OFFICE PROPERTIES INCOME TRUST 10-Q

Item 1. Financial Statements OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) (unaudited) March 31, December 31, 2021 2020 ASSETS Real estate properties: Land $ 824,622 $ 830,884 Buildings and improvements 2,650,159 2,691,259 Total real estate properties, gross 3,474,781 3,522,143 Accumulated depreciation ( 467,085 ) ( 451,914 ) Total real estate properties, net 3,007,696 3,070,229 Assets of properties held for sale 47,918 75,177 Investments in unconsolidated joint ventures 37,402 37,951 Acquired real estate leases, net 505,582 548,943 Cash and cash equivalents 184,462 42,045 Restricted cash 17,013 14,810 Rents receivable 94,879 101,766 Deferred leasing costs, net 44,680 42,626 Other assets, net 12,947 12,889 Total assets $ 3,952,579 $ 3,946,436 LIABILITIES AND SHAREHOLDERS’ EQUITY Unsecured revolving credit facility $ — $ — Senior unsecured notes, net 2,035,304 2,033,242 Mortgage notes payable, net 169,204 169,729 Liabilities of properties held for sale 84 891 Accounts payable and other liabilities 103,617 116,480 Due to related persons 13,370 6,114 Assumed real estate lease obligations, net 10,002 10,588 Total liabilities 2,331,581 2,337,044 Commitments and contingencies Shareholders’ equity: Common shares of beneficial interest, $ 0.01 par value: 200,000,000 shares authorized, 48,318,366 shares issued and outstanding 483 483 Additional paid in capital 2,615,626 2,615,305 Cumulative net income 221,755 183,895 Cumulative common distributions ( 1,216,866 ) ( 1,190,291 ) Total shareholders’ equity 1,620,998 1,609,392 Total liabilities and shareholders’ equity $ 3,952,579 $ 3,946,436 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (amounts in thousands, except per share data) (unaudited) Three Months Ended March 31, 2021 2020 Rental income $ 144,524 $ 149,885 Expenses: Real estate taxes 16,154 16,807 Utility expenses 6,432 7,012 Other operating expenses 25,439 25,880 Depreciation and amortization 64,087 62,943 Loss on impairment of real estate 7,660 — General and administrative 11,272 7,109 Total expenses 131,044 119,751 Gain on sale of real estate 54,004 10,756 Interest and other income 5 706 Interest expense (including net amortization of debt premiums, discounts and issuance costs of $ 2,432 and $ 2,283 , respectively) ( 28,798 ) ( 27,159 ) Loss on early extinguishment of debt — ( 3,282 ) Income before income tax expense and equity in net losses of investees 38,691 11,155 Income tax expense ( 435 ) ( 39 ) Equity in net losses of investees ( 396 ) ( 276 ) Net income 37,860 10,840 Other comprehensive loss: Unrealized loss on financial instrument — ( 61 ) Other comprehensive loss — ( 61 ) Comprehensive income $ 37,860 $ 10,779 Weighted average common shares outstanding (basic) 48,161 48,095 Weighted average common shares outstanding (diluted) 48,196 48,095 Per common share amounts (basic and diluted): Net income $ 0.78 $ 0.23 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollars in thousands) (unaudited) Number of Shares Common Shares Additional Paid In Capital Cumulative Net Income Cumulative Other Comprehensive Loss Cumulative Common Distributions Total Shareholders’ Equity Balance at December 31, 2020 48,318,366 $ 483 $ 2,615,305 $ 183,895 $ — $ ( 1,190,291 ) $ 1,609,392 Share grants — — 321 — — — 321 Net income — — — 37,860 — — 37,860 Distributions to common shareholders — — — — — ( 26,575 ) ( 26,575 ) Balance at March 31, 2021 48,318,366 $ 483 $ 2,615,626 $ 221,755 $ — $ ( 1,216,866 ) $ 1,620,998 Balance at December 31, 2019 48,201,941 $ 482 $ 2,612,425 $ 177,217 $ ( 200 ) $ ( 1,084,170 ) $ 1,705,754 Share grants — — 379 — — — 379 Share repurchases ( 1,012 ) — ( 27 ) — — — ( 27 ) Net current period other comprehensive loss — — — — ( 61 ) — ( 61 ) Net income — — — 10,840 — — 10,840 Distributions to common shareholders — — — — — ( 26,511 ) ( 26,511 ) Balance at March 31, 2020 48,200,929 $ 482 $ 2,612,777 $ 188,057 $ ( 261 ) $ ( 1,110,681 ) $ 1,690,374 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Three Months Ended March 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 37,860 $ 10,840 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 21,629 20,499 Net amortization of debt premiums, discounts and issuance costs 2,432 2,283 Amortization of acquired real estate leases 41,575 42,457 Amortization of deferred leasing costs 1,820 1,665 Gain on sale of real estate ( 54,004 ) ( 10,756 ) Loss on impairment of real estate 7,660 — Loss on early extinguishment of debt — 2,144 Straight line rental income ( 5,357 ) ( 5,583 ) Other non-cash expenses, net 49 107 Equity in net losses of investees 396 276 Change in assets and liabilities: Rents receivable 11,320 ( 1,087 ) Deferred leasing costs ( 4,826 ) ( 4,466 ) Other assets ( 259 ) 180 Accounts payable and other liabilities ( 9,609 ) ( 21,790 ) Due to related persons 7,256 832 Net cash provided by operating activities 57,942 37,601 CASH FLOWS FROM INVESTING ACTIVITIES: Real estate acquisitions — ( 11,864 ) Real estate improvements ( 15,329 ) ( 14,525 ) Distributions in excess of earnings from unconsolidated joint ventures 153 51 Proceeds from sale of properties, net 129,072 68,433 Net cash provided by investing activities 113,896 42,095 CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of mortgage notes payable ( 643 ) ( 67,848 ) Repayment of senior unsecured notes — ( 400,000 ) Borrowings on unsecured revolving credit facility — 418,467 Repayments on unsecured revolving credit facility — ( 70,467 ) Repurchase of common shares — ( 27 ) Distributions to common shareholders ( 26,575 ) ( 26,511 ) Net cash used in financing activities ( 27,218 ) ( 146,386 ) Increase (decrease) in cash, cash equivalents and restricted cash 144,620 ( 66,690 ) Cash, cash equivalents and restricted cash at beginning of period 56,855 100,696 Cash, cash equivalents and restricted cash at end of period $ 201,475 $ 34,006 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (dollars in thousands) (unaudited) Three Months Ended March 31, 2021 2020 SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 36,136 $ 37,715 NON-CASH INVESTING ACTIVITIES: Real estate improvements accrued, not paid $ 9,164 $ 12,294 Sale of properties $ — $ 13,095 Capitalized interest $ 50 $ 28 NON-CASH FINANCING ACTIVITIES: Repayment of mortgage notes payable related to properties sold $ — $ ( 13,095 ) SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH: The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows: As of March 31, 2021 2020 Cash and cash equivalents $ 184,462 $ 29,657 Restricted cash (1) 17,013 4,349 Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows $ 201,475 $ 34,006 (1) Restricted cash consists of amounts escrowed for future real estate taxes, insurance, leasing costs, capital expenditures and debt service, as required by certain of our mortgage debts. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) (unaudited) Note 1. Basis of Presentation The accompanying condensed consolidated financial statements of Office Properties Income Trust and its subsidiaries, or OPI, we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2020, or our 2020 Annual Report. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets and assessment of impairment of real estate and the related intangibles. Note 2. Per Common Share Amounts We calculate basic earnings per common share by dividing net income by the weighted average number of our common shares outstanding during the period. We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares, together with the related impact on earnings, are considered when calculating diluted earnings per share. The calculation of basic and diluted earnings per share is as follows: Three Months Ended March 31, 2021 2020 Numerators: Net income $ 37,860 $ 10,840 Income attributable to unvested participating securities ( 123 ) ( 15 ) Net income used in calculating earnings per share $ 37,737 $ 10,825 Denominators: Weighted average common shares outstanding - basic 48,161 48,095 Effect of dilutive securities: unvested share awards (1) 35 — Weighted average common shares outstanding - diluted 48,196 48,095 Net income per common share - basic $ 0.78 $ 0.23 Net income per common share - diluted $ 0.78 $ 0.23 (1) For the three months ended March 31, 2020, six unvested common shares were not included in the calculation of diluted earnings per share because to do so would have been antidilutive . Note 3. Real Estate Properties As of March 31, 2021, our wholly owned properties were comprised of 180 properties containing a combined approximately 24,568,000 rentable square feet, with an aggregate undepreciated carrying value of $ 3,520,526 , including $ 45,745 classified as held for sale, 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. We generally lease space at our properties on a gross lease, modified gross lease or net lease basis pursuant to fixed term contracts expiring between 2021 and 2040. Some of our leases generally require us to pay all or some property operating expenses and to provide all or most property management services. During the three months ended March 31, 2021, we entered into 20 leases for approximately 575,000 rentable square feet for a weighted (by rentable square feet) average lease term of 5.4 years and we made commitments 8 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) for approximately $ 7,145 of leasing related costs. As of March 31, 2021, we have estimated unspent leasing related obligations of $ 50,405 . We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of our long lived assets. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. The future net undiscounted cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. We determine the amount of any impairment loss by comparing the historical carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. In addition to the consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining lives of our long lived assets. If we change our estimate of the remaining lives, we allocate the carrying value of the affected assets over their revised remaining lives. Acquisition Activities 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. Disposition Activities 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. The sales of these properties, as presented in the table below, do not represent significant dispositions, individually or in the aggregate, nor do they represent a strategic shift in our business. As a result, the results of operations of these properties are included in continuing operations through the date of sale in our condensed consolidated statements of comprehensive income. Date of Sale Number of Properties Location Rentable Square Feet Gross Sales Price (1) Gain (Loss) on Sale of Real Estate January 2021 — Kansas City, MO (2) 10,000 $ 845 $ ( 63 ) January 2021 1 Richmond, VA 311,000 130,000 54,067 1 321,000 $ 130,845 $ 54,004 (1) Gross sales price is the gross contract price, includes purchase price adjustments, if any, and excludes closing costs. (2) Consists of a warehouse facility adjacent to a property we own in Kansas City, MO. As of March 31, 2021, we had two properties under agreement to sell for an aggregate sales price of $ 49,700 , excluding closing costs. These properties were classified as held for sale in our condensed consolidated balance sheet as of March 31, 2021 and are summarized below: Date of Sale Agreement Number of Properties Location Rentable Square Feet Gross Sales Price (1) Loss on Impairment of Real Estate February 2021 1 Huntsville, AL (2) 1,371,000 $ 39,000 $ 2,289 March 2021 1 Stoneham, MA (3) 98,000 10,700 5,371 2 1,469,000 $ 49,700 $ 7,660 (1) Gross sales price is the gross contract price, includes purchase price adjustments, if any, and excludes closing costs. (2) The sale of this property was completed in April 2021. (3) The agreement to sell this property was terminated in April 2021. In addition, 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 of 2021. 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. 9 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Unconsolidated Joint Ventures We own interests in two joint ventures that own three properties. We account for these investments under the equity method of accounting. As of March 31, 2021 and December 31, 2020, our investments in unconsolidated joint ventures consisted of the following: OPI Carrying Value of Investments at Joint Venture OPI Ownership March 31, 2021 December 31, 2020 Number of Properties Location Rentable Square Feet Prosperity Metro Plaza 51 % $ 21,715 $ 21,888 2 Fairfax, VA 329,000 1750 H Street, NW 50 % 15,687 16,063 1 Washington, D.C. 115,000 Total $ 37,402 $ 37,951 3 444,000 The following table provides a summary of the mortgage debt of our two unconsolidated joint ventures: Joint Venture Interest Rate (1) Maturity Date Principal Balance at March 31, 2021 and December 31, 2020 (2) Prosperity Metro Plaza 4.09 % 12/1/2029 $ 50,000 1750 H Street, NW 3.69 % 8/1/2024 32,000 Weighted Average / Total 3.93 % $ 82,000 (1) Includes the effect of mark to market purchase accounting. (2) Reflects the entire balance of the debt secured by the properties and is not adjusted to reflect the interests in the joint ventures we do not own. None of the debt is recourse to us. At March 31, 2021, the aggregate unamortized basis difference of our two unconsolidated joint ventures of $ 7,341 is primarily attributable to the difference between the amount we paid to purchase our interest in these joint ventures, including transaction costs, and the historical carrying value of the net assets of these joint ventures. This difference is being amortized over the remaining useful life of the related properties and the resulting amortization expense is included in equity in net losses of investees in our condensed consolidated statements of comprehensive income. Note 4. Leases Our leases provide for base rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. In certain circumstances, some leases provide the tenant with the right to terminate if the legislature or other funding authority does not appropriate the funding necessary for the tenant to meet its lease obligations; we have determined the fixed non-cancelable lease term of these leases to be the full term of the lease because we believe the occurrence of early terminations to be a remote contingency based on both our historical experience and our assessments of the likelihood of lease cancellation on a separate lease basis. We increased rental income to record revenue on a straight line basis by $ 5,357 and $ 5,583 for the three months ended March 31, 2021 and 2020, respectively. Rents receivable, excluding properties classified as held for sale, include $ 73,434 and $ 68,824 of straight line rent receivables at March 31, 2021 and December 31, 2020, respectively. We do not include in our measurement of our lease receivables certain variable payments, including payments determined by changes in the index or market-based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. Such payments totaled $ 18,860 and $ 19,746 for the three months ended March 31, 2021 and 2020, respectively, of which tenant reimbursements totaled $ 17,803 and $ 18,622 , respectively. As a result of the COVID-19 pandemic, some of our tenants have requested 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 defined below in Note 5, as of March 31, 2021, pursuant to deferred payment plans. These tenants are obligated to 10 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) pay, in most cases, the deferred rent over a 12 -month period, all of which have commenced. We have elected to use the Financial Accounting Standards Board, or FASB, relief package regarding the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. The FASB relief package provides entities with the option to account for lease concessions resulting from the COVID-19 pandemic outside of the existing lease modification guidance if the resulting cash flows from the modified lease are substantially the same as or less than the original lease. Because the deferred rent amounts referenced above will be repaid, the cash flows from the respective leases are substantially the same as before the rent deferrals. The deferred amounts did not impact our operating results for the three months ended March 31, 2021. As of March 31, 2021, deferred payments totaling $ 411 are included in rents receivable in our condensed consolidated balance sheet. Note 5. Concentration Tenant and Credit Concentration We define annualized rental income as the annualized contractual base rents from our tenants pursuant to our lease agreements as of the measurement date, 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, the U.S. government, 11 state governments and three other government tenants combined were responsible for approximately 36.3 % of our annualized rental income. As of March 31, 2020, the U.S. government, 10 state governments and two other government tenants combined were responsible for approximately 34.6 % of our annualized rental income. The U.S. government is our largest tenant by annualized rental income and represented approximately 25.9 % and 25.0 % of our annualized rental income as of March 31, 2021 and 2020, respectively. Geographic Concentration At March 31, 2021, our 180 wholly owned properties were located in 34 states and the District of Columbia. Properties located in California, Virginia, the District of Columbia, Texas and Maryland were responsible for 12.7 %, 12.7 %, 10.9 %, 7.9 % and 6.7 % of our annualized rental income as of March 31, 2021, respectively. Note 6. Indebtedness Our principal debt obligations at March 31, 2021 were: (1) $ 2,072,000 aggregate outstanding principal amount of senior unsecured notes; and (2) $ 170,198 aggregate outstanding principal amount of mortgage notes. Our $ 750,000 revolving credit facility is governed by a credit agreement, or our credit agreement, with a syndicate of institutional lenders that includes a feature under which the maximum aggregate borrowing availability may be increased to up to $ 1,950,000 in certain circumstances. Our $ 750,000 revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is January 31, 2023 and, subject to our payment of an extension fee and meeting certain other conditions, we have the option to extend the stated maturity date of our revolving credit facility by two additional six month periods. 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 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 March 31, 2021 and December 31, 2020, the annual interest rate payable on borrowings under our revolving credit facility was 1.2 %. We did not borrow any funds under our revolving credit facility during the three months ended March 31, 2021. The weighted average annual interest rate for borrowings under our revolving credit facility was 2.6 % for the three months ended March 31, 2020. 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 and senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business and property manager. Our credit agreement and senior unsecured notes indentures and their supplements also contain covenants, including covenants that restrict our ability to incur debts, require us to comply with certain financial covenants and, in the case of our credit agreement, restrict our ability to make distributions under certain circumstances. We believe we were in 11 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) compliance with the terms and conditions of the respective covenants under our credit agreement and senior unsecured notes indentures and their supplements at March 31, 2021. At March 31, 2021, six of our properties with an aggregate net book value of $ 279,559 were encumbered by mortgage notes with an aggregate principal amount of $ 170,198 . Our mortgage notes are non-recourse, subject to certain limited exceptions and do not contain any material financial covenants. Note 7. Fair Value of Assets and Liabilities The following table presents certain of our assets measured at fair value at March 31, 2021, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset: Fair Value at Reporting Date Using Description Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Non-recurring Fair Value Measurements Assets Assets of properties held for sale (1) $ 49,700 $ — $ 49,700 $ — (1) We recorded impairment charges of $ 7,660 to reduce the carrying value of two properties that are classified as held for sale in our condensed consolidated balance sheet to their estimated fair value, less estimated costs to sell of $ 2,000 , based upon negotiated sales prices with third party buyers (Level 2 inputs as defined in the fair value hierarchy under GAAP). See Note 3 for more information. In addition to the assets described in the table above, our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, accounts payable, a revolving credit facility, senior unsecured notes, mortgage notes payable, amounts due to related persons, other accrued expenses and security deposits. At March 31, 2021 and December 31, 2020, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or floating interest rates, except as follows: As of March 31, 2021 As of December 31, 2020 Financial Instrument Carrying Value (1) Fair Value Carrying Value (1) Fair Value Senior unsecured notes, 4.15 % interest rate, due in 2022 $ 299,118 $ 306,261 $ 298,853 $ 306,192 Senior unsecured notes, 4.00 % interest rate, due in 2022 298,809 307,919 298,579 306,756 Senior unsecured notes, 4.25 % interest rate, due in 2024 342,870 368,921 342,299 365,435 Senior unsecured notes, 4.50 % interest rate, due in 2025 636,783 686,862 635,921 688,399 Senior unsecured notes, 5.875 % interest rate, due in 2046 301,350 312,108 301,264 322,028 Senior unsecured notes, 6.375 % interest rate, due in 2050 156,374 174,118 156,326 171,590 Mortgage notes payable 169,204 174,894 169,729 174,952 Total $ 2,204,508 $ 2,331,083 $ 2,202,971 $ 2,335,352 (1) Includes unamortized debt premiums, discounts and issuance costs totaling $ 37,690 and $ 39,871 as of March 31, 2021 and December 31, 2020, respectively. We estimated the fair value of our senior unsecured notes (except for our senior unsecured notes due 2046 and 2050) using an average of the bid and ask price of the notes (Level 2 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. We estimated the fair value of our senior unsecured notes due 2046 and 2050 based on the closing price on The Nasdaq Stock Market LLC, or Nasdaq, (Level 1 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. We estimated the fair values of our mortgage notes payable using discounted cash flow analyses and currently prevailing market rates (Level 3 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. Because Level 3 inputs are unobservable, our estimated fair values may differ materially from the actual fair values. 12 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Note 8. Shareholders’ Equity Distributions During the three months ended March 31, 2021, we declared and paid a regular quarterly distribution to common shareholders as follows: Declaration Date Record Date Paid Date Distributions Per Common Share Total Distributions January 14, 2021 January, 25, 2021 February 18, 2021 $ 0.55 $ 26,575 On April 15, 2021, we declared a regular quarterly distribution to common 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. Note 9. Business and Property Management Agreements with RMR LLC We have no employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have two agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to our property level operations. Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $ 9,474 and $ 4,699 for the three months ended March 31, 2021 and 2020, respectively. The net business management fees we recognized for the three months ended March 31, 2021 include $ 5,200 of estimated business management incentive fees based on our common share total return, as defined in our business management agreement, as of March 31, 2021. We did no t recognize any estimated business management incentive fees for the three months ended March 31, 2020. The actual amount of annual business management incentive fees for 2021, if any, will be based on our common share total return, as defined in our business management agreement, for the three-year period ending December 31, 2021, and will be payable in January 2022. We did no t incur a business management incentive fee payable to RMR LLC for the year ended December 31, 2020. We include business management fees in general and administrative expenses in our condensed consolidated statements of comprehensive income. Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of $ 4,612 and $ 5,064 for the three months ended March 31, 2021 and 2020, respectively. Of those amounts for the three months ended March 31, 2021 and 2020, $ 4,080 and $ 4,408 , respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income and $ 532 and $ 656 , respectively, were capitalized as building improvements, in our condensed consolidated balance sheets. We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. We are generally not responsible for payment of RMR LLC’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR LLC’s centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit function and as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC. We reimbursed RMR LLC $ 6,052 and $ 5,991 for these expenses and costs for the three months ended March 31, 2021 and 2020, respectively. We included these amounts in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income. Note 10. Related Person Transactions We have relationships and historical and continuing transactions with RMR LLC, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR LLC is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC. David Blackman 13 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) resigned as our President and Chief Executive Officer, effective December 31, 2020. Mr. Blackman will remain in his position as our Managing Trustee, until the earliest of our 2021 annual meeting of shareholders, June 30, 2021 or such earlier date as his successor Managing Trustee is elected to our Board. In replacement of Mr. Blackman, Christopher J. Bilotto was appointed as our President and Chief Operating Officer, effective January 1, 2021. Mr. Bilotto previously served as our Vice President and Chief Operating Officer, and he is an officer and employee of RMR LLC. In addition, each of our other officers is also an officer and employee of RMR LLC. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as chair of the boards of trustees or boards of directors of several of these public companies and as a managing director or managing trustee of these public companies. Other officers of RMR LLC, including certain of our officers, serve as managing trustees, managing directors or officers of certain of these companies. Our Manager, RMR LLC. We have two agreements with RMR LLC to provide management services to us. See Note 9 for more information regarding our management agreements with RMR LLC. Leases with RMR LLC. We lease office space to RMR LLC in certain of our properties for RMR LLC’s property management offices. Pursuant to our lease agreements with RMR LLC, we recognized rental income from RMR LLC for leased office space of $ 288 and $ 280 for the three months ended March 31, 2021 and 2020, respectively. For more information about these and other such relationships and certain other related person transactions, refer to our 2020 Annual Report. 14 Table of Contents