ 23.14
Weighted (by square feet) average lease term (years) 9.2
13.2
12.7
Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾
$ 9.52
$ 1.06
$ 1.82

Nine Months Ended September 30, 2019
New Leases Renewals Total
Rentable square feet leased 338
1,817
2,155
Tenant leasing costs and concession commitments ⁽¹⁾
$ 30,575
$ 31,173
$ 61,748
Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾
$ 90.60
$ 17.15
$ 28.65
Weighted (by square feet) average lease term (years) 8.6
9.2
9.1
Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾
$ 10.51
$ 1.86
$ 3.14


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

~~During the three and nine months ended September 30, 2019 and 2018,~~ amounts capitalized at our properties for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Tenant improvements ⁽¹⁾
$ 8,749
$ 2,293
$ 20,784
$ 8,990
Leasing costs ⁽²⁾
7,139
1,831
21,224
5,443
Building improvements ⁽³⁾
11,180
6,707
22,805
13,462
Recurring capital expenditures 27,068
10,831
64,813
27,895
Development, redevelopment and other activities ⁽⁴⁾
1,206
664
2,391
2,814
Total capital expenditures $ 28,274
$ 11,495
$ 67,204
$ 30,709



	Three Months Ended March 31,
	2020		2019
Tenant improvements ⁽¹⁾	$	2,967	$	4,912
Leasing costs ⁽²⁾	4,146		7,325
Building improvements ⁽³⁾	9,230		4,308
Recurring capital expenditures	16,343		16,545
Development, redevelopment and other activities ⁽⁴⁾	3,161		226
Total capital expenditures	$	19,504	$	16,771


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


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


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


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

As of ~~September 30, 2019,~~March 31, 2020, we have estimated unspent leasing related obligations of ~~$56,494.~~

$57,348.

As of ~~September 30, 2019,~~March 31, 2020, we had leases at our properties totaling approximately ~~2.8~~1.1 million rentable square feet that were scheduled to expire through ~~September 30,~~December 31, 2020. As of ~~October 31, 2019,~~April 30, 2020, tenants with leases totaling approximately ~~0.6~~0.2 million

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rentable square feet that are scheduled to expire through ~~September 30,~~December 31, 2020, have notified us that they do not plan to renew their leases upon expiration and we cannot be sure as to whether other tenants may or may not renew their leases upon expiration. ~~Based upon~~As a result of the COVID-19 pandemic and the current economic impact, leasing activity has slowed in the 2020 second quarter to date and we expect that slowing may continue until market conditions improve. However, we also believe that these conditions may result in our overall tenant retention levels increasing. Prevailing market conditions and ~~tenant negotiations for~~government and other tenants’ needs at the time we negotiate and enter leases ~~scheduled to expire through September 30, 2020, we expect that the~~or lease renewals will generally determine rental rates and demand for leased space at our properties, and market conditions and our tenants’ needs are beyond our control. Whenever we ~~are likely to achieve on~~extend, renew or enter into new ~~or renewed~~ leases for ~~space under leases expiring through September 30, 2020 will, in the aggregate and on a weighted (by annualized revenues) average basis, be approximately equivalent~~our properties, we intend to ~~the rates currently being paid, thereby generally resulting in unchanged rent from~~seek rents which are equal to or higher than our historical rents for the same ~~space.~~properties; however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control. We cannot be sure of the rental rates which will result from our ongoing negotiations regarding lease renewals or any new or renewed leases we may enter; also, we may experience material declines in our rental income due to vacancies upon lease expirations or early terminations. Prevailing market conditions and government and other tenants' needs at the time we negotiate and enter leases or lease renewals will generally determine rental rates and demand for leased space at our properties, and market conditions and our other tenants' needs are beyond our control. Whenever we extend, renew or enter into new leases for our properties, we

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intend to seek rents which are equal to or higher than our historical rents for the same properties; however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control.

As ~~shown below, approximately 5.9%~~ of ~~our total rented square feet and approximately 7.3% of our total annualized rental income as of September 30, 2019 are from leases scheduled to expire by December~~March 31, ~~2019. As of September 30, 2019,~~2020, our lease expirations ~~at our properties~~ by year are as follows (square feet in thousands):


Year ⁽¹⁾		Number of Leases Expiring	Leased Square Feet Expiring ⁽²⁾	Percent of Total		Cumulative Percent of Total		Annualized Rental Income Expiring		Percent of Total		Cumulative Percent of Total			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
2019		44	1,496	5.9	%	5.9	%	$	46,666	7.3	%	7.3	%
2020		63	1,297	5.1	%	11.0	%	34,348		5.4	%	12.7	%		56	1,083	4.8	%	4.8	%	$	27,541	4.7	%	4.7	%
2021		67	1,863	7.3	%	18.3	%	43,300		6.8	%	19.5	%		58	2,050	9.0	%	13.8	%	58,503		10.1	%	14.8	%
2022		88	2,360	9.3	%	27.6	%	60,888		9.5	%	29.0	%		79	2,147	9.4	%	23.2	%	60,941		10.5	%	25.3	%
2023		66	2,688	10.6	%	38.2	%	71,043		11.1	%	40.1	%		63	2,528	11.1	%	34.3	%	68,662		11.8	%	37.1	%
2024		60	3,741	14.7	%	52.9	%	96,366		15.1	%	55.2	%		54	3,674	16.1	%	50.4	%	97,273		16.7	%	53.8	%
2025		36	2,017	7.9	%	60.8	%	43,607		6.8	%	62.0	%		49	2,018	8.9	%	59.3	%	43,531		7.5	%	61.3	%
2026		29	1,844	7.2	%	68.0	%	48,403		7.6	%	69.6	%		29	1,710	7.5	%	66.8	%	45,728		7.9	%	69.2	%
2027		32	2,073	8.1	%	76.1	%	51,656		8.1	%	77.7	%		28	1,855	8.1	%	74.9	%	46,984		8.1	%	77.3	%
2028 and thereafter		58	6,093	23.9	%	100.0	%	142,232		22.3	%	100.0	%
2028															12	872	3.8	%	78.7	%	25,568		4.4	%	81.7	%
2029 and thereafter															46	4,851	21.3	%	100.0	%	106,992		18.3	%	100.0	%
Total		543	25,472	100.0	%			$	638,509	100.0	%				474	22,788	100.0	%			$	581,723	100.0	%

Weighted average remaining lease term (in years)	Weighted average remaining lease term (in years)		6.0					5.7						Weighted average remaining lease term (in years)		5.9					5.6

(1)

The year of lease expiration is pursuant to current contract terms. Some ~~tenants have~~of our leases allow the ~~right~~tenants to vacate ~~their space~~the leased premises before the stated expirations of their ~~leases.~~leases with little or no liability. As of ~~September 30, 2019,~~March 31, 2020, tenants occupying approximately ~~10.0%~~11.0% of our rentable square feet and responsible for approximately ~~6.0%~~7.9% of our annualized rental income as of ~~September 30, 2019~~March 31, 2020 currently have exercisable rights to terminate their leases before the stated terms of their leases expire. Also, in ~~2019,~~ 2020, 2021, 2022, 2023, 2024, 2025, 2026, 2027, 2028,, 2030 and ~~2034,~~2035, early termination rights become exercisable by other tenants who currently occupy an additional approximately ~~0.2%~~3.2%, ~~5.1%, 1.4%~~1.3%, 2.3%, ~~0.9%~~0.7%, 1.0%, ~~1.9%, 0.9%, 0.5%~~2.2%, 1.0%, 0.5%, 1.1%, 0.1% and 0.1% of our rentable square feet, respectively, and contribute an additional approximately ~~0.2%~~4.0%, ~~6.5%~~1.4%, 2.4%, 0.9%, 1.6%, ~~2.2%~~3.8%, ~~1.1%~~1.3%, ~~1.5%~~0.7%, ~~3.3%~~1.2%, ~~1.1%, 0.6%, 1.1%, 0.5%~~0.2% and ~~0.0%~~0.1% of our annualized rental income, respectively, as of ~~September 30, 2019.~~March 31, 2020. In addition, as of ~~September 30, 2019, 16~~March 31, 2020, pursuant to leases with 13 of our tenants, ~~currently~~these tenants have ~~exercisable~~ rights to terminate their leases if ~~the~~their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These 1613 tenants occupy approximately ~~5.1%~~5.2% of our rentable square feet and contribute approximately ~~5.3%~~5.5% of our annualized rental income as of ~~September 30, 2019.~~

March 31, 2020.

(2)

Leased square feet is pursuant to leases existing as of ~~September 30, 2019,~~March 31, 2020, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any. Square feet measurements are subject to changes when space is remeasured or reconfigured for new tenants.

We generally will seek to renew or extend the terms of leases in our single tenant properties when they expire. Because of the capital many of the tenants in these properties have invested in the properties and because many of these properties appear to be of strategic importance to the tenants’ businesses, we believe that it is likely that these tenants will renew or extend their leases prior to when they expire. If we are unable to extend or renew our leases, it may be time consuming and expensive to relet some of these properties.

We believe that current government budgetary methodology, spending priorities and the current U.S. presidential ~~administration's~~administration’s views on the size and scope of government employment have resulted in a decrease in government employment. Furthermore, for the past ~~five~~six years, government tenants have reduced their space utilization per employee and consolidated government tenants into existing government owned properties. This activity has reduced the demand for government leased space. Our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants frequently renew leases to avoid the costs and disruptions that may result

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from relocating their operations. However, efforts to reduce space utilization rates may result in our tenants exercising early termination rights under our leases, vacating our properties upon expiration of our leases in order to relocate, or renewing their leases for less space than they currently occupy. Also, our government ~~tenants'~~tenants’ desires to reconfigure leased office space to reduce utilization per employee may require us to spend significant amounts for tenant improvements, and tenant relocations have become more prevalent than our past experiences in instances where efforts by government tenants to reduce their space utilization require a significant reconfiguration of currently leased space. Increasing uncertainty with respect to government agency budgets and funding to implement relocations, consolidations and reconfigurations ~~recently~~ has resulted in delayed

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

As of ~~September 30, 2019,~~March 31, 2020, we derive ~~24.6%~~24.3% of our annualized rental income from our properties located in the metropolitan Washington, D.C. market area, which includes Washington, D.C., Northern Virginia and suburban Maryland. A downturn in economic conditions in this area, including as a result of the COVID-19 pandemic, could result in reduced demand from tenants for our properties or reduce the rents that our tenants in this area are willing to pay when our leases expire or terminate and when renewal or new terms are negotiated. Additionally, in recent years there has been a decrease in demand for new leased space by the U.S. Government in the metropolitan Washington, D.C. market area, and that could increase competition for government tenants and adversely affect our ability to retain government tenants when our leases expire.

Our manager, RMR LLC, employs a tenant review process for us. RMR LLC assesses tenants on an individual basis ~~and does not employ a standardized set of~~based on various applicable credit criteria. In general, depending on facts and circumstances, RMR LLC evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources. RMR LLC also often uses a third party service to monitor the credit ratings, ~~of debt securities~~both actual and implied, of our existing ~~tenants whose debt securities are rated by a nationally recognized credit rating agency.~~tenants. 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~~tenant’s lease obligations; and/or (c) tenants with investment grade rated parent entities that do not guarantee the ~~tenant's~~tenant’s lease obligations. As of ~~September 30, 2019,~~March 31, 2020, tenants contributing ~~54.6%~~52.6% 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 ~~9.3%~~9.6% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

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As of ~~September 30, 2019,~~March 31, 2020, tenants representing 1% or more of our total annualized rental income were as follows:


	Tenant	Credit Rating	Annualized Rental Income		% of Total Annualized Rental Income		Tenant	Credit Rating	Annualized Rental Income		% of Total Annualized Rental Income
1	U.S. Government	Investment Grade	$	164,864	25.8	%	U.S. Government	Investment Grade	$	145,675	25.0	%
2	State of California	Investment Grade	19,040		3.0	%	Shook, Hardy & Bacon L.L.P.	Not Rated	19,199		3.3	%
3	Shook, Hardy & Bacon L.L.P.	Not Rated	18,854		3.0	%	State of California	Investment Grade	19,125		3.3	%
4	Bank of America Corporation	Investment Grade	16,604		2.6	%	Bank of America Corporation	Investment Grade	16,467		2.8	%
5	F5 Networks, Inc.	Not Rated	14,416		2.3	%	WestRock Company	Investment Grade	12,864		2.2	%
6	Noble Energy, Inc.	Investment Grade	14,149		2.2	%	F5 Networks, Inc.	Not Rated	12,777		2.2	%
7	WestRock Company	Investment Grade	12,843		2.0	%	CareFirst Inc.	Non Investment Grade	11,684		2.0	%
8	CareFirst Inc.	Non Investment Grade	11,619		1.8	%	Northrop Grumman Corporation	Investment Grade	11,320		1.9	%
9	Northrop Grumman Corporation	Investment Grade	11,346		1.8	%	Tyson Foods, Inc.	Investment Grade	11,011		1.9	%
10	Tyson Foods, Inc.	Investment Grade	10,253		1.6	%	Technicolor SA	Non Investment Grade	10,034		1.7	%
11	Technicolor SA	Non Investment Grade	10,034		1.6	%	Commonwealth of Massachusetts	Investment Grade	9,769		1.7	%
12	Commonwealth of Massachusetts	Investment Grade	9,693		1.5	%	Micro Focus International plc	Non Investment Grade	8,710		1.5	%
13	Micro Focus International plc	Non Investment Grade	8,710		1.4	%	CommScope Holding Company Inc	Non Investment Grade	8,097		1.4	%
14	CommScope Holding Company, Inc.	Non Investment Grade	7,931		1.2	%	State of Georgia	Investment Grade	7,173		1.2	%
15	PNC Bank	Investment Grade	6,897		1.1	%	PNC Bank	Investment Grade	6,902		1.2	%
16	State of Georgia	Investment Grade	6,790		1.0	%	ServiceNow, Inc.	Not Rated	6,481		1.1	%
17							Allstate Insurance Co.	Investment Grade	6,472		1.1	%
18							Compass Group plc	Investment Grade	6,398		1.1	%
19							Automatic Data Processing, Inc.	Investment Grade	6,047		1.0	%
20							Church & Dwight Co., Inc.	Investment Grade	6,019		1.0	%
21							Tailored Brands, Inc.	Non Investment Grade	5,898		1.0	%
	Total		$	344,043	53.9	%	Total		$	348,122	59.6	%

Acquisition Activities

During the three months ended March 31, 2020, we acquired a property adjacent to a property we own in Boston, MA for $11,500, excluding acquisition related costs.

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

Disposition Activities

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we sold 47six properties with a combined ~~4.6~~0.7 million rentable square feet for an aggregate sales price of ~~$584.9 million,~~$85,363, excluding closing ~~costs. In October 2019,~~costs and including the repayment of one mortgage note with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021, as part of our capital recycling program. Through our capital recycling program, we ~~sold three~~seek to selectively sell certain properties from time to time to fund future acquisitions and to maintain leverage consistent with our current investment grade ratings with a goal of (1) improving the asset quality of our portfolio by reducing the average age of our properties, lengthening the weighted average lease term of our leases and increasing the likelihood of retaining our tenants and (2) increasing distributions to shareholders. Given the current economic conditions surrounding the COVID-19 pandemic, we are carefully considering our capital allocation strategy and believe we are well positioned to opportunistically deploy capital during 2020.

We are currently marketing for sale four properties with ~~a combined~~approximately 0.2 million rentable square feet for an aggregate sales price of $10.8 million, excluding closing costs. As of October 31, 2019, we have entered into agreements to sell an additional 10 properties containing a combined 0.9 million rentable square feet for an aggregate sales price of $135.9 million, excluding closing costs.

In addition, we are currently marketing an additional eight properties with approximately 0.9 million rentable square feet, including two properties with approximately 0.3 million rentable square feet classified as held for sale as of September 30, 2019, and expect to enter into agreements to sell these properties by the end of 2019. Upon completion of these dispositions, we expect to turn our attention to accretively growing our property portfolio.feet. We cannot be sure we will sell ~~any~~these properties ~~we are marketing~~ for prices in excess of their carrying values, or otherwise. In addition, our pending sales are subject to conditions; accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or their terms will not change.

at all.

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

~~Acquisition Activities~~

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~~In July 2019, we entered into an agreement to acquire a land parcel near one of our properties located in Boston, MA for $2.9 million, excluding acquisition related costs.~~

Financing Activities

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

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

In April 2020, we prepaid, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of ~~$7.9 million using cash on hand.~~

~~During the nine months ended September 30, 2019, we repaid, without penalty, (i) the remaining principal balance outstanding on our $250.0 million unsecured term loan due~~$32,677, an annual interest rate of 5.7% and a maturity date in ~~2022 and (ii) the remaining principal balance outstanding on our $300.0 million unsecured term loan due in~~July 2020 ~~using cash on hand, proceeds from property sales and proceeds from the sale of our shares of class A common stock of RMR Inc.~~

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On July 1, 2019, we sold all of the shares of class A common stock of RMR Inc. we owned in an underwritten public offering at a price to the public of $40.00 per share pursuant to an underwriting agreement among us, RMR Inc., certain other REITs managed by RMR LLC that also sold their class A common stock of RMR Inc. in the offering, and the underwriters named therein. We received net proceeds of $104.7 million from this sale, after deducting underwriting discounts and commissions and other offering expenses, that we used to repay amounts under our unsecured term loan due in 2020.

~~On July 15, 2019, we redeemed, at par plus accrued interest, all $350.0 million of our 3.75% senior unsecured notes due 2019~~ using cash on hand and borrowings under our revolving credit facility.

Segment Information

We operate in one business segment: ownership of real estate properties.

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

Three Months Ended ~~September 30, 2019,~~March 31, 2020, Compared to Three Months Ended ~~September 30, 2018~~March 31, 2019


											Acquired Properties				Disposed Properties																									Non-Comparable
											Results ⁽²⁾				Results ⁽³⁾																									Properties Results
		Comparable Properties Results ⁽¹⁾									Three Months Ended				Three Months Ended				Consolidated Results												Comparable Properties Results ⁽¹⁾									Three Months Ended				Consolidated Results
		Three Months Ended September 30,									September 30,				September 30,				Three Months Ended September 30,												Three Months Ended March 31,									March 31,				Three Months Ended March 31,
						$			%																$			%							$			%												$			%
		2019		2018		Change			Change		2019		2018		2019		2018		2019			2018			Change			Change			2020		2019		Change			Change		2020		2019		2020			2019			Change			Change
Rental income		$	87,240	$	88,439	$	(1,199	)	(1.4	%)	$	77,000	$	—	$	3,171	$	17,663	$	167,411		$	106,102		$	61,309		57.8	%		$	147,512	$	148,595	$	(1,083	)	(0.7	%)	$	2,373	$	26,182	$	149,885		$	174,777		$	(24,892	)	(14.2	%)
Operating expenses:
Real estate taxes		10,968		10,276		692			6.7	%	7,605		—		251		1,796		18,824			12,072			6,752			55.9	%		16,166		16,027		139			0.9	%	641		2,365		16,807			18,392			(1,585		)	(8.6	%)
Utility expenses		6,328		6,940		(612		)	(8.8	%)	3,090		—		100		843		9,518			7,783			1,735			22.3	%		6,875		7,715		(840		)	(10.9	%)	137		1,666		7,012			9,381			(2,369		)	(25.3	%)
Other operating expenses		19,820		19,001		819			4.3	%	10,204		—		352		2,784		30,376			21,785			8,591			39.4	%		25,106		25,386		(280		)	(1.1	%)	774		4,750		25,880			30,136			(4,256		)	(14.1	%)
Total operating expenses		37,116		36,217		899			2.5	%	20,899		—		703		5,423		58,718			41,640			17,078			41.0	%		48,147		49,128		(981		)	(2.0	%)	1,552		8,781		49,699			57,909			(8,210		)	(14.2	%)
Net operating income ⁽⁴⁾		$	50,124	$	52,222	$	(2,098	)	(4.0	%)	$	56,101	$	—	$	2,468	$	12,240	108,693			64,462			44,231			68.6	%
Property net operating income ⁽²⁾																															$	99,365	$	99,467	$	(102	)	(0.1	%)	$	821	$	17,401	100,186			116,868			(16,682		)	(14.3	%)

Other expenses:
Depreciation and amortization	Depreciation and amortization																		74,939			42,569			32,370			76.0	%	Depreciation and amortization														62,943			77,521			(14,578		)	(18.8	%)
Loss on impairment of real estate	Loss on impairment of real estate																		8,521			—			8,521			nm		Loss on impairment of real estate														—			3,204			(3,204		)	n/m
Acquisition and transaction related costs	Acquisition and transaction related costs																		—			3,813			(3,813		)	(100.0	%)	Acquisition and transaction related costs														—			584			(584		)	n/m
General and administrative	General and administrative																		7,990			22,383			(14,393		)	(64.3	%)	General and administrative														7,109			8,723			(1,614		)	(18.5	%)
Total other expenses	Total other expenses																		91,450			68,765			22,685			33.0	%	Total other expenses														70,052			90,032			(19,980		)	(22.2	%)
Gain on sale of real restate	Gain on sale of real restate																		11,463			—			11,463			nm		Gain on sale of real restate														10,756			22,092			(11,336		)	(51.3	%)
Dividend income	Dividend income																		—			304			(304		)	(100.0	%)	Dividend income														—			980			(980		)	n/m
Gain on equity securities	Gain on equity securities																		—			17,425			(17,425		)	(100.0	%)	Gain on equity securities														—			22,128			(22,128		)	n/m
Interest income																			358			140			218			155.7	%
Interest and other income																														Interest and other income														706			248			458			184.7	%
Interest expense	Interest expense																		(32,367		)	(23,374		)	(8,993		)	38.5	%	Interest expense														(27,159		)	(37,133		)	9,974			(26.9	%)
Loss on early extinguishment of debt	Loss on early extinguishment of debt																		(284		)	—			(284		)	nm		Loss on early extinguishment of debt														(3,282		)	(414		)	(2,868		)	n/m
Loss from continuing operations before income tax expense and equity in net income (loss) of investees																			(3,587		)	(9,808		)	6,221			nm
Income before income tax expense and equity in net losses of investees																														Income before income tax expense and equity in net losses of investees														11,155			34,737			(23,582		)	(67.9	%)
Income tax expense	Income tax expense																		(156		)	(9		)	(147		)	nm		Income tax expense														(39		)	(483		)	444			(91.9	%)
Equity in net income (loss) of investees																			(196		)	94			(290		)	(308.5	%)
Loss from continuing operations																			(3,939		)	(9,723		)	5,784			nm
Income from discontinued operations																			—			9,274			(9,274		)	(100.0	%)
Net loss																			(3,939		)	(449		)	(3,490		)	nm
Preferred units of limited partnership distributions																			—			—			—			nm
Net loss available for common shareholders																			$	(3,939	)	$	(449	)	$	(3,490	)	nm
Equity in net losses of investees																														Equity in net losses of investees														(276		)	(235		)	(41		)	17.4	%
Net income																														Net income														$	10,840		$	34,019		$	(23,179	)	(68.1	%)

Weighted average common shares outstanding (basic)	Weighted average common shares outstanding (basic)																		48,073			24,768			23,305			94.1	%	Weighted average common shares outstanding (basic)														48,095			48,031			64			0.1	%
Weighted average common shares outstanding (diluted)	Weighted average common shares outstanding (diluted)																		48,073			24,768			23,305			94.1	%	Weighted average common shares outstanding (diluted)														48,095			48,046			49			0.1	%

Per common share amounts (basic and diluted):	Per common share amounts (basic and diluted):																													Per common share amounts (basic and diluted):
Loss from continuing operations																			$	(0.08	)	$	(0.39	)	$	0.31		(79.5	%)
Income from discontinued operations																			$	—		$	0.37		$	(0.37	)	(100.0	%)
Net loss available for common shareholders																			$	(0.08	)	$	(0.02	)	$	(0.06	)	300.0	%
Net income																														Net income														$	0.23		$	0.71		$	(0.48	)	(67.6	%)

n/m - not meaningful


(1)	Comparable properties ~~consist~~consists of ~~109~~182 properties we owned on March 31, 2020 and which we owned continuously since ~~July~~January 1, ~~2018.~~2019 and excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.


(2)	Acquired properties consist of 91 properties we acquired since July 1, 2018 and which we owned as of September 30, 2019. On December 31, 2018, we acquired these properties in connection with the Merger.


~~(3)~~	~~Disposed properties consist of 47 properties we sold during the nine months ended September 30, 2019 and 16 properties we sold during the period from July 1, 2018 to December 31, 2018.~~


~~(4)~~	Our definition of property net operating income, or Property NOI, and our reconciliation of net income ~~(loss) available for common shareholders~~ to Property NOI are included below under the heading “Non-GAAP Financial Measures."”

We refer to the 109 properties we owned continuously since July 1, 2018 as the comparable properties. We refer to the 91 properties we acquired during the period from July 1, 2018 to September 30, 2019 as the acquired properties. We refer to the 63 properties we sold during the period from July 1, 2018 to September 30, 2019 as the disposed properties.

Our condensed consolidated statements of comprehensive income (loss) for the three months ended September 30, 2019 include the operating results of the acquired properties for the entire period, as we acquired those properties on December 31, 2018 in connection with the Merger, include the operating results of nine of the disposed properties for less than the entire period, as we sold those properties during the three months ended September 30, 2019, and exclude the operating results of 54 of the disposed properties, as we sold those properties prior to July 1, 2019. Our condensed consolidated statements of

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comprehensive income (loss) for the three months ended September 30, 2018 exclude the operating results of the acquired properties for the entire period, as we acquired those properties after September 30, 2018 and include the operating results of 63 of the disposed properties for the entire period as we sold those properties after September 30, 2018.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three month period ended ~~September 30, 2019,~~March 31, 2020, compared to the three month period ended ~~September 30, 2018.~~

March 31, 2019.

Rental income. The ~~increase~~decrease in rental income reflects ~~an increase~~decreases in rental income ~~associated with the acquired properties, partially offset by~~of $21,776 as a result of property dispositions, $2,048 related to a property undergoing significant redevelopment and $1,083 related to comparable properties. The decrease in rental income ~~from the~~for comparable properties ~~and the disposed properties. Rental income for the comparable properties declined $1,199~~is primarily due to reductions in occupied space at certain of our ~~properties. Rental income increased $77,000 as a result~~

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properties in the ~~acquired properties. Rental income declined $14,492 as a result of the disposed properties.~~2020 period. Rental income includes non-cash straight line rent adjustments totaling ~~$6,904~~$5,583 in the ~~2019~~2020 period and ~~$1,990~~$6,794 in the ~~2018~~2019 period, and amortization of acquired leases and assumed lease obligations totaling ~~$(35)~~$1,432 in the 2020 period and $1,147 in the 2019 ~~period and $(773) in the 2018~~ period.

Real estate taxes. The ~~increase~~decrease in real estate taxes primarily reflects a decrease in real estate taxes associated with property dispositions of $1,739, partially offset by an increase in real estate taxes ~~associated with the acquired properties and the~~for comparable properties ~~partially offset by a decrease in real estate taxes for the disposed properties.~~of $139. Real estate taxes for ~~the~~ comparable properties increased ~~$692~~primarily due ~~primarily~~ to the effect of higher real estate tax rates and valuation assessments ~~at four properties, as well as real estate tax refunds received for two properties~~across our portfolio in the ~~2018~~2020 period. ~~Real estate taxes increased $7,605 as a result of the acquired properties. Real estate taxes declined $1,545 as a result of the disposed properties.~~

Utility expenses. The ~~increase~~decrease in utility expenses reflects ~~an increase~~a decrease in utility expenses associated with ~~the acquired properties, partially offset by~~property dispositions of $1,529, as well as a decrease in utility expenses for ~~the~~ comparable properties ~~and the disposed properties.~~of $840. Utility expenses ~~at the~~for comparable properties ~~decreased $612~~declined primarily due to a decrease in electricity and water usage as a result of mild weather and energy savings initiatives at certain of our properties ~~during~~in the ~~2019~~2020 period. ~~Utility expenses increased $3,090 as a result of the acquired properties. Utility expenses declined $743 as a result of the disposed properties.~~

Other operating expenses. Other operating expenses consist of salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense, other direct costs of operating our properties and property management fees. The ~~increase~~decrease in other operating expenses primarily reflects ~~an increase in other operating expenses associated with the acquired properties as well as an increase at the comparable properties, partially offset by~~ a decrease in other operating expenses related to property dispositions of $3,853, a decrease of $280 for ~~the disposed properties.~~comparable properties and a decrease of $169 related to a property undergoing significant redevelopment. Other operating expenses ~~increased $10,204 as a result of~~for comparable properties decreased primarily due to lower snow removal costs in the ~~acquired properties and were~~2020 period, partially offset by ~~the impact of a $2,432 decrease as a result of the disposed properties. Other operating expenses increased $819 at the comparable properties primarily as a result of increased repairs~~higher insurance and ~~maintenance costs during the 2019 period.~~cleaning costs.

Depreciation and amortization. The ~~increase~~decrease in depreciation and amortization primarily reflects ~~the effect~~a decrease related to property dispositions of ~~the acquired properties, partially offset by the effect of certain assets of the~~$8,035, a decrease for comparable properties ~~becoming fully depreciated~~of $5,681 and ~~the disposed properties.~~a decrease related to a property undergoing significant redevelopment of $888. Depreciation and amortization ~~increased $42,992 as a result of the acquired properties. Depreciation and amortization at the~~for comparable properties ~~decreased $3,088~~and the property undergoing significant redevelopment declined due ~~primarily~~ to certain leasing related assets becoming fully depreciated after July 1, 2018, partially offset by depreciation and amortization of improvements made to certain of our properties after July 1, 2018. Depreciation and amortization declined $7,534 as a result ofin the ~~disposed properties.~~2020 period.

Loss on impairment of real estate. WeIn the 2019 period, we recorded a ~~$6,342~~$2,757 loss on impairment of real estate ~~in the 2019 period~~ to reduce the carrying value of ~~eight properties~~one property to ~~their~~its estimated fair value less costs to sell and a ~~$2,179~~$447 loss on impairment of real estate related to the ~~disposal~~sale of ~~one property in the 2019 period.~~a portfolio of 34 properties.

Acquisition and transaction related costs. Acquisition and transaction related costs in the ~~2018~~2019 period ~~include~~consists of post-merger activity costs

incurred in 2019 in connection with ~~the Merger~~our acquisition of Select Income REIT and other related ~~transactions.~~

transactions completed on December 31, 2018.

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 primarily reflects ~~$16,236 in estimated incentive business management fees recorded during the 2018 period, partially offset by an increase~~a decrease in business management fees primarily as a result of ~~the Merger.~~property sales during 2019 and 2020 and lower equity based compensation expenses.

Gain on sale of real estate. We recorded ~~an $11,463~~a $10,756 net gain on ~~the~~ sale of real estate resulting from the sale of ~~two~~six properties during the ~~three months ended September 30,~~2020 period. We recorded a $22,092 gain on sale of real estate resulting from the sale of one property during the 2019 period.

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

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

Interest and other income. The increase in interest and other income is primarily due to a settlement we received resulting from a dispute with a vendor, partially offset by the effect of lower cash balances in the 2020 period compared to the 2019 period and lower returns on cash invested.

Interest expense. The decrease in interest expense is primarily due to lower average outstanding debt balances in the 2020 period resulting from debt repayment activity in 2019 and 2020, including the repayment of our term loans during 2019, the redemption of our $350,000 3.75% senior unsecured notes in July 2019 and the redemption of our $400,000 3.60% senior unsecured notes in January 2020. Also contributing to the decrease were lower weighted average interest rates on borrowings under our revolving credit facility during the 2020 period compared to the 2019 period.

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~~Dividend income.~~ ~~Dividend income for the 2018 period consists of dividends received from our former investment in RMR Inc. We sold our investment in RMR Inc. on July 1, 2019.~~

~~Gain on equity securities.~~ ~~Gain on equity securities in the 2018 period represents the unrealized gain to adjust our former investment in RMR Inc. to its fair value.~~

~~Interest income.~~ ~~The increase in interest income is primarily the result of higher cash balances in the 2019 period compared to the 2018 period.~~

~~Interest expense.~~ The increase in interest expense reflects higher average outstanding debt balances primarily as a result of the debt assumed in conjunction with the Merger, higher weighted average interest rates on borrowings during the 2019 period compared to the 2018 period, partially offset by the redemption of our senior unsecured notes in July 2019.

Loss on early extinguishment of debt. We recorded a loss on early extinguishment of debt of ~~$284~~$3,282 in the ~~2019~~2020 period from prepayment fees incurred and the ~~write-off~~write off of unamortized discounts and debt issuance costs ~~and discounts~~ associated with the ~~repayments~~prepayment of ~~our unsecured term loan~~two mortgage notes and the redemption of our senior unsecured notes due ~~in 2019.~~

~~Income tax expense.~~ ~~Income tax expense increased as a result of the acquired properties, reflecting higher operating income in certain jurisdictions in the 2019 period that is subject to state income taxes.~~

~~Equity in net income (loss) of investees.~~ ~~Equity in net income (loss) of investees represents our proportionate share of earnings and losses from our investments in AIC and two unconsolidated joint ventures.~~

~~Income from discontinued operations.~~ Income from discontinued operations in the 2018 period consists of our proportionate share of earnings from our former equity method investment in SIR. See Note 12 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for further information about our former equity method investment in SIR.

~~Weighted average common shares outstanding~~. The increase in weighted average common shares outstanding primarily reflects shares that were outstanding for part or all of the quarter ended September 30, 2019, but not outstanding for any of the corresponding 2018 period, including shares issued in connection with the Merger on December 31, 2018.

~~Net loss and net loss available for common shareholders.~~ Our net loss, net loss available for common shareholders and net loss available for common shareholders per basic and diluted common share increased in the 2019 period compared to the 2018 period primarily as a result of the changes noted above.

~~Table of Contents~~

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

~~Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018~~

Acquired Properties Disposed Properties

Results ⁽²⁾

Results ⁽³⁾

Comparable Properties Results ⁽¹⁾
Nine Months Ended Nine Months Ended Consolidated Results
Nine Months Ended September 30, September 30, September 30, Nine Months Ended September 30,
$ % $ %
2019 2018 Change Change 2019 2018 2019 2018 2019 2018 Change Change
Rental income $ 260,931
$ 266,620
$ (5,689 ) (2.1 %) $ 235,577
$ —
$ 21,712
$ 56,284
$ 518,220
$ 322,904
$ 195,316
60.5 %
Operating expenses:

Real estate taxes 31,803
31,072
731
2.4 % 21,580
—
1,980
6,330
55,363
37,402
17,961
48.0 %
Utility expenses 17,335
18,159
(824 ) (4.5 %) 8,136
—
898
2,331
26,369
20,490
5,879
28.7 %
Other operating expenses 57,611
55,978
1,633
2.9 % 29,657
—
2,936
10,243
90,204
66,221
23,983
36.2 %
Total operating expenses 106,749
105,209
1,540
1.5 % 59,373
—
5,814
18,904
171,936
124,113
47,823
38.5 %
Net operating income ⁽⁴⁾
$ 154,182
$ 161,411
$ (7,229 ) (4.5 %) $ 176,204
$ —
$ 15,898
$ 37,380
346,284
198,791
147,493
74.2 %

Other expenses:

Depreciation and amortization 226,373
129,444
96,929
74.9 %
Loss on impairment of real estate 14,105
5,800
8,305
143.2 %
Acquisition and transaction related costs 682
3,813
(3,131 ) (82.1 %)
General and administrative 25,457
36,438
(10,981 ) (30.1 %)
Total other expenses 266,617
175,495
91,122
51.9 %
Gain on sale of real estate 33,538
17,329
16,209
93.5 %
Dividend income 1,960
912
1,048
114.9 %
Gain (loss) on equity securities, net (44,007 ) 40,677
(84,684 ) (208.2 %)
Interest income 847
405
442
109.1 %
Interest expense (104,848 ) (69,444 ) (35,404 ) 51.0 %
Loss on early extinguishment of debt (769 ) —
(769 ) nm
Income (loss) from continuing operations before income tax expense and equity in net losses of investees (33,612 ) 13,175
(46,787 ) (355.1 %)
Income tax expense (509 ) (124 ) (385 ) 310.5 %
Equity in net losses of investees (573 ) (1,112 ) 539
(48.5 %)
Income (loss) from continuing operations (34,694 ) 11,939
(46,633 ) (390.6 %)
Income from discontinued operations —
23,872
(23,872 ) (100.0 %)
Net income (loss) (34,694 ) 35,811
(70,505 ) (196.9 %)
Preferred units of limited partnership distributions —
(371 ) 371
(100.0 )%
Net income (loss) available for common shareholders $ (34,694 ) $ 35,440
$ (70,134 ) (197.9 %)

Weighted average common shares outstanding (basic) 48,051
24,764
23,287
94.0 %
Weighted average common shares outstanding (diluted) 48,051
24,769
23,282
94.0 %

Per common share amounts (basic and diluted):

Income (loss) from continuing operations $ (0.72 ) $ 0.47
$ (1.19 ) (253.2 %)
Income from discontinued operations $ —
$ 0.96
$ (0.96 ) (100.0 %)
Net income (loss) available for common shareholders $ (0.72 ) $ 1.43
$ (2.15 ) (150.3 %)


~~(1)~~	~~Comparable properties consist of 109 properties we owned continuously since January 1, 2018.~~


~~(2)~~	~~Acquired properties consist of 91 properties we acquired since January 1, 2018. On December 31, 2018, we acquired these properties in connection with the Merger.~~


~~(3)~~	~~Disposed properties consist of 47 properties we sold during the nine months ended September 30, 2019 and 19 properties we sold during 2018.~~


~~(4)~~	~~Our definition of Property NOI and our reconciliation of net income (loss) available for common shareholders to Property NOI are included below under the heading “Non-GAAP Financial Measures."~~

We refer to the 109 properties we owned continuously since January 1, 2018 as the comparable properties. We refer to the 91 properties we acquired during the period from January 1, 2018 to September 30, 2019 as the acquired properties. We refer to the 66 properties we sold during the period from January 1, 2018 to September 30, 2019 as the disposed properties.

Our condensed consolidated statements of comprehensive income (loss) for the nine months ended September 30, 2019 include the operating results of the acquired properties for the entire period, as we acquired those properties on December 31, 2018 in connection with the Merger, include the operating results of 47 of the disposed properties for less than the entire period, as we sold those properties during the nine months ended September 30, 2019, and exclude the operating results of 19 of the disposed properties, as we sold those properties prior to January 1, 2019. Our condensed consolidated statements of comprehensive income (loss) for the nine months ended September 30, 2018 exclude the operating results of the acquired properties for the entire period, as we acquired those properties after September 30, 2018, include the operating results of 63 of the disposed properties for the entire period as we sold those properties after September 30, 2018 and include the operating results of three disposed properties for less than the entire period as we sold these properties during the nine months ended September 30, 2018.

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References to changes in the income and expense categories below relate to the comparison of consolidated results for the nine months ended September 30, 2019, compared to the nine month period ended September 30, 2018.

~~Rental income.~~ The increase in rental income reflects an increase in rental income associated with the acquired properties, partially offset by a decrease in rental income from the comparable properties and the disposed properties. Rental income for the comparable properties declined $5,689 primarily due to reductions in occupied space at certain of our properties. Rental income increased $235,577 as a result of the acquired properties, which includes $7,642 of termination fee revenue recorded for a single tenant at one property during the three months ended June 30, 2019. Rental income declined $34,572 as a result of the disposed properties. Rental income includes non-cash straight line rent adjustments totaling $19,365 in the 2019 period and $7,825 in the 2018 period, and amortization of acquired leases and assumed lease obligations totaling $(2,628) in the 2019 period and $(2,361) in the 2018 period.

~~Real estate taxes.~~ The increase in real estate taxes reflects an increase in real estate taxes associated with the acquired properties and the comparable properties, partially offset by a decrease in real estate taxes for the disposed properties. Real estate taxes for the comparable properties increased $731 due primarily to the effect of higher real estate tax rates and valuation assessments at certain of our properties in the 2019 period. Real estate taxes increased $21,580 as a result of the acquired properties. Real estate taxes declined $4,350 as a result of the disposed properties.

~~Utility expenses.~~ The increase in utility expenses reflects an increase in utility expenses associated with the acquired properties, partially offset by a decrease in utility expenses for the comparable properties and the disposed properties. Utility expenses at comparable properties decreased $824 primarily due to a decrease in electricity and water usage as a result of energy savings initiatives at certain of our properties during the 2019 period. Utility expenses increased $8,136 as a result of the acquired properties. Utility expenses declined $1,433 as a result of the disposed properties.

~~Other operating expenses.~~ The increase in other operating expenses reflects an increase in other operating expenses associated with the acquired properties as well as an increase at the comparable properties, partially offset by a decrease in other operating expenses for the disposed properties. Other operating expenses at the comparable properties increased $1,633 primarily as a result of higher snow removal and increased repairs and maintenance costs during the 2019 period. Other operating expenses increased $29,657 as a result of the acquired properties. Other operating expenses declined $7,307 as a result of the disposed properties.

~~Depreciation and amortization.~~ The increase in depreciation and amortization reflects the effect of the acquired properties and the effect of improvements made to certain of the comparable properties, partially offset by the effect of certain assets becoming fully depreciated and the disposed properties. Depreciation and amortization increased $125,538 as a result of the acquired properties. Depreciation and amortization at the comparable properties decreased $8,288 due primarily to certain leasing related assets becoming fully depreciated after January 1, 2018, partially offset by depreciation and amortization of improvements made to certain of our properties after January 1, 2018. Depreciation and amortization declined $20,321 as a result of the disposed properties.

~~Loss on impairment of real estate.~~ During the nine months ended September 30, 2019, we recorded aggregate losses of $11,479 to reduce the carrying value of nine properties to their estimated fair value less costs to sell, as well as aggregate losses on impairment of real estate of $2,626 related to the disposal of 35 properties. We recorded a $5,800 loss on impairment of real estate in the 2018 period to reduce the carrying value of three properties to their estimated fair value less costs to sell.

~~Acquisition and transaction related costs.~~ Acquisition and transaction related costs include costs incurred in connection with the Merger and other related transactions, including certain post-merger activity costs incurred in the 2019 period. For further information regarding the Merger and other related transactions, see Note 4 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

~~General and administrative.~~ The decrease in general and administrative expenses primarily reflects $16,973 in estimated incentive business management fees recorded during the 2018 period, partially offset by increases in business management fees as a result of the Merger and increased equity compensation expenses.

~~Gain on sale of real estate.~~ We recorded aggregate gains of $33,538 on the sale of real estate in 2019 resulting from the sale of three properties in the 2019 period. We recorded a $17,329 gain on the sale of real estate in 2018 resulting from the sale of one property in the 2018 period.

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~~Dividend income.~~ The increase in dividend income in the 2019 period is a result of the additional shares of class A common stock of RMR Inc. SIR owned which we acquired as result of the Merger and a higher dividend rate paid by RMR Inc., partially offset by the sale of our investment in RMR Inc. common stock on July 1, 2019. As a result of this sale, we did not record dividend income during the three months ended September 30, 2019.

~~Gain (loss) on equity securities, net.~~ Gain (loss) on equity securities, net represents a realized loss in the 2019 period for the sale of our 2.8 million shares of class A common stock of RMR Inc. on July 1, 2019, and an unrealized gain in the 2018 period to adjust our former investment in RMR Inc. to its fair value.

~~Interest income.~~ ~~The increase in interest income is primarily the result of higher cash balances in the 2019 period compared to the 2018 period.~~

~~Interest expense.~~ The increase in interest expense reflects higher average outstanding debt balances primarily as a result of the debt assumed in conjunction with the Merger and higher weighted average interest rates during the 2019 period compared to the 2018 period, partially offset by the redemption of our senior unsecured notes in July 2019.

~~Loss on early extinguishment of debt.~~2020. We recorded a loss on early extinguishment of debt of ~~$769~~$414 in the 2019 period from the ~~write-off~~write off of ~~unamortized~~ debt issuance costs ~~and discounts~~ associated with the ~~repayments~~repayment of certain of our ~~unsecured~~ term ~~loans and redemption of our senior unsecured notes due in 2019.~~loans.

Income tax expense.~~Income~~ The decrease in income tax expense ~~increased as a result of the acquired properties, reflecting higher~~reflects lower operating income in certain jurisdictions in the ~~2019~~2020 period that is subject to state income taxes.

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

~~Income from discontinued operations.~~ ~~Income from discontinued operations~~ventures and, in the ~~2018~~2019 period, ~~consists of~~ our ~~proportionate share of earnings from our former equity method~~ investment in SIR. See Note 12 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for further information about our former equity method investment in SIR.AIC.

~~Preferred units of limited partnership distributions.~~ Preferred units of limited partnership distributions in the 2018 period represent distributions to the holders of the previously outstanding 5.5% Series A Cumulative Preferred Units of one of our subsidiaries.

~~Weighted average common shares outstanding~~. The increase in weighted average common shares outstanding primarily reflects shares that were outstanding for part or all of the nine months ended September 30, 2019, but not outstanding for any of the corresponding 2018 period, including shares issued in connection with the Merger on December 31, 2018.

Net ~~income (loss) and net income (loss) available for common shareholders.~~income. Our net income ~~(loss), net income (loss) available for common shareholders~~ and net income ~~(loss) available for common shareholders~~ per basic and diluted common share decreased in the ~~2019~~2020 period compared to the ~~2018~~2019 period primarily as a result of the changes noted above.

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Non-GAAP Financial Measures

We present certain ~~"non-GAAP~~“non-GAAP financial ~~measures"~~measures” within the meaning of applicable rules of the Securities and Exchange Commission, or SEC, ~~rules,~~ including ~~the calculations below of~~ Property ~~net operating income, or~~ NOI, ~~as well as~~ funds from operations, or FFO, ~~available for common shareholders,~~and normalized funds from operations, or Normalized ~~FFO, available for common shareholders, for the three and nine months ended September 30, 2019 and 2018.~~FFO. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to ~~income (loss) from continuing operations,~~ net income ~~(loss) or net income (loss) available for common shareholders~~ as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with ~~income (loss) from continuing operations,~~ net income ~~(loss) and net income (loss) available for common shareholders~~ as presented in our condensed consolidated statements of comprehensive ~~income (loss).~~income. We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with ~~income (loss) from continuing operations,~~ net ~~income (loss) and net income (loss) available for common shareholders.~~income. We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of Property

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NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.

Property Net Operating Income

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

The following table presents the reconciliation of net income ~~(loss) available for common shareholders~~ to Property NOI for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.



	Three Months Ended March 31,
	2020			2019
Net income	$	10,840		$	34,019
Equity in net losses of investees	276			235
Income tax expense	39			483
Income before income tax expense and equity in net losses of investees	11,155			34,737
Loss on early extinguishment of debt	3,282			414
Interest expense	27,159			37,133
Interest and other income	(706		)	(248		)
Gain on equity securities	—			(22,128		)
Dividend income	—			(980		)
Gain on sale of real estate	(10,756		)	(22,092		)
General and administrative	7,109			8,723
Acquisition and transaction related costs	—			584
Loss on impairment of real estate	—			3,204
Depreciation and amortization	62,943			77,521
Property NOI	$	100,186		$	116,868

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Net income (loss) available for common shareholders $ (3,939 ) $ (449 ) $ (34,694 ) $ 35,440
Preferred units of limited partnership distributions —
—
—
371
Net income (loss) (3,939 ) (449 ) (34,694 ) 35,811
Income from discontinued operations —
(9,274 ) —
(23,872 )
Income (loss) from continuing operations (3,939 ) (9,723 ) (34,694 ) 11,939
Equity in net (income) loss of investees 196
(94 ) 573
1,112
Income tax expense 156
9
509
124
Loss on early extinguishment of debt 284
—
769
—
Interest expense 32,367
23,374
104,848
69,444
Interest income (358 ) (140 ) (847 ) (405 )
(Gain) loss on equity securities, net —
(17,425 ) 44,007
(40,677 )
Dividend income —
(304 ) (1,960 ) (912 )
Gain on sale of real estate (11,463 ) —
(33,538 ) (17,329 )
General and administrative 7,990
22,383
25,457
36,438
Acquisition and transaction related costs —
3,813
682
3,813
Loss on impairment of real estate 8,521
—
14,105
5,800
Depreciation and amortization 74,939
42,569
226,373
129,444
Property NOI $ 108,693
$ 64,462
$ 346,284
$ 198,791

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Funds From Operations ~~Available for Common Shareholders~~ and Normalized Funds From Operations ~~Available for Common Shareholders~~

We calculate FFO ~~available for common shareholders~~ and Normalized FFO ~~available for common shareholders~~ as shown below. FFO ~~available for common shareholders~~ is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income, ~~(loss) available for common shareholders,~~ calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties, ~~and the difference between FFO attributable to an equity investment and equity in earnings of SIR included in discontinued operations,~~ but excluding impairment charges on ~~and increases in the carrying value of~~ real estate assets, any gain or loss on sale of real estate and equity securities, as well as certain other adjustments currently not applicable to us. In calculating Normalized FFO, ~~available for common shareholders,~~ we adjust ~~for the difference between Normalized FFO attributable to an equity investment and FFO attributable to an equity investment and~~ for the other items shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. FFO ~~available for common shareholders~~ and Normalized FFO ~~available for common shareholders~~ are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. Other real estate companies and REITs

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may calculate FFO ~~available for common shareholders~~ and Normalized FFO ~~available for common shareholders~~ differently than we do.

The following table presents the reconciliation of net income ~~(loss) available for common shareholders~~ to FFO ~~available for common shareholders~~ and Normalized FFO ~~available for common shareholders~~ for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Net income (loss) available for common shareholders $ (3,939 ) $ (449 ) $ (34,694 ) $ 35,440
Add (less): Depreciation and amortization:

Consolidated properties 74,939
42,569
226,373
129,444
Unconsolidated joint venture properties 1,397
1,913
4,558
6,283
FFO attributable to Select Income REIT —
19,012
—
49,914
Loss on impairment of real estate 8,521
—
14,105
5,800
Equity in earnings from Select Income REIT included in discontinued operations —
(9,253 ) —
(23,843 )
Gain on sale of real estate (11,463 ) —
(33,538 ) (17,329 )
(Gain) loss on equity securities, net —
(17,425 ) 44,007
(40,677 )
FFO available for common shareholders 69,455
36,367
220,811
145,032
Add (less): Acquisition and transaction related costs —
3,813
682
3,813
Loss on early extinguishment of debt 284
—
769
—
Normalized FFO attributable to Select Income REIT —
15,584
—
42,482
FFO attributable to Select Income REIT —
(19,012 ) —
(49,914 )
Net gain on issuance of shares by Select Income REIT included in discontinued operations —
(21 ) —
(29 )
Estimated business management incentive fees —
16,236
—
16,973
Normalized FFO available for common shareholders $ 69,739
$ 52,967
$ 222,262
$ 158,357

FFO available for common shareholders per common share (basic and diluted) $ 1.44
$ 1.47
$ 4.60
$ 5.86
Normalized FFO available for common shareholders per common share (basic and diluted) $ 1.45
$ 2.14
$ 4.63
$ 6.39



	Three Months Ended March 31,
	2020			2019
Net income	$	10,840		$	34,019
Add (less): Depreciation and amortization:
Consolidated properties	62,943			77,521
Unconsolidated joint venture properties	1,241			1,751
Loss on impairment of real estate	—			3,204
Gain on sale of real estate	(10,756		)	(22,092		)
Gain on equity securities	—			(22,128		)
FFO	64,268			72,275
Add (less): Acquisition and transaction related costs	—			584
Loss on early extinguishment of debt	3,282			414
Normalized FFO	$	67,550		$	73,273

FFO per common share (basic and diluted)	$	1.34		$	1.50
Normalized FFO per common share (basic and diluted)	$	1.40		$	1.53

LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources (dollar amounts in thousands)

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

As of December 31, 2018, including certain assets acquired from SIR in the Merger, we had identified approximately $700,000 of assets to be sold by us. As of October 31, 2019, we sold 16 properties for $397,115, we have entered agreements to sell 10 properties for $135,863 and we are actively marketing for sale an additional eight properties. In addition, on July 1, 2019, we sold all of the 2.8 million shares of class A common stock of RMR Inc. we owned, raising net proceeds of $104,674, after deducting underwriting discounts and commissions and other offering expenses. Our future cash flows from operating activities will depend primarily upon:

our ability to collect rent from our tenants;

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

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

our ability to successfully ~~complete our pending property sales and to~~ sell properties that we market for sale; and

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

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~~Following~~With $395,000 available under our revolving credit facility as of April 30, 2020 and only approximately $40,000 of debt maturities until 2022, we believe that we are well positioned to weather the ~~Merger,~~present disruptions facing the real estate industry and the economy generally. As a result of the COVID-19 pandemic, we have received requests from some of our tenants for rent assistance. As of April 28, 2020, we have granted temporary rent assistance totaling $1,403 to 18 tenants who represent 2.4% of our annualized rental income as of March 31, 2020. This assistance generally entails a deferral of, in most cases, one month of rent until September 2020 when the deferred rent amounts will begin to be payable over a 12-month period. Our liquidity will be temporarily impacted by these rent deferrals as follows: $452, $809, $71, and $71 of granted deferrals in April, May, June and July 2020, respectively, until September 2020 when these deferrals begin to become obligated to be repaid. Seventeen tenants have requested assistance with respect to additional rent amounts and we are evaluating these requests on a tenant-by-tenant basis and assessing whether to grant any additional relief. In addition, we also anticipate that our general and administrative expenses will be reduced because of the lower fees we will pay to our manager as a result of the decline in our share price since the COVID-19 pandemic began. Although some of our tenants have sought temporary rent assistance, we also believe that overall tenant retention levels may increase. Also, we believe we will benefit from the approximately 62.2% of our annualized rental income as of March 31, 2020 paid by investment grade tenants, the majority of which is made up of government tenants, and the diversity of our tenant base, both geographically and by industry, which may help mitigate the economic impact of the COVID-19 pandemic.

On April 2, 2020, we announced a regular quarterly cash distribution of $0.55 per common share ($2.20 per common share per year), ~~based on a target payout ratio of 75% of projected~~maintaining our previous distribution rate. At this time, we expect our 2020 cash available for ~~distribution.~~distribution coverage to remain reasonably consistent with our target of 75% and expect that the quarterly distribution rate will remain unchanged for 2020. We determine our distribution payout ratio with consideration for our expected capital expenditures as well as cash flows from operations and debt obligations.

In early 2020, we completed our previously announced disposition program and transitioned to a capital recycling program through which we expect to accretively grow our property portfolio. Pursuant to our capital recycling program, we plan to sell certain properties from time to time to fund future acquisitions and to maintain leverage consistent with our current investment grade ratings with a goal of (1) improving the asset quality of our portfolio by reducing the average age of our properties, lengthening the weighted average term of our leases and increasing the likelihood of retaining our tenants and (2) increasing our distributions to shareholders. During the three months ended March 31, 2020, we sold six properties for $85,363, excluding closing costs, as part of this program. In addition, we are also marketing for sale an additional four properties. Given the current economic conditions, we are carefully considering our capital allocation strategy and believe we are well positioned to opportunistically deploy capital during 2020.

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

Our changes in cash flows for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compared to the same period in ~~2018~~2019 were as follows: (i) cash flows provided by operating activities increased from ~~$120,165~~$18,742 in the ~~2018~~2019 period to ~~$148,138~~$37,601 in the ~~2019~~2020 period; (ii) cash flows provided by investing activities ~~increased~~decreased from ~~$126,891~~$250,331 in the ~~2018~~2019 period to ~~$639,768~~$42,095 in the ~~2019~~2020 period; and (iii) cash flows used in financing activities ~~increased~~decreased from ~~$254,738 in the 2018 period to $793,816~~$283,399 in the 2019 period to $146,386 in the 2020 period.

The increase in cash provided by operating activities for the ~~2019~~2020 period as compared to the ~~2018~~2019 period was a result of ~~an increase in property NOI primarily due to the Merger, partially offset by unfavorable~~favorable changes in working capital in the 2020 period compared to the 2019 ~~period as we paid outstanding liabilities, including $25,817 of the SIR business management incentive fee assumed as a result of the Merger.~~period. The ~~increase~~decrease in cash provided by investing activities in the ~~2019~~2020 period as compared to the ~~2018~~2019 period is primarily due to ~~our receipt of~~lower cash proceeds received from our sales of properties in the ~~sale of 47 properties and the sale of 2.8 million shares of class A common stock of RMR Inc. in~~2020 period compared to the 2019 period. The ~~increase~~decrease in cash used in financing activities in the ~~2019~~2020 period as compared to the ~~2018~~2019 period is primarily due to ~~an increase~~a decrease in net debt repayment activity, due to repayments ~~including the repayment~~ of ~~$388,000 of~~our unsecured term loans and ~~$350,000~~net repayment activity on our revolving credit facility using cash on hand and proceeds from sales of ~~senior unsecured notes, partially offset by a decrease in distributions paid to common shareholders~~properties in the 2019 period ~~and the redemption of preferred units~~compared to increased borrowings under our revolving credit facility in the ~~2018 period.~~

2020 period in order to facilitate the repayment of other debts.

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

In order to fund acquisitions and to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $750,000 revolving credit facility. The maturity date of our revolving credit facility is January 31, 2023 and, subject to our payment of an extension fee and meeting certain other conditions, we have the option to extend the stated maturity date of our revolving credit facility by two additional six month periods. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until

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maturity. We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at ~~September 30, 2019,~~March 31, 2020, on the amount outstanding under our revolving credit facility. We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at ~~September 30, 2019.~~March 31, 2020. Both the interest rate premium and ~~the~~ facility fee are subject to adjustment based upon changes to our credit ratings. As of ~~September 30, 2019,~~March 31, 2020, the annual interest rate payable on borrowings under our revolving credit facility was ~~3.0%~~1.8%. As of ~~September~~March 31, 2020 and April 30, ~~2019 and October 31, 2019,~~2020, we had ~~$210,000~~$348,000 and ~~$185,000,~~$355,000, respectively, outstanding under our revolving credit facility, and ~~$540,000~~$402,000 and ~~$565,000,~~$395,000, respectively, available for borrowing under our revolving credit facility.

~~Our revolving credit facility is governed by our credit agreement, which is with a syndicate of institutional lenders, and which also governed our former unsecured term loans:~~

During the nine months ended September 30, 2019, we repaid in full our $300,000 term loan, which was scheduled to mature on March 31, 2020, without penalty, using cash on hand, proceeds from property sales and proceeds from the sale of our shares of class A common stock of RMR Inc.

In February 2019, we repaid in full our $250,000 term loan, which was scheduled to mature on March 31, 2022 and had a principal balance of $88,000 as of December 31, 2018, without penalty, using proceeds from the sale of a property portfolio.

Our credit agreement includes a feature under which the maximum borrowing availability may be increased to up to $1,950,000 in certain circumstances.

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

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~~On July 15, 2019,~~In January 2020, we redeemed, at par plus accrued interest, all $400,000 of our ~~$350,000~~3.60% senior unsecured notes that had a maturity date in February 2020 using cash on hand, proceeds from property sales and borrowings under our revolving credit facility.

In March 2020, in connection with the sale of one property in Fairfax, VA, we prepaid, at a premium plus accrued interest, a mortgage note secured by that property with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August ~~2019~~2021.

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

As of ~~September 30, 2019,~~March 31, 2020, our debt maturities (other than our revolving credit facility), consisting of senior unsecured notes and mortgage notes, are as follows:

Year Debt Maturities
2019 $ 1,053
2020 475,707
2021 14,420
2022 625,518
2023 and thereafter 1,270,564
Total $ 2,387,262



Year	Debt Maturities
2020	$	74,423
2021	1,541
2022	625,518
2023	143,784
2024	350,000
2025 and thereafter	710,000
Total	$	1,905,266

None of our unsecured debt obligations require sinking fund payments prior to their maturity dates. Our ~~$327,262~~$245,266 in mortgage debts, ~~including one mortgage note with an outstanding principal balance of $13,236 classified in liabilities of properties held for sale in our condensed consolidated balance sheet as of September 30, 2019,~~ generally require monthly payments of principal and interest through maturity.

In addition to our debt obligations, as of ~~September 30, 2019,~~March 31, 2020, we have estimated unspent leasing related obligations of ~~$56,494.~~

$57,348.

We currently expect to use cash balances, borrowings under our revolving credit facility, net proceeds from property sales, incurrences or assumptions of mortgage debt and net proceeds from offerings of ~~equity~~debt or ~~debt~~equity securities to fund our future operations, capital expenditures, distributions to our shareholders and property acquisitions. When significant amounts are outstanding under our revolving credit facility or the maturities of our indebtedness approach, we expect to explore refinancing alternatives. Such alternatives may include incurring term debt, issuing ~~equity~~debt or ~~debt~~equity securities, extending the maturity date of our revolving credit facility and entering into a new revolving credit facility. We may assume additional mortgage debt in connection with our acquisitions or elect to place new mortgages on properties we own as a source of financing. We may also seek to participate in additional joint venture or other arrangements that may provide us with additional sources of financing. Although we cannot be sure that we will be successful in consummating any particular type of financing, we believe that we will have access to financing, such as debt and equity offerings, to fund future acquisitions and capital expenditures and to pay

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our obligations. We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.

Our ability to obtain, and the costs of, our future debt financings will depend primarily on credit market conditions and our creditworthiness. We have no control over market conditions. Potential investors and lenders likely will evaluate our ability to pay distributions to shareholders, fund required debt service and repay debts when they become due by reviewing our business practices and plans to balance our use of debt and equity capital so that our financial profile and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. Similarly, our ability to raise equity capital in the future will depend primarily upon equity capital market conditions and our ability to conduct our business to maintain and grow our operating cash flows. We intend to conduct our business in a manner that will afford us reasonable access to capital for investment and financing activities, but we cannot be sure that we will be able to successfully carry out this intention. However, it is uncertain what the duration and severity of the current economic impact resulting from the COVID-19 pandemic will be. A protracted and extensive economic recession may cause a decline in financing availability and increased costs for financings. Further, such conditions could also disrupt capital markets and limit our access to financing from public sources.

In September 2018, following our announcement that we had entered into the Merger Agreement, Standard & Poor's Ratings Services, or S&P, affirmed our credit ratings and revised its outlook on our debt to stable and Moody's Investor Service, or Moody's, affirmed our credit ratings and maintained its negative outlook on our debt. In October 2019, S&P re-affirmed our credit ratings with a stable outlook on our debt. A negative credit rating outlook may imply that our credit ratings may be downgraded unless we are successful in improving the perceived credit quality of our financial profile.

~~During the nine months ended September 30, 2019,~~On February 20, 2020, we paid a regular quarterly ~~distributions~~cash distribution to our common shareholders ~~totaling $79,356~~of record on January 27, 2020, of $0.55 per share, or $26,511, using cash on hand and borrowings under our revolving credit facility. On ~~October 17, 2019,~~April 2, 2020, we declared a regular quarterly distribution payable to common shareholders of record on ~~October 28, 2019~~April 13, 2020 of $0.55 per share, or approximately $26,500. We expect to pay this distribution on or about ~~November 14, 2019~~May 21, 2020 using cash on hand and borrowings under our revolving credit facility. For more information regarding the distributions we paid during ~~2019, please~~2020, see Note 9 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Off Balance Sheet Arrangements (dollars in thousands)

We own ~~50%~~51% and ~~51%~~50% interests in two unconsolidated joint ventures which own three properties. The properties owned by these joint ventures are encumbered by an aggregate $82,000 principal amount of mortgage indebtedness. We do not control the activities that are most significant to these joint ventures and, as a result, we account for our investments in these joint ventures under the equity method of accounting. ~~See~~For more information on the financial condition and results of operations of these joint ventures, see Note 4 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form ~~10-Q for more information on the financial condition and results of operations of these joint ventures.~~10-Q. Other than these joint ventures, as of ~~September 30, 2019,~~March 31, 2020, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Debt Covenants (dollars in thousands)

Our principal debt obligations at ~~September 30, 2019~~March 31, 2020 consisted of borrowings under our $750,000 revolving credit facility, an aggregate outstanding principal ~~amount~~balance of ~~$2,060,000~~$1,660,000 of public issuances of senior unsecured notes and mortgage notes with an aggregate outstanding principal balance of ~~$327,262, including one mortgage note with an outstanding principal balance of $13,236 classified in liabilities of properties held for sale in our condensed consolidated balance sheet,~~$245,266, that were assumed in connection with certain of our acquisitions. Also, the three properties owned by two joint ventures in which we own ~~50%~~51% and ~~51%~~50% interests secure two additional mortgage notes. Our publicly issued senior unsecured notes are governed by indentures and their supplements. Our credit agreement and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts ~~due thereunder~~outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes 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 those that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, require us to ~~maintain~~comply with certain financial ~~ratios~~covenants and, in the case of our credit agreement, restrict our ability to make distributions to our shareholders under certain circumstances. As of ~~September 30, 2019,~~March 31, 2020, we believe we were in compliance with the terms and conditions of our respective covenants under our credit agreement and senior unsecured notes indentures and their supplements. Our mortgage notes are non-recourse, subject to certain limited exceptions, and do not contain any material financial covenants.

Neither our credit agreement nor our senior unsecured notes indentures and their supplements contain provisions for acceleration which could be triggered by our credit ratings. However, under our credit agreement our highest senior credit rating is used to determine the fees and interest rates we pay. Accordingly, if that credit rating is downgraded, our interest expense and related costs under our credit agreement would increase. As noted above, although in September 2018 S&P revised its outlook on our debt to stable, Moody's reaffirmed its negative rating, which may imply that our credit ratings may be downgraded unless we are successful in improving the perceived credit quality of our financial profile.

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

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Related Person Transactions

We have relationships and historical and continuing transactions with RMR LLC, RMR Inc. and others related to them. For example: we have no employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC; RMR Inc. is the managing member of RMR LLC; Adam Portnoy, the Chair of our Board of Trustees and one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director, the president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC; David Blackman, our other Managing Trustee and our President and Chief Executive Officer, also serves as an officer and employee of RMR ~~LLC,~~LLC; and each of our other officers is also an officer and employee of RMR ~~LLC; and, until July 1, 2019 we owned shares of class A common stock of RMR Inc.~~LLC. We have relationships and historical and continuing transactions with other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also trustees, directors or officers of us, RMR LLC or RMR Inc. ~~For example, on December 31, 2018, SIR, then a REIT managed by RMR LLC, merged with~~ and into our wholly owned subsidiary pursuant to the Merger Agreement. At the time we entered into the Merger Agreement, we owned 24,918,421 common shares of SIR, all of which shares we sold on October 9, 2018 pursuant to the Secondary Sale. These transactions are further described in Note 1 to the Notes to Consolidated Financial Statements included in Part IV, Item 15some of our ~~2018 Annual Report.~~

~~Table~~Trustees and officers serve as trustees, directors or officers of ~~Contents~~

these companies.

For ~~further~~more information about these and other such relationships and related person transactions, see Notes 10 and 11 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our ~~2018~~2019 Annual Report, our definitive Proxy Statement for our ~~2019~~2020 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” of our ~~2018~~2019 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related persons, including our business and property management agreements with RMR LLC, ~~and the Merger Agreement,~~ are available as exhibits to our public filings with the SEC and accessible at the SEC’s website, www.sec.gov. We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.

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

We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives. Our strategy to manage exposure to changes in interest rates has not materially changed since December 31, ~~2018.~~2019. Other than as described below, we do not currently foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.

Fixed Rate Debt

At ~~September 30, 2019,~~March 31, 2020, our outstanding fixed rate debt consisted of the following:


Debt	Principal Balance ⁽¹⁾		Annual Interest Rate ⁽¹⁾	Annual Interest Expense ⁽¹⁾		Maturity	Interest Payments Due	Principal Balance ⁽¹⁾		Annual Interest Rate ⁽¹⁾	Annual Interest Expense ⁽¹⁾		Maturity	Interest Payments Due
Senior unsecured notes	$	400,000	3.600%	$	14,400	2020	Semi-annually	$	300,000	4.150%	$	12,450	2022	Semi-annually
Senior unsecured notes	300,000		4.150%	12,450		2022	Semi-annually	300,000		4.000%	12,000		2022	Semi-annually
Senior unsecured notes	300,000		4.000%	12,000		2022	Semi-annually	350,000		4.250%	14,875		2024	Semi-annually
Senior unsecured notes	350,000		4.250%	14,875		2024	Semi-annually	400,000		4.500%	18,000		2025	Semi-annually
Senior unsecured notes	400,000		4.500%	18,000		2025	Semi-annually	310,000		5.875%	18,213		2046	Quarterly
Senior unsecured notes	310,000		5.875%	18,213		2046	Quarterly
Mortgage note (one property in Washington, D.C.)	33,096		5.720%	1,893		2020	Monthly
Mortgage note (one property in Washington, D.C.) ⁽²⁾								32,677		5.720%	1,869		2020	Monthly
Mortgage note (one property in Philadelphia, PA)	40,243		4.032%	1,622		2020	Monthly	39,879		3.580%	1,428		2020	Monthly
Mortgage note (one property in Lakewood, CO)	2,000		8.150%	163		2021	Monthly	1,360		8.150%	111		2021	Monthly
Mortgage note (one property in Fairfax, VA) ⁽²⁾	13,236		5.877%	778		2021	Monthly
Mortgage note (one property in Washington, D.C.)	26,697		4.220%	1,127		2022	Monthly	26,345		4.220%	1,112		2022	Monthly
Mortgage note (three properties in Seattle, WA)	71,000		3.550%	2,521		2023	Monthly	71,000		3.550%	2,521		2023	Monthly
Mortgage note (one property in Chicago, IL)	50,000		3.700%	1,850		2023	Monthly	50,000		3.700%	1,850		2023	Monthly
Mortgage note (one property in Washington, D.C.)	24,210		4.800%	1,162		2023	Monthly	24,005		4.800%	1,152		2023	Monthly
Mortgage note (one property in Washington, D.C.)	66,780		4.050%	2,705		2030	Monthly
Total	$	2,387,262		$	103,759			$	1,905,266		$	85,581

(1)

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


(2)	~~This~~In April 2020, this mortgage ~~debt is included in liabilities of properties held for sale in our condensed consolidated balance sheet as of September 30, 2019.~~note was prepaid at par plus accrued interest.

Our senior unsecured notes require semi-annual or quarterly interest payments through maturity. Our mortgages generally require principal and interest payments through maturity pursuant to amortization schedules. Because these debts require

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interest to be paid at a fixed rate, changes in market interest rates during the term of these debts will not affect our interest obligations. If these debts were refinanced at interest rates which are one percentage point higher or lower than shown above, our annual interest cost would increase or decrease by approximately ~~$23,873.~~

$19,053.

Changes in market interest rates also would affect the fair value of our fixed rate debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt. Based on the balances outstanding at ~~September 30, 2019,~~March 31, 2020, and discounted cash flow analyses through the respective maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt

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obligations, a hypothetical immediate one percentage point increase in interest rates would change the fair value of those obligations by approximately ~~$73,727.~~

$56,166.

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

At ~~September 30, 2019,~~March 31, 2020, we owned 51% and 50% interests in two joint venture arrangements which ~~owned~~own three properties that are secured by fixed rate debt consisting of the following mortgage notes:



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


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


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

Floating Rate Debt

At ~~September 30, 2019,~~March 31, 2020, our floating rate debt consisted of ~~$210,000~~$348,000 of borrowings under our $750,000 revolving credit facility. Our revolving credit facility matures on January 31, 2023 and, subject to the payment of an extension fee and meeting certain other conditions, we have the option to extend the stated maturity by two six month periods. No principal repayments are required under our revolving credit facility prior to maturity, and we can borrow, repay and reborrow funds available under our revolving credit facility, subject to conditions, at any time without penalty.

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

The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of ~~September 30, 2019:~~March 31, 2020:


	Impact of Changes in Interest Rates								Impact of Changes in Interest Rates
	Annual Interest Rate ⁽¹⁾		Outstanding Debt		Total Interest Expense Per Year		Annual Earnings Per Share Impact ⁽²⁾		Annual Interest Rate ⁽¹⁾		Outstanding Debt		Total Interest Expense Per Year		Annual Earnings Per Share Impact ⁽²⁾
At September 30, 2019	3.0	%	$	210,000	$	6,300	$	0.13
At March 31, 2020									1.8	%	$	348,000	$	6,264	$	0.13
One percentage point increase	4.0	%	$	210,000	$	8,400	$	0.17	2.8	%	$	348,000	$	9,744	$	0.20


(1)	Weighted based on the interest rate and outstanding borrowings under our revolving credit facility as of ~~September 30, 2019.~~March 31, 2020.


(2)	Based on the weighted average shares outstanding (diluted) for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

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The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of ~~September 30, 2019~~March 31, 2020 if we were fully drawn on our revolving credit facility:


	Impact of an Increase in Interest Rates								Impact of an Increase in Interest Rates
	Annual Interest Rate ⁽¹⁾		Outstanding Debt		Total Interest Expense Per Year		Annual Earnings Per Share Impact ⁽²⁾		Annual Interest Rate ⁽¹⁾		Outstanding Debt		Total Interest Expense Per Year		Annual Earnings Per Share Impact ⁽²⁾
At September 30, 2019	3.0	%	$	750,000	$	22,500	$	0.47
At March 31, 2020									1.8	%	$	750,000	$	13,500	$	0.28
One percentage point increase	4.0	%	$	750,000	$	30,000	$	0.62	2.8	%	$	750,000	$	21,000	$	0.44


(1)	Weighted based on the interest rate and outstanding borrowings under our revolving credit facility ~~(assuming fully drawn)~~ as of ~~September 30, 2019.~~March 31, 2020.


(2)	Based on the weighted average shares outstanding (diluted) for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

The foregoing tables show the impact of an immediate increase in floating interest rates as of ~~September 30, 2019.~~March 31, 2020. If interest rates were to increase gradually over time, the impact would be spread over time. Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amount under our revolving credit facility or our other floating rate debt, if any. Although we have no present plans to do so, we may in the future enter into hedge arrangements from time to time to mitigate our exposure to changes in interest rates.

LIBOR Phase Out

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

Item 4. Controls and Procedures

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

There have been no changes in our internal control over financial reporting during the quarter ended ~~September 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Warning Concerning Forward-Looking Statements

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

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

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

Our expectations about the financial strength of our tenants,

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

Our sales and acquisitions of properties,

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Our ability to compete for acquisitions and tenancies effectively,

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

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

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

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

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

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

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

Our policies and plans regarding investments, financings and dispositions,

Our expectations regarding occupancy at our properties,

The future availability of borrowings under our revolving credit facility,

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

Our expectations regarding demand for leased space,

Our expectations regarding capital expenditures,

Our ability to raise debt or equity capital,

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

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

Our ability to successfully execute our capital recycling program,

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

Our credit ratings,

Our expectation that we benefit from our relationships with RMR Inc.,

The credit qualities of our tenants,

Our qualification for taxation as a REIT,

Changes in federal or state tax laws, and

Other matters.

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

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

~~The impact of a U.S. government shutdown on our ability to collect rents or pay our operating expenses, debt obligations and distributions to shareholders on a timely basis,~~

Competition within the real estate industry, particularly in those markets in which our properties are located,

The impact of changes in the real estate needs and financial conditions of our tenants,

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

The impact of any U.S. government shutdown on our ability to collect rents or pay our operating expenses, debt obligations and distributions to shareholders on a timely basis,

Actual and potential conflicts of interest with our related parties, including our Managing Trustees, RMR LLC, RMR Inc., and others affiliated with them,

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

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

For example:

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

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

We may fail to ~~achieve~~maintain, or we may elect to change, our target payout ratio for distributions to shareholders of 75% of cash available for distribution. Further, our Board of Trustees ~~sets and resets our distribution rate from time to time after considering~~considers many factors when setting distribution rates including our historical and projected income, Normalized FFO, cash available for ~~distribution.~~distribution, the then current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid to maintain our qualification for taxation as a REIT and other factors deemed relevant by our Board of Trustees. Accordingly, future ~~dividend~~distribution rates may be increased or decreased and there is no assurance as to the rate at which future ~~dividends~~distributions will be paid,

~~As part of our long term financing plans to reduce our leverage, we have disposed of assets and we expect to dispose of certain additional assets. Currently, we are marketing or~~We plan to ~~market for sale~~selectively sell certain ~~properties.~~properties from time to time to fund future acquisitions and to strategically update, rebalance and reposition our investment portfolio, which we refer to as our capital recycling program. We cannot be sure we will sell any of these properties or what the terms of any sales may ~~be. We may sell some~~be nor that we will acquire replacement properties that improve our asset quality or ~~all of these properties at prices that are less than we expect and less than~~ our ~~carrying values and we may otherwise incur losses as a result of considering and pursuing these sales. Further, we may elect~~ability to ~~change which properties we may seek~~increase our distributions to sell, which could result in different properties and/or fewer or greater number of properties being sold or marketed for sale, and we may not realize the proceeds we may target and we may determine to set a different target proceeds amount for our dispositions,shareholders,

We may not succeed in ~~reducing~~maintaining our leverage toconsistent with our current investment grade ratings or levels ~~we plan or~~ that the market or credit rating agencies believe ~~appropriate. Further, we may not maintain any reduction in our leverage that we may attain,~~are appropriate,

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

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

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

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

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

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

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

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

~~Table~~Our perception that recent activity suggests that the government has begun to shift its leasing strategy to include longer term leases and that the government is actively exploring 10 to 20 year lease terms at renewal, in some instances, may mistakenly imply that these activities are indicative of ~~Contents~~

a trend or broader change in government leasing strategy or practices. Further, even if they may be indicative of such a trend or change, that trend or change may not be sustained by the government, including in response to the COVID-19 pandemic and its aftermath,

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

We ~~expect to enter agreements to sell the properties we~~ are currently marketing four properties for ~~sale by the end of 2019.~~sale. However, we may not succeed in ~~entering into such agreements by that time~~selling any or at all of these properties,

We expect to ~~turn our attention to~~pursue accretively growing our property ~~portfolio upon completion of our dispositions.~~portfolio. However, we may not succeed in making acquisitions that are accretive and future acquisitions could be dilutive,

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

We intend to conduct our business activities in a manner that will afford us reasonable access to capital for investment and financing activities. However, we may not succeed in this regard and we may not have reasonable access to capital,

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

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

The interest rates payable under our floating rate debt obligations depend upon our credit ratings. If our credit ratings are downgraded, our borrowing costs will increase,

Our ability to access debt capital and the cost of our debt capital will depend in part on our credit ratings. If our credit ratings are downgraded, we may not be able to access debt capital or the debt capital we can access may be expensive,

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

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The maximum borrowing availability under our revolving credit facility may be increased to up to $1.95 billion in certain circumstances; however, increasing the maximum borrowing availability under our revolving credit facility is subject to our obtaining additional commitments from lenders, which may not occur,

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

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

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

~~Any~~We may fail to obtain development rights or entitlements that we may seek for development and other projects we may wish to conduct at our properties,

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

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

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

We have granted requests for assistance to some of our tenants. This assistance generally entails a deferral of, in most cases, one month of rent until September 2020 when the deferred rent amounts will begin to be payable over a 12-month period. However, current market and economic conditions may deteriorate further and the rent assistance granted by us may not be sufficient to ensure that tenants will be able to meet their rent payment obligations under their leases with us, which may result in an increase in tenant defaults and terminations,

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

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

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

We expect to receive a capital distribution in the fourth quarter of 2019 in connection with the dissolution of AIC. We cannot be sure that such distribution will occur when expected or at all or what the amount of any such distribution will be.

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future.

Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as the COVID-19 pandemic and its aftermath, changes in our tenants’ needs for leased space, the ability of the U.S. ~~Government~~government to approve spending bills to fund the U.S. ~~Government's~~government’s obligations, acts of terrorism, natural disasters or changes in capital markets or the economy generally.

The information contained elsewhere in this Quarterly Report on Form 10-Q and our ~~2018~~2019 Annual Report or in our other filings with the SEC, including under the caption “Risk Factors”, or incorporated herein or therein, identifies other important factors that could cause differences from our forward-looking statements. Our filings with the SEC are available on the ~~SEC's~~SEC’s website at www.sec.gov.

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

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

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Statement Concerning Limited Liability

The amended and restated declaration of trust establishing Office Properties Income Trust, dated June 8, 2009, as amended, as filed with the State Department of Assessments and Taxation of Maryland, provides that no trustee, officer, shareholder, employee or agent of Office Properties Income Trust shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, Office Properties Income Trust. All persons dealing with Office Properties Income Trust in any way shall look only to the assets of Office Properties Income Trust for the payment of any sum or the performance of any obligation.

Part II. Other Information

Item 1A. Risk Factors

~~There have been no~~Our business faces many risks, a number of which are described under the caption “Risk Factors” in our 2019 Annual Report. The COVID-19 pandemic may subject us to additional risks that are described below. The risks described in our 2019 Annual Report and below may not be the only risks we face. Other risks of which we are not yet aware, or that we currently believe are not material, ~~changes to~~may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors ~~from those previously disclosed~~contained in our ~~2018~~2019 Annual ~~Report.~~Report or described below occurs, our business, financial condition or results of operations could be adversely impacted and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in our 2019 Annual Report and below, and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q before deciding whether to invest in our securities.

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

The viral disease outbreak known as COVID-19 has been declared a pandemic by the World Health Organization and in response to the outbreak, the U.S. Health and Human Services Secretary has declared a public health emergency in the United States and many states and municipalities have declared public health emergencies. The COVID-19 pandemic has had a devastating impact on the global economy, including the U.S. economy, and has resulted, or is expected to result, in a global economic recession.

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

While we have not yet experienced a material adverse impact on our occupancy resulting from the COVID-19 pandemic as of the date of this Quarterly Report on Form 10-Q, if the outbreak continues to weaken national, regional and local economies, it could negatively impact our occupancy levels and result in significant tenant defaults in the payment of rent owed to us. Although, as of March 31, 2020, 34.6% of our total annualized rental income was from leases with governmental agencies, including 25.0% of our total annualized rental income from leases with the U.S. federal government, the balance of our rents comes from nongovernmental tenants. Further, as of March 31, 2020, tenants occupying approximately 11.0% of our rentable square feet and responsible for approximately 7.9% of our annualized rental income as of March 31, 2020 currently have exercisable rights to terminate their leases before the stated terms of their leases expire. Also, in 2020, 2021 and 2022, early termination rights become exercisable by other tenants who currently occupy an additional approximately 3.2%, 1.3% and 2.3% of our rentable square feet, respectively, and contribute an additional approximately 4.0%, 1.4% and 2.4% of our annualized rental income, respectively, as of March 31, 2020. In addition, as of March 31, 2020, pursuant to leases with 13 of our tenants, these tenants have rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These 13 tenants occupy approximately 5.2% of our rentable square feet and contribute approximately 5.5% of our annualized rental income as of March 31, 2020. Additionally, we typically conduct aspects of our leasing activity at our properties. Reductions in the ability and willingness of prospective tenants to visit our properties due to the COVID-19 outbreak, or the extent to which federal, state and municipal orders limit the extent to which our manager’s employees can visit our properties, could have an impact on our leasing activity which could reduce rental income and tenant reimbursements and other income produced by our properties. We have experienced a slowdown in our leasing activity thus far in the second quarter of 2020 due to the COVID-19 pandemic and expect this slowdown may continue. Concerns relating to such an outbreak could also cause on-site personnel not to report for work at our properties, which could adversely affect the management of our properties.

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

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

possible significant declines in the value of our properties;

our inability to accurately or reliably value our portfolio;

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

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

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

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

increased risk of default or bankruptcy of our tenants;

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

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

our inability to sell properties we may identify for sale due to a general decline in business activity and demand for real estate transactions and, as a result, our inability to redeploy our capital into investments we believe are more beneficial to us;

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

reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of COVID-19, which could impact the continued viability of our tenants and the demand for office space at our properties.

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

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

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

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

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

our distribution rates are set and reset from time to by our Board of Trustees. Our Board of Trustees considers many factors when setting distribution rates including our historical and projected income, Normalized FFO, cash available for distribution, the then current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid to maintain our qualification for

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taxation as a REIT and other factors deemed relevant by our Board of Trustees. Accordingly, future distribution rates may be increased or decreased and there is no assurance as to the rate at which future distributions will be paid.

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

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

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

The current economic conditions resulting from the COVID-19 pandemic significantly negatively impacted certain of our tenants’ businesses, operations and liquidity. As a result of the COVID-19 pandemic, we have received requests from some of our tenants for rent assistance. As of April 28, 2020, we have granted temporary rent assistance totaling $1,403 to 18 tenants who represent 2.4% of our annualized rental income as of March 31, 2020. This assistance generally entails a deferral of, in most cases, one month of rent until September 2020 when the deferred rent amounts will begin to be payable over a 12-month period. We expect to receive additional similar requests in the future, and we may determine to grant additional assistance in the future, which may vary from the type of assistance we have granted to date, and could include more substantial assistance, if we determine it prudent or appropriate to do so. In addition, if any of our tenants are unable to continue as going concerns as a result of the current economic conditions or otherwise, we will experience a reduction in rents received and we may be unable to find suitable replacement tenants for an extended period or at all and the terms of our leases with those replacement tenants may not be as favorable to us as the terms of our agreements with our existing tenants.

The COVID-19 pandemic may have significant impacts on workplace practices and those changes could be detrimental to our business.

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

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

Issuer purchases of equity securities. The following table provides information about our purchases of our equity securities during the quarter ended ~~September 30, 2019:~~March 31, 2020:

Maximum
Total Number of Approximate Dollar
Shares Purchased Value of Shares that
Number of as Part of Publicly May Yet Be Purchased
Shares Average Price Announced Plans Under the Plans or
Calendar Month
Purchased ⁽¹⁾
Paid per Share or Programs Programs
July 2019 1,779 $ 27.73 — $ —
September 2019 11,433 30.41 — —
Total 13,212 $ 30.05 — $ —




							Maximum
					Total Number of		Approximate Dollar
					Shares Purchased		Value of Shares that
	Number of				as Part of Publicly		May Yet Be Purchased
	Shares	Average Price			Announced Plans		Under the Plans or
Calendar Month	Purchased ⁽¹⁾	Paid per Share		or Programs		Programs
January 2020	410	$	32.89		—	$	—
March 2020	602		22.65		—		—
Total	1,012	$	26.80		—	$	—

(1)

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

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Item 6. Exhibits



Exhibit Number	Description
3.1	Composite Copy of Amended and Restated Declaration of Trust, dated June 8, 2009, as amended to date. (Incorporated by reference to the Company's Current Report on Form 8-K dated December 31, 2018.)

3.2	Amended and Restated Bylaws of the Company, adopted March 27, 2019. (Incorporated by reference to the Company's Current Report on Form 8-K dated March 27, 2019.)

4.1	Form of Common Share Certificate. (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2018.)

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

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

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

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

4.6	First Supplemental Indenture, dated as of July 20, 2017, between the Company and U.S. Bank National Association, relating to the Company’s 4.000% Senior Notes due 2022, including form thereof. (Incorporated by reference to the Company’s Current Report on Form 8-K dated July 20, 2017.)

4.7	Indenture, dated as of February 3, 2015, between the ~~company~~Company (as successor to Select Income REIT) and U.S. Bank National Association. (Incorporated by reference to Select Income ~~REIT's~~REIT’s Current Report on Form 8-K dated January 29, 2015.)

4.8	First Supplemental Indenture, dated as of February 3, 2015, between the Company (as successor to Select Income REIT) and U.S. Bank National Association, including the forms of ~~3.60% Senior Notes due 2020,~~ 4.15% Senior Notes due 2022 and 4.50% Senior Notes due 2025. (Incorporated by reference to Select Income REIT’s Current Report on Form 8-K dated January 29, 2015.)

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

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

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

10.1	Form of Indemnification Agreement. (Filed herewith.)

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

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

32.1	Section 1350 Certification. (Furnished herewith.)

101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document. (Filed herewith.)

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

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101.LAB	XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
101.PRE	XBRL ~~Taxomony~~Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)
104	Cover Page Interactive Data ~~File (formatted~~File. (Formatted as Inline XBRL and contained in Exhibit ~~101)~~101.)

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SIGNATURES

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



	OFFICE PROPERTIES INCOME TRUST


	By:	/s/ David M. Blackman
		David M. Blackman
		President and Chief Executive Officer
		Dated: ~~November~~May 1, ~~2019~~2020

	By:	/s/ Matthew C. Brown
		Matthew C. Brown
		Chief Financial Officer and Treasurer
		(principal financial officer and principal accounting officer)
		Dated: ~~November~~May 1, ~~2019~~2020

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Location	Number of Properties	Square Feet	Gross Sales Price ⁽¹⁾
San Jose, CA	1	75,621	$	13,000
Windsor, CT	1	97,256	7,000
Kansas City, KS⁽²⁾	1	170,817	11,700
DC Metro - MD ⁽³⁾	4	457,279	66,600
Columbia, SC ⁽⁴⁾	3	180,703	10,750
Fairfax, VA	1	83,130	23,000
Stafford, VA	2	64,656	14,563
	13	1,129,462	$	146,613



	Nine Months Ended September 30, 2018
Rental income	$	563,213
Net income	$	37,531
Net income per common share	$	0.78



		OPI Carrying Value of Investment at
Joint Venture	OPI Ownership	September 30, 2019		December 31, 2018		Number of Properties	Location	Square Feet
Prosperity Metro Plaza	51%	$	22,857	$	23,969	2	Fairfax, VA	328,456
1750 H Street, NW	50%	17,645		19,696		1	Washington, D.C.	115,411
Total		$	40,502	$	43,665	3		443,867



Year	Amount
2019	$	130,897
2020	498,567
2021	476,585
2022	436,876
2023	390,567
Thereafter	1,396,144
Total	$	3,329,636



			Fair Value at Reporting Date Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Non-Recurring Fair Value Measurements Assets:
Assets of properties held for sale ⁽¹⁾	$	89,050	$	—	$	89,050	$	—



	Three Months Ended			Nine Months Ended
	September 30, 2018			September 30, 2018
Rental income	$	101,833		$	298,003
Tenant reimbursements and other income	20,048			60,514
Total revenues	121,881			358,517

Real estate taxes	12,518			36,748
Other operating expenses	14,814			43,714
Depreciation and amortization	35,371			105,326
Acquisition and transaction related costs	3,796			3,796
General and administrative	15,331			47,353
Write-off of straight line rent receivable, net	—			10,626
Loss on impairment of real estate assets	9,706			9,706
Total expenses	91,536			257,269

Gain on sale of real estate	4,075			4,075
Dividend income	397			1,190
Unrealized gain on equity securities	22,771			53,159
Interest income	133			753
Interest expense	(23,287		)	(69,446		)
Loss on early extinguishment of debt	—			(1,192		)
Income before income tax expense and equity in earnings of an investee	34,434			89,787
Income tax expense	(185		)	(446		)
Equity in earnings of an investee	831			882
Net income	35,080			90,223
Net income allocated to noncontrolling interest	(5,597		)	(15,841		)
Net income attributed to SIR	$	29,483		$	74,382

Weighted average common shares outstanding (basic)	89,410			89,395
Weighted average common shares outstanding (diluted)	89,437			89,411
Net income attributed to SIR per common share (basic and diluted)	$	0.33		$	0.83