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Item 1A. Risk Factors

2022-02-16 compared with 2021-02-19 · 201 added, 279 removed, 268 unchanged (64% of the section changed)

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The summary below provides an overview of many of the risks we face that are described in this section.

Additional risks, beyond those summarized below or discussed in this section, may also materially and adversely impact our business, operations or financial results.

Additional risks, beyond those summarized below, discussed under the caption “Risk Factors” or described elsewhere in this Annual Report on Form 10-K, may also materially and adversely impact our business, operations or financial results.

Consistent with the foregoing, the risks we face include, but are not limited to, the following:

• we may be unable to renew our leases with current tenants when our leases expire or lease our properties to new tenants without decreasing rents or incurring significant costs, providing certain concessions or otherwise;

• the COVID-19 pandemic and its resulting economic impact may materially adversely affect our and our tenants’ businesses, operations, financial results and liquidity;

• the COVID-19 pandemic has had, and may continue to have, significant impacts on workplace practices and those changes, together with current office space utilization trends, could impact our business;

• we may be unable to renew our leases with current tenants when our leases expire or lease our properties to new tenants without decreasing rents, incurring significant costs, providing certain concessions or otherwise;

• our tenants may be unable to satisfy their lease obligations to us, which could materially and adversely affect us;

• some of our properties depend upon a private sector single tenant for all or a majority of their rental income, and, therefore, we may be adversely affected by the bankruptcy or insolvency, the downturn in the business or a lease termination of a single private sector tenant;

• government budgetary pressures and priorities and trends in government employment and office leasing may adversely impact our business;

• we currently have a concentration of properties in the metropolitan Washington, D.C.

market area and are exposed to changes in market conditions in this area;

• our capital recycling program may not be successful, we may be unable to grow our business by acquisitions of additional properties and we face significant competition for acquisition opportunities and tenants;

• remote working and related changes to business practices resulting from the COVID-19 pandemic, together with current office space utilization trends, could impact our business;

• some of our properties depend upon a private sector single or majority tenant for all or a significant portion of their rental income;

therefore, our financial condition, including our ability to make distributions to shareholders, may be adversely affected by the bankruptcy or insolvency, a downturn in the business, or a lease termination of such a single or majority tenant;

• the concentration of our investments in properties leased to private sector single or majority tenants and properties located in the metropolitan Washington, D.C.

market area may result in us being adversely affected by cyclical economic conditions or changes in market conditions in that area and subject us to greater risks of loss than if our properties had more tenant or geographic diversity;

• government budgetary pressures and priorities and trends in government employment and office leasing may adversely impact our business, and a prolonged U.S.

government shutdown may adversely impact our operations, financial results and liquidity;

• our capital recycling program may not be successful;

• we may be unable to grow our business by acquiring additional properties, and we face significant competition for acquisition opportunities and for tenants;

• risks associated with the development, redevelopment or repositioning of our properties may cause delays in leasing those properties and generating cash flows from those properties;

• REIT distribution requirements and any limitations on our ability to access reasonably priced capital may adversely impact our ability to carry out our business plan, and we are subject to risks associated with our qualification for taxation as a REIT;

• some tenants have the right to terminate their leases prior to their lease expiration date and changes in our tenants’ demands and requirements for leased space may adversely affect us;

• we have debt and may incur additional debt, and we are subject to the covenants and conditions contained in the agreements governing our debt, which may restrict our operations and ability to make investments and distributions;

• changes in market interest rates, including changes that may result from the expected phase out of LIBOR, may adversely affect us;

• ownership of real estate is subject to environmental risks and liabilities as well as risks from adverse weather, natural disasters and climate events;

• we have debt and we may incur additional debt, and we are subject to the covenants and conditions contained in the agreements governing our debt, which may restrict our operations and ability to make investments and distributions;

• changes in market interest rates, including changes resulting from the phase out of LIBOR, may adversely affect us;

• ownership of real estate is subject to environmental risks and liabilities, as well as risks from adverse weather, natural disasters and climate change and climate related events, and we may incur significant costs and invest significant amounts with respect to these matters;

• insurance may not adequately cover our losses, and insurance costs may continue to increase;

• we depend upon RMR LLC to manage our business and implement our growth strategy, and RMR LLC has broad discretion in operating our day to day business;

• we rely on RMR LLC’s information technology and systems and the failure of the security or functioning of such technology or systems could materially and adversely affect us;

• any material failure, inadequacy, interruption or security breach of RMR LLC’s information technology or systems could materially harm us;

• our management structure and agreements with RMR LLC and our relationships with our related parties, including our Managing Trustees, RMR LLC and others affiliated with them, may create conflicts of interest;

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• our distributions to our shareholders may be reduced or eliminated and the form of payment could change;

• our public debt is structurally subordinated to the indebtedness and other liabilities of our subsidiaries and is effectively subordinated to our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness.

• our public debt is structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

The risks described below may not be the only risks we face but are risks we believe may be material at this time.

Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results.

If any of the events or circumstances described below occurs, our business, financial condition, results of operations or ability to make distributions to our shareholders could be adversely affected and the value of an investment in our securities could decline.

If any of the events or circumstances described below occurs, our business, financial condition, liquidity, results of operations or ability to make distributions to our shareholders could be adversely impacted and the value of an investment in our securities could decline.

Investors and prospective investors should consider the risks described below and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities.

Risks Related to Our Business

The COVID-19 pandemic and its resulting economic impact may materially adversely affect our business, operations, financial results and liquidity.

The strain of coronavirus that causes the viral disease known as COVID-19 has been declared a pandemic by the World Health Organization, and the U.S.

Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak.

The COVID-19 pandemic has had a substantial adverse impact on the global economy, including the U.S.

Economic downturns and recessions in the United States have historically negatively impacted the commercial office real estate market, including by causing increased tenant defaults, decreased occupancies and reduced rental rates.

Although, to date, we have not been materially adversely affected by the pandemic and the current economic conditions, we may experience those effects if the pandemic and current economic conditions continue or worsen for a substantial period or the demand for leasing office space at our properties declines as a result.

The ultimate impact may have similar negative impacts on our business and the extent of any negative consequences will depend to a large extent on the duration and depth of the pandemic and economic conditions in the United States.

Additionally, we conduct leasing activities at our properties.

Reductions in the ability and willingness of prospective tenants to visit our properties due to the COVID-19 outbreak, or the extent to which federal, state and municipal orders limit our manager’s employees visiting our properties, could have an impact on our leasing activity which could reduce rental income and tenant reimbursements and other income produced by our properties.

We experienced a slowdown in our leasing

activity in 2020 due to the COVID-19 pandemic and expect this slowdown may continue until market conditions improve for a sustained period.

Concerns relating to such an outbreak could also cause on-site personnel not to report for work at our properties, which could adversely affect the management of our properties.

It is unclear whether the availability and distribution of vaccines will curtail infection rates and, if so, what the impact of that would be on human health and safety, the economy or our business.

We cannot predict the extent and duration of the COVID-19 pandemic or the severity and duration of its economic impact.

Potential consequences of the current unprecedented measures taken in response to the spread of the virus that causes COVID-19, and current market disruptions and volatility affecting us include, but are not limited to:

• increased risk of default or bankruptcy of our tenants;

• our tenants exercising rights to terminate our leases;

• possible significant declines in the value of our properties;

• our inability to sell properties we may identify for sale due to a general decline in business activity and demand for real estate transactions and, as a result, our inability to redeploy our capital into investments we believe are more beneficial to us;

• our inability to comply with certain financial covenants that could result in our defaulting under our debt agreements;

• our inability to access debt and equity capital on attractive terms, or at all;

• declines in the market price of our common shares;

• downgrades of our credit ratings by nationally recognized credit rating agencies;

• our need to reduce or eliminate the distributions we pay to our shareholders and our need to maintain such reduction or elimination for an extended period of time;

• our failure to pay interest or principal when due under our outstanding debt, which may result in the acceleration of payment for our outstanding debt and our possible loss of our revolving credit facility;

• reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of the virus that causes COVID-19, which could impact the continued viability of our tenants and the demand for office space at our properties.

Further, the extent and strength of any economic recovery after the COVID-19 pandemic ends or otherwise, are uncertain and subject to various factors and conditions.

Our business, operations and financial position may continue to be negatively impacted after the COVID-19 pandemic ends and may remain at depressed levels compared to prior to the outbreak of the COVID-19 pandemic and those conditions may continue for an extended period.

The COVID-19 pandemic has had, and may continue to have, significant impacts on workplace practices and those changes, or other office space utilization trends, could impact our business.

Temporary closures of businesses and stay in place orders and the resulting remote working arrangements for non-essential personnel in response to the COVID-19 pandemic may result in long-term changed work practices that could negatively impact us and our business.

For example, the increased adoption of and familiarity with remote work practices, and the recent increase in tenants seeking to sublease their leased space, could result in decreased demand for office space.

Further, prior to the onset of the COVID-19 pandemic, there was a general trend in office real estate for tenants to decrease the space they occupy per employee.

If either or both of those trends were to continue or accelerate, our tenants may elect to not renew their leases, or to renew them for less space than they currently occupy, which could increase the vacancy and decrease rental income at our properties.

The need to reconfigure leased office space, either in response to the COVID-19 pandemic, to new tenants’ needs, to modify utilization or for other reasons, may impact space requirements and also may require us to spend increased amounts for tenant improvements.

If substantial reconfiguration of the tenant’s space is required, the tenant may find it more advantageous to relocate than to renew its lease and renovate the existing space.

If so, our business, operating results, financial condition and prospects may be materially adversely impacted.

We may be unable to renew our leases with current tenants or lease our properties to new tenants when our leases expire.

The weighted average remaining term of our leases in effect as of December 31, 2020 is 5.1 years based upon annualized rental income and 5.0 years based upon occupied square footage.

As of December 31, 2020, leases representing approximately 12.1% of our annualized rental income and 16.1% of our occupied square footage will expire by December 31, 2021 and leases representing approximately 34.8% of our annualized rental income and 35.3% of our occupied square footage will expire by December 31, 2023.

Our leases with government tenants typically have shorter terms than our leases with nongovernment tenants, although the terms of our leases with government contractor tenants tend to be for terms consistent with the tenants’ with government contracts, which are generally three to five years.

These shorter terms require more frequent lease renewal or releasing.

We may be unable to lease our properties when our leases expire.

Although we typically will seek to renew our leases with current tenants when they expire, we cannot be sure that we will be successful in doing so.

If our tenants do not renew their leases, we may be unable to obtain new tenants to maintain or increase the historical occupancy rates of, or rents from, our properties.

We may experience declining rents or incur significant costs to renew our leases with current tenants or lease our properties to new tenants.

We may experience declining rents or incur significant costs to renew our leases with current tenants or lease our properties to new tenants, and any rent increases that we do achieve may not exceed our costs.

When we renew our leases with current tenants or lease to new tenants, we may experience rent decreases, and we may have to spend substantial amounts for leasing commissions, tenant improvements or other tenant inducements.

Moreover, many of our properties have been specially designed for the particular businesses of our tenants;

if the current leases for such properties are terminated or are not renewed, we may be required to renovate such properties at substantial costs, decrease the rents we charge or provide other concessions in order to lease such properties to new tenants.

Further, laws and regulations applicable to government leasing often require public solicitations of bids when new or renewal leases are being considered.

Market conditions may require us to lower our rents to retain government or other tenants.

For instance, the COVID-19 pandemic and its resulting economic impact may cause the office leasing market to become more favorable to tenants, and we may be required to decrease the rents we charge or provide other tenant concessions.

In addition, some of our current rents include payments to amortize the cost of tenant improvements which government or other tenants may be unwilling to pay or contractually allowed to eliminate when leases are renewed.

Some of our properties depend upon a private sector single tenant for all or a majority of their rental income;

As of December 31, 2020, 47.2% of our annualized rental revenue was from our properties leased to private sector single tenants.

The value of our private sector single tenant properties is materially dependent on the performance of those tenants under their respective leases.

if the current leases for those properties are terminated or are not renewed, we may be required to renovate those properties at substantial costs, decrease the rents we charge or provide other concessions in order to lease those properties to new tenants.

In addition, any rent increases that we do achieve may not exceed our costs associated with renewing our leases with current tenants or leasing our properties to new tenants, which costs have and are expected to continue to increase as a result of inflation and supply chain challenges, among other things.

The COVID-19 pandemic and its resulting economic impact may materially adversely affect our and our tenants’ businesses, operations, financial results and liquidity.

The COVID-19 pandemic has had a substantial adverse impact on the global economy, including the U.S.

economy, during various stages of the pandemic.

Government requirements to stay in place and temporarily close businesses had a substantial negative impact on the economy.

Government spending during the pandemic, and subsequent easing of the government restrictions, have since helped avert extended negative impacts to the economy and are believed to have helped foster a return to economic growth.

However, the progression of the pandemic has been unpredictable, with infection rates rising and falling and new variants of the virus continuing to emerge.

Those variants may have negative impacts on public health, including possibly being more transmissible, including to people who have been otherwise immunized due to natural immunity as a result of being previously infected with COVID-19 or vaccination.

Variants of COVID-19 could have similar or worse impacts on the economy and public health as previous versions of COVID-19.

Although, to date, the COVID-19 pandemic has not had a significant adverse impact on our business, certain of our tenants requested relief from their obligations to pay rent due to us in response to the economic conditions resulting from the COVID-19 pandemic and in response to such requests, as of December 31, 2021, we had granted requests to defer aggregate rent payments of $2,483 to 18 tenants.

Further, the COVID-19 pandemic has caused supply chain challenges in the global economy, which has impacted the U.S.

The challenges have resulted, at times, in reduced availability of goods and inflation.

If these challenges continue, or if governments take actions in response to these challenges, such as increasing interest rates, the economy could experience negative consequences, including slowed economic growth or an economic downturn.

The ultimate adverse impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change.

We do not yet know the full extent of potential impacts on our business and operations, our tenants’ businesses and operations or the global economy as a whole.

While the spread of COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak or any other widespread epidemics will not occur, or that the global economy will recover and not experience future downturns as a result, any of which could materially harm our business.

The COVID-19 pandemic presents material uncertainty and risk with respect to our business, operating results, financial condition and cash flows.

Moreover, many risk factors set forth in this section should be interpreted as heightened risks as a result of the potential impact of the COVID-19 pandemic.

Our business depends upon our tenants satisfying their lease obligations to us, which, with respect to our private sector tenants, depends, to a large degree, on those tenants’ abilities to successfully operate their businesses, and, with respect to our government tenants, depends on discretionary funding from federal, state and local governments.

Our business depends on our tenants satisfying their lease obligations to us.

The financial capacities of our private sector tenants to pay us rent will depend upon their abilities to successfully operate their businesses, which may be adversely affected by factors over which we and they have no control, including the COVID-19 pandemic.

The failure of our private sector tenants and any applicable parent guarantor to satisfy their lease obligations to us, whether due to a downturn in their business or otherwise, could materially and adversely affect us.

In addition, our government tenants are subject to discretionary funding from federal, state and local governments, as applicable.

Federal government programs are subject to annual congressional budget authorization and appropriation processes, and state and local government programs are often subject to similar processes.

For many federal programs, Congress appropriates funds on a fiscal year basis even though the program performance period may extend over several years.

Laws and plans adopted by federal, state and local governments relating to, along with pressures on and uncertainty surrounding, budgets, potential changes in priorities and spending levels, sequestration, the appropriations process and the permissible debt limits, could adversely affect the funding for our government tenants.

The budget environment and uncertainty surrounding the appropriations processes remain significant long-term risks as budget cuts could adversely affect the viability of our government tenants.

Remote working and related changes to business practices may reduce the demand for office leasing.

As a result of the COVID-19 pandemic, and governmental orders and market practices in response, there has been a significant increase in alternative work arrangements in the United States, including work from home practices.

It is uncertain to what extent and for how long work from home arrangements may continue.

In addition, it is possible that hybrid work arrangements could continue or increase, such as workspace sharing or hoteling of office space.

If these arrangements continue and a return to pre-COVID-19 pandemic office work practices is meaningfully reduced or delayed, demand for office space, including at our properties, may be materially adversely impacted, and our business, operating results and financial condition may be materially harmed as a result.

Some of our properties depend upon a private sector single or majority tenant for all or a significant portion of their rental income;

As of December 31, 2021, 44.8% of our annualized rental income was from our properties leased to private sector single tenants or majority occupied tenants.

The value of the properties leased to these tenants is materially dependent on their performance under their respective leases.

These tenants face competition within their industries and other factors that could reduce their ability to pay us rent.

Lease payment defaults by such tenants could cause us to reduce the amount of distributions that we pay to our shareholders.

A default by a single or major tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease to such a tenant or such tenant’s election not to extend a lease upon its expiration could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our shareholders.

Government budgetary pressures and priorities and trends in government employment and office leasing may adversely impact our business.

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, recent 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, which may require us to spend significant amounts for tenant improvements, mostly with lease renewals.

However, the COVID-19 pandemic and its aftermath have had negative impacts on government budgets and resources and it is unclear what the effect of these impacts will be on government demand for leasing office space.

In addition, the new presidential administration may result in a change in the federal government’s policy priorities, which may impact leasing at our government leased properties.

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.

Lease payment defaults by these tenants could cause us to reduce the amount of distributions that we pay to our shareholders.

A default by a single or majority tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease to such a tenant or such tenant’s election not to extend a lease upon its expiration could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our shareholders.

We currently have a concentration of properties in the metropolitan Washington, D.C.

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market area could reduce demand for space, impact the credit worthiness of our tenants or force our tenants to curtail operations, which could impair their ability to meet their rent obligations to us and, accordingly, could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our shareholders.

Government budgetary pressures and priorities and trends in government employment and office leasing, including as a result of the significant impacts that COVID-19 has had on workplace practices and other office space utilization trends, may adversely impact our business.

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.

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.

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;

it is unclear what the effect of these impacts will be on government demand for leasing office space.

Given the significant uncertainties, including as to the COVID-19 pandemic, its economic impact and its aftermath, we are unable to reasonably project what the financial impact of market conditions or changing government circumstances will be on the demand for leased space at our properties and our financial results for future periods.

A prolonged U.S.

government shutdown may adversely impact our operations, financial results and liquidity.

Under our leases with the U.S.

government, the tenants pay us rent monthly in arrears.

government experiences a prolonged shutdown, these tenants may not pay us rent during the pendency of the shutdown.

Although we expect that these tenants would pay us any outstanding rents after the shutdown ends, our available cash and leverage targets may be adversely

impacted during the period we do not receive rents from these tenants.

A failure to receive rents during a government shutdown may impair our ability to fund our operations and investments, pay our debt obligations, make capital expenditures and pay distributions to our shareholders.

In addition, the impact of a prolonged government shutdown on government personnel resources could hinder our ability to renew expiring leases or initiate or complete renovation, construction and other capital maintenance of the affected properties.

Moreover, some of our tenants are government contractors that rely on government business.

If a government shutdown results in our government contractor tenants not paying us rent, the negative impact on us from a government shutdown may be compounded.

Our capital recycling program may not be successful.

Through our capital recycling program, we seek to selectively 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 lease term of our leases and increasing the likelihood of retaining our tenants and (2) increasing our cash available for distribution.

Through our capital recycling program, we seek to selectively sell certain properties from time to time to fund future acquisitions and to manage leverage at levels we believe appropriate with a goal of (1) improving the asset quality of our portfolio by reducing the average age of our properties, lengthening the weighted average lease term of our leases and increasing the likelihood of retaining our tenants and (2) increasing our cash available for distribution.

However, our ability to sell our properties we identify for sale, and the prices we receive upon a sale, may be affected by many factors, and we may be unable to execute our strategy.

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We may not succeed in selling properties that we identify for sale, the terms of any such sales may not meet our expectations and we may incur losses in connection with those sales.

Further, we may not succeed in identifying and acquiring properties that improve the asset quality of our portfolio and enable us to increase our cash available for distribution or maintain leverage consistent with our current investment grade ratings.

Further, we may not succeed in identifying and acquiring properties that improve the asset quality of our portfolio and enable us to increase our cash available for distribution and we may not succeed in managing leverage at levels we believe appropriate.

As a result, our capital recycling program may not be successful.

We may be unable to grow our business by acquisitions of additional properties, and we might encounter unanticipated difficulties and expenditures relating to our acquired properties.

We are exposed to risks associated with property development, redevelopment and repositioning that could adversely affect us, including our financial condition and results of operations.

We currently have properties under development and we intend to continue to engage in development, redevelopment and repositioning activities with respect to our properties, and, as a result, we are subject to certain risks, which could adversely affect us, including our financial condition and results of operations.

These risks include cost overruns and untimely completion of construction due to, among other things, weather or labor conditions, inflation, labor or material shortages or delays in receiving permits or other governmental approvals.

In addition, current and expected inflation and current supply chain challenges have generally resulted in increased costs for construction materials and some delays in construction activities.

These risks could result in substantial unanticipated delays and increased development and renovation costs and could prevent the initiation or the completion of development, redevelopment or repositioning activities and cause delays in leasing these properties and generating cash flows from these properties or possible loss of tenancies, any of which could have a material adverse effect on our business, financial condition and results of operations.

We may be unable to grow our business by acquiring additional properties, and we might encounter unanticipated difficulties and expenditures relating to our acquired properties.

Our business plans involve the acquisition of additional properties.

Our ability to make profitable acquisitions is subject to risks, including, but not limited to, risks associated with:

• competition from other investors, including publicly traded and private REITs, numerous financial institutions, individuals, foreign investors and other public and private companies;

• our long term cost of capital;

• competition from other investors;

• contingencies in our acquisition agreements;

• the availability and terms of financing.

• the availability, terms and cost of debt and equity capital.

We might encounter unanticipated difficulties and expenditures relating to our acquired properties.

• we do not believe that it is possible to understand fully a property before it is owned and operated for a reasonable period of time, and, notwithstanding pre-acquisition due diligence, we could acquire a property that contains undisclosed defects in design or construction;

• notwithstanding pre-acquisition due diligence, we could acquire a property that contains undisclosed defects in design or construction or unknown liabilities, including those related to undisclosed environmental contamination;

• an acquired property may be located in a new market where we may face risks associated with investing in an unfamiliar market;

• the market in which an acquired property is located may experience unexpected changes that adversely affect the property’s value;

• the occupancy of and rents from properties that we acquire may decline during our ownership;

• property operating costs for our acquired properties may be higher than anticipated and our acquired properties may not yield expected returns;

• we may acquire properties subject to unknown liabilities and without any recourse, or with limited recourse, such as liability for the cleanup of undisclosed environmental contamination or for claims by tenants, vendors or other persons related to actions taken by former owners of the properties;

• acquired properties might require significant management attention that would otherwise be devoted to our other business activities.

• property operating costs for our acquired properties may be higher than anticipated, which may result in tenants that pay or reimburse us for those costs terminating their leases or our acquired properties not yielding expected returns.

For these reasons, among others, we might not realize the anticipated benefits of our acquisitions, and our business plan to acquire additional properties may not succeed or may cause us to experience losses.

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See “Material United States Federal Income Tax Considerations—REIT Qualification Requirements—Annual Distribution Requirements” included in Part I, Item 1 of this Annual Report on Form 10-K.

Accordingly, we may not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties or fund our acquisitions or development or redevelopment efforts.

Accordingly, we may not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties or fund our acquisitions or development, redevelopment or repositioning efforts.

Our business strategies therefore depend, in part, upon our ability to raise additional capital at reasonable costs.

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Competition may make it difficult for us to attract and retain tenants and may reduce the rents we are able to charge and the values of our properties.

government’s “green lease” policies may adversely affect us.

In recent years, the U.S.

government has instituted “green lease” policies which allow a government tenant to require Leadership in Energy and Environmental Design for commercial interiors, or LEED®-CI, designation in selecting new premises or renewing leases at existing premises.

In addition, the Energy Independence and Security Act of 2007 allows the GSA to give preference to buildings for lease that have received an “Energy Star” label.

Obtaining and maintaining such designation and labels may be costly and time consuming, but our failure to do so may result in our competitive disadvantage in acquiring new or retaining existing government tenants.

Some tenants have the right to terminate their leases prior to their lease expiration date and changes in our tenants’ requirements for leased space may adversely affect us.

Some tenants have the right to terminate their leases prior to their lease expiration date.

Some of our leases allow the tenants to vacate the leased premises before the stated terms of the leases expire with little or no liability.

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• Tenants occupying approximately 5.6% of our rentable square feet and responsible for approximately 5.7% of our annualized rental income as of December 31, 2021 have currently exercisable rights to terminate their leases before the stated term of their leases expire.

• In 2021, 2022, 2023, 2024, 2025, 2026, 2027, 2028, 2029 and 2035, early termination rights become exercisable by tenants who currently occupy an additional approximately 1.3%, 2.8%, 1.5%, 1.1%, 2.1%, 1.0%, 0.6%, 1.1%, 0.1% and 0.3%, of our rentable square feet, respectively, and contribute an additional approximately 1.6%, 2.9%, 1.7%, 1.7%, 3.5%, 1.3%, 1.1%, 1.3%, 0.2% and 0.4% of our annualized rental income, respectively, as of December 31, 2020.

• As of December 31, 2021, pursuant to leases with 14 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.

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For various reasons, some or all of our tenants may decide to exercise early termination rights under our leases or vacate our properties upon expiration of our leases.

Also, our tenants may seek to reduce the space they occupy at our properties in response to the COVID-19 pandemic, to modify their space utilization or for other reasons.

See “—The COVID-19 pandemic has had, and may continue to have, significant impacts on workplace practices and those changes, or other office space utilization trends, could impact our business” and “—Government budgetary pressures and priorities and trends in government employment and office leasing may adversely impact our business” included in Part I, Item 1A of this Annual Report on Form 10-K.

If a significant number of such events occur, our income and cash flow may materially decline and our ability to make or sustain distributions to our shareholders may be jeopardized.

Also, our tenants may seek to reduce the space they occupy at our properties or otherwise modify their space utilization in response to the COVID-19 pandemic or for other reasons.

If a significant number of our leases are terminated pursuant to these termination rights, our income and cash flow may materially decline, our ability to make or sustain distributions to our shareholders may be negatively impacted and the values of our properties may decline.

We have debt and we may incur additional debt.

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We had no amounts outstanding under our revolving credit facility and $750.0 million available for borrowing as of December 31, 2021 and February 15, 2022.

Our credit agreement includes a feature under which the maximum aggregate borrowing availability may be increased to up to $1.95 billion in certain circumstances.

agreement includes a feature under which the maximum borrowing availability may be increased to up to $1.95 billion in certain circumstances.

We are subject to numerous risks associated with our debt, including the risk that our cash flows could be insufficient for us to make required payments on our debt.

There are no limits in our organizational documents on the amount of debt we may incur, and we may incur substantial debt.

Our debt obligations could have important consequences to our securityholders.

Our debt obligations could have important consequences to our security holders.

Our incurrence of debt may increase our vulnerability to adverse economic, market and industry conditions, limit our flexibility in planning for, or reacting to, changes in our business, and place us at a disadvantage in relation to competitors that have lower debt levels.

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If we default under any of our debt obligations, we may be in default under the agreements governing other debt obligations of ours which have cross default provisions, including our credit agreement and our senior unsecured notes indentures and their supplements.

In such case, our lenders or bondholders may demand immediate payment of any outstanding indebtedness and we could be forced to liquidate our assets for less than the values we would receive in a more orderly process.

We may fail to comply with the terms of our credit agreement and our senior unsecured notes indentures and their supplements, which could adversely affect our business and may prevent our making distributions to our shareholders.

Our credit agreement and our senior unsecured notes indentures and their supplements include various conditions, covenants and events of default.

We may not be able to satisfy all of these conditions or may default on some of these

covenants for various reasons, including for reasons beyond our control.

In such case, our lenders or noteholders may demand immediate payment of any outstanding indebtedness and we could be forced to liquidate our assets for less than the values we would receive in a more orderly process.

We may fail to comply with the terms of the agreements governing our debt, which could adversely affect our business and may prevent our making distributions to our shareholders.

The agreements governing our debt include various conditions, covenants and events of default.

We may not be able to satisfy all of these conditions or may default on some of these covenants for various reasons, including for reasons beyond our control.

Complying with these covenants may limit our ability to take actions that may be beneficial to us and our security holders.

For example, our credit agreement and our senior unsecured notes indentures and their supplements require us to comply with certain financial and other covenants.

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If the occupancy at our properties declines or if our rents decline, we may be unable to borrow under our revolving credit facility.

Complying with these covenants may limit our ability to take actions that may be beneficial to us and our securityholders.

If we are unable to borrow under our revolving credit facility, we may be unable to meet our obligations or grow our business by acquiring additional properties.

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Any default under our credit agreement that results in acceleration of our obligations to repay outstanding indebtedness or in our no longer being permitted to borrow under our revolving credit facility would likely have serious adverse consequences to us and would likely cause the value of our securities to decline.

In the future, we may obtain additional debt financing, and the covenants and conditions which apply to any such additional debt may be more restrictive than the covenants and conditions that are contained in our credit agreement or our senior unsecured notes indentures and their supplements.

Changes in market interest rates, including changes that may result from the expected phase out of LIBOR, may adversely affect us.

Interest rates have remained at relatively low levels on a historical basis, and the U.S.

Federal Reserve System, or the U.S.

Federal Reserve, has indicated that it does not expect to raise interest rates in response to the COVID-19 pandemic and current market conditions until at least the end of 2023.

There can be no assurance, however, that the U.S.

Federal Reserve will not raise rates prior to that time.

Low market interest rates, particularly if they remain over a sustained period, may increase our use of debt capital to fund property acquisitions, lower capitalization rates for property purchases and increase competition for property purchases, which may reduce our ability to acquire new properties.

In addition, as noted in Part II, Item 7A of this Annual Report on Form 10-K, LIBOR is currently expected to be phased out for new contracts by December 31, 2021 and for pre-existing contracts by June 30, 2023.

Although the outbreak of the COVID-19 pandemic has impacted, and may continue to impact, this phase out, it is unclear if after June 30, 2023 LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after June 30, 2023.

The interest rate under our revolving credit facility is based on LIBOR and the interest we may pay on any future debt we may incur may also be based on LIBOR.

We currently expect that the determination of interest under our revolving credit facility would be based on the alternative rates provided under our credit agreement or would be revised as provided under our credit agreement or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR.

Despite our current expectations, we cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest under our credit agreement would approximate the current calculation in accordance with LIBOR.

An alternative interest rate index that may replace LIBOR may result in our paying increased interest.

Changes in market interest rates, including changes resulting from the phase out of LIBOR, may adversely affect us.

Changes in market interest rates may be sudden and may significantly impede our growth.

Interest rates have remained at relatively low levels on a historical basis, but the U.S.

Federal Reserve recently indicated that, in light of the economic recovery and higher than anticipated inflation, it expects to raise interest rates as early as March 2022.

However the timing, number and amount of any such future interest rate increases are uncertain.

In addition, as noted in Part II, Item 7A of this Annual Report on Form 10-K, LIBOR has been phased out for new contracts and is expected to be phased out for pre-existing contracts by June 30, 2023.

We are required to pay interest on borrowings under our revolving credit facility at floating rates based on LIBOR, and interest we may pay on any future borrowings under our revolving credit facility may also require that we pay interest based upon LIBOR.

We currently expect that the determination of interest under our revolving credit facility will be revised as provided under our credit agreement or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR.

Despite our current expectations, we cannot be sure that any changes to the determination of interest under our credit agreement would approximate the current calculation in accordance with LIBOR.

We cannot be certain of what standard, if any, will replace LIBOR, and any alternative interest rate index that may replace LIBOR may result in our paying increased interest.

Interest rate increases may materially and negatively affect us in several ways, including:

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Increases in interest rates could lower the value of our properties and cause the value of our securities to decline.

A downgrade in the credit rating of our debt could materially adversely affect our business and financial condition.

Our outstanding senior unsecured debt is rated investment grade by S&P Global Ratings and Moody's Investors Service.

In determining our credit ratings, the rating agencies consider a number of both quantitative and qualitative factors, including earnings, fixed charges, cash flows, total debt outstanding, total secured debt, off balance sheet obligations, total capitalization and various ratios calculated from these factors.

The rating agencies also consider predictability of cash flows, business strategy, joint venture activity, property development risks, industry conditions and contingencies.

Therefore, any deterioration in our operating performance could cause our investment grade rating to come under pressure.

Our corporate credit rating at S&P Global Ratings is currently “BBB-” with a stable outlook, and our corporate credit rating at Moody’s Investor Service is currently “Baa3” with a stable outlook.

However, we cannot be sure that our credit ratings will not be lowered or withdrawn in their entirety.

A negative change in our ratings outlook or any downgrade in our current investment grade credit ratings by rating agencies could adversely affect our cost and access to sources of liquidity and capital.

Additionally, a downgrade could, among other things, increase the costs of borrowing under our revolving credit facility, adversely impact our ability to obtain unsecured debt or refinance our unsecured debt on competitive terms in the future, or require us to take certain actions to support our obligations, any of which would adversely affect our business and financial condition.

Ownership of real estate is subject to environmental risks and liabilities.

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We may incur substantial liabilities and costs for environmental matters.

Ownership of real estate is subject to risks from adverse weather, natural disasters and climate events.

Severe weather may have an adverse effect on certain properties we own.

Flooding caused by rising sea levels and severe weather events, including hurricanes, tornadoes and widespread fires, may have an adverse effect on properties we own and result in significant losses to us and interruption of our business.

When major weather, natural disasters or climate-related events, such as hurricanes, floods and wildfires, occur at or near our properties, our tenants may need to suspend operations of the impacted property until the event has ended and the property is then ready for operation.

We or the tenants of our properties may incur significant costs and losses as a result of these activities, both in terms of operating, preparing and repairing our properties in anticipation of, during and after a severe weather or climate-related event and in terms of potential lost business due to the interruption in operating our properties.

Our insurance and our tenants’ insurance may not adequately compensate us or them for these costs and losses.

Also, concerns about climate change have resulted in various treaties, laws and regulations that are intended to limit carbon emissions and address other environmental concerns.

These and other laws may cause energy or other costs at our properties to increase.

Laws enacted to mitigate climate change may make some of our properties obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants and their ability to pay rent to us and cause the value of our properties to decline.

In addition, concerns about climate change and increasing storm intensities may increase the cost of insurance for our properties or potentially render it unavailable to obtain.

Bankruptcy law may adversely impact us.

The occurrence of a tenant bankruptcy could reduce the rent we receive from that tenant.

In addition, the continued existence of the COVID-19 pandemic may increase the risk of our tenants filing for bankruptcy.

If a tenant becomes bankrupt, federal law may prohibit us from evicting that tenant based solely upon its bankruptcy.

In addition, a bankrupt tenant may be authorized to reject and terminate its lease with us.

Any claims against a bankrupt tenant for unpaid future rent would be subject to statutory limitations that may be substantially less than the contractually specified rent we are owed under the lease, and any claim we have for unpaid past rent, may not be paid in full.

Real estate construction and redevelopment creates risks.

We may develop new properties or redevelop some of our existing properties as the existing leases expire, as our tenants’ needs change or to pursue any other opportunities that we believe are desirable.

The development and redevelopment of new and existing buildings involves significant risks in addition to those involved in the ownership and operation of leased properties, including the risks that construction may not be completed on schedule or within budget, resulting in increased construction costs and delays in leasing such properties and generating cash flows.

Development activities are also subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land use, building, occupancy, and other required government permits and authorizations.

Once completed, any new properties may perform below anticipated financial results.

The occurrence of one or more of these circumstances in connection with our development or redevelopment activities could have an adverse effect on our financial condition, results of operations and the values of our properties.

RMR LLC relies on information technology and systems in its provision of services to us, and any material failure, inadequacy, interruption or security failure of that technology or those systems could materially and adversely affect us.

RMR LLC relies on information technology and systems, including the Internet and cloud-based infrastructures, commercially available software and its internally developed applications, to process, transmit, store and safeguard information and to manage or support a variety of its business processes (including managing our building systems), including financial transactions and maintenance of records, which may include personal identifying information of employees and tenants and lease data.

If these systems experience material security or other failures, inadequacies or interruptions of its information technology, we could incur material costs and losses and our operations could be disrupted as a result.

Further, third party vendors could experience similar events with respect to their information technology and systems that impact the products and services they provide to RMR LLC or us.

RMR LLC relies on commercially available systems, software, tools and monitoring, as well as its internally developed applications and internal procedures and personnel, to provide security for processing, transmitting, storing and safeguarding confidential tenant, customer and vendor information, such as personally identifiable information related to its employees and others and information regarding its and our financial accounts.

RMR LLC takes various actions, and incurs significant costs, to maintain and protect the operation and security of its information technology and systems, including the data maintained in those systems.

However, it is possible that these measures will not prevent the systems’ improper functioning or a compromise in security, such as in the event of a cyberattack or the improper disclosure of personally identifiable information.

We are subject to risks from adverse weather, natural disasters and climate change and climate related events, and we incur significant costs and invest significant amounts with respect to these matters.

We are subject to risks and could be exposed to additional costs from adverse weather, natural disasters and climate change and climate related events.

For example, our properties could be severely damaged or destroyed from either singular extreme weather events (for example floods, storms and wildfires) or through long-term impacts of climatic conditions (such as precipitation frequency, weather instability and rise of sea levels).

Such events could also adversely impact us or the tenants of our properties if we or they are unable to operate our or their businesses due to damage resulting from such events.

If we fail to adequately prepare for such events, our revenues, results of operations and financial condition may be impacted.

In addition, we may incur significant costs in preparing for possible future climate change or climate related events or in response to our tenants’ requests for such investments and we may not realize desirable returns on those investments.

RMR LLC relies on information technology and systems in providing services to us, and any material failure, inadequacy, interruption or security breach of that technology or those systems could materially harm us.

RMR LLC relies on information technology and systems, including the internet and cloud-based infrastructures, commercially available software and its internally developed applications, to process, transmit, store and safeguard information and to manage or support a variety of its business processes (including managing our building systems), including financial transactions and maintenance of records, which may include personal identifying information of employees, tenants and guarantors and lease data.

If these systems experience material failures, inadequacies or interruptions, we could incur material costs and losses and our operations could be disrupted as a result.

RMR LLC takes various actions, and incurs significant costs, to maintain and protect the operation and security of information technology and systems, including the data maintained in those systems.

However, these measures may not prevent the systems’ improper functioning or a compromise in security.

Security breaches, computer viruses, attacks by hackers, online fraud schemes and similar breaches can create significant system disruptions, shutdowns, fraudulent transfer of assets or unauthorized disclosure of confidential information.

The risk of a security breach or disruption, particularly through cyberattack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.

Our cybersecurity risks are heightened by, among other things, the evolving nature of the threats faced, advances in computer capabilities, new discoveries in the field of cryptography and new and increasingly sophisticated methods used to perpetrate illegal or fraudulent activities, including cyberattacks, email or wire fraud and other attacks exploiting security vulnerabilities in RMR LLC’s or other third parties’ information technology networks and systems or operations.

Any failure to maintain the security, proper function and availability of RMR LLC’s information technology and systems, or certain third party vendors’ failure to similarly protect their information technology and systems that are relevant to RMR LLC’s or our operations, or to safeguard RMR LLC’s or our business processes, assets and information could result in financial losses, interrupt our operations, damage our reputation, cause us to be in default of material contracts and subject us to liability claims or regulatory penalties, any of which could materially and adversely affect our business and the value of our securities.

The COVID-19 pandemic may adversely impact RMR LLC’s ability to maintain the security, proper function and availability of information technology and systems since a continued period of remote working by its employees or individuals with whom RMR LLC works outside of its organization could strain its technology resources and introduce operational risk, including heightened cybersecurity risk.

Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic.

Although most of RMR LLC’s office-based employees have returned to the office, the ongoing transition to in person work arrangements, or any return to remote work in light of the resurgence of the COVID-19 pandemic may result in the continuation of many of the risks of offsite work arrangements.

In addition, RMR LLC’s data security, data privacy, investor reporting and business continuity processes could be impacted by a third party’s inability to perform due to the COVID-19 pandemic or by the failure of, or attack on, their information systems and technology.

Any failure by RMR LLC or third party vendors to maintain the security, proper function and availability of RMR LLC’s information technology and systems could result in financial losses, interrupt our operations, damage our reputation, cause us to be in default of material contracts and subject us to liability claims or regulatory penalties, any of which could materially and adversely affect our business and the value of our securities.

Third party expectations relating to ESG factors may impose additional costs and expose us to new risks.

There is an increasing focus from certain investors and certain of our tenants and other stakeholders concerning corporate responsibility, specifically related to ESG factors.

Some investors may use these factors to guide their investment strategies and, in some cases, may choose not to invest in us, or otherwise do business with us, if they believe our or RMR LLC’s policies relating to corporate responsibility are inadequate.

Third party providers of corporate responsibility ratings and reports on companies have increased in number, resulting in varied and, in some cases, inconsistent standards.

In addition, the criteria by which companies’ corporate responsibility practices are assessed are evolving, which could result in greater expectations of us and RMR LLC and cause us and RMR LLC to undertake costly initiatives to satisfy such new criteria.

Alternatively, if we or RMR LLC elect not to or are unable to satisfy such new criteria or do not meet the criteria of a specific third party provider, some investors may conclude that our or RMR LLC’s policies with respect to corporate responsibility are inadequate.

We and RMR LLC may face reputational damage in the event that our or their corporate responsibility procedures or standards do not meet the standards set by various constituencies.

If we and RMR LLC fail to satisfy the expectations of investors and our

tenants and other stakeholders or our or RMR LLC’s initiatives are not executed as planned, our and RMR LLC’s reputation and financial results could be adversely affected, and our revenues, results of operations and ability to grow our business may be negatively impacted.

Insurance may not adequately cover our losses, and insurance costs may continue to increase.

We or our tenants are responsible for the costs of insurance, including for casualty, liability, fire, extended coverage and rental or business interruption loss insurance.

In the past few years, we have experienced increases in the costs of providing such insurance, and these increased costs have had an adverse effect on our financial condition and results of operations.

In the future, we may acquire additional properties for which we are responsible for the costs of insurance.

We or the tenants are generally responsible for the costs of insurance at our properties, including for casualty, liability, fire, extended coverage and rental or business interruption loss insurance.

In the future, we may acquire properties for which we are responsible for the costs of insurance.

In the past few years, the costs of insurance have increased significantly, and these increased costs have had an adverse effect on us and certain of our tenants.

Increased insurance costs may adversely affect our applicable tenants’ abilities to pay us rent or result in downward pressure on rents we can charge under new or renewed leases.

Losses of a catastrophic nature, such as those caused by hurricanes, flooding, volcanic eruptions and earthquakes, among other things, losses as a result of outbreaks of pandemics, including the COVID-19 pandemic, or losses from terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we or a responsible tenant may not be able to pay.

Insurance proceeds may not be adequate to restore an affected property to its condition prior to a loss or to compensate us for our losses, including the loss of future revenues from an affected property.

Similarly, our other insurance, including our general liability insurance, may not provide adequate insurance to cover our losses.

In addition, we do not have any insurance to limit losses that we may incur as a result of known or unknown environmental conditions.

Further, we cannot be sure that certain types of risks that are currently insurable will continue to be insurable on an economically feasible basis, and we may discontinue, or agree to a tenant discontinuing, certain insurance coverage on some or all of our properties in the future if we determine that the cost of premiums for any of these policies exceeds the value of the coverage.

If an uninsured loss or a loss in excess of insured limits occurs and if we are not able to recover amounts from our applicable tenants for those losses, we may have to incur uninsured costs to mitigate such losses or lose all or a portion of the capital invested in a property, as well as the anticipated future revenue from the property.

We might also remain obligated for any financial obligations related to the property, even if the property is irreparably damaged.

In addition, future changes in the insurance industry’s risk assessment approach and pricing structure could further increase the cost of insuring our properties or decrease the scope of insurance coverage, either of which could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our shareholders.

A prolonged U.S.

government shutdown may adversely impact our business and cash position.

Under our leases with the U.S.

government, the tenants pay us rent monthly in arrears.

government experiences a prolonged shutdown, these tenants may not pay us rent during the pendency of the shutdown.

Although we expect that these tenants would pay us any outstanding rents after the shutdown ends, our available cash and leverage targets may be adversely

impacted during the period we do not receive rents from these tenants.

During the pendency of any shutdown, we may need to borrow amounts under our revolving credit facility or seek alternative financing, which we may not be able to receive timely or on reasonable terms.

A failure to receive rents from our government tenants during a government shutdown may impair our ability to fund our operations and investments, pay our debt obligations, make capital expenditures and pay distributions to our shareholders.

Moreover, some of our tenants are government contractors that rely on government business.

If a government shutdown results in our government contractor tenants not paying us rent, the negative impact on us from a government shutdown may be compounded.

Insurance proceeds may not be adequate to restore an affected property to its condition prior to a loss or to compensate us for our losses, including lost revenues or other costs.

Certain losses, such as losses we may incur as a result of known or unknown environmental conditions, are not covered by our insurance.

Market conditions or our loss history may limit the scope of insurance or coverage available to us or our applicable tenants on economic terms.

If we determine that an uninsured loss or a loss in excess of insured limits occurs and if we are not able to recover amounts from our applicable tenants for certain losses, we may have to incur uninsured costs as a result or lose all or a portion of the capital invested in a property, as well as the anticipated future revenue from the property.

Risks Related to Our Relationships with RMR LLC

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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, as the sole trustee of ABP Trust, is the controlling shareholder of RMR Inc.

The Chair of our Board of Trustees who is also one of our Managing Trustees, Adam Portnoy, as the sole trustee of ABP Trust, is the controlling shareholder of RMR Inc.

and is a managing director and the president and chief executive officer of RMR Inc.

and an officer and employee of RMR LLC.

RMR LLC or its subsidiary also acts as the manager to four other Nasdaq listed REITs:

ILPT, which owns industrial and logistics properties;

DHC, which primarily owns senior living communities, medical office and life science buildings and other healthcare related properties;

SVC, which owns a diverse portfolio of hotels and net lease service and necessity-based retail properties;

and TRMT, which focuses on originating and investing in first mortgage whole loans secured by middle market and transitional commercial real estate.

RMR LLC also provides services to other publicly and privately owned companies, including:

Five Star, which operates senior living communities and provides rehabilitation and wellness services;

TA, which operates and franchises travel centers, standalone truck service facilities and restaurants;

and Sonesta, which operates, manages and franchises hotels, resorts and cruise boats.

A subsidiary of RMR LLC is an investment adviser to RMRM, which recently converted from a registered investment company to a publicly traded mortgage REIT.

Portnoy serves as chair of the board of trustees or board of directors, as applicable, of DHC, ILPT, SVC, Five Star and TA and as managing director, managing trustee, director or trustee, as applicable, of the companies managed by RMR LLC or its subsidiaries.

Christopher Bilotto, our President and Chief Operating Officer, and Matthew Brown, our Chief Financial Officer and Treasurer, are also officers and employees of RMR LLC and David Blackman, our other Managing Trustee and, until December 31, 2020, our President and Chief Executive Officer, is also an employee of RMR LLC.

Bilotto, Brown and Blackman have duties to RMR LLC, as well as to us, and we do not have their undivided attention.

RMR LLC or its subsidiary also acts as the manager to certain other Nasdaq listed companies and private companies, as noted elsewhere in this Annual Report on Form 10-K, and Mr.

Portnoy serves as a managing director, managing trustee, director or trustee, as applicable, of those companies, and as chair of the board of trustees or board of directors, as applicable, of certain of those companies.

Christopher Bilotto, our President and Chief Operating Officer, and Matthew Brown, our Chief Financial Officer and Treasurer, are also officers and employees of RMR LLC and Jennifer Clark, our other Managing Trustee, is also an employee of RMR LLC.

Portnoy, Bilotto and Brown and Ms.

Clark have duties to RMR LLC, as well as to us, and we do not

have their undivided attention.

They and other RMR LLC personnel may have conflicts in allocating their time and resources between us and RMR LLC and other companies to which RMR LLC or its subsidiaries provide services.

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In addition to his investments in RMR Inc.

and RMR LLC, Adam Portnoy holds equity investments in other companies to which RMR LLC or its subsidiaries provide management services and some of these companies have significant cross ownership interests, including, for example:

as of December 31, 2020, Mr.

Portnoy beneficially owned, in aggregate, 1.5% of our outstanding common shares, 6.3% of Five Star’s outstanding common stock (including through ABP Trust), 1.2% of ILPT’s outstanding common shares, 1.1% of DHC’s outstanding common shares, 2.3% of RMRM’s outstanding common shares, 1.1% of SVC’s outstanding common shares, 4.5% of TA’s outstanding common shares (including through RMR LLC) and 19.4% of TRMT’s outstanding common shares (including through Tremont Realty Advisors LLC).

and RMR LLC, Mr.

Portnoy holds equity investments in other companies to which RMR LLC or its subsidiaries provide management services and some of these companies have significant cross ownership interests.

Our executive officers may also own equity investments in other companies to which RMR LLC or its subsidiaries provide management services.

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Our management agreements with RMR LLC were not negotiated on an arm’s length basis and their fee and expense structure may not create proper incentives for RMR LLC, which may increase the risk of an investment in our common shares.

As a result of our relationships with RMR LLC and its current and former controlling shareholder(s), our management agreements with RMR LLC were not negotiated on an arm’s length basis between unrelated parties, and therefore, while such agreements were negotiated with the use of a special committee and disinterested Trustees, the terms, including the fees payable to RMR LLC, may not be as favorable to us as they would have been if they were negotiated on an arm’s length basis between unrelated parties.

As a result of our relationships with RMR LLC and its current and former controlling shareholder(s), our management agreements with RMR LLC were not negotiated on an arm’s length basis between unrelated parties, and therefore, while such agreements were negotiated with the use of a special committee and disinterested Trustees, the terms, including the fees payable to RMR LLC, may be different from those negotiated on an arm’s length basis between unrelated parties.

Our property management fees are calculated based on rents we receive and construction supervision fees for construction at our properties overseen and managed by RMR LLC, and our base business management fee is calculated based upon the lower of the historical costs of our real estate investments and our market capitalization.

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These provisions substantially increase the cost to us of terminating the management agreements without cause, which may limit our ability to end our relationship with RMR LLC as our manager.

The payment of the termination fee could have a material adverse effect on our financial condition, including our ability to pay dividends to our shareholders.

The payment of the termination fee could have a material adverse effect on our financial condition, including our ability to pay distributions to our shareholders.

Our management arrangements with RMR LLC may discourage a change of control of us.

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For these reasons, our management agreements with RMR LLC may discourage a change of control of us, including a change of control which might result in payment of a premium for our common shares.

We are and have been party to transactions with related parties that may increase the risk of allegations of conflicts of interest, and such allegations may impair our ability to realize the benefits we expect from these transactions.

We are and have been party to transactions with related parties, including with entities controlled by Adam Portnoy or to which RMR LLC or its subsidiaries provide or provided management services.

Our agreements with related parties or in respect of transactions among related parties may not be or have been on terms as favorable to us as they would have been if they had been negotiated among unrelated parties.

We are party to transactions with related parties that may increase the risk of allegations of conflicts of interest.

We are party to transactions with related parties, including with entities controlled by Adam Portnoy or to which RMR LLC or its subsidiaries provide management services.

Our agreements with related parties or in respect of transactions among related parties may not be on terms as favorable to us as they would have been if they had been negotiated among unrelated parties.

We are subject to the risk that our shareholders or the shareholders of RMR Inc.

or other related parties may challenge any such related party transactions and the agreements entered into as part of them.

If such a challenge were to be successful, we might not realize the benefits expected from the transactions being challenged.

or other related parties may challenge any such related party transactions.

If challenges to related party transactions were to be successful, we might not realize the benefits expected from the transactions being challenged.

Moreover, any such challenge could result in substantial costs and a diversion of our management’s attention, could have a material adverse effect on our reputation, business and growth and could adversely affect our ability to realize the benefits expected from the transactions, whether or not the allegations have merit or are substantiated.

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Companies with business dealings with related persons and entities may more often be the target of dissident shareholder trustee nominations, dissident shareholder proposals and shareholder litigation alleging conflicts of interest in their business dealings.

Our relationships with RMR LLC, the other companies to which RMR LLC or its subsidiaries provide management services, Adam Portnoy and other related persons of RMR LLC have precipitated and may precipitate such activities.

Our relationships with RMR LLC, the other companies to which RMR LLC or its subsidiaries provide management services, Adam Portnoy and other related persons of RMR LLC may precipitate such activities.

Certain proxy advisory firms which have significant influence over the voting by shareholders of public companies have, in the past, recommended, and in the future may recommend, that shareholders withhold votes for the election of our incumbent Trustees, vote against our say on pay vote or other management proposals or vote for shareholder proposals that we oppose.

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However, this provision may also inhibit acquisitions of a significant stake in us and may deter, delay or prevent a change in control of us or unsolicited acquisition proposals that a shareholder may consider favorable.

Additionally, provisions contained in our

declaration of trust and bylaws or under Maryland law may have a similar impact, including, for example, provisions relating to:

• the current division of our Trustees into classes until our 2023 annual meeting of shareholders, with three classes remaining with terms expiring in 2021, 2022 and 2023, respectively, (although effective at our 2021 annual meeting of shareholders, Trustees of the class of trustees whose term expires at that meeting or expires at a subsequent annual meeting of shareholders will be elected annually, with all of our Trustees being elected annually as of our 2023 annual meeting of shareholders, and with a majority of our current Trustees having terms expiring at our 2022 annual meeting of shareholders);

Additionally, provisions contained in our declaration of trust and bylaws or under Maryland law may have a similar impact, including, for example, provisions relating to:

• the current different terms of our Trustees, with a majority of our existing Trustees having terms expiring in 2022 and the remainder having terms expiring in 2023, which could delay a change of control of us (although beginning at our 2023 annual meeting of shareholders and thereafter, all of our Trustees will stand for election for one year terms);

• limitations on shareholder voting rights with respect to certain actions that are not approved by our Board of Trustees;

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As a result, we and our shareholders may have more limited rights against our present and former Trustees and officers than might otherwise exist absent the provisions in our declaration of trust, bylaws and indemnification agreements or that might exist with other companies, which could limit our shareholders’ recourse in the event of actions not in their best interest.

Shareholder litigation against us or our Trustees, officers, manager, other agents or employees may be referred to mandatory arbitration proceedings, which follow different procedures than in-court litigation and may be more restrictive to shareholders asserting claims than in-court litigation.

Shareholder litigation against us or our Trustees, officers, manager or other agents may be referred to mandatory arbitration proceedings, which follow different procedures than in-court litigation and may be more restrictive to shareholders asserting claims than in-court litigation.

Our shareholders agree, by virtue of becoming shareholders, that they are bound by our governing documents, including the arbitration provisions of our declaration of trust and bylaws, as they may be amended from time to time.

Our governing documents provide that certain actions by one or more of our shareholders against us or any of our Trustees, officers, manager or other agents or employees, other than disputes, or any portion thereof, regarding the meaning, interpretation or validity of any provision of our declaration of trust or bylaws, will be referred to mandatory, binding and final arbitration proceedings if we, or any other party to such dispute, including any of our Trustees, officers, manager, other agents or employees unilaterally so demands.

As a result, we and our shareholders would not be able to pursue litigation in state or federal court against us or our Trustees, officers, manager, other agents or employees, including, for example, claims alleging violations of federal securities laws or breach of fiduciary duties or similar director or officer duties under Maryland law, if we or any of our Trustees, officers, manager, other agents or employees against whom the claim is made unilaterally demands the matter be resolved by arbitration.

Our governing documents provide that certain actions by one or more of our shareholders against us or any of our Trustees, officers, manager or other agents, other than disputes, or any portion thereof, regarding the meaning, interpretation or validity of any provision of our declaration of trust or bylaws, will be referred to mandatory, binding and final arbitration proceedings if we, or any other

party to such dispute, including any of our Trustees, officers, manager or other agents unilaterally so demands.

As a result, we and our shareholders would not be able to pursue litigation in state or federal court against us or our Trustees, officers, manager or other agents, including, for example, claims alleging violations of federal securities laws or breach of fiduciary duties or similar director or officer duties under Maryland law, if we or any of our Trustees, officers, manager or other agents against whom the claim is made unilaterally demands the matter be resolved by arbitration.

Instead, our shareholders would be required to pursue such claims through binding and final arbitration.

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Our governing documents also generally provide that each party to such an arbitration is required to bear its own costs in the arbitration, including attorneys’ fees, and that the arbitrators may not render an award that includes shifting of such costs or, in a derivative or class proceeding, award any portion of our award to any shareholder or such shareholder’s attorneys.

The arbitration provisions of our governing documents may discourage our shareholders from bringing, and attorneys from agreeing to represent our shareholders wishing to bring, litigation against us or our Trustees, officers, manager, other agents or employees.

Our agreements with RMR LLC have similar arbitration provisions to those in our governing documents.

We believe that the arbitration provisions in our governing documents are enforceable under both state and federal law, including with respect to federal securities laws claims.

We are a Maryland real estate investment trust and Maryland courts have upheld the enforceability of arbitration provisions in governing documents.

In addition, the United States Supreme Court has repeatedly upheld agreements to arbitrate other federal statutory claims, including those that implicate important federal policies.

We are a Maryland real estate investment trust and Maryland courts have upheld the enforceability of arbitration bylaws.

In addition, the U.S.

Supreme Court has repeatedly upheld agreements to arbitrate other federal statutory claims, including those that implicate important federal policies.

However, some academics, legal practitioners and others are of the view that charter or bylaw provisions mandating arbitration are not enforceable with respect to federal securities laws claims.

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By agreeing to the arbitration provisions of our governing documents, shareholders will not be deemed to have waived compliance by us with federal securities laws and the rules and regulations thereunder.

Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a judicial forum they deem favorable for disputes with us or our Trustees, officers, manager, agents or employees.

Our bylaws currently provide that, unless the dispute has been referred to binding arbitration, the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for:

(1) any derivative action or proceeding brought on our behalf;

(2) any action asserting a claim for breach of a fiduciary duty owed by any Trustee, officer, manager, agent or employee of ours to us or our shareholders;

(3) any action asserting a claim against us or any Trustee, officer, manager, agent or employee of ours arising pursuant to Maryland law, our declaration of trust or bylaws brought by or on behalf of a shareholder, either on his, her or its own behalf, on our behalf or on behalf of any series or class of shares of beneficial interest of ours or shareholders against us or any Trustee, officer, manager, agent or employee of ours, including any disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of our declaration of trust or bylaws;

(2) any action asserting a claim for breach of a duty owed by any Trustee, officer, manager, agent or employee of ours to us or our shareholders;

(3) any action asserting a claim against us or any Trustee, officer, manager, agent or employee of ours arising pursuant to Maryland law, our declaration of trust or bylaws brought by or on behalf of a shareholder, either on his, her or its own behalf, on our behalf or on behalf of any series or class of shares of beneficial interest of ours or by our shareholders against us or any Trustee, officer, manager, agent or employee of ours, including any disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of our declaration of trust or bylaws;

or (4) any action asserting a claim against us or any Trustee, officer, manager, agent or employee of ours that is governed by the internal affairs doctrine.

Our bylaws currently also provide that the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for any dispute, or portion thereof, regarding the meaning, interpretation or validity of any provision of our declaration of trust or bylaws.

The exclusive forum provision of our bylaws does not apply to any action for which the Circuit Court for Baltimore City, Maryland does not have jurisdiction or to a dispute that has been referred to binding arbitration in

accordance with our bylaws.

The exclusive forum provision of our bylaws does not establish exclusive jurisdiction in the Circuit Court for Baltimore City, Maryland for claims that arise under the Securities Act, the Exchange Act or other federal securities laws if there is exclusive or concurrent jurisdiction in the federal courts.

Any person or entity purchasing or otherwise acquiring or holding any interest in our shares of beneficial interest shall be deemed to have notice of and to have consented to these provisions of our bylaws, as they may be amended from time to time.

The arbitration and exclusive forum provisions of our bylaws may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder believes is favorable for disputes with us or our Trustees, officers, manager, other agents or employees, which may discourage lawsuits against us and our Trustees, officers, manager, other agents or employees.

SIR’s former bylaws had similar exclusive forum provisions to those in our bylaws.

The arbitration and exclusive forum provisions of our bylaws may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder believes is favorable for disputes with us or our Trustees, officers, manager or other agents, which may discourage lawsuits against us and our Trustees, officers, manager or other agents.

We may change our operational, financing and investment policies without shareholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations.

Our Board of Trustees determines our operational, financing and investment policies and may amend or revise our policies, including our policies with respect to our intention to remain qualified for taxation as a REIT, acquisitions, dispositions, growth, operations, indebtedness, capitalization and distributions, or approve transactions that deviate from these policies, without a vote of, or notice to, our shareholders.

Policy changes could adversely affect the market price of our common shares and our ability to make distributions to our shareholders.

Policy changes could adversely affect the market price of our common shares and our ability to make or sustain distributions to our shareholders.

Further, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur.

Our Board of Trustees may alter or eliminate our current policy on borrowing at any time without shareholder approval.

If this policy changes, we could become more highly leveraged, which could result in an increase in our debt service costs.

If this policy changes, we could become more highly leveraged, which could result in an increase in our debt service costs or a downgrade in our credit ratings.

Higher leverage also increases the risk of default on our obligations.

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From time to time, we may generate taxable income greater than our income for financial reporting purposes prepared in accordance with U.S.

generally accepted accounting principles, or GAAP, or differences in timing between the recognition of taxable income and the actual receipt of cash may occur.

generally accepted accounting principles, or GAAP, or differences in timing between the recognition of

taxable income and the actual receipt of cash may occur.

If we do not have other funds available in these situations, among other things, we may borrow funds on unfavorable terms, sell investments at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions in order to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year.

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Any of these taxes would decrease cash available for distribution to our shareholders.

We may incur adverse tax consequences as a result of our merger and acquisition transactions.

As a successor, we may face liability stemming from the tax liabilities (including penalties and interest) of the entities that we have acquired.

These liabilities and our efforts to remedy any tax dispute relating to acquired entities could have a material adverse effect on our financial condition and results of operations.

Legislative or other actions affecting REITs could materially and adversely affect us and our shareholders.

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• our making of distributions is subject to restrictions contained in the agreements governing our debt and may be subject to restrictions in future debt obligations we may incur;

during the continuance of any event of default under the

agreements governing our debt, we may be limited or in some cases prohibited from making distributions to our shareholders;

• the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including our FFO, our Normalized FFO, 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.

during the continuance of any event of default under the agreements governing our debt, we may be limited or in some cases prohibited from making distributions to our shareholders;

• the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including our funds from operations, or FFO, normalized funds from operations, or Normalized FFO, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, 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.

For these reasons, among others, our distribution rate may decline or we may cease making distributions to our shareholders.

Further, in order to preserve liquidity, we may elect to pay distributions to our shareholders in part in a form other than cash, such as issuing additional common shares of ours to our shareholders, as permitted by the applicable tax rules.

Changes in market conditions could adversely affect the value of our securities.

As with other publicly traded equity securities and REIT securities, the value of our common shares and other securities depends on various market conditions that are subject to change from time to time, including:

• the extent of investor interest in our securities;

• the general reputation of REITs and externally managed companies and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate based companies or by other issuers less sensitive to rises in interest rates;

• our underlying asset value;

• investor confidence in the stock and bond markets, generally;

• market interest rates;

• national economic conditions;

• changes in tax laws;

• changes in our credit ratings;

• general market conditions, including factors unrelated to our operating performance;

• perception of our environmental, social and governance policies relative to other companies.

We believe that one of the factors that investors consider important in deciding whether to buy or sell equity securities of a REIT is the distribution rate, considered as a percentage of the price of the equity securities, relative to market interest rates.

Interest rates have been at historically low levels for an extended period of time.

There is a general market perception that REIT shares outperform in low interest rate environments and underperform in rising interest rate environments when compared to the broader market.

Federal Reserve has indicated that it does not expect to raise interest rates in response to the COVID-19 pandemic and current market conditions until at least the end of 2023.

There can be no assurance, however, that the U.S.

Federal Reserve will not raise rates prior to that time.

Federal Reserve increases interest rates or if there is a market expectation of such increases, prospective purchasers of REIT equity securities may want to achieve a higher distribution rate.

Thus, higher market interest rates, or the expectation of higher interest rates, could cause the value of our securities to decline.

Further issuances of debt or equity securities may adversely affect our shareholders.

As a REIT, we generally will not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties and fund acquisitions and development or redevelopment efforts, and therefore, our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, which may include secured and unsecured debt, and equity financing, which may include common and preferred shares.

The interests of our existing shareholders could be diluted if we issue additional equity securities.

In addition, if we decide in the future to issue debt or equity securities that rank senior to our common shares, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility.

Also, any convertible or exchangeable securities that we issue in the future may have rights,

preferences and privileges more favorable than those of our common shares and may result in further dilution to our shareholders.

Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or even estimate the amount, timing or nature of our future capital offerings.

Thus, our shareholders will bear the risk of our future offerings reducing the market price of our common shares and diluting the value of their common shares.

The Notes are structurally subordinated to the payment of all indebtedness and other liabilities and any preferred equity of our subsidiaries.

The Notes are structurally subordinated to the payment of all indebtedness and other liabilities.

We are the sole obligor on our outstanding senior unsecured notes, and our outstanding senior unsecured notes and any notes or other debt securities we may issue in the future, or, together with our outstanding senior unsecured notes, or the Notes, and such Notes are not, and any Notes we may issue in the future may not be guaranteed by any of our subsidiaries.

Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on the Notes, or to make any funds available therefor, whether by dividend, distribution, loan or other payments.

The rights of holders of Notes to benefit from any of the assets of our subsidiaries are subject to the prior satisfaction of claims of our subsidiaries’ creditors and any preferred equity holders.

The rights of holders of Notes to benefit from any of the assets of our subsidiaries are subject to the prior satisfaction of claims of our subsidiaries’ creditors.

As a result, the Notes are, and, except to the extent that future Notes are guaranteed by our subsidiaries, will be, structurally subordinated to all of the debt and other liabilities and obligations of our subsidiaries, including guarantees of other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.

As of December 31, 2021, our subsidiaries had total indebtedness and other liabilities (excluding security and other deposits and guaranties) of $194.1 million.

The Notes are unsecured and effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness.

The outstanding Notes are not secured and any Notes we may issue in the future may not be secured.

Upon any distribution to our creditors in a bankruptcy, liquidation, reorganization or similar proceeding relating to us or our property, the holders of our secured debt will be entitled to exercise the remedies available to a secured lender under applicable law and pursuant to the instruments governing such debt and to be paid in full from the assets securing that secured debt before any payment may be made with respect to Notes that are not secured by those assets.

In that event, because such Notes will not be secured by any of our assets, it is possible that there will be no assets from which claims of holders of such Notes can be satisfied or, if any assets remain, that the remaining assets will be insufficient to satisfy those claims in full.

If the value of such remaining assets is less than the aggregate outstanding principal amount of such Notes and accrued interest and all future debt ranking equally with such Notes, we will be unable to fully satisfy our obligations under such Notes.

In addition, if we fail to meet our payment or other obligations under our secured debt, the holders of that secured debt would be entitled to foreclose on our assets securing that secured debt and liquidate those assets.

Accordingly, we may not have sufficient funds to pay amounts due on such Notes.

As a result, noteholders may lose a portion or the entire value of their investment in such Notes.

Further, the terms of the outstanding Notes permit, and the terms of any Notes we may issue in the future may permit us to incur additional secured indebtedness subject to compliance with certain debt ratios.

The Notes that are not secured will be effectively subordinated to any such additional secured indebtedness.

As of December 31, 2020, we had $170.8 million in mortgage debt.

There may be no public market for certain of the Notes, and one may not develop, be maintained or be liquid.

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Any decline in market prices, regardless of cause, may adversely affect the liquidity and trading markets for the Notes.

A downgrade in credit ratings could materially adversely affect the market price of the Notes and may increase our cost of capital.

The outstanding Notes are rated by two rating agencies and any Notes we may issue in the future may be rated by one or more rating agencies.

These credit ratings are continually reviewed by rating agencies and may change at any time based upon,

among other things, our results of operations and financial condition.

Negative changes in the ratings assigned to our debt securities could have an adverse effect on the market price of the Notes and our cost and availability of capital, including the interest rate on our revolving credit facility, which could in turn have a material adverse effect on our results of operations and our ability to satisfy our debt service obligations.

Redemption may adversely affect noteholders’ return on the Notes.

We have the right to redeem some or all of the outstanding Notes prior to maturity and may have such a right with respect to any Notes we issue in the future.

We may redeem such Notes at times when prevailing interest rates may be relatively low compared to the interest rate of such Notes.

Accordingly, noteholders may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the Notes.

Unresolved Staff Comments

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

What changed 10-K

Item 1A. Risk Factors