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Item 9A. Controls and Procedures

2021-02-19 compared with 2020-02-20 · 694 added, 758 removed, 814 unchanged (64% of the section changed)

Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Exchange Act.

Based upon that evaluation, our President and Chief Executive Officer and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.

As of the end of the period covered by this Annual Report on Form 10-K, our management carried out an evaluation, under the supervision and with the participation of our Managing Trustees, our President and Chief Operating Officer and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Exchange Act.

Based upon that evaluation, our Managing Trustees, our President and Chief Operating Officer and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.

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

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Based on this assessment, we believe that, as of December 31, 2020, our internal control over financial reporting is effective.

Ernst & Young LLP, the independent registered public accounting firm that audited our 2019 Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, has issued an attestation report on our internal control over financial reporting.

Deloitte & Touche LLP, the independent registered public accounting firm that audited our 2020 Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, has issued an attestation report on our internal control over financial reporting.

Its report appears elsewhere herein.

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Equity Compensation Plan Information.

We may grant common shares to our officers and other employees of RMR LLC under our 2009 Incentive Share Award Plan, or the 2009 Plan.

We may grant common shares to our officers and other employees of RMR LLC under our Amended and Restated 2009 Incentive Share Award Plan, or the 2009 Plan.

In addition, each of our Trustees receives common shares as part of his or her annual compensation for serving as a Trustee and such shares are awarded under the 2009 Plan.

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The following table is as of December 31, 2020.

Plan Category

Number of securities to be

Plan Category Number of securities to be

issued upon exercise of outstanding options,

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exercise price of

outstanding options, warrants and rights

Number of securities remaining available

outstanding options, warrants and rights Number of securities remaining available

for future issuance under equity compensation plans

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Equity compensation plans approved by securityholders — 2009 Plan

Equity compensation plans not approved by securityholders

1,094,909 (1)

Equity compensation plans not approved by securityholders None.

1,094,909 (1)

(1) Consists of common shares available for issuance pursuant to the terms of the 2009 Plan.

Share awards that are repurchased or forfeited will be added to the common shares available for issuance under the 2009 Plan.

Our shareholders approved an amendment to the 2009 Plan at our annual meeting of shareholders held on May 27, 2020 to increase the total number of common shares available for grant by 1,000,000.

Payments by us to RMR LLC employees are described in Notes 6 and 10 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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Exhibits and Financial Statement Schedules

Index to Financial Statements and Financial Statement Schedules

(a) Index to Financial Statements and Financial Statement Schedules

The following consolidated financial statements and financial statement schedule of Office Properties Income Trust are included on the pages indicated:

Reports of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2020 and 2019

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3.1 Composite Copy of Amended and Restated Declaration of Trust, dated June 8, 2009, as amended to date.

(Incorporated by reference to the Company’s Current Report on Form 8-K dated December 31, 2018.)

(Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.)

3.2 Amended and Restated Bylaws of the Company, adopted March 27, 2019.

(Incorporated by reference to the Company’s Current Report on Form 8-K dated March 27, 2019.)

(Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 28, 2019.)

4.1 Form of Common Share Certificate.

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Bank National Association.

(Incorporated by reference to the Company’s Current Report on Form 8-K dated August 18, 2014.)

(Incorporated by reference to the Company’s Current Report on Form 8-K filed on August 18, 2014.)

4.3 Supplemental Indenture No.

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Bank National Association, relating to the Company’s 5.875% Senior Notes due 2046, including form thereof.

(Incorporated by reference to the Company’s Current Report on Form 8-K dated May 26, 2016.)

(Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 26, 2016.)

4.4 Authentication Order, dated as of June 22, 2016, from the Company to U.S.

Bank National Association, relating to the Company’s 5.875% Senior Notes due 2046.

(Incorporated by reference to the Company’s Registration Statement on Form 8-A dated June 30, 2016.)

(Incorporated by reference to the Company’s Registration Statement on Form 8-A filed on June 30, 2016.)

4.5 Indenture, dated as of July 20, 2017, between the Company and U.S.

Bank National Association.

(Incorporated by reference to the Company’s Current Report on Form 8-K dated July 20, 2017.)

(Incorporated by reference to the Company’s Current Report on Form 8-K filed on July 21, 2017.)

4.6 First Supplemental Indenture, dated as of July 20, 2017, between the Company and U.S.

Bank National Association, relating to the Company’s 4.000% Senior Notes due 2022, including form thereof.

(Incorporated by reference to the Company’s Current Report on Form 8-K dated July 20, 2017.)

(Incorporated by reference to the Company’s Current Report on Form 8-K filed on July 21, 2017.)

4.7 Second Supplemental Indenture, dated as of June 23, 2020, between the Company and U.S.

Bank National Association, relating to the Company’s 6.375% Senior Notes due 2050, including form thereof.

(Incorporated by reference to the Company’s Registration Statement on Form 8-A filed on June 23, 2020.)

4.8 Indenture, dated as of February 3, 2015, between the Company (as successor to Select Income REIT) and U.S.

Bank National Association.

(Incorporated by reference to Select Income REIT’s Current Report on Form 8-K dated January 29, 2015.)

(Incorporated by reference to Select Income REIT’s Current Report on Form 8-K filed on February 3, 2015.)

4.9 First Supplemental Indenture, dated as of February 3, 2015, between the Company (as successor to Select Income REIT) and U.S.

Bank National Association, including the forms of 4.15% Senior Notes due 2022 and 4.50% Senior Notes due 2025.

(Incorporated by reference to Select Income REIT’s Current Report on Form 8-K dated January 29, 2015.)

(Incorporated by reference to Select Income REIT’s Current Report on Form 8-K filed on February 3, 2015.)

4.10 Second Supplemental Indenture, dated as of May 15, 2017, between the Company (as successor to Select Income REIT) and U.S.

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Bank National Association.

(Incorporated by reference to the Company’s Current Report on Form 8-K dated December 31, 2018.)

(Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 31, 2018.)

4.12 Authentication Order, dated as of September 24, 2020, from the Company to U.S.

Bank National Association, relating to the Company’s 4.50% Senior Notes due 2025.

(Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.)

4.13 Registration Rights and Lock-Up Agreement, dated as of June 5, 2015, among the Company, ABP Trust (f/k/a Reit Management & Research Trust) and Adam D.

(Incorporated by reference to the Company’s Current Report on Form 8-K dated June 5, 2015.)

(Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 8, 2015.)

4.14 Description of Securities.

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(Filed herewith.)

Second Amended and Restated Business Management Agreement, dated as of June 5, 2015, between the Company and The RMR Group LLC (f/k/a Reit Management & Research LLC).(+) (Incorporated by reference to the Company’s Current Report on Form 8-K dated June 5, 2015.)

Amendment to Second Amended and Restated Business Management Agreement, dated as of December 31, 2018, between the Company and The RMR Group LLC.(+) (Incorporated by reference to the Company’s Current Report on Form 8-K dated December 31, 2018.)

Second Amended and Restated Property Management Agreement, dated as of June 5, 2015, between the Company and The RMR Group LLC.(+) (Incorporated by reference to the Company’s Current Report on Form 8-K dated June 5, 2015.)

Composite Copy of Office Properties Income Trust 2009 Incentive Share Award Plan, as amended.(+) (Incorporated by reference to the Company's Current Report on Form 8-K dated May 16, 2019.)

Form of Share Award Agreement.(+) (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.)

Form of Restricted Share Agreement.(+) (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015.)

Form of Indemnification Agreement.(+) (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.)

Summary of Trustee Compensation.(+) (Incorporated by reference to the Company’s Current Report on Form 8-K dated May 29, 2019.)

10.1 Second Amended and Restated Business Management Agreement, dated as of June 5, 2015, between the Company and The RMR Group LLC (f/k/a Reit Management & Research LLC).

(+) (Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 8, 2015.)

10.2 Amendment to Second Amended and Restated Business Management Agreement, dated as of December 31, 2018, between the Company and The RMR Group LLC.

(+) (Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 31, 2018.)

10.3 Second Amended and Restated Property Management Agreement, dated as of June 5, 2015, between the Company and The RMR Group LLC.

(+) (Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 8, 2015.)

10.4 Amended and Restated Office Properties Income Trust 2009 Incentive Share Award Plan.

(+) (Incorporated by reference to the Company's Current Report on Form 8-K filed on May 28, 2020.)

10.5 Form of Share Award Agreement.

(+) (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.)

10.6 Form of Share Award Agreement.

(+) (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.)

10.7 Form of Indemnification Agreement.

(+) (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.)

10.8 Summary of Trustee Compensation.

(+) (Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 28, 2020.)

10.9 Amended and Restated Credit Agreement, dated as of December 13, 2018, among the Company, Wells Fargo Bank, National Association, as Administrative Agent, and each of the other financial institutions initially a signatory thereto.

(Incorporated by reference to the Company’s Current Report on Form 8-K dated December 13, 2018.)

(Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 1 7 , 2018.)

21.1 Subsidiaries of the Company.

(Filed herewith.)

23.1 Consent of Deloitte & Touche LLP.

(Filed herewith.)

23.2 Consent of Ernst & Young LLP.

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(Filed herewith.)

31.3 Rule 13a-14(a) Certification.

(Filed herewith.)

31.4 Rule 13a-14(a) Certification.

(Filed herewith.)

32.1 Section 1350 Certification.

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(+) (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017.)

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

XBRL Taxonomy Extension Schema Document.

101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH XBRL Taxonomy Extension Schema Document.

(Filed herewith.)

XBRL Taxonomy Extension Calculation Linkbase Document.

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.

(Filed herewith.)

XBRL Taxonomy Extension Definition Linkbase Document.

101.DEF XBRL Taxonomy Extension Definition Linkbase Document.

(Filed herewith.)

XBRL Taxonomy Extension Label Linkbase Document.

101.LAB XBRL Taxonomy Extension Label Linkbase Document.

(Filed herewith.)

XBRL Taxonomy Extension Presentation Linkbase Document.

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

(Filed herewith.)

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Office Properties Income Trust (the Company) as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and the financial statement schedule listed in the Index at item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 20, 2020 expressed an unqualified opinion thereon.

We have audited the accompanying consolidated balance sheet of Office Properties Income Trust (the "Company") as of December 31, 2020, the related consolidated statements of comprehensive income (loss), shareholders' equity, and cash flows, for the year then ended, and the related notes and the schedule listed in the Index at Item 15(a) (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Impairment of Real Estate Properties

Description of the Matter

The Company’s net real estate properties totaled $3.1 billion as of December 31, 2019.

As discussed in Note 2 to the consolidated financial statements, the Company evaluates their properties for impairment quarterly, or whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.

Auditing management’s property impairment analysis was complex and involved a high degree of subjectivity due to the significant estimation required in determining the future undiscounted net cash flows expected to be generated from those assets with indicators of impairment.

The future net undiscounted cash flows are sensitive to significant assumptions, such as hold periods, market rents, and terminal capitalization rates, which are forward-looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for assessing impairment of real estate properties.

For example, we tested controls over management’s review of the future net undiscounted cash flows calculations, including the significant assumptions and data inputs used to develop the undiscounted cash flows.

Our testing of the Company’s impairment assessment included, among other procedures, evaluating the assumptions used to develop the estimated undiscounted cash flows used to assess the recoverability of real estate properties.

Specifically, we evaluated the significant assumptions used to estimate the property cash flows, including market rents and terminal capitalization rates through comparison to current industry and economic trends and tested the completeness and accuracy of the underlying data supporting the significant assumptions.

We compared the projected forecasted amounts to past performance of the properties and the Company’s history related to similar properties and other forecasted financial information prepared by the Company.

We also held discussions with management about the current status of potential transactions and about management’s judgments to understand the probability of future events that could affect the hold period and other cash flow assumptions for the properties.

We searched for and evaluated information that corroborated or contradicted the Company’s assumptions.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2008.

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impairment of Real Estate Properties - Refer to Notes 2 and 3 to the financial statements

Critical Audit Matter Description

The Company’s investments in real estate assets are evaluated for impairment periodically or when events or changes in circumstances indicate that the carrying amount of a real estate asset may not be recoverable.

The Company’s evaluation of the recoverability of real estate assets involves the comparison of undiscounted future cash flows expected to be generated by each real estate asset over the Company’s estimated holding period to the respective carrying amount.

The Company’s undiscounted future cash flows analysis and the assessment of expected remaining holding period requires management to make significant estimates and assumptions related to future occupancy levels, rental rates, estimated sale proceeds, and capitalization rates.

In the event that a real estate asset is not recoverable, the Company will adjust the real estate asset to its fair value based on third-party appraisals, broker selling estimates, sale agreements under negotiation, and/or final selling prices, when available, and recognize an impairment loss for the carrying amount in excess of fair value.

We identified the impairment of real estate assets as a critical audit matter because of the significant estimates and assumptions management makes to evaluate the recoverability of real estate assets.

This required a high degree of auditor judgment and an

increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s undiscounted future cash flows analysis and assessment of expected remaining holding period.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the undiscounted cash flows analysis and the assessment of the expected remaining hold period included the following, among others:

• We tested the effectiveness of controls over management’s evaluation of the recoverability of real estate property assets, including the key inputs utilized in estimating the undiscounted future cash flows.

• We evaluated the undiscounted cash flow analysis including estimates of future occupancy levels, rental rates, estimated sale proceeds, and capitalization rates for each real estate asset or group of assets with possible impairment indicators by (1) evaluating the source information and assumptions used by management and (2) testing the mathematical accuracy of the undiscounted future cash flows analysis.

• We evaluated the reasonableness of management’s undiscounted future cash flows analysis by comparing management’s projections to external market sources and evidence obtained in other areas of our audit.

• We held discussions with management about the current status of potential transactions and about management’s judgments to understand the probability of future events that could affect the hold period and other cash flow assumptions for the properties.

/s/ Deloitte & Touche LLP

Boston, Massachusetts

February 19, 2021

We have served as the Company’s auditor since 2020.

Report of Independent Registered Public Accounting Firm

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Opinion on Internal Control over Financial Reporting

We have audited Office Properties Income Trust’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Office Properties Income Trust (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at item 15(a), and our report dated February 20, 2020 expressed an unqualified opinion thereon.

We have audited the internal control over financial reporting of Office Properties Income Trust (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 19, 2021, expressed an unqualified opinion on those financial statements.

Basis for Opinion

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Boston, Massachusetts

February 19, 2021

Report of Independent Registered Public Accounting Firm

To the Trustees and Shareholders of Office Properties Income Trust

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Office Properties Income Trust (the Company) as of December 31, 2019, the related consolidated statements of comprehensive income (loss) , shareholders' equity and cash flows for each of the two years in the period ended December 31, 2019, and the related notes and the financial statement schedule listed in the Index at item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with U.S.