What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-15 compared with 2023-02-15 · 205 added, 202 removed, 344 unchanged (54% of the section changed)

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We are a REIT organized under Maryland law.

As of December 31, 2022, our wholly owned properties were comprised of 160 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 December 31, 2023, our wholly owned properties were comprised of 152 properties and we had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that owned three properties containing approximately 468,000 rentable square feet.

As of December 31, 2023, our properties are located in 30 states and the District of Columbia and contain approximately 20,541,000 rentable square feet.

As of December 31, 2022, our properties were leased to 274 different tenants, with a weighted average remaining lease term (based on annualized rental income) of approximately 6.6 years.

As of December 31, 2023, our properties were leased to 258 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 19.5% of our annualized rental income as of December 31, 2023.

Certain changes in office space utilization accelerated during the COVID-19 pandemic, including increased remote work arrangements, continue to impact the market.

The utilization and demand for office space continues to evolve and the 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.

In response to inflationary pressures, the U.S.

Federal Reserve has increased the federal funds rate by 450 basis points since January 1, 2022 and has signaled that further increases are likely to occur throughout 2023.

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

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

Sustained inflationary pressures, increased interest rates, an economic recession or continued or intensified disruptions in the financial markets could adversely

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affect our financial condition and that of our tenants, could adversely impact the ability or willingness of our tenants to renew our leases or pay rent to us, would impair our ability to effectively deploy our capital or realize upon investments on favorable terms, may restrict our access to, and would likely increase our cost of, capital and may cause the values of our properties and our securities to decline.

For more information and risks relating to the COVID-19 pandemic, inflation and changes in market interest rates and their impacts on us and our business, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements” and Part I, Item 1A, “Risk Factors”.

Leases representing approximately 15.5% and 10.6% of our annual rental income are scheduled to expire in each of 2024 and 2025, respectively, and we may be unable to renew leases or find replacement tenants.

Certain changes in office space utilization, 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 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 or the long-term outlook for leasing our properties.

Higher interest rates, inflationary pressures, geopolitical hostilities and tensions, and concerns that the U.S.

economy may enter an economic recession have caused disruptions in the financial markets and these factors could adversely affect our and our tenants’ financial condition and the ability or willingness of our tenants to renew our leases or pay rent to us.

We have a significant amount of debt maturing in the next twelve months.

Deteriorating office fundamentals, high interest rates and market sentiment towards the office sector may restrict our access to, and likely increase our cost of, capital as we seek to refinance our debts.

For more information about the risks relating to these dynamics and conditions and their impacts on us and our business, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements” and Part I, Item 1A, “Risk Factors”.

Property Operations

Unless otherwise noted, the data presented in this section includes properties classified as held for sale as of December 31, 2022 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 December 31, 2023 and excludes three properties owned by two unconsolidated joint ventures in which we owned 51% and 50% interests as of December 31, 2023.

For more information regarding our properties classified as held for sale and our two unconsolidated joint ventures, see Note 4 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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

Includes one leasable land parcel as of December 31, 2021.

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

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.

excludes one property classified as held for sale, five properties undergoing significant redevelopment and three properties owned by two unconsolidated joint ventures in which we owned 51% and 50% interests as of December 31, 2023.

(3) Subject to changes when space is remeasured or reconfigured for tenants.

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

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

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Lease expirations (2,686) 2,686 —

Redevelopment expansion (1)

Lease renewals (2)

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End of year 17,848 2,693 20,541

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

(2) Based on leases entered during the year ended December 31, 2023.

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

Leases at our properties totaling approximately 2,884,000 rentable square feet expired during the year ended December 31, 2022.

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

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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.

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

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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 $3,851 to one of our unconsolidated joint ventures during the year ended December 31, 2022.

We did not make any contributions to this unconsolidated joint venture during the year ended December 31, 2021.

Includes capitalized interest and other operating costs of $10,159 and $7,456 for the years ended December 31, 2023 and 2022, respectively.

In addition to the capital expenditures described above, we contributed $5,213 and $3,851 to one of our unconsolidated joint ventures during the years ended December 31, 2023 and 2022, respectively.

Also, as of December 31, 2023, we had estimated unspent leasing related obligations of $109,309, of which we expect to spend $67,705 over the next 12 months.

As of December 31, 2023, we had leases at our properties totaling approximately 2,983,000 rentable square feet that were scheduled to expire during 2024.

As of February 14, 2023, we expect tenants with leases totaling approxim ately 1,120,000 r entable square feet that are scheduled to expire during 2023 not to renew or to downsize their leases 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 and we continue to proactively engage with our existing tenants and are focused on our overall tenant retention.

Prevailing market conditions and government and other 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.

As of February 14, 2024, we expect tenants with leases totaling approxim ately 1,881,000 r entable square feet that are scheduled to expire during 2024, excluding space that has been re-leased and space for which we are in advanced negotiations to re-lease, 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 continue to proactively engage with our existing tenants and are focused on 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.

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;

however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control.

We cannot be sure of the rental rates which will result from our ongoing negotiations regarding lease renewals or any new or renewed leases we may enter.

We cannot be sure of the rental rates that will result from our ongoing negotiations regarding lease renewals or any new or renewed leases we may enter.

Also, we may experience material declines in our rental income due to vacancies upon lease expirations or early terminations or lower rents upon lease renewal or reletting.

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

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

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Also, in 2024, 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2034, 2035, 2036, 2037 and 2040 early termination rights become exercisable by other tenants who occupied an additional approximately 2.0%, 2.6%, 1.6%, 1.3%, 3.9%, 0.8%, 1.4%, 0.6%, 0.3%, 0.2%, 0.9%, 0.1%, 0.1% and 0.3% of our rentable square feet, respectively, and contributed an additional approximately 2.2%, 5.2%, 2.2%, 1.7%, 4.6%, 1.4%, 2.0%, 0.6%, 0.5%, 0.6%, 1.2%, 0.3%, 0.2% and 0.4% of our annualized rental income, respectively, as of December 31, 2023.

In addition, as of December 31, 2022, 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 6.1% of our annualized rental income as of December 31, 2022.

In addition, as of December 31, 2023, pursuant to leases with eight 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 eight tenants occupied approximately 4.2% of our rentable square feet and contributed approximately 4.4% of our annualized rental income as of December 31, 2023.

(2) Leased square feet is pursuant to leases existing as of December 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.

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If we are unable to extend or renew our leases, or we renew leases for reduced space, it may be time consuming and expensive to relet some of these properties.

Over the past several years, government tenants have reduced their space utilization per employee and consolidated government tenants into existing government owned properties.

This activity has reduced the demand for government leased space.

Our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants have generally renewed leases for mission critical space to avoid the costs and disruptions that may result from relocating their operations.

However, efforts to manage space utilization rates may result in our tenants exercising early termination rights under our leases, vacating our properties upon expiration of our leases in order to relocate to government owned properties or consolidated leased space within a market, or renewing their leases for less space than they currently occupy.

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 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 December 31, 2022, we derive 22.6% of our annualized rental income from our properties located in the metropolitan Washington, D.C.

As of December 31, 2023, we derived 22.2% 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.

A downturn in economic conditions in this area or a possible recession, including as a result of current inflationary conditions or otherwise, could result in reduced 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.

Additionally, there has been a

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decrease in demand for new leased office space by the U.S.

government in the metropolitan Washington, D.C.

market area, and that could increase competition for government tenants and adversely affect our ability to retain government tenants when our leases expire.

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.

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

government, including in the metropolitan Washington, D.C.

market area, and that could increase competition for government tenants and adversely affect our ability to retain government tenants or maintain or increase our rents when our leases expire.

Our manager, RMR, employs a tenant review process for us.

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Not Rated 596 3.3 % 19,216 3.7 %

4 Bank of America Corporation Investment Grade 577 3.2 % 18,159 3.5 %

5 IG Investments Holdings LLC Not Rated 339 1.9 % 17,303 3.4 %

6 State of California Investment Grade 467 2.6 % 14,021 2.7 %

6 Bank of America Corporation Investment Grade 577 3.0 % 15,765 2.9 %

7 Commonwealth of Massachusetts Investment Grade 311 1.6 % 12,260 2.3 %

8 CareFirst Inc.

Not Rated 207 1.1 % 11,498 2.1 %

7 Tyson Foods, Inc.

Investment Grade 248 1.4 % 11,954 2.3 %

10 Sonesta International Hotels Corporation (1)

Not Rated 230 1.2 % 10,745 2.0 %

8 Northrop Grumman Corporation Investment Grade 337 1.9 % 10,795 2.1 %

12 CommScope Holding Company Inc.

Non Investment Grade 228 1.2 % 9,370 1.7 %

9 Sonesta International Hotels Corporation Not Rated 234 1.3 % 9,778 1.9 %

10 Micro Focus International plc Non Investment Grade 215 1.2 % 7,915 1.5 %

11 Sonoma Biotherapeutics, Inc.

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12 State of Georgia Investment Grade 308 1.7 % 7,345 1.4 %

13 Commonwealth of Massachusetts Investment Grade 212 1.2 % 7,269 1.4 %

14 CommScope Holding Company Inc.

Non Investment Grade 162 0.9 % 7,199 1.4 %

15 PNC Bank Investment Grade 441 2.5 % 6,960 1.4 %

16 Micro Focus International plc Non Investment Grade 215 1.1 % 6,905 1.3 %

16 Compass Group plc Investment Grade 267 1.5 % 6,697 1.3 %

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Investment Grade 149 0.8 % 6,675 1.3 %

19 Allstate Insurance Co.

Investment Grade 468 2.5 % 6,479 1.2 %

20 Leidos Holdings Inc.

Investment Grade 159 0.8 % 6,117 1.1 %

18 Allstate Insurance Corporation Investment Grade 468 2.6 % 6,484 1.3 %

19 Automatic Data Processing, Inc.

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Investment Grade 250 1.4 % 6,043 1.2 %

21 Leidos Holdings Inc.

Investment Grade 159 0.9 % 5,950 1.2 %

22 Primerica, Inc.

Investment Grade 344 1.9 % 5,737 1.1 %

23 Science Applications International Corp Non Investment Grade 159 0.9 % 5,228 1.0 %

10,248 57.3 % $ 316,436 61.6 %

(1) 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.

For more information about our lease with Sonesta, see Note 7 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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

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

We are amortizing termination fees of approximately $1,400 per quarter through January 2025 as a result of this early termination.

(2) In August 2022, we entered into an approximately 10-year lease with Sonoma Biotherapeutics, Inc.

at a property we own in Seattle, WA that is currently undergoing redevelopment.

The term of the lease is estimated to commence in the fourth quarter of 2023.

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The term of the lease is estimated to commence in the first quarter of 2024.

Acquisition Activities

During the year ended December 31, 2023, we acquired a vacant land parcel adjacent to an office park we own for a purchase price of $2,750, excluding acquisition related costs.

Disposition Activities

During the year ended December 31, 2022, we sold 18 properties, including one leasable land parcel, containing approximately 2,326,000 rentable square feet for an aggregate sales price of $211,020, excluding closing costs.

As a result of current commercial real estat e 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 February 14, 2023, we have entered into agreements to sell two properties containing approximately 207,000 rentable square feet for an aggregate sales price of $7,600, excluding closing costs.

During the year ended December 31, 2023, we sold eight properties containing approximately 553,000 rentable square feet for an aggregate sales price of $44,874, excluding closing costs.

The net proceeds from these sales were used to repay amounts outstanding under our prior $750,000 unsecured revolving credit facility, or our prior revolving credit facility.

W e continue to evaluate our portfolio and are currently in various stages of marketing certain of our properties for sale, and we may seek to sell additional properties in the future.

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

As of February 14, 2024, we have entered into an agreement to sell one property containing approximately 248,000 rentable square feet for a sales price of $39,000, 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 a ddition, our pending sales are subject to conditions;

accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the terms will not change.

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.

For more information about our disposition activities, see “Business —Disposition Policies” in Part I, Item 1 of this Annual Report on Form 10-K and Note 4 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Financing Activities

Senior Unsecured Note Redemption

In June 2022, we redeemed, at par plus accrued interest, all $300,000 of our 4.00% senior unsecured notes due July 2022 using cash on hand and borrowings under our revolving credit facility.

Mortgage Note Prepayments

In April 2022, we prepaid, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $24,863, an annual interest rate of 4.22% and a maturity date in July 2022 using cash on hand.

In October 2022, we prepaid, at a discounted amount of $22,176 plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $22,901, an annual interest rate of 4.80% and a maturity date in June 2023 using cash on hand and borrowings under our revolving credit facility.

Revolving Credit Facility

In November 2022, we exercised our option to extend the maturity date of our revolving credit facility by six months to July 31, 2023.

Subject to the payment of an extension fee and meeting certain other conditions, we may extend the maturity date of our revolving credit facility by one additional six month period.

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%, using cash on hand and borrowings under our prior revolving credit facility.

Mortgage Notes Issuances

During the year ended December 31, 2023, we issued six fixed rate, interest-only mortgage notes with an aggregate principal balance of $177,320 and a weighted average interest rate of 7.8%.

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

Amended and Restated Credit Agreement

In January 2024, we entered into our credit agreement governing a new $325,000 secured revolving credit facility and a $100,000 secured term loan.

Our credit agreement replaced our prior revolving credit facility, which had a maturity date of January 31, 2024.

As collateral for all loans and other obligations under our credit agreement, certain of our subsidiaries pledged all of their respective equity interests in certain of our direct and indirect property owning subsidiaries, and our pledged subsidiaries provided first mortgage liens on 19 properties that had an undepreciated carrying value, including lease intangibles, other assets and other liabilities, of $941,937 as of December 31, 2023.

We can borrow, repay, and reborrow funds available under our revolving credit facility until maturity and no principal repayments on borrowings under our credit agreement are due until maturity.

The maturity date of our credit agreement is January 29, 2027 and, subject to the payment of an extension fee and meeting certain other requirements, we can extend the stated maturity date of our revolving credit facility by one year.

Our credit agreement contains a number of covenants, including covenants that require us to maintain certain financial ratios, restrict our ability to incur additional debt in excess of calculated amounts and, subject to limited exceptions, restrict our ability to increase our distribution rate above the current level of $0.01 per common share per quarter and enter into share repurchases, through the maturity date of the agreement.

Availability of borrowings under our credit agreement is subject to ongoing minimum performance and market values of the 19 collateral properties, our satisfying certain financial covenants and other credit facility conditions.

Interest payable on borrowings under our credit agreement is at a rate of the secured overnight financing rate, or SOFR, plus a margin of 350 basis points.

On January 29, 2024, we borrowed the full amount of our term loan and $132,000 under our revolving credit facility.

We used the proceeds from these borrowings to repay all outstanding borrowings under our prior revolving credit facility, to fund transaction related costs relating to our credit agreement and for general business purposes.

Senior Secured Notes Issuance

In February 2024, we issued $300,000 of the 2029 Notes.

The aggregate net proceeds from this offering were $271,500, after initial purchaser discounts and other estimated offering expenses.

The 2029 Notes are fully and unconditionally guaranteed on a joint, several and senior secured basis by certain of our subsidiaries and secured by a pledge of all of the respective equity interests of the subsidiary guarantors and first mortgage liens on 17 properties with an undepreciated carrying value, including lease intangibles, other assets and other liabilities, of $574,291 as of December 31, 2023.

The notes require semi-annual payments of interest only and are prepayable, at par plus accrued interest, after March 31, 2028.

Senior Unsecured Notes Redemption

In February 2024, we issued a notice of early redemption, at par plus accrued interest, of all of our $350,000 of 4.25% senior unsecured notes due May 2024.

The redemption is expected to take place in March 2024 using the net proceeds from the offering of the 2029 Notes and borrowings under our revolving credit facility and the redemption is conditioned upon our borrowing an amount under our revolving credit facility sufficient, together with the net proceeds from the offering of the 2029 Notes, to pay the redemption price on or prior to the redemption date.

For more information about our financing activities, see “Business —Our Financing Policies” in Part I, Item 1 of this Annual Report on Form 10-K and Note 9 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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ownership of real estate properties.

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

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189,550 173,977 15,573 9.0 % 9,942 21,238 199,492 195,215 4,277 2.2 %

Net operating income (2)

Net operating income (loss) (2)

$ 323,045 $ 334,742 $ (11,697) (3.5 %) $ 11,016 $ 24,318 334,061 359,060 (24,999) (7.0 %)

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Interest expense (110,647) (103,480) (7,167) 6.9 %

Gain (loss) on early extinguishment of debt 682 (14,068) 14,750 (104.8 %)

Loss before income tax expense and equity in net losses of investees (2,330) (5,428) 3,098 (57.1 %)

Gain on early extinguishment of debt — 682 (682) n/m

Loss before income tax expense and equity in net losses of investees (46,867) (2,330) (44,537) n/m

Income tax expense (351) (270) (81) 30.0 %

Equity in net losses of investees (3,031) (3,509) 478 (13.6 %)

Net loss $ (6,109) $ (8,180) $ 2,071 (25.3 %)

Loss on impairment of equity method investment (19,183) — (19,183) n/m

Net loss $ (69,432) $ (6,109) $ (63,323) n/m

Weighted average common shares outstanding (basic and diluted) 48,389 48,278 111 0.2 %

Per common share amounts (basic and diluted):

Net loss $ (0.14) $ (0.17) $ 0.03 (17.6 %)

Net loss $ (1.44) $ (0.14) $ (1.30) n/m

n/m - not meaningful

(1) Comparable properties consists of 149 properties we owned on December 31, 2022 and which we owned continuously since January 1, 2021 and excludes properties classified as held for sale, properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

(1) Comparable properties consists of 146 properties we owned on December 31, 2023 and which we owned continuously since January 1, 2022 and excludes one property classified as held for sale, five properties undergoing significant redevelopment and three properties owned by two unconsolidated joint ventures in which we owned 51% and 50% interests as of December 31, 2023.

(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.”

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Rental income.

The decrease in rental income reflects decreases in rental income of $29,470 related to property disposition activities and $12,939 related to properties undergoing significant redevelopment, partially offset by increases in rental income of $13,060 for acquired properties and $7,142 for comparable properties.

Rental income for acquired properties reflects a reduction to reimbursement revenue of $8,715 resulting from the reversal of previously estimated real estate taxes at two

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properties we acquired in 2021 due to favorable real estate tax assessments and successful appeals received in 2022.

The decrease in rental income for properties undergoing significant redevelopment is primarily due to the reduction in occupied space at properties located in Washington, D.C.

and Seattle, WA that began redevelopment projects during April 2021 and February 2022, respectively, partially offset by termination fee revenue at the Seattle, WA property related to the termination of the former tenant’s lease in February 2022 prior to commencement of the redevelopment.

The increase in rental income for comparable properties is primarily due to higher reimbursement revenue resulting from increased operating expenses due to higher building utilization levels in 2022 and operating expenses that were previously paid directly by certain of our tenants now being paid by and reimbursed to us pursuant to lease amendments with those tenants executed in 2022, as well as lease termination fee revenue received and higher parking income as a result of higher parking volumes, partially offset by reductions in occupied space at certain of our properties in 2022.

Rental income for non-comparable properties declined $22,210 related to our property disposition activities and $2,388 for properties undergoing significant redevelopment due to termination fee revenue in 2022 and increased vacancy

at a property that began a redevelopment project in February 2022, partially offset by the lease-up of our 20 Mass Ave.

redevelopment in Washington, D.C.

Rental income for comparable properties increased $3,876 due to the impact of real estate tax appeals and the related reimbursement income in the 2022 period, partially offset by increased vacancies at certain of our properties in 2023 and lower termination fee revenue.

Rental income includes non-cash straight line rent adjustments totaling $26,194 in 2023 and $10,830 in 2022, and amortization of acquired real estate leases and assumed real estate lease obligations totaling $252 in 2023 and ($975) in 2022.

Real estate taxes.

The decrease in real estate taxes reflects decreases in real estate taxes of $9,472 for acquired properties, $3,432 related to property disposition activities and $2,386 related to properties undergoing significant redevelopment, partially offset by an increase in real estate taxes of $1,164 for comparable properties.

The decrease in real estate taxes for acquired properties reflects the reversal of previously estimated real estate taxes at two properties we acquired in 2021 due to favorable real estate tax assessments and successful appeals received in 2022.

Real estate taxes for comparable properties increased primarily due to real estate taxes that were previously paid by certain of our tenants that are now being paid by us pursuant to lease amendments with those tenants executed in 2022.

Real estate taxes for non-comparable properties declined $3,876 related to our property disposition activities and $339 as a result of successful tax appeals at certain properties undergoing significant redevelopment, partially offset by an increase of $9,202 for comparable properties due to the favorable impact of real estate tax appeals recorded in 2022.

Utility expenses.

The increase in utility expenses reflects increases in utility expenses of $3,252 for comparable properties and $805 for acquired properties, partially offset by decreases in utility expenses of $1,999 related to property disposition activities and $304 for properties undergoing significant redevelopment.

The increase in utility expenses for comparable properties is primarily due to increases in electricity usage as a result of higher building utilization levels at certain of our properties and the impact of inflation in 2022, 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 with those tenants executed in 2022.

Utility expenses for non-comparable properties declined $1,842 related to our property disposition activities, partially offset by an increase of $334 for properties undergoing significant redevelopment due to the related lease-up of those properties.

Utility expenses for comparable properties increased $1,281 primarily due to the impact of inflation in 2023, as well as utility expenses that were previously paid directly by certain of our tenants that are now being paid by us.

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 reflects increases of $8,180 for comparable properties and $4,564 for acquired properties, partially offset by decreases of $6,982 related to property disposition activities and $1,221 related to properties undergoing significant redevelopment.

The increase in other operating expenses for comparable properties is primarily due to higher repairs and maintenance costs, higher cleaning expenses due to increased building utilization levels and the impact of inflation in 2022, increased insurance costs and an increase related to other operating expenses that were previously paid by certain of our tenants that are now being paid by us pursuant to lease amendments with those tenants executed in 2022.

Other operating expenses for non-comparable properties declined $6,148 related to our property disposition activities, partially offset by an increase of $575 for properties undergoing significant redevelopment due to the lease-up of our 20 Mass Ave.

redevelopment in Washington, D.C.

Other operating expenses for comparable properties increased $5,090 due to 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.

Depreciation and amortization.

The decrease in depreciation and amortization reflects decreases of $18,921 related to property disposition activities, $9,990 for comparable properties and $2,656 related to properties undergoing significant redevelopment, partially offset by an increase of $12,637 for acquired properties.

Depreciation and amortization for comparable properties declined due to certain leasing related assets becoming fully depreciated since January 1, 2021, partially offset by depreciation and amortization of improvements made to certain of our properties since January 1, 2021.

The decline in depreciation and amortization reflects a decrease of $12,043 for comparable properties 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 non-comparable properties declined $1,889 related to our property disposition activities, partially offset by an increase of $622 for properties undergoing significant redevelopment due to the substantial completion of our 20 Mass Ave.

redevelopment in Washington, D.C.

Loss on impairment of real estate .

We recorded an $11,299 loss on impairment of real estate in 2023 to reduce the carrying value of one property to its estimated fair value less costs to sell.

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

We recorded a $62,420 loss on impairment of real estate in 2021 to reduce the carrying value of eight 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.

Acquisition and transaction related costs in 2023 are primarily related to our terminated merger with Diversified Healthcare Trust, or DHC, and related transactions.

For more information regarding our terminated merger with DHC, see Note 7 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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 in 2022 compared to 2021 and a state franchise tax refund received in 2022.

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 2023 compared to 2022, partially offset by a state franchise tax refund received in 2022.

Gain on sale of real estate.

We recorded an $11,001 net gain on sale of real estate in 2022 resulting from the sale of 18 properties, including one leasable land parcel.

We recorded a $78,354 net gain on sale of real estate in 2021 resulting from the sale of six properties, a warehouse facility and two vacant land parcels.

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We recorded a $3,780 net gain on sale of real estate resulting from the sale of eight properties in 2023.

We recorded a $11,001 net gain on sale of real estate in 2022 resulting from the sale of 18 properties, including one leasable land parcel.

Interest and other income.

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Inter est expense.

Th e decrease in interest expense reflects financing activities since January 1, 2021, which included the redemption of $910,000 of senior unsecured notes with a weighted average interest rate of 4.7% and the repayment of three mortgage notes totaling approximately $119,000 with a weighted average interest rate of 3.9%, as well as higher capitalized interest in 2022, partially offset by the issuance of $1,050,000 of senior unsecured notes with a weighted average interest rate of 2.9%, as well as a higher average balance outstanding and higher weighted average interest rate on borrowings under our revolving credit facility during 2022 compared to 2021.

Gain (loss) on early extinguishment of debt .

We recorded a net gain on early extinguishment of debt of $682 in 2022 resulting from the prepayment of a mortgage note due in 2023 at a discounted principal amount and the write off of the unamortized portion of certain premiums, discounts and debt issuance costs resulting from the prepayment of this mortgage note and the June 2022 redemption of our senior unsecured notes due July 2022.

We recorded a loss on early extinguishment of debt of $14,068 in 2021 from prepayment fees incurred and the write off of unamortized discounts and debt issuance costs associated with the prepayment of one mortgage note due in 2023 and the redemption of our senior unsecured notes due in 2022 and 2046.

Th e increase in interest expense reflects higher average amounts outstanding and higher average interest rates on borrowings under our prior revolving credit facility, as well as the issuance of six mortgage notes with an aggregate principal balance of $177,320 and a weighted average interest rate of 7.8% during 2023, partially offset by the redemption of our $300,000 of senior unsecured notes with an interest rate of 4.0% in June 2022, higher capitalized interest in 2023 and the repayment of three mortgage notes since January 1, 2022 with an aggregate principal balance of $98,000 and a weighted average interest rate of 4.1%.

Gain on early extinguishment of debt .

portion of certain premiums, discounts and debt issuance costs resulting from the prepayment of this mortgage note and the June 2022 redemption of our senior unsecured notes due July 2022.

Income tax expense.

The increase in income tax expense reflects higher operating income in certain jurisdictions in 2022 where we are subject to state income taxes.

Income tax expense 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.

The increase in equity in net losses of investees was primarily due to reductions in occupied space at properties owned by our unconsolidated joint ventures in 2022.

Our net loss and net loss per basic and diluted common share decreased in 2022 compared to 2021 primarily as a result of the changes noted above.

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

Loss on impairment of equity method investment .

We recorded a $19,183 loss on impairment of equity method investment in 2023 to fully write off the carrying value of one of our unconsolidated joint ventures.

For further information, see Note 4 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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

Non-GAAP Financial Measures

We present certain “non-GAAP financial measures” within the meaning of the applicable SEC rules, including the calculations below of NOI, FFO and Normalized FFO.

These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity.

These measures should be considered in conjunction with net income (loss) as presented in our consolidated statements of comprehensive income (loss).

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss).

We present certain “non-GAAP financial measures” within the meaning of the applicable SEC rules, including the calculations below of NOI, funds from operations, or FFO, and Normalized FFO.

These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net loss as indicators of our operating performance or as measures of our liquidity.

These measures should be considered in conjunction with net loss as presented in our consolidated statements of comprehensive income (loss).

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net loss.

We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.

Net Operating Income

The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations.

The calculation of NOI excludes certain components of net loss in order to provide results that are more closely related to our property level results of operations.

We calculate NOI as shown below.

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

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The following table presents the reconciliation of net loss to NOI for the years ended December 31, 2023 and 2022:

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Equity in net losses of investees 3,031 3,509

Loss on impairment of equity method investment 19,183 —

Income tax expense 351 270

Loss before income tax expense and equity in net losses of investees (46,867) (2,330)

(Gain) loss on early extinguishment of debt (682) 14,068

Gain on early extinguishment of debt — (682)

Interest expense 110,647 103,480

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We calculate FFO and Normalized FFO as shown below.

FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets and any gain or loss on sale of real estate, as well as certain other adjustments currently not applicable to us.

In calculating Normalized FFO, we adjust for the other items shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year.

FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net loss, calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets and any gain or loss on sale of real estate, as well as certain other adjustments currently not applicable to us.

In calculating Normalized FFO, we adjust for the other items shown below.

FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders.

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

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

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Loss on impairment of real estate 11,299 21,820

Loss on impairment of equity method investment 19,183 —

Gain on sale of real estate (3,780) (11,001)

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Acquisition and transaction related costs 31,816 292

(Gain) loss on early extinguishment of debt (682) 14,068

Gain on early extinguishment of debt — (682)

Normalized FFO $ 201,735 $ 229,942

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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 January 12, 2023, we announced a regular quarterly cash distribution of $0.55 per common share ($2.20 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 expect to accretively grow our property portfolio through our capital recycling program, pursuant to which we plan to 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, and increasing our distributions to shareholders.

During the year ended December 31, 2022, we sold 18 properties, including one leasable land parcel, for an aggregate sales price of $211,020, excludin g closing costs.

Since January 1, 2023, we sold three properties for a sales price of $5,350 , 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

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current ly in various stages of marketing certain of our properti es for sale.

As of February 14, 2023, we have entered into agreements to sell two properties for an aggregate sales price of $7,600, excluding closing costs.

W e continue to carefully consider our capital allocation strategy and believe we are well positioned to opportunistically recycle and deploy capital.

Our future purchases of properties cannot be accurately projected because such purchases depend upon purchase opportunities which come to our attention and our ability to successfully complete the acquisitions.

We generally do not intend to purchase “turn around” properties, or properties which do not generate positive cash flows.

We plan to selectively sell certain properties from time to time to manage leverage levels and to improve 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 year ended December 31, 2023, we sold eight properties for an aggregate sales price of $44,874, excludin g closing costs.

We continue to evaluate our portfolio and are currently in various stages of marketing certain of our properties for sale.

As of February 14, 2024, we have entered into an agreement to sell one property containing approximately 248,000 rentable square feet for a sales price of $39,000, 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.

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

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Cash, cash equivalents and restricted cash at end of period $ 26,714 $ 12,249

The decrease in cash provided by operating activities in 2022 compared to 2021 was primarily a result of higher deferred leasing costs incurred as a result of leasing activity, disposition activities and unfavorable changes in working capital in 2022.

The decrease in cash used in investing activities in 2022 compared to 2021 is primarily due to higher acquisition activity in 2021, partially offset by increased capital expenditures in 2022 related to our two redevelopment projects in Washington, D.C.

and Seattle, WA.

The increase in cash used in financing activities in 2022 compared to 2021 is a result of net debt repayment activity in 2022 that included the redemption of all $300,000 of our 4.00% senior unsecured notes due July 2022 and the repayment of two mortgage notes with an aggregate principal balance of approximately $48,000, which was partially offset by borrowing activity under our revolving credit facility to facilitate these payments, compared to the aggregate issuance of $1,050,000 of senior unsecured notes in 2021, partially offset by the aggregate redemption of $610,000 of senior unsecured notes and the repayment of $71,000 of mortgage debt in 2021.

The decrease in cash provided by operating activities in 2023 compared to 2022 was primarily due to decreases in NOI in 2023 due to property dispositions, reductions in occupied space at certain of our properties and an increase in costs incurred in connection with the terminated merger with DHC and related transactions.

The increase in cash used in investing activities in 2023 compared to 2022 is primarily due to lower proceeds received from property sales in 2023 and increased capital expenditures in 2023 related to our redevelopment activities.

The change from cash flows used in financing activities in 2022 to cash flows provided by financing activities in 2023 was primarily due to the redemption of $300,000 of our senior unsecured notes in 2022 as compared with the issuance of $177,320 of mortgage notes and decreased distributions to our common shareholders in 2023.

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.

In November 2022, we exercised our option to extend the maturity date of our revolving credit facility by six months to 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 additional six month period.

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

We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at December 31, 2022, on the amount outstanding under our revolving credit facility, if any.

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 December 31, 2022.

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

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

As of December 31, 2022 and February 14, 2023, we had $195,000 an d $220,000 outstanding under our revolving credit facility and $555,000 and $530,000 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 non-recourse debt), within the meaning specified in our credit agreement, or provided a guarantee of debt incurred by us or any of our other subsidiaries.

During the year ended December 31, 2022, we repaid the following senior unsecured notes and mortgage notes:

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Senior Unsecured Note Redemption

In June 2022, we redeemed, at par plus accrued interest, all $300,000 of our 4.00% senior unsecured notes due July 2022 using cash on hand and borrowings under our revolving credit facility.

Mortgage Note Prepayments

As of December 31, 2022, our debt maturities (other than our revolving credit facility), consisting of senior unsecured notes and one mortgage note, were as follows:

In order to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses or to fund acquisitions, we maintain a revolving credit facility which is governed by our credit agreement.

Our credit agreement replaced our prior revolving credit facility, which had a maturity date of January 31, 2024.

Our obligations under our credit agreement are secured by a pledge by certain of our subsidiaries of all of their respective equity interests in certain of our direct and indirect property owning subsidiaries and first mortgage liens on 19 properties owned by the pledged subsidiaries with an undepreciated carrying value, including lease intangibles, other assets and other liabilities, of $941,937 as of December 31, 2023.

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

The maturity date of our credit agreement is January 29, 2027, and, subject to the payment of an extension fee and meeting certain other requirements, we can extend the stated maturity date of our revolving credit facility by one year.

Interest payable on borrowings under our credit agreement is based on a rate of SOFR plus a margin of 350 basis points.

We are also required to pay an unused facility fee on the amount of total lending commitments, which was 35 basis points per annum at February 14, 2024.

As of February 14, 2024, the annual interest rate payable on borrowings under our credit agreement was 8.8%.

As of February 14, 2024, we had $132,000 outstanding under our revolving credit facility, $100,000 outstanding under our term loan and $193,000 available for borrowing under our revolving credit facility.

Prior Revolving Credit Facility

Under our prior revolving credit facility, we were required to pay interest at a rate of SOFR plus a premium, which was 145 basis points per annum at December 31, 2023, on the amount outstanding under our prior revolving credit facility, as well as a facility fee on the total amount of lending commitments, which was 30 basis points per annum at December 31, 2023.

As of December 31, 2023 and 2022, the annual interest rate payable on borrowings under our prior revolving credit facility was 6.9% and 5.4%, respectively.

The weighted average annual interest rate for borrowings under our prior revolving credit facility was 6.5%, 4.0% and 1.2% for the years ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2023, we had $205,000 outstanding under our prior revolving credit facility.

Mortgage Notes Issuances

During the year ended December 31, 2023, we issued six mortgage notes with an aggregate principal balance of $177,320 and a weighted average interest rate of 7.8%.

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

See Note 9 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K 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 prior revolving credit facility.

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

Year Debt Maturities

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Total $ 2,389,320

Senior Secured Notes Issuance

In February 2024, we issued $300,000 of the 2029 Notes.

The aggregate net proceeds from this offering were $271,500, after initial purchaser discounts and other estimated offering expenses.

The 2029 Notes require semi-annual payments of interest only and are prepayable, at par plus accrued interest, after March 31, 2028.

Senior Unsecured Notes Redemption

In February 2024, we issued a notice of early redemption, at par plus accrued interest, of all of our $350,000 of 4.25% senior unsecured notes due 2024.

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.

Our mortgage notes currently require monthly payments of interest only;

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

In addition to our debt obligations, as of December 31, 2023, we had estimated unspent leasing related obligations of $109,309, of which we expect to spend $67,705 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.

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 December 31, 2022, we had incurred $148,107 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.

See Note 7 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K for more information regarding this lease and related redevelopment costs.

We are also in the process of redeveloping a three-property campus located in Seattle, WA containing approximately 300,000 rentable square feet.

We are currently in the process of redeveloping a three-property campus located in Seattle, WA containing approximately 300,000 rentable square feet.

This project includes the repositioning of two properties from office to life science and maintaining the third property for office use.

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

We currently estimate the total project costs associated with this redevelopment will be approximately $162,000 and completion of the redevelopment in the first quarter of 2024.

As of December 31, 2023, we had incurred $133,270 related to this project.

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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.

When significant amounts are outstanding under our revolving credit facility or the maturities of our indebtedness approach, we expect to explore refinancing alternatives.

Such alternatives may include incurring term debt, issuing debt or equity securities, extending the maturity date of our revolving credit facility and entering into a new revolving credit facility.

When significant amounts are outstanding under our credit agreement or the maturities of our indebtedness approach, we expect to explore refinancing alternatives.

Such alternatives may include incurring term debt, issuing debt or equity securities, extending the maturity date of our revolving credit facility and entering into a new credit facility.

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

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our obligations.

We may also seek to participate in additional joint ventures 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 capital expenditures and to pay our obligations or fund future acquisitions.

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.

We currently do not have sufficient sources of liquidity to repay our $650,000 senior unsecured notes due 2025 and are evaluating market-based alternatives to obtain debt financing.

Based on the significant number of unencumbered properties in our portfolio, our successful history of obtaining new debt financings and our current financing metrics, we believe it is probable that we can obtain new debt financing that will allow us to satisfy the 2025 unsecured notes as they become due.

We have also engaged Moelis & Company LLC as our financial advisor to assist in evaluating our options to address our upcoming debt maturities.

Our ability to obtain, and the costs of, our future debt financings will depend primarily on credit market conditions and our creditworthiness.

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We intend to conduct our business in a manner that will afford us reasonable access to capital for investment and financing activities, but we cannot be sure that we will be able to successfully carry out this intention.

For instance, it is uncertain what the ultimate impacts of inflationary pressures, rising interest rates or any economic recession will be.

For instance, it is uncertain what the ultimate impacts of inflationary pressures, sustained high interest rates or any economic recession will be.

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 year ended December 31, 2022, we paid quarterly distributions to our shareholders totaling $106,630 using cash on hand and borrowings under our revolving credit facility.

On January 12, 2023, we declared a regular quarterly distribution payable to shareholders of record on January 23, 2023 in the amount of $0.55 per share, or approximately $26,700.

During the year ended December 31, 2023, we paid quarterly cash distributions to our shareholders totaling $63,187 using cash on hand and borrowings under our prior revolving credit facility.

On January 11, 2024, we declared a quarterly cash distribution payable to shareholders of record on January 22, 2024 in the amount of $0.01 per share, or approximately $490.

We expect to pay this distribution on or about February 15, 2024 using cash on hand and borrowings under our revolving credit facility.

We determine our distribution payout ratio with consideration for restrictions under our credit agreement, our expected capital expenditures, cash flows from operations and payment of debt obligations.

For more information regarding the distributions we paid during 2023, see Note 11 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

We own 51% and 50% interests in two unconsolidated joint ventures which own three properties.

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.

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.

We owned 51% and 50% interests in two unconsolidated joint ventures which owned three properties at December 31, 2023.

As of December 31, 2023, the properties owned by these joint ventures were encumbered by an aggregate $82,000 principal amount of mortgage indebtedness, none of which was recourse to us.

In July 2023, the maturity date of the mortgage loan secured by one property owned by our 1750 H Street, NW joint venture, in which we had a 50% interest, was extended by three years at the same interest rate.

In October 2023, our joint venture partner that had a 50% equity interest in our 1750 H Street, NW joint venture failed to fund a $600 capital call and was in default of the joint venture agreement at December 31, 2023.

As of December 31, 2023, we did not control the activities that are most significant to these joint ventures and, as a result, we accounted for our investments in these joint ventures under the equity method of accounting.

We are currently in discussions with the lender to this joint venture regarding the property.

During the year ended December 31, 2023, we recorded an impairment charge of $19,183 to reduce the carrying value of our equity method investment in this joint venture to its estimated fair value.

For more information on the financial condition and results of operations of these joint ventures, see Note 4 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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Debt Covenants (dollars in thousands)

Our principal debt obligations at December 31, 2022 consisted of $195,000 of borrowings outstanding under our $750,000 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.

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

Our publicly issued senior unsecured notes are governed by indentures and their supplements.

Our credit agreement and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts outstanding 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 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 December 31, 2022, 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.

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.

However, under our credit agreement, our highest senior credit rating, as defined in our credit agreement, is used to determine the fees and interest rates we pay.

Accordingly, if that credit rating is downgraded, our interest expense and related costs under our credit agreement would increase.

In November 2022, Moody’s downgraded our senior unsecured debt rating from Baa3 to Ba 1.

However, as of February 14, 2023, our highest senior credit rating, as defined in our credit agreement, remains unchanged and therefore, the fees and interest rates we pay under our credit agreement have not increased as a result of the downgrade to our senior unsecured debt rating.

Our credit agreement has cross default provisions to other indebtedness that is recourse of $25,000 or more and indebtedness that is non-recourse of $50,000 or more.

Similarly, our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $25,000 (or up to $50,000 in certain circumstances).

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Our principal debt obligations as of December 31, 2023 consisted of $205,000 of borrowings outstanding under our prior revolving credit facility, an outstanding principal balance of $2,212,000 of public issuances of senior notes and mortgage notes with an outstanding principal balance of $177,320.

Also, the three properties owned by two joint ventures in which we owned 51% and 50% interests secured two additional mortgage notes as of December 31, 2023.

Our publicly issued senior notes are governed by indentures and their supplements.

Our credit agreement and our senior notes indentures and their supplements provide for acceleration of payment of all amounts outstanding 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 our senior 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 increase our distribution rate above the current level of $0.01 per common share per quarter.

At December 31, 2023, we believe we were in compliance with the terms and conditions of our respective covenants under our credit agreement and our senior 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 notes indentures and their supplements contain provisions for acceleration which could be triggered by our credit ratings.

However, under our prior revolving credit facility, our highest senior credit rating was used to determine the fees and interest rates we paid.

Accordingly, if that credit rating was downgraded, our interest expense and related costs under our prior revolving credit facility would increase.

As a result of ratings downgrades in March 2023 by Moody’s Investor Service, or Moody’s, and S&P Global Ratings, or S&P, the interest rate premium under our prior revolving credit facility increased 35 basis points effective April 1, 2023.

On February 13, 2024, S&P assigned a rating of B- to our 2029 Notes.

As of February 14, 2024, our senior unsecured debt ratings were Caa1 and CCC from Moody’s and S&P, respectively.

Our credit agreement and our senior notes indentures and their supplements contain cross default provisions to any other debts of more than $25,000 (or more than $50,000 in certain circumstances).

Related Person Transactions

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These accounting policies involve significant judgments made based upon our experience and the experience of our management and our Board of Trustees, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability and willingness of our tenants to perform their obligations to us, current and future economic conditions and competitive factors in the markets in which our properties are located.

Competition, economic

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conditions, changing government priorities and other factors may cause occupancy declines in the future.

Competition, economic conditions, changing government priorities and other factors may cause occupancy declines in the future.

In the future, we may need to revise our carrying value assessments to incorporate information which is not now known, and such revisions could increase or decrease our depreciation expense related to properties we own or decrease the carrying values of our assets.

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We do not expect the direct impact of these increases to be material to our results of operations, because the increased costs either would be the responsibility of our tenants directly or in the longer term, passed through and paid by tenants of our properties.

Although we do not believe it is likely in the foreseeable future, laws enacted to mitigate climate change may make some of our properties obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants and their ability to pay rent to us.

Although we do not believe it is likely in the foreseeable future, laws enacted to mitigate climate change may make

some of our properties obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants and their ability to pay rent to us.

In an effort to reduce the effects of any increased energy costs in the future, we continuously study ways to improve the energy efficiency at all of our properties.

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Green Building Council, a nonprofit organization focused on promoting energy efficiency at commercial properties through its LEED® green building program.

RMR’s annual Sustainability Report summarizes the environmental, social and governance initiatives RMR and its clients, including OPI, employ.

RMR’s annual Sustainability Report summarizes the environmental, social and governance initiatives employed by RMR and its clients, including us.

RMR’s Sustainability Report may be accessed on RMR Inc.’s website at www.rmrgroup.com/corporate-sustainability/default.aspx.

7 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis