What changed in this filing

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Item 1. Financial Statements

2022-10-27 compared with 2022-07-28 · 124 added, 101 removed, 322 unchanged (41% of the section changed)

3 unchanged sentences

(dollars in thousands, except per share data)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Real estate properties:

10 unchanged sentences

Rents receivable 105,391 112,886

Due from related persons 464 —

Deferred leasing costs, net 63,951 53,883

23 unchanged sentences

(amounts in thousands, except per share data)

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

8 unchanged sentences

Total expenses 111,689 113,971 364,300 407,673

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

Gain on sale of real estate 16,925 36 7,437 54,154

Interest and other income 56 — 73 7

2 unchanged sentences

Loss on early extinguishment of debt — ( 2,274 ) ( 77 ) ( 14,068 )

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

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

Income (loss) before income tax expense and equity in net losses of investees 18,006 4,434 ( 9,437 ) ( 23,113 )

Income tax expense ( 90 ) ( 34 ) ( 431 ) ( 348 )

Equity in net losses of investees ( 952 ) ( 688 ) ( 2,631 ) ( 1,664 )

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

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

Net income (loss) $ 16,964 $ 3,712 $ ( 12,499 ) $ ( 25,125 )

Weighted average common shares outstanding (basic) 48,286 48,211 48,260 48,179

Weighted average common shares outstanding (diluted) 48,286 48,244 48,260 48,179

Per common share amounts (basic and diluted):

Net loss $ ( 0.33 ) $ ( 1.38 ) $ ( 0.61 ) $ ( 0.60 )

Net income (loss) $ 0.35 $ 0.08 $ ( 0.27 ) $ ( 0.52 )

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

17 unchanged sentences

Balance at June 30, 2022 48,455,075 485 2,618,640 146,252 ( 1,349,927 ) 1,415,450

Share grants 141,200 1 922 — — 923

Share forfeitures and repurchases ( 30,069 ) — ( 521 ) — — ( 521 )

Net income — — — 16,964 — 16,964

Distributions to common shareholders — — — — ( 26,651 ) ( 26,651 )

Balance at September 30, 2022 48,566,206 $ 486 $ 2,619,041 $ 163,216 $ ( 1,376,578 ) $ 1,406,165

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(dollars in thousands)

of Shares Common Shares Additional

Paid In Capital Cumulative

Net Income Cumulative

Distributions Total Shareholders’ Equity

Balance at December 31, 2020 48,318,366 $ 483 $ 2,615,305 $ 183,895 $ ( 1,190,291 ) $ 1,609,392

8 unchanged sentences

Balance at June 30, 2021 48,334,357 483 2,616,450 155,058 ( 1,243,441 ) 1,528,550

Share grants 117,800 1 950 — — 951

Share forfeitures and repurchases ( 26,233 ) — ( 649 ) — — ( 649 )

Net income — — — 3,712 — 3,712

Distributions to common shareholders — — — — ( 26,584 ) ( 26,584 )

Balance at September 30, 2021 48,425,924 $ 484 $ 2,616,751 $ 158,770 $ ( 1,270,025 ) $ 1,505,980

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

5 unchanged sentences

Amortization of deferred leasing costs 6,115 5,750

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

Gain on sale of real estate ( 7,437 ) ( 54,154 )

Loss on impairment of real estate 21,820 55,854

8 unchanged sentences

Accounts payable and other liabilities ( 3,255 ) ( 7,919 )

Due to related persons ( 119 ) 11,768

Due to / from related persons ( 7,251 ) 6,457

Net cash provided by operating activities 152,687 158,682

5 unchanged sentences

Proceeds from sale of properties, net 189,069 192,476

Net cash used in investing activities ( 17,112 ) ( 400,467 )

Net cash provided by (used in) investing activities 49,175 ( 435,698 )

CASH FLOWS FROM FINANCING ACTIVITIES:

15 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

SUPPLEMENTAL CASH FLOW INFORMATION:

7 unchanged sentences

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows:

As of June 30,

As of September 30,

Cash and cash equivalents $ 14,005 $ 54,881

22 unchanged sentences

Unvested share awards and other potentially dilutive common shares, together with the related impact on earnings, are considered when calculating diluted earnings per share.

For the three and six months ended June 30, 2022 and 2021, there were no dilutive common shares.

The calculation of basic and diluted earnings per share is as follows (amounts in thousands, except per share data):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Net income (loss) $ 16,964 $ 3,712 $ ( 12,499 ) $ ( 25,125 )

Income attributable to unvested participating securities ( 99 ) ( 11 ) ( 299 ) —

Net income (loss) used in calculating earnings per share $ 16,865 $ 3,701 $ ( 12,798 ) $ ( 25,125 )

Denominators:

Weighted average common shares outstanding - basic 48,286 48,211 48,260 48,179

Effect of dilutive securities:

unvested share awards — 33 — —

Weighted average common shares outstanding - diluted 48,286 48,244 48,260 48,179

Net income (loss) per common share - basic and diluted $ 0.35 $ 0.08 $ ( 0.27 ) $ ( 0.52 )

Real Estate Properties

As of June 30, 2022, our wholly owned properties were comprised of 172 properties containing approximately 22,491,000 rentable square feet, with an undepreciated carrying value of $ 3,918,825 , including $ 95,456 classified as held for sale.

As of September 30, 2022, our wholly owned properties were comprised of 162 properties containing approximately 21,211,000 rentable square feet, with an undepreciated carrying value of $ 3,880,911 , including $ 4,566 classified as held for sale.

We also had noncontrolling ownership interests of 51 % and 50 % in two unconsolidated joint ventures that own three properties containing approximately 444,000 rentable square feet.

1 unchanged sentence

Some of our leases generally require us to pay all or some property operating expenses and to provide all or most property management services.

During the three months ended June 30, 2022, we entered into 18 leases for approximately 679,000 rentable square feet for a weighted (by rentable square feet) average lease term of 9.2 years and we made commitments for approximately $ 37,369 of leasing related costs.

During the six months ended June 30, 2022, we entered into 39 leases for approximately 1,251,000 rentable square feet for a weighted (by rentable square feet) average lease term of 9.9 years and we made commitments for approximately $ 70,117 of leasing related costs.

As of June 30, 2022, we have estimated unspent leasing related obligations of $ 130,726 .

During the three months ended September 30, 2022, we entered into 24 leases for approximately 606,000 rentable square feet for a weighted (by rentable square feet) average lease term of 7.2 years and we made commitments for approximately $ 43,013 of leasing related costs.

During the nine months ended September 30, 2022, we entered into 63 leases for approximately 1,857,000 rentable square feet for a weighted (by rentable square feet) average lease term of 9.0 years and we

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

made commitments for approximately $ 113,130 of leasing related costs.

As of September 30, 2022, we had estimated unspent leasing related obligations of $ 137,420 .

We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of our long lived assets.

5 unchanged sentences

If we change our estimate of the remaining lives, we allocate the carrying value of the affected assets over their revised remaining lives.

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

Disposition Activities

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.

During the nine months ended September 30, 2022, we sold 16 properties containing approximately 2,077,000 rentable square feet for an aggregate sales price of $ 195,920 , excluding closing costs.

The sales of these properties, as presented in the table below, do not represent significant dispositions, individually or in the aggregate, nor do they represent a strategic shift in our business.

2 unchanged sentences

Sales Price (1)

Gain (Loss) on Sale of Real Estate

Gain (Loss) on Sale of Real Estate Loss on Impairment of Real Estate

January 2022 1 Rockville, MD 129,000 $ 6,750 $ ( 72 ) $ —

3 unchanged sentences

June 2022 1 Fairfax, VA 184,000 19,750 ( 13,537 ) —

6 778,000 $ 77,720 $ ( 9,488 )

(1) Gross sales price is the gross contract price, excluding closing costs.

As of June 30, 2022, we had 11 properties containing approximately 1,408,000 rentable square feet classified as held for sale in our condensed consolidated balance sheet, ten of which have been sold or are under agreement to sell for an aggregate sales price of $ 119,600 and are summarized below:

Date of Sale Agreement Number of Properties Location Rentable Square Feet Gross

Sales Price (1)

Loss on Impairment of Real Estate

March 2022 1 Houston, TX (2)

206,000 $ 9,800 $ 15,278

June 2022 2 Chesapeake, VA 214,000 24,000 649

June 2022 3 Birmingham, AL 448,000 16,050 3,709

July 2022 1 Kapolei, HI (3)

109,000 4,000 —

July 2022 2 Everett, WA 112,000 31,500 —

July 2022 1 Salem, OR 233,000 34,250 —

July 2022 1 Houston, TX 206,000 9,800 ( 335 ) 15,278

August 2022 3 Birmingham, AL 448,000 16,050 ( 265 ) 3,709

August 2022 1 Erlanger, KY 86,000 2,600 135 2,184

September 2022 2 Chesapeake, VA 214,000 24,000 62 649

September 2022 2 Everett, WA 112,000 31,500 11,959 —

September 2022 1 Salem, OR 233,000 34,250 5,369 —

16 2,077,000 $ 195,920 $ 7,437 $ 21,820

(1) Gross sales price is the gross contract price, excluding closing costs.

(2) The sale of this property was completed in July 2022.

(3) This property is a leasable land parcel.

During the six months ended June 30, 2022, we also recorded a $ 2,184 loss on impairment of real estate to adjust the carrying value of one additional property that was classified as held for sale to its estimated fair value less costs to sell.

The pending sales in the preceding table are subject to conditions;

As of September 30, 2022, we had four properties, including one leasable land parcel, classified as held for sale in our condensed consolidated balance sheet.

As of October 26, 2022, we have entered into agreements to sell five properties containing approximately 338,000 rentable square feet, including those classified as held for sale as of September 30, 2022, for an aggregate sales price of $ 20,450 , excluding closing costs.

These pending sales are subject to conditions;

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

5 unchanged sentences

We account for these investments under the equity method of accounting.

As of June 30, 2022 and December 31, 2021, our investments in unconsolidated joint ventures consisted of the following:

As of September 30, 2022 and December 31, 2021, our investments in unconsolidated joint ventures consisted of the following:

OPI Carrying Value of Investments at

Joint Venture OPI Ownership June 30,

Joint Venture OPI Ownership September 30,

2022 December 31, 2021 Number of Properties Location Rentable Square Feet

4 unchanged sentences

Joint Venture Interest Rate (1)

Maturity Date Principal Balance at June 30, 2022 and December 31, 2021 (2)

Maturity Date Principal Balance at September 30, 2022 and December 31, 2021 (2)

Prosperity Metro Plaza 4.09 % 12/1/2029 $ 50,000

4 unchanged sentences

None of the debt is recourse to us.

At June 30, 2022, the aggregate unamortized basis difference of our two unconsolidated joint ventures of $ 6,734 is primarily attributable to the difference between the amount we paid to purchase our interest in these joint ventures, including transaction costs, and the historical carrying value of the net assets of these joint ventures.

At September 30, 2022, the aggregate unamortized basis difference of our two unconsolidated joint ventures of $ 6,612 was primarily attributable to the difference between the amount we paid to purchase our interest in these joint ventures, including transaction costs, and the historical carrying value of the net assets of these joint ventures.

This difference is being amortized over the remaining useful life of the related properties and the resulting amortization expense is included in equity in net losses of investees in our condensed consolidated statements of comprehensive income (loss).

4 unchanged sentences

we have determined the fixed non-cancelable lease term of these leases to be the full term of the lease because we believe the occurrence of early terminations to be a remote contingency based on both our historical experience and our assessments of the likelihood of lease cancellation on a separate lease basis.

We increased rental income to record revenue on a straight line basis by $ 2,775 and $ 3,847 for the three months ended June 30, 2022 and 2021, respectively, and $ 5,461 and $ 9,204 for the six months ended June 30, 2022 and 2021, respectively.

Rents receivable, excluding properties classified as held for sale, include $ 86,379 and $ 82,978 of straight line rent receivables at June 30, 2022 and December 31, 2021, respectively.

We increased rental income to record revenue on a straight line basis by $ 1,765 and $ 3,924 for the three months ended September 30, 2022 and 2021, respectively, and $ 7,226 and $ 13,128 for the nine months ended September 30, 2022 and 2021, respectively.

Rents receivable, excluding properties classified as held for sale, included $ 82,701 and $ 82,978 of straight line rent receivables at September 30, 2022 and December 31, 2021, respectively.

We do not include in our measurement of our lease receivables certain variable payments, including payments determined by changes in the index or market-based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred.

Such payments totaled $ 22,101 and $ 44,637 for the three and six months ended June 30, 2022, respectively, of which tenant reimbursements totaled $ 21,009 and $ 42,484 , respectively.

For the three and six months ended June 30, 2021, such payments totaled $ 17,488 and $ 36,348 , respectively, of which tenant reimbursements totaled $ 16,639 and $ 34,442 , respectively.

Such payments totaled $ 23,183 and $ 67,820 for the three and nine months ended September 30, 2022, respectively, of which tenant reimbursements totaled $ 21,953 and $ 64,437 , respectively.

For the three and nine months ended September 30, 2021, such payments totaled $ 24,098 and $ 60,446 , respectively, of which tenant reimbursements totaled $ 23,167 and $ 57,609 , respectively.

OFFICE PROPERTIES INCOME TRUST

4 unchanged sentences

We define annualized rental income as the annualized contractual base rents from our tenants pursuant to our lease agreements as of the measurement date, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

As of June 30, 2022, the U.S.

government, 11 state governments and four other government tenants combined were responsible for approximately 28.4 % of our annualized rental income.

As of June 30, 2021, the U.S.

As of September 30, 2022, the U.S.

government, nine state governments and four other government tenants combined were responsible for approximately 27.8 % of our annualized rental income.

As of September 30, 2021, the U.S.

government, 11 state governments and four other government tenants combined were responsible for approximately 29.8 % of our annualized rental income.

government is our largest tenant by annualized rental income and represented approximately 18.5 % and 22.0 % of our annualized rental income as of June 30, 2022 and 2021, respectively.

government is our largest tenant by annualized rental income and represented approximately 19.1 % and 19.7 % of our annualized rental income as of September 30, 2022 and 2021, respectively.

Geographic Concentration

At June 30, 2022, our 172 wholly owned properties were located in 32 states and the District of Columbia.

Properties located in Virginia, California, Illinois, the District of Columbia and Georgia were responsible for approximately 11.8 %, 11.3 %, 10.5 %, 10.2 % and 8.7 % of our annualized rental income as of June 30, 2022, respectively.

Our principal debt obligations at June 30, 2022 were:

At September 30, 2022, our 162 wholly owned properties were located in 31 states and the District of Columbia.

Properties located in California, Virginia, Illinois, the District of Columbia and Georgia were responsible for approximately 11.6 %, 11.3 %, 11.1 %, 10.3 % and 8.8 % of our annualized rental income as of September 30, 2022, respectively.

Our principal debt obligations at September 30, 2022 were:

(1) $ 135,000 of outstanding borrowings under our $ 750,000 unsecured revolving credit facility;

5 unchanged sentences

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

We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at June 30, 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.

We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at September 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 September 30, 2022.

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

As of June 30, 2022 and December 31, 2021, the annual interest rate payable on borrowings under our revolving credit facility was 2.4 % and 1.2 %, respectively.

The weighted average annual interest rate for borrowings under our revolving credit facility was 2.4 % for the three and six months ended June 30, 2022 and 1.2 % for the three and six months ended June 30, 2021.

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.

As of September 30, 2022 and December 31, 2021, the annual interest rate payable on borrowings under our revolving credit facility was 3.9 % and 1.2 %, respectively.

The weighted average annual interest rate for borrowings under our revolving credit facility was 3.3 % and 3.2 % for the three and nine months ended September 30, 2022, respectively, and 1.2 % for each of the three and nine months ended September 30, 2021.

As of September 30, 2022 and October 26, 2022, we had $ 135,000 and $ 145,000 , respectively, outstanding under our revolving credit facility, and $ 615,000 and $ 605,000 , respectively, available for borrowing.

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

Our credit agreement and senior unsecured notes indentures and their supplements also contain covenants, including covenants that restrict our ability to incur debts, require us to comply with certain financial covenants and, in the case of our credit agreement, restrict our ability to make distributions under certain circumstances.

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

Mortgage Note Prepayment

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

Mortgage Note Prepayments

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.

2 unchanged sentences

(dollars in thousands, except per share data)

In October 2022, we prepaid, at a discounted amount of $ 22,176 plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $ 22,901 , an annual interest rate of 4.80 % and a maturity date in June 2023.

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.

As a result of this redemption, we recognized a loss on early extinguishment of debt of $ 77 during the six months ended June 30, 2022, from the write off of unamortized discounts and debt issuance costs.

At June 30, 2022, two of our properties with an aggregate net book value of $ 126,295 were encumbered by mortgage notes with an aggregate principal amount of $ 73,018 .

As a result of this redemption, we recognized a loss on early extinguishment of debt of $ 77 during the nine months ended September 30, 2022, from the write off of unamortized discounts and debt issuance costs.

At September 30, 2022, two of our properties with an aggregate net book value of $ 125,033 were encumbered by mortgage notes with an aggregate principal amount of $ 72,901 .

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

Fair Value of Assets and Liabilities

The following table presents certain of our assets measured at fair value at June 30, 2022, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset:

Fair Value at Reporting Date Using

Description Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)

Non-recurring Fair Value Measurements Assets

Assets of properties held for sale (1)(2)

$ 52,350 $ — $ 49,850 $ 2,500

(1) We recorded impairment charges totaling $ 19,636 to reduce the carrying value of six properties in our condensed consolidated balance sheet to their estimated fair values, less estimated costs to sell of $ 819 , based on negotiated sales prices with third party buyers (Level 2 inputs as defined in the fair value hierarchy under GAAP).

See Note 3 for more information.

(2) We recorded an impairment charge of $ 2,184 to reduce the carrying value of one property that is classified as held for sale in our condensed consolidated balance sheet to its estimated fair value, less estimated costs to sell of $ 138 , based on third party offers (Level 3 inputs as defined in the fair value hierarchy under GAAP).

See Note 3 for more information.

In addition to the assets described in the table above, our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, accounts payable, a revolving credit facility, senior unsecured notes, mortgage notes payable, amounts due to related persons, other accrued expenses and security deposits.

At June 30, 2022 and December 31, 2021, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or floating interest rates, except as follows:

As of June 30, 2022 As of December 31, 2021

Our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, accounts payable, a revolving credit facility, senior unsecured notes, mortgage notes payable, amounts due from and to related persons, other accrued expenses and security deposits.

At September 30, 2022 and December 31, 2021, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or floating interest rates, except as follows:

As of September 30, 2022 As of December 31, 2021

Financial Instrument Carrying Value (1)

17 unchanged sentences

Total $ 2,258,815 $ 1,814,710 $ 2,577,950 $ 2,661,462

(1) Includes unamortized debt premiums, discounts and issuance costs totaling $ 28,009 and $ 32,351 as of June 30, 2022 and December 31, 2021, respectively.

(1) Includes unamortized debt premiums, discounts and issuance costs totaling $ 26,086 and $ 32,351 as of September 30, 2022 and December 31, 2021, respectively.

(2) These senior notes were redeemed in June 2022.

(3) Balance as of December 31, 2021 includes a mortgage note secured by one property with an outstanding principal balance of $ 25,055 that was prepaid in April 2022.

(4) Balance as of September 30, 2022 includes a mortgage note secured by one property with an outstanding principal balance of $ 22,901 that was prepaid at a discounted amount of $ 22,176 plus accrued interest in October 2022.

This mortgage note was secured by one property and had an annual interest rate of 4.80 % and a maturity date in June 2023.

We estimated the fair values of our senior unsecured notes (except for our senior unsecured notes due 2050) using an average of the bid and ask price of the notes (Level 2 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date.

We estimated the fair value of our senior unsecured notes due 2050 based on the closing price on The

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

Nasdaq Stock Market LLC, or Nasdaq, (Level 1 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date.

We estimated the fair value of our senior unsecured notes due 2050 based on the closing price on The Nasdaq Stock Market LLC, or Nasdaq, (Level 1 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date.

We estimated the fair values of our mortgage notes payable using discounted cash flow analyses and currently prevailing market rates (Level 3 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date.

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On June 16, 2022, in accordance with our Trustee compensation arrangements, we awarded to each of our nine Trustees 3,500 of our common shares, valued at $ 18.84 per share, the closing price of our common shares on Nasdaq on that day.

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

On September 14, 2022, we awarded under our equity compensation plan an aggregate of 141,200 of our common shares, valued at $ 17.49 per share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of RMR.

Share Purchases

During the six months ended June 30, 2022, we purchased an aggregate of 790 of our common shares valued at a weighted average share price of $ 20.59 per share, from one of our Trustees and a former employee of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

During the three and nine months ended September 30, 2022, we purchased an aggregate of 29,469 and 30,259 of our common shares, respectively, valued at a weighted average share price of $ 17.53 and $ 17.61 per share, respectively, from certain of our Trustees and officers and certain other current and former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

Distributions

During the six months ended June 30, 2022, we declared and paid regular quarterly distributions to common shareholders as follows:

During the nine months ended September 30, 2022, we declared and paid regular quarterly distributions to common shareholders as follows:

Declaration Date Record Date Paid Date Distributions Per Common Share Total Distributions

1 unchanged sentence

April 14, 2022 April 25, 2022 May 19, 2022 0.55 26,634

July 14, 2022 July 25, 2022 August 18, 2022 0.55 26,651

$ 1.65 $ 79,919

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

We expect to pay this distribution on or about August 18, 2022.

On October 13, 2022, we declared a regular quarterly distribution payable to common shareholders of record on October 24, 2022 in the amount of $ 0.55 per share, or approximately $ 26,700 .

We expect to pay this distribution on or about November 17, 2022.

Business and Property Management Agreements with RMR

4 unchanged sentences

and (2) a property management agreement, which relates to our property level operations.

Pursuant to our business management agreement with RMR, we recognized net business management fees of $ 4,492 and $ 9,202 for the three and six months ended June 30, 2022, respectively, and $ 10,551 and $ 20,025 for the three and six months ended June 30, 2021, respectively.

Based on our common share total return, as defined in our business management agreement, as of June 30, 2022, no estimated incentive fees are included in the net business management fees we recognized for the three and six months ended June 30, 2022.

Pursuant to our business management agreement with RMR, we recognized net business management fees of $ 4,260 and $ 13,462 for the three and nine months ended September 30, 2022, respectively, and $( 1,738 ) and $ 18,287 for the three and nine months ended September 30, 2021, respectively.

Based on our common share total return, as defined in our business management agreement, as of September 30, 2022, no estimated incentive fees are included in the net business management fees we recognized for the three and nine months ended September 30, 2022.

The actual amount of annual incentive fees for 2022, if any, will be based on our common share total return, as defined in our business management agreement, for the three year period ending December 31, 2022, and will be payable in January 2023.

The net business management fees we recognized for the three and six months ended June 30, 2021 included $ 5,911 and $ 11,111 , respectively, of accrued estimated incentive fees based on our common share total return as of June 30, 2021.

The net business management fees we recognized for the three months ended September 30, 2021 included a reversal of $ 6,627 of previously accrued estimated business management incentive fees, which represents the amount by which the 2021 business management incentive fees as of June 30, 2021 exceeded the amount estimated as of September 30, 2021.

The net business management fees we recognized for the nine months ended September 30, 2021 included $ 4,484 of accrued estimated incentive fees.

We did no t incur an incentive fee payable to RMR for the year ended December 31, 2021.

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REIT Office Index.

Pursuant to our property management agreement with RMR, we recognized aggregate net property management and construction supervision fees of $ 6,502 and $ 19,024 for the three and nine months ended September 30, 2022, respectively, and

OFFICE PROPERTIES INCOME TRUST

1 unchanged sentence

(dollars in thousands, except per share data)

Pursuant to our property management agreement with RMR, we recognized aggregate net property management and construction supervision fees of $ 6,394 and $ 12,522 for the three and six months ended June 30, 2022, respectively, and $ 4,914 and $ 9,526 for the three and six months ended June 30, 2021, respectively.

Of these amounts, for the three and six months ended June 30, 2022, $ 4,015 and $ 8,241 , respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 2,379 and $ 4,281 , respectively, were capitalized as building improvements in our condensed consolidated balance sheet.

For the three and six months ended June 30, 2021, $ 3,935 and $ 8,015 , respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 979 and $ 1,511 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

$ 5,519 and $ 15,045 for the three and nine months ended September 30, 2021, respectively.

Of these amounts, for the three and nine months ended September 30, 2022, $ 3,996 and $ 12,237 , respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 2,506 and $ 6,787 , respectively, were capitalized as building improvements in our condensed consolidated balance sheet.

For the three and nine months ended September 30, 2021, $ 4,224 and $ 12,239 , respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,295 and $ 2,806 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets.

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Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR.

We reimbursed RMR $ 6,047 and $ 12,013 for these expenses and costs for the three and six months ended June 30, 2022, respectively, and $ 5,925 and $ 11,977 for the three and six months ended June 30, 2021, respectively.

We reimbursed RMR $ 6,268 and $ 18,281 for these expenses and costs for the three and nine months ended September 30, 2022, respectively, and $ 6,131 and $ 18,108 for the three and nine months ended September 30, 2021, respectively.

We included these amounts in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income (loss).

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Clark, serve as managing trustees, managing directors or officers of certain of these companies.

Share Awards to RMR Employees.

See Note 8 for further information relating to our awards of common shares to our officers and certain other employees of RMR in September 2022 and our repurchases of common shares from certain of our Trustees and officers and certain other current and former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares to them.

We include amounts recognized as expense for awards of our common shares to our officers and other RMR employees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

Our Manager, RMR.

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We lease office space to RMR in certain of our properties for RMR’s property management offices.

Pursuant to our lease agreements with RMR, we recognized rental income from RMR for leased office space of $ 285 and $ 569 for the three and six months ended June 30, 2022, respectively, and $ 287 and $ 575 for the three and six months ended June 30, 2021, respectively.

Pursuant to our lease agreements with RMR, we recognized rental income from RMR for leased office space of $ 282 and $ 851 for the three and nine months ended September 30, 2022, respectively, and $ 275 and $ 850 for the three and nine months ended September 30, 2021, respectively.

In June 2021, we entered into a 30 -year lease agreement with a subsidiary of Sonesta International Hotels Corporation, or Sonesta, in connection with the redevelopment of an office property we own in Washington, D.C.

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Sonesta has two options to extend the term for 10 years each.

Pursuant to the lease agreement, Sonesta will pay us annual base rent of approximately $ 6,436 beginning 18 months after the lease commences.

Pursuant to the lease agreement, Sonesta

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

will pay us annual base rent of approximately $ 6,436 beginning 18 months after the lease commences.

The annual base rent will increase by 10 % every five years throughout the term.

4 unchanged sentences

Another officer and employee of RMR is a director and the president and chief executive officer of Sonesta.

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

For more information about these and other such relationships and certain other related person transactions, refer to our 2021 Annual Report.

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 1. Financial Statements