OFFICE PROPERTIES INCOME TRUST 10-Q

Item 1. Financial Statements OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) (unaudited) March 31, 2023 December 31, 2022 ASSETS Real estate properties: Land $ 817,882 $ 821,238 Buildings and improvements 3,176,756 3,114,836 Total real estate properties, gross 3,994,638 3,936,074 Accumulated depreciation ( 584,512 ) ( 561,458 ) Total real estate properties, net 3,410,126 3,374,616 Assets of properties held for sale 4,618 2,516 Investments in unconsolidated joint ventures 36,558 35,129 Acquired real estate leases, net 344,064 369,333 Cash and cash equivalents 23,344 12,249 Rents receivable 106,966 105,639 Deferred leasing costs, net 72,762 73,098 Other assets, net 8,562 7,397 Total assets $ 4,007,000 $ 3,979,977 LIABILITIES AND SHAREHOLDERS’ EQUITY Unsecured revolving credit facility $ 245,000 $ 195,000 Senior unsecured notes, net 2,189,776 2,187,875 Mortgage notes payable, net 49,968 49,917 Liabilities of properties held for sale 568 73 Accounts payable and other liabilities 141,103 140,151 Due to related persons 7,441 6,469 Assumed real estate lease obligations, net 13,503 14,157 Total liabilities 2,647,359 2,593,642 Commitments and contingencies Shareholders’ equity: Common shares of beneficial interest, $ .01 par value: 200,000,000 shares authorized, 48,563,709 and 48,565,644 shares issued and outstanding, respectively 486 486 Additional paid in capital 2,619,994 2,619,532 Cumulative net income 169,160 169,606 Cumulative common distributions ( 1,429,999 ) ( 1,403,289 ) Total shareholders’ equity 1,359,641 1,386,335 Total liabilities and shareholders’ equity $ 4,007,000 $ 3,979,977 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (amounts in thousands, except per share data) (unaudited) Three Months Ended March 31, 2023 2022 Rental income $ 132,422 $ 147,354 Expenses: Real estate taxes 15,333 16,645 Utility expenses 7,260 6,865 Other operating expenses 26,057 27,363 Depreciation and amortization 51,692 60,469 Loss on impairment of real estate — 17,047 Acquisition and transaction related costs 3,218 — General and administrative 5,925 5,706 Total expenses 109,485 134,095 Gain on sale of real estate 2,548 2,149 Interest and other income 164 1 Interest expense (including net amortization of debt premiums, discounts and issuance costs of $ 2,205 and $ 2,404 , respectively) ( 25,231 ) ( 27,439 ) Income (loss) before income tax expense and equity in net losses of investees 418 ( 12,030 ) Income tax expense ( 30 ) ( 531 ) Equity in net losses of investees ( 834 ) ( 846 ) 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 loss $ ( 0.01 ) $ ( 0.28 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollars in thousands) (unaudited) Number of Shares Common Shares Additional Paid In Capital Cumulative Net Income Cumulative Common Distributions Total Shareholders’ Equity Balance at December 31, 2022 48,565,644 $ 486 $ 2,619,532 $ 169,606 $ ( 1,403,289 ) $ 1,386,335 Share grants — — 477 — — 477 Share forfeitures and repurchases ( 1,935 ) — ( 15 ) — — ( 15 ) Net loss — — — ( 446 ) — ( 446 ) Distributions to common shareholders — — — — ( 26,710 ) ( 26,710 ) 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 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 ` The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Three Months Ended March 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 446 ) $ ( 13,407 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 24,947 24,965 Net amortization of debt premiums, discounts and issuance costs 2,205 2,404 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 Gain on sale of real estate ( 2,548 ) ( 2,149 ) Loss on impairment of real estate — 17,047 Straight line rental income ( 4,173 ) ( 2,686 ) Other non-cash expenses, net 204 142 Equity in net losses of investees 834 846 Change in assets and liabilities: Rents receivable 2,846 5,184 Deferred leasing costs ( 2,841 ) ( 7,082 ) Other assets ( 1,189 ) ( 341 ) Accounts payable and other liabilities 4,110 ( 11,919 ) Due to related persons 972 1,077 Net cash provided by operating activities 51,900 50,266 CASH FLOWS FROM INVESTING ACTIVITIES: Real estate improvements ( 66,665 ) ( 36,229 ) Distributions in excess of earnings from unconsolidated joint ventures — 51 Contributions to unconsolidated joint ventures ( 2,263 ) ( 1,070 ) Proceeds from sale of properties, net 5,112 28,464 Net cash used in investing activities ( 63,816 ) ( 8,784 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of mortgage notes payable — ( 305 ) Borrowings on unsecured revolving credit facility 75,000 — Repayments on unsecured revolving credit facility ( 25,000 ) — Payment of debt issuance costs ( 266 ) — Repurchase of common shares ( 13 ) — Distributions to common shareholders ( 26,710 ) ( 26,634 ) 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 Cash, cash equivalents and restricted cash at end of period $ 23,344 $ 99,058 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (dollars in thousands) (unaudited) Three Months Ended March 31, 2023 2022 SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 25,033 $ 28,630 NON-CASH INVESTING ACTIVITIES: Real estate improvements accrued, not paid $ 41,172 $ 25,165 Capitalized interest $ 2,106 $ 607 SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH: 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 March 31, 2023 2022 Cash and cash equivalents $ 23,344 $ 97,656 Restricted cash (1) — 1,402 Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows $ 23,344 $ 99,058 (1) Restricted cash consists of amounts escrowed for future real estate taxes, insurance, leasing costs, capital expenditures and debt service, as required by certain of our mortgage debts. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) (unaudited) Note 1. Basis of Presentation The accompanying condensed consolidated financial statements of Office Properties Income Trust and its subsidiaries, or OPI, we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2022, or our 2022 Annual Report. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets and assessment of impairment of real estate and the related intangibles. Note 2. Real Estate Properties 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. We generally lease space at our properties on a gross lease, modified gross lease or net lease basis pursuant to fixed term contracts expiring between 2023 and 2053. 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 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. The future net undiscounted cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. We determine the amount of any impairment loss by comparing the historical carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. 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 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. 8 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Unconsolidated Joint Ventures We own interests in two joint ventures that own three properties. We account for these investments under the equity method of accounting. 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 March 31, 2023 December 31, 2022 Number of Properties Location Rentable Square Feet Prosperity Metro Plaza 51 % $ 19,001 $ 19,237 2 Fairfax, VA 329,000 1750 H Street, NW 50 % 17,557 15,892 1 Washington, D.C. 115,000 Total $ 36,558 $ 35,129 3 444,000 The following table provides a summary of the mortgage debt of our two unconsolidated joint ventures: Joint Venture Interest Rate (1) Maturity Date Principal Balance at March 31, 2023 and December 31, 2022 (2) Prosperity Metro Plaza 4.09 % 12/1/2029 $ 50,000 1750 H Street, NW 3.69 % 8/1/2024 32,000 Weighted Average / Total 3.93 % $ 82,000 (1) Includes the effect of mark to market purchase accounting. (2) Reflects the entire balance of the debt secured by the properties and is not adjusted to reflect the interests in the joint ventures we do not own. None of the debt is recourse to us. 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). Note 3. Leases Our leases provide for base rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. 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 $ 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 $ 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. 9 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Note 4. Concentration Tenant and Credit Concentration 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 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. The U.S. 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 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. Note 5. Indebtedness 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) 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 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. 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 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 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. 10 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Note 6. Fair Value of Assets and Liabilities 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) Fair Value Carrying Value (1) Fair Value Senior unsecured notes, 4.25 % interest rate, due in 2024 $ 347,433 $ 326,214 $ 346,863 $ 331,601 Senior unsecured notes, 4.50 % interest rate, due in 2025 643,680 560,885 642,818 589,388 Senior unsecured notes, 2.650 % interest rate, due in 2026 297,995 202,875 297,839 232,770 Senior unsecured notes, 2.400 % interest rate, due in 2027 347,621 228,785 347,466 256,606 Senior unsecured notes, 3.450 % interest rate, due in 2031 396,287 223,860 396,178 268,004 Senior unsecured notes, 6.375 % interest rate, due in 2050 156,760 110,614 156,711 113,075 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 $ 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 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. Note 7. Shareholders’ Equity Share Purchases 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 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 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. Note 8. Business and Property Management Agreements with RMR We have no employees. The personnel and various services we require to operate our business are provided to us by RMR. We have two agreements with RMR to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to our property level operations. 11 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) 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. We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR on our behalf. We are generally not responsible for payment of RMR’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR’s centralized accounting personnel, our share of RMR’s costs for providing our internal audit function and as otherwise agreed. 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 $ 6,347 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. Note 9. Related Person Transactions We have relationships and historical and continuing transactions with RMR, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR is a majority owned subsidiary 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 B. 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. Mr. Portnoy serves as chair of the boards and as a managing director or managing trustee of these public companies. 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. 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 $ 223 and $ 284 for the three months ended March 31, 2023 and 2022, respectively. Sonesta . 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 12 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) 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. Sonesta is also obligated to pay its pro rata share of the operating costs for the building. We estimate that the total cost to build the hotel space will be approximately $ 66,000 . Mr. Portnoy is a director and controlling shareholder of Sonesta and Ms. Clark is also a director of Sonesta. For more information about these and other such relationships and certain other related person transactions, refer to our 2022 Annual Report. Note 10. 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. 13 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) 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. 14 Table of Contents