What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-07-29 compared with 2021-04-29 · 255 added, 144 removed, 302 unchanged (57% of the section changed)

3 unchanged sentences

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

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.

As of June 30, 2021, our wholly owned properties were comprised of 181 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 June 30, 2021, our properties are located in 34 states and the District of Columbia and contain approximately 24,091,000 rentable square feet.

As of June 30, 2021, our properties were leased to 345 different tenants with a weighted average remaining lease term (based on annualized rental income) of approximately 5.9 years.

government is our largest tenant, representing approximately 22.0% of our annualized rental income as of June 30, 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 June 30, 2021, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

COVID-19 Pandemic

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.

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 have had a significant impact on the global economy, including the U.S.

Many of the restrictions that had been imposed in the United States during the pandemic have since been lifted and commercial activity in the United States has increasingly returned to pre-pandemic practices and operations.

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

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 July 27, 2021, we have granted temporary rent assistance totaling $2,483 to 18 tenants who represent approximately 3.1% of our annualized rental income as of June 30, 2021.

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, all of which have commenced.

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.

As of July 27, 2021, we have collected $2,259, or 91.0%, of our granted rent deferrals.

There remains uncertainty as to the ultimate duration and severity of the COVID-19 pandemic, 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.

2 unchanged sentences

Property Operations

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):

Unless otherwise noted, the data presented in this section includes properties classified as held for sale as of June 30, 2021 and excludes three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

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 June 30, 2021 and 2020 was as follows (square feet in thousands):

All Properties (1)

Comparable Properties (2)

March 31, March 31,

June 30, June 30,

2021 2020 2021 2020

5 unchanged sentences

89.5 % 91.7 % 91.8 % 94.1 %

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

(1) Based on properties we owned on June 30, 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 months ended March 31, 2021 and 2020 are as follows:

Three Months Ended March 31,

The average effective rental rate per square foot for our properties for the three and six months ended June 30, 2021 and 2020 are as follows:

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

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 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 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

(2) Based on properties we owned on June 30, 2021 and 2020, respectively.

(3) Based on properties we owned continuously since April 1, 2020 and January 1, 2020, respectively, 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 six months ended June 30, 2021, changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands):

Three Months Ended June 30, 2021 Six Months Ended June 30, 2021

Leased Available for Lease Total Leased Available for Lease Total

Beginning of period 22,302 2,266 24,568 22,705 2,184 24,889

Changes resulting from:

Acquisition of properties 870 7 877 870 7 877

Disposition of properties (1,371) — (1,371) (1,692) — (1,692)

1 unchanged sentence

Lease renewals (1)

279 (279) — 821 (821) —

New leases (1)

269 (269) — 302 (302) —

Remeasurements (2)

14 3 17 15 2 17

End of period 21,553 2,538 24,091 21,553 2,538 24,091

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

(1) Based on leases entered during the three and six months ended June 30, 2021.

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

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

Leases at our properties totaling approximately 810,000 and 1,468,000 rentable square feet expired during the three and six months ended June 30, 2021, respectively.

During the three and six months ended June 30, 2021, we entered into new and renewal leases as summarized in the following tables (square feet in thousands):

Three Months Ended June 30, 2021

New Leases Renewals Total

Rentable square feet leased 269 279 548

Weighted average rental rate change (by rentable square feet) 23.1 % 10.0 % 17.1 %

Tenant leasing costs and concession commitments (1)(2)

5 unchanged sentences

$ 9.85 $ 3.35 $ 8.42

Six Months Ended June 30, 2021

New Leases Renewals Total

Rentable square feet leased 302 821 1,123

Weighted average rental rate change (by rentable square feet) 23.3 % 5.3 % 11.2 %

Tenant leasing costs and concession commitments (1)(2)

$ 71,195 $ 12,652 $ 83,847

Tenant leasing costs and concession commitments per rentable square foot (1)(2)

$ 235.19 $ 15.42 $ 74.66

Weighted (by square feet) average lease term (years) 24.3 6.0 10.9

Total leasing costs and concession commitments per rentable square foot per year (1)(2)

$ 9.69 $ 2.58 $ 6.85

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

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

(2) Includes commitments totaling approximately $66,000 in connection with the lease we entered with Sonesta in June 2021 related to the redevelopment of a property in Washington, D.C.

These costs represent the estimated costs related to the planned hotel component of the property.

During the three and six months ended June 30, 2021, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three and six months ended June 30, 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 June 30, 2021 Six Months Ended June 30, 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

3 unchanged sentences

(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 excludes lease value amortization.

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,

During the three and six months ended June 30, 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 June 30, Six Months Ended June 30,

2021 2020 2021 2020

Lease related costs (1)

1 unchanged sentence

Building improvements (2)

7,765 10,005 12,291 19,235

Recurring capital expenditures 18,980 21,926 30,476 38,269

Development, redevelopment and other activities (3)

12,738 2,578 17,644 5,739

Total capital expenditures $ 31,718 $ 24,504 $ 48,120 $ 44,008

2 unchanged sentences

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

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.

As of June 30, 2021, we have estimated unspent leasing related obligations of $113,099, of which we expect to spend $67,272 over the next 12 months.

As of June 30, 2021, we had leases at our properties totaling approximately 1,897,000 rentable square feet that were scheduled to expire through June 30, 2022.

As of July 28, 2021, we expect tenants with leases totaling approximately 923,000 rentable square feet that are scheduled to expire through June 30, 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 923,000 rentable square feet that are expiring and expected to not renew, properties containing approximately 532,000 rentable square feet have been sold, resulting in a net approximately 391,000 rentable square feet, or approximately 1.6% of our total rentable square feet as of June 30, 2021, that are expiring through June 30, 2022 which we expect to not renew.

As a result of the COVID-19 pandemic and its economic impact, overall leasing activity has been volatile during 2021 and may remain so until office property market conditions meaningfully improve and stabilize 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.

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;

2 unchanged sentences

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

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

Additionally, we may incur significant costs to renew our leases with current tenants or lease our properties to new tenants.

As of June 30, 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 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.

As of June 30, 2021, tenants occupying approximately 7.2% of our rentable square feet and responsible for approximately 7.9% of our annualized rental income as of June 30, 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 0.4%, 2.9%, 2.5%, 1.2%, 2.1%, 1.2%, 0.7%, 2.7%, 0.1%, and 0.3% of our rentable square feet, respectively, and contribute an additional approximately 0.4%, 3.0%, 3.5%, 1.7%, 3.3%, 1.4%, 1.1%, 4.9%, 0.2%, and 0.4% of our annualized rental income, respectively, as of June 30, 2021.

In addition, as of June 30, 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 5.2% of our rentable square feet and contribute approximately 5.7% of our annualized rental income as of June 30, 2021.

(2) Leased square feet is pursuant to leases existing as of June 30, 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.

10 unchanged sentences

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.

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.

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.

As of June 30, 2021, we derive 21.8% 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 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:

As of June 30, 2021, tenants contributing 54.1% 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 9.2% 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 June 30, 2021, tenants representing 1% or more of our total annualized rental income were as follows:

Tenant Credit Rating Sq.

2 unchanged sentences

Government Investment Grade 5,068 23.5 % $ 130,564 22.0 %

2 Alphabet Inc (Google) Investment Grade 386 1.8 % 21,132 3.6 %

3 State of California Investment Grade 651 3.0 % 19,372 3.3 %

4 Shook, Hardy & Bacon L.L.P.

Not Rated 596 2.8 % 19,187 3.2 %

3 State of California Investment Grade 648 2.9 % 19,243 3.4 %

5 Bank of America Corporation Investment Grade 577 2.7 % 15,803 2.7 %

6 IG Investments Holdings LLC Non Investment Grade 333 1.5 % 14,748 2.5 %

7 F5 Networks, Inc.

6 unchanged sentences

Investment Grade 248 1.1 % 11,198 1.9 %

12 Sonesta International Hotels Corporation (1)

Not Rated 230 1.1 % 10,745 1.8 %

13 Micro Focus International plc Non Investment Grade 406 1.9 % 8,710 1.5 %

2 unchanged sentences

16 PNC Bank Investment Grade 441 2.0 % 6,924 1.2 %

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

17 ServiceNow, Inc.

Investment Grade 149 0.7 % 6,623 1.1 %

18 Compass Group plc Investment Grade 267 1.2 % 6,496 1.1 %

19 Allstate Insurance Co.

5 unchanged sentences

Total 12,049 55.9 % $ 354,063 59.8 %

(1) In June 2021, we entered into a 30-year lease with Sonesta.

The lease relates to the redevelopment of a property we own in Washington, D.C to a mixed use and Sonesta's lease relates to the planned hotel component of the property.

The term of the lease commences upon our delivery of the completed hotel, which is estimated to occur in the first quarter of 2023.

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

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.

During the six months ended June 30, 2021, we acquired two properties containing a combined approximately 877,000 rentable square feet for an aggregate purchase price of $550,000, excluding purchase price adjustments and acquisition related costs.

As of July 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 third quarter.

However, this acquisition is subject to conditions;

2 unchanged sentences

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.

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.

During the six months ended June 30, 2021, we sold two properties and a warehouse facility adjacent to a property we own containing a combined approximately 1,692,000 rentable square feet for an aggregate sales price of $169,845, excluding closing costs.

In July 2021, we sold a property located in Fresno, CA containing approximately 532,000 rentable square feet for a sales price of $6,000, excluding closing costs.

Also in July 2021, we sold a property located in Liverpool, NY containing approximately 38,000 rentable square feet for a sales price of $650, excluding closing costs.

We also entered into an agreement in May 2021 to sell a property located in Memphis, TN containing approximately 205,000 rentable square feet for a sales price of $15,270, excluding closing costs.

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

However, this sale is subject to conditions;

1 unchanged sentence

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 May 2021, we issued $300,000 of 2.650% senior unsecured notes due 2026 in an underwritten public offering, raising net proceeds of $296,758, after deducting underwriters' discounts and offering expenses.

In June 2021, we redeemed, at par plus accrued interest, all $310,000 of our 5.875% senior unsecured notes due 2046 using cash on hand and the net proceeds from the issuance of our 2.650% senior unsecured notes due 2026.

Also in June 2021, we prepaid, at a premium plus accrued interest, a mortgage note secured by three properties with an outstanding principal balance of $71,000, an annual interest rate of 3.55% and a maturity date in May 2023 using cash on hand and borrowings under our revolving credit facility.

Segment Information

2 unchanged sentences

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

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

Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020

Comparable Properties (1) Results

Three Months Ended March 31,

Three Months Ended June 30,

Non-Comparable

Properties Results

Three Months Ended March 31,

Three Months Ended June 30,

Consolidated Results

Three Months Ended March 31,

Three Months Ended June 30,

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

12 unchanged sentences

Total other expenses 116,538 71,374 45,164 63.3 %

Gain on sale of real restate 54,004 10,756 43,248 n/m

Gain on sale of real restate 114 66 48 72.7 %

Interest and other income 2 30 (28) (93.3 %)

1 unchanged sentence

Loss on early extinguishment of debt (11,794) (557) (11,237) n/m

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

Income (loss) before income tax (expense) benefit and equity in net losses of investees (66,238) 1,794 (68,032) n/m

Income tax (expense) benefit 121 (235) 356 (151.5 %)

Equity in net losses of investees (580) (260) (320) 123.1 %

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 %

Net income (loss) $ (66,697) $ 1,299 $ (67,996) n/m

Weighted average common shares outstanding (basic and diluted) 48,165 48,106 59 0.1 %

Per common share amounts (basic and diluted):

Net income $ 0.78 $ 0.23 $ 0.55 n/m

Net income (loss) $ (1.38) $ 0.03 $ (1.41) n/m

n/m - not meaningful

(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.

(1) Comparable properties consists of 169 properties we owned on June 30, 2021 and which we owned continuously since April 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 (loss) 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 June 30, 2021, compared to the three months ended June 30, 2020.

Rental income.

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.

The decrease in rental income reflects decreases in rental income of $4,681 as a result of property disposition activities, $4,180 for properties undergoing significant redevelopment and $1,121 related to comparable properties, offset by an increase in rental income of $1,478 related to acquired properties.

The decrease in rental income for properties undergoing significant redevelopment is primarily due to the reduction in occupied space at a property located in Washington, D.C.

that began a redevelopment project during the 2021 period.

The decrease in rental income for comparable properties is primarily due to reductions in occupied space at certain of our properties in the 2021 period.

Rental income includes non-cash straight line rent adjustments totaling $3,847 in the 2021 period and $3,468 in the 2020 period, and amortization of acquired real estate leases and assumed real estate lease obligations totaling ($667) in the 2021 period and ($1,405) in the 2020 period.

Real estate taxes.

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.

The increase in real estate taxes primarily reflects increases in real estate taxes of $436 for comparable properties, $139 related to acquired properties and $29 related to property disposition activities, offset by a decrease of $473 for properties undergoing significant redevelopment.

Real estate taxes for comparable properties increased primarily due to refunds received in the 2020 period at certain of our properties as a result of successful real estate tax appeals, as well as the effect of a higher valuation assessment at certain of our properties in the 2021 period.

Utility expenses.

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.

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.

The increase in utility expenses reflects increases in utility expenses of $308 for comparable properties and $11 for acquired properties, offset by a decrease in utility expenses of $163 for properties undergoing significant redevelopment and $47 related to property disposition activities.

The increase in utility expenses for comparable properties is primarily related to utility expenses previously being paid by one of our tenants that are now being paid by us pursuant to a lease amendment with that tenant effective in January 2021.

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 $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.

The decrease in other operating expenses primarily reflects a decrease of $541 related to property disposition activities, $377 for properties undergoing significant redevelopment and $79 for comparable properties, offset by an increase in other operating expenses of $108 for acquired properties.

Depreciation and amortization.

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.

The decrease in depreciation and amortization primarily reflects decreases of $7,006 for comparable properties and $2,597 related to property disposition activities, offset by an increase of $804 for acquired properties.

Depreciation and amortization for comparable properties declined due to certain leasing related assets becoming fully depreciated after April 1, 2020.

Loss on impairment of real estate.

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.

We recorded a $48,197 loss on impairment of real estate in the 2021 period to reduce the carrying value of five properties to their estimated fair values less costs to sell, which includes $33,917 related to a property in Fresno, CA containing approximately 532,000 square feet that was sold in July 2021 and $14,280 related to four properties containing approximately 546,000 rentable square feet that were classified as held for sale as of June 30, 2021.

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 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.

The increase in general and administrative expenses is primarily the result of $5,911 of estimated business management incentive fees recorded in the 2021 period and an increase in base business management fees resulting from an increase in average total market capitalization in the 2021 period compared to the 2020 period, partially offset by the expiration of an office lease in January 2021 for which we were the lessee.

Gain on sale of real estate.

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.

Gain on sale of real estate reflects activity related to property sales during the 2021 and 2020 periods.

Interest and other income.

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.

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

Interest expense.

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.

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, the issuance of $250,000 of our 4.50% senior unsecured notes in September 2020 and the issuance of $300,000 of 2.650% senior unsecured notes in May 2021, partially offset by the redemption of all $310,000 of our 5.875% senior unsecured notes in June 2021, lower interest expense incurred as a result of having a lower average balance outstanding under our revolving credit facility during the 2021 period compared to the 2020 period and the repayment of one mortgage note with a principal balance of $39,635 in August 2020.

Loss on early extinguishment of debt.

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.

We recorded a loss on early extinguishment of debt of $11,794 in the 2021 period from prepayment fees incurred and the write off of unamortized discounts and debt issuance costs associated with the prepayment of one mortgage note and the redemption of our senior unsecured notes due 2046.

In the 2020 period, we recorded a loss on early extinguishment of debt of $557 resulting from a loss on the settlement of a mortgage note receivable related to a property sold in 2016, partially offset by the write off of unamortized premiums associated with the prepayment of a mortgage note.

Income tax (expense) benefit.

Income tax (expense) benefit is primarily the result of operating income or losses in 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.

Net income (loss).

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

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

Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020

Comparable Properties (1) Results

Six Months Ended June 30,

Non-Comparable

Properties Results

Six Months Ended June 30,

Consolidated Results

Six Months Ended June 30,

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

Rental income $ 264,015 $ 265,083 $ (1,068) (0.4 %) $ 17,608 $ 30,405 $ 281,623 $ 295,488 $ (13,865) (4.7 %)

Operating expenses:

Real estate taxes 29,272 28,642 630 2.2 % 2,794 3,946 32,066 32,588 (522) (1.6 %)

Utility expenses 10,933 11,021 (88) (0.8 %) 809 1,192 11,742 12,213 (471) (3.9 %)

Other operating expenses 47,113 46,660 453 1.0 % 3,224 5,007 50,337 51,667 (1,330) (2.6 %)

Total operating expenses 87,318 86,323 995 1.2 % 6,827 10,145 94,145 96,468 (2,323) (2.4 %)

$ 176,697 $ 178,760 $ (2,063) (1.2 %) $ 10,781 $ 20,260 187,478 199,020 (11,542) (5.8 %)

Other expenses:

Depreciation and amortization 119,458 127,113 (7,655) (6.0 %)

Loss on impairment of real estate 55,857 — 55,857 n/m

General and administrative 24,242 14,313 9,929 69.4 %

Total other expenses 199,557 141,426 58,131 41.1 %

Gain on sale of real estate 54,118 10,822 43,296 n/m

Interest and other income 7 736 (729) (99.0 %)

Interest expense (57,799) (52,364) (5,435) 10.4 %

Loss on early extinguishment of debt (11,794) (3,839) (7,955) n/m

Income (loss) before income tax expense and equity in net losses of investees (27,547) 12,949 (40,496) n/m

Income tax expense (314) (274) (40) 14.6 %

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 (976) (536) (440) 82.1 %

Net income (loss) $ (28,837) $ 12,139 $ (40,976) n/m

Weighted average common shares outstanding (basic and diluted) 48,163 48,101 62 0.1 %

Per common share amounts (basic and diluted):

Net income (loss) $ (0.60) $ 0.25 $ (0.85) n/m

n/m - not meaningful

(1) Comparable properties consists of 168 properties we owned on June 30, 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 NOI and our reconciliation of net income (loss) 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 six months ended June 30, 2021, compared to the six months ended June 30, 2020.

Rental income.

The decrease in rental income reflects decreases in rental income of $10,920 related to property disposition activities, $4,242 for properties undergoing significant redevelopment and $1,068 for comparable properties, offset by an increase in rental income of $2,365 for acquired properties.

The decrease in rental income for properties undergoing significant redevelopment is primarily due to the reduction in occupied space at a property located in Washington, D.C.

that began a redevelopment project during the 2021 period.

The decrease in rental income for comparable properties is primarily due to

decreased parking revenue at certain of our properties in the 2021 period due to lower parking activity resulting from the COVID-19 pandemic and reductions in occupied space at certain of our properties in the 2021 period.

Rental income includes non-cash straight line rent adjustments totaling $9,204 in the 2021 period and $9,051 in the 2020 period, and amortization of acquired leases and assumed lease obligations totaling $(1,389) in the 2021 period and $(2,837) in the 2020 period.

Real estate taxes.

The decrease in real estate taxes primarily reflects decreases in real estate taxes of $664 related to property disposition activities and $635 for properties undergoing significant redevelopment, offset by increases in real estate taxes of $630 for comparable properties and $147 for acquired properties.

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

Utility expenses.

The decrease in utility expenses reflects decreases in utility expenses of $264 related to property disposition activities, $134 for properties undergoing significant redevelopment and $88 for comparable properties, offset by an increase in utility expenses of $15 for acquired properties.

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, partially offset by an increase related to utility expenses in the 2021 period previously paid directly by one of our tenants that are now being paid by us pursuant to a lease amendment with that tenant effective in January 2021.

Other operating expenses.

The decrease in other operating expenses primarily reflects decreases in other operating expenses of $1,517 related to property disposition activities and $449 for properties undergoing significant redevelopment, offset by increases in other operating expenses of $453 for comparable properties and $183 for acquired properties.

Other operating expenses for comparable properties increased primarily due to higher snow removal and insurance costs in the 2021 period, partially offset by lower parking garage costs due to lower parking activity at certain of our properties resulting from the COVID-19 pandemic and 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.

Depreciation and amortization.

The decrease in depreciation and amortization primarily reflects decreases of $6,528 for comparable properties and $2,331 related to property disposition activities, offset by increases of $1,158 for acquired properties and $46 for properties undergoing significant redevelopment.

Depreciation and amortization for comparable properties decreased due to certain leasing related assets becoming fully depreciated after January 1, 2020.

Loss on impairment of real estate.

We recorded a $55,857 loss on impairment of real estate in the 2021 period to reduce the carrying value of six properties to their estimated fair values less costs to sell, which includes $5,371 related to a property in Huntsville, AL containing approximately 1,371,000 rentable square feet that was sold in April 2021, $33,917 related to a property in Fresno, CA containing approximately 532,000 rentable square feet that was sold in July 2021 and $16,569 related to four properties containing approximately 546,000 rentable square feet that were classified as held for sale as of June 30, 2021.

General and administrative .

The increase in general and administrative expenses is primarily the result of $11,111 of estimated business management incentive fees recorded in the 2021 period, partially offset by the expiration of an office lease in January 2021 for which we were the lessee, lower accounting and legal costs and a decrease in base business management fees resulting from decreases in our share price in the 2021 period compared to the 2020 period.

Gain on sale of real estate.

We recorded a $54,118 net gain on sale of real estate resulting from the sale of two properties during the 2021 period.

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

Interest and other income.

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

Interest expense.

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, the issuance of $250,000 of our 4.50% senior unsecured notes in September 2020 and the issuance of $300,000 of 2.650% senior unsecured notes in May 2021, partially offset by the redemption of all $310,000 of our 5.875% senior unsecured notes in June 2021, lower interest expense incurred as a result of having a lower average balance outstanding under our revolving credit facility during the 2021 period compared to the 2020 period, lower average interest rates on amounts outstanding and the repayment of four mortgage notes with an aggregate principal balance of $152,187 in 2020.

Loss on early extinguishment of debt.

In the 2020 period, we recorded a loss on early extinguishment of debt of $3,839 from prepayment fees incurred, 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.

Income tax expense.

Income tax expense primarily reflects operating income earned in 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.

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.

Net income (loss).

Our net income (loss) and net income (loss) per basic and diluted common share decreased 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 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.

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 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.

The calculation of 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 NOI as shown below.

3 unchanged sentences

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

The following table presents the reconciliation of net income (loss) to NOI for the three and six months ended June 30, 2021 and 2020.

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net income (loss) $ (66,697) $ 1,299 $ (28,837) $ 12,139

Equity in net losses of investees 580 260 976 536

Income tax expense 435 39

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

Income tax expense (benefit) (121) 235 314 274

Income before income tax expense (benefit) and equity in net losses of investees (66,238) 1,794 (27,547) 12,949

Loss on early extinguishment of debt 11,794 557 11,794 3,839

8 unchanged sentences

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, 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.

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 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 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

The following table presents the reconciliation of net income (loss) to FFO and Normalized FFO for the three and six months ended June 30, 2021 and 2020.

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net income (loss) $ (66,697) $ 1,299 $ (28,837) $ 12,139

Depreciation and amortization:

7 unchanged sentences

Normalized FFO $ 55,385 $ 67,197 $ 117,194 $ 134,747

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

Weighted average common shares outstanding (basic and diluted) 48,165 48,106 48,163 48,101

FFO per common share (basic and diluted) $ 0.78 $ 1.39 $ 1.96 $ 2.72

Normalized FFO per common share (basic and diluted)

1 unchanged sentence

LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources (dollar amounts in thousands)

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

Our principal sources of funds to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are the operating cash flows we generate from our properties, net proceeds from property sales and borrowings under our revolving credit facility.

7 unchanged sentences

• 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 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).

On July 15, 2021, we announced a 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.

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.

During the six months ended June 30, 2021 , we acquired two properties for an aggregate purchase price of $550,000, excluding purchase price adjustments and acquisition related costs, and we sold two properties and a warehouse facility adjacent to a property we own for an aggregate sales price of $169,845, excluding closing costs.

Since July 1, 2021, we have sold two properties for an aggregate sales price of $6,650 , excluding closing costs.

In addition, we have entered into an agreement to sell one property for a sales price of $15,270, excluding closing costs, and 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.

2 unchanged sentences

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,

Six Months Ended June 30,

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

5 unchanged sentences

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.

The increase in cash used in investing activities in the 2021 period compared to the 2020 period is primarily due to higher acquisition activity in the 2021 period compared to the 2020 period, partially offset by higher cash proceeds from our sales of properties.

The increase in cash provided by financing activities in the 2021 period compared to the 2020 period is primarily due to the issuance of $300,000 of 2.650% senior unsecured notes due 2026 and net borrowing activity under our revolving credit facility to fund acquisition activity in the 2021 period, partially offset by the redemption of our 5.875% senior unsecured notes due 2046, compared to net debt repayment activity in the 2020 period that included the redemption of all $400,000 of our 3.60% senior unsecured notes due 2020 and the repayment of mortgage notes totaling approximately $113,000, which was partially offset by the issuance of $162,000 of 6.375% senior unsecured notes due 2050 and borrowings under our revolving credit facility to facilitate certain of these repayments.

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

2 unchanged sentences

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.

We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at June 30, 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 June 30, 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, 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.

As of June 30, 2021, the annual interest rate payable on borrowings under our revolving credit facility was 1.2%.

As of June 30, 2021 and July 28, 2021, we had $385,000 and $380,000, respectively, outstanding under our revolving credit facility, and $365,000 and $370,000, respectively, 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.

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:

In May 2021, we issued $300,000 of 2.650% senior unsecured notes due 2026 in an underwritten public offering, raising net proceeds of $296,758, after deducting underwriters’ discounts and offering expenses.

These notes require semi-annual payments of interest only through maturity on June 15, 2026 and may be repaid at par plus accrued and unpaid interest on or after May 15, 2026.

As of June 30, 2021, our debt maturities (other than our revolving credit facility), consisting of senior unsecured notes and mortgage notes, are as follows:

Year Debt Maturities

3 unchanged sentences

Our $98,903 in mortgage debts generally require monthly payments of principal and interest through maturity.

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.

In addition to our debt obligations, as of June 30, 2021, we have estimated unspent leasing related obligations of $113,099, of which we expect to spend $67,272 over the next 12 months.

We are currently in the process of redeveloping a property located in Washington, D.C.

We currently estimate the total project costs associated with this redevelopment will be approximately $200,000 and completion of the redevelopment in the first quarter of 2023.

As of June 30, 2021, we have incurred approximately $14,700 related to this project.

In June 2021, we entered into a 30-year lease for approximately 230,000 rentable square feet at this property that is approximately 25.1% higher than the prior rental rate for the same space, making the redevelopment project 54% pre-leased.

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.

10 unchanged sentences

We intend to conduct our business in a manner that will afford us reasonable access to capital for investment and financing activities, but we cannot be sure that we will be able to successfully carry out this intention.

For instance, it is uncertain what the duration and severity of the current economic impact resulting from the COVID-19 pandemic will be.

A protracted and extensive economic recession may cause a decline in financing availability and increased costs for financings.

For instance, it is uncertain what the duration and severity of the COVID-19 pandemic and its ultimate economic impact will be.

A protracted and extensive economic downturn may cause a decline in financing availability and increased costs for financings.

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

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.

During the six months ended June 30, 2021, we paid quarterly distributions to our shareholders totaling $53,150 using cash on hand.

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

We expect to pay this distribution on or about August 19, 2021 using cash on hand and borrowings under our revolving credit facility.

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.

3 unchanged sentences

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 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.

Other than these joint ventures, as of June 30, 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 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.

Our principal debt obligations at June 30, 2021 consisted of $385,000 of outstanding borrowings under our $750,000 unsecured revolving credit facility, an aggregate outstanding principal balance of $2,062,000 of public issuances of senior unsecured notes and mortgage notes with an aggregate outstanding principal balance of $98,903, 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 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.

As of June 30, 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.

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.

1 unchanged sentence

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