What changed in this filing

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Item 1. Business

2021-02-19 compared with 2020-02-20 · 165 added, 122 removed, 662 unchanged (30% of the section changed)

We are a real estate investment trust, or REIT, formed in 2009 under Maryland law.

As of December 31, 2019 , our wholly owned properties were comprised of 189 properties with approximately 25.7 million rentable square feet (all square footage amounts included within this Annual Report on Form 10-K are unaudited) and we had a noncontrolling ownership interest in three properties through two unconsolidated joint ventures in which we own 51% and 50% interests.

As of December 31, 2020, our wholly owned properties were comprised of 181 properties containing approximately 24.9 million rentable square feet (all square footage amounts included within this Annual Report on Form 10-K are unaudited) and we had noncontrolling ownership interests in three properties through two unconsolidated joint ventures in which we own 51% and 50% interests.

As of December 31, 2020, our properties have an undepreciated carrying value of approximately $3.5 billion and a depreciated carrying value of approximately $3.1 billion, excluding properties classified as held for sale.

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Our principal executive offices are located at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and our telephone number is (617) 219-1440.

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.

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.

To varying degrees, states and municipalities across the United States have generally allowed most businesses to re-open and have generally eased restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time, although some states and municipalities have recently re-imposed certain restrictions in response to increases in COVID-19 infections.

Economic data have indicated that the U.S.

economy has improved since the lowest periods experienced in March and April 2020, although the U.S.

gross domestic product remains below pre-pandemic levels.

It is unclear whether the increases in the number of COVID-19 infections will continue or amplify, or whether the vaccines and other therapeutic treatments for COVID-19 that currently are or may become available will be successful in slowing or ending the pandemic.

If the COVID-19 pandemic continues and vaccines and other therapeutic treatments do not become widely available or are not effective, we expect that there will continue to be adverse effects on human health and safety, the economy and 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 February 16, 2021, we have granted temporary rent assistance totaling $2.5 million to 19 tenants who represent approximately 3.3% of our annualized rental income as of December 31, 2020.

This assistance generally entails a deferral of, in most cases, one month of rent pursuant to deferred payment plans which require the deferred rent amounts be payable over a 12-month period, certain of which commenced in 2020.

As of February 16, 2021, we have collected $2.0 million, or 78.5%, of our granted rent deferrals.

We continue 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 and 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;

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

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

As of February 18, 2021, we had:

• $750.0 million of availability under our revolving credit facility;

• no significant debt maturities until 2022;

• 64.8% of our annualized rental income, as of December 31, 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 The RMR Group LLC, or 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 protocols and procedures at our properties based on recommended guidelines from the U.S.

Centers for Disease Control and Prevention and other regulatory agencies for the purpose of mitigating the potential for spreading of COVID-19 infections.

All RMR LLC property management and engineering personnel have been trained on COVID-19 precaution procedures and RMR LLC’s property management teams have also established business continuity plans to ensure operational stability at our properties.

Included among the protocols and procedures implemented by RMR LLC are the following:

• sanitizing high touch points in common areas and restrooms;

• shutting down certain building amenities;

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

• 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 vendors’ employees and requiring vendors’ staff to wear appropriate personal protective equipment when working at our properties;

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

Additionally, as our properties experience lower tenant utilization rates, RMR LLC has worked to reduce and optimize our operating costs at our properties by:

• deferring non-emergency work;

• implementing energy reduction protocols for lighting and HVAC systems;

• reducing non-essential building services and staff;

• reducing the frequency of trash removal.

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 maintaining 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;

• the responses of governments, businesses and the general public to any increased level or rates of COVID-19 infections.

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 more information and risks relating to the COVID-19 pandemic on us and our business, see Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K.

Merger with Select Income REIT

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As a result of the SIR Merger, we acquired SIR’s property portfolio of 99 properties with approximately 16.5 million rentable square feet.

The aggregate transaction value, based on the closing price of our common shares on December 31, 2018 of $6.87 per share (prior to the Reverse Share Split, as defined below), was approximately $2.4 billion, excluding closing costs of approximately $27.5 million ($14.5 million of which was paid by us and $13.0 million of which was paid by SIR) and including the repayment or assumption of approximately $1.7 billion of SIR debt.

In connection with the SIR Merger, SIR shareholders received 1.04 of our newly issued common shares for each common share of SIR, with cash paid in lieu of fractional shares.

As a condition of the SIR Merger, on October 9, 2018, we sold all of the 24,918,421 common shares of SIR we then owned, or the Secondary Sale.

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

The SIR Merger and the other transactions in connection with the SIR Merger, including the Secondary Sale and the ILPT Distribution, are collectively referred to herein as the SIR Transactions.

Following completion of the SIR Transactions, on December 31, 2018, we effected a reverse share split of our common shares, or the Reverse Share Split, pursuant to which every four of our common shares issued and outstanding as of the effective time of the Reverse Share Split were converted and reclassified into one of our common shares.

For more information regarding the SIR Transactions, see Notes 1, 3, 5, 10 and 11 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Acquisition of First Potomac Realty Trust

On October 2, 2017, we completed our acquisition of First Potomac Realty Trust, or FPO, as a result of which we acquired 72 properties with approximately 6.0 million rentable square feet, and three properties with approximately 0.4 million rentable square feet owned by joint ventures in which we acquired FPO’s 51% and 50% interests, or collectively, the FPO Transaction.

The aggregate value we paid for FPO was approximately $1.4 billion, including approximately $651.7 million in cash to FPO shareholders, the repayment of approximately $483.0 million of FPO debt and the assumption of approximately $167.5 million of FPO mortgage debt;

this amount excludes our share of the $82.0 million of mortgage debt that encumbers the three joint venture properties and the payment of certain transaction fees and expenses, net of FPO cash on hand.

See Note 3 to the Notes to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K for more information regarding the FPO Transaction and our related financing activities.

The aggregate transaction value was approximately $2.4 billion, excluding closing costs of approximately $27.5 million ($14.5 million of which was paid by us and $13.0 million of which was paid by SIR) and including the repayment or assumption of approximately $1.7 billion of SIR debt.

For more information regarding the SIR Merger, see Notes 1, 3, 6, 11 and 12 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Our Business Strategy

Our business plan is to focus on owning, operating and leasing properties primarily leased to single tenants and those with high credit quality characteristics like government entities.

Our business plan is to focus on owning, operating and leasing properties primarily leased to single tenants and those with high credit quality characteristics such as government entities.

We seek to maintain our properties, extend or enter new leases as leases approach expiration as well as enter new leases for our vacant space and selectively acquire additional properties.

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We expect to selectively sell properties from time to time when we determine our continued ownership or ongoing required capital expenditures will not achieve desired returns or when we believe we can successfully pursue more desirable opportunities than retaining those properties.

We also expect to use sales proceeds to acquire new properties that we believe will help us reduce the average age of our properties, increase our weighted average lease term, reduce our ongoing capital requirements and/or increase our distributions to shareholders.

We also expect to use sales proceeds to acquire new properties that we believe

will help us reduce the average age of our properties, lengthen our weighted average lease term, reduce our ongoing capital requirements and/or increase our distributions to shareholders.

We refer to this as our capital recycling program.

Our Growth Strategy

Our internal growth strategy is to attempt to increase the rents we receive from our current properties.

To achieve rent increases we may invest in our properties to make improvements requested by existing tenants or to induce lease renewals or new tenant leases when our current leases expire or vacant space is leased.

However, as noted above, our ability to maintain or increase the rents we receive from our current properties will depend in large part upon market conditions which are beyond our control.

Our internal growth strategy is to attempt to increase the rents we receive from our current properties and to increase occupancy by leasing vacant space.

To achieve rent or occupancy increases we may invest in our properties through repositionings, development or improvements requested by existing tenants or to induce lease renewals or new tenant leases when our current leases expire or vacant space is leased.

However, as noted above, our ability to increase occupancy or to maintain or increase the rents we receive from our current properties will depend in large part upon market conditions, many of which are beyond our control.

Our external growth strategy is defined by our investment policies, including our capital recycling program, and our acquisition, disposition and financing policies.

Our Investment Policies

Our investment objectives include acquiring properties that produce yields that are greater than the yields of properties we are disposing in connection with our capital recycling program, as well as acquiring properties with yields that are greater than our cost of capital, with a goal of (1) improving the asset quality of our portfolio by reducing the average age of our properties, lengthening the weighted average term of our leases and increasing the likelihood of retaining our tenants and (2) increasing our distributions to shareholders.

Our primary investment objectives include acquiring properties that produce yields that are greater than the yields of properties we are disposing in connection with our capital recycling program, as well as acquiring properties with yields that are greater than our cost of capital, with a goal of (1) improving the asset quality of our portfolio by reducing the average age of our properties, lengthening the weighted average term of our leases and increasing the likelihood of retaining our tenants, and (2) increasing our distributions to shareholders.

To achieve these objectives, we seek to:

(1) invest in institutional quality properties with high credit quality tenants;

(2) use asset sales proceeds to fund additional investments and to maintain leverage consistent with our current investment grade ratings;

(3) when market conditions permit, refinance debt with long term debt or additional equity;

and (4) pursue diversification so that our cash flow from operations comes from diverse properties and tenants.

(a) invest in institutional quality properties with high credit quality tenants;

(b) use proceeds from our capital recycling program to fund additional investments and to maintain leverage consistent with our current investment grade ratings;

and (d) pursue diversification so that our cash flow from operations comes from diverse properties and tenants.

Acquisition Policies .

We currently intend to focus our investments in U.S.

office properties primarily in markets we believe have strong economic fundamentals to support growth, including (1) properties leased to single tenants that are strategic to the tenants and which may include built-to-suit properties, corporate headquarters and properties where tenants have invested meaningful capital, with a minimum remaining lease term of at least seven years and (2) properties leased to government tenants, including single and multi-tenant properties, with a focus on agencies that have high security needs or a mission strategic to the properties’ location.

We currently intend to focus our investments primarily in U.S.

office properties in markets we believe have strong economic fundamentals to support growth, including (1) properties leased to single tenants that are strategic to the tenants and which may include built-to-suit properties, specialty uses, corporate headquarters and properties where tenants have invested meaningful capital, with a minimum remaining lease term of at least seven years and (2) properties leased to government tenants, including single and multi-tenant properties, with a focus on agencies that have high security needs or a mission strategic to the properties’ location.

We also expect to seek investments primarily in first generation properties where we believe there is a reasonably high likelihood of renewing the tenants in place and where we expect ongoing capital needs to be relatively modest when compared to older properties.

We expect to use the extensive nationwide resources of our manager, The RMR Group LLC, or RMR LLC, to locate and manage the acquisition of such properties.

We expect to use the extensive nationwide resources of our manager, RMR LLC, to locate and manage the acquisition of such properties.

We expect most of our future acquisitions will be office properties;

however, we may consider acquiring other types of properties, including properties which have a mix of retail or housing uses.

however, we may consider acquiring other types of properties, including properties with specialty uses and properties which have a mix of retail or housing uses, or acquiring properties with the purpose of redeveloping them in conjunction with properties we own.

We also expect to further diversify our sources of rents, which we expect would improve the security of our revenues.

In implementing our acquisition strategy, we consider a range of factors relating to proposed property purchases including:

the return on the properties being sold to finance any acquisition compared to the projected returns we may realize by owning the property we would acquire;

• the return on the properties being sold to finance any acquisition or redevelopment compared to the projected returns we may realize by owning the property we would acquire or redevelop;

• our cost of capital compared to the projected returns we may realize by owning the property;

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• the strategic fit of the property with the rest of our properties and how it may strategically improve key attributes of our portfolio;

the ongoing capital requirements for the property;

• the ongoing and expected capital requirements for the property;

• the market location of the property and our assessment of rent growth for that market;

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• the historic and projected rents received and likely to be received from the property;

the historic and expected operating expenses, including real estate taxes, incurred and expected to be incurred at the property;

• the historic and expected operating expenses, incurred and expected to be incurred at the property;

• the remaining term of the lease(s) at the property and other lease terms;

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• the construction quality, physical condition, age and design of the property;

expected capital expenditures that may be needed at the property;

• the use and size of the property;

the price at which the property may be acquired;

• the price at which the property may be acquired or redeveloped;

• the estimated replacement cost of the property;

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• the future expected space utilization of the tenant(s) and the potential impact that may have on occupancy at the property;

whether the property’s tenant(s) is current on its lease obligation(s);

our evaluation of the property’s tenant(s) ability to pay its contractual rents;

• whether the property’s tenant(s) is (are) current on its (their) lease obligation(s);

• our evaluation of the property’s tenant(s) ability to pay its (their) contractual rents;

• the tax implications to us and our shareholders of any proposed dispositions;

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• the existence of alternative sources, uses or needs for capital, including our debt leverage.

During the year ended December 31, 2019 , we sold 58 properties with 6.2 million rentable square feet for an aggregate sales price of approximately $848.9 million, excluding closing costs.

Since January 1, 2020 , we have sold an additional three properties with 0.2 million rentable square feet for an aggregate sales price of approximately $21.1 million, excluding closing costs.

As of February 19, 2020, we have entered into agreements to sell three properties with 0.6 million rentable square feet for approximately $64.3 million, excluding closing costs.

In addition, we are currently marketing for sale four properties containing approximately 0.2 million rentable square feet.

We cannot be sure we will sell any properties we are marketing for prices in excess of their carrying values.

With our current disposition program substantially complete, we expect to pursue accretively growing our property portfolio in 2020 through our capital recycling program.

Pursuant to our capital recycling program, we plan to sell certain properties from time to time to fund future acquisitions and to maintain leverage consistent with our current investment grade ratings with a goal of (1) improving the asset quality of our portfolio by reducing the average age of our properties, lengthening the weighted average term of our leases and increasing the likelihood of retaining our tenants and (2) increasing our distributions to shareholders.

Our Board of Trustees may change our disposition policies without a vote of, or notice to, our shareholders.

Our Financing Policies

To qualify for taxation as a REIT under the United States Internal Revenue Code of 1986, as amended, or the IRC, we must distribute at least 90% of our annual REIT taxable income (excluding net capital gains).

Accordingly, we generally will not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties and fund acquisitions and

development or redevelopment efforts.

We expect to use proceeds from our capital recycling program to fund acquisitions and to maintain leverage consistent with our current investment grade ratings.

We also expect to repay our debts, invest in our properties and fund acquisitions and development or redevelopment efforts with borrowings under our revolving credit facility (as defined below), proceeds from debt or equity securities we may issue or retained cash from operations that may exceed our distributions paid.

Accordingly, we generally will not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties and fund acquisitions and development and redevelopment efforts.

We expect to use proceeds from our capital recycling program to fund acquisitions and development and redevelopment efforts and to maintain leverage consistent with our current investment grade ratings.

We also expect to repay our debts, invest in our properties and fund acquisitions and development and redevelopment efforts with borrowings under our revolving credit facility (as defined below), proceeds from debt or equity securities we may issue or retained cash from operations that may exceed our distributions paid.

To the extent we obtain additional debt financing, we may do so on an unsecured or a secured basis.

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We may also finance acquisitions by assuming debt or through the issuance of equity or other securities.

The proceeds from any of our financings may be used to pay distributions, to provide working capital, to refinance existing indebtedness or to finance acquisitions and expansions of existing or new properties.

The proceeds from any of our financings may be used to pay distributions, to provide working capital, to refinance existing indebtedness or to finance acquisitions, developments or redevelopments of existing or new properties.

Although there are no limitations in our organizational documents on the type or amount of indebtedness we may incur, the borrowing limitations established by the covenants in the credit agreement governing our revolving credit facility, or our credit agreement, and our senior unsecured notes indentures and their supplements currently restrict our ability to incur indebtedness and require us to comply with certain financial and other covenants.

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In the future, we may decide to seek changes in the financial covenants which currently restrict our debt leverage based upon then current economic conditions, the relative availability and costs of debt versus equity capital and our need for capital to take advantage of acquisition opportunities or otherwise.

We currently have a $750.0 million unsecured revolving credit facility, or our revolving credit facility, that we use for working capital and general business purposes, including to fund acquisitions on an interim basis until we may refinance with equity or term debt.

We currently have a $750.0 million unsecured revolving credit facility, or our revolving credit facility, that we use for working capital and general business purposes, including to fund acquisitions and development or redevelopment efforts on an interim basis until we may refinance with equity or term debt.

In some instances, we may assume outstanding mortgage debt in connection with our acquisitions or place new mortgages on properties we own.

For more information regarding our financing sources and activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investment and Financing Liquidity and Resources” included in Part II, Item 7 of this Annual Report on Form 10-K.

Generally, we intend to manage our leverage in a way that may allow us to maintain “investment grade” ratings from nationally recognized statistical rating organizations.

As a result of the FPO Transaction and the SIR Merger, our leverage increased through our assumption and issuance of additional debt.

During 2019, we successfully reduced our leverage by disposing of properties, completing the Secondary Sale and selling all of the approximately 2.8 million shares of class A common stock of RMR Inc.

that we previously owned.

Generally, we intend to manage our leverage in a way that may allow us to maintain “investment grade” ratings from nationally recognized rating organizations.

However, we cannot be sure that we will be able to maintain our investment grade ratings in the future.

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Services which would otherwise be provided to us by employees are provided by RMR LLC and by our Managing Trustees and officers.

As of December 31, 2019, RMR LLC had approximately 600 full time employees in its headquarters and regional offices located throughout the United States.

is a holding company and substantially all of its business is conducted by its majority owned subsidiary, RMR LLC.

Our Chair of our Board of Trustees and one of our Managing Trustees, Adam D.

Portnoy, as the sole trustee of ABP Trust, is the controlling shareholder of RMR Inc.

and is a managing director and the president and chief executive officer of RMR Inc.

As of December 31, 2020, RMR LLC had over 600 full time employees in its headquarters and regional offices located throughout the United States.

The RMR Group Inc., or RMR Inc., is a holding company and substantially all of its business is conducted by its majority owned subsidiary, RMR LLC.

The Chair of our Board of Trustees and one of our Managing Trustees, Adam D.

Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc.

and an officer and employee of RMR LLC.

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

David Blackman resigned as our President and Chief Executive Officer, effective December 31, 2020.

Blackman will continue as our Managing Trustee until 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 was appointed as our President and Chief Operating Officer, effective January 1, 2021.

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

Our day to day operations are conducted by RMR LLC.

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RMR LLC has a principal place of business at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and its telephone number is (617) 796-8390.

RMR LLC or its subsidiaries also acts as the manager to Service Properties Trust (formerly known as Hospitality Properties Trust), or SVC, ILPT, Diversified Healthcare Trust (formerly known as Senior Housing Properties Trust), or DHC, and Tremont Mortgage Trust, or TRMT, and provides management and other services to other private and public companies, including Five Star Senior Living Inc., or Five Star, TravelCenters of America Inc., or TA, and Sonesta International Hotels Corporation, or Sonesta.

RMR LLC or its subsidiaries also act as the manager to Diversified Healthcare Trust, or DHC, Industrial Logistics Properties Trust, or ILPT, RMR Mortgage Trust (formerly known as RMR Real Estate Income Fund), or RMRM, Service Properties Trust, or SVC, and Tremont Mortgage Trust, or TRMT, and provides management and other services to other private and public companies, including Five Star Senior Living Inc., or Five Star, TravelCenters of America Inc., or TA, and Sonesta International Hotels Corporation, or Sonesta.

As of the date of this Annual Report on Form 10-K, the executive officers of RMR LLC are:

Portnoy, President and Chief Executive Officer;

Blackman, Executive Vice President;

Clark, Executive Vice President, General Counsel and Secretary;

Francis, Executive Vice President, Matthew P.

Jordan, Executive Vice President, Chief Financial Officer and Treasurer;

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Pertchik, Executive Vice President.

Our President and Chief Operating Officer, Christopher J.

Bilotto is a Senior Vice President of RMR LLC.

Our Chief Financial Officer and Treasurer, Matthew C.

Brown, is a Senior Vice President of RMR LLC.

Our Vice President, Christopher J.

Bilotto, is a Vice President of RMR LLC.

Blackman, Brown and Bilotto and other officers of RMR LLC also serve as officers of other companies to which RMR LLC or its subsidiaries provide management services.

Environmental Matters.

Ownership of real estate is subject to risks associated with environmental matters.

When we acquire properties we perform environmental site assessments and where there are concerns we do additional monitoring and periodic assessments.

We require our tenants to maintain compliance with environmental laws and we also monitor any known conditions.

Although we do not believe that there are environmental conditions at any of our properties that will materially and adversely affect us, we cannot be sure that such conditions or costs we may be required to incur in the future to address environmental contamination will not materially and adversely affect us.

Brown, is also a Senior Vice President of RMR LLC.

Other officers of RMR LLC also serve as officers of other companies to which RMR LLC or its subsidiaries provide management services.

Sustainability.

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For example, lab uses, medical office properties and properties less than 50% occupied cannot be ENERGY STAR certified.

For the year ended December 31, 2019 , 40 of our properties with an aggregate of 5.8 million rentable square feet (21.7% and 23.2% of our eligible properties and eligible rentable square feet, respectively) were ENERGY STAR certified.

As of February 16, 2021, we have submitted 46 of our properties containing an aggregate of 6.5 million rentable square feet (31.9% and 34.4% of our eligible properties and eligible rentable square feet, respectively) for consideration for ENERGY STAR certification.

Of the 46 properties submitted for consideration, 31 have been awarded and none have been denied.

Government’s “green lease” policies also permit government tenants to require Leadership in Energy and Environmental Design, or LEED ® , designation in selecting new premises or renewing leases at existing premises.

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We believe our effort to obtain additional ENERGY STAR labels and/or LEED ® designations and manage our properties in a sustainable manner benefits our business while also bettering the environment.

We are also monitoring the U.S.

presidential administration policies and practices for potential changes to “green lease” policies.

For more information, see “Risk Factors—Risks Related to Our Business—The U.S.

Government’s “green lease” policies may adversely affect us” included in Part I, Item 1A of this Annual Report on Form 10-K.

Additionally, in July 2020, RMR LLC released its first annual Sustainability Report, which summarizes the environmental, social and governance initiatives RMR LLC and its client companies, including OPI, employ.

RMR LLC’s Sustainability

Report may be accessed on RMR Inc.’s website at www.rmrgroup.com/corporate-sustainability/default.aspx.

The information on or accessible through RMR Inc.’s website is not incorporated by reference into this Annual Report on Form 10-K.

Environmental Matters.

Ownership of real estate is subject to risks associated with environmental matters.

When we acquire properties we perform environmental site assessments and where there are concerns we do additional monitoring and periodic assessments.

We require our tenants to maintain compliance with environmental laws and we also monitor any known conditions.

Investing in and operating real estate properties is a highly competitive business.

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Some of our competitors may have greater financial and other resources, or lower costs of capital than us.

Also, we compete for investments based on a number of factors including purchase prices, closing terms, underwriting criteria and our reputation.

Also, we compete for investments based on a number of factors, including purchase prices, closing terms, underwriting criteria and our and RMR LLC’s reputations.

Our ability to successfully compete is also materially impacted by the availability and cost of capital to us.

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For additional information about competition and other risks associated with our business, see “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K.

We generally have insurance coverage for our properties and the operations conducted on them, including for casualty, liability, fire and extended coverage.

We previously participated with other companies to which RMR LLC or its subsidiaries provide management services in a combined property insurance program through Affiliates Insurance Company, or AIC.

The policies under that program expired on June 30, 2019 and we and the other companies to which RMR LLC provides services elected not to renew the AIC property insurance program;

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

We have leases with government entities, including the U.S.

government, state governments and other government tenants as well as non-government tenants.

Some of our leases allow government and non-government tenants to vacate the leased premises before the stated expirations of their leases with little or no liability, or with penalty, by exercising early termination rights.

For additional information about tenants’ rights to terminate leases early, see “Risk Factors—Risks Related to Our Business—Some tenants have the right to terminate their leases prior to their lease expiration date and changes in our tenants’ requirements for leased space may adversely affect us.” included in Part I, Item 1A and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Property Operations” included in Part II, Item 7 of this Annual Report on Form 10-K.

Other Matters.

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The information on or accessible through our website is not incorporated by reference into this Annual Report on Form 10-K or other documents we file with, or furnish to, the SEC.

We intend to use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD.

We intend to use our website as a means

of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD.

Those disclosures will be included on our website in the “Investors” section.

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For all these reasons, we urge you and any holder of or prospective acquiror of our shares to consult with a tax advisor about the federal income tax and other tax consequences of the acquisition, ownership and disposition of our shares.

Our intentions and beliefs described in this summary are based upon our understanding of applicable laws and regulations that are in effect as of the date of this Annual Report on Form 10-K.

Our intentions and beliefs described in this summary are based upon our understanding of applicable laws and regulations that

are in effect as of the date of this Annual Report on Form 10-K.

If new laws or regulations are enacted which impact us directly or indirectly, we may change our intentions or beliefs.

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As a REIT, we generally are not subject to federal income tax on our net income distributed as dividends to our shareholders.

Distributions to our shareholders generally are included in our shareholders’ income as dividends to the extent of

our available current or accumulated earnings and profits.

Distributions to our shareholders generally are included in our shareholders’ income as dividends to the extent of our available current or accumulated earnings and profits.

Our dividends are not generally entitled to the preferential tax rates on qualified dividend income, but a portion of our dividends may be treated as capital gain dividends or as qualified dividend income, all as explained below.

In addition, for taxable years beginning before 2026 and pursuant to the deduction-without-outlay mechanism of Section 199A of the IRC, our noncorporate U.S.

shareholders are generally eligible for lower effective tax rates on our dividends that are not treated as capital gain dividends or as qualified dividend income.

shareholders that meet specified holding period requirements are generally eligible for lower effective tax rates on our dividends that are not treated as capital gain dividends or as qualified dividend income.

No portion of any of our dividends is eligible for the dividends received deduction for corporate shareholders.

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Our counsel’s opinions are conditioned upon the assumption that our leases, our declaration of trust, and all other legal documents to which we have been or are a party have been and will be complied with by all parties to those documents, upon the accuracy and completeness of the factual matters described in this Annual Report on Form 10-K and upon representations made by us to our counsel as to certain factual matters relating to our organization and operations and our expected manner of operation.

If this assumption or a description or representation is inaccurate or incomplete, our counsel’s opinions may be adversely affected and may not be relied upon.

If this assumption or a description or representation is inaccurate or incomplete, our counsel’s opinions may be adversely affected

and may not be relied upon.

The opinions of our counsel are based upon the law as it exists today, but the law may change in the future, possibly with retroactive effect.

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• If we acquire a REIT asset where our adjusted tax basis in the asset is determined by reference to the adjusted tax basis of the asset in the hands of a C corporation, under specified circumstances we may be subject to federal income taxation on all or part of the built-in gain (calculated as of the date the property ceased being owned by the C corporation) on such asset.

We generally do not expect to sell assets if doing so would result in the imposition of a material built-in gains tax liability;

We generally do not expect to sell assets if doing so would result in the imposition of a

material built-in gains tax liability;

but if and when we do sell assets that may have associated built-in gains tax exposure, then we expect to make appropriate provision for the associated tax liabilities on our financial statements.

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• Our subsidiaries that are C corporations, including our “taxable REIT subsidiaries”, as defined in Section 856(l) of the IRC, or TRSs, generally will be required to pay federal corporate income tax on their earnings, and a 100% tax may be imposed on any transaction between us and one of our TRSs that does not reflect arm’s length terms.

If it is determined that SIR or FPO failed to satisfy one or more of the REIT tests described below before their respective mergers into us, the IRS might allow us, as successor to SIR or FPO, the same opportunity for relief as though we were the remediating REIT.

In such case, SIR or FPO, as applicable, would be deemed to have retained its qualification for taxation as a REIT and the relevant penalties or sanctions for remediation would fall upon us in a manner comparable to the above.

• As discussed below, we have acquired entities by merger that formerly qualified for taxation as REITs.

If it is determined that one of these entities failed to satisfy one or more of the REIT tests described below before their respective mergers into us, the IRS might allow us, as such entity’s successor, the same opportunity for relief as though we were the remediating REIT.

In such case, such entity would be deemed to have retained its qualification for taxation as a REIT and the relevant penalties or sanctions for remediation would fall upon us in a manner comparable to the above.

If we fail to qualify for taxation as a REIT in any year, then we will be subject to federal income tax in the same manner as a regular C corporation.

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corporate income tax, as described above, and (b) the REIT parent’s ownership in the subsidiary (i) ceasing to be qualifying real estate assets for purposes of the 75% asset test, (ii) becoming subject to the 5% asset test, the 10% vote test and the 10% value test generally applicable to a REIT’s ownership in corporations other than REITs and TRSs, and (iii) thereby jeopardizing the REIT parent’s own REIT qualification and taxation on account of the subsidiary’s failure cascading up to the REIT parent, all as described below under the heading “—Asset Tests”.

We have made and expect to make protective TRS elections with respect to our subsidiary REITs and may implement other protective arrangements intended to avoid a cascading REIT failure if any of our intended subsidiary REITs were not to qualify for taxation as a REIT, but we cannot be sure that such protective elections and other arrangements will be effective to avoid or mitigate the resulting adverse consequences to us.

We have made and expect to make protective TRS elections with respect to our subsidiary REITs and may implement other protective arrangements intended to

avoid a cascading REIT failure if any of our intended subsidiary REITs were not to qualify for taxation as a REIT, but we cannot be sure that such protective elections and other arrangements will be effective to avoid or mitigate the resulting adverse consequences to us.

Taxable REIT Subsidiaries.

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Very generally, a TRS is a subsidiary corporation other than a REIT in which a REIT directly or indirectly holds stock and that has made a joint election with its affiliated REIT to be treated as a TRS.

A TRS is taxed as a regular C corporation, separate and apart from its affiliated REIT.

Our ownership of stock and other securities in our TRSs is exempt from the 5% asset test, the 10% vote test and the 10% value test discussed below.

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Therefore, our TRSs may generally conduct activities that would be treated as prohibited transactions or would give rise to nonqualified income if conducted by us directly.

As regular C corporations, TRSs may generally utilize net operating losses and other tax attribute carryforwards to reduce or otherwise eliminate federal income tax liability in a given taxable year.

Net operating losses and other carryforwards are subject to limitations, however, including limitations imposed under Section 382 of the IRC following an “ownership change” (as defined in applicable Treasury regulations) and a limitation providing that carryforwards of net operating losses arising in taxable years beginning after 2017 generally cannot offset more than 80% of the current year’s taxable income.

Moreover, net operating losses arising in taxable years beginning after 2017 may not be carried back, but may be carried forward indefinitely.

As a result, we cannot be sure that our TRSs will be able to utilize, in full or in part, any net operating losses or other carryforwards that they may generate in the future.

Restrictions and sanctions are imposed on TRSs and their affiliated REITs to ensure that the TRSs will be subject to an appropriate level of federal income taxation.

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Further, if in comparison to an arm’s length transaction, a third-party tenant has overpaid rent to the REIT in exchange for underpaying the TRS for services rendered, and if the REIT has not adequately compensated the TRS for services provided to or on behalf of the third-party tenant, then the REIT may be subject to an excise tax equal to 100% of the undercompensation to the TRS.

A safe harbor exception to this excise tax applies if the TRS has been compensated at a rate at least equal to 150% of its direct cost in

furnishing or rendering the service.

A safe harbor exception to this excise tax applies if the TRS has been compensated at a rate at least equal to 150% of its direct cost in furnishing or rendering the service.

Finally, the 100% excise tax also applies to the underpricing of services provided by a TRS to its affiliated REIT in contexts where the services are unrelated to services for REIT tenants.

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In addition, a de minimis amount of noncustomary services provided to tenants will not disqualify income as “rents from real property” as long as the value of the impermissible tenant services does not exceed 1% of the gross income from the property.

If rent attributable to personal property leased in connection with a lease of real property is 15% or less of the total rent received under the lease, then the rent attributable to personal property will qualify as “rents from real property”;

if this 15% threshold is exceeded, then the rent attributable to personal property will not so qualify.

• If rent attributable to personal property leased in connection with a lease of real property is 15% or less of the total rent received under the lease, then the rent attributable to personal property will qualify as “rents from real property;” if this 15% threshold is exceeded, then the rent attributable to personal property will not so qualify.

The portion of rental income treated as attributable to personal property is determined according to the ratio of the fair market value of the personal property to the total fair market value of the real and personal property that is rented.

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The above REIT asset tests must be satisfied at the close of each calendar quarter of each taxable year as a REIT.

After a REIT meets the asset tests at the close of any quarter, it will not lose its qualification for taxation as a REIT in any subsequent

quarter solely because of fluctuations in the values of its assets.

After a REIT meets the asset tests at the close of any quarter, it will not lose its qualification for taxation as a REIT in any subsequent quarter solely because of fluctuations in the values of its assets.

This grandfathering rule may be of limited benefit to a REIT such as us that makes periodic acquisitions of both qualifying and nonqualifying REIT assets.

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Any deduction in excess of the limitation is carried forward and may be used in a subsequent year, subject to that year’s 30% limitation.

Provided a taxpayer makes an election (which is irrevocable), the 30% limitation does not apply to a trade or business involving real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage, within the meaning of Section 469(c)(7)(C) of the IRC.

Legislative history and proposed Treasury regulations indicate that a real property trade or business includes a trade or business conducted by a corporation or a REIT.

The Coronavirus Aid, Relief, and Economic Security Act changed the limitation on adjusted taxable income, increasing it from 30% to 50%, but only for 2019 and 2020.

Moreover, taxpayers can elect to use their adjusted taxable income from their 2019 tax year for their adjusted taxable income in their 2020 tax year for purposes of calculating the limitation.

Provided a taxpayer makes an election (which is irrevocable), the applicable limitation on the deductibility of net interest expense does not apply to a trade or business involving real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage, within the meaning of Section 469(c)(7)(C) of the IRC.

Treasury regulations provide that a real property trade or business includes a trade or business conducted by a REIT.

We have made an election to be treated as a real property trade or business and accordingly do not expect the foregoing interest deduction limitations to apply to us or to the calculation of our “real estate investment trust taxable income.”

Distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our federal income tax return for the earlier taxable year and if paid on or before the first regular distribution payment after that declaration.

If a dividend is declared in October, November or December to shareholders of record during

one of those months and is paid during the following January, then for federal income tax purposes such dividend will be treated as having been both paid and received on December 31 of the prior taxable year to the extent of any undistributed earnings and profits.

If a dividend is declared in October, November or December to shareholders of record during one of those months and is paid during the following January, then for federal income tax purposes such dividend will be treated as having been both paid and received on December 31 of the prior taxable year to the extent of any undistributed earnings and profits.

The 90% distribution requirements may be waived by the IRS if a REIT establishes that it failed to meet them by reason of distributions previously made to meet the requirements of the 4% excise tax discussed below.

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We will be treated as having sufficient earnings and profits to treat as a dividend any distribution by us up to the amount required to be distributed in order to avoid imposition of the 4% excise tax.

If we do not have enough cash or other liquid assets to meet the 90% distribution requirements, or if we so choose, we may find it necessary or desirable to arrange for new debt or equity financing to provide funds for required distributions in order to maintain our qualification for taxation as a REIT.

If we do not have enough cash or other liquid assets to meet our distribution requirements, or if we so choose, we may find it necessary or desirable to arrange for new debt or equity financing to provide funds for required distributions in order to maintain our qualification for taxation as a REIT.

We cannot be sure that financing would be available for these purposes on favorable terms, or at all.

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These deficiency dividends may be included in our deduction for dividends paid for the earlier year, but an interest charge would be imposed upon us for the delay in distribution.

While the payment of a deficiency dividend will apply to a prior year for purposes of our REIT distribution requirements and our dividends paid deduction, it will be treated as an additional distribution to the shareholders receiving it in the year such dividend is paid.

While the payment of a deficiency dividend will

apply to a prior year for purposes of our REIT distribution requirements and our dividends paid deduction, it will be treated as an additional distribution to the shareholders receiving it in the year such dividend is paid.

In addition to the other distribution requirements above, to preserve our qualification for taxation as a REIT we are required to timely distribute all C corporation earnings and profits that we inherit from acquired corporations, as described below.

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Following a corporate acquisition, we must generally distribute all of the C corporation earnings and profits inherited in that transaction, if any, no later than the end of our taxable year in which the transaction occurs, in order to preserve our qualification for taxation as a REIT.

However, if we fail to do so, relief provisions would allow us to maintain our

qualification for taxation as a REIT provided we distribute any subsequently discovered C corporation earnings and profits and pay an interest charge in respect of the period of delayed distribution.

However, if we fail to do so, relief provisions would allow us to maintain our qualification for taxation as a REIT provided we distribute any subsequently discovered C corporation earnings and profits and pay an interest charge in respect of the period of delayed distribution.

C corporation earnings and profits that we inherit are, in general, specially allocated under a priority rule to the earliest possible distributions following the event causing the inheritance, and only then is the balance of our earnings and profits for the taxable year allocated among our distributions to the extent not already treated as a distribution of C corporation earnings and profits under the priority rule.

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On December 31, 2018, we acquired SIR in a transaction that was intended to qualify as a “reorganization” within the meaning of Section 368(a) of the IRC, and our counsel, Sullivan & Worcester LLP, so opined.

In 2017, we acquired FPO in a transaction that was intended to be treated as an asset sale for federal income tax purposes.

We believe that each of SIR and FPO qualified for taxation as a REIT for the period prior to the date we acquired it.

As a result of these acquisitions, we are generally liable for unpaid taxes, including penalties and interest (if any), of SIR and FPO.

If either SIR or FPO is deemed to have lost its qualification for taxation as a REIT prior to the date of our acquisition and no relief is available, we would face the following tax consequences:

as a successor, we would generally inherit any corporate income tax liabilities of the acquired entity, including penalties and interest;

we would be subject to tax on the built-in gain on each asset of the acquired entity existing at the time we acquired it if we were to dispose of such an asset during the five-year period following the date that we acquired the entity;

we could be required to pay a special distribution and/or employ applicable deficiency dividend procedures (including interest payments to the IRS) to eliminate any earnings and profits accumulated by the acquired entity for taxable periods that it did not qualify for taxation as a REIT.

We believe that SIR qualified for taxation as a REIT for the period prior to the date we acquired it.

As a result of this acquisition, we are generally liable for unpaid taxes, including penalties and interest (if any), of SIR.

If SIR is deemed to have lost its qualification for taxation as a REIT prior to the date of our acquisition and no relief is available, we would face the following tax consequences:

• as a successor, we would generally inherit any corporate income tax liabilities of SIR, including penalties and interest;

• we would be subject to tax on the built-in gain on each asset of SIR existing at the time we acquired it if we were to dispose of such an asset during the five-year period following the date that we acquired SIR;

• we could be required to pay a special distribution and/or employ applicable deficiency dividend procedures (including interest payments to the IRS) to eliminate any earnings and profits accumulated by SIR for taxable periods that it did not qualify for taxation as a REIT.

Finally, if there is an adjustment to SIR’s real estate investment trust taxable income or dividends paid deductions, we could elect to use the deficiency dividend procedure described above to preserve our predecessor SIR’s qualification for taxation as a REIT.

It is unclear whether this deficiency dividend procedure would be available to remediate an issue arising from FPO.

If and to the extent the remedial provisions are available to us to address SIR or FPO’s REIT qualification and taxation for the applicable periods prior to or including our acquisitions of these entities, we may incur significant cash outlays in connection with such remediation, possibly including (a) required distribution payments to shareholders and associated interest payments to the IRS and (b) tax and interest payments to the IRS and state and local tax authorities.

If and to the extent the remedial provisions are available to us to address SIR’s REIT qualification and taxation for the applicable periods prior to or including our acquisition of it, we may incur significant cash outlays in connection with such remediation, possibly including (a) required distribution payments to shareholders and associated interest payments to the IRS and (b) tax and interest payments to the IRS and state and local tax authorities.

Depreciation and Federal Income Tax Treatment of Leases

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These depreciation schedules, and our initial tax bases, may vary for properties that we acquire through tax-free or carryover basis acquisitions (for example, the properties we acquired from SIR), or that are the subject of cost segregation analyses.

We are entitled to depreciation deductions from our facilities only if we are treated for federal income tax purposes as the owner of the facilities.

This means that the leases of our facilities must be classified for U.S.

We are entitled to depreciation deductions from our properties only if we are treated for federal income tax purposes as the owner of the properties.

This means that the leases of our properties must be classified for U.S.

federal income tax purposes as true leases, rather than as sales or financing arrangements, and we believe this to be the case.

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Section 302 of the IRC treats a redemption of our shares for cash only as a distribution under Section 301 of the IRC, and hence taxable as a dividend to the extent of our available current or accumulated earnings and profits, unless the redemption satisfies one of the tests set forth in Section 302(b) of the IRC enabling the redemption to be treated as a sale or exchange of the shares.

shareholder’s entire share interest in us, or (c) is “not essentially equivalent to a dividend” with respect to the surrendering shareholder, all within the meaning of Section 302(b) of the IRC.

The redemption for cash only will be treated as a sale or exchange if it (a) is “substantially disproportionate” with respect to the surrendering shareholder’s ownership in us, (b) results in a “complete termination” of the surrendering shareholder’s entire share interest in us, or (c) is “not essentially equivalent to a dividend” with respect to the surrendering shareholder, all within the meaning of Section 302(b) of the IRC.

In determining whether any of these tests have been met, a shareholder must generally take into account shares considered to be owned by such shareholder by reason of constructive ownership rules set forth in the IRC, as well as shares actually owned by such shareholder.

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As a result, our ordinary dividends generally are taxed at the higher federal income tax rates applicable to ordinary income (subject to the lower effective tax rates applicable to qualified REIT dividends via the deduction-without-outlay mechanism of Section 199A of the IRC, which is generally available to our noncorporate U.S.

shareholders for taxable years before 2026).

shareholders that meet specified holding period requirements for taxable years before 2026).

To summarize, the preferential federal income tax rates for long-term capital gains and for qualified dividends generally apply to:

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As long as we qualify for taxation as a REIT, a distribution to our U.S.

shareholders that we do not designate as a capital gain dividend generally will be treated as an ordinary income dividend to the extent of our available current or accumulated earnings and profits (subject to the lower effective tax rates applicable to qualified REIT dividends via the deduction-without-outlay mechanism of Section 199A of the IRC, which is available to our noncorporate U.S.

shareholders for taxable years before 2026).

shareholders that meet specified holding period requirements for taxable years before 2026).

Distributions made out of our current or accumulated earnings and profits that we properly designate as capital gain dividends generally will be taxed as long-term capital gains, as discussed below, to the extent they do not exceed our actual net capital gain for the taxable year.

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The rules governing the federal income taxation of tax-exempt entities are complex, and the following discussion is intended only as a summary of material considerations of an investment in our shares relevant to such investors.

tax-exempt shareholder, we urge you to consult your own tax advisor to determine the impact of federal, state, local and foreign tax laws, including any tax return filing and other reporting requirements, with respect to your acquisition of or investment in our shares.

If you are a tax-exempt shareholder, we urge you to consult your own tax advisor to determine the impact of federal, state, local and foreign tax laws, including any tax return filing and other reporting requirements, with respect to your acquisition of or investment in our shares.

Our distributions made to shareholders that are tax-exempt pension plans, individual retirement accounts or other qualifying tax-exempt entities should not constitute UBTI, provided that the shareholder has not financed its acquisition of our shares with “acquisition indebtedness” within the meaning of the IRC, that the shares are not otherwise used in an unrelated trade or business of the tax-exempt entity, and that, consistent with our present intent, we do not hold a residual interest in a real estate mortgage investment conduit or otherwise hold mortgage assets or conduct mortgage securitization activities that generate “excess inclusion” income.

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In particular, a payee that is a foreign financial institution that is subject to the diligence and reporting requirements described above must enter into an agreement with the U.S.

Department of the Treasury requiring, among other things, that it undertake to identify accounts held by “specified United States persons” or “United States owned foreign entities” (each as defined in the IRC and administrative guidance thereunder), annually report information about such accounts, and withhold 30% on applicable payments to noncompliant foreign financial institutions and account holders.

Department of the Treasury requiring, among other things, that it undertake to identify accounts held

by “specified United States persons” or “United States owned foreign entities” (each as defined in the IRC and administrative guidance thereunder), annually report information about such accounts, and withhold 30% on applicable payments to noncompliant foreign financial institutions and account holders.

Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States with respect to these requirements may be subject to different rules.

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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-K

Item 1. Business