What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-04-29 compared with 2020-10-30 · 196 added, 397 removed, 250 unchanged (70% of the section changed)

3 unchanged sentences

We are a real estate investment trust, or REIT, organized under Maryland law.

As of September 30, 2020, our wholly owned properties were comprised of 184 properties and we had noncontrolling ownership interests in three properties totaling approximately 444,000 rentable square feet through two unconsolidated joint ventures in which we own 51% and 50% interests.

As of September 30, 2020, our properties are located in 34 states and the District of Columbia and contain approximately 24,909,000 rentable square feet.

As of September 30, 2020, our properties were leased to 357 different tenants with a weighted average remaining lease term (based on annualized rental income) of approximately 5.2 years.

Government is our largest tenant, representing approximately 25.2% of our annualized rental income as of September 30, 2020.

The term annualized rental income as used herein is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of September 30, 2020, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

As of March 31, 2021, our wholly owned properties were comprised of 180 properties and we had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties containing a combined approximately 444,000 rentable square feet.

As of March 31, 2021, our properties are located in 34 states and the District of Columbia and contain approximately 24,568,000 rentable square feet.

As of March 31, 2021, our properties were leased to 340 different tenants with a weighted average remaining lease term (based on annualized rental income) of approximately 4.9 years.

government is our largest tenant, representing approximately 25.9% of our annualized rental income as of March 31, 2021.

The term annualized rental income as used herein is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of March 31, 2021, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic and, in response to the outbreak, the U.S.

Health and Human Services Secretary declared a public health emergency in the United States and many states and municipalities declared public health emergencies.

The virus that causes COVID-19 has continued to spread throughout the United States and the world.

Various governmental responses attempting to contain and mitigate the spread of the virus have negatively impacted, and continue to negatively impact, the global economy, including the U.S.

As a result, most market observers believe the global economy and the U.S.

economy are in a recession.

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

Recently, economic data have indicated that the U.S.

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

gross domestic product remains below pre-pandemic levels.

It is unclear whether the increases in the number of COVID-19 infections will continue or amplify in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy, our tenants or our business.

Our business is focused on leasing office space to primarily single tenants and those with high credit quality characteristics such as government entities.

Although, to date, the COVID-19 pandemic has not had a significant impact on our business, we have received requests from some of our tenants for rent assistance.

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

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

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

For the quarter ended September 30, 2020, we collected approximately 99% of contractual rent obligations before and after giving effect to such rent deferrals.

We are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including:

• our tenants and their ability to withstand the current economic conditions and continue to pay us rent;

• our operations, liquidity and capital needs and resources;

• conducting financial modeling and sensitivity analyses;

• actively communicating with our tenants and other key constituents and stakeholders in order to help assess market conditions, opportunities, best practices and mitigate risks and potential adverse impacts;

• monitoring applicable states and municipalities to which we lease property and their responses to the COVID-19 pandemic and economic slowdown, including budgetary impacts;

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

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

As of October 29, 2020, we had:

• $750,000 of availability under our revolving credit facility;

• no significant debt maturities until 2022;

• 64.7% of our annualized rental income, as of September 30, 2020, derived from investment grade tenants (as described below).

We do not have any employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC.

RMR LLC has implemented enhanced cleaning protocols and social distancing guidelines at its corporate headquarters and its regional offices, as well as business continuity plans to ensure RMR LLC employees remain safe and able to support us and other companies managed by RMR LLC or its subsidiaries, including providing appropriate information technology such as notebook computers, smart phones, computer applications, information technology security applications and technology support.

With respect to our properties, RMR LLC has implemented enhanced cleaning protocols and has taken measures to reduce the possibility of persons gathering in groups and in close proximity to each other, for the purpose of mitigating the potential for spreading of COVID-19 infections.

Included among these protocols and measures are the following:

• focusing on sanitizing high touch points in common areas and restrooms;

• shutting down certain building amenities;

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

All RMR LLC property management and engineering personnel have been trained on COVID-19 precaution procedures.

As states and local communities across the country moved to stay at home orders, RMR LLC worked to reduce and optimize our operating costs at our properties by:

• deferring non-emergency work;

• implementing energy reduction protocols for lighting and HVAC systems;

• reducing non-essential building services and staff;

• reducing the frequency of trash removal.

RMR LLC’s property management teams have also established business continuity plans to ensure operational stability at our properties.

As stay at home orders have been lifted or loosened across the United States, RMR LLC has implemented additional procedures at our properties based on recommended guidelines from the U.S.

Centers for Disease Control and Prevention and other regulatory agencies.

• installing signage throughout our properties with social distancing reminders;

• making changes to certain building HVAC systems and equipment, including adjusting outdoor air control programs to increase the amount of outside air delivered to interior spaces and to adjust control sequences to maintain space relative humidity in order to help minimize the concentration of the virus;

• flushing domestic water systems to prepare for re-occupancy;

• performing service calls and preventative maintenance after business hours to limit social interactions;

• requiring vendors to follow best practices under COVID-19 pandemic conditions, including providing RMR LLC with documented preventative measures for the vendors’ employees and requiring vendors’ staff to wear appropriate personal protective equipment when working at our properties;

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

RMR LLC has significantly reduced all non-essential work travel and its regional leadership personnel have not been allowed to work in the same locations at the same time.

RMR LLC also requires its employees who work at our properties to use personal protective equipment and business continuity bonus payments have been provided to certain essential workers at our properties.

RMR LLC’s regional management offices are currently limiting walk-in visitors and maintain maximum office occupancy limits as required by state and local guidelines, including weekly rotations of employees as needed.

There are extensive uncertainties surrounding the COVID-19 pandemic.

These uncertainties include among others:

• the duration and severity of the negative economic impact;

• the strength and sustainability of any economic recovery;

• the timing and process for how federal, state and local governments and other market participants may oversee and conduct the return of economic activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States;

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

As a result of these uncertainties, we are unable to determine what the ultimate impact will be on our, our tenants’ and other stakeholders’ businesses, operations, financial results and financial position.

For further information and risks relating to the COVID-19 pandemic on us and our business, see Part II, Item 1A “Risk Factors,” in this Quarterly Report on Form 10-Q.

The COVID-19 pandemic and the various governmental and market responses intended to contain and mitigate the spread of the virus and its detrimental public health impact, as well as the general uncertainty surrounding the dangers and impact of the pandemic, continue to have a significant impact on the global economy, including the U.S.

To date, the COVID-19 pandemic has not had a significant impact on our business and we believe that our current financial resources, the characteristics of our portfolio, including the diversity of our tenant base, both geographically and by industry, and the financial strength and resources of our tenants, will enable us to withstand the COVID-19 pandemic.

However, we have received requests from some of our tenants for rent assistance.

As of April 26, 2021, we have granted temporary rent assistance totaling $2,483 to 18 tenants who represent approximately 3.2% of our annualized rental income as of March 31, 2021.

As of April 26, 2021, we have collected $2,118, or 85.3%, of our granted rent deferrals.

Our manager, RMR LLC, has taken various actions in response to the COVID-19 pandemic to address its operating and financial impact on us and to protect the health and safety of our tenants and other persons who visit our properties.

In addition, we are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business.

For more information regarding these actions and monitoring activities, see our 2020 Annual Report.

The U.S economy has been growing as COVID-19 vaccinations are increasingly administered, commercial activities increasingly return to pre-pandemic practices and operations, and as a result of recent and expected future government spending on COVID-19 pandemic relief, infrastructure and other matters.

However, there remains uncertainty as to the ultimate duration and severity of the COVID-19 pandemic on commercial activities, including risks that may arise from mutations or related strains of the virus, the ability to successfully administer vaccinations to a sufficient number of persons or attain immunity to the virus by natural or other means to achieve herd immunity, and the impact on the U.S.

economy that may result from the inability of other countries to administer vaccinations to their citizens or their citizens’ ability to otherwise achieve immunity to the virus.

As a result, we are unable to determine what the ultimate impact will be on our, our tenants’ and other stakeholders’ businesses, operations, financial results and financial position.

For more information and risks relating to the COVID-19 pandemic on us and our business, see Part I, Item 1, “Business—COVID-19 Pandemic” and Part I, Item 1A, “Risk Factors”, of our 2020 Annual Report.

Property Operations

Unless otherwise noted, the data presented in this section excludes three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

For more information regarding our two unconsolidated joint ventures, see Note 4 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As of September 30, 2020, 91.2% of our rentable square feet was leased, compared to 93.3% of our rentable square feet as of September 30, 2019.

Occupancy data for our properties as of September 30, 2020 and 2019 was as follows (square feet in thousands):

Unless otherwise noted, the data presented in this section includes properties classified as held for sale as of March 31, 2021 and excludes three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

more information regarding our properties classified as held for sale and our two unconsolidated joint ventures, see Note 3 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Occupancy data for our properties as of March 31, 2021 and 2020 was as follows (square feet in thousands):

All Properties (1)

Comparable Properties (2)

September 30, September 30,

March 31, March 31,

2021 2020 2021 2020

5 unchanged sentences

90.8 % 91.5 % 91.3 % 92.1 %

(1) Based on properties we owned on September 30, 2020 and 2019, respectively.

(1) Based on properties we owned on March 31, 2021 and 2020, respectively.

(2) Based on properties we owned continuously since January 1, 2020;

3 unchanged sentences

(5) Percent leased includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any, as of the measurement date.

The average effective rental rate per square foot for our properties for the three and nine months ended September 30, 2020 and 2019 are as follows:

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

2020 2019 2020 2019

The average effective rental rate per square foot for our properties for the three months ended March 31, 2021 and 2020 are as follows:

Three Months Ended March 31,

Average effective rental rate per square foot (1) :

4 unchanged sentences

(1) Average effective rental rate per square foot represents annualized total rental income during the period specified divided by the average rentable square feet leased during the period specified.

(2) Based on properties we owned on September 30, 2020 and 2019, respectively.

(3) Based on properties we owned continuously since July 1, 2019 and January 1, 2019, respectively;

(2) Based on properties we owned on March 31, 2021 and 2020, respectively.

(3) Based on properties we owned continuously since January 1, 2020;

excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

During the three and nine months ended September 30, 2020, changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands):

Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020

Leased Available for Lease Total Leased Available for Lease Total

During the three months ended March 31, 2021, changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands):

Three Months Ended March 31, 2021

Leased Available for Lease Total

Beginning of period 22,705 2,184 24,889

Changes resulting from:

Acquisition of properties — — — — 13 13

Disposition of properties (321) — (321)

1 unchanged sentence

Lease renewals (1)

577 (577) — 1,649 (1,649) —

New leases (1)

18 (18) — 177 (177) —

Remeasurements (2)

1 (1) — (1) (94) (95)

End of period 22,302 2,266 24,568

(1) Based on leases entered during the three and nine months ended September 30, 2020.

(1) Based on leases entered during the three months ended March 31, 2021.

(2) Rentable square feet are subject to changes when space is remeasured or reconfigured for tenants.

Leases at our properties totaling approximately 715,000 and 2,173,000 rentable square feet expired during the three and nine months ended September 30, 2020, respectively.

During the three and nine months ended September 30, 2020, we entered leases totaling approximately 595,000 and 1,826,000 rentable square feet, respectively, including lease renewals of approximately 577,000 and 1,649,000 rentable square feet, respectively, and new leases of approximately 18,000 and 177,000 rentable square feet, respectively.

The weighted (by rentable square feet) average rents were 31.0% and 8.0%, respectively, above prior rents for the same space and the weighted (by rentable square feet) average lease term for new and renewal leases entered during the three and nine months ended September 30, 2020 was 10.6 years and 7.1 years, respectively.

During the three and nine months ended September 30, 2020, commitments made for expenditures, such as tenant improvements and leasing costs, in connection with leasing space at our properties were as follows (square feet in thousands):

Three Months Ended September 30, 2020

New Leases Renewals Total

Rentable square feet leased 18 577 595

Tenant leasing costs and concession commitments (1)

$ 193 $ 6,045 $ 6,238

Tenant leasing costs and concession commitments per rentable square foot (1)

$ 10.95 $ 10.48 $ 10.49

Weighted (by square feet) average lease term (years) 4.0 10.8 10.6

Total leasing costs and concession commitments per rentable square foot per year (1)

$ 2.77 $ 0.97 $ 0.99

Nine Months Ended September 30, 2020

Leases at our properties totaling approximately 658,000 rentable square feet expired during the three months ended March 31, 2021.

During the three months ended March 31, 2021, we entered leases totaling approximately 575,000 rentable square feet, including lease renewals of approximately 542,000 rentable square feet and new leases of approximately 33,000 rentable square feet.

The weighted (by rentable square feet) average rents were 3.2% above prior rents for the same space and the weighted (by rentable square feet) average lease term for new and renewal leases entered during the three months ended March 31, 2021 was 5.4 years.

During the three months ended March 31, 2021, commitments made for expenditures, such as tenant improvements and leasing costs, in connection with leasing space at our properties were as follows (square feet in thousands):

Three Months Ended March 31, 2021

New Leases Renewals Total

8 unchanged sentences

(1) Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.

During the three and nine months ended September 30, 2020, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three and nine months ended September 30, 2020, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as follows (square feet in thousands):

Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020

During the three months ended March 31, 2021, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three months ended March 31, 2021, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as follows (square feet in thousands):

Three Months Ended March 31, 2021

Old Effective Rent Per Square Foot (1)

New Effective Rent Per Square Foot (1)

Rentable Square Feet Old Effective Rent Per Square Foot (1)

New Effective Rent Per Square Foot (1)

Rentable Square Feet

2 unchanged sentences

Total leasing activity $ 23.42 $ 25.10 608

(1) Effective rental rate includes contractual base rents from our tenants pursuant to our lease agreements, plus straight line rent adjustments and estimated expense reimbursements to be paid to us, and excluding lease value amortization.

During the three and nine months ended September 30, 2020 and 2019, amounts capitalized at our properties for tenant improvements, leasing costs, building improvements and development, redevelopment and other activities were as follows:

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

2020 2019 2020 2019

Tenant improvements (1)

$ 4,513 $ 8,749 $ 15,244 $ 20,784

Leasing costs (2)

During the three months ended March 31, 2021 and 2020, amounts capitalized at our properties for lease related costs, building improvements and development, redevelopment and other activities were as follows:

Three Months Ended March 31,

Lease related costs (1)

$ 6,970 $ 7,113

Building improvements (2)

10,579 11,180 29,814 22,805

Recurring capital expenditures 11,496 16,343

Development, redevelopment and other activities (3)

5,521 1,206 11,260 2,391

Total capital expenditures $ 16,402 $ 19,504

(1) Tenant improvements include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space.

(2) Leasing costs include leasing related costs, such as brokerage commissions and other tenant inducements.

(1) Lease related costs generally include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space and leasing related costs, such as brokerage commissions and other tenant inducements.

(2) Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets.

(3) Development, redevelopment and other activities generally include capital expenditure projects that reposition a property or result in new sources of revenue.

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

As of September 30, 2020, we had leases at our properties totaling approximately 3,780,000 rentable square feet that were scheduled to expire through December 31, 2021.

As of October 29, 2020, we expect tenants with leases totaling approximately 2,626,000 rentable square feet that are scheduled to expire through December 31, 2021, to not renew their leases upon expiration and we cannot be sure as to whether other tenants may or may not renew their leases upon expiration.

As a result of the COVID-19 pandemic and its economic impact, overall new leasing volume for 2020 has slowed and we expect that trend may continue or remain at a similar level of activity until market conditions meaningfully improve for a sustained period.

As of March 31, 2021, we have estimated unspent leasing related obligations of $50,405, of which we expect to spend $25,939 over the next 12 months.

As of March 31, 2021, we had leases at our properties totaling approximately 3,517,000 rentable square feet that were scheduled to expire through March 31, 2022.

As of April 28, 2021, we expect tenants with leases totaling approximately 2,701,000 rentable square feet that are scheduled to expire through March 31, 2022, to not renew their leases upon expiration and we cannot be sure as to whether other tenants will renew their leases upon expiration.

Of the approximately 2,701,000 rentable square feet that are expiring and expected to not renew, 1,371,000 rentable square feet have been sold and 263,000 rentable square feet are within a property that is in the planning stage for a potential redevelopment.

As a result of the COVID-19 pandemic and its economic impact, overall new leasing volume has remained at a reduced level during the three months ended March 31, 2021 and that trend may continue until market conditions meaningfully improve for a sustained period.

However, we remain focused on proactive dialogues with our existing tenants and overall tenant retention.

Prevailing market conditions and government and other tenants’ needs at the time we negotiate and enter leases or lease renewals will generally determine rental rates and demand for leased space at our properties, and market conditions and our tenants’ needs are beyond our control.

Whenever we extend, renew or enter into new leases for our properties, we intend to seek rents which are equal to or higher than our historical rents for the same properties;

Prevailing market conditions and government and other tenants’ needs at the time we negotiate and enter leases or lease renewals will

generally determine rental rates and demand for leased space at our properties, and market conditions and our tenants’ needs are beyond our control.

Whenever we renew or enter into new leases for our properties, we intend to seek rents which are equal to or higher than our historical rents for the same properties;

however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control.

1 unchanged sentence

also, we may experience material declines in our rental income due to vacancies upon lease expirations or early terminations.

As of September 30, 2020, our lease expirations by year are as follows (square feet in thousands):

As of March 31, 2021, our lease expirations by year are as follows (square feet in thousands):

Number of Leases Expiring Leased

15 unchanged sentences

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

As of September 30, 2020, tenants occupying approximately 7.5% of our rentable square feet and responsible for approximately 9.2% of our annualized rental income as of September 30, 2020 currently have exercisable rights to terminate their leases before the stated terms of their leases expire.

Also, in 2020, 2021, 2022, 2023, 2024, 2025, 2026, 2027, 2028, 2030 and 2035, early termination rights become exercisable by other tenants who currently occupy an additional approximately 0.2%, 1.5%, 2.3%, 1.5%, 1.1%, 2.2%, 1.0%, 0.5%, 1.1%, 0.1% and 0.1% of our rentable square feet, respectively, and contribute an additional approximately 0.2%, 1.6%, 2.4%, 1.7%, 1.7%, 3.9%, 1.3%, 0.7%, 1.4%, 0.2% and 0.1% of our annualized rental income, respectively, as of September 30, 2020.

In addition, as of September 30, 2020, pursuant to leases with 14 of our tenants, these tenants have rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets.

These 14 tenants occupy approximately 5.4% of our rentable square feet and contribute approximately 6.2% of our annualized rental income as of September 30, 2020.

(2) Leased square feet is pursuant to leases existing as of September 30, 2020, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any.

As of March 31, 2021, tenants occupying approximately 6.5% of our rentable square feet and responsible for approximately 7.5% of our annualized rental income as of March 31, 2021 currently have exercisable rights to terminate their leases before the stated terms of their leases expire.

Also, in 2021, 2022, 2023, 2024, 2025, 2026, 2027, 2028, 2029, and 2035, early termination rights become exercisable by other tenants who currently occupy an additional approximately 1.3%, 2.9%, 1.5%, 1.1%, 2.1%, 1.1%, 0.6%, 1.1%, 0.1%, and 0.3% of our rentable square feet, respectively, and contribute an additional approximately 1.6%, 3.1%, 1.7%, 1.8%, 3.7%, 1.4%, 1.1%, 1.4%, 0.2%, and 0.4% of our annualized rental income, respectively, as of March 31, 2021.

In addition, as of March 31, 2021, 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 occupy approximately 5.1% of our rentable square feet and contribute approximately 6.1% of our annualized rental income as of March 31, 2021.

(2) Leased square feet is pursuant to leases existing as of March 31, 2021, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any.

Square feet measurements are subject to changes when space is remeasured or reconfigured for new tenants.

2 unchanged sentences

If we are unable to extend or renew our leases, it may be time consuming and expensive to relet some of these properties.

We believe that current government budgetary methodology, spending priorities and the current U.S.

presidential administration’s views on the size and scope of government employment have resulted in a decrease in government employment.

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

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 renewing their leases for less space than they currently occupy.

Also, our government tenants’ desires to reconfigure leased office space to manage utilization per employee may require us to spend significant amounts for tenant improvements, and tenant relocations have become more prevalent than our past experiences in instances where efforts by government tenants to manage their space utilization require a significant reconfiguration of currently 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 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 government had begun to shift its leasing strategy to include longer term leases and was actively exploring 10 to 20 year lease terms at renewal, in some instances.

We believe the reduction in government tenant space utilization and the consolidation of government tenants into government owned real estate is substantially complete;

however, these activities may impact us for some time into the future.

It is also possible that as a result of the COVID-19 pandemic, government tenants may seek to manage space utilization rates in order to provide greater physical distancing for employees, which may require us to spend significant amounts for tenant improvements.

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

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

As of September 30, 2020, we derive 24.1% of our annualized rental income from our properties located in the metropolitan Washington, D.C.

however, 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, mostly through lease renewals, which may require us to spend significant amounts for tenant improvements.

However, the COVID-19 pandemic and its aftermath have had negative impacts on government budgets and resources, although there are indications that to date, certain of those impacts may not have been as negative as originally expected, 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.

As of March 31, 2021, we derive 24.0% of our annualized rental income from our properties located in the metropolitan Washington, D.C.

market area, which includes Washington, D.C., Northern Virginia and suburban Maryland.

11 unchanged sentences

and/or (c) tenants with investment grade rated parent entities that do not guarantee the tenant’s lease obligations.

As of September 30, 2020, tenants contributing 57.2% of annualized rental income were investment grade rated (or their payment obligations were guaranteed by an investment grade rated parent) and tenants contributing an additional 7.5% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

As of September 30, 2020, tenants representing 1% or more of our total annualized rental income were as follows:

Tenant Credit Rating Annualized Rental Income % of Total Annualized Rental Income

As of March 31, 2021, tenants contributing 56.1% of annualized rental income were investment grade rated (or their payment obligations were guaranteed by an investment grade rated parent) and tenants contributing an additional 8.6% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

As of March 31, 2021, tenants representing 1% or more of our total annualized rental income were as follows:

Tenant Credit Rating Sq.

% of Leased Sq.

Annualized Rental Income % of Total Annualized Rental Income

Government Investment Grade 5,310 23.8 % $ 145,196 25.9 %

3 unchanged sentences

4 Bank of America Corporation Investment Grade 577 2.6 % 15,803 2.8 %

5 WestRock Company Investment Grade 12,864 2.2 %

5 F5 Networks, Inc.

2 unchanged sentences

7 CareFirst Inc.

Non Investment Grade 11,684 2.0 %

Not Rated 207 0.9 % 11,870 2.1 %

8 Northrop Grumman Corporation Investment Grade 337 1.5 % 11,447 2.0 %

5 unchanged sentences

13 PNC Bank Investment Grade 441 2.0 % 6,915 1.2 %

14 Compass Group plc Investment Grade 267 1.2 % 6,639 1.2 %

15 ServiceNow, Inc.

2 unchanged sentences

Investment Grade 468 2.1 % 6,473 1.2 %

17 Compass Group plc Investment Grade 6,399 1.1 %

17 Automatic Data Processing, Inc.

2 unchanged sentences

Investment Grade 250 1.1 % 6,031 1.1 %

20 Tailored Brands, Inc.

Non Investment Grade 5,898 1.0 %

Total 11,339 50.8 % $ 322,284 57.6 %

(1) On August 2, 2020, Tailored Brands, Inc.

filed for Chapter 11 bankruptcy.

Although the tenant has paid its post-petition rental obligations due for September and October 2020, the tenant owes its August rental obligations, for which a proof of claim has been filed.

On October 27, 2020, Tailored Brands, Inc.

filed a plan supplement in connection with its reorganization plan which included assuming its lease obligation with us.

However, that does not assure entry of a confirmation order by the bankruptcy court or that the tenant will pay its August 2020 or future rents, or that the tenant will not seek to renegotiate its lease obligation as part of its bankruptcy proceeding.

Acquisition Activities

During the nine months ended September 30, 2020, we acquired a property adjacent to a property we own in Boston, MA for $11,500, excluding acquisition related costs.

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

As of April 28, 2021, we have entered into an agreement to acquire a property adjacent to a property we own in Boston, MA containing approximately 49,000 rentable square feet for $26,975, excluding acquisition related costs.

This acquisition is expected to occur before the end of the second quarter.

However, this acquisition is subject to conditions;

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

For more information about our acquisition activities, see Note 3 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Disposition Activities

During the nine months ended September 30, 2020, we sold six properties with a combined 734,784 rentable square feet for an aggregate sales price of $85,363, excluding closing costs and including the repayment of one mortgage note with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021.

In October 2020, we sold a four property business park located in Fairfax, VA containing approximately 171,000 rentable square feet for a sales price of $25,100, excluding closing costs.

We sold these properties pursuant to our capital recycling program.

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

Given the current

economic conditions surrounding the COVID-19 pandemic, we are carefully considering our capital allocation strategy and believe we are well positioned to opportunistically recycle and deploy capital.

During the three months ended March 31, 2021, we sold two properties containing a combined approximately 321,000 rentable square feet for an aggregate sales price of $130,845, excluding closing costs.

In April 2021, we sold a property located in Huntsville, AL containing approximately 1,371,000 rentable square feet for a sales price of $39,000, excluding closing costs.

Also in April 2021, we entered into an agreement to sell a property located in Liverpool, NY containing approximately 38,000 rentable square feet for a sales price of $650, excluding closing costs.

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

However, this sale is subject to conditions;

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

For more information about our disposition activities, see Note 3 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Financing Activities

In January 2020, we redeemed, at par plus accrued interest, all $400,000 of our 3.60% senior unsecured notes due 2020 using cash on hand, proceeds from property sales and borrowings under our revolving credit facility.

In March 2020, in connection with the sale of one property, we prepaid, at a premium plus accrued interest, a mortgage note secured by that property with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021, which was classified in liabilities of properties held for sale in our condensed consolidated balance sheet as of December 31, 2019.

Also in March 2020, we prepaid, at a premium plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $66,780, an annual interest rate of 4.0% and a maturity date in September 2030 using cash on hand and borrowings under our revolving credit facility.

In April 2020, we prepaid, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $32,677, an annual interest rate of 5.7% and a maturity date in July 2020 using cash on hand and borrowings under our revolving credit facility.

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

In connection with this offering, we granted the underwriters a 30 day option to purchase up to an additional $22,500 aggregate principal amount of these notes.

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

The aggregate net proceeds from this offering were $156,186, after underwriters’ discounts and offering expenses, which we used to repay amounts outstanding under our revolving credit facility and for general business purposes.

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

In August 2020, we repaid at maturity, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $39,635 and an annual interest rate of 2.2% using cash on hand and borrowings under our revolving credit facility.

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

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

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

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

Segment Information

2 unchanged sentences

RESULTS OF OPERATIONS (amounts in thousands, except per share amounts)

Three Months Ended September 30, 2020, Compared to Three Months Ended September 30, 2019

Three Months Ended March 31, 2021, Compared to Three Months Ended March 31, 2020

Comparable Properties (1) Results

Three Months Ended March 31,

Non-Comparable

Properties Results

Comparable Properties Results (1)

Three Months Ended Consolidated Results

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

Three Months Ended March 31,

Consolidated Results

Three Months Ended March 31,

2021 2020 $ Change % Change 2021 2020 2021 2020 $ Change % Change

5 unchanged sentences

Total operating expenses 47,116 46,831 285 0.6 % 909 2,868 48,025 49,699 (1,674) (3.4 %)

Property net operating income (2)

Net operating income (2)

$ 93,859 $ 94,100 $ (241) (0.3 %) $ 2,640 $ 6,086 96,499 100,186 (3,687) (3.7 %)

1 unchanged sentence

Depreciation and amortization 64,087 62,943 1,144 1.8 %

Loss on impairment of real estate 2,954 8,521 (5,567) (65.3 %)

Loss on impairment of real estate 7,660 — 7,660 n/m

General and administrative 11,272 7,109 4,163 58.6 %

4 unchanged sentences

Loss on early extinguishment of debt — (3,282) 3,282 n/m

Loss before income tax (expense) benefit and equity in net losses of investees (3,572) (3,587) 15 (0.4 %)

Income tax (expense) benefit 54 (156) 210 (134.6 %)

Income before income tax expense and equity in net losses of investees 38,691 11,155 27,536 n/m

Income tax expense (435) (39) (396) n/m

Equity in net losses of investees (396) (276) (120) 43.5 %

Net loss $ (3,797) $ (3,939) $ 142 (3.6 %)

Weighted average common shares outstanding (basic and diluted) 48,132 48,073 59 0.1 %

Net income $ 37,860 $ 10,840 $ 27,020 n/m

Weighted average common shares outstanding (basic) 48,161 48,095 66 0.1 %

Weighted average common shares outstanding (diluted) 48,196 48,095 101 0.2 %

Per common share amounts (basic and diluted):

Net loss $ (0.08) $ (0.08) $ — 0.0 %

Net income $ 0.78 $ 0.23 $ 0.55 n/m

n/m - not meaningful

(1) Comparable properties consists of 178 properties we owned on September 30, 2020 and which we owned continuously since July 1, 2019 and excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

(2) Our definition of property net operating income, or Property NOI, and our reconciliation of net income (loss) to Property NOI are included below under the heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three month period ended September 30, 2020, compared to the three month period ended September 30, 2019.

(1) Comparable properties consists of 175 properties we owned on March 31, 2021 and which we owned continuously since January 1, 2020 and excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

(2) Our definition of net operating income, or NOI, and our reconciliation of net income to NOI are included below under the heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended March 31, 2021, compared to the three months ended March 31, 2020.

Rental income.

The decrease in rental income reflects decreases in rental income of $15,384 as a result of property dispositions, $4,147 related to comparable properties and $2,117 related to a property undergoing significant redevelopment, offset by an increase in rental income of $43 related to acquired properties.

The decrease in rental income for comparable properties is primarily due to reductions in occupied space at certain of our comparable properties in the 2020 period, lower reimbursement income due to reductions in expenses that are reimbursable to us by our tenants as a result of the COVID-19 pandemic and resulting decrease in space utilization and increased revenue reserves of $652 in the 2020 period primarily due to two of our tenants that represent approximately 1.17% of our annualized revenue as of September 30, 2020 being unable to pay us rent due to the impact of the COVID-19 pandemic.

Rental income includes non-cash straight line rent adjustments totaling $3,912 in the 2020 period and $6,904 in the 2019 period, and amortization of acquired leases and assumed lease obligations totaling $(1,312) in the 2020 period and $(35) in the 2019 period.

The decrease in rental income reflects decreases in rental income of $6,168 as a result of property disposition activities and $49 for a property undergoing significant redevelopment, offset by increases in rental income of $812 related to acquired properties and $44 related to comparable properties.

Rental income includes non-cash straight line rent adjustments totaling $5,357 in the 2021 period and $5,583 in the 2020 period, and amortization of acquired real estate leases and assumed real estate lease obligations totaling ($722) in the 2021 period and ($1,432) in the 2020 period.

Real estate taxes.

The decrease in real estate taxes primarily reflects decreases in real estate taxes of $1,979 as a result of property dispositions, $626 for a property undergoing significant redevelopment and $122 for comparable properties, offset by an increase in real estate taxes of $16 related to acquired properties.

Real estate taxes for comparable properties decreased primarily due to successful real estate tax appeals for two of our comparable properties in the 2020 period.

The decrease in real estate taxes primarily reflects decreases in real estate taxes of $690 as a result of property disposition activities and $182 for a property undergoing significant redevelopment, offset by an increase of $219 for comparable properties.

Real estate taxes for comparable properties increased primarily due to a refund received in the 2020 period at one of our properties as a result of a successful real estate tax appeal, as well as the effect of higher real estate tax rates and valuation assessments at certain of our comparable properties in the 2021 period.

Utility expenses.

The decrease in utility expenses reflects a decrease in utility expenses of $1,373 as a result of property dispositions and a decrease for comparable properties of $621, offset by an increase in utility expenses of $40 for a property undergoing significant redevelopment.

Utility expenses for comparable properties declined primarily due to a decrease in electricity and water usage resulting from cost savings initiatives implemented by our manager, RMR LLC, in response to decreased space utilization at our properties as a result of the COVID-19 pandemic, as well as the implementation of real time energy management programs at certain of our properties in the 2020 period.

The decrease in utility expenses reflects decreases in utility expenses for comparable properties of $493 and $196 as a result of property disposition activities, offset by an increase in utility expenses of $109 for a property undergoing significant redevelopment.

Other operating expenses.

Other operating expenses consist of salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense, other direct costs of operating our properties and property management fees.

The decrease in other operating expenses primarily reflects a decrease of $3,107 as a result of property dispositions, a decrease of $833 for comparable properties and a decrease of $122 related to a property undergoing significant redevelopment, offset by an increase in other operating expenses of $52 for acquired properties.

Other operating expenses for comparable properties decreased primarily due to lower cleaning costs as a result of cost savings initiatives implemented by our manager, RMR LLC, in response to decreased space utilization at our properties as a result of the COVID-19 pandemic and lower parking garage maintenance costs at certain of our properties due to lower parking activity resulting from the COVID-19 pandemic.

The decrease in other operating expenses primarily reflects a decrease of $1,062 as a result of property disposition activities, offset by an increase in other operating expenses of $559 for comparable properties and $62 for acquired properties.

Other operating expenses for comparable properties increased primarily due to higher snow removal costs in the 2021 period, partially offset by lower cleaning costs as a result of cost savings initiatives implemented by our manager, RMR LLC, in response to decreased space utilization at our properties as a result of the COVID-19 pandemic and lower parking garage maintenance costs at certain of our properties due to lower parking activity resulting from the COVID-19 pandemic.

Depreciation and amortization.

The decrease in depreciation and amortization primarily reflects a decrease for comparable properties of $6,469, a decrease of $5,457 as a result of property dispositions and a decrease of $844 related to a property undergoing significant redevelopment, offset by an increase in depreciation and amortization of $58 for acquired properties.

Depreciation and amortization for comparable properties and the property undergoing significant redevelopment declined due to certain leasing related assets becoming fully depreciated in the 2020 period.

The increase in depreciation and amortization is primarily the result of increases of $1,697 related to the accelerated amortization of an intangible lease asset as a result of an early lease termination, $591 related to depreciation and amortization of improvements made to certain of our properties after January 1, 2020 and $354 for acquired properties, offset by a decrease of $1,498 related to property disposition activities.

Loss on impairment of real estate.

We recorded a $2,954 loss on impairment of real estate in the 2020 period to reduce the carrying value of four properties to their estimated fair value less costs to sell.

In the 2019 period, we recorded a $6,342 loss on impairment of real estate to reduce the carrying value of eight properties to their estimated fair value less costs to sell and a $2,179 loss on impairment of real estate related to the disposal of one property.

We recorded a $7,660 loss on impairment of real estate in the 2021 period to reduce the carrying value of two properties to their estimated fair values less costs to sell.

General and administrative.

General and administrative expenses consist of fees pursuant to our business management agreement, equity compensation expense, legal and accounting fees, Trustees’ fees and expenses, securities listing and transfer agency fees and other costs relating to our status as a publicly traded company.

The decrease in general and administrative expenses primarily reflects a decrease in business management fees as a result of property sales during 2019 and 2020 and declines in our share price in the 2020 period during the COVID-19 pandemic.

Gain on sale of real estate.

We recorded an $11,463 gain on sale of real estate resulting from the sale of two properties in the 2019 period.

Interest and other income.

The decrease in interest and other income is primarily due to the payoff of a mortgage note receivable that we received in June 2020 in connection with a property we sold in 2016, as well as the effect of lower cash balances invested in the 2020 period compared to the 2019 period and lower returns on cash invested.

Interest expense.

senior unsecured notes in January 2020 and the repayment of four mortgage notes with an aggregate principal balance of $152,187 during 2020, as well as lower weighted average interest rates on borrowings during the 2020 period compared to the 2019 period, partially offset by an increase in interest expense resulting from the issuance of $162,000 of our 6.375% senior unsecured notes in June and July 2020 and $250,000 of our 4.50% senior unsecured notes in September 2020.

Loss on early extinguishment of debt.

Loss on extinguishment of debt in the 2019 period reflects the write-off of unamortized debt issuance costs and discounts associated with repayments of our unsecured term loan and redemption of our senior unsecured notes due 2019.

Income tax (expense) benefit.

Income tax (expense) benefit is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes.

Equity in net losses of investees.

Equity in net losses of investees represents our proportionate share of losses from our investments in two unconsolidated joint ventures and, in the 2019 period, our investment in AIC.

Net loss decreased in the 2020 period compared to the 2019 period primarily as a result of the changes noted above.

RESULTS OF OPERATIONS (amounts in thousands, except per share amounts)

Nine Months Ended September 30, 2020, Compared to Nine Months Ended September 30, 2019

Non-Comparable

Properties Results

Comparable Properties Results (1)

Nine Months Ended Consolidated Results

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

2020 2019 Change Change 2020 2019 2020 2019 Change Change

Rental income $ 436,764 $ 443,510 $ (6,746) (1.5 %) $ 4,530 $ 74,710 $ 441,294 $ 518,220 $ (76,926) (14.8 %)

Operating expenses:

Real estate taxes 48,223 48,110 113 0.2 % 478 7,253 48,701 55,363 (6,662) (12.0 %)

Utility expenses 19,284 22,050 (2,766) (12.5 %) 493 4,319 19,777 26,369 (6,592) (25.0 %)

Other operating expenses 76,030 77,177 (1,147) (1.5 %) 2,003 13,027 78,033 90,204 (12,171) (13.5 %)

Total operating expenses 143,537 147,337 (3,800) (2.6 %) 2,974 24,599 146,511 171,936 (25,425) (14.8 %)

Property NOI (2)

$ 293,227 $ 296,173 $ (2,946) (1.0 %) $ 1,556 $ 50,111 294,783 346,284 (51,501) (14.9 %)

Other expenses:

Depreciation and amortization 189,340 226,373 (37,033) (16.4 %)

Loss on impairment of real estate 2,954 14,105 (11,151) (79.1 %)

Acquisition and transaction related costs — 682 (682) n/m

General and administrative 21,372 25,457 (4,085) (16.0 %)

Total other expenses 213,666 266,617 (52,951) (19.9 %)

Gain on sale of real estate 10,822 33,538 (22,716) (67.7 %)

Dividend income — 1,960 (1,960) n/m

Loss on equity securities, net — (44,007) 44,007 n/m

Interest and other income 738 847 (109) (12.9 %)

Interest expense (79,461) (104,848) 25,387 (24.2 %)

Loss on early extinguishment of debt (3,839) (769) (3,070) n/m

Income (loss) before income tax expense and equity in net losses of investees 9,377 (33,612) 42,989 127.9 %

Income tax expense (220) (509) 289 (56.8 %)

Equity in net losses of investees (815) (573) (242) 42.2 %

Net income (loss) $ 8,342 $ (34,694) $ 43,036 124.0 %

Weighted average common shares outstanding (basic and diluted) 48,111 48,051 60 0.1 %

Per common share amounts (basic and diluted):

Net income (loss) $ 0.17 $ (0.72) $ 0.89 123.6 %

n/m - not meaningful

(1) Comparable properties consists of 178 properties we owned on September 30, 2020 and which we owned continuously since January 1, 2019 and excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

(2) Our definition of Property NOI and our reconciliation of net income (loss) to Property NOI are included below under the heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of consolidated results for the nine month period ended September 30, 2020, compared to the nine month period ended September 30, 2019.

Rental income.

The decrease in rental income reflects decreases in rental income of $64,054 as a result of property dispositions, $6,746 related to comparable properties and $6,202 related to a property undergoing significant redevelopment, offset by an increase in rental income of $76 related to acquired properties.

The decrease in rental income for comparable properties is primarily due to reductions in occupied space at certain of our comparable properties in the 2020 period, termination fee revenue recorded at certain of our comparable properties in the 2019 period, certain below market lease intangibles becoming fully amortized and reductions in reimbursement income due to reductions in expenses that are

reimbursable to us by our tenants as a result of the COVID-19 pandemic and resulting decrease in space utilization.

Rental income includes non-cash straight line rent adjustments totaling $12,963 in the 2020 period and $19,365 in the 2019 period, and amortization of acquired leases and assumed lease obligations totaling $(4,149) in the 2020 period and $(2,628) in the 2019 period.

Real estate taxes.

The decrease in real estate taxes primarily reflects a decrease in real estate taxes associated with property dispositions of $6,204 and a decrease in real estate taxes of $609 for a property undergoing significant redevelopment, offset by increases in real estate taxes of $113 for comparable properties and $38 for acquired properties.

Real estate taxes for comparable properties increased primarily due to the effect of higher real estate tax rates and valuation assessments for certain of our properties in the 2020 period.

Utility expenses.

The decrease in utility expenses reflects a decrease in utility expenses associated with property dispositions of $3,975 and a decrease in utility expenses for comparable properties of $2,766, offset by an increase in utility expenses for a property undergoing significant redevelopment of $149.

Other operating expenses.

The decrease in other operating expenses primarily reflects a decrease in other operating expenses related to property dispositions of $10,718, a decrease of $1,147 for comparable properties and a decrease of $397 related to a property undergoing significant redevelopment, offset by an increase in other operating expenses related to acquired properties of $91.

Other operating expenses for comparable properties decreased primarily due to lower cleaning costs resulting from cost savings initiatives implemented by our manager, RMR LLC, in response to decreased space utilization at our properties as a result of the COVID-19 pandemic, lower snow removal costs and lower parking garage maintenance costs due to lower parking activity at certain of our properties resulting from the COVID-19 pandemic, partially offset by higher insurance costs in the 2020 period.

Depreciation and amortization.

The decrease in depreciation and amortization primarily reflects a decrease related to property dispositions of $21,653, a decrease for comparable properties of $12,903 and a decrease related to a property undergoing significant redevelopment of $2,618, offset by an increase related to acquired properties of $141.

Loss on impairment of real estate.

We recorded a $2,954 loss on impairment of real estate in the 2020 period to reduce the carrying value of four properties to their estimated fair value less costs to sell.

In the 2019 period, we recorded an $11,479 loss on impairment of real estate to reduce the carrying value of ten properties to their estimated fair value less costs to sell and $2,626 of losses on impairment of real estate related to the sale of 35 properties.

Acquisition and transaction related costs.

Acquisition and transaction related costs in the 2019 period consists of post-merger activity costs incurred in 2019 in connection with our acquisition of SIR on December 31, 2018 in a merger transaction and other related transactions.

General and administrative.

The decrease in general and administrative expenses primarily reflects a decrease in business management fees mostly as a result of property sales during 2019 and 2020 and lower legal expenses.

The increase in general and administrative expenses is primarily the result of $5,200 of estimated business management incentive fees recorded in the 2021 period, partially offset by a decrease in base business management fees resulting from declines in our share price in the 2021 period compared to the 2020 period, the expiration of an office lease in January 2021 where we were the lessee and lower legal costs.

Gain on sale of real estate.

We recorded a $10,822 net gain on sale of real estate resulting from the sale of six properties during the 2020 period.

We recorded a $33,538 gain on sale of real estate resulting from the sale of three properties during the 2019 period.

Dividend income.

Dividend income in the 2019 period consists of distributions received in connection with our former investment in RMR Inc.

that we sold on July 1, 2019.

Loss on equity securities, net.

Loss on equity securities, net represents a realized loss in the 2019 period from the sale of our 2.8 million shares of class A common stock of RMR Inc.

on July 1, 2019.

We recorded a $54,004 net gain on sale of real estate resulting from the sale of two properties in the 2021 period.

We recorded a $10,756 net gain on sale of real estate resulting from the sale of six properties in the 2020 period.

Interest and other income.

The decrease in interest and other income is primarily due to the effect of lower cash balances invested in the 2020 period compared to the 2019 period, lower returns on cash invested and the payoff of a mortgage note receivable that we received in June 2020 in connection with a property we sold in 2016, partially offset by a settlement we received resulting from a dispute with a vendor.

The decrease in interest and other income is primarily due to a settlement we received in the 2020 period resulting from a dispute with a vendor, the effect of lower returns on cash invested in the 2021 period compared to the 2020 period and the June 2020 payoff of a mortgage note receivable in connection with a property we sold in 2016.

Interest expense.

The decrease in interest expense is primarily due to lower average outstanding debt balances in the 2020 period resulting from debt repayment activity in 2019 and 2020, including the repayment of our term loans during 2019, the redemption of all $350,000 of our 3.75% senior unsecured notes in July 2019, the redemption of all $400,000 of our 3.60% senior unsecured notes in January 2020 and the repayment of four mortgage notes with an aggregate principal balance of $152,187 in 2020, as well as lower weighted average interest rates on borrowings during the 2020 period compared to the 2019 period, partially offset by an increase in interest expense resulting from the issuance of $162,000 of our 6.375% senior unsecured notes in June and July 2020 and $250,000 of our 4.50% senior unsecured notes in September 2020.

The increase in interest expense is primarily due to the issuance of $162,000 of 6.375% senior unsecured notes in June and July 2020 and $250,000 of our 4.50% senior unsecured notes in September 2020, partially offset by lower interest expense incurred as a result of having no amounts outstanding under our revolving credit facility during the 2021 period and the repayment of four mortgage notes with an aggregate principal balance of $152,187 in 2020.

Loss on early extinguishment of debt.

We recorded a loss on early extinguishment of debt of $3,839 in the 2020 period from prepayment fees incurred and the write off of unamortized discounts, premiums and debt issuance costs associated with the prepayment of three mortgage notes and a loss on the settlement of a mortgage note receivable related to a property sold in 2016.

We recorded a loss on early extinguishment of debt of $769 in the 2019 period from the write off of unamortized debt issuance costs and discounts associated with the repayments of our term loans and redemption of our senior unsecured notes due 2019.

We recorded a loss on early extinguishment of debt of $3,282 in the 2020 period from prepayment fees incurred and the write off of unamortized discounts and debt issuance costs associated with the prepayment of two mortgage notes and the redemption of our 3.60% senior unsecured notes due 2020.

Income tax expense.

The decrease in income tax expense reflects lower operating income in certain jurisdictions in the 2020 period where we are subject to state income taxes.

The increase in income tax expense is primarily the result of the net gain on sale of real estate recorded in the 2021 period.

Equity in net losses of investees.

Equity in net losses of investees represents our proportionate share of earnings and losses from our investments in two unconsolidated joint ventures and, in the 2019 period, our investment in AIC.

Net income (loss).

Our net income (loss) and net income (loss) per basic and diluted common share increased in the 2020 period compared to the 2019 period primarily as a result of the changes noted above.

Equity in net losses of investees represents our proportionate share of losses from our investments in two unconsolidated joint ventures.

Net income and net income per basic and diluted common share increased in the 2021 period compared to the 2020 period primarily as a result of the changes noted above.

Non-GAAP Financial Measures

We present certain “non-GAAP financial measures” within the meaning of applicable rules of the Securities and Exchange Commission, or SEC, including Property NOI, funds from operations, or FFO, and normalized funds from operations, or Normalized FFO.

These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity.

These measures should be considered in conjunction with net income (loss) as presented in our condensed consolidated statements of comprehensive income (loss).

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss).

We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of Property NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.

Property Net Operating Income

The calculation of Property NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations.

We calculate Property NOI as shown below.

We define Property NOI as income from our rental of real estate less our property operating expenses.

Property NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization expense.

We use Property NOI to evaluate individual and company-wide property level performance.

Other real estate companies and REITs may calculate Property NOI differently than we do.

The following table presents the reconciliation of net income (loss) to Property NOI for the three and nine months ended September 30, 2020 and 2019.

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

2020 2019 2020 2019

Net income (loss) $ (3,797) $ (3,939) $ 8,342 $ (34,694)

We present certain “non-GAAP financial measures” within the meaning of the applicable rules of the Securities and Exchange Commission, or SEC, including the calculations below of NOI, funds from operations, or FFO, and normalized funds from operations, or Normalized FFO.

These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income as indicators of our operating performance or as measures of our liquidity.

These measures should be considered in conjunction with net income as presented in our condensed consolidated statements of comprehensive income.

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income.

We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.

Net Operating Income

The calculation of NOI excludes certain components of net income in order to provide results that are more closely related to our property level results of operations.

We calculate NOI as shown below.

We define NOI as income from our rental of real estate less our property operating expenses.

NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization expense.

We use NOI to evaluate individual and company-wide property level performance.

Other real estate companies and REITs may calculate NOI differently than we do.

The following table presents the reconciliation of net income to NOI for the three months ended March 31, 2021 and 2020.

Three Months Ended March 31,

Net income $ 37,860 $ 10,840

Equity in net losses of investees 396 276

Income tax expense (benefit) (54) 156 220 509

Income (loss) before income tax expense (benefit) and equity in net losses of investees (3,572) (3,587) 9,377 (33,612)

Income tax expense 435 39

Income before income tax expense and equity in net losses of investees 38,691 11,155

Loss on early extinguishment of debt — 3,282

1 unchanged sentence

Interest and other income (5) (706)

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

Dividend income — — — (1,960)

Gain on sale of real estate (54,004) (10,756)

General and administrative 11,272 7,109

Acquisition and transaction related costs — — — 682

Loss on impairment of real estate 7,660 —

Depreciation and amortization 64,087 62,943

Property NOI $ 95,763 $ 108,693 $ 294,783 $ 346,284

NOI $ 96,499 $ 100,186

Funds From Operations and Normalized Funds From Operations

We calculate FFO and Normalized FFO as shown below.

FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets, any gain or loss on sale of real estate and equity securities, as well as certain other adjustments currently not applicable to us.

FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income, calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets and any gain or loss on sale of real estate, as well as certain other adjustments currently not applicable to us.

In calculating Normalized FFO, we adjust for the other items shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year.

2 unchanged sentences

Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.

The following table presents the reconciliation of net income (loss) to FFO and Normalized FFO for the three and nine months ended September 30, 2020 and 2019.

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

2020 2019 2020 2019

Net income (loss) $ (3,797) $ (3,939) $ 8,342 $ (34,694)

The following table presents the reconciliation of net income to FFO and Normalized FFO for the three months ended March 31, 2021 and 2020.

Three Months Ended March 31,

Net income $ 37,860 $ 10,840

Depreciation and amortization:

3 unchanged sentences

Gain on sale of real estate (54,004) (10,756)

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

FFO 56,609 64,268

Acquisition and transaction related costs — — — 682

Loss on early extinguishment of debt — 3,282

Estimated business management incentive fees 5,200 —

Normalized FFO $ 61,809 $ 67,550

FFO per common share (basic and diluted) $ 1.30 $ 1.44 $ 4.02 $ 4.60

Weighted average common shares outstanding (basic) 48,161 48,095

Weighted average common shares outstanding (diluted) 48,196 48,095

FFO per common share (basic) $ 1.18 $ 1.34

FFO per common share (diluted) $ 1.17 $ 1.34

Normalized FFO per common share (basic and diluted)

9 unchanged sentences

• our ability to successfully sell properties that we market for sale;

• our ability to purchase additional properties which produce cash flows from operations in excess of our cost of acquisition capital and property operating expenses and capital expenses.

With $750,000 available under our revolving credit facility as of October 29, 2020 and no significant debt maturities until 2022, we believe that we are well positioned to weather the present disruptions facing the real estate industry and the economy generally.

• our ability to develop or redevelop properties to produce cash flows in excess of our cost of capital;

• our ability to purchase additional properties which produce cash flows from operations in excess of our cost of acquisition capital and property operating and capital expenses.

With $750,000 available under our revolving credit facility as of April 28, 2021 and no debt maturities until 2022, we believe that we are well positioned to weather the present disruptions facing the real estate industry and the economy generally.

As a result of the COVID-19 pandemic, we have received requests from some of our tenants for rent assistance.

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

Our liquidity has been temporarily impacted by these rent deferrals with $2,096 of granted rent deferrals for the period of April 2020 through September 2020, until these deferrals begin to become obligated to be repaid.

In addition, we also anticipate that our general and administrative expenses may continue to be reduced because of the lower fees we will pay to our manager as a result of the decline in our share price since the COVID-19 pandemic began.

Although some of our tenants have sought temporary rent assistance, we remain focused on proactive dialogues with our existing tenants and overall tenant retention.

Also, we believe we will benefit from the approximately 64.7% of our annualized rental income as of September 30, 2020 paid by investment grade tenants, the majority of which is made up of government tenants, and the diversity of our tenant base, both geographically and by industry, which may help mitigate the economic impact of the COVID-19 pandemic.

On October 15, 2020, we announced a regular quarterly cash distribution of $0.55 per common share ($2.20 per common share per year), maintaining our previous distribution rate.

At this time, we continue to expect that the quarterly distribution rate will remain unchanged.

As of April 26, 2021, we have granted temporary rent assistance totaling $2,483 to 18 tenants who represent approximately 3.2% of our annualized rental income as of March 31, 2021.

As of April 26, 2021, we have collected $2,118, or 85.3%, of our granted rent deferrals.

Although some of our tenants have sought temporary rent assistance, we remain focused on proactive dialogu es with our existing tenants and overall tenant retention.

Also, we believe we will benefit from the approximately 64.7% of our annualized rental income as of March 31, 2021 paid by investment grade tenants, the majority of which is made up of government tenants, and the diversity of our tenant base, both geographically and by industry, which may help mitigate the economic impact of the COVID-19 pandemic .

On April 15, 2021, we announced a continuation of our regular quarterly cash distribution of $0.55 per common share ($2.20 per common share per year).

We determine our distribution payout ratio with consideration for our expected capital expenditures as well as cash flows from operations and debt obligations.

In early 2020, we completed our previously announced disposition program and transitioned to a capital recycling program through which we expect to accretively grow our property portfolio.

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

During the nine months ended September 30, 2020, we sold six properties for $85,363, excluding closing costs.

In October 2020, we sold a four property business park located in Fairfax, VA containing approximately 171,000 rentable square feet for a sales price of $25,100, excluding closing costs.

Also in October 2020, we entered into an agreement to acquire three properties adjacent to properties we own in an office park in Brookhaven, GA for $15,250, excluding acquisition related costs.

Given the current economic conditions, we are carefully considering our capital allocation strategy and believe we are well positioned to opportunistically recycle and deploy capital.

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

During the three months ended March 31, 2021, we sold two properties for an aggregate sales price of $130,845, excluding closing costs and sold another property in April 2021 for a sales price of $39,000, excluding closing costs.

In addition, as of April 28, 2021 , we have entered into an agreement to sell one property for a sales price of $650, excluding closing costs and have entered into an agreement to acquire a property adjacent to a property we own in Boston, MA for $26,975, excluding acquisition related costs.

Given the current economic conditions, we continue to carefully consider our capital allocation strategy and believe we are well positioned to opportunistically recycle and deploy capital.

Our future purchases of properties cannot be accurately projected because such purchases depend upon purchase opportunities which come to our attention and our ability to successfully complete the acquisitions.

We generally do not intend to purchase “turn around” properties, or properties which do not generate positive cash flows.

Our changes in cash flows for the nine months ended September 30, 2020 compared to the same period in 2019 were as follows:

(i) cash flows provided by operating activities increased from $148,138 in the 2019 period to $166,098 in the 2020 period;

(ii) cash flows provided by investing activities decreased from $639,768 in the 2019 period to $18,104 in the 2020 period;

and (iii) cash flows used in financing activities decreased from $793,816 in the 2019 period to $227,259 in the 2020 period.

The increase in cash provided by operating activities for the 2020 period as compared to the 2019 period was a result of favorable changes in working capital in the 2020 period compared to the 2019 period.

The decrease in cash provided by investing activities in the 2020 period as compared to the 2019 period is primarily due to lower cash proceeds received from our sales of properties in the 2020 period compared to the 2019 period, the sale of 2.8 million shares of Class A common stock of RMR Inc.

in the 2019 period and higher real estate acquisition and improvement activities in the 2020 period.

The decrease in cash used in financing activities in the 2020 period as compared to the 2019 period is primarily due to the issuance of $162,000 of our 6.375% senior unsecured notes due 2050 and $250,000 of our 4.50% senior unsecured notes due 2025 in the 2020 period and a decrease in net debt repayment activity, due to repayments of our unsecured term loans and net repayment activity on our revolving credit facility using cash on hand and proceeds from sales of properties in the 2019 period compared to increased borrowings under our revolving credit facility in the 2020 period in order to facilitate the repayment of other debts, including the redemption of all $400,000 of our 3.60% senior unsecured notes in January 2020 and the repayment of $152,187 of mortgage debt.

Our Investment and Financing Liquidity and Resources (dollar amounts in thousands, except per share and per square foot amounts)

The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our condensed consolidated statements of cash flows:

Three Months Ended March 31,

Cash, cash equivalents and restricted cash at beginning of period $ 56,855 $ 100,696

Net cash provided by (used in):

Operating activities 57,942 37,601

Investing activities 113,896 42,095

Financing activities (27,218) (146,386)

Cash, cash equivalents and restricted cash at end of period $ 201,475 $ 34,006

The increase in cash provided by operating activities for the 2021 period compared to the 2020 period was a result of favorable changes in working capital in the 2021 period compared to the 2020 period, partially offset by a decline in NOI as a result of property sales.

The increase in cash provided by investing activities in the 2021 period compared to the 2020 period is primarily due to higher cash proceeds received from our sales of properties and lower acquisition activity in the 2021 period compared to the 2020 period.

The decrease in cash used in financing activities in the 2021 period compared to the 2020 period is primarily due to a decrease in net debt repayment activity in the 2021 period compared to the 2020 period, which included the redemption of $400,000 of our 3.60% senior unsecured notes and the repayment of approximately $67,000 in mortgage debt using borrowings under our revolving credit facility and proceeds received from our sales of properties.

Our Investment and Financing Liquidity and Resources (dollar amounts in thousands, except per share amounts)

In order to fund acquisitions and to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $750,000 revolving credit facility.

1 unchanged sentence

We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity.

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

We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at September 30, 2020.

We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at March 31, 2021, on the amount outstanding under our revolving credit facility, if any.

We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at March 31, 2021.

Both the interest rate premium and facility fee are subject to adjustment based upon changes to our credit ratings.

As of September 30, 2020, the annual interest rate payable on borrowings under our revolving credit facility was 1.2%.

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

As of March 31, 2021, the annual interest rate payable on borrowings under our revolving credit facility was 1.2%.

As of March 31, 2021 and April 28, 2021, we had no amounts outstanding under our revolving credit facility and $750,000 available for borrowing.

Our credit agreement includes a feature under which the maximum borrowing availability may be increased to up to $1,950,000 in certain circumstances.

Our credit agreement provides that, with certain exceptions, a subsidiary of ours is required to guaranty our obligations under our $750,000 revolving credit facility only if that subsidiary has separately incurred debt (other than nonrecourse debt), within the meaning specified in our credit agreement, or provided a guarantee of debt incurred by us or any of our other subsidiaries.

In January 2020, we redeemed, at par plus accrued interest, all $400,000 of our 3.60% senior unsecured notes that had a maturity date in February 2020 using cash on hand, proceeds from property sales and borrowings under our revolving credit facility.

In March 2020, in connection with the sale of one property in Fairfax, VA, we prepaid, at a premium plus accrued interest, a mortgage note secured by that property with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021.

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

In connection with this offering, we granted the underwriters a 30 day option to purchase up to an additional $22,500 aggregate principal amount of these notes.

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

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

We used the aggregate net proceeds from this offering to repay amounts outstanding under our revolving credit facility and for general business purposes.

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

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

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

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

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

As of September 30, 2020, our debt maturities (other than our revolving credit facility), consisting of senior unsecured notes and mortgage notes, are as follows:

As of March 31, 2021, our debt maturities (other than our revolving credit facility), consisting of senior unsecured notes and mortgage notes, are as follows:

Year Debt Maturities

2025 and thereafter 1,122,000

Thereafter 472,000

Total $ 2,242,198

1 unchanged sentence

Our $170,198 in mortgage debts generally require monthly payments of principal and interest through maturity.

In addition to our debt obligations, as of September 30, 2020, we have estimated unspent leasing related obligations of $61,307.

In addition to our debt obligations, as of March 31, 2021, we have estimated unspent leasing related obligations of $50,405, of which we expect to spend $25,939 over the next 12 months.

We are currently in the planning stage for a potential redevelopment project at a property located in Washington, D.C.

containing approximately 340,000 rentable square feet.

This redevelopment project may require significant capital expenditures and time to complete.

We cannot be sure that we will complete this redevelopment project, that our plans for this project will not change or that this project will ultimately be successful.

We currently expect to use cash balances, borrowings under our revolving credit facility, net proceeds from property sales, incurrences or assumptions of mortgage debt and net proceeds from offerings of debt or equity securities to fund our future operations, capital expenditures, distributions to our shareholders and property acquisitions.

13 unchanged sentences

Further, such conditions could also disrupt capital markets and limit our access to financing from public sources.

During the nine months ended September 30, 2020, we paid quarterly distributions to our common shareholders totaling $79,546 using cash on hand and borrowings under our revolving credit facility.

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

We expect to pay this distribution on or about November 19, 2020 using cash on hand and borrowings under our revolving credit facility.

For more information regarding the distributions we paid during 2020, see Note 9 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Off Balance Sheet Arrangements (dollars in thousands)

During the three months ended March 31, 2021, we paid a quarterly distribution to our shareholders totaling $26,575 using cash on hand.

On April 15, 2021, we declared a regular quarterly distribution payable to shareholders of record on April 26, 2021 of $0.55 per share, or approximately $26,600.

We expect to pay this distribution on or about May 20, 2021 using cash on hand.

For more information regarding the distributions we paid and declared during 2021, see Note 8 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We own 51% and 50% interests in two unconsolidated joint ventures which own three properties.

The properties owned by these joint ventures are encumbered by an aggregate $82,000 principal amount of mortgage indebtedness.

The properties owned by these joint ventures are encumbered by an aggregate $82,000 principal amount of mortgage indebtedness, none of which is recourse to us.

We do not control the activities that are most significant to these joint ventures and, as a result, we account for our investments in these joint ventures under the equity method of accounting.

For more information on the financial condition and results of operations of these joint ventures, see Note 3 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Other than these joint ventures, as of September 30, 2020, we had no off balance sheet arrangements that

have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Other than these joint ventures, as of March 31, 2021, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Debt Covenants (dollars in thousands)

Our principal debt obligations at September 30, 2020 consisted of an aggregate outstanding principal balance of $2,072,000 of public issuances of senior unsecured notes and mortgage notes with an aggregate outstanding principal balance of $171,475, that were assumed in connection with certain of our acquisitions.

Our principal debt obligations at March 31, 2021 consisted of an aggregate outstanding principal balance of $2,072,000 of public issuances of senior unsecured notes and mortgage notes with an aggregate outstanding principal balance of $170,198, that were assumed in connection with certain of our acquisitions.

Also, the three properties owned by two joint ventures in which we own 51% and 50% interests secure two additional mortgage notes.

2 unchanged sentences

Our credit agreement and our senior unsecured notes indentures and their supplements also contain a number of covenants, including those that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, require us to comply with certain financial covenants and, in the case of our credit agreement, restrict our ability to make distributions to our shareholders under certain circumstances.

As of September 30, 2020, we believe we were in compliance with the terms and conditions of our respective covenants under our credit agreement and senior unsecured notes indentures and their supplements.

As of March 31, 2021, we believe we were in compliance with the terms and conditions of our respective covenants under our credit agreement and senior unsecured notes indentures and their supplements.

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

7 unchanged sentences

and others related to them.

we have no employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC;

is the managing member of RMR LLC;

Adam Portnoy, the Chair of our Board of Trustees and one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director, the president and chief executive officer of RMR Inc.

and an officer and employee of RMR LLC;

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

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

We have relationships and historical and continuing transactions with other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also trustees, directors or officers of us, RMR LLC or RMR Inc.

and some of our Trustees and officers serve as trustees, directors or officers of these companies.

For more information about these and other such relationships and related person transactions, see Notes 10 and 11 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2019 Annual Report, our definitive Proxy Statement for our 2020 Annual Meeting of Shareholders and our other filings with the SEC.

For more information about these and other such relationships and related person transactions, see Notes 9 and 10 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2020 Annual Report, our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders and our other filings with the

In addition, see the section captioned “Risk Factors” of our 2020 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships.

Our filings with the SEC and copies of certain of our agreements with these related persons, including our business and property management agreements with RMR LLC, are available as exhibits to our public filings with the SEC and accessible at the SEC’s website, www.sec.gov.

We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis