OPI filing — read by section

Item 2. Management’s Discussion and Analysis

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 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 June 30, 2020 , our wholly owned properties were comprised of 184 properties and we had noncontrolling ownership interests in three properties totaling approximately 444,000 rentable square feet through two unconsolidated joint ventures in which we own 51% and 50% interests. As of June 30, 2020 , our properties are located in 34 states and the District of Columbia and contain approximately 24,909,000 rentable square feet. As of June 30, 2020 , our properties were leased to 357 different tenants with a weighted average remaining lease term (based on annualized rental income) of approximately 5.5 years. The U.S. Government is our largest tenant, representing approximately 25.2% of our annualized rental income as of June 30, 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 June 30, 2020 , plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization. 
 COVID-19 Pandemic 
 In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic and, in response to the outbreak, the U.S. Health and Human Services Secretary declared a public health emergency in the United States and many states and municipalities declared public health emergencies. The virus that causes COVID-19 has continued to spread throughout the United States and the world. Various governmental responses attempting to contain and mitigate the spread of the virus have negatively impacted, and continue to negatively impact, the global economy, including the U.S. economy. As a result, most market observers believe the global economy and the U.S. economy are in a recession. States and municipalities across the United States have been allowing certain businesses to re-open and easing certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time. Recently, economic data have indicated that the U.S. economy has improved since the lowest periods experienced in March and April 2020. However, certain areas of the United States have experienced increased numbers of COVID-19 infections following the re-openings of their economies and easing of restrictions and, in some cases, certain states have imposed or re-imposed closings of certain business activities and other restrictions in response. It is unclear whether the increases in the number of COVID-19 infections will continue or amplify or whether any “second wave” of COVID-19 infection outbreaks will occur in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy, our tenants or our business. 
 Our business is focused on leasing office space to primarily single tenants and those with high credit quality characteristics such as government entities. Although, to date, the COVID-19 pandemic has not had a significant impact on our business, we have received requests from some of our tenants for rent assistance. As of July 27, 2020, we have granted temporary rent assistance totaling $2,475 to 23 tenants who represent approximately 3.7% of our annualized rental income as of June 30, 2020. As of June 30, 2020, we recognized an increase in our accounts receivable related to these deferred payments of $2,222 . This assistance generally entails a deferral of, in most cases, one month of rent until September 2020 when the deferred rent amounts will begin to be payable over a 12-month period. For the quarter ended June 30, 2020 , we collected approximately 98% of contractual rent obligations and 99% of contractual rent obligations after giving effect to such rent deferrals. 
 We are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including: 
 
 • 
 our tenants and 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. 
 
 17 

 Table of Contents 
 
 We believe that our current financial resources, the characteristics of our portfolio, including the diversity of our tenant base, both geographically and by industry, and the financial strength and resources of our tenants, will enable us to withstand the COVID-19 pandemic and perhaps present opportunities for us to strategically deploy our capital. As of July 29, 2020, we had: 
 
 • 
 $570,000 of availability under our revolving credit facility; 
 
 • 
 only approximately $40,000 of debt maturities until 2022; and 
 
 • 
 62.8% of our annualized rental income, as of June 30, 2020 , derived from investment grade tenants (as described below). 
 
 We do not have any employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC. RMR LLC has implemented enhanced cleaning protocols and social distancing guidelines at its corporate headquarters and its regional offices, as well as business continuity plans to ensure RMR LLC employees remain safe and able to support us and other companies managed by RMR LLC or its subsidiaries, including providing appropriate information technology such as notebook computers, smart phones, computer applications, information technology security applications and technology support. 
 With respect to our properties, RMR LLC has implemented enhanced cleaning protocols and has taken measures to reduce the possibility of persons gathering in groups and in close proximity to each other, for the purpose of mitigating the potential for spreading of COVID-19 infections. Included among these protocols and measures are the following: 
 
 • 
 focusing on sanitizing high touch points in common areas and restrooms; 
 
 • 
 shutting down certain building amenities; and 
 
 • 
 prudently managing the execution or deferment of tenant work orders to limit RMR LLC staff and tenant interactions at our properties. 
 
 All RMR LLC property management and engineering personnel have been trained on COVID-19 precaution procedures. As states and local communities across the country moved to stay at home orders, RMR LLC worked to reduce and optimize our operating costs at our properties by: 
 
 • 
 deferring non-emergency work; 
 
 • 
 implementing energy reduction protocols for lighting and HVAC systems; 
 
 • 
 reducing non-essential building services and staff; and 
 
 • 
 reducing the frequency of trash removal. 
 
 RMR LLC’s property management teams have also established business continuity plans to ensure operational stability at our properties. As stay at home orders have been lifted or loosened across the United States, RMR LLC has implemented additional procedures at our properties based on recommended guidelines from the U.S. Centers for Disease Control and Prevention and other regulatory agencies. For example: 
 
 • 
 installing signage throughout our properties with social distancing reminders; 
 
 • 
 making changes to certain building HVAC systems and equipment, including adjusting outdoor air control programs to increase the amount of outside air delivered to interior spaces and to adjust control sequences to maintain space relative humidity in order to help minimize the concentration of the virus; 
 
 • 
 flushing domestic water systems to prepare for re-occupancy; 
 
 • 
 performing service calls and preventative maintenance after business hours to limit social interactions; 
 
 • 
 requiring vendors to follow best practices under COVID-19 pandemic conditions, including providing RMR LLC with documented preventative measures for the vendors’ employees and requiring vendors’ staff to wear appropriate personal protective equipment when working at our properties; and 
 
 18 

 Table of Contents 
 
 • 
 altering cleaning schedules to perform vacuuming at times intended to reduce the potential airborne spread of the virus. 
 
 RMR LLC has significantly reduced all non-essential work travel and its regional leadership personnel have not been allowed to work in the same locations at the same time. RMR LLC also requires its employees who work at our properties to use personal protective equipment and business continuity bonus payments have been provided to certain essential workers at our properties. RMR LLC’s regional management offices are currently limiting walk-in visitors and maintain maximum office occupancy limits as required by state and local guidelines, including weekly rotations of employees as needed. 
 There are extensive uncertainties surrounding the COVID-19 pandemic. These uncertainties include among others: 
 
 • 
 the duration and severity of the negative economic impact; 
 
 • 
 the strength and sustainability of any economic recovery; 
 
 • 
 the timing and process for how federal, state and local governments and other market participants may oversee and conduct the return of economic activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States; and 
 
 • 
 whether, following a recommencing of more normal levels of economic activities, the United States or other countries experience any “second wave” of COVID-19 infection outbreaks and, if so, the responses of governments, businesses and the general public to those events. 
 
 As a result of these uncertainties, we are unable to determine what the ultimate impact will be on our, our tenants’ and other stakeholders’ businesses, operations, financial results and financial position. For further information and risks relating to the COVID-19 pandemic on us and our business, see Part II, Item 1A “Risk Factors,” in this Quarterly Report on Form 10-Q. 
 Property Operations 
 Unless otherwise noted, the data presented in this section excludes three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests. 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. 
 As of June 30, 2020 , 91.7% of our rentable square feet was leased, compared to 91.6% of our rentable square feet as of June 30, 2019 . Occupancy data for our properties as of June 30, 2020 and 2019 was as follows (square feet in thousands): 
 
 All Properties (1) 
 
 Comparable Properties (2) 
 
 June 30, 
 
 June 30, 
 
 2020 
 
 2019 
 
 2020 
 
 2019 
 
 Total properties (3) 
 
 184 
 
 209 
 
 182 
 
 182 
 
 Total rentable square feet (4) 
 
 24,909 
 
 29,309 
 
 24,622 
 
 24,711 
 
 Percent leased (5) 
 
 91.7 
 % 
 
 91.6 
 % 
 
 92.8 
 % 
 
 93.4 
 % 
 
 (1) 
 Based on properties we owned on June 30, 2020 and 2019 , respectively. 
 
 (2) 
 Based on properties we owned continuously since January 1, 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. 
 
 (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. 
 
 19 

 Table of Contents 
 
 The average effective rental rate per square foot for our properties for the three and six months ended June 30, 2020 and 2019 are as follows: 
 
 Three Months Ended June 30, 
 
 Six Months Ended June 30, 
 
 2020 
 
 2019 
 
 2020 
 
 2019 
 
 Average effective rental rate per square foot (1) : 
 
 All properties (2) 
 
 $ 
 25.71 
 
 $ 
 26.37 
 
 $ 
 25.87 
 
 $ 
 26.20 
 
 Comparable properties (3) 
 
 $ 
 25.77 
 
 $ 
 25.87 
 
 $ 
 25.93 
 
 $ 
 25.98 
 
 (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 June 30, 2020 and 2019 , respectively. 
 
 (3) 
 Based on properties we owned continuously since April 1, 2019 and January 1, 2019, respectively; excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests. 
 
 During the three and six months ended June 30, 2020 , changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands): 
 
 Three Months Ended June 30, 2020 
 
 Six Months Ended June 30, 2020 
 
 Leased 
 
 Available for Lease 
 
 Total 
 
 Leased 
 
 Available for Lease 
 
 Total 
 
 Beginning of period 
 
 22,789 
 
 2,117 
 
 24,906 
 
 23,761 
 
 1,965 
 
 25,726 
 
 Changes resulting from: 
 
 Acquisition of properties 
 
 — 
 
 — 
 
 — 
 
 — 
 
 13 
 
 13 
 
 Disposition of properties 
 
 — 
 
 — 
 
 — 
 
 (693 
 ) 
 
 (42 
 ) 
 
 (735 
 ) 
 
 Lease expirations 
 
 (590 
 ) 
 
 590 
 
 — 
 
 (1,458 
 ) 
 
 1,458 
 
 — 
 
 Lease renewals (1) 
 
 564 
 
 (564 
 ) 
 
 — 
 
 1,072 
 
 (1,072 
 ) 
 
 — 
 
 New leases (1) 
 
 78 
 
 (78 
 ) 
 
 — 
 
 159 
 
 (159 
 ) 
 
 — 
 
 Remeasurements (2) 
 
 (2 
 ) 
 
 5 
 
 3 
 
 (2 
 ) 
 
 (93 
 ) 
 
 (95 
 ) 
 
 End of period 
 
 22,839 
 
 2,070 
 
 24,909 
 
 22,839 
 
 2,070 
 
 24,909 
 
 (1) 
 Based on leases entered during the three and six months ended June 30, 2020 . 
 
 (2) 
 Rentable square feet are subject to changes when space is remeasured or reconfigured for tenants. 
 
 Leases at our properties totaling approximately 590,000 and 1,458,000 rentable square feet expired during the three and six months ended June 30, 2020 , respectively. During the three and six months ended June 30, 2020 , we entered leases totaling approximately 642,000 and 1,231,000 rentable square feet, respectively, including lease renewals of approximately 564,000 and 1,072,000 rentable square feet, respectively, and new leases of approximately 78,000 and 159,000 rentable square feet, respectively. The weighted (by rentable square feet) average rents were 3.9% and 4.0% , respectively, 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 six months ended June 30, 2020 was 6.1 years and 5.4 years, respectively. 
 
 20 

 Table of Contents 
 
 During the three and six months ended June 30, 2020 , commitments made for expenditures, such as tenant improvements and leasing costs, in connection with leasing space at our properties were as follows (square feet in thousands): 
 
 Three Months Ended June 30, 2020 
 
 New Leases 
 
 Renewals 
 
 Total 
 
 Rentable square feet leased 
 
 78 
 
 564 
 
 642 
 
 Tenant leasing costs and concession commitments (1) 
 
 $ 
 8,158 
 
 $ 
 8,371 
 
 $ 
 16,529 
 
 Tenant leasing costs and concession commitments per rentable square foot (1) 
 
 $ 
 104.83 
 
 $ 
 14.85 
 
 $ 
 25.76 
 
 Weighted (by square feet) average lease term (years) 
 
 12.8 
 
 5.1 
 
 6.1 
 
 Total leasing costs and concession commitments per rentable square foot per year (1) 
 
 $ 
 8.16 
 
 $ 
 2.90 
 
 $ 
 4.25 
 
 Six Months Ended June 30, 2020 
 
 New Leases 
 
 Renewals 
 
 Total 
 
 Rentable square feet leased 
 
 159 
 
 1,072 
 
 1,231 
 
 Tenant leasing costs and concession commitments (1) 
 
 $ 
 14,318 
 
 $ 
 15,141 
 
 $ 
 29,459 
 
 Tenant leasing costs and concession commitments per rentable square foot (1) 
 
 $ 
 90.11 
 
 $ 
 14.12 
 
 $ 
 23.93 
 
 Weighted (by square feet) average lease term (years) 
 
 11.8 
 
 4.5 
 
 5.4 
 
 Total leasing costs and concession commitments per rentable square foot per year (1) 
 
 $ 
 7.64 
 
 $ 
 3.14 
 
 $ 
 4.40 
 
 (1) 
 Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent. 
 
 During the three and six months ended June 30, 2020 , changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three and six months ended June 30, 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 June 30, 2020 
 
 Six Months Ended June 30, 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 
 
 New leases 
 
 $ 
 30.82 
 
 $ 
 30.29 
 
 50 
 
 $ 
 29.03 
 
 $ 
 28.07 
 
 150 
 
 Lease renewals 
 
 $ 
 32.48 
 
 $ 
 32.85 
 
 280 
 
 $ 
 37.32 
 
 $ 
 38.25 
 
 848 
 
 Total leasing activity 
 
 $ 
 32.23 
 
 $ 
 32.46 
 
 330 
 
 $ 
 36.07 
 
 $ 
 36.72 
 
 998 
 
 (1) 
 Effective rental rate includes contractual base rents from our tenants pursuant to our lease agreements, plus straight line rent adjustments and estimated expense reimbursements to be paid to us, and excluding lease value amortization. 
 
 During the three and six months ended June 30, 2020 and 2019 , amounts capitalized at our properties for tenant improvements, leasing costs, building improvements and development, redevelopment and other activities were as follows: 
 
 Three Months Ended June 30, 
 
 Six Months Ended June 30, 
 
 2020 
 
 2019 
 
 2020 
 
 2019 
 
 Tenant improvements (1) 
 
 $ 
 7,764 
 
 $ 
 7,123 
 
 $ 
 10,731 
 
 $ 
 12,035 
 
 Leasing costs (2) 
 
 4,157 
 
 6,760 
 
 8,303 
 
 14,085 
 
 Building improvements (3) 
 
 10,005 
 
 7,317 
 
 19,235 
 
 11,625 
 
 Recurring capital expenditures 
 
 21,926 
 
 21,200 
 
 38,269 
 
 37,745 
 
 Development, redevelopment and other activities (4) 
 
 2,578 
 
 959 
 
 5,739 
 
 1,185 
 
 Total capital expenditures 
 
 $ 
 24,504 
 
 $ 
 22,159 
 
 $ 
 44,008 
 
 $ 
 38,930 
 
 (1) 
 Tenant improvements include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space. 
 
 (2) 
 Leasing costs include leasing related costs, such as brokerage commissions and other tenant inducements. 
 
 (3) 
 Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets. 
 
 (4) 
 Development, redevelopment and other activities generally include capital expenditure projects that reposition a property or result in new sources of revenue. 
 
 21 

 Table of Contents 
 
 As of June 30, 2020 , we have estimated unspent leasing related obligations of $61,720 . 
 As of June 30, 2020 , we had leases at our properties totaling approximately 707,000 rentable square feet that were scheduled to expire through December 31, 2020. As of July 29, 2020, tenants with leases totaling approximately 167,000 rentable square feet that are scheduled to expire through December 31, 2020, have notified us that they do not plan to renew their leases upon expiration and we cannot be sure as to whether other tenants may or may not renew their leases upon expiration. As a result of the COVID-19 pandemic and its economic impact, overall new leasing volume for 2020 has slowed and we expect that trend may continue until market conditions meaningfully improve for a sustained period. However, we also believe that the current market conditions may result in our overall tenant retention levels increasing. Prevailing market conditions and government and other tenants’ needs at the time we negotiate and enter leases or lease renewals will generally determine rental rates and demand for leased space at our properties, and market conditions and our tenants’ needs are beyond our control. Whenever we extend, renew or enter into new leases for our properties, we intend to seek rents which are equal to or higher than our historical rents for the same properties; however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control. We cannot be sure of the rental rates which will result from our ongoing negotiations regarding lease renewals or any new or renewed leases we may enter; also, we may experience material declines in our rental income due to vacancies upon lease expirations or early terminations. 
 As of June 30, 2020 , our lease expirations by year are as follows (square feet in thousands): 
 
 Year (1) 
 
 Number of Leases Expiring 
 
 Leased 
 Square Feet Expiring (2) 
 
 Percent of Total 
 
 Cumulative Percent of Total 
 
 Annualized Rental Income Expiring 
 
 Percent of Total 
 
 Cumulative Percent of Total 
 
 2020 
 
 46 
 
 707 
 
 3.1 
 % 
 
 3.1 
 % 
 
 $ 
 17,436 
 
 3.0 
 % 
 
 3.0 
 % 
 
 2021 
 
 55 
 
 1,998 
 
 8.7 
 % 
 
 11.8 
 % 
 
 57,408 
 
 9.9 
 % 
 
 12.9 
 % 
 
 2022 
 
 77 
 
 1,986 
 
 8.7 
 % 
 
 20.5 
 % 
 
 55,597 
 
 9.6 
 % 
 
 22.5 
 % 
 
 2023 
 
 65 
 
 2,710 
 
 11.9 
 % 
 
 32.4 
 % 
 
 73,280 
 
 12.6 
 % 
 
 35.1 
 % 
 
 2024 
 
 57 
 
 3,869 
 
 16.9 
 % 
 
 49.3 
 % 
 
 101,042 
 
 17.4 
 % 
 
 52.5 
 % 
 
 2025 
 
 51 
 
 2,026 
 
 8.9 
 % 
 
 58.2 
 % 
 
 43,530 
 
 7.5 
 % 
 
 60.0 
 % 
 
 2026 
 
 28 
 
 1,699 
 
 7.4 
 % 
 
 65.6 
 % 
 
 45,446 
 
 7.8 
 % 
 
 67.8 
 % 
 
 2027 
 
 30 
 
 2,026 
 
 8.9 
 % 
 
 74.5 
 % 
 
 51,481 
 
 8.9 
 % 
 
 76.7 
 % 
 
 2028 
 
 13 
 
 872 
 
 3.8 
 % 
 
 78.3 
 % 
 
 25,582 
 
 4.4 
 % 
 
 81.1 
 % 
 
 2029 and thereafter 
 
 51 
 
 4,946 
 
 21.7 
 % 
 
 100.0 
 % 
 
 109,427 
 
 18.9 
 % 
 
 100.0 
 % 
 
 Total 
 
 473 
 
 22,839 
 
 100.0 
 % 
 
 $ 
 580,229 
 
 100.0 
 % 
 
 Weighted average remaining lease term (in years) 
 
 5.8 
 
 5.5 
 
 (1) 
 The year of lease expiration is pursuant to current contract terms. Some of our leases allow the tenants to vacate the leased premises before the stated expirations of their leases with little or no liability. As of June 30, 2020 , tenants occupying approximately 11.5% of our rentable square feet and responsible for approximately 8.6% of our annualized rental income as of June 30, 2020 currently have exercisable rights to terminate their leases before the stated terms of their leases expire. Also, in 2020 , 2021 , 2022 , 2023 , 2024 , 2025 , 2026 , 2027 , 2028 , 2030 and 2035 , early termination rights become exercisable by other tenants who currently occupy an additional approximately 2.3% , 1.6% , 2.3% , 1.3% , 1.0% , 2.2% , 1.0% , 0.5% , 1.1% , 0.1% and 0.1% of our rentable square feet, respectively, and contribute an additional approximately 2.8% , 1.8% , 2.4% , 1.5% , 1.6% , 3.9% , 1.3% , 0.7% , 1.4% , 0.2% and 0.1% of our annualized rental income, respectively, as of June 30, 2020 . In addition, as of June 30, 2020 , pursuant to leases with 14 of our tenants, these tenants have rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These 14 tenants occupy approximately 5.4% of our rentable square feet and contribute approximately 5.8% of our annualized rental income as of June 30, 2020 . 
 
 (2) 
 Leased square feet is pursuant to leases existing as of June 30, 2020 , and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any. Square feet measurements are subject to changes when space is remeasured or reconfigured for new tenants. 
 
 We generally will seek to renew or extend the terms of leases in our single tenant properties when they expire. Because of the capital many of the tenants in these properties have 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 views on the size and scope of government employment have resulted in a decrease in government employment. Furthermore, for the past six years, government tenants have reduced their space utilization per employee and 
 
 22 

 Table of Contents 
 
 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 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’ 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 has resulted in delayed decisions by some of our government tenants and their reliance on short term lease renewals; however, recent activity prior to the outbreak of the COVID-19 pandemic suggested that the government had begun to shift its leasing strategy to include longer term leases and was actively exploring 10 to 20 year lease terms at renewal, in some instances. We believe the reduction in government tenant space utilization and the consolidation of government tenants into government owned real estate is substantially complete; however, these activities may impact us for some time into the future. It is also possible that as a result of the COVID-19 pandemic, government tenants may seek to increase space utilization rates in order to provide greater physical distancing for employees. However, the COVID-19 pandemic and its aftermath have had negative impacts on government budgets and resources and it is unclear what the effect of these impacts will be on government demand for leasing office space. Given the significant uncertainties as to the COVID-19 pandemic, its economic impact and its aftermath, we are unable to reasonably project what the financial impact of market conditions or changing government circumstances, including as a result of the COVID-19 pandemic, will be on our financial results for future periods. 
 As of June 30, 2020 , we derive 24.2% 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 office space by the U.S. Government in the metropolitan Washington, D.C. market area, and that could increase competition for government tenants and adversely affect our ability to retain government tenants when our leases expire. 
 Our manager, RMR LLC, employs a tenant review process for us. RMR LLC assesses tenants on an individual basis based on various applicable credit criteria. In general, depending on facts and circumstances, RMR LLC evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources. RMR LLC also often uses a third party service to monitor the credit ratings, both actual and implied, of our existing tenants. We consider investment grade tenants to include: (a) investment grade rated tenants; (b) tenants with investment grade rated parent entities that guarantee the tenant’s lease obligations; and/or (c) tenants with investment grade rated parent entities that do not guarantee the tenant’s lease obligations. As of June 30, 2020 , tenants contributing 53.1% of annualized rental income were investment grade rated (or their payment obligations were guaranteed by an investment grade rated parent) and tenants contributing an additional 9.7% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents). 
 
 23 

 Table of Contents 
 
 As of June 30, 2020 , tenants representing 1% or more of our total annualized rental income were as follows: 
 
 Tenant 
 
 Credit Rating 
 
 Annualized Rental Income 
 
 % of Total Annualized Rental Income 
 
 1 
 
 U.S. Government 
 
 Investment Grade 
 
 $ 
 146,308 
 
 25.2 
 % 
 
 2 
 
 Shook, Hardy & Bacon L.L.P. 
 
 Not Rated 
 
 19,199 
 
 3.3 
 % 
 
 3 
 
 State of California 
 
 Investment Grade 
 
 19,144 
 
 3.3 
 % 
 
 4 
 
 Bank of America Corporation 
 
 Investment Grade 
 
 16,520 
 
 2.8 
 % 
 
 5 
 
 WestRock Company 
 
 Investment Grade 
 
 12,864 
 
 2.2 
 % 
 
 6 
 
 F5 Networks, Inc. 
 
 Not Rated 
 
 12,777 
 
 2.2 
 % 
 
 7 
 
 CareFirst Inc. 
 
 Non Investment Grade 
 
 11,684 
 
 2.0 
 % 
 
 8 
 
 Northrop Grumman Corporation 
 
 Investment Grade 
 
 11,320 
 
 2.0 
 % 
 
 9 
 
 Tyson Foods, Inc. 
 
 Investment Grade 
 
 11,011 
 
 1.9 
 % 
 
 10 
 
 Commonwealth of Massachusetts 
 
 Investment Grade 
 
 9,769 
 
 1.7 
 % 
 
 11 
 
 Micro Focus International plc 
 
 Non Investment Grade 
 
 8,710 
 
 1.5 
 % 
 
 12 
 
 CommScope Holding Company Inc 
 
 Non Investment Grade 
 
 8,097 
 
 1.4 
 % 
 
 13 
 
 Technicolor SA 
 
 Non Investment Grade 
 
 7,856 
 
 1.4 
 % 
 
 14 
 
 State of Georgia 
 
 Investment Grade 
 
 7,173 
 
 1.2 
 % 
 
 15 
 
 PNC Bank 
 
 Investment Grade 
 
 6,902 
 
 1.2 
 % 
 
 16 
 
 ServiceNow, Inc. 
 
 Not Rated 
 
 6,481 
 
 1.1 
 % 
 
 17 
 
 Allstate Insurance Co. 
 
 Investment Grade 
 
 6,473 
 
 1.1 
 % 
 
 18 
 
 Compass Group plc 
 
 Investment Grade 
 
 6,399 
 
 1.1 
 % 
 
 19 
 
 Automatic Data Processing, Inc. 
 
 Investment Grade 
 
 6,047 
 
 1.0 
 % 
 
 20 
 
 Church & Dwight Co., Inc. 
 
 Investment Grade 
 
 6,019 
 
 1.0 
 % 
 
 21 
 
 Tailored Brands, Inc. 
 
 Non Investment Grade 
 
 5,898 
 
 1.0 
 % 
 
 Total 
 
 $ 
 346,651 
 
 59.6 
 % 
 
 Acquisition Activities 
 During the six months ended June 30, 2020 , we acquired a property adjacent to a property we own in Boston, MA for $ 11,500 , excluding acquisition related costs. 
 In July 2020, we entered into an agreement to acquire an office property located in Denver, CO containing approximately 68,000 rentable square feet for a purchase price of $38,100, excluding acquisition related costs. This acquisition is expected to occur before the end of the third quarter. However, this acquisition is subject to due diligence and other closing conditions; accordingly, we cannot be sure that we will complete this acquisition, that this acquisition will not be delayed or that the terms will not change. 
 For more information about our acquisition activities, see Note 4 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 
 Disposition Activities 
 During the six months ended June 30, 2020 , we sold six properties with a combined 734,784 rentable square feet for an aggregate sales price of $ 85,363 , excluding closing costs and including the repayment of one mortgage note with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021, as part of our capital recycling program. Through our capital recycling program, we seek to selectively sell certain properties from time to time to fund future acquisitions and to maintain leverage consistent with our current investment grade ratings with a goal of (1) improving the asset quality of our portfolio by reducing the average age of our properties, lengthening the weighted average lease term of our leases and increasing the likelihood of retaining our tenants and (2) increasing our cash available for distribution. Given the current economic conditions surrounding the COVID-19 pandemic, we are carefully considering our capital allocation strategy and believe we are well positioned to opportunistically recycle and deploy capital during 2020. 
 In July 2020, we entered into an agreement to sell a four property business park located in Fairfax, VA containing approximately 171,000 rentable square for a gross sales price of $25,400 , excluding closing costs. This sale is expected to occur 
 
 24 

 Table of Contents 
 
 before the end of the third quarter. However, this sale is subject to conditions; accordingly, we cannot be sure that we will complete this sale or that this sale will not be delayed or the terms will not change. 
 For more information about our disposition activities, see Note 4 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 
 Financing Activities 
 In January 2020, we redeemed, at par plus accrued interest, all $400,000 of our 3.60% senior unsecured notes due 2020 using cash on hand, proceeds from property sales and borrowings under our revolving credit facility. 
 In March 2020, in connection with the sale of one property, we prepaid, at a premium plus accrued interest, a mortgage note secured by that property with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021, which was classified in liabilities of properties held for sale in our condensed consolidated balance sheet as of December 31, 2019. 
 In March 2020, we prepaid, at a premium plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $66,780, an annual interest rate of 4.0% and a maturity date in September 2030 using cash on hand and borrowings under our revolving credit facility. 
 In 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 using cash on hand and borrowings under our revolving credit facility. 
 In June 2020, we issued $150,000 of our 6.375% senior unsecured notes due 2050 in an underwritten public offering, raising net proceeds of $144,772 , after deducting underwriters’ discounts and estimated offering expenses. In connection with this offering, we granted the underwriters a 30 day option to purchase up to an additional $22,500 aggregate principal amount of these notes. In July 2020, the underwriters partially exercised this option for an additional $12,000 of these notes. We used the aggregate net proceeds from this offering to repay amounts outstanding under our revolving credit facility and for general business purposes. These notes require quarterly payments of interest only through maturity and may be repaid at par (plus accrued and unpaid interest) on or after June 23, 2025. 
 In August 2020, a mortgage note secured by one of our properties with an outstanding principal balance of $39,635 and an annual interest rate of 2.2% is scheduled to mature. We will be obligated to pay at that time the outstanding principal at par plus accrued interest. We plan to use cash on hand and borrowings under our revolving credit facility to fund the repayment of this mortgage. 
 Segment Information 
 We operate in one business segment: ownership of real estate properties. 
 
 25 

 Table of Contents 
 
 RESULTS OF OPERATIONS (amounts in thousands, except per share amounts) 
 
 Three Months Ended June 30, 2020 , Compared to Three Months Ended June 30, 2019 
 
 Non-Comparable 
 
 Properties Results 
 
 Comparable Properties Results (1) 
 
 Three Months Ended 
 
 Consolidated Results 
 
 Three Months Ended June 30, 
 
 June 30, 
 
 Three Months Ended June 30, 
 
 $ 
 
 % 
 
 $ 
 
 % 
 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 2020 
 
 2019 
 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 Rental income 
 
 $ 
 145,935 
 
 $ 
 147,567 
 
 $ 
 (1,632 
 ) 
 
 (1.1 
 %) 
 
 $ 
 (332 
 ) 
 
 $ 
 28,465 
 
 $ 
 145,603 
 
 $ 
 176,032 
 
 $ 
 (30,429 
 ) 
 
 (17.3 
 %) 
 
 Operating expenses: 
 
 Real estate taxes 
 
 15,938 
 
 15,860 
 
 78 
 
 0.5 
 % 
 
 (157 
 ) 
 
 2,287 
 
 15,781 
 
 18,147 
 
 (2,366 
 ) 
 
 (13.0 
 %) 
 
 Utility expenses 
 
 5,055 
 
 6,352 
 
 (1,297 
 ) 
 
 (20.4 
 %) 
 
 146 
 
 1,118 
 
 5,201 
 
 7,470 
 
 (2,269 
 ) 
 
 (30.4 
 %) 
 
 Other operating expenses 
 
 25,556 
 
 25,635 
 
 (79 
 ) 
 
 (0.3 
 %) 
 
 231 
 
 4,057 
 
 25,787 
 
 29,692 
 
 (3,905 
 ) 
 
 (13.2 
 %) 
 
 Total operating expenses 
 
 46,549 
 
 47,847 
 
 (1,298 
 ) 
 
 (2.7 
 %) 
 
 220 
 
 7,462 
 
 46,769 
 
 55,309 
 
 (8,540 
 ) 
 
 (15.4 
 %) 
 
 Property net operating income (2) 
 
 $ 
 99,386 
 
 $ 
 99,720 
 
 $ 
 (334 
 ) 
 
 (0.3 
 %) 
 
 $ 
 (552 
 ) 
 
 $ 
 21,003 
 
 98,834 
 
 120,723 
 
 (21,889 
 ) 
 
 (18.1 
 %) 
 
 Other expenses: 
 
 Depreciation and amortization 
 
 64,170 
 
 73,913 
 
 (9,743 
 ) 
 
 (13.2 
 %) 
 
 Loss on impairment of real estate 
 
 — 
 
 2,380 
 
 (2,380 
 ) 
 
 n/m 
 
 Acquisition and transaction related costs 
 
 — 
 
 98 
 
 (98 
 ) 
 
 n/m 
 
 General and administrative 
 
 7,204 
 
 8,744 
 
 (1,540 
 ) 
 
 (17.6 
 %) 
 
 Total other expenses 
 
 71,374 
 
 85,135 
 
 (13,761 
 ) 
 
 (16.2 
 %) 
 
 Gain (loss) on sale of real restate 
 
 66 
 
 (17 
 ) 
 
 83 
 
 n/m 
 
 Dividend income 
 
 — 
 
 980 
 
 (980 
 ) 
 
 n/m 
 
 Loss on equity securities 
 
 — 
 
 (66,135 
 ) 
 
 66,135 
 
 n/m 
 
 Interest and other income 
 
 30 
 
 241 
 
 (211 
 ) 
 
 (87.6 
 %) 
 
 Interest expense 
 
 (25,205 
 ) 
 
 (35,348 
 ) 
 
 10,143 
 
 (28.7 
 %) 
 
 Loss on early extinguishment of debt 
 
 (557 
 ) 
 
 (71 
 ) 
 
 (486 
 ) 
 
 n/m 
 
 Income (loss) before income tax (expense) benefit and equity in net losses of investees 
 
 1,794 
 
 (64,762 
 ) 
 
 66,556 
 
 102.8 
 % 
 
 Income tax (expense) benefit 
 
 (235 
 ) 
 
 130 
 
 (365 
 ) 
 
 n/m 
 
 Equity in net losses of investees 
 
 (260 
 ) 
 
 (142 
 ) 
 
 (118 
 ) 
 
 83.1 
 % 
 
 Net income (loss) 
 
 $ 
 1,299 
 
 $ 
 (64,774 
 ) 
 
 $ 
 66,073 
 
 102.0 
 % 
 
 Weighted average common shares outstanding (basic and diluted) 
 
 48,106 
 
 48,049 
 
 57 
 
 0.1 
 % 
 
 Per common share amounts (basic and diluted): 
 
 Net income (loss) 
 
 $ 
 0.03 
 
 $ 
 (1.35 
 ) 
 
 $ 
 1.38 
 
 102.2 
 % 
 
 n/m - not meaningful 
 
 (1) 
 Comparable properties consists of 182 properties we owned on June 30, 2020 and which we owned continuously since April 1, 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) 
 Our definition of property net operating income, or Property NOI, and our reconciliation of net income (loss) to Property NOI are included below under the heading “Non-GAAP Financial Measures.” 
 
 References to changes in the income and expense categories below relate to the comparison of consolidated results for the three month period ended June 30, 2020 , compared to the three month period ended June 30, 2019 . 
 
 26 

 Table of Contents 
 
 Rental income. The decrease in rental income reflects decreases in rental income of $26,778 as a result of property dispositions, $2,037 related to a property undergoing significant redevelopment and $1,632 related to comparable properties, offset by an increase in rental income of $18 related to acquired properties. The decrease in rental income for comparable properties is primarily due to termination fee revenue recorded at one property in the 2019 period, increased revenue reserves of $579 in the 2020 period primarily due to two of our tenants that represent approximately 0.24% of our annualized revenue as of June 30, 2020 being unable to pay us rent due to the impact of the COVID-19 pandemic and reductions in reimbursement income due to reductions in expenses that are reimbursable to us by our tenants as a result of the COVID-19 pandemic. Rental income includes non-cash straight line rent adjustments totaling $3,468 in the 2020 period and $5,667 in the 2019 period, and amortization of acquired leases and assumed lease obligations totaling $(1,405) in the 2020 period and $(1,446) in the 2019 period. 
 Real estate taxes. The decrease in real estate taxes primarily reflects a decrease in real estate taxes associated with property dispositions of $2,467, offset by increases in real estate taxes of $78 for comparable properties, $13 for acquired properties and $10 for a property undergoing significant redevelopment. Real estate taxes for comparable properties increased primarily due to the effect of higher real estate tax rates and valuation assessments for certain of our properties in the 2020 period. 
 Utility expenses. The decrease in utility expenses reflects a decrease in utility expenses for comparable properties of $1,297 and a decrease associated with property dispositions of $1,080, offset by an increase in utility expenses for a property undergoing significant redevelopment of $108. Utility expenses for comparable properties declined primarily due to a decrease in electricity and water usage resulting from cost savings initiatives implemented by our manager, RMR LLC, in response to decreased space utilization at our properties as a result of the COVID-19 pandemic, as well as the implementation of real time energy management programs at certain of our properties in the 2020 period. 
 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 decrease in other operating expenses primarily reflects a decrease in other operating expenses related to property dispositions of $3,748, a decrease of $106 related to a property undergoing significant redevelopment and a decrease of $79 for comparable properties, offset by an increase of $28 related to acquired properties. Other operating expenses for comparable properties decreased primarily due to lower cleaning and repairs and maintenance costs as a result of cost savings initiatives implemented by our manager, RMR LLC, in response to decreased space utilization at our properties as a result of the COVID- 19 pandemic, partially offset by higher insurance costs. 
 Depreciation and amortization. The decrease in depreciation and amortization primarily reflects a decrease related to property dispositions of $7,783, a decrease for comparable properties of $1,130 and a decrease related to a property undergoing significant redevelopment of $888, offset by an increase in depreciation and amortization expense of $58 related to acquired properties. Depreciation and amortization for comparable properties and the property undergoing significant redevelopment declined due to certain leasing related assets becoming fully depreciated in the 2020 period. 
 Loss on impairment of real estate. In the 2019 period, we recorded a $2,380 loss on impairment of real estate to reduce the carrying value of one property to its estimated fair value less costs to sell. 
 Acquisition and transaction related costs. Acquisition and transaction related costs in the 2019 period consists of post-merger activity costs incurred in 2019 in connection with our acquisition of Select Income REIT, or SIR, on December 31, 2018 in a merger transaction and other related transactions. 
 General and administrative. General and administrative expenses consist of fees pursuant to our business management agreement, equity compensation expense, legal and accounting fees, Trustees’ fees and expenses, securities listing and transfer agency fees and other costs relating to our status as a publicly traded company. The decrease in general and administrative expenses primarily reflects a decrease in business management fees mostly as a result of property sales during 2019 and 2020 and lower legal expenses. 
 Gain (loss) on sale of real estate. Gain (loss) on sale of real estate reflects activity related to property sales during the 2019 and 2020 periods. 
 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. 
 Loss on equity securities. Loss on equity securities represents an unrealized loss in the 2019 period to adjust our former investment in RMR Inc. to its fair value. 
 
 27 

 Table of Contents 
 
 Interest and other income. The decrease in interest and other income is primarily due to the effect of lower cash balances invested 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 all $350,000 of our 3.75% senior unsecured notes in July 2019, the redemption of all $400,000 of our 3.60% senior unsecured notes in January 2020 and the repayment of three mortgage notes with an aggregate principal balance of $112,552 during 2020. 
 Loss on early extinguishment of debt. We recorded a net loss on early extinguishment of debt of $557 in the 2020 period resulting from a loss on the settlement of a mortgage note receivable related to a property sold in 2016, partially offset by the write off of unamortized premiums associated with the prepayment of a mortgage note. We recorded a loss on early extinguishment of debt of $71 in the 2019 period from the write off of debt issuance costs associated with the repayment of certain of our term loans. 
 Income tax (expense) benefit. The increase in income tax expense reflects higher operating income in certain jurisdictions in the 2020 period where we are subject to state income taxes. Income tax benefit, in the 2019 period, is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes. 
 Equity in net losses of investees. Equity in net losses of investees represents our proportionate share of earnings and losses from our investments in two unconsolidated joint ventures and, in the 2019 period, our investment in AIC. 
 Net income (loss). Our net income (loss) and net income (loss) per basic and diluted common share increased in the 2020 period compared to the 2019 period primarily as a result of the changes noted above. 
 
 28 

 Table of Contents 
 
 RESULTS OF OPERATIONS (amounts in thousands, except per share amounts) 
 
 Six Months Ended June 30, 2020 , Compared to Six Months Ended June 30, 2019 
 
 Non-Comparable 
 
 Properties Results 
 
 Comparable Properties Results (1) 
 
 Six Months Ended 
 
 Consolidated Results 
 
 Six Months Ended June 30, 
 
 June 30, 
 
 Six Months Ended June 30, 
 
 $ 
 
 % 
 
 $ 
 
 % 
 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 2020 
 
 2019 
 
 2020 
 
 2019 
 
 Change 
 
 Change 
 
 Rental income 
 
 $ 
 293,446 
 
 $ 
 296,162 
 
 $ 
 (2,716 
 ) 
 
 (0.9 
 %) 
 
 $ 
 2,042 
 
 $ 
 54,647 
 
 $ 
 295,488 
 
 $ 
 350,809 
 
 $ 
 (55,321 
 ) 
 
 (15.8 
 %) 
 
 Operating expenses: 
 
 Real estate taxes 
 
 32,103 
 
 31,887 
 
 216 
 
 0.7 
 % 
 
 485 
 
 4,652 
 
 32,588 
 
 36,539 
 
 (3,951 
 ) 
 
 (10.8 
 %) 
 
 Utility expenses 
 
 11,929 
 
 14,066 
 
 (2,137 
 ) 
 
 (15.2 
 %) 
 
 284 
 
 2,785 
 
 12,213 
 
 16,851 
 
 (4,638 
 ) 
 
 (27.5 
 %) 
 
 Other operating expenses 
 
 50,662 
 
 51,021 
 
 (359 
 ) 
 
 (0.7 
 %) 
 
 1,005 
 
 8,807 
 
 51,667 
 
 59,828 
 
 (8,161 
 ) 
 
 (13.6 
 %) 
 
 Total operating expenses 
 
 94,694 
 
 96,974 
 
 (2,280 
 ) 
 
 (2.4 
 %) 
 
 1,774 
 
 16,244 
 
 96,468 
 
 113,218 
 
 (16,750 
 ) 
 
 (14.8 
 %) 
 
 Property NOI (2) 
 
 $ 
 198,752 
 
 $ 
 199,188 
 
 $ 
 (436 
 ) 
 
 (0.2 
 %) 
 
 $ 
 268 
 
 $ 
 38,403 
 
 199,020 
 
 237,591 
 
 (38,571 
 ) 
 
 (16.2 
 %) 
 
 Other expenses: 
 
 Depreciation and amortization 
 127,113 
 
 151,434 
 
 (24,321 
 ) 
 
 (16.1 
 %) 
 
 Loss on impairment of real estate 
 — 
 
 5,584 
 
 (5,584 
 ) 
 
 n/m 
 
 Acquisition and transaction related costs 
 — 
 
 682 
 
 (682 
 ) 
 
 n/m 
 
 General and administrative 
 14,313 
 
 17,467 
 
 (3,154 
 ) 
 
 (18.1 
 %) 
 
 Total other expenses 
 141,426 
 
 175,167 
 
 (33,741 
 ) 
 
 (19.3 
 %) 
 
 Gain on sale of real estate 
 10,822 
 
 22,075 
 
 (11,253 
 ) 
 
 (51.0 
 %) 
 
 Dividend income 
 — 
 
 1,960 
 
 (1,960 
 ) 
 
 n/m 
 
 Loss on equity securities 
 — 
 
 (44,007 
 ) 
 
 44,007 
 
 n/m 
 
 Interest and other income 
 736 
 
 489 
 
 247 
 
 50.5 
 % 
 
 Interest expense 
 (52,364 
 ) 
 
 (72,481 
 ) 
 
 20,117 
 
 (27.8 
 %) 
 
 Loss on early extinguishment of debt 
 (3,839 
 ) 
 
 (485 
 ) 
 
 (3,354 
 ) 
 
 n/m 
 
 Income (loss) before income tax expense and equity in net losses of investees 
 12,949 
 
 (30,025 
 ) 
 
 42,974 
 
 143.1 
 % 
 
 Income tax expense 
 (274 
 ) 
 
 (353 
 ) 
 
 79 
 
 (22.4 
 %) 
 
 Equity in net losses of investees 
 (536 
 ) 
 
 (377 
 ) 
 
 (159 
 ) 
 
 42.2 
 % 
 
 Net income (loss) 
 $ 
 12,139 
 
 $ 
 (30,755 
 ) 
 
 $ 
 42,894 
 
 139.5 
 % 
 
 Weighted average common shares outstanding (basic and diluted) 
 48,101 
 
 48,040 
 
 61 
 
 0.1 
 % 
 
 Per common share amounts (basic and diluted): 
 
 Net income (loss) 
 $ 
 0.25 
 
 $ 
 (0.64 
 ) 
 
 $ 
 0.89 
 
 139.1 
 % 
 
 n/m - not meaningful 
 
 (1) 
 Comparable properties consists of 182 properties we owned on June 30, 2020 and which we owned continuously since January 1, 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) 
 Our definition of Property NOI and our reconciliation of net income (loss) to Property NOI are included below under the heading “Non-GAAP Financial Measures.” 
 
 References to changes in the income and expense categories below relate to the comparison of consolidated results for the six month period ended June 30, 2020 , compared to the six month period ended June 30, 2019 . 
 Rental income. The decrease in rental income reflects decreases in rental income of $48,553 as a result of property dispositions, $4,085 related to a property undergoing significant redevelopment and $2,716 related to comparable properties, offset by an increase in rental income of $33 related to acquired properties. The decrease in rental income for comparable properties is primarily due to termination fee revenue recorded at certain of our comparable properties in the 2019 period and reductions in occupied space at certain of our comparable properties in the 2020 period. Rental income includes non-cash 
 
 29 

 Table of Contents 
 
 straight line rent adjustments totaling $9,051 in the 2020 period and $12,461 in the 2019 period, and amortization of acquired leases and assumed lease obligations totaling $(2,837) in the 2020 period and $(2,593) in the 2019 period. 
 Real estate taxes. The decrease in real estate taxes primarily reflects a decrease in real estate taxes associated with property dispositions of $4,206, offset by increases in real estate taxes of $216 for comparable properties, $22 for acquired properties and $17 for a property undergoing significant redevelopment. Real estate taxes for comparable properties increased primarily due to the effect of higher real estate tax rates and valuation assessments for certain of our properties in the 2020 period. 
 Utility expenses. The decrease in utility expenses reflects a decrease in utility expenses associated with property dispositions of $2,609 and a decrease in utility expenses for comparable properties of $2,137 , offset by an increase in utility expenses for a property undergoing significant redevelopment of $108. Utility expenses for comparable properties declined primarily due to a decrease in electricity and water usage resulting from cost savings initiatives implemented by our manager, RMR LLC, in response to decreased space utilization at our properties as a result of the COVID-19 pandemic, as well as the implementation of real time energy management programs at certain of our properties in the 2020 period. 
 Other operating expenses. The decrease in other operating expenses primarily reflects a decrease in other operating expenses related to property dispositions of $7,565, a decrease of $359 for comparable properties and a decrease of $275 related to a property undergoing significant redevelopment, offset by an increase in other operating expenses related to acquired properties of $38. Other operating expenses for comparable properties decreased primarily due to lower snow removal costs, as well as lower cleaning and repairs and maintenance costs resulting from cost savings initiatives implemented by our manager, RMR LLC, in response to decreased space utilization at our properties as a result of the COVID-19 pandemic, partially offset by higher insurance costs in the 2020 period. 
 Depreciation and amortization. The decrease in depreciation and amortization primarily reflects a decrease related to property dispositions of $15,818, a decrease for comparable properties of $6,811 and a decrease related to a property undergoing significant redevelopment of $1,776, offset by an increase related to acquired properties of $84. Depreciation and amortization for comparable properties and the property undergoing significant redevelopment declined due to certain leasing related assets becoming fully depreciated in the 2020 period. 
 Loss on impairment of real estate. In the 2019 period, we recorded a $5,137 loss on impairment of real estate to reduce the carrying value of one property to its estimated fair value less costs to sell and a $447 loss on impairment of real estate related to the sale of a portfolio of 34 properties. 
 Acquisition and transaction related costs. Acquisition and transaction related costs in the 2019 period consists of post-merger activity costs incurred in 2019 in connection with our acquisition of SIR on December 31, 2018 in a merger transaction and other related transactions. 
 General and administrative. The decrease in general and administrative expenses primarily reflects a decrease in business management fees mostly as a result of property sales during 2019 and 2020 and lower legal expenses. 
 Gain on sale of real estate. We recorded a $10,822 net gain on sale of real estate resulting from the sale of six properties during the 2020 period. We recorded a $22,075 gain on sale of real estate resulting from the sale of one property during the 2019 period. 
 Dividend income. Dividend income in the 2019 period consists of distributions received in connection with our former investment in RMR Inc. that we sold on July 1, 2019. 
 Loss on equity securities. Loss on equity securities represents an unrealized loss in the 2019 period to adjust our former investment in RMR Inc. to its fair value. 
 Interest and other income. The increase in interest and other income is primarily due to a settlement we received resulting from a dispute with a vendor, partially offset by the effect of lower cash balances invested 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 all $350,000 of our 3.75% senior unsecured notes in July 2019, the redemption of all $400,000 of our 3.60% senior unsecured notes in January 2020 and the repayment of three mortgage notes with an aggregate principal balance of $112,552 in the 2020 period. 
 
 30 

 Table of Contents 
 
 Loss on early extinguishment of debt. We recorded a loss on early extinguishment of debt of $3,839 in the 2020 period from prepayment fees incurred, the write off of unamortized discounts, premiums and debt issuance costs associated with the prepayment of three mortgage notes and a loss on the settlement of a mortgage note receivable related to a property sold in 2016. We recorded a loss on early extinguishment of debt of $485 in the 2019 period from the write off of debt issuance costs associated with the repayment of certain of our term loans. 
 Income tax expense. The decrease in income tax expense reflects lower operating income in certain jurisdictions in the 2020 period where we are 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 two unconsolidated joint ventures and, in the 2019 period, our investment in AIC. 
 Net income (loss). Our net income (loss) and net income (loss) per basic and diluted common share increased in the 2020 period compared to the 2019 period primarily as a result of the changes noted above. 
 
 31 

 Table of Contents 
 
 Non-GAAP Financial Measures 
 We present certain “non-GAAP financial measures” within the meaning of applicable rules of the Securities and Exchange Commission, or SEC, including Property NOI, funds from operations, or FFO, and normalized funds from operations, or Normalized FFO. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income (loss) as presented in our condensed consolidated statements of comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss). We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of Property NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties. 
 Property Net Operating Income 
 The calculation of Property NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations. We calculate Property NOI as shown below. We define Property NOI as income from our rental of real estate less our property operating expenses. Property NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization expense. We use Property NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate Property NOI differently than we do. 
 The following table presents the reconciliation of net income (loss) to Property NOI for the three and six months ended June 30, 2020 and 2019. 
 
 Three Months Ended June 30, 
 
 Six Months Ended June 30, 
 
 2020 
 
 2019 
 
 2020 
 
 2019 
 
 Net income (loss) 
 
 $ 
 1,299 
 
 $ 
 (64,774 
 ) 
 
 $ 
 12,139 
 
 $ 
 (30,755 
 ) 
 
 Equity in net losses of investees 
 
 260 
 
 142 
 
 536 
 
 377 
 
 Income tax expense (benefit) 
 
 235 
 
 (130 
 ) 
 
 274 
 
 353 
 
 Income before income tax expense (benefit) and equity in net losses of investees 
 
 1,794 
 
 (64,762 
 ) 
 
 12,949 
 
 (30,025 
 ) 
 
 Loss on early extinguishment of debt 
 
 557 
 
 71 
 
 3,839 
 
 485 
 
 Interest expense 
 
 25,205 
 
 35,348 
 
 52,364 
 
 72,481 
 
 Interest and other income 
 
 (30 
 ) 
 
 (241 
 ) 
 
 (736 
 ) 
 
 (489 
 ) 
 
 Loss on equity securities 
 
 — 
 
 66,135 
 
 — 
 
 44,007 
 
 Dividend income 
 
 — 
 
 (980 
 ) 
 
 — 
 
 (1,960 
 ) 
 
 (Gain) loss on sale of real estate 
 
 (66 
 ) 
 
 17 
 
 (10,822 
 ) 
 
 (22,075 
 ) 
 
 General and administrative 
 
 7,204 
 
 8,744 
 
 14,313 
 
 17,467 
 
 Acquisition and transaction related costs 
 
 — 
 
 98 
 
 — 
 
 682 
 
 Loss on impairment of real estate 
 
 — 
 
 2,380 
 
 — 
 
 5,584 
 
 Depreciation and amortization 
 
 64,170 
 
 73,913 
 
 127,113 
 
 151,434 
 
 Property NOI 
 
 $ 
 98,834 
 
 $ 
 120,723 
 
 $ 
 199,020 
 
 $ 
 237,591 
 
 32 

 Table of Contents 
 
 Funds From Operations and Normalized Funds From Operations 
 We calculate FFO and Normalized FFO as shown below. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets, any gain or loss on sale of real estate and equity securities, as well as certain other adjustments currently not applicable to us. In calculating Normalized FFO, we adjust for the other items shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do. 
 The following table presents the reconciliation of net income (loss) to FFO and Normalized FFO for the three and six months ended June 30, 2020 and 2019. 
 
 Three Months Ended June 30, 
 
 Six Months Ended June 30, 
 
 2020 
 
 2019 
 
 2020 
 
 2019 
 
 Net income (loss) 
 
 $ 
 1,299 
 
 $ 
 (64,774 
 ) 
 
 $ 
 12,139 
 
 $ 
 (30,755 
 ) 
 
 Add (less): Depreciation and amortization: 
 
 Consolidated properties 
 
 64,170 
 
 73,913 
 
 127,113 
 
 151,434 
 
 Unconsolidated joint venture properties 
 
 1,237 
 
 1,410 
 
 2,478 
 
 3,161 
 
 Loss on impairment of real estate 
 
 — 
 
 2,380 
 
 — 
 
 5,584 
 
 (Gain) loss on sale of real estate 
 
 (66 
 ) 
 
 17 
 
 (10,822 
 ) 
 
 (22,075 
 ) 
 
 Loss on equity securities 
 
 — 
 
 66,135 
 
 — 
 
 44,007 
 
 FFO 
 
 66,640 
 
 79,081 
 
 130,908 
 
 151,356 
 
 Add (less): Acquisition and transaction related costs 
 
 — 
 
 98 
 
 — 
 
 682 
 
 Loss on early extinguishment of debt 
 
 557 
 
 71 
 
 3,839 
 
 485 
 
 Normalized FFO 
 
 $ 
 67,197 
 
 $ 
 79,250 
 
 $ 
 134,747 
 
 $ 
 152,523 
 
 FFO per common share (basic and diluted) 
 
 $ 
 1.39 
 
 $ 
 1.65 
 
 $ 
 2.72 
 
 $ 
 3.15 
 
 Normalized FFO per common share (basic and diluted) 
 
 $ 
 1.40 
 
 $ 
 1.65 
 
 $ 
 2.80 
 
 $ 
 3.17 
 
 LIQUIDITY AND CAPITAL RESOURCES 
 Our Operating Liquidity and Resources (dollar amounts in thousands) 
 Our principal sources of funds to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are the operating cash flows we generate 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. Our future cash flows from operating activities will depend primarily upon: 
 
 • 
 our ability to collect rent from our tenants; 
 
 • our ability to maintain or increase the occupancy of, and the rental rates at, our properties; 
 • our ability to control operating and capital expenses at our properties; 
 
 • 
 our ability to successfully sell properties that we market for sale; and 
 
 • 
 our ability to purchase additional properties which produce cash flows from operations in excess of our cost of acquisition capital and property operating expenses and capital expenses. 
 
 33 

 Table of Contents 
 
 With $570,000 available under our revolving credit facility as of July 29, 2020 and only approximately $40,000 of debt maturities until 2022, we believe that we are well positioned to weather the present disruptions facing the real estate industry and the economy generally. As a result of the COVID-19 pandemic, we have received requests from some of our tenants for rent assistance. As of July 27, 2020, we have granted temporary rent assistance totaling $2,475 to 23 tenants who represent approximately 3.7% of our annualized rental income as of June 30, 2020. This assistance generally entails a deferral of, in most cases, one month of rent until September 2020 when the deferred rent amounts will begin to be payable over a 12-month period. Our liquidity has been and will be temporarily impacted by these rent deferrals as follows: $446, $817, $959, $134, $59 and $59 of granted deferrals in April, May, June, July, August and September 2020, respectively, until these deferrals begin to become obligated to be repaid. In addition, we also anticipate that our general and administrative expenses will be reduced because of the lower fees we will pay to our manager as a result of the decline in our share price since the COVID-19 pandemic began. Although some of our tenants have sought temporary rent assistance, we also believe that overall tenant retention levels may increase. Also, we believe we will benefit from the approximately 62.8% of our annualized rental income as of June 30, 2020 paid by investment grade tenants, the majority of which is made up of government tenants, and the diversity of our tenant base, both geographically and by industry, which may help mitigate the economic impact of the COVID-19 pandemic. 
 On July 16, 2020, we announced a regular quarterly cash distribution of $0.55 per common share ($2.20 per common share per year), maintaining our previous distribution rate. At this time, we continue to expect that the quarterly distribution rate will remain unchanged for 2020. We determine our distribution payout ratio with consideration for our expected capital expenditures as well as cash flows from operations and debt obligations. 
 In early 2020, we completed our previously announced disposition program and transitioned to a capital recycling program through which we expect to accretively grow our property portfolio. Pursuant to our capital recycling program, we plan to sell certain properties from time to time to fund future acquisitions and to maintain leverage consistent with our current investment grade ratings with a goal of (1) improving the asset quality of our portfolio by reducing the average age of our properties, lengthening the weighted average term of our leases and increasing the likelihood of retaining our tenants and (2) increasing our cash available for distribution. During the six months ended June 30, 2020, we sold six properties for $85,363 , excluding closing costs. In July 2020, we entered into an agreement to sell a four property business park for $25,400, excluding closing costs, and an agreement to purchase an office property for $38,100, excluding acquisition related costs, as part of this program. These transactions are expected to occur before the end of the third quarter. However, these transactions are subject to conditions; accordingly, we cannot be sure that we will complete these transactions or that these transactions will not be delayed or the terms will not change. Given the current economic conditions, we are carefully considering our capital allocation strategy and believe we are well positioned to opportunistically recycle and deploy capital in 2020. 
 Our future purchases of properties cannot be accurately projected because such purchases depend upon purchase opportunities which come to our attention and our ability to successfully complete the acquisitions. We generally do not intend to purchase “turn around” properties, or properties which do not generate positive cash flows. 
 Our changes in cash flows for the six months ended June 30, 2020 compared to the same period in 2019 were as follows: (i) cash flows provided by operating activities increased from $107,790 in the 2019 period to $111,190 in the 2020 period; (ii) cash flows provided by investing activities decreased from $268,880 in the 2019 period to $40,934 in the 2020 period; and (iii) cash flows used in financing activities decreased from $390,928 in the 2019 period to $222,719 in the 2020 period. 
 The increase in cash provided by operating activities for the 2020 period as compared to the 2019 period was a result of favorable changes in working capital in the 2020 period compared to the 2019 period. The decrease in cash provided by investing activities in the 2020 period as compared to the 2019 period is primarily due to lower cash proceeds received from our sales of properties in the 2020 period compared to the 2019 period and higher real estate acquisition and improvement activities in the 2020 period. The decrease in cash used in financing activities in the 2020 period as compared to the 2019 period is primarily due to the issuance of $150,000 of our 6.375% senior unsecured notes due 2050 in the 2020 period and a decrease in net debt repayment activity, due to repayments of our unsecured term loans and net repayment activity on our revolving credit facility using cash on hand and proceeds from sales of properties in the 2019 period compared to increased borrowings under our revolving credit facility in the 2020 period in order to facilitate the repayment of other debts, including the redemption of all $400,000 of our 3.60% senior unsecured notes in January 2020. 
 Our Investment and Financing Liquidity and Resources (dollar amounts in thousands, except per share and per square foot amounts) 
 In order to fund acquisitions and to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $750,000 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, 
 
 34 

 Table of Contents 
 
 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 June 30, 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 June 30, 2020 . Both the interest rate premium and facility fee are subject to adjustment based upon changes to our credit ratings. As of June 30, 2020 , the annual interest rate payable on borrowings under our revolving credit facility was 1.2% . As of June 30, 2020 and July 29, 2020, we had $200,000 and $180,000 , respectively, outstanding under our revolving credit facility, and $550,000 and $570,000 , respectively, available for borrowing under our revolving credit facility. 
 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. 
 In January 2020, we redeemed, at par plus accrued interest, all $400,000 of our 3.60% senior unsecured notes that had a maturity date in February 2020 using cash on hand, proceeds from property sales and borrowings under our revolving credit facility. 
 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 2021. 
 Also in March 2020, we prepaid, at a premium plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $66,780, an annual interest rate of 4.0% and a maturity date in September 2030 using cash on hand and borrowings under our revolving credit facility. 
 In 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 using cash on hand and borrowings under our revolving credit facility. 
 In June 2020, we issued $150,000 of our 6.375% senior unsecured notes due 2050 in an underwritten public offering, raising net proceeds of $144,772 , after deducting underwriters’ discounts and estimated offering expenses. In connection with this offering, we granted the underwriters a 30 day option to purchase up to an additional $22,500 aggregate principal amount of these notes. In July 2020, the underwriters partially exercised this option for an additional $12,000 of these notes. We used the aggregate net proceeds from this offering to repay amounts outstanding under our revolving credit facility and for general business purposes. These notes require quarterly payments of interest only through maturity and may be repaid at par (plus accrued and unpaid interest) on or after June 23, 2025. 
 In addition, in August 2020, we plan to repay at maturity, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $39,635 and an annual interest rate of 2.2% using cash on hand and borrowings under our revolving credit facility. 
 As of June 30, 2020 , our debt maturities (other than our revolving credit facility), consisting of senior unsecured notes and mortgage notes, are as follows: 
 
 Year 
 
 Debt Maturities 
 
 2020 
 
 $ 
 40,953 
 
 2021 
 
 1,541 
 
 2022 
 
 625,518 
 
 2023 
 
 143,784 
 
 2024 
 
 350,000 
 
 2025 and thereafter 
 
 860,000 
 
 Total 
 
 $ 
 2,021,796 
 
 35 

 Table of Contents 
 
 None of our unsecured debt obligations require sinking fund payments prior to their maturity dates. Our $211,796 in mortgage debts, generally require monthly payments of principal and interest through maturity. 
 In addition to our debt obligations, as of June 30, 2020 , we have estimated unspent leasing related obligations of $61,720 . 
 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 debt or 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 debt or equity securities, extending the maturity date of our revolving credit facility and entering into a new revolving credit facility. We may assume additional mortgage debt in connection with our acquisitions or elect to place new mortgages on properties we own as a source of financing. We may also seek to participate in additional joint venture or other arrangements that may provide us with additional sources of financing. Although we cannot be sure that we will be successful in consummating any particular type of financing, we believe that we will have access to financing, such as debt and equity offerings, to fund future acquisitions and capital expenditures and to pay our obligations. We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities. 
 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. For instance, 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. 
 During the six months ended June 30, 2020 , we paid quarterly distributions to our common shareholders totaling $53,021 using cash on hand and borrowings under our revolving credit facility. On July 16, 2020 , we declared a regular quarterly distribution payable to common shareholders of record on July 27, 2020 of $0.55 per share, or approximately $26,500 . We expect to pay this distribution on or about August 20, 2020 using cash on hand and borrowings under our revolving credit facility. For more information regarding the distributions we paid during 2020, see Note 9 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 
 Off Balance Sheet Arrangements (dollars in thousands) 
 We own 51% and 50% interests in two unconsolidated joint ventures which own three properties. The properties owned by these joint ventures are encumbered by an aggregate $ 82,000 principal amount of mortgage indebtedness. We do not control the activities that are most significant to these joint ventures and, as a result, we account for our investments in these joint ventures under the equity method of accounting. For more information on the financial condition and results of operations of these joint ventures, see Note 4 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Other than these joint ventures, as of June 30, 2020 , we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. 
 Debt Covenants (dollars in thousands) 
 Our principal debt obligations at June 30, 2020 consisted of borrowings under our $750,000 revolving credit facility, an aggregate outstanding principal balance of $1,810,000 of public issuances of senior unsecured notes and mortgage notes with an aggregate outstanding principal balance of $211,796 , that were assumed in connection with certain of our acquisitions. Also, the three properties owned by two joint ventures in which we own 51% and 50% interests secure two additional mortgage notes. Our publicly issued senior unsecured notes are governed by indentures and their supplements. Our credit agreement and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes 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 
 
 36 

 Table of Contents 
 
 comply with certain financial covenants and, in the case of our credit agreement, restrict our ability to make distributions to our shareholders under certain circumstances. As of June 30, 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. 
 Our credit agreement has cross default provisions to other indebtedness that is recourse of $25,000 or more and indebtedness that is non-recourse of $50,000 or more. Similarly, our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $25,000 (or up to $50,000 in certain circumstances). 
 Related Person Transactions 
 We have relationships and historical and continuing transactions with RMR LLC, RMR Inc. 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; and each of our other officers is also an officer and employee of RMR LLC. We have relationships and historical and continuing transactions with other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also trustees, directors or officers of us, RMR LLC or RMR Inc. and some of our Trustees and officers serve as trustees, directors or officers of these companies. 
 For 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 2019 Annual Report, our definitive Proxy Statement for our 2020 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” of our 2019 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related persons, including our business and property management agreements with RMR LLC, 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.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
OFFICE PROPERTIES INCOME TRUST 10-Q

Item 2. Management’s Discussion and Analysis
