OFFICE PROPERTIES INCOME TRUST 10-Q

Item 1. Financial Statements OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) (unaudited) September 30, 2021 December 31, 2020 ASSETS Real estate properties: Land $ 873,488 $ 830,884 Buildings and improvements 2,964,277 2,691,259 Total real estate properties, gross 3,837,765 3,522,143 Accumulated depreciation ( 459,408 ) ( 451,914 ) Total real estate properties, net 3,378,357 3,070,229 Assets of properties held for sale 71,873 75,177 Investments in unconsolidated joint ventures 35,828 37,951 Acquired real estate leases, net 536,772 548,943 Cash and cash equivalents 54,881 42,045 Restricted cash 1,139 14,810 Rents receivable 97,507 101,766 Deferred leasing costs, net 52,182 42,626 Other assets, net 11,339 12,889 Total assets $ 4,239,878 $ 3,946,436 LIABILITIES AND SHAREHOLDERS’ EQUITY Unsecured revolving credit facility $ — $ — Senior unsecured notes, net 2,477,730 2,033,242 Mortgage notes payable, net 98,460 169,729 Liabilities of properties held for sale 1,059 891 Accounts payable and other liabilities 126,317 116,480 Due to related persons 12,571 6,114 Assumed real estate lease obligations, net 17,761 10,588 Total liabilities 2,733,898 2,337,044 Commitments and contingencies Shareholders’ equity: Common shares of beneficial interest, $ 0.01 par value: 200,000,000 shares authorized, 48,425,924 and 48,318,366 shares issued and outstanding, respectively 484 483 Additional paid in capital 2,616,751 2,615,305 Cumulative net income 158,770 183,895 Cumulative common distributions ( 1,270,025 ) ( 1,190,291 ) Total shareholders’ equity 1,505,980 1,609,392 Total liabilities and shareholders’ equity $ 4,239,878 $ 3,946,436 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (amounts in thousands, except per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Rental income $ 147,572 $ 145,806 $ 429,195 $ 441,294 Expenses: Real estate taxes 20,067 16,113 52,133 48,701 Utility expenses 7,389 7,564 19,131 19,777 Other operating expenses 26,537 26,366 76,874 78,033 Depreciation and amortization 59,533 62,227 178,991 189,340 Loss on impairment of real estate ( 3 ) 2,954 55,854 2,954 General and administrative 448 7,059 24,690 21,372 Total expenses 113,971 122,283 407,673 360,177 Gain on sale of real estate 36 — 54,154 10,822 Interest and other income — 2 7 738 Interest expense (including net amortization of debt premiums, discounts and issuance costs of $ 2,442 , $ 2,477 , $ 7,366 and $ 7,162 , respectively) ( 26,929 ) ( 27,097 ) ( 84,728 ) ( 79,461 ) Loss on early extinguishment of debt ( 2,274 ) — ( 14,068 ) ( 3,839 ) Income (loss) before income tax (expense) benefit and equity in net losses of investees 4,434 ( 3,572 ) ( 23,113 ) 9,377 Income tax (expense) benefit ( 34 ) 54 ( 348 ) ( 220 ) Equity in net losses of investees ( 688 ) ( 279 ) ( 1,664 ) ( 815 ) Net income (loss) 3,712 ( 3,797 ) ( 25,125 ) 8,342 Other comprehensive income (loss): Unrealized gain on financial instrument — 85 — 200 Other comprehensive income — 85 — 200 Comprehensive income (loss) $ 3,712 $ ( 3,712 ) $ ( 25,125 ) $ 8,542 Weighted average common shares outstanding (basic) 48,211 48,132 48,179 48,111 Weighted average common shares outstanding (diluted) 48,244 48,132 48,179 48,111 Per common share amounts (basic and diluted): Net income (loss) $ 0.08 $ ( 0.08 ) $ ( 0.52 ) $ 0.17 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollars in thousands) (unaudited) Number of Shares Common Shares Additional Paid In Capital Cumulative Net Income Cumulative Common Distributions Total Shareholders’ Equity Balance at December 31, 2020 48,318,366 $ 483 $ 2,615,305 $ 183,895 $ ( 1,190,291 ) $ 1,609,392 Share grants — — 321 — — 321 Net income — — — 37,860 — 37,860 Distributions to common shareholders — — — — ( 26,575 ) ( 26,575 ) Balance at March 31, 2021 48,318,366 483 2,615,626 221,755 ( 1,216,866 ) 1,620,998 Share grants 28,000 — 1,176 — — 1,176 Share repurchases ( 12,009 ) — ( 352 ) — — ( 352 ) Net loss — — — ( 66,697 ) — ( 66,697 ) Distributions to common shareholders — — — — ( 26,575 ) ( 26,575 ) Balance at June 30, 2021 48,334,357 483 2,616,450 155,058 ( 1,243,441 ) 1,528,550 Share grants 117,800 1 950 — — 951 Share forfeitures and repurchases ( 26,233 ) — ( 649 ) — — ( 649 ) Net income — — — 3,712 — 3,712 Distributions to common shareholders — — — — ( 26,584 ) ( 26,584 ) Balance at September 30, 2021 48,425,924 $ 484 $ 2,616,751 $ 158,770 $ ( 1,270,025 ) $ 1,505,980 ` The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollars in thousands) (unaudited) Number of Shares Common Shares Additional Paid In Capital Cumulative Net Income Cumulative Other Comprehensive Loss Cumulative Common Distributions Total Shareholders’ Equity Balance at December 31, 2019 48,201,941 $ 482 $ 2,612,425 $ 177,217 $ ( 200 ) $ ( 1,084,170 ) $ 1,705,754 Share grants — — 379 — — — 379 Share repurchases ( 1,012 ) — ( 27 ) — — — ( 27 ) Net current period other comprehensive loss — — — — ( 61 ) — ( 61 ) Net income — — — 10,840 — — 10,840 Distributions to common shareholders — — — — — ( 26,511 ) ( 26,511 ) Balance at March 31, 2020 48,200,929 482 2,612,777 188,057 ( 261 ) ( 1,110,681 ) 1,690,374 Share grants 28,000 — 1,121 — — — 1,121 Share repurchases ( 1,129 ) — ( 30 ) — — — ( 30 ) Net current period other comprehensive income — — — — 176 — 176 Net income — — — 1,299 — — 1,299 Distributions to common shareholders — — — — — ( 26,510 ) ( 26,510 ) Balance at June 30, 2020 48,227,800 482 2,613,868 189,356 ( 85 ) ( 1,137,191 ) 1,666,430 Share grants 108,600 1 864 — — — 865 Share forfeitures and repurchases ( 18,034 ) — ( 386 ) — — — ( 386 ) Amounts reclassified from cumulative other comprehensive loss to net loss — — — — 85 — 85 Net loss — — — ( 3,797 ) — — ( 3,797 ) Distributions to common shareholders — — — — — ( 26,525 ) ( 26,525 ) Balance at September 30, 2020 48,318,366 $ 483 $ 2,614,346 $ 185,559 $ — $ ( 1,163,716 ) $ 1,636,672 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Nine Months Ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ ( 25,125 ) $ 8,342 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 67,469 62,570 Net amortization of debt premiums, discounts and issuance costs 7,366 7,162 Amortization of acquired real estate leases 108,471 126,409 Amortization of deferred leasing costs 5,750 5,208 Gain on sale of real estate ( 54,154 ) ( 10,822 ) Loss on impairment of real estate 55,854 2,954 Loss on early extinguishment of debt 9,694 2,701 Straight line rental income ( 13,128 ) ( 12,963 ) Other non-cash expenses, net 1,627 1,542 Equity in net losses of investees 1,664 815 Change in assets and liabilities: Rents receivable 10,567 ( 4,853 ) Deferred leasing costs ( 14,388 ) ( 10,722 ) Other assets ( 1,523 ) ( 860 ) Accounts payable and other liabilities ( 7,919 ) ( 11,593 ) Due to related persons 6,457 208 Net cash provided by operating activities 158,682 166,098 CASH FLOWS FROM INVESTING ACTIVITIES: Real estate acquisitions ( 563,447 ) ( 11,864 ) Real estate improvements ( 65,186 ) ( 55,135 ) Distributions in excess of earnings from unconsolidated joint ventures 459 408 Distributions in excess of earnings from Affiliates Insurance Company — 287 Proceeds from sale of properties, net 192,476 81,528 Proceeds from repayment of mortgage note receivable — 2,880 Net cash (used in) provided by investing activities ( 435,698 ) 18,104 CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of mortgage notes payable ( 72,238 ) ( 154,734 ) Repayment of senior unsecured notes ( 610,000 ) ( 400,000 ) Proceeds from issuance of senior unsecured notes, net 1,041,809 408,932 Borrowings on unsecured revolving credit facility 755,000 561,467 Repayments on unsecured revolving credit facility ( 755,000 ) ( 561,467 ) Payment of debt issuance costs ( 2,655 ) ( 1,477 ) Repurchase of common shares ( 1,001 ) ( 434 ) Distributions to common shareholders ( 79,734 ) ( 79,546 ) Net cash provided by (used in) financing activities 276,181 ( 227,259 ) Decrease in cash, cash equivalents and restricted cash ( 835 ) ( 43,057 ) Cash, cash equivalents and restricted cash at beginning of period 56,855 100,696 Cash, cash equivalents and restricted cash at end of period $ 56,020 $ 57,639 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (dollars in thousands) (unaudited) Nine Months Ended September 30, 2021 2020 SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 86,917 $ 83,116 Income taxes paid $ 294 $ 1,097 NON-CASH INVESTING ACTIVITIES: Real estate improvements accrued, not paid $ 15,428 $ 12,640 Real estate acquisitions $ ( 13,031 ) $ — Capitalized interest $ 392 $ 119 SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH: The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows: As of September 30, 2021 2020 Cash and cash equivalents $ 54,881 $ 45,035 Restricted cash (1) 1,139 12,604 Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows $ 56,020 $ 57,639 (1) Restricted cash consists of amounts escrowed for future real estate taxes, insurance, leasing costs, capital expenditures and debt service, as required by certain of our mortgage debts. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) (unaudited) Note 1. Basis of Presentation The accompanying condensed consolidated financial statements of Office Properties Income Trust and its subsidiaries, or OPI, we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2020, or our 2020 Annual Report. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets and assessment of impairment of real estate and the related intangibles. Note 2. Per Common Share Amounts The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Weighted average common shares for basic earnings per share 48,211 48,132 48,179 48,111 Effect of dilutive securities: unvested share awards (1) 33 — — — Weighted average common shares for diluted earnings per share 48,244 48,132 48,179 48,111 (1) For the three months ended September 30, 2020 and the nine months ended September 30, 2021 and 2020, there were no dilutive common shares and certain unvested common shares were not included in the calculation of diluted earnings per share because to do so would have been antidilutive. Note 3. Real Estate Properties As of September 30, 2021, our wholly owned properties were comprised of 178 properties containing a combined approximately 23,274,000 rentable square feet. The aggregate undepreciated carrying value of our wholly owned properties as of September 30, 2021 was $ 3,916,800 , including $ 79,035 classified as held for sale, and we had noncontrolling ownership interests of 51 % and 50 % in two unconsolidated joint ventures that own three properties containing a combined approximately 444,000 rentable square feet. We generally lease space at our properties on a gross lease, modified gross lease or net lease basis pursuant to fixed term contracts expiring between 2021 and 2053. Some of our leases generally require us to pay all or some property operating expenses and to provide all or most property management services. During the three months ended September 30, 2021, we entered into 20 leases for approximately 659,000 rentable square feet for a weighted (by rentable square feet) average lease term of 10.9 years and we made commitments for approximately $ 46,133 of leasing related costs. During the nine months ended September 30, 2021, we entered into 65 leases for approximately 1,782,000 rentable square feet for a weighted (by rentable square feet) average lease term of 10.9 years and we made commitments for approximately $ 129,980 of leasing related costs. As of September 30, 2021, we had estimated unspent leasing related obligations of $ 129,369 . We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of our long lived assets. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. The future net undiscounted cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. We determine the amount of any impairment loss by comparing the historical carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. In addition to the consideration of impairment upon the events or changes in circumstances 9 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) described above, we regularly evaluate the remaining lives of our long lived assets. If we change our estimate of the remaining lives, we allocate the carrying value of the affected assets over their revised remaining lives. Acquisition Activities During the nine months ended September 30, 2021, we acquired three properties containing a combined approximately 926,000 rentable square feet for an aggregate purchase price of $ 576,478 , including net purchase price adjustments of $ 1,761 and acquisition related costs of $ 1,264 . These acquisitions were accounted for as asset acquisitions. We allocated the purchase prices of these acquisitions based on the relative estimated fair values of the acquired assets and assumed liabilities as follows: Acquisition Date Location Number of Properties Rentable Square Feet Purchase Price Land Buildings and Improvements Acquired Real Estate Leases Assumed Real Estate Lease Obligations June 2021 Chicago, IL (1) 1 531,000 $ 368,331 $ 42,935 $ 258,348 $ 76,136 $ ( 9,088 ) June 2021 Atlanta, GA 1 346,000 180,602 13,040 135,459 32,103 — August 2021 Boston, MA 1 49,000 27,545 16,103 10,217 1,225 — 3 926,000 $ 576,478 $ 72,078 $ 404,024 $ 109,464 $ ( 9,088 ) (1) Purchase price includes an adjustment of $ 13,031 to record an estimated real estate tax liability as of the acquisition date. Disposition Activities During the nine months ended September 30, 2021, we sold six properties and a warehouse facility adjacent to a property we own containing a combined approximately 2,565,000 rentable square feet for an aggregate sales price of $ 198,415 , excluding closing costs. The sales of these properties, as presented in the table below, do not represent significant dispositions, individually or in the aggregate, nor do they represent a strategic shift in our business. As a result, the results of operations of these properties are included in continuing operations through the date of sale in our condensed consolidated statements of comprehensive income (loss). Date of Sale Number of Properties Location Rentable Square Feet Gross Sales Price (1) Gain (Loss) on Sale of Real Estate Loss on Impairment of Real Estate January 2021 — Kansas City, MO (2) 10,000 $ 845 $ ( 63 ) $ — January 2021 1 Richmond, VA 311,000 130,000 54,181 — April 2021 1 Huntsville, AL 1,371,000 39,000 — 5,383 July 2021 1 Fresno, CA 532,000 6,000 — 33,902 July 2021 1 Liverpool, NY 38,000 650 31 — August 2021 1 Memphis, TN 205,000 15,270 287 — September 2021 1 Stoneham, MA 98,000 6,650 ( 282 ) 5,911 6 2,565,000 $ 198,415 $ 54,154 $ 45,196 (1) Gross sales price is the gross contract price, excluding closing costs. (2) Consists of a warehouse facility adjacent to a property we own located in Kansas City, MO. 10 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) As of September 30, 2021, we had five properties and two land parcels classified as held for sale in our condensed consolidated balance sheet. These properties and land parcels have been sold or are under agreement to sell for an aggregate sales price of $ 84,500 , excluding closing costs, and are summarized below: Date of Sale Agreement Number of Properties Location Rentable Square Feet Gross Sales Price (1) August 2021 — Sterling, VA (2) — $ 28,500 October 2021 5 Brookhaven, GA 378,000 56,000 5 378,000 $ 84,500 (1) Gross sales price is the gross contract price, excluding closing costs. (2) Consists of two vacant land parcels adjacent to properties we own located in Sterling, VA. The sale of these land parcels was completed in October 2021. In addition to the properties discussed above, we are currently marketing for sale 17 properties containing approximately 2,161,000 rentable square feet. As of September 30, 2021, three of these properties containing approximately 448,000 rentable square feet are classified as held for sale in our condensed consolidated balance sheet. We recorded a $ 10,658 loss on impairment of real estate to adjust the carrying value of these three properties to their estimated fair values less cost to sell during the nine months ended September 30, 2021. We have determined the remaining 14 properties were not impaired nor did they meet the held for sale criteria as of September 30, 2021. We cannot be sure we will sell any properties we are marketing for prices in excess of our carrying values or that we will not recognize impairment losses or losses on sale with respect to these properties. In addition, our pending 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. Unconsolidated Joint Ventures We own interests in two joint ventures that own three properties. We account for these investments under the equity method of accounting. As of September 30, 2021 and December 31, 2020, our investments in unconsolidated joint ventures consisted of the following: OPI Carrying Value of Investments at Joint Venture OPI Ownership September 30, 2021 December 31, 2020 Number of Properties Location Rentable Square Feet Prosperity Metro Plaza 51 % $ 21,142 $ 21,888 2 Fairfax, VA 329,000 1750 H Street, NW 50 % 14,686 16,063 1 Washington, D.C. 115,000 Total $ 35,828 $ 37,951 3 444,000 The following table provides a summary of the mortgage debt of our two unconsolidated joint ventures: Joint Venture Interest Rate (1) Maturity Date Principal Balance at September 30, 2021 and December 31, 2020 (2) Prosperity Metro Plaza 4.09 % 12/1/2029 $ 50,000 1750 H Street, NW 3.69 % 8/1/2024 32,000 Weighted Average / Total 3.93 % $ 82,000 (1) Includes the effect of mark to market purchase accounting. (2) Reflects the entire balance of the debt secured by the properties and is not adjusted to reflect the interests in the joint ventures we do not own. None of the debt is recourse to us. At September 30, 2021, the aggregate unamortized basis difference of our two unconsolidated joint ventures of $ 7,098 is primarily attributable to the difference between the amount we paid to purchase our interest in these joint ventures, including transaction costs, and the historical carrying value of the net assets of these joint ventures. This difference is being amortized over the remaining useful life of the related properties and the resulting amortization expense is included in equity in net losses of investees in our condensed consolidated statements of comprehensive income (loss). 11 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Note 4. Leases Our leases provide for base rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. In certain circumstances, some leases provide the tenant with the right to terminate if the legislature or other funding authority does not appropriate the funding necessary for the tenant to meet its lease obligations; we have determined the fixed non-cancelable lease term of these leases to be the full term of the lease because we believe the occurrence of early terminations to be a remote contingency based on both our historical experience and our assessments of the likelihood of lease cancellation on a separate lease basis. We increased rental income to record revenue on a straight line basis by $ 3,924 and $ 3,912 for the three months ended September 30, 2021 and 2020, respectively, and $ 13,128 and $ 12,963 for the nine months ended September 30, 2021 and 2020, respectively. Rents receivable, excluding properties classified as held for sale, include $ 76,033 and $ 68,824 of straight line rent receivables at September 30, 2021 and December 31, 2020, respectively. We do not include in our measurement of our lease receivables certain variable payments, including payments determined by changes in the index or market-based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. Such payments totaled $ 24,098 and $ 60,446 for the three and nine months ended September 30, 2021, respectively, of which tenant reimbursements totaled $ 23,167 and $ 57,609 , respectively. For the three and nine months ended September 30, 2020, such payments totaled $ 18,606 and $ 56,654 , respectively, of which tenant reimbursements totaled $ 17,495 and $ 53,346 , respectively. Note 5. Concentration Tenant and Credit Concentration We define annualized rental income as the annualized contractual base rents from our tenants pursuant to our lease agreements as of the measurement date, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization. As of September 30, 2021, the U.S. government, 11 state governments and four other government tenants combined were responsible for approximately 29.8 % of our annualized rental income. As of September 30, 2020, the U.S. government, 11 state governments and two other government tenants combined were responsible for approximately 35.6 % of our annualized rental income. The U.S. government is our largest tenant by annualized rental income and represented approximately 19.7 % and 25.2 % of our annualized rental income as of September 30, 2021 and 2020, respectively. Geographic Concentration At September 30, 2021, our 178 wholly owned properties were located in 33 states and the District of Columbia. Properties located in Virginia, California, the District of Columbia, Illinois and Georgia were responsible for 12.2 %, 11.0 %, 9.6 %, 9.1 % and 8.0 % of our annualized rental income as of September 30, 2021, respectively. Note 6. Indebtedness Our principal debt obligations at September 30, 2021 were: (1) $ 2,512,000 aggregate outstanding principal amount of senior unsecured notes; and (2) $ 98,604 aggregate outstanding principal amount of mortgage notes. Our $ 750,000 revolving credit facility is governed by a credit agreement, or our credit agreement, with a syndicate of institutional lenders that includes a feature under which the maximum aggregate borrowing availability may be increased to up to $ 1,950,000 in certain circumstances. Our revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is January 31, 2023 and, subject to our payment of an extension fee and meeting certain other conditions, we have the option to extend the stated maturity date of our revolving credit facility by two additional six month periods. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity and no principal repayment is due until maturity. We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at September 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 12 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) basis points per annum at September 30, 2021. Both the interest rate premium and facility fee are subject to adjustment based upon changes to our credit ratings. As of September 30, 2021 and December 31, 2020, the annual interest rate payable on borrowings under our revolving credit facility was 1.2 %. The weighted average annual interest rate for borrowings under our revolving credit facility was 1.2 % for each of the three months ended September 30, 2021 and 2020, and 1.2 % and 2.0 % for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021 and October 27, 2021, we had no amounts outstanding under our revolving credit facility and $ 750,000 available for borrowing. Our credit agreement and senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business and property manager. Our credit agreement and senior unsecured notes indentures and their supplements also contain covenants, including covenants that restrict our ability to incur debts, require us to comply with certain financial covenants and, in the case of our credit agreement, restrict our ability to make distributions under certain circumstances. We believe we were in compliance with the terms and conditions of the respective covenants under our credit agreement and senior unsecured notes indentures and their supplements at September 30, 2021. Senior Unsecured Note Issuances In May 2021, we issued $ 300,000 of 2.650 % senior unsecured notes due 2026 in an underwritten public offering, raising net proceeds of $ 296,826 , 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 August 2021, we issued $ 350,000 of 2.400 % senior unsecured notes due 2027 in an underwritten public offering, raising net proceeds of $ 346,630 , after deducting underwriters’ discounts and offering expenses. These notes require semi-annual payments of interest only through maturity on February 1, 2027 and may be repaid at par plus accrued and unpaid interest on or after January 1, 2027. In September 2021, we issued $ 400,000 of 3.450 % senior unsecured notes due 2031 in an underwritten public offering, raising net proceeds of $ 395,698 , after deducting underwriters’ discounts and offering expenses. These notes require semi-annual payments of interest only through maturity on October 15, 2031 and may be repaid at par plus accrued and unpaid interest on or after July 15, 2031. Senior Unsecured Note Redemptions In June 2021, we redeemed, at par plus accrued interest, all $ 310,000 of our 5.875 % senior unsecured notes due 2046. As a result of this redemption, we recognized a loss on early extinguishment of debt of $ 8,581 during the nine months ended September 30, 2021, from the write off of unamortized debt issuance costs. In September 2021, we redeemed, at a premium plus accrued interest, all $ 300,000 of our 4.15 % senior unsecured notes due 2022. As a result of this redemption, we recognized a loss on early extinguishment of debt of $ 2,274 during the nine months ended September 30, 2021, from a prepayment penalty and the write off of unamortized discounts. Mortgage Note Repayment 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. As a result of the prepayment of this mortgage note, we recognized a loss on early extinguishment of debt of $ 3,213 during the nine months ended September 30, 2021, from a prepayment penalty and the write off of unamortized discounts. At September 30, 2021, three of our properties with an aggregate net book value of $ 189,298 were encumbered by mortgage notes with an aggregate principal amount of $ 98,604 . Our mortgage notes are non-recourse, subject to certain limited exceptions and do not contain any material financial covenants. 13 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Note 7. Fair Value of Assets and Liabilities The following table presents certain of our assets measured at fair value at September 30, 2021, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset: Fair Value at Reporting Date Using Description Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Non-recurring Fair Value Measurements Assets Assets of properties held for sale (1) $ 20,300 $ — $ — $ 20,300 (1) We recorded impairment charges of $ 10,658 to reduce the carrying value of three properties that are classified as held for sale in our condensed consolidated balance sheet to their estimated fair value, less estimated costs to sell of $ 425 , based on third party offers (Level 3 inputs as defined in the fair value hierarchy under GAAP). See Note 3 for more information. In addition to the assets described in the table above, our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, accounts payable, a revolving credit facility, senior unsecured notes, mortgage notes payable, amounts due to related persons, other accrued expenses and security deposits. At September 30, 2021 and December 31, 2020, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or floating interest rates, except as follows: As of September 30, 2021 As of December 31, 2020 Financial Instrument Carrying Value (1) Fair Value Carrying Value (1) Fair Value Senior unsecured notes, 4.15 % interest rate, due in 2022 (2) $ — $ — $ 298,853 $ 306,192 Senior unsecured notes, 4.00 % interest rate, due in 2022 299,270 306,717 298,579 306,756 Senior unsecured notes, 4.25 % interest rate, due in 2024 344,011 371,980 342,299 365,435 Senior unsecured notes, 4.50 % interest rate, due in 2025 638,507 697,460 635,921 688,399 Senior unsecured notes, 2.650 % interest rate, due in 2026 (3) 297,057 302,846 — — Senior unsecured notes, 2.400 % interest rate, due in 2027 (4) 346,713 346,456 — — Senior unsecured notes, 3.450 % interest rate, due in 2031 (5) 395,701 393,680 — — Senior unsecured notes, 5.875 % interest rate, due in 2046 (6) — — 301,264 322,028 Senior unsecured notes, 6.375 % interest rate, due in 2050 156,471 180,533 156,326 171,590 Mortgage notes payable (7) 98,460 101,351 169,729 174,952 Total $ 2,576,190 $ 2,701,023 $ 2,202,971 $ 2,335,352 (1) Includes unamortized debt premiums, discounts and issuance costs totaling $ 34,414 and $ 39,871 as of September 30, 2021 and December 31, 2020, respectively. (2) These senior notes were redeemed in September 2021. (3) These senior notes were issued in May 2021. (4) These senior notes were issued in August 2021. (5) These senior notes were issued in September 2021. (6) These senior notes were redeemed in June 2021. (7) Balance as of December 31, 2020 includes one mortgage note secured by three properties with an outstanding principal balance of $ 71,000 that was prepaid in June 2021. We estimated the fair value of our senior unsecured notes (except for our senior unsecured notes due 2046 and 2050) using an average of the bid and ask price of the notes (Level 2 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. We estimated the fair value of our senior unsecured notes due 2046 and 2050 based on the closing price on The Nasdaq Stock Market LLC, or Nasdaq, (Level 1 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. We estimated the fair values of our mortgage notes payable using discounted cash flow analyses and currently prevailing market rates (Level 3 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. Because Level 3 inputs are unobservable, our estimated fair values may differ materially from the actual fair values. 14 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Note 8. Shareholders’ Equity Share Awards On June 17, 2021, in accordance with our Trustee compensation arrangements, we awarded to each of our eight Trustees 3,500 of our common shares, valued at $ 29.88 per share, the closing price of our common shares on Nasdaq on that day. On September 15, 2021, we awarded under our equity compensation plan an aggregate of 117,800 of our common shares, valued at $ 25.42 per share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of RMR LLC. Share Purchases During the three and nine months ended September 30, 2021, we purchased an aggregate of 25,533 and 37,542 of our common shares, respectively, valued at a weighted average share price of $ 25.24 and $ 26.55 per share, respectively, from certain of our current and former Trustees and officers and certain other current and former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares. Distributions During the nine months ended September 30, 2021, we declared and paid regular quarterly distributions to common shareholders as follows: Declaration Date Record Date Paid Date Distributions Per Common Share Total Distributions January 14, 2021 January 25, 2021 February 18, 2021 $ 0.55 $ 26,575 April 15, 2021 April 26, 2021 May 20, 2021 0.55 26,575 July 15, 2021 July 26, 2021 August 19, 2021 0.55 26,584 $ 1.65 $ 79,734 On October 14, 2021, we declared a regular quarterly distribution to common shareholders of record on October 25, 2021 of $ 0.55 per share, or approximately $ 26,600 . We expect to pay this distribution on or about November 18, 2021. Note 9. Business and Property Management Agreements with RMR LLC We have no employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have two agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to our property level operations. Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $( 1,738 ) and $ 18,287 for the three and nine months ended September 30, 2021, respectively, and $ 4,236 and $ 13,237 for the three and nine months ended September 30, 2020, respectively. The net business management fees we recognized for the three months ended September 30, 2021 include a reversal of $ 6,627 of previously accrued estimated business management incentive fees, which represents the amount by which the 2021 business management incentive fees as of June 30, 2021 exceeded the amount estimated as of September 30, 2021. The net business management fees for the nine months ended September 30, 2021 include $ 4,484 of estimated business management incentive fees. The estimated business management incentive fees as of September 30, 2021 are based on our common share total return, as defined in our business management agreement, for the measurement period ending as of that date. We did no t recognize any estimated business management incentive fees for the three or nine months ended September 30, 2020. The actual amount of annual incentive fees for 2021, if any, will be based on our common share total return, as defined in our business management agreement, for the three year period ending December 31, 2021, and will be payable in January 2022. We did no t incur an incentive fee payable to RMR LLC for the year ended December 31, 2020. We include business management fees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss). 15 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) We and RMR LLC amended our business management agreement effective August 1, 2021 to replace the benchmark index used in the calculation of incentive management fees. Pursuant to the amendment, for periods beginning on and after August 1, 2021, the MSCI U.S. REIT/Office REIT Index will replace the discontinued SNL U.S. REIT Office Index and be used to calculate benchmark returns per share for purposes of determining any incentive management fee payable by us to RMR LLC. For periods prior to August 1, 2021, the SNL U.S. REIT Office Index will continue to be used. Accordingly, the calculation of incentive management fees for the next three measurement periods will continue to use the SNL U.S. REIT Office Index in calculating the benchmark returns for periods through July 31, 2021. This change of index was due to S&P Global ceasing to publish the SNL U.S. REIT Office Index. Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of $ 5,519 and $ 15,045 for the three and nine months ended September 30, 2021, respectively, and $ 5,189 and $ 15,381 for the three and nine months ended September 30, 2020, respectively. Of these amounts, for the three and nine months ended September 30, 2021, $ 4,224 and $ 12,239 , respectively, were expensed to other operating expenses in our condensed consolidated financial statements and $ 1,295 and $ 2,806 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets. For the three and nine months ended September 30, 2020, $ 4,302 and $ 12,952 , respectively, were expensed to other operating expenses in our condensed consolidated financial statements and $ 887 and $ 2,429 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets. The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets. We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. We are generally not responsible for payment of RMR LLC’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR LLC’s centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit function and as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC. We reimbursed RMR LLC $ 6,131 and $ 18,108 for these expenses and costs for the three and nine months ended September 30, 2021, respectively, and $ 6,437 and $ 18,687 for the three and nine months ended September 30, 2020, respectively. We included these amounts in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income (loss). Note 10. Related Person Transactions We have relationships and historical and continuing transactions with RMR LLC, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR LLC is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC. David Blackman resigned as our President and Chief Executive Officer, effective December 31, 2020, and as a Managing Trustee, effective June 17, 2021. In replacement of Mr. Blackman, Christopher J. Bilotto was appointed as our President and Chief Operating Officer, effective January 1, 2021, and Jennifer Clark was elected as a Managing Trustee on June 17, 2021. Mr. Bilotto is an officer and employee of RMR LLC, Ms. Clark is a managing director and an executive officer of RMR Inc. and an officer and employee of RMR LLC, and each of our other officers is also an officer and employee of RMR LLC. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as chair of the boards of trustees or boards of directors and as a managing director or managing trustee of those companies. Other officers of RMR LLC, including Ms. Clark, serve as managing trustees, managing directors or officers of certain of these companies. See Note 8 for further information relating to our awards of common shares to our officers and certain other employees of RMR LLC in September 2021 and our repurchases of common shares from certain of our current and former Trustees and officers and certain other current and former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares to them. We include amounts recognized as expense for awards of our common shares to our officers and to other RMR LLC employees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss). Our Manager, RMR LLC. We have two agreements with RMR LLC to provide management services to us. See Note 9 for more information regarding our management agreements with RMR LLC. 16 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Leases with RMR LLC. We lease office space to RMR LLC in certain of our properties for RMR LLC’s property management offices. Pursuant to our lease agreements with RMR LLC, we recognized rental income from RMR LLC for leased office space of $ 275 and $ 850 for the three and nine months ended September 30, 2021, respectively, and $ 282 and $ 836 for the three and nine months ended September 30, 2020, respectively. Sonesta . In June 2021, we entered into a 30 -year lease agreement with a subsidiary of Sonesta International Hotels Corporation, or Sonesta, in connection with the redevelopment of an office property we own in Washington, D.C. as a mixed use property. Sonesta’s lease is for the planned full-service hotel component of the property that will include approximately 230,000 rentable square feet, which represents approximately 54 % of the total square feet upon completion of the redevelopment. The term of the lease commences upon our delivery of the completed hotel, which we estimate to occur in the first quarter of 2023. Sonesta has two options to extend the term for 10 years each. Pursuant to the lease agreement, Sonesta will pay us annual base rent of approximately $ 6,436 beginning 18 months after the lease commences. The annual base rent will increase by 10 % every five years throughout the term. Sonesta is also obligated to pay its pro rata share of the operating costs for the building. We estimate that the total cost to build the hotel space will be approximately $ 66,000 . Mr. Adam Portnoy is a director and controlling shareholder of Sonesta and Ms. Jennifer Clark is also a director of Sonesta. For more information about these and other such relationships and certain other related person transactions, refer to our 2020 Annual Report. 17 Table of Contents