OFFICE PROPERTIES INCOME TRUST 10-Q

Item 1. Financial Statements OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) (unaudited) March 31, 2024 December 31, 2023 ASSETS Real estate properties: Land $ 782,660 $ 786,310 Buildings and improvements 3,296,591 3,279,369 Total real estate properties, gross 4,079,251 4,065,679 Accumulated depreciation ( 678,278 ) ( 650,179 ) Total real estate properties, net 3,400,973 3,415,500 Assets of properties held for sale 11,888 37,310 Investments in unconsolidated joint ventures 17,898 18,128 Acquired real estate leases, net 244,502 263,498 Cash and cash equivalents 23,513 12,315 Restricted cash 20,593 14,399 Rents receivable 137,489 133,264 Deferred leasing costs, net 85,828 86,971 Other assets, net 15,246 8,284 Total assets $ 3,957,930 $ 3,989,669 LIABILITIES AND SHAREHOLDERS’ EQUITY Unsecured debt, net $ 1,847,664 $ 2,400,478 Secured debt, net 731,563 172,131 Liabilities of properties held for sale 324 2,525 Accounts payable and other liabilities 109,665 140,166 Due to related persons 7,259 7,025 Assumed real estate lease obligations, net 11,091 11,665 Total liabilities 2,707,566 2,733,990 Commitments and contingencies Shareholders’ equity: Common shares of beneficial interest, $ .01 par value: 200,000,000 shares authorized, 48,754,546 and 48,755,415 shares issued and outstanding, respectively 488 488 Additional paid in capital 2,621,849 2,621,493 Cumulative net income 94,990 100,174 Cumulative common distributions ( 1,466,963 ) ( 1,466,476 ) Total shareholders’ equity 1,250,364 1,255,679 Total liabilities and shareholders’ equity $ 3,957,930 $ 3,989,669 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (amounts in thousands, except per share data) (unaudited) Three Months Ended March 31, 2024 2023 Rental income $ 139,435 $ 132,422 Expenses: Real estate taxes 15,709 15,333 Utility expenses 8,151 7,260 Other operating expenses 27,327 26,057 Depreciation and amortization 50,341 51,692 Acquisition and transaction related costs 233 3,218 General and administrative 5,644 5,925 Total expenses 107,405 109,485 (Loss) gain on sale of real estate ( 2,384 ) 2,548 Interest and other income 1,357 164 Interest expense (including net amortization of debt premiums, discounts and issuance costs of $ 3,444 and $ 2,205 , respectively) ( 35,476 ) ( 25,231 ) Loss on early extinguishment of debt ( 425 ) — (Loss) income before income tax expense and equity in net losses of investees ( 4,898 ) 418 Income tax expense ( 56 ) ( 30 ) Equity in net losses of investees ( 230 ) ( 834 ) Net loss $ ( 5,184 ) $ ( 446 ) Weighted average common shares outstanding (basic and diluted) 48,466 48,336 Per common share amounts (basic and diluted): Net loss $ ( 0.11 ) $ ( 0.01 ) 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, 2023 48,755,415 $ 488 $ 2,621,493 $ 100,174 $ ( 1,466,476 ) $ 1,255,679 Common share grants — — 362 — — 362 Common share forfeitures and repurchases ( 869 ) — ( 6 ) — — ( 6 ) Net loss — — — ( 5,184 ) — ( 5,184 ) Distributions to common shareholders — — — — ( 487 ) ( 487 ) Balance at March 31, 2024 48,754,546 $ 488 $ 2,621,849 $ 94,990 $ ( 1,466,963 ) $ 1,250,364 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 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Three Months Ended March 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 5,184 ) $ ( 446 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 29,699 24,947 Net amortization of debt premiums, discounts and issuance costs 3,444 2,205 Amortization of acquired real estate leases and assumed real estate lease obligations, net 17,669 24,614 Amortization of deferred leasing costs 3,408 2,365 Loss (gain) on sale of real estate 2,384 ( 2,548 ) Loss on early extinguishment of debt 425 — Straight line rental income ( 7,379 ) ( 4,173 ) Other non-cash expenses, net 90 204 Equity in net losses of investees 230 834 Change in assets and liabilities: Rents receivable 2,934 2,846 Deferred leasing costs ( 3,342 ) ( 2,841 ) Other assets ( 773 ) ( 1,189 ) Accounts payable and other liabilities ( 17,207 ) 4,110 Due to related persons 234 972 Net cash provided by operating activities 26,632 51,900 CASH FLOWS FROM INVESTING ACTIVITIES: Real estate improvements ( 40,034 ) ( 66,665 ) Contributions to unconsolidated joint ventures — ( 2,263 ) Proceeds from sale of properties, net 35,672 5,112 Net cash used in investing activities ( 4,362 ) ( 63,816 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of senior unsecured notes ( 350,000 ) — Proceeds from issuance of senior secured notes 280,500 — Borrowings on revolving credit facility 232,000 75,000 Repayments on revolving credit facility ( 247,000 ) ( 25,000 ) Borrowings on secured term loan 100,000 — Payment of debt issuance costs ( 19,885 ) ( 266 ) Repurchase of common shares ( 6 ) ( 13 ) Distributions to common shareholders ( 487 ) ( 26,710 ) Net cash (used in) provided by financing activities ( 4,878 ) 23,011 Increase in cash, cash equivalents and restricted cash 17,392 11,095 Cash, cash equivalents and restricted cash at beginning of period 26,714 12,249 Cash, cash equivalents and restricted cash at end of period $ 44,106 $ 23,344 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents OFFICE PROPERTIES INCOME TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (dollars in thousands) (unaudited) Three Months Ended March 31, 2024 2023 SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 34,639 $ 25,033 NON-CASH INVESTING ACTIVITIES: Real estate improvements accrued, not paid $ 18,084 $ 41,172 Capitalized interest $ 969 $ 2,106 SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH: The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows: As of March 31, 2024 2023 Cash and cash equivalents $ 23,513 $ 23,344 Restricted cash (1) 20,593 — Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows $ 44,106 $ 23,344 (1) Restricted cash consists of cash held for operations and amounts escrowed for future real estate taxes, insurance, leasing costs, capital expenditures and debt service, as required by certain of our debt agreements. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) (unaudited) Note 1. Basis of Presentation The accompanying condensed consolidated financial statements of Office Properties Income Trust and its subsidiaries, or OPI, we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2023, or our 2023 Annual Report. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets and assessment of impairment of real estate and the related intangibles. Note 2. Recent Accounting Pronouncements O n November 27, 2023, the Financial Accounting Standards Board issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, or ASU No. 2023-07, which requires public entities to: (i) provide disclosures of significant segment expenses and other segment items if they are regularly provided to the Chief Operating Decision Maker, or the CODM, and included in each reported measure of segment profit or loss; (ii) provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Accounting Standards Codification 280, Segment Reporting, or ASC 280, in interim periods; and (iii) disclose the CODM’s title and position, as well as an explanation of how the CODM uses the reported measures and other disclosures. Public entities with a single reportable segment must apply all the disclosure requirements of ASU No. 2023-07, as well as all the existing segment disclosures under ASC 280. The amendments in ASU No. 2023-07 are incremental to the requirements in ASC 280 and do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. ASU No. 2023-07 should be applied retrospectively to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact ASU No. 2023-07 will have on our consolidated financial statements and disclosures. 8 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Note 3. 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 March 31, 2024 2023 Numerators: Net loss $ ( 5,184 ) $ ( 446 ) Income attributable to unvested participating securities ( 3 ) ( 126 ) Net loss used in calculating earnings per common share $ ( 5,187 ) $ ( 572 ) Denominators: Weighted average common shares outstanding - basic and diluted 48,466 48,336 Net loss per common share - basic and diluted $ ( 0.11 ) $ ( 0.01 ) Note 4. Real Estate Properties As of March 31, 2024, our wholly owned properties were comprised of 151 properties containing approximately 20,293,000 rentable square feet, with an undepreciated carrying value of $ 4,091,230 , including $ 11,979 classified as held for sale. We also had noncontrolling ownership interests of 51 % and 50 % in two unconsolidated joint ventures that owned three properties containing approximately 471,000 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 2024 and 2053. Some of our leases generally require us to pay all or some property operating expenses and to provide all or most property management services. During the three months ended March 31, 2024, we entered into 13 leases for approximately 488,000 rentable square feet for a weighted (by rentable square feet) average lease term of 9.3 years, and we made commitments of $ 10,977 for leasing related costs. As of March 31, 2024, we had estimated unspent leasing related obligations of $ 103,390 . 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 re-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 historical carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. In addition to consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining useful lives of our long lived assets. If we change our estimate of the remaining useful lives, we allocate the carrying value of the affected assets over their revised remaining useful lives. Disposition Activities During the three months ended March 31, 2024, we sold one property containing approximately 248,000 rentable square feet for a sales price of $ 38,500 , excluding closing costs, and recognized a $ 2,384 loss on sale of real estate. The sale of this property does not represent a strategic shift in our business. As a result, the results of operations of this property are included in continuing operations through the date of sale in our condensed consolidated statements of comprehensive income (loss). 9 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) As of March 31, 2024, we had one property containing approximately 156,000 rentable square feet classified as held for sale in our condensed consolidated balance sheet. In April 2024 , we entered into an agreement to sell another property containing approximately 126,000 rentable square feet for a sales price of $ 7,800 , excluding closing costs. This pending sale is subject to conditions, and accordingly, we cannot be sure that we will complete this sale or that this sale will not be delayed or the terms will not change. Unconsolidated Joint Ventures As of March 31, 2024, we owned interests in two joint ventures that owned three properties. We accounted for these investments under the equity method of accounting. As of March 31, 2024 and December 31, 2023, our investments in unconsolidated joint ventures consisted of the following: OPI Carrying Value of Investments at Joint Venture OPI Ownership March 31, 2024 December 31, 2023 Number of Properties Location Rentable Square Feet Prosperity Metro Plaza 51 % $ 17,898 $ 18,128 2 Fairfax, VA 346,000 1750 H Street, NW 50 % — — 1 Washington, D.C. 125,000 Total $ 17,898 $ 18,128 3 471,000 The following table provides a summary of the mortgage debt of our two unconsolidated joint ventures: Joint Venture Interest Rate (1) Maturity Date Principal Balance at March 31, 2024 and December 31, 2023 (2) Prosperity Metro Plaza 4.09 % 12/1/2029 $ 50,000 1750 H Street, NW 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. In March 2024, our 1750 H Street, NW joint venture did not have sufficient cash flow to pay its monthly debt service, resulting in an event of default. We expect the non-recourse mortgage lender to this joint venture to take full possession of the property in the second quarter. We wrote off our full investment in this joint venture as of December 31, 2023 and did not make capital contributions to this joint venture during the three months ended March 31, 2024. Accordingly, we did not record our proportionate share of operating results of the joint venture for the three months ended March 31, 2024. As of March 31, 2024, the unamortized basis difference of our Prosperity Metro Plaza joint venture of $ 694 was primarily attributable to the difference between the amount we paid to purchase our interest in this joint venture, including transaction costs, and the historical carrying value of the net assets of this joint venture. This difference is being amortized over the remaining useful life of the related property and the resulting amortization expense is included in equity in net losses of investees in our condensed consolidated statements of comprehensive income (loss). As of March 31, 2024, there was no unamortized basis difference for our 1750 H Street, NW joint venture. Note 5. 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 10 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) 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 $ 7,379 and $ 4,173 for the three months ended March 31, 2024 and 2023, respectively. Rents receivable, excluding properties classified as held for sale, included $ 119,102 and $ 112,440 of straight line rent receivables at March 31, 2024 and December 31, 2023, 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 $ 22,558 and $ 21,370 for the three months ended March 31, 2024 and 2023, respectively, of which tenant reimbursements totaled $ 21,329 and $ 20,066 , respectively. Note 6. Concentration Tenant and Credit Concentration As of March 31, 2024 and 2023, the U.S. government and certain state and other government tenants combined were responsible for approximately 27.6 % and 28.5 %, respectively, of our annualized rental income. The U.S. government is our largest tenant by annualized rental income and represented approximately 20.2 % and 19.6 % of our annualized rental income as of March 31, 2024 and 2023, 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. Geographic Concentration As of March 31, 2024, our 151 wholly owned properties were located in 30 states and the District of Columbia. Properties located in Virginia, California, the District of Columbia, Georgia and Illinois were responsible for approximately 12.1 %, 11.8 %, 9.9 %, 9.1 % and 8.8 % of our annualized rental income as of March 31, 2024, respectively. Note 7. Indebtedness Our principal debt obligations as of March 31, 2024 were: (1) $ 190,000 of outstanding borrowings under our $ 325,000 secured revolving credit facility; (2) $ 100,000 outstanding principal amount under our secured term loan; (3) $ 2,162,000 aggregate outstanding principal amount of senior notes and (4) $ 177,320 aggregate outstanding principal amount of mortgage notes. In January 2024, we entered into an amended and restated credit agreement, or 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 a gross book value of real estate assets of $ 994,753 as of March 31, 2024. 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. 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. We are also required to pay an unused facility fee on the amount of total lending commitments, which was 25 basis points per annum at March 31, 2024. As of March 31, 2024 and April 30, 2024, we had $ 190,000 and $ 180,000 , respectively, outstanding under our revolving credit facility, $ 100,000 outstanding under our term loan and $ 135,000 and $ 145,000 , respectively, available for borrowing under our revolving credit facility. As of March 31, 2024, the 11 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) annual interest rate payable on borrowings under our credit agreement was 8.9 %. The weighted average annual interest rate for borrowings under our credit agreement for the three months ended March 31, 2024 was 8.5 %. We were required to pay interest at a rate of SOFR plus a premium, which was 110 basis points per annum as of March 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 25 basis points per annum. The weighted average annual interest rate for borrowings under our prior revolving credit facility for the three months ended March 31, 2023 was 5.6 %. Our revolving credit facility is governed by a credit agreement with a syndicate of institutional lenders. Our credit agreement and senior notes indentures and their supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR, ceasing to act as our business and property manager. Our credit agreement and senior 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 increase our distribution rate above the current level of $ 0.01 per common share per quarter. We believe we were in compliance with the terms and conditions of the respective covenants under our credit agreement and senior notes indentures and their supplements at March 31, 2024. Senior Secured Notes Issuance In February 2024, we issued $ 300,000 of 9.000 % senior secured notes due 2029, or the 2029 Notes. The aggregate net proceeds from the offering of the 2029 Notes were $ 270,848 , after initial purchaser discounts and other 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 a gross book value of real estate assets of $ 607,727 as of March 31, 2024. 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 March 2024, we redeemed, at par plus accrued interest, all $ 350,000 of our 4.25 % senior unsecured notes due 2024. As a result of this redemption, we recorded a loss on early extinguishment of debt of $ 425 during the three months ended March 31, 2024, which represented the unamortized discounts related to these notes. As of March 31, 2024, seven of our properties with an aggregate gross book value of real estate assets of $ 353,610 were encumbered by mortgage notes with an aggregate principal amount of $ 177,320 . Our mortgage notes are non-recourse, subject to certain limited exceptions and do not contain any material financial covenants. 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 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 senior 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. 12 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Note 8. 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, a term loan, senior notes, mortgage notes payable, amounts due to related persons, other accrued expenses and security deposits. At March 31, 2024 and December 31, 2023, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or floating interest rates, except as follows: As of March 31, 2024 As of December 31, 2023 Financial Instrument Carrying Value (1) Fair Value Carrying Value (1) Fair Value Senior unsecured notes, 4.25 % interest rate, due in 2024 (2) $ — $ — $ 349,144 $ 331,510 Senior unsecured notes, 4.50 % interest rate, due in 2025 647,128 537,160 646,266 510,445 Senior unsecured notes, 2.650 % interest rate, due in 2026 298,621 173,331 298,464 185,934 Senior unsecured notes, 2.400 % interest rate, due in 2027 348,242 171,693 348,086 196,147 Senior secured notes, 9.000 % interest rate, due in 2029 (3) 271,620 276,528 — — Senior unsecured notes, 3.450 % interest rate, due in 2031 396,722 169,276 396,614 199,060 Senior unsecured notes, 6.375 % interest rate, due in 2050 156,951 70,502 156,904 83,916 Mortgage notes payable 172,212 178,387 172,131 179,813 Total $ 2,291,496 $ 1,576,877 $ 2,367,609 $ 1,686,825 (1) Includes unamortized debt premiums, discounts and issuance costs totaling $ 47,824 and $ 21,711 as of March 31, 2024 and December 31, 2023, respectively. (2) These senior notes were redeemed in March 2024. (3) These senior notes were issued in February 2024. 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 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 9. Shareholders’ Equity Share Purchases During the three months ended March 31, 2024, we purchased 869 of our common shares, valued at a share price of $ 7.12 , from a former officer and employee of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares. We withheld and purchased these common shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date. Distributions During the three months ended March 31, 2024, 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 11, 2024 January 22, 2024 February 15, 2024 $ 0.01 $ 487 On April 11, 2024, we declared a regular quarterly distribution payable to common shareholders of record on April 22, 2024 in the amount of $ 0.01 per share, or approximately $ 487 . We expect to pay this distribution on or about May 16, 2024. 13 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Note 10. 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 $ 3,558 and $ 3,951 for the three months ended March 31, 2024 and 2023, respectively. Based on our common share total return, as defined in our business management agreement, as of March 31, 2024, no estimated incentive fees are included in the net business management fees we recognized for the three months ended March 31, 2024. The actual amount of annual incentive fees for 2024, if any, will be based on our common share total return for the three year period ending December 31, 2024, and will be payable in January 2025. We did no t incur an incentive fee payable to RMR for the year ended December 31, 2023. 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 $ 4,550 and $ 6,319 for the three months ended March 31, 2024 and 2023, respectively. Of these amounts, for the three months ended March 31, 2024 and 2023, $ 3,818 and $ 3,733 , respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 732 and $ 2,586 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets. The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets. We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR on our behalf. We are generally not responsible for payment of RMR’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR’s centralized accounting personnel, our share of RMR’s costs for providing our internal audit function and as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR. We reimbursed RMR $ 6,587 and $ 6,347 for these expenses and costs for the three months ended March 31, 2024 and 2023, 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 11. 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 Clark, our other Managing Trustee, is 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 also 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, including Ms. Clark, serve as managing trustees or officers of certain of these companies. Our Manager, RMR. We have two agreements with RMR to provide management services to us. RMR also provides management services to our two unconsolidated joint ventures. See Note 10 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 $ 194 and $ 223 for the three months ended March 31, 2024 and 2023, respectively. 14 Table of Contents OFFICE PROPERTIES INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) (unaudited) Sonesta . We lease 230,000 rentable square feet of an office property in Washington, D.C. to a subsidiary of Sonesta International Hotels Corporation, or Sonesta. Our lease with Sonesta commenced in August 2023 and expires in 2053 and 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 February 2025. 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 property. We recognized rental income of $ 2,775 during the three months ended March 31, 2024 under our lease with Sonesta. Mr. Portnoy is a director and controlling shareholder of Sonesta and Ms. Clark is a director of Sonesta. Another officer and employee of RMR is a director and president and chief executive officer of Sonesta. For more information about these and other such relationships and certain other related person transactions, refer to our 2023 Annual Report. 15 Table of Contents