UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-34364

~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

(Exact Name of Registrant as Specified in Its Charter)



Maryland						26-4273474
(State or Other Jurisdiction of Incorporation or Organization)						(IRS Employer Identification No.)

Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634

(Address of Principal Executive Offices) (Zip Code)

617-219-1440

(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name Of Each Exchange On Which Registered

Common Shares of Beneficial Interest

OPI

The Nasdaq Stock Market LLC

6.375% Senior Notes due 2050

OPINL

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ��☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

~~Large accelerated filer ☒~~

~~Accelerated filer ☐~~

Non-accelerated filer ☐

☐

Smaller reporting company

☐

~~(Do not check if a smaller reporting company)~~

Emerging growth company ☐

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of registrant’s common shares of beneficial interest, $.01 par value per share, outstanding as of October ~~30, 2017: 99,145,921~~27, 2023: 48,755,886

~~GOVERNMENT~~

Table of Contents

OFFICE PROPERTIES INCOME TRUST

FORM 10-Q

September 30, ~~2017~~2023

INDEX


				Page
PART II..			Financial Information

Item 1.			Financial Statements (unaudited)

			Condensed Consolidated Balance Sheets — September 30, ~~2017~~2023 and December 31, ~~2016~~2022	23

			Condensed Consolidated Statements of Comprehensive Income (Loss) — Three and Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022	34

			Condensed Consolidated Statements of Shareholders’ Equity — Three and Nine Months Ended September 30, 2023 and 2022	5

			Condensed Consolidated Statements of Cash Flows ~~—Nine~~— Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022	47

			Notes to Condensed Consolidated Financial Statements	59

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	2218

Item 3.			Quantitative and Qualitative Disclosures About Market Risk	3933

Item 4.			Controls and Procedures	4136

			Warning Concerning ~~Forward Looking~~Forward-Looking Statements	4236

			Statement Concerning Limited Liability	4537

PART IIII..			Other Information



Item 1A.			Risk Factors	4638

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	4638

Item 6.			Exhibits	38

			~~Item 6.~~ Signatures	~~Exhibits~~40	47

	~~Signatures~~	49

References in this Quarterly Report on Form 10-Q to “the Company”, ~~“GOV”~~“OPI”, “we”, “us” or “our” include ~~Government~~Office Properties Income Trust and its consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.

Table of Contents

PART I. Financial Information

Item 1. Financial Statements

~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(~~amounts~~dollars in thousands, except per share data)

(unaudited)



	September 30, 2023		December 31, 2022
ASSETS
Real estate properties:
Land	$	802,904	$	821,238
Buildings and improvements	3,260,732		3,114,836
Total real estate properties, gross	4,063,636		3,936,074
Accumulated depreciation	(627,656)		(561,458)
Total real estate properties, net	3,435,980		3,374,616
Assets of properties held for sale	16,942		2,516
Investments in unconsolidated joint ventures	36,602		35,129
Acquired real estate leases, net	295,195		369,333
Cash and cash equivalents	24,358		12,249
Restricted cash	15,270		—
Rents receivable	124,043		105,639

Deferred leasing costs, net	85,087		73,098
Other assets, net	11,513		7,397
Total assets	$	4,044,990	$	3,979,977

LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured revolving credit facility	$	200,000	$	195,000
Senior unsecured notes, net	2,193,577		2,187,875
Mortgage notes payable, net	172,331		49,917
Liabilities of properties held for sale	346		73
Accounts payable and other liabilities	154,061		140,151
Due to related persons	7,766		6,469
Assumed real estate lease obligations, net	12,276		14,157
Total liabilities	2,740,357		2,593,642

Commitments and contingencies

Shareholders’ equity:
Common shares of beneficial interest, $.01 par value: 200,000,000 shares authorized, 48,757,246 and 48,565,644 shares issued and outstanding, respectively	488		486
Additional paid in capital	2,621,107		2,619,532
Cumulative net income	137,325		169,606

Cumulative common distributions	(1,454,287)		(1,403,289)
Total shareholders’ equity	1,304,633		1,386,335
Total liabilities and shareholders’ equity	$	4,044,990	$	3,979,977

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

September 30, December 31,
2017 2016
ASSETS

Real estate properties:

Land $ 269,332
$ 267,855
Buildings and improvements 1,660,379
1,620,905
Total real estate properties, gross 1,929,711
1,888,760
Accumulated depreciation (331,069 ) (296,804 )
Total real estate properties, net 1,598,642
1,591,956

Equity investment in Select Income REIT 475,265
487,708
Assets of discontinued operations —
12,541
Acquired real estate leases, net 99,953
124,848
Deposit escrow for FPO acquisition 651,696
—
Cash and cash equivalents 551,707
29,941
Restricted cash 509
530
Rents receivable, net 47,461
48,458
Deferred leasing costs, net 22,250
21,079
Other assets, net 89,484
68,005
Total assets $ 3,536,967
$ 2,385,066

LIABILITIES AND SHAREHOLDERS’ EQUITY

Unsecured revolving credit facility $ 565,000
$ 160,000
Unsecured term loans, net 547,682
547,171
Senior unsecured notes, net 943,543
646,844
Mortgage notes payable, net 26,561
27,837
Liabilities of discontinued operations —
45
Accounts payable and other liabilities 63,525
54,019
Due to related persons 4,297
3,520
Assumed real estate lease obligations, net 8,832
10,626
Total liabilities 2,159,440
1,450,062

Commitments and contingencies

Shareholders’ equity:

Common shares of beneficial interest, $.01 par value: 150,000,000 and 100,000,000 shares
authorized, respectively, 99,145,921 and 71,177,906 shares issued and outstanding, respectively 991
712
Additional paid in capital 1,968,249
1,473,533
Cumulative net income 126,410
96,329
Cumulative other comprehensive income 46,980
26,957
Cumulative common distributions (765,103 ) (662,527 )
Total shareholders’ equity 1,377,527
935,004
Total liabilities and shareholders’ equity $ 3,536,967
$ 2,385,066

Table of Contents

~~See accompanying notes.~~

~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(amounts in thousands, except per share data)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Rental income	$	133,361	$	137,683	$	399,780	$	426,353

Expenses:
Real estate taxes	14,257		16,414		45,491		49,642
Utility expenses	7,460		7,986		20,462		20,671
Other operating expenses	27,946		27,737		80,637		81,597
Depreciation and amortization	52,266		52,988		155,559		170,993
Loss on impairment of real estate	—		—		—		21,820
Acquisition and transaction related costs	16,135		—		30,534		224
General and administrative	5,720		6,564		17,430		19,353
Total expenses	123,784		111,689		350,113		364,300

Gain on sale of real estate	244		16,925		487		7,437


Interest and other income	281		56		782		73
Interest expense (including net amortization of debt premiums, discounts and issuance costs of $2,276, $2,176, $6,808 and $6,946, respectively)	(28,835)		(24,969)		(80,591)		(78,923)
Loss on early extinguishment of debt	—		—		—		(77)
(Loss) income before income tax expense and equity in net losses of investees	(18,733)		18,006		(29,655)		(9,437)
Income tax expense	(95)		(90)		(336)		(431)
Equity in net losses of investees	(765)		(952)		(2,290)		(2,631)



Net (loss) income	$	(19,593)	$	16,964	$	(32,281)	$	(12,499)














Weighted average common shares outstanding (basic and diluted)	48,403		48,286		48,365		48,260


Per common share amounts (basic and diluted):



Net (loss) income	$	(0.41)	$	0.35	$	(0.67)	$	(0.27)

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

Table of Contents

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(dollars in thousands)

(unaudited)


	Number of Shares	Common Shares		Additional Paid In Capital		Cumulative Net Income		Cumulative Common Distributions		Total Shareholders’ Equity
Balance at December 31, 2022	48,565,644	$	486	$	2,619,532	$	169,606	$	(1,403,289)	$	1,386,335
Common share grants	—	—		477		—		—		477
Common share forfeitures and repurchases	(1,935)	—		(15)		—		—		(15)
Net loss	—	—		—		(446)		—		(446)
Distributions to common shareholders	—	—		—		—		(26,710)		(26,710)
Balance at March 31, 2023	48,563,709	486		2,619,994		169,160		(1,429,999)		1,359,641
Common share grants	31,500	—		744		—		—		744
Common share forfeitures and repurchases	(7,559)	—		(47)		—		—		(47)
Net loss	—	—		—		(12,242)		—		(12,242)
Distributions to common shareholders	—	—		—		—		(12,141)		(12,141)
Balance at June 30, 2023	48,587,650	486		2,620,691		156,918		(1,442,140)		1,335,955
Common share grants	210,300	2		656		—		—		658
Common share forfeitures and repurchases	(40,704)	—		(240)		—		—		(240)
Net loss	—	—		—		(19,593)		—		(19,593)
Distributions to common shareholders	—	—		—		—		(12,147)		(12,147)
Balance at September 30, 2023	48,757,246	$	488	$	2,621,107	$	137,325	$	(1,454,287)	$	1,304,633

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

Table of Contents

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016

Rental income $ 70,179
$ 64,478
$ 209,362
$ 192,150

Expenses:

Real estate taxes 8,862
7,591
24,980
22,810
Utility expenses 5,408
5,483
14,186
13,330
Other operating expenses 14,867
13,854
44,046
40,031
Depreciation and amortization 20,781
18,404
61,949
54,713
Loss on impairment of real estate 230
—
230
—
Acquisition related costs —
147
—
363
General and administrative 3,266
3,816
12,314
11,350
Total expenses 53,414
49,295
157,705
142,597

Operating income 16,765
15,183
51,657
49,553
Dividend income 304
304
911
667
Interest income 1,715
47
1,843
63
Interest expense (including net amortization of debt premiums and discounts
and debt issuance costs of $990, $805, $2,605 and $2,024, respectively) (16,055 ) (12,608 ) (43,599 ) (32,286 )
(Loss) gain on early extinguishment of debt (1,715 ) —
(1,715 ) 104
Gain on issuance of shares by Select Income REIT 51
72
72
88
Income from continuing operations before income taxes

and equity in earnings of investees 1,065
2,998
9,169
18,189
Income tax expense (22 ) (13 ) (65 ) (63 )
Equity in earnings of investees 9,484
8,668
20,804
28,002
Income from continuing operations 10,527
11,653
29,908
46,128
Income (loss) from discontinued operations 462
(154 ) 173
(429 )
Income before gain on sale of property 10,989
11,499
30,081
45,699
Gain on sale of property —
79
—
79
Net income 10,989
11,578
30,081
45,778

Other comprehensive income:

Unrealized gain on investment in available for sale securities 3,279
8,463
14,389
28,571
Equity in unrealized gain of investees 1,351
3,273
5,634
10,423
Other comprehensive income 4,630
11,736
20,023
38,994
Comprehensive income $ 15,619
$ 23,314
$ 50,104
$ 84,772

Weighted average common shares outstanding (basic) 96,883
71,054
79,778
71,041
Weighted average common shares outstanding (diluted) 96,958
71,084
79,852
71,064

Per common share amounts (basic and diluted):

Income from continuing operations $ 0.11
$ 0.16
$ 0.37
$ 0.65
Income (loss) from discontinued operations $ —
$ —
$ —
$ (0.01 )
Net income $ 0.11
$ 0.16
$ 0.38
$ 0.64
OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

~~See~~(dollars in thousands)

(unaudited)


	Number of Shares	Common Shares		Additional Paid In Capital		Cumulative Net Income		Cumulative Common Distributions		Total Shareholders’ Equity
Balance at December 31, 2021	48,425,665	$	484	$	2,617,169	$	175,715	$	(1,296,659)	$	1,496,709
Common share grants	—	—		415		—		—		415
Common share forfeitures	(400)	—		(1)		—		—		(1)
Net loss	—	—		—		(13,407)		—		(13,407)
Distributions to common shareholders	—	—		—		—		(26,634)		(26,634)
Balance at March 31, 2022	48,425,265	484		2,617,583		162,308		(1,323,293)		1,457,082
Common share grants	31,500	1		1,078		—		—		1,079
Common share forfeitures and repurchases	(1,690)	—		(21)		—		—		(21)
Net loss	—	—		—		(16,056)		—		(16,056)
Distributions to common shareholders	—	—		—		—		(26,634)		(26,634)
Balance at June 30, 2022	48,455,075	485		2,618,640		146,252		(1,349,927)		1,415,450
Common share grants	141,200	1		922		—		—		923
Common share forfeitures and repurchases	(30,069)	—		(521)		—		—		(521)
Net income	—	—		—		16,964		—		16,964
Distributions to common shareholders	—	—		—		—		(26,651)		(26,651)
Balance at September 30, 2022	48,566,206	$	486	$	2,619,041	$	163,216	$	(1,376,578)	$	1,406,165

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

~~GOVERNMENT~~

Table of Contents

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(~~amounts~~dollars in thousands)

(unaudited)


	Nine Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(32,281)	$	(12,499)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	77,635		73,174
Net amortization of debt premiums, discounts and issuance costs	6,808		6,946
Amortization of acquired real estate leases and assumed real estate lease obligations, net	71,332		93,458
Amortization of deferred leasing costs	7,359		6,115
Gain on sale of real estate	(487)		(7,437)
Loss on impairment of real estate	—		21,820
Loss on early extinguishment of debt	—		77

Straight line rental income	(17,120)		(7,226)
Other non-cash expenses, net	1,053		1,591


Equity in net losses of investees	2,290		2,631





Change in assets and liabilities:


Rents receivable	(1,375)		7,625
Deferred leasing costs	(17,904)		(20,724)
Other assets	(4,426)		(2,358)
Accounts payable and other liabilities	14,952		(3,255)
Due to/from related persons	1,297		(7,251)
Net cash provided by operating activities	109,133		152,687

CASH FLOWS FROM INVESTING ACTIVITIES:

Real estate improvements	(175,628)		(137,031)

Distributions in excess of earnings from unconsolidated joint ventures	—		51
Contributions to unconsolidated joint ventures	(3,763)		(2,914)
Proceeds from sale of properties, net	22,449		189,069



Net cash (used in) provided by investing activities	(156,942)		49,175

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgage notes payable	(50,000)		(25,400)
Proceeds from issuance of mortgage notes payable	177,320		—
Repayment of senior unsecured notes	—		(300,000)



Borrowings on unsecured revolving credit facility	225,000		295,000
Repayments on unsecured revolving credit facility	(220,000)		(160,000)
Payment of debt issuance costs	(5,843)		—
Repurchase of common shares	(291)		(533)


Distributions to common shareholders	(50,998)		(79,919)
Net cash provided by (used in) financing activities	75,188		(270,852)

Increase (decrease) in cash, cash equivalents and restricted cash	27,379		(68,990)
Cash, cash equivalents and restricted cash at beginning of period	12,249		84,515
Cash, cash equivalents and restricted cash at end of period	$	39,628	$	15,525

Nine Months Ended September 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 30,081
$ 45,778
Adjustments to reconcile net income to cash provided by operating activities:

Depreciation 35,460
31,611
Net amortization of debt premiums and discounts and debt issuance costs 2,605
2,024
Gain on sale of property —
(79 )
Loss (gain) on early extinguishment of debt 1,715
(104 )
Straight line rental income (3,115 ) (1,789 )
Amortization of acquired real estate leases 25,592
21,948
Amortization of deferred leasing costs 2,790
2,343
Other non-cash expenses, net 352
500
Loss on impairment of real estate 230
—
Increase in carrying value of property included in discontinued operations (619 ) —
Equity in earnings of investees (20,804 ) (28,002 )
Gain on issuance of shares by Select Income REIT (72 ) (88 )
Distributions of earnings from Select Income REIT 18,062
25,676
Change in assets and liabilities:

Restricted cash 21
508
Deferred leasing costs (2,846 ) (7,998 )
Rents receivable 3,839
(126 )
Other assets (7,045 ) (1,466 )
Accounts payable and accrued expenses 6,703
(150 )
Due to related persons 777
1,088
Net cash provided by operating activities 93,726
91,674

CASH FLOWS FROM INVESTING ACTIVITIES:

Real estate acquisitions and deposits (666,202 ) (83,705 )
Real estate improvements (29,377 ) (23,357 )
Distributions in excess of earnings from Select Income REIT 20,063
11,951
Proceeds from sale of properties, net 13,198
263
Net cash used in investing activities (662,318 ) (94,848 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayment of mortgage notes payable (1,150 ) (107,562 )
Proceeds from issuance of senior notes, after discounts 297,954
300,235
Proceeds from issuance of common shares, net 493,936
—
Borrowings on unsecured revolving credit facility 610,000
254,000
Repayments on unsecured revolving credit facility (205,000 ) (346,000 )
Payment of debt issuance costs (2,551 ) (464 )
Repurchase of common shares (255 ) (312 )
Distributions to common shareholders (102,576 ) (91,759 )
Net cash provided by financing activities 1,090,358
8,138

Increase in cash and cash equivalents 521,766
4,964
Cash and cash equivalents at beginning of period 29,941
8,785
Cash and cash equivalents at end of period $ 551,707
$ 13,749
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Supplemental cash flow information:
Interest paid $ 42,019
$ 32,599
Income taxes paid $ 100
$ 94
Non-cash investing activities:

Sale of property $ —
$ 3,600
Mortgage note receivable related to sale of property $ —
$ (3,600 )

~~See accompanying notes.~~

Table of Contents

~~GOVERNMENT~~

OFFICE PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(dollars in thousands)

(unaudited)


	Nine Months Ended September 30,
	2023		2022
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	79,324	$	80,504
Income taxes paid	$	374	$	283

NON-CASH INVESTING ACTIVITIES:
Real estate improvements accrued, not paid	$	41,445	$	34,340


Capitalized interest	$	6,423	$	2,887

SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows:


	As of September 30,
	2023		2022
Cash and cash equivalents	$	24,358	$	14,005
Restricted cash (1)	15,270		1,520
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	39,628	$	15,525

(1)Restricted cash consists of amounts escrowed for future real estate taxes, insurance, leasing costs, capital expenditures and debt service, as required by certain of our mortgage debts.

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

Table of Contents

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 1.Basis of Presentation

The accompanying condensed consolidated financial statements of ~~Government~~Office Properties Income Trust and its subsidiaries, or ~~GOV,~~OPI, we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, or our 2022 Annual Report. In the opinion of ~~our~~ management, all adjustments, ~~which include only~~consisting of normal recurring ~~adjustments~~accruals considered necessary for a fair ~~presentation,~~statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. ~~Reclassifications have been made to the prior years’ condensed consolidated financial statements to conform to the current year’s presentation.~~

The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets and assessment of impairment of real estate and ~~equity method investments~~the related intangibles.

Termination of Merger with Diversified Healthcare Trust

As previously disclosed, on April 11, 2023, we and Diversified Healthcare Trust, or DHC, entered into an Agreement and Plan of Merger, or the ~~valuation~~Merger Agreement, pursuant to which we and DHC had agreed that DHC would merge with and into us, with us as the surviving entity in the merger, subject to the terms and conditions of ~~intangible assets.~~

~~Note 2.Recent Accounting Pronouncements~~

the Merger Agreement. On ~~January~~September 1, ~~2017,~~2023, we ~~adopted~~and DHC mutually agreed to terminate the ~~Financial Accounting Standards~~Merger Agreement and entered into a termination agreement, or the Termination Agreement. The mutual termination of the Merger Agreement was separately recommended by our and DHC’s respective Special Committees of each Board ~~or FASB, Accounting Standards Update, or ASU, No. 2017-01,~~ ~~Clarifying the Definition~~ of ~~a Business, which provides additional guidance on evaluating whether~~a~~transaction should~~Trustees, and approved by our and DHC’s respective Board of Trustees. Neither we nor DHC will be ~~accounted for~~required to pay any termination fee as ~~an acquisition (or disposal) of assets or of a business. This update defines three requirements for a set of assets andactivities (collectively referred to as a “set”) to be considered a business: inputs, processes and outputs. As~~ a result of the ~~implementation~~mutual decision to terminate the Merger Agreement. We and DHC will bear our and its respective costs and expenses related to the Merger Agreement and the transactions contemplated thereby in accordance with the terms of ~~this update, certain property acquisitions,~~the Merger Agreement. We recorded $30,534 of expenses during the nine months ended September 30, 2023 related to the potential merger with DHC, which ~~under previous guidance were accounted foras business combinations, are now accounted for as acquisitions of assets. In an~~is included in acquisition ~~of assets, certain acquisition~~and transaction related costs ~~are capitalized as opposed to expensedunder the previous guidance.~~

~~On January 1, 2017, we adopted FASB ASU No. 2016-09,~~ ~~Compensation - Stock Compensation~~, which identifies areas for simplification involving several aspects of accounting for share based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the condensed statement of cash flows. The adoption of ASU No. 2016-09 did not have a material impact in our condensed consolidated ~~financial statements.~~statement of comprehensive income (loss).

~~In May 2014,~~Contemporaneously with the ~~FASB issued ASU No. 2014-09,~~ ~~Revenue From Contracts With Customers, which outlines a comprehensive model forentities to use in accounting for revenue arising from contracts with customers. ASU No. 2014-09 states that “an entity recognizes revenue to depict the transfer ofpromised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods orservices.” While ASU No. 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate orequipment. In August 2015, the FASB provided for a one-year deferral~~execution of the Merger Agreement, on April 11, 2023, we and our manager, The RMR Group LLC, or RMR, entered into a Third Amended and Restated Property Management Agreement, or the Amended Property Management Agreement. The effectiveness of the Amended Property Management Agreement was conditioned upon the consummation of the merger. Since the merger will not be consummated, the Amended Property Management Agreement will not become effective ~~date for ASU No. 2014-09, which is now effective for~~and the Second Amended and Restated Property Management Agreement between us ~~beginning January 1,2018. A substantial portion of our revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU No. 2014-09. We are~~continuing to evaluate ASU No. 2014-09 (and related clarifying guidance issued by the FASB); however, we do not expect its adoption to have a significant impact on the amount or timing of our revenue recognitionand RMR will remain in ~~our consolidated financial statements with the exception of profit recognition on real estate sales. Wecurrently have recorded a deferred gain on sale of real estate of $712 that under current guidance would be recognized upon repayment of a promissory note we received in~~effect.

In connection with the ~~sale but will be recognized in its entirety upon adoption~~execution of ~~ASU No. 2014-09. We currently expect~~the Merger Agreement, on April 11, 2023, we entered into a commitment letter with an institutional lender, pursuant to ~~adopt the standard using the modified retrospective approach.~~

~~In January 2016, the FASB issued ASU No. 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~, which ~~changes howentities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable~~it committed to ~~their own credit. This update is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted~~provide, subject to ~~certain conditions. Currently, changes~~the terms and conditions of the commitment letter, a senior secured bridge facility to us in ~~fair value~~an aggregate principal amount of ~~these investments are recorded through other comprehensive income. ASU No. 2016-01 states that these changes will be recorded through earnings. We are continuing to evaluate this guidance, but~~$368,000. On September 1, 2023, we ~~expect~~terminated the ~~implementation of this guidance~~

commitment letter.

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~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

Note 2. Per Common Share Amounts

~~will affect how changes in~~We calculate basic earnings per common share using the ~~fair value of available for sale securities we hold are presented in our condensed consolidated financial statements.~~

~~In February 2016,~~two class method. We calculate diluted earnings per common share using the ~~FASB issued ASU No. 2016-02,~~ ~~Leases, which sets out the principles for the recognition, measurement, presentation anddisclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as eitherfinance or operating leases based on the principle of whether or not the lease is effectively a financed purchase~~more dilutive of the ~~leased asset by the lessee. This classificationwill determine whether the lease expense is recognized based on an effective interest~~two class method or ~~on a straight line basis over~~ the ~~term of the lease. A lessee is alsorequired to record a right of use asset~~treasury stock method. Unvested share awards and ~~a lease liability for all leases~~other potentially dilutive common shares, together with ~~a term of greater than 12 months regardless of their classification. Leases with a termof 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using anapproach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. ASU No. 2016-02 is effective forreporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the potential impact the adoption of ASU No.2016-02 will have in our condensed consolidated financial statements.~~

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-13 will have in our condensed consolidated financial statements.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We do not expect this guidance to have a material impact in our condensed consolidated financial statements and related disclosures.

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Restricted Cash~~, which clarifies how companies should present restricted cash and restricted cash equivalents. Companies will show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The new standard requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheets. ASU No. 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Upon the adoption of ASU No. 2016-18, we will reconcile both cash and cash equivalents and restricted cash and restricted cash equivalents, whereas under the current guidance we explain the changes during the period for cash and cash equivalents only.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Scope of Modification Accounting, which clarifies which changes to the terms or conditions of a share based payment award~~impact on earnings, are subject to the guidance on modification accounting under ASC 718. Entities would apply the modification accounting guidance unless the value, vesting requirements and classification of a share based payment award are the same immediately before and after a change to the terms or conditions of the award. ASU No. 2017-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are continuing to evaluate ASU No. 2017-09; however, we do not expect its adoption to have a material impact in our condensed consolidated financial statements.

~~Table of Contents~~

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except~~considered when calculating diluted earnings per ~~share data)~~

~~Note 3.Weighted Average Common Shares~~

~~The following table provides a reconciliation of the weighted average number of~~ common ~~shares used in the~~share. The calculation of basic and diluted earnings per common share ~~(in thousands)~~is as follows (amounts in thousands, except per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerators:
Net (loss) income	$	(19,593)	$	16,964	$	(32,281)	$	(12,499)
Income/loss attributable to unvested participating securities	(50)		(99)		(232)		(299)
Net (loss) income used in calculating earnings per common share	$	(19,643)	$	16,865	$	(32,513)	$	(12,798)

Denominators:
Weighted average common shares outstanding - basic and diluted	48,403		48,286		48,365		48,260



Net (loss) income per common share - basic and diluted	$	(0.41)	$	0.35	$	(0.67)	$	(0.27)

For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2017 2016 2017 2016
Weighted average common shares for basic earnings per share 96,883
71,054
79,778
71,041
Effect of dilutive securities: unvested share awards 75
30
74
23
Weighted average common shares for diluted earnings per share 96,958
71,084
79,852
71,064

Note 4.3. Real Estate Properties

As of September 30, ~~2017, we~~2023, our wholly owned 74 properties ~~(96 buildings),~~were comprised of 154 properties containing approximately 20,705,000 rentable square feet, with an undepreciated carrying value of ~~$1,929,711.~~$4,081,026, including $17,390 classified as held for sale. We also had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties containing approximately 451,000 rentable square feet. We generally lease space at our properties on a gross lease, or modified gross lease or net lease basis pursuant to fixed term contracts expiring between ~~2017~~2023 and ~~2034. Our~~2053. Some of our leases generally require us to pay all or some property operating expenses and to provide all or most property management services. During the three months ended September 30, ~~2017,~~2023, we entered into 1429 leases for ~~436,102~~approximately 586,000 rentable square feet for a weighted (by rentable square feet) average lease term of ~~8.4~~7.4 years, and we made commitments of $25,359 for ~~$7,902 of~~ leasing related costs. During the nine months ended September 30, ~~2017,~~2023, we entered into 4268 leases for ~~1,084,633~~approximately 1,502,000 rentable square feet for a weighted (by rentable square feet) average lease term of ~~8.8~~8.7 years, and we made commitments for ~~$12,609~~approximately $74,744 of leasing related costs. As of September 30, ~~2017,~~2023, we ~~have~~had estimated unspent leasing related obligations of $26,631, and we have committed to redevelop and expand an existing property prior to commencement of the lease with an estimated remaining cost to complete as of September 30, 2017 of $3,302. During the nine months ended September 30, 2017, we capitalized $328 of interest expense related to the redevelopment and expansion of that existing property.

$137,223.

We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of ~~our~~ long lived assets. Impairment indicators may include declining tenant occupancy, lack of progress leasing vacant space, tenant bankruptcies, low long term prospects for improvement in property performance, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an asset before the end of its estimated useful life and legislative, market or industry changes that could permanently reduce the value of a property. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. The future net undiscounted cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. We determine the amount of any impairment loss by comparing the ~~historical~~ carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. In addition to consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining useful lives of our long lived assets. If we change our estimate of the remaining useful lives, we allocate the carrying value of the affected assets over their revised remaining useful lives.

~~Acquisition Activities~~

During the nine months ended September 30, 2017, we acquired an office property (one building) located in Manassas, VA with 69,374 rentable square feet. This property was 100% leased to Prince William County on the date of acquisition. This transaction was accounted for as an acquisition of assets. The purchase price was $12,657, including capitalized acquisition costs of $37. Our allocation of the purchase price of this acquisition based on the estimated fair values of the acquired assets and assumed liabilities is presented in the table below.

Number
of Buildings Other
Acquisition Properties/ Square Purchase and Assumed
Date Location Type Buildings Feet Price Land Improvements Assets
Jan-17 Manassas, VA Office 1/1 69,374
$ 12,657
$ 1,562
$ 8,253
$ 2,842

~~In September 2017, we acquired transferable development rights that will allow us to expand a property we own in Washington, D.C. for a purchase price of $2,030, excluding acquisition costs.~~

~~FPO Acquisition~~

On October 2, 2017, we acquired First Potomac Realty Trust, or FPO, a Maryland REIT, pursuant to merger transactions, or collectively, the FPO Transaction, as a result of which, we acquired 39 office properties (74 buildings) with 6,454,382

Table of Contents

~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

Acquisition Activities

~~rentable square feet, including two properties owned by joint ventures~~As of October 27, 2023, we have entered into an agreement to acquire a land parcel adjacent to a property we own in ~~which we acquired FPO's 50% and 51% interests. The estimated aggregate transaction value~~Irving, TX containing approximately 4.7 acres for $2,750, excluding acquisition related costs. This acquisition is expected to close before the end of the ~~FPO Transaction was $1,374,624, including $651,696 in cash consideration paid~~fourth quarter. This pending acquisition is subject to ~~FPO shareholders,~~conditions, and accordingly, we cannot be sure that we will complete this acquisition or that this acquisition will not be delayed or the repayment of $483,000 of FPO debt, the assumption of $167,549 of FPO mortgage debt and an additional $82,000 of mortgage debt that encumber two joint venture properties that are 50% and 51% owned by FPO and the payment of certain transaction fees and expenses, net of FPO cash on hand. We currently expect to complete our purchase price allocation for the FPO Transaction in the fourth quarter of 2017 upon completion of third party appraisals and our analysis of acquired in place leases and building valuations.terms will not change.

Disposition Activities

We financed the cash payments for the FPO Transaction with borrowings under our revolving credit facility and with cash on hand, including net proceeds from our public offerings of common shares and senior unsecured notes, as described further in Notes 7 and 9.

~~The following table presents our pro forma results of operations for each of~~During the nine months ended September 30, ~~2017 and 2016~~2023, we sold six properties containing approximately 376,000 rentable square feet for an aggregate sales price of $23,575, excluding closing costs. The sales of these properties, as ifpresented in the ~~FPO Transaction and related financing activities had occurred on January 1, 2016. The historical FPO results of operations included~~table below, do not represent significant dispositions individually or in ~~this pro forma financial information have been adjusted to remove~~the aggregate, nor do they represent a strategic shift in our business. As a result, the results of operations of these properties and joint venture interests FPO sold since January 1, 2016. The effect of these adjustments was to decrease pro forma rental income $804 and $8,330 for the nine months ended September 30, 2017 and 2016, respectively, and to decrease (increase) net income (loss) $47,019 and ($2,458) for the nine months ended September 30, 2017 and 2016, respectively. This pro forma financial information is not necessarily indicative of what our actual results ofare included in continuing operations would have been for the periods presented, nor does it represent the results of operations for any future period. Differences could result from numerous factors, including changes to our preliminary purchase price allocation for the FPO Transaction, future changes in our portfolio of investments, changes in interest rates, changes in our capital structure, changes in net property level operating expenses, changes in property level revenues, including rents expected to be received on our existing leases or leases we may enter into during and after 2017, and other reasons.

Nine Months Ended September 30,
2017 2016
Rental income $ 328,255
$ 311,167
Net income (loss) (4,733 ) 19,411
Net income (loss) per share $ (0.05 ) $ 0.20

~~Disposition Activities – Continuing Operations~~

On October 5, 2017, we sold one vacant office property (one building) located in Albuquerque, NM with 29,045 rentable square feet and a net book value of $1,885 as of September 30, 2017 for $2,000, excluding closing costs. During the three months ended September 30, 2017, we recorded a $230 loss on impairment of real estate to reduce the carrying value of this property to its estimated fair value.

~~Disposition Activities – Discontinued Operations~~

~~In August 2017, we sold one vacant office property (one building) in Falls Church, VA with 164,746 rentable square feet and a net book value of $12,901 as of~~through the date of sale ~~for $13,523,~~in our condensed consolidated statements of comprehensive income (loss).


Date of Sale	Number of Properties	Location	Rentable Square Feet	Gross Sales Price(1)		Gain (Loss) on Sale of Real Estate
January 2023	3	Richmond, VA	89,000	$	5,350	$	2,548
April 2023	1	Phoenix, AZ	107,000	4,900		511
June 2023	1	Vernon Hills, IL	100,000	2,825		(2,816)
September 2023	1	Windsor Mill, MD	80,000	10,500		244
	6		376,000	$	23,575	$	487

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

As of ~~operations for this property, which qualified~~September 30, 2023, we had two properties classified as held for sale ~~prior to our adoption in 2014 of ASU No. 2014-8,~~ ~~Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, are classified as discontinued operations~~ in our condensed consolidated ~~financial statements. During~~balance sheet. As of October 27, 2023, we have entered into agreements to sell the two properties classified as held for sale containing approximately 177,000 rentable square feet for an aggregate sales price of $21,299, excluding closing costs. These pending sales are subject to conditions, and accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the terms will not change.

Unconsolidated Joint Ventures

We own interests in two joint ventures that own three ~~months ended~~properties. We account for these investments under the equity method of accounting. As of September 30, ~~2017, we recorded an adjustment~~2023 and December 31, 2022, our investments in unconsolidated joint ventures consisted of ~~$619 to increase~~ the ~~carrying value of this property to its estimated fair value less costs to sell.~~following:


		OPI Carrying Value of Investments at
Joint Venture	OPI Ownership	September 30, 2023		December 31, 2022		Number of Properties	Location	Rentable Square Feet
Prosperity Metro Plaza	51%	$	18,455	$	19,237	2	Fairfax, VA	329,000
1750 H Street, NW	50%	18,147		15,892		1	Washington, D.C.	122,000
Total		$	36,602	$	35,129	3		451,000

Table of Contents

~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

~~Summarized balance sheet and income statement information for this property is as follows:~~

~~Balance Sheets~~

(unaudited)

September 30, December 31,
2017 2016
Real estate properties, net $ —
$ 12,260
Other assets —
281
Assets of discontinued operations $ —
$ 12,541

Other liabilities $ —
$ 45
Liabilities of discontinued operations $ —
$ 45
The following table provides a summary of the mortgage debt of our two unconsolidated joint ventures:


Joint Venture	Interest Rate (1)	Maturity Date	Principal Balance at September 30, 2023 and December 31, 2022 (2)
Prosperity Metro Plaza	4.09%	12/1/2029	$	50,000
1750 H Street, NW (3)	3.69%	8/1/2027	32,000
Weighted Average / Total	3.93%		$	82,000

~~Statements~~(1)Includes the effect of ~~Operations~~mark to market purchase accounting.

(2)Reflects the entire balance of the debt secured by the properties and is not adjusted to reflect the interests in the joint ventures we do not own. None of the debt is recourse to us.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Rental income $ 4
$ 6
$ 17
$ 62
Real estate taxes (40 ) (27 ) (88 ) (73 )
Utility expenses (17 ) (34 ) (97 ) (113 )
Other operating expenses (87 ) (70 ) (202 ) (219 )
General and administrative (17 ) (29 ) (76 ) (86 )
Increase in carrying value of property 619
—
619
—
Income (loss) from discontinued operations $ 462
$ (154 ) $ 173
$ (429 )
(3)In July 2023, the maturity date of this mortgage loan was extended by three years at the same interest rate.

As of September 30, 2023, the aggregate unamortized basis difference of our two unconsolidated joint ventures of $6,123 was primarily attributable to the difference between the amount we paid to purchase our interest in these joint ventures, including transaction costs, and the historical carrying value of the net assets of these joint ventures. This difference is being amortized over the remaining useful life of the related properties and the resulting amortization expense is included in equity in net losses of investees in our condensed consolidated statements of comprehensive income (loss).

In October 2023, our joint venture partner that has a 50% equity interest in the 1750 H Street, NW joint venture failed to fund a $600 capital call. We are currently evaluating our options regarding this funding and there can be no assurance that we will be successful pursuing any remedies available to us under the joint venture agreement.

Note ~~5. Revenue Recognition~~4. Leases

~~We recognize rental~~Our leases provide for base rent payments and, in addition, may include variable payments. Rental income from operating leases, ~~that contain fixed contractual rent changes~~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 ~~agreements. Certain~~payments is probable. Some of our leases ~~with government~~have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. Allowances for bad debts are recognized as a direct reduction of rental income. In certain circumstances, some leases provide the tenant with the right to terminate ~~before the lease expiration date~~ if the legislature or other funding authority does not appropriate the funding necessary for the ~~government~~ tenant to meet its lease obligations; we have determined the fixed non-cancelable lease term of these leases to be the full term of the lease because we believe the occurrence of early terminations to be a remote ~~contingencies~~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 ~~$711~~$8,691 and ~~$1,205~~$1,765 for the three months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively, and ~~$3,115~~$17,120 and ~~$1,789~~$7,226 for the nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively. Rents receivable, ~~include $24,801~~excluding properties classified as held for sale, included $103,366 and ~~$21,686~~$86,305 of straight line rent receivables ~~net of allowance for doubtful accounts of $132 and $155,~~ at September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively.

We do not include in our measurement of our lease receivables certain variable payments, including payments determined by changes in the index or market-based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. Such payments totaled $21,067 and $64,627 for the three and nine months ended September 30, 2023, respectively, of which tenant reimbursements totaled $19,722 and $60,641, respectively. For the three and nine months ended September 30, 2022, such payments totaled $23,183 and $67,820, respectively, of which tenant reimbursements totaled $21,953 and $64,437, respectively.

Note 6.5. Concentration

Tenant and Credit Concentration

As of September 30, 2023 and 2022, the U.S. government and certain state and other government tenants combined were responsible for approximately 28.1% and 27.8%, respectively, of our annualized rental income. The U.S. government is our largest tenant by annualized rental income and represented approximately 20.0% and 19.1% of our annualized rental income as of September 30, 2023 and 2022, respectively. We define annualized rental income as the annualized contractual base rents from our tenants pursuant to our lease agreements as of the measurement date, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization. ~~The U.S. Government, 13 state governments,~~

Table of Contents

OFFICE PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

Geographic Concentration

As of September 30, 2023, our 154 wholly owned properties were located in 30 states and ~~four other government tenants combined~~the District of Columbia. Properties located in California, Virginia, Illinois, Georgia and the District of Columbia were responsible for ~~87.5%~~approximately 12.2%, 11.3%, 10.6%, 9.4% and ~~92.4%~~9.2% of our annualized rental income as of September 30, 2017 and 2016, respectively. The U.S. Government is our largest tenant by annualized rental income and was responsible for 59.8% and 63.9% of our annualized rental income as of September 30, 2017 and 2016,2023, respectively.

~~Geographic Concentration~~

At September 30, 2017, our 74 properties (96 buildings) were located in 31 states and the District of Columbia. Properties located in Virginia, California, the District of Columbia, Georgia, Maryland, New York and Massachusetts were responsible for 14.8%, 14.8%, 9.5%, 8.6%, 7.0%, 6.9% and 4.9% of our annualized rental income as of September 30, 2017, respectively.

~~Table of Contents~~

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

Note 7.6. Indebtedness

Our principal debt obligations atas of September 30, ~~2017~~2023 were: (1) ~~$565,000~~$200,000 of outstanding borrowings under our $750,000 unsecured revolving credit facility; (2) an$2,212,000 aggregate outstanding principal amount of ~~$550,000 of~~senior unsecured ~~term loans;~~notes; and (3) an$177,320 aggregate outstanding principal amount of ~~$960,000 of public issuances of senior unsecured notes; and (4) $26,358 aggregate principal amount of~~ mortgage notes.

Our $750,000 revolving credit facility ~~our $300,000 term loan and our $250,000 term loan are~~is governed by a credit agreement, or our credit agreement, with a syndicate of institutional lenders that ~~includes a number of features common to all of these credit arrangements. This credit agreement also~~ includes a feature under which the maximum aggregate borrowing availability may be increased to up to ~~$2,500,000 on a combined basis~~$1,950,000 in certain circumstances.

Our ~~$750,000~~ revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is January 31, 2019 and, subject to the payment of an extension fee and meeting other conditions, we have an option to extend the stated maturity date of our revolving credit facility by one year to January 31, 2020.2024. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity and no principal repayment is due until maturity.

In March 2023, we amended our credit agreement to, among other things, replace LIBOR with the secured overnight financing rate, or SOFR, as the benchmark interest rate for calculating interest payable on the amounts outstanding under our revolving credit facility. We are required to pay interest at ~~the~~a rate of ~~LIBOR~~SOFR plus a premium, which was ~~125~~145 basis points per annum at September 30, ~~2017,~~2023, on ~~borrowings~~the amount outstanding under our revolving credit facility. We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 2530 basis points per annum at September 30, ~~2017.~~2023. Both the interest rate premium and ~~the~~ facility fee are subject to adjustment based upon changes to our credit ratings. As of September 30, ~~2017,~~2023 and December 31, 2022, the annual interest rate payable on borrowings under our revolving credit facility was ~~2.4%~~6.9% and ~~the~~5.4%, respectively. The weighted average annual interest rate for borrowings under our revolving credit facility was ~~2.4%~~6.8% and ~~1.7%~~6.4% for the three ~~months ended September 30, 2017~~ and ~~2016, respectively, and 2.2% and 1.7% for the~~ nine months ended September 30, ~~2017~~2023, respectively, and ~~2016, respectively.~~3.3% and 3.2% for the three and nine months ended September 30, 2022. As of September 30, ~~2017~~2023 and October ~~30, 2017,~~27, 2023, we had ~~$565,000~~$200,000 and ~~$545,000~~$205,000, respectively, outstanding under our revolving credit facility, ~~respectively.~~

Our $300,000 term loan, which matures on March 31, 2020, is prepayable without penalty at any time. We are required to pay interest at the rate of LIBOR plus a premium, which was 140 basis points per annum at September 30, 2017, on the amount outstanding under our $300,000 term loan. The interest rate premium isand $550,000 and $545,000, respectively, available for borrowing, subject to adjustment based upon changes to our credit ratings. As of September 30, 2017, the annual interest rate for the amount outstanding under our $300,000 term loan was 2.6%. The weighted average annual interest rate under our $300,000 term loan was 2.6% and 1.9% for the three months ended September 30, 2017 and 2016, respectively, and 2.4% and 1.9% for the nine months ended September 30, 2017 and 2016, respectively.

~~Our $250,000 term loan, which matures on March 31, 2022, is prepayable without penalty at any time. We are~~meeting required to pay interest at the rate of LIBOR plus a premium, which was 180 basis points per annum as of September 30, 2017, on the amount outstanding under our $250,000 term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of September 30, 2017, the annual interest rate for the amount outstanding under our $250,000 term loan was 3.0%. The weighted average annual interest rate under our $250,000 term loan was 3.0% and 2.3%, respectively, for the three months ended September 30, 2017 and 2016 and 2.8% and 2.3% for the nine months ended September 30, 2017 and 2016, respectively.

financial covenants.

Our credit agreement and senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes ~~The~~ RMR ~~Group LLC, or RMR LLC,~~ ceasing to act as our business and property manager. Our credit agreement and ~~our~~ senior unsecured notes indentures and their supplements also contain ~~a number of~~ covenants, including covenants that restrict our ability to incur debts, require us to ~~maintain~~comply with certain financial ~~ratios~~covenants and, in the case of our credit agreement, restrict our ability to make distributions under certain circumstances. We believe we were in compliance with the terms and conditions of the respective covenants under our credit agreement and senior unsecured notes indentures and their supplements at September 30, ~~2017.~~2023.

~~On July 20, 2017,~~We are currently in discussion with our lenders regarding a new revolving credit facility. We are also evaluating different options to repay our maturing senior notes, including new financings and potential property sales. While our plans could be impacted by factors outside of our control, including unfavorable market, economic and commercial real estate conditions, we ~~issued $300,000~~believe based on our current discussions and history of 4.000% senior unsecured notes due 2022 in an underwritten public offering. The net proceeds from this offering of $295,403, after payment of the underwriters' discount and other offering expenses, were usedworking with our lenders that it is probable that these plans will allow us to ~~finance, in part, the FPO Transaction.~~

repay our maturing debt.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

Mortgage Note Issuances

~~Concurrently with our entering into~~During the FPO merger agreement, we entered a commitment letter with a group of institutional lenders for a 364-day senior unsecured bridge loan facility in an initial aggregate principal amount of up to $750,000. On July 20, 2017, we and the lenders terminated this commitment letter and bridge loan facility as a result of our issuance of the senior unsecured notes described above and the proceeds from the sale of our common shares in July 2017 (see Note 9 for more information regarding this sale), and we recognized a loss on extinguishment of debt of $1,715.

Atnine months ended September 30, ~~2017, three of our properties (three buildings) with an aggregate net book value of $50,031 were encumbered by three mortgages with an aggregate principal balance of $26,358. These~~2023, we issued six fixed rate, interest-only mortgage notes as summarized in the following table:


Issuance Date	Secured By	Principal Balance (1)		Interest Rate	Maturity	Net Book Value of Collateral as of September 30, 2023
May 2023 (2)	One property	$	30,680	7.210%	7/1/2033	$	36,752
June 2023	One property	26,340		8.139%	7/1/2028	52,878
June 2023	One property	42,700		8.272%	7/1/2028	43,445
June 2023	One property	8,400		7.305%	7/1/2033	19,085
August 2023	One property	14,900		7.717%	9/1/2033	24,113
September 2023	Two properties	54,300		7.671%	10/6/2028	64,192
Total / Weighted Average		$	177,320	7.792%		$	240,465

(1)Our mortgage notes are non-recourse, subject to certain limited exceptions and do not contain any material financial covenants.

(2)Requires interest-only payments through May 2028, at which time principal and interest payments are due monthly through the maturity date.

~~As described in~~Mortgage Note ~~4, in connection with the FPO Transaction~~Repayment

In June 2023, we ~~assumed five~~repaid at maturity, a mortgage ~~notes~~note secured by one property with an ~~aggregate~~outstanding principal balance of ~~$167,549. These mortgage notes are secured by five properties (five buildings). In connection with the FPO Transaction we also assumed two mortgage notes with~~$50,000 and an ~~aggregate principal balance~~annual interest rate of ~~$82,000, which are secured by two properties owned by joint ventures in which we acquired FPO's 50% and 51% interests.~~3.70%.

Note 8.7. Fair Value of Assets and Liabilities

The table below presents certain of our assets measured at fair value at September 30, 2017, categorized by the 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
Quoted Prices in Significant
Estimated Active Markets for Significant Other Unobservable
Fair Identical Assets Observable Inputs Inputs
Description Value (Level 1) (Level 2) (Level 3)
Recurring Fair Value Measurements Assets:
Investment in RMR Inc. ⁽¹⁾
$ 62,351
$ 62,351
$ —
$ —
Non-Recurring Fair Value Measurements Assets:

One property ⁽²⁾
$ 1,885
$ —
$ 1,885
$ —

~~(1)~~

Our 1,214,225 shares of class A common stock of The RMR Group Inc., or RMR Inc., which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs as defined in the fair value hierarchy under GAAP). Our historical cost basis for these shares is $26,888 as of September 30, 2017. The net unrealized gain of $35,463 for these shares as of September 30, 2017 is included in cumulative other comprehensive income in our condensed consolidated balance sheets.


~~(2)~~	We estimated the fair value of this property at September 30, 2017 based upon the selling price agreed to with a third party (Level 2 inputs as defined in the fair value hierarchy under GAAP). See Note 4 for further details.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

~~In addition to the assets described in the table above, our~~ financial instruments include our cash and cash equivalents, restricted cash, rents receivable, ~~mortgage notes receivable,~~ accounts payable, ~~our~~a revolving credit facility, ~~term loans,~~ senior unsecured notes, mortgage notes payable, amounts due to related persons, other accrued expenses and security deposits. At September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or ~~variable~~floating interest rates, except as follows:


	As of September 30, 2023				As of December 31, 2022
Financial Instrument	Carrying Value (1)		Fair Value		Carrying Value (1)		Fair Value


Senior unsecured notes, 4.25% interest rate, due in 2024	$	348,574	$	331,881	$	346,863	$	331,601
Senior unsecured notes, 4.50% interest rate, due in 2025	645,404		531,284		642,818		589,388
Senior unsecured notes, 2.650% interest rate, due in 2026	298,308		204,081		297,839		232,770
Senior unsecured notes, 2.400% interest rate, due in 2027	347,931		209,255		347,466		256,606
Senior unsecured notes, 3.450% interest rate, due in 2031	396,504		202,504		396,178		268,004

Senior unsecured notes, 6.375% interest rate, due in 2050	156,856		89,748		156,711		113,075
Mortgage notes payable (2) (3)	172,331		175,868		49,917		49,099
Total	$	2,365,908	$	1,744,621	$	2,237,792	$	1,840,543

As of September 30, 2017 As of December 31, 2016

Carrying Amount ⁽¹⁾
Fair Value
Carrying Amount ⁽¹⁾
Fair Value
Senior unsecured notes, 3.75% interest rate, due in 2019 $ 347,810
$ 357,625
$ 346,952
$ 354,078
Senior unsecured notes, 4.000% interest rate, due in 2022 295,587
302,655
—
—
Senior unsecured notes, 5.875% interest rate, due in 2046 300,146
325,500
299,892
292,268
Mortgage note payable, 5.88% interest rate, due in 2021 ⁽²⁾
13,677
14,388
13,841
14,492
Mortgage note payable, 7.00% interest rate, due in 2019 ⁽²⁾
8,490
8,739
8,778
9,188
Mortgage note payable, 8.15% interest rate, due in 2021 ⁽²⁾
4,394
4,665
5,218
5,575
$ 970,104
$ 1,013,572
$ 674,681
$ 675,601
(1)Includes unamortized debt premiums, discounts and issuance costs totaling $23,412 and $24,208 as of September 30, 2023 and December 31, 2022, respectively.

(2)Balances as of December 31, 2022 include a mortgage note secured by one property with an outstanding principal balance of $50,000 that was repaid in June 2023.


~~(1)~~	~~Carrying amount includes certain unamortized debt issuance costs and unamortized premiums and discounts.~~

~~(2)~~

We assumed these mortgages in connection with our acquisitions of the encumbered properties. The stated interest rates for these mortgage debts are the contractually stated rates. We recorded the assumed mortgages at estimated fair value on the date of acquisition and we are amortizing the fair value premiums, if any, to interest expense over the respective terms of the mortgages to reduce interest expense to the estimated market interest rates as of the date of acquisition.

(3)Balances as of September 30, 2023 include six mortgage notes issued during the nine months ended September 30, 2023 with an aggregate outstanding principal balance of $177,320.

We estimated the fair ~~value~~values of our senior unsecured notes (except for our senior unsecured notes due ~~2019 and due 2022~~2050) using an average of the bid and ask price of the notes ~~as of the measurement date~~ (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 ~~2046~~2050 based on the closing price on The Nasdaq Stock Market LLC, or Nasdaq, (Level 1 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. We estimated the fair values of our mortgage notes payable by using discounted cash flow analyses and

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

currently prevailing market ~~terms as of the measurement date~~rates (Level 3 inputs as defined in the fair value hierarchy under GAAP). as of the measurement date. Because Level 3 inputs are unobservable, our estimated fair ~~value~~values may differ materially from the actual fair ~~value.~~values.

Note 9.8. Shareholders’ Equity

~~Distributions~~

Share Awards

On ~~February 23, 2017,~~June 13, 2023, in accordance with our Trustee compensation agreements, we ~~paid a regular quarterly distribution~~awarded to common shareholders of record on January 23, 2017 of $0.43 per share, or $30,606. On May 22, 2017, we paid a regular quarterly distribution to common shareholders of record on April 21, 2017 of $0.43 per share, or $30,606. On August 21, 2017, we paid a regular quarterly distribution to common shareholders of record on July 24, 2017 of $0.43 per share, or $41,364. On October 12, 2017, we declared a regular quarterly distribution payable to common shareholders of record on October 23, 2017 of $0.43 per share, or $42,633. We expect to pay this distribution on or about November 20, 2017 using cash on hand and borrowings under our revolving credit facility.

~~Sale of Shares~~

~~On July 5, 2017, we sold 25,000,000~~each of our common shares at a price of $18.50 per share in an underwritten public offering. On August 3, 2017, we sold 2,907,029 of our common shares at a price of $18.50 per share pursuant to an overallotment option granted to the underwriters for the July offering. The aggregate net proceeds from these sales were $493,936, after payment of the underwriters' discount and other offering expenses.

~~Share Grants and Purchases~~

~~On May 17, 2017, we granted 3,000~~nine Trustees 3,500 of our common shares, valued at ~~$21.75~~$7.90 per share, the closing price of our common shares on ~~the~~ Nasdaq on that ~~day, to each of our six Trustees as part of their annual compensation.~~

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~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

day.

On ~~May 17, 2017,~~September 13, 2023, we ~~withheld 450~~awarded under our equity compensation plan an aggregate of our common shares awarded to one of our Trustees to fund that Trustee's resulting minimum required tax withholding obligation. The aggregate value of the withheld shares was $10, which is reflected as a decrease to shareholders' equity in our condensed consolidated balance sheets.

~~On June 30, 2017, we purchased 278~~210,300 of our common shares, valued at ~~$18.31~~$5.76 per share, the closing price of our common shares on ~~the~~ Nasdaq on that day, ~~from a former employee of RMR LLC in satisfaction of tax withholding and payment obligations in connection with vesting of awards of our common shares.~~

~~On September 14, 2017, we granted an aggregate of 57,350 of our common shares~~ to our current and former officers and certain other employees of ~~RMR LLC, valued at $18.61 per share,~~RMR.

Share Purchases

During the ~~closing price of our common shares on the Nasdaq on that day.~~

Onthree and nine months ended September ~~19, 2017,~~30, 2023, we purchased an aggregate of ~~13,636~~40,104 and 47,858 of our common shares, valued at ~~$18.30 per~~a weighted average share ~~the closing~~ price of $5.84 and $6.09 from one of our ~~common shares on the Nasdaq on that day, from~~Trustees, our current and former officers and certain ~~other~~current and former officers and employees of RMR ~~LLC~~ in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

Distributions

~~Cumulative Other Comprehensive Income~~

~~Cumulative other comprehensive income represents~~During the unrealized gain on the RMR Inc. shares we own and our share of the comprehensive income of our equity method investees, Select Income REIT, or SIR, and Affiliates Insurance Company, or AIC. The following table presents changes in the amounts we recognized in cumulative other comprehensive income by component for the three and nine months ended September 30, ~~2017:~~ 2023, we declared and paid regular quarterly distributions to common shareholders as follows:


Declaration Date	Record Date	Paid Date	Distributions Per Common Share		Total Distributions
January 12, 2023	January 23, 2023	February 16, 2023	$	0.55	$	26,710
April 13, 2023	April 24, 2023	May 18, 2023	0.25		12,141
July 13, 2023	July 24, 2023	August 17, 2023	0.25		12,147

			$	1.05	$	50,998

Three Months Ended September 30, 2017
Unrealized Gain Equity in
on Investment Unrealized Gain
in Available for of
Sale Securities Investees Total
Balance at June 30, 2017 $ 32,184
$ 10,166
$ 42,350
Other comprehensive income before reclassifications 3,279
1,355
4,634
Amounts reclassified from cumulative other comprehensive loss to net income ⁽¹⁾
—
(4 ) (4 )
Net current period other comprehensive income 3,279
1,351
4,630
Balance at September 30, 2017 $ 35,463
$ 11,517
$ 46,980

Nine Months Ended September 30, 2017
Unrealized Gain Equity in
on Investment Unrealized Gain
in Available for of
Sale Securities Investees Total
December 31, 2016 $ 21,074
$ 5,883
$ 26,957
Other comprehensive income before reclassifications 14,389
5,626
20,015
Amounts reclassified from cumulative other comprehensive income to net income ⁽¹⁾
—
8
8
Net current period other comprehensive income 14,389
5,634
20,023
Balance at September 30, 2017 $ 35,463
$ 11,517
$ 46,980


~~(1)~~	~~Amounts reclassified from cumulative other comprehensive income (loss) are included in equity in earnings of investees in our condensed consolidated statements of comprehensive income.~~

~~Table~~On October 12, 2023, we declared a regular quarterly distribution payable to common shareholders of ~~Contents~~

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars~~record on October 23, 2023 in ~~thousands, except~~the amount of $0.25 per share, ~~data)~~

or approximately $12,200. We expect to pay this distribution on or about November 16, 2023.

Note ~~10.~~9. Business and Property Management Agreements with RMR ~~LLC~~

We have no employees. The personnel and various services we require to operate our business are provided to us by ~~RMR LLC.~~RMR. We have two agreements with RMR ~~LLC~~ to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to our property level operations.

Pursuant to our business management agreement with RMR, ~~LLC,~~ we recognized net business management fees of ~~$1,891~~$3,637 and ~~$2,572~~$11,180 for the three ~~months ended September 30, 2017~~ and ~~2016, respectively, and $8,241 and $7,614 for the~~ nine months ended September 30, ~~2017~~2023, respectively, and ~~2016, respectively. As of~~$4,260 and $13,462 for the three and nine months ended September 30, ~~2017, no annual incentive fees were estimated, based~~2022, respectively. Based on our common share total return, as defined in our business management agreement, as of September 30, ~~2017, to be payable to RMR LLC for 2017. The~~2023, no estimated incentive fees are included in the net business management ~~fee~~fees we recognized for the three and nine months ended September 30, ~~2017 includes the reversal of $893 of estimated incentive fees accrued as of June 30, 2017.~~2023. The actual amount of annual incentive fees ~~payable to RMR LLC~~ for ~~2017,~~2023, if any, will be based on our common share total return ~~as defined,~~ for the three year period ending December 31, ~~2017,~~2023, and will be payable in ~~2018. The net~~January 2024. We did not incur an incentive fee payable to RMR for the year ended December 31, 2022. We include business management fees ~~we recognized are included~~ in general and administrative expenses in our condensed consolidated statements of comprehensive ~~income.~~

income (loss).

Pursuant to our property management agreement with RMR, ~~LLC,~~ we recognized aggregate net property management and construction supervision fees of ~~$2,338~~$5,465 and ~~$2,249~~$17,947 for the three ~~months ended September 30, 2017~~ and ~~2016, respectively, and $7,371 and $6,636 for the~~ nine months ended September 30, ~~2017~~2023, respectively, and ~~2016,~~$6,502 and $19,024 for the three and nine months ended September 30, 2022, respectively. ~~These~~Of these amounts, ~~are included in~~for the three and nine months ended September 30, 2023, $3,718 and $11,252, respectively, were expensed to other operating expenses ~~or have been~~in our

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

condensed consolidated statements of comprehensive income (loss) and $1,747 and $6,695, respectively, were capitalized as ~~appropriate,~~building improvements in our condensed consolidated ~~financial statements.~~

balance sheet. For the three and nine months ended September 30, 2022, $3,996 and $12,237, respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income (loss) and $2,506 and $6,787, respectively, were capitalized as building improvements in our condensed consolidated balance sheet. The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets.

We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR ~~LLC~~ on our behalf. We are generally not responsible for payment of RMR’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR’s centralized accounting personnel, our share of RMR’s costs for providing our internal audit function and as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by ~~RMR LLC, are generally incorporated into rents charged to our tenants.~~RMR. We reimbursed RMR ~~LLC $3,436~~$6,331 and ~~$3,221~~$19,295 for ~~property management related~~these expenses and costs for the three ~~months ended September 30, 2017~~ and ~~2016, respectively, and $10,482 and $9,132 for the~~ nine months ended September 30, ~~2017~~2023, respectively, and ~~2016, respectively, which~~$6,268 and $18,281 for the three and nine months ended September 30, 2022, respectively. We included these amounts ~~are included~~ in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive ~~income. In addition, we~~income (loss).

Management Agreements Between Our Joint Ventures and RMR. RMR provides management services to our two unconsolidated joint ventures. We are ~~responsible for~~not obligated to pay management fees to RMR under our ~~share of~~management agreements with RMR ~~LLC’s costs for providing our internal audit function. The amount recognized as expense for internal audit costs was $67 and $34~~ for the ~~three months ended September 30, 2017 and 2016, respectively, and $202 and $168 for~~services it provides regarding the ~~nine months ended September 30, 2017 and 2016, respectively. We include these amounts in general and administrative expenses in our condensed consolidated statements of comprehensive income.~~joint ventures. The joint ventures pay management fees directly to RMR.

Note ~~11.~~10. Related Person Transactions

We have relationships and historical and continuing transactions with RMR, ~~LLC,~~The RMR Group Inc., or RMR Inc., ~~SIR, AIC~~ and others related to them, including other companies to which RMR ~~LLC provides~~or its subsidiaries provide management services and some of which have trustees, directors ~~and~~or officers who are also our Trustees or officers. RMR is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam D. Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., the chair of the board of directors, a managing director, the president and chief executive officer of RMR Inc. and an officer and employee of RMR. Jennifer B. Clark, our other Managing Trustee and our Secretary, also serves as a managing director and the executive vice president, general counsel and secretary of RMR Inc., an officer and employee of RMR and an officer of ABP Trust. Each of our officers is an officer and employee of RMR. Some of our Independent Trustees also serve as independent trustees of other public companies to which RMR or its subsidiaries provide management services. Mr. Portnoy serves as chair of the boards and as a managing trustee of these public companies. Other officers of RMR serve as managing trustees or officers of certain of these companies.

~~Our Manager,~~Share Awards to RMR ~~LLC.~~ Employees. See Note 108 for further information ~~regarding~~relating to our ~~management agreements with RMR LLC.~~

~~We have historically granted share awards to certain RMR LLC employees under our equity compensation plans. In September 2017 and 2016, we granted annual share~~ awards of ~~57,350 and 53,400 of our~~ common shares ~~respectively,~~ to our officers and tocertain other employees of RMR ~~LLC. In~~in September ~~2017~~2023 and ~~2016, we purchased 13,636 and 13,209~~our repurchases of common shares from certain of our ~~common shares, respectively, at the closing price of our common shares on the Nasdaq on the date of purchase from our~~Trustees and officers and certain other current and former officers and employees of RMR ~~LLC~~ in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common ~~shares.~~shares to them. We include amounts recognized as expense for ~~share~~ awards of our common shares to our officers and other RMR ~~LLC~~ employees in general and administrative expenses in our condensed consolidated statements of comprehensive ~~income.~~income (loss).

Our Manager, RMR. We have two agreements with RMR ~~Inc.~~ to provide management services to us. RMR ~~LLC is~~also provides management services to our two unconsolidated joint ventures. See Note 9 for more information regarding our and our unconsolidated joint ventures’ management agreements with RMR.

Leases with RMR. We lease office space to RMR in certain of our properties for RMR’s property management offices. Pursuant to our lease agreements with RMR, we recognized rental income from RMR for leased office space of $205 and $671 for the three and nine months ended September 30, 2023, respectively, and $282 and $851 for the three and nine months ended September 30, 2022, respectively.

Sonesta. In June 2021, we entered into a 30-year lease agreement with a subsidiary of ~~RMR Inc. and RMR Inc.~~Sonesta International Hotels Corporation, or Sonesta, in connection with the redevelopment of an office property we own in Washington, D.C. as a mixed-use property. Sonesta’s lease is for the ~~managing member~~full-service hotel component of ~~RMR LLC. The controlling shareholder~~the property that includes approximately 230,000 rentable square feet, which represents approximately 55% of ~~RMR Inc., ABP Trust, is owned by our Managing Trustees. As~~the total square feet of ~~September 30, 2017, we owned 1,214,225 shares of class A common stock of RMR Inc. See Note 8 for further information regarding our investment in RMR Inc.~~

~~SIR~~. As of September 30, 2017, we owned 24,918,421 of SIR's common shares, or approximately 27.8% of its outstanding common shares. Our Managing Trustees also serve as managing trustees of SIR, our President and Chief Operating Officer and

the property. We substantially completed

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except per share data)

(unaudited)

~~one of our Independent Trustees also serves as~~ the ~~president and chief operating officer and an independent trustee of SIR, respectively. RMR LLC provides management services to SIR and us. See Note 12 for further information regarding our investment~~redevelopment in ~~SIR.~~

~~AIC. We, SIR, ABP Trust and four other companies to which RMR LLC provides management services currently own AIC, an Indiana insurance company, in equal amounts. We~~June 2023 and the ~~other AIC shareholders participate~~term of the lease commenced in ~~a combined property insurance program arranged and reinsured in part by AIC. We paid aggregate~~August 2023. Sonesta has two options to extend the term for 10 years each. Pursuant to the lease agreement, Sonesta will pay us annual ~~premiums, including taxes and fees,~~base rent of approximately ~~$757 in connection with this insurance program~~$6,436 beginning 18 months after the lease commencement. The annual base rent will increase by 10% every five years throughout the term. Sonesta is also obligated to pay its pro rata share of the operating costs for the ~~policy year ending June 30, 2018, which amount may be adjusted from time to time as we acquire and dispose of properties that are included in this insurance program.~~

building. As of September 30, ~~2017~~2023, we have paid approximately $77,000 of tenant improvement costs for the build out of the hotel space pursuant to the lease agreement. Mr. Portnoy is a director and ~~December 31, 2016, our investment in AIC had~~controlling shareholder of Sonesta and Ms. Clark is also a ~~carrying value~~director and officer of ~~$8,064 and $7,235, respectively. These amounts are included in other assets in our condensed consolidated balance sheets. We recognized income related~~Sonesta.

Terminated Merger Agreement with DHC. See Note 1 for more information relating to our investment in AIC, which amounts are presented as equity in earnings of investees in our condensed consolidated statements of comprehensive income. Our other comprehensive income includes our proportionate part of unrealized gains on securities which are owned and held for sale by AIC.

terminated merger agreement with DHC.

For ~~further~~more information about these and other such relationships and certain other related person transactions, ~~please~~ refer to our 2022 Annual Report.

~~Note 12. Equity Investment in Select Income REIT~~

As described in Note 11, as of September 30, 2017, we owned 24,918,421, or approximately 27.8%, of the then outstanding SIR common shares. SIR is a REIT which owns properties that are primarily leased to single tenants.

We account for our investment in SIR under the equity method. Under the equity method, we record our proportionate share of SIR’s net income as equity in earnings of an investee in our condensed consolidated statements of comprehensive income. We recorded $9,453 and $8,655 of equity in the earnings of SIR for the three months ended September 30, 2017 and 2016, respectively, and $20,271 and $27,895 of equity in the earnings of SIR for the nine months ended September 30, 2017 and 2016, respectively. Our other comprehensive income includes our proportionate share of SIR’s unrealized gains of $1,236 and $3,192 for the three months ended September 30, 2017 and 2016, respectively, and $5,339 and $10,248 for the nine months ended September 30, 2017 and 2016, respectively.

The adjusted GAAP cost basis of our investments in SIR was less than our proportionate share of SIR’s total shareholders’ equity book value on the dates we acquired the shares. As of September 30, 2017, our remaining basis difference was $87,976 and, as required under GAAP, we are accreting this basis difference to earnings over the estimated remaining useful lives of certain real estate assets and intangible assets and liabilities owned by SIR. This accretion increased our equity in the earnings of SIR by $736 and $740 for the three months ended September 30, 2017 and 2016, respectively, and $2,209 and $2,219 for the nine months ended September 30, 2017 and 2016, respectively.

As of September 30, 2017, our investment in SIR had a carrying value of $475,265 and a market value, based on the closing price of SIR common shares on the Nasdaq on September 30, 2017, of $583,589. We periodically evaluate our equity investment in SIR for possible indicators of other than temporary impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable. These indicators may include the length of time the market value of our investment is below our cost basis, the financial condition of SIR, our intent and ability to be a long term holder of the investment and other considerations. If the decline in fair value is judged to be other than temporary, we may record an impairment charge to adjust the basis of the investment to its fair value.

We received cash distributions from SIR totaling $12,708 during each of the three months ended September 30, 2017 and 2016 and $38,125 and $37,627 during the nine months ended September 30, 2017 and 2016, respectively.

Table of Contents

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

The following are summarized financial data of SIR as reported in SIR’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, or the SIR Quarterly Report. References in our condensed consolidated financial statements to the SIR Quarterly Report are included as references to the source of the data only, and the information in the SIR Quarterly Report is not incorporated by reference into our condensed consolidated financial statements.

~~Condensed Consolidated Balance Sheets~~

September 30, December 31,
2017 2016
Real estate properties, net $ 3,922,568
$ 3,899,792
Acquired real estate leases, net 493,780
506,298
Properties held for sale 5,829
—
Cash and cash equivalents 18,155
22,127
Rents receivable, net 122,292
124,089
Other assets, net 114,771
87,376
Total assets $ 4,677,395
$ 4,639,682

Unsecured revolving credit facility $ 102,000
$ 327,000
Unsecured term loan, net 348,746
348,373
Senior unsecured notes, net 1,776,087
1,430,300
Mortgage notes payable, net 227,772
245,643
Assumed real estate lease obligations, net 70,989
77,622
Other liabilities 129,502
136,782
Shareholders' equity 2,022,299
2,073,962
Total liabilities and shareholders' equity $ 4,677,395
$ 4,639,682

~~Table of Contents~~

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

~~Condensed Consolidated Statements of Income~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Rental income $ 98,635
$ 96,037
$ 293,020
$ 290,512
Tenant reimbursements and other income 19,379
18,999
57,158
56,660
Total revenues 118,014
115,036
350,178
347,172

Real estate taxes 11,489
10,755
33,168
31,565
Other operating expenses 14,649
14,394
41,039
39,987
Depreciation and amortization 34,713
33,366
102,770
100,240
Acquisition related costs —
13
—
71
General and administrative 1,589
7,553
24,658
21,903
Write-off of straight line rents receivable, net —
—
12,517
—
Loss on asset impairment —
—
4,047
—
Loss on impairment of real estate assets —
—
229
—
Total expenses 62,440
66,081
218,428
193,766
Operating income 55,574
48,955
131,750
153,406

Dividend income 397
397
1,190
872
Interest expense (24,383 ) (20,690 ) (68,278 ) (61,883 )
Income before income tax expense and equity in earnings of an investee 31,588
28,662
64,662
92,395
Income tax expense (177 ) (107 ) (364 ) (370 )
Equity in earnings of an investee 31
13
533
107
Net income 31,442
28,568
64,831
92,132
Net income allocated to noncontrolling interest —
—
—
(33 )
Net income attributed to SIR $ 31,442
$ 28,568
$ 64,831
$ 92,099

Weighted average common shares outstanding (basic) 89,355
89,308
89,341
89,295
Weighted average common shares outstanding (diluted) $ 89,379
$ 89,334
$ 89,364
$ 89,318
Net income attributed to SIR per common share (basic and diluted) $ 0.35
$ 0.32
$ 0.73
$ 1.03

~~Table of Contents~~

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

~~Note 13. Segment Information~~

~~We operate in two separate reportable business segments: direct ownership of real estate properties and our equity method investment in SIR.~~

Three Months Ended September 30, 2017
Investment Investment
in Real Estate in SIR Corporate Consolidated
Rental income $ 70,179
$ —
$ —
$ 70,179

Expenses:

Real estate taxes 8,862
—
—
8,862
Utility expenses 5,408
—
—
5,408
Other operating expenses 14,867
—
—
14,867
Depreciation and amortization 20,781
—
—
20,781
Loss on impairment of real estate 230
—
—
230
General and administrative —
—
3,266
3,266
Total expenses 50,148
—
3,266
53,414

Operating income (loss) 20,031
—
(3,266 ) 16,765
Dividend income —
—
304
304
Interest income 54
—
1,661
1,715
Interest expense (401 ) —
(15,654 ) (16,055 )
Loss on early extinguishment of debt —
(1,715 ) (1,715 )
Gain on issuance of shares by Select Income REIT —
51
—
51
Income (loss) from continuing operations before

income taxes and equity in earnings of investees 19,684
51
(18,670 ) 1,065
Income tax expense —
—
(22 ) (22 )
Equity in earnings of investees —
9,453
31
9,484
Income (loss) from continuing operations 19,684
9,504
(18,661 ) 10,527
Income from discontinued operations 462
—
—
462
Net income (loss) $ 20,146
$ 9,504
$ (18,661 ) $ 10,989

~~Table of Contents~~

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

Nine Months Ended September 30, 2017
Investment Investment
in Real Estate in SIR Corporate Consolidated
Rental income $ 209,362
$ —
$ —
$ 209,362

Expenses:
Real estate taxes 24,980
—
—
24,980
Utility expenses 14,186
—
—
14,186
Other operating expenses 44,046
—
—
44,046
Depreciation and amortization 61,949
—
—
61,949
Loss on impairment of real estate 230
—
—
230
General and administrative —
—
12,314
12,314
Total expenses 145,391
—
12,314
157,705

Operating income (loss) 63,971
—
(12,314 ) 51,657
Dividend income —
—
911
911
Interest income 148
—
1,695
1,843
Interest expense (1,238 ) —
(42,361 ) (43,599 )
Loss on early extinguishment of debt (1,715 ) —
—
(1,715 )
Gain on issuance of shares by Select Income REIT —
72
—
72
Income (loss) from continuing operations before income taxes and
equity in earnings of investees 61,166
72
(52,069 ) 9,169
Income tax expense —
—
(65 ) (65 )
Equity in earnings of investees —
20,271
533
20,804
Income (loss) from continuing operations 61,166
20,343
(51,601 ) 29,908
Income from discontinued operations 173
—
—
173
Net income (loss) $ 61,339
$ 20,343
$ (51,601 ) $ 30,081

As of September 30, 2017
Investment Investment
in Real Estate in SIR Corporate Consolidated
Total Assets $ 1,780,753
$ 475,265
$ 1,280,949
$ 3,536,967

~~Table of Contents~~

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

Three Months Ended September 30, 2016
Investment Investment
in Real Estate in SIR Corporate Consolidated
Rental income $ 64,478
$ —
$ —
$ 64,478

Expenses:
Real estate taxes 7,591
—
—
7,591
Utility expenses 5,483
—
—
5,483
Other operating expenses 13,854
—
—
13,854
Depreciation and amortization 18,404
—
—
18,404
Acquisition related costs 147
—
—
147
General and administrative —
—
3,816
3,816
Total expenses 45,479
—
3,816
49,295

Operating income (loss) 18,999
—
(3,816 ) 15,183
Dividend income —
—
304
304
Interest income —
—
47
47
Interest expense (429 ) —
(12,179 ) (12,608 )
Gain on issuance of shares by Select Income REIT —
72
—
72
Income (loss) from continuing operations before income taxes and
equity in earnings of investees 18,570
72
(15,644 ) 2,998
Income tax expense —
—
(13 ) (13 )
Equity in earnings of investees —
8,655
13
8,668
Income (loss) from continuing operations 18,570
8,727
(15,644 ) 11,653
Loss from discontinued operations (154 ) —
—
(154 )
Income (loss) before gain on sale of property 18,416
8,727
(15,644 ) 11,499
Gain on sale of property 79
—
—
79
Net income (loss) $ 18,495
$ 8,727
$ (15,644 ) $ 11,578

~~Table of Contents~~

~~GOVERNMENT PROPERTIES INCOME TRUST~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share data)~~

Nine Months Ended September 30, 2016
Investment Investment
in Real Estate in SIR Corporate Consolidated
Rental income $ 192,150
$ —
$ —
$ 192,150

Expenses:
Real estate taxes 22,810
—
—
22,810
Utility expenses 13,330
—
—
13,330
Other operating expenses 40,031
—
—
40,031
Depreciation and amortization 54,713
—
—
54,713
Acquisition related costs 363
—
—
363
General and administrative —
—
11,350
11,350
Total expenses 131,247
—
11,350
142,597

Operating income (loss) 60,903
—
(11,350 ) 49,553
Dividend income —
—
667
667
Interest income —
—
63
63
Interest expense (1,953 ) —
(30,333 ) (32,286 )
Gain on early extinguishment of debt 104
—
—
104
Gain on issuance of shares by Select Income REIT —
88
—
88
Income (loss) from continuing operations before income taxes and
equity in earnings of investees 59,054
88
(40,953 ) 18,189
Income tax expense —
—
(63 ) (63 )
Equity in earnings of investees —
27,895
107
28,002
Income (loss) from continuing operations 59,054
27,983
(40,909 ) 46,128
Loss from discontinued operations (429 ) —
—
(429 )
Income (loss) before gain on sale of property 58,625
27,983
(40,909 ) 45,699
Gain on sale of property 79
—
—
79
Net income (loss) $ 58,704
$ 27,983
$ (40,909 ) $ 45,778

As of December 31, 2016
Investment Investment
in Real Estate in SIR Corporate Consolidated
Total Assets $ 1,807,560
$ 487,708
$ 89,798
$ 2,385,066

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our ~~Annual Report on Form 10-K for the year ended December 31, 2016, or our~~2022 Annual Report.

OVERVIEW (dollars in thousands, except per share and per square foot data)

We are a real estate investment trust, or REIT, organized under Maryland law. As of September 30, ~~2017,~~2023, our wholly owned properties were comprised of 154 properties and we ~~owned 74~~had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties ~~(96 buildings)~~containing approximately 451,000 rentable square feet. As of September 30, 2023, our properties are located in 3130 states and the District of Columbia ~~that~~and contain approximately ~~11.5 million~~20,705,000 rentable square feet, of which 57.8% was leased to the U.S. Government, 21.8% was leased to 13 state governments, 3.2% was leased to four other government tenants, 3.6% was leased to government contractor tenants, 8.6% was leased to various other non-governmental organizations and 5.0% was available for lease asfeet. As of September 30, ~~2017.~~2023, our properties were leased to 263 different tenants with a weighted average remaining lease term (based on annualized rental income) of approximately 6.4 years. The U.S. ~~Government, 13 state governments and four other~~ government ~~tenants combined were responsible for 87.5% and 92.4%~~is our largest tenant, representing approximately 20.0% of our annualized rental income as of September 30, ~~2017 and 2016, respectively.~~2023. The term annualized rental income as used herein is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of ~~the measurement date,~~September 30, 2023, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

Certain changes in office space utilization that accelerated during the COVID-19 pandemic, including increased remote work arrangements and tenants consolidating their real estate footprint, continue to impact the market. The utilization and demand for office space continues to face headwinds and the duration and ultimate impact of current trends on the demands for office space at our properties remains uncertain and subject to change. Accordingly, we do not yet know what the full extent of the impacts will be on our or our tenants’ businesses and operations nor the long-term outlook for leasing our properties.

In response to inflationary pressures, the U.S. Federal Reserve has increased the federal funds rate by 525 basis points since March 2022 and has indicated that there may be additional increases. The inflationary pressures and rising interest rates in the United States and globally, and global geopolitical hostilities and tensions, have given rise to concerns that the U.S. economy may soon enter an economic recession and they have caused disruptions in the financial markets. Sustained inflationary pressures, increased interest rates, an economic recession or continued or intensified disruptions in the financial markets could adversely affect our and our tenants’ financial condition, could adversely impact the ability or willingness of our tenants to renew our leases or pay rent to us, would impair our ability to effectively deploy our capital or realize desirable returns on our investments, may restrict our access to, and would likely increase our cost of, capital and may cause the values of our properties and our securities to decline.

On ~~October 2, 2017,~~September 1, 2023, we ~~completed our acquisition of First Potomac Realty Trust, or FPO, a Maryland REIT, pursuant~~and DHC mutually agreed to ~~a definitive~~terminate the previously disclosed Merger Agreement and ~~Plan of Merger, by~~entered into the Termination Agreement. For more information on our terminated merger with DHC, see Note 1 to our Condensed Consolidated Financial Statements.

For more information about the risks relating to these dynamics and ~~among~~conditions and their impacts on us and ~~certain~~our business, see Part I, Item IA, “Risk Factors”, of our ~~subsidiaries~~2022 Annual Report.

Property Operations

Unless otherwise noted, the data presented in this section includes properties classified as held for sale as of September 30, 2023 and ~~FPO and its operating partnership, or the FPO Transaction, pursuant to which we acquired 39 office properties (74 buildings) with 6,454,382 rentable square feet, including two~~excludes three properties owned by two unconsolidated joint ventures in which we ~~acquired FPO's~~own 51% and 50% ~~and 51%~~ interests. The estimated aggregate transaction value of the FPO Transaction was approximately $1,374,624, including $651,696 in cash consideration paid to FPO shareholders, the repayment of $483,000 of FPO debt, the assumption of $167,549 of FPO mortgage debt and an additional $82,000 of mortgage debt that encumbers the two joint ventureFor more information regarding our properties ~~which are 50% and 51% owned by FPO,~~classified as ~~well as the payment of certain transaction fees and expenses, net of FPO cash on hand. We currently expect to complete our purchase price allocation~~held for ~~the FPO Transaction in the fourth quarter of 2017 upon completion of third party appraisals~~sale and our ~~analysis of acquired in place leases and building valuations.~~

We financed the cash portion of the FPO Transaction consideration with borrowings under our revolving credit facility and with cash on hand, which included net proceeds from our public offerings of common shares and notes, as described further in Notes 7 and 9two unconsolidated joint ventures, see Note 3 to our ~~condensed consolidated financial statements.~~

The FPO Transaction significantly increased our property portfolio. Giving effect to the completion of the FPO Transaction, we owned113 properties (170 buildings) that contain approximately 18.0 million square feet, including two properties owned by joint ventures in which we acquired FPO's 50% and 51% interests. Because the FPO Transaction was completed after the end of the 2017 third fiscal quarter, our results of operations for the three and nine months ending September 30, 2017 and 2016 do not include the properties and joint venture interests we acquired as part of the FPO Transaction. See "Acquisition and Disposition Activities" below for additional information related to the FPO Transaction.

As of September 30, 2017, we owned 24,918,421 common shares, or approximately 27.8% of the then outstanding common shares, of Select Income REIT, or SIR. SIR is a REIT which owns properties that are primarily leased to single tenants. See Notes 11 and 12 to our condensed consolidated financial statementsCondensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form ~~10-Q for more information regarding our investment in SIR. We account for our investment in SIR under the equity method.~~10-Q.

Table of Contents

~~Property Operations~~

As of September 30, 2017, 95.0% of our rentable square feet was leased, compared to 95.0% of our rentable square feet as of September 30, 2016, which excludes one property (one building) classified as discontinued operations which was sold on August 31, 2017. Occupancy data for our properties as of September 30, ~~2017~~2023 and ~~2016 is~~2022 was as follows (square feet in thousands):


	All Properties (1)				Comparable Properties (2)
	September 30,				September 30,
	2023		2022		2023		2022
Total properties	154		162		147		147
Total rentable square feet (3)	20,705		21,211		19,526		19,551
Percent leased (4)	89.9	%	90.7	%	93.3	%	94.7	%

Comparable

All Properties⁽¹⁾

Properties ⁽²⁾
September 30, September 30,
2017 2016 2017 2016
Total properties 74
71
70
70
Total buildings 96
91
90
90
Total square feet ⁽³⁾
11,517
10,950
10,617
10,612
Percent leased ⁽⁴⁾
95.0 % 95.0 % 95.0 % 95.2 %
(1)Based on properties we owned on September 30, 2023 and 2022, respectively.

(2)Based on properties we owned continuously since January 1, 2022; excludes two properties classified as held for sale, five properties undergoing significant redevelopment and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.


~~(1)~~	~~Based on properties we owned on September 30, 2017 and 2016, respectively, and excludes one property (one building) classified as discontinued operations which was sold on August 31, 2017.~~


~~(2)~~	Based on properties we owned on September 30, 2017 and which we owned continuously since January 1, 2016. Our comparable properties decreased from 71 properties (91 buildings) at September 30, 2016 as a result of the sale of one property (one building) in July 2016.


~~(3)~~	~~Subject to changes when space is re-measured or re-configured for tenants.~~


~~(4)~~	Percent leased includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any, as of the measurement date.

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

(4)Percent leased includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any, as of the measurement date.

The average ~~annualized~~ effective rental rate per square foot for our properties for the three and nine months ended September 30, ~~2017~~2023 and ~~2016 are~~2022 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Average effective rental rate per square foot (1):
All properties (2)	$	29.37	$	29.19	$	29.25	$	29.44
Comparable properties (3)	$	29.61	$	29.33	$	29.42	$	29.25

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Average annualized effective rental rate per square foot ⁽¹⁾:

All properties ⁽²⁾
$ 25.89
$ 25.31
$ 25.74
$ 25.15
Comparable properties ⁽³⁾
$ 25.68
$ 25.32
$ 25.30
$ 24.95
(1)Average effective rental rate per square foot represents annualized total rental income during the period specified divided by the average rentable square feet leased during the period specified.


~~(1)~~	Average annualized effective rental rate per square foot represents annualized total rental income during the period specified divided by the average rentable square feet leased during the period specified. Excludes one property (one building) classified as discontinued operations which was sold on August 31, 2017.


~~(2)~~	~~Based on properties we owned on September 30, 2017 and 2016, respectively, and excludes one property (one building) classified as discontinued operations which was sold on August 31, 2017.~~


~~(3)~~	~~Based on properties we owned on September 30, 2017 and which we owned continuously since July 1, 2016 and January 1, 2016, respectively.~~

(2)Based on properties we owned on September 30, 2023 and 2022, respectively.

(3)Based on properties we owned continuously since July 1, 2022 and January 1, 2022, respectively; excludes two properties classified as held for sale, five properties undergoing significant redevelopment and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

During the three and nine months ended September 30, ~~2017,~~2023, changes in rentable square feet leased and available for lease at our properties ~~excluding one~~were as follows (square feet in thousands):


	Three Months Ended September 30, 2023			Nine Months Ended September 30, 2023
	Leased	Available for Lease	Total	Leased	Available for Lease	Total
Beginning of period	18,834	1,950	20,784	19,004	1,965	20,969
Changes resulting from:

Disposition of properties	(2)	(78)	(80)	(102)	(274)	(376)
Lease expirations	(797)	797	—	(1,783)	1,783	—
Redevelopment expansion (1)	—	—	—	—	87	87
Lease renewals (2)	482	(482)	—	1,111	(1,111)	—
New leases (2)	104	(104)	—	391	(391)	—
Remeasurements (3)	—	1	1	—	25	25
End of period	18,621	2,084	20,705	18,621	2,084	20,705

(1)Represents additional rentable square feet resulting from the redevelopment of a property ~~(one building) classified as discontinued operations~~in Washington, D.C., which was ~~sold on August 31, 2017, were as follows:~~completed in June 2023.

Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
Available Available

Leased ⁽¹⁾
for Lease Total
Leased ⁽¹⁾
for Lease Total
Beginning of period 10,937,046
578,941
11,515,987
10,881,289
561,224
11,442,513
Changes resulting from:

Acquisition of properties —
—
—
69,374
—
69,374
Lease expirations (426,847 ) 426,847
—
(1,088,995 ) 1,088,995
—
Lease renewals ⁽²⁾
416,660
(416,660 ) —
1,000,878
(1,000,878 ) —
New leases ⁽²⁾
19,442
(19,442 ) —
83,755
(83,755 ) —
Re-measurements ⁽³⁾
—
864
864
—
4,964
4,964
End of period 10,946,301
570,550
11,516,851
10,946,301
570,550
11,516,851


~~(1)~~	~~Rentable square footage excludes an expansion being constructed at an existing property we own prior to the commencement of the lease.~~


~~(2)~~	(2)Based on leases entered ~~into during the three and nine months ended September 30, 2017.~~


~~(3)~~	~~Rentable square feet is subject to changes when space is re-measured or re-configured for tenants.~~

~~Leases at our properties totaling 426,847 and 1,088,995 rentable square feet expired~~ during the three and nine months ended September 30, ~~2017, respectively. During the three and nine months ended September 30, 2017, we entered into leases totaling 436,102 and 1,084,633 rentable~~2023.

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

Table of 416,660 and 1,000,878 rentable square feet, respectively. The weighted (by rentable square feet) average rental rates for leases of 393,158 and 953,444 rentable square feet entered into with government tenants during the three and nine months ended September 30, 2017 increased by 0.2% and 4.0%, respectively, when compared to the weighted (by rentable square feet) average prior rents for the same space. The weighted (by rentable square feet) average rental rates for leases of 42,944 and 131,189 rentable square feet entered into with non-government tenants during the three and nine months ended September 30, 2017 decreased by 11.1% and increased by 0.7%, respectively, when compared to the weighted (by rentable square feet) average rental rates previously charged for the same space.Contents

During the three and nine months ended September 30, ~~2017,~~2023, we entered into new and renewal leases as summarized in the following table (square feet in thousands):


	Three Months Ended September 30, 2023
	New Leases			Renewals			Total
Rentable square feet leased	104			482			586
Weighted average rental rate change (by rentable square feet)	1.9		%	(3.7		%)	(2.7		%)
Tenant leasing costs and concession commitments (1)	$	13,623		$	11,736		$	25,359
Tenant leasing costs and concession commitments per rentable square foot (1)	$	131.54		$	24.36		$	43.33
Weighted (by square feet) average lease term (years)	9.5			6.9			7.4
Total leasing costs and concession commitments per rentable square foot per year (1)	$	13.84		$	3.53		$	5.89


	Nine Months Ended September 30, 2023
	New Leases			Renewals			Total
Rentable square feet leased	391			1,111			1,502
Weighted average rental rate change (by rentable square feet)	(1.3		%)	(3.7		%)	(3.1		%)
Tenant leasing costs and concession commitments (1)	$	34,512		$	40,232		$	74,744
Tenant leasing costs and concession commitments per rentable square foot (1)	$	88.47		$	36.23		$	49.81
Weighted (by square feet) average lease term (years)	8.7			8.7			8.7
Total leasing costs and concession commitments per rentable square foot per year (1)	$	10.19		$	4.17		$	5.74

(1)Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.

During the three and nine months ended September 30, 2023, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three and nine months ended September 30, ~~2017,~~2023, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as ~~follows:~~follows (square feet in thousands):


	Three Months Ended September 30, 2023					Nine Months Ended September 30, 2023
	Old Effective Rent Per Square Foot (1)		New Effective Rent Per Square Foot (1)		Rentable Square Feet	Old Effective Rent Per Square Foot (1)		New Effective Rent Per Square Foot (1)		Rentable Square Feet
New leases	$	23.27	$	28.03	101	$	27.26	$	28.95	415
Lease renewals	$	37.09	$	36.26	568	$	31.13	$	30.10	1,324
Total leasing activity	$	35.01	$	35.02	669	$	30.21	$	29.83	1,739

(1)Effective rental rates include contractual base rents from our tenants pursuant to our lease agreements, plus straight line rent adjustments and estimated expense reimbursements to be paid to us, and exclude lease value amortization.

Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
Old Effective New Effective Old Effective New Effective
Rent Per Rent Per Rentable Rent Per Rent Per Rentable

Square Foot ⁽¹⁾

Square Foot ⁽¹⁾
Square Feet
Square Foot ⁽¹⁾

Square Foot ⁽¹⁾
Square Feet
New leases $ —
$ —
—
$ 22.67
$ 22.98
97,797
Lease renewals $ 22.74
$ 23.25
17,442
$ 13.65
$ 15.25
578,330
Total leasing activity $ 22.74
$ 23.25
17,442
$ 14.95
$ 16.36
676,127


~~(1)~~	Effective rental rate includes contractual base rents from our tenants pursuant to our lease agreements, plus straight line rent adjustments and estimated expense reimbursements to be paid to us, and excluding lease value amortization.

Table of Contents

During the three and nine months ended September 30, ~~2017, commitments made for expenditures, such as tenant improvements~~2023 and ~~leasing costs, in connection with leasing space~~2022, amounts capitalized at our properties for lease related costs, building improvements and development, redevelopment and other activities were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022


Lease related costs (1)	$	15,677	$	17,297	$	56,970	$	42,092
Building improvements (2)	8,516		8,585		18,453		16,070
Recurring capital expenditures	24,193		25,882		75,423		58,162
Development, redevelopment and other activities (3)	28,326		36,811		118,232		114,637
Total capital expenditures	$	52,519	$	62,693	$	193,655	$	172,799

Government Non-Government
Three Months Ended September 30, 2017 Leases Leases Total
Rentable square feet leased during the period 393,158
42,944
436,102
Tenant leasing costs and concession commitments ⁽¹⁾ (in thousands)
$ 6,629
$ 1,273
$ 7,902
Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾
$ 16.86
$ 29.64
$ 18.12
Weighted (by square feet) average lease term (years) 8.5
7.2
8.4
Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾
$ 1.98
$ 4.10
$ 2.16
(1)Lease related costs generally include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space and leasing related costs, such as brokerage commissions and other tenant inducements.

(2)Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets.

Government Non-Government
Nine Months Ended September 30,2017 Leases Leases Total
Rentable square feet leased during the period 953,444
131,189
1,084,633
Tenant leasing costs and concession commitments ⁽¹⁾ (in thousands)
$ 9,120
$ 3,489
$ 12,609
Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾
$ 9.57
$ 26.59
$ 11.62
Weighted (by square feet) average lease term (years) 9.2
5.6
8.8
Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾
$ 1.04
$ 4.77
$ 1.32

~~(1)~~

~~Includes commitments made~~(3)Development, redevelopment and other activities generally include capital expenditure projects that reposition a property or result in new sources of revenue. Includes capitalized interest and other operating costs of $1,978 and $8,691 for ~~leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.~~

~~During~~ the three and nine months ended September 30, ~~2017~~2023, respectively, and ~~2016, amounts capitalized at~~$2,089 and $5,029 for the three and nine months ended September 30, 2022, respectively.

In addition to the capital expenditures described above, we contributed $3,763 to one of our ~~properties for tenant improvements, leasing costs, building improvements and development and redevelopment activities were~~unconsolidated joint ventures during the nine months ended September 30, 2023. Also, as ~~follows (dollars in thousands):~~

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Tenant improvements ⁽¹⁾
$ 3,213
$ 5,636
$ 6,692
$ 12,306
Leasing costs ⁽²⁾
$ 1,993
$ 655
$ 4,051
$ 8,002
Building improvements ⁽³⁾
$ 2,640
$ 3,009
$ 8,883
$ 8,691
Development, redevelopment and other activities ⁽⁴⁾
$ 3,132
$ 1,292
$ 16,362
$ 4,221


~~(1)~~	~~Tenant improvements include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space.~~


~~(2)~~	~~Leasing costs include leasing related costs, such as brokerage commissions and other tenant inducements.~~


~~(3)~~	~~Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets.~~


~~(4)~~	Development, redevelopment and other activities generally include (i) capital expenditures that are identified at the time of a property acquisition and incurred within a short time period after acquiring the property, and (ii) capital expenditure projects that reposition a property or result in new sources of revenue.

As of September 30, ~~2017,~~2023, we ~~have~~had estimated unspent leasing related obligations of ~~$26,631 and have committed to redevelop and expand an existing property prior to commencement~~$137,223, of ~~the lease with an estimated remaining cost to complete as of September 30, 2017 of $3,302.~~

We believe that current government budgetary pressures have resulted in a decrease in government employment, government tenants reducing their space utilization per employee and consolidation of government tenants into existing government owned properties, thereby reducing the demand for government leased space. Our historical experience with respect to properties of the typewhich we own that are majority leased to government tenants has been that government tenants frequently renew leases to avoid the costs and disruptions that may result from relocating their operations. However, efforts to reduce space utilization rates may result in our tenants exercising early termination rights under our leases, vacating our properties upon expiration of our leases in order to relocate, or in renewing their leases for less space than they currently occupy. Also, our government tenants' desire to reconfigure leased office space to reduce utilization per employee may require usexpect to spend significant amounts for tenant improvements, and tenant relocations have become more prevalent than our past experiences in instances where efforts by government tenants to reduce their space utilization require a significant reconfiguration of currently leased space. Increasing uncertainty with respect to government agency budgets and funding to implement relocations, consolidations and reconfigurations recently has resulted in delayed decisions by some of our

~~government tenants and their reliance on short term lease renewals. At present, we are unable to reasonably project what~~$73,666 over the ~~financial impact of market conditions or changing government financial circumstances will be on our financial results for future periods.~~

The Internal Revenue Service, or IRS, has publicly stated that it plans to discontinue its tax return processing operations at our property located in Fresno, CA in 2021. The IRS lease for this property, which accounted for approximately 3.0% of our annualized rental income as of September 30, 2017, expires in the fourth quarter of 2021. The IRS has also publicly stated that it plans to discontinue its tax return processing operations in Covington, KY in 2019. Our property located in Florence, KY is leased to the IRS and we believe it is used to support the Covington, KY operations. This IRS lease, which accounted for approximately 0.9% of our annualized rental income as of September 30, 2017, expires in the second quarter of 2022, but is subject to possible early termination by our tenant. Despite its public announcements, the IRS has not sent us any official notices of its intentions regarding the Fresno, CA or Covington, KY properties.

next 12 months.

As of September 30, ~~2017,~~2023, we had leases at our properties totaling ~~787,271~~approximately 2,614,820 rentable square feet that were scheduled to expire through September 30, ~~2018.~~2024. As of October ~~30, 2017,~~27, 2023, we expect tenants with leases totaling ~~196,753~~approximately 1,832,201 rentable square feet that are scheduled to expire through September 30, ~~2018, have notified us~~2024, excluding space that ~~they do~~has been re-leased and space for which we are in advanced negotiations to re-lease, not ~~plan~~ to renew or to downsize their ~~leases~~leased space upon expiration, and we cannot be sure as to whether other tenants ~~may or may not~~will renew their leases upon expiration. ~~Based upon current~~However, we continue to proactively engage with our existing tenants and are focused on overall tenant retention. Prevailing market conditions and ~~tenant negotiations for~~our tenants’ needs at the time we negotiate and enter leases ~~scheduled to expire through September 30, 2018, we expect that the~~or lease renewals will generally determine rental rates and demand for leased space at our properties, all of which factors are beyond our control. Whenever we ~~are likely to achieve on~~renew or enter into new ~~or renewed~~ leases for ~~space under leases expiring through September 30, 2018 will, in the aggregate and on a weighted (by annualized revenues) average basis, be lower~~our properties, we intend to seek rents which are equal to or higher than ~~the rates currently being paid, thereby generally resulting in lower revenue from~~our historical rents for the same ~~space.~~properties; however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control. We cannot be sure of the rental rates ~~which~~that will result from our ongoing negotiations regarding lease renewals or any new or renewed leases we may ~~enter into; also,~~enter. Also, we may experience material declines in our rental income due to vacancies upon lease expirations or early ~~terminations. Prevailing market conditions~~terminations or lower rents upon lease renewal or reletting. Additionally, we may incur significant costs and ~~government and other tenants' needs at the time we negotiate and enter~~make significant concessions to renew our leases ~~will generally determine rental rates and demand for leased space at~~with current tenants or lease our properties ~~and market conditions and government and other tenants' needs are beyond our control.~~to new tenants.

Table of Contents

As of September 30, ~~2017,~~2023, our lease expirations ~~at our properties~~ by year ~~are~~were as follows ~~(dollars~~(square feet in thousands):


Year (1)	Number of Leases Expiring	Leased Square Feet Expiring (2)	Percent of Total		Cumulative Percent of Total		Annualized Rental Income Expiring		Percent of Total		Cumulative Percent of Total
2023	26	1,098	5.9	%	5.9	%	$	29,827	5.6	%	5.6	%
2024	55	2,521	13.5	%	19.4	%	65,112		12.3	%	17.9	%
2025	40	2,342	12.6	%	32.0	%	59,960		11.3	%	29.2	%
2026	38	1,469	7.9	%	39.9	%	41,597		7.8	%	37.0	%
2027	36	2,059	11.1	%	51.0	%	52,427		9.9	%	46.9	%
2028	20	762	4.1	%	55.1	%	33,386		6.3	%	53.2	%
2029	28	1,035	5.6	%	60.7	%	28,722		5.4	%	58.6	%
2030	29	936	5.0	%	65.7	%	26,957		5.1	%	63.7	%
2031	19	1,035	5.6	%	71.3	%	29,726		5.6	%	69.3	%
2032 and thereafter	59	5,364	28.7	%	100.0	%	163,019		30.7	%	100.0	%
Total	350	18,621	100.0	%			$	530,733	100.0	%

Weighted average remaining lease term (in years)		6.0					6.4

Number Expirations Annualized
of of Leased Cumulative Rental Cumulative
Tenants Square Percent Percent Income Percent Percent
Year ⁽¹⁾
Expiring
Feet ⁽²⁾
of Total of Total Expiring of Total of Total
2017 20
434,049
4.0 % 4.0 % $ 10,004
3.6 % 3.6 %
2018 37
704,708
6.4 % 10.4 % 22,913
8.3 % 11.9 %
2019 45
1,940,016
17.7 % 28.1 % 59,116
21.5 % 33.4 %
2020 39
1,447,413
13.2 % 41.3 % 40,155
14.6 % 48.0 %
2021 37
1,061,519
9.7 % 51.0 % 20,732
7.5 % 55.5 %
2022 31
940,554
8.6 % 59.6 % 22,505
8.2 % 63.7 %
2023 18
595,662
5.4 % 65.0 % 13,685
5.0 % 68.7 %
2024 16
993,635
9.1 % 74.1 % 22,696
8.2 % 76.9 %
2025 15
801,648
7.3 % 81.4 % 16,572
6.0 % 82.9 %
2026 and thereafter 32
2,027,097

⁽³⁾
18.6 % 100.0 % 47,042
17.1 % 100.0 %
Total 290
10,946,301
100.0 % $ 275,420
100.0 %

Weighted average remaining lease term (in years) 5.1 4.7

~~(1)~~

The year of lease expiration is pursuant to current contract terms. Some government tenants have the right to vacate their space before the stated expirations of their leases. As of September 30, 2017, government tenants occupying approximately 13.2%(1)The year of lease expiration is pursuant to current contract terms. Some of our leases allow the tenants to vacate the leased premises before the stated expirations of their leases with little or no liability. As of September 30, 2023, tenants occupying approximately 3.6% of our rentable square feet and responsible for approximately 10.2% of our annualized rental income as of September 30, 2017 have currently exercisable rights to terminate their leases before the stated terms of their leases expire. Also, in 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2026 and 2027, early termination rights become exercisable by other tenants who currently occupy an additional approximately 0.1%, 1.6%, 4.9%, 8.0%, 1.5%, 3.6%, 0.6%, 0.9% and 0.6% of our rentable square feet, respectively, and contribute an additional approximately 0.0%, 2.2%, 5.1%, 8.3%, 1.5%, 2.9%, 0.7%, 1.2% and 0.6% of our annualized rental income, respectively, as of September 30, 2017. In addition, as of September 30, 2017, 15 of our government tenants have currently exercisable rights to terminate their leases if the legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These 15 tenants occupy approximately 17.3% of our rentable square feet and contribute approximately 16.8% of our annualized rental income as of September 30, 2017.


~~(2)~~	Leased square feet is pursuant to leases existing as of September 30, 2017, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any. Square feet measurements are subject to changes when space is re-measured or re-configured for new tenants.


~~(3)~~	~~Leased square footage excludes an expansion being constructed at an existing property we own prior to the commencement of the lease.~~

~~Acquisition and Disposition Activities (dollar amounts in thousands)~~

~~In January 2017, we acquired an office property (one building) located in Manassas, VA with 69,374~~ rentable square feet and responsible for ~~a purchase price~~approximately 3.6% of ~~$12,620, excluding capitalized acquisition costs of $37, using cash on hand and borrowings under~~ our ~~revolving credit facility. We acquired this property at a capitalization rate of 8.6%. We calculate the capitalization rate for property acquisitions as the ratio of (x) annual straight line~~annualized rental income ~~excluding the impact of above and below market lease amortization, based on leases in effect on the acquisition date, less estimated annual property operating expenses that we expected to pay~~ as of September 30, 2023 had exercisable rights to terminate their leases before the ~~acquisition date, excluding depreciation~~stated terms of their leases expire. Also, in 2023, 2024, 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2034, 2035, 2036, 2037 and ~~amortization expense,~~2040, early termination rights become exercisable by other tenants who occupied an additional approximately 1.0%, 2.6%, 2.6%, 1.6%, 1.3%, 3.9%, 0.8%, 0.9%, 0.6%, 0.3%, 0.2%, 0.9%, 0.1%, 0.1% and 0.3% of our rentable square feet, respectively, and contributed an additional approximately 1.1%, 2.9%, 5.0%, 2.2%, 1.6%, 4.4%, 1.4%, 1.0%, 0.5%, 0.6%, 0.6%, 1.2%, 0.3%, 0.2% and 0.4% of our annualized rental income, respectively, as of September 30, 2023. In addition, as of September 30, 2023, pursuant to ~~(y) the acquisition purchase price, including the principal amount~~leases with nine of ~~assumed debt,~~our tenants, these tenants had rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These nine tenants occupied approximately 4.8% of our rentable square feet and contributed approximately 5.2% of our annualized rental income as of September 30, 2023.

(2)Leased square feet is pursuant to leases existing as of September 30, 2023, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and ~~excluding acquisition costs.~~(ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any. Square feet measurements are subject to changes when space is remeasured or reconfigured for new tenants.

~~In September 2017,~~We generally will seek to renew or extend the terms of leases at properties with tenants when they expire. However, market and economic factors, along with increases in remote work, changes in space utilization and government spending and budget priorities, may cause our tenants not to renew or extend their leases when they expire, or to seek to renew their leases for less space than they currently occupy. If we ~~acquired transferable development rights that would allow us~~are unable to ~~expand a property~~extend or renew our leases, or we ~~own in Washington, D.C.~~renew leases for ~~a purchase price~~reduced space, it may be time consuming and expensive to relet some of ~~$2,030, excluding acquisition costs.~~

these properties.

As ~~described above,~~of September 30, 2023, we ~~completed the FPO Transaction on October 2, 2017. Pursuant to that transaction, we acquired 39 office~~derived 21.6% of our annualized rental income from our properties (74 buildings) with 6,454,382 rentable square feet, including two properties owned by joint ventures in which we acquired FPO's 50% and 51% interests. The estimated aggregate transaction value of the FPO Transaction was $1,374,624.

~~Our ownership and operation of office properties~~located in the metropolitan Washington, D.C. market area, ~~increased significantly~~which includes Washington, D.C., Northern Virginia and suburban Maryland. Current economic conditions in this area or a possible recession, including as a result of ~~the FPO Transaction and we may acquire additional~~current inflationary conditions or otherwise, could reduce demand from tenants for our properties, reduce rents that our tenants in this area are willing to pay when our leases expire and increase lease concessions for new leases and renewals. Additionally, there has been a decrease in demand for new leased office space by the ~~future. Outside of~~U.S. government, including in the metropolitan Washington, D.C. market area, ~~our strategy related to property acquisitions is materially unchanged from~~and that ~~disclosed in our Annual Report and we will continue to explore and evaluate~~could increase competition for ~~possible acquisition additional properties that are majority leased to~~ government tenants and adversely affect our ability to retain government ~~contractor tenants. Until~~tenants or maintain or increase our rents when our leases expire.

Our manager, RMR, employs a tenant review process for us. RMR assesses tenants on an individual basis based on various applicable credit criteria. In general, depending on facts and circumstances, RMR evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources. We consider investment grade tenants to include: (a) investment grade rated tenants; (b) tenants with investment grade rated parent entities that guarantee the tenant’s lease obligations; and/or (c) tenants with investment grade rated parent entities that do not guarantee the tenant’s lease obligations. As of September 30, 2023, tenants contributing 53.6% of annualized rental income were investment grade rated (or their payment obligations were guaranteed by an investment grade rated parent) and tenants contributing an additional 10.4% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

Table of Contents

As of September 30, 2023, tenants representing 1% or more of our total annualized rental income were as follows (square feet in thousands):


	Tenant	Credit Rating	Sq. Ft.	% of Leased Sq. Ft.		Annualized Rental Income		% of Total Annualized Rental Income
1	U.S. Government	Investment Grade	3,822	20.5	%	$	105,955	20.0	%
2	Alphabet Inc. (Google)	Investment Grade	386	2.1	%	22,119		4.2	%
3	Shook, Hardy & Bacon L.L.P.	Not Rated	596	3.2	%	19,216		3.6	%
4	Bank of America Corporation	Investment Grade	577	3.1	%	18,159		3.4	%
5	IG Investments Holdings LLC	Not Rated	339	1.8	%	17,303		3.3	%
6	State of California	Investment Grade	519	2.8	%	15,893		3.0	%
7	Tyson Foods, Inc. (1)	Investment Grade	248	1.3	%	11,954		2.3	%
8	Northrop Grumman Corporation	Investment Grade	337	1.8	%	10,795		2.0	%
9	Sonesta International Hotels Corporation	Not Rated	234	1.3	%	10,745		2.0	%
10	CommScope Holding Company Inc.	Non Investment Grade	228	1.2	%	9,582		1.8	%
11	Sonoma Biotherapeutics, Inc. (2)	Not Rated	107	0.6	%	7,634		1.4	%
12	State of Georgia	Investment Grade	308	1.7	%	7,345		1.4	%
13	Commonwealth of Massachusetts	Investment Grade	212	1.1	%	7,269		1.4	%
14	PNC Bank	Investment Grade	441	2.4	%	6,960		1.3	%
15	Micro Focus International plc	Non Investment Grade	215	1.2	%	6,836		1.3	%
16	Compass Group plc	Investment Grade	267	1.4	%	6,697		1.3	%
17	ServiceNow, Inc.	Investment Grade	149	0.8	%	6,675		1.3	%
18	Allstate Insurance Co.	Investment Grade	468	2.5	%	6,484		1.2	%
19	Automatic Data Processing, Inc.	Investment Grade	289	1.6	%	6,079		1.1	%
20	Church & Dwight Co., Inc.	Investment Grade	250	1.3	%	6,043		1.1	%
21	Leidos Holdings Inc.	Investment Grade	159	0.9	%	5,950		1.1	%
22	Primerica, Inc.	Investment Grade	344	1.8	%	5,737		1.1	%

	Total		10,495	56.4	%	$	321,430	60.6	%

(1)In July 2023, we ~~have fully integrated~~received notice from Tyson Foods, Inc. exercising its option to terminate its lease at a property we own in Chicago, IL effective January 2025, prior to the ~~FPO properties~~stated lease expiration date of January 31, 2028. We are amortizing termination fees of approximately $1,400 per quarter through January 2025 as a result of this early termination.

(2)In August 2022, we entered into ~~our business~~an approximately 10-year lease with Sonoma Biotherapeutics, Inc. at a property we ~~expect~~own in Seattle, WA that ~~our acquisition activities may be reduced. Also, as part~~is currently undergoing redevelopment. The term of the ~~long term financing plan for the FPO Transaction, we expect~~lease is estimated to ~~identify properties within our portfolio for disposition. Generally, we identify properties for sale based on market conditions~~commence in the ~~area where~~first quarter of 2024.

Disposition Activities

During the property is located, our expectations regarding property future financial performance, our expectation regarding lease renewals, our plans with regard to particular properties or alternative opportunities we may wish to pursue. Our plans for particular properties and other strategic considerations may cause us to change our acquisition and disposition strategies, and we may do so at any time and without shareholder approval.

~~In August 2017,~~nine months ended September 30, 2023, we sold ~~a vacant office property (one building) located in Falls Church, VA with 164,746~~six properties containing approximately 376,000 rentable square feet ~~and a net book value~~for an aggregate sales price of ~~$12,901 as of the sale date for $13,523,~~$23,575, excluding closing costs.

In October 2017, we sold a vacant office property (one building) located in Albuquerque, NM with 29,045 rentable square feet and a net book value of $1,885, as of September 30, 2017 for $2,000, excluding closing costs.

~~Financing Activities (dollar amounts in thousands except per share amounts)~~

On July 5, 2017, we sold 25,000,000 of our common shares at a price of $18.50 per share in an underwritten public offering. On August 3, 2017, we sold 2,907,029 of our common shares at a price of $18.50 per share pursuant to an overallotment option granted to the underwriters for the July offering. The ~~aggregate~~ net proceeds from these sales ~~was $493,936, after payment of the underwriters' discount and other offering expenses. We~~were used ~~part of the proceeds from these sales~~ to repay amounts outstanding under our revolving credit ~~facility~~facility.

We continue to evaluate our portfolio and ~~used the remaining proceeds to finance,~~are currently in ~~part, the FPO Transaction.~~

~~In July 2017, we issued $300,000~~various stages of 4.000% senior unsecured notes due 2022 in an underwritten public offering. The net proceeds from this offering of $295,403, after payment of the underwriters' discount and other offering expenses, were used to finance, in part, the FPO Transaction.

Concurrently with our entering into the FPO merger agreement, we entered a commitment letter with a group of institutional lenders for a 364-day senior unsecured bridge loan facility in an initial aggregate principal amount of $750,000. On July 20, 2017, we and the lenders terminated this commitment letter and bridge loan facility as a resultmarketing certain of our ~~issuance of the senior unsecured notes and the proceeds from the~~properties for sale, ~~of our common shares in July 2017, each as described above,~~ and we ~~recognized a loss~~may decide to seek to sell additional properties in the future. As of October 27, 2023, we have entered into agreements to sell two properties containing approximately 177,000 rentable square feet for an aggregate sales price of $21,299, excluding closing costs. We cannot be sure we will sell any properties we are marketing for sale for prices in excess of their carrying values or otherwise. In addition, our pending sales are subject to conditions; accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the terms will not change.

For more information about our disposition activities, see Note 3 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on ~~extinguishment~~Form 10-Q.

Segment Information

We operate in one business segment: ownership of ~~debt~~real estate properties.

Table of ~~$1,715.~~Contents

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

Three Months Ended September 30, ~~2017,~~2023, Compared to Three Months Ended September 30, ~~2016~~2022


	Comparable Properties (1) Results Three Months Ended September 30,								Non-Comparable Properties Results Three Months Ended September 30,				Consolidated Results Three Months Ended September 30,

	2023		2022		$ Change		% Change		2023		2022		2023		2022		$ Change		% Change
Rental income	$	132,355	$	131,769	$	586	0.4	%	$	1,006	$	5,914	$	133,361	$	137,683	$	(4,322)	(3.1	%)
Operating expenses:
Real estate taxes	15,182		15,399		(217)		(1.4	%)	(925)		1,015		14,257		16,414		(2,157)		(13.1	%)
Utility expenses	7,169		7,409		(240)		(3.2	%)	291		577		7,460		7,986		(526)		(6.6	%)
Other operating expenses	27,207		25,971		1,236		4.8	%	739		1,766		27,946		27,737		209		0.8	%
Total operating expenses	49,558		48,779		779		1.6	%	105		3,358		49,663		52,137		(2,474)		(4.7	%)
Net operating income (2)	$	82,797	$	82,990	$	(193)	(0.2	%)	$	901	$	2,556	83,698		85,546		(1,848)		(2.2	%)

Other expenses:
Depreciation and amortization													52,266		52,988		(722)		(1.4	%)

Acquisition and transaction related costs													16,135		—		16,135		n/m
General and administrative													5,720		6,564		(844)		(12.9	%)
Total other expenses													74,121		59,552		14,569		24.5	%

Gain on sale of real estate													244		16,925		(16,681)		(98.6	%)


Interest and other income													281		56		225		n/m
Interest expense													(28,835)		(24,969)		(3,866)		15.5	%


(Loss) income before income tax expense and equity in net losses of investees													(18,733)		18,006		(36,739)		n/m
Income tax expense													(95)		(90)		(5)		5.6	%
Equity in net losses of investees													(765)		(952)		187		(19.6	%)






Net (loss) income													$	(19,593)	$	16,964	$	(36,557)	n/m



Weighted average common shares outstanding (basic and diluted)													48,403		48,286		117		0.2	%


Per common share amounts (basic and diluted):
Net (loss) income													$	(0.41)	$	0.35	$	(0.76)	n/m

Acquired Properties Disposed Property

Results ⁽²⁾

Results ⁽³⁾

Comparable Properties Results ⁽¹⁾
Three Months Ended Three Months Ended Consolidated Results
Three Months Ended September 30, September 30, September 30, Three Months Ended September 30,
$ % $ %
2017 2016 Change Change 2017 2016 2017 2016 2017 2016 Change Change
Rental income $ 66,038
$ 64,478
$ 1,560
2.4 % $ 4,141
$ —
$ —
$ —
$ 70,179
$ 64,478
$ 5,701
8.8 %
Operating expenses:

Real estate taxes 8,354
7,591
763
10.1 % 507
—
1
—
8,862
7,591
1,271
16.7 %
Utility expenses 5,092
5,483
(391 ) (7.1 %) 316
—
—
—
5,408
5,483
(75 ) (1.4 %)
Other operating expenses 14,079
13,854
225
1.6 % 746
—
42
—
14,867
13,854
1,013
7.3 %
Total operating expenses 27,525
26,928
597
2.2 % 1,569
—
43
—
29,137
26,928
2,209
8.2 %
Net operating income ⁽⁴⁾
$ 38,513
$ 37,550
$ 963
2.6 % $ 2,572
$ —
$ (43 ) $ —
41,042
37,550
3,492
9.3 %

Other expenses:

Depreciation and amortization

20,781
18,404
2,377
12.9 %
Loss on impairment of real estate

230
—
230
nm
Acquisition related costs

—
147
(147 ) nm
General and administrative

3,266
3,816
(550 ) (14.4 %)
Total other expenses

24,277
22,367
1,910
8.5 %
Operating income

16,765
15,183
1,582
10.4 %
Dividend income

304
304
—
— %
Interest income

1,715
47
1,668
nm
Interest expense (including net amortization of debt premiums and discounts and debt issuance costs of $990 and $805, respectively) (16,055 ) (12,608 ) (3,447 ) 27.3 %
Loss on early extinguishment of debt (1,715 ) —
(1,715 ) nm
Gain on issuance of shares by Select Income REIT 51
72
(21 ) (29.2 %)
Income from continuing operations before income taxes and equity in earnings of investees 1,065
2,998
(1,933 ) (64.5 %)
Income tax expense (22 ) (13 ) (9 ) 69.2 %
Equity in earnings of investees 9,484
8,668
816
9.4 %
Income from continuing operations 10,527
11,653
(1,126 ) (9.7 %)
Income (loss) from discontinued operations 462
(154 ) 616
nm
Income before gain on sale of property 10,989
11,499
(510 ) (4.4 %)
Gain on sale of property —
79
(79 ) nm
Net income $ 10,989
$ 11,578
$ (589 ) (5.1 %)

Weighted average common shares outstanding (basic) 96,883
71,054
25,829
36.4 %
Weighted average common shares outstanding (diluted) 96,958
71,084
25,874
36.4 %

Per common share amounts (basic and diluted):

Income from continuing operations $ 0.11
$ 0.16
$ (0.05 ) (31.3 %)
Income (loss) from discontinued operations $ —
$ —
$ —
— %
Net income $ 0.11
$ 0.16
$ (0.05 ) (31.3 %)

Reconciliation of Net Income to NOI: ⁽⁴⁾

Net income $ 10,989
$ 11,578

Gain on sale of property —
(79 )
Income before gain on sale of property 10,989
11,499

(Income) loss from discontinued operations (462 ) 154

Income from continuing operations 10,527
11,653

Equity in earnings of investees (9,484 ) (8,668 )
Income tax expense 22
13

Gain on issuance of shares by Select Income REIT (51 ) (72 )
Loss on early extinguishment of debt 1,715
—

Interest expense 16,055
12,608

Interest income (1,715 ) (47 )
Dividend income (304 ) (304 )
Operating income 16,765
15,183

General and administrative 3,266
3,816

Acquisition related costs —
147

Loss on impairment of real estate 230
—

Depreciation and amortization 20,781
18,404

Net operating income $ 41,042
$ 37,550

n/m - not meaningful

Reconciliation of Net Income to Funds From Operations and Normalized Funds From Operations ⁽⁵⁾

2017 2016
Net income $ 10,989
$ 11,578

Plus: Depreciation and amortization 20,781
18,404

Plus: FFO attributable to Select Income REIT investment 18,429
17,264

Plus: Loss on impairment of real estate 230
—

Less: Equity in earnings from Select Income REIT (9,453 ) (8,655 )
Less: Increase in carrying value of property included in discontinued operations (619 ) —

Less: Gain on sale of property —
(79 )
Funds from operations 40,357
38,512

Plus: Acquisition related costs —
147

Plus: Loss on early extinguishment of debt 1,715
—

Plus: Normalized FFO attributable to Select Income REIT investment 16,903
17,267

Less: FFO attributable to Select Income REIT investment (18,429 ) (17,264 )
Less: Gain on issuance of shares by Select Income REIT (51 ) (72 )
Less: Estimated business management incentive fee ⁽⁶⁾
(893 ) —

Normalized funds from operations $ 39,602
$ 38,590

Funds from operations per common share (basic and diluted) $ 0.42
$ 0.54

Normalized funds from operations per common share (basic and diluted) $ 0.41
$ 0.54


~~(1)~~	(1)Comparable properties consists of 147 properties ~~consist of 71 properties (91 buildings) we owned on September 30, 2017 and which we owned continuously since July 1, 2016.~~


~~(2)~~	~~Acquired properties consist of three properties (five buildings) we acquired since July 1, 2016.~~


~~(3)~~	~~Disposed property consists of one property (one building) which we sold in July 2016 and excludes one property (one building) classified as discontinued operations which was sold in August 2017.~~

~~(4)~~

The calculation of net operating income, or NOI, excludes certain components of net income in order to provide results that are more closely related to our property level results of operations. We define NOI as income from our rental of real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization. We consider NOI to be an appropriate supplemental measure to net income because it may help both investors and management to understand the operations of our properties. We use NOI to evaluate individual and company wide property level performance, and we believe that NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are generated and incurred at the property level and may facilitate comparisons of our operating performance between periods and with other REITs. NOI does not represent cash generated by operating activities in accordance with U.S. generally accepted accounting principles, or GAAP, and should not be considered an alternative to net income or operating income as an indicator of our operating performance or as a measure of our liquidity. This measure should be considered in conjunction with net income and operating income as presented in our condensed consolidated statements of comprehensive income. Other REITs and real estate companies may calculate NOI differently than we do.

~~(5)~~

We calculate funds from operations, or FFO, and normalized funds from operations, or Normalized FFO, as shown above. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or NAREIT, which is net income, calculated in accordance with GAAP, plus real estate depreciation and amortization and the difference between FFO attributable to an equity investment and equity in earnings of an equity investee but excluding impairment charges on and increases in the carrying value of real estate assets, any gain or loss on sale of properties, as well as certain other adjustments currently not applicable to us. Our calculation of Normalized FFO differs from NAREIT's definition of FFO because we include SIR's Normalized FFO attributable to our equity investment in SIR, net of FFO attributable to our equity investment in SIR, we include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year, and we exclude acquisition related costs expensed under GAAP, gains and losses on issuance of shares by SIR and gains and losses on early extinguishment of debt. We consider FFO and Normalized FFO to be appropriate supplemental measures of operating performance for a REIT, along with net income and operating income. We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO may facilitate a comparison of our operating performance between periods and with other REITs. FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance, our receipt of distributions from SIR and our expected needs and availability of cash to pay our obligations. FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income or operating income as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income and operating income as presented in our condensed consolidated statements of comprehensive income. Other REITs and real estate companies may calculate FFO and Normalized FFO differently than we do.

~~(6)~~

Incentive fees under our business management agreement are payable after the end of each calendar year, are calculated based on common share total return, as defined, and are included in general and administrative expenses in our condensed consolidated statements of comprehensive income. In calculating net income in accordance with GAAP, we recognize estimated business management incentive fee expense, if any, in the first, second and third quarters. Although we recognize this expense, if any, in the first, second and third quarters for purposes of calculating net income, we do not include such expense in the calculation of Normalized FFO until the fourth quarter, when the amount of the business management incentive fee expense for the calendar year, if any, is determined. General and administrative expenses for the three months ended September 30, 2017 includes the reversal of $893 of previously accrued estimated business management fees.

~~We refer to the 71 properties (91 buildings)~~ we owned on September 30, ~~2017~~2023 and which we ~~have~~ owned continuously since July 1, ~~2016~~2022 and excludes two properties classified as ~~comparable properties. We refer to the~~held for sale, five properties undergoing significant redevelopment and three properties ~~(five buildings)~~owned by two unconsolidated joint ventures in which we ~~acquired since July 1, 2016 as~~own 51% and 50% interests.

(2)Our definition of net operating income, or NOI, and our reconciliation of net (loss) income to NOI are included below under the ~~acquired properties. We refer to the one property (one building) we sold in July 2016 as the disposed property.~~

Our condensed consolidated statements of comprehensive income for the three months ended September 30, 2017 include the operating results of three acquired properties (five buildings) for the entire period, as we acquired those properties prior to July 1, 2017 and exclude the operating results of the one disposed property (one building) for the entire period, as we sold that property prior to July 1, 2017. Our condensed consolidated statements of comprehensive income for the three months ended September 30, 2016 exclude the operating results of three acquired properties (five buildings) for the entire period, as we acquired those properties after September 30, 2016 and include the operating results of the one disposed property (one building) for less than the entire period as we sold that property during the three months ended September 30, 2016.

heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three ~~month period~~months ended September 30, ~~2017,~~2023, compared to the three ~~month period~~months ended September 30, ~~2016.~~2022.

Rental income. ~~The increase in rental~~ Rental income ~~reflects an increase in rental income~~declined $5,440 as a result of our property disposition activities, partially offset by increases of $532 from new leases at properties undergoing significant redevelopment and $586 for comparable properties as a result of increased termination fee revenue and recovery of allowances for bad debts in the ~~rental income~~2023 period, partially offset by increased vacancies and lower rents from ~~the acquired properties. Rental income from comparable properties increased $1,560 primarily due to increases in rental rates and in occupied space~~lease renewals at certain of our properties in the ~~2017~~2023 period. ~~Rental income increased $4,141 as a result of the acquired properties.~~ Rental income includes non-cash straight line rent adjustments totaling ~~$711~~$8,691 in the ~~2017~~2023 period and ~~$1,205~~$1,765 in the ~~2016~~2022 period, and amortization of acquired real estate leases and assumed real estate lease obligations totaling ~~($619)~~$56 in the ~~2017~~2023 period and ~~($370)~~$(204) in the ~~2016~~2022 period.

Real estate taxes. ~~The increase in real estate taxes reflects an increase in real estate taxes for comparable properties and the taxes for acquired properties.~~ Real estate taxes for non-comparable properties declined $1,001 as a result of successful tax appeals at certain properties undergoing significant redevelopment and $939 related to property disposition activities, and declined $217 for comparable properties ~~increased $763~~primarily due ~~primarily~~ to ~~the effect of higher real estate~~successful tax ~~valuation assessments~~appeals at certain of our properties in the ~~2017~~2023 period. ~~Real estate taxes increased $507~~

Table of Contents

Utility expenses. Utility expenses declined $465 related to our property disposition activities and $240 for comparable properties as a result of ~~the acquired properties.~~

~~Utility expenses.~~ ~~The decrease in~~higher utility expenses ~~reflects~~in the 2022 period for expenses previously paid directly by a ~~decline~~certain tenant that were paid by us pursuant to a lease amendment executed in ~~utility~~2022 with that tenant, partially offset by an increase of $179 for properties undergoing significant redevelopment due to the related lease-up of the properties.

Other operating expenses. Other operating expenses increased $1,236 for comparable properties and $259 for properties undergoing significant redevelopment due to the ~~comparable~~related lease-up of the properties, partially offset by ~~the net effect of the acquired and disposed properties. Utility expenses at comparable properties decreased $391 primarily due to~~ a decrease ~~in electricity usage at certain~~ of ~~our buildings during the 2017 period. Utility expenses increased $316 as a result of the acquired properties.~~

~~Other operating expenses.~~ ~~Other operating expenses consist of salaries and benefit costs of~~$1,286 related to property ~~level personnel, repairs and maintenance expense, cleaning expense, other direct costs of operating our properties and property management fees.~~disposition activities. The increase in other operating expenses ~~reflects an increase in expenses~~ for ~~the~~ comparable properties ~~and~~is primarily due to the ~~net effect~~impact of inflation in the ~~acquired and disposed properties. Other operating expenses at the comparable properties increased $225 primarily as a result of~~2023 period, higher repairs and maintenance costs ~~during the 2017 period. Other operating expenses increased $746 as a result of the acquired properties~~ and ~~increased $42 as a result of the disposed property.~~higher insurance costs.

Depreciation and amortization. ~~The increase in depreciation~~Depreciation and amortization ~~reflects the depreciation and amortization from the acquired~~for comparable properties ~~and the effect of improvements made~~declined $2,694 due to certain ~~of our comparable properties, partially offset by the effect of certain~~leasing related assets becoming fully ~~depreciated. Depreciation and amortization increased $1,921 as a result of the acquired properties. Depreciation and amortization at comparable properties increased $456 due primarily to~~depreciated since July 1, 2022, partially offset by depreciation and amortization of improvements made to certain of our properties ~~after~~since July 1, ~~2016, partially offset by certain leasing~~2022. Depreciation and amortization for properties undergoing significant redevelopment increased $1,175 due to the substantial completion of our 20 Mass Ave. redevelopment in Washington, D.C. in June 2023 and $797 related ~~assets becoming fully depreciated after July 1, 2016.~~to our property disposition activities.

~~Loss on impairment of real estate.~~ ~~We recorded a $230 loss on impairment of real estate~~Acquisition and transaction related costs. Acquisition and transaction related costs in the ~~2017~~2023 period ~~to reduce the carrying value~~consist of ~~one property (one building) to its estimated fair value.~~

~~Acquisition related costs.~~ ~~Acquisition related costs include legal and diligence~~ costs incurred in connection with our ~~2016 property acquisition activities that were expensed~~terminated merger with DHC and related transactions. For more information regarding our terminated merger with DHC, see Note 1 to our Condensed Consolidated Financial Statements included in ~~accordance with GAAP. Pursuant to changes in GAAP, beginning in 2017, we generally capitalize our asset acquisition related costs.~~Part I, Item 1 of this Quarterly Report on Form 10-Q.

General and administrative. General and administrative expenses consist of fees pursuant to our business management agreement, equity compensation expense, legal and accounting fees, Trustees’ fees and expenses, securities listing and transfer agency fees and other costs relating to our status as a publicly traded company. The decrease in general and administrative expenses is primarily ~~as a~~the result of ~~the reversal~~a decrease in base business management fees resulting from a decrease in average total market capitalization and a decrease in share based compensation in the ~~2017~~2023 period compared to the 2022 period.

Gain on sale of ~~$893~~real estate. We recorded a $244 gain on sale of ~~previously accrued estimated business management incentive fee expense, partially offset by an increase in other business management fee expense~~real estate resulting from the sale of one property in the ~~2017~~2023 period. We recorded a $16,925 net gain on sale of real estate resulting from the sale of 10 properties in the 2022 period.

~~Dividend~~Interest and other income. ~~Dividend income consists of dividends received from our investment in The RMR Group Inc., or RMR Inc.~~

~~Interest income.~~ The increase in interest and other income is primarily due to the ~~result~~effect of higher interest rates earned on cash balances invested in the ~~2017~~2023 period ~~due to our financing activities related~~compared to the ~~FPO Transaction.~~2022 period.

Interest expense. The increase in interest expense reflects higher average ~~outstanding debt balances and higher weighted average~~ interest rates on borrowings ~~during the 2017 period compared to the 2016 period.~~

~~Loss on early extinguishment of debt. We recorded a loss on early extinguishment of debt of $1,715 in the 2017 period in connection with the termination of the bridge loan~~under our revolving credit facility ~~described in Note 7 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.~~

~~Gain on issuance of shares by Select Income REIT.~~ ~~Gain on issuance of shares by SIR is a result of~~and higher average amounts outstanding, as well as the issuance of ~~common shares~~six mortgage notes with an aggregate principal balance of $177,320 and a weighted average interest rate of 7.8% during 2023, partially offset by ~~SIR at prices above our then per share carrying value~~the repayment of ~~our SIR common shares.~~two mortgage notes since July 1, 2022 with an aggregate principal balance of approximately $73,000 and a weighted average interest rate of 4.0%.

Income tax expense. ~~The increase in income~~ Income tax expense ~~reflects higher~~is primarily the result of operating income earned in ~~certain~~ jurisdictions ~~in the 2017 period that is~~where we are subject to state income ~~taxes.~~taxes and can fluctuate based on the timing of our income, including as a result of gains or losses on the sale of real estate.

Equity in ~~earnings~~net losses of investees.Equity in ~~earnings~~net losses of investees represents our proportionate share of ~~earnings~~losses from our investments in ~~SIR~~two unconsolidated joint ventures.

Net (loss) income. Net (loss) income and ~~Affiliates Insurance Company, or AIC. The increase in the 2017 period is primarily the result of an increase in SIR's~~ net (loss) income ~~for the 2017 period.~~

~~Income (loss) from discontinued operations.~~ Income (loss) from discontinued operations reflects operating results for one property (one building) included in discontinued operations. During the 2017 period, we recorded an adjustment of $619 to increase the carrying value of this property to its estimated fair value less costs to sell. We sold this property on August 31, 2017.

~~Gain on sale of property.~~ ~~Gain on sale of property represents the portion of the gain recognized from the sale of a property accounted for under the installment method during the 2016 period.~~

~~Net income.~~ ~~Our net income~~per basic and diluted common share decreased in the ~~2017~~2023 period compared to the ~~2016~~2022 period primarily as a result of the changes noted above. ~~The percentage decrease in net income per common share (basic and diluted) is higher primarily as a result~~

Table of ~~the higher number of weighted average common shares outstanding as result of our issuance of common shares in an underwritten public offering during the 2017 period.~~Contents

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

Nine Months Ended September 30, ~~2017,~~2023, Compared to Nine Months Ended September 30, ~~2016~~2022


	Comparable Properties (1) Results Nine Months Ended September 30,								Non-Comparable Properties Results Nine Months Ended September 30,				Consolidated Results Nine Months Ended September 30,
	2023		2022		$ Change		% Change		2023		2022		2023		2022		$ Change		% Change
Rental income	$	396,434	$	394,807	$	1,627	0.4	%	$	3,346	$	31,546	$	399,780	$	426,353	$	(26,573)	(6.2	%)
Operating expenses:
Real estate taxes	45,664		45,244		420		0.9	%	(173)		4,398		45,491		49,642		(4,151)		(8.4	%)
Utility expenses	19,862		18,573		1,289		6.9	%	600		2,098		20,462		20,671		(209)		(1.0	%)
Other operating expenses	78,519		73,929		4,590		6.2	%	2,118		7,668		80,637		81,597		(960)		(1.2	%)
Total operating expenses	144,045		137,746		6,299		4.6	%	2,545		14,164		146,590		151,910		(5,320)		(3.5	%)
Net operating income (loss) (2)	$	252,389	$	257,061	$	(4,672)	(1.8	%)	$	801	$	17,382	253,190		274,443		(21,253)		(7.7	%)

Other expenses:
Depreciation and amortization													155,559		170,993		(15,434)		(9.0	%)
Loss on impairment of real estate													—		21,820		(21,820)		n/m
Acquisition and transaction related costs													30,534		224		30,310		n/m
General and administrative													17,430		19,353		(1,923)		(9.9	%)
Total other expenses													203,523		212,390		(8,867)		(4.2	%)


Gain on sale of real estate													487		7,437		(6,950)		(93.5	%)


Interest and other income													782		73		709		n/m
Interest expense													(80,591)		(78,923)		(1,668)		2.1	%
Loss on early extinguishment of debt													—		(77)		77		n/m
Loss before income tax expense and equity in net losses of investees													(29,655)		(9,437)		(20,218)		n/m
Income tax expense													(336)		(431)		95		(22.0	%)
Equity in net losses of investees													(2,290)		(2,631)		341		(13.0	%)




Net loss													$	(32,281)	$	(12,499)	$	(19,782)	158.3	%

Weighted average common shares outstanding (basic and diluted)													48,365		48,260		105		0.2	%


Per common share amounts (basic and diluted):


Net loss													$	(0.67)	$	(0.27)	$	(0.40)	148.1	%

Acquired Properties Disposed Property

Results ⁽²⁾

Results ⁽³⁾

Comparable Properties Results ⁽¹⁾
Nine Months Ended Nine Months Ended Consolidated Results
Nine Months Ended September 30, September 30, September 30, Nine Months Ended September 30,
$ % $ %
2017 2016 Change Change 2017 2016 2017 2016 2017 2016 Change Change
Rental income $ 189,558
$ 186,298
$ 3,260
1.7 % $ 19,804
$ 5,852
$ —
$ —
$ 209,362
$ 192,150
$ 17,212
9.0 %
Operating expenses:
Real estate taxes 22,916
22,259
657
3.0 % 2,064
524
—
27
24,980
22,810
2,170
9.5 %
Utility expenses 12,788
12,889
(101 ) (0.8 %) 1,398
417
—
24
14,186
13,330
856
6.4 %
Other operating expenses 40,424
38,535
1,889
4.9 % 3,587
1,438
35
58
44,046
40,031
4,015
10.0 %
Total operating expenses 76,128
73,683
2,445
3.3 % 7,049
2,379
35
109
83,212
76,171
7,041
9.2 %
Net operating income ⁽⁴⁾
$ 113,430
$ 112,615
$ 815
0.7 % $ 12,755
$ 3,473
$ (35 ) $ (109 ) 126,150
115,979
10,171
8.8 %

Other expenses:
Depreciation and amortization 61,949
54,713
7,236
13.2 %
Loss on impairment of real estate 230
—
230
nm
Acquisition related costs —
363
(363 ) nm
General and administrative 12,314
11,350
964
8.5 %
Total other expenses 74,493
66,426
8,067
12.1 %
Operating income 51,657
49,553
2,104
4.2 %
Dividend income 911
667
244
36.6 %
Interest income 1,843
63
1,780
nm
Interest expense (including net amortization of debt premium and discounts and debt issuance costs of $2,605 and $2,024, respectively) (43,599 ) (32,286 ) (11,313 ) 35.0 %
(Loss) gain on early extinguishment of debt (1,715 ) 104
(1,819 ) nm
Gain on issuance of shares by Select Income REIT 72
88
(16 ) (18.2 %)
Income from continuing operations before income taxes and equity in earnings of investees 9,169
18,189
(9,020 ) (49.6 %)
Income tax expense (65 ) (63 ) (2 ) 3.2 %
Equity in earnings of investees 20,804
28,002
(7,198 ) (25.7 %)
Income from continuing operations 29,908
46,128
(16,220 ) (35.2 %)
Income (loss) from discontinued operations 173
(429 ) 602
nm
Income before gain on sale of property 30,081
45,699
(15,618 ) (34.2 %)
Gain on sale of property —
79
(79 ) nm
Net income $ 30,081
$ 45,778
$ (15,697 ) (34.3 %)

Weighted average common shares outstanding (basic) 79,778
71,041
8,737
12.3 %
Weighted average common shares outstanding (diluted) 79,852
71,064
8,788
12.4 %

Per common share amounts (basic and diluted):
Income from continuing operations $ 0.37
$ 0.65
$ (0.28 ) (43.1 %)
Income (loss) from discontinued operations $ —
$ (0.01 ) $ 0.01
— %
Net income $ 0.38
$ 0.64
$ (0.26 ) (40.6 %)

Reconciliation of Net Income to NOI: ⁽⁴⁾

Net income $ 30,081
$ 45,778

Gain on sale of property —
(79 )
Income before gain on sale of property 30,081
45,699

(Income) loss from discontinued operations (173 ) 429

Income from continuing operations 29,908
46,128

Equity in earnings of investees (20,804 ) (28,002 )
Income tax expense 65
63

Gain on issuance of shares by Select Income REIT (72 ) (88 )
Loss (gain) on early extinguishment of debt 1,715
(104 )
Interest expense 43,599
32,286

Interest income (1,843 ) (63 )
Dividend income (911 ) (667 )
Operating income 51,657
49,553

General and administrative 12,314
11,350

Acquisition related costs —
363

Loss on impairment of real estate 230
—

Depreciation and amortization 61,949
54,713

Net operating income $ 126,150
$ 115,979

n/m - not meaningful

Calculation of Funds From Operations and Normalized Funds From Operations ⁽⁵⁾

2017 2016
Net income $ 30,081
$ 45,778

Plus: Depreciation and amortization 61,949
54,713

Plus: FFO attributable to Select Income REIT investment 47,982
53,609

Plus: Loss on impairment of real estate 230
—

Less: Equity in earnings from Select Income REIT (20,271 ) (27,895 )
Less: Gain on sale of property —
(79 )
Less: Increase in carrying value of property included in discontinued operations (619 ) —

Funds from operations 119,352
126,126

Plus: Acquisition related costs —
363

Plus: Normalized FFO attributable to Select Income REIT investment 48,900
53,629

Less: FFO attributable to Select Income REIT investment (47,982 ) (53,609 )
Less: Loss (gain) on early extinguishment of debt 1,715
(104 )
Less: Gain on issuance of shares by Select Income REIT (72 ) (88 )
Normalized funds from operations $ 121,913
$ 126,317

Funds from operations per common share (basic) $ 1.50
$ 1.78

Funds from operations per common share (diluted) $ 1.49
$ 1.77

Normalized funds from operations per common share (basic and diluted) $ 1.53
$ 1.78


~~(1)~~	(1)Comparable properties consists of 147 properties ~~consist of 70 properties (90 buildings) we owned on September 30, 2017 and which we owned continuously since January 1, 2016.~~


~~(2)~~	~~Acquired properties consist of four properties (six buildings) we acquired since January 1, 2016.~~


~~(3)~~	~~Disposed property consists of one property (one building) which we sold in July 2016 and excludes one property (one building) classified as discontinued operations which was sold in August 2017.~~


~~(4)~~	~~See footnote (4) on page 29 for a definition of NOI.~~


~~(5)~~	~~See footnote (5) on page 29 for a definition of FFO and Normalized FFO.~~

~~We refer to the 70 properties (90 buildings)~~ we owned on September 30, ~~2017~~2023 and which we ~~have~~ owned continuously since January 1, ~~2016~~2022 and excludes two properties classified as ~~comparable properties. We refer to the four~~held for sale, five properties ~~(six buildings)~~undergoing significant redevelopment and three properties owned by two unconsolidated joint ventures in which we ~~acquired since January 1, 2016 as~~own 51% and 50% interests.

(2)Our definition of NOI and our reconciliation of net loss to NOI are included below under the ~~acquired properties. We refer to one property (one building) we sold in July 2016 as the disposed property.~~

Our condensed consolidated statements of comprehensive income for the nine months ended September 30, 2017 include the operating results of three acquired properties (five buildings) for the entire period, as we acquired those properties prior to January 1, 2017, one property (one building) for less than the entire period, as we acquired the property after January 1, 2017, and exclude the operating results of the disposed property for the entire period, as we sold that property prior to January 1, 2017. Our condensed consolidated statements of comprehensive income for the nine months ended September 30, 2016 exclude the operating results of three acquired properties (five buildings) for the entire period, as we acquired these properties after September 30, 2016, one property (one building) for less than the entire period, as we acquired that property after January 1, 2016 and include the operating results of the disposed property for less than the entire period, as we sold that property prior to September 30, 2016.

heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of consolidated results for the nine ~~month period~~months ended September 30, ~~2017,~~2023, compared to the nine ~~month period~~months ended September 30, ~~2016.~~2022.

Rental income. ~~The~~ Rental income for non-comparable properties declined $22,443 as a result of our property disposition activities and $5,757 for properties undergoing significant redevelopment due to termination fee revenue in the 2022 period and increased vacancy at a property that began a redevelopment project in February 2022, partially offset by an increase of $1,627 for comparable properties as a result of decreased amortization of acquired real estate leases in ~~rental income reflects~~the 2023 period and an increase in ~~rental income for comparable properties~~reimbursement revenue resulting from higher operating expenses, partially offset by lower termination fee revenue and ~~the rental income from the acquired properties. Rental income from comparable properties~~ increased ~~$3,260 primarily due to increases in rental rates and in occupied space~~vacancies at certain of our properties in the ~~2017~~2023 period. ~~Rental income increased $13,952 as a result of the acquired properties.~~ Rental income includes non-cash straight line rent adjustments totaling ~~$3,115~~$17,120 in the ~~2017~~2023 period and ~~$1,789~~$7,226 in the ~~2016~~2022 period, and amortization of acquired real estate leases and assumed real estate lease obligations totaling ~~($1,863)~~$196 in the ~~2017~~2023 period and ~~($1,103)~~$(780) in the ~~2016~~2022 period.

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Real estate taxes. ~~The increase in real estate taxes reflects an increase in real estate taxes for the comparable properties and the net effect of the acquired properties and the disposed property.~~ Real estate taxes for ~~the comparable~~non-comparable properties ~~increased $657 due primarily~~declined $3,384 related to ~~the effect of higher real estate tax valuation assessments at certain of~~ our property disposition activities and $1,187 for properties ~~in the 2017 period. Real estate taxes increased $1,540~~undergoing significant redevelopment as a result of successful tax appeals at certain properties undergoing significant redevelopment, partially offset by an increase of $420 for comparable properties primarily due to successful tax appeals in the ~~acquired properties. We also realized a decrease of $27 in real estate taxes as a result of the disposed property.~~2022 period.

Utility expenses. Utility expenses declined $1,655 related to our property disposition activities, partially offset by increases of $1,289 for comparable properties and $157 for properties undergoing significant redevelopment due to the related lease-up of those properties. The increase in utility expenses ~~reflects an increase~~for comparable properties is primarily due to the impact of inflation in the 2023 period, as well as utility expenses that were previously paid directly by certain of our tenants that are now being paid by us pursuant to lease amendments executed in 2022 with those tenants.

Other operating expenses. Other operating expenses for ~~the acquired~~non-comparable properties declined $5,450 related to our property disposition activities and $100 for properties undergoing significant redevelopment, partially offset by an increase of $4,590 for comparable properties due to the ~~combined~~ impact of ~~utility expense decreases at~~inflation in the ~~comparable properties and the disposed property. Utility expenses at the comparable properties decreased $101 primarily due to a decrease in electricity usage at certain of our~~

~~properties during the 2017 period. Utility expenses increased $981 as a result of the acquired properties. We also realized a decrease of $24 in utility expenses as a result of the disposed property.~~

~~Other operating expenses.~~ The increase in other operating expenses reflects an increase in expenses for the comparable properties and the acquired properties partially offset by a decrease as a result of the disposed property. Other operating expenses at comparable properties increased $1,889 primarily as a result of2023 period, higher repairs and maintenance costs ~~during the 2017 period. Other operating expenses increased $2,149~~and higher insurance costs, as ~~a result of the acquired properties. We also realized a decrease of $23 in~~well as other operating expenses ~~as a result~~that were previously paid directly by certain of our tenants that are now being paid by us pursuant to lease amendments executed in 2022 with those tenants, partially offset by lower snow removal costs in the ~~disposed property.~~2023 period.

Depreciation and amortization. The ~~increase~~decrease in depreciation and amortization primarily reflects ~~the~~decreases of $9,401 for comparable properties, $4,142 related to our property disposition activities and $1,891 for properties undergoing significant redevelopment. Depreciation and amortization for comparable properties decreased due to certain leasing related assets becoming fully depreciated since January 1, 2022, partially offset by depreciation and amortization ~~from the acquired properties and the effect~~ of improvements made to certain of our properties since January 1, 2016, partially offset by the effect of certain assets becoming fully depreciated. Depreciation and amortization increased $5,974 as a result of the acquired properties. Depreciation and amortization at comparable properties increased $1,262 due primarily to depreciation and amortization of improvements made to certain of our properties after January 1, 2016, partially offset by certain leasing related assets becoming fully depreciated in 2016 and 2017. 2022.

Loss on impairment of real estate. We recorded a ~~$230~~$21,820 loss on impairment of real estate in the ~~2017~~2022 period to reduce the carrying value of ~~one property (one building)~~seven properties to ~~its~~their estimated fair ~~value.~~values less costs to sell.

Acquisition and transaction related costs. Acquisition and transaction related costs ~~include legal and diligence~~consist of costs in the 2023 period incurred in connection with our ~~2016 property acquisition activities that were expensed~~terminated merger with DHC and related transactions. For more information regarding our terminated merger with DHC, see Note 1 to our Condensed Consolidated Financial Statements included in ~~accordance with GAAP. Pursuant to changes in GAAP, beginning in 2017, we generally capitalize our asset acquisitions related costs.~~Part I, Item 1 of this Quarterly Report on Form 10-Q.

General and administrative.The ~~increase~~decrease in general and administrative expenses is primarily ~~as a~~the result of ~~an increase~~a decrease in base business management fees resulting from a decrease in average total market capitalization and a decrease in share based compensation in the ~~2017~~2023 period compared to the 2022 period, partially offset by a state franchise tax refund received in the 2022 period.

Gain on sale of real estate. We recorded a $487 net gain on sale of real estate resulting from the sale of six properties in the 2023 period. We recorded a $7,437 net gain on sale of real estate resulting from the sale of 16 properties in the 2022 period.

~~Dividend~~Interest and other income. ~~Dividend income consists of dividends received from our investment in RMR Inc.~~

Interest expense. The increase in interest expense reflects higher average amounts outstanding ~~debt balances~~ and higher ~~weighted~~ average interest rates on borrowings under our revolving credit facility, as well as the issuance of six mortgage notes with an aggregate principal balance of $177,320 and a weighted average interest rate of 7.8% during the ~~2017~~2023 period, ~~compared to~~partially offset by the ~~2016 period.~~redemption of our $300,000 senior unsecured notes with an interest rate of 4.0% in June 2022, higher capitalized interest in the 2023 period and the repayment of three mortgage notes since January 1, 2022 with an aggregate principal balance of approximately $98,000 and a weighted average interest rate of 4.1%.

Loss ~~(gain)~~ on early extinguishment of ~~debt~~. debt. We recorded a loss on early extinguishment of debt of ~~$1,715~~$77 in the ~~2017~~2022 period ~~in connection~~from the write off of unamortized discounts and debt issuance costs associated with the ~~termination~~redemption of ~~the bridge loan facility. For more information, see Note 7 to~~ our ~~condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q. We recorded a net gain on early extinguishment of debt of $104 in~~senior unsecured notes due July 2022.

Income tax expense. Income tax expense is primarily the ~~2016 period in connection with the prepayment of two mortgage notes.~~

~~Gain on issuance of shares by Select Income REIT.~~ ~~Gain on issuance of shares by SIR is a~~ result of ~~the issuance of common shares by SIR at prices above our then per share carrying value of our SIR common shares.~~

~~Income tax expense.~~ ~~The increase in income tax expense reflects lower~~ operating income earned in ~~certain~~ jurisdictions ~~in the 2017 period that is~~where we are subject to state income ~~taxes.~~taxes and can fluctuate based on the timing of our income, including as a result of gains or losses on the sale of real estate.

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Net loss. Net loss and ~~AIC. The decrease~~net loss per basic and diluted common share increased in the ~~2017 period is the result of a decline in SIR's net income for the 2017 period.~~

~~Gain on sale of property.~~ ~~Gain on sale of property represents the portion of the gain recognized from the sale of a property accounted for under the installment method during the 2016 period.~~

~~Net income.~~ ~~Our net income decreased in the 2017~~2023 period compared to the ~~2016~~2022 period primarily as a result of the changes noted above.

Non-GAAP Financial Measures

We present certain “non-GAAP financial measures” within the meaning of the applicable rules of the SEC, including the calculations below of NOI, funds from operations, or FFO, and normalized funds from operations, or Normalized FFO. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net (loss) income as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net (loss) income as presented in our condensed consolidated statements of comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net (loss) income. We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.

Net Operating Income

The ~~percentage decrease~~calculation of NOI excludes certain components of net (loss) income in order to provide results that are more closely related to our property level results of operations. We calculate NOI as shown below. We define NOI as income from our rental of real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization expense. We use NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate NOI differently than we do.

The following table presents the reconciliation of net (loss) income ~~per common~~to NOI for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Net (loss) income	$	(19,593)	$	16,964	$	(32,281)	$	(12,499)




Equity in net losses of investees	765		952		2,290		2,631
Income tax expense	95		90		336		431
(Loss) income before income tax expense and equity in net losses of investees	(18,733)		18,006		(29,655)		(9,437)
Loss on early extinguishment of debt	—		—		—		77
Interest expense	28,835		24,969		80,591		78,923
Interest and other income	(281)		(56)		(782)		(73)


Gain on sale of real estate	(244)		(16,925)		(487)		(7,437)

General and administrative	5,720		6,564		17,430		19,353
Acquisition and transaction related costs	16,135		—		30,534		224
Loss on impairment of real estate	—		—		—		21,820
Depreciation and amortization	52,266		52,988		155,559		170,993
NOI	$	83,698	$	85,546	$	253,190	$	274,443

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Funds From Operations and Normalized Funds From Operations

We calculate FFO and Normalized FFO as shown below. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net (loss) income, calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share ~~(basic~~of the real estate depreciation and ~~diluted) is higher primarily~~amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets and any gain or loss on sale of real estate, as well as certain other adjustments currently not applicable to us. In calculating Normalized FFO, we adjust for the other items shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a ~~result~~REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.

The following table presents the ~~higher~~

~~number~~reconciliation of ~~weighted average common shares outstanding~~net (loss) income to FFO and Normalized FFO for the ~~2017 period as result of our issuance of common shares in an underwritten public offering during the 2017 period.~~three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net (loss) income	$	(19,593)	$	16,964	$	(32,281)	$	(12,499)
Add (less): Depreciation and amortization:
Consolidated properties	52,266		52,988		155,559		170,993
Unconsolidated joint venture properties	840		775		2,538		2,269

Loss on impairment of real estate	—		—		—		21,820


Gain on sale of real estate	(244)		(16,925)		(487)		(7,437)

FFO	33,269		53,802		125,329		175,146
Add (less): Acquisition and transaction related costs	16,135		—		30,534		224

Loss on early extinguishment of debt	—		—		—		77





Normalized FFO	$	49,404	$	53,802	$	155,863	$	175,447

Weighted average common shares outstanding (basic and diluted)	48,403		48,286		48,365		48,260


FFO per common share (basic and diluted)	$	0.69	$	1.11	$	2.59	$	3.63

Normalized FFO per common share (basic and diluted)	$	1.02	$	1.11	$	3.22	$	3.64

LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources (dollar amounts in ~~thousands)~~

thousands, except per share amounts)

Our principal sources of funds to meet operating and capital expenses, pay debt service obligations and ~~pay~~make distributions onto our ~~common shares~~shareholders are the operating cash flows we generate ~~as rental income~~ from our properties, ~~the distributions we receive~~net proceeds from ~~our investments in SIR and RMR Inc.~~property sales and borrowings under our revolving credit facility. We believe that these sources of funds will be sufficient to meet our operating and capital expenses, ~~and~~pay debt service obligations and ~~pay~~make distributions onto our ~~common shares~~shareholders for the next 12 months and for the foreseeable future thereafter. Our future cash flows from operating activities will depend primarily upon:

•our ability to collect rent from our tenants;

•our ability to maintain or increase the occupancy of, and the rental rates at, our properties;

•our ability to control operating and capital expenses at our properties;

•our ability to successfully sell properties that we market for sale;

•our ability to develop, redevelop or reposition properties to produce cash flows in excess of our cost of capital and property operating and capital expenses; and

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•our ability to purchase additional properties which produce cash flows from operations in excess of our cost of acquisition capital and property operating ~~expenses;~~ and capital expenses.

On October 12, 2023, we announced a regular quarterly cash distribution of $0.25 per common share ($1.00 per common share per year). We determine our ~~receipt~~distribution payout ratio with consideration for our expected capital expenditures as well as cash flows from operations and payment of ~~distributions~~debt obligations.

Pursuant to our capital recycling program, we selectively sell certain properties from time to time to manage leverage levels and to acquire new properties or portfolios with a goal of improving our ~~investments~~asset diversification, our geographical footprint and the average age of our properties, lengthening the weighted average term of our leases and increasing tenant retention. During the nine months ended September 30, 2023, we sold six properties for an aggregate sales price of $23,575, excluding closing costs. We continue to evaluate our portfolio to strategically recycle capital and are currently in ~~SIR~~various stages of marketing certain of our properties for sale. As of October 27, 2023, we have entered into agreements to sell two properties for an aggregate sales price of $21,299, excluding closing costs. We cannot be sure we will sell any properties we are marketing for sale for prices in excess of their carrying values or otherwise. In addition, our pending sales are subject to conditions; accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the terms will not change. We continue to carefully consider our capital allocation strategy to position us to opportunistically recycle and ~~RMR Inc.~~

deploy capital.

Our future purchases of properties cannot be accurately projected because such purchases depend upon purchase opportunities which come to our attention and our ability to successfully complete the acquisitions. We generally do not intend to purchase “turn around” properties, or properties which do not generate positive cash flows.

~~Our changes in~~The following is a summary of our sources and uses of cash flows for the ~~nine months ended September 30, 2017 compared to the same period~~periods presented, as reflected in ~~2016 were as follows: (i)~~our condensed consolidated statements of cash provided by operating activities increased from $91,674 in 2016 period to $93,726 in the 2017 period; (ii) cash used in investing activities increased from $94,848 in the 2016 period to $662,318 in the 2017 period; and (iii) cash provided by financing activities increased from $8,138 in the 2016 period to $1,090,358 in the 2017 period.flows:


	Nine Months Ended September 30,
	2023		2022
Cash, cash equivalents and restricted cash at beginning of period	$	12,249	$	84,515
Net cash provided by (used in):
Operating activities	109,133		152,687
Investing activities	(156,942)		49,175
Financing activities	75,188		(270,852)
Cash, cash equivalents and restricted cash at end of period	$	39,628	$	15,525

The ~~increase~~decrease in cash provided by operating activities for the ~~nine month~~2023 period ~~ended September 30, 2017 as~~ compared to the ~~corresponding prior year~~2022 period was primarily due ~~primarily~~ to ~~an increase~~decreases in NOI in the 2023 period due to property ~~NOI from~~dispositions, reductions in occupied space at certain of our acquisition activities and favorable changes in working capital partially offset by a decrease in distributions we received from our investment in SIR classified as an operating activity as a result of a decrease in our equity in earnings of SIRproperties and an increase in ~~interest paid~~costs incurred in connection with the terminated merger with DHC and related transactions. The change from cash flow provided by investing activities in the ~~2017 period. The increase in~~2022 period to cash flows used in investing activities ~~for~~in the ~~nine month period ended September 30, 2017 as compared to the corresponding prior year~~2023 period was primarily due ~~primarily~~to lower proceeds received from property sales in the 2023 period and increased capital expenditures in the 2023 period related to our ~~deposit~~redevelopment activities. The change from cash flow used in ~~escrow of some of~~financing activities in the ~~FPO Transaction~~2022 period to cash ~~consideration. The increase in cash~~flows provided by financing activities ~~for~~in the ~~nine month~~2023 period ~~ended September 30, 2017 as compared~~was primarily due to the ~~corresponding prior year period was due primarily to~~redemption of $300,000 of our ~~FPO Transaction related financing activities during the 2017 period, including issuances of common shares and~~ senior unsecured notes in the 2022 period and ~~borrowings under~~the issuance of $177,320 of mortgage notes and decreased distributions to our ~~revolving credit facility.~~

common shareholders in the 2023 period.

Our Investment and Financing Liquidity and Resources (dollar amounts in thousands, except per share ~~and per square foot~~ amounts)

In order to fund acquisitions and to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $750,000 ~~unsecured~~ revolving credit facility. ~~The maturity date of~~In June 2023, we exercised our ~~revolving credit facility is January 31, 2019 and, subject to our payment of an extension fee and meeting other conditions, we have an~~ option to extend the ~~stated~~ maturity date of our revolving credit facility by ~~one year~~six months to January 31, ~~2020.~~2024. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. In March 2023, we amended our credit agreement to, among other things, replace LIBOR with SOFR as the benchmark interest rate for calculating interest payable on amounts outstanding under our revolving credit facility. We are required to pay interest at a rate of ~~LIBOR~~SOFR plus a premium, which was ~~125~~145 basis points per annum at September 30, ~~2017,~~2023, on the amount outstanding under our revolving credit facility. We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 2530 basis points per annum at September 30, ~~2017.~~2023. Both the interest rate premium and ~~the~~ facility fee are subject to adjustment based upon changes to our credit ratings. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. As of September 30, 2017, the annual interest rate payable on borrowings under our revolving credit facility was 2.4%. As of September 30, 2017 and October 30, 2017, we had $565,000 and $545,000, respectively, outstanding under our revolving credit facility.

~~Our revolving credit facility is governed by a credit agreement with a syndicate of institutional lenders, which also governs our two unsecured term loans:~~

Our $300,000 term loan, which matures on March 31, 2020, is prepayable without penalty at any time. We are required to pay interest at LIBOR plus a premium, which was 140 basis points per annum at September 30, 2017, on the amount outstanding under our $300,000 term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of September 30, ~~2017,~~2023, the annual interest rate ~~for the amount outstanding~~payable on

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borrowings under our ~~$300,000 term loan~~revolving credit facility was ~~2.6%~~6.9%.

Our $250,000 term loan, which matures on March 31, 2022, is prepayable without penalty at any time. We are required to pay interest at LIBOR plus a premium, which was 180 basis points per annum at September 30, 2017, on the amount outstanding under our $250,000 term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of September 30, ~~2017, the annual interest rate for the amount~~2023 and October 27, 2023, we had $200,000 and $205,000, respectively, outstanding under our ~~$250,000 term loan was 3.0%.~~

revolving credit facility, and $550,000 and $545,000, respectively, available for borrowing, subject to meeting required financial covenants.

Our credit agreement ~~also~~ includes a feature under which the maximum borrowing availability may be increased to up to ~~$2,500,000 on a combined basis~~$1,950,000 in certain circumstances.

Our credit agreement ~~for our revolving credit facility and term loans~~ provides that, with certain exceptions, a subsidiary of ours is required to guaranty our obligations under ~~the~~our $750,000 revolving credit facility ~~and term loans~~ only if that subsidiary has separately incurred debt (other than nonrecourse debt), within the meaning specified in ~~the~~our credit agreement, or provided a guarantee of debt incurred by us or any of our other subsidiaries.

We are currently in discussion with our lenders regarding a new revolving credit facility. We are also evaluating different options to repay our maturing senior notes, including new financings and potential property sales. While our plans could be impacted by factors outside of our control, including unfavorable market, economic and commercial real estate conditions, we believe based on our current discussions and history of working with our lenders that it is probable that these plans will allow us to repay our maturing debt.

~~Our $350,000~~Mortgage Notes Issuances

During the nine months ended September 30, 2023, we issued six mortgage notes with an aggregate principal balance of ~~3.75% senior unsecured notes due 2019 are governed by an indenture~~$177,320 and a ~~supplement~~weighted average interest rate of 7.8%. The net proceeds from these mortgage loans were used to ~~that indenture and require semi-annual payments~~repay amounts outstanding under our revolving credit facility. See Note 6 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of ~~interest only through maturity in August 2019 and may be~~this Quarterly Report on Form 10-Q for more information regarding our mortgage note issuances.

Mortgage Note Repayment

In June 2023, we repaid at ~~par (plus accrued~~maturity, a mortgage note secured by one property with an outstanding principal balance of $50,000 and ~~unpaid interest)~~an annual interest rate of 3.7% using cash on ~~or after July 15, 2019 or before that date together with a make whole premium.~~

~~Our $310,000 of 5.875% senior unsecured notes due 2046 are governed by an indenture~~hand and ~~a supplement to that indenture and require quarterly payments of interest only through maturity and may be repaid at par (plus accrued and unpaid interest) on or after May 26, 2021.~~

Our $300,000 of 4.000% senior unsecured notes due 2022 are governed by an indenture and a supplement to that indenture and require semi-annual payments of interest only through maturity in July 2022 and may be repaid at par (plus accrued and unpaid interest) on or after June 15, 2022.

borrowings under our revolving credit facility.

As of September 30, ~~2017,~~2023, our debt maturities (other than our revolving credit facility) ~~are~~, consisting of senior unsecured notes and mortgage notes, were as follows: ~~$399 in 2017, $1,671 in 2018, $359,439 in 2019, $301,619 in 2020, $13,230 in 2021 and $860,000 thereafter.~~


Year	Debt Maturities
2023	$	—
2024	350,000
2025	650,000
2026	300,000
2027	350,000
2028 and thereafter	739,320
Total	$	2,389,320

None of our unsecured debt obligations require sinking fund payments prior to their maturity dates. Our ~~$26,358 in~~ mortgage debts ~~generally~~currently require monthly payments of interest only; however, certain of our mortgages will require payments of principal and interest after a specified date through maturity.

In addition to our debt obligations, as of September 30, ~~2017,~~2023, we ~~have~~had estimated unspent leasing related obligations of ~~$26,631 and have committed~~$137,223, of which we expect to ~~redevelop and expand an existing~~spend $73,666 over the next 12 months.

We substantially completed the redevelopment of a property ~~prior~~located in Washington, D.C. containing approximately 427,000 rentable square feet in June 2023. We currently estimate the total project costs associated with this redevelopment, including lease related costs that will continue to be incurred subsequent to the ~~commencement of the lease with an estimated remaining cost~~substantial completion date, to ~~complete of~~be approximately ~~$3,302.~~

$227,000. As of September 30, ~~2017,~~2023, we had ~~$551,707~~incurred $182,839 related to this project. In August 2023, a 30-year lease for approximately 230,000 rentable square feet commenced at this property that is approximately 25.1% higher than the prior rental rate for the same space, making the redevelopment project 55% leased. See Note 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of ~~cash~~this Quarterly Report on Form 10-Q for more information regarding this lease and ~~cash equivalents. On October 2, 2017, we used our available cash on hand~~related redevelopment costs.

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We are also in the process of redeveloping a three-property campus located in Seattle, WA containing approximately 300,000 rentable square feet. This project includes the repositioning of two properties from office to ~~fund some~~life science and maintaining the third property for office use. We currently estimate the total project costs associated with this redevelopment to be approximately $162,000 and completion of the ~~FPO Transaction cash consideration.~~

redevelopment in the first quarter of 2024. As of September 30, 2023, we had incurred $117,873 related to this project. In ~~connection with~~August 2022, we entered into an approximately 10-year lease for approximately 84,000 rentable square feet at one of the ~~FPO Transaction, we assumed five mortgage notes with an aggregate principal balance of $167,549. These mortgage notes are secured by five~~life science properties ~~(five buildings). In connection with~~that is approximately 109.0% higher than the FPO Transaction, we also assumed two mortgage notes with an aggregate principal balance of $82,000, which are secured by two properties owned by joint ventures in which we acquired FPO's 50% and 51%interests.

prior rental rate for the same space, making the redevelopment project 28% pre-leased.

We currently expect to use cash balances, borrowings under ~~our~~any revolving credit facility we may then have, net proceeds from ~~our~~ property sales, ~~distributions received from our investments in SIR and RMR Inc., assumption~~incurrences or assumptions of mortgage debt and net proceeds from offerings of ~~equity~~debt or ~~debt~~equity securities to fund our future operations, capital expenditures, distributions to our shareholders and property acquisitions. When significant amounts are outstanding under our revolving credit facility or the maturities of our indebtedness approach, we expect to explore refinancing alternatives. Such alternatives may include incurring ~~additional~~ term debt, issuing ~~equity~~debt or ~~debt~~equity securities, extending the maturity date of our revolving credit facility and entering into a new

revolving credit facility. We may assume additional mortgage debt in connection with our acquisitions or elect to place new mortgages on properties we own as a source of financing. We may also seek to participate in additional joint ~~venture~~ventures or other arrangements that may provide us with additional sources of financing. Although we cannot be sure that we will be successful in consummating any particular type of financing, we believe that we will have access to financing, such as debt and equity offerings, to fund future acquisitions and capital expenditures and to pay our obligations. We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.

To partially finance the FPO Transaction, we entered into a commitment letter with Citigroup Global Markets Inc., or Citigroup, pursuant to which, on and subject to the terms and conditions of the commitment letter, Citigroup and a group of institutional lenders committed to provide us a bridge loan facility. On July 20, 2017, we and the lenders terminated this commitment letter and bridge loan facility after we raised the necessary funding for the FPO Transaction by our issuance of senior unsecured notes and the proceeds from the sale of our common shares in July 2017. As a result of the termination of this bridge loan facility we recognized a loss on extinguishment of debt of $1,715.

Our ability to obtain, and the costs of, our future debt financings will depend primarily on credit market conditions and our creditworthiness. We have no control over market conditions. Potential investors and lenders likely will evaluate our ability to pay distributions to shareholders, fund required debt service and repay debts when they become due by reviewing our business practices and plans to balance our use of debt and equity capital so that our financial profile and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. Similarly, our ability to raise equity capital in the future will depend primarily upon equity capital market conditions and our ability to conduct our business to maintain and grow our operating cash flows. We intend to conduct our business in a manner ~~which~~that will afford us reasonable access to capital for investment and financing activities, but we cannot be sure that we will be able to successfully carry out this intention. For instance, it is uncertain what the ultimate impacts of inflationary pressures, rising or sustained high interest rates or any economic recession will be. A protracted and extensive economic recession or continued or intensified disruptions in capital markets could limit our access to financing from public sources and would likely increase our cost of capital.

~~In June 2017, both Moody's Investors Service, or Moody's, and Standard & Poor's Ratings Services, or S&P, updated our ratings outlook to negative as a result of uncertainties arising from~~During the ~~FPO Transaction. Negative outlooks may imply that our debt ratings may be downgraded unless we are successful in reorganizing our financial profile.~~

~~On February 23, 2017 and May 22, 2017,~~nine months ended September 30, 2023, we paid ~~a regular~~ quarterly ~~distribution~~distributions to ~~common~~our shareholders of record on January 23, 2017 and April 21, 2017, of $0.43 per share, or $30,606 on each of those dates. On August 21, 2017, we paid a regular distribution to common shareholders of record on July 24, 2017, of $0.43 per share, or $41,364. We funded these distributionstotaling $50,998 using cash on hand and borrowings under our revolving credit facility. On October 12, ~~2017,~~2023, we declared a regular quarterly distribution payable to ~~common~~ shareholders of record on October 23, ~~2017~~2023 of ~~$0.43~~$0.25 per share, or ~~$42,633.~~approximately $12,200. We expect to pay this distribution on or about November ~~20, 2017~~16, 2023 using cash on hand and borrowings under our revolving credit facility. For more information regarding the distributions we paid and declared during 2023, see Note 8 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

~~Off Balance Sheet Arrangements~~

AsWe own 51% and 50% interests in two unconsolidated joint ventures which own three properties. The properties owned by these joint ventures are encumbered by an aggregate $82,000 principal amount of mortgage indebtedness, none of which is recourse to us. In July 2023, the maturity date of the mortgage loan secured by the property owned by our unconsolidated joint venture, in which we have a 50% interest, was extended by three years at the same interest rate. In October 2023, our joint venture partner that has a 50% equity interest in the 1750 H Street, NW joint venture failed to fund a $600 capital call. We are currently evaluating our options regarding this funding and there can be no assurance that we will be successful pursuing any remedies available to us under the joint venture agreement. We do not control the activities that are most significant to these joint ventures and, as a result, we account for our investments in these joint ventures under the equity method of accounting. For more information on the financial condition and results of operations of these joint ventures, see Note 3 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Other than these joint ventures, as of September 30, ~~2017,~~2023, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Debt Covenants (dollars in thousands)

Our principal debt obligations atas of September 30, ~~2017~~2023 consisted of $200,000 of borrowings outstanding under our ~~$750,000 unsecured~~ revolving credit facility, ~~our $300,000 term loan, our $250,000 term loan,~~ an ~~aggregate~~ outstanding principal ~~amount~~balance of ~~$960,000~~$2,212,000 of public issuances of senior unsecured notes and ~~three secured~~ mortgage notes ~~that were assumed~~with an outstanding principal balance $177,320. Also, the three properties owned by two joint ventures in ~~connection with certain of our acquisitions.~~which we own 51% and 50% interests secure two additional mortgage notes. Our publicly issued senior unsecured notes are governed by indentures and their supplements. In addition, as noted elsewhere in this Quarterly Report on Form 10-Q, on October 2, 2017, we assumed five secured mortgage notes in connection with the FPO Transaction. Also, the two joint venture properties acquired in the FPO Transaction secure two additional mortgage notes. Our credit agreement and our senior unsecured notes indentures and their supplements ~~and the credit agreement for our revolving credit facility and our two term loans~~ provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes ~~the~~ RMR ~~Group LLC, or RMR LLC,~~ ceasing to act as our business and property manager. Our credit agreement and our senior unsecured notes indentures and their supplements ~~and our credit agreement~~ also contain a number of covenants, ~~which generally~~including those that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, require us to ~~maintain various~~comply with certain financial ~~ratios,~~covenants and, in the case of our credit agreement, restrict our ability to make distributions to our shareholders inunder certain circumstances. ~~Our mortgage notes are non-recourse, subject to certain limited exceptions, and do not contain any material financial covenants.~~ As of September 30, ~~2017,~~2023, we believe we were in compliance with the terms and conditions of our respective covenants under our credit agreement and senior unsecured notes indentures and their supplements. Our mortgage notes are non-recourse, subject to certain limited exceptions, and do not contain any material financial covenants.

Neither our credit agreement nor our senior unsecured notes indentures and their supplements contain provisions for acceleration which could be triggered by our ~~debt~~credit ratings. However, under our credit agreement, our highest senior ~~debt~~credit rating is used to determine the fees and interest rates we pay. Accordingly, if that ~~debt~~credit rating is downgraded, our interest expense and related costs under our credit agreement would increase. ~~As noted above, in June 2017, both Moody's~~In March 2023, Moody’s Investors Service, or Moody’s, downgraded our senior unsecured debt rating from Ba1 to Ba2 and S&P ~~updated~~Global Ratings, or S&P, downgraded our senior unsecured debt rating ~~outlook~~from BBB- to ~~negative, which may imply that downgrades~~BB+. As a result, the interest rate premium under our revolving credit facility increased 35 basis points effective April 1, 2023. In April 2023, following the announcement of the merger with DHC, Moody’s downgraded our senior unsecured debt rating from Ba2 to Ba3. In September 2023, following the termination of the merger with DHC, Moody’s downgraded our ~~credit~~senior unsecured debt rating ~~will occur unless we are successful in reorganizing~~from Ba3 to B2 and S&P downgraded our ~~financial profile.~~senior unsecured debt rating from BB+ to BB.

Our credit agreement has cross default provisions to other indebtedness that is recourse of $25,000 or more and indebtedness that is non-recourse of $50,000 or more. Similarly, our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $25,000 (or up to $50,000 in certain circumstances).

Related Person Transactions

We have relationships and historical and continuing transactions with RMR, ~~LLC,~~ RMR Inc.~~, SIR, AIC~~ and others related to them. For example: we have no employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our management agreements with RMR LLC; RMR Inc. is the managing member of RMR LLC; ABP Trust, which is owned by our Managing Trustees, is the controlling shareholder of RMR Inc.; and we own shares of class A common stock of RMR Inc. We also have relationships and historical and continuing transactions with other companies to which RMR LLC provides management services and which may have trustees, directors and officers who are also trustees, directors or officers of us, RMR LLC or RMR Inc., including: SIR, of which we are the largest shareholder, owning, at September 30, 2017, approximately 27.8% of the outstanding SIR common shares; and AIC, of which we, SIR, ABP Trust and four other companies to which RMR LLC provides management services each own 14.3% and which arranges and reinsures in part a combined property insurance program for us and its six other shareholders. For furthermore information about these and other such relationships and related person transactions, see Notes ~~10, 11~~9 and 1210 to our ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2022 Annual Report, our definitive Proxy Statement for our ~~2017~~2023 Annual Meeting of Shareholders and our other filings with the ~~Securities and Exchange Commission, or~~ SEC. In addition, see the section captioned “Risk Factors” in Part I, Item 1A of our 2022 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related persons, including our business and property management agreements with RMR LLC and our shareholders agreement with AIC and its six other shareholders, are available as exhibits to our filings with the SEC and accessible at the SEC’s website, ~~www.sec.gov~~. We may engage in additional transactions with related persons, including businesses to which RMR ~~LLC~~ or its ~~affiliates~~subsidiaries provide management services.

Critical Accounting Estimates

The preparation of our Condensed Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the Condensed Consolidated Financial Statements include purchase price allocations, useful lives of fixed assets and assessment of impairment of real estate and the related intangibles.

A discussion of our critical accounting estimates is included in our 2022 Annual Report. There have been no significant changes in our critical accounting estimates since the year ended December 31, 2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk(dollar amounts in thousands, except per share data)

We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives. Our strategy to manage exposure to changes in interest rates has not materially changed since December 31, ~~2016.~~2022. Other than as described below, we do not currently foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.

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Fixed Rate Debt

AtAs of September 30, ~~2017,~~2023, our outstanding fixed rate debt consisted of the following:


Debt	Principal Balance (1)		Annual Interest Rate (1)	Annual Interest Expense		Maturity	Interest Payments Due




Senior unsecured notes	$	350,000	4.250%	$	14,875	2024	Semi-annually
Senior unsecured notes	650,000		4.500%	29,250		2025	Semi-annually
Senior unsecured notes	300,000		2.650%	7,950		2026	Semi-annually
Senior unsecured notes	350,000		2.400%	8,400		2027	Semi-annually
Mortgage note (one property)	26,340		8.139%	2,144		2028	Monthly
Mortgage note (one property)	42,700		8.272%	3,532		2028	Monthly
Mortgage note (two properties)	54,300		7.671%	4,165		2028	Monthly
Senior unsecured notes	400,000		3.450%	13,800		2031	Semi-annually
Mortgage note (one property)	30,680		7.210%	2,212		2033	Monthly
Mortgage note (one property)	8,400		7.305%	614		2033	Monthly
Mortgage note (one property)	14,900		7.717%	1,150		2033	Monthly
Senior unsecured notes	162,000		6.375%	10,328		2050	Quarterly
Total	$	2,389,320		$	98,420

Annual Annual Interest
Principal Interest Interest Payments
Debt
Balance ⁽¹⁾

Rate ⁽¹⁾

Expense ⁽¹⁾
Maturity Due
Senior unsecured notes $ 350,000
3.750 % $ 13,125
2019 Semi-annually
Senior unsecured notes 310,000
5.875 % 18,213
2046 Quarterly
Senior unsecured notes 300,000
4.000 % 12,000
2022 Semi-annually
Mortgage note 13,756
5.877 % 820
2021 Monthly
Mortgage note 8,288
7.000 % 588
2019 Monthly
Mortgage note 4,314
8.150 % 356
2021 Monthly
$ 986,358

$ 45,102

~~(1)~~

The principal balances and interest rates are the amounts stated in the contracts. In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we issued or assumed these debts. For more information, see Notes 7 and 8 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

(1)The principal balances and annual interest rates are the amounts stated in the applicable contracts. In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we issued or assumed these debts. For more information, see Notes 6 and 7 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Our ~~$350,000 and $300,000~~ senior unsecured notes require semi-annual ~~interest payments through maturity and our $310,000 senior unsecured notes require~~or quarterly interest payments through maturity. Our ~~mortgages generally~~mortgage notes require monthly payments of interest only or payments of principal and interest ~~payments~~ through ~~maturity pursuant to amortization schedules.~~maturity. Because these debts require interest to be paid at a fixed rate, changes in market interest rates during the term of these debts will not affect our interest obligations. If these debts were refinanced at interest rates which are ~~100 basis points~~one percentage point higher or lower than shown above, our ~~per annum~~annual interest cost would increase or decrease ~~respectively,~~ by approximately ~~$10,098.~~

$23,893.

Changes in market interest rates also would affect the fair value of our fixed rate debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt. Since the beginning of 2022, the U.S. Federal Reserve has been raising interest rates in an effort to combat inflation and may continue to do so. Based on the balances outstanding at September 30, ~~2017,~~2023, and discounted cash flow analyses through the respective maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligations, a hypothetical immediate ~~100 basis~~one percentage point increase in interest rates would change the fair value of those obligations by approximately ~~$59,302.~~$68,555.

~~Some of our~~Our fixed rate ~~secured~~ debt arrangements may allow us to make repayments earlier than the stated maturity date. In some cases, we are not allowed to make early repayment prior to a cutoff date and we are generally allowed to make prepayments only at a premium equal to a make whole amount, as defined, which is generally designed to preserve a stated yield to the note holder. These prepayment rights may afford us opportunities to mitigate the risk of refinancing our debts at maturity at a higher ~~rates~~rate by refinancing prior to maturity.

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~~On October 2, 2017, in connection with~~

In addition to the ~~FPO Transaction, we assumed~~ fixed rate debt ~~consisting~~presented in the table above, at September 30, 2023, we had noncontrolling ownership interests of ~~the following mortgage notes:~~

Annual Annual Interest
Principal Interest Interest Payments
Debt
Balance ⁽¹⁾

Rate ⁽¹⁾

Expense ⁽¹⁾
Maturity Due
Mortgage note (one property (one building) in Washington, DC) $ 66,780
4.050 % $ 2,705
2030 Monthly
Mortgage note (one property (one building) in Washington, DC) 34,974
4.800 % 1,679
2023 Monthly
Mortgage note (one property (one building) in Washington, DC) 34,598
�� 5.720 % 1,979
2020 Monthly
Mortgage note (one property (one building) in Washington, DC) 27,978
4.220 % 1,181
2022 Monthly
Mortgage note (one property (one building) in Chesapeake, VA) 3,219
4.260 % 137
2020 Monthly
$ 167,549
$ 7,681


~~(1)~~	~~The principal balance, annual interest rate~~51% and annual interest expense are the amounts stated in the applicable contract. In accordance with GAAP, our carrying value and recorded interest expense may differ from these amounts because of market conditions at the time we assumed this debt.

~~Also, in connection with the FPO Transaction, we acquired FPO's~~ 50% ~~and 51% interests~~ in two unconsolidated joint ~~venture arrangements which~~ventures that own three properties that are secured by fixed rate debt consisting of the following mortgage ~~notes, which~~notes:


Debt	Our JV Ownership Interest	Principal Balance (1)(2)		Annual Interest Rate (1)	Annual Interest Expense		Maturity	Interest Payments Due
Mortgage note (two properties)	51%	$	50,000	4.090%	$	2,045	2029	Monthly
Mortgage note (one property) (3)	50%	32,000		3.690%	1,181		2027	Monthly
Total		$	82,000		$	3,226

(1)The principal balances and annual interest rates are the amounts stated in the applicable contracts. In accordance with GAAP, the joint ventures’ recorded interest expense may differ from these amounts because of market conditions at the time they incurred the debt.

(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 ~~assumed:~~do not own. None of the debt is recourse to us.

Our JV Annual Annual Interest
Ownership Principal Interest Interest Payments
Debt Interest
Balance⁽¹⁾⁽²⁾

Rate⁽¹⁾

Expense⁽¹⁾
Maturity Due
Mortgage note (one property) one building in Washington, DC 50% $ 32,000
3.920 % $ 1,254
2024 Monthly
Mortgage note (one property) one building in Fairfax, VA 51% 50,000
3.910 % 1,955
2029 Monthly
$ 82,000
$ 3,209


~~(1)~~	The principal balance, annual interest rate and annual interest expense are the amounts stated in the applicable contract. In accordance with GAAP, our recorded interest expense may differ from these amounts because of market conditions at the time we acquired the joint venture interests.


~~(2)~~	~~Reflects the entire balance of the debt secured by the properties and is not adjusted to reflect the part of the joint venture arrangement interests we do not own.~~

(3)In July 2023, the maturity date of this mortgage loan was extended by three years at the same interest rate.

Floating Rate Debt

AtAs of September 30, ~~2017,~~2023, our floating rate debt consisted of ~~$565,000 of borrowings~~$200,000 outstanding under our $750,000 revolving credit ~~facility, our $300,000 term loan and our $250,000 term loan.~~facility. Our revolving credit facility matures inon January ~~2019 and, subject to the payment of an extension fee and our meeting other conditions, we have the option to extend the stated maturity by one year to January 2020.~~31, 2024. No principal repayments are required under our revolving credit facility ~~or our term loans~~ prior to maturity, and we can borrow, repay and reborrow funds available under our revolving credit facility, subject to conditions, at any time without penalty. Our $300,000 term loan matures on March 31, 2020. Our $250,000 term loan matures on March 31, 2022. Amounts outstanding under our term loans may be repaid without penalty at any time, but after they are repaid amounts may not be redrawn.

Borrowings under our ~~$750,000~~ revolving credit facility ~~and term loans~~ are in U.S. dollars and require interest to be paid at a rate of ~~LIBOR~~SOFR plus premiums that are subject to adjustment based upon changes to our credit ratings. Accordingly, we are vulnerable to changes in U.S. dollar based short term rates, specifically ~~LIBOR.~~SOFR, and to changes in our credit ratings. In addition, upon any renewal or refinancing of our revolving credit facility, ~~or term loans,~~ we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit characteristics. Generally, a change in interest rates would not affect the value of our floating rate debt but would affect our operating results.

The following table presents the impact a ~~100 basis~~one percentage point increase in interest rates would have on our annual floating rate interest expense as of September 30, ~~2017:~~2023:


	Impact of an Increase in Interest Rates
	Annual Interest Rate (1)		Outstanding Debt		Total Interest Expense Per Year		Annual Earnings Per Share Impact (2)
At September 30, 2023	6.9	%	$	200,000	$	13,800	$	0.29
One percentage point increase	7.9	%	$	200,000	$	15,800	$	0.33

Impact of Changes in Interest Rates
Annual Outstanding Total Interest Annual Earnings

Interest Rate ⁽¹⁾
Debt Expense Per Year
Per Share Impact ⁽²⁾
At September 30, 2017 2.6 % $ 1,115,000
$ 29,393
$ 0.37
100 bps increase 3.6 % $ 1,115,000
$ 40,698
$ 0.51
(1)Based on SOFR plus a premium, which was 145 basis points per annum, as of September 30, 2023.


~~(1)~~	~~Weighted based on the respective interest rates and outstanding borrowings under our revolving credit facility and term loans as of September 30, 2017.~~


~~(2)~~	~~Based on the weighted average shares outstanding (diluted) for the nine months ended September 30, 2017.~~

(2)Based on the weighted average common shares outstanding (diluted) for the nine months ended September 30, 2023.

The following table presents the impact a ~~100 basis~~one percentage point increase in interest rates would have on our annual floating rate interest expense as of September 30, ~~2017~~2023 if we were fully drawn on our revolving credit ~~facility and our term loans remained outstanding:~~facility:


	Impact of an Increase in Interest Rates
	Annual Interest Rate (1)		Outstanding Debt		Total Interest Expense Per Year		Annual Earnings Per Share Impact (2)
At September 30, 2023	6.9	%	$	750,000	$	51,750	$	1.07
One percentage point increase	7.9	%	$	750,000	$	59,250	$	1.23

Impact of Changes in Interest Rates
Annual Outstanding Total Interest Annual Earnings

Interest Rate ⁽¹⁾
Debt Expense Per Year
Per Share Impact ⁽²⁾
At September 30, 2017 2.6 % $ 1,300,000
$ 34,269
$ 0.43
100 bps increase 3.6 % $ 1,300,000
$ 47,450
$ 0.59
(1)Based on SOFR plus a premium, which was 145 basis points per annum, as of September 30, 2023.


~~(1)~~	~~Weighted based on the respective interest rates and outstanding borrowings under our revolving credit facility (assuming fully drawn) and our term loans as of September 30, 2017.~~


~~(2)~~	~~Based on the weighted average shares outstanding (diluted) for the nine months ended September 30, 2017.~~

(2)Based on the weighted average common shares outstanding (diluted) for the nine months ended September 30, 2023.

The foregoing tables show the impact of an immediate ~~change~~increase in floating interest rates as of September 30, ~~2017.~~2023. If interest rates were to ~~change~~increase gradually over time, the impact would be spread over time. Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amount under our revolving credit facility ~~our term loans~~ or our other floating rate debt, if any. Although we have no present plans to do so, we may in the future enter into hedge arrangements from time to time to mitigate our exposure to changes in interest rates.

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Item 4. Controls and Procedures

As of the end of the period covered by this ~~report,~~Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our ~~Managing Trustees, our~~ President and Chief ~~Operating~~Executive Officer and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our ~~Managing Trustees, our~~ President and Chief ~~Operating~~Executive Officer and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended September 30, ~~2017~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~WARNING CONCERNING FORWARD LOOKING STATEMENTS~~Warning Concerning Forward-Looking Statements

~~THIS QUARTERLY REPORT ON FORM~~This Quarterly Report on Form 10-Q ~~CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF~~contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ~~AND OTHER SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”~~and other securities laws that are subject to risks and uncertainties. These statements may include words such as “believe”, ~~“EXPECT”~~“expect”, ~~“ANTICIPATE”~~“anticipate”, ~~“INTEND”~~“intend”, ~~“PLAN”~~“plan”, ~~“ESTIMATE”~~“estimate”, ~~“WILL”~~“will”, “MAY” AND NEGATIVES OR DERIVATIVES OF THESE OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. FORWARD LOOKING STATEMENTS IN THIS REPORT RELATE TO VARIOUS ASPECTS OF OUR BUSINESS, INCLUDING:“may” and negatives or derivatives of these or similar expressions. These forward-looking statements include, among others, statements about: economic and market conditions; demand for office lease space; our future leasing activity; our leverage levels and possible future financings; our liquidity needs and sources; our capital expenditure plans and commitments; our capital recycling program; acquisitions and dispositions; our redevelopment and construction activities and plans; and the amount and timing of future distributions.

Forward-looking statements reflect our current expectations, are based on judgments and assumptions, are inherently uncertain and are subject to risks, uncertainties and other factors, which could cause our actual results, performance or achievements to differ materially from expected future results, performance or achievements expressed or implied in those forward-looking statements. Some of the risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the following:

•The impact of increasing or sustained high interest rates, inflation, labor market challenges, disruption and volatility in the public equity and debt markets, conditions in the commercial real estate industry generally and in the sectors we operate, geopolitical instability and economic downturns or recessions on us and our tenants,

•The extent to which changes and trends in office space utilization and needs, including due to remote work arrangements, may impact demand for office space at our properties,

•The financial strength of our tenants,

•Risks and uncertainties regarding the costs and timing of development, redevelopment and repositioning activities, including as a result of inflation, cost overruns, supply chain challenges, labor shortages, construction delays or inability to obtain necessary permits,

•Whether our tenants will renew or extend their leases and not exercise early termination options pursuant to their leases or that we will obtain replacement tenants on terms as favorable to us as our prior leases,

•Our ability to successfully recycle and deploy capital,

•The likelihood that our tenants will pay rent or be negatively affected by cyclical economic conditions or government budget constraints,

•Our ability to pay distributions to our shareholders and to maintain or increase the amount of such distributions,

•Our ability to increase or maintain occupancy at our properties on terms desirable to us,

•Our ability to increase rents when our leases expire or renew,

•Our tenant and geographic concentration,

•Our ability to manage our capital expenditures and other operating costs effectively and to maintain and enhance our properties and their appeal to tenants,

•Our ability to acquire properties that realize our targeted returns,

~~OUR ACQUISITIONS AND SALES OF PROPERTIES,~~

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~~OUR ABILITY TO COMPETE FOR ACQUISITIONS AND TENANCIES EFFECTIVELY,~~

•Our ability to sell properties at prices we target,

~~THE LIKELIHOOD THAT OUR TENANTS WILL PAY RENT OR BE NEGATIVELY AFFECTED BY CYCLICAL ECONOMIC CONDITIONS OR GOVERNMENT BUDGET CONSTRAINTS,~~•Our ability to cost effectively raise and balance our use of debt and equity capital,

~~THE LIKELIHOOD THAT OUR TENANTS WILL RENEW OR EXTEND THEIR LEASES AND NOT EXERCISE EARLY TERMINATION OPTIONS PURSUANT TO THEIR LEASES OR THAT WE WILL OBTAIN REPLACEMENT TENANTS,~~•Our ability to make required payments on our debt,

~~THE LIKELIHOOD THAT OUR RENTS WILL INCREASE WHEN WE RENEW OR EXTEND OUR LEASES OR ENTER NEW LEASES,~~•Our ability to maintain sufficient liquidity, including the availability of borrowings under our revolving credit facility, and otherwise manage leverage,

~~OUR ABILITY TO PAY DISTRIBUTIONS TO OUR SHAREHOLDERS AND THE AMOUNT OF SUCH DISTRIBUTIONS,~~•Our credit ratings,

~~OUR EXPECTATION THAT WE BENEFIT FINANCIALLY FROM OUR OWNERSHIP INTEREST IN SIR,~~•The ability of our manager, RMR, to successfully manage us,

~~OUR POLICIES AND PLANS REGARDING INVESTMENTS, FINANCINGS AND DISPOSITIONS,~~

•Competition within the commercial real estate industry, particularly in those markets in which our properties are located,

~~THE FUTURE AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY,~~•Compliance with, and changes to, federal, state and local laws and regulations, accounting rules, tax laws and similar matters,

OUR EXPECTATION THAT THERE WILL BE OPPORTUNITIES FOR US TO ACQUIRE, AND THAT WE WILL ACQUIRE, ADDITIONAL PROPERTIES INCLUDING PROPERTIES THAT ARE MAJORITY LEASED TO GOVERNMENT TENANTS OR GOVERNMENT CONTRACTOR TENANTS,•The impact of any U.S. government shutdown or failure to increase the government debt ceiling on our ability to collect rents and pay our operating expenses, debt obligations and distributions to shareholders on a timely basis,

~~OUR EXPECTATIONS REGARDING DEMAND FOR LEASED SPACE BY THE~~•Actual and potential conflicts of interest with our related parties, including our Managing Trustees, RMR, Sonesta and others affiliated with them,

•Limitations imposed by and our ability to satisfy complex rules to maintain our qualification for taxation as a REIT for U.S. ~~GOVERNMENT AND STATE AND LOCAL GOVERNMENTS,~~federal income tax purposes,

~~OUR ABILITY TO RAISE EQUITY OR DEBT CAPITAL,~~

•Acts of terrorism, outbreaks or continuation of pandemics or other public health safety events or conditions, war or other hostilities, material or prolonged disruption to supply chains, climate change, or other manmade or natural disasters beyond our control, and

~~OUR ABILITY TO PAY INTEREST ON AND PRINCIPAL OF OUR DEBT,~~•Other matters.

~~OUR ABILITY TO APPROPRIATELY BALANCE OUR USE OF DEBT AND EQUITY CAPITAL,~~These risks, uncertainties, and other factors are not exhaustive and should be read in conjunction with other cautionary statements that are included in our periodic filings. The information contained in our filings with the SEC, including under the caption “Risk Factors” in this Quarterly Report on Form 10-Q and our other periodic reports, or incorporated herein or therein, identifies important factors that could cause differences from the forward-looking statements in this Quarterly Report on Form 10-Q. Our filings with the SEC are available on the SEC’s website at www.sec.gov.

~~OUR CREDIT RATINGS,~~You should not place undue reliance upon our forward-looking statements.

~~OUR EXPECTED BENEFITS FROM THE FPO TRANSACTION,~~Except as required by law, we do not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

~~OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP OF RMR INC.,~~

~~OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP OF AIC AND FROM OUR PARTICIPATION IN INSURANCE PROGRAMS ARRANGED BY AIC,~~Statement Concerning Limited Liability

~~THE CREDIT QUALITIES OF OUR TENANTS,~~

~~OUR QUALIFICATION FOR TAXATION AS A REIT, AND~~

~~OTHER MATTERS.~~

OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FORWARD LOOKING STATEMENTS AND UPON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION, FFO, NORMALIZED FFO, NOI, CASH FLOWS, LIQUIDITY AND PROSPECTS INCLUDE, BUT ARE NOT LIMITED TO:

~~THE IMPACT OF CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS ON US AND OUR TENANTS,~~

~~COMPETITION WITHIN THE REAL ESTATE INDUSTRY, PARTICULARLY WITH RESPECT TO THOSE MARKETS IN WHICH OUR PROPERTIES ARE LOCATED AND WITH RESPECT TO GOVERNMENT TENANCIES,~~

~~THE IMPACT OF CHANGES IN THE REAL ESTATE NEEDS AND FINANCIAL CONDITIONS OF THE U.S. GOVERNMENT AND STATE AND LOCAL GOVERNMENTS,~~

~~COMPLIANCE WITH, AND CHANGES TO, FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS, ACCOUNTING RULES, TAX LAWS AND SIMILAR MATTERS,~~

~~ACTUAL AND POTENTIAL CONFLICTS OF INTEREST WITH OUR RELATED PARTIES, INCLUDING OUR MANAGING TRUSTEES, RMR LLC, RMR INC., SIR, AIC AND OTHERS AFFILIATED WITH THEM,~~

~~LIMITATIONS IMPOSED ON OUR BUSINESS AND OUR ABILITY TO SATISFY COMPLEX RULES IN ORDER FOR US TO QUALIFY FOR TAXATION AS A REIT FOR U.S. FEDERAL INCOME TAX PURPOSES, AND~~

~~ACTS OF TERRORISM, OUTBREAKS OF SO CALLED PANDEMICS OR OTHER MANMADE OR NATURAL DISASTERS BEYOND OUR CONTROL.~~

~~FOR EXAMPLE:~~

OUR ABILITY TO MAKE FUTURE DISTRIBUTIONS TO OUR SHAREHOLDERS AND TO MAKE PAYMENTS OF PRINCIPAL AND INTEREST ON OUR INDEBTEDNESS DEPENDS UPON A NUMBER OF FACTORS, INCLUDING OUR FUTURE EARNINGS, THE CAPITAL COSTS WE INCUR TO LEASE OUR PROPERTIES, OUR WORKING CAPITAL REQUIREMENTS AND OUR RECEIPT OF DISTRIBUTIONS FROM SIR. WE MAY BE UNABLE TO PAY OUR DEBT OBLIGATIONS OR TO MAINTAIN OUR CURRENT RATE OF DISTRIBUTIONS ON OUR COMMON SHARES AND FUTURE DISTRIBUTIONS MAY BE REDUCED OR ELIMINATED,

OUR ABILITY TO GROW OUR BUSINESS AND INCREASE DISTRIBUTIONS TO OUR SHAREHOLDERS DEPENDS IN LARGE PART UPON OUR ABILITY TO BUY PROPERTIES AND LEASE THEM FOR RENTS, LESS THEIR PROPERTY OPERATING EXPENSES, THAT EXCEED OUR CAPITAL COSTS. WE MAY BE UNABLE TO IDENTIFY PROPERTIES THAT WE WANT TO ACQUIRE OR TO NEGOTIATE ACCEPTABLE PURCHASE PRICES, ACQUISITION FINANCING OR LEASE TERMS FOR NEW PROPERTIES,

~~SOME OF OUR TENANTS MAY NOT RENEW EXPIRING LEASES, AND WE MAY BE UNABLE TO OBTAIN NEW TENANTS TO MAINTAIN OR INCREASE THE HISTORICAL OCCUPANCY RATES OF, OR RENTS FROM, OUR PROPERTIES,~~

SOME GOVERNMENT TENANTS MAY EXERCISE THEIR RIGHTS TO VACATE THEIR SPACE BEFORE THE STATED EXPIRATIONS OF THEIR LEASES, AND WE MAY BE UNABLE TO OBTAIN NEW TENANTS TO MAINTAIN THE HISTORICAL OCCUPANCY RATES OF, OR RENTS FROM, OUR PROPERTIES,

~~RENTS THAT WE CAN CHARGE AT OUR PROPERTIES MAY DECLINE BECAUSE OF CHANGING MARKET CONDITIONS OR OTHERWISE,~~

~~CONTINGENCIES IN OUR ACQUISITION AND SALE AGREEMENTS MAY NOT BE SATISFIED AND OUR PENDING ACQUISITIONS AND SALES MAY NOT OCCUR, MAY BE DELAYED OR THE TERMS OF SUCH TRANSACTIONS MAY CHANGE,~~

~~CONTINUED AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY IS SUBJECT TO OUR SATISFYING CERTAIN FINANCIAL COVENANTS AND OTHER CREDIT FACILITY CONDITIONS THAT WE MAY BE UNABLE TO SATISFY,~~

~~ACTUAL COSTS UNDER OUR REVOLVING CREDIT FACILITY OR OTHER FLOATING RATE CREDIT FACILITIES WILL BE HIGHER THAN LIBOR PLUS A PREMIUM BECAUSE OF FEES AND EXPENSES ASSOCIATED WITH SUCH FACILITIES,~~

THE INTEREST RATES PAYABLE UNDER OUR FLOATING RATE DEBT OBLIGATIONS DEPEND UPON OUR CREDIT RATINGS. BOTH MOODY'S AND S&P HAVE RECENTLY UPDATED OUR RATING OUTLOOK TO NEGATIVE WHICH MAY IMPLY THAT OUR CREDIT RATINGS MAY BE DOWNGRADED. IF OUR CREDIT RATINGS ARE DOWNGRADED, OUR BORROWING COSTS WILL INCREASE,

OUR ABILITY TO ACCESS DEBT CAPITAL AND THE COST OF OUR DEBT CAPITAL WILL DEPEND IN PART ON OUR CREDIT RATINGS. BOTH MOODY'S AND S&P HAVE RECENTLY UPDATED OUR RATING OUTLOOK TO NEGATIVE, WHICH MAY IMPLY THAT OUR CREDIT RATINGS MAY BE DOWNGRADED. IF OUR CREDIT RATINGS ARE DOWNGRADED, WE MAY NOT BE ABLE TO ACCESS DEBT CAPITAL OR THE DEBT CAPITAL WE CAN ACCESS MAY BE EXPENSIVE,

~~WE MAY BE UNABLE TO REPAY OUR DEBT OBLIGATIONS WHEN THEY BECOME DUE,~~

THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOANS MAY BE INCREASED TO UP TO $2.5 BILLION ON A COMBINED BASIS IN CERTAIN CIRCUMSTANCES; HOWEVER, INCREASING THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOANS IS SUBJECT TO OUR OBTAINING ADDITIONAL COMMITMENTS FROM LENDERS, WHICH MAY NOT OCCUR,

~~WE HAVE THE OPTION TO EXTEND THE MATURITY DATE OF OUR REVOLVING CREDIT FACILITY UPON PAYMENT OF A FEE AND MEETING OTHER CONDITIONS; HOWEVER, THE APPLICABLE CONDITIONS MAY NOT BE MET,~~

THE BUSINESS AND PROPERTY MANAGEMENT AGREEMENTS BETWEEN US AND RMR LLC HAVE CONTINUING 20 YEAR TERMS. HOWEVER, THOSE AGREEMENTS PERMIT EARLY TERMINATION IN CERTAIN CIRCUMSTANCES. ACCORDINGLY, WE CANNOT BE SURE THAT THESE AGREEMENTS WILL REMAIN IN EFFECT FOR CONTINUING 20 YEAR TERMS,

WE BELIEVE THAT OUR RELATIONSHIPS WITH OUR RELATED PARTIES, INCLUDING RMR LLC, RMR INC., SIR, AIC AND OTHERS AFFILIATED WITH THEM MAY BENEFIT US AND PROVIDE US WITH COMPETITIVE ADVANTAGES IN OPERATING AND GROWING OUR BUSINESS. HOWEVER, THE ADVANTAGES WE BELIEVE WE MAY REALIZE FROM THESE RELATIONSHIPS MAY NOT MATERIALIZE,

WE MAY FAIL TO EXECUTE SUCCESSFULLY ON OUR EXPANDED BUSINESS STRATEGY OR INCREASED SCALE RESULTING FROM THE FPO TRANSACTION AND THEREFORE MAY NOT REALIZE THE BENEFITS WE EXPECT FROM THE FPO TRANSACTION,

~~SIR MAY REDUCE THE AMOUNT OF ITS DISTRIBUTIONS TO ITS SHAREHOLDERS, INCLUDING US,~~

~~RMR INC. MAY REDUCE THE AMOUNT OF ITS DISTRIBUTION TO ITS SHAREHOLDERS, INCLUDING US,~~

WE MAY BE UNABLE TO SELL OUR SIR COMMON SHARES FOR AN AMOUNT EQUAL TO OUR CARRYING VALUE OF THOSE SHARES AND ANY SUCH SALE MAY BE AT A DISCOUNT TO MARKET PRICE BECAUSE OF THE LARGE SIZE OF OUR SIR HOLDINGS OR OTHERWISE; WE MAY REALIZE A LOSS ON OUR INVESTMENT IN OUR SIR SHARES, AND

WE EXPECT TO SPEND, AS OF SEPTEMBER 30, 2017, AN ADDITIONAL $3.3 MILLION TO COMPLETE THE REDEVELOPMENT AND EXPANSION OF A PROPERTY WE OWN PRIOR TO THE COMMENCEMENT OF THE LEASE FOR THAT PROPERTY. IN ADDITION, AS OF SEPTEMBER 30 2017, WE HAVE ESTIMATED UNSPENT LEASING RELATED OBLIGATIONS OF $26.6 MILLION, EXCLUDING THE ESTIMATED

DEVELOPMENT COSTS NOTED IN THE PRECEDING SENTENCE. IT IS DIFFICULT TO ACCURATELY ESTIMATE DEVELOPMENT AND TENANT SPACE PREPARATION COSTS. THIS DEVELOPMENT PROJECT AND OUR UNSPENT LEASING RELATED OBLIGATIONS MAY COST MORE OR LESS AND MAY TAKE LONGER TO COMPLETE THAN WE CURRENTLY EXPECT, AND WE MAY INCUR INCREASING AMOUNTS FOR THESE AND SIMILAR PURPOSES IN THE FUTURE.

CURRENTLY UNEXPECTED RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH ARE BEYOND OUR CONTROL, SUCH AS CHANGES IN OUR TENANTS’ NEEDS FOR LEASED SPACE, ACTS OF TERRORISM, NATURAL DISASTERS OR CHANGES IN CAPITAL MARKETS OR THE ECONOMY GENERALLY.

THE INFORMATION CONTAINED ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q AND IN OUR ANNUAL REPORT OR IN OUR OTHER FILINGS WITH THE SEC, INCLUDING UNDER THE CAPTION “RISK FACTORS”, OR INCORPORATED HEREIN OR THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM OUR FORWARD LOOKING STATEMENTS. OUR FILINGS WITH THE SEC ARE AVAILABLE ON THE SEC’S WEBSITE AT WWW.SEC.GOV.

~~YOU SHOULD NOT PLACE UNDUE RELIANCE UPON OUR FORWARD LOOKING STATEMENTS.~~

~~EXCEPT AS REQUIRED BY LAW, WE DO NOT INTEND TO UPDATE OR CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.~~

~~STATEMENT CONCERNING LIMITED LIABILITY~~

~~THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING GOVERNMENT PROPERTIES INCOME TRUST, DATED JUNE~~The amended and restated declaration of trust establishing Office Properties Income Trust, dated June 8, 2009, AS AMENDED, AS FILED WITH THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF GOVERNMENT PROPERTIES INCOME TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, GOVERNMENT PROPERTIES INCOME TRUST. ALL PERSONS DEALING WITH GOVERNMENT PROPERTIES INCOME TRUST IN ANY WAY SHALL LOOK ONLY TO THE ASSETS OF GOVERNMENT PROPERTIES INCOME TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.as amended, as filed with the State Department of Assessments and Taxation of Maryland, provides that no trustee, officer, shareholder, employee or agent of Office Properties Income Trust shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, Office Properties Income Trust. All persons dealing with Office Properties Income Trust in any way shall look only to the assets of Office Properties Income Trust for the payment of any sum or the performance of any obligation.

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Part II. Other Information

Item 1A. Risk Factors

There have been no material changes to the risk factors from those we previously disclosed in our 2022 Annual ~~Report and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017. As described above, the FPO Transaction was completed on October 2, 2017.~~Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer purchases of equity securities.The following table provides information about our purchases of our equity securities during the quarter ended September 30, ~~2017:~~2023:


Calendar Month	Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2023 - July 31, 2023	915	$	7.87	—	$	—
September 1, 2023 - September 30, 2023	39,189	5.79		—	—



Total	40,104	$	5.84	—	$	—

(1)These common share withholdings and purchases were made to satisfy tax withholding and payment obligations of one of our Managing Trustees and certain other current and former officers and employees of RMR in connection with the vesting of awards of our common shares to them. We withheld and purchased these shares at their fair market values based upon the trading prices of our common shares at the close of trading on Nasdaq on the purchase dates.

Maximum
Total Number of Approximate Dollar
Shares Purchased Value of Shares that
Number of Average as Part of Publicly May Yet Be Purchased
Shares Price Announced Plans Under the Plans or
Calendar Month
Purchased ⁽¹⁾
Paid per Share or Programs Programs
September 2017 13,636 $ 18.30 $ — $ —
Total 13,636 $ 18.30 $ — $ —

~~(1)~~

These common share withholdings and purchases were made to satisfy employee tax withholding and payment obligations of our officers and certain other RMR LLC employees in connection with the vesting of awards of our common shares. We withheld and purchased these shares at their fair market value based upon the trading price of our common shares at the close of trading on the Nasdaq on the purchase date.

Item 6. Exhibits



Exhibit Number		Description



3.1	Composite Copy of Amended and Restated Declaration of Trust, dated June 8, 2009, as amended to date. (Incorporated by reference to the ~~Company’s~~Company's Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2017.~~2020.)

3.2		Second Amended and Restated Bylaws of the Company, adopted ~~September 7, 2016.~~June 13, 2023. (Incorporated by reference to the Company’s Current Report on Form 8-K ~~dated September 7, 2016.~~filed on June 13, 2023.)

4.1		Form of Common Share Certificate. (Incorporated by reference to ~~Amendment No. 2 to~~ the ~~Company’s Registration Statement on Form S-11/A, File No. 333-157455.)~~

~~4.2~~	~~Indenture, dated as of August 18, 2014, between the Company and U.S. Bank National Association. (Incorporated by reference to the Company’s Current~~Company's Annual Report on Form ~~8-K dated August 18, 2014.~~10-K for the year ended December 31, 2018.)

~~4.3~~4.2		Supplemental Indenture No. 1, dated as of August 18, 2014, between the Company and U.S. Bank National Association, relating to the Company’s 3.75% Senior Notes due 2019, including form thereof. (Incorporated by reference to the Company’s Current Report on Form 8-K dated August 18, 2014.)

~~4.4~~	Supplemental Indenture No. 2, dated as of May 26, 2016, between the Company and U.S. Bank National Association, relating to the Company’s 5.875% Senior Notes due 2046, including form thereof. (Incorporated by reference to the Company’s Current Report on Form 8-K dated May 26, 2016.)

~~4.5~~	Authentication Order, dated as of June 22, 2016, from the Company to U.S. Bank National Association, relating to the Company’s 5.875% Senior Notes due 2046. (Incorporated by reference to the Company’s Registration Statement on Form 8-A dated June 30, 2016.)

~~4.6~~	Indenture, dated as of July 20, 2017, between the Company and U.S. Bank Trust Company, National ~~Association.~~Association (as successor in interest to U.S. Bank National Association). (Incorporated by reference to the Company’s Current Report on Form 8-K ~~dated~~filed on July ~~20,~~21, 2017.)

~~4.7~~4.3		Second Supplemental Indenture, ~~No. 1,~~ dated as of ~~July 20, 2017,~~June 23, 2020, between the Company and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), relating to the Company’s ~~4.000%~~6.375% Senior Notes due ~~2022,~~2050, including form thereof. (Incorporated by reference to the Company’s Registration Statement on Form 8-A filed on June 23, 2020.)

4.4		Third Supplemental Indenture, dated as of May 18, 2021, between the Company and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), relating to the Company’s 2.650% Senior Notes due 2026, including form thereof. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021.)

4.5		Fourth Supplemental Indenture, dated as of August 13, 2021, between the Company and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), relating to the Company’s 2.400% Senior Notes due 2027, including form thereof. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021.)

4.6		Fifth Supplemental Indenture, dated as of September 28, 2021, between the Company and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), relating to the Company’s 3.450% Senior Notes due 2031, including form thereof. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021.)

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4.7			Indenture, dated as of February 3, 2015, between the Company (as successor to Select Income REIT) and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association). (Incorporated by reference to Select Income REIT’s Current Report on Form 8-K filed on February 3, 2015.)

4.8			First Supplemental Indenture, dated as of February 3, 2015, between the Company (as successor to Select Income REIT) and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), including the form of 4.50% Senior Notes due 2025. (Incorporated by reference to Select Income REIT’s Current Report on Form 8-K filed on February 3, 2015.)

4.9			Second Supplemental Indenture, dated as of May 15, 2017, between the Company (as successor to Select Income REIT) and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), including the form of 4.250% Senior Notes due 2024. (Incorporated by reference to Select Income REIT’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed by Select Income REIT on July 25, 2017.)

4.10			Third Supplemental Indenture, dated as of December 31, 2018, among Select Income REIT, the Company and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association). (Incorporated by reference to the Company’s Current Report on Form 8-K ~~dated July 20, 2017.~~filed on December 31, 2018.)

~~4.8~~4.11			Authentication Order, dated as of September 24, 2020, from the Company to U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), relating to the Company’s 4.50% Senior Notes due 2025. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.)

4.12			Registration Rights and Lock-Up Agreement, dated as of June 5, 2015, among the Company, ABP Trust ~~Barry M. Portnoy~~(f/k/a Reit Management & Research Trust) and Adam D. Portnoy. (Incorporated by reference to the Company’s Current Report on Form ~~8-K dated~~8‑K filed on June 5,8, 2015.)

10.1			~~First Amendment to Credit~~Termination Agreement, dated as of September ~~22, 2017,~~1, 2023, by and ~~among~~between Office Properties Income Trust and Diversified Healthcare Trust. (Incorporated by reference to the ~~Company, Wells Fargo Bank, National Association, as Administrative Agent, and each~~Company's Current Report on Form 8-K filed on September 1, 2023.)

10.2			Form of ~~the other financial institutions party thereto.~~Share Award Agreement. (Filed herewith.)

~~12.1~~10.3			~~Computation~~Form of ~~Ratio of Earnings to Fixed Charges.~~Indemnification Agreement. (Filed herewith.)

31.1			Rule 13a-14(a) Certification. (Filed herewith.)

31.2			Rule 13a-14(a) Certification. (Filed herewith.)




~~31.3~~32.1	~~Rule 13a-14(a) Certification. (Filed herewith.)~~

~~31.4~~	~~Rule 13a-14(a) Certification. (Filed herewith.)~~

~~32.1~~	Section 1350 Certification. (Furnished herewith.)

~~99.1~~101.INS		~~Letter dated as of October 2, 2017, between~~XBRL Instance Document - the ~~Company and The RMR Group LLC, regarding Second Amended and Restated Business Management Agreement.~~instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema Document. (Filed herewith.)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)
~~101.1~~101.DEF		~~The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 formatted in~~ XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements, tagged as blocks of text and in detail.Taxonomy Extension Definition Linkbase Document. (Filed herewith.)
101.LAB		XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)
104		Cover Page Interactive Data File. (Formatted as Inline XBRL and contained in Exhibit 101.)

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			~~GOVERNMENT~~OFFICE PROPERTIES INCOME TRUST


			By:			/s/ ~~David M. Blackman~~Christopher J. Bilotto
						~~David M. Blackman~~ Christopher J. Bilotto
						President and Chief ~~Operating~~Executive Officer
						Dated: October ~~31, 2017~~30, 2023

			By:			/s/ ~~Mark L. Kleifges~~Brian E. Donley
						~~Mark L. Kleifges~~ Brian E. Donley
						Chief Financial Officer and Treasurer
						(principal financial officer and principal accounting officer)
						Dated: October ~~31, 2017~~30, 2023



	September 30,			December 31,
	2017			2016
ASSETS
Real estate properties:
Land	$	269,332		$	267,855
Buildings and improvements	1,660,379			1,620,905
Total real estate properties, gross	1,929,711			1,888,760
Accumulated depreciation	(331,069		)	(296,804		)
Total real estate properties, net	1,598,642			1,591,956

Equity investment in Select Income REIT	475,265			487,708
Assets of discontinued operations	—			12,541
Acquired real estate leases, net	99,953			124,848
Deposit escrow for FPO acquisition	651,696			—
Cash and cash equivalents	551,707			29,941
Restricted cash	509			530
Rents receivable, net	47,461			48,458
Deferred leasing costs, net	22,250			21,079
Other assets, net	89,484			68,005
Total assets	$	3,536,967		$	2,385,066

LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured revolving credit facility	$	565,000		$	160,000
Unsecured term loans, net	547,682			547,171
Senior unsecured notes, net	943,543			646,844
Mortgage notes payable, net	26,561			27,837
Liabilities of discontinued operations	—			45
Accounts payable and other liabilities	63,525			54,019
Due to related persons	4,297			3,520
Assumed real estate lease obligations, net	8,832			10,626
Total liabilities	2,159,440			1,450,062

Commitments and contingencies

Shareholders’ equity:
Common shares of beneficial interest, $.01 par value: 150,000,000 and 100,000,000 shares
authorized, respectively, 99,145,921 and 71,177,906 shares issued and outstanding, respectively	991			712
Additional paid in capital	1,968,249			1,473,533
Cumulative net income	126,410			96,329
Cumulative other comprehensive income	46,980			26,957
Cumulative common distributions	(765,103		)	(662,527		)
Total shareholders’ equity	1,377,527			935,004
Total liabilities and shareholders’ equity	$	3,536,967		$	2,385,066



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016

Rental income	$	70,179		$	64,478		$	209,362		$	192,150

Expenses:
Real estate taxes	8,862			7,591			24,980			22,810
Utility expenses	5,408			5,483			14,186			13,330
Other operating expenses	14,867			13,854			44,046			40,031
Depreciation and amortization	20,781			18,404			61,949			54,713
Loss on impairment of real estate	230			—			230			—
Acquisition related costs	—			147			—			363
General and administrative	3,266			3,816			12,314			11,350
Total expenses	53,414			49,295			157,705			142,597

Operating income	16,765			15,183			51,657			49,553
Dividend income	304			304			911			667
Interest income	1,715			47			1,843			63
Interest expense (including net amortization of debt premiums and discounts
and debt issuance costs of $990, $805, $2,605 and $2,024, respectively)	(16,055		)	(12,608		)	(43,599		)	(32,286		)
(Loss) gain on early extinguishment of debt	(1,715		)	—			(1,715		)	104
Gain on issuance of shares by Select Income REIT	51			72			72			88
Income from continuing operations before income taxes
and equity in earnings of investees	1,065			2,998			9,169			18,189
Income tax expense	(22		)	(13		)	(65		)	(63		)
Equity in earnings of investees	9,484			8,668			20,804			28,002
Income from continuing operations	10,527			11,653			29,908			46,128
Income (loss) from discontinued operations	462			(154		)	173			(429		)
Income before gain on sale of property	10,989			11,499			30,081			45,699
Gain on sale of property	—			79			—			79
Net income	10,989			11,578			30,081			45,778

Other comprehensive income:
Unrealized gain on investment in available for sale securities	3,279			8,463			14,389			28,571
Equity in unrealized gain of investees	1,351			3,273			5,634			10,423
Other comprehensive income	4,630			11,736			20,023			38,994
Comprehensive income	$	15,619		$	23,314		$	50,104		$	84,772

Weighted average common shares outstanding (basic)	96,883			71,054			79,778			71,041
Weighted average common shares outstanding (diluted)	96,958			71,084			79,852			71,064

Per common share amounts (basic and diluted):
Income from continuing operations	$	0.11		$	0.16		$	0.37		$	0.65
Income (loss) from discontinued operations	$	—		$	—		$	—		$	(0.01	)
Net income	$	0.11		$	0.16		$	0.38		$	0.64



Supplemental cash flow information:
Interest paid	$	42,019	$	32,599
Income taxes paid	$	100	$	94
Non-cash investing activities:
Sale of property	$	—	$	3,600
Mortgage note receivable related to sale of property	$	—	$	(3,600	)



	For the Three Months		For the Nine Months
	Ended September 30,		Ended September 30,
	2017	2016	2017	2016
Weighted average common shares for basic earnings per share	96,883	71,054	79,778	71,041
Effect of dilutive securities: unvested share awards	75	30	74	23
Weighted average common shares for diluted earnings per share	96,958	71,084	79,852	71,064



			Fair Value at Reporting Date Using
			Quoted Prices in				Significant
	Estimated		Active Markets for		Significant Other		Unobservable
	Fair		Identical Assets		Observable Inputs		Inputs
Description	Value		(Level 1)		(Level 2)		(Level 3)
Recurring Fair Value Measurements Assets:
Investment in RMR Inc. ⁽¹⁾	$	62,351	$	62,351	$	—	$	—
Non-Recurring Fair Value Measurements Assets:
One property ⁽²⁾	$	1,885	$	—	$	1,885	$	—



	As of September 30, 2017				As of December 31, 2016
	Carrying Amount ⁽¹⁾		Fair Value		Carrying Amount ⁽¹⁾		Fair Value
Senior unsecured notes, 3.75% interest rate, due in 2019	$	347,810	$	357,625	$	346,952	$	354,078
Senior unsecured notes, 4.000% interest rate, due in 2022	295,587		302,655		—		—
Senior unsecured notes, 5.875% interest rate, due in 2046	300,146		325,500		299,892		292,268
Mortgage note payable, 5.88% interest rate, due in 2021 ⁽²⁾	13,677		14,388		13,841		14,492
Mortgage note payable, 7.00% interest rate, due in 2019 ⁽²⁾	8,490		8,739		8,778		9,188
Mortgage note payable, 8.15% interest rate, due in 2021 ⁽²⁾	4,394		4,665		5,218		5,575
	$	970,104	$	1,013,572	$	674,681	$	675,601



	Three Months Ended September 30, 2017
	Unrealized Gain		Equity in
	on Investment		Unrealized Gain
	in Available for		of
	Sale Securities		Investees			Total
Balance at June 30, 2017	$	32,184	$	10,166		$	42,350
Other comprehensive income before reclassifications	3,279		1,355			4,634
Amounts reclassified from cumulative other comprehensive loss to net income ⁽¹⁾	—		(4		)	(4		)
Net current period other comprehensive income	3,279		1,351			4,630
Balance at September 30, 2017	$	35,463	$	11,517		$	46,980



	Nine Months Ended September 30, 2017
	Unrealized Gain		Equity in
	on Investment		Unrealized Gain
	in Available for		of
	Sale Securities		Investees		Total
December 31, 2016	$	21,074	$	5,883	$	26,957
Other comprehensive income before reclassifications	14,389		5,626		20,015
Amounts reclassified from cumulative other comprehensive income to net income ⁽¹⁾	—		8		8
Net current period other comprehensive income	14,389		5,634		20,023
Balance at September 30, 2017	$	35,463	$	11,517	$	46,980



	Three Months Ended September 30, 2017
	Investment			Investment
	in Real Estate			in SIR		Corporate			Consolidated
Rental income	$	70,179		$	—	$	—		$	70,179

Expenses:
Real estate taxes	8,862			—		—			8,862
Utility expenses	5,408			—		—			5,408
Other operating expenses	14,867			—		—			14,867
Depreciation and amortization	20,781			—		—			20,781
Loss on impairment of real estate	230			—		—			230
General and administrative	—			—		3,266			3,266
Total expenses	50,148			—		3,266			53,414

Operating income (loss)	20,031			—		(3,266		)	16,765
Dividend income	—			—		304			304
Interest income	54			—		1,661			1,715
Interest expense	(401		)	—		(15,654		)	(16,055		)
Loss on early extinguishment of debt	—					(1,715		)	(1,715		)
Gain on issuance of shares by Select Income REIT	—			51		—			51
Income (loss) from continuing operations before
income taxes and equity in earnings of investees	19,684			51		(18,670		)	1,065
Income tax expense	—			—		(22		)	(22		)
Equity in earnings of investees	—			9,453		31			9,484
Income (loss) from continuing operations	19,684			9,504		(18,661		)	10,527
Income from discontinued operations	462			—		—			462
Net income (loss)	$	20,146		$	9,504	$	(18,661	)	$	10,989



	Three Months Ended September 30, 2016
	Investment			Investment
	in Real Estate			in SIR		Corporate			Consolidated
Rental income	$	64,478		$	—	$	—		$	64,478

Expenses:
Real estate taxes	7,591			—		—			7,591
Utility expenses	5,483			—		—			5,483
Other operating expenses	13,854			—		—			13,854
Depreciation and amortization	18,404			—		—			18,404
Acquisition related costs	147			—		—			147
General and administrative	—			—		3,816			3,816
Total expenses	45,479			—		3,816			49,295

Operating income (loss)	18,999			—		(3,816		)	15,183
Dividend income	—			—		304			304
Interest income	—			—		47			47
Interest expense	(429		)	—		(12,179		)	(12,608		)
Gain on issuance of shares by Select Income REIT	—			72		—			72
Income (loss) from continuing operations before income taxes and
equity in earnings of investees	18,570			72		(15,644		)	2,998
Income tax expense	—			—		(13		)	(13		)
Equity in earnings of investees	—			8,655		13			8,668
Income (loss) from continuing operations	18,570			8,727		(15,644		)	11,653
Loss from discontinued operations	(154		)	—		—			(154		)
Income (loss) before gain on sale of property	18,416			8,727		(15,644		)	11,499
Gain on sale of property	79			—		—			79
Net income (loss)	$	18,495		$	8,727	$	(15,644	)	$	11,578



	Nine Months Ended September 30, 2016
	Investment			Investment
	in Real Estate			in SIR		Corporate			Consolidated
Rental income	$	192,150		$	—	$	—		$	192,150

Expenses:
Real estate taxes	22,810			—		—			22,810
Utility expenses	13,330			—		—			13,330
Other operating expenses	40,031			—		—			40,031
Depreciation and amortization	54,713			—		—			54,713
Acquisition related costs	363			—		—			363
General and administrative	—			—		11,350			11,350
Total expenses	131,247			—		11,350			142,597

Operating income (loss)	60,903			—		(11,350		)	49,553
Dividend income	—			—		667			667
Interest income	—			—		63			63
Interest expense	(1,953		)	—		(30,333		)	(32,286		)
Gain on early extinguishment of debt	104			—		—			104
Gain on issuance of shares by Select Income REIT	—			88		—			88
Income (loss) from continuing operations before income taxes and
equity in earnings of investees	59,054			88		(40,953		)	18,189
Income tax expense	—			—		(63		)	(63		)
Equity in earnings of investees	—			27,895		107			28,002
Income (loss) from continuing operations	59,054			27,983		(40,909		)	46,128
Loss from discontinued operations	(429		)	—		—			(429		)
Income (loss) before gain on sale of property	58,625			27,983		(40,909		)	45,699
Gain on sale of property	79			—		—			79
Net income (loss)	$	58,704		$	27,983	$	(40,909	)	$	45,778



					Comparable
	All Properties⁽¹⁾				Properties ⁽²⁾
	September 30,				September 30,
	2017		2016		2017		2016
Total properties	74		71		70		70
Total buildings	96		91		90		90
Total square feet ⁽³⁾	11,517		10,950		10,617		10,612
Percent leased ⁽⁴⁾	95.0	%	95.0	%	95.0	%	95.2	%



	Three Months Ended September 30, 2017					Nine Months Ended September 30, 2017
			Available					Available
	Leased ⁽¹⁾		for Lease		Total	Leased ⁽¹⁾		for Lease		Total
Beginning of period	10,937,046		578,941		11,515,987	10,881,289		561,224		11,442,513
Changes resulting from:
Acquisition of properties	—		—		—	69,374		—		69,374
Lease expirations	(426,847	)	426,847		—	(1,088,995	)	1,088,995		—
Lease renewals ⁽²⁾	416,660		(416,660	)	—	1,000,878		(1,000,878	)	—
New leases ⁽²⁾	19,442		(19,442	)	—	83,755		(83,755	)	—
Re-measurements ⁽³⁾	—		864		864	—		4,964		4,964
End of period	10,946,301		570,550		11,516,851	10,946,301		570,550		11,516,851



	Three Months Ended September 30, 2017					Nine Months Ended September 30, 2017
	Old Effective		New Effective			Old Effective		New Effective
	Rent Per		Rent Per		Rentable	Rent Per		Rent Per		Rentable
	Square Foot ⁽¹⁾		Square Foot ⁽¹⁾		Square Feet	Square Foot ⁽¹⁾		Square Foot ⁽¹⁾		Square Feet
New leases	$	—	$	—	—	$	22.67	$	22.98	97,797
Lease renewals	$	22.74	$	23.25	17,442	$	13.65	$	15.25	578,330
Total leasing activity	$	22.74	$	23.25	17,442	$	14.95	$	16.36	676,127



	Government		Non-Government
Three Months Ended September 30, 2017	Leases		Leases		Total
Rentable square feet leased during the period	393,158		42,944		436,102
Tenant leasing costs and concession commitments ⁽¹⁾ (in thousands)	$	6,629	$	1,273	$	7,902
Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾	$	16.86	$	29.64	$	18.12
Weighted (by square feet) average lease term (years)	8.5		7.2		8.4
Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾	$	1.98	$	4.10	$	2.16



	Government		Non-Government
Nine Months Ended September 30,2017	Leases		Leases		Total
Rentable square feet leased during the period	953,444		131,189		1,084,633
Tenant leasing costs and concession commitments ⁽¹⁾ (in thousands)	$	9,120	$	3,489	$	12,609
Tenant leasing costs and concession commitments per rentable square foot ⁽¹⁾	$	9.57	$	26.59	$	11.62
Weighted (by square feet) average lease term (years)	9.2		5.6		8.8
Total leasing costs and concession commitments per rentable square foot per year ⁽¹⁾	$	1.04	$	4.77	$	1.32



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Tenant improvements ⁽¹⁾	$	3,213	$	5,636	$	6,692	$	12,306
Leasing costs ⁽²⁾	$	1,993	$	655	$	4,051	$	8,002
Building improvements ⁽³⁾	$	2,640	$	3,009	$	8,883	$	8,691
Development, redevelopment and other activities ⁽⁴⁾	$	3,132	$	1,292	$	16,362	$	4,221



	Number	Expirations						Annualized
	of	of Leased				Cumulative		Rental				Cumulative
	Tenants	Square		Percent		Percent		Income		Percent		Percent
Year ⁽¹⁾	Expiring	Feet ⁽²⁾		of Total		of Total		Expiring		of Total		of Total
2017	20	434,049		4.0	%	4.0	%	$	10,004	3.6	%	3.6	%
2018	37	704,708		6.4	%	10.4	%	22,913		8.3	%	11.9	%
2019	45	1,940,016		17.7	%	28.1	%	59,116		21.5	%	33.4	%
2020	39	1,447,413		13.2	%	41.3	%	40,155		14.6	%	48.0	%
2021	37	1,061,519		9.7	%	51.0	%	20,732		7.5	%	55.5	%
2022	31	940,554		8.6	%	59.6	%	22,505		8.2	%	63.7	%
2023	18	595,662		5.4	%	65.0	%	13,685		5.0	%	68.7	%
2024	16	993,635		9.1	%	74.1	%	22,696		8.2	%	76.9	%
2025	15	801,648		7.3	%	81.4	%	16,572		6.0	%	82.9	%
2026 and thereafter	32	2,027,097	⁽³⁾	18.6	%	100.0	%	47,042		17.1	%	100.0	%
Total	290	10,946,301		100.0	%			$	275,420	100.0	%

Weighted average remaining lease term (in years)		5.1						4.7



										Acquired Properties				Disposed Property
										Results ⁽²⁾				Results ⁽³⁾
	Comparable Properties Results ⁽¹⁾									Three Months Ended				Three Months Ended					Consolidated Results
	Three Months Ended September 30,									September 30,				September 30,					Three Months Ended September 30,
					$			%																	$			%
	2017		2016		Change			Change		2017		2016		2017			2016		2017			2016			Change			Change
Rental income	$	66,038	$	64,478	$	1,560		2.4	%	$	4,141	$	—	$	—		$	—	$	70,179		$	64,478		$	5,701		8.8	%
Operating expenses:
Real estate taxes	8,354		7,591		763			10.1	%	507		—		1			—		8,862			7,591			1,271			16.7	%
Utility expenses	5,092		5,483		(391		)	(7.1	%)	316		—		—			—		5,408			5,483			(75		)	(1.4	%)
Other operating expenses	14,079		13,854		225			1.6	%	746		—		42			—		14,867			13,854			1,013			7.3	%
Total operating expenses	27,525		26,928		597			2.2	%	1,569		—		43			—		29,137			26,928			2,209			8.2	%
Net operating income ⁽⁴⁾	$	38,513	$	37,550	$	963		2.6	%	$	2,572	$	—	$	(43	)	$	—	41,042			37,550			3,492			9.3	%

Other expenses:
Depreciation and amortization																			20,781			18,404			2,377			12.9	%
Loss on impairment of real estate																			230			—			230			nm
Acquisition related costs																			—			147			(147		)	nm
General and administrative																			3,266			3,816			(550		)	(14.4	%)
Total other expenses																			24,277			22,367			1,910			8.5	%
Operating income																			16,765			15,183			1,582			10.4	%
Dividend income																			304			304			—			—	%
Interest income																			1,715			47			1,668			nm
Interest expense (including net amortization of debt premiums and discounts and debt issuance costs of $990 and $805, respectively)																			(16,055		)	(12,608		)	(3,447		)	27.3	%
Loss on early extinguishment of debt																			(1,715		)	—			(1,715		)	nm
Gain on issuance of shares by Select Income REIT																			51			72			(21		)	(29.2	%)
Income from continuing operations before income taxes and equity in earnings of investees																			1,065			2,998			(1,933		)	(64.5	%)
Income tax expense																			(22		)	(13		)	(9		)	69.2	%
Equity in earnings of investees																			9,484			8,668			816			9.4	%
Income from continuing operations																			10,527			11,653			(1,126		)	(9.7	%)
Income (loss) from discontinued operations																			462			(154		)	616			nm
Income before gain on sale of property																			10,989			11,499			(510		)	(4.4	%)
Gain on sale of property																			—			79			(79		)	nm
Net income																			$	10,989		$	11,578		$	(589	)	(5.1	%)

Weighted average common shares outstanding (basic)																			96,883			71,054			25,829			36.4	%
Weighted average common shares outstanding (diluted)																			96,958			71,084			25,874			36.4	%

Per common share amounts (basic and diluted):
Income from continuing operations																			$	0.11		$	0.16		$	(0.05	)	(31.3	%)
Income (loss) from discontinued operations																			$	—		$	—		$	—		—	%
Net income																			$	0.11		$	0.16		$	(0.05	)	(31.3	%)

Reconciliation of Net Income to NOI: ⁽⁴⁾
Net income																			$	10,989		$	11,578
Gain on sale of property																			—			(79		)
Income before gain on sale of property																			10,989			11,499
(Income) loss from discontinued operations																			(462		)	154
Income from continuing operations																			10,527			11,653
Equity in earnings of investees																			(9,484		)	(8,668		)
Income tax expense																			22			13
Gain on issuance of shares by Select Income REIT																			(51		)	(72		)
Loss on early extinguishment of debt																			1,715			—
Interest expense																			16,055			12,608
Interest income																			(1,715		)	(47		)
Dividend income																			(304		)	(304		)
Operating income																			16,765			15,183
General and administrative																			3,266			3,816
Acquisition related costs																			—			147
Loss on impairment of real estate																			230			—
Depreciation and amortization																			20,781			18,404
Net operating income																			$	41,042		$	37,550



			Annual		Annual			Interest
	Principal		Interest		Interest			Payments
Debt	Balance ⁽¹⁾		Rate ⁽¹⁾		Expense ⁽¹⁾		Maturity	Due
Senior unsecured notes	$	350,000	3.750	%	$	13,125	2019	Semi-annually
Senior unsecured notes	310,000		5.875	%	18,213		2046	Quarterly
Senior unsecured notes	300,000		4.000	%	12,000		2022	Semi-annually
Mortgage note	13,756		5.877	%	820		2021	Monthly
Mortgage note	8,288		7.000	%	588		2019	Monthly
Mortgage note	4,314		8.150	%	356		2021	Monthly
	$	986,358			$	45,102



	Our JV			Annual		Annual			Interest
	Ownership	Principal		Interest		Interest			Payments
Debt	Interest	Balance⁽¹⁾⁽²⁾		Rate⁽¹⁾		Expense⁽¹⁾		Maturity	Due
Mortgage note (one property) one building in Washington, DC	50%	$	32,000	3.920	%	$	1,254	2024	Monthly
Mortgage note (one property) one building in Fairfax, VA	51%	50,000		3.910	%	1,955		2029	Monthly
		$	82,000			$	3,209



	Impact of Changes in Interest Rates
	Annual		Outstanding		Total Interest		Annual Earnings
	Interest Rate ⁽¹⁾		Debt		Expense Per Year		Per Share Impact ⁽²⁾
At September 30, 2017	2.6	%	$	1,115,000	$	29,393	$	0.37
100 bps increase	3.6	%	$	1,115,000	$	40,698	$	0.51




							Maximum
					Total Number of		Approximate Dollar
					Shares Purchased		Value of Shares that
	Number of		Average		as Part of Publicly		May Yet Be Purchased
	Shares	Price			Announced Plans		Under the Plans or
Calendar Month	Purchased ⁽¹⁾	Paid per Share		or Programs		Programs
September 2017	13,636	$	18.30	$	—	$	—
Total	13,636	$	18.30	$	—	$	—