What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-04-28 · 265 added, 133 removed, 311 unchanged (56% of the section changed)

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

As of March 31, 2022, our wholly owned properties were comprised of 174 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 March 31, 2022, our properties are located in 32 states and the District of Columbia and contain approximately 22,941,000 rentable square feet.

As of March 31, 2022, our properties were leased to 298 different tenants with a weighted average remaining lease term (based on annualized rental income) of approximately 6.1 years.

government is our largest tenant, representing approximately 19.4% of our annualized rental income as of March 31, 2022.

The term annualized rental income as used herein is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of March 31, 2022, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

As of June 30, 2022, our wholly owned properties were comprised of 172 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 June 30, 2022, our properties are located in 32 states and the District of Columbia and contain approximately 22,491,000 rentable square feet.

As of June 30, 2022, our properties were leased to 287 different tenants with a weighted average remaining lease term (based on annualized rental income) of approximately 6.2 years.

government is our largest tenant, representing approximately 18.5% of our annualized rental income as of June 30, 2022.

The term annualized rental income as used herein is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of June 30, 2022, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

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.

However, certain market practices that have resulted from the pandemic, including increased alternative work arrangements such as work from home, are continuing to be experienced.

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.

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

Federal Reserve recently raised interest rates in an effort to combat high inflation, which could result in negative consequences in the U.S.

economy, and concerns about a potential recession are becoming more pronounced.

It is unclear whether the U.S.

economy will be able to withstand such challenges and continue sustained growth.

A recession could adversely affect our financial condition and that of our tenants, could adversely impact the ability of our tenants to renew our leases or pay rent to us, would impair our ability to effectively deploy our capital or realize upon investments on favorable terms and may cause the values of our properties and of our securities to decline.

We could also be affected by any overall weakening of, or disruptions in, the financial markets.

The ultimate adverse impact of the COVID-19 pandemic, including the extent to which alternative work arrangements such as work from home will be continued and what impact that may have on demand for office space at our properties, and recently rising interest rates, 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.

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Property Operations

Unless otherwise noted, the data presented in this section includes properties classified as held for sale as of March 31, 2022 and excludes three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

For more information regarding our properties classified as held for sale and our two unconsolidated joint ventures, see Note 3 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Occupancy data for our properties as of March 31, 2022 and 2021 was as follows (square feet in thousands):

Unless otherwise noted, the data presented in this section includes properties classified as held for sale as of June 30, 2022 and excludes three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

information regarding our properties classified as held for sale and our two unconsolidated joint ventures, see Note 3 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Occupancy data for our properties as of June 30, 2022 and 2021 was as follows (square feet in thousands):

All Properties (1)(2)

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Total properties 172 181 153 153

174 180 163 163

Total rentable square feet (4)

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89.4 % 89.5 % 94.3 % 93.0 %

(1) Based on properties we owned on March 31, 2022 and 2021, respectively.

(1) Based on properties we owned on June 30, 2022 and 2021, respectively.

(2) Includes one leasable land parcel.

(3) Based on properties we owned continuously since January 1, 2021;

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

(3) Includes one leasable land parcel.

(4) Subject to changes when space is remeasured or reconfigured for tenants.

(5) Percent leased includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any, as of the measurement date.

The average effective rental rate per square foot for our properties for the three months ended March 31, 2022 and 2021 are as follows:

Three Months Ended March 31,

The average effective rental rate per square foot for our properties for the three and six months ended June 30, 2022 and 2021 are as follows:

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

2022 2021 2022 2021

Average effective rental rate per square foot (1) :

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(1) Average effective rental rate per square foot represents annualized total rental income during the period specified divided by the average rentable square feet leased during the period specified.

(2) Based on properties we owned on March 31, 2022 and 2021, respectively.

(3) Based on properties we owned continuously since January 1, 2021;

(2) Based on properties we owned on June 30, 2022 and 2021, respectively.

(3) Based on properties we owned continuously since April 1, 2021 and January 1, 2021, respectively;

During the three months ended March 31, 2022, changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands):

Three Months Ended March 31, 2022

Leased Available for Lease Total

During the three and six months ended June 30, 2022, changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands):

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

Leased Available for Lease Total Leased Available for Lease Total

Beginning of period 20,373 2,568 22,941 20,817 2,454 23,271

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Lease renewals (1)

553 (553) — 889 (889) —

New leases (1)

126 (126) — 362 (362) —

Remeasurements (2)

(1) (1) (2) (1) (1) (2)

End of period 20,100 2,391 22,491 20,100 2,391 22,491

(1) Based on leases entered during the three months ended March 31, 2022.

Leases at our properties totaling approximately 853,000 rentable square feet expired during the three months ended March 31, 2022.

During the three months ended March 31, 2022, we entered into new and renewal leases as summarized in the following table (square feet in thousands):

Three Months Ended March 31, 2022

(1) Based on leases entered during the three and six months ended June 30, 2022.

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

Leases at our properties totaling approximately 592,000 and 1,445,000 rentable square feet expired during the three and six months ended June 30, 2022, respectively.

During the three and six months ended June 30, 2022, we entered into new and renewal leases as summarized in the following tables (square feet in thousands):

Three Months Ended June 30, 2022

New Leases Renewals Total

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$ 10.79 $ 5.05 $ 6.00

Six Months Ended June 30, 2022

New Leases Renewals Total

Rentable square feet leased 362 889 1,251

Weighted average rental rate change (by rentable square feet) 7.3 % 3.9 % 5.0 %

Tenant leasing costs and concession commitments (1)

$ 38,054 $ 32,063 $ 70,117

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

$ 105.09 $ 36.10 $ 56.08

Weighted (by square feet) average lease term (years) 9.6 10.0 9.9

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

$ 10.90 $ 3.63 $ 5.69

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

During the three months ended March 31, 2022, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three months ended March 31, 2022, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as follows (square feet in thousands):

Three Months Ended March 31, 2022

During the three and six months ended June 30, 2022, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three and six months ended June 30, 2022, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as follows (square feet in thousands):

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

Old Effective Rent Per Square Foot (1)

New Effective Rent Per Square Foot (1)

Rentable Square Feet Old Effective Rent Per Square Foot (1)

New Effective Rent Per Square Foot (1)

Rentable Square Feet

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(1) Effective rental rates include 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 exclude lease value amortization.

During the three months ended March 31, 2022 and 2021, amounts capitalized at our properties for lease related costs, building improvements and development, redevelopment and other activities were as follows:

Three Months Ended March 31,

During the three and six months ended June 30, 2022 and 2021, amounts capitalized at our properties for lease related costs, building improvements and development, redevelopment and other activities were as follows:

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

2022 2021 2022 2021

Lease related costs (1)

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Building improvements (2)

4,702 7,765 7,485 12,291

Recurring capital expenditures 20,833 18,980 32,280 30,476

Development, redevelopment and other activities (3)

40,302 12,738 77,826 17,644

Total capital expenditures $ 61,135 $ 31,718 $ 110,106 $ 48,120

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

In addition to the capital expenditures described above, we contributed $1,070 to one of our unconsolidated joint ventures during the three months ended March 31, 2022.

Also, as of March 31, 2022, we have estimated unspent leasing related obligations of $128,009, of which we expect to spend $78,134 over the next 12 months.

As of March 31, 2022, we had leases at our properties totaling approximately 1,482,000 rentable square feet that were scheduled to expire through March 31, 2023.

As of April 27, 2022, we expect tenants with leases totaling approximately 543,000 rentable square feet that are scheduled to expire through March 31, 2023, to not renew their leases upon expiration and we cannot be sure as to whether other tenants will renew their leases upon expiration.

As a result of the COVID-19 pandemic, its economic impact and the uncertainty of whether certain market practices and trends in response to the pandemic will be sustained or increased, overall leasing activity has been volatile and may remain so until office property market conditions meaningfully improve and stabilize for a sustained period.

In addition to the capital expenditures described above, we contributed $1,132 and $2,202 to one of our unconsolidated joint ventures during the three and six months ended June 30, 2022, respectively.

Also, as of June 30, 2022, we have estimated unspent leasing related obligations of $130,726, of which we expect to spend $82,543 over the next 12 months.

As of June 30, 2022, we had leases at our properties totaling approximately 1,913,000 rentable square feet that were scheduled to expire through June 30, 2023.

As of July 27, 2022, we expect tenants with leases totaling approximately 817,000 rentable square feet that are scheduled to expire through June 30, 2023, to not renew their leases upon expiration and we cannot be sure as to whether other tenants will renew their leases upon expiration.

As a result of the COVID-19 pandemic, its economic impact and the uncertainty of whether certain market practices and trends in response to the pandemic will be sustained or increased, including the extent to which alternative work arrangements such as work from home practices may be continued, overall 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.

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

As of March 31, 2022, our lease expirations by year are as follows (square feet in thousands):

As of June 30, 2022, our lease expirations by year are as follows (square feet in thousands):

Number of Leases Expiring Leased

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

As of March 31, 2022, tenants occupying approximately 4.2% of our rentable square feet and responsible for approximately 4.6% of our annualized rental income as of March 31, 2022 currently have exercisable rights to terminate their leases before the stated terms of their leases expire.

Also, in 2022, 2023, 2024, 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2035, 2037 and 2040, early termination rights become exercisable by other tenants who currently occupy an additional approximately 1.1%, 2.9%, 2.6%, 3.9%, 1.2%, 0.7%, 1.2%, 0.5%, 0.7%, 0.1%, 0.4%, 0.1% and 0.3% of our rentable square feet, respectively, and contribute an additional approximately 1.2%, 4.0%, 2.9%, 7.6%, 1.5%, 1.2%, 1.4%, 1.0%, 0.8%, 0.1%, 0.5%, 0.2% and 0.4% of our annualized rental income, respectively, as of March 31, 2022.

In addition, as of March 31, 2022, 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.

These 14 tenants occupy approximately 6.0% of our rentable square feet and contribute approximately 6.8% of our annualized rental income as of March 31, 2022.

(2) Leased square feet is pursuant to leases existing as of March 31, 2022, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any.

As of June 30, 2022, tenants occupying approximately 3.9% of our rentable square feet and responsible for approximately 4.3% of our annualized rental income as of June 30, 2022 currently have exercisable rights to terminate their leases before the stated terms of their leases expire.

Also, in 2022, 2023, 2024, 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2035, 2037 and 2040, early termination rights become exercisable by other tenants who currently occupy an additional approximately 0.9%, 3.4%, 2.6%, 4.0%, 1.3%, 0.8%, 1.5%, 0.5%, 0.7%, 0.1%, 0.4%, 0.1% and 0.3% of our rentable square feet, respectively, and contribute an additional approximately 0.9%, 4.2%, 2.9%, 7.8%, 1.6%, 1.2%, 1.6%, 1.0%, 0.9%, 0.1%, 0.5%, 0.2% and 0.4% of our annualized rental income, respectively, as of June 30, 2022.

In addition, as of June 30, 2022, 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.

These 14 tenants occupy approximately 6.2% of our rentable square feet and contribute approximately 6.9% of our annualized rental income as of June 30, 2022.

(2) Leased square feet is pursuant to leases existing as of June 30, 2022, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any.

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

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Despite these shifts in workplace practices, our recent leasing activity and negotiations for vacant or expiring space may suggest that there is an improving demand environment for office space.

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

However, if these

arrangements continue or increase, our tenants may not seek to renew or extend their leases when they expire, or may seek to renew their leases for less space than they 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.

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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.

However, the COVID-19 pandemic and its aftermath have had negative impacts on government budgets and resources.

Although there have been indications that 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 and its economic impact and the extent to which certain market trends, such as work from home practices, may continue or increase, 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 March 31, 2022, we derive 22.2% of our annualized rental income from our properties located in the metropolitan Washington, D.C.

As of June 30, 2022, we derive 22.1% of our annualized rental income from our properties located in the metropolitan Washington, D.C.

market area, which includes Washington, D.C., Northern Virginia and suburban Maryland.

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and/or (c) tenants with investment grade rated parent entities that do not guarantee the tenant’s lease obligations.

As of March 31, 2022, tenants contributing 52.6% 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 11.0% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

As of March 31, 2022, tenants representing 1% or more of our total annualized rental income were as follows (square feet in thousands):

As of June 30, 2022, tenants contributing 52.4% 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 11.0% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

As of June 30, 2022, 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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Not Rated 230 1.1 % 10,745 1.9 %

12 CommScope Holding Company Inc Non Investment Grade 228 1.1 % 9,370 1.6 %

12 CommScope Holding Company Inc.

Non Investment Grade 228 1.1 % 9,370 1.7 %

13 State of Georgia Investment Grade 308 1.5 % 7,383 1.3 %

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Investment Grade 468 2.3 % 6,479 1.2 %

19 Leidos Holdings Inc.

Investment Grade 159 0.8 % 6,117 1.1 %

20 Automatic Data Processing, Inc.

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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.

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

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

Disposition Activities

During the three months ended March 31, 2022, we sold four properties containing approximately 330,000 rentable square feet for an aggregate sales price of $29,470, excluding closing costs.

We continue to evaluate our portfolio 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 April 27, 2022, we have entered into agreements to sell two properties containing approximately 470,000 rentable square feet, including one property that was classified as held for sale as of March 31, 2022, for an aggregate sales price of $38,300, excluding closing costs.

These sales are expected to occur before the end of the second quarter of 2022.

During the six months ended June 30, 2022, we sold six properties containing approximately 778,000 rentable square feet for an aggregate sales price of $77,720, excluding closing costs.

In July 2022, we sold a property located in Houston, TX containing approximately 206,000 rentable square feet for a sales price of $9,800, excluding closing costs.

Based on current real estate market conditions, including rising interest rates, we expect the pace of our 2022 dispositions to moderate.

However, we continue to evaluate our portfolio to strategically recycle capital and are currently in various stages of marketing certain of our properties for sale.

As of July 27, 2022, we have entered into agreements to sell nine properties containing approximately 1,116,000 rentable square feet for an aggregate sales price of $109,800, excluding closing costs.

These sales are expected to occur before the end of the third quarter of 2022.

However, these sales are subject to conditions;

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In April 2022, we prepaid, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $24,863, an annual interest rate of 4.22% and a maturity date in July 2022 using cash on hand.

In June 2022, we redeemed, at par plus accrued interest, all $300,000 of our 4.00% senior unsecured notes due July 2022 using cash on hand and borrowings under our revolving credit facility.

Segment Information

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

Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021

Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021

Comparable Properties (1) Results

Three Months Ended March 31,

Three Months Ended June 30,

Non-Comparable

Properties Results

Three Months Ended March 31,

Three Months Ended June 30,

Consolidated Results

Three Months Ended March 31,

Three Months Ended June 30,

2022 2021 $ Change % Change 2022 2021 2022 2021 $ Change % Change

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Net operating income (2)

$ 81,950 $ 84,211 $ (2,261) (2.7 %) $ 14,531 $ 12,288 96,481 96,499 (18) n/m

$ 82,591 $ 80,864 $ 1,727 2.1 % $ 9,825 $ 10,115 92,416 90,979 1,437 1.6 %

Other expenses:

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Loss on impairment of real estate 4,773 48,197 (43,424) (90.1 %)

Acquisition and transaction related costs 224 — 224 n/m

General and administrative 7,083 12,970 (5,887) (45.4 %)

Total other expenses 69,616 116,538 (46,922) (40.3 %)

Gain on sale of real restate 2,149 54,004 (51,855) (96.0 %)

Interest and other income 1 5 (4) (80.0 %)

Gain (loss) on sale of real estate (11,637) 114 (11,751) n/m

Interest and other income 16 2 14 n/m

Interest expense (26,515) (29,001) 2,486 (8.6 %)

Income (loss) before income tax expense and equity in net losses of investees (12,030) 38,691 (50,721) (131.1 %)

Income tax expense (531) (435) (96) 22.1 %

Loss on early extinguishment of debt (77) (11,794) 11,717 (99.3 %)

Loss before income tax benefit and equity in net losses of investees (15,413) (66,238) 50,825 (76.7 %)

Income tax benefit 190 121 69 57.0 %

Equity in net losses of investees (833) (580) (253) 43.6 %

Net income (loss) $ (13,407) $ 37,860 $ (51,267) (135.4 %)

Weighted average common shares outstanding (basic) 48,243 48,161 82 0.2 %

Weighted average common shares outstanding (diluted) 48,243 48,196 69 0.1 %

Net loss $ (16,056) $ (66,697) $ 50,641 (75.9 %)

Weighted average common shares outstanding (basic and diluted) 48,249 48,165 84 0.2 %

Per common share amounts (basic and diluted):

Net income (loss) $ (0.28) $ 0.78 $ (1.06) (135.9 %)

Net loss $ (0.33) $ (1.38) $ 1.05 (76.1 %)

n/m - not meaningful

(1) Comparable properties consists of 163 properties we owned on March 31, 2022 and which we owned continuously since January 1, 2021 and excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

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

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

(1) Comparable properties consists of 153 properties we owned on June 30, 2022 and which we owned continuously since April 1, 2021 and excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

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

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended June 30, 2022, compared to the three months ended June 30, 2021.

Rental income.

The increase in rental income reflects an increase in rental income of $11,842 related to acquired properties, offset by decreases in rental income of $7,011 as a result of property disposition activities, $1,394 for properties undergoing significant redevelopment and $607 related to comparable 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, partially offset by termination fee revenue at a property located in Seattle, WA that began a redevelopment project after the former tenant’s lease was terminated in February 2022.

The decrease in rental income for comparable properties is primarily due to reductions in occupied space at certain of our properties and lower reimbursement revenue in the 2022 period, partially offset by termination fee revenue related to the strategic re-leasing of one of our properties and higher parking garage revenue as a result of higher parking volumes in the 2022 period.

The increase in rental income reflects an increase in rental income of $11,637 related to acquired properties and $3,399 related to comparable properties, offset by decreases in rental income of $7,125 as a result of property disposition activities and $3,694 for properties undergoing significant redevelopment.

The decrease in rental income for properties undergoing significant redevelopment is primarily due to the reduction in occupied space at a property located in Seattle, WA that began a redevelopment project in February 2022.

The increase in rental income for comparable properties is primarily due to $2,175 of early termination income recorded in the 2022 period related to a tenant that occupies a property located in Columbia, MD that vacated a portion of its space in May 2022 in conjunction with the early renewal of its remaining space, higher reimbursement revenue resulting from increased operating expenses due to higher building utilization levels in the 2022 period and operating expenses that were previously paid directly by a tenant that are now paid by us and reimbursed by the tenant pursuant to a lease amendment with that tenant effective in February 2022, as well as higher parking garage revenue as a result of higher parking volumes in the 2022 period.

Rental income includes non-cash straight line rent adjustments totaling $2,775 in the 2022 period and $3,847 in the 2021 period, and amortization of acquired real estate leases and assumed real estate lease obligations totaling $(233) in the 2022 period and $(667) in the 2021 period.

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The increase in real estate taxes primarily reflects an increase in real estate taxes of $2,652 related to acquired properties, offset by decreases of $829 for properties undergoing significant redevelopment, $743 related to property disposition activities and $409 for comparable properties.

Real estate taxes for comparable properties decreased primarily due to lower assessed values at certain of our properties in the 2022 period.

Real estate taxes for comparable properties decreased primarily due to lower assessed values at certain of our properties in the 2022 period, partially offset by an increase related to real estate taxes that were 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 February 2022.

Utility expenses.

The increase in utility expenses reflects increases in utility expenses of $770 for comparable properties and $281 for acquired properties, offset by decreases in utility expenses of $466 related to property disposition activities and $75 for properties undergoing significant redevelopment.

The increase in utility expenses for comparable properties is primarily due to increases in electricity and water usage and rates at certain of our properties in the 2022 period.

The increase in utility expenses for comparable properties is primarily due to increases in electricity usage as a result of higher building utilization levels in the 2022 period, higher rates at certain of our properties in the 2022 period and an increase related to utility expenses that were 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 February 2022.

Other operating expenses.

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The increase in other operating expenses primarily reflects increases of $2,282 for acquired properties and $1,311 for comparable properties, offset by decreases of $1,571 related to property disposition activities and $423 for properties undergoing significant redevelopment.

The increase in other operating expenses for comparable properties is primarily due to increases in certain expenses as building utilization levels begin to rise, including parking garage and cleaning expenses, as well as higher landscape maintenance expenses at certain of our properties in the 2022 period and an increase related to other operating expenses that were 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 February 2022.

Depreciation and amortization.

The decrease in depreciation and amortization primarily reflects decreases of $6,972 for comparable properties, $3,449 related to property disposition activities and $51 related to properties undergoing significant redevelopment, offset by an increase of $6,854 for acquired properties.

Depreciation and amortization for comparable properties declined due to certain leasing related assets becoming fully depreciated after January 1, 2021.

The increase in depreciation and amortization primarily reflects an increase of $6,275 for acquired properties, offset by decreases of $2,508 related to property disposition activities and $1,602 for comparable properties.

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

Loss on impairment of real estate.

We recorded a $2,184 loss on impairment of real estate to reduce the carrying value of one property to its estimated fair value less costs to sell and a $14,863 loss on impairment of real estate to reduce the carrying value of one property that was held and used to its estimated fair value in the 2022 period.

We recorded a $7,660 loss on impairment of real estate in the 2021 period to reduce the carrying value of two properties to their estimated fair values less costs to sell.

We recorded a $4,773 loss on impairment of real estate in the 2022 period to reduce the carrying value of six properties to their estimated fair value less costs to sell.

We recorded a $48,197 loss on impairment of real estate in the 2021 period to reduce the carrying value of five properties to their estimated fair values less costs to sell.

Acquisition and transaction related costs.

Acquisition and transaction related costs represent costs related to an acquisition opportunity that did not materialize in the 2022 period.

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 $5,200 of accrued estimated business management incentive fees in the 2021 period, a state franchise tax refund received in the 2022 period and the expiration of an office lease in January 2021 for which we were the lessee, partially offset by an increase in base business management fees resulting from an increase in average total market capitalization in the 2022 period compared to the 2021 period.

Gain on sale of real estate.

We recorded a $2,149 net gain on sale of real estate resulting from the sale of four properties in the 2022 period.

The decrease in general and administrative expenses is primarily the result of $5,911 of estimated business management incentive fees recorded in the 2021 period.

Gain (loss) on sale of real estate.

We recorded an $11,637 net loss on sale of real estate resulting from the sale of two properties in the 2022 period.

Interest and other income.

Interest and other income reflects interest earned, if any, on cash balances invested.

Interest expense.

The decrease in interest expense reflects financing activities since May 2021, which included the redemption of $910,000 of senior unsecured notes with a weighted average interest rate of 4.7% and the repayment of two mortgage notes totaling approximately $96,000 with a weighted average interest rate of 3.7%, as well as higher capitalized interest in the 2022 period, partially offset by the issuance of $1,050,000 of senior unsecured notes with a weighted average interest rate of 2.9%, as well as a higher average balance outstanding under our revolving credit facility and higher weighted average interest rates on borrowings during the 2022 period compared to the 2021 period.

Loss on early extinguishment of debt.

We recorded a loss on early extinguishment of debt of $77 in the 2022 period from the write off of unamortized discounts and debt issuance costs associated with the redemption of our senior unsecured notes due July 2022.

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

Income tax benefit.

Income tax benefit is primarily the result of operating income earned in jurisdictions where we are subject to state income taxes and can fluctuate based on the timing of our income, including as a result of gains or losses on the sale of real estate.

Equity in net losses of investees.

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

The increase in equity in net losses of investees is primarily due to reductions in occupied space at properties owned by our unconsolidated joint ventures in the 2022 period.

Net loss and net loss per basic and diluted common share decreased in the 2022 period compared to the 2021 period primarily as a result of the changes noted above.

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

Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

Comparable Properties (1) Results

Six Months Ended June 30,

Non-Comparable

Properties Results

Six Months Ended June 30,

Consolidated Results

Six Months Ended June 30,

2022 2021 $ Change % Change 2022 2021 2022 2021 $ Change % Change

Rental income $ 244,413 $ 241,583 $ 2,830 1.2 % $ 44,257 $ 40,040 $ 288,670 $ 281,623 $ 7,047 2.5 %

Operating expenses:

Real estate taxes 25,816 26,436 (620) (2.3 %) 7,412 5,630 33,228 32,066 1,162 3.6 %

Utility expenses 10,866 9,754 1,112 11.4 % 1,819 1,988 12,685 11,742 943 8.0 %

Other operating expenses 44,585 41,773 2,812 6.7 % 9,275 8,564 53,860 50,337 3,523 7.0 %

Total operating expenses 81,267 77,963 3,304 4.2 % 18,506 16,182 99,773 94,145 5,628 6.0 %

$ 163,146 $ 163,620 $ (474) (0.3 %) $ 25,751 $ 23,858 188,897 187,478 1,419 0.8 %

Other expenses:

Depreciation and amortization 118,005 119,458 (1,453) (1.2 %)

Loss on impairment of real estate 21,820 55,857 (34,037) (60.9 %)

Acquisition and transaction related costs 224 — 224 n/m

General and administrative 12,789 24,242 (11,453) (47.2 %)

Total other expenses 152,838 199,557 (46,719) (23.4 %)

Gain (loss) on sale of real estate (9,488) 54,118 (63,606) (117.5 %)

Interest and other income 17 7 10 142.9 %

Interest expense (53,954) (57,799) 3,845 (6.7 %)

Loss on early extinguishment of debt (77) (11,794) 11,717 (99.3 %)

Loss before income tax expense and equity in net losses of investees (27,443) (27,547) 104 (0.4 %)

Income tax expense (341) (314) (27) 8.6 %

Equity in net losses of investees (1,679) (976) (703) 72.0 %

Net loss $ (29,463) $ (28,837) $ (626) 2.2 %

Weighted average common shares outstanding (basic and diluted) 48,246 48,163 83 0.2 %

Per common share amounts (basic and diluted):

Net loss $ (0.61) $ (0.60) $ (0.01) 1.7 %

n/m - not meaningful

(1) Comparable properties consists of 153 properties we owned on June 30, 2022 and which we owned continuously since January 1, 2021 and excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

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

References to changes in the income and expense categories below relate to the comparison of consolidated results for the six months ended June 30, 2022, compared to the six months ended June 30, 2021.

Rental income.

The increase in rental income reflects increases in rental income of $23,479 for acquired properties and $2,830 for comparable properties, offset by decreases of $14,174 related to property disposition activities and $5,088 for properties undergoing significant redevelopment.

The increase in rental income for comparable properties is primarily due to termination fee revenue received, higher reimbursement revenue resulting from increased operating expenses due to higher building utilization levels in the 2022 period and operating expenses that were previously paid directly by a tenant that are now paid by us and reimbursed by the tenant pursuant to a lease amendment with that tenant effective in February 2022, as well as higher parking garage revenue as a result of higher parking volumes in the 2022 period, partially offset by reductions in occupied space at certain of our properties.

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

and Seattle, WA that began

redevelopment projects during 2021 and 2022, respectively, partially offset by termination fee revenue at the Seattle, WA property related to the termination of the former tenant’s lease in February 2022 prior to the commencement of the redevelopment.

Rental income includes non-cash straight line rent adjustments totaling $5,461 in the 2022 period and $9,204 in the 2021 period, and amortization of acquired real estate leases and assumed real estate lease obligations totaling $(576) in the 2022 period and $(1,389) in the 2021 period.

Real estate taxes.

The increase in real estate taxes primarily reflects an increase in real estate taxes of $4,841 for acquired properties, offset by decreases in real estate taxes of $1,737 for properties undergoing significant redevelopment, $1,322 related to property disposition activities and $620 for comparable properties.

Utility expenses.

The increase in utility expenses reflects increases in utility expenses of $1,112 for comparable properties and $602 for acquired properties, offset by decreases of $567 related to property disposition activities and $204 for properties undergoing significant redevelopment.

The increase in utility expenses for comparable properties is primarily due to increases in electricity and water usage as a result of higher building utilization levels in the 2022 period, higher rates at certain of our properties in the 2022 period and an increase related to utility expenses that were 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 February 2022.

Other operating expenses.

The increase in other operating expenses primarily reflects increases in other operating expenses of $4,310 for acquired properties and $2,812 for comparable properties, offset by decreases of $3,013 related to property disposition activities and $586 for properties undergoing significant redevelopment.

The increase in other operating expenses for comparable properties is primarily due to increases in certain expenses as building utilization levels begin to rise, including parking garage and cleaning expenses, higher landscape maintenance expenses at certain of our properties in the 2022 period and an increase related to other operating expenses that were 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 February 2022.

Depreciation and amortization.

The decrease in depreciation and amortization primarily reflects decreases of $12,103 related to property disposition activities, $2,428 for comparable properties and $53 for properties undergoing significant redevelopment, offset by an increase of $13,131 for acquired properties.

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

Loss on impairment of real estate.

We recorded a $21,820 loss on impairment of real estate to reduce the carrying value of seven properties to their estimated fair values less costs to sell in the 2022 period.

We recorded a $55,857 loss on impairment of real estate in the 2021 period to reduce the carrying value of six properties to their estimated fair values less costs to sell.

Acquisition and transaction related costs.

Acquisition and transaction related costs represent costs related to an acquisition opportunity that did not materialize in the 2022 period.

General and administrative .

The decrease in general and administrative expenses is primarily the result of $11,111 of estimated business management incentive fees recorded in the 2021 period, a state franchise tax refund received in the 2022 period and the expiration of an office lease in January 2021 for which we were the lessee, partially offset by an increase in base business management fees resulting from an increase in average total market capitalization in the 2022 period compared to the 2021 period.

Gain (loss) on sale of real estate.

We recorded a $9,488 net loss on sale of real estate resulting from the sale of six properties in the 2022 period.

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

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Interest expense.

The decrease in interest expense is primarily due to the redemption of $610,000 of senior unsecured notes with a weighted average interest rate of 5.0% during 2021, the repayment of a $71,000 mortgage with an interest rate of 3.55% in June 2021 and higher capitalized interest in the 2022 period, partially offset by the issuance of $1,050,000 of senior unsecured notes with a weighted average interest rate of 2.9% subsequent to March 31, 2021.

Loss on early extinguishment of debt.

Income tax expense.

Income tax expense is primarily the result of operating income earned in jurisdictions where we are subject to state income taxes.

Income tax expense is primarily the result of operating income earned in jurisdictions where we are subject to state income taxes and can fluctuate based on the timing of our income, including as a result of gains or losses on the sale of real estate.

Equity in net losses of investees.

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The increase in equity in net losses of investees is primarily due to reductions in occupied space at properties owned by our unconsolidated joint ventures in the 2022 period.

Net income (loss).

Net income (loss) and net income (loss) per basic and diluted common share decreased in the 2022 period compared to the 2021 period primarily as a result of the changes noted above.

Net loss and net loss per basic and diluted common share increased in the 2022 period compared to the 2021 period primarily as a result of the changes noted above.

Non-GAAP Financial Measures

We present certain “non-GAAP financial measures” within the meaning of the applicable rules of the Securities and Exchange Commission, or SEC, including the calculations below of NOI, funds from operations, or FFO, and normalized funds from operations, or Normalized FFO.

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

These measures should be considered in conjunction with net income (loss) as presented in our condensed consolidated statements of comprehensive income (loss).

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss).

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

These measures should be considered in conjunction with net loss as presented in our condensed consolidated statements of comprehensive income (loss).

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net loss.

We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.

Net Operating Income

The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations.

The calculation of NOI excludes certain components of net loss in order to provide results that are more closely related to our property level results of operations.

We calculate NOI as shown below.

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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 (loss) to NOI for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Net income (loss) $ (13,407) $ 37,860

The following table presents the reconciliation of net loss to NOI for the three and six months ended June 30, 2022 and 2021:

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

2022 2021 2022 2021

Net loss $ (16,056) $ (66,697) $ (29,463) $ (28,837)

Equity in net losses of investees 833 580 1,679 976

Income tax expense 531 435

Income (loss) before income tax expense and equity in net losses of investees (12,030) 38,691

Income tax expense (benefit) (190) (121) 341 314

Loss before income tax expense (benefit) and equity in net losses of investees (15,413) (66,238) (27,443) (27,547)

Loss on early extinguishment of debt 77 11,794 77 11,794

Interest expense 26,515 29,001 53,954 57,799

Interest and other income (16) (2) (17) (7)

Gain on sale of real estate (2,149) (54,004)

(Gain) loss on sale of real estate 11,637 (114) 9,488 (54,118)

General and administrative 7,083 12,970 12,789 24,242

Acquisition and transaction related costs 224 — 224 —

Loss on impairment of real estate 4,773 48,197 21,820 55,857

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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 (loss) to FFO and Normalized FFO for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Net income (loss) $ (13,407) $ 37,860

The following table presents the reconciliation of net loss to FFO and Normalized FFO for the three and six months ended June 30, 2022 and 2021:

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

2022 2021 2022 2021

Net loss $ (16,056) $ (66,697) $ (29,463) $ (28,837)

Depreciation and amortization:

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Loss on impairment of real estate 4,773 48,197 21,820 55,857

Gain on sale of real estate (2,149) (54,004)

(Gain) loss on sale of real estate 11,637 (114) 9,488 (54,118)

FFO 58,622 37,680 121,344 94,289

Acquisition and transaction related costs 224 — 224 —

Loss on early extinguishment of debt 77 11,794 77 11,794

Estimated business management incentive fees — 5,911 — 11,111

Normalized FFO $ 58,923 $ 55,385 $ 121,645 $ 117,194

Weighted average common shares outstanding (basic) 48,243 48,161

Weighted average common shares outstanding (diluted) 48,243 48,196

FFO per common share (basic) $ 1.30 $ 1.18

FFO per common share (diluted) $ 1.30 $ 1.17

Weighted average common shares outstanding (basic and diluted) 48,249 48,165 48,246 48,163

FFO per common share (basic and diluted) $ 1.21 $ 0.78 $ 2.52 $ 1.96

Normalized FFO per common share (basic and diluted)

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

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

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

• 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 April 14, 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.

On July 14, 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 payment of debt obligations.

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 three months ended March 31, 2022, we sold four properties for an aggregate sales price of $29,470, excluding closing costs.

In addition, 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 April 27, 2022, we have also entered into agreements to sell two properties for an aggregate sales price of $38,300, excluding closing costs.

During the six months ended June 30, 2022, we sold six properties for an aggregate sales price of $77,720, excluding closing costs.

In July 2022, we sold one property for a sales price of $9,800, excluding closing costs.

Based on current real estate market conditions, including rising interest rates, we expect the pace of our 2022 dispositions to moderate.

However, we continue to evaluate our portfolio to strategically recycle capital and are currently in various stages of marketing certain of our properties for sale.

As of July 27, 2022, we have entered into agreements to sell nine properties for an aggregate sales price of $109,800, excluding closing costs.

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

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The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our condensed consolidated statements of cash flows:

Three Months Ended March 31,

Six Months Ended June 30,

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

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Cash, cash equivalents and restricted cash at end of period $ 27,749 $ 20,081

The decrease in cash provided by operating activities for the 2022 period compared to the 2021 period was primarily a result of unfavorable changes in working capital in the 2022 period.

The increase in cash used in investing activities in the 2022 period compared to the 2021 period is primarily due to lower cash proceeds from our sales of properties in the 2022 period compared to the 2021 period and increased capital expenditures in the 2022 period related to our two redevelopment projects in Washington D.C.

The decrease in cash provided by operating activities for the 2022 period compared to the 2021 period was primarily a result of unfavorable changes in working capital in the 2022 period, partially offset by an increase in NOI as a result of property acquisitions.

The decrease in cash used in investing activities in the 2022 period compared to the 2021 period is primarily due to higher acquisition activity in the 2021 period, partially offset by lower cash proceeds received from the sales of properties and increased capital expenditures in the 2022 period related to our two redevelopment projects in Washington D.C.

and Seattle, WA.

Cash used in financing activities in the 2022 period was relatively unchanged compared to the 2021 period and largely relates to our quarterly dividend paid in both periods.

The increase in cash used in financing activities in the 2022 period compared to the 2021 period is a result of net debt repayment activity in the 2022 period that included the redemption of all $300,000 of our 4.00% senior unsecured notes due July 2022 and the repayment of a mortgage note with a principal balance of approximately $25,000, which was partially offset by borrowing activity under our revolving credit facility to facilitate these payments, compared to the issuance of $300,000 of 2.650% senior unsecured notes due 2026 and net borrowing activity under our revolving credit facility to fund acquisition activity in the 2021 period, partially offset by the redemption of all $310,000 of our 5.875% senior unsecured notes due 2046 and the repayment of a mortgage note with a principal balance of $71,000.

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

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We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity.

We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at March 31, 2022, on the amount outstanding under our revolving credit facility, if any.

We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at March 31, 2022.

We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at June 30, 2022, on the amount outstanding under our revolving credit facility.

We also pay a facility fee on the total amount of lending

commitments under our revolving credit facility, which was 25 basis points per annum at June 30, 2022.

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

As of March 31, 2022, the annual interest rate payable on borrowings under our revolving credit facility was 1.6%.

As of March 31, 2022 and April 27, 2022, we had no amounts outstanding under our revolving credit facility and $750,000 available for borrowing.

As of June 30, 2022, the annual interest rate payable on borrowings under our revolving credit facility was 2.4%.

As of June 30, 2022 and July 27, 2022, we had $230,000 and $200,000, respectively, outstanding under our revolving credit facility, and $520,000 and $550,000, respectively, available for borrowing.

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

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

As of March 31, 2022, our debt maturities (other than our revolving credit facility), consisting of senior unsecured notes and mortgage notes, are as follows:

During the six months ended June 30, 2022, we repaid the following mortgage note and senior unsecured notes:

Mortgage Note Prepayment

Senior Unsecured Note Redemption

In June 2022, we redeemed, at par plus accrued interest, all $300,000 of our 4.00% senior unsecured notes due July 2022 using cash on hand and borrowings under our revolving credit facility.

As of June 30, 2022, our debt maturities (other than our revolving credit facility), consisting of senior unsecured notes and mortgage notes, are as follows:

Year Debt Maturities

Thereafter 912,000

2027 and thereafter 912,000

Total $ 2,285,018

(1) In April 2022, we prepaid, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $24,863, an annual interest rate of 4.22% and a maturity date in July 2022 using cash on hand.

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

We currently have sufficient liquidity, including cash on hand and availability under our $750,000 revolving credit facility, to redeem these senior notes at, or if we elect to do so, prior to maturity.

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

Our $73,018 in mortgage debts generally require monthly payments of principal and interest through maturity.

In addition to our debt obligations, as of March 31, 2022, we have estimated unspent leasing related obligations of $128,009, of which we expect to spend $78,134 over the next 12 months.

In addition to our debt obligations, as of June 30, 2022, we have estimated unspent leasing related obligations of $130,726, of which we expect to spend $82,543 over the next 12 months.

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

We currently estimate the total project costs associated with this redevelopment will be approximately $215,000 and completion of the redevelopment in the first quarter of 2023.

As of March 31, 2022, we have incurred approximately $76,925 related to this project.

We currently estimate the total project costs associated with this redevelopment will be approximately $215,000 and completion of the redevelopment in the second quarter of 2023.

As of June 30, 2022, we have incurred approximately $103,198 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.

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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.

As of March 31, 2022, we have incurred approximately $6,916 related to this project.

As of June 30, 2022, we have incurred approximately $16,707 related to this project.

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 COVID-19 pandemic and its ultimate economic impact will be.

For instance, it is uncertain what the duration and severity of the COVID-19 pandemic, increasing interest rates, inflation and a possible recession, and their ultimate economic impact will be.

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

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

During the three months ended March 31, 2022, we paid quarterly distributions to our shareholders totaling $26,634 using cash on hand.

On April 14, 2022, we declared a regular quarterly distribution payable to shareholders of record on April 25, 2022 of $0.55 per share, or approximately $26,600.

We expect to pay this distribution on or about May 19, 2022 using cash on hand.

During the six months ended June 30, 2022, we paid quarterly distributions to our shareholders totaling $53,268 using cash on hand.

On July 14, 2022, we declared a regular quarterly distribution payable to shareholders of record on July 25, 2022 of $0.55 per share, or approximately $26,700.

We expect to pay this distribution on or about August 18, 2022 using cash on hand and borrowings under our revolving credit facility.

For more information regarding the distributions we paid and declared during 2022, see Note 8 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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For more information on the financial condition and results of operations of these joint ventures, see Note 3 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Other than these joint ventures, as of March 31, 2022, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Other than these joint ventures, as of June 30, 2022, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Debt Covenants (dollars in thousands)

Our principal debt obligations at March 31, 2022 consisted of an aggregate outstanding principal balance of $2,512,000 of public issuances of senior unsecured notes and mortgage notes with an aggregate outstanding principal balance of $97,996, that were assumed in connection with certain of our acquisitions.

Our principal debt obligations at June 30, 2022 consisted of $230,000 of borrowings outstanding under our revolving credit facility, an aggregate outstanding principal balance of $2,212,000 of public issuances of senior unsecured notes and mortgage notes with an aggregate outstanding principal balance of $73,018, that were assumed in connection with certain of our acquisitions.

Also, the three properties owned by two joint ventures in which we own 51% and 50% interests secure two additional mortgage notes.

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

As of March 31, 2022, we believe we were in compliance with the terms and conditions of our respective covenants under our credit agreement and senior unsecured notes indentures and their supplements.

As of June 30, 2022, we believe we were in compliance with the terms and conditions of our respective covenants under our credit agreement and senior unsecured notes indentures and their supplements.

Our mortgage notes are non-recourse, subject to certain limited exceptions, and do not contain any material financial covenants.

8 unchanged sentences

For more information about these and other such relationships and related person transactions, see Notes 9 and 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2021 Annual Report, our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders and our other filings with the SEC.

see the section captioned “Risk Factors” of our 2021 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships.

In addition, see the section captioned “Risk Factors” of our 2021 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships.

We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services.

Critical Accounting Estimates

The preparation of our Condensed Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts.

Actual results could differ from those estimates.

Significant estimates in the Condensed Consolidated Financial Statements include purchase price allocations, useful lives of fixed assets and assessment of impairment of real estate and the related intangibles.

A discussion of our critical accounting estimates is included in our 2021 Annual Report.

There have been no significant changes in our critical accounting estimates since the year ended December 31, 2021.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis