What changed in this filing

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Item 1. Financial Statements

2020-10-30 compared with 2020-07-30 · 183 added, 127 removed, 314 unchanged (50% of the section changed)

3 unchanged sentences

(dollars in thousands, except per share data)

September 30, December 31,

Real estate properties:

Land $ 840,931 $ 840,550

Buildings and improvements 2,685,988 2,652,681

10 unchanged sentences

Other assets, net 16,503 20,187

Total assets $ 3,973,045 $ 4,193,136

LIABILITIES AND SHAREHOLDERS’ EQUITY

21 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Rental income $ 145,806 $ 167,411 $ 441,294 $ 518,220

7 unchanged sentences

Total expenses 122,283 150,168 360,177 438,553

Gain (loss) on sale of real estate

Gain on sale of real estate — 11,463 10,822 33,538

Dividend income — — — 1,960

Loss on equity securities

Loss on equity securities, net — — — ( 44,007 )

Interest and other income 2 358 738 847

Interest expense (including net amortization of debt premiums, discounts and issuance costs of $ 2,477 , $ 2,560 , $ 7,162 and $ 8,264 , respectively)

( 27,097 ) ( 32,367 ) ( 79,461 ) ( 104,848 )

Loss on early extinguishment of debt — ( 284 ) ( 3,839 ) ( 769 )

5 unchanged sentences

Unrealized gain (loss) on financial instrument 85 80 200 ( 287 )

Equity in unrealized gain of investees

Equity in unrealized gain (loss) of investees — ( 46 ) — 91

Other comprehensive income (loss) 85 34 200 ( 196 )

7 unchanged sentences

(dollars in thousands)

Common Shares

Paid In Capital

of Shares Common Shares Additional

Paid In Capital Cumulative

Net Income Cumulative

Comprehensive

Income (Loss)

Distributions

Total Shareholders’ Equity

Loss Cumulative

Distributions Total Shareholders’ Equity

Balance at December 31, 2019 48,201,941 $ 482 $ 2,612,425 $ 177,217 $ ( 200 ) $ ( 1,084,170 ) $ 1,705,754

Share grants — — 379 — — — 379

Share repurchases ( 1,012 ) — ( 27 ) — — — ( 27 )

Net current period other comprehensive loss — — — — ( 61 ) — ( 61 )

Net income — — — 10,840 — — 10,840

Distributions to common shareholders — — — — — ( 26,511 ) ( 26,511 )

Balance at March 31, 2020 48,200,929 482 2,612,777 188,057 ( 261 ) ( 1,110,681 ) 1,690,374

Share grants 28,000 — 1,121 — — — 1,121

Share repurchases ( 1,129 ) — ( 30 ) — — — ( 30 )

Net current period other comprehensive income — — — — 176 — 176

Net income — — — 1,299 — — 1,299

Distributions to common shareholders — — — — — ( 26,510 ) ( 26,510 )

Balance at June 30, 2020 48,227,800 482 2,613,868 189,356 ( 85 ) ( 1,137,191 ) 1,666,430

Share grants 108,600 1 864 — — — 865

Share forfeitures and repurchases ( 18,034 ) — ( 386 ) — — — ( 386 )

Amount reclassified from cumulative other comprehensive loss to net loss — — — — 85 — 85

Net loss — — — ( 3,797 ) — — ( 3,797 )

Distributions to common shareholders — — — — — ( 26,525 ) ( 26,525 )

Balance at September 30, 2020 48,318,366 $ 483 $ 2,614,346 $ 185,559 $ — $ ( 1,163,716 ) $ 1,636,672

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

2 unchanged sentences

(dollars in thousands)

Common Shares

Paid In Capital

Net Income (Loss)

of Shares Common Shares Additional

Paid In Capital Cumulative

Net Income Cumulative

Comprehensive

Income (Loss)

Distributions

Total Shareholders’ Equity

Income (Loss) Cumulative

Distributions Total Shareholders’ Equity

Balance at December 31, 2018 48,082,903 $ 481 $ 2,609,801 $ 146,882 $ 106 $ ( 978,302 ) $ 1,778,968

Share grants 9,000 — 865 — — — 865

Amount reclassified from cumulative other comprehensive income to net income — — — — ( 371 ) — ( 371 )

Net current period other comprehensive loss — — — — ( 32 ) — ( 32 )

Net income — — — 34,019 — — 34,019

Distributions to common shareholders — — — — — ( 26,445 ) ( 26,445 )

Balance at March 31, 2019 48,091,903 481 2,610,666 180,901 ( 297 ) ( 1,004,747 ) 1,787,004

Share repurchases

Share forfeitures

Share grants 24,000 — 971 — — — 971

Share forfeitures and repurchases ( 2,459 ) — ( 67 ) — — — ( 67 )

Net current period other comprehensive loss — — — — ( 198 ) — ( 198 )

Net loss — — — ( 64,774 ) — — ( 64,774 )

Distributions to common shareholders — — — — — ( 26,450 ) ( 26,450 )

Balance at June 30, 2019 48,113,444 481 2,611,570 116,127 ( 495 ) ( 1,031,197 ) 1,696,486

Share grants 103,100 1 888 — — — 889

Share repurchases ( 13,212 ) — ( 396 ) — — — ( 396 )

Net current period other comprehensive income — — — — 34 — 34

Net loss — — — ( 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.

2 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

1 unchanged sentence

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation 62,570 68,095

Net amortization of debt premiums, discounts and issuance costs 7,162 8,264

6 unchanged sentences

Other non-cash expenses, net 1,542 1,907

Loss on equity securities

Loss on equity securities, net — 44,007

Equity in net losses of investees 815 573

2 unchanged sentences

Deferred leasing costs ( 10,722 ) ( 22,759 )

Other assets ( 860 ) ( 32 )

Accounts payable and other liabilities ( 11,593 ) ( 30,603 )

8 unchanged sentences

Proceeds from repayment of mortgage note receivable 2,880 —

Proceeds from sale of RMR Inc.

common shares, net — 104,674

Net cash provided by investing activities 18,104 639,768

3 unchanged sentences

Repayment of senior unsecured notes ( 400,000 ) ( 350,000 )

Proceeds from issuance of senior notes, net of discounts

Proceeds from issuance of senior unsecured notes, net 408,932 —

Borrowings on unsecured revolving credit facility 561,467 420,000

8 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Decrease in cash, cash equivalents and restricted cash $ ( 43,057 ) $ ( 5,910 )

1 unchanged sentence

Cash, cash equivalents and restricted cash at end of period $ 57,639 $ 33,033

Six Months Ended June 30,

Nine Months Ended September 30,

SUPPLEMENTAL CASH FLOW INFORMATION:

3 unchanged sentences

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

As of June 30,

As of September 30,

Cash and cash equivalents $ 45,035 $ 29,002

1 unchanged sentence

Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows $ 57,639 $ 33,033

(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.

26 unchanged sentences

Unvested share awards and other potentially dilutive common shares, together with the related impact on earnings, are considered when calculating diluted earnings per share.

For the three and six months ended June 30, 2020 and 2019, certain unvested common shares were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

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

Real Estate Properties

As of June 30, 2020 , our wholly owned properties were comprised of 184 properties with approximately 24,909,000 rentable square feet, with an aggregate undepreciated carrying value of $ 3,534,900 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 September 30, 2020, our wholly owned properties were comprised of 184 properties with approximately 24,909,000 rentable square feet, with an aggregate undepreciated carrying value of $ 3,544,937 , including $ 18,018 classified as held for sale, 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.

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 2020 and 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 June 30, 2020 , we entered into 16 leases for approximately 642,000 rentable square feet for a weighted (by rentable square feet) average lease term of 6.1 years and we made commitments for approximately $ 16,529 of leasing related costs.

During the six months ended June 30, 2020 , we entered into 43 leases for approximately 1,231,000 rentable square feet for a weighted (by rentable square feet) average lease term of 5.4 years and we made commitments for approximately $ 29,459 of leasing related costs.

As of June 30, 2020 , we have estimated unspent leasing related obligations of $ 61,720 .

During the three months ended September 30, 2020, we entered into 17 leases for approximately 595,000 rentable square feet for a weighted (by rentable square feet) average lease term of 10.6 years and we made commitments for approximately $ 6,238 of leasing related costs.

During the nine months ended September 30, 2020, we entered into 60 leases for approximately 1,826,000 rentable square feet for a weighted (by rentable square feet) average lease term of 7.1 years and we made commitments for approximately $ 35,697 of leasing related costs.

As of September 30, 2020, we have estimated unspent leasing related obligations of $ 61,307 .

We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of our long lived assets.

13 unchanged sentences

The purchase price of this acquisition was allocated to land and building in the amounts of $ 2,618 and $ 9,246 , respectively.

In July 2020, we entered into an agreement to acquire an office property located in Denver, CO with 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.

In August 2020, we terminated a previously disclosed agreement to acquire an office property in Denver, CO for a purchase price of $ 38,100 .

In October 2020, we entered into an agreement to acquire three properties containing approximately 194,000 square feet adjacent to properties we own in an office park in Brookhaven, GA for $ 15,250 , excluding acquisition related costs.

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.

During the nine months ended September 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.

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).

Number of Properties

Rentable Square Feet

Date of Sale Number of Properties Location Rentable Square Feet Gross

Sales Price (1)

Gain (Loss) on Sale of Real Estate

February 2020

Lincolnshire, IL

January 2020 2 Stafford, VA 64,656 $ 14,063 $ 4,704

January 2020 1 Windsor, CT 97,256 7,000 314

February 2020 1 Lincolnshire, IL 222,717 12,000 1,176

March 2020 1 Trenton, NJ 267,025 30,100 ( 192 )

March 2020 1 Fairfax, VA 83,130 22,200 4,820

6 734,784 $ 85,363 $ 10,822

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

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

This sale is expected to occur before the end of the third quarter.

However, this sale is subject to conditions;

accordingly, we cannot be sure that we will complete this sale or that this sale will not be delayed or the terms will not change.

As of September 30, 2020, we had four properties with an aggregate undepreciated carrying value of $ 18,018 under agreement to sell for a sales price of $ 25,100 , excluding closing costs.

These properties were classified as held for sale in our condensed consolidated balance sheet as of September 30, 2020.

We recorded a $ 2,954 loss on impairment of real estate during the three months ended September 30, 2020 to adjust the carrying value of these properties to their estimated fair value less costs to sell.

The operating results of these properties are included in continuing operations in our condensed consolidated statements of comprehensive income (loss).

The sale of these properties was completed in October 2020.

OFFICE PROPERTIES INCOME TRUST

4 unchanged sentences

We account for these investments under the equity method of accounting.

As of June 30, 2020 and December 31, 2019 , our investments in unconsolidated joint ventures consisted of the following:

As of September 30, 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

December 31, 2019

Number of Properties

Rentable Square Feet

Prosperity Metro Plaza

1750 H Street, NW

Washington, D.C.

Joint Venture OPI Ownership September 30,

2020 December 31, 2019 Number of Properties Location Rentable Square Feet

Prosperity Metro Plaza 51 % $ 22,080 $ 22,483 2 Fairfax, VA 328,655

1750 H Street, NW 50 % 16,453 17,273 1 Washington, D.C.

Total $ 38,533 $ 39,756 3 444,066

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 June 30, 2020 and December 31, 2019 (2)

Joint Venture Interest Rate (1)

Maturity Date Principal Balance at September 30, 2020 and December 31, 2019 (2)

Prosperity Metro Plaza 4.09 % 12/1/2029 $ 50,000

4 unchanged sentences

None of the debt is recourse to us.

At June 30, 2020 , the aggregate unamortized basis difference of our two unconsolidated joint ventures of $ 7,706 is primarily attributable to the difference between the amount we 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.

At September 30, 2020, the aggregate unamortized basis difference of our two unconsolidated joint ventures of $ 7,584 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 and the resulting amortization expense is included in equity in net losses of investees in our condensed consolidated statements of comprehensive income (loss).

5 unchanged sentences

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 $ 3,468 and $ 5,667 for the three months ended June 30, 2020 and 2019, respectively, and $ 9,051 and $ 12,461 for the six months ended June 30, 2020 and 2019, respectively.

Rents receivable, excluding properties classified as held for sale, include $ 63,829 and $ 54,837 of straight line rent receivables at June 30, 2020 and December 31, 2019 , respectively.

We increased rental income to record revenue on a straight line basis by $ 3,912 and $ 6,904 for the three months ended September 30, 2020 and 2019, respectively, and $ 12,963 and $ 19,365 for the nine months ended September 30, 2020 and 2019, respectively.

Rents receivable, excluding properties classified as held for sale, include $ 66,499 and $ 54,837 of straight line rent receivables at September 30, 2020 and December 31, 2019, respectively.

We do not include in our measurement of our lease receivables certain variable payments, including payments determined by changes in the index or market-based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred.

Such payments totaled $ 18,302 and $ 38,048 for the three and six months ended June 30, 2020 , respectively, of which tenant reimbursements totaled $ 17,229 and $ 35,851 , respectively.

For the three and six months ended June 30, 2019 , such payments totaled $ 22,696 and $ 46,090 , respectively, of which tenant reimbursements totaled $ 21,540 and $ 43,663 , respectively.

Such payments totaled $ 18,606 and $ 56,654 for the three and nine months ended September 30, 2020, respectively, of which tenant reimbursements totaled $ 17,495 and $ 53,346 , respectively.

For the three and nine months ended September 30, 2019, such payments totaled $ 23,092 and $ 69,182 , respectively, of which tenant reimbursements totaled $ 21,914 and $ 65,577 , respectively.

OFFICE PROPERTIES INCOME TRUST

2 unchanged sentences

As a result of the COVID-19 pandemic, some of our tenants have requested rent assistance.

As of July 27, 2020, we have granted temporary rent assistance totaling $ 2,475 to 23 of our tenants who represent approximately 3.7 % of our annualized rental income, as defined below, as of June 30, 2020, pursuant to a deferred payment plan whereby these tenants will be obligated to pay, in most cases, the deferred rent over a 12 -month period beginning in September 2020.

As of October 27, 2020, we have granted temporary rent assistance totaling $ 2,550 to 19 of our tenants who represent approximately 3.6 % of our annualized rental income, as defined below, as of September 30, 2020, pursuant to deferred payment plans.

These tenants are obligated to pay, in most cases, the deferred rent over a 12 -month period, certain of which commenced in September 2020.

We have elected to use the FASB relief package regarding the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic.

The FASB relief package provides entities with the option to account for lease concessions resulting from the COVID-19 pandemic outside of the existing lease modification guidance if the resulting cash flows from the modified lease are substantially the same as or less than the original lease.

Because the deferred rent amounts referenced above will be repaid over a 12 -month period, the cash flows from the respective leases are substantially the same as before the rent deferrals.

The deferred amounts did not impact our results for the three and six months ended June 30, 2020 and, as of June 30, 2020, we recognized an increase in our accounts receivable related to these deferred payments of $ 2,222 .

Because the deferred rent amounts referenced above will be repaid, the cash flows from the respective leases are substantially the same as before the rent deferrals.

The deferred amounts did not impact our operating results for the three and nine months ended September 30, 2020.

As of September 30, 2020, deferred payments totaling $ 2,096 are included in rents receivable in our condensed consolidated balance sheet.

Right of Use Asset and Lease Liability .

For leases where we are the lessee, we are required to record a right of use asset and lease liability for all leases with an initial term greater than 12 months.

As of June 30, 2020 , we had one lease that met these criteria where we are the lessee, which expires on January 31, 2021.

As of September 30, 2020, we had one lease that met these criteria where we are the lessee, which expires on January 31, 2021.

We sublease a portion of the space, which sublease expires on January 31, 2021.

The values of the right of use asset and related liability representing our future obligation under the lease arrangement for which we are the lessee were $ 1,167 and $ 1,190 , respectively, as of June 30, 2020 , and $ 2,149 and $ 2,179 , respectively, as of December 31, 2019.

The 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 $ 670 and $ 689 , respectively, as of September 30, 2020, and $ 2,149 and $ 2,179 , respectively, as of December 31, 2019.

The right of use asset and related lease liability are included within other assets, net and accounts payable and other liabilities, respectively, within our condensed consolidated balance sheets.

Rent expense incurred under the lease, net of sublease revenue, was $ 446 and $ 381 for the three months ended June 30, 2020 and 2019, respectively, and $ 892 and $ 815 for the six months ended June 30, 2020 and 2019, respectively.

Rent expense incurred under the lease, net of sublease revenue, was $ 409 and $ 411 for the three months ended September 30, 2020 and 2019, respectively, and $ 1,301 and $ 1,226 for the nine months ended September 30, 2020 and 2019, respectively.

Concentration

1 unchanged sentence

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 June 30, 2020 , the U.S.

As of September 30, 2020, the U.S.

Government, 11 state governments and two other government tenants combined were responsible for approximately 35.6 % of our annualized rental income.

As of June 30, 2019 , the U.S.

As of September 30, 2019, the U.S.

Government, 13 state governments and three other government tenants combined were responsible for approximately 36.3 % of our annualized rental income.

Government is our largest tenant by annualized rental income and was responsible for approximately 25.2 % and 25.6 % of our annualized rental income as of June 30, 2020 and 2019 , respectively.

Government is our largest tenant by annualized rental income and was responsible for approximately 25.2 % and 25.8 % of our annualized rental income as of September 30, 2020 and 2019, respectively.

Geographic Concentration

At June 30, 2020 , our 184 wholly owned properties were located in 34 states and the District of Columbia.

Properties located in Virginia , California , the District of Columbia , Texas and Maryland were responsible for 15.1 % , 12.1 % , 10.9 % , 8.3 % and 6.7 % of our annualized rental income as of June 30, 2020 , respectively.

Our principal debt obligations at June 30, 2020 were:

(1) $ 200,000 of outstanding borrowings under our $ 750,000 unsecured revolving credit facility;

At September 30, 2020, our 184 wholly owned properties were located in 34 states and the District of Columbia.

Properties located in Virginia, California, the District of Columbia, Texas and Maryland were responsible for 15.2 %, 12.1 %, 10.9 %, 8.3 % and 6.6 % of our annualized rental income as of September 30, 2020, respectively.

Our principal debt obligations at September 30, 2020 were:

(1) $ 2,072,000 aggregate outstanding principal amount of senior unsecured notes;

4 unchanged sentences

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 June 30, 2020 , on the amount outstanding under our revolving credit facility.

We also pay a facility fee on the total

We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at September 30, 2020, on the amount outstanding under our revolving credit facility.

We also pay a facility fee on

OFFICE PROPERTIES INCOME TRUST

1 unchanged sentence

(dollars in thousands, except per share data)

amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at June 30, 2020 .

the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at September 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 and December 31, 2019, the annual interest rate payable on borrowings under our revolving credit facility was 1.2 % and 2.7 % , respectively.

The weighted average annual interest rate for borrowings under our revolving credit facility was 1.3 % and 3.5 % for the three months ended June 30, 2020 and 2019 , respectively, and 2.1 % and 3.5 % for the six months ended June 30, 2020 and 2019 , respectively.

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.

As of September 30, 2020 and December 31, 2019, the annual interest rate payable on borrowings under our revolving credit facility was 1.2 % and 2.7 %, respectively.

The weighted average annual interest rate for borrowings under our revolving credit facility was 1.2 % and 3.3 % for the three months ended September 30, 2020 and 2019, respectively, and 2.0 % and 3.4 % for the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020 and October 29, 2020, we had no amounts outstanding under our revolving credit facility and $ 750,000 available for borrowing.

Our credit agreement and senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business and property manager.

Our credit agreement and senior unsecured notes indentures and their supplements also contain covenants, including covenants that restrict our ability to incur debts, require us to comply with certain financial 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 June 30, 2020 .

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, 2020.

In January 2020, we redeemed, at par plus accrued interest, all $ 400,000 of our 3.60 % senior unsecured notes due 2020.

As a result of the redemption of our 3.60 % senior unsecured notes due 2020, we recognized a loss on early extinguishment of debt of $ 61 during the six months ended June 30, 2020 , to write off unamortized discounts.

As a result of the redemption of our 3.60 % senior unsecured notes due 2020, we recognized a loss on early extinguishment of debt of $ 61 during the nine months ended September 30, 2020, to write off unamortized discounts.

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.

As a result of the prepayment of this mortgage note, we recognized a loss on early extinguishment of debt of $ 508 during the six months ended June 30, 2020 , from a prepayment penalty and the write off of unamortized debt issuance costs.

As a result of the prepayment of this mortgage note, we recognized a loss on early extinguishment of debt of $ 508 during the nine months ended September 30, 2020, from a prepayment penalty and the write off of unamortized debt issuance costs.

In March 2020, we prepaid, at a premium plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $ 66,780 , an annual interest rate of 4.0 % and a maturity date in September 2030.

As a result of the prepayment of this mortgage note, we recognized a loss on early extinguishment of debt of $ 2,713 during the six months ended June 30, 2020 , from a prepayment penalty and the write off of unamortized discounts.

As a result of the prepayment of this mortgage note, we recognized a loss on early extinguishment of debt of $ 2,713 during the nine months ended September 30, 2020, from a prepayment penalty and the write off of unamortized discounts.

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

As a result of the prepayment of this mortgage note, we recognized a gain on early extinguishment of debt of $ 163 during the six months ended June 30, 2020 , from the write off of unamortized premiums.

In June 2020, we issued $ 150,000 of our 6.375 % senior unsecured notes due 2050 in an underwritten public offering, raising net proceeds of $ 144,772 , after deducting underwriters’ discounts and estimated offering expenses.

As a result of the prepayment of this mortgage note, we recognized a gain on early extinguishment of debt of $ 163 during the nine months ended September 30, 2020, from the write off of unamortized premiums.

In June 2020, we issued $ 150,000 of our 6.375 % senior unsecured notes due 2050 in an underwritten public offering.

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.

In July 2020, the underwriters partially exercised this option to purchase an additional $ 12,000 of these notes.

The aggregate net proceeds from this offering were $ 156,186 , after underwriters’ discounts and offering expenses.

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

At June 30, 2020 , eight of our consolidated properties with an aggregate net book value of $ 354,773 were encumbered by mortgage notes with an aggregate principal amount of $ 211,796 .

Our mortgage notes are non-recourse, subject to certain limited exceptions and do not contain any material financial covenants.

In August 2020, we repaid 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 %.

In September 2020, we issued $ 250,000 of our 4.50 % senior unsecured notes due 2025 in an underwritten public offering.

These notes are a further issuance of our existing $ 400,000 of senior unsecured notes due 2025 that were initially issued by Select Income REIT, or SIR, in February 2015, which we assumed in connection with our acquisition of SIR in a merger transaction on December 31, 2018.

The public offering price of these notes was 101.414 % of the principal amount, raising net proceeds of $ 251,269 , after underwriters’ discounts and estimated offering expenses.

These notes require semi-annual payments of interest only through maturity.

OFFICE PROPERTIES INCOME TRUST

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(dollars in thousands, except per share data)

At September 30, 2020, seven of our properties with an aggregate net book value of $ 307,837 were encumbered by mortgage notes with an aggregate principal amount of $ 171,475 .

Our mortgage notes are non-recourse, subject to certain limited exceptions and do not contain any material financial covenants.

Fair Value of Assets and Liabilities

Our financial instruments include our cash and cash equivalents, restricted cash, rents 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 June 30, 2020 and December 31, 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 June 30, 2020

As of December 31, 2019

Financial Instrument

Carrying Value (1)

The following table presents certain of our assets measured at fair value at September 30, 2020, 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)

$ 21,446 $ — $ 21,446 $ —

(1) We recorded impairment charges of $ 2,954 to reduce the carrying value of four properties that are classified as held for sale in our condensed consolidated balance sheet to their estimated fair value, less costs to sell of $ 786 , based upon a negotiated sale price with a third party buyer (a Level 2 input as defined in the fair value hierarchy under GAAP).

See Note 4 for more information.

In addition to the assets described in the table above, our financial instruments include our cash and cash equivalents, restricted cash, rents 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, 2020 and December 31, 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, 2020 As of December 31, 2019

Financial Instrument Carrying Value (1)

Fair Value Carrying Value (1)

Senior unsecured notes, 3.60 % interest rate, due in 2020 (2)

$ — $ — $ 399,934 $ 400,048

Senior unsecured notes, 4.00 % interest rate, due in 2022

298,348 304,746 297,657 306,096

Senior unsecured notes, 4.15 % interest rate, due in 2022

298,589 303,359 297,795 307,221

Senior unsecured notes, 4.25 % interest rate, due in 2024

341,729 352,331 340,018 364,602

Senior unsecured notes, 4.50 % interest rate, due in 2025 (3)

635,114 659,029 381,055 419,578

Senior unsecured notes, 5.785 % interest rate, due in 2046

301,178 310,124 300,920 322,028

Senior unsecured notes, 6.375 % interest rate, due in 2050 (4)

156,239 165,758 — —

Mortgage notes payable (5)

Includes unamortized debt premiums, discounts and issuance costs totaling $ 44,870 and $ 45,756 as of June 30, 2020 and December 31, 2019, respectively.

170,244 174,567 323,074 331,675

Total $ 2,201,441 $ 2,269,914 $ 2,340,453 $ 2,451,248

(1) Includes unamortized debt premiums, discounts and issuance costs totaling $ 42,034 and $ 45,756 as of September 30, 2020 and December 31, 2019, respectively.

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

These senior unsecured notes were issued in June 2020.

(3) An additional $ 250,000 of these senior unsecured notes were issued in September 2020.

(4) $ 150,000 of these senior unsecured notes were issued in June 2020.

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

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Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.

Shareholders’ Equity

On May 27, 2020, in accordance with our Trustee compensation arrangements, we awarded to each of our eight Trustees 3,500 of our common shares, valued at $ 26.61 per share, the closing price of our common shares on Nasdaq on that day.

Share Purchases

During the three and six months ended June 30, 2020 , we purchased an aggregate of 1,129 and 2,141 of our common shares, respectively, valued at weighted average share prices of $ 26.27 and $ 26.52 per share, respectively, from one of our Trustees and certain former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

OFFICE PROPERTIES INCOME TRUST

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(dollars in thousands, except per share data)

Shareholders’ Equity

On September 17, 2020, we awarded under our equity compensation plan an aggregate of 108,600 of our common shares, valued at $ 23.04 per share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of RMR LLC.

Share Purchases

During the three and nine months ended September 30, 2020, we purchased an aggregate of 17,448 and 19,589 of our common shares, respectively, valued at weighted average share prices of $ 21.61 and $ 22.15 per share, respectively, from one of our Trustees, our officers and certain other current and former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

Distributions

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

Declaration Date

Distributions Per Common Share

Total Distributions

January 16, 2020

January 27, 2020

February 20, 2020

April 2, 2020

April 13, 2020

On July 16, 2020 , we declared a regular quarterly distribution to common shareholders of record on July 27, 2020 of $ 0.55 per share, or approximately $ 26,500 .

We expect to pay this distribution on or about August 20, 2020 .

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

Declaration Date Record Date Paid Date Distributions Per Common Share Total Distributions

January 16, 2020 January 27, 2020 February 20, 2020 $ 0.55 $ 26,511

April 2, 2020 April 13, 2020 May 21, 2020 0.55 26,510

July 16, 2020 July 27, 2020 August 20, 2020 0.55 26,525

$ 1.65 $ 79,546

On October 15, 2020, we declared a regular quarterly distribution to common shareholders of record on October 26, 2020 of $ 0.55 per share, or approximately $ 26,600 .

We expect to pay this distribution on or about November 19, 2020.

Business and Property Management Agreements with RMR LLC

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and (2) a property management agreement, which relates to our property level operations.

Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $ 4,302 and $ 5,322 for the three months ended June 30, 2020 and 2019 , respectively, and $ 9,001 and $ 11,044 for the six months ended June 30, 2020 and 2019 , respectively.

Based on our common share total return, as defined in our business management agreement, as of June 30, 2020 and 2019, no estimated incentive fees are included in the net business management fees we recognized for the three or six months ended June 30, 2020 or 2019 .

Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $ 4,236 and $ 5,159 for the three months ended September 30, 2020 and 2019, respectively, and $ 13,237 and $ 16,203 for the nine months ended September 30, 2020 and 2019, respectively.

Based on our common share total return, as defined in our business management agreement, as of September 30, 2020 and 2019, no estimated incentive fees are included in the net business management fees we recognized for the three or nine months ended September 30, 2020 or 2019.

The actual amount of annual incentive fees for 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, 2020, and will be payable in 2021.

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We include business management fees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of $ 5,128 and $ 5,534 for the three months ended June 30, 2020 and 2019 , respectively, and $ 10,192 and $ 10,983 for the six months ended June 30, 2020 and 2019 , respectively.

Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of $ 5,189 and $ 5,622 for the three months ended September 30, 2020 and 2019, respectively, and $ 15,381 and $ 16,605 for the nine months ended September 30, 2020 and 2019, respectively.

These amounts are included in other operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf.

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 centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit function and as otherwise agreed.

We are generally not responsible for payment of RMR LLC’s employment, office or administrative

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

expenses incurred to provide management services to us, except for the applicable 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 centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit function and as otherwise agreed.

Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC.

We reimbursed RMR LLC $ 6,259 and $ 6,533 for these expenses and costs for the three months ended June 30, 2020 and 2019 , respectively, and $ 12,250 and $ 13,157 for these expenses and costs for the six months ended June 30, 2020 and 2019 , respectively.

We reimbursed RMR LLC $ 6,437 and $ 6,850 for these expenses and costs for the three months ended September 30, 2020 and 2019, respectively, and $ 18,687 and $ 20,007 for these expenses and costs for the nine months ended September 30, 2020 and 2019, 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).

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and an officer and employee of RMR LLC.

David Blackman,

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

our other Managing Trustee and our President and Chief Executive Officer, also serves as an executive officer of RMR LLC, and each of our other officers is also an officer and employee of RMR LLC.

David Blackman, our other Managing Trustee and our President and Chief Executive Officer, also serves as an officer of RMR LLC.

Blackman has announced his decision to retire and, therefore, resign as our President and Chief Executive Officer, effective December 31, 2020, and as our Managing Trustee, effective as of June 30, 2021 or such earlier date as his successor Managing Trustee is elected to our Board.

In replacement of Mr.

Blackman, Christopher J.

Bilotto has been appointed as our President and Chief Operating Officer, effective January 1, 2021.

Bilotto currently serves as our Vice President and Chief Operating Officer, and he is an officer and employee of RMR LLC.

In addition, each of our other officers is also an officer and employee of RMR LLC.

Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services.

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Blackman and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies.

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 2020 and our repurchases of common shares from one of our Trustees, our 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).

Our Manager, RMR LLC.

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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 $ 274 and $ 287 for the three months ended June 30, 2020 and 2019 , respectively, and $ 554 and $ 566 for the six months ended June 30, 2020 and 2019 , respectively.

Pursuant to our lease agreements with RMR LLC, we recognized rental income from RMR LLC for leased office space of $ 282 and $ 288 for the three months ended September 30, 2020 and 2019, respectively, and $ 836 and $ 854 for the nine months ended September 30, 2020 and 2019, respectively.

Affiliates Insurance Company, or AIC .

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we have instead purchased standalone property insurance coverage with unrelated third party insurance providers.

As of June 30, 2020 and December 31, 2019, our investment in AIC had a carrying value of $ 11 and $ 298 , respectively.

As of September 30, 2020 and December 31, 2019, our investment in AIC had a carrying value of $ 11 and $ 298 , respectively.

These amounts are included in other assets, net in our condensed consolidated balance sheets.

In June 2020, we received an additional liquidating distribution of approximately $ 287 from AIC in connection with its dissolution.

We did no t recognize any income related to our investment in AIC for the three or six months ended June 30, 2020 , respectively, and we recognized income of $ 130 and $ 534 for the three and six months ended June 30, 2019 , respectively.

These amounts are included in equity in net losses of investees in our condensed consolidated statements of comprehensive income (loss).

Our other comprehensive 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.

We did no t recognize any income related to our investment in AIC for the three or nine months ended September 30, 2020, respectively, and we recognized income of $ 83 and $ 617 for the three and nine months ended September 30, 2019, respectively.

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

amounts are included in equity in net losses of investees in our condensed consolidated statements of comprehensive income (loss).

Our other comprehensive loss for the 2019 period includes our proportionate part of unrealized gains (losses) on fixed income securities, which were owned by AIC, related to our investment in AIC.

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements