What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-16 compared with 2021-02-19 · 159 added, 176 removed, 384 unchanged (47% of the section changed)

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We are a REIT organized under Maryland law.

As of December 31, 2020, our wholly owned properties were comprised of 181 properties and we had noncontrolling ownership interests in three properties totaling approximately 444,000 rentable square feet through two unconsolidated joint ventures in which we own 51% and 50% interests.

As of December 31, 2021, our wholly owned properties were comprised of 178 properties and we had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties containing approximately 444,000 rentable square feet.

As of December 31, 2021, our properties are located in 33 states and the District of Columbia and contain approximately 23,271,000 rentable square feet.

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government is our largest tenant, representing approximately 19.5% of our annualized rental income as of December 31, 2021.

COVID-19 Pandemic

The COVID-19 pandemic and the various governmental and market responses intended to contain and mitigate the spread of the virus and its detrimental public health impact, as well as the general uncertainty surrounding the dangers and impact of the pandemic, continue to have a significant impact on the global economy, including the U.S.

To date, the COVID-19 pandemic has not had a significant impact on our business and we believe that our current financial resources, the characteristics of our portfolio, including the diversity of our tenant base, both geographically and by industry, and the financial strength and resources of our tenants, will enable us to withstand the COVID-19 pandemic.

However, we have received requests from some of our tenants for rent assistance.

As of February 16, 2021, we have granted temporary rent assistance totaling $2,546 to 19 tenants who represent approximately 3.3% of our annualized rental income as of December 31, 2020.

This assistance generally entails a deferral of, in most cases, one month of rent pursuant to deferred payment plans which require the deferred rent amounts be payable over a 12-month period, certain of which commenced in 2020.

The deferred amounts did not impact our operating results for the year ended December 31, 2020.

As of February 16, 2021, we have collected $1,999, or 78.5%, of our granted rent deferrals.

For more information and risks relating to the COVID-19 pandemic on us and our business, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements”, Part I, Item1, “Business”, Part I, Item

1A, “Risk Factors” and Note 4 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

The COVID-19 pandemic and the various governmental and market responses intended to contain and mitigate the spread of the virus and its detrimental public health impact have had a significant impact on the global economy, including the U.S.

Many of the restrictions that had been imposed in the United States during the pandemic have since been lifted and commercial activity in the United States generally has increasingly returned to pre-pandemic practices and operations, although recent variants of the virus have caused increased infections and resulted in governments and businesses implementing or

adopting certain requirements, including proof of vaccinations and mask wearing.

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

To date, the COVID-19 pandemic has not had a significant adverse impact on our business and we continue to believe that our financial resources, the characteristics of our portfolio, including the diversity of our tenant base, both geographically and by industry, and the financial strength and resources of our tenants, will enable us to withstand the COVID-19 pandemic.

However, as a result of the COVID-19 pandemic, we granted temporary rent assistance totaling $2,483 to 18 tenants.

This assistance generally entailed a deferral of, in most cases, one month of rent pursuant to deferred payment plans which required the deferred rent amounts be payable over a 12-month period.

As of December 31, 2021, we had collected 100% of our granted rent deferrals.

The ultimate adverse impact of the COVID-19 pandemic is highly uncertain and subject to change.

As a result, 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.

Property Operations

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(2) Based on properties we owned continuously since January 1, 2020;

excludes properties classified as held for sale, properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

(3) Includes one leasable land parcel.

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(3) Based on properties we owned continuously since January 1, 2020;

During the year ended December 31, 2021, changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands):

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Remeasurements (2)

(1) (93) (94)

End of year 20,817 2,454 23,271

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Leases at our properties totaling approximately 2,796,000 rentable square feet expired during the year ended December 31, 2021.

During the year ended December 31, 2020, we entered leases totaling approximately 1,965,000 rentable square feet, including lease renewals of approximately 1,691,000 rentable square feet and new leases of approximately 274,000 rentable square feet.

The weighted (by rentable square feet) average rents were 6.9% above prior rents for the same space and the weighted (by rentable square feet) average lease term for new and renewal leases entered during the year ended December 31, 2020 was 7.3 years.

During the year ended December 31, 2020, commitments made for expenditures, such as tenant improvements and leasing costs, in connection with leasing space at our properties were as follows (square feet in thousands):

During the year ended December 31, 2021, we entered into new and renewal leases as summarized in the following table (square feet in thousands):

Year Ended December 31, 2021

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Rentable square feet leased 846 1,638 2,484

Weighted average rental rate change (by rentable square feet) 7.6 % 5.6 % 6.3 %

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

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

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

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

During the year ended December 31, 2021, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the year ended December 31, 2021, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as follows (square feet in thousands):

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Total leasing activity $26.91 $28.78 1,544

(1) Effective rental rate includes contractual base rents from our tenants pursuant to our lease agreements, plus straight line rent adjustments and estimated expense reimbursements to be paid to us, and excluding lease value amortization.

During the years ended December 31, 2021 and 2020, amounts capitalized at our properties for lease related costs, building improvements and development, redevelopment and other activities were as follows:

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Development, redevelopment and other activities (3)

56,243 16,858

Total capital expenditures $ 129,097 $ 93,110

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As of December 31, 2021, we had leases at our properties totaling approximately 1,753,000 rentable square feet that were scheduled to expire during 2022.

As of February 18, 2021, we expect tenants with leases totaling approximately 2,614,000 rentable square feet that are scheduled to expire through December 31, 2021, to not renew their leases upon expiration and we cannot be sure as to whether other tenants will renew their leases upon expiration.

Of the approximately 2,614,000 rentable square feet that is expiring and expected to not renew in 2021, 1,371,000 rentable square feet is currently under agreement to be sold and 340,000 rentable square feet is in the planning stage for a potential redevelopment.

As a result of the COVID-19 pandemic and its economic impact, overall new leasing volume slowed in 2020 and may further slow or remain at a reduced level until market conditions meaningfully improve for a sustained period.

However, we remain focused on proactive dialogue with our existing tenants and overall tenant retention.

As of February 15, 2022, we expect tenants with leases totaling approximately 935,000 rentable square feet that are scheduled to expire during 2022, to not renew their leases upon expiration and we cannot be sure as to whether other tenants will renew their leases upon expiration.

Of the approximately 935,000 rentable square feet that is expiring and expected to not renew in 2022, approximately 300,000 rentable square feet is in the planning stage of a redevelopment project at a three-property campus located in Seattle, WA.

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

However, we remain focused on proactive dialogues with our existing tenants and overall tenant retention.

Prevailing market conditions and government and other tenants’ needs at the time we negotiate and enter leases or lease renewals will generally determine rental rates and demand for leased space at our properties, and market conditions and our tenants’ needs are beyond our control.

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

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

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

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Square feet measurements are subject to changes when space is remeasured or reconfigured for new tenants.

We generally will seek to renew or extend the terms of leases in our single tenant properties when they expire.

We generally will seek to renew or extend the terms of leases at properties with single or majority tenants when they expire.

Because of the capital many of the tenants in these properties have invested in the properties and because many of these properties appear to be of strategic importance to the tenants’ businesses, we believe that it is likely that these tenants will renew or extend their leases prior to when they expire.

If we are unable to extend or renew our leases, it may be time consuming and expensive to relet some of these properties.

However, recent shifts in workplace practices, including as a result of the COVID-19 pandemic, have resulted in a significant increase in alternative work arrangements, including work from home practices.

It is uncertain to what extent and how long work from home arrangements may continue, or if other hybrid work arrangements will continue or increase.

If these arrangements continue or increase, our single or majority tenants may not seek to renew or extend their leases when they expire, or may seek to renew their leases for less space than the currently occupy.

If we are unable to extend or renew our leases, or we renew leases for reduced space, it may be time consuming and expensive to relet some of these properties.

We believe that recent government budgetary and spending priorities and enhancements in technology have resulted in a decrease in government office use for employees.

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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.

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.

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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.

however, activity prior to the outbreak of the COVID-19 pandemic suggested that the U.S.

government had begun to shift its leasing strategy to include longer term leases and was actively exploring 10 to 20 year lease terms at renewal, in some instances.

It is also possible that as a result of the COVID-19 pandemic, government tenants may seek to manage space utilization rates in order to provide greater physical distancing for employees, 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.

However, the COVID-19 pandemic and its aftermath have had negative impacts on government budgets and resources, although there are indications that, to date, certain of those impacts may not have been as negative as originally expected, and it is unclear what the effect of these impacts will be on government demand for leasing office space.

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.

As of December 31, 2021, we derive 21.8% of our annualized rental income from our properties located in the metropolitan Washington, D.C.

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In general, depending on facts and circumstances, RMR LLC evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources.

RMR LLC also often uses a third party service to monitor the credit ratings, both actual and implied, of our existing tenants.

We consider investment grade tenants to include:

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As of December 31, 2021, tenants contributing 51.6% of annualized rental income were investment grade rated (or their payment obligations were guaranteed by an investment grade rated parent) and tenants contributing an additional 10.2% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

As of December 31, 2020, tenants representing 1% or more of our total annualized rental income were as follows:

As of December 31, 2021, tenants representing 1% or more of our total annualized rental income were as follows (square feet in thousands):

Tenant Credit Rating Sq.

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Government Investment Grade 4,196 20.2 % $ 112,905 19.5 %

2 Alphabet Inc.

(Google) Investment Grade 386 1.9 % 20,924 3.6 %

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

Not Rated 596 2.9 % 19,187 3.3 %

3 State of California Investment Grade 648 2.9 % 19,142 3.3 %

4 Bank of America Corporation Investment Grade 577 2.8 % 15,803 2.7 %

5 WestRock Company (1)

Investment Grade 311 1.4 % 12,871 2.2 %

6 F5 Networks, Inc.

5 State of California Investment Grade 523 2.5 % 15,578 2.7 %

6 IG Investments Holdings LLC Not Rated 333 1.6 % 15,466 2.7 %

Not Rated 299 1.4 % 12,752 2.2 %

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Investment Grade 248 1.2 % 11,198 1.9 %

11 Micro Focus International plc Non Investment Grade 406 1.8 % 8,710 1.5 %

12 Sonesta International Hotels Corporation (1)

Not Rated 230 1.1 % 10,745 1.9 %

13 CommScope Holding Company Inc Non Investment Grade 228 1.1 % 9,245 1.6 %

14 Micro Focus International plc Non Investment Grade 242 1.2 % 7,430 1.3 %

15 State of Georgia Investment Grade 308 1.5 % 7,248 1.2 %

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Investment Grade 250 1.2 % 6,031 1.0 %

20 Tailored Brands, Inc.

Non Investment Grade 206 0.9 % 5,898 1.0 %

10,885 52.4 % $ 332,493 57.2 %

(1) This tenant occupied a property located in Richmond, VA that was classified as held for sale as of December 31, 2020 and sold in January 2021.

(2) In August 2020, Tailored Brands, Inc.

filed for Chapter 11 bankruptcy.

The tenant has paid its rental obligations to us through December 31, 2020.

On January 25, 2021, the lease was assumed in bankruptcy court.

As a condition to this lease being assumed, we entered into a lease amendment with the tenant as of January 25, 2021 that includes a reduction of approximately 104,000 square feet.

As a result of this lease restructure, this tenant will no longer represent 1% or more of our annualized rental income.

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

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

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

For more information about our lease with Sonesta, see Note 6 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Acquisition Activities

During the year ended December 31, 2020, we acquired two properties containing a combined approximately 163,000 square feet for an aggregate purchase price of $46,625, excluding acquisition related costs.

In November 2020, we entered into an agreement to acquire a property adjacent to a property we own in Boston, MA for $26,975, excluding acquisition related costs.

This acquisition is expected to take place before the end of the first quarter.

However, this acquisition is subject to conditions;

accordingly, we cannot be sure that we will complete this acquisition or that this acquisition will not be delayed or the terms will not change.

For more information about our acquisition activities, see “Business —Acquisition Policies” in Part 1, Item 1 of this Annual Report on Form 10-K and Note 3 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

During the year ended December 31, 2021, we acquired three properties containing approximately 926,000 rentable square feet for an aggregate purchase price of $576,975, excluding purchase price adjustments and acquisition related costs.

For more information about our acquisition activities, see “Business —Acquisition Policies” in Part I, Item 1 of this Annual Report on Form 10-K and Note 3 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Disposition Activities

During the year ended December 31, 2020, we sold 10 properties containing a combined approximately 906,000 rentable square feet for an aggregate sales price of $110,463, excluding closing costs and including the repayment of one mortgage note with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021.

Since January 1, 2021, we have sold both of the properties classified as held for sale as of December 31, 2020 for an aggregate sales price of $130,845, excluding closing costs.

We sold these properties pursuant to our capital recycling program.

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 term of our leases and increasing the likelihood of retaining our tenants and (2) increasing our cash available for distribution.

In February 2021, we entered into an agreement to sell a property located in Huntsville, AL containing approximately 1,371,000 rentable square feet for a sales price of $39,000, excluding closing costs.

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

However, this sale is subject to conditions;

During the year ended December 31, 2021, we sold six properties, a warehouse facility adjacent to a property we own located in Kansas City, MO and two vacant land parcels adjacent to properties we own located in Sterling, VA containing approximately 2,565,000 rentable square feet for an aggregate sales price of $226,915, excluding closing costs.

Since January 1, 2022, we also sold three of the properties classified as held for sale as of December 31, 2021 containing approximately 301,000 rentable square feet for an aggregate sales price of $25,695, excluding closing costs.

We continue to evaluate our portfolio for opportunities to strategically recycle capital and are currently in various stages of marketing for sale more than 30 properties containing over 3,000,000 rentable square feet.

As of February 15, 2022, we have entered into an agreement to sell one property containing approximately 29,000 rentable square feet for a sales price of $3,850, excluding closing costs.

We cannot be sure we will sell any properties we are marketing for sale for prices in excess of their carrying values or otherwise.

In addition, our pending sale is subject to conditions;

accordingly, we cannot be sure that we will complete this sale or that this sale will not be delayed or the terms will not change.

For more information about our disposition activities, see “Business —Disposition Policies” in Part 1, Item 1 of this Annual Report on Form 10-K and Note 3 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

For more information about our disposition activities, see “Business —Disposition Policies” in Part I, Item 1 of this Annual Report on Form 10-K and Note 3 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Financing Activities

Senior Unsecured Note Issuances

In June and July 2020, we issued an aggregate of $162,000 of 6.375% senior unsecured notes due 2050 in an underwritten public offering.

Our aggregate net proceeds from this offering were $156,226, after underwriters’ discounts and offering expenses, which we used to repay amounts outstanding under our revolving credit facility and for general business purposes.

These notes require quarterly payments of interest only through maturity and may be repaid at par (plus accrued and unpaid interest) on or after June 23, 2025.

In September 2020, we issued $250,000 of our 4.50% senior unsecured notes due 2025 in an underwritten public offering.

These notes were a further issuance of our existing $400,000 of senior unsecured notes due 2025 that were initially issued by SIR in February 2015, which we assumed in connection with the SIR Merger.

The public offering price of these notes was 101.414% of the principal amount, raising net proceeds of $251,214, after underwriters’ discounts and offering expenses, which we used to repay amounts outstanding under our revolving credit facility and for general business purposes.

These notes require semi-annual payments of interest only through maturity.

Senior Unsecured Note Redemption

In January 2020, we redeemed, at par plus accrued interest, all $400,000 of our 3.60% senior unsecured notes due 2020 using cash on hand, proceeds from property sales and borrowings under our revolving credit facility.

In May 2021, we issued $300,000 of 2.650% senior unsecured notes due 2026 in an underwritten public offering, raising net proceeds of $296,826, after deducting underwriters’ discounts and offering expenses, which we used, together with cash on hand, to redeem all $310,000 of our 5.875% senior unsecured notes due 2046.

In August 2021, we issued $350,000 of 2.400% senior unsecured notes due 2027 in an underwritten public offering, raising net proceeds of $346,607, after deducting underwriters’ discounts and offering expenses, which we used to redeem all $300,000 of our 4.15% senior unsecured notes due 2022.

In September 2021, we issued $400,000 of 3.450% senior unsecured notes due 2031 in an underwritten public offering, raising net proceeds of $395,632, after deducting underwriters’ discounts and offering expenses, which we used to repay amounts outstanding under our revolving credit facility and for general business purposes.

Senior Unsecured Note Redemptions

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

In September 2021, we redeemed, at a premium plus accrued interest, all $300,000 of our 4.15% senior unsecured notes due 2022 using a portion of the net proceeds from the issuance of our 2.400% senior unsecured notes due 2027.

Mortgage Note Repayments

date in August 2021, which was classified in liabilities of properties held for sale in our consolidated balance sheet as of December 31, 2019.

Also in March 2020, we prepaid, at a premium plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $66,780, an annual interest rate of 4.0% and a maturity date in September 2030 using cash on hand and borrowings under our revolving credit facility.

In April 2020, we prepaid, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $32,677, an annual interest rate of 5.7% and a maturity date in July 2020 using cash on hand and borrowings under our revolving credit facility.

In August 2020, we repaid at maturity, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $39,635 and an annual interest rate of 2.2% using cash on hand and borrowings under our revolving credit facility.

For more information about our financing activities, see “Business —Our Financing Policies” in Part 1, Item 1 of this Annual Report on Form 10-K and Note 8 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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

In February 2022, we gave notice of our intention to prepay, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $25,055 at December 31, 2021, an annual interest rate of 4.22% and a maturity date in July 2022.

We expect to make this prepayment in April 2022 using cash on hand.

For more information about our financing activities, see “Business —Our Financing Policies” in Part I, Item 1 of this Annual Report on Form 10-K and Note 8 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Segment Information

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Depreciation and amortization 241,494 251,566 (10,072) (4.0 %)

Loss on impairment of real estate 2,954 22,255 (19,301) (86.7 %)

Acquisition and transaction related costs 232 682 (450) (66.0 %)

Loss on impairment of real estate 62,420 2,954 59,466 n/m

Acquisition and transaction related costs — 232 (232) n/m

General and administrative 26,858 28,443 (1,585) (5.6 %)

Total other expenses 330,772 283,195 47,577 16.8 %

Gain on sale of real estate 10,855 105,131 (94,276) (89.7 %)

Dividend income — 1,960 (1,960) n/m

Loss on equity securities, net — (44,007) 44,007 n/m

Gain on sale of real estate 78,354 10,855 67,499 n/m

Interest and other income 7 779 (772) (99.1 %)

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Loss on early extinguishment of debt (14,068) (3,839) (10,229) n/m

Income before income tax expense and equity in net losses of investees 8,248 32,372 (24,124) (74.5 %)

Income (loss) before income tax expense and equity in net losses of investees (5,428) 8,248 (13,676) (165.8 %)

Income tax expense (251) (377) 126 (33.4 %)

Equity in net losses of investees (2,501) (1,193) (1,308) 109.6 %

Net income $ 6,678 $ 30,335 $ (23,657) (78.0 %)

Net income (loss) $ (8,180) $ 6,678 $ (14,858) n/m

Weighted average common shares outstanding (basic and diluted) 48,195 48,124 71 0.1 %

Per common share amounts (basic and diluted):

Net income $ 0.14 $ 0.63 $ (0.49) (77.8 %)

Net income (loss) $ (0.17) $ 0.14 $ (0.31) n/m

n/m - not meaningful

(1) Comparable properties consists of 167 properties we owned on December 31, 2021 and which we owned continuously since January 1, 2020 and excludes properties classified as held for sale, properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

(2) Our definition of net operating income, or NOI, and our reconciliation of net income to NOI are included below under the heading “Non-GAAP Financial Measures.”

(2) Our definition of net operating income, or NOI, and our reconciliation of net income (loss) to NOI are included below under the heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of consolidated results for the year ended December 31, 2021 compared to the year ended December 31, 2020.

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Rental income.

The decrease in rental income reflects decreases in rental income of $74,411 as a result of property disposition activities, $10,078 related to comparable properties and $6,204 related to a property undergoing significant redevelopment that became vacant in September 2019, offset by an increase in rental income of $208 related to acquired properties.

The decrease in rental income for comparable properties is primarily due to reductions in occupied space at certain of our properties in 2020, certain below market lease intangibles becoming fully amortized, termination fee revenue totaling $1,543 recorded at certain of our comparable properties in 2019, reductions in reimbursement income due to reductions in expenses that are reimbursable to us by our tenants as a result of the COVID-19 pandemic and resulting decrease in space utilization, and decreased parking revenue at certain of our comparable properties due to lower parking activity resulting from the COVID-19 pandemic.

Rental income includes non-cash straight line rent adjustments totaling $16,079 in 2020 and $27,507 in 2019, and amortization of acquired leases and assumed lease obligations totaling ($5,440) in 2020 and ($2,710) in 2019.

The decrease in rental income reflects decreases in rental income of $27,158 related to property disposition activities, $12,675 related to properties undergoing significant redevelopment and $3,655 related to comparable properties,

offset by an increase in rental income of $32,051 for acquired properties.

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

that began a redevelopment project during 2021.

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

Rental income includes non-cash straight line rent adjustments totaling $15,368 in 2021 and $16,079 in 2020, and amortization of acquired real estate leases and assumed real estate lease obligations totaling ($2,288) in 2021 and ($5,440) in 2020.

Real estate taxes.

The decrease in real estate taxes reflects a decrease in real estate taxes of $7,765 as a result of property disposition activities, a decrease of $803 for a property undergoing significant redevelopment and a decrease of $80 for comparable properties, offset by increases in real estate taxes of $50 for acquired properties.

Real estate taxes for comparable properties declined primarily due to the effect of lower real estate tax valuation assessments resulting from successful real estate tax appeals at certain of our properties since January 1, 2019.

The increase in real estate taxes primarily reflects an increase in real estate taxes of $11,729 for acquired properties, offset by decreases in real estate taxes of $2,174 related to property disposition activities, $1,844 related to properties undergoing significant redevelopment and $860 for comparable properties.

Real estate taxes for comparable properties declined primarily due to decreases in assessed values and refunds received in 2021 at certain of our properties as a result of successful real estate tax appeals.

Utility expenses.

The decrease in utility expenses reflects a decrease in utility expenses of $4,796 as a result of property disposition activities and a decrease in utility expenses for comparable properties of $4,188, offset by an increase in utility expenses for a property undergoing significant redevelopment of $66.

Utility expenses for comparable properties declined primarily due to a decrease in electricity and water usage resulting from cost savings initiatives implemented by our manager, RMR LLC, in response to decreased space utilization at our properties as a result of the COVID-19 pandemic, as well as the implementation of real time energy management programs at certain of our properties in 2020.

The decrease in utility expenses reflects decreases in utility expenses of $559 related to property disposition activities and $393 for properties undergoing significant redevelopment, offset by increases of $621 for acquired properties and $198 for comparable properties.

Utility expenses for comparable properties increased primarily due to utility expenses previously paid directly by one of our tenants that are now being paid by us pursuant to a lease amendment with that tenant effective in January 2021.

Other operating expenses.

Other operating expenses consist of salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense, other direct costs of operating our properties and property management fees.

The decrease in other operating expenses reflects a decrease of $13,448 as a result of property disposition activities, a decrease of $1,720 for comparable properties and a decrease of $436 related to a property undergoing significant redevelopment, offset by an increase in other operating expenses related to acquired properties of $126.

Other operating expenses for comparable properties declined primarily due to lower net cleaning costs resulting from cost savings initiatives implemented by our manager, RMR LLC, in response to decreased space utilization at our properties as a result of the COVID-19 pandemic, which were partially offset by an increase in cleaning costs related to more frequent cleaning and sanitizing practices at our properties to help mitigate the spread of COVID-19, lower snow removal costs and lower parking garage maintenance costs due to lower parking activity at certain of our properties resulting from the COVID-19 pandemic, partially offset by higher insurance costs in 2020.

The increase in other operating expenses reflects increases of $4,683 for acquired properties and $160 for comparable properties, offset by decreases of $3,226 related to property disposition activities and $1,257 related to properties undergoing significant redevelopment.

Depreciation and amortization.

The decrease in depreciation and amortization primarily reflects a decrease of $23,092 as a result of property disposition activities, a decrease for comparable properties of $12,891 and a decrease related to a property undergoing significant redevelopment of $2,567, offset by an increase related to acquired properties of $231.

Depreciation and amortization for comparable properties and the property undergoing significant redevelopment declined due to certain leasing related assets becoming fully depreciated in 2020, partially offset by depreciation and amortization of improvements made to certain of our properties during 2019 and 2020.

The decrease in depreciation and amortization primarily reflects decreases of $14,505 for comparable properties and $11,131 related to property disposition activities, offset by an increase of $15,564 for acquired properties.

Depreciation and amortization for comparable properties declined due to certain leasing related assets becoming fully depreciated after January 1, 2020, partially offset by depreciation and amortization of improvements made to certain of our properties during 2020 and 2021.

Loss on impairment of real estate .

We recorded a $2,954 loss on impairment of real estate in 2020 to reduce the carrying value of four properties to their estimated fair value less costs to sell.

We recorded a $22,255 loss on impairment of real estate in 2019 to reduce the carrying value of 45 properties to their estimated fair value less costs to sell.

We recorded a $62,420 loss on impairment of real estate in 2021 to reduce the carrying value of eight properties to their estimated fair value less costs to sell, which includes $45,196 related to three properties containing approximately 2,001,000 rentable square feet that were sold during the year ended December 31, 2021, $6,991 related to two properties containing approximately 158,000 rentable square feet that were classified as held for sale as of December 31, 2021 and $10,233 related to three properties containing approximately 448,000 rentable square feet that were previously classified as held for sale as of September 30, 2021 and were removed from held for sale status as of December 31, 2021.

We recorded a $2,954 loss on impairment of real estate in 2020 to reduce the carrying value of four properties to their estimated fair value less costs to sell that were sold during 2020.

Acquisition and transaction related costs.

Acquisition and transaction related costs incurred in 2020 represent costs related to an acquisition opportunity we terminated in November 2020.

Acquisition and transaction related costs incurred in 2019 represent costs incurred in connection with the SIR Merger, comprised of certain post-merger activity costs incurred during 2019.

For more information regarding the SIR Merger, see Notes 1, 3, 11 and 12 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Acquisition and transaction related costs incurred in 2020 represent costs related to an acquisition which we terminated in November 2020.

General and administrative.

General and administrative expenses consist of fees pursuant to our business management agreement, equity compensation expense, legal and accounting fees, Trustees’ fees and expenses, securities listing and transfer agency fees and other costs relating to our status as a publicly traded company.

The decrease in general and administrative expenses is primarily the result of a decrease in business management fees in 2020 mostly as a result of property sales during 2019 and 2020 and declines in our share price in 2020 during the COVID-19 pandemic, as well as lower legal expenses and audit fees.

The decrease in general and administrative expenses is primarily the result of the expiration of an office lease in January 2021 for which we were the lessee, as well as decreases in equity compensation expense, legal fees and state franchise tax expense, partially offset by an increase in business management fees in 2021 resulting from an increase in average total market capitalization in 2021 compared to 2020.

Gain on sale of real estate.

We recorded a $10,855 net gain on sale of real estate in 2020 resulting from the sale of 10 properties.

We recorded a $78,354 net gain on sale of real estate in 2021 resulting from the sale of six properties, a warehouse facility adjacent to a property we own located in Kansas City, MO and two vacant land parcels adjacent to properties we own located in Sterling, VA.

We recorded a $10,855 net gain on sale of real estate in 2020 resulting from the sale of 10 properties.

Dividend income.

Dividend income in 2019 consists of distributions received in connection with our former investment in RMR Inc.

that we sold on July 1, 2019.

Loss on equity securities, net.

Loss on equity securities, net represents a realized loss in 2019 from the sale of our 2.8 million shares of class A common stock of RMR Inc.

on July 1, 2019.

Interest and other income.

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

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

Interest expense.

The decrease in interest expense is primarily due to lower average outstanding debt balances in 2020 resulting from debt repayment activity in 2019 and 2020, including the repayment of $388,000 outstanding on our term loans during 2019, the redemption of all $350,000 of our 3.75% senior unsecured notes in July 2019, the redemption of all $400,000 of our 3.60% senior unsecured notes in January 2020 and the repayment of four mortgage notes with an aggregate principal balance of $152,187 in 2020, as well as lower weighted average interest rates on borrowings outstanding during 2020 compared to 2019, partially offset by an increase in interest expense resulting from the issuance of $162,000 of our 6.375% senior unsecured notes in June and July 2020 and $250,000 of our 4.50% senior unsecured notes in September 2020.

The increase in interest expense is primarily due to higher average outstanding debt balances in 2021 resulting from the aggregate issuance of $1,462,000 of senior unsecured notes with a weighted average interest rate of 3.5% since January 1, 2020, partially offset by the aggregate redemption or repayment of debt totaling $833,187 with a weighted average interest rate of 4.8% since January 1, 2020, lower interest expense incurred as a result of having a lower average balance outstanding under our revolving credit facility during 2021 compared to 2020 and lower average interest rates on amounts outstanding and an increase in interest expense capitalized related to redevelopment projects.

Loss on early extinguishment of debt .

We recorded a loss on early extinguishment of debt of $3,839 in 2020 from prepayment fees incurred and the write off of unamortized discounts, premiums and debt issuance costs associated with the prepayment of three mortgage notes and a loss on the settlement of a mortgage note receivable that was repaid in 2020 related to a property sold in 2016.

We recorded a loss on early extinguishment of debt of $769 in 2019 from the write off of unamortized debt issuance costs and discounts associated with the repayment of our term loans and redemption of our senior unsecured notes due 2019.

We recorded a loss on early extinguishment of debt of $14,068 in 2021 from prepayment fees incurred and the write off of unamortized discounts and debt issuance costs associated with the prepayment of one mortgage note due in 2023 and the redemption of our senior unsecured notes due 2022 and 2046.

In 2020, we recorded a loss on early extinguishment of debt of $3,839 from prepayment fees incurred, the write off of unamortized discounts, premiums and debt issuance costs associated with the prepayment of three mortgage notes and a loss on the settlement of a mortgage note receivable that was repaid in 2020 related to a property sold in 2016.

Income tax expense.

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Equity in net losses of investees.

Equity in net losses of investees represents our proportionate share of earnings and losses from our investments in two unconsolidated joint ventures and, in the 2019 period, our former investment in Affiliates Insurance Company.

Our net income and net income per basic and diluted common share decreased in 2020 compared to 2019 primarily as a result of the changes noted above.

Equity in net losses of investees represents our proportionate share of losses from our investments in two unconsolidated joint ventures.

Net income (loss).

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

Non-GAAP Financial Measures

We present certain "non-GAAP financial measures" within the meaning of applicable SEC rules, including the calculations below of NOI, as well as funds from operations, or FFO, and normalized funds from operations, or Normalized FFO.

We present certain "non-GAAP financial measures" within the meaning of the applicable SEC rules, including the calculations below of NOI, FFO and Normalized FFO.

These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity.

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Other real estate companies and REITs may calculate NOI differently than we do.

The following table presents the reconciliation of net income to NOI for the years ended December 31, 2020 and 2019.

The following table presents the reconciliation of net income (loss) to NOI for the years ended December 31, 2021 and 2020.

Year Ended December 31,

Net income $ 6,678 $ 30,335

Net income (loss) $ (8,180) $ 6,678

Equity in net losses of investees 2,501 1,193

Income tax expense 251 377

Income before income tax expense and equity in net losses of investees 8,248 32,372

Income (loss) before income tax expense and equity in net losses of investees (5,428) 8,248

Loss on early extinguishment of debt 14,068 3,839

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Interest and other income (7) (779)

Loss on equity securities, net — 44,007

Dividend income — (1,960)

Gain on sale of real estate (78,354) (10,855)

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We calculate FFO and Normalized FFO as shown below.

FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets, any gain or loss on sale of real estate and equity securities, as well as certain other adjustments currently not applicable to us.

FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets and any gain or loss on sale of real estate, as well as certain other adjustments currently not applicable to us.

In calculating Normalized FFO, we adjust for the other items shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year.

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Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.

The following table presents the reconciliation of net income to FFO and Normalized FFO for the years ended December 31, 2020 and 2019.

The following table presents the reconciliation of net income (loss) to FFO and Normalized FFO for the years ended December 31, 2021 and 2020.

Year Ended December 31,

Net income $ 6,678 $ 30,335

Net income (loss) $ (8,180) $ 6,678

Depreciation and amortization:

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Gain on sale of real estate (78,354) (10,855)

Loss on equity securities, net — 44,007

FFO 220,807 255,146

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LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources (dollar amounts in thousands)

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

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

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• our ability to successfully sell properties that we market for sale;

• our ability to develop or redevelop properties to produce cash flows in excess of our cost of capital;

• our ability to purchase additional properties which produce cash flows from operations in excess of our cost of acquisition capital and property operating expenses and capital expenses.

With $750,000 available under our revolving credit facility as of February 18, 2021 and no significant debt maturities until 2022, we believe that we are well positioned to weather the present disruptions facing the real estate industry and the economy generally.

As a result of the COVID-19 pandemic, we have received requests from some of our tenants for rent assistance.

As of February 16, 2021, we have granted temporary rent assistance totaling $2,546 to 19 tenants who represent approximately 3.3% of our annualized rental income as of December 31, 2020.

As of February 16, 2021, we have collected $1,999, or 78.5%, of our granted rent deferrals.

Although some of our tenants have sought temporary rent assistance, we remain focused on proactive dialogue with our existing tenants and overall tenant retention.

Also, we believe we will benefit from the approximately 64.8% of our annualized rental income as of December 31, 2020 paid by investment grade tenants, the majority of which is made up of government tenants, and the diversity of our tenant base, both geographically and by industry, which may help mitigate the economic impact of the COVID-19 pandemic.

On January 14, 2021, we announced a regular quarterly cash distribution of $0.55 per common share ($2.20 per common share per year), maintaining our previous distribution rate.

At this time, we continue to expect that the quarterly distribution rate will remain unchanged.

• our ability to develop, redevelop or reposition properties to produce cash flows in excess of our cost of capital;

• our ability to purchase additional properties which produce cash flows from operations in excess of our cost of acquisition capital and property operating and capital expenses.

On January 13, 2022, we announced a regular quarterly cash distribution of $0.55 per common share ($2.20 per common share per year).

We determine our distribution payout ratio with consideration for our expected capital expenditures, as well as cash flows from operations and debt obligations.

In early 2020, we completed our previously announced disposition program and transitioned to a capital recycling program through which we expect to accretively grow our property portfolio.

Pursuant to our capital recycling program, we plan to sell certain properties from time to time to fund future acquisitions and to maintain leverage consistent with our current investment grade ratings with a goal of (1) improving the asset quality of our portfolio by reducing the average age of our properties, lengthening the weighted average term of our leases and increasing the likelihood of retaining our tenants and (2) increasing our cash available for distribution.

During the year ended December 31, 2020, pursuant to our capital recycling program, we sold 10 properties for an aggregate sales price of $110,463, excluding closing costs, and acquired two properties for an aggregate purchase price of $46,625, excluding acquisition related costs.

In November 2020, we entered into an agreement to acquire a property for a purchase price of $26,975, excluding acquisition related costs.

Since January 1, 2021, we sold two additional properties for an aggregate sales price of $130,845, excluding closing costs.

Given the current economic conditions, we continue to carefully consider our capital allocation strategy and believe we are well positioned to continue to opportunistically recycle and deploy capital.

We expect to accretively grow our property portfolio through our capital recycling program, pursuant to which we plan 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 term of our leases and increasing the likelihood of retaining our tenants and (2) increasing our cash available for distribution.

During the year ended December 31, 2021, we acquired three properties for an aggregate purchase price of $576,975, excluding purchase price adjustments and acquisition related costs, and we sold six properties, a warehouse facility adjacent to a property we own located in Kansas City, MO and two vacant land parcels adjacent to properties we own in Sterling, VA for an aggregate sales price of $226,915, excluding closing costs.

Since January 1, 2022, we also sold three additional properties for an aggregate sales price of $25,695, excluding closing costs.

We continue to evaluate our portfolio for opportunities to strategically recycle capital and are currently in various stages of marketing for sale more than 30

properties containing over 3,000,000 rentable square feet.

As of February 15, 2022, we have entered into an agreement to sell one property for a sales price of $3,850, excluding closing costs.

We continue to carefully consider our capital allocation strategy and believe we are well positioned to opportunistically recycle and deploy capital.

Our future purchases of properties cannot be accurately projected because such purchases depend upon purchase opportunities which come to our attention and our ability to successfully complete the acquisitions.

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Cash, cash equivalents and restricted cash at end of period $ 84,515 $ 56,855

The increase in cash provided by operating activities for the year ended December 31, 2020 compared to the prior year is the result of favorable changes in working capital in 2020 compared to the prior year, offset by the net impact of disposition activities.

The decrease in cash provided by investing activities for the year ended December 31, 2020 compared to the prior year is primarily due to lower cash proceeds received from our sales of properties in 2020 compared to the prior year, the sale of our 2.8 million shares of Class A common stock of RMR Inc.

in 2019 and higher real estate acquisition and improvement activities in 2020.

The decrease in cash used in financing activities for the year ended December 31, 2020 compared to the prior year is primarily due to the issuance of $162,000 of our 6.375% senior unsecured notes due 2050 and $250,000 of our 4.50% senior unsecured notes due 2025 in 2020 and a decrease in net debt repayment activity, due to repayments of our unsecured term loans, the redemption of all $350,000 of our 3.75% senior unsecured notes and net repayment activity on our revolving credit facility using cash on hand and proceeds from sales of properties in the prior year, compared to increased borrowings under our revolving credit facility in 2020 in order to facilitate the repayment of other debts, including the redemption of all $400,000 of our 3.60% senior unsecured notes and the repayment of $152,187 of mortgage debt.

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

The decrease in cash provided by operating activities for the year ended December 31, 2021 compared to the prior year is primarily the result of property sales and reductions in occupied space at certain of our properties in 2021, partially offset by properties acquired during 2021 and favorable changes in working capital.

The increase in cash used in investing activities for the year ended December 31, 2021 compared to the prior year is primarily due to higher acquisition activity and real estate improvement activity in 2021 compared to the prior year, partially offset by higher cash proceeds received from our sales of properties.

The increase in cash provided by financing activities for the year ended December 31, 2021 compared to the prior year is primarily due to the aggregate issuance of $1,050,000 of senior unsecured notes in 2021 compared to $412,000 of such issuances in the prior year, partially offset by higher debt repayment activity in 2021, which included the aggregate redemption of $610,000 of senior unsecured notes and the repayment of $71,000 of mortgage debt compared to the redemption of $400,000 of senior unsecured notes and the repayment of $152,187 of mortgage debt in 2020.

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

In order to fund acquisitions and to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $750,000 revolving credit facility.

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We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at December 31, 2021, on the amount outstanding under our revolving credit facility, if any.

We also pay a facility fee on the total

amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at December 31, 2020.

We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at December 31, 2021.

Both the interest rate premium and facility fee are subject to adjustment based upon changes to our credit ratings.

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Our credit agreement includes a feature under which the maximum borrowing availability may be increased to up to $1,950,000 in certain circumstances.

Our credit agreement provides that, with certain exceptions, a subsidiary of ours is required to guaranty our obligations under our $750,000 revolving credit facility only if that subsidiary has separately incurred debt (other than nonrecourse debt), within the meaning specified in our credit agreement, or provided a guarantee of debt incurred by us or any of our other subsidiaries.

Our credit agreement provides that, with certain exceptions, a subsidiary of ours is required to guaranty our obligations under our $750,000 revolving credit facility only if that subsidiary has separately incurred debt (other than non-recourse debt), within the meaning specified in our credit agreement, or provided a guarantee of debt incurred by us or any of our other subsidiaries.

During the year ended December 31, 2021, we completed the following senior unsecured notes and mortgage notes transactions:

Senior Unsecured Note Issuances

In June and July 2020, we issued an aggregate of $162,000 of 6.375% senior unsecured notes due 2050 in an underwritten public offering.

These notes require quarterly payments of interest only through maturity and may be repaid at par (plus accrued and unpaid interest) on or after June 23, 2025.

In September 2020, we issued $250,000 of our 4.50% senior unsecured notes due 2025 in an underwritten public offering.

These notes are a further issuance of our existing $400,000 of senior unsecured notes due 2025 that were initially issued by SIR in February 2015, which we assumed in connection with the SIR Merger.

These notes require semi-annual payments of interest only through maturity.

Senior Unsecured Note Redemption

Mortgage Note Repayments

In March 2020, in connection with the sale of one property, we prepaid, at a premium plus accrued interest, a mortgage note secured by that property with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021, which was classified in liabilities of properties held for sale in our consolidated balance sheet as of December 31, 2019.

We used the net proceeds from this offering plus cash on hand to redeem all $310,000 of our 5.875% senior unsecured notes due 2046.

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

We used the net proceeds from this offering to redeem all $300,000 of our 4.15% senior unsecured notes due 2022, repay amounts outstanding under our revolving credit facility and for general business purposes.

These notes require semi-annual payments of interest only through maturity on February 1, 2027 and may be repaid at par plus accrued and unpaid interest on or after January 1, 2027.

We used the net proceeds of this offering to repay amounts outstanding under our revolving credit facility and for general business purposes.

These notes require semi-annual payments of interest only through maturity on October 15, 2031 and may be repaid at par plus accrued and unpaid interest on or after July 15, 2031.

Senior Unsecured Note Redemptions

Mortgage Note Repayment

As of December 31, 2021, our debt maturities (other than our revolving credit facility), consisting of senior unsecured notes and mortgage notes, are as follows:

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Total $ 2,610,301

(1) In February 2022, we gave notice of our intention to prepay, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $25,055 at December 31, 2021, an annual interest rate of 4.22% and a maturity date in July 2022.

We expect to make this prepayment in April 2022 using cash on hand.

(2) Our $300,000 4.00% senior notes mature in July 2022.

We currently have availability under our $750,000 revolving credit facility to redeem these senior notes prior to maturity if we elect to do so.

None of our unsecured debt obligations require sinking fund payments prior to their maturity dates.

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In addition to our debt obligations, as of December 31, 2021, we have estimated unspent leasing related obligations of $121,754, of which we expect to spend $72,516 over the next 12 months.

We are currently in the planning stage for a potential redevelopment project at a property located in Washington, D.C containing approximately 340,000 rentable square feet.

This redevelopment project may require significant capital expenditures and time to complete.

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

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

first quarter of 2023.

As of December 31, 2021, we have incurred approximately $47,330 related to this project.

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

We are also in the planning stage for a redevelopment project at a three-property campus located in Seattle, WA containing approximately 300,000 rentable square feet.

This project includes the repositioning of two properties from office to life science and maintaining the third building for office use.

We currently estimate the total project costs associated with this redevelopment will be approximately $144,000 and completion of the redevelopment in the second quarter of 2023.

We currently expect to use cash balances, borrowings under our revolving credit facility, net proceeds from property sales, incurrences or assumptions of mortgage debt and net proceeds from offerings of debt or equity securities to fund our future operations, capital expenditures, distributions to our shareholders and property acquisitions.

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

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

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

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

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

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

During the year ended December 31, 2021, we paid quarterly distributions to our shareholders totaling $106,368 using cash on hand and borrowings under our revolving credit facility.

On January 14, 2021, we declared a regular quarterly distribution payable to shareholders of record on January 25, 2021 in the amount of $0.55 per share, or $26,575.

We paid this distribution on February 18, 2021 using cash on hand.

On January 13, 2022, we declared a regular quarterly distribution payable to shareholders of record on January 24, 2022 in the amount of $0.55 per share, or approximately $26,600.

We expect to pay this distribution on or about February 17, 2022 using cash on hand.

For more information regarding the distributions we paid during 2021, see Note 10 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

We own 51% and 50% interests in two unconsolidated joint ventures which own three properties.

The properties owned by these joint ventures are encumbered by an aggregate $82,000 principal amount of mortgage indebtedness.

The properties owned by these joint ventures are encumbered by an aggregate $82,000 principal amount of mortgage indebtedness, none of which is recourse to us.

We do not control the activities that are most significant to these joint ventures and, as a result, we account for our investments in these joint ventures under the equity method of accounting.

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Our publicly issued senior unsecured notes are governed by indentures and their supplements.

Our credit agreement and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes RMR LLC ceasing to act as our business and property manager.

act as our business and property manager.

Our credit agreement and our senior unsecured notes indentures and their supplements also contain a number of covenants, including those that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, require us to comply with certain financial covenants and, in the case of our credit agreement, restrict our ability to make distributions to our shareholders under certain circumstances.

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We allocate the acquisition cost of each property investment to various property components such as land, buildings and improvements and intangibles based on their fair values, and each component generally has a different useful life.

For acquired real estate, we record building, land and improvements, and, if applicable, the value of in place leases, the fair market value of above or below market leases and tenant relationships at fair value.

For acquired real estate, we record land, buildings and improvements, and, if applicable, the value of in place leases, the fair market value of above or below market leases and tenant relationships at fair value.

For transactions that qualify as business combinations, we allocate the excess, if any, of the consideration over the fair value of assets acquired to goodwill.

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In an effort to reduce the effects of any increased energy costs in the future, we continuously study ways to improve the energy efficiency at all of our properties.

Our property manager, RMR LLC, is a member of the ENERGY STAR program, a joint program of the U.S.

Our manager, RMR LLC, is a member of the ENERGY STAR program, a joint program of the U.S.

Environmental Protection Agency and the U.S.

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Green Building Council, a nonprofit organization focused on promoting energy efficiency at commercial properties through its LEED® green building program.

Additionally, in July 2020, RMR LLC released its first annual Sustainability Report, which summarizes the environmental, social and governance initiatives RMR LLC and its client companies, including OPI, employ.

RMR LLC’s annual Sustainability Report summarizes the environmental, social and governance initiatives RMR LLC and its client companies, including OPI, employ.

RMR LLC’s Sustainability Report may be accessed on RMR Inc.’s website at www.rmrgroup.com/corporate-sustainability/default.aspx.

The information on or accessible through RMR Inc.’s website is not incorporated by reference into this Annual Report on Form 10-K.

For more information, see “Business—Corporate Sustainability” in Part I, Item 1 of this Annual Report on Form 10-K.

Some observers believe severe weather in different parts of the world over the last few years is evidence of global climate change.

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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 7. Management’s Discussion and Analysis