What changed in this filing

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Item 4. Controls and Procedures

2023-04-26 compared with 2022-10-27 · 32 added, 105 removed, 16 unchanged (90% of the section changed)

Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our Managing Trustees, our President and Chief Operating Officer and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15

and 15d-15 under the Securities Exchange Act of 1934, as amended.

Based upon that evaluation, our Managing Trustees, our President and Chief Operating Officer and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Warning Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws.

Also, whenever we use words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions, we are making forward-looking statements.

These forward-looking statements are based upon our present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur.

Forward-looking statements in this Quarterly Report on Form 10-Q relate to various aspects of our business, including:

• The extent to which changes in office space utilization, including remote work arrangements, will continue and the impact that may have on demand for office space at our properties,

• Our expectations about the financial strength of our tenants,

• The likelihood that our rents will increase when we renew or extend our leases or enter new leases,

• Our belief that we are in a position to opportunistically recycle and deploy capital,

• The likelihood that our tenants will renew or extend their leases and not exercise early termination options pursuant to their leases or that we will obtain replacement tenants, on terms as favorable to us as our prior leases,

• The likelihood that our tenants will be negatively affected by cyclical economic conditions or government budget constraints and, if so, the impact that may have on their ability and willingness to lease our properties and pay us rent,

• Our ability to successfully execute our capital recycling program,

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws that are subject to risks and uncertainties.

These statements may include words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions.

Forward-looking statements reflect our current expectations, are based on judgments and assumptions, are inherently uncertain and are subject to risks, uncertainties and other factors, which could cause our actual results, performance or achievements to differ materially from expected future results, performance or achievements expressed or implied in those forward-looking statements.

Examples of these forward-looking statements and the related risks, uncertainties and other factors include, but are not limited to, the following:

• The likelihood that we will complete the Merger and related transactions, including our and DHC’s ability to obtain shareholder approval, our ability to obtain an amendment or replacement of our credit agreement and obtaining other financing, consents or approvals required in connection with the Merger, and that our shareholders will benefit from the Merger,

• The impact of increasing or sustained high interest rates, inflation, labor market challenges, dislocation and volatility in the public equity and debt markets, conditions in the commercial real estate industry generally and in the sectors we operate, geopolitical instability and economic downturns or recessions on us and our tenants,

• The extent to which changes in office space utilization and needs, including due to remote work arrangements, may impact demand for office space at our properties,

• The financial strength of our tenants,

• Risks and uncertainties regarding the costs and timing of development, redevelopment and repositioning activities, including as a result of inflation, cost overruns, supply chain challenges, labor shortages, construction delays or inability to obtain necessary permits,

• Whether our tenants will renew or extend their leases and not exercise early termination options pursuant to their leases or that we will obtain replacement tenants on terms as favorable to us as our prior leases,

• Our ability to successfully recycle and deploy capital,

• The likelihood that our tenants will pay rent or be negatively affected by cyclical economic conditions or government budget constraints,

• Our ability to pay distributions to our shareholders and to maintain or increase the amount of such distributions,

• Our expectations regarding occupancy at our properties,

• Our expectations regarding our future financial performance including FFO, Normalized FFO or NOI,

• Our expectations regarding demand for leased space,

• Our expectations regarding capital expenditures,

• Our expectation that there will be opportunities for us to acquire, and that we will acquire, additional properties primarily leased to single or majority tenants and tenants with high credit quality characteristics,

• Our expectations regarding the costs and timing of our development, redevelopment and repositioning activities,

• Our ability to compete for acquisitions and tenancies effectively,

• Our sales and acquisitions of properties,

• Our policies and plans regarding investments, financings and dispositions,

• Our ability to appropriately balance our use of debt and equity capital,

• The future availability of borrowings under our revolving credit facility,

• Our ability to raise debt or equity capital,

• Our ability to pay interest on and principal of our debt,

• Our ability to maintain sufficient liquidity during any economic downturn that may result in response to current inflationary conditions or otherwise,

• Our ability to increase or maintain occupancy at our properties on terms desirable to us,

• Our ability to increase rents when our leases expire or renew,

• Our ability to manage our capital expenditures and other operating costs effectively and to maintain and enhance our properties and their appeal to tenants,

• Our ability to acquire properties that realize our targeted returns,

• Our ability to sell properties at prices we target,

• Our ability to cost effectively raise and balance our use of debt and equity capital,

• Our ability to make required payments on our debt,

• Our ability to maintain sufficient liquidity, including the availability of borrowings under our revolving credit facility, and otherwise manage leverage,

• Our credit ratings,

• Our expectation that we benefit from our relationships with RMR,

• The credit qualities of our tenants,

• The ability of our manager, RMR, to successfully manage us,

• Our qualification for taxation as a REIT,

• Changes in federal or state tax laws, and

• Other matters.

Our actual results may differ materially from those contained in or implied by our forward-looking statements.

Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control.

Risks, uncertainties and other factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, FFO, Normalized FFO, NOI, cash flows, liquidity and prospects include, but are not limited to:

• The impact of conditions in the economy, including increasing interest rates, inflation, geopolitical risks and a possible recession, and the capital markets on us and our tenants,

• Competition within the real estate industry, particularly in those markets in which our properties are located,

• The impact of changes in the real estate needs and financial conditions of our tenants,

• Changes in federal or state tax laws,

• Competition within the commercial real estate industry, particularly in those markets in which our properties are located,

• Compliance with, and changes to, federal, state and local laws and regulations, accounting rules, tax laws and similar matters,

• The impact of any U.S.

government shutdown on our ability to collect rents or pay our operating expenses, debt obligations and distributions to shareholders on a timely basis,

government shutdown or failure to increase the government debt ceiling on our ability to collect rents and pay our operating expenses, debt obligations and distributions to shareholders on a timely basis,

• Actual and potential conflicts of interest with our related parties, including our Managing Trustees, RMR, Sonesta and others affiliated with them,

• Limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our qualification for taxation as a REIT for U.S.

federal income tax purposes, and

• Acts of terrorism, war or other hostilities, outbreaks of pandemics, or other manmade or natural disasters beyond our control.

• Our ability to make or sustain distributions to our shareholders and to make payments of principal and interest on our indebtedness depends upon a number of factors, including our receipt of rent from our tenants, our future earnings, the capital costs we incur to lease our properties and our working capital requirements.

We may be unable to pay our debt obligations or to maintain our current rate of distributions on our common shares and future distributions may be reduced or eliminated,

• Our ability to grow our business and increase our distributions depends in large part upon our ability to buy properties and lease them for rents, less their property operating costs, that exceed our capital costs.

We may be unable to identify properties that we want to acquire, and we may fail to reach agreement with the sellers and complete the purchases of any properties we want to acquire.

In addition, any properties we may acquire may not provide us with rents less property operating costs that exceed our capital costs or achieve our expected returns,

• We may fail to maintain, or we may elect to change our distribution rate.

Our Board of Trustees considers many factors when setting distribution rates, including our historical and projected income, Normalized FFO, cash available for distribution, the then current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid to maintain our qualification for taxation as a REIT and

other factors deemed relevant by our Board of Trustees.

Accordingly, future distribution rates may be increased or decreased and there is no assurance as to the rate at which future distributions will be paid,

• We expect to selectively sell properties from time to time when we determine our continued ownership or ongoing required capital expenditures will not achieve desired returns or when we believe we can successfully pursue more desirable opportunities than retaining those properties.

We cannot be sure we will sell any of these properties or what the terms of any sales may be or that we will acquire replacement properties that improve our asset quality or our ability to increase our distributions to shareholders,

• We may not receive the amounts we expect for properties we seek to sell,

• We may not succeed in managing leverage at levels we believe are appropriate,

• Some of our tenants may not renew expiring leases or they may exercise their rights, if any, to vacate their space before the stated expirations of their leases, and we may be unable to obtain new tenants to maintain or increase the historical occupancy rates of, or rents from, our properties,

• Rents that we can charge at our properties may decline upon renewals or expirations because of changing market conditions or otherwise,

• Leasing for some of our properties depends on a single or majority tenant and we may be adversely affected by the bankruptcy, insolvency, a downturn of business or a lease termination of such single or majority tenant at these properties,

• Our belief that there is a likelihood that tenants may renew or extend our leases prior to their expirations whenever they have made significant investments in the leased properties, or because those properties may be of strategic importance to them, may not be realized,

• Overall new leasing volume may be impacted if a significant level of remote work arrangements and current inflationary conditions continue for an extended period or worsen or if a recession occurs.

Also, our tenants may become unable to pay rent or they may elect to not renew their leases with us.

Further, some of our government leases provide the tenant with certain rights to terminate their lease early.

Budgetary and other fiscal pressures may result in some governmental tenants terminating their leases early or not renewing their leases.

In addition, certain changes in office space utilization following the COVID-19 pandemic, including increased remote work arrangements, continue to impact the market.

To the extent those practices become permanent or further increase, leasing demand for office space may decline.

As a result of these factors, our tenant retention levels could decline and we may experience reduced rent or incur increased costs under future new or renewal leases,

• Our belief that we are well positioned to opportunistically recycle and deploy capital may not be realized.

We may fail to identify and execute on opportunities to deploy capital and any deployment of capital we may make may not result in the returns that we expect,

• Our perception that activity prior to the outbreak of the COVID-19 pandemic suggested that the government had begun to shift its leasing strategy to include longer term leases and that the government was actively exploring 10 to 20 year lease terms at renewal, in some instances, may mistakenly imply that these activities are indicative of a trend or broader change in government leasing strategy or practices,

• Contingencies in our acquisition and sale agreements, if any, may not be satisfied and any expected acquisitions and sales and any related lease arrangements we expect to enter may not occur, may be delayed or the terms of such transactions or arrangements may change,

• We expect to pursue accretively growing our property portfolio.

However, we may not succeed in making acquisitions that are accretive and future acquisitions could be dilutive,

• The competitive advantages we believe we have may not in fact exist or provide us with the advantages we expect.

We may fail to maintain any of these advantages or our competition may obtain or increase their competitive advantages relative to us,

• We intend to conduct our business activities in a manner that will afford us reasonable access to capital for investment and financing activities.

However, we may not succeed in this regard and we may not have reasonable access to capital,

• Continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions that we may be unable to satisfy,

• Actual costs under our revolving credit facility will be higher than the stated rate plus a premium because of fees and expenses associated with such debt,

• The interest rates payable under our floating rate debt obligations depend upon our credit ratings.

If our credit ratings are downgraded, our borrowing costs will increase,

• Our ability to access debt capital and the cost of our debt capital will depend in part on our credit ratings.

If our credit ratings are downgraded, we may not be able to access debt capital or the debt capital we can access may be expensive,

• We may be unable to repay our debt obligations when they become due,

• The maximum borrowing availability under our revolving credit facility may be increased to up to $1.95 billion in certain circumstances;

however, increasing the maximum borrowing availability under our revolving credit facility is subject to our obtaining additional commitments from lenders, which may not occur,

• We have two options to extend the maturity date of our revolving credit facility upon payment of a fee and meeting other conditions and we currently intend to exercise the first of such options;

however, the applicable conditions may not be met,

• We may incur significant costs to prepare a property for tenancy, particularly for single or majority tenant properties,

• We may spend more for capital expenditures than we currently expect or than we had planned when the project was commenced, including as a result of inflation, supply chain challenges or otherwise, and we plan to spend more for capital expenditures than we have in the past,

• We may fail to obtain development rights or entitlements that we may seek for development and other projects we may wish to conduct at our properties,

• Our existing joint ventures and any additional joint ventures we may enter into in the future may not be successful,

• Any development, redevelopment or repositioning projects we undertake may be unsuccessful, may require greater capital expenditures or other costs than we project or may take significant time to complete, including as a result of inflation, supply chain challenges or otherwise,

• The business and property management agreements between us and RMR have continuing 20 year terms.

However, those agreements permit early termination in certain circumstances.

Accordingly, we cannot be sure that these agreements will remain in effect for continuing 20 year terms,

• We expect that we will benefit from RMR’s Environmental, Social and Governance, or ESG, program and initiatives.

However, we may not realize the benefits we expect from such program and initiatives and we or RMR may not succeed in meeting existing or future standards regarding ESG,

• We believe that our relationships with our related parties, including RMR, Sonesta and others affiliated with them, may benefit us and provide us with competitive advantages in operating and growing our business.

However, the advantages we believe we may realize from these relationships may not materialize, and

• It is difficult to accurately estimate leasing related obligations and costs of property development, redevelopment or repositioning and tenant improvement costs.

Our unspent leasing related obligations and development, redevelopment or repositioning costs may cost more and may take longer to complete than we currently expect or than we planned when the project was commenced, and we may incur increased amounts for these and similar purposes in the future.

Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as economic conditions, including increasing interest rates, inflation, geopolitical risks and a possible recession, other changes in the capital markets or the economy generally, changes in our tenants’ needs for leased space, the ability of the U.S.

and state governments to approve spending bills to fund their obligations, acts of terrorism, war or other hostilities, natural disasters or climate change and climate related events.

The information contained elsewhere in this Quarterly Report on Form 10-Q and in our 2021 Annual Report, or in our other filings with the SEC, including under the caption “Risk Factors”, or incorporated herein or therein, identifies other important factors that could cause differences from our forward-looking statements.

• Limitations imposed by and our ability to satisfy complex rules to maintain our qualification for taxation as a REIT for U.S.

federal income tax purposes,

• Acts of terrorism, outbreaks or continuation of pandemics or other public health safety events or conditions, war or other hostilities, material or prolonged disruption to supply chains, climate change, or other manmade or natural disasters beyond our control, and

• Other matters.

These risks, uncertainties, and other factors are not exhaustive and should be read in conjunction with other cautionary statements that are included in our periodic filings.

The information contained in our filings with the SEC, including under the caption “Risk Factors” in this Quarterly Report on Form 10-Q and our other periodic reports, or incorporated herein or therein, identifies important factors that could cause differences from the forward-looking statements in this Quarterly Report on Form 10-Q.

Our filings with the SEC are available on the SEC’s website at www.sec.gov.

5 unchanged sentences

Other Information

There have been no material changes to the risk factors from those previously disclosed in 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 4. Controls and Procedures