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) September 30, 2023 December 31, 2022 ASSETS Real estate properties: Land $ 802,904 $ 821,238 Buildings and improvements 3,260,732 3,114,836 Total real estate properties, gross 4,063,636 3,936,074 Accumulated depreciation ( 627,656 ) ( 561,458 ) Total real estate properties, net 3,435,980 3,374,616 Assets of properties held for sale 16,942 2,516 Investments in unconsolidated joint ventures 36,602 35,129 Acquired real estate leases, net 295,195 369,333 Cash and cash equivalents 24,358 12,249 Restricted cash 15,270 — Rents receivable 124,043 105,639 Deferred leasing costs, net 85,087 73,098 Other assets, net 11,513 7,397 Total assets $ 4,044,990 $ 3,979,977 LIABILITIES AND SHAREHOLDERS’ EQUITY Unsecured revolving credit facility $ 200,000 $ 195,000 Senior unsecured notes, net 2,193,577 2,187,875 Mortgage notes payable, net 172,331 49,917 Liabilities of properties held for sale 346 73 Accounts payable and other liabilities 154,061 140,151 Due to related persons 7,766 6,469 Assumed real estate lease obligations, net 12,276 14,157 Total liabilities 2,740,357 2,593,642 Commitments and contingencies Shareholders’ equity: Common shares of beneficial interest, $ .01 par value: 200,000,000 shares authorized, 48,757,246 and 48,565,644 shares issued and outstanding, respectively 488 486 Additional paid in capital 2,621,107 2,619,532 Cumulative net income 137,325 169,606 Cumulative common distributions ( 1,454,287 ) ( 1,403,289 ) Total shareholders’ equity 1,304,633 1,386,335 Total liabilities and shareholders’ equity $ 4,044,990 $ 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Rental income $ 133,361 $ 137,683 $ 399,780 $ 426,353 Expenses: Real estate taxes 14,257 16,414 45,491 49,642 Utility expenses 7,460 7,986 20,462 20,671 Other operating expenses 27,946 27,737 80,637 81,597 Depreciation and amortization 52,266 52,988 155,559 170,993 Loss on impairment of real estate — — — 21,820 Acquisition and transaction related costs 16,135 — 30,534 224 General and administrative 5,720 6,564 17,430 19,353 Total expenses 123,784 111,689 350,113 364,300 Gain on sale of real estate 244 16,925 487 7,437 Interest and other income 281 56 782 73 Interest expense (including net amortization of debt premiums, discounts and issuance costs of $ 2,276 , $ 2,176 , $ 6,808 and $ 6,946 , respectively) ( 28,835 ) ( 24,969 ) ( 80,591 ) ( 78,923 ) Loss on early extinguishment of debt — — — ( 77 ) (Loss) income before income tax expense and equity in net losses of investees ( 18,733 ) 18,006 ( 29,655 ) ( 9,437 ) Income tax expense ( 95 ) ( 90 ) ( 336 ) ( 431 ) Equity in net losses of investees ( 765 ) ( 952 ) ( 2,290 ) ( 2,631 ) Net (loss) income $ ( 19,593 ) $ 16,964 $ ( 32,281 ) $ ( 12,499 ) Weighted average common shares outstanding (basic and diluted) 48,403 48,286 48,365 48,260 Per common share amounts (basic and diluted): Net (loss) income $ ( 0.41 ) $ 0.35 $ ( 0.67 ) $ ( 0.27 ) 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 Common share grants — — 477 — — 477 Common 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 Common share grants 31,500 — 744 — — 744 Common share forfeitures and repurchases ( 7,559 ) — ( 47 ) — — ( 47 ) Net loss — — — ( 12,242 ) — ( 12,242 ) Distributions to common shareholders — — — — ( 12,141 ) ( 12,141 ) Balance at June 30, 2023 48,587,650 486 2,620,691 156,918 ( 1,442,140 ) 1,335,955 Common share grants 210,300 2 656 — — 658 Common share forfeitures and repurchases ( 40,704 ) — ( 240 ) — — ( 240 ) Net loss — — — ( 19,593 ) — ( 19,593 ) Distributions to common shareholders — — — — ( 12,147 ) ( 12,147 ) Balance at September 30, 2023 48,757,246 $ 488 $ 2,621,107 $ 137,325 $ ( 1,454,287 ) $ 1,304,633 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 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, 2021 48,425,665 $ 484 $ 2,617,169 $ 175,715 $ ( 1,296,659 ) $ 1,496,709 Common share grants — — 415 — — 415 Common 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 Common share grants 31,500 1 1,078 — — 1,079 Common share forfeitures and repurchases ( 1,690 ) — ( 21 ) — — ( 21 ) Net loss — — — ( 16,056 ) — ( 16,056 ) Distributions to common shareholders — — — — ( 26,634 ) ( 26,634 ) Balance at June 30, 2022 48,455,075 485 2,618,640 146,252 ( 1,349,927 ) 1,415,450 Common share grants 141,200 1 922 — — 923 Common share forfeitures and repurchases ( 30,069 ) — ( 521 ) — — ( 521 ) Net income — — — 16,964 — 16,964 Distributions to common shareholders — — — — ( 26,651 ) ( 26,651 ) Balance at September 30, 2022 48,566,206 $ 486 $ 2,619,041 $ 163,216 $ ( 1,376,578 ) $ 1,406,165 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Nine Months Ended September 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 32,281 ) $ ( 12,499 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 77,635 73,174 Net amortization of debt premiums, discounts and issuance costs 6,808 6,946 Amortization of acquired real estate leases and assumed real estate lease obligations, net 71,332 93,458 Amortization of deferred leasing costs 7,359 6,115 Gain on sale of real estate ( 487 ) ( 7,437 ) Loss on impairment of real estate — 21,820 Loss on early extinguishment of debt — 77 Straight line rental income ( 17,120 ) ( 7,226 ) Other non-cash expenses, net 1,053 1,591 Equity in net losses of investees 2,290 2,631 Change in assets and liabilities: Rents receivable ( 1,375 ) 7,625 Deferred leasing costs ( 17,904 ) ( 20,724 ) Other assets ( 4,426 ) ( 2,358 ) Accounts payable and other liabilities 14,952 ( 3,255 ) Due to/from related persons 1,297 ( 7,251 ) Net cash provided by operating activities 109,133 152,687 CASH FLOWS FROM INVESTING ACTIVITIES: Real estate improvements ( 175,628 ) ( 137,031 ) Distributions in excess of earnings from unconsolidated joint ventures — 51 Contributions to unconsolidated joint ventures ( 3,763 ) ( 2,914 ) Proceeds from sale of properties, net 22,449 189,069 Net cash (used in) provided by investing activities ( 156,942 ) 49,175 CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of mortgage notes payable ( 50,000 ) ( 25,400 ) Proceeds from issuance of mortgage notes payable 177,320 — Repayment of senior unsecured notes — ( 300,000 ) Borrowings on unsecured revolving credit facility 225,000 295,000 Repayments on unsecured revolving credit facility ( 220,000 ) ( 160,000 ) Payment of debt issuance costs ( 5,843 ) — Repurchase of common shares ( 291 ) ( 533 ) Distributions to common shareholders ( 50,998 ) ( 79,919 ) Net cash provided by (used in) financing activities 75,188 ( 270,852 ) Increase (decrease) in cash, cash equivalents and restricted cash 27,379 ( 68,990 ) Cash, cash equivalents and restricted cash at beginning of period 12,249 84,515 Cash, cash equivalents and restricted cash at end of period $ 39,628 $ 15,525 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (dollars in thousands) (unaudited) Nine Months Ended September 30, 2023 2022 SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 79,324 $ 80,504 Income taxes paid $ 374 $ 283 NON-CASH INVESTING ACTIVITIES: Real estate improvements accrued, not paid $ 41,445 $ 34,340 Capitalized interest $ 6,423 $ 2,887 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 September 30, 2023 2022 Cash and cash equivalents $ 24,358 $ 14,005 Restricted cash (1) 15,270 1,520 Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows $ 39,628 $ 15,525 (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. 8 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. Termination of Merger with Diversified Healthcare Trust As previously disclosed, 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 we and DHC had agreed that DHC would merge with and into us, with us as the surviving entity in the merger, subject to the terms and conditions of the Merger Agreement. On September 1, 2023, we and DHC mutually agreed to terminate the Merger Agreement and entered into a termination agreement, or the Termination Agreement. The mutual termination of the Merger Agreement was separately recommended by our and DHC’s respective Special Committees of each Board of Trustees, and approved by our and DHC’s respective Board of Trustees. Neither we nor DHC will be required to pay any termination fee as a result of the mutual decision to terminate the Merger Agreement. We and DHC will bear our and its respective costs and expenses related to the Merger Agreement and the transactions contemplated thereby in accordance with the terms of the Merger Agreement. We recorded $ 30,534 of expenses during the nine months ended September 30, 2023 related to the potential merger with DHC, which is included in acquisition and transaction related costs in our condensed consolidated statement of comprehensive income (loss). Contemporaneously with the execution of the Merger Agreement, on April 11, 2023, we and our manager, The RMR Group LLC, or 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 was conditioned upon the consummation of the merger. Since the merger will not be consummated, the Amended Property Management Agreement will not become effective and the Second Amended and Restated Property Management Agreement between us and RMR will remain in effect. In connection with the execution of the Merger Agreement, on April 11, 2023, we entered into a commitment letter with an institutional lender, pursuant to which it 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 . On September 1, 2023, we terminated the commitment letter. 9 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Note 2. Per Common Share Amounts We calculate basic earnings per common share using the two class method. We calculate diluted earnings per common share using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares, together with the related impact on earnings, are considered when calculating diluted earnings per common share. The calculation of basic and diluted earnings per common share is as follows (amounts in thousands, except per share data): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Numerators: Net (loss) income $ ( 19,593 ) $ 16,964 $ ( 32,281 ) $ ( 12,499 ) Income/loss attributable to unvested participating securities ( 50 ) ( 99 ) ( 232 ) ( 299 ) Net (loss) income used in calculating earnings per common share $ ( 19,643 ) $ 16,865 $ ( 32,513 ) $ ( 12,798 ) Denominators: Weighted average common shares outstanding - basic and diluted 48,403 48,286 48,365 48,260 Net (loss) income per common share - basic and diluted $ ( 0.41 ) $ 0.35 $ ( 0.67 ) $ ( 0.27 ) Note 3. Real Estate Properties As of September 30, 2023, our wholly owned properties were comprised of 154 properties containing approximately 20,705,000 rentable square feet, with an undepreciated carrying value of $ 4,081,026 , including $ 17,390 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 451,000 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 September 30, 2023, we entered into 29 leases for approximately 586,000 rentable square feet for a weighted (by rentable square feet) average lease term of 7.4 years, and we made commitments of $ 25,359 for leasing related costs. During the nine months ended September 30, 2023, we entered into 68 leases for approximately 1,502,000 rentable square feet for a weighted (by rentable square feet) average lease term of 8.7 years, and we made commitments for approximately $ 74,744 of leasing related costs. As of September 30, 2023, we had estimated unspent leasing related obligations of $ 137,223 . 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 leasing 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 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. 10 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Acquisition Activities As of October 27, 2023 , we have entered into an agreement to acquire a land parcel adjacent to a property we own in Irving, TX containing approximately 4.7 acres for $ 2,750 , excluding acquisition related costs. This acquisition is expected to close before the end of the fourth quarter. This pending acquisition is subject to conditions, and accordingly, we cannot be sure that we will complete this acquisition or that this acquisition will not be delayed or the terms will not change. Disposition Activities During the nine months ended September 30, 2023, we sold six properties containing approximately 376,000 rentable square feet for an aggregate sales price of $ 23,575 , excluding closing costs. The sales of these properties, as presented in the table below, do not represent significant dispositions individually or in the aggregate, nor do they represent a strategic shift in our business. As a result, the results of operations of these properties are included in continuing operations through the date of sale in our condensed consolidated statements of comprehensive income (loss). Date of Sale Number of Properties Location Rentable Square Feet Gross Sales Price (1) Gain (Loss) on Sale of Real Estate January 2023 3 Richmond, VA 89,000 $ 5,350 $ 2,548 April 2023 1 Phoenix, AZ 107,000 4,900 511 June 2023 1 Vernon Hills, IL 100,000 2,825 ( 2,816 ) September 2023 1 Windsor Mill, MD 80,000 10,500 244 6 376,000 $ 23,575 $ 487 (1) Gross sales price is the gross contract price, excluding closing costs. As of September 30, 2023, we had two properties classified as held for sale in our condensed consolidated balance sheet. As of October 27, 2023 , we have entered into agreements to sell the two properties classified as held for sale containing approximately 177,000 rentable square feet for an aggregate sales price of $ 21,299 , excluding closing costs. These pending sales are subject to conditions, and accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the terms will not change. 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 September 30, 2023 and December 31, 2022, our investments in unconsolidated joint ventures consisted of the following: OPI Carrying Value of Investments at Joint Venture OPI Ownership September 30, 2023 December 31, 2022 Number of Properties Location Rentable Square Feet Prosperity Metro Plaza 51 % $ 18,455 $ 19,237 2 Fairfax, VA 329,000 1750 H Street, NW 50 % 18,147 15,892 1 Washington, D.C. 122,000 Total $ 36,602 $ 35,129 3 451,000 11 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) 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 September 30, 2023 and December 31, 2022 (2) Prosperity Metro Plaza 4.09 % 12/1/2029 $ 50,000 1750 H Street, NW (3) 3.69 % 8/1/2027 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. (3) In July 2023, the maturity date of this mortgage loan was extended by three years at the same interest rate. As of September 30, 2023, the aggregate unamortized basis difference of our two unconsolidated joint ventures of $ 6,123 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). In October 2023, our joint venture partner that has a 50 % equity interest in the 1750 H Street, NW joint venture failed to fund a $ 600 capital call. We are currently evaluating our options regarding this funding and there can be no assurance that we will be successful pursuing any remedies available to us under the joint venture agreement. Note 4. 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 $ 8,691 and $ 1,765 for the three months ended September 30, 2023 and 2022, respectively, and $ 17,120 and $ 7,226 for the nine months ended September 30, 2023 and 2022, respectively. Rents receivable, excluding properties classified as held for sale, included $ 103,366 and $ 86,305 of straight line rent receivables at September 30, 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 $ 21,067 and $ 64,627 for the three and nine months ended September 30, 2023, respectively, of which tenant reimbursements totaled $ 19,722 and $ 60,641 , respectively. For the three and nine months ended September 30, 2022, such payments totaled $ 23,183 and $ 67,820 , respectively, of which tenant reimbursements totaled $ 21,953 and $ 64,437 , respectively. Note 5. Concentration Tenant and Credit Concentration As of September 30, 2023 and 2022, the U.S. government and certain state and other government tenants combined were responsible for approximately 28.1 % and 27.8 %, respectively, of our annualized rental income. The U.S. government is our largest tenant by annualized rental income and represented approximately 20.0 % and 19.1 % of our annualized rental income as of September 30, 2023 and 2022, respectively. 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. 12 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Geographic Concentration As of September 30, 2023, our 154 wholly owned properties were located in 30 states and the District of Columbia. Properties located in California, Virginia, Illinois, Georgia and the District of Columbia were responsible for approximately 12.2 %, 11.3 %, 10.6 %, 9.4 % and 9.2 % of our annualized rental income as of September 30, 2023, respectively. Note 6. Indebtedness Our principal debt obligations as of September 30, 2023 were: (1) $ 200,000 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) $ 177,320 aggregate outstanding principal amount of mortgage notes. Our $ 750,000 revolving credit facility is governed by a credit agreement, or our credit agreement, with a syndicate of institutional lenders that includes a feature under which the maximum aggregate borrowing availability may be increased to up to $ 1,950,000 in certain circumstances. Our revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is January 31, 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 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 145 basis points per annum at September 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 September 30, 2023. Both the interest rate premium and facility fee are subject to adjustment based upon changes to our credit ratings. As of September 30, 2023 and December 31, 2022, the annual interest rate payable on borrowings under our revolving credit facility was 6.9 % and 5.4 %, respectively. The weighted average annual interest rate for borrowings under our revolving credit facility was 6.8 % and 6.4 % for the three and nine months ended September 30, 2023, respectively, and 3.3 % and 3.2 % for the three and nine months ended September 30, 2022. As of September 30, 2023 and October 27, 2023, we had $ 200,000 and $ 205,000 , respectively, outstanding under our revolving credit facility, and $ 550,000 and $ 545,000 , respectively, available for borrowing, subject to meeting required financial covenants. 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 RMR ceasing to act as our business and property manager. Our credit agreement and senior unsecured notes indentures and their supplements also contain covenants, including covenants that restrict our ability to incur debts, require us to comply with certain financial covenants and, in the case of our credit agreement, restrict our ability to make distributions under certain circumstances. We believe we were in compliance with the terms and conditions of the respective covenants under our credit agreement and senior unsecured notes indentures and their supplements at September 30, 2023. We are currently in discussion with our lenders regarding a new revolving credit facility. We are also evaluating different options to repay our maturing senior notes, including new financings and potential property sales. While our plans could be impacted by factors outside of our control, including unfavorable market, economic and commercial real estate conditions, we believe based on our current discussions and history of working with our lenders that it is probable that these plans will allow us to repay our maturing debt. 13 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Mortgage Note Issuances During the nine months ended September 30, 2023, we issued six fixed rate, interest-only mortgage notes as summarized in the following table: Issuance Date Secured By Principal Balance (1) Interest Rate Maturity Net Book Value of Collateral as of September 30, 2023 May 2023 (2) One property $ 30,680 7.210 % 7/1/2033 $ 36,752 June 2023 One property 26,340 8.139 % 7/1/2028 52,878 June 2023 One property 42,700 8.272 % 7/1/2028 43,445 June 2023 One property 8,400 7.305 % 7/1/2033 19,085 August 2023 One property 14,900 7.717 % 9/1/2033 24,113 September 2023 Two properties 54,300 7.671 % 10/6/2028 64,192 Total / Weighted Average $ 177,320 7.792 % $ 240,465 (1) Our mortgage notes are non-recourse, subject to certain limited exceptions and do not contain any material financial covenants. (2) Requires interest-only payments through May 2028, at which time principal and interest payments are due monthly through the maturity date. 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 3.70 %. Note 7. Fair Value of Assets and Liabilities Our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, accounts payable, a revolving credit facility, senior unsecured notes, mortgage notes payable, amounts due to related persons, other accrued expenses and security deposits. At September 30, 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 September 30, 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 $ 348,574 $ 331,881 $ 346,863 $ 331,601 Senior unsecured notes, 4.50 % interest rate, due in 2025 645,404 531,284 642,818 589,388 Senior unsecured notes, 2.650 % interest rate, due in 2026 298,308 204,081 297,839 232,770 Senior unsecured notes, 2.400 % interest rate, due in 2027 347,931 209,255 347,466 256,606 Senior unsecured notes, 3.450 % interest rate, due in 2031 396,504 202,504 396,178 268,004 Senior unsecured notes, 6.375 % interest rate, due in 2050 156,856 89,748 156,711 113,075 Mortgage notes payable (2) (3) 172,331 175,868 49,917 49,099 Total $ 2,365,908 $ 1,744,621 $ 2,237,792 $ 1,840,543 (1) Includes unamortized debt premiums, discounts and issuance costs totaling $ 23,412 and $ 24,208 as of September 30, 2023 and December 31, 2022, respectively. (2) Balances as of December 31, 2022 include a mortgage note secured by one property with an outstanding principal balance of $ 50,000 that was repaid in June 2023. (3) Balances as of September 30, 2023 include six mortgage notes issued during the nine months ended September 30, 2023 with an aggregate outstanding principal balance of $ 177,320 . We estimated the fair values of our senior unsecured notes (except for our senior unsecured notes due 2050) using an average of the bid and ask price of the notes (Level 2 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. We estimated the fair value of our senior unsecured notes due 2050 based on the closing price on The Nasdaq Stock Market LLC, or Nasdaq, (Level 1 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. We estimated the fair values of our mortgage notes payable using discounted cash flow analyses and 14 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) currently prevailing market rates (Level 3 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. Because Level 3 inputs are unobservable, our estimated fair values may differ materially from the actual fair values. Note 8. Shareholders’ Equity Share Awards On June 13, 2023, in accordance with our Trustee compensation agreements, we awarded to each of our nine Trustees 3,500 of our common shares, valued at $ 7.90 per share, the closing price of our common shares on Nasdaq on that day. On September 13, 2023, we awarded under our equity compensation plan an aggregate of 210,300 of our common shares, valued at $ 5.76 per share, the closing price of our common shares on Nasdaq on that day, to our current and former officers and certain other employees of RMR. Share Purchases During the three and nine months ended September 30, 2023, we purchased an aggregate of 40,104 and 47,858 of our common shares, valued at a weighted average share price of $ 5.84 and $ 6.09 from one of our Trustees, our current and former officers and certain current and former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares. Distributions During the nine months ended September 30, 2023, we declared and paid regular quarterly distributions to common shareholders as follows: Declaration Date Record Date Paid Date Distributions Per Common Share Total Distributions January 12, 2023 January 23, 2023 February 16, 2023 $ 0.55 $ 26,710 April 13, 2023 April 24, 2023 May 18, 2023 0.25 12,141 July 13, 2023 July 24, 2023 August 17, 2023 0.25 12,147 $ 1.05 $ 50,998 On October 12, 2023, we declared a regular quarterly distribution payable to common shareholders of record on October 23, 2023 in the amount of $ 0.25 per share, or approximately $ 12,200 . We expect to pay this distribution on or about November 16, 2023. Note 9. 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. Pursuant to our business management agreement with RMR, we recognized net business management fees of $ 3,637 and $ 11,180 for the three and nine months ended September 30, 2023, respectively, and $ 4,260 and $ 13,462 for the three and nine months ended September 30, 2022, respectively. Based on our common share total return, as defined in our business management agreement, as of September 30, 2023, no estimated incentive fees are included in the net business management fees we recognized for the three and nine months ended September 30, 2023. The actual amount of annual incentive fees for 2023, if any, will be based on our common share total return 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 $ 5,465 and $ 17,947 for the three and nine months ended September 30, 2023, respectively, and $ 6,502 and $ 19,024 for the three and nine months ended September 30, 2022, respectively. Of these amounts, for the three and nine months ended September 30, 2023, $ 3,718 and $ 11,252 , respectively, were expensed to other operating expenses in our 15 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) condensed consolidated statements of comprehensive income (loss) and $ 1,747 and $ 6,695 , respectively, were capitalized as building improvements in our condensed consolidated balance sheet. For the three and nine months ended September 30, 2022, $ 3,996 and $ 12,237 , respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 2,506 and $ 6,787 , respectively, were capitalized as building improvements in our condensed consolidated balance sheet. 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 $ 6,331 and $ 19,295 for these expenses and costs for the three and nine months ended September 30, 2023, respectively, and $ 6,268 and $ 18,281 for the three and nine months ended September 30, 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 10. 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 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 trustee of these public companies. Other officers of RMR serve as managing trustees or officers of certain of these companies. Share Awards to RMR Employees . See Note 8 for further information relating to our awards of common shares to our officers and certain other employees of RMR in September 2023 and our repurchases of common shares from certain of our Trustees and officers and certain other current and former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares to them. We include amounts recognized as expense for awards of our common shares to our officers and other RMR employees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss). Our Manager, RMR. 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 9 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 $ 205 and $ 671 for the three and nine months ended September 30, 2023, respectively, and $ 282 and $ 851 for the three and nine months ended September 30, 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 full-service hotel component of the property that includes approximately 230,000 rentable square feet, which represents approximately 55 % of the total square feet of the property. We substantially completed 16 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) the redevelopment in June 2023 and the term of the lease commenced in August 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 commencement. 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. As of September 30, 2023, we have paid approximately $ 77,000 of tenant improvement costs for the build out of the hotel space pursuant to the lease agreement. Mr. Portnoy is a director and controlling shareholder of Sonesta and Ms. Clark is also a director and officer of Sonesta. Terminated Merger Agreement with DHC . See Note 1 for more information relating to our terminated merger agreement with DHC. For more information about these and other such relationships and certain other related person transactions, refer to our 2022 Annual Report. 17 Table of Contents