What changed in this filing

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Item 1A. Risk Factors

2021-02-19 compared with 2020-02-20 · 219 added, 189 removed, 328 unchanged (55% of the section changed)

Summary of Risk Factors

Our business is subject to a number of risks and uncertainties.

Investors and prospective investors should carefully consider the risks described below, together with all of the other information in this Annual Report on Form 10-K.

The summary below provides an overview of many of the risks we face that are described in this section.

Additional risks, beyond those summarized below or discussed in this section, may also materially and adversely impact our business, operations or financial results.

Consistent with the foregoing, the risks we face include, but are not limited to, the following:

• the COVID-19 pandemic and its resulting economic impact may materially adversely affect our and our tenants’ businesses, operations, financial results and liquidity;

• the COVID-19 pandemic has had, and may continue to have, significant impacts on workplace practices and those changes, together with current office space utilization trends, could impact our business;

• we may be unable to renew our leases with current tenants when our leases expire or lease our properties to new tenants without decreasing rents, incurring significant costs, providing certain concessions or otherwise;

• our tenants may be unable to satisfy their lease obligations to us, which could materially and adversely affect us;

• some of our properties depend upon a private sector single tenant for all or a majority of their rental income, and, therefore, we may be adversely affected by the bankruptcy or insolvency, the downturn in the business or a lease termination of a single private sector tenant;

• government budgetary pressures and priorities and trends in government employment and office leasing may adversely impact our business;

• we currently have a concentration of properties in the metropolitan Washington, D.C.

market area and are exposed to changes in market conditions in this area;

• our capital recycling program may not be successful, we may be unable to grow our business by acquisitions of additional properties and we face significant competition for acquisition opportunities and tenants;

• REIT distribution requirements and any limitations on our ability to access reasonably priced capital may adversely impact our ability to carry out our business plan and we are subject to risks associated with our qualification for taxation as a REIT;

• some tenants have the right to terminate their leases prior to their lease expiration date and changes in our tenants’ demands and requirements for leased space may adversely affect us;

• we have debt and may incur additional debt, and we are subject to the covenants and conditions contained in the agreements governing our debt, which may restrict our operations and ability to make investments and distributions;

• changes in market interest rates, including changes that may result from the expected phase out of LIBOR, may adversely affect us;

• ownership of real estate is subject to environmental risks and liabilities as well as risks from adverse weather, natural disasters and climate events;

• insurance may not adequately cover our losses, and insurance costs may continue to increase;

• we depend upon RMR LLC to manage our business and implement our growth strategy and RMR LLC has broad discretion in operating our day to day business;

• we rely on RMR LLC’s information technology and systems and the failure of the security or functioning of such technology or systems could materially and adversely affect us;

• our management structure and agreements with RMR LLC and our relationships with our related parties, including our Managing Trustees, RMR LLC and others affiliated with them, may create conflicts of interest;

• ownership limitations and certain provisions in our declaration of trust, bylaws and agreements as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals;

• our rights and the rights of our shareholders to take action against our Trustees and officers are limited, and our declaration of trust and bylaws contain provisions that could limit our shareholders’ ability to obtain a judicial forum they deem favorable for certain disputes;

• we may change our operational, financing and investment policies without shareholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations and/or result in downgrades in our credit ratings, and any such downgrades may increase our cost of capital;

• our distributions to our shareholders may be reduced or eliminated and the form of payment could change;

• our public debt is structurally subordinated to the indebtedness and other liabilities of our subsidiaries and is effectively subordinated to our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness.

The risks described below may not be the only risks we face but are risks we believe may be material at this time.

Additional risks that we do not yet know of, or that we currently think are immaterial, also may impair our business operations or financial results.

If any of the events or circumstances described below occurs, our business, financial condition, results of operations or ability to make distributions to our shareholders, and the value of our securities could be adversely affected.

Investors and prospective investors should consider the following risks, the information contained under the heading “Warning Concerning Forward Looking Statements” and the risks described elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities.

Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results.

If any of the events or circumstances described below occurs, our business, financial condition, results of operations or ability to make distributions to our shareholders could be adversely affected and the value of an investment in our securities could decline.

Investors and prospective investors should consider the risks described below and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities.

Risks Related to Our Business

We may be unable to lease our properties when our leases expire.

The COVID-19 pandemic and its resulting economic impact may materially adversely affect our business, operations, financial results and liquidity.

The strain of coronavirus that causes the viral disease known as COVID-19 has been declared a pandemic by the World Health Organization, and the U.S.

Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak.

The COVID-19 pandemic has had a substantial adverse impact on the global economy, including the U.S.

Economic downturns and recessions in the United States have historically negatively impacted the commercial office real estate market, including by causing increased tenant defaults, decreased occupancies and reduced rental rates.

Although, to date, we have not been materially adversely affected by the pandemic and the current economic conditions, we may experience those effects if the pandemic and current economic conditions continue or worsen for a substantial period or the demand for leasing office space at our properties declines as a result.

The ultimate impact may have similar negative impacts on our business and the extent of any negative consequences will depend to a large extent on the duration and depth of the pandemic and economic conditions in the United States.

Additionally, we conduct leasing activities at our properties.

Reductions in the ability and willingness of prospective tenants to visit our properties due to the COVID-19 outbreak, or the extent to which federal, state and municipal orders limit our manager’s employees visiting our properties, could have an impact on our leasing activity which could reduce rental income and tenant reimbursements and other income produced by our properties.

We experienced a slowdown in our leasing

activity in 2020 due to the COVID-19 pandemic and expect this slowdown may continue until market conditions improve for a sustained period.

Concerns relating to such an outbreak could also cause on-site personnel not to report for work at our properties, which could adversely affect the management of our properties.

It is unclear whether the availability and distribution of vaccines will curtail infection rates and, if so, what the impact of that would be on human health and safety, the economy or our business.

We cannot predict the extent and duration of the COVID-19 pandemic or the severity and duration of its economic impact.

Potential consequences of the current unprecedented measures taken in response to the spread of the virus that causes COVID-19, and current market disruptions and volatility affecting us include, but are not limited to:

• increased risk of default or bankruptcy of our tenants;

• our tenants exercising rights to terminate our leases;

• possible significant declines in the value of our properties;

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

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

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

• declines in the market price of our common shares;

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

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

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

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

Further, the extent and strength of any economic recovery after the COVID-19 pandemic ends or otherwise, are uncertain and subject to various factors and conditions.

Our business, operations and financial position may continue to be negatively impacted after the COVID-19 pandemic ends and may remain at depressed levels compared to prior to the outbreak of the COVID-19 pandemic and those conditions may continue for an extended period.

The COVID-19 pandemic has had, and may continue to have, significant impacts on workplace practices and those changes, or other office space utilization trends, could impact our business.

Temporary closures of businesses and stay in place orders and the resulting remote working arrangements for non-essential personnel in response to the COVID-19 pandemic may result in long-term changed work practices that could negatively impact us and our business.

For example, the increased adoption of and familiarity with remote work practices, and the recent increase in tenants seeking to sublease their leased space, could result in decreased demand for office space.

Further, prior to the onset of the COVID-19 pandemic, there was a general trend in office real estate for tenants to decrease the space they occupy per employee.

If either or both of those trends were to continue or accelerate, our tenants may elect to not renew their leases, or to renew them for less space than they currently occupy, which could increase the vacancy and decrease rental income at our properties.

The need to reconfigure leased office space, either in response to the COVID-19 pandemic, to new tenants’ needs, to modify utilization or for other reasons, may impact space requirements and also may require us to spend increased amounts for tenant improvements.

If substantial reconfiguration of the tenant’s space is required, the tenant may find it more advantageous to relocate than to renew its lease and renovate the existing space.

If so, our business, operating results, financial condition and prospects may be materially adversely impacted.

We may be unable to renew our leases with current tenants or lease our properties to new tenants when our leases expire.

The weighted average remaining term of our leases in effect as of December 31, 2020 is 5.1 years based upon annualized rental income and 5.0 years based upon occupied square footage.

As of December 31, 2019, leases representing approximately 38.3% of our annualized rental income and 36.2% of our occupied square footage will expire by December 31, 2023.

Our leases with government tenants typically have shorter terms than our leases with nongovernment tenants, although the terms of

our leases with government contractor tenants tend to be for terms consistent with the tenants’ with government contracts, which are generally three to five years.

As of December 31, 2020, leases representing approximately 12.1% of our annualized rental income and 16.1% of our occupied square footage will expire by December 31, 2021 and leases representing approximately 34.8% of our annualized rental income and 35.3% of our occupied square footage will expire by December 31, 2023.

Our leases with government tenants typically have shorter terms than our leases with nongovernment tenants, although the terms of our leases with government contractor tenants tend to be for terms consistent with the tenants’ with government contracts, which are generally three to five years.

These shorter terms require more frequent lease renewal or releasing.

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If our tenants do not renew their leases, we may be unable to obtain new tenants to maintain or increase the historical occupancy rates of, or rents from, our properties.

We may experience declining rents or incur significant costs to renew our leases or to lease our properties to new tenants.

We may experience declining rents or incur significant costs to renew our leases with current tenants or lease our properties to new tenants.

When we renew our leases with current tenants or lease to new tenants, we may experience rent decreases, and we may have to spend substantial amounts for leasing commissions, tenant improvements or other tenant inducements.

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Market conditions may require us to lower our rents to retain government or other tenants.

Some of our current rents include payments to amortize the cost of tenant improvements which government or other tenants may be unwilling to pay or contractually allowed to eliminate when leases are renewed.

Current office space utilization trends may adversely impact our business.

There is a general trend in office real estate for tenants to decrease the space they occupy per employee.

This increase in office utilization rates may result in our office tenants renewing their leases for less area than they currently occupy, which could increase the vacancy and decrease rental income at our properties.

The need to reconfigure leased office space to increase utilization also may require us to spend increased amounts for tenant improvements.

If substantial reconfiguration of the tenant’s space is required to achieve the increase in space utilized, the tenant may find it more advantageous to relocate than to renew its lease and renovate the existing space.

Some of our properties depend upon a single tenant for all or a majority of their rental income;

therefore, our financial condition, including our ability to make distributions to shareholders, may be adversely affected by the bankruptcy or insolvency, a downturn in the business, or a lease termination of a single tenant.

As of December 31, 2019, 46.9% of our annualized rental revenue is from our properties leased to private sector single tenants.

For instance, the COVID-19 pandemic and its resulting economic impact may cause the office leasing market to become more favorable to tenants, and we may be required to decrease the rents we charge or provide other tenant concessions.

In addition, some of our current rents include payments to amortize the cost of tenant improvements which government or other tenants may be unwilling to pay or contractually allowed to eliminate when leases are renewed.

Some of our properties depend upon a private sector single tenant for all or a majority of their rental income;

As of December 31, 2020, 47.2% of our annualized rental revenue was from our properties leased to private sector single tenants.

The value of our private sector single tenant properties is materially dependent on the performance of those tenants under their respective leases.

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Government budgetary pressures and priorities and trends in government employment and office leasing may adversely impact our business.

We believe that current government budgetary pressures, enhancements in technology and policy and administrative decisions have resulted in a decrease in government employment, in government tenants reducing their space utilization per employee and in consolidation of government tenants into existing government owned properties, thereby reducing the demand for government leased space.

We believe that recent government budgetary and spending priorities and enhancements in technology have resulted in a decrease in government office use for employees.

Furthermore, over the past several years, government tenants have reduced their space utilization per employee and consolidated government tenants into existing government owned properties.

This activity has reduced the demand for government leased space.

Our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants frequently renew leases to avoid the costs and disruptions that may result from relocating their operations.

However, efforts to reduce space utilization rates may result in our tenants exercising early termination rights under our leases, vacating our properties upon expiration of our leases in order to relocate, or in renewing their leases for less space than they currently occupy.

Also, our government tenants’ desire to reconfigure leased office space to reduce utilization per employee may require us to spend significant amounts for tenant improvements, and tenant relocations in such circumstances are more prevalent now than in our past experience.

Increasing uncertainty with respect to government agency budgets and funding to implement relocations, consolidations and reconfigurations have resulted in delayed decisions by some of our government tenants and their reliance on short term lease renewals;

however, recent activity suggests that the government has begun to shift its leasing strategy to include longer term leases and is actively exploring 10 to 20 year lease terms at renewal, in some instances.

Although we believe the recent focus and efforts to reduce government tenant space utilization and to consolidate government tenants into government owned real estate is substantially complete, these activities may continue to impact us for some time and could again increase in the future.

At present, we are unable to reasonably project

what the financial impact of market conditions or changing government financial and other circumstances will be on our financial results for future periods.

However, efforts to manage space utilization rates may result in our tenants exercising early termination rights under our leases, vacating our properties upon expiration of our leases in order to relocate, or renewing their leases for less space than they currently occupy.

Also, our government tenants’ desire to reconfigure leased office space to manage utilization per employee may require us to spend significant amounts for tenant improvements, and tenant relocations are often more prevalent in those circumstances.

Increasing uncertainty with respect to government agency budgets and funding to implement relocations, consolidations and reconfigurations has resulted in delayed decisions by some of our government tenants and their reliance on short term lease renewals;

however, recent activity prior to the outbreak of the COVID-19 pandemic suggested that the U.S.

government had begun to shift its leasing strategy to include longer term leases and was actively exploring 10 to 20 year lease terms at renewal, in some instances.

It is also possible that as a result of the COVID-19 pandemic, government tenants may seek to manage space utilization rates in order to provide greater

physical distancing for employees, which may require us to spend significant amounts for tenant improvements, mostly with lease renewals.

However, the COVID-19 pandemic and its aftermath have had negative impacts on government budgets and resources and it is unclear what the effect of these impacts will be on government demand for leasing office space.

In addition, the new presidential administration may result in a change in the federal government’s policy priorities, which may impact leasing at our government leased properties.

Given the significant uncertainties, including as to the COVID-19 pandemic, its economic impact and its aftermath and the new presidential administration, we are unable to reasonably project what the financial impact of market conditions or changing government circumstances will be on our financial results for future periods.

We currently have a concentration of properties in the metropolitan Washington, D.C.

market area and are exposed to changes in market conditions in this area.

As of December 31, 2019, approximately 24.1% of our annualized rental income is from our consolidated properties located in the metropolitan Washington, D.C.

As of December 31, 2020, we derived approximately 23.5% of our annualized rental income from our consolidated properties located in the metropolitan Washington, D.C.

In addition, the three properties owned by two joint ventures in which we own 51% and 50% interests are also located in the metropolitan Washington, D.C.

A downturn in economic conditions in this area could result in reduced demand from tenants for our properties or lower rents that our tenants in this area are willing to pay when our leases expire or terminate and when renewal or new terms are negotiated.

A downturn in economic conditions in this area, including as a result of the COVID-19 pandemic, could result in reduced demand from tenants for our properties, reduced rents that our tenants in this area are willing to pay when our leases expire and increased lease concessions for new leases and renewals.

Additionally, in recent years there has been a decrease in demand for new leased space by the U.S.

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market area, and that could increase competition for government tenants and adversely affect our ability to retain government tenants when our leases expire.

We may also be subject to changes in the regulatory environment of the metropolitan Washington, D.C.

market area (such as increases in real estate and other taxes, costs of complying with government regulations or increased regulation and other factors) or other adverse conditions or events (such as natural disasters).

Thus, adverse developments and/or conditions in the metropolitan Washington, D.C.

market area could reduce demand for space, impact the credit worthiness of our tenants or force our tenants to curtail operations, which could impair their ability to meet their rent obligations to us and, accordingly, could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our shareholders.

Our plans to recycle our capital by strategically and opportunistically selling properties from time to time and 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 may not be successful.

An element of our business plan involves strategically and opportunistically selling properties from time to time as part of our capital recycling program to improve our property portfolio, increase our returns and operating results, and enable us to increase our distributions to shareholders.

Our ability to sell our properties we identify for sale, and the prices we receive upon a sale, may be affected by many factors, and we may be unable to execute our strategy.

In particular, these factors could arise from weakness in or the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers and the availability of financing to potential purchasers on reasonable terms, the number of prospective purchasers, the number of competing properties on the market, unfavorable local, national or international economic conditions, industry trends, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located.

Our capital recycling program may not be successful.

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

However, our ability to sell our properties we identify for sale, and the prices we receive upon a sale, may be affected by many factors, and we may be unable to execute our strategy.

In particular, these factors could arise from weakness in or the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers and the availability of financing to potential purchasers on reasonable terms, the number of prospective purchasers, the number of competing properties on the market, unfavorable local, national or international economic conditions, including as a result of the COVID-19 pandemic, industry trends, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located.

We may not succeed in selling properties that we identify for sale, the terms of any such sales may not meet our expectations and we may incur losses in connection with those sales.

Further, we may not succeed in identifying and acquiring properties that improve our property portfolio, increase our returns and operating results, and enable us to increase our distributions to shareholders.

As a result, our plans to strategically and opportunistically sell properties from time to time and to reinvest the proceeds from those sales in acquiring additional properties that improve our property portfolio, increase our returns and operating results, and enable us to increase our distributions to shareholders may not be successful.

Further, we may not succeed in identifying and acquiring properties that improve the asset quality of our portfolio and enable us to increase our cash available for distribution or maintain leverage consistent with our current investment grade ratings.

As a result, our capital recycling program may not be successful.

We may be unable to grow our business by acquisitions of additional properties, and we might encounter unanticipated difficulties and expenditures relating to our acquired properties.

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• we do not believe that it is possible to understand fully a property before it is owned and operated for a reasonable period of time, and, notwithstanding pre-acquisition due diligence, we could acquire a property that contains undisclosed defects in design or construction;

• an acquired property may be located in a new market where we may face risks associated with investing in an unfamiliar market;

• the market in which an acquired property is located may experience unexpected changes that adversely affect the property’s value;

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• we may acquire properties subject to unknown liabilities and without any recourse, or with limited recourse, such as liability for the cleanup of undisclosed environmental contamination or for claims by tenants, vendors or other persons related to actions taken by former owners of the properties;

• acquired properties might require significant management attention that would otherwise be devoted to our other business activities.

For these reasons, among others, we might not realize the anticipated benefits of our acquisitions, and our business plan to acquire additional properties may not succeed or may cause us to experience losses.

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Development activities may increase the supply of properties of the type we own in the leasing markets in which we own properties and increase the competition we face.

Competition may make it difficult for us to attract and retain tenants and may reduce the rents we are able to charge.

For example, government tenants are generally viewed as desirable tenants and are therefore difficult to attract and retain.

Competition may make it difficult for us to attract and retain tenants and may reduce the rents we are able to charge and the values of our properties.

government’s “green lease” policies may adversely affect us.

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Obtaining and maintaining such designation and labels may be costly and time consuming, but our failure to do so may result in our competitive disadvantage in acquiring new or retaining existing government tenants.

Some government tenants have the right to terminate their leases prior to their lease expiration date and changes in the U.S.

Government’s and state governments’ requirements for leased space may adversely affect us.

As of December 31, 2019, 35.5% of our annualized rental income was from government tenants, which includes the U.S.

government, state governments and municipalities.

Some of our leases with government tenants allow the tenants to vacate the leased premises before the stated terms of the leases expire with little or no liability.

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.

Some of our leases allow the tenants to vacate the leased premises before the stated terms of the leases expire with little or no liability.

In particular:

Government tenants occupying approximately 4.0% of our rentable square feet and contributing approximately 3.7% of our annualized rental income as of December 31, 2019 have currently exercisable rights to terminate their leases before the stated term of their leases expire.

In 2020, 2021, 2022, 2023, 2024, 2025, 2026, 2028, 2030 and 2034, early termination rights become exercisable by government tenants who currently occupy an additional approximately 3.0%, 0.7%, 0.8%, 0.9%, 0.3%, 0.2%, 0.4%, 0.4%, 0.1% and 0.1%, of our rentable square feet, respectively, and contribute an additional approximately 3.8%, 0.8%, 0.9%, 1.1%, 0.6%, 0.4%, 0.6%, 0.4%, 0.1% and 0.1% of our annualized rental income, respectively, as of December 31, 2019.

Pursuant to leases with 11 of our government tenants, these tenants have rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets.

These 11 tenants represent approximately 4.4% of our rentable square feet and 4.6% of our annualized rental income as of December 31, 2019.

For fiscal policy reasons, security concerns or other reasons, some or all of our government tenants may decide to exercise early termination rights under our leases or vacate our properties upon expiration of our leases.

Also, the U.S.

Government may continue to seek to reduce their space utilization per employee and consolidate into existing government owned properties.

See “ Risks Related to Our Business —Government budgetary pressures and priorities and trends in government employment and office leasing may adversely impact our business” included in Part I, Item1A of this Annual Report on Form 10-K.

• Tenants occupying approximately 7.4% of our rentable square feet and responsible for approximately 9.2% of our annualized rental income as of December 31, 2020 have currently exercisable rights to terminate their leases before the stated term of their leases expire.

• In 2021, 2022, 2023, 2024, 2025, 2026, 2027, 2028, 2029 and 2035, early termination rights become exercisable by tenants who currently occupy an additional approximately 1.3%, 2.8%, 1.5%, 1.1%, 2.1%, 1.0%, 0.6%, 1.1%, 0.1% and 0.3%, of our rentable square feet, respectively, and contribute an additional approximately 1.6%, 2.9%, 1.7%, 1.7%, 3.5%, 1.3%, 1.1%, 1.3%, 0.2% and 0.4% of our annualized rental income, respectively, as of December 31, 2020.

• As of December 31, 2020, pursuant to leases with 13 of our tenants, these tenants have rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets.

These 13 tenants represented approximately 5.0% of our rentable square feet and 5.9% of our annualized rental income as of December 31, 2020.

For various reasons, some or all of our tenants may decide to exercise early termination rights under our leases or vacate our properties upon expiration of our leases.

Also, our tenants may seek to reduce the space they occupy at our properties in response to the COVID-19 pandemic, to modify their space utilization or for other reasons.

See “—The COVID-19 pandemic has had, and may continue to have, significant impacts on workplace practices and those changes, or other office space utilization trends, could impact our business” and “—Government budgetary pressures and priorities and trends in government employment and office leasing may adversely impact our business” included in Part I, Item 1A of this Annual Report on Form 10-K.

If a significant number of such events occur, our income and cash flow may materially decline and our ability to make or sustain distributions to our shareholders may be jeopardized.

Real estate construction and redevelopment creates risks.

We may develop new properties or redevelop some of our existing properties as the existing leases expire, as our tenants’ needs change or to pursue any other opportunities that we believe are desirable.

The development and redevelopment of new and existing buildings involves significant risks in addition to those involved in the ownership and operation of leased properties, including the risks that construction may not be completed on schedule or within budget, resulting in increased construction costs and delays in leasing such properties and generating cash flows.

Development activities are also subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land use, building, occupancy, and other required government permits and authorizations.

Once completed, any new properties may perform below anticipated financial results.

The occurrence of one or more of these circumstances in connection with our development or redevelopment activities could have an adverse effect on our financial condition, results of operations and the value of our securities.

We have debt and we may incur additional debt.

As of December 31, 2020, our consolidated indebtedness was $2.2 billion.

We had $750.0 million and $ 415.0 million available for borrowing under our $750.0 million revolving credit facility as of December 31, 2019 and February 19, 2020, respectively.

We had no amounts outstanding under our revolving credit facility and $750.0 million available for borrowing as of December 31, 2020 and February 18, 2021.

Our credit agreement includes a feature under which the maximum aggregate borrowing availability may be increased to up to $1.95 billion in certain circumstances.

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Our incurrence of debt may increase our vulnerability to adverse economic, market and industry conditions, limit our flexibility in planning for, or reacting to, changes in our business, and place us at a disadvantage in relation to competitors that have lower debt levels.

Our incurring debt could also increase the costs to us of incurring additional debt, increase our exposure to floating interest rates or expose us to potential events of default (if not cured or waived) under covenants contained in debt instruments that could have a material adverse effect on our business, financial condition and operating results.

Our incurrence of debt could also increase the costs to us of incurring additional debt, increase our exposure to floating interest rates or expose us to potential events of default (if not cured or waived) under covenants contained in debt instruments that could have a material adverse effect on our business, financial condition and operating results.

Excessive debt could reduce the available cash flow to fund, or limit our ability to obtain financing for, working capital, capital expenditures, acquisitions, construction projects, refinancing, lease obligations or other purposes, and hinder our ability to maintain investment grade ratings from nationally recognized credit rating agencies or to make or sustain distributions to our shareholders.

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Our credit agreement and our senior unsecured notes indentures and their supplements include various conditions, covenants and events of default.

We may not be able to satisfy all of these conditions or may default on some of these covenants for various reasons, including for reasons beyond our control.

We may not be able to satisfy all of these conditions or may default on some of these

covenants for various reasons, including for reasons beyond our control.

For example, our credit agreement and our senior unsecured notes indentures and their supplements require us to comply with certain financial and other covenants.

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In the future, we may obtain additional debt financing, and the covenants and conditions which apply to any such additional debt may be more restrictive than the covenants and conditions that are contained in our credit agreement or our senior unsecured notes indentures and their supplements.

Amounts recoverable under our leases with government tenants for increased operating costs may be less than the actual increased costs.

Under some of our leases with government tenants, the tenant’s obligation to pay us adjusted rent for increased operating costs (e.g., the costs of cleaning services, supplies, materials, maintenance, trash removal, landscaping, snow removal, water, sewer charges, heating, electricity and certain administrative expenses) is increased annually based on a cost of living index rather than the actual amount of our costs.

Accordingly, the amount of any rent adjustment may not fully offset any increased costs we may incur in providing these services.

Changes in market interest rates, including changes that may result from the expected phase out of LIBOR, may adversely affect us.

Since the most recent U.S.

recession, the Board of Governors of the U.S.

Interest rates have remained at relatively low levels on a historical basis, and the U.S.

Federal Reserve System, or the U.S.

Federal Reserve, has taken actions which have resulted in low interest rates prevailing in the marketplace for a historically long period of time.

Federal Reserve steadily increased the targeted federal funds rate over the last several years, but recently took action to decrease the federal funds rate and may continue to make adjustments in the near future.

In addition, as noted in Part II, Item 7A of this Annual Report on Form 10-K, LIBOR is expected to be phased out in 2021.

The interest rate under our revolving credit facility is based on LIBOR and the interest we may pay on any future debt that we may incur may also be based on LIBOR.

Federal Reserve, has indicated that it does not expect to raise interest rates in response to the COVID-19 pandemic and current market conditions until at least the end of 2023.

There can be no assurance, however, that the U.S.

Federal Reserve will not raise rates prior to that time.

Low market interest rates, particularly if they remain over a sustained period, may increase our use of debt capital to fund property acquisitions, lower capitalization rates for property purchases and increase competition for property purchases, which may reduce our ability to acquire new properties.

In addition, as noted in Part II, Item 7A of this Annual Report on Form 10-K, LIBOR is currently expected to be phased out for new contracts by December 31, 2021 and for pre-existing contracts by June 30, 2023.

Although the outbreak of the COVID-19 pandemic has impacted, and may continue to impact, this phase out, it is unclear if after June 30, 2023 LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after June 30, 2023.

The interest rate under our revolving credit facility is based on LIBOR and the interest we may pay on any future debt we may incur may also be based on LIBOR.

We currently expect that the determination of interest under our revolving credit facility would be based on the alternative rates provided under our credit agreement or would be revised as provided under our credit agreement or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR.

Despite our current expectations, we cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest under our credit agreement would approximate the current calculation in accordance with LIBOR.

An alternate interest rate index that may replace LIBOR may result in our paying increased interest.

An alternative interest rate index that may replace LIBOR may result in our paying increased interest.

Interest rate increases may materially and negatively affect us in several ways, including:

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Sales of our common shares may cause a decline in the value of our common shares.

Amounts outstanding under our revolving credit facility require interest to be paid at a floating interest rate.

• Amounts outstanding under our revolving credit facility require interest to be paid at floating interest rates.

When interest rates increase, our interest costs will increase, which could adversely affect our cash flows, our ability to pay principal and interest on our debt, our cost of refinancing our fixed rate debts when they become due and our ability to make or sustain distributions to our shareholders.

Additionally, if we choose to hedge our interest rate risk, we cannot be sure that the hedge will be effective or that our hedging counterparty will meet its obligations to us.

• Property values are often determined, in part, based upon a capitalization of rental income formula.

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Increases in interest rates could lower the value of our properties and cause the value of our securities to decline.

Low market interest rates, particularly if they remain over a sustained period, may increase our use of debt capital to fund property acquisitions, lower capitalization rates for property purchases and increased competition for property purchases, which may reduce our ability to acquire new properties.

Ownership of real estate is subject to environmental risks and liabilities.

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

Under various laws, owners as well as tenants and operators of real estate may be required to investigate and clean up or remove hazardous substances present at or migrating from properties they own, lease or operate and may be held liable for property damage or personal injuries that result from hazardous substances.

Under various laws, owners as well as tenants of real estate may be required to investigate and clean up or remove hazardous substances present at or migrating from properties they own, lease or operate and may be held liable for property damage or personal injuries that result from hazardous substances.

These laws also expose us to the possibility that we may become liable to government agencies or third parties for costs and damages they incur in connection with hazardous substances.

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In addition, these laws also impose various requirements regarding the operation and maintenance of properties and recordkeeping and reporting requirements relating to environmental matters that require us or the tenants of our properties to incur costs to comply with.

We may incur substantial liabilities and costs for environmental matters.

We may incur environmental liabilities at our leased properties and our tenants may not indemnify us for those costs.

Our leases with non-government tenants generally require our tenants to operate in compliance with applicable law and to indemnify us against any environmental liabilities arising from their activities on our properties;

however, applicable law may subject us to strict liability by virtue of our property ownership interests, and our tenants may fail to indemnify us for environmental liabilities we incur.

While our leases with non-government tenants generally require our tenants to operate in compliance with applicable law and to indemnify us against any environmental liabilities arising from their activities on our properties, applicable law may make us subject to strict liability by virtue of our ownership interests.

Also, our tenants may have insufficient financial resources to satisfy their indemnification obligations under our leases or they may resist doing so.

government is not required to indemnify us for environmental hazards they create at our properties and therefore could hold us liable for environmental hazards they create at our properties and we could have no recourse to them.

Ownership of real estate is subject to risks from adverse weather and climate events.

We may incur substantial liabilities and costs for environmental matters.

Ownership of real estate is subject to risks from adverse weather, natural disasters and climate events.

Severe weather may have an adverse effect on certain properties we own.

Flooding caused by rising sea levels and severe weather events, including hurricanes, tornadoes and widespread fires, may have an adverse effect on properties we own and result in significant losses to us and interruption of our business.

When major weather or climate-related events, such as hurricanes, floods and wildfires, occur at or near our properties, our tenants may need to suspend operations of the impacted property until the event has ended and the property is then ready for operation.

When major weather, natural disasters or climate-related events, such as hurricanes, floods and wildfires, occur at or near our properties, our tenants may need to suspend operations of the impacted property until the event has ended and the property is then ready for operation.

We or the tenants of our properties may incur significant costs and losses as a result of these activities, both in terms of operating, preparing and repairing our properties in anticipation of, during and after a severe weather or climate-related event and in terms of potential lost business due to the interruption in operating our properties.

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These and other laws may cause energy or other costs at our properties to increase.

Laws enacted to mitigate climate change may make some of our buildings obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants and their ability to pay rent to us and cause the value of our securities to decline.

In addition, concerns about climate change and increasing storm intensities may increase the cost of our insurance for our properties or potentially render it unavailable to obtain.

Real estate ownership creates risks and liabilities.

In addition to the risks discussed above, our business is subject to other risks associated with real estate ownership, including:

the illiquid nature of real estate markets, which limits our ability to sell our assets rapidly to respond to changing market conditions;

the subjectivity of real estate valuations and changes in such valuations over time;

current and future adverse national and local real estate trends, including increasing vacancy rates, declining rental rates and general deterioration of market conditions;

costs that may be incurred relating to property maintenance and repair, and the need to make expenditures due to changes in government regulations;

liabilities and litigations arising from injuries on our properties or otherwise incidental to the ownership of our properties.

RMR LLC relies on information technology and systems in its operations, and any material failure, inadequacy, interruption or security failure of that technology or those systems could materially and adversely affect us.

Laws enacted to mitigate climate change may make some of our properties obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants and their ability to pay rent to us and cause the value of our properties to decline.

In addition, concerns about climate change and increasing storm intensities may increase the cost of insurance for our properties or potentially render it unavailable to obtain.

Bankruptcy law may adversely impact us.

The occurrence of a tenant bankruptcy could reduce the rent we receive from that tenant.

In addition, the continued existence of the COVID-19 pandemic may increase the risk of our tenants filing for bankruptcy.

If a tenant becomes bankrupt, federal law may prohibit us from evicting that tenant based solely upon its bankruptcy.

In addition, a bankrupt tenant may be authorized to reject and terminate its lease with us.

Any claims against a bankrupt tenant for unpaid future rent would be subject to statutory limitations that may be substantially less than the contractually specified rent we are owed under the lease, and any claim we have for unpaid past rent, may not be paid in full.

Real estate construction and redevelopment creates risks.

Once completed, any new properties may perform below anticipated financial results.

RMR LLC relies on information technology and systems in its provision of services to us, and any material failure, inadequacy, interruption or security failure of that technology or those systems could materially and adversely affect us.

RMR LLC relies on information technology and systems, including the Internet and cloud-based infrastructures, commercially available software and its internally developed applications, to process, transmit, store and safeguard information and to manage or support a variety of its business processes (including managing our building systems), including financial transactions and maintenance of records, which may include personal identifying information of employees and tenants and lease data.

If RMR LLC experiences material security or other failures, inadequacies or interruptions of its information technology, it could incur material costs and losses and our operations could be disrupted as a result.

If these systems experience material security or other failures, inadequacies or interruptions of its information technology, we could incur material costs and losses and our operations could be disrupted as a result.

Further, third party vendors could experience similar events with respect to their information technology and systems that impact the products and services they provide to RMR LLC or us.

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Security breaches, computer viruses, attacks by hackers, online fraud schemes and similar breaches can create significant system disruptions, shutdowns, fraudulent transfer of assets or unauthorized disclosure of confidential information.

The cybersecurity risks to RMR LLC, us and third party vendors are heightened by, among other things, the evolving nature of the threats faced, advances in computer capabilities, new discoveries in the field of cryptography and new and increasingly sophisticated methods used to perpetrate illegal or fraudulent activities against RMR LLC, including cyberattacks, email or wire fraud and other attacks exploiting security vulnerabilities in RMR LLC’s or other third parties’ information technology networks and systems or operations.

Any failure to maintain the security, proper function and availability of RMR LLC’s information technology and systems, or certain third party vendors’ failure to similarly protect their information technology and systems that are relevant to RMR LLC’s or our operations, or to safeguard RMR LLC’s or our business processes, assets and information could result in financial losses, interrupt RMR LLC’s operations, damage RMR LLC’s reputation, cause RMR LLC to be in default of material contracts and subject RMR LLC to liability claims or regulatory penalties, any of which could materially and adversely affect our business and the value of our securities.

Bankruptcy law may adversely impact us.

The occurrence of a tenant bankruptcy could reduce the rent we receive from such tenant’s lease.

If a tenant becomes bankrupt, federal law may prohibit us from evicting such tenant based solely upon its bankruptcy.

In addition, a bankrupt tenant may be authorized to reject and terminate its lease with us.

Our use of joint ventures may limit our flexibility with jointly owned investments.

We are party to joint ventures with unrelated third parties that own three properties, and we may in the future acquire, develop or recapitalize properties in joint ventures with other persons or entities.

Our participation in these joint ventures is subject to risks, including the following:

we may share approval rights over major decisions affecting the ownership or operation of the joint venture and any property owned by the joint venture;

we may be required to contribute additional capital if our partners fail to fund their share of any required capital contributions;

our joint venture partners may have economic or other business interests or goals that are inconsistent with our business interests or goals and that could affect our ability to lease or release the property, operate the property or maintain our qualification for taxation as a REIT;

our joint venture partners may be subject to different laws or regulations than us, or may be structured differently than us for tax purposes, which could create conflicts of interest and/or affect our ability to maintain our qualification for taxation as a REIT;

our ability to sell the interest on advantageous terms when we so desire may be limited or restricted under the terms of the applicable joint venture agreements;

disagreements with our joint venture partners could result in litigation or arbitration that could be expensive and distracting to management and could delay important decisions.

Any of the foregoing risks could have a material adverse effect on our business, financial condition and results of operations.

Insurance may not adequately cover our losses, and the cost of obtaining such insurance may continue to increase.

We or our tenants are responsible for the costs of insurance coverage for our properties, including for casualty, liability, fire, extended coverage and rental or business interruption loss insurance.

Recently, we have experienced increases in the cost of providing such insurance, and these increased costs have had an adverse effect on our financial condition and results of operations.

Our cybersecurity risks are heightened by, among other things, the evolving nature of the threats faced, advances in computer capabilities, new discoveries in the field of cryptography and new and increasingly sophisticated methods used to perpetrate illegal or fraudulent activities, including cyberattacks, email or wire fraud and other attacks exploiting security vulnerabilities in RMR LLC’s or other third parties’ information technology networks and systems or operations.

Any failure to maintain the security, proper function and availability of RMR LLC’s information technology and systems, or certain third party vendors’ failure to similarly protect their information technology and systems that are relevant to RMR LLC’s or our operations, or to safeguard RMR LLC’s or our business processes, assets and information could result in financial losses, interrupt our operations, damage our reputation, cause us to be in default of material contracts and subject us to liability claims or regulatory penalties, any of which could materially and adversely affect our business and the value of our securities.

Insurance may not adequately cover our losses, and insurance costs may continue to increase.

We or our tenants are responsible for the costs of insurance, including for casualty, liability, fire, extended coverage and rental or business interruption loss insurance.

In the past few years, we have experienced increases in the costs of providing such insurance, and these increased costs have had an adverse effect on our financial condition and results of operations.

In the future, we may acquire additional properties for which we are responsible for the costs of insurance.

Losses of a catastrophic nature, such as those caused by hurricanes, flooding, volcanic eruptions and earthquakes, among other things, or losses from terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we may not be able to pay.

Losses of a catastrophic nature, such as those caused by hurricanes, flooding, volcanic eruptions and earthquakes, among other things, losses as a result of outbreaks of pandemics, including the COVID-19 pandemic, or losses from terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we or a responsible tenant may not be able to pay.

Insurance proceeds may not be adequate to restore an affected property to its condition prior to a loss or to compensate us for our losses, including the loss of future revenues from an affected property.

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In addition, we do not have any insurance to limit losses that we may incur as a result of known or unknown environmental conditions.

Further, there is no assurance that certain types of risks that are currently insurable will continue to be insurable on an economically feasible basis, and we may discontinue certain insurance coverage on some or all of our properties in the future if we determine that the cost of premiums for any of these policies exceeds the value of the coverage.

If an uninsured loss or a loss in excess of insured limits occurs, we may have to incur uninsured costs to mitigate such losses or lose all or a portion of the capital invested in a property, as well as the anticipated future revenue from the property.

Further, we cannot be sure that certain types of risks that are currently insurable will continue to be insurable on an economically feasible basis, and we may discontinue, or agree to a tenant discontinuing, certain insurance coverage on some or all of our properties in the future if we determine that the cost of premiums for any of these policies exceeds the value of the coverage.

If an uninsured loss or a loss in excess of insured limits occurs and if we are not able to recover amounts from our applicable tenants for those losses, we may have to incur uninsured costs to mitigate such losses or lose all or a portion of the capital invested in a property, as well as the anticipated future revenue from the property.

We might also remain obligated for any financial obligations related to the property, even if the property is irreparably damaged.

In addition, future changes in the insurance industry’s risk assessment approach and pricing structure could further increase the cost of insuring our properties or decrease the scope of insurance coverage, either of which could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our shareholders.

We may incur significant costs complying with the Americans with Disabilities Act and similar laws.

Under the Americans with Disabilities Act and certain similar state statutes, many commercial properties must meet specified requirements related to access and use by disabled persons.

In addition, our properties are subject to various laws and regulations relating to fire, safety and other regulations.

The tenants of our leased properties are generally responsible for compliance with these requirements pursuant to our lease agreements.

In addition, although our tenants may be responsible for complying with these requirements for our properties, we could be held liable as the owner of the properties for our tenants’ failure to comply.

We may be required to make substantial capital expenditures at our properties to comply with these laws.

In addition, non-compliance could result in the imposition of fines or an award of damages and costs to private litigants.

with respect to our leased properties, we may not be able to recoup these amounts from our tenants if they are unable or unwilling to pay.

A prolonged U.S.

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government experiences a prolonged shutdown, these tenants may not pay us rent during the pendency of the shutdown.

Although we expect that these tenants would pay us any outstanding rents after the shutdown ends, our available cash and leverage targets may be adversely impacted during the period we do not receive rents from these tenants.

Although we expect that these tenants would pay us any outstanding rents after the shutdown ends, our available cash and leverage targets may be adversely

impacted during the period we do not receive rents from these tenants.

In addition, the impact of a prolonged government shutdown on government personnel resources could hinder our ability to renew expiring leases or initiate or complete renovation, construction and other capital maintenance of the affected properties.

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If a government shutdown results in our government contractor tenants not paying us rent, the negative impact on us from a government shutdown may be compounded.

Our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or our internal control over financial reporting.

The design and effectiveness of our disclosure controls and procedures and our internal control over financial reporting may not prevent all errors, misstatements or misrepresentations.

While management will continue to review the effectiveness of our disclosure controls and procedures and our internal control over financial reporting, we cannot guarantee that our disclosure controls and procedures and internal control over financial reporting will be effective in accomplishing all control objectives all of the time.

Deficiencies, including any material weaknesses, in our disclosure controls and procedures or internal control over financial reporting could result in misstatements of our results of operations or our financial statements or could otherwise materially and adversely affect our business, reputation, results of operations, financial condition or liquidity.

Risks Related to Our Relationships with RMR Inc.

Risks Related to Our Relationships with RMR LLC

We are dependent upon RMR LLC to manage our business and implement our growth strategy.

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RMR LLC may exercise its discretion in a manner that results in investment returns that are substantially below expectations or that results in losses.

Our management structure and agreements and relationships with RMR LLC and RMR LLC’s and its controlling shareholder's relationships with others may create conflicts of interest, or the appearance of such conflicts, and may restrict our investment activities.

RMR LLC is a subsidiary of RMR Inc.

Our management structure and agreements and relationships with RMR LLC and RMR LLC’s and its controlling shareholder’s relationships with others may create conflicts of interest, or the perception of such conflicts, and may restrict our investment activities.

RMR LLC is a majority-owned subsidiary of RMR Inc.

The Chair of our Board of Trustees and one of our Managing Trustees, Adam Portnoy, as the sole trustee of ABP Trust, is the controlling shareholder of RMR Inc.

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and an officer and employee of RMR LLC.

RMR LLC or its subsidiary also acts as the manager for four other Nasdaq listed REITs:

RMR LLC or its subsidiary also acts as the manager to four other Nasdaq listed REITs:

ILPT, which owns industrial and logistics properties;

primarily owns healthcare, senior living properties and medical office buildings;

SVC, which owns a diverse portfolio of hotels, travel centers and net lease service and necessity-based retail properties;

and TRMT, which primarily originates and invests in first mortgage loans secured by middle market and transitional commercial real estate.

DHC, which primarily owns senior living communities, medical office and life science buildings and other healthcare related properties;

SVC, which owns a diverse portfolio of hotels and net lease service and necessity-based retail properties;

and TRMT, which focuses on originating and investing in first mortgage whole loans secured by middle market and transitional commercial real estate.

RMR LLC also provides services to other publicly and privately owned companies, including:

Five Star, which operates senior living communities;

TA, which operates and franchises travel centers, truck repair facilities and restaurants;

Five Star, which operates senior living communities and provides rehabilitation and wellness services;

TA, which operates and franchises travel centers, standalone truck service facilities and restaurants;

and Sonesta, which operates, manages and franchises hotels, resorts and cruise boats.

A subsidiary of RMR LLC is an investment adviser to the RMR Real Estate Income Fund, or RIF, a closed end investment company listed on the NYSE American, which invests in securities of real estate companies that are not managed by RMR LLC.

Portnoy serves as chair of the board of trustees or board of directors, as applicable, of SVC, ILPT, DHC, Five Star and TA and as managing director, managing trustee, director or trustee, as applicable, of the companies managed by RMR LLC or its subsidiaries.

David Blackman, our other Managing Trustee and our President and Chief Executive Officer, Matthew Brown, our Chief Financial Officer and Treasurer, and Christopher Bilotto, our Vice President, are also officers and employees of RMR LLC.

David Blackman is also a managing trustee, president and chief executive officer of TRMT.

Blackman, Brown and Bilotto have duties to RMR LLC, and Mr.

Blackman has duties to TRMT, as well as to us, and we do not have their undivided attention.

A subsidiary of RMR LLC is an investment adviser to RMRM, which recently converted from a registered investment company to a publicly traded mortgage REIT.

Portnoy serves as chair of the board of trustees or board of directors, as applicable, of DHC, ILPT, SVC, Five Star and TA and as managing director, managing trustee, director or trustee, as applicable, of the companies managed by RMR LLC or its subsidiaries.

Christopher Bilotto, our President and Chief Operating Officer, and Matthew Brown, our Chief Financial Officer and Treasurer, are also officers and employees of RMR LLC and David Blackman, our other Managing Trustee and, until December 31, 2020, our President and Chief Executive Officer, is also an employee of RMR LLC.

Bilotto, Brown and Blackman have duties to RMR LLC, as well as to us, and we do not have their undivided attention.

They and other RMR LLC personnel may have conflicts in allocating their time and resources between us and RMR LLC and other companies to which RMR LLC or its subsidiaries provide services.

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and RMR LLC, Adam Portnoy holds equity investments in other companies to which RMR LLC or its subsidiaries provide management services and some of these companies have significant cross ownership interests, including, for example:

as of December 31, 2019, Adam Portnoy beneficially owned, in aggregate, 1.5% of our outstanding common shares, 35.3% of Five Star's outstanding common stock (6.3% as of January 1, 2020) (including through ABP Trust), 1.2% of ILPT’s outstanding common shares, 1.1% of DHC's outstanding common shares, 2.3% of RIF’s outstanding common shares, 1.1% of SVC’s outstanding common shares, 4.0% of TA’s outstanding common shares (including through RMR LLC) and 19.5% of TRMT’s outstanding common shares (including through Tremont Realty Advisors LLC).

as of December 31, 2020, Mr.

Portnoy beneficially owned, in aggregate, 1.5% of our outstanding common shares, 6.3% of Five Star’s outstanding common stock (including through ABP Trust), 1.2% of ILPT’s outstanding common shares, 1.1% of DHC’s outstanding common shares, 2.3% of RMRM’s outstanding common shares, 1.1% of SVC’s outstanding common shares, 4.5% of TA’s outstanding common shares (including through RMR LLC) and 19.4% of TRMT’s outstanding common shares (including through Tremont Realty Advisors LLC).

Our executive officers may also own equity investments in other companies to which RMR LLC or its subsidiaries provide management services.

These multiple responsibilities, relationships and cross ownerships could give rise to conflicts of interest or the perception of such conflicts of interest with respect to matters involving us, RMR Inc., RMR LLC, our Managing Trustees, the other companies to which RMR LLC or its subsidiaries provide management services and their related parties.

These multiple responsibilities, relationships and cross ownerships may give rise to conflicts of interest or the perception of such conflicts of interest with respect to matters involving us, RMR Inc., RMR LLC, our Managing Trustees, the other companies to which RMR LLC or its subsidiaries provide management services and their related parties.

Conflicts of interest or the perception of conflicts of interest could have a material adverse impact on our reputation, business and the market price of our common shares and other securities and we may be subject to increased risk of litigation as a result.

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We cannot be sure that our Code of Conduct or our governance guidelines, or other procedural protections we adopt will be sufficient to enable us to identify, adequately address or mitigate actual or alleged conflicts of interest or ensure that our transactions with related persons are made on terms that are at least as favorable to us as those that would have been obtained with an unrelated person.

Our management agreements were not negotiated on an arm’s length basis and their fee and expense structure may not create proper incentives for RMR LLC, which may increase the risk of an investment in our common shares.

As a result of our relationships with RMR LLC and its current and former controlling shareholder(s), our management agreements were not negotiated on an arm’s length basis between unrelated parties, and therefore, while such agreements were negotiated with the use of a special committee and disinterested Trustees, the terms, including the fees payable to RMR LLC, may not be as favorable to us as they would have been if they were negotiated on an arm’s length basis between unrelated parties.

Our management agreements with RMR LLC were not negotiated on an arm’s length basis and their fee and expense structure may not create proper incentives for RMR LLC, which may increase the risk of an investment in our common shares.

As a result of our relationships with RMR LLC and its current and former controlling shareholder(s), our management agreements with RMR LLC were not negotiated on an arm’s length basis between unrelated parties, and therefore, while such agreements were negotiated with the use of a special committee and disinterested Trustees, the terms, including the fees payable to RMR LLC, may not be as favorable to us as they would have been if they were negotiated on an arm’s length basis between unrelated parties.

Our property management fees are calculated based on rents we receive and construction supervision fees for construction at our properties overseen and managed by RMR LLC, and our base business management fee is calculated based upon the lower of the historical costs of our real estate investments and our market capitalization.

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These fee arrangements could incentivize RMR LLC to pursue acquisitions, capital transactions, tenancies and construction projects or to avoid disposing of our assets in order to increase or maintain its management fees and might reduce RMR LLC’s incentive to devote its time and effort to seeking investments that provide attractive returns for us.

If we do not effectively manage our investment, disposition and capital

transactions and leasing, construction and other property management activities, we may pay increased management fees without proportional benefits to us.

If we do not effectively manage our investment, disposition and capital transactions and leasing, construction and other property management activities, we may pay increased management fees without proportional benefits to us.

In addition, we are obligated under our management agreements to reimburse RMR LLC for 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 and our share of RMR LLC’s costs for providing our internal audit function.

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Our obligation to reimburse RMR LLC for certain of its costs and to pay third party costs may reduce RMR LLC’s incentive to efficiently manage those costs, which may increase our costs.

The termination of our management agreements may require us to pay a substantial termination fee, including in the case of a termination for unsatisfactory performance, which may limit our ability to end our relationship with RMR LLC.

The terms of our management agreements with RMR LLC automatically extend on December 31st of each year so that such terms thereafter end on the 20th anniversary of the date of the extension.

The termination of our management agreements with RMR LLC may require us to pay a substantial termination fee, including in the case of a termination for unsatisfactory performance, which may limit our ability to end our relationship with RMR LLC.

The terms of our management agreements with RMR LLC automatically extend on December 31 of each year so that such terms thereafter end on the 20th anniversary of the date of the extension.

We have the right to terminate these agreements:

(1) at any time on 60 days’ written notice for convenience, (2) immediately upon written notice for cause, as defined in the agreements, (3) on written notice given within 60 days after the end of any applicable calendar year for a performance reason, as defined in the agreements, and (4) by written notice during the 12 months following a manager change of control, as defined in the agreements.

However, if we terminate a management agreement for convenience, or if RMR LLC terminates a management agreement with us for good reason, as defined in such agreement, we are obligated to pay RMR LLC a termination fee in an amount equal to the sum of the present values of the monthly future fees, as defined in the applicable agreement, payable to RMR LLC for the term that was remaining before such termination, which, depending on the time of termination, would be between 19 and 20 years.

fee in an amount equal to the sum of the present values of the monthly future fees, as defined in the applicable agreement, payable to RMR LLC for the term that was remaining before such termination, which, depending on the time of termination, would be between 19 and 20 years.

Additionally, if we terminate a management agreement for a performance reason, as defined in the agreement, we are obligated to pay RMR LLC the termination fee calculated as described above, but assuming a remaining term of 10 years.

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Companies with business dealings with related persons and entities may more often be the target of dissident shareholder trustee nominations, dissident shareholder proposals and shareholder litigation alleging conflicts of interest in their business dealings.

Our relationships with RMR Inc., RMR LLC, the other companies to which RMR LLC or its subsidiaries provide management services, Adam Portnoy and other related persons of RMR LLC have precipitated and may precipitate such activities, including shareholder litigation which results in substantial costs for us even if the shareholder litigation is without merit or unsuccessful.

Our relationships with RMR LLC, the other companies to which RMR LLC or its subsidiaries provide management services, Adam Portnoy and other related persons of RMR LLC have precipitated and may precipitate such activities.

Certain proxy advisory firms which have significant influence over the voting by shareholders of public companies have in the past recommended, and in the future may recommend, that shareholders withhold votes for the election of our incumbent Trustees, vote against our say on pay vote or other management proposals or vote for shareholder proposals that we oppose.

These recommendations by proxy advisory firms in the future may affect the outcome of future Board of

Trustees elections and votes on our say on pay, which may increase shareholder activism and litigation.

These recommendations by proxy advisory firms in the future would likely affect the outcome of future Board of Trustees elections and votes on our say on pay, which may increase shareholder activism and litigation.

These activities, if instituted against us, could result in substantial costs, and diversion of our management’s attention and could have a material adverse impact on our reputation and business.

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However, this provision may also inhibit acquisitions of a significant stake in us and may deter, delay or prevent a change in control of us or unsolicited acquisition proposals that a shareholder may consider favorable.

Additionally, provisions contained in our declaration of trust and bylaws or under Maryland law may have a similar impact, including, for example, provisions relating to:

the division of our Trustees into three classes, with the term of one class expiring each year, which could delay a change of control of us;

Additionally, provisions contained in our

declaration of trust and bylaws or under Maryland law may have a similar impact, including, for example, provisions relating to:

• the current division of our Trustees into classes until our 2023 annual meeting of shareholders, with three classes remaining with terms expiring in 2021, 2022 and 2023, respectively, (although effective at our 2021 annual meeting of shareholders, Trustees of the class of trustees whose term expires at that meeting or expires at a subsequent annual meeting of shareholders will be elected annually, with all of our Trustees being elected annually as of our 2023 annual meeting of shareholders, and with a majority of our current Trustees having terms expiring at our 2022 annual meeting of shareholders);

• limitations on shareholder voting rights with respect to certain actions that are not approved by our Board of Trustees;

• the authority of our Board of Trustees, and not our shareholders, to adopt, amend or repeal our bylaws and to fill vacancies on our Board of Trustees;

shareholder voting standards which require a supermajority for approval of certain actions;

• shareholder voting standards which require a supermajority of shares for approval of certain actions;

• the fact that only our Board of Trustees, or, if there are no Trustees, our officers, may call shareholder meetings and that shareholders are not entitled to act without a meeting;

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• the authority of our Board of Trustees, without shareholder approval, to implement certain takeover defenses.

As changes occur in the marketplace for corporate governance policies, the above provisions may change, be removed, or new ones may be added.

Our rights and the rights of our shareholders to take action against our Trustees and officers are limited.

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• active and deliberate dishonesty by the Trustee or officer that was established by a final judgment as being material to the cause of action adjudicated.

Our declaration of trust authorizes us, and our bylaws and indemnification agreements require us, to indemnify, to the maximum extent permitted by Maryland law, any present or former Trustee or officer who is made or threatened to be made a party to a proceeding by reason of his or her service in those and certain other capacities.

In addition, we may be obligated to

pay or reimburse the expenses incurred by our present and former Trustees and officers without requiring a preliminary determination of their ultimate entitlement to indemnification.

In addition, we may be obligated to pay or reimburse the expenses incurred by our present and former Trustees and officers without requiring a preliminary determination of their ultimate entitlement to indemnification.

As a result, we and our shareholders may have more limited rights against our present and former Trustees and officers than might otherwise exist absent the provisions in our declaration of trust, bylaws and indemnification agreements or that might exist with other companies, which could limit our shareholders’ recourse in the event of actions not in their best interest.

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By agreeing to the arbitration provisions of our governing documents, shareholders will not be deemed to have waived compliance by us with federal securities laws and the rules and regulations thereunder.

Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our Trustees, officers, manager, agents or employees.

Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a judicial forum they deem favorable for disputes with us or our Trustees, officers, manager, agents or employees.

Our bylaws currently provide that, unless the dispute has been referred to binding arbitration, the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for:

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(2) any action asserting a claim for breach of a fiduciary duty owed by any Trustee, officer, manager, agent or employee of ours to us or our shareholders;

(3) any action asserting a claim against us or any Trustee, officer, manager, agent or employee of ours arising pursuant to Maryland law, our declaration of trust or bylaws brought by or on behalf of a shareholder, either on his, her or its own behalf, on our behalf or on behalf of any series or class of shares of beneficial interest of ours or shareholders against us or any Trustee, officer, manager, agent or employee of ours, including any disputes, claims or controversies relating

to the meaning, interpretation, effect, validity, performance or enforcement of the declaration of trust or these bylaws;

or (4) any action asserting a claim against us or any Trustee, officer, manager, agent or employee of ours that is governed by the internal affairs doctrine.

Our bylaws currently also provide that the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for any dispute, or portion thereof, regarding the meaning, interpretation or validity of any provision of our declaration of trust or bylaws.

The exclusive forum provision of our bylaws does not apply to any action for which the Circuit Court for Baltimore City, Maryland does not have jurisdiction or to a dispute that has been referred to binding arbitration in accordance with our bylaws.

accordance with our bylaws.

The exclusive forum provision of our bylaws does not establish exclusive jurisdiction in the Circuit Court for Baltimore City, Maryland for claims that arise under the Securities Act, the Exchange Act or other federal securities laws if there is exclusive or concurrent jurisdiction in the federal courts.

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corporations to noncorporate shareholders, such as individuals, trusts and estates, are generally eligible for reduced federal income tax rates applicable to “qualified dividends.” Distributions paid by REITs generally are not treated as “qualified dividends” under the IRC and the reduced rates applicable to such dividends do not generally apply.

However, for tax years beginning before 2026, REIT dividends paid to noncorporate shareholders are generally taxed at an effective tax rate lower than applicable ordinary income tax rates due to the availability of a deduction under the IRC for

specified forms of income from passthrough entities.

More favorable rates will nevertheless continue to apply to regular corporate “qualified” dividends, which may cause some investors to perceive that an investment in a REIT is less attractive than an investment in a non-REIT entity that pays dividends, thereby reducing the demand and market price of our common shares.

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We may incur adverse tax consequences as a result of our merger and acquisition transactions.

We received opinions of counsel that each of SIR and FPO, respectively, were organized and operated in conformity with the requirements for qualification and taxation as a REIT under the IRC prior to the time that we acquired those entities.

If, contrary to those opinions, either SIR or FPO failed to qualify for taxation as a REIT under the IRC, then we may inherit significant tax liabilities as a result of those transactions because, as the successor by merger to SIR and FPO, we would generally inherit any corporate income tax liabilities of those entities, including penalties and interest.

If it is determined that one or both of SIR and FPO failed to satisfy one or more of the REIT qualification requirements before the applicable merger into us, the IRS might allow us, as successor, to utilize remedial provisions under the IRC to remediate the REIT compliance failure.

However, if and to the extent remedial provisions are available to us to address any REIT qualification matter stemming from the periods before we acquired SIR or FPO, we may have to expend significant resources in connection with such remediation, including, among other things, (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.

The failure of SIR or FPO to qualify for taxation as a REIT under the IRC for the applicable periods prior to or including the time we acquired these entities and our efforts to remedy any such failure could have a material adverse effect on our financial condition and results of operations.

As a successor, we may face liability stemming from the tax liabilities (including penalties and interest) of the entities that we have acquired.

These liabilities and our efforts to remedy any tax dispute relating to acquired entities could have a material adverse effect on our financial condition and results of operations.

Legislative or other actions affecting REITs could materially and adversely affect us and our shareholders.

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Risks Related to Our Securities

Our distributions to our shareholders may decline.

Our distributions to our shareholders may be reduced or eliminated and the form of payment could change.

We intend to continue to make regular quarterly distributions to our shareholders.

our ability to make or sustain the rate of distributions will be adversely affected if any of the risks described in this Annual Report on Form 10-K occur;

our making of distributions is subject to compliance with restrictions contained in our credit agreement and may be subject to restrictions in future debt obligations we may incur;

our ability to make future distributions is dependent on a number of factors, including our future earnings, the capital costs we incur to lease our properties and our working capital requirements;

our Board of Trustees sets and resets our distribution rate from time to time after considering many factors, including cash available for distribution.

Accordingly, future distribution rates may be increased or decreased and there is no assurance as to the rate at which future distributions will be paid.

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

• our ability to make or sustain the rate of distributions may be adversely affected if any of the risks described in this Annual Report on Form 10-K occur, including any negative impact caused by the prolonged duration of the COVID-19 pandemic and its aftermath on our business, results of operations and liquidity;

• our making of distributions is subject to restrictions contained in the agreements governing our debt and may be subject to restrictions in future debt obligations we may incur;

during the continuance of any event of default under the

agreements governing our debt, we may be limited or in some cases prohibited from making distributions to our shareholders;

• the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including our FFO, our Normalized FFO, requirements to maintain our qualification for taxation as a REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.

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

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

Changes in market conditions could adversely affect the value of our securities.

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• market interest rates;

economic conditions;

• national economic conditions;

• changes in tax laws;

• changes in our credit ratings;

general market conditions.

• general market conditions, including factors unrelated to our operating performance;

• perception of our environmental, social and governance policies relative to other companies.

We believe that one of the factors that investors consider important in deciding whether to buy or sell equity securities of a REIT is the distribution rate, considered as a percentage of the price of the equity securities, relative to market interest rates.

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There is a general market perception that REIT shares outperform in low interest rate environments and underperform in rising interest rate environments when compared to the broader market.

Federal Reserve has indicated that it does not expect to raise interest rates in response to the COVID-19 pandemic and current market conditions until at least the end of 2023.

There can be no assurance, however, that the U.S.

Federal Reserve will not raise rates prior to that time.

Federal Reserve increases interest rates or if there is a market expectation of such increases, prospective purchasers of REIT equity securities may want to achieve a higher distribution rate.

Thus, higher market interest rates, or the expectation of higher interest rates, could cause the value of our securities to decline.

Further issuances of equity securities may be dilutive to current shareholders.

The interests of our existing shareholders could be diluted if we issue additional equity securities to finance future acquisitions, to repay indebtedness or for other reasons.

For example, in the SIR Merger, we issued a significant number of additional common shares of beneficial interest.

Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, which may include secured and unsecured debt, and equity financing, which may include common and preferred shares.

Further issuances of debt or equity securities may adversely affect our shareholders.

As a REIT, 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, and therefore, our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, which may include secured and unsecured debt, and equity financing, which may include common and preferred shares.

The interests of our existing shareholders could be diluted if we issue additional equity securities.

In addition, if we decide in the future to issue debt or equity securities that rank senior to our common shares, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility.

Also, any convertible or exchangeable securities that we issue in the future may have rights,

preferences and privileges more favorable than those of our common shares and may result in further dilution to our shareholders.

Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or even estimate the amount, timing or nature of our future capital offerings.

Thus, our shareholders will bear the risk of our future offerings reducing the market price of our common shares and diluting the value of their common shares.

The Notes are structurally subordinated to the payment of all indebtedness and other liabilities and any preferred equity of our subsidiaries.

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The Notes that are not secured will be effectively subordinated to any such additional secured indebtedness.

As of December 31, 2019, we had $326.2 million in secured mortgage debt.

As of December 31, 2020, we had $170.8 million in mortgage debt.

There may be no public market for certain of the Notes, and one may not develop, be maintained or be liquid.

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The outstanding Notes are rated by two rating agencies and any Notes we may issue in the future may be rated by one or more rating agencies.

These credit ratings are continually reviewed by rating agencies and may change at any time based upon, among other things, our results of operations and financial condition.

In September 2018, following our announcement that we had entered into the merger agreement with SIR for the SIR Merger, Standard & Poor's Global, or S&P, affirmed our credit ratings and revised its outlook on our debt to stable, and Moody's Investors Service, or Moody's, affirmed our credit ratings and maintained its negative outlook on our debt.

In October 2019, S&P reaffirmed our credit ratings with a stable outlook on our debt.

In December 2019, Moody's reaffirmed our credit ratings and adjusted our outlook from negative to stable on our debt.

These credit ratings are continually reviewed by rating agencies and may change at any time based upon,

among other things, our results of operations and financial condition.

Negative changes in the ratings assigned to our debt securities could have an adverse effect on the market price of the Notes and our cost and availability of capital, including the interest rate on our revolving credit facility, which could in turn have a material adverse effect on our results of operations and our ability to satisfy our debt service obligations.

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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 1A. Risk Factors