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Item 1. Financial Statements

2024-07-31 compared with 2024-05-01 · 176 added, 104 removed, 302 unchanged (48% of the section changed)

3 unchanged sentences

(dollars in thousands, except per share data)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Real estate properties:

34 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended March 31,

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

2024 2023 2024 2023

Rental income $ 123,686 $ 133,997 $ 263,121 $ 266,419

3 unchanged sentences

Depreciation and amortization 50,391 51,601 100,732 103,293

Acquisition and transaction related costs 233 3,218

Loss on impairment of real estate 131,732 — 131,732 —

Transaction related costs — 11,181 233 14,399

General and administrative 5,290 5,785 10,934 11,710

4 unchanged sentences

( 38,349 ) ( 26,525 ) ( 73,825 ) ( 51,756 )

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 )

Gain on early extinguishment of debt 225,798 — 225,373 —

Income (loss) before income tax benefit (expense) and equity in net losses of investees 76,244 ( 11,340 ) 71,346 ( 10,922 )

Income tax benefit (expense) 107 ( 211 ) 51 ( 241 )

Equity in net losses of investees ( 180 ) ( 691 ) ( 410 ) ( 1,525 )

Net loss $ ( 5,184 ) $ ( 446 )

Net income (loss) $ 76,171 $ ( 12,242 ) $ 70,987 $ ( 12,688 )

Weighted average common shares outstanding (basic and diluted) 48,648 48,354 48,557 48,345

Per common share amounts (basic and diluted):

Net loss $ ( 0.11 ) $ ( 0.01 )

Net income (loss) $ 1.56 $ ( 0.25 ) $ 1.45 $ ( 0.27 )

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8 unchanged sentences

Common share grants — — 362 — — 362

Common share forfeitures and repurchases ( 869 ) — ( 6 ) — — ( 6 )

Common share repurchases ( 869 ) — ( 6 ) — — ( 6 )

Net loss — — — ( 5,184 ) — ( 5,184 )

1 unchanged sentence

Balance at March 31, 2024 48,754,546 488 2,621,849 94,990 ( 1,466,963 ) 1,250,364

of Shares Common Shares Additional

Paid In Capital Cumulative

Net Income Cumulative

Distributions Total Shareholders’ Equity

Issuance of common shares 1,406,952 14 3,166 — — 3,180

Common share grants 104,643 1 486 — — 487

Common share repurchases ( 7,505 ) — ( 15 ) — — ( 15 )

Net income — — — 76,171 — 76,171

Distributions to common shareholders — — — — ( 488 ) ( 488 )

Balance at June 30, 2024 50,258,636 $ 503 $ 2,625,486 $ 171,161 $ ( 1,467,451 ) $ 1,329,699

Balance at December 31, 2022 48,565,644 $ 486 $ 2,619,532 $ 169,606 $ ( 1,403,289 ) $ 1,386,335

4 unchanged sentences

Balance at March 31, 2023 48,563,709 486 2,619,994 169,160 ( 1,429,999 ) 1,359,641

Common share grants 31,500 — 744 — — 744

Common share forfeitures and repurchases ( 7,559 ) — ( 47 ) — — ( 47 )

Net loss — — — ( 12,242 ) — ( 12,242 )

Distributions to common shareholders — — — — ( 12,141 ) ( 12,141 )

Balance at June 30, 2023 48,587,650 $ 486 $ 2,620,691 $ 156,918 $ ( 1,442,140 ) $ 1,335,955

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2 unchanged sentences

(dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $ ( 5,184 ) $ ( 446 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Net income (loss) $ 70,987 $ ( 12,688 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation 60,690 50,459

3 unchanged sentences

Loss (gain) on sale of real estate 2,448 ( 243 )

Loss on early extinguishment of debt 425 —

Loss on impairment of real estate 131,732 —

Gain on early extinguishment of debt ( 231,957 ) —

Straight line rental income ( 14,942 ) ( 8,429 )

1 unchanged sentence

Equity in net losses of investees 410 1,525

Change in assets and liabilities:

Changes in assets and liabilities:

Rents receivable 3,653 3,440

10 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayment of mortgage notes payable — ( 50,000 )

Proceeds from issuance of mortgage notes payable — 108,120

Repayment of senior unsecured notes ( 350,242 ) —

14 unchanged sentences

(dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid $ 65,353 $ 51,134

Income taxes paid $ 319 $ 339

NON-CASH INVESTING ACTIVITIES:

1 unchanged sentence

Capitalized interest $ 969 $ 4,732

NON-CASH FINANCING ACTIVITIES:

Extinguishment of unsecured senior notes in exchange for senior secured notes and common shares $ ( 294,610 ) $ —

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,

As of June 30,

Cash and cash equivalents $ 13,498 $ 25,212

41 unchanged sentences

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,

Net loss $ ( 5,184 ) $ ( 446 )

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

2024 2023 2024 2023

Net income (loss) $ 76,171 $ ( 12,242 ) $ 70,987 $ ( 12,688 )

Income attributable to unvested participating securities

( 431 ) ( 56 ) ( 411 ) ( 182 )

Net loss used in calculating earnings per common share $ ( 5,187 ) $ ( 572 )

Net income (loss) used in calculating earnings per common share $ 75,740 $ ( 12,298 ) $ 70,576 $ ( 12,870 )

Denominators:

Weighted average common shares outstanding - basic and diluted 48,648 48,354 48,557 48,345

Net loss per common share - basic and diluted $ ( 0.11 ) $ ( 0.01 )

Net income (loss) per common share - basic and diluted $ 1.56 $ ( 0.25 ) $ 1.45 $ ( 0.27 )

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.

As of June 30, 2024, our wholly owned properties were comprised of 151 properties containing approximately 20,293,000 rentable square feet, with an undepreciated carrying value of $ 3,989,206 , including $ 207,146 classified as held for sale.

We also had a noncontrolling ownership interest of 51 % in an unconsolidated joint venture that owned two properties containing approximately 346,000 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 .

During the three months ended June 30, 2024, we entered into 12 leases for approximately 208,000 rentable square feet for a weighted (by rentable square feet) average lease term of 4.0 years, and we made commitments of $ 3,982 for leasing related costs.

During the six months ended June 30, 2024, we entered into 25 leases for approximately 696,000 rentable square feet for a weighted (by rentable square feet) average lease term of 7.7 years and we made commitments for approximately $ 14,959 of leasing related costs.

As of June 30, 2024, we had estimated unspent leasing related obligations of $ 80,649 .

We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of long lived assets.

7 unchanged sentences

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.

During the six months ended June 30, 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 $ 2,448 loss on sale of real estate.

The sale of this property does not represent a strategic shift in our business.

3 unchanged sentences

(dollars in thousands, except per share data)

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.

As of June 30, 2024, we had 12 properties classified as held for sale in our condensed consolidated balance sheet that are under agreement to sell for an aggregate sales price of $ 93,539 as summarized below:

Date of Sale Agreement Number of Properties Location Rentable Square Feet Gross Sales Price (1)

Loss on Impairment of Real Estate

April 2024 1 Malden, MA

126,000 $ 7,800 $ 13,973

May 2024 1 Colorado Springs, CO 156,000 27,229 —

May 2024 1 Atlanta, GA 126,000 17,610 —

June 2024 3 Indianapolis, IN 434,000 10,100 50,852

July 2024 5 Atlanta, GA 378,000 19,000 21,126

July 2024 1 Westford, MA

175,000 11,800 3,554

12 1,395,000 $ 93,539 $ 89,505

(1) Gross sales price is the contract price, excluding closing costs.

We also had three additional properties held for sale in our condensed consolidated balance sheet as of June 30, 2024 and we recorded a $ 42,227 loss on impairment to adjust the carrying values of these properties to their estimated fair values, less costs to sell, during the six months ended June 30, 2024.

The pending sales in the preceding table 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.

See Note 8 for more information regarding our properties held for sale.

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:

As of June 30, 2024, we owned an interest in one joint venture that owned two properties.

We accounted for this investment under the equity method of accounting.

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.

In June 2024, the non-recourse mortgage lender to this joint venture completed a foreclosure of the property and the joint venture no longer has an economic interest in the property.

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 six months ended June 30, 2024.

Accordingly, we did not record our proportionate share of operating results of the joint venture for the six months ended June 30, 2024.

As of June 30, 2024 and December 31, 2023, our investments in our unconsolidated joint ventures consisted of the following:

OPI Carrying Value of Investments at

Joint Venture OPI Ownership March 31,

Joint Venture OPI Ownership June 30,

2024 December 31, 2023 Number of Properties Location Rentable Square Feet

2 unchanged sentences

Total $ 17,718 $ 18,128 3 471,000

The following table provides a summary of the mortgage debt of our two unconsolidated joint ventures:

The following table provides a summary of the mortgage debt of our unconsolidated joint ventures as of June 30, 2024 and December 31, 2023:

Joint Venture Interest Rate (1)

Maturity Date Principal Balance at March 31, 2024 and December 31, 2023 (2)

Maturity Date Principal Balance at

June 30, 2024 (2)

Principal Balance at

December 31, 2023 (2)

Prosperity Metro Plaza 4.09 % 12/1/2029 $ 50,000 $ 50,000

2 unchanged sentences

(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.

(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 did 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.

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

As of June 30, 2024, the unamortized basis difference of our Prosperity Metro Plaza joint venture of $ 687 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.

Our leases provide for base rent payments and, in addition, may include variable payments.

3 unchanged sentences

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

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

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 have determined the fixed non-cancelable lease term of these leases to be the full term of the lease because we believe the occurrence of early terminations to be a remote contingency based on both our historical experience and our assessments of the likelihood of lease cancellation on a separate lease basis.

We increased rental income to record revenue on a straight line basis by $ 7,563 and $ 4,256 for the three months ended June 30, 2024 and 2023, respectively, and $ 14,942 and $ 8,429 for the six months ended June 30, 2024 and 2023, respectively.

Rents receivable, excluding properties classified as held for sale, included $ 126,665 and $ 112,440 of straight line rent receivables at June 30, 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.

Such payments totaled $ 20,271 and $ 42,829 for the three and six months ended June 30, 2024, respectively, of which tenant reimbursements totaled $ 19,067 and $ 40,396 , respectively.

For the three and six months ended June 30, 2023, such payments totaled $ 22,190 and $ 43,560 , respectively, of which tenant reimbursements totaled $ 20,853 and $ 40,919 , respectively.

Concentration

Tenant and Credit Concentration

As of March 31, 2024 and 2023, the U.S.

As of June 30, 2024 and 2023, the U.S.

government and certain state and other government tenants combined were responsible for approximately 27.0 % and 28.5 %, respectively, of our annualized rental income.

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.

government is our largest tenant by annualized rental income and represented approximately 19.3 % and 19.6 % of our annualized rental income as of June 30, 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.

Our principal debt obligations as of March 31, 2024 were:

As of June 30, 2024, our 151 wholly owned properties were located in 30 states and the District of Columbia.

Properties located in Virginia, California, District of Columbia, Georgia and Illinois were responsible for approximately 12.5 %, 10.7 %, 10.1 %, 9.4 % and 9.1 % of our annualized rental income as of June 30, 2024, respectively.

Our principal debt obligations as of June 30, 2024 were:

(1) $ 178,000 of outstanding borrowings under our $ 325,000 secured revolving credit facility;

3 unchanged sentences

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.

As collateral for all loans and other obligations under our credit

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

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 $ 1,001,437 as of June 30, 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.

3 unchanged sentences

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

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

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 %.

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 June 30, 2024.

As of June 30, 2024 and July 30, 2024, we had $ 178,000 and $ 190,000 , respectively, outstanding under our revolving credit facility, $ 100,000 outstanding under our term loan and $ 147,000 and $ 135,000 , respectively, available for borrowing under our revolving credit facility.

As of June 30, 2024, the 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 and six months ended June 30, 2024 was 8.9 % and 8.7 %.

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

The weighted average annual interest rate for borrowings under our prior revolving credit facility for the three and six months ended June 30, 2023 was 6.5 % and 6.2 %, respectively.

Our revolving credit facility is governed by a credit agreement with a syndicate of institutional lenders.

1 unchanged sentence

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.

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 June 30, 2024.

Senior Secured Notes Issuance

1 unchanged sentence

The aggregate net proceeds from the offering of the 2029 Notes were $ 270,712 , 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.

1 unchanged sentence

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 .

As a result of this redemption, we recorded a loss on early extinguishment of debt of $ 425 during the six months ended June 30, 2024, which represented the unamortized discounts related to these notes.

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

Senior Notes Exchange

In June 2024, we exchanged $ 567,429 of new 9.000 % senior secured notes, or the New 2029 Notes, for an aggregate $ 865,219 of our outstanding unsecured senior notes, or the Existing Notes, and such transaction, the Senior Note Exchange, as follows:

Existing Notes Exchanged Aggregate Principal Amount of Existing Notes Accepted for Exchange Aggregate Principal Amount of New Notes Delivered

Existing 4.50 % 2025 Notes

$ 150,846 $ 141,411

Existing 2.650 % 2026 Notes

159,512 114,803

Existing 2.400 % 2027 Notes

269,216 164,162

Existing 3.450 % 2031 Notes

285,645 147,053

Total $ 865,219 $ 567,429

The New 2029 Notes are fully and unconditionally guaranteed on a joint, several and senior secured basis by certain of our subsidiaries and are secured by first mortgage liens on 19 properties with a gross book value of real estate assets of $ 715,986 as of June 30, 2024 and second mortgage liens on the 19 properties securing our credit agreement.

The New 2029 Notes require semi-annual payments of interest only and are prepayable, at par plus accrued interest, after June 3, 2028.

During the six months ended June 30, 2024, we recorded a gain on early extinguishment of debt of $ 225,798 as a result of the Senior Note Exchange.

The extinguishment of debt is considered cancellation of debt income, or CODI, for income tax purposes and part of our REIT taxable income.

We currently do not expect that any special distribution will be required to maintain our qualification for taxation as a REIT as a result of generating CODI in 2024.

However, we will be taxed at regular corporate income tax rates on any undistributed REIT taxable income.

As of June 30, 2024, seven of our properties with an aggregate gross book value of real estate assets of $ 303,643 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.

We currently do not have sufficient sources of liquidity to repay our $ 499,154 senior unsecured notes due 2025 and are evaluating market-based alternatives to obtain debt or equity 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.

Additionally, as we have evaluated our financing options, we have determined that certain assets in our portfolio may not be suitable for secured financing.

We are considering whether to sell those assets to raise cash and are at various stages of the sales process for those properties.

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

Fair Value of Assets and Liabilities

The following table presents certain of our assets measured at fair value at June 30, 2024, categorized by level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset:

Fair Value at Reporting Date Using

Description Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)

Non-recurring Fair Value Measurements Assets

Assets of properties held for sale (1)

$ 99,650 $ — $ 99,650 $ —

(1) We recorded an impairment charge of $ 131,732 to reduce the carrying values of 13 properties that are classified as held for sale in our condensed consolidated balance sheet to their estimated fair values less estimated costs to sell of $ 3,425 , based on negotiated sales prices with third party buyers (Level 2 inputs as defined in the fair value hierarchy under GAAP).

See Note 4 for more information.

OFFICE PROPERTIES INCOME TRUST

1 unchanged sentence

(dollars in thousands, except per share data)

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

At June 30, 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 June 30, 2024 As of December 31, 2023

Financial Instrument Carrying Value (1)

10 unchanged sentences

272,914 273,804 — —

Senior secured notes, 9.000 % interest rate, due in 2029 (4)

599,284 445,432 — —

Senior unsecured notes, 3.450 % interest rate, due in 2031

4 unchanged sentences

Total $ 2,031,914 $ 1,516,321 $ 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.

(1) Includes net unamortized debt premiums, discounts and issuance costs totaling $ 9,616 and $ 21,711 as of June 30, 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.

(4) These senior notes were issued in June 2024.

We estimated the fair values of our senior 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.

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Shareholders’ Equity

Share Issuances

In connection with the Senior Note Exchange, we entered into a support agreement with certain holders of our Existing Notes, or the Supporting Noteholders, pursuant to which, on June 21, 2024, in exchange for the Supporting Noteholders tendering their Existing Notes, we issued 1,406,952 of our common shares, valued at $ 2.26 per share, the closing price of our common shares on Nasdaq on that day, to the Supporting Noteholders.

On June 13, 2024, in accordance with our Trustee compensation agreements, we awarded to each of our nine Trustees 11,627 of our common shares, valued at $ 2.15 per share, the closing price of our common shares on Nasdaq on that day.

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.

During the three and six months ended June 30, 2024, we purchased an aggregate 7,505 and 8,374 of our common shares, respectively, valued at a weighted average share price of $ 2.02 and $ 2.55 , respectively, from one of our Trustees and certain former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

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.

OFFICE PROPERTIES INCOME TRUST

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(dollars in thousands, except per share data)

Distributions

During the six months ended June 30, 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

April 11, 2024 April 22, 2024 May 15, 2024 0.01 488

On July 11, 2024, we declared a regular quarterly distribution payable to common shareholders of record on July 22, 2024 in the amount of $ 0.01 per share, or approximately $ 503 .

We expect to pay this distribution on or about August 15, 2024.

Business and Property Management Agreements with RMR

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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.

Pursuant to our business management agreement with RMR, we recognized net business management fees of $ 3,309 and $ 6,867 for the three and six months ended June 30, 2024, respectively, and $ 3,592 and $ 7,543 for the three and six months ended June 30, 2023, respectively.

Based on our common share total return, as defined in our business management agreement, as of June 30, 2024, no estimated incentive fees are included in the net business management fees we recognized for the three and six months ended June 30, 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.

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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.

Pursuant to our property management agreement with RMR, we recognized aggregate net property management and construction supervision fees of $ 4,413 and $ 8,963 for the three and six months ended June 30, 2024, respectively, and $ 6,163 and $ 12,482 for the three and six months ended June 30, 2023, respectively.

Of these amounts, for the three and six months ended June 30, 2024, $ 3,339 and $ 7,157 , respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,074 and $ 1,806 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

For the three and six months ended June 30, 2023, $ 3,801 and $ 7,534 , respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 2,362 and $ 4,948 , respectively, were capitalized as building improvements in our condensed consolidated balance sheet.

The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets.

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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 reimbursed RMR $ 6,382 and $ 12,969 for these expenses and costs for the three and six months ended June 30, 2024, respectively, and $ 6,617 and $ 12,964 for the three and six months ended June 30, 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.

Management Agreement Between Our Joint Venture and RMR .

RMR provides management services to our unconsolidated joint venture.

We are not obligated to pay management fees to RMR under our management agreement with RMR for the services it provides regarding the joint venture.

The joint venture pays management fees directly to RMR.

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

Related Person Transactions

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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.

RMR also provides management services to our unconsolidated joint venture.

See Note 10 for more information regarding our and our unconsolidated joint venture’s management agreement 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.

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

We lease 230,000 rentable square feet of an office property in Washington, D.C.

Pursuant to our lease agreements with RMR, we recognized rental income from RMR for leased office space of $ 205 and $ 399 for the three and six months ended June 30, 2024, respectively, and $ 244 and $ 467 for the three and six months ended June 30, 2023, respectively.

We lease 230,000 rentable square feet of a mixed-use property in Washington, D.C.

to a subsidiary of Sonesta International Hotels Corporation, or Sonesta.

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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.

We recognized rental income of $ 3,095 and $ 5,870 during the three and six months ended June 30, 2024, respectively, under our lease with Sonesta.

Portnoy is a director and controlling shareholder of Sonesta and Ms.

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

What changed 10-Q

Item 1. Financial Statements