What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-26 compared with 2023-04-26 · 233 added, 117 removed, 349 unchanged (50% of the section changed)

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

As of March 31, 2023, our wholly owned properties were comprised of 157 properties and we had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties containing approximately 444,000 rentable square feet.

As of March 31, 2023, our properties are located in 30 states and the District of Columbia and contain approximately 20,895,000 rentable square feet.

As of March 31, 2023, our properties were leased to 267 different tenants with a weighted average remaining lease term (based on annualized rental income) of approximately 6.4 years.

government is our largest tenant, representing approximately 19.6% of our annualized rental income as of March 31, 2023.

The term annualized rental income as used herein is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of March 31, 2023, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

As of June 30, 2023, our wholly owned properties were comprised of 155 properties and we had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties containing approximately 444,000 rentable square feet.

As of June 30, 2023, our properties are located in 30 states and the District of Columbia and contain approximately 20,784,000 rentable square feet.

As of June 30, 2023, our properties were leased to 268 different tenants with a weighted average remaining lease term (based on annualized rental income) of approximately 6.4 years.

government is our largest tenant, representing approximately 19.6% of our annualized rental income as of June 30, 2023.

The term annualized rental income as used herein is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of June 30, 2023, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

Certain changes in office space utilization that accelerated during the COVID-19 pandemic, including increased remote work arrangements and tenants consolidating their real estate footprint, continue to impact the market.

The utilization and demand for office space continues to face headwinds and the ultimate impact of current trends on the demands for office space at our properties remains uncertain and subject to change.

The utilization and demand for office space continues to face headwinds and the duration and ultimate impact of current trends on the demands for office space at our properties remains uncertain and subject to change.

Accordingly, we do not yet know what the full extent of the impacts will be on our or our tenants’ businesses and operations nor the long-term outlook for leasing vacant space.

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Federal Reserve has increased the federal funds rate by 525 basis points since March 2022 and has indicated that there may be additional increases.

The inflationary pressures and rising interest rates in the United States and globally have given rise to increasing concerns that the U.S.

The inflationary pressures and rising interest rates in the United States and globally have given rise to concerns that the U.S.

economy may soon enter an economic recession and they have caused disruptions in the financial markets.

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On April 11, 2023, we and DHC entered into 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.

Upon the closing of the Merger, we would acquire DHC’s medical office and senior housing portfolios, which, as of December 31, 2022, consisted of 379 properties, including 105 medical office and life science properties containing approximately 8,811,000 rentable square feet, 264 senior living communities containing approximately 27,000 units and ten wellness centers containing approximately 812,000 rentable square feet.

Upon the closing of the Merger, we would acquire DHC’s medical office, senior housing and wellness center portfolios, which, as of March 31, 2023, consisted of 376 properties, including 105 medical office and life science properties containing approximately 8,809,000 rentable square feet, 261 senior living communities containing approximately 27,000 units and ten wellness centers containing approximately 812,000 rentable square feet.

The combined company is expected to be a REIT with a diversified tenant base, a broad portfolio, greater scale and strong growth potential.

For more information and risks relating to the Merger, see Note 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 and Part II, Item 1A “Risk Factors,” of this Quarterly Report on Form 10-Q.

For more information and risks relating to the Merger, see Notes 1, 9 and 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 and Part II, Item 1A “Risk Factors,” of this Quarterly Report on Form 10-Q and our joint proxy statement/prospectus that is included in our registration statement on Form S-4 filed with the SEC, or the Form S-4.

Property Operations

Unless otherwise noted, the data presented in this section includes properties classified as held for sale as of March 31, 2023 and excludes three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

Unless otherwise noted, the data presented in this section includes properties classified as held for sale as of June 30, 2023 and excludes three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

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

Occupancy data for our properties as of March 31, 2023 and 2022 was as follows (square feet in thousands):

Occupancy data for our properties as of June 30, 2023 and 2022 was as follows (square feet in thousands):

All Properties (1)

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90.6 % 89.4 % 94.4 % 95.4 %

(1) Based on properties we owned on March 31, 2023 and 2022, respectively.

(1) Based on properties we owned on June 30, 2023 and 2022, respectively.

(2) Based on properties we owned continuously since January 1, 2022;

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

The average effective rental rate per square foot for our properties for the three months ended March 31, 2023 and 2022 were as follows:

Three Months Ended March 31,

The average effective rental rate per square foot for our properties for the three and six months ended June 30, 2023 and 2022 were as follows:

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

2023 2022 2023 2022

Average effective rental rate per square foot (1) :

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

(2) Based on properties we owned on March 31, 2023 and 2022, respectively.

(3) Based on properties we owned continuously since January 1, 2022;

(2) Based on properties we owned on June 30, 2023 and 2022, respectively.

(3) Based on properties we owned continuously since April 1, 2022 and January 1, 2022, respectively;

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

During the three months ended March 31, 2023, changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands):

Three Months Ended March 31, 2023

Leased Available for Lease Total

During the three and six months ended June 30, 2023, changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands):

Three Months Ended June 30, 2023 Six Months Ended June 30, 2023

Leased Available for Lease Total Leased Available for Lease Total

Beginning of period 18,905 1,990 20,895 19,004 1,965 20,969

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Lease expirations (684) 684 — (986) 986 —

Redevelopment expansion (1)

— 87 87 — 87 87

Lease renewals (2)

517 (517) — 629 (629) —

New leases (2)

196 (196) — 287 (287) —

Remeasurements (3)

— 9 9 — 24 24

End of period 18,834 1,950 20,784 18,834 1,950 20,784

(1) Based on leases entered during the three months ended March 31, 2023.

(1) Represents additional rentable square feet resulting from the redevelopment of a property in Washington, D.C., which was completed and available for lease as of June 30, 2023.

(2) Based on leases entered during the three and six months ended June 30, 2023.

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

During the three months ended March 31, 2023, we entered into new and renewal leases as summarized in the following table (square feet in thousands):

Three Months Ended March 31, 2023

During the three and six months ended June 30, 2023, we entered into new and renewal leases as summarized in the following table (square feet in thousands):

Three Months Ended June 30, 2023

New Leases Renewals Total

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$ 9.08 $ 4.42 $ 5.53

Six Months Ended June 30, 2023

New Leases Renewals Total

Rentable square feet leased 287 629 916

Weighted average rental rate change (by rentable square feet) (2.8 %) (3.7 %) (3.4 %)

Tenant leasing costs and concession commitments (1)

$ 20,889 $ 28,496 $ 49,385

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

$ 72.91 $ 45.32 $ 53.95

Weighted (by square feet) average lease term (years) 8.4 10.1 9.5

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

$ 8.70 $ 4.51 $ 5.66

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

During the three months ended March 31, 2023, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three months ended March 31, 2023, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as follows (square feet in thousands):

Three Months Ended March 31, 2023

During the three and six months ended June 30, 2023, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three and six months ended June 30, 2023, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as follows (square feet in thousands):

Three Months Ended June 30, 2023 Six Months Ended June 30, 2023

Old Effective Rent Per Square Foot (1)

New Effective Rent Per Square Foot (1)

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

New Effective Rent Per Square Foot (1)

Rentable Square Feet

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(1) Effective rental rates include contractual base rents from our tenants pursuant to our lease agreements, plus straight line rent adjustments and estimated expense reimbursements to be paid to us, and exclude lease value amortization.

During the three months ended March 31, 2023 and 2022, amounts capitalized at our properties for lease related costs, building improvements and development, redevelopment and other activities were as follows:

Three Months Ended March 31,

During the three and six months ended June 30, 2023 and 2022, amounts capitalized at our properties for lease related costs, building improvements and development, redevelopment and other activities were as follows:

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

2023 2022 2023 2022

Lease related costs (1)

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Building improvements (2)

5,355 4,702 9,937 7,485

Recurring capital expenditures 33,607 20,833 51,230 32,280

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

In addition to the capital expenditures described above, we contributed $2,263 to one of our unconsolidated joint ventures during the three months ended March 31, 2023.

Also, as of March 31, 2023, we had estimated unspent leasing related obligations of $139,874, of which we expect to spend $84,834 over the next 12 months.

As of March 31, 2023, we had leases at our properties totaling approximately 1,734,000 rentable square feet that were scheduled to expire through March 31, 2024.

As of April 25, 2023, we expect tenants with leases totaling approximately 1,184,000 rentable square feet that are scheduled to expire through March 31, 2024, not to renew or to downsize their leased space upon expiration, and we cannot be sure as to whether other tenants will renew their leases upon expiration.

In addition to the capital expenditures described above, we contributed $1,500 and $3,763 to one of our unconsolidated joint ventures during the three and six months ended June 30, 2023, respectively.

Also, as of June 30, 2023, we had estimated unspent leasing related obligations of $151,798, of which we expect to spend $89,129 over the next 12 months.

As of June 30, 2023, we had leases at our properties totaling approximately 2,136,000 rentable square feet that were scheduled to expire through June 30, 2024.

As of July 25, 2023, we expect tenants with leases totaling approximately 1,411,000 rentable square feet that are scheduled to expire through June 30, 2024, not to renew or to downsize their leased space upon expiration, and we cannot be sure as to whether other tenants will renew their leases upon expiration.

However, we are in advanced discussions to re-lease certain of this space to new tenants, some of which may offset expected vacancies, and we continue to proactively engage with our existing tenants and are focused on our overall tenant retention.

Prevailing market conditions and our tenants’ needs at the time we negotiate and enter leases or lease renewals will generally determine rental

rates and demand for leased space at our properties, all of which factors are beyond our control.

Prevailing market conditions and our tenants’ needs at the time we negotiate and enter leases or lease renewals will generally determine rental rates and demand for leased space at our properties, all of which factors are beyond our control.

Whenever we renew or enter into new leases for our properties, we intend to seek rents which are equal to or higher than our historical rents for the same properties;

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

As of March 31, 2023, our lease expirations by year were as follows (square feet in thousands):

As of June 30, 2023, our lease expirations by year were as follows (square feet in thousands):

Number of Leases Expiring Leased

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

As of March 31, 2023, tenants occupying approximately 2.8% of our rentable square feet and responsible for approximately 2.8% of our annualized rental income as of March 31, 2023 had exercisable rights to terminate their leases before the stated terms of their leases expire.

Also, in 2023, 2024, 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2035, 2037 and 2040, early termination rights become exercisable by other tenants who occupied an additional approximately 3.8%, 2.8%, 3.7%, 1.2%, 0.9%, 3.2%, 0.9%, 0.8%, 0.1%, 0.9%, 0.1% and 0.3% of our rentable square feet, respectively, and contributed an additional approximately 4.0%, 3.0%, 7.2%, 1.6%, 1.4%, 3.7%, 1.3%, 0.9%, 0.1%, 1.2%, 0.2% and 0.4% of our annualized rental income, respectively, as of March 31, 2023.

In addition, as of March 31, 2023, pursuant to leases with 10 of our tenants, these tenants had rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets.

These 10 tenants occupied approximately 5.5% of our rentable square feet and contributed approximately 6.2% of our annualized rental income as of March 31, 2023.

(2) Leased square feet is pursuant to leases existing as of March 31, 2023, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any.

As of June 30, 2023, tenants occupying approximately 3.9% of our rentable square feet and responsible for approximately 3.8% of our annualized rental income as of June 30, 2023 had exercisable rights to terminate their leases before the stated terms of their leases expire.

Also, in 2023, 2024, 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2035, 2037 and 2040, early termination rights become exercisable by other tenants who occupied an additional approximately 2.3%, 2.8%, 3.7%, 1.5%, 0.9%, 3.4%, 0.9%, 0.8%, 0.6%, 0.3%, 0.9%, 0.1% and 0.3% of our rentable square feet, respectively, and contributed an additional approximately 2.6%, 3.0%, 7.2%, 2.0%, 1.4%, 3.9%, 1.4%, 1.0%, 0.5%, 0.6%, 1.2%, 0.2% and 0.4% of our annualized rental income, respectively, as of June 30, 2023.

In addition, as of June 30, 2023, pursuant to leases with 8 of our tenants, these tenants had rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets.

These 8 tenants occupied approximately 4.8% of our rentable square feet and contributed approximately 5.0% of our annualized rental income as of June 30, 2023.

(2) Leased square feet is pursuant to leases existing as of June 30, 2023, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any.

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

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Also, our government tenants’ desire to reconfigure leased office space to manage utilization per employee may require us to spend significant amounts for tenant improvements, and tenant relocations are often more prevalent in those circumstances.

Increasing uncertainty with respect to government agency budgets and funding to implement relocations, consolidations and reconfigurations has, in some instances, resulted in delayed decisions by some of our government tenants

and greater focus on short term lease renewals.

Given the significant uncertainties, including the extent to which remote or alternative work arrangements and tenants consolidating their real estate footprint may continue or increase, we are unable to reasonably project what the financial impact of market conditions or changing government circumstances will be on the demand for leased space at our properties and our financial results for future periods.

As of March 31, 2023, we derived 22.3% of our annualized rental income from our properties located in the metropolitan Washington, D.C.

As of June 30, 2023, we derived 22.4% of our annualized rental income from our properties located in the metropolitan Washington, D.C.

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

Current economic conditions in this area or a possible recession, including as a result of current inflationary conditions or otherwise, could reduce demand from tenants for our properties, reduce rents that our tenants in this area are willing to pay when our leases expire and increase lease concessions for new leases and renewals.

increase lease concessions for new leases and renewals.

Additionally, there has been a decrease in demand for new leased office space by the U.S.

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

As of March 31, 2023, tenants contributing 53.1% of annualized rental income were investment grade rated (or their payment obligations were guaranteed by an investment grade rated parent) and tenants contributing an additional 9.9% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

As of March 31, 2023, tenants representing 1% or more of our total annualized rental income were as follows (square feet in thousands):

As of June 30, 2023, tenants contributing 53.1% of annualized rental income were investment grade rated (or their payment obligations were guaranteed by an investment grade rated parent) and tenants contributing an additional 9.8% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

As of June 30, 2023, tenants representing 1% or more of our total annualized rental income were as follows (square feet in thousands):

Tenant Credit Rating Sq.

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Total 10,789 57.1 % $ 336,460 62.2 %

(1) In July 2023, we received notice from Tyson Foods, Inc.

exercising its option to terminate its lease at a property we own in Chicago, IL effective January 2025, prior to the stated lease expiration date of January 31, 2028.

We will receive an early termination fee of approximately $8,600.

(2) In June 2021, we entered into a 30-year lease with Sonesta.

The lease relates to the redevelopment of a property we own in Washington, D.C to a mixed use and Sonesta's lease relates to the planned hotel component of the property.

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

The lease relates to the redevelopment of a property we own in Washington, D.C to a mixed use and Sonesta's lease relates to the hotel component of the property.

We substantially completed the redevelopment in June 2023 and the Sonesta lease is estimated to commence in August 2023.

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

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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.

During the six months ended June 30, 2023, we sold five properties containing approximately 296,000 rentable square feet for an aggregate sales price of $13,075, excluding closing costs.

As a result of current commercial real estate market conditions, including rising interest rates, the pace of our dispositions has moderated and we expect that trend to continue until commercial real estate industry conditions generally, and office market conditions specifically, improve.

However, we continue to evaluate our portfolio to strategically recycle capital and are currently in various stages of marketing certain of our properties for sale, and we may decide to seek to sell additional properties in the future.

As of April 25, 2023, we have entered into an agreement to sell one property containing approximately 107,000 rentable square feet for a sales price of $4,900, excluding closing costs.

As of July 25, 2023, we have entered into an agreement to sell one property containing approximately 80,000 rentable square feet for a sales price of $10,500, excluding closing costs.

We cannot be sure we will sell any properties we are marketing for sale for prices in excess of their carrying values or otherwise.

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

Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022

Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022

Comparable Properties (1) Results

Three Months Ended March 31,

Three Months Ended June 30,

Non-Comparable

Properties Results

Three Months Ended March 31,

Three Months Ended June 30,

Consolidated Results

Three Months Ended March 31,

Three Months Ended June 30,

2023 2022 $ Change % Change 2023 2022 2023 2022 $ Change % Change

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Total other expenses 68,567 69,616 (1,049) (1.5 %)

Gain on sale of real estate 2,548 2,149 399 18.6 %

Loss on sale of real estate (2,305) (11,637) 9,332 (80.2 %)

Interest and other income 337 16 321 n/m

Interest expense (26,525) (26,515) (10) n/m

Loss on early extinguishment of debt — (77) 77 n/m

Loss before income tax (expense) benefit and equity in net losses of investees (11,340) (15,413) 4,073 (26.4 %)

Income tax (expense) benefit (211) 190 (401) n/m

Equity in net losses of investees (691) (833) 142 (17.0 %)

Net loss $ (12,242) $ (16,056) $ 3,814 (23.8 %)

Weighted average common shares outstanding (basic and diluted) 48,354 48,249 105 0.2 %

Per common share amounts (basic and diluted):

Net loss $ (0.25) $ (0.33) $ 0.08 (24.2 %)

n/m - not meaningful

(1) Comparable properties consists of 148 properties we owned on June 30, 2023 and which we owned continuously since April 1, 2022 and excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

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

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

Rental income.

The decrease in rental income reflects a decrease in rental income of $7,841 as a result of property disposition activities, partially offset by increases in rental income of $509 for comparable properties and $13 for properties undergoing significant redevelopment.

The increase in rental income for comparable properties is primarily due to an increase in reimbursement revenue resulting from higher operating expenses, partially offset by reductions in occupied space at certain of our properties and lower early termination income recorded in the 2023 period.

Rental income includes non-cash straight line rent adjustments totaling $4,256 in the 2023 period and $2,775 in the 2022 period, and amortization of acquired real estate leases and assumed real estate lease obligations totaling $61 in the 2023 period and $(233) in the 2022 period.

Real estate taxes.

The decrease in real estate taxes primarily reflects a decrease of $1,093 related to property disposition activities, partially offset by increases of $383 for comparable properties and $28 for properties undergoing significant redevelopment.

Real estate taxes for comparable properties increased primarily due to refunds received in the 2022 period as a result of successful real estate tax appeals for certain of our properties.

Utility expenses.

The decrease in utility expenses primarily reflects a decrease of $429 related to property disposition activities, partially offset by increases of $324 for comparable properties and $27 for properties undergoing significant redevelopment.

The increase in utility expenses for comparable properties is primarily due to the impact of inflation in the 2023 period, as well as utility expenses that were previously paid directly by certain of our tenants that are now being paid by us pursuant to lease amendments executed in 2022 with those tenants.

Other operating expenses.

Other operating expenses consist of salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense, other direct costs of operating our properties and property management fees.

The increase in other operating expenses primarily reflects increases of $1,893 for comparable properties and $50 for properties undergoing significant redevelopment, partially offset by a decrease of $1,806 related to property disposition activities.

The increase in other operating expenses for comparable properties is primarily due to the impact of inflation in the 2023 period, higher repairs and maintenance costs and higher insurance costs, as well as other operating expenses that were previously paid directly by certain of our tenants that are now being paid by us pursuant to lease amendments executed in 2022 with those tenants.

Depreciation and amortization.

The decrease in depreciation and amortization primarily reflects decreases of $2,413 for comparable properties, $1,995 related to property disposition activities and $1,527 for properties undergoing significant redevelopment.

Depreciation and amortization for comparable properties declined due to certain leasing related assets becoming fully depreciated since April 1, 2022, partially offset by depreciation and amortization of improvements made to certain of our properties since April 1, 2022.

Loss on impairment of real estate.

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

Acquisition and transaction related costs.

Acquisition and transaction related costs consist of costs related to our evaluation of potential acquisitions, dispositions and other strategic transactions, including costs incurred in connection with the Merger and related transactions.

For more information regarding the Merger, see Notes 1, 9 and 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and our joint proxy statement/prospectus that is included in the Form S-4.

General and administrative.

General and administrative expenses consist of fees pursuant to our business management agreement, equity compensation expense, legal and accounting fees, Trustees’ fees and expenses, securities listing and transfer agency fees and other costs relating to our status as a publicly traded company.

The decrease in general and administrative expenses is primarily the result of a decrease in base business management fees resulting from a decrease in average total market capitalization and a decrease in share based compensation in the 2023 period compared to the 2022 period.

Loss on sale of real estate.

We recorded a $2,305 net loss on sale of real estate resulting from the sale of two properties in the 2023 period.

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

Interest and other income.

The increase in interest and other income is primarily due to the effect of higher interest rates earned on cash balances invested in the 2023 period compared to the 2022 period.

Interest expense.

Income (loss) before income tax expense and equity in net losses of investees 418 (12,030) 12,448 (103.5 %)

The increase in interest expense reflects higher average amounts outstanding and higher average interest rates on borrowings under our revolving credit facility, as well as the issuance of four mortgage notes with an aggregate principal balance of $108,120 and a weighted average interest rate of 7.9% during the 2023 period, partially offset by the redemption of $300,000 of our senior unsecured notes with an interest rate of 4.0% in June 2022, higher capitalized interest and the repayment of two mortgage notes since July 1, 2022 with an aggregate principal balance of approximately $73,000 and a weighted average interest rate of 4.0%.

Loss on early extinguishment of debt.

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

Income tax (expense) benefit.

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

Equity in net losses of investees.

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

Net loss and net loss per basic and diluted common share decreased in the 2023 period compared to the 2022 period primarily as a result of the changes noted above.

Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022

Comparable Properties (1) Results

Six Months Ended June 30,

Non-Comparable

Properties Results

Six Months Ended June 30,

Consolidated Results

Six Months Ended June 30,

2023 2022 $ Change % Change 2023 2022 2023 2022 $ Change % Change

Rental income $ 265,335 $ 264,307 $ 1,028 0.4 % $ 1,084 $ 24,363 $ 266,419 $ 288,670 $ (22,251) (7.7 %)

Operating expenses:

Real estate taxes 30,649 30,012 637 2.1 % 585 3,216 31,234 33,228 (1,994) (6.0 %)

Utility expenses 12,693 11,165 1,528 13.7 % 309 1,520 13,002 12,685 317 2.5 %

Other operating expenses 51,440 48,089 3,351 7.0 % 1,251 5,771 52,691 53,860 (1,169) (2.2 %)

Total operating expenses 94,782 89,266 5,516 6.2 % 2,145 10,507 96,927 99,773 (2,846) (2.9 %)

$ 170,553 $ 175,041 $ (4,488) (2.6 %) $ (1,061) $ 13,856 169,492 188,897 (19,405) (10.3 %)

Other expenses:

Depreciation and amortization 103,293 118,005 (14,712) (12.5 %)

Loss on impairment of real estate — 21,820 (21,820) n/m

Acquisition and transaction related costs 14,399 224 14,175 n/m

General and administrative 11,710 12,789 (1,079) (8.4 %)

Total other expenses 129,402 152,838 (23,436) (15.3 %)

Gain (loss) on sale of real estate 243 (9,488) 9,731 (102.6 %)

Interest and other income 501 17 484 n/m

Interest expense (51,756) (53,954) 2,198 (4.1 %)

Loss on early extinguishment of debt — (77) 77 n/m

Loss before income tax expense and equity in net losses of investees (10,922) (27,443) 16,521 (60.2 %)

Income tax expense (241) (341) 100 (29.3 %)

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(1) Comparable properties consists of 151 properties we owned on March 31, 2023 and which we owned continuously since January 1, 2022 and excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

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

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

(1) Comparable properties consists of 148 properties we owned on June 30, 2023 and which we owned continuously since January 1, 2022 and excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

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

References to changes in the income and expense categories below relate to the comparison of consolidated results for the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Rental income.

The decrease in rental income reflects decreases in rental income of $8,801 as a result of property disposition activities and $6,303 for properties undergoing significant redevelopment, partially offset by an increase in rental income of $172 for comparable properties.

The decrease in rental income primarily reflects decreases in rental income of $16,989 related to property disposition activities and $6,290 for properties undergoing significant redevelopment, partially offset by an increase of $1,028 f or comparable properties.

The decrease in rental income for properties undergoing significant redevelopment is primarily due to termination fee revenue in the 2022 period and the reduction in occupied space at a property located in Seattle, WA that began a redevelopment project after the former tenant’s lease was terminated in February 2022.

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Utility expenses.

The increase in utility expenses reflects an increase in utility expenses of $1,178 for comparable properties, partially offset by decreases in utility expenses of $734 related to property disposition activities and $49 for properties undergoing significant redevelopment.

The increase in utility expenses primarily reflects an increase of $1,528 for comparable properties, partially offset by decreases in utility expenses of $1,190 related to property disposition activities and $21 for properties undergoing significant redevelopment.

Other operating expenses.

The decrease in other operating expenses primarily reflects decreases of $4,162 related to property disposition activities and $358 for properties undergoing significant redevelopment, partially offset by an increase of $3,351 for comparable properties.

The increase in other operating expenses for comparable properties is primarily due to the impact of inflation in the 2023 period, higher repairs and maintenance costs and higher insurance costs.

Depreciation and amortization.

The decrease in depreciation and amortization primarily reflects decreases of $6,705 for comparable properties, $4,939 related to property disposition activities and $3,068 for properties undergoing significant redevelopment.

Depreciation and amortization for comparable properties declined due to certain leasing related assets becoming fully depreciated since January 1, 2022, partially offset by depreciation and amortization of improvements made to certain of our properties since January 1, 2022.

Depreciation and amortization for comparable properties decreased due to certain leasing related assets becoming fully depreciated since January 1, 2022, partially offset by depreciation and amortization of improvements made to certain of our properties since January 1, 2022.

Loss on impairment of real estate.

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

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

Acquisition and transaction related costs.

For more information regarding the Merger, see Note 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

General and administrative.

The increase in general and administrative expenses is primarily the result of a state franchise tax refund received in the 2022 period, as well as higher legal, accounting and other professional services costs in the 2023 period, partially offset by a decrease in base business management fees resulting from a decrease in average total market capitalization in the 2023 period compared to the 2022 period.

Gain on sale of real estate.

We recorded a $2,548 gain on sale of real estate resulting from the sale of three properties in the 2023 period.

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

Gain (loss) on sale of real estate.

We recorded a $243 net gain on sale of real estate resulting from the sale of five properties in the 2023 period.

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

Interest and other income.

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Interest expense.

The decrease in interest expense reflects the redemption of our $300,000 senior unsecured notes with an interest rate of 4.0% in June 2022, the repayment of two mortgage notes since April 1, 2022 with an aggregate principal balance of approximately $48,000 and an average interest rate of 4.5% and higher capitalized interest in the 2023 period, partially offset by higher average amounts outstanding and higher average interest rates on borrowings under our revolving credit facility during the 2023 period.

The decrease in interest expense reflects the redemption of our $300,000 senior unsecured notes with an interest rate of 4.0% in June 2022, higher capitalized interest in the 2023 period and the repayment of three mortgage notes since January 1, 2022 with an aggregate principal balance of approximately $98,000 and a weighted average interest rate of 4.2%, partially offset by higher average amounts outstanding and higher average interest rates on borrowings under our

revolving credit facility, as well as the issuance of four mortgage notes with an aggregate principal balance of $108,120 and a weighted average interest rate of 7.9% during the 2023 period.

Loss on early extinguishment of debt.

Income tax expense.

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Other real estate companies and REITs may calculate NOI differently than we do.

The following table presents the reconciliation of net loss to NOI for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The following table presents the reconciliation of net loss to NOI for the three and six months ended June 30, 2023 and 2022:

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

2023 2022 2023 2022

Net loss $ (12,242) $ (16,056) $ (12,688) $ (29,463)

Equity in net losses of investees 691 833 1,525 1,679

Income tax expense 30 531

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

Income tax expense (benefit) 211 (190) 241 341

Loss before income tax expense (benefit) and equity in net losses of investees (11,340) (15,413) (10,922) (27,443)

Loss on early extinguishment of debt — 77 — 77

Interest expense 26,525 26,515 51,756 53,954

Interest and other income (337) (16) (501) (17)

Gain on sale of real estate (2,548) (2,149)

(Gain) loss on sale of real estate 2,305 11,637 (243) 9,488

General and administrative 5,785 7,083 11,710 12,789

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Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.

The following table presents the reconciliation of net loss to FFO and Normalized FFO for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The following table presents the reconciliation of net loss to FFO and Normalized FFO for the three and six months ended June 30, 2023 and 2022:

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

2023 2022 2023 2022

Net loss $ (12,242) $ (16,056) $ (12,688) $ (29,463)

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Loss on impairment of real estate — 4,773 — 21,820

Gain on sale of real estate (2,548) (2,149)

(Gain) loss on sale of real estate 2,305 11,637 (243) 9,488

FFO 42,532 58,622 92,060 121,344

Acquisition and transaction related costs 11,181 224 14,399 224

Loss on early extinguishment of debt — 77 — 77

Normalized FFO $ 53,713 $ 58,923 $ 106,459 $ 121,645

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• our ability to purchase additional properties which produce cash flows from operations in excess of our cost of acquisition capital and property operating and capital expenses.

On April 13, 2023, we announced a regular quarterly cash distribution of $0.25 per common share ($1.00 per common share per year).

On July 13, 2023, we announced a regular quarterly cash distribution of $0.25 per common share ($1.00 per common share per year).

We determine our distribution payout ratio with consideration for our expected capital expenditures as well as cash flows from operations and payment of debt obligations.

We reduced our quarterly cash distribution to increase financial flexibility through the closing of the Merger.

In April 2023, we reduced our quarterly cash distribution to the current level of $0.25 per common share to increase financial flexibility.

Following the Merger, we expect the combined company’s annual distribution will remain at $1.00 per common share per year.

Pursuant to our capital recycling program, we selectively sell certain properties from time to time to manage leverage levels and to acquire new properties or portfolios with a goal of improving our asset diversification, our geographical footprint and the average age of our properties, lengthening the weighted average term of our leases and increasing tenant retention.

During the three months ended March 31, 2023, we sold three properties for a sales price of $5,350, excluding closing costs.

During the six months ended June 30, 2023, we sold five properties for an aggregate sales price of $13,075 , excluding closing costs.

As a result of current real estate market conditions, including rising interest rates, the pace of our dispositions has moderated and we expect that trend to continue until commercial real estate industry conditions generally, and office market conditions specifically, improve.

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

As of April 25, 2023, we have entered into an agreement to sell one property for a sales price of $4,900, excluding closing costs.

As of July 25, 2023, we have entered into an agreement to sell one property for a sales price of $10,500, excluding closing costs.

We cannot be sure we will sell any properties we are marketing for sale for prices in excess of their carrying values or otherwise.

In addition, our pending sale is subject to conditions;

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.

W e continue to carefully consider our capital allocation strategy to position us to opportunistically recycle and deploy capital.

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

Three Months Ended March 31,

Six Months Ended June 30,

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

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Cash, cash equivalents and restricted cash at end of period $ 25,822 $ 27,749

The increase in cash provided by operating activities for the 2023 period compared to the 2022 period was primarily due to favorable changes in working capital, partially offset by decreases in NOI at certain of our properties in the 2023 period.

The increase in cash used in investing activities in the 2023 period compared to the 2022 period was primarily due to increased capital expenditures in the 2023 period related to our two redevelopment projects in Washington D.C.

and Seattle, WA, as well as lower proceeds received from property sales in the 2023 period.

The increase in cash provided by financing activities in the 2023 period was primarily due to higher borrowings under our revolving credit facility to fund capital improvements at our properties in the 2023 period.

The decrease in cash provided by operating activities for the 2023 period compared to the 2022 period was primarily due to decreases in NOI in the 2023 period due to property dispositions and an increase in costs incurred in connection with the Merger and related transactions.

The increase in cash used in investing activities in the 2023 period compared to the 2022 period was primarily due to lower proceeds received from property sales in the 2023 period and increased capital expenditures in the 2023 period related to our redevelopment project in Seattle, WA.

The increase in cash provided by financing activities in the 2023 period was primarily due to the redemption of $300,000 of our senior unsecured notes in the 2022 period and the issuance of $108,120 of mortgage notes and decreased distributions to our common shareholders in the 2023 period.

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

In order to fund acquisitions and to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $750,000 revolving credit facility.

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.

In June 2023, we exercised our option to extend the maturity date of our revolving credit facility by six months to January 31, 2024.

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 SOFR as the benchmark interest rate for calculating interest payable on 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.

We are required to pay interest at a rate of SOFR plus a premium, which was 145 basis points per annum at June 30, 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 30 basis points per annum at June 30, 2023.

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

Effective April 1, 2023, based upon changes to our credit ratings, the

interest rate premium and facility fee increased to 145 basis points per annum and 30 basis points per annum, respectively.

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

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.

As of June 30, 2023, the annual interest rate payable on borrowings under our revolving credit facility was 6.6%.

As of June 30, 2023 and July 25, 2023, we had $240,000 and $230,000, respectively, outstanding under our revolving credit facility, and $510,000 and $520,000, respectively, available for borrowing.

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

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

As of March 31, 2023, our debt maturities (other than our revolving credit facility), consisting of senior unsecured notes and one mortgage note, were as follows:

Mortgage Notes Issuances

During the six months ended June 30, 2023, we issued four mortgage notes with an aggregate principal balance of $108,120 and a weighted average interest rate of 7.863%.

The net proceeds from these mortgage loans were used to repay amounts outstanding under our revolving credit facility.

See Note 6 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding our mortgage note issuances.

Mortgage Note Repayment

In June 2023, we repaid at maturity, a mortgage note secured by one property with an outstanding principal balance of $50,000 and an annual interest rate of 3.7% using cash on hand and borrowings under our revolving credit facility.

As of June 30, 2023, our debt maturities (other than our revolving credit facility), consisting of senior unsecured notes and mortgage notes, were as follows:

Year Debt Maturities

2023 $ 50,000

2028 and thereafter 670,120

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

Our $50,000 mortgage note requires monthly payments of interest only through maturity.

In addition to our debt obligations, as of March 31, 2023, we had estimated unspent leasing related obligations of $139,874, of which we expect to spend $84,834 over the next 12 months.

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

containing approximately 340,000 rentable square feet.

Upon completion, the property will contain approximately 430,000 rentable square feet.

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

As of March 31, 2023, we had incurred $164,417 related to this project.

Our mortgage debts currently require monthly payments of interest only;

however, certain of our mortgages will require payments of principal and interest after a specified date through maturity.

In addition to our debt obligations, as of June 30, 2023, we had estimated unspent leasing related obligations of $151,798, of which we expect to spend $89,129 over the next 12 months.

We substantially completed the redevelopment of a property located in Washington, D.C.

containing approximately 427,000 rentable square feet in June 2023.

The total project costs associated with this redevelopment, including lease related costs that will continue to be incurred subsequent to the substantial completion date, will be approximately $227,000.

As of June 30, 2023, we had incurred $177,165 related to this project.

In June 2021, we entered into a 30-year lease for approximately 230,000 rentable square feet at this property that is approximately 25.1% higher than the prior rental rate for the same space, making the redevelopment project 54% pre-leased.

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We currently estimate the total project costs associated with this redevelopment will be $162,000 and completion of the redevelopment in the fourth quarter of 2023.

As of March 31, 2023, we had incurred $74,493 related to this project.

In August 2022, we entered into an approximately 10-year lease for approximately 84,000 rentable square feet at one of the life science properties that is approximately 109.0% higher than the prior rental rate for the same space, making the redevelopment project 28% pre-leased.

As of June 30, 2023, we had incurred $97,727 related to this project.

In August 2022, we entered into an approximately 10-year lease for approximately 84,000

rentable square feet at one of the life science properties that is approximately 109.0% higher than the prior rental rate for the same space, making the redevelopment project 28% pre-leased.

We currently expect to use cash balances, borrowings under our revolving credit facility, net proceeds from property sales, incurrences or assumptions of mortgage debt and net proceeds from offerings of debt or equity securities to fund our future operations, capital expenditures, distributions to our shareholders and property acquisitions.

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We may assume additional mortgage debt in connection with our acquisitions or elect to place new mortgages on properties we own as a source of financing.

We may also seek to participate in additional joint venture or other arrangements that may provide us with additional sources of financing.

Although we cannot be sure that we will be successful in consummating any particular type of financing, we believe that we will have access to financing, such as debt and equity offerings, to fund future acquisitions and capital expenditures and to pay

our obligations.

We may also seek to participate in additional joint ventures or other arrangements that may provide us with additional sources of financing.

We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.

In connection with the execution of the Merger Agreement, we entered into a commitment letter, dated as of April 11, 2023, with 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.

Our overall financing strategy for the Merger is to separately secure loans on certain of the secured bridge facility collateral properties on more favorable terms.

As of June 30, 2023, we have issued mortgage loans with an aggregate principal amount of $108,120, and as a result have amended the commitment letter to reduce the aggregate principal amount of the senior secured bridge facility to $259,880.

As a condition to the Merger, we have agreed to either extend or replace our existing 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.

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A protracted and extensive economic recession or continued or intensified disruptions in capital markets could limit our access to financing from public sources and would likely increase our cost of capital.

During the three months ended March 31, 2023, we paid quarterly distributions to our shareholders totaling $26,710 using cash on hand and borrowings under our revolving credit facility.

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

We expect to pay this distribution on or about May 18, 2023 using cash on hand and borrowings under our revolving credit facility.

During the six months ended June 30, 2023, we paid quarterly distributions to our shareholders totaling $38,851 using cash on hand and borrowings under our revolving credit facility.

On July 13, 2023, we declared a regular quarterly distribution payable to shareholders of record on July 24, 2023 of $0.25 per share, or approximately $12,150.

We expect to pay this distribution on or about August 17, 2023 using cash on hand and borrowings under our revolving credit facility.

For more information regarding the distributions we paid and declared during 2023, see Note 8 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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The properties owned by these joint ventures are encumbered by an aggregate $82,000 principal amount of mortgage indebtedness, none of which is recourse to us.

In July 2023, the maturity date of the mortgage loan secured by the property owned by our unconsolidated joint venture, in which we have a 50% interest, was extended by three years at the same interest rate.

We do not control the activities that are most significant to these joint ventures and, as a result, we account for our investments in these joint ventures under the equity method of accounting.

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

Other than these joint ventures, as of March 31, 2023, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Other than these joint ventures, as of June 30, 2023, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Debt Covenants (dollars in thousands)

Our principal debt obligations at March 31, 2023 consisted of $245,000 of borrowings outstanding under our revolving credit facility, an outstanding principal balance of $2,212,000 of public issuances of senior unsecured notes and a mortgage note with an outstanding principal balance of $50,000, that was assumed in connection with an acquisition.

Our principal debt obligations at June 30, 2023 consisted of $240,000 of borrowings outstanding under our revolving credit facility, an outstanding principal balance of $2,212,000 of public issuances of senior unsecured notes and mortgage notes with an outstanding principal balance $108,120.

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

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

As of March 31, 2023, we believe we were in compliance with the terms and conditions of our respective covenants under our credit agreement and senior unsecured notes indentures and their supplements.

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

As of June 30, 2023, we believe we were in compliance with the terms and conditions of our respective covenants under our credit agreement and senior unsecured notes indentures and their supplements.

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

Neither our credit agreement nor our senior unsecured notes indentures and their supplements contain provisions for acceleration which could be triggered by our credit ratings.

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For more information about these and other such relationships and related person transactions, see Notes 9 and 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2022 Annual Report, our definitive Proxy Statement for our 2023 Annual Meeting of Shareholders and our other filings with the SEC.

In addition, see the section captioned “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item IA of our 2022 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships.

In addition, see the section captioned “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A of our 2022 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis