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Item 1. Financial Statements

2023-04-26 compared with 2022-10-27 · 126 added, 194 removed, 252 unchanged (56% of the section changed)

3 unchanged sentences

(dollars in thousands, except per share data)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Real estate properties:

8 unchanged sentences

Cash and cash equivalents 23,344 12,249

Restricted cash 1,520 1,489

Rents receivable 106,966 105,639

Due from related persons 464 —

Deferred leasing costs, net 72,762 73,098

23 unchanged sentences

(amounts in thousands, except per share data)

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

2022 2021 2022 2021

Three Months Ended March 31,

Rental income $ 132,422 $ 147,354

11 unchanged sentences

( 25,231 ) ( 27,439 )

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

Income (loss) before income tax expense and equity in net losses of investees 418 ( 12,030 )

1 unchanged sentence

Equity in net losses of investees ( 834 ) ( 846 )

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

Net loss $ ( 446 ) $ ( 13,407 )

Weighted average common shares outstanding (basic and diluted) 48,336 48,243

Per common share amounts (basic and diluted):

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

Net loss $ ( 0.01 ) $ ( 0.28 )

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

8 unchanged sentences

Share grants — — 477 — — 477

Share forfeitures ( 400 ) — ( 1 ) — — ( 1 )

Net loss — — — ( 13,407 ) — ( 13,407 )

Distributions to common shareholders — — — — ( 26,634 ) ( 26,634 )

Balance at March 31, 2022 48,425,265 484 2,617,583 162,308 ( 1,323,293 ) 1,457,082

Share grants 31,500 1 1,078 — — 1,079

Share forfeitures and repurchases ( 1,935 ) — ( 15 ) — — ( 15 )

1 unchanged sentence

Distributions to common shareholders — — — — ( 26,710 ) ( 26,710 )

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

Share grants — — 321 — — 321

Net income — — — 37,860 — 37,860

Distributions to common shareholders — — — — ( 26,575 ) ( 26,575 )

Balance at March 31, 2023 48,563,709 $ 486 $ 2,619,994 $ 169,160 $ ( 1,429,999 ) $ 1,359,641

Balance at December 31, 2021 48,425,665 $ 484 $ 2,617,169 $ 175,715 $ ( 1,296,659 ) $ 1,496,709

Share grants — — 415 — — 415

Share repurchases ( 12,009 ) — ( 352 ) — — ( 352 )

Share forfeitures ( 400 ) — ( 1 ) — — ( 1 )

Net loss — — — ( 13,407 ) — ( 13,407 )

Distributions to common shareholders — — — — ( 26,634 ) ( 26,634 )

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

Balance at March 31, 2022 48,425,265 $ 484 $ 2,617,583 $ 162,308 $ ( 1,323,293 ) $ 1,457,082

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

2 unchanged sentences

(dollars in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

3 unchanged sentences

Net amortization of debt premiums, discounts and issuance costs 2,205 2,404

Amortization of acquired real estate leases 93,458 108,471

Amortization of acquired real estate leases and assumed real estate lease obligations, net 24,614 34,079

Amortization of deferred leasing costs 2,365 2,106

1 unchanged sentence

Loss on impairment of real estate — 17,047

Loss on early extinguishment of debt 77 9,694

Straight line rental income ( 4,173 ) ( 2,686 )

6 unchanged sentences

Accounts payable and other liabilities 4,110 ( 11,919 )

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

Due to related persons 972 1,077

Net cash provided by operating activities 51,900 50,266

CASH FLOWS FROM INVESTING ACTIVITIES:

Real estate acquisitions — ( 563,447 )

Real estate improvements ( 66,665 ) ( 36,229 )

2 unchanged sentences

Proceeds from sale of properties, net 5,112 28,464

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

Net cash used in investing activities ( 63,816 ) ( 8,784 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayment of mortgage notes payable — ( 305 )

Repayment of senior unsecured notes ( 300,000 ) ( 610,000 )

Proceeds from issuance of senior unsecured notes, net — 1,041,809

Borrowings on unsecured revolving credit facility 75,000 —

3 unchanged sentences

Distributions to common shareholders ( 26,710 ) ( 26,634 )

Net cash (used in) provided by financing activities ( 270,852 ) 276,181

Decrease in cash, cash equivalents and restricted cash ( 68,990 ) ( 835 )

Net cash provided by (used in) financing activities 23,011 ( 26,939 )

Increase in cash, cash equivalents and restricted cash 11,095 14,543

Cash, cash equivalents and restricted cash at beginning of period 12,249 84,515

4 unchanged sentences

(dollars in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid $ 25,033 $ 28,630

Income taxes paid $ 283 $ 294

NON-CASH INVESTING ACTIVITIES:

Real estate improvements accrued, not paid $ 41,172 $ 25,165

Real estate acquisitions $ — $ ( 13,031 )

Capitalized interest $ 2,106 $ 607

1 unchanged sentence

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

As of September 30,

As of March 31,

Cash and cash equivalents $ 23,344 $ 97,656

18 unchanged sentences

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.

Per Common Share Amounts

We calculate basic earnings per common share using the two class method.

We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method.

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

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 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.

As of March 31, 2023, our wholly owned properties were comprised of 157 properties containing approximately 20,895,000 rentable square feet, with an undepreciated carrying value of $ 3,999,551 , including $ 4,913 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 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.

During the three months ended March 31, 2023, we entered into 16 leases for approximately 203,000 rentable square feet for a weighted (by rentable square feet) average lease term of 6.8 years and we made commitments of $ 8,747 for leasing related costs.

As of March 31, 2023, we had estimated unspent leasing related obligations of $ 139,874 .

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

Impairment indicators may include declining tenant occupancy, lack of progress releasing vacant space, tenant bankruptcies, low long term prospects for improvement in property performance, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an asset before the end of its estimated useful life and legislative, market or industry changes that could permanently reduce the value of a property.

If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized.

2 unchanged sentences

We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques.

In addition to the consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining lives of our long lived assets.

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

In addition to consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining useful lives of our long lived assets.

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

Disposition Activities

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.

As a result, the results of operations of these properties are included in continuing operations through the date of sale in our condensed consolidated statements of comprehensive income (loss).

Date of Sale Number of Properties Location Rentable Square Feet Gross

Sales Price (1)

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

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

February 2022 2 Chesapeake, VA 172,000 18,945 2,296 —

March 2022 1 Milwaukee, WI 29,000 3,775 ( 75 ) —

May 2022 1 Holtsville, NY 264,000 28,500 1,900 —

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

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.

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.

During the three months ended March 31, 2023, we sold three properties containing approximately 89,000 rentable square feet for a sales price of $ 5,350 , excluding closing costs.

The sale of these properties does not represent a significant disposition, nor does it represent a strategic shift in our business.

As a result, the results of operations of these properties are included in continuing operations through the date of sale in our condensed consolidated statements of comprehensive income (loss).We recorded a $ 2,548 gain on sale of real estate during the three months ended March 31, 2023 as a result of this sale.

As of March 31, 2023, we had one property containing approximately 107,000 rentable square feet under agreement to sell for a sales price of $ 4,900 , excluding closing costs, which was classified as held for sale in our condensed consolidated balance sheet.

This pending sale is subject to conditions, and accordingly, we cannot be sure that we will complete this sale or that this sale will not be delayed or the terms will not change.

OFFICE PROPERTIES INCOME TRUST

4 unchanged sentences

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

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

As of March 31, 2023 and December 31, 2022, our investments in unconsolidated joint ventures consisted of the following:

OPI Carrying Value of Investments at

Joint Venture OPI Ownership September 30,

Joint Venture OPI Ownership March 31,

2023 December 31, 2022 Number of Properties Location Rentable Square Feet

4 unchanged sentences

Joint Venture Interest Rate (1)

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

Maturity Date Principal Balance at March 31, 2023 and December 31, 2022 (2)

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

4 unchanged sentences

None of the debt is recourse to us.

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.

At March 31, 2023, the aggregate unamortized basis difference of our two unconsolidated joint ventures of $ 6,367 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).

2 unchanged sentences

Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term.

Allowances for bad debts are recognized as a direct reduction of rental income.

In certain circumstances, some leases provide the tenant with the right to terminate if the legislature or other funding authority does not appropriate the funding necessary for the tenant to meet its lease obligations;

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

We increased rental income to record revenue on a straight line basis by $ 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 increased rental income to record revenue on a straight line basis by $ 4,173 and $ 2,686 for the three months ended March 31, 2023 and 2022, respectively.

Rents receivable, excluding properties classified as held for sale, included $ 90,478 and $ 86,305 of straight line rent receivables at March 31, 2023 and December 31, 2022, 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 $ 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.

Such payments totaled $ 21,370 and $ 22,536 for the three months ended March 31, 2023 and 2022, respectively, of which tenant reimbursements totaled $ 20,066 and $ 21,475 , 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 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 19.1 % and 19.7 % of our annualized rental income as of September 30, 2022 and 2021, respectively.

As of March 31, 2023 and 2022, the U.S.

government and certain state and other government tenants combined were responsible for approximately 28.5 % and 29.0 %, respectively, of our annualized rental income.

government is our largest tenant by annualized rental income and represented approximately 19.6 % and 19.4 % of our annualized rental income as of March 31, 2023 and 2022, respectively.

Geographic Concentration

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:

At March 31, 2023, our 157 wholly owned properties were located in 30 states and the District of Columbia.

Properties located in California, Illinois, Virginia, the District of Columbia and Georgia were responsible for approximately 11.9 %, 11.0 %, 11.0 %, 10.4 % and 9.1 % of our annualized rental income as of March 31, 2023, respectively.

Our principal debt obligations at March 31, 2023 were:

(1) $ 245,000 of outstanding borrowings under our $ 750,000 unsecured revolving credit facility;

(2) $ 2,212,000 aggregate outstanding principal amount of senior unsecured notes;

and (3) $ 72,901 aggregate outstanding principal amount of mortgage notes.

and (3) a $ 50,000 outstanding principal amount for one mortgage note.

Our $ 750,000 revolving credit facility is governed by a credit agreement, or our credit agreement, with a syndicate of institutional lenders that includes a feature under which the maximum aggregate borrowing availability may be increased to up to $ 1,950,000 in certain circumstances.

Our revolving credit facility is available for general business purposes, including acquisitions.

The maturity date of our revolving credit facility is January 31, 2023 and, subject to our payment of an extension fee and meeting certain other conditions, we have the option to extend the stated maturity date of our revolving credit facility by two additional six month periods.

The maturity date of our revolving credit facility is July 31, 2023 and, subject to our payment of an extension fee and meeting certain other conditions, we have the option to extend the maturity date of our revolving credit facility by one six month period.

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

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

In March 2023, we amended our credit agreement to, among other things, replace LIBOR with the secured overnight financing rate, or SOFR, as the benchmark interest rate for calculating interest payable on the amounts outstanding under our revolving credit facility.

We are required to pay interest at a rate of SOFR plus a premium, which was 110 basis points per annum at March 31, 2023, 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 March 31, 2023.

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

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.

As of March 31, 2023 and December 31, 2022, the annual interest rate payable on borrowings under our revolving credit facility was 6.0 % and 5.4 %, respectively.

The weighted average annual interest rate for borrowings under our revolving credit facility was 5.6 % for the three months ended March 31, 2023.

Effective April 1, 2023, the interest rate premium and facility fee increased to 145 basis points per annum and 30 basis points per annum, respectively, based upon changes to our credit ratings.

We did not borrow any funds under our revolving credit facility during the three months ended March 31, 2022.

As of March 31, 2023 and April 25, 2023, we had $ 245,000 and $ 260,000 , respectively, outstanding under our revolving credit facility, and $ 505,000 and $ 490,000 , 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 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.

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 March 31, 2023.

At March 31, 2023, one of our properties with a net book value of $ 54,256 was encumbered by a mortgage note with a principal balance of $ 50,000 .

Our mortgage note is non-recourse, subject to certain limited exceptions and does not contain any material financial covenants.

OFFICE PROPERTIES INCOME TRUST

1 unchanged sentence

(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 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

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

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

At March 31, 2023 and December 31, 2022, 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 March 31, 2023 As of December 31, 2022

Financial Instrument Carrying Value (1)

12 unchanged sentences

156,760 110,614 156,711 113,075

Senior unsecured notes, 6.375 % interest rate, due in 2050

156,663 124,416 156,519 177,098

Mortgage notes payable (3) (4)

Mortgage note payable

49,968 49,557 49,917 49,099

Total $ 2,239,744 $ 1,702,790 $ 2,237,792 $ 1,840,543

(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.

(1) Includes unamortized debt premiums, discounts and issuance costs totaling $ 22,256 and $ 24,208 as of March 31, 2023 and December 31, 2022, respectively.

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

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

Because Level 3 inputs are unobservable, our estimated fair values may differ materially from the actual fair values.

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

Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.

Shareholders’ Equity

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 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.

During the three months ended March 31, 2023, we purchased an aggregate of 975 of our common shares of beneficial interest, $ 0.01 par value per share, or our common shares, valued at a weighted average share price of $ 13.50 from certain 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 nine months ended September 30, 2022, we declared and paid regular quarterly distributions to common shareholders as follows:

During the three months ended March 31, 2023, we declared and paid regular quarterly distributions to common shareholders as follows:

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

January 12, 2023 January 23, 2023 February 16, 2023 $ 0.55 $ 26,710

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 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.

On April 13, 2023, we declared a regular quarterly distribution payable to common shareholders of record on April 24, 2023 in the amount of $ 0.25 per share, or approximately $ 12,100 .

We expect to pay this distribution on or about May 18, 2023.

Business and Property Management Agreements with RMR

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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 $ 4,260 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 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.

We include business management fees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

We and RMR amended our business management agreement effective August 1, 2021 to provide that (i) for periods beginning on and after August 1, 2021, the MSCI U.S.

REIT/Office REIT Index will be used to calculate benchmark returns per share for purposes of determining any incentive management fee payable by us to RMR and (ii) for periods prior to August 1, 2021, the SNL U.S.

REIT Office Index will continue to be used.

This change of index was due to S&P Global ceasing to publish the SNL U.S.

REIT Office Index.

Pursuant to our property management agreement with RMR, 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

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(dollars in thousands, except per share data)

$ 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.

Pursuant to our business management agreement with RMR, we recognized net business management fees of $ 3,951 and $ 4,710 for the three months ended March 31, 2023 and 2022, respectively.

Based on our common share total return, as defined in our business management agreement, as of March 31, 2023, no estimated incentive fees are included in the net business management fees we recognized for the three months ended March 31, 2023.

The actual amount of annual incentive fees for 2023, 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, 2023, and will be payable in January 2024.

We did no t incur an incentive fee payable to RMR for the year ended December 31, 2022.

We include business management fees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

Pursuant to our property management agreement with RMR, we recognized aggregate net property management and construction supervision fees of $ 6,319 and $ 6,128 for the three months ended March 31, 2023 and 2022, respectively.

Of these amounts, for the three months ended March 31, 2023 and 2022, $ 3,733 and $ 4,226 , respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 2,586 and $ 1,902 , 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 $ 6,268 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 reimbursed RMR $ 6,347 and $ 5,966 for these expenses and costs for the three months ended March 31, 2023 and 2022, 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).

Management Agreements Between Our Joint Ventures and RMR .

RMR provides management services to our two unconsolidated joint ventures.

We are not obligated to pay management fees to RMR under our management agreements with RMR for the services it provides regarding the joint ventures.

The joint ventures pay management fees directly to RMR.

Related Person Transactions

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RMR is a majority owned subsidiary of RMR Inc.

The Chair of our Board of Trustees and one of our Managing Trustees, Adam Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., the chair of the board of directors, a managing director, the president and chief executive officer of RMR Inc.

The Chair of our Board of Trustees and one of our Managing Trustees, Adam D.

Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., the chair of the board of directors, a managing director, the president and chief executive officer of RMR Inc.

and an officer and employee of RMR.

Jennifer Clark, our other Managing Trustee and our Secretary, also serves as a managing director and the executive vice president, general counsel and secretary of RMR Inc., an officer and employee of RMR and an officer of ABP Trust.

Our other officers are also officers and employees of RMR.

Clark, our other Managing Trustee and our Secretary, also serves as a managing director and the executive vice president, general counsel and secretary of RMR Inc., an officer and employee of RMR and an officer of ABP Trust.

Each of our officers is an officer and employee of RMR.

Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR or its subsidiaries provide management services.

Portnoy serves as chair of the boards and as a managing director or managing trustee of these public companies.

Other officers of RMR, including Ms.

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).

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

Our Manager, RMR.

We have two agreements with RMR to provide management services to us.

See Note 9 for more information regarding our management agreements with RMR.

RMR also provides management services to our two unconsolidated joint ventures.

See Note 8 for more information regarding our and our unconsolidated joint ventures’ management agreements with RMR.

Leases with RMR.

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 $ 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.

Pursuant to our lease agreements with RMR, we recognized rental income from RMR for leased office space of $ 223 and $ 284 for the three months ended March 31, 2023 and 2022, 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.

as a mixed-use property.

Sonesta’s lease is for the planned full-service hotel component of the property that will include approximately 230,000 rentable square feet, which represents approximately 54 % of the total square feet upon completion of the redevelopment.

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

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

Pursuant to the lease agreement, Sonesta

OFFICE PROPERTIES INCOME TRUST

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(dollars in thousands, except per share data)

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

redevelopment.

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

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

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

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

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Clark is also a director of Sonesta.

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

For more information about these and other such relationships and certain other related person transactions, refer to our 2022 Annual Report.

Subsequent Events

Pending Merger with Diversified Healthcare Trust

On April 11, 2023, we and Diversified Healthcare Trust, or DHC, entered into an Agreement and Plan of Merger, or the Merger Agreement, pursuant to which, on the terms and subject to the satisfaction or waiver of the conditions thereof, DHC will be merged with and into us, with us continuing as the surviving entity in the merger, or the Merger.

Pursuant to the terms and subject to the conditions and limitations set forth in the Merger Agreement, at the date and time the Merger becomes effective, or the Effective Time, each common share of beneficial interest, $ 0.01 par value per share, of DHC, or the DHC Common Shares, issued and outstanding as of immediately prior to the Effective Time will be automatically converted into the right to receive 0.147 (such ratio, the Exchange Ratio) of our common shares, subject to adjustment for certain reclassifications, distributions, recapitalizations or similar transactions and other exceptional distributions as described in the Merger Agreement, with cash paid in lieu of fractional shares.

Other than as provided in the Merger Agreement, the Exchange Ratio is fixed and will not be adjusted to reflect changes in the market price of our common shares or the DHC Common Shares prior to the Effective Time.

Our common shares issued and outstanding immediately prior to the Effective Time will remain issued and outstanding common shares of beneficial ownership of the surviving entity following the Merger.

We expect to change our name from “Office Properties Income Trust” to “Diversified Properties Trust” at the Effective Time.

The transactions contemplated by the Merger Agreement and the terms thereof were evaluated, negotiated and recommended to our Board of Trustees, or our Board, by a special committee of our Board, or the OPI Special Committee, and to DHC’s board of trustees, or the DHC Board, by a special committee of DHC’s Board, or the DHC Special Committee, each consisting of disinterested, independent trustees of us and DHC, respectively.

Following the recommendations of the OPI Special Committee and the DHC Special Committee, our Board and the DHC Board each approved the Merger Agreement and the transactions contemplated thereby and resolved to recommend that the OPI and DHC shareholders, respectively, vote in favor of approval of the Merger and the transactions contemplated thereby.

Our shareholders will be asked to vote on the approval of the Merger and related matters, including the issuance of our common shares in the Merger, at a special meeting of our shareholders.

The consummation of the Merger is subject to the satisfaction or waiver of certain closing conditions, including, among others:

(1) the approval of the Merger by the affirmative vote of at least a majority of all the votes entitled to be cast by holders of outstanding DHC Common Shares at the meeting held for that purpose;

(2) the approval of the Merger by the affirmative vote of at least a majority of all the votes entitled to be cast by holders of our outstanding common shares at the meeting held for that purpose;

(3) the approval of the issuance of our common shares to be issued in the Merger, or the Share Issuance, by the affirmative vote of at least a majority of all votes cast by holders of our outstanding common shares at the meeting held for that purpose;

(4) the absence of any statute, rule or regulation by any governmental entity of competent jurisdiction or any temporary, preliminary or permanent judgment, order or decree by any court of competent jurisdiction which would prohibit or make illegal or prevent the consummation of the Merger or any of the transactions contemplated by the Merger Agreement;

(5) the effectiveness of the registration statement on Form S-4, or the Form S-4, to be filed by us with the Securities and Exchange Commission, or the SEC, in connection with the Share Issuance;

(6) the approval (subject to notice of issuance) of Nasdaq of the listing of our common shares to be issued in the Merger;

(7) the extension or replacement of our existing revolving credit agreement, on terms that, among other things, would not be reasonably likely to be materially adverse to the business, operations or financial condition of us after giving effect to the Merger and would not delay or prevent the consummation of the Merger;

(8) the receipt of certain tax opinions by us and DHC;

and (9) the other party’s representations and warranties being accurate (subject to certain customary materiality exceptions) and the other party having performed or complied in all material respects with its agreements and covenants in the Merger Agreement.

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

The Merger Agreement contains certain customary representations, warranties and covenants, including covenants providing that we and DHC will use reasonable best efforts to conduct our and its respective businesses in all material respects in the ordinary course during the period between the execution of the Merger Agreement and the earlier of the Effective Time or the termination of the Merger Agreement, and to refrain from taking certain types of actions without the other party’s consent during the period between the execution of the Merger Agreement and the earlier of the Effective Time or the termination of the Merger Agreement, subject in each case to specified exceptions.

In connection with the execution of the Merger Agreement, we entered into a commitment letter, dated as of April 11, 2023, with JPMorgan Chase Bank, N.A., or JPM, pursuant to which JPM has committed to provide, subject to the terms and conditions of the commitment letter, a senior secured bridge facility to us in an aggregate principal amount of $ 368,000 .

Third Amended and Restated Property Management Agreement and Letter Agreement

RMR serves as our and DHC’s manager and will continue to manage the surviving entity following the Merger.

Contemporaneously with the execution of the Merger Agreement, on April 11, 2023, we and RMR entered into a Third Amended and Restated Property Management Agreement, or the Amended Property Management Agreement.

The effectiveness of the Amended Property Management Agreement is conditioned upon and will be concurrent with the consummation of the Merger.

If the Merger is not consummated, the Amended Property Management Agreement will not become effective and the Second Amended and Restated Property Management Agreement, or the Current Property Management Agreement, will remain in effect.

Pursuant to the Amended Property Management Agreement, at the Effective Time properties currently owned by DHC that are subject to its existing property management agreement, including its medical office and life science properties, will become subject to the terms and conditions of the Amended Property Management Agreement.

Also pursuant to the Amended Property Management Agreement, RMR will be entitled to a renovation and repositioning fee equal to 3 % of the cost of any major capital projects and repositionings at senior living communities currently owned by DHC that the surviving entity may request RMR to oversee from time to time, consistent with DHC’s existing property management agreement with RMR.

The terms of the Amended Property Management Agreement are otherwise consistent with the terms of the Current Property Management Agreement.

In addition, contemporaneously with the execution of the Merger Agreement, we, DHC and RMR entered into a letter agreement, or the RMR Letter Agreement, pursuant to which, on the terms and subject to conditions contained therein, DHC and RMR have acknowledged and agreed that, effective upon consummation of the Merger, DHC shall have terminated its business and property management agreements with RMR for convenience, and RMR shall have waived its right to receive payment of the termination fee pursuant to each such agreement upon such termination.

The foregoing terminations and waivers apply only in respect of the Merger and do not apply to any other transaction or arrangement.

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