What changed in this filing

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Item 4. Controls and Procedures

2021-04-29 compared with 2020-10-30 · 38 added, 43 removed, 88 unchanged (48% of the section changed)

Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended.

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

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our Managing Trustees, our President and Chief Operating Officer and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended.

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

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Warning Concerning Forward-Looking Statements

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Forward-looking statements in this Quarterly Report on Form 10-Q relate to various aspects of our business, including:

• The duration and severity of the economic impact resulting from the COVID-19 pandemic and its impact on us and our tenants,

• The likelihood and extent to which our tenants will be negatively impacted by the COVID-19 pandemic and its aftermath and will be able and willing to pay us rent,

• The duration and severity of the economic impact resulting from the COVID-19 pandemic and its impact on us and our tenants and our tenants’ ability and willingness to pay us rent,

• Our expectations about the financial strength of our tenants,

• Our expectations that the diversity and other characteristics of our property portfolio and our financial resources will result in our ability to successfully withstand the current economic conditions,

• Our sales and acquisitions of properties,

• Our ability to compete for acquisitions and tenancies effectively,

• The likelihood that our tenants will pay rent or be negatively affected by cyclical economic conditions or government budget constraints,

• The likelihood that our tenants will renew or extend their leases and not exercise early termination options pursuant to their leases or that we will obtain replacement tenants on terms as favorable to us as our prior leases,

• The likelihood that our rents will increase when we renew or extend our leases or enter new leases,

• The expectation that, as a result of the COVID-19 pandemic, leasing activity may continue to slow,

• Our belief that we are in a position to opportunistically recycle and deploy capital,

• Our ability to pay distributions to our shareholders and to increase the amount of such distributions,

• Our expectations regarding our future financial performance including FFO, Normalized FFO, Property NOI, and cash basis NOI,

• Our policies and plans regarding investments, financings and dispositions,

• The likelihood that our tenants will be negatively affected by cyclical economic conditions or government budget constraints and, if so, the impact that may have on their ability and willingness to lease our properties and pay us rent,

• Our ability to successfully execute our capital recycling program,

• The expectation that, as a result of the COVID-19 pandemic, leasing activity may remain at a reduced level and could further decline from pre-COVID-19 pandemic levels,

• Our ability to pay distributions to our shareholders and to maintain or increase the amount of such distributions,

• Our expectations regarding occupancy at our properties,

• The future availability of borrowings under our revolving credit facility,

• Our expectation that there will be opportunities for us to acquire, and that we will acquire, additional properties primarily leased to single tenants and tenants with high credit quality characteristics like government entities,

• Our expectations regarding our future financial performance including FFO, Normalized FFO or NOI,

• Our expectations regarding demand for leased space,

• Our expectations regarding capital expenditures,

• Our ability to compete for acquisitions and tenancies effectively,

• Our sales and acquisitions of properties,

• Our policies and plans regarding investments, financings and dispositions,

• Our ability to appropriately balance our use of debt and equity capital,

• The future availability of borrowings under our revolving credit facility,

• Our ability to raise debt or equity capital,

• Our ability to pay interest on and principal of our debt,

• Our ability to appropriately balance our use of debt and equity capital,

• Our ability to successfully execute our capital recycling program,

• Our ability to maintain sufficient liquidity during the duration of the COVID-19 pandemic and resulting economic downturn,

• Our credit ratings,

• Our expectation that we benefit from our relationships with RMR LLC and RMR Inc.,

• Our expectation that we benefit from our relationships with RMR LLC,

• The credit qualities of our tenants,

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Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control.

Risks, uncertainties and other factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, FFO, Normalized FFO, Property NOI, cash flows, liquidity and prospects include, but are not limited to:

Risks, uncertainties and other factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, FFO, Normalized FFO, NOI, cash flows, liquidity and prospects include, but are not limited to:

• The impact of conditions in the economy, including the COVID-19 pandemic and its aftermath, and the capital markets on us and our tenants,

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government shutdown on our ability to collect rents or pay our operating expenses, debt obligations and distributions to shareholders on a timely basis,

• Actual and potential conflicts of interest with our related parties, including our Managing Trustees, RMR LLC, RMR Inc., and others affiliated with them,

• Actual and potential conflicts of interest with our related parties, including our Managing Trustees, RMR LLC and others affiliated with them,

• Limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our qualification for taxation as a REIT for U.S.

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In addition, any properties we may acquire may not provide us with rents less property operating costs that exceed our capital costs or achieve our expected returns,

• We may fail to maintain, or we may elect to change, our target payout ratio for distributions to shareholders of 75% of cash available for distribution or our distribution rate.

Further, our Board of Trustees considers many factors when setting distribution rates including our historical and projected income, Normalized FFO, cash available for distribution, the then current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid to maintain our qualification for taxation as a REIT and

other factors deemed relevant by our Board of Trustees.

• We may fail to maintain, or we may elect to change our distribution rate.

Our Board of Trustees considers many factors when setting distribution rates, including our historical and projected income, Normalized FFO, CAD, the then current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid to maintain our qualification for taxation as a REIT and other factors deemed relevant by our Board of Trustees.

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

• We plan to selectively sell certain properties from time to time to fund future acquisitions and to strategically update, rebalance and reposition our investment portfolio, which we refer to as our capital recycling program.

We cannot be sure we will sell any of these properties or what the terms of any sales may be nor that we will acquire replacement properties that improve our asset quality or our ability to increase our distributions to shareholders,

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

We cannot be sure we will sell any of these properties or what the terms of any sales may be or that we will acquire replacement properties that improve our asset quality or our ability to increase our distributions to shareholders,

• We may not succeed in maintaining our leverage consistent with our current investment grade ratings or levels that the market or credit rating agencies believe are appropriate,

• Some of our tenants may not renew expiring leases, and we may be unable to obtain new tenants to maintain or increase the historical occupancy rates of, or rents from, our properties,

• Some government tenants may exercise their rights to vacate their space before the stated expirations of their leases, and we may be unable to obtain new tenants to maintain the historical occupancy rates of, or rents from, our properties,

• Some of our tenants may not renew expiring leases or they may exercise their rights, if any, to vacate their space before the stated expirations of their leases, and we may be unable to obtain new tenants to maintain or increase the historical occupancy rates of, or rents from, our properties,

• Rents that we can charge at our properties may decline upon renewals or expirations because of changing market conditions or otherwise,

• Leasing for some of our properties depends on a single tenant and we may be adversely affected by the bankruptcy, insolvency, a downturn of business or a lease termination of a single tenant,

• Leasing for some of our properties depends on a private sector single tenant and we may be adversely affected by the bankruptcy, insolvency, a downturn of business or a lease termination of such single tenant,

• Our belief that there is a likelihood that tenants may renew or extend our leases prior to their expirations whenever they have made significant investments in the leased properties, or because those properties may be of strategic importance to them, may not be realized,

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To the extent those practices become permanent or increased, leasing demand for office space may decline.

As a result of these factors, our tenant retention levels could decline,

As a result of these factors, our tenant retention levels could decline and we may experience reduced rent or incur increased costs under future new or renewal leases,

• Our belief that we are well positioned to opportunistically recycle and deploy capital may not be realized.

We may fail to identify and execute on opportunities to deploy capital and any deployment of capital we may make may not result in the returns that we expect,

• Our belief that the reduction in government tenant space utilization and the consolidation of government tenants into government owned real estate is substantially complete may prove misplaced if these prior trends continue or do not moderate to the extent we expect, including in response to the COVID-19 pandemic and its aftermath,

• Our perception that 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 that the government was actively exploring 10 to 20 year lease terms at renewal, in some instances, may mistakenly imply that these activities are indicative of a trend or broader change in government leasing strategy or practices that will recommence after the COVID-19 pandemic ends.

• Our perception 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, may prove incorrect,

• Our perception that 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 that the government was actively exploring 10 to 20 year lease terms at renewal, in some instances, may mistakenly imply that these activities are indicative of a trend or broader change in government leasing strategy or practices that will recommence after the COVID-19 pandemic ends.

Further, even if such a trend or change were to recommence, that trend or change may not be sustained by the government,

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however, the applicable conditions may not be met,

• We may incur significant costs to prepare a property for a tenant, particularly for single tenant properties,

• We may incur significant costs to prepare a property for tenancy, particularly for single tenant properties,

• We may spend more for capital expenditures than we currently expect,

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• Our existing joint venture arrangements and any other joint venture arrangements that we may enter may not be successful,

• Any redevelopment projects we undertake may be unsuccessful, may require greater capital expenditures or other costs than we project or may take significant time to complete,

• We believe that we are well positioned to weather the present disruptions of the COVID-19 pandemic facing the real estate industry and the economy generally.

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Therefore, the impact we experience in the near term may be worse than we currently expect and our results of operations and financial position may be negatively affected,

• We have granted requests to some of our tenants to defer payments over, in most cases, a 12-month period, certain of which commenced in September 2020.

However, current market and economic conditions may deteriorate further and the rent assistance granted by us may not be sufficient to ensure that tenants will be able to meet their rent payment obligations under their leases with us, which may result in an increase in tenant defaults and terminations,

• One of our tenants that represents 1.0% of our annualized rental income as of September 30, 2020 has 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.

The tenant has not filed to reject its lease obligation with us, but that does not assure the tenant will pay its August 2020 or future rents or that the tenant will not file to reject its lease obligation and/or seek to renegotiate its lease obligation as part of its bankruptcy proceeding,

• We have granted requests to some of our tenants to defer payments over, in most cases, a 12-month period, all of which have commenced.

However, current market and economic conditions may deteriorate further and the rent

assistance granted by us may not be sufficient to ensure that tenants will be able to meet their rent payment obligations under their leases with us, which may result in an increase in tenant defaults and terminations,

• The business and property management agreements between us and RMR LLC have continuing 20 year terms.

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Accordingly, we cannot be sure that these agreements will remain in effect for continuing 20 year terms,

• We believe that our relationships with our related parties, including RMR LLC, RMR Inc., and others affiliated with them may benefit us and provide us with competitive advantages in operating and growing our business.

• We believe that our relationships with our related parties, including RMR LLC and others affiliated with them, may benefit us and provide us with competitive advantages in operating and growing our business.

However, the advantages we believe we may realize from these relationships may not materialize, and

• It is difficult to accurately estimate leasing related obligations and costs of development and tenant improvement costs.

Our unspent leasing related obligations and development costs may cost more and may take longer to complete than we currently expect, and we may incur increased amounts for these and similar purposes in the future.

• It is difficult to accurately estimate leasing related obligations and costs of property repositioning, development, redevelopment and tenant improvement costs.

Our unspent leasing related obligations and development or redevelopment costs may cost more and may take longer to complete than we currently expect, and we may incur increased amounts for these and similar purposes in the future.

Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as the COVID-19 pandemic and its aftermath, changes in our tenants’ needs for leased space, the ability of the U.S.

government to approve spending bills to fund the U.S.

government’s obligations, acts of terrorism, natural disasters or changes in capital markets or the economy generally.

and state governments to approve spending bills to fund their obligations, acts of terrorism, natural disasters or changes in capital markets or the economy generally.

The information contained elsewhere in this Quarterly Report on Form 10-Q and our 2020 Annual Report, or in our other filings with the SEC, including under the caption “Risk Factors”, or incorporated herein or therein, identifies other important factors that could cause differences from our forward-looking statements.

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

What changed 10-Q

Item 4. Controls and Procedures