OFFICE PROPERTIES INCOME TRUST 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our 2020 Annual Report. OVERVIEW (dollars in thousands, except per share and per square foot data) We are a real estate investment trust, or REIT, organized under Maryland law. 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. The U.S. 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 have had a significant impact on the global economy, including the U.S. economy. 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 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 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. As a result, we are unable to determine what the ultimate impact will be on our, our tenants’ and other stakeholders’ businesses, operations, financial results and financial position. For more information and risks relating to the COVID-19 pandemic on us and our business, see Part I, Item 1, “Business—COVID-19 Pandemic” and Part I, Item 1A, “Risk Factors”, of our 2020 Annual Report. Property Operations Unless otherwise noted, the data presented in this section 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. For more 16 Table of Contents 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) June 30, June 30, 2021 2020 2021 2020 Total properties (3) 181 184 168 168 Total rentable square feet (4) 24,091 24,909 21,101 21,098 Percent leased (5) 89.5 % 91.7 % 91.8 % 94.1 % (1) Based on properties we owned on June 30, 2021 and 2020, respectively. (2) 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. (3) Includes one leasable land parcel. (4) Subject to changes when space is remeasured or reconfigured for tenants. (5) Percent leased includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any, as of the measurement date. The average effective rental rate per square foot for our properties for the three and 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) : All properties (2) $ 26.46 $ 25.71 $ 26.20 $ 25.87 Comparable properties (3) $ 27.07 $ 26.87 $ 27.18 $ 27.01 (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 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) Lease expirations (810) 810 — (1,468) 1,468 — 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 and six months ended June 30, 2021. (2) Rentable square feet are subject to changes when space is remeasured or reconfigured for tenants. 17 Table of Contents 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) $ 69,988 $ 6,714 $ 76,702 Tenant leasing costs and concession commitments per rentable square foot (1)(2) $ 260.02 $ 24.09 $ 139.98 Weighted (by square feet) average lease term (years) 26.4 7.2 16.6 Total leasing costs and concession commitments per rentable square foot per year (1)(2) $ 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. (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 New leases $ 31.54 $ 40.01 22 $ 20.57 $ 25.43 101 Lease renewals $ 31.49 $ 31.44 236 $ 26.52 $ 27.45 765 Total leasing activity $ 31.49 $ 32.18 258 $ 25.82 $ 27.21 866 (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. 18 Table of Contents 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) $ 11,215 $ 11,921 $ 18,185 $ 19,034 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 (1) Lease related costs generally include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space and leasing related costs, such as brokerage commissions and other tenant inducements. (2) Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets. (3) Development, redevelopment and other activities generally include capital expenditure projects that reposition a property or result in new sources of revenue. As of 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. Whenever we renew or enter into new leases for our properties, we intend to seek rents which are equal to or higher than our historical rents for the same properties; however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control. We cannot be sure of the rental rates which will result from our ongoing negotiations regarding lease renewals or any new or renewed leases we may enter; also, we may experience material declines in our rental income due to vacancies upon lease expirations or early terminations. Additionally, we may incur significant costs to renew our leases with current tenants or lease our properties to new tenants. 19 Table of Contents As of June 30, 2021, our lease expirations by year are as follows (square feet in thousands): Year (1) Number of Leases Expiring Leased Square Feet Expiring (2) Percent of Total Cumulative Percent of Total Annualized Rental Income Expiring Percent of Total Cumulative Percent of Total 2021 39 1,231 5.7 % 5.7 % $ 27,972 4.7 % 4.7 % 2022 83 1,942 9.0 % 14.7 % 55,421 9.3 % 14.0 % 2023 65 2,415 11.2 % 25.9 % 77,849 13.1 % 27.1 % 2024 61 3,724 17.3 % 43.2 % 95,663 16.1 % 43.2 % 2025 53 2,157 10.0 % 53.2 % 46,546 7.8 % 51.0 % 2026 37 1,749 8.1 % 61.3 % 46,924 7.9 % 58.9 % 2027 36 1,967 9.1 % 70.4 % 51,418 8.7 % 67.6 % 2028 16 1,261 5.9 % 76.3 % 46,856 7.9 % 75.5 % 2029 18 966 4.5 % 80.8 % 26,456 4.5 % 80.0 % 2030 and thereafter 50 4,141 19.2 % 100.0 % 118,047 20.0 % 100.0 % Total 458 21,553 100.0 % $ 593,152 100.0 % Weighted average remaining lease term (in years) 5.6 5.9 (1) The year of lease expiration is pursuant to current contract terms. 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 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. We generally will seek to renew or extend the terms of leases in our single tenant properties when they expire. Because of the capital many of the tenants in these properties have invested in the properties and because many of these properties appear to be of strategic importance to the tenants’ businesses, we believe that it is likely that these tenants will renew or extend their leases prior to when they expire. If we are unable to extend or renew our leases, it may be time consuming and expensive to relet some of these properties. We believe that recent government budgetary and spending priorities and enhancements in technology have resulted in a decrease in government office use for employees. Furthermore, over the past several years, government tenants have reduced their space utilization per employee and consolidated government tenants into existing government owned properties. This activity has reduced the demand for government leased space. Our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants frequently renew leases to avoid the costs and disruptions that may result from relocating their operations. However, efforts to manage space utilization rates may result in our tenants exercising early termination rights under our leases, vacating our properties upon expiration of our leases in order to relocate, or renewing their leases for less space than they currently occupy. Also, our government tenants’ desire to reconfigure leased office space to manage utilization per employee may require us to spend significant amounts for tenant improvements, and tenant relocations are often more prevalent in those circumstances. Increasing uncertainty with respect to government agency budgets and funding to implement relocations, consolidations and reconfigurations has resulted in delayed decisions by some of our government tenants and their reliance on short term lease renewals; however, activity prior to the outbreak of the COVID-19 pandemic suggested that the U.S. government had begun to shift its leasing strategy to include longer term leases and was actively exploring 10 to 20 year lease terms at renewal, in some instances. It is also possible that as a result of the COVID-19 pandemic, government tenants may seek to manage space utilization rates in order to provide greater physical distancing for employees, mostly through lease renewals, which may require us to spend significant amounts for tenant improvements. However, the COVID-19 pandemic and its aftermath have had negative impacts on government budgets and resources, although there are indications that to date, certain of those impacts may not have been as negative as originally expected, and it is unclear what the effect of these impacts will be on government demand for leasing office space. In addition, the new presidential administration may result in a change in the federal government’s policy priorities, which may impact 20 Table of Contents 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 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. A downturn in economic conditions in this area, including as a result of the COVID-19 pandemic, could result in reduced demand from tenants for our properties or reduce the rents that our tenants in this area are willing to pay when our leases expire or terminate and when renewal or new terms are negotiated. Additionally, in recent years there has been a decrease in demand for new leased office space by the U.S. government in the metropolitan Washington, D.C. market area, and that could increase competition for government tenants and adversely affect our ability to retain government tenants when our leases expire. Our manager, RMR LLC, employs a tenant review process for us. RMR LLC assesses tenants on an individual basis based on various applicable credit criteria. In general, depending on facts and circumstances, RMR LLC evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources. RMR LLC also often uses a third party service to monitor the credit ratings, both actual and implied, of our existing tenants. We consider investment grade tenants to include: (a) investment grade rated tenants; (b) tenants with investment grade rated parent entities that guarantee the tenant’s lease obligations; and/or (c) tenants with investment grade rated parent entities that do not guarantee the tenant’s lease obligations. 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). 21 Table of Contents As of June 30, 2021, tenants representing 1% or more of our total annualized rental income were as follows: Tenant Credit Rating Sq. Ft. % of Leased Sq. Ft. Annualized Rental Income % of Total Annualized Rental Income 1 U.S. 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 % 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. Not Rated 299 1.4 % 13,027 2.2 % 8 Commonwealth of Massachusetts Investment Grade 311 1.4 % 12,260 2.1 % 9 CareFirst Inc. Not Rated 207 1.0 % 11,870 2.0 % 10 Northrop Grumman Corporation Investment Grade 337 1.6 % 11,447 1.9 % 11 Tyson Foods, Inc. 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 % 14 CommScope Holding Company Inc Non Investment Grade 228 1.1 % 8,166 1.4 % 15 State of Georgia Investment Grade 308 1.4 % 7,248 1.2 % 16 PNC Bank Investment Grade 441 2.0 % 6,924 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. Investment Grade 468 2.2 % 6,475 1.1 % 20 Automatic Data Processing, Inc. Investment Grade 289 1.3 % 6,037 1.0 % 21 Church & Dwight Co., Inc. Investment Grade 250 1.2 % 6,031 1.0 % 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 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; accordingly, we cannot be sure that we will complete this acquisition or that this acquisition will not be delayed or the terms will not change. For more information about our acquisition activities, see Note 3 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Disposition Activities During the 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. 22 Table of Contents 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; accordingly, we cannot be sure that we will complete this sale or that this sale will not be delayed or the terms will not change. For more information about our disposition activities, see Note 3 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Financing Activities In 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 We operate in one business segment: ownership of real estate properties. 23 Table of Contents RESULTS OF OPERATIONS (amounts in thousands, except per share amounts) Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020 Comparable Properties (1) Results Three Months Ended June 30, Non-Comparable Properties Results Three Months Ended June 30, Consolidated Results Three Months Ended June 30, 2021 2020 $ Change % Change 2021 2020 2021 2020 $ Change % Change Rental income $ 130,827 $ 131,948 $ (1,121) (0.8 %) $ 6,272 $ 13,655 $ 137,099 $ 145,603 $ (8,504) (5.8 %) Operating expenses: Real estate taxes 14,654 14,218 436 3.1 % 1,258 1,563 15,912 15,781 131 0.8 % Utility expenses 5,025 4,717 308 6.5 % 285 484 5,310 5,201 109 2.1 % Other operating expenses 23,488 23,567 (79) (0.3 %) 1,410 2,220 24,898 25,787 (889) (3.4 %) Total operating expenses 43,167 42,502 665 1.6 % 2,953 4,267 46,120 46,769 (649) (1.4 %) Net operating income (2) $ 87,660 $ 89,446 $ (1,786) (2.0 %) $ 3,319 $ 9,388 90,979 98,834 (7,855) (7.9 %) Other expenses: Depreciation and amortization 55,371 64,170 (8,799) (13.7 %) Loss on impairment of real estate 48,197 — 48,197 n/m General and administrative 12,970 7,204 5,766 80.0 % Total other expenses 116,538 71,374 45,164 63.3 % Gain on sale of real restate 114 66 48 72.7 % Interest and other income 2 30 (28) (93.3 %) Interest expense (29,001) (25,205) (3,796) 15.1 % Loss on early extinguishment of debt (11,794) (557) (11,237) 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 (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 (loss) $ (1.38) $ 0.03 $ (1.41) n/m n/m - not meaningful (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 $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. 24 Table of Contents Real estate taxes. 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 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 $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 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 $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 $5,911 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. 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 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, 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 $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. 25 Table of Contents 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 %) NOI (2) $ 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 % 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 26 Table of Contents 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. 27 Table of Contents Loss on early extinguishment of debt. 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 $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 (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 (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 (loss) in order to provide results that are more closely related to our property level results of operations. We calculate NOI as shown below. We define NOI as income from our rental of real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization expense. We use NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate NOI differently than we do. The following table presents the reconciliation of net income (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 (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 Interest expense 29,001 25,205 57,799 52,364 Interest and other income (2) (30) (7) (736) Gain on sale of real estate (114) (66) (54,118) (10,822) General and administrative 12,970 7,204 24,242 14,313 Loss on impairment of real estate 48,197 — 55,857 — Depreciation and amortization 55,371 64,170 119,458 127,113 NOI $ 90,979 $ 98,834 $ 187,478 $ 199,020 28 Table of Contents Funds From Operations and Normalized Funds From Operations We calculate FFO and Normalized FFO as shown below. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets 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. FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do. The following table presents the reconciliation of net income (loss) to FFO and Normalized FFO for the three and 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 Add (less): Depreciation and amortization: Consolidated properties 55,371 64,170 119,458 127,113 Unconsolidated joint venture properties 923 1,237 1,929 2,478 Loss on impairment of real estate 48,197 — 55,857 — Gain on sale of real estate (114) (66) (54,118) (10,822) FFO 37,680 66,640 94,289 130,908 Add (less): Loss on early extinguishment of debt 11,794 557 11,794 3,839 Estimated business management incentive fees 5,911 — 11,111 — Normalized FFO $ 55,385 $ 67,197 $ 117,194 $ 134,747 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) $ 1.15 $ 1.40 $ 2.43 $ 2.80 LIQUIDITY AND CAPITAL RESOURCES 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. We believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter. Our future cash flows from operating activities will depend primarily upon: • our ability to collect rent from our tenants; • our ability to maintain or increase the occupancy of, and the rental rates at, our properties; • our ability to control operating and capital expenses at our properties; • our ability to successfully sell properties that we market for sale; • our ability to develop or redevelop properties to produce cash flows in excess of our cost of capital; and 29 Table of Contents • 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. 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 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. Our future purchases of properties cannot be accurately projected because such purchases depend upon purchase opportunities which come to our attention and our ability to successfully complete the acquisitions. We generally do not intend to purchase “turn around” properties, or properties which do not generate positive cash flows. 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: Six Months Ended June 30, 2021 2020 Cash, cash equivalents and restricted cash at beginning of period $ 56,855 $ 100,696 Net cash provided by (used in): Operating activities 117,376 111,190 Investing activities (400,467) 40,934 Financing activities 246,317 (222,719) Cash, cash equivalents and restricted cash at end of period $ 20,081 $ 30,101 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 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) In order to fund acquisitions and to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $750,000 revolving credit facility. 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 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 30 Table of Contents 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 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. 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. 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. 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 2021 $ 601 2022 625,518 2023 72,784 2024 350,000 2025 650,000 Thereafter 462,000 Total $ 2,160,903 None of our unsecured debt obligations require sinking fund payments prior to their maturity dates. Our $98,903 in mortgage debts generally require monthly payments of principal and interest through maturity. 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. When significant amounts are outstanding under our revolving credit facility or the maturities of our indebtedness approach, we expect to explore refinancing alternatives. Such alternatives may include incurring term debt, issuing debt or equity securities, extending the maturity date of our revolving credit facility and entering into a new revolving credit facility. We may assume additional mortgage debt in connection with our acquisitions or elect to place new mortgages on properties we own as a source of financing. We may also seek to participate in additional joint venture or other arrangements that may provide us with additional sources of financing. 31 Table of Contents Although we cannot be sure that we will be successful in consummating any particular type of financing, we believe that we will have access to financing, such as debt and equity offerings, to fund future acquisitions and capital expenditures and to pay our obligations. We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities. Our ability to obtain, and the costs of, our future debt financings will depend primarily on credit market conditions and our creditworthiness. We have no control over market conditions. Potential investors and lenders likely will evaluate our ability to pay distributions to shareholders, fund required debt service and repay debts when they become due by reviewing our business practices and plans to balance our use of debt and equity capital so that our financial profile and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. Similarly, our ability to raise equity capital in the future will depend primarily upon equity capital market conditions and our ability to conduct our business to maintain and grow our operating cash flows. 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 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 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. We own 51% and 50% interests in two unconsolidated joint ventures which own three properties. The properties owned by these joint ventures are encumbered by an aggregate $82,000 principal amount of mortgage indebtedness, none of which is recourse to us. We do not control the activities that are most significant to these joint ventures and, as a result, we account for our investments in these joint ventures under the equity method of accounting. For more information on the financial condition and results of operations of these joint ventures, see Note 3 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Other than these joint ventures, as of 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 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. Our publicly issued senior unsecured notes are governed by indentures and their supplements. Our credit agreement and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts outstanding 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 RMR LLC ceasing to act as our business and property manager. 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 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. Neither our credit agreement nor our senior unsecured notes indentures and their supplements contain provisions for acceleration which could be triggered by our credit ratings. However, under our credit agreement our highest senior credit rating is used to determine the fees and interest rates we pay. Accordingly, if that credit rating is downgraded, our interest expense and related costs under our credit agreement would increase. Our credit agreement has cross default provisions to other indebtedness that is recourse of $25,000 or more and indebtedness that is non-recourse of $50,000 or more. Similarly, our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $25,000 (or up to $50,000 in certain circumstances). 32 Table of Contents Related Person Transactions We have relationships and historical and continuing transactions with RMR LLC, RMR Inc. 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 SEC. 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. We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.