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Item 1. Financial Statements

2024-10-30 compared with 2024-07-31 · 176 added, 123 removed, 355 unchanged (46% of the section changed)

3 unchanged sentences

(dollars in thousands, except per share data)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Real estate properties:

34 unchanged sentences

(amounts in thousands, except per share data)

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

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

8 unchanged sentences

Total expenses 144,974 123,784 487,432 350,113

(Loss) gain on sale of real estate ( 64 ) ( 2,305 ) ( 2,448 ) 243

Gain on sale of real estate 8,456 244 6,008 487

Interest and other income 196 281 1,779 782

2 unchanged sentences

Gain on early extinguishment of debt 264 — 225,637 —

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 )

(Loss) income before income tax expense and equity in net losses of investees ( 58,018 ) ( 18,733 ) 13,328 ( 29,655 )

Income tax expense ( 230 ) ( 95 ) ( 179 ) ( 336 )

Equity in net losses of investees ( 166 ) ( 765 ) ( 576 ) ( 2,290 )

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

Net (loss) income $ ( 58,414 ) $ ( 19,593 ) $ 12,573 $ ( 32,281 )

Weighted average common shares outstanding (basic and diluted) 51,197 48,403 49,444 48,365

Per common share amounts (basic and diluted):

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

Net (loss) income $ ( 1.14 ) $ ( 0.41 ) $ 0.25 $ ( 0.67 )

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

18 unchanged sentences

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

Issuance of common shares 3,184,432 32 7,416 — — 7,448

Common share grants 544,555 5 520 — — 525

Common share repurchases ( 76,642 ) ( 1 ) ( 169 ) — — ( 170 )

Net loss — — — ( 58,414 ) — ( 58,414 )

Distributions to common shareholders — — — — ( 502 ) ( 502 )

Balance at September 30, 2024 53,910,981 $ 539 $ 2,633,253 $ 112,747 $ ( 1,467,953 ) $ 1,278,586

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

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (CONTINUED)

(dollars in thousands)

of Shares Common Shares Additional

Paid In Capital Cumulative

Net Income Cumulative

Distributions Total Shareholders’ Equity

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

9 unchanged sentences

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

Common share grants 210,300 2 656 — — 658

Common share forfeitures and repurchases ( 40,704 ) — ( 240 ) — — ( 240 )

Net loss — — — ( 19,593 ) — ( 19,593 )

Distributions to common shareholders — — — — ( 12,147 ) ( 12,147 )

Balance at September 30, 2023 48,757,246 $ 488 $ 2,621,107 $ 137,325 $ ( 1,454,287 ) $ 1,304,633

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

2 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

5 unchanged sentences

Amortization of deferred leasing costs 9,562 7,359

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

Gain on sale of real estate ( 6,008 ) ( 487 )

Loss on impairment of real estate 173,579 —

13 unchanged sentences

Contributions to unconsolidated joint ventures — ( 3,763 )

Proceeds from sale of properties, net 35,722 12,527

Proceeds from sale of property, net 79,830 22,449

Net cash used in investing activities ( 13,251 ) ( 156,942 )

8 unchanged sentences

Payment of debt issuance costs ( 42,226 ) ( 5,843 )

Repurchase of common shares ( 21 ) ( 57 )

Repurchases of common shares ( 191 ) ( 291 )

Distributions to common shareholders ( 1,477 ) ( 50,998 )

7 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

SUPPLEMENTAL CASH FLOW INFORMATION:

8 unchanged sentences

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 June 30,

As of September 30,

Cash and cash equivalents $ 22,363 $ 24,358

Restricted cash (1)

13,906 15,270

Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows $ 36,269 $ 39,628

16 unchanged sentences

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.

Going Concern

Our portfolio has been adversely affected by shifts in office space utilization, including increased remote work arrangements and tenants consolidating their real estate footprint.

Demand for office space continues to face headwinds and declining rents and increasing costs to relet space when tenants can be identified continue to impact the market.

In addition, there are limited debt or equity financing alternatives available to us to refinance our debt and financing sources we have utilized have increased our cost of capital.

The duration and ultimate impact of these factors on our properties and our business remains uncertain and subject to change;

however, these conditions continue to have a significant negative impact on our results of operations, financial position and cash flows.

As of October 30, 2024, our total available liquidity was comprised of $ 146,448 of cash and, in addition to long-term debt, our $ 456,700 of unsecured senior notes due on February 1, 2025, or the 2025 Notes, are due within one year from the date of issuance of these financial statements.

Given the limited alternatives available to us to obtain debt or equity to refinance our maturing debt, the illiquid nature of our real estate assets and our ability to incur additional debt while maintaining compliance with the financial covenants in our existing debt agreements, we are currently in negotiations with certain holders of the 2025 Notes regarding a potential note exchange.

However, we are not able to conclude that it is probable that the negotiations will result in an exchange that refinances the 2025 Notes prior to their maturity.

If we are unable to consummate a transaction that refinances the 2025 Notes on terms which, in our view, allow us to continue as a going concern, our Board of Trustees may consider a reorganization in a bankruptcy court.

As a result of the foregoing, we have concluded that there is substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of these financial statements, or October 30, 2024.

Our condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

Recent Accounting Pronouncements

O n November 27, 2023, the Financial Accounting Standards Board issued Accounting Standards Update No.

In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update No.

2023-07, Segment Reporting (Topic 280):

9 unchanged sentences

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.

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

We expect to include additional disclosures in the notes to our condensed consolidated financial statements as a result of the implementation of ASU No.

however, these changes are not expected to have a material effect on our condensed consolidated financial statements.

Per Common Share Amounts

3 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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

Net (loss) income $ ( 58,414 ) $ ( 19,593 ) $ 12,573 $ ( 32,281 )

Income attributable to unvested participating securities ( 2 ) ( 50 ) ( 74 ) ( 232 )

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

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

Net (loss) income used in calculating earnings per common share $ ( 58,416 ) $ ( 19,643 ) $ 12,499 $ ( 32,513 )

Denominators:

Weighted average common shares outstanding - basic and diluted 51,197 48,403 49,444 48,365

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

Net (loss) income per common share - basic and diluted $ ( 1.14 ) $ ( 0.41 ) $ 0.25 $ ( 0.67 )

Real Estate Properties

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.

As of September 30, 2024, our 145 wholly owned properties included approximately 19,543,000 rentable square feet, with an undepreciated carrying value of $ 3,873,075 , including $ 176,465 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.

1 unchanged sentence

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 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 .

During the three months ended September 30, 2024, we entered into 14 leases for approximately 987,000 rentable square feet for a weighted (by rentable square feet) average lease term of 10.2 years, and we made commitments of $ 65,916 for leasing related costs.

During the nine months ended September 30, 2024, we entered into 39 leases for approximately 1,683,000 rentable square feet for a weighted (by rentable square feet) average lease term of 9.1 years and we made commitments for approximately $ 80,875 of leasing related costs.

As of September 30, 2024, we had estimated unspent leasing related obligations of $ 100,646 .

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.

Impairment indicators may include declining tenant occupancy, lack of progress re-leasing vacant

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

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.

5 unchanged sentences

Disposition Activities

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.

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).

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

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:

During the nine months ended September 30, 2024, we sold seven properties containing approximately 998,000 rentable square feet for an aggregate sales price of $ 84,810 , excluding closing costs.

The sales of these properties, as presented in the table below, do not represent a strategic shift in our business.

As a result, the results of operations of these properties are included in continuing operations through the date of sale in our condensed consolidated statements of comprehensive income (loss).

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

Gain (Loss) on Sale of Real Estate Loss on Impairment of Real Estate

March 2024 1 Chicago, IL 248,000 $ 38,500 $ ( 2,448 ) $ —

July 2024 1 Malden, MA 126,000 7,800 ( 10 ) 13,973

August 2024 3 Indianapolis, IN 434,000 10,100 729 50,851

September 2024 1 Atlanta, GA 126,000 17,610 8,691 —

September 2024 1 San Jose, CA 64,000 10,800 ( 954 ) 819

7 998,000 $ 84,810 $ 6,008 $ 65,643

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

As of September 30, 2024, we had 13 properties classified as held for sale in our condensed consolidated balance sheet that are under agreement to sell for an aggregate sales price of $ 107,802 , excluding closing costs, 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 $ 26,164 $ —

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 18,100 21,937

July 2024 1 Westford, MA

175,000 11,800 3,554

August 2024 1 Rocklin, CA 19,000 2,650 —

September 2024 1 Kansas City, MO 87,000 8,000 4,370

September 2024 2 Santa Clara, CA 149,000 21,150 11,041

October 2024 2 Tempe, AZ 101,000 10,738 —

October 2024 1 Sacramento, CA 338,000 21,000 33,904

13 1,228,000 $ 107,802 $ 71,252

(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.

We also had four additional properties classified as held for sale in our condensed consolidated balance sheet as of September 30, 2024 and we recorded a $ 22,094 loss on impairment of real estate to adjust the carrying values of two of these properties to their estimated fair values, less costs to sell, during the nine months ended September 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.

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

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

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

We also recorded a $ 12,017 loss on impairment of real estate to reduce the carrying value of one property that was classified as held for sale to its estimated fair value, less costs to sell as of June 30, 2024.

Subsequently, we removed this property from held for sale status due to a change of plan for sale and recorded an additional loss on impairment of $ 2,573 to reduce the carrying value of this property to its estimated fair value as of September 30, 2024.

In October 2024, we entered into agreements to sell an additional four properties with approximately 381,000 rentable square feet for an aggregate sales price of $ 11,350 , excluding closing costs.

Unconsolidated Joint Ventures

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

As of September 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:

During the nine months ended September 30, 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 and the non-recourse mortgage lender to this joint venture completed a foreclosure of the property and the joint venture ceased to have 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 nine months ended September 30, 2024.

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

As of September 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 June 30,

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

Joint Venture OPI Ownership September 30, 2024 December 31, 2023 Number of Properties Location Rentable Square Feet

Prosperity Metro Plaza 51 % $ 17,552 $ 18,128 2 Fairfax, VA 346,000

1 unchanged sentence

Total $ 17,552 $ 18,128 3 471,000

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

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

Joint Venture Interest Rate (1)

Maturity Date Principal Balance at

June 30, 2024 (2)

Principal Balance at

December 31, 2023 (2)

Maturity Date Principal Balance at September 30, 2024 (2)

Principal Balance at December 31, 2023 (2)

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

4 unchanged sentences

None of the debt is recourse to us.

As of September 30, 2024, the unamortized basis difference of our Prosperity Metro Plaza joint venture of $ 680 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.

The 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).

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 once 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

OFFICE PROPERTIES INCOME TRUST

1 unchanged sentence

(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).

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.

the lease term.

Allowances for bad debts are recognized as a direct reduction of rental income.

1 unchanged sentence

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 increased rental income to record revenue on a straight line basis by $ 8,854 and $ 8,691 for the three months ended September 30, 2024 and 2023, respectively, and $ 23,796 and $ 17,120 for the nine months ended September 30, 2024 and 2023, respectively.

Rents receivable, excluding properties classified as held for sale, included $ 134,218 and $ 112,440 of straight line rent receivables at September 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 $ 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.

Such payments totaled $ 22,291 and $ 65,120 for the three and nine months ended September 30, 2024, respectively, of which tenant reimbursements totaled $ 21,271 and $ 61,667 , respectively.

For the three and nine months ended September 30, 2023, such payments totaled $ 21,067 and $ 64,627 , respectively, of which tenant reimbursements totaled $ 19,722 and $ 60,641 , respectively.

Concentration

Tenant and Credit Concentration

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

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

government and certain state and other government tenants combined were responsible for approximately 24.5 % and 28.1 %, respectively, of our annualized rental income.

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.

government is our largest tenant by annualized rental income and represented approximately 16.6 % and 20.0 % of our annualized rental income as of September 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 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:

As of September 30, 2024, our 145 wholly owned properties were located in 30 states and the District of Columbia.

Properties located in Virginia, California, District of Columbia, Illinois and Georgia were responsible for approximately 12.4 %, 10.6 %, 10.6 %, 9.7 % and 9.7 % of our annualized rental income as of September 30, 2024, respectively.

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

(1) $ 200,000 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

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.

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 $ 1,012,536 as of September 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.

2 unchanged sentences

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.

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

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 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.

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 September 30, 2024.

As of September 30, 2024, we had $ 200,000 , outstanding under our revolving credit facility, $ 100,000 outstanding under our term loan and $ 125,000 available for borrowing under our revolving credit facility.

In October 2024, we borrowed $ 125,000 under our revolving credit facility to preserve financial flexibility.

As of October 29, 2024, we had fully drawn our $ 325,000 revolving credit facility and $ 100,000 was outstanding under our term loan.

As of September 30, 2024, the annual interest rate payable on borrowings under our credit agreement was 8.4 %.

The weighted average annual interest rate for borrowings under our credit agreement for the three and nine months ended September 30, 2024 was 8.9 %.

We were required to pay interest at a rate of SOFR plus a premium, which was 145 basis points per annum as of September 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 nine months ended September 30, 2023 was 6.8 % and 6.4 %, 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 June 30, 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 September 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 $ 618,644 as of June 30, 2024.

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

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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 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

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

Senior Notes Exchanges

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:

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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.

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

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 $ 716,969 as of September 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 .

During the nine months ended September 30, 2024, we recorded a gain on early extinguishment of debt of $ 225,210 as a result of the Senior Note Exchange.

During the three and nine months ended September 30, 2024, in a series of exchange transactions, we exchanged an aggregate principal amount of $ 8,300 of the 2025 Notes for an aggregate 3,184,432 of our common shares at a weighted average price of $ 2.34 per share.

During the nine months ended September 30, 2024, we recorded a gain on early extinguishment of debt of $ 852 as a result of these exchanges.

In October 2024, in a series of exchange transactions, we exchanged an additional aggregate principal amount of $ 34,154 of the 2025 Notes for $ 42,570 of new 9.0 % senior secured notes due 2029 on substantially similar terms as the New 2029 Notes and an aggregate 1,870,238 of our common shares.

The gains we realized on early extinguishment of debt are 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 real estate investment trust, or REIT, as a result of generating CODI in 2024.

However, this assertion is based on our expectation that we will complete additional dispositions that will result in additional losses on sale of real estate in 2024.

If these sales are not completed, we will be taxed at regular corporate income tax rates on any undistributed REIT taxable income.

As of September 30, 2024, seven of our properties with an aggregate gross book value of real estate assets of $ 304,961 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 $ 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.

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:

The following table presents certain of our assets measured at fair value at September 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

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Non-recurring Fair Value Measurements Assets

Real estate properties (1)

$ 4,170 $ — $ — $ 4,170

Assets of properties held for sale (2)

$ 94,545 $ — $ 94,545 $ —

(1) We recorded an impairment charge of $ 14,590 to reduce the carrying value of one property that was classified as held for sale as of June 30, 2024 and subsequently removed from held for stale status to its estimated fair value based on third party offers (Level 3 inputs as defined in the fair value hierarchy under GAAP).

(2) We recorded an impairment charge of $ 93,346 to reduce the carrying values of 11 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 $ 2,282 , based on negotiated sales prices with third party buyers (Level 2 inputs as defined in the fair value hierarchy under GAAP).

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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 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

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

Financial Instrument Carrying Value (1)

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Total $ 2,023,840 $ 1,665,368 $ 2,367,609 $ 1,686,825

(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.

(1) Includes net unamortized debt premiums, discounts and issuance costs totaling $ 9,390 and $ 21,711 as of September 30, 2024 and December 31, 2023, respectively.

(2) These senior notes were redeemed in March 2024.

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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.

See Note 7 for information regarding the additional share issuances we have made as part of exchanges for the 2025 Notes.

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 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.

On September 11, 2024, we awarded under our equity compensation plan an aggregate of 544,555 of our common shares, valued at $ 2.13 per share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of RMR.

OFFICE PROPERTIES INCOME TRUST

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(dollars in thousands, except per share data)

Share Purchases

During the three and nine months ended September 30, 2024, we purchased an aggregate 76,642 and 85,016 of our common shares, respectively, valued at a weighted average share price of $ 2.22 and $ 2.25 , respectively, from our officers and certain other current and former officers and employees of RMR, in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

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 six months ended June 30, 2024, we declared and paid regular quarterly distributions to common shareholders as follows:

During the nine months ended September 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

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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.

July 11, 2024 July 22, 2024 August 15, 2024 0.01 502

$ 0.03 $ 1,477

On October 16, 2024, we declared a regular quarterly distribution payable to common shareholders of record on October 28, 2024 in the amount of $ 0.01 per share, or approximately $ 555 .

We expect to pay this distribution on or about November 14, 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 $ 3,309 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.

Pursuant to our business management agreement with RMR, we recognized net business management fees of $ 3,052 and $ 9,919 for the three and nine months ended September 30, 2024, respectively, and $ 3,637 and $ 11,180 for the three and nine months ended September 30, 2023, respectively.

Based on our common share total return, as defined in our business management agreement, as of September 30, 2024, no estimated incentive fees are included in the net business management fees we recognized for the three and nine months ended September 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 $ 4,413 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.

Pursuant to our property management agreement with RMR, we recognized aggregate net property management and construction supervision fees of $ 3,712 and $ 12,675 for the three and nine months ended September 30, 2024, respectively, and $ 5,465 and $ 17,947 for the three and nine months ended September 30, 2023, respectively.

Of these amounts, for the three and nine months ended September 30, 2024, $ 3,234 and $ 10,391 , respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 478 and $ 2,284 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

For the three and nine months ended September 30, 2023, $ 3,718 and $ 11,252 , respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,747 and $ 6,695 , respectively, were capitalized as building improvements in our condensed consolidated balance sheet.

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

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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 $ 6,382 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.

Our property level

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR.

We reimbursed RMR $ 6,734 and $ 19,702 for these expenses and costs for the three and nine months ended September 30, 2024, respectively, and $ 6,331 and $ 19,295 for the three and nine months ended September 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).

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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 lease office space to RMR in certain of our properties for RMR’s property management offices.

Pursuant to our lease agreements with RMR, we recognized rental income from RMR for leased office space of $ 205 and $ 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.

Pursuant to our lease agreements with RMR, we recognized rental income from RMR for leased office space of $ 193 and $ 592 for the three and nine months ended September 30, 2024, respectively, and $ 205 and $ 671 for the three and nine months ended September 30, 2023, respectively.

We lease 240,000 rentable square feet of a mixed-use property in Washington, D.C.

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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 lease was amended in September 2024 to expand the premises by 5,900 rentable square feet.

Pursuant to the amended lease agreement, Sonesta will pay us annual base rent of approximately $ 6,724 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 $ 3,095 and $ 5,870 during the three and six months ended June 30, 2024, respectively, under our lease with Sonesta.

We recognized rental income of $ 3,119 and $ 8,989 during the three and nine months ended September 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