# EDGAR Filing Document

**Accession Number:** 0001456772
**File Stem:** 0001104659-23-037107
**Filing Date:** 2023-3
**Character Count:** 432278
**Document Hash:** 75a4850c0a6f38d77789c42de6d307aa
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001104659-23-037107.hdr.sgml**: 20230327

**ACCESSION NUMBER**: 0001104659-23-037107

**CONFORMED SUBMISSION TYPE**: ARS

**PUBLIC DOCUMENT COUNT**: 1

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230327

**DATE AS OF CHANGE**: 20230327

**EFFECTIVENESS DATE**: 20230327

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** OFFICE PROPERTIES INCOME TRUST
- **CENTRAL INDEX KEY:** 0001456772
- **STANDARD INDUSTRIAL CLASSIFICATION:** REAL ESTATE [6500]
- **IRS NUMBER:** 264273474
- **STATE OF INCORPORATION:** MD
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** ARS
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-34364
- **FILM NUMBER:** 23764516

**BUSINESS ADDRESS:**
- **STREET 1:** C/O THE RMR GROUP
- **STREET 2:** TWO NEWTON PL., 255 WASH. ST., STE. 300
- **CITY:** NEWTON
- **STATE:** MA
- **ZIP:** 02458
- **BUSINESS PHONE:** (617) 219-1440

**MAIL ADDRESS:**
- **STREET 1:** C/O THE RMR GROUP
- **STREET 2:** TWO NEWTON PL., 255 WASH. ST., STE. 300
- **CITY:** NEWTON
- **STATE:** MA
- **ZIP:** 02458

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** GOVERNMENT PROPERTIES INCOME TRUST
- **DATE OF NAME CHANGE:** 20161006

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Government Properties Income Trust
- **DATE OF NAME CHANGE:** 20090220

### Attached PDF Documents

**Attachment 1:** `tm237291d1_ars.pdf`

![img-0.jpeg](img-0.jpeg)

**OFFICE PROPERTIES**

INCOME TRUST

**2022 Annual Report**

# **UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
WASHINGTON, D.C. 20549
**FORM 10-K**

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

For the fiscal year ended December 31, 2022

or

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

Commission file number 1-34364

# **OFFICE PROPERTIES INCOME TRUST**

(Exact Name of Registrant as Specified in Its Charter)

**Maryland**
(State of Organization)

**26-4273474**
(I.R.S. Employer Identification No.)

**Two Newton Place, 255 Washington Street, Suite 300, Newton,**
(Address of Principal Executive Offices)

**MA 02458-1634**
(Zip Code)

Registrant's Telephone Number, Including Area Code **617-219-1440**

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 |

Securities registered pursuant to Section 12(g) of the Act: **None**

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 every Interactive Data File required to be submitted 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 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 ☒
Non-accelerated filer ☐
Emerging growth company ☐

Accelerated filer ☐
Smaller reporting 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

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

The aggregate market value of the voting common shares of beneficial interest, $.01 par value, or common shares, of the registrant held by non-affiliates was approximately $948.4 million based on the $19.95 closing price per common share on The Nasdaq Stock Market LLC on June 30, 2022. For purposes of this calculation, an aggregate of 917,709 common shares held directly by, or by affiliates of, the trustees and the executive officers of the registrant have been included in the number of common shares held by affiliates.

Number of the registrant's common shares outstanding as of February 14, 2023: 48,564,103.

References in this Annual Report on Form 10-K to the Company, OPI, we, us or our mean Office Properties Income Trust and its consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.

# **DOCUMENTS INCORPORATED BY REFERENCE**

Certain information required by Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K is incorporated by reference to our definitive Proxy Statement for the 2023 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days after the fiscal year ended December 31, 2022.

# Warning Concerning Forward-Looking Statements

This Annual Report on Form 10-K contains statements that constitute 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”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “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 Annual Report on Form 10-K relate to various aspects of our business, including:

- • The extent to which changes in office space utilization, including remote work arrangements, will continue and the impact that may have on demand for office space at our properties,
- • Our ability and the ability of the office real estate sector and our tenants to operate under unfavorable market and economic conditions, such as rising or sustained high interest rates and high inflation, labor market challenges, volatility in the public equity and debt markets, geopolitical instability and economic downturns or recessions,
- • Our expectations about the financial strength of our tenants,
- • The likelihood that our rents will increase when we renew or extend our leases or enter new leases,
- • Our belief that we are in a position to opportunistically recycle and deploy 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, on terms as favorable to us as our prior leases,
- • The likelihood that our tenants will be negatively affected by cyclical economic conditions or government budget constraints and, if so, the impact that may have on their ability and willingness to lease our properties and pay us rent,
- • Our ability to successfully execute our capital recycling program,
- • Our ability to pay distributions to our shareholders and to maintain or increase the amount of such distributions,
- • Our expectations regarding occupancy at our properties,
- • Our expectations regarding our future financial performance including funds from operations, or FFO, normalized funds from operations, or Normalized FFO, or net operating income, or NOI,
- • Our expectations regarding demand for leased space,
- • Our expectations regarding capital expenditures,
- • Our expectation that there will be opportunities for us to acquire, and that we will acquire, additional properties primarily leased to single or majority tenants and tenants with high credit quality characteristics,
- • Our expectations regarding the costs and timing of our development, redevelopment and repositioning activities,
- • Our ability to compete for acquisitions and tenancies effectively,
- • Our sales and acquisitions of properties,
- • Our policies and plans regarding investments, financings and dispositions,
- • Our ability to appropriately balance our use of debt and equity capital,
- • The future availability of borrowings under our revolving credit facility,
- • Our ability to raise debt or equity capital,
- • Our ability to pay interest on and principal of our debt,

i

- Our ability to maintain sufficient liquidity during any economic downturn that may result in response to current inflationary conditions or otherwise,
- Our credit ratings,
- Our expectation that we benefit from our relationships with The RMR Group LLC, or RMR,
- The credit qualities of our tenants,
- Our qualification for taxation as a real estate investment trust, or REIT,
- Changes in federal or state tax laws, and
- Other matters.

Our actual results may differ materially from those contained in or implied by our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. Risks, uncertainties and other 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 increasing or sustained high interest rates, inflation, labor market challenges, volatility in the public equity and debt markets, the commercial real estate industry in general, geopolitical instability and economic downturns or recessions, the commercial real estate industry on us and our tenants,
- Competition within the commercial real estate industry, particularly in those markets in which our properties are located,
- The impact of changes in the real estate needs and financial conditions of our tenants,
- Compliance with, and changes to, federal, state and local laws and regulations, accounting rules, tax laws and similar matters,
- 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,
- Actual and potential conflicts of interest with our related parties, including our Managing Trustees, RMR, Sonesta International Hotels Corporation, or Sonesta, and others affiliated with them,
- Limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our qualification for taxation as a REIT for U.S. federal income tax purposes, and
- Acts of terrorism, outbreaks or continuation of pandemics or other public health safety events or conditions, war or other hostilities, further material or prolonged disruption to supply chains, or other manmade or natural disasters beyond our control.

For example:

- Our ability to make or sustain distributions to our shareholders and to make payments of principal and interest on our indebtedness depends upon a number of factors, including our receipt of rent from our tenants, our future earnings, the capital costs we incur to lease our properties and our working capital requirements. 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 our distributions depends in large part upon our ability to buy properties and lease them for rents, less their property operating costs, that exceed our capital costs. We may be unable to identify properties that we want to acquire, and we may fail to reach agreement with the sellers and complete the purchases of any properties we want to acquire. In addition, any properties we may acquire may not provide us with rents less property operating costs that exceed our capital costs or achieve our expected returns,
- We may fail to maintain, or we may elect to change our distribution rate. Our Board of Trustees considers many factors when setting distribution rates, including our historical and projected income,

ii

Normalized FFO, cash available for distribution, the then current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid to maintain our qualification for taxation as a REIT and other factors deemed relevant by our Board of Trustees. Accordingly, future distribution rates may be increased or decreased and there is no assurance as to the rate at which future distributions will be paid,

- • We expect to selectively sell properties from time to time when we determine we have maximized value, our continued ownership or ongoing required capital expenditures will not achieve desired returns or when we believe we can successfully pursue more desirable opportunities than retaining those properties. We cannot be sure we will sell any of these properties or what the terms of any sales may be or that we will acquire replacement properties that improve our asset quality or our ability to increase our distributions to shareholders,
- • We may not receive the amounts we expect for properties we seek to sell,
- • We may not succeed in managing leverage at levels we believe are appropriate,
- • Some of our tenants may not renew expiring leases or they may exercise their rights, if any, to vacate their space before the stated expirations of their leases, and we may be unable to obtain new tenants to maintain or increase the historical occupancy rates of, or rents from, our properties,
- • Rents that we can charge at our properties may decline upon renewals or expirations because of changing market conditions or otherwise,
- • Leasing for some of our properties depends on a single or majority tenant and we may be adversely affected by the bankruptcy, insolvency, a downturn of business or a lease termination of such single or majority tenant at these properties,
- • Our belief that there is a likelihood that tenants may renew or extend our leases prior to their expirations whenever they have made significant investments in the leased properties, or because those properties may be of strategic importance to them, may not be realized,
- • Overall new leasing volume may be impacted if a significant level of remote work arrangements and current inflationary conditions continue for an extended period or worsen or if a recession occurs. Also, our tenants may become unable to pay rent or they may elect to not renew their leases with us. Further, some of our government leases provide the tenant with certain rights to terminate their lease early. Budgetary and other fiscal pressures may result in some governmental tenants terminating their leases early or not renewing their leases. In addition, certain changes in office space utilization, including increased remote work arrangements, continue to impact the market. To the extent those practices become permanent or further increase, leasing demand for office space may decline. As a result of these factors, our tenant retention levels could decline and we may experience reduced rent or incur increased costs under future new or renewal leases,
- • Our belief that we are well positioned to opportunistically recycle and deploy capital may not be realized. We may fail to identify and execute on opportunities to deploy capital and any deployment of capital we may make may not result in the returns that we expect,
- • Our business plan and related investment focus for properties may not be successful or generate the returns we expect,
- • Contingencies in our acquisition and sale agreements, if any, may not be satisfied and any expected acquisitions and sales and any related lease arrangements we expect to enter may not occur, may be delayed or the terms of such transactions or arrangements may change,
- • We expect to pursue accretively growing our property portfolio. However, we may not succeed in making acquisitions that are accretive and future acquisitions could be dilutive,
- • The competitive advantages we believe we have may not in fact exist or provide us with the advantages we expect. We may fail to maintain any of these advantages or our competition may obtain or increase their competitive advantages relative to us,
- • We intend to conduct our business activities in a manner that will afford us reasonable access to capital for investment and financing activities. However, we may not succeed in this regard and we may not have reasonable access to capital,

iii

- • 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 will be higher than the stated rate plus a premium because of fees and expenses associated with such debt,
- • The interest rates payable under our floating rate debt obligations depend upon our credit ratings. 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. 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 may be increased to up to \$1.95 billion in certain circumstances; however, increasing the maximum borrowing availability under our revolving credit facility is subject to our obtaining additional commitments from lenders, which may not occur,
- • We have one remaining 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,
- • We may incur significant costs to prepare a property for tenancy, particularly for single or majority tenant properties,
- • We may spend more for capital expenditures than we currently expect or than we had planned when a project was commenced, including as a result of inflation, supply chain challenges, unforeseen delays or otherwise, and we plan to spend more for capital expenditures than we have in the past,
- • We may fail to obtain development rights or entitlements that we may seek for development and other projects we may wish to conduct at our properties,
- • Our existing joint ventures and any additional joint ventures we may enter into in the future may not be successful,
- • Any development, redevelopment or repositioning projects we undertake may be unsuccessful, may require greater capital expenditures or other costs than we project or may take significant time to complete, including as a result of inflation, supply chain challenges or otherwise,
- • The business and property management agreements between us and RMR 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 expect that we will benefit from RMR's Environmental, Social and Governance, or ESG, program and initiatives. However, we may not realize the benefits we expect from such program and initiatives and we or RMR may not succeed in meeting existing or future standards regarding ESG,
- • We believe that our relationships with our related parties, including RMR, Sonesta 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, and
- • It is difficult to accurately estimate our ability to lease space, leasing related obligations and costs of property development, redevelopment or repositioning and tenant improvement costs. Our unspent leasing related obligations and development, redevelopment or repositioning costs may cost more and may take longer to complete than we currently expect or than we planned when a project was commenced, and we may incur increased 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 economic conditions, including rising or sustained high interest rates and high inflation and economic downturns or recessions, other changes in capital markets, commercial real estate markets or the economy generally, changes in our tenants' financial conditions, the market demand for

iv

leased space, the ability of the U.S. and state governments to approve spending bills to fund their obligations, acts of terrorism, war, other hostilities or other geopolitical risks, pandemics or other public health safety events or conditions, natural disasters or climate change and climate related events.

The information contained elsewhere in this Annual Report on Form 10-K or in our other filings with the Securities and Exchange Commission, or 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 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 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.

v

# **OFFICE PROPERTIES INCOME TRUST**

# **2022 FORM 10-K ANNUAL REPORT**

# **Table of Contents**

|  | Page |
| --- | --- |
| Part I |  |
| Item 1. Business ... | 1 |
| Item 1A. Risk Factors ... | 28 |
| Item 1B. Unresolved Staff Comments ... | 47 |
| Item 2. Properties ... | 48 |
| Item 3. Legal Proceedings ... | 49 |
| Item 4. Mine Safety Disclosures ... | 49 |
| Part II |  |
| Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ... | 49 |
| Item 6. [Reserved] ... | 49 |
| Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ... | 49 |
| Item 7A. Quantitative and Qualitative Disclosures About Market Risk ... | 67 |
| Item 8. Financial Statements and Supplementary Data ... | 69 |
| Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ... | 69 |
| Item 9A. Controls and Procedures ... | 69 |
| Item 9B. Other Information ... | 70 |
| Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ... | 70 |
| Part III |  |
| Item 10. Directors, Executive Officers and Corporate Governance ... | 70 |
| Item 11. Executive Compensation ... | 70 |
| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ... | 71 |
| Item 13. Certain Relationships and Related Transactions, and Director Independence ... | 71 |
| Item 14. Principal Accountant Fees and Services ... | 71 |
| Part IV |  |
| Item 15. Exhibits and Financial Statement Schedules ... | 71 |
| Item 16. Form 10-K Summary ... | 72 |

vi

(This page has been left blank intentionally.)

# PART I

## Item 1. Business

### Our Company

We are a real estate investment trust, or REIT, formed in 2009 under Maryland law. As of December 31, 2022, our wholly owned properties were comprised of 160 properties containing approximately 21.0 million rentable square feet (all square footage amounts included within this Annual Report on Form 10-K are unaudited) and we had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties containing approximately 0.4 million rentable square feet. As of December 31, 2022, our properties have an undepreciated carrying value of approximately $3.9 billion and a depreciated carrying value of approximately $3.4 billion, excluding properties classified as held for sale. As of December 31, 2022, our properties were leased to 274 different tenants, with a weighted average remaining lease term (based on annualized rental income as defined below) of approximately 6.6 years. The U.S. government is our largest tenant, representing approximately 19.7% of our annualized rental income as of December 31, 2022. 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 December 31, 2022, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

Our principal executive offices are located at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and our telephone number is (617) 219-1440.

### Our Business Strategy

Our business plan is to focus on acquiring, owning, developing and leasing high-quality office and mixed-use properties in select, growth-oriented U.S. markets. We seek to diversify our revenue base across geographies with ownership in central business district, urban infill and suburban locations. Our approach emphasizes properties, markets or locations with high barriers to entry, qualities and characteristics to attract and retain talent and investment toward sustainability efforts.

As our lease expirations approach, we will attempt to evaluate the highest and best use for a property and focus on proactive asset management to renew our leases with existing tenants or to enter leases with new tenants to enhance long-term cash flow growth and asset values. Our ability to renew leases with our existing tenants or to enter new leases with new tenants and the rents we are able to charge will depend in large part upon market conditions, which are beyond our control. We believe that if a property previously occupied by a single or majority tenant becomes vacant, it may be capital and time intensive to restabilize, redevelop or reposition depending on various factors including market conditions.

We expect to selectively sell properties from time to time when we determine we have maximized value, our continued ownership or ongoing required capital expenditures will not achieve desired returns or when we believe we can successfully pursue more desirable opportunities than retaining those properties. We also expect to use sales proceeds to manage leverage levels and to acquire new properties or portfolios that we believe will help diversify our revenue base, improve the average age of our properties, lengthen our weighted average lease term, reduce our ongoing capital requirements and/or increase our distributions to shareholders. We refer to this as our capital recycling program.

### Our Growth Strategy

Our internal growth strategy is to attempt to increase the rents and corresponding cash flows we receive from our current properties and to increase occupancy by leasing vacant space. To achieve these increases, we may invest in our properties through development, redevelopment or repositioning activities or through improvements requested by existing tenants or to induce lease renewals or new tenant leases when our current leases expire or vacant space is leased. However, as noted above, our ability to increase occupancy or to maintain or increase the rents and corresponding cash flows we receive from our current properties will depend in large part upon market conditions, which are beyond our control.

1

Our external growth strategy is defined by our investment policies, including our capital recycling program, and our acquisition, disposition and financing policies.

### *Our Investment Policies*

Our primary investment objectives include acquiring properties or portfolios that enhance our overall portfolio composition and produce greater returns than those properties or portfolios we are disposing in connection with our capital recycling program. We intend to acquire properties or portfolios with a goal of improving our asset diversification, our geographical footprint and the average age of our properties, lengthening the weighted average term of our leases and increasing tenant retention, and increasing our distributions to shareholders. To achieve these objectives, we seek to: (a) invest in institutional quality properties with an emphasis on high credit quality tenants; (b) use proceeds from our capital recycling program to manage leverage levels and to fund additional investments we believe appropriate; (c) when market conditions permit, refinance debt with long term debt or additional equity; and (d) pursue capital allocation strategies so that our cash flow from operations comes from a diversified portfolio of properties, geographies, industries and tenants.

*Acquisition Policies.* We currently intend to focus our investments primarily in U.S. office, mixed-use or similar type properties in markets we believe have strong economic fundamentals to support growth, including (1) properties leased to a single or majority tenant that are strategic to that tenant and which may include built-to-suit, specialty use or corporate or regional headquarters and properties where the tenant has invested meaningful capital, with a minimum remaining lease term of at least seven years and (2) properties with specialty uses or those deemed to be mission critical to a user. We also expect to seek investments primarily in first generation properties where we believe there is a reasonably high likelihood of renewing the tenants in place and where we expect ongoing capital needs to be relatively modest when compared to older properties.

We expect to use the extensive nationwide resources of our manager, The RMR Group LLC, or RMR, to locate and manage the acquisition of such properties. We expect most of our future acquisitions will be office properties; however, we may consider acquiring other types of properties, including properties with specialty uses and properties which have a mix of retail or housing uses, or acquiring properties with the purpose of redeveloping them in conjunction with properties we own. We also expect to further diversify our sources of rents, which we expect would improve the security of our revenues.

In implementing our acquisition strategy, we consider a range of factors relating to proposed property purchases, including:

- the return on the properties being sold to finance acquisitions or property developments, redevelopments or repositionings compared to the projected returns we may realize by owning the property we would acquire or develop, redevelop or reposition;
- our cost of capital compared to the projected returns we may realize by owning the property;
- the pricing of comparable properties as evidenced by recent arm's length market sales;
- the strategic fit of the property with the rest of our properties and how it may strategically improve key attributes of our portfolio, including alignment with our Environmental, Social and Governance, or ESG, principles;
- the ongoing and expected capital requirements for the property;
- the market location of the property and our assessment of rent growth for that market;
- the likelihood of the tenant(s) renewing at lease expiration;
- the type of property (e.g., single tenant, multi-tenant, specialty use, etc.);
- the growth, tax and regulatory environments of the market in which the property is located;
- the occupancy and demand for similar properties in the same or nearby markets;
- the current or potential market position of the property;

2

- the historic and projected rents received and likely to be received from the property;
- the historic and expected operating expenses, incurred and expected to be incurred at the property;
- the remaining term of the lease(s) at the property and other lease terms;
- the industry(ies) in which the tenant(s) operate;
- the experience and credit quality of the property's tenant(s);
- the current and expected future space utilization at the property by its tenant(s);
- the construction quality, physical condition, age and design of the property;
- the use and size of the property;
- the price at which the property may be acquired or redeveloped;
- the estimated replacement cost of the property; and
- the existence of alternative sources, uses or needs for our capital, including our debt leverage.

Other Acquisitions. We prefer wholly owned investments in fee interests. However, we may invest in leaseholds, joint ventures, mortgages and other real estate interests. We currently own 51% and 50% interests in two unconsolidated joint ventures. In the future, we may invest in or enter into additional real estate joint ventures if we conclude that by doing so we may benefit from the participation of co-venturers, or that our opportunity to participate in the investment is contingent on the use of a joint venture structure or that pre-existing joint venture arrangements may be part of an acquisition we wish to make. We may invest in participating, convertible or other types of mortgages if we conclude that by doing so, we may benefit from the cash flow or appreciation in the value of a property which is not available for purchase.

We have in the past considered, and may in the future consider, the possibility of entering into mergers or strategic combinations with other companies. The principal goals of any such transaction will be to increase our cash flow from operations and to further diversify our revenue sources.

We have no policies which specifically limit the percentage of our assets that may be invested in any individual property, in any one type of property, in properties managed by or leased to any one entity, in properties managed by or leased to any affiliated group of entities or in securities of one or more other persons.

Our Board of Trustees may change our acquisition policies without a vote of, or notice to, our shareholders.

Disposition Policies. We expect to sell properties, from time to time, in order to manage leverage levels or to recycle capital into properties that we believe have better long term earnings potential. We make disposition decisions based on a number of factors including, but not limited to, the following:

- the estimated sales price or value we may receive by selling the property;
- the capital required to maintain the property;
- our intended use of the proceeds we may realize from the sale of a property;
- our expectation regarding tenant lease renewals or the likelihood of finding (a) replacement tenant(s) if the property has significant vacancies or is likely to become substantially vacant;
- our evaluation of future rent for the property relative to leasing costs;
- the strategic fit of the property or investment with the rest of our portfolio;
- the remaining length of the current lease(s) and its (their) other terms;
- the potential costs associated with finding (a) replacement tenant(s), including tenant improvements, leasing commissions and concessions, the cost to operate the property while vacant and building improvement capital, as compared to our projected returns from future rents;
- the occupancy of the property;

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- the future expected space utilization of the tenant(s) and the potential impact that may have on occupancy at the property;
- whether the property's tenant(s) is (are) current on its (their) lease obligation(s);
- our evaluation of the property's tenant(s) ability to pay its (their) contractual rents;
- the tax implications to us and our shareholders of any proposed dispositions;
- our financial position and needs from time to time; and
- the existence of alternative sources, uses or needs for capital, including our debt leverage.

Our Board of Trustees may change our disposition policies without a vote of, or notice to, our shareholders.

For more information regarding our investing activities, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Item 7 of this Annual Report on Form 10-K.

### *Our Financing Policies*

To qualify for taxation as a REIT under the United States Internal Revenue Code of 1986, as amended, or the IRC, we must distribute at least 90% of our annual REIT taxable income (excluding net capital gains). Accordingly, we generally will not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties and fund acquisitions and development, redevelopment and repositioning efforts. We expect to use proceeds from our capital recycling program to fund acquisitions and development, redevelopment and repositioning efforts and to manage leverage at levels we believe appropriate. We also expect to repay our debts, invest in our properties and fund acquisitions and development, redevelopment and repositioning efforts with borrowings under our revolving credit facility (as defined below), proceeds from debt or equity securities we may issue or retained cash from operations that may exceed our distributions paid. To the extent we obtain additional debt financing, we may do so on an unsecured or a secured basis. We may seek to obtain lines of credit or to issue securities senior to our common shares, including preferred shares or debt securities, which may be convertible into our common shares or be accompanied by warrants to purchase our common shares or to pursue joint venture financing arrangements. We may also finance acquisitions by assuming debt or through the issuance of equity or other securities. The proceeds from any of our financings may be used to pay distributions, to provide working capital, to refinance existing indebtedness or to finance acquisitions or property developments, redevelopments or repositionings.

Although there are no limitations in our organizational documents on the type or amount of indebtedness we may incur, the borrowing limitations established by the covenants in the credit agreement governing our revolving credit facility, or our credit agreement, and our senior unsecured notes indentures and their supplements currently restrict our ability to incur indebtedness and require us to comply with certain financial and other covenants. However, we may seek to amend these covenants or seek replacement financings with less restrictive covenants. In the future, we may decide to seek changes in the financial covenants which currently restrict our debt leverage based upon then current economic conditions, the relative availability and costs of debt versus equity capital and our need for capital to take advantage of acquisition opportunities or otherwise.

We currently have a $750.0 million unsecured revolving credit facility, or our revolving credit facility, that we use for working capital and general business purposes, including to fund acquisitions and development, redevelopment and repositioning efforts on an interim basis until we may refinance with term debt or equity. In some instances, we may assume outstanding mortgage debt in connection with our acquisitions or place new mortgages on properties we own. For more information regarding our financing sources and activities, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Item 7 of this Annual Report on Form 10-K.

Generally, we intend to manage our leverage in a way that may allow us to achieve and maintain "investment grade" ratings from nationally recognized rating organizations. However, we cannot be sure that we will be able to achieve and maintain our investment grade ratings in the future.

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Our Board of Trustees may change our financing policies at any time without a vote of, or notice to, our shareholders.

## Other Information

*Employees.* We have no employees. Services which would otherwise be provided to us by employees are provided by RMR and by our Managing Trustees and officers. As of December 31, 2022, RMR had approximately 600 full time employees in its headquarters and regional offices located throughout the United States.

*Our Manager.* The RMR Group Inc., or RMR Inc., is a holding company and substantially all of its business is conducted by its majority owned subsidiary, RMR. 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., chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR. Jennifer B. Clark, our other Managing Trustee, also serves as a managing director and an executive officer of RMR Inc. and as an officer and employee of RMR, and each of our other officers is also an officer and employee of RMR. Our day to day operations are conducted by RMR. RMR originates and presents investment and divestment opportunities to our Board of Trustees and provides management and administrative services to us. RMR has a principal place of business at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and its telephone number is (617) 796-8390.

RMR is an alternative asset management company that is focused on commercial real estate and related businesses. RMR or its subsidiaries also act as a manager to other publicly traded real estate companies, privately held real estate funds and real estate related operating businesses. As of the date of this Annual Report on Form 10-K, the executive officers of RMR are: Adam D. Portnoy, President and Chief Executive Officer; Jennifer B. Clark, Executive Vice President, General Counsel and Secretary; Jennifer F. Francis, Executive Vice President, Matthew P. Jordan, Executive Vice President, Chief Financial Officer and Treasurer; John G. Murray, Executive Vice President; and Jonathan M. Pertchik, Executive Vice President. Our President and Chief Operating Officer, Christopher J. Bilotto, is a Senior Vice President of RMR. Our Chief Financial Officer and Treasurer, Matthew C. Brown, is also a Senior Vice President of RMR. Other officers of RMR also serve as officers of other companies to which RMR or its subsidiaries provide management services.

*Corporate Sustainability.* Since our inception in 2009, we have been guided by ESG principles, and believe corporate sustainability must be a strategic focus as part of our focus on operational practices, enhancing our competitive position, development and redevelopment efforts and economic performance. Our sustainability practices, which align with those of our manager, RMR - minimizing our impact on the environment, embracing the communities where we operate and attracting top professionals - are critical elements supporting our long-term success.

We recognize our responsibility to minimize the impact of our business on the environment and seek to preserve natural resources and maximize efficiencies in order to reduce the impact our properties have on the planet. Our environmental sustainability strategies and best practices help to mitigate our properties’ environmental footprint, optimize operational efficiency and enhance our competitiveness in the marketplace. We seek to obtain certifications that measure progress in environmental sustainability, which helps to benchmark performance and mitigate risk.

In July 2022, RMR announced its zero emissions goal pursuant to which it has pledged to reduce scope 1 and 2 emissions by 2050 with a 50% reduction commitment by 2030 from a 2019 baseline.

We and our manager, RMR, drive value, manage risk and benchmark the performance of our properties by effectively capturing and managing data through real-time energy monitoring, or RTM. RTM facilitates advanced data analytics and access to detect faults and inefficiencies in equipment operations faster meanwhile enhancing building system control in a cost-effective and scalable way. RMR’s RTM program captures 38 of our properties totaling approximately 56% of our annual electricity spend and generated $1.7 million in cumulative savings to date, of which $0.2 million was generated in 2022.

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Our energy performance programs drive down energy consumption and reduce carbon emissions of our properties. Lower energy use and emissions reduce our properties' potential exposure to policies that call for a carbon tax or other emissions-based penalties. Our existing business practices are intended to align with the Task Force on Climate-related Financial Disclosures framework across both physical and transition risks and opportunities.

With respect to our development and redevelopment activities, RMR considers how to best incorporate ESG as part of the overall goal of any development or redevelopment project at our properties. Each potential project's design phase begins with an evaluation of potential environmental certifications, including Leadership in Energy and Environmental Design, or LEED®, and the WELL Building Standard criteria, among others. This process also includes sustained outreach to the respective municipality and surrounding communities to garner feedback and understand local concerns. Project requirements are then aligned with planning objectives established by neighborhood associations and permitting boards.

In reaction to the Energy Policy Act of 2005, the U.S. government has instituted 'green lease' policies which include the 'Promotion of Energy Efficiency and Use of Renewable Energy' as one of the factors it considers when leasing property. The Energy Independence and Security Act of 2007 also allows the General Services Administration to give preference to properties for lease that have received an 'ENERGY STAR' certification. The ENERGY STAR program is a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy which is focused on promoting energy efficient products and properties. Properties that reach a specified level of energy efficiency may receive the ENERGY STAR recognition for a period of 12 months before the requirement that they be recertified. Furthermore, certain properties are not eligible for ENERGY STAR certification. For example, lab uses, medical office properties and properties less than 50% occupied cannot be ENERGY STAR certified. In May 2022, we were recognized as an Energy Star Partner of the Year for the fifth consecutive year and a Sustained Excellence honoree for the third consecutive year. As of December 31, 2022, 43 of our properties containing 6.6 million rentable square feet (28.5% and 33.6% of our eligible properties and eligible rentable square feet, respectively) are ENERGY STAR certified.

The U.S. Government's 'green lease' policies also permit government tenants to require LEED® designation in selecting new premises or renewing leases at existing premises. The LEED® designation program is administered by the U.S. Green Building Council, a nonprofit organization focused on promoting environmental sustainability for the built environment. Properties that reach specified levels of sustainability may receive a LEED® designation. As of December 31, 2022, 37 of our properties containing 6.1 million rentable square feet (23.1% and 28.9% of our total properties and total rentable square feet, respectively) were LEED® designated.

In an effort to reduce the effects of any increased energy costs in the future, we continuously study ways to improve the energy efficiency at all of our properties. Our manager, RMR, is a member of the 'ENERGY STAR' partner program, and a member of the U.S. Green Building Council. In June 2022, we were selected by the U.S. Department of Energy's Better Buildings Alliance and Institute for Market Transformation as a Gold Level Green Lease Leader, which highlights our commitment to environmental stewardship. We believe our efforts to obtain additional ENERGY STAR labels, LEED® and/or other designations and managing our properties in a sustainable manner benefits our business while also bettering the environment. Additionally, RMR releases an annual Sustainability Report, which summarizes the ESG initiatives RMR and its clients, including OPI, employ. RMR's Sustainability Report may be accessed on RMR Inc.'s website at www.rmrgroup.com/corporate-sustainability/default.aspx. The information on or accessible through RMR Inc.'s website is not incorporated by reference into this Annual Report on Form 10-K.

For more information, see 'Risk Factors - Risks Related to Our Business - ESG initiatives, requirements and market expectations may impose additional costs and expose us to new risks' included in Part I, Item 1A of this Annual Report on Form 10-K.

*Environmental Matters.* Ownership of real estate is subject to risks associated with environmental matters. Prior to acquiring properties, we perform environmental site assessments during due diligence and where there are concerns we do additional monitoring and periodic assessments. We require our tenants to maintain compliance with environmental laws and we also monitor any known conditions. Although we do not believe that there are environmental conditions at any of our properties that will materially and

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adversely affect us, we cannot be sure that such conditions or costs we may be required to incur in the future to address environmental contamination will not materially and adversely affect us.

*Board Diversity.* As of December 31, 2022, our Board of Trustees was comprised of nine Trustees, of which seven were independent trustees, four, or approximately 44%, were female and one, or approximately 11%, was a member of under represented communities.

*Competition.* Investing in and operating real estate properties is a highly competitive business. We compete against publicly traded and private REITs, numerous financial institutions, individuals and public and private companies, including entities funded by both domestic and foreign capital, who are actively engaged in this business. Some of our competitors may have greater financial and other resources, or lower costs of capital than us. Also, we compete for investments based on a number of factors, including purchase prices, closing terms, underwriting criteria and our and RMR’s reputations. Our ability to successfully compete is also materially impacted by the availability and cost of capital to us. We do not believe we have a dominant position in any of the geographic markets in which we operate, but some of our competitors are dominant in selected markets. We believe the experience and abilities of our management and our manager, the quality of our properties, the diversity and credit qualities of our tenants, and the structure of our leases may afford us some competitive advantages and allow us to operate our business successfully despite the competitive nature of our business. For additional information about competition and other risks associated with our business, see “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K.

*Leases.* We have leases with government entities, including the U.S. government, state governments and other government tenants as well as non-government tenants. Some of our leases allow government and non-government tenants to vacate the leased premises before the stated expirations of their leases with little or no liability, or with penalty, by exercising early termination rights. For additional information about our tenants’ rights to terminate leases early, see “Risk Factors - Risks Related to Our Business - Some tenants have the right to terminate their leases prior to their lease expiration date” included in Part I, Item 1A and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview - Property Operations” included in Part II, Item 7 of this Annual Report on Form 10-K.

*Other Matters.* Legislative and regulatory developments may occur at the federal, state and local levels that have direct or indirect impact on the ownership, leasing and operation of our properties. We may need to make expenditures, to the extent these costs are not paid by our tenants, due to changes in government regulations, or the application of such regulations to our properties, including the Americans with Disabilities Act, fire and safety regulations, building codes, land use regulations or environmental regulations on containment, abatement or removal.

*Segment Information.* As of December 31, 2022, we had one operating segment: direct ownership of real estate properties. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 and our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

*Internet Website.* Our internet website address is www.opireit.com. Copies of our governance guidelines, our code of business conduct and ethics, or our Code of Conduct, and the charters of our audit, compensation and nominating and governance committees are posted on our website and also may be obtained free of charge by writing to our Secretary, Office Properties Income Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts, 02458-1634. We also have a policy outlining procedures for handling concerns or complaints about accounting, internal accounting controls or auditing matters and a governance hotline accessible on our website that shareholders can use to report concerns or complaints about accounting, internal accounting controls or auditing matters or violations or possible violations of our Code of Conduct. We make available, free of charge, through the “Investors” section of our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after these forms are filed with, or furnished to the Securities and Exchange Commission, or SEC. Any material we file with or furnish to the SEC is also maintained on the SEC website, www.sec.gov. Security holders may send communications to our Board of Trustees or individual Trustees by writing to the party for whom the

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communication is intended at c/o Secretary, Office Properties Income Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634 or by email at secretary@opireit.com. Our website address is included several times in this Annual Report on Form 10-K as a textual reference only. The information on or accessible through our website is not incorporated by reference into this Annual Report on Form 10-K or other documents we file with, or furnish to, the SEC. We intend to use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Those disclosures will be included on our website in the “Investors” section. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts.

## MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following summary of material United States federal income tax considerations is based on existing law and is limited to investors who own our shares as investment assets rather than as inventory or as property used in a trade or business. The summary does not discuss all of the particular tax considerations that might be relevant to you if you are subject to special rules under federal income tax law, for example if you are:

- • a bank, insurance company or other financial institution;
- • a regulated investment company or REIT;
- • a subchapter S corporation;
- • a broker, dealer or trader in securities or foreign currencies;
- • a person who marks-to-market our shares for U.S. federal income tax purposes;
- • a U.S. shareholder (as defined below) that has a functional currency other than the U.S. dollar;
- • a person who acquires or owns our shares in connection with employment or other performance of services;
- • a person subject to alternative minimum tax;
- • a person who acquires or owns our shares as part of a straddle, hedging transaction, constructive sale transaction, constructive ownership transaction or conversion transaction, or as part of a “synthetic security” or other integrated financial transaction;
- • a person who owns 10% or more (by vote or value, directly or constructively under the IRC) of any class of our shares;
- • a U.S. expatriate;
- • a non-U.S. shareholder (as defined below) whose investment in our shares is effectively connected with the conduct of a trade or business in the United States;
- • a nonresident alien individual present in the United States for 183 days or more during an applicable taxable year;
- • a “qualified shareholder” (as defined in Section 897(k)(3)(A) of the IRC);
- • a “qualified foreign pension fund” (as defined in Section 897(l)(2) of the IRC) or any entity wholly owned by one or more qualified foreign pension funds;
- • a non-U.S. shareholder that is a passive foreign investment company or controlled foreign corporation;
- • a person subject to special tax accounting rules as a result of their use of applicable financial statements (within the meaning of Section 451(b)(3) of the IRC); or
- • except as specifically described in the following summary, a trust, estate, tax-exempt entity or foreign person.

The sections of the IRC that govern the federal income tax qualification and treatment of a REIT and its shareholders are complex. This presentation is a summary of applicable IRC provisions, related rules and regulations, and administrative and judicial interpretations, all of which are subject to change, possibly

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with retroactive effect. Future legislative, judicial or administrative actions or decisions could also affect the accuracy of statements made in this summary. We have not received a ruling from the U.S. Internal Revenue Service, or the IRS, with respect to any matter described in this summary, and we cannot be sure that the IRS or a court will agree with all of the statements made in this summary. The IRS could, for example, take a different position from that described in this summary with respect to our acquisitions, operations, valuations, restructurings or other matters, which, if a court agreed, could result in significant tax liabilities for applicable parties. In addition, this summary is not exhaustive of all possible tax considerations and does not discuss any estate, gift, state, local or foreign tax considerations. For all these reasons, we urge you and any holder of or prospective acquiror of our shares to consult with a tax advisor about the federal income tax and other tax consequences of the acquisition, ownership and disposition of our shares. Our intentions and beliefs described in this summary are based upon our understanding of applicable laws and regulations that are in effect as of the date of this Annual Report on Form 10-K. If new laws or regulations are enacted which impact us directly or indirectly, we may change our intentions or beliefs.

Your federal income tax consequences generally will differ depending on whether or not you are a “U.S. shareholder.” For purposes of this summary, a “U.S. shareholder” is a beneficial owner of our shares that is:

- an individual who is a citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence residency test under the federal income tax laws;
- an entity treated as a corporation for federal income tax purposes that is created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
- an estate the income of which is subject to federal income taxation regardless of its source; or
- a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or, to the extent provided in Treasury regulations, a trust in existence on August 20, 1996 that has elected to be treated as a domestic trust;

whose status as a U.S. shareholder is not overridden by an applicable tax treaty. Conversely, a “non-U.S. shareholder” is a beneficial owner of our shares that is not an entity (or other arrangement) treated as a partnership for federal income tax purposes and is not a U.S. shareholder.

If any entity (or other arrangement) treated as a partnership for federal income tax purposes holds our shares, the tax treatment of a partner in the partnership generally will depend upon the tax status of the partner and the activities of the partnership. Any entity (or other arrangement) treated as a partnership for federal income tax purposes that is a holder of our shares and the partners in such a partnership (as determined for federal income tax purposes) are urged to consult their own tax advisors about the federal income tax consequences and other tax consequences of the acquisition, ownership and disposition of our shares.

### Taxation as a REIT

We have elected to be taxed as a REIT under Sections 856 through 860 of the IRC, commencing with our 2009 taxable year. Our REIT election, assuming continuing compliance with the then applicable qualification tests, has continued and will continue in effect for subsequent taxable years. Although we cannot be sure, we believe that from and after our 2009 taxable year we have been organized and have operated, and will continue to be organized and to operate, in a manner that qualified us and will continue to qualify us to be taxed as a REIT under the IRC.

As a REIT, we generally are not subject to federal income tax on our net income distributed as dividends to our shareholders. Distributions to our shareholders generally are included in our shareholders’ income as dividends to the extent of our available current or accumulated earnings and profits. Our dividends are not generally entitled to the preferential tax rates on qualified dividend income, but a portion of our dividends may be treated as capital gain dividends or as qualified dividend income, all as explained below. In addition, for taxable years beginning before 2026 and pursuant to the deduction-without-outlay mechanism of Section 199A of the IRC, our noncorporate U.S. shareholders that meet specified holding

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period requirements are generally eligible for lower effective tax rates on our dividends that are not treated as capital gain dividends or as qualified dividend income. No portion of any of our dividends is eligible for the dividends received deduction for corporate shareholders. Distributions in excess of our current or accumulated earnings and profits generally are treated for federal income tax purposes as returns of capital to the extent of a recipient shareholder's basis in our shares, and will reduce this basis. Our current or accumulated earnings and profits are generally allocated first to distributions made on our preferred shares, of which there are none outstanding at this time, and thereafter to distributions made on our common shares. For all these purposes, our distributions include cash distributions, any in kind distributions of property that we might make, and deemed or constructive distributions resulting from capital market activities (such as some redemptions), as described below.

Our counsel, Sullivan & Worcester LLP, is of the opinion that we have been organized and have qualified for taxation as a REIT under the IRC for our 2009 through 2022 taxable years, and that our current and anticipated investments and plan of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the IRC. Our counsel's opinions are conditioned upon the assumption that our leases, our declaration of trust, and all other legal documents to which we have been or are a party have been and will be complied with by all parties to those documents, upon the accuracy and completeness of the factual matters described in this Annual Report on Form 10-K and upon representations made by us to our counsel as to certain factual matters relating to our organization and operations and our expected manner of operation. If this assumption or a description or representation is inaccurate or incomplete, our counsel's opinions may be adversely affected and may not be relied upon. The opinions of our counsel are based upon the law as it exists today, but the law may change in the future, possibly with retroactive effect. Given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, neither Sullivan & Worcester LLP nor we can be sure that we will qualify as or be taxed as a REIT for any particular year. Any opinion of Sullivan & Worcester LLP as to our qualification or taxation as a REIT will be expressed as of the date issued. Our counsel will have no obligation to advise us or our shareholders of any subsequent change in the matters stated, represented or assumed, or of any subsequent change in the applicable law. Also, the opinions of our counsel are not binding on either the IRS or a court, and either could take a position different from that expressed by our counsel.

Our continued qualification and taxation as a REIT will depend upon our compliance with various qualification tests imposed under the IRC and summarized below. While we believe that we have satisfied and will satisfy these tests, our counsel does not review compliance with these tests on a continuing basis. If we fail to qualify for taxation as a REIT in any year, then we will be subject to federal income taxation as if we were a corporation taxed under subchapter C of the IRC, or a C corporation, and our shareholders will be taxed like shareholders of a regular C corporation, meaning that federal income tax generally will be applied at both the corporate and shareholder levels. In this event, we could be subject to significant tax liabilities, and the amount of cash available for distribution to our shareholders could be reduced or eliminated.

If we continue to qualify for taxation as a REIT and meet the tests described below, then we generally will not pay federal income tax on amounts that we distribute to our shareholders. However, even if we continue to qualify for taxation as a REIT, we may still be subject to federal tax in the following circumstances, as described below:

- We will be taxed at regular corporate income tax rates on any undistributed "real estate investment trust taxable income," determined by including our undistributed ordinary income and net capital gains, if any. We may elect to retain and pay income tax on our net capital gain. In addition, if we so elect by making a timely designation to our shareholders, a shareholder would be taxed on its proportionate share of our undistributed capital gain and would generally be expected to receive a credit or refund for its proportionate share of the tax we paid.
- If we have net income from the disposition of "foreclosure property," as described in Section 856(e) of the IRC, that is held primarily for sale to customers in the ordinary course of a trade or business or other nonqualifying income from foreclosure property, we will be subject to tax on this income at the highest regular corporate income tax rate.
- If we have net income from "prohibited transactions" - that is, dispositions at a gain of inventory or property held primarily for sale to customers in the ordinary course of a trade or business other than

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dispositions of foreclosure property and other than dispositions excepted by statutory safe harbors - we will be subject to tax on this income at a 100% rate.

- • If we fail to satisfy the 75% gross income test or the 95% gross income test discussed below, due to reasonable cause and not due to willful neglect, but nonetheless maintain our qualification for taxation as a REIT because of specified cure provisions, we will be subject to tax at a 100% rate on the greater of the amount by which we fail the 75% gross income test or the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year.
- • If we fail to satisfy any of the REIT asset tests described below (other than a de minimis failure of the 5% or 10% asset tests) due to reasonable cause and not due to willful neglect, but nonetheless maintain our qualification for taxation as a REIT because of specified cure provisions, we will be subject to a tax equal to the greater of \$50,000 or the highest regular corporate income tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail the test.
- • If we fail to satisfy any provision of the IRC that would result in our failure to qualify for taxation as a REIT (other than violations of the REIT gross income tests or violations of the REIT asset tests described below) due to reasonable cause and not due to willful neglect, we may retain our qualification for taxation as a REIT but will be subject to a penalty of \$50,000 for each failure.
- • If we fail to distribute for any calendar year at least the sum of 85% of our REIT ordinary income for that year, 95% of our REIT capital gain net income for that year and any undistributed taxable income from prior periods, we will be subject to a 4% nondeductible excise tax on the excess of the required distribution over the amounts actually distributed.
- • If we acquire a REIT asset where our adjusted tax basis in the asset is determined by reference to the adjusted tax basis of the asset in the hands of a C corporation, under specified circumstances we may be subject to federal income taxation on all or part of the built-in gain (calculated as of the date the property ceased being owned by the C corporation) on such asset. We generally do not expect to sell assets if doing so would result in the imposition of a material built-in gains tax liability; but if and when we do sell assets that may have associated built-in gains tax exposure, then we expect to make appropriate provision for the associated tax liabilities on our financial statements.
- • If we acquire a corporation in a transaction where we succeed to its tax attributes, to preserve our qualification for taxation as a REIT we must generally distribute all of the C corporation earnings and profits inherited in that acquisition, if any, no later than the end of our taxable year in which the acquisition occurs. However, if we fail to do so, relief provisions would allow us to maintain our qualification for taxation as a REIT provided we distribute any subsequently discovered C corporation earnings and profits and pay an interest charge in respect of the period of delayed distribution.
- • Our subsidiaries that are C corporations, including our “taxable REIT subsidiaries”, as defined in Section 856(l) of the IRC, or TRSs, generally will be required to pay federal corporate income tax on their earnings, and a 100% tax may be imposed on any transaction between us and one of our TRSs that does not reflect arm’s length terms.

If we fail to qualify for taxation as a REIT in any year, then we will be subject to federal income tax in the same manner as a regular C corporation. Further, as a regular C corporation, distributions to our shareholders will not be deductible by us, nor will distributions be required under the IRC. Also, to the extent of our current and accumulated earnings and profits, all distributions to our shareholders will generally be taxable as ordinary dividends potentially eligible for the preferential tax rates discussed below under the heading “- Taxation of Taxable U.S. Shareholders” and, subject to limitations in the IRC, will be potentially eligible for the dividends received deduction for corporate shareholders. Finally, we will generally be disqualified from taxation as a REIT for the four taxable years following the taxable year in which the termination of our REIT status is effective. Our failure to qualify for taxation as a REIT for even one year could result in us reducing or eliminating distributions to our shareholders, or in us incurring substantial indebtedness or liquidating substantial investments in order to pay the resulting corporate-level income taxes. Relief provisions under the IRC may allow us to continue to qualify for taxation as a REIT even if we fail to comply with various REIT requirements, all as discussed in more detail below. However, it is impossible to state whether in any particular circumstance we would be entitled to the benefit of these relief provisions.

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## REIT Qualification Requirements

*General Requirements.* Section 856(a) of the IRC defines a REIT as a corporation, trust or association:

1. (1) that is managed by one or more trustees or directors;
2. (2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest;
3. (3) that would be taxable, but for Sections 856 through 859 of the IRC, as a domestic C corporation;
4. (4) that is not a financial institution or an insurance company subject to special provisions of the IRC;
5. (5) the beneficial ownership of which is held by 100 or more persons;
6. (6) that is not “closely held,” meaning that during the last half of each taxable year, not more than 50% in value of the outstanding shares are owned, directly or indirectly, by five or fewer “individuals” (as defined in the IRC to include specified tax-exempt entities); and
7. (7) that meets other tests regarding the nature of its income and assets and the amount of its distributions, all as described below.

Section 856(b) of the IRC provides that conditions (1) through (4) must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. Although we cannot be sure, we believe that we have met conditions (1) through (7) during each of the requisite periods ending on or before the close of our most recently completed taxable year, and that we will continue to meet these conditions in our current and future taxable years. To help comply with condition (6), our declaration of trust restricts transfers of our shares that would otherwise result in concentrated ownership positions. These restrictions, however, do not ensure that we have previously satisfied, and may not ensure that we will in all cases be able to continue to satisfy, the share ownership requirements described in condition (6). If we comply with applicable Treasury regulations to ascertain the ownership of our outstanding shares and do not know, or by exercising reasonable diligence would not have known, that we failed condition (6), then we will be treated as having met condition (6). Accordingly, we have complied and will continue to comply with these regulations, including by requesting annually from holders of significant percentages of our shares information regarding the ownership of our shares. Under our declaration of trust, our shareholders are required to respond to these requests for information. A shareholder that fails or refuses to comply with the request is required by Treasury regulations to submit a statement with its federal income tax return disclosing its actual ownership of our shares and other information.

For purposes of condition (6), an “individual” generally includes a natural person, a supplemental unemployment compensation benefit plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable purposes, but does not include a qualified pension plan or profit-sharing trust. As a result, REIT shares owned by an entity that is not an “individual” are considered to be owned by the direct and indirect owners of the entity that are individuals (as so defined), rather than to be owned by the entity itself. Similarly, REIT shares held by a qualified pension plan or profit-sharing trust are treated as held directly by the individual beneficiaries in proportion to their actuarial interests in such plan or trust. Consequently, five or fewer such trusts could own more than 50% of the interests in an entity without jeopardizing that entity’s qualification for taxation as a REIT.

The IRC provides that we will not automatically fail to qualify for taxation as a REIT if we do not meet conditions (1) through (6), provided we can establish that such failure was due to reasonable cause and not due to willful neglect. Each such excused failure will result in the imposition of a $50,000 penalty instead of REIT disqualification. This relief provision may apply to a failure of the applicable conditions even if the failure first occurred in a year prior to the taxable year in which the failure was discovered.

*Our Wholly Owned Subsidiaries and Our Investments Through Partnerships.* Except in respect of a TRS as discussed below, Section 856(i) of the IRC provides that any corporation, 100% of whose stock is held by a REIT and its disregarded subsidiaries, is a qualified REIT subsidiary and shall not be treated as a

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separate corporation for U.S. federal income tax purposes. The assets, liabilities and items of income, deduction and credit of a qualified REIT subsidiary are treated as the REIT's. We believe that each of our direct and indirect wholly owned subsidiaries, other than the TRSs discussed below (and entities whose equity is owned in whole or in part by such TRSs), will be either a qualified REIT subsidiary within the meaning of Section 856(i)(2) of the IRC or a noncorporate entity that for federal income tax purposes is not treated as separate from its owner under Treasury regulations issued under Section 7701 of the IRC, each such entity referred to as a QRS. Thus, in applying all of the REIT qualification requirements described in this summary, all assets, liabilities and items of income, deduction and credit of our QRSs are treated as ours, and our investment in the stock and other securities of such QRSs will be disregarded.

We have invested and may in the future invest in real estate through one or more entities that are treated as partnerships for federal income tax purposes. In the case of a REIT that is a partner in a partnership, Treasury regulations under the IRC provide that, for purposes of the REIT qualification requirements regarding income and assets described below, the REIT is generally deemed to own its proportionate share, based on respective capital interests, of the income and assets of the partnership (except that for purposes of the 10% value test, described below, the REIT's proportionate share of the partnership's assets is based on its proportionate interest in the equity and specified debt securities issued by the partnership). In addition, for these purposes, the character of the assets and items of gross income of the partnership generally remains the same in the hands of the REIT. In contrast, for purposes of the distribution requirements discussed below, we must take into account as a partner our share of the partnership's income as determined under the general federal income tax rules governing partners and partnerships under Subchapter K of the IRC.

*Subsidiary REITs.* We have in the past invested in real estate through entities that were intended to qualify for taxation as REITs, and we may in the future form or acquire additional entities that are intended to qualify for taxation as REITs. When a subsidiary qualifies for taxation as a REIT separate and apart from its REIT parent, the subsidiary's shares are qualifying real estate assets for purposes of the REIT parent's 75% asset test described below. However, failure of the subsidiary to separately satisfy the various REIT qualification requirements described in this summary or that are otherwise applicable (and failure to qualify for the applicable relief provisions) would generally result in (a) the subsidiary being subject to regular U.S. corporate income tax, as described above, and (b) the REIT parent's ownership in the subsidiary (i) ceasing to be qualifying real estate assets for purposes of the 75% asset test and (ii) becoming subject to the 5% asset test, the 10% vote test and the 10% value test, each as described below, generally applicable to a REIT's ownership in corporations other than REITs and TRSs. In such a situation, the REIT parent's own qualification and taxation as a REIT could be jeopardized on account of the subsidiary's failure cascading up to the REIT parent, all as described below under the heading '- Asset Tests'. We have made and expect to make protective TRS elections with respect to our subsidiary REITs and may implement other protective arrangements intended to avoid a cascading REIT failure if any of our intended subsidiary REITs were not to qualify for taxation as a REIT, but we cannot be sure that such protective elections or other arrangements will be effective to avoid or mitigate the resulting adverse consequences to us.

*Taxable REIT Subsidiaries.* As a REIT, we are permitted to own any or all of the securities of a TRS, provided that no more than 20% of the total value of our assets, at the close of each quarter, is comprised of our investments in the stock or other securities of our TRSs. Very generally, a TRS is a subsidiary corporation other than a REIT in which a REIT directly or indirectly holds stock and that has made a joint election with such REIT to be treated as a TRS. A TRS is taxed as a regular C corporation, separate and apart from any affiliated REIT. Our ownership of stock and other securities in our TRSs is exempt from the 5% asset test, the 10% vote test and the 10% value test discussed below.

In addition, any corporation (other than a REIT and other than a QRS) in which a TRS directly or indirectly owns more than 35% of the voting power or value of the outstanding securities is automatically a TRS (excluding, for this purpose, certain 'straight debt' securities). Subject to the discussion below, we believe that we and each of our TRSs have complied with, and will continue to comply with, the requirements for TRS status at all times during which the subsidiary's TRS election is intended to be in effect, and we believe that the same will be true for any TRS that we later form or acquire.

As discussed below, TRSs can perform services for our tenants without disqualifying the rents we receive from those tenants under the 75% gross income test or the 95% gross income test discussed below.

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Moreover, because our TRSs are taxed as C corporations that are separate from us, their assets, liabilities and items of income, deduction and credit generally are not imputed to us for purposes of the REIT qualification requirements described in this summary. Therefore, our TRSs may generally conduct activities that would be treated as prohibited transactions or would give rise to nonqualified income if conducted by us directly.

Restrictions and sanctions are imposed on TRSs and their affiliated REITs to ensure that the TRSs will be subject to an appropriate level of federal income taxation. For example, if a TRS pays interest, rent or other amounts to its affiliated REIT in an amount that exceeds what an unrelated third party would have paid in an arm's length transaction, then the REIT generally will be subject to an excise tax equal to 100% of the excessive portion of the payment. Further, if in comparison to an arm's length transaction, a third-party tenant has overpaid rent to the REIT in exchange for underpaying the TRS for services rendered, and if the REIT has not adequately compensated the TRS for services provided to or on behalf of the third-party tenant, then the REIT may be subject to an excise tax equal to 100% of the undercompensation to the TRS. A safe harbor exception to this excise tax applies if the TRS has been compensated at a rate at least equal to 150% of its direct cost in furnishing or rendering the service. Finally, the 100% excise tax also applies to the underpricing of services provided by a TRS to its affiliated REIT in contexts where the services are unrelated to services for REIT tenants. We cannot be sure that arrangements involving our TRSs will not result in the imposition of one or more of these restrictions or sanctions, but we do not believe that we or our TRSs are or will be subject to these impositions.

*Income Tests.* We must satisfy two gross income tests annually to maintain our qualification for taxation as a REIT. First, at least 75% of our gross income for each taxable year must be derived from investments relating to real property, including 'rents from real property' within the meaning of Section 856(d) of the IRC, interest and gain from mortgages on real property or on interests in real property, income and gain from foreclosure property, gain from the sale or other disposition of real property (including specified ancillary personal property treated as real property under the IRC), or dividends on and gain from the sale or disposition of shares in other REITs (but excluding in all cases any gains subject to the 100% tax on prohibited transactions). When we receive new capital in exchange for our shares or in a public offering of our five-year or longer debt instruments, income attributable to the temporary investment of this new capital in stock or a debt instrument, if received or accrued within one year of our receipt of the new capital, is generally also qualifying income under the 75% gross income test. Second, at least 95% of our gross income for each taxable year must consist of income that is qualifying income for purposes of the 75% gross income test, other types of interest and dividends, gain from the sale or disposition of stock or securities, or any combination of these. Gross income from our sale of property that we hold primarily for sale to customers in the ordinary course of business, income and gain from specified 'hedging transactions' that are clearly and timely identified as such, and income from the repurchase or discharge of indebtedness is excluded from both the numerator and the denominator in both gross income tests. In addition, specified foreign currency gains will be excluded from gross income for purposes of one or both of the gross income tests.

In order to qualify as 'rents from real property' within the meaning of Section 856(d) of the IRC, several requirements must be met:

- • The amount of rent received generally must not be based on the income or profits of any person, but may be based on a fixed percentage or percentages of receipts or sales.
- • Rents generally do not qualify if the REIT owns 10% or more by vote or value of stock of the tenant (or 10% or more of the interests in the assets or net profits of the tenant, if the tenant is not a corporation), whether directly or after application of attribution rules. We generally do not intend to lease property to any party if rents from that property would not qualify as 'rents from real property,' but application of the 10% ownership rule is dependent upon complex attribution rules and circumstances that may be beyond our control. Our declaration of trust generally disallows transfers or purported acquisitions, directly or by attribution, of our shares to the extent necessary to maintain our qualification for taxation as a REIT under the IRC. Nevertheless, we cannot be sure that these restrictions will be effective to prevent our qualification for taxation as a REIT from being jeopardized under the 10% affiliated tenant rule. Furthermore, we cannot be sure that we will be

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able to monitor and enforce these restrictions, nor will our shareholders necessarily be aware of ownership of our shares attributed to them under the IRC's attribution rules.

- There is a limited exception to the above prohibition on earning "rents from real property" from a 10% affiliated tenant where the tenant is a TRS. If at least 90% of the leased space of a property is leased to tenants other than TRSs and 10% affiliated tenants, and if the TRS's rent to the REIT for space at that property is substantially comparable to the rents paid by nonaffiliated tenants for comparable space at the property, then otherwise qualifying rents paid by the TRS to the REIT will not be disqualified on account of the rule prohibiting 10% affiliated tenants.
- In order for rents to qualify, a REIT generally must not manage the property or furnish or render services to the tenants of the property, except through an independent contractor from whom it derives no income or through one of its TRSs. There is an exception to this rule permitting a REIT to perform customary management and tenant services of the sort that a tax-exempt organization could perform without being considered in receipt of "unrelated business taxable income" as defined in Section 512(b)(3) of the IRC, or UBTI. In addition, a de minimis amount of noncustomary services provided to tenants will not disqualify income as "rents from real property" as long as the value of the impermissible tenant services does not exceed 1% of the gross income from the property.
- If rent attributable to personal property leased in connection with a lease of real property is 15% or less of the total rent received under the lease, then the rent attributable to personal property will qualify as "rents from real property;" if this 15% threshold is exceeded, then the rent attributable to personal property will not so qualify. The portion of rental income treated as attributable to personal property is determined according to the ratio of the fair market value of the personal property to the total fair market value of the real and personal property that is rented.
- In addition, "rents from real property" includes both charges we receive for services customarily rendered in connection with the rental of comparable real property in the same geographic area, even if the charges are separately stated, as well as charges we receive for services provided by our TRSs when the charges are not separately stated. Whether separately stated charges received by a REIT for services that are not geographically customary and provided by a TRS are included in "rents from real property" has not been addressed clearly by the IRS in published authorities; however, our counsel, Sullivan & Worcester LLP, is of the opinion that, although the matter is not free from doubt, "rents from real property" also includes charges we receive for services provided by our TRSs when the charges are separately stated, even if the services are not geographically customary. Accordingly, we believe that our revenues from TRS-provided services, whether the charges are separately stated or not, qualify as "rents from real property" because the services satisfy the geographically customary standard, because the services have been provided by a TRS, or for both reasons.

We believe that all or substantially all of our rents and related service charges have qualified and will continue to qualify as "rents from real property" for purposes of Section 856 of the IRC.

Absent the "foreclosure property" rules of Section 856(e) of the IRC, a REIT's receipt of active, nonrental gross income from a property would not qualify under the 75% and 95% gross income tests. But as foreclosure property, the active, nonrental gross income from the property would so qualify. Foreclosure property is generally any real property, including interests in real property, and any personal property incident to such real property:

- that is acquired by a REIT as a result of the REIT having bid on such property at foreclosure, or having otherwise reduced such property to ownership or possession by agreement or process of law, after there was a default or when default was imminent on a lease of such property or on indebtedness that such property secured;
- for which any related loan acquired by the REIT was acquired at a time when the default was not imminent or anticipated; and
- for which the REIT makes a proper election to treat the property as foreclosure property.

Any gain that a REIT recognizes on the sale of foreclosure property held as inventory or primarily for sale to customers, plus any income it receives from foreclosure property that would not otherwise qualify

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under the 75% gross income test in the absence of foreclosure property treatment, reduced by expenses directly connected with the production of those items of income, would be subject to federal income tax at the highest regular corporate income tax rate under the foreclosure property income tax rules of Section 857(b)(4) of the IRC. Thus, if a REIT should lease foreclosure property in exchange for rent that qualifies as “rents from real property” as described above, then that rental income is not subject to the foreclosure property income tax.

Property generally ceases to be foreclosure property at the end of the third taxable year following the taxable year in which the REIT acquired the property, or longer if an extension is obtained from the IRS. However, this grace period terminates and foreclosure property ceases to be foreclosure property on the first day:

- on which a lease is entered into for the property that, by its terms, will give rise to income that does not qualify for purposes of the 75% gross income test (disregarding income from foreclosure property), or any nonqualified income under the 75% gross income test is received or accrued by the REIT, directly or indirectly, pursuant to a lease entered into on or after such day;
- on which any construction takes place on the property, other than completion of a building or any other improvement where more than 10% of the construction was completed before default became imminent and other than specifically exempted forms of maintenance or deferred maintenance; or
- which is more than 90 days after the day on which the REIT acquired the property and the property is used in a trade or business which is conducted by the REIT, other than through an independent contractor from whom the REIT itself does not derive or receive any income or a TRS.

Other than sales of foreclosure property, any gain that we realize on the sale of property held as inventory or other property held primarily for sale to customers in the ordinary course of a trade or business, together known as dealer gains, may be treated as income from a prohibited transaction that is subject to a penalty tax at a 100% rate. The 100% tax does not apply to gains from the sale of property that is held through a TRS, although such income will be subject to tax in the hands of the TRS at regular corporate income tax rates; we may therefore utilize our TRSs in transactions in which we might otherwise recognize dealer gains. Whether property is held as inventory or primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances surrounding each particular transaction. Sections 857(b)(6)(C) and (E) of the IRC provide safe harbors pursuant to which limited sales of real property held for at least two years and meeting specified additional requirements will not be treated as prohibited transactions. However, compliance with the safe harbors is not always achievable in practice. We attempt to structure our activities to avoid transactions that are prohibited transactions, or otherwise conduct such activities through TRSs; but, we cannot be sure whether or not the IRS might successfully assert that we are subject to the 100% penalty tax with respect to any particular transaction. Gains subject to the 100% penalty tax are excluded from the 75% and 95% gross income tests, whereas real property gains that are not dealer gains or that are exempted from the 100% penalty tax on account of the safe harbors are considered qualifying gross income for purposes of the 75% and 95% gross income tests.

We believe that any gain that we have recognized, or will recognize, in connection with our disposition of assets and other transactions, including through any partnerships, will generally qualify as income that satisfies the 75% and 95% gross income tests, and will not be dealer gains or subject to the 100% penalty tax. This is because our general intent has been and is to: (a) own our assets for investment (including through joint ventures) with a view to long-term income production and capital appreciation; (b) engage in the business of developing, owning, leasing and managing our existing properties and acquiring, developing, owning, leasing and managing new properties; and (c) make occasional dispositions of our assets consistent with our long-term investment objectives.

If we fail to satisfy one or both of the 75% gross income test or the 95% gross income test in any taxable year, we may nevertheless qualify for taxation as a REIT for that year if we satisfy the following requirements: (a) our failure to meet the test is due to reasonable cause and not due to willful neglect; and (b) after we identify the failure, we file a schedule describing each item of our gross income included in the 75% gross income test or the 95% gross income test for that taxable year. Even if this relief provision does apply, a 100% tax is imposed upon the greater of the amount by which we failed the 75% gross income test

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or the amount by which we failed the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year. This relief provision may apply to a failure of the applicable income tests even if the failure first occurred in a year prior to the taxable year in which the failure was discovered.

Based on the discussion above, we believe that we have satisfied, and will continue to satisfy, the 75% and 95% gross income tests outlined above on a continuing basis beginning with our first taxable year as a REIT.

Asset Tests. At the close of each calendar quarter of each taxable year, we must also satisfy the following asset percentage tests in order to qualify for taxation as a REIT for federal income tax purposes:

- At least 75% of the value of our total assets must consist of “real estate assets,” defined as real property (including interests in real property and interests in mortgages on real property or on interests in real property), ancillary personal property to the extent that rents attributable to such personal property are treated as rents from real property in accordance with the rules described above, cash and cash items, shares in other REITs, debt instruments issued by “publicly offered REITs” as defined in Section 562(c)(2) of the IRC, government securities and temporary investments of new capital (that is, any stock or debt instrument that we hold that is attributable to any amount received by us (a) in exchange for our shares or (b) in a public offering of our five-year or longer debt instruments, but in each case only for the one-year period commencing with our receipt of the new capital).
- Not more than 25% of the value of our total assets may be represented by securities other than those securities that count favorably toward the preceding 75% asset test.
- Of the investments included in the preceding 25% asset class, the value of any one non-REIT issuer’s securities that we own may not exceed 5% of the value of our total assets. In addition, we may not own more than 10% of the vote or value of any one non-REIT issuer’s outstanding securities, unless the securities are “straight debt” securities or otherwise excepted as discussed below. Our stock and other securities in a TRS are exempted from these 5% and 10% asset tests.
- Not more than 20% of the value of our total assets may be represented by stock or other securities of our TRSs.
- Not more than 25% of the value of our total assets may be represented by “nonqualified publicly offered REIT debt instruments” as defined in Section 856(c)(5)(L)(ii) of the IRC.

Our counsel, Sullivan & Worcester LLP, is of the opinion that, although the matter is not free from doubt, our investments in the equity or debt of a TRS of ours, to the extent that and during the period in which they qualify as temporary investments of new capital, will be treated as real estate assets, and not as securities, for purposes of the above REIT asset tests.

The above REIT asset tests must be satisfied at the close of each calendar quarter of each taxable year as a REIT. After a REIT meets the asset tests at the close of any quarter, it will not lose its qualification for taxation as a REIT in any subsequent quarter solely because of fluctuations in the values of its assets. This grandfathering rule may be of limited benefit to a REIT such as us that makes periodic acquisitions of both qualifying and nonqualifying REIT assets. When a failure to satisfy the above asset tests results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient nonqualifying assets within thirty days after the close of that quarter.

In addition, if we fail the 5% asset test, the 10% vote test or the 10% value test at the close of any quarter and we do not cure such failure within thirty days after the close of that quarter, that failure will nevertheless be excused if (a) the failure is de minimis and (b) within six months after the last day of the quarter in which we identify the failure, we either dispose of the assets causing the failure or otherwise satisfy the 5% asset test, the 10% vote test and the 10% value test. For purposes of this relief provision, the failure will be de minimis if the value of the assets causing the failure does not exceed the lesser of (a) 1% of the total value of our assets at the end of the relevant quarter or (b) $10,000,000. If our failure is not de minimis, or if any of the other REIT asset tests have been violated, we may nevertheless qualify for taxation as a REIT if (a) we provide the IRS with a description of each asset causing the failure, (b) the failure was due to reasonable cause and not willful neglect, (c) we pay a tax equal to the greater of (1) $50,000 or (2) the

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highest regular corporate income tax rate imposed on the net income generated by the assets causing the failure during the period of the failure, and (d) within six months after the last day of the quarter in which we identify the failure, we either dispose of the assets causing the failure or otherwise satisfy all of the REIT asset tests. These relief provisions may apply to a failure of the applicable asset tests even if the failure first occurred in a year prior to the taxable year in which the failure was discovered.

The IRC also provides an excepted securities safe harbor to the 10% value test that includes among other items (a) “straight debt” securities, (b) specified rental agreements in which payment is to be made in subsequent years, (c) any obligation to pay “rents from real property,” (d) securities issued by governmental entities that are not dependent in whole or in part on the profits of or payments from a nongovernmental entity, and (e) any security issued by another REIT. In addition, any debt instrument issued by an entity classified as a partnership for federal income tax purposes, and not otherwise excepted from the definition of a security for purposes of the above safe harbor, will not be treated as a security for purposes of the 10% value test if at least 75% of the partnership’s gross income, excluding income from prohibited transactions, is qualifying income for purposes of the 75% gross income test.

We have maintained and will continue to maintain records of the value of our assets to document our compliance with the above asset tests and intend to take actions as may be required to cure any failure to satisfy the tests within thirty days after the close of any quarter or within the six month periods described above.

Based on the discussion above, we believe that we have satisfied, and will continue to satisfy, the REIT asset tests outlined above on a continuing basis beginning with our first taxable year as a REIT.

Annual Distribution Requirements. In order to qualify for taxation as a REIT under the IRC, we are required to make annual distributions other than capital gain dividends to our shareholders in an amount at least equal to the excess of:

(1) the sum of 90% of our “real estate investment trust taxable income” and 90% of our net income after tax, if any, from property received in foreclosure, over

(2) the amount by which our noncash income (e.g., imputed rental income or income from transactions inadvertently failing to qualify as like-kind exchanges) exceeds 5% of our “real estate investment trust taxable income.”

For these purposes, our “real estate investment trust taxable income” is as defined under Section 857 of the IRC and is computed without regard to the dividends paid deduction and our net capital gain and will generally be reduced by specified corporate-level income taxes that we pay (e.g., taxes on built-in gains or foreclosure property income).

The IRC generally limits the deductibility of net interest expense paid or accrued on debt properly allocable to a trade or business to 30% of “adjusted taxable income,” subject to specified exceptions. Any deduction in excess of the limitation is carried forward and may be used in a subsequent year, subject to that year’s 30% limitation. Provided a taxpayer makes an election (which is irrevocable), the limitation on the deductibility of net interest expense does not apply to a trade or business involving real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage, within the meaning of Section 469(c)(7)(C) of the IRC. Treasury regulations provide that a real property trade or business includes a trade or business conducted by a REIT. We have made an election to be treated as a real property trade or business and accordingly do not expect the foregoing interest deduction limitations to apply to us or to the calculation of our “real estate investment trust taxable income.”

Distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our federal income tax return for the earlier taxable year and if paid on or before the first regular distribution payment after that declaration. If a dividend is declared in October, November or December to shareholders of record during one of those months and is paid during the following January, then for federal income tax purposes such dividend will be treated as having been both paid and received on December 31 of the prior taxable year to the extent of any undistributed earnings and profits.

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The 90% distribution requirements may be waived by the IRS if a REIT establishes that it failed to meet them by reason of distributions previously made to meet the requirements of the 4% excise tax discussed below. To the extent that we do not distribute all of our net capital gain and all of our “real estate investment trust taxable income,” as adjusted, we will be subject to federal income tax at regular corporate income tax rates on undistributed amounts. In addition, we will be subject to a 4% nondeductible excise tax to the extent we fail within a calendar year to make required distributions to our shareholders of 85% of our ordinary income and 95% of our capital gain net income plus the excess, if any, of the “grossed up required distribution” for the preceding calendar year over the amount treated as distributed for that preceding calendar year. For this purpose, the term “grossed up required distribution” for any calendar year is the sum of our taxable income for the calendar year without regard to the deduction for dividends paid and all amounts from earlier years that are not treated as having been distributed under the provision. We will be treated as having sufficient earnings and profits to treat as a dividend any distribution by us up to the amount required to be distributed in order to avoid imposition of the 4% excise tax.

If we do not have enough cash or other liquid assets to meet our distribution requirements, or if we so choose, we may find it necessary or desirable to arrange for new debt or equity financing to provide funds for required distributions in order to maintain our qualification for taxation as a REIT. We cannot be sure that financing would be available for these purposes on favorable terms, or at all.

We may be able to rectify a failure to pay sufficient dividends for any year by paying “deficiency dividends” to shareholders in a later year. These deficiency dividends may be included in our deduction for dividends paid for the earlier year, but an interest charge would be imposed upon us for the delay in distribution. While the payment of a deficiency dividend will apply to a prior year for purposes of our REIT distribution requirements and our dividends paid deduction, it will be treated as an additional distribution to the shareholders receiving it in the year such dividend is paid.

In addition to the other distribution requirements above, to preserve our qualification for taxation as a REIT we are required to timely distribute all C corporation earnings and profits that we inherit from acquired corporations, as described below.

We may elect to retain, rather than distribute, some or all of our net capital gain and pay income tax on such gain. In addition, if we so elect by making a timely designation to our shareholders, our shareholders would include their proportionate share of such undistributed capital gain in their taxable income, and they would receive a corresponding credit for their share of the federal corporate income tax that we pay thereon. Our shareholders would then increase the adjusted tax basis of their shares by the difference between (a) the amount of capital gain dividends that we designated and that they included in their taxable income, and (b) the tax that we paid on their behalf with respect to that capital gain.

### **Acquisitions of C Corporations**

We may in the future engage in transactions where we acquire all of the outstanding stock of a C corporation. Upon these acquisitions, except to the extent we make an applicable TRS election, each of our acquired entities and their various wholly-owned corporate and noncorporate subsidiaries will become our QRSs. Thus, after such acquisitions, all assets, liabilities and items of income, deduction and credit of the acquired and then disregarded entities will be treated as ours for purposes of the various REIT qualification tests described above. In addition, we generally will be treated as the successor to the acquired (and then disregarded) entities’ federal income tax attributes, such as those entities’ (a) adjusted tax bases in their assets and their depreciation schedules; and (b) earnings and profits for federal income tax purposes, if any. The carryover of these attributes creates REIT implications such as built-in gains tax exposure and additional distribution requirements, as described below. However, when we make an election under Section 338(g) of the IRC with respect to corporations that we acquire, we generally will not be subject to such attribute carryovers in respect of attributes existing prior to such election.

*Built-in Gains from C Corporations.* Notwithstanding our qualification and taxation as a REIT, under specified circumstances we may be subject to corporate income taxation if we acquire a REIT asset where our adjusted tax basis in the asset is determined by reference to the adjusted tax basis of the asset as owned by a C corporation. For instance, we may be subject to federal income taxation on all or part of the built-in gain that was present on the last date an asset was owned by a C corporation, if we succeed to a

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carryover tax basis in that asset directly or indirectly from such C corporation and if we sell the asset during the five year period beginning on the day the asset ceased being owned by such C corporation. To the extent of our income and gains in a taxable year that are subject to the built-in gains tax, net of any taxes paid on such income and gains with respect to that taxable year, our taxable dividends paid in the following year will be potentially eligible for taxation to noncorporate U.S. shareholders at the preferential tax rates for “qualified dividends” as described below under the heading “- Taxation of Taxable U.S. Shareholders”. We generally do not expect to sell assets if doing so would result in the imposition of a material built-in gains tax liability; but if and when we do sell assets that may have associated built-in gains tax exposure, then we expect to make appropriate provision for the associated tax liabilities on our financial statements.

*Earnings and Profits.* Following a corporate acquisition, we must generally distribute all of the C corporation earnings and profits inherited in that transaction, if any, no later than the end of our taxable year in which the transaction occurs, in order to preserve our qualification for taxation as a REIT. However, if we fail to do so, relief provisions would allow us to maintain our qualification for taxation as a REIT, provided we distribute any subsequently discovered C corporation earnings and profits and pay an interest charge in respect of the period of delayed distribution. C corporation earnings and profits that we inherit are, in general, specially allocated under a priority rule to the earliest possible distributions following the event causing the inheritance, and only then is the balance of our earnings and profits for the taxable year allocated among our distributions to the extent not already treated as a distribution of C corporation earnings and profits under the priority rule. The distribution of these C corporation earnings and profits is potentially eligible for taxation to noncorporate U.S. shareholders at the preferential tax rates for “qualified dividends” as described below under the heading “- Taxation of Taxable U.S. Shareholders”.

### Depreciation and Federal Income Tax Treatment of Leases

Our initial tax bases in our assets will generally be our acquisition cost. We will generally depreciate our depreciable real property on a straight-line basis over forty years and our personal property over the applicable shorter periods. These depreciation schedules, and our initial tax bases, may vary for properties that we acquire through tax-free or carryover basis acquisitions, or that are the subject of cost segregation analyses.

We are entitled to depreciation deductions from our properties only if we are treated for federal income tax purposes as the owner of the properties. This means that the leases of our properties must be classified for U.S. federal income tax purposes as true leases, rather than as sales or financing arrangements, and we believe this to be the case.

### Distributions to our Shareholders

As described above, we expect to make distributions to our shareholders from time to time. These distributions may include cash distributions, in kind distributions of property, and deemed or constructive distributions resulting from capital market activities. The U.S. federal income tax treatment of our distributions will vary based on the status of the recipient shareholder as more fully described below under the headings “- Taxation of Taxable U.S. Shareholders,” “- Taxation of Tax-Exempt U.S. Shareholders,” and “- Taxation of Non-U.S. Shareholders.”

Section 302 of the IRC treats a redemption of our shares for cash only as a distribution under Section 301 of the IRC, and hence taxable as a dividend to the extent of our available current or accumulated earnings and profits, unless the redemption satisfies one of the tests set forth in Section 302(b) of the IRC enabling the redemption to be treated as a sale or exchange of the shares. The redemption for cash only will be treated as a sale or exchange if it (a) is “substantially disproportionate” with respect to the surrendering shareholder’s ownership in us, (b) results in a “complete termination” of the surrendering shareholder’s entire share interest in us, or (c) is “not essentially equivalent to a dividend” with respect to the surrendering shareholder, all within the meaning of Section 302(b) of the IRC. In determining whether any of these tests have been met, a shareholder must generally take into account shares considered to be owned by such shareholder by reason of constructive ownership rules set forth in the IRC, as well as shares actually owned by such shareholder. In addition, if a redemption is treated as a distribution under the preceding tests, then a shareholder’s tax basis in the redeemed shares generally will be transferred to the shareholder’s remaining shares in us, if any, and if such shareholder owns no other shares in us, such basis generally may be transferred to a related person or may be lost entirely. Because the determination as to whether a shareholder will

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satisfy any of the tests of Section 302(b) of the IRC depends upon the facts and circumstances at the time that our shares are redeemed, we urge you to consult your own tax advisor to determine the particular tax treatment of any redemption.

### **Taxation of Taxable U.S. Shareholders**

For noncorporate U.S. shareholders, to the extent that their total adjusted income does not exceed applicable thresholds, the maximum federal income tax rate for long-term capital gains and most corporate dividends is generally 15%. For those noncorporate U.S. shareholders whose total adjusted income exceeds the applicable thresholds, the maximum federal income tax rate for long-term capital gains and most corporate dividends is generally 20%. However, because we are not generally subject to federal income tax on the portion of our “real estate investment trust taxable income” distributed to our shareholders, dividends on our shares generally are not eligible for these preferential tax rates, except that any distribution of C corporation earnings and profits and taxed built-in gain items will potentially be eligible for these preferential tax rates. As a result, our ordinary dividends generally are taxed at the higher federal income tax rates applicable to ordinary income (subject to the lower effective tax rates applicable to qualified REIT dividends via the deduction-without-outlay mechanism of Section 199A of the IRC, which is generally available to our noncorporate U.S. shareholders that meet specified holding period requirements for taxable years before 2026). To summarize, the preferential federal income tax rates for long-term capital gains and for qualified dividends generally apply to:

(1) long-term capital gains, if any, recognized on the disposition of our shares;

(2) our distributions designated as long-term capital gain dividends (except to the extent attributable to real estate depreciation recapture, in which case the distributions are subject to a maximum 25% federal income tax rate);

(3) our dividends attributable to dividend income, if any, received by us from C corporations such as TRSs;

(4) our dividends attributable to earnings and profits that we inherit from C corporations; and

(5) our dividends to the extent attributable to income upon which we have paid federal corporate income tax (such as taxes on foreclosure property income or on built-in gains), net of the corporate income taxes thereon.

As long as we qualify for taxation as a REIT, a distribution to our U.S. shareholders that we do not designate as a capital gain dividend generally will be treated as an ordinary income dividend to the extent of our available current or accumulated earnings and profits (subject to the lower effective tax rates applicable to qualified REIT dividends via the deduction-without-outlay mechanism of Section 199A of the IRC, which is generally available to our noncorporate U.S. shareholders that meet specified holding period requirements for taxable years before 2026). Distributions made out of our current or accumulated earnings and profits that we properly designate as capital gain dividends generally will be taxed as long-term capital gains, as discussed below, to the extent they do not exceed our actual net capital gain for the taxable year. However, corporate shareholders may be required to treat up to 20% of any capital gain dividend as ordinary income under Section 291 of the IRC.

If for any taxable year we designate capital gain dividends for our shareholders, then a portion of the capital gain dividends we designate will be allocated to the holders of a particular class of shares on a percentage basis equal to the ratio of the amount of the total dividends paid or made available for the year to the holders of that class of shares to the total dividends paid or made available for the year to holders of all outstanding classes of our shares. We will similarly designate the portion of any dividend that is to be taxed to noncorporate U.S. shareholders at preferential maximum rates (including any qualified dividend income and any capital gains attributable to real estate depreciation recapture that are subject to a maximum 25% federal income tax rate) so that the designations will be proportionate among all outstanding classes of our shares.

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We may elect to retain and pay income taxes on some or all of our net capital gain. In addition, if we so elect by making a timely designation to our shareholders:

(1) each of our U.S. shareholders will be taxed on its designated proportionate share of our retained net capital gains as though that amount were distributed and designated as a capital gain dividend;
(2) each of our U.S. shareholders will receive a credit or refund for its designated proportionate share of the tax that we pay;
(3) each of our U.S. shareholders will increase its adjusted basis in our shares by the excess of the amount of its proportionate share of these retained net capital gains over the U.S. shareholder's proportionate share of the tax that we pay; and
(4) both we and our corporate shareholders will make commensurate adjustments in our respective earnings and profits for federal income tax purposes.

Distributions in excess of our current or accumulated earnings and profits will not be taxable to a U.S. shareholder to the extent that they do not exceed the shareholder's adjusted tax basis in our shares, but will reduce the shareholder's basis in such shares. To the extent that these excess distributions exceed a U.S. shareholder's adjusted basis in such shares, they will be included in income as capital gain, with long-term gain generally taxed to noncorporate U.S. shareholders at preferential maximum rates. No U.S. shareholder may include on its federal income tax return any of our net operating losses or any of our capital losses. In addition, no portion of any of our dividends is eligible for the dividends received deduction for corporate shareholders.

If a dividend is declared in October, November or December to shareholders of record during one of those months and is paid during the following January, then for federal income tax purposes the dividend will be treated as having been both paid and received on December 31 of the prior taxable year.

A U.S. shareholder will generally recognize gain or loss equal to the difference between the amount realized and the shareholder's adjusted basis in our shares that are sold or exchanged. This gain or loss will be capital gain or loss, and will be long-term capital gain or loss if the shareholder's holding period in our shares exceeds one year. In addition, any loss upon a sale or exchange of our shares held for six months or less will generally be treated as a long-term capital loss to the extent of any long-term capital gain dividends we paid on such shares during the holding period.

U.S. shareholders who are individuals, estates or trusts are generally required to pay a 3.8% Medicare tax on their net investment income (including dividends on our shares (without regard to any deduction allowed by Section 199A of the IRC) and gains from the sale or other disposition of our shares), or in the case of estates and trusts on their net investment income that is not distributed, in each case to the extent that their total adjusted income exceeds applicable thresholds. U.S. shareholders are urged to consult their tax advisors regarding the application of the 3.8% Medicare tax.

If a U.S. shareholder recognizes a loss upon a disposition of our shares in an amount that exceeds a prescribed threshold, it is possible that the provisions of Treasury regulations involving "reportable transactions" could apply, with a resulting requirement to separately disclose the loss-generating transaction to the IRS. These Treasury regulations are written quite broadly, and apply to many routine and simple transactions. A reportable transaction currently includes, among other things, a sale or exchange of our shares resulting in a tax loss in excess of (a) $10 million in any single year or $20 million in a prescribed combination of taxable years in the case of our shares held by a C corporation or by a partnership with only C corporation partners or (b) $2 million in any single year or $4 million in a prescribed combination of taxable years in the case of our shares held by any other partnership or an S corporation, trust or individual, including losses that flow through pass through entities to individuals. A taxpayer discloses a reportable transaction by filing IRS Form 8886 with its federal income tax return and, in the first year of filing, a copy of Form 8886 must be sent to the IRS's Office of Tax Shelter Analysis. The annual maximum penalty for failing to disclose a reportable transaction is generally $10,000 in the case of a natural person and $50,000 in any other case.

Noncorporate U.S. shareholders who borrow funds to finance their acquisition of our shares could be limited in the amount of deductions allowed for the interest paid on the indebtedness incurred. Under

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Section 163(d) of the IRC, interest paid or accrued on indebtedness incurred or continued to purchase or carry property held for investment is generally deductible only to the extent of the investor's net investment income. A U.S. shareholder's net investment income will include ordinary income dividend distributions received from us and, only if an appropriate election is made by the shareholder, capital gain dividend distributions and qualified dividends received from us; however, distributions treated as a nontaxable return of the shareholder's basis will not enter into the computation of net investment income.

### **Taxation of Tax-Exempt U.S. Shareholders**

The rules governing the federal income taxation of tax-exempt entities are complex, and the following discussion is intended only as a summary of material considerations of an investment in our shares relevant to such investors. If you are a tax-exempt shareholder, we urge you to consult your own tax advisor to determine the impact of federal, state, local and foreign tax laws, including any tax return filing and other reporting requirements, with respect to your acquisition of or investment in our shares.

We expect that shareholders that are tax-exempt pension plans, individual retirement accounts or other qualifying tax-exempt entities, and that receive (a) distributions from us, or (b) proceeds from the sale of our shares, should not have such amounts treated as UBTI, provided in each case (x) that the shareholder has not financed its acquisition of our shares with 'acquisition indebtedness' within the meaning of the IRC, (y) that the shares are not otherwise used in an unrelated trade or business of the tax-exempt entity, and (z) that, consistent with our present intent, we do not hold a residual interest in a real estate mortgage investment conduit or otherwise hold mortgage assets or conduct mortgage securitization activities that generate 'excess inclusion' income.

### **Taxation of Non-U.S. Shareholders**

The rules governing the U.S. federal income taxation of non-U.S. shareholders are complex, and the following discussion is intended only as a summary of material considerations of an investment in our shares relevant to such investors. If you are a non-U.S. shareholder, we urge you to consult your own tax advisor to determine the impact of U.S. federal, state, local and foreign tax laws, including any tax return filing and other reporting requirements, with respect to your acquisition of or investment in our shares.

We expect that a non-U.S. shareholder's receipt of (a) distributions from us, and (b) proceeds from the sale of our shares, will not be treated as income effectively connected with a U.S. trade or business and a non-U.S. shareholder will therefore not be subject to the often higher federal tax and withholding rates, branch profits taxes and increased reporting and filing requirements that apply to income effectively connected with a U.S. trade or business. This expectation and a number of the determinations below are predicated on our shares being listed on a U.S. national securities exchange, such as The Nasdaq Stock Market LLC, or Nasdaq. Each class of our shares has been listed on a U.S. national securities exchange; however, we cannot be sure that our shares will continue to be so listed in future taxable years or that any class of our shares that we may issue in the future will be so listed.

*Distributions.* A distribution by us to a non-U.S. shareholder that is not designated as a capital gain dividend will be treated as an ordinary income dividend to the extent that it is made out of our current or accumulated earnings and profits. A distribution of this type will generally be subject to U.S. federal income tax and withholding at the rate of 30%, or at a lower rate if the non-U.S. shareholder has in the manner prescribed by the IRS demonstrated to the applicable withholding agent its entitlement to benefits under a tax treaty. Because we cannot determine our current and accumulated earnings and profits until the end of the taxable year, withholding at the statutory rate of 30% or applicable lower treaty rate will generally be imposed on the gross amount of any distribution to a non-U.S. shareholder that we make and do not designate as a capital gain dividend. Notwithstanding this potential withholding on distributions in excess of our current and accumulated earnings and profits, these excess portions of distributions are a nontaxable return of capital to the extent that they do not exceed the non-U.S. shareholder's adjusted basis in our shares, and the nontaxable return of capital will reduce the adjusted basis in these shares. To the extent that distributions in excess of our current and accumulated earnings and profits exceed the non-U.S. shareholder's adjusted basis in our shares, the distributions will give rise to U.S. federal income tax liability only in the unlikely event that the non-U.S. shareholder would otherwise be subject to tax on any gain from the sale or exchange of these shares, as discussed below under the heading '- Dispositions of Our Shares.' A

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non-U.S. shareholder may seek a refund from the IRS of amounts withheld on distributions to it in excess of such shareholder's allocable share of our current and accumulated earnings and profits.

For so long as a class of our shares is listed on a U.S. national securities exchange, capital gain dividends that we declare and pay to a non-U.S. shareholder on those shares, as well as dividends to such a non-U.S. shareholder on those shares attributable to our sale or exchange of 'United States real property interests' within the meaning of Section 897 of the IRC, or USRPIs, will not be subject to withholding as though those amounts were effectively connected with a U.S. trade or business, and non-U.S. shareholders will not be required to file U.S. federal income tax returns or pay branch profits tax in respect of these dividends. Instead, these dividends will generally be treated as ordinary dividends and subject to withholding in the manner described above.

Tax treaties may reduce the withholding obligations on our distributions. Under some treaties, however, rates below 30% that are applicable to ordinary income dividends from U.S. corporations may not apply to ordinary income dividends from a REIT or may apply only if the REIT meets specified additional conditions. A non-U.S. shareholder must generally use an applicable IRS Form W-8, or substantially similar form, to claim tax treaty benefits. If the amount of tax withheld with respect to a distribution to a non-U.S. shareholder exceeds the shareholder's U.S. federal income tax liability with respect to the distribution, the non-U.S. shareholder may file for a refund of the excess from the IRS. Treasury regulations also provide special rules to determine whether, for purposes of determining the applicability of a tax treaty, our distributions to a non-U.S. shareholder that is an entity should be treated as paid to the entity or to those owning an interest in that entity, and whether the entity or its owners are entitled to benefits under the tax treaty.

If, contrary to our expectation, a class of our shares was not listed on a U.S. national securities exchange and we made a distribution on those shares that was attributable to gain from the sale or exchange of a USRPI, then a non-U.S. shareholder holding those shares would be taxed as if the distribution was gain effectively connected with a trade or business in the United States conducted by the non-U.S. shareholder. In addition, the applicable withholding agent would be required to withhold from a distribution to such a non-U.S. shareholder, and remit to the IRS, up to 21% of the maximum amount of any distribution that was or could have been designated as a capital gain dividend. The non-U.S. shareholder also would generally be subject to the same treatment as a U.S. shareholder with respect to the distribution (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of a nonresident alien individual), would be subject to fulsome U.S. federal income tax return reporting requirements, and, in the case of a corporate non-U.S. shareholder, may owe the up to 30% branch profits tax under Section 884 of the IRC (or lower applicable tax treaty rate) in respect of these amounts.

Although the law is not entirely clear on the matter, it appears that amounts designated by us as undistributed capital gain in respect of our shares that are held by non-U.S. shareholders generally should be treated in the same manner as actual distributions by us of capital gain dividends. Under this approach, the non-U.S. shareholder would be able to offset as a credit against its resulting U.S. federal income tax liability its proportionate share of the tax paid by us on the undistributed capital gain treated as distributed to the non-U.S. shareholder, and receive from the IRS a refund to the extent its proportionate share of the tax paid by us were to exceed the non-U.S. shareholder's actual U.S. federal income tax liability on such deemed distribution. If we were to designate any portion of our net capital gain as undistributed capital gain, a non-U.S. shareholder should consult its tax advisors regarding taxation of such undistributed capital gain.

*Dispositions of Our Shares.* If as expected our shares are not USRPIs, then a non-U.S. shareholder's gain on the sale of these shares generally will not be subject to U.S. federal income taxation or withholding. We expect that our shares will not be USRPIs because one or both of the following exemptions will be available at all times.

First, for so long as a class of our shares is listed on a U.S. national securities exchange, a non-U.S. shareholder's gain on the sale of those shares will not be subject to U.S. federal income taxation as a sale of a USRPI. Second, our shares will not constitute USRPIs if we are a 'domestically controlled' REIT. We will be a 'domestically controlled' REIT if less than 50% of the value of our shares (including any future class of shares that we may issue) is held, directly or indirectly, by non-U.S. shareholders at all times during the

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preceding five years, after applying specified presumptions regarding the ownership of our shares as described in Section 897(h)(4)(E) of the IRC. For these purposes, we believe that the statutory ownership presumptions apply to validate our status as a “domestically controlled” REIT. Accordingly, we believe that we are and will remain a “domestically controlled” REIT.

If, contrary to our expectation, a gain on the sale of our shares is subject to U.S. federal income taxation (for example, because neither of the above exemptions were then available, i.e., that class of our shares were not then listed on a U.S. national securities exchange and we were not a “domestically controlled” REIT), then (a) a non-U.S. shareholder would generally be subject to the same treatment as a U.S. shareholder with respect to its gain (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals), (b) the non-U.S. shareholder would also be subject to fulsome U.S. federal income tax return reporting requirements, and (c) a purchaser of that class of our shares from the non-U.S. shareholder may be required to withhold 15% of the purchase price paid to the non-U.S. shareholder and to remit the withheld amount to the IRS.

### **Information Reporting, Backup Withholding, and Foreign Account Withholding**

Information reporting, backup withholding, and foreign account withholding may apply to distributions or proceeds paid to our shareholders under the circumstances discussed below. If a shareholder is subject to backup or other U.S. federal income tax withholding, then the applicable withholding agent will be required to withhold the appropriate amount with respect to a deemed or constructive distribution or a distribution in kind even though there is insufficient cash from which to satisfy the withholding obligation. To satisfy this withholding obligation, the applicable withholding agent may collect the amount of U.S. federal income tax required to be withheld by reducing to cash for remittance to the IRS a sufficient portion of the property that the shareholder would otherwise receive or own, and the shareholder may bear brokerage or other costs for this withholding procedure.

Amounts withheld under backup withholding are generally not an additional tax and may be refunded by the IRS or credited against the shareholder’s federal income tax liability, provided that such shareholder timely files for a refund or credit with the IRS. A U.S. shareholder may be subject to backup withholding when it receives distributions on our shares or proceeds upon the sale, exchange, redemption, retirement or other disposition of our shares, unless the U.S. shareholder properly executes, or has previously properly executed, under penalties of perjury an IRS Form W-9 or substantially similar form that:

- provides the U.S. shareholder’s correct taxpayer identification number;
- certifies that the U.S. shareholder is exempt from backup withholding because (a) it comes within an enumerated exempt category, (b) it has not been notified by the IRS that it is subject to backup withholding, or (c) it has been notified by the IRS that it is no longer subject to backup withholding; and
- certifies that it is a U.S. citizen or other U.S. person.

If the U.S. shareholder has not provided and does not provide its correct taxpayer identification number and appropriate certifications on an IRS Form W-9 or substantially similar form, it may be subject to penalties imposed by the IRS, and the applicable withholding agent may have to withhold a portion of any distributions or proceeds paid to such U.S. shareholder. Unless the U.S. shareholder has established on a properly executed IRS Form W-9 or substantially similar form that it comes within an enumerated exempt category, distributions or proceeds on our shares paid to it during the calendar year, and the amount of tax withheld, if any, will be reported to it and to the IRS.

Distributions on our shares to a non-U.S. shareholder during each calendar year and the amount of tax withheld, if any, will generally be reported to the non-U.S. shareholder and to the IRS. This information reporting requirement applies regardless of whether the non-U.S. shareholder is subject to withholding on distributions on our shares or whether the withholding was reduced or eliminated by an applicable tax treaty. Also, distributions paid to a non-U.S. shareholder on our shares will generally be subject to backup withholding, unless the non-U.S. shareholder properly certifies to the applicable withholding agent its non-U.S. shareholder status on an applicable IRS Form W-8 or substantially similar form. Information reporting and backup withholding will not apply to proceeds a non-U.S. shareholder receives upon the sale,

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exchange, redemption, retirement or other disposition of our shares, if the non-U.S. shareholder properly certifies to the applicable withholding agent its non-U.S. shareholder status on an applicable IRS Form W-8 or substantially similar form. Even without having executed an applicable IRS Form W-8 or substantially similar form, however, in some cases information reporting and backup withholding will not apply to proceeds that a non-U.S. shareholder receives upon the sale, exchange, redemption, retirement or other disposition of our shares if the non-U.S. shareholder receives those proceeds through a broker’s foreign office.

Non-U.S. financial institutions and other non-U.S. entities are subject to diligence and reporting requirements for purposes of identifying accounts and investments held directly or indirectly by U.S. persons. The failure to comply with these additional information reporting, certification and other requirements could result in a 30% U.S. withholding tax on applicable payments to non-U.S. persons, notwithstanding any otherwise applicable provisions of an income tax treaty. In particular, a payee that is a foreign financial institution that is subject to the diligence and reporting requirements described above must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by “specified United States persons” or “United States owned foreign entities” (each as defined in the IRC and administrative guidance thereunder), annually report information about such accounts, and withhold 30% on applicable payments to noncompliant foreign financial institutions and account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States with respect to these requirements may be subject to different rules. The foregoing withholding regime generally applies to payments of dividends on our shares. In general, to avoid withholding, any non-U.S. intermediary through which a shareholder owns our shares must establish its compliance with the foregoing regime, and a non-U.S. shareholder must provide specified documentation (usually an applicable IRS Form W-8) containing information about its identity, its status, and if required, its direct and indirect U.S. owners. Non-U.S. shareholders and shareholders who hold our shares through a non-U.S. intermediary are encouraged to consult their own tax advisors regarding foreign account tax compliance.

## Other Tax Considerations

Our tax treatment and that of our shareholders may be modified by legislative, judicial or administrative actions at any time, which actions may have retroactive effect. The rules dealing with federal income taxation are constantly under review by the U.S. Congress, the IRS and the U.S. Department of the Treasury, and statutory changes, new regulations, revisions to existing regulations and revised interpretations of established concepts are issued frequently. Likewise, the rules regarding taxes other than U.S. federal income taxes may also be modified. No prediction can be made as to the likelihood of passage of new tax legislation or other provisions, or the direct or indirect effect on us and our shareholders. Revisions to tax laws and interpretations of these laws could adversely affect our ability to qualify and be taxed as a REIT, as well as the tax or other consequences of an investment in our shares. We and our shareholders may also be subject to taxation by state, local or other jurisdictions, including those in which we or our shareholders transact business or reside. These tax consequences may not be comparable to the U.S. federal income tax consequences discussed above.

## ERISA PLANS, KEOGH PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS

### General Fiduciary Obligations

The Employee Retirement Income Security Act of 1974, as amended, or ERISA, the IRC and similar provisions to those described below under applicable foreign or state law, individually and collectively, impose certain duties on persons who are fiduciaries of any employee benefit plan subject to Title I of ERISA, or an ERISA Plan, or an individual retirement account or annuity, or an IRA, a Roth IRA, a tax-favored account (such as an Archer MSA, Coverdell education savings account or health savings account), a Keogh plan or other qualified retirement plan not subject to Title I of ERISA, each a Non-ERISA Plan. Under ERISA and the IRC, any person who exercises any discretionary authority or control over the administration of, or the management or disposition of the assets of, an ERISA Plan or Non-ERISA Plan, or who renders investment advice for a fee or other compensation to an ERISA Plan or Non-ERISA Plan, is generally considered to be a fiduciary of the ERISA Plan or Non-ERISA Plan.

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Fiduciaries of an ERISA Plan must consider whether:

- their investment in our shares or other securities satisfies the diversification requirements of ERISA;
- the investment is prudent in light of possible limitations on the marketability of our shares;
- they have authority to acquire our shares or other securities under the applicable governing instrument and Title I of ERISA; and
- the investment is otherwise consistent with their fiduciary responsibilities.

Fiduciaries of an ERISA Plan may incur personal liability for any loss suffered by the ERISA Plan on account of a violation of their fiduciary responsibilities. In addition, these fiduciaries may be subject to a civil penalty of up to 20% of any amount recovered by the ERISA Plan on account of a violation. Fiduciaries of any Non-ERISA Plan should consider that the Non-ERISA Plan may only make investments that are authorized by the appropriate governing instrument and applicable law.

Fiduciaries considering an investment in our securities should consult their own legal advisors if they have any concern as to whether the investment is consistent with the foregoing criteria or is otherwise appropriate. The sale of our securities to an ERISA Plan or Non-ERISA Plan is in no respect a representation by us or any underwriter of the securities that the investment meets all relevant legal requirements with respect to investments by the arrangements generally or any particular arrangement, or that the investment is appropriate for arrangements generally or any particular arrangement.

### **Prohibited Transactions**

Fiduciaries of ERISA Plans and persons making the investment decision for Non-ERISA Plans should consider the application of the prohibited transaction provisions of ERISA and the IRC in making their investment decision. Sales and other transactions between an ERISA Plan or a Non-ERISA Plan and disqualified persons or parties in interest, as applicable, are prohibited transactions and result in adverse consequences absent an exemption. The particular facts concerning the sponsorship, operations and other investments of an ERISA Plan or Non-ERISA Plan may cause a wide range of persons to be treated as disqualified persons or parties in interest with respect to it. A non-exempt prohibited transaction, in addition to imposing potential personal liability upon ERISA Plan fiduciaries, may also result in the imposition of an excise tax under the IRC or a penalty under ERISA upon the disqualified person or party in interest. If the disqualified person who engages in the transaction is the individual on behalf of whom an IRA, Roth IRA or other tax-favored account is maintained (or their beneficiary), the IRA, Roth IRA or other tax-favored account may lose its tax-exempt status and its assets may be deemed to have been distributed to the individual in a taxable distribution on account of the non-exempt prohibited transaction, but no excise tax will be imposed. Fiduciaries considering an investment in our securities should consult their own legal advisors as to whether the ownership of our securities involves a non-exempt prohibited transaction.

### **“Plan Assets” Considerations**

The U.S. Department of Labor has issued a regulation defining “plan assets.” The regulation, as subsequently modified by ERISA, generally provides that when an ERISA Plan or a Non-ERISA Plan otherwise subject to Title I of ERISA and/or Section 4975 of the IRC acquires an interest in an entity that is neither a “publicly offered security” nor a security issued by an investment company registered under the Investment Company Act of 1940, as amended, the assets of the ERISA Plan or Non-ERISA Plan include both the equity interest and an undivided interest in each of the underlying assets of the entity, unless it is established either that the entity is an operating company or that equity participation in the entity by benefit plan investors is not significant. We are not an investment company registered under the Investment Company Act of 1940, as amended.

Each class of our equity (that is, our common shares and any other class of equity that we may issue) must be analyzed separately to ascertain whether it is a publicly offered security. The regulation defines a publicly offered security as a security that is “widely held,” “freely transferable” and either part of a class of securities registered under the Exchange Act, or sold under an effective registration statement under the Securities Act of 1933, as amended, or the Securities Act, provided the securities are registered under the Exchange Act within 120 days after the end of the fiscal year of the issuer during which the offering occurred.

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Each class of our outstanding shares has been registered under the Exchange Act within the necessary time frame to satisfy the foregoing condition.

The regulation provides that a security is “widely held” only if it is part of a class of securities that is owned by 100 or more investors independent of the issuer and of one another. However, a security will not fail to be “widely held” because the number of independent investors falls below 100 subsequent to the initial public offering as a result of events beyond the issuer’s control. Although we cannot be sure, we believe our common shares have been and will remain widely held, and we expect the same to be true of any future class of equity that we may issue.

The regulation provides that whether a security is “freely transferable” is a factual question to be determined on the basis of all relevant facts and circumstances. The regulation further provides that, where a security is part of an offering in which the minimum investment is $10,000 or less, some restrictions on transfer ordinarily will not, alone or in combination, affect a finding that these securities are freely transferable. The restrictions on transfer enumerated in the regulation as not affecting that finding include:

- any restriction on or prohibition against any transfer or assignment that would result in a termination or reclassification for federal or state tax purposes, or would otherwise violate any state or federal law or court order;
- any requirement that advance notice of a transfer or assignment be given to the issuer and any requirement that either the transferor or transferee, or both, execute documentation setting forth representations as to compliance with any restrictions on transfer that are among those enumerated in the regulation as not affecting free transferability, including those described in the preceding clause of this sentence;
- any administrative procedure that establishes an effective date, or an event prior to which a transfer or assignment will not be effective; and
- any limitation or restriction on transfer or assignment that is not imposed by the issuer or a person acting on behalf of the issuer.

We believe that the restrictions imposed under our declaration of trust on the transfer of shares do not result in the failure of our shares to be “freely transferable.” Furthermore, we believe that no other facts or circumstances limiting the transferability of our shares exist, other than those that are enumerated under the regulation as not affecting the free transferability of shares. In addition, we do not expect or intend to impose in the future, or to permit any person to impose on our behalf, any limitations or restrictions on transfer that would not be among the enumerated permissible limitations or restrictions.

Assuming that each class of our shares will be “widely held” and that no other facts and circumstances exist that restrict transferability of these shares, our counsel, Sullivan & Worcester LLP, is of the opinion that our shares will not fail to be “freely transferable” for purposes of the regulation due to the restrictions on transfer of our shares in our declaration of trust and that under the regulation each class of our currently outstanding shares is publicly offered and our assets will not be deemed to be “plan assets” of any ERISA Plan or Non-ERISA Plan that acquires our shares in a public offering. This opinion is conditioned upon certain assumptions and representations, as discussed above under the heading “Material United States Federal Income Tax Considerations - Taxation as a REIT.”

## Item 1A. Risk Factors

### Summary of Risk Factors

Our business is subject to a number of risks and uncertainties. The following is a summary of the principal risk factors described in this section:

- we may be unable to renew our leases when they expire or lease our properties to new tenants without decreasing rents or incurring significant costs or at all;
- unfavorable market and economic conditions due to, among other things, rising or sustained high interest rates and high inflation, labor market challenges, supply chain challenges, volatility in the public equity and debt markets and in commercial real estate markets, generally, reductions in

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government spending to fund their obligations, pandemics (such as the COVID-19 pandemic) or other adverse public health safety events or conditions, geopolitical instability (such as the war in Ukraine), and other conditions beyond our control, may have a material adverse effect on our and our tenants’ results of operations and financial conditions, and our tenants may be unable to satisfy their lease obligations to us;

- • remote and other alternative work arrangements and changes in space utilization and other business practices may reduce the demand for office leasing and some tenants have the right to terminate their leases prior to their lease expiration date;
- • our concentration of investments in properties leased to private sector single or majority tenants and the U.S. government, and in properties located in the metropolitan Washington, D.C. area, may subject us to risks associated with bankruptcy, insolvency, a downturn of business or a lease termination of such single or majority tenants, government budgetary pressures and priorities and trends and other fiscal pressures and a downturn in economic conditions or a possible recession;
- • our capital recycling program, development or redevelopment projects or potential future acquisitions may not be successful or may not be executed on the terms or within the timing we expect as a result of competition, current market and economic conditions, including capital market disruptions, rising or sustained high interest rates, or otherwise;
- • we are subject to risks related to our debt, including covenants and conditions contained in our debt agreements which may restrict our operations and ability to make investments and to pay distributions to our shareholders, our ability to manage our leverage at a level we believe appropriate, potential downgrades to our credit ratings and other limitations on our ability to access capital at reasonable costs or at all, including the limited availability of debt capital to office REITs generally;
- • we are subject to risks related to our qualification for taxation as a REIT, including REIT distribution requirements;
- • ownership of real estate is subject to environmental risks and liabilities, as well as risks from adverse weather, natural disasters and climate change and climate related events;
- • insurance may not adequately cover our losses, and insurance costs may continue to increase;
- • we are subject to risks related to our dependence upon RMR to implement our business strategies and manage our day to day operations;
- • we are subject to risks related to the security of RMR's information technology;
- • our management structure and agreements with RMR and our relationships with our related parties, including our Managing Trustees, RMR and others affiliated with them, may create conflicts of interest;
- • ESG initiatives, requirements and market expectations may impose additional costs and expose us to new risks;
- • provisions in our declaration of trust, bylaws and other agreements, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals, limit our rights and the rights of our shareholders to take action against our Trustees and officers or limit our shareholders' ability to obtain a favorable judicial forum for certain disputes; and
- • we may change our operational, financing and investment policies without shareholder approval, and we may reduce the rate of or eliminate our distributions to shareholders or the form of payment could change.

The risks described below may not be the only risks we face but are risks we believe may be material at this time. Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described below occurs, our business, financial condition, liquidity, results of operations or ability to pay distributions to our shareholders could be adversely impacted and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described below and the information contained under the caption “Warning Concerning Forward-Looking Statements”

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and elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities. We may update these risk factors in our future periodic reports.

## Risks Related to Our Business

### *We may be unable to lease our properties when our leases expire.*

Leases representing approximately 11.2% and 14.7% of our annual rental income are scheduled to expire in each of 2023 and 2024, respectively. Although we typically will seek to renew or extend the terms of leases for our properties with tenants when they expire, we cannot be sure that we will be successful in doing so. Increases in remote and other alternative work arrangements and changes in space utilization, as well as economic conditions, including high inflation 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. Our scheduled lease expirations in 2023 and thereafter are significantly higher than in prior recent years. If we are unable to extend or renew our leases, or we renew leases for reduced space, it may be time consuming and expensive to relet some of these properties to new tenants.

### *We may experience declining rents or incur significant costs to renew our leases with current tenants or lease our properties to new tenants, and any rent increases that we do achieve may not exceed increased costs we may incur.*

When we renew our leases with current tenants or lease to new tenants, we may experience rent decreases, and we may have to spend substantial amounts for leasing commissions, tenant improvements or other tenant inducements. Moreover, many of our properties have been specially designed for the particular businesses of our tenants; if the current leases for those properties are terminated or are not renewed, we may be required to renovate those properties at substantial costs, decrease the rents we charge or provide other concessions in order to lease those properties to new tenants. In addition, any rent increases that we do achieve may not exceed our costs associated with renewing our leases with current tenants or leasing our properties to new tenants, which costs have and are expected to continue to increase as a result of rising interest rates, high inflation and supply chain challenges, among other things.

### *Unfavorable market, economic and commercial real estate conditions may have a material adverse effect on our results of operations, financial condition and ability to pay distributions to our shareholders.*

Our business may be adversely affected by market, economic and commercial real estate conditions in the U.S. and global economies, and/or the local economies in the markets in which our properties are located. Unfavorable market, economic and commercial real estate conditions may be due to, among other things, rising or sustained high interest rates and high inflation, labor market challenges, supply chain disruptions, volatility in the public equity and debt markets, pandemics (such as the COVID-19 pandemic), geopolitical instability (such as the war in Ukraine), and other conditions beyond our control. Because economic conditions in the United States may affect the demand for leased space, real estate values, occupancy levels and property income, current and future economic conditions in the United States, including slower growth or a recession and capital market volatility or disruptions, could have a material adverse impact on our earnings and financial condition. Economic conditions may be affected by numerous factors, including, but not limited to, the pace of economic growth and/or recessionary concerns, inflation, increases in the levels of unemployment, energy prices, uncertainty about government fiscal and tax policy, geopolitical events, the regulatory environment, the availability of credit and interest rates. Current conditions, or similar conditions existing in the future, may have a material adverse effect on our results of operations, financial condition and ability to pay distributions to our shareholders.

### *Our business depends upon our tenants satisfying their lease obligations to us, which, with respect to our private sector tenants, depends, to a large degree, on those tenants' abilities to successfully operate their businesses, and, with respect to our government tenants, depends on discretionary funding from federal, state and local governments.*

Our business depends on our tenants satisfying their lease obligations to us. The financial capacities of our private sector tenants to pay us rent will depend upon their abilities to successfully operate their

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businesses, which may be adversely affected by factors over which we and they have no control, including market and economic conditions, such as rising or sustained high interest rates and high inflation, supply chain challenges and economic downturns or recessions. The failure of our private sector tenants and any applicable parent guarantor to satisfy their lease obligations to us, whether due to a downturn in their business or otherwise, could materially and adversely affect us.

In addition, our government tenants are subject to discretionary funding from federal, state and local governments, as applicable. Federal government programs are subject to annual congressional budget authorization and appropriation processes, and state and local government programs are often subject to similar processes. For many federal programs, Congress appropriates funds on a fiscal year basis even though the program performance period may extend over several years. Laws and plans adopted by federal, state and local governments relating to, along with pressures on and uncertainty surrounding, budgets, potential changes in priorities and spending levels, sequestration, the appropriations process and the permissible debt limits, could adversely affect the funding for our government tenants. The budget environment and uncertainty surrounding the appropriations processes remain significant long-term risks as budget cuts could adversely affect the ability of our government tenants to pay us rent.

*Remote and other alternative work arrangements and changes in space utilization and other business practices may reduce the demand for office leasing.*

Changes in space utilization accelerated in response to the COVID-19 pandemic, including increased remote and other alternative work arrangements, continue to impact the market for both private sector and government tenants. It is uncertain to what extent and for how long such remote or other alternative work arrangements may continue. In addition, it is possible that hybrid work arrangements could continue or increase, such as workspace sharing or hoteling of office space. To the extent these practices become permanent or further increase, demand for leased space, including at our properties, may decline. As a result of these factors, our tenant retention levels could decline and we may experience reduced rent or incur increased costs under future new or renewal leases.

*Some of our properties depend upon a private sector single or majority tenant for all or a significant portion of their rental income; therefore, our financial condition, including our ability to pay distributions to our shareholders, may be adversely affected by bankruptcy or insolvency, a downturn in the business, or a lease termination of such a single or majority tenant.*

As of December 31, 2022, 43.8% of our annualized rental income was from our properties leased to private sector single tenants or majority occupied tenants. The value of the properties leased to these tenants is materially dependent on their performance under their respective leases. These tenants face competition within their industries and other factors that could reduce their ability to pay us rent. Lease payment defaults by these tenants could cause us to reduce the amount of distributions that we pay to our shareholders. A default by a single or majority tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease to such a tenant or such tenant's election not to extend a lease upon its expiration could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our shareholders.

*We currently have a concentration of properties in the metropolitan Washington, D.C. market area and are exposed to changes in market conditions in this area.*

As of December 31, 2022, we derived approximately 22.6% of our annualized rental income from our consolidated properties located in the metropolitan Washington, D.C. market area. In addition, the three properties owned by two joint ventures in which we own 51% and 50% interests are also located in the metropolitan Washington, D.C. market area. A downturn in economic conditions in this area or a possible recession, including as a result of current inflationary conditions or otherwise, could result in reduced demand from tenants for our properties, reduced rents that our tenants in this area are willing to pay when our leases expire and increased lease concessions for new leases and renewals. Additionally, there has been a decrease in demand for new leased space by the U.S. government in the metropolitan Washington, D.C. market area, and that could increase competition for government tenants and adversely affect our ability to retain government tenants when our leases expire. Thus, adverse developments and/or conditions in the

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metropolitan Washington, D.C. market area could reduce demand for space, impact the credit worthiness of our tenants or force our tenants to curtail operations, which could impair their ability to meet their rent obligations to us and, accordingly, could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our shareholders.

# ***Government budgetary pressures and priorities and trends in government employment and office leasing, including remote working and other space utilization trends, may adversely impact our business.***

We believe that recent government budgetary and spending priorities and enhancements in technology during the pandemic have resulted in a decrease in government office use for employees. Furthermore, over the past several years, government tenants have reduced their space utilization per employee and consolidated government tenants into existing government owned properties. This activity has reduced the demand for government leased space. Our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants have generally renewed leases to avoid the costs and disruptions that may result from relocating their operations. However, efforts to manage space utilization rates may result in our tenants exercising early termination rights under our leases, vacating our properties upon expiration of our leases in order to relocate to government owned properties or consolidated leased space within a market, or renewing their leases for less space than they currently occupy. Also, our government tenants' desire to reconfigure leased office space to manage utilization per employee may require us to spend significant amounts for tenant improvements, and tenant relocations are often more prevalent in those circumstances. Increasing uncertainty with respect to government agency budgets and funding to implement relocations, consolidations and reconfigurations has, in some instances, resulted in delayed decisions by some of our government tenants and more focus on short term lease renewals. Given the significant uncertainties, including the extent to which remote or alternative work arrangements may continue or increase, we are unable to reasonably project what the financial impact of market conditions or changing government circumstances will be on the demand for leased space at our properties and our financial results for future periods.

# ***A prolonged U.S. government shutdown may adversely impact our operations, financial results and liquidity.***

Under our leases with the U.S. government, the tenants pay us rent monthly in arrears. If the U.S. government experiences a prolonged shutdown, these tenants may not pay us rent during the pendency of the shutdown. Although we expect that these tenants would pay us any outstanding rents after the shutdown ends, our available cash and leverage targets may be adversely impacted during the period we do not receive rents from these tenants. A failure to receive rents during a government shutdown may impair our ability to fund our operations and investments, pay our debt obligations, make capital expenditures and pay distributions to our shareholders. In addition, the impact of a prolonged government shutdown on government personnel resources could hinder our ability to renew expiring leases or initiate or complete renovation, construction and other capital maintenance of the affected properties. Moreover, some of our tenants are government contractors that rely on government business. If a government shutdown results in our government contractor tenants not paying us rent, the negative impact on us from a government shutdown may be compounded.

# ***Our capital recycling program may not be successful.***

Through our capital recycling program, we seek to selectively sell certain properties from time to time to fund future acquisitions, capital requirements and to manage leverage at a level we believe appropriate with a goal of (1) improving the asset quality of our portfolio through diversification of property types, by reducing the average age of our properties, lengthening the weighted average lease term of our leases and increasing the likelihood of retaining our tenants and (2) increasing our cash available for distribution. However, our ability to sell our properties we identify for sale, and the prices we receive upon a sale, may be affected by many factors. In particular, these factors could arise from weakness in or the lack of an established market for a property, changes in the financial condition of prospective purchasers and the availability of financing to potential purchasers on reasonable terms, the number of prospective purchasers, the number of competing properties on the market, unfavorable local, national or international economic conditions, such as rising or sustained high interest rates and high inflation, supply chain challenges and economic downturns or recessions, and changes in laws, regulations or fiscal policies of jurisdictions in which

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the property is located. For example, current market conditions have caused, and may continue to cause, increased capitalization rates which, together with rising interest rates, has resulted in reduced commercial real estate transaction volume, and such conditions may continue or worsen. We may not succeed in selling properties that we identify for sale, the terms of any such sales may not meet our expectations and we may incur losses in connection with those sales. Further, we may not succeed in identifying and acquiring properties that improve the asset quality of our portfolio and enable us to increase our cash available for distribution and we may not succeed in managing leverage at levels we believe appropriate. As a result, our capital recycling program may not be successful.

*We are exposed to risks associated with property development, redevelopment and repositioning that could adversely affect us, including our financial condition and results of operations.*

We currently have properties under development and we intend to continue to engage in development, redevelopment and repositioning activities with respect to our properties, and, as a result, we are subject to certain risks, which could adversely affect us, including our financial condition and results of operations. These risks include cost overruns and untimely completion of construction due to, among other things, weather conditions, inflation, labor or material shortages or delays in receiving permits or other governmental approvals, as well as the availability and pricing of financing on favorable terms or at all. Recent supply chain constraints and commodity pricing and other inflation, including inflation impacting wages and employee benefits, have resulted in increased costs for materials, other goods and labor, including construction materials, and some delays in construction activities, and these conditions may continue and worsen. These risks could result in substantial unanticipated delays and increased development and renovation costs and could prevent the initiation or the completion of development, redevelopment or repositioning activities. In addition, changes to demand for leased space and increased vacancies due to continued increases in remote and other alternative work arrangements and changes in space utilization, as well as current economic conditions and volatility in the commercial real estate markets, generally, may cause delays in leasing these properties or possible loss of tenancies and negatively impact our ability to generate cash flows from these properties that meet or exceed our cost of investment. Any of these risks associated with our current or future development, redevelopment and repositioning activities could have a material adverse effect on our business, financial condition and results of operations.

*We may be unable to grow our business by acquiring additional properties, and we might encounter unanticipated difficulties and expenditures relating to our acquired properties.*

Our business plan includes the acquisition of additional properties. Our ability to make profitable acquisitions is subject to risks, including, but not limited to, risks associated with:

- competition from other investors;
- contingencies in our acquisition agreements;
- the availability, terms and cost of debt and equity capital; and
- the extent of our debt leverage.

These risks may limit our ability to grow our business by acquiring additional properties. In addition, we might encounter unanticipated difficulties and expenditures relating to our acquired properties. For example:

- notwithstanding pre-acquisition due diligence, we could acquire a property that contains undisclosed defects in design or construction or unknown liabilities, including those related to undisclosed environmental contamination, or our analyses and assumptions for the properties may prove to be incorrect, or we could receive rental revenues less than we expect at an acquired property due to tenant vacancies, changed economic conditions or otherwise;
- an acquired property may be located in a new market where we may face risks associated with investing in an unfamiliar market;
- the market in which an acquired property is located may experience unexpected changes that adversely affect the property's value; and

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• property operating costs for our acquired properties may be higher than anticipated and our acquired properties may not yield expected returns.

For these reasons, among others, we might not realize the anticipated benefits of our acquisitions, and our business plan to acquire additional properties may not succeed or may cause us to experience losses.

*REIT distribution requirements and limitations on our ability to access capital at reasonable costs or at all may adversely impact our ability to carry out our business plan.*

To maintain our qualification for taxation as a REIT under the IRC, we are required to satisfy distribution requirements imposed by the IRC. See “Material United States Federal Income Tax Considerations - REIT Qualification Requirements - Annual Distribution Requirements” included in Part I, Item 1 of this Annual Report on Form 10-K. Accordingly, we may not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties or fund our acquisitions or development, redevelopment or repositioning efforts. Our business strategies therefore depend, in part, upon our ability to raise additional capital at reasonable costs. We may be unable to raise capital at reasonable costs or at all because of reasons related to our business, market perceptions of our prospects, the terms of our existing debt, the extent of our leverage or for reasons beyond our control, such as capital market volatility, rising or sustained high interest rates and other market conditions. For example, decreased demand for leased space and increased vacancies due to continued increases in remote and other alternative work arrangements and changes in space utilization, as well as current economic conditions, have negatively impacted the availability of debt capital to office REITs on reasonable terms or at all. Because the earnings we are permitted to retain are limited by the rules governing REIT qualification and taxation, if we are unable to raise reasonably priced capital, we may not be able to carry out our business plan.

*We face significant competition.*

We face significant competition for acquisition opportunities from other investors, including publicly traded and private REITs, numerous financial institutions, individuals, foreign investors and other public and private companies. Some of our competitors may have greater financial and other resources than us, and may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of tenants and guarantors and the extent of leverage used in their capital structure. Because of competition for acquisitions, we may be unable to acquire desirable properties or we may pay higher prices for, and realize lower net cash flows than we hope to achieve from, acquisitions.

We also face competition for tenants at our properties. Some competing properties may be newer, better located or more attractive to tenants. Competing properties may have lower rates of occupancy than our properties, which may result in competing owners offering available space at lower rents than we offer at our properties. Development activities may increase the supply of properties of the type we own in the leasing markets in which we own properties and increase the competition we face. Competition may make it difficult for us to attract and retain tenants and may reduce the rents we are able to charge and the values of our properties.

*Some tenants have the right to terminate their leases prior to their lease expiration date.*

Some of our leases allow the tenants to vacate the leased premises before the stated terms of the leases expire with little or no liability. In particular:

• Tenants occupying approximately 2.4% of our rentable square feet and responsible for approximately 2.3% of our annualized rental income as of December 31, 2022 have currently exercisable rights to terminate their leases before the stated term of their leases expire.
• As of December 31, 2022, pursuant to leases with 10 of our tenants, these tenants have rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These 10 tenants represented approximately 5.5% of our rentable square feet and 6.1% of our annualized rental income as of December 31, 2022.

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For various reasons, some or all of our tenants may decide to exercise early termination rights under our leases or vacate our properties upon expiration of our leases. If a significant number of our leases are terminated pursuant to these termination rights, our income and cash flow may materially decline, our ability to pay distributions to our shareholders may be negatively impacted and the values of our properties may decline.

# ***We have debt and we may incur additional debt.***

As of December 31, 2022, our consolidated debt was $2.5 billion. As of December 31, 2022 and February 14, 2023, we had $195.0 million and $220.0 million outstanding under our revolving credit facility and $555.0 million and $530.0 million available for borrowing, respectively. Our credit agreement includes a feature under which the maximum borrowing availability may be increased to up to $1.95 billion in certain circumstances.

We are subject to numerous risks associated with our debt, including the risk that our cash flows could be insufficient for us to make required payments and risks associated with increases in and sustained high market interest rates. There are no limits in our organizational documents on the amount of debt we may incur, and we may incur substantial debt. Our debt may increase our vulnerability to adverse market and economic conditions, limit our flexibility in planning for changes in our business and place us at a disadvantage in relation to competitors that have lower debt levels. Our debt could increase our costs of capital, limit our ability to incur additional debt in the future, and increase our exposure to floating interest rates or expose us to potential events of default (if not cured or waived) under covenants contained in debt instruments that could have a material adverse effect on our business, financial condition and operating results. Rising interest rates have significantly increased, and may continue to significantly increase, our interest expense. Excessive or expensive debt could reduce the available cash flow to fund, or limit our ability to obtain financing for, working capital, capital expenditures, acquisitions, development or redevelopment projects, refinancing, lease obligations or other purposes and hinder our ability to achieve or maintain investment grade ratings from nationally recognized credit rating agencies or to pay distributions to our shareholders.

If we default under any of our debt obligations, we may be in default under other debt agreements of ours that have cross default provisions, including our credit agreement and our senior unsecured notes indentures and their supplements. In such case, our lenders or noteholders may demand immediate payment of any outstanding debt and we could be forced to liquidate our assets for less than the values we would receive in a more orderly process.

# ***We may fail to comply with the terms of our debt agreements, which could adversely affect our business and prohibit us from paying distributions to our shareholders.***

Our debt agreements include various conditions, covenants and events of default. We may not be able to satisfy all of these conditions or may default on some of these covenants for various reasons, including for reasons beyond our control. Complying with these covenants may limit our ability to take actions that may be beneficial to us and our security holders.

Our credit agreement and our senior unsecured notes indentures and their supplements require us to comply with certain financial and other covenants. Our ability to comply with those covenants will depend upon the net rental income we receive from our properties. If the occupancy at our properties declines or if our rents decline, we may be unable to borrow under our revolving credit facility. If we are unable to borrow under our revolving credit facility, we may be unable to meet our obligations or grow our business by acquiring additional properties or otherwise. If we default under our credit agreement, our lenders may demand immediate payment and may elect not to fund future borrowings. During the continuance of any event of default under our credit agreement, we may be limited or, in some cases, prohibited from paying distributions to our shareholders. Any default under our credit agreement that results in acceleration of our obligations to repay outstanding debt or in our no longer being permitted to borrow under our revolving credit facility would likely have serious adverse consequences to us and would likely cause the value of our securities to decline.

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In the future, we may obtain additional debt financing, and the covenants and conditions applicable to that debt may be more restrictive than the covenants and conditions that are contained in our existing debt agreements.

*Increases in market interest rates have significantly increased our interest expense and may otherwise materially and negatively affect us.*

Recent increases in market interest rates have significantly increased our interest expense. In response to significant and prolonged increases in inflation, the Federal Reserve has raised interest rates several times since the beginning of 2022 and has announced an expectation that interest rates will continue to rise. The timing, number and amount of any future interest rate increases, and the duration that those increased rates will be in effect, are uncertain. Interest rate increases may materially and negatively affect us in several ways, including:

- investors may consider whether to buy or sell our common shares based upon the distribution rate on our common shares relative to the then prevailing market interest rates. If market interest rates continue to rise or remain at elevated levels, investors may expect a higher distribution rate than we are able to pay, which may increase our cost of capital, or they may sell our common shares and seek alternative investments that offer higher distribution rates. Sales of our common shares may cause a decline in the value of our common shares;
- amounts outstanding under our revolving credit facility require interest to be paid at floating interest rates. When interest rates increase, our interest costs will increase, which could adversely affect our cash flows, our ability to pay principal and interest on our debt, our cost of refinancing our fixed rate debts when they become due and our ability to pay distributions to our shareholders. Additionally, if we choose to hedge our interest rate risk, we cannot be sure that the hedge will be effective or that our hedging counterparty will meet its obligations to us; and
- property values are often determined, in part, based upon a capitalization of rental income formula. When market interest rates increase or remain at elevated levels, real estate transaction volumes often slow due to increased borrowing costs, which the commercial real estate market is currently experiencing, and property investors often demand higher capitalization rates and that causes property values to decline. Increases in or continued elevated levels of interest rates could lower the value of our properties and cause the value of our securities to decline.

In addition, as noted in Part II, Item 7A of this Annual Report on Form 10-K, LIBOR has been phased out for new contracts and is expected to be phased out for pre-existing contracts by June 30, 2023. We are required to pay interest on borrowings under our revolving credit facility at floating rates based on LIBOR, and interest we may pay on any future borrowings under our revolving credit facility may also require that we pay interest based upon LIBOR. We currently expect that the determination of interest under our revolving credit facility will be revised as provided under our credit agreement or amended as necessary to provide for an alternative interest rate index. We expect that the alternative interest rate index would likely be the secured overnight financing rate, or SOFR, because interest rates based on SOFR have gained significant market adoption as the replacement to LIBOR for debt facilities similar to ours. Despite our current expectations, we cannot be sure that any changes to the determination of interest under our credit agreement would approximate the current calculation in accordance with LIBOR. We cannot be certain of what standard, if any, will replace LIBOR, and any alternative interest rate index that may replace LIBOR may result in changes to the amount of interest we are required to pay and could result in our paying increased interest amounts.

*A further downgrade in our credit ratings may increase our cost of capital and could otherwise materially adversely affect our business and financial condition.*

Our outstanding senior unsecured debt is rated investment grade by S&P Global Ratings. In determining our credit ratings, the rating agencies consider a number of both quantitative and qualitative factors, including earnings, fixed charges, cash flows, total debt outstanding, total secured debt, off balance sheet obligations, total capitalization and various ratios calculated from these factors. The rating agencies also consider predictability of cash flows, business strategy, joint venture activity, property development risks,

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industry conditions and contingencies. Therefore, deterioration in our operating performance may put further pressure on our investment grade rating. In November 2022, Moody’s downgraded our corporate credit rating from Baa3 with a stable outlook to Ba1. Although our corporate credit rating at S&P Global Ratings currently remains “BBB-” with a negative outlook, we cannot be sure that our credit ratings will not be lowered further or withdrawn in their entirety. A negative change in our ratings outlook or any further downgrade in our current investment grade credit ratings by rating agencies could adversely affect our cost and access to sources of liquidity and capital. Additionally, a further downgrade could, among other things, further increase the costs of borrowing under our revolving credit facility, adversely impact our ability to obtain unsecured debt or refinance our unsecured debt on competitive terms in the future, or require us to take certain actions to support our obligations, any of which would adversely affect our business and financial condition.

# ***Ownership of real estate is subject to environmental risks and liabilities.***

Ownership of real estate is subject to risks associated with environmental hazards. Under various laws, owners as well as tenants of real estate may be required to investigate and clean up or remove hazardous substances present at or migrating from properties they own, lease or operate and may be held liable for property damage or personal injuries that result from hazardous substances. These laws also expose us to the possibility that we may become liable to government agencies or third parties for costs and damages they incur in connection with hazardous substances. The costs and damages that may arise from environmental hazards may be substantial and are difficult to assess and estimate for numerous reasons, including uncertainty about the extent of contamination, alternative treatment methods that may be applied, the location of the property which subjects it to differing local laws and regulations and their interpretations, as well as the time it may take to remediate contamination. In addition, these laws also impose various requirements regarding the operation and maintenance of properties and recordkeeping and reporting requirements relating to environmental matters that require us or the tenants of our properties to incur costs to comply with.

While our leases with non-government tenants generally require our tenants to operate in compliance with applicable law and to indemnify us against any environmental liabilities arising from their activities on our properties, applicable law may make us subject to strict liability by virtue of our ownership interests. Also, our tenants may have insufficient financial resources to satisfy their indemnification obligations under our leases or they may resist doing so. The U.S. government is not required to indemnify us for environmental hazards they create at our properties and therefore could hold us liable for environmental hazards they create at our properties and we could have no recourse to them. We may incur substantial liabilities and costs for environmental matters.

# ***We are subject to risks from adverse weather, natural disasters and climate change and climate related events, and we incur significant costs and invest significant amounts with respect to these matters.***

We are subject to risks and could be exposed to additional costs from adverse weather, natural disasters and climate change and climate related events. For example, our properties could be severely damaged or destroyed from either singular extreme weather events (such as floods, storms and wildfires) or through long-term impacts of climatic conditions (such as precipitation frequency, weather instability and rise of sea levels). Such events could also adversely impact us or the tenants of our properties if we or they are unable to operate our or their businesses due to damage resulting from such events. Insurance may not adequately cover all losses sustained by us or the tenants of our properties. If we fail to adequately prepare for such events, our revenues, results of operations and financial condition may be impacted. In addition, we may incur significant costs in preparing for possible future climate change or climate related events or in response to our tenants’ requests for such investments and we may not realize desirable returns on those investments.

# ***RMR relies on information technology and systems in providing services to us, and any material failure, inadequacy, interruption or security breach of that technology or those systems could materially harm us.***

RMR relies on information technology and systems, including the Internet and cloud-based infrastructures, commercially available software and its internally developed applications, to process, transmit, store and safeguard information and to manage or support a variety of its business processes (including managing our building systems), including financial transactions and maintenance of records,

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which may include personal identifying information of employees, tenants and guarantors and lease data. If we or our third party vendors experience material security or other failures, inadequacies or interruptions in our or their information technology systems, we could incur material costs and losses and our operations could be disrupted. RMR takes various actions, and incurs significant costs, to maintain and protect the operation and security of information technology and systems, including the data maintained in those systems. However, these measures may not prevent the systems' improper functioning or a compromise in security such as in the event of a cyberattack or the improper disclosure of personally identifiable information.

Security breaches, computer viruses, attacks by hackers, online fraud schemes and similar breaches have created and can create significant system disruptions, shutdowns, fraudulent transfer of assets or unauthorized disclosure of confidential information. The risk of a security breach or disruption, particularly through cyberattack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the intensity and sophistication of attempted attacks and intrusions from around the world have increased. The cybersecurity risks to us or our third party vendors are heightened by, among other things, the evolving nature of the threats faced, advances in computer capabilities, new discoveries in the field of cryptography and new and increasingly sophisticated methods used to perpetrate illegal or fraudulent activities, including cyberattacks, email or wire fraud and other attacks exploiting security vulnerabilities in RMR's or other third parties' information technology networks and systems or operations. Although much of RMR's staff returned to its offices during the pandemic, flexible working arrangements have resulted in a higher extent of remote working than it experienced prior to the pandemic. This and other possible changing work practices have adversely impacted, and may in the future adversely impact, RMR's ability to maintain the security, proper function and availability of its information technology and systems since remote working by its employees could strain its technology resources and introduce operational risk, including heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that have sought, and may seek, to exploit remote working environments. In addition, RMR's data security, data privacy, investor reporting and business continuity processes could be impacted by a third party's inability to perform in a remote work environment or by the failure of, or attack on, their information systems and technology. Any failure by RMR or other third party vendors to maintain the security, proper function and availability of their respective information technology and systems could result in financial losses, interrupt our operations, damage our reputation, cause us to be in default of material contracts and subject us to liability claims or regulatory penalties, any of which could materially and adversely affect our business and the value of our securities.

# ***ESG initiatives, requirements and market expectations may impose additional costs and expose us to new risks.***

There is an increasing focus from investors, tenants, including the General Services Administration, and other stakeholders and regulators concerning corporate sustainability. Some investors may use ESG factors to guide their investment strategies and, in some cases, may choose not to invest in us, or otherwise do business with us, if they believe our or RMR's policies relating to corporate sustainability are inadequate. Third party providers of corporate sustainability ratings and reports on companies have increased in number, resulting in varied and, in some cases, inconsistent standards. In addition, the criteria by which companies' corporate sustainability practices are assessed are evolving, which could result in greater expectations of us and RMR and cause us and RMR to undertake costly initiatives to satisfy such new criteria. Alternatively, if we or RMR elect not to or are unable to satisfy such new criteria or do not meet the criteria of a specific third party provider, some investors may conclude that our or RMR's policies with respect to corporate sustainability are inadequate. In July 2022, RMR announced its zero emissions goal pursuant to which it has pledged to reduce its scope 1 and 2 emissions to net zero by 2050 with a 50% reduction commitment by 2030 from a 2019 baseline. We and RMR may face reputational damage in the event that our or their corporate sustainability procedures or standards do not meet the goals that we or RMR have set or the standards set by various constituencies. If we and RMR fail to satisfy the expectations of investors and our tenants and other stakeholders or our or RMR's announced goals and other initiatives are not executed as planned, our and RMR's reputation and financial results could be adversely affected, and our revenues, results of operations and ability to grow our business may be negatively impacted. In addition, we may incur significant costs in attempting to comply with ESG policies or third party expectations or demands.

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*Insurance may not adequately cover our losses, and insurance costs may continue to increase.*

We or our tenants are generally responsible for the costs of insurance coverage for our properties and the operations conducted on them, including for casualty, liability, fire, extended coverage and rental or business interruption loss insurance. In the future, we may acquire properties for which we are responsible for the costs of insurance. In the past few years, the costs of insurance have increased significantly, and these increased costs have had an adverse effect on us and certain of our tenants. Increased insurance costs may adversely affect our applicable tenants' abilities to pay us rent or result in downward pressure on rents we can charge under new or renewed leases. Losses of a catastrophic nature, such as those caused by hurricanes, flooding, volcanic eruptions and earthquakes, among other things, losses as a result of outbreaks of pandemics or acts of terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we or a responsible tenant may not be able to pay. Insurance proceeds may not be adequate to restore an affected property to its condition prior to a loss or to compensate us for our losses, including lost revenues or other costs. Certain losses, such as losses we may incur as a result of known or unknown environmental conditions, are not covered by our insurance. Market conditions or our loss history may limit the scope of insurance or coverage available to us or our applicable tenants on economic terms. If we determine that an uninsured loss or a loss in excess of insured limits occurs and if we are not able to recover amounts from our applicable tenants for certain losses, we may have to incur uninsured costs to mitigate such losses or lose all or a portion of the capital invested in a property, as well as the anticipated future revenue from the property.

### Risks Related to Our Relationships with RMR

*We are dependent upon RMR to manage our business and implement our growth strategy.*

We have no employees. Personnel and services that we require are provided to us by RMR pursuant to our management agreements with RMR. Our ability to achieve our business objectives depends on RMR and its ability to effectively manage our properties, to appropriately identify and complete our acquisitions and dispositions and to execute our growth strategy. Accordingly, our business is dependent upon RMR's business contacts, its ability to successfully hire, train, supervise and manage its personnel and its ability to maintain its operating systems. If we lose the services provided by RMR or its key personnel, our business and growth prospects may decline. We may be unable to duplicate the quality and depth of management available to us by becoming internally managed or by hiring another manager. In the event RMR is unwilling or unable to continue to provide management services to us, our cost of obtaining substitute services may be greater than the fees we pay RMR under our management agreements, and as a result our expenses may increase.

*RMR has broad discretion in operating our day to day business.*

Our manager, RMR, is authorized to follow broad operating and investment guidelines and, therefore, has discretion in identifying the properties that will be appropriate investments for us, as well as our individual operating and investment decisions. Our Board of Trustees periodically reviews our operating and investment guidelines and our operating activities and investments but it does not review or approve each decision made by RMR on our behalf. In addition, in conducting periodic reviews, our Board of Trustees relies primarily on information provided to it by RMR. RMR may exercise its discretion in a manner that results in investment returns that are substantially below expectations or that results in losses.

*Our management structure and agreements and relationships with RMR and RMR's and its controlling shareholder's relationships with others may create conflicts of interest, or the perception of such conflicts, and may restrict our investment activities.*

RMR is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR. RMR or its subsidiary also acts as the manager to certain other Nasdaq listed companies and private

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companies, and Mr. Portnoy serves as a managing director, managing trustee, director or trustee, as applicable, of those companies, and as chair of the board of trustees or board of directors, as applicable, of those Nasdaq listed companies.

Jennifer Clark, our other Managing Trustee, Christopher Bilotto, our President and Chief Operating Officer, and Matthew Brown, our Chief Financial Officer and Treasurer, are also officers and employees of RMR. Messrs. Portnoy, Bilotto and Brown and Ms. Clark have duties to RMR, as well as to us, and we do not have their undivided attention. They and other RMR personnel may have conflicts in allocating their time and resources between us and RMR and other companies to which RMR or its subsidiaries provide services. Some of our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR or its subsidiaries provide management services.

In addition, we may in the future enter into additional transactions with RMR, its affiliates or entities managed by it or its subsidiaries. In addition to his investments in RMR Inc. and RMR, Mr. Portnoy holds equity investments in other companies to which RMR or its subsidiaries provide management services and some of these companies have significant cross ownership interests. Our executive officers may also own equity investments in other companies to which RMR or its subsidiaries provide management services. These multiple responsibilities, relationships and cross ownerships may give rise to conflicts of interest or the perception of such conflicts of interest with respect to matters involving us, RMR Inc., RMR, our Managing Trustees, the other companies to which RMR or its subsidiaries provide management services and their related parties. Conflicts of interest or the perception of conflicts of interest could have a material adverse impact on our reputation, business and the market price of our common shares and other securities and we may be subject to increased risk of litigation as a result.

In our management agreements with RMR, we acknowledge that RMR may engage in other activities or businesses and act as the manager to any other person or entity (including other REITs) even though such person or entity has investment policies and objectives similar to our policies and objectives and we are not entitled to preferential treatment in receiving information, recommendations and other services from RMR. Accordingly, we may lose investment opportunities to, and may compete for tenants with, other businesses managed by RMR or its subsidiaries. We cannot be sure that our Code of Conduct or our governance guidelines, or other procedural protections we adopt will be sufficient to enable us to identify, adequately address or mitigate actual or alleged conflicts of interest or ensure that our transactions with related persons are made on terms that are at least as favorable to us as those that would have been obtained with an unrelated person.

*Our management agreements with RMR were not negotiated on an arm’s length basis and their fee and expense structure may not create proper incentives for RMR, which may increase the risk of an investment in our common shares.*

As a result of our relationships with RMR and its current and former controlling shareholder(s), our management agreements with RMR were not negotiated on an arm’s length basis between unrelated parties, and therefore, while such agreements were negotiated with the use of a special committee and disinterested Trustees, the terms, including the fees payable to RMR, may be different from those negotiated on an arm’s length basis between unrelated parties. Our property management fees are calculated based on rents we receive and construction supervision fees for construction at our properties overseen and managed by RMR, and our base business management fee is calculated based upon the lower of the historical costs of our real estate investments and our market capitalization. We pay RMR substantial base management fees regardless of our financial results. These fee arrangements could incentivize RMR to pursue acquisitions, capital transactions, tenancies and construction projects or to avoid disposing of our assets in order to increase or maintain its management fees and might reduce RMR’s incentive to devote its time and effort to seeking investments that provide attractive returns for us. If we do not effectively manage our investment, disposition and capital transactions and leasing, construction and other property management activities, we may pay increased management fees without proportional benefits to us. In addition, we are obligated under our management agreements to reimburse RMR for 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. We are also required to pay for third party costs incurred

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with respect to us. Our obligation to reimburse RMR for certain of its costs and to pay third party costs may reduce RMR’s incentive to efficiently manage those costs, which may increase our costs.

*The termination of our management agreements with RMR may require us to pay a substantial termination fee, including in the case of a termination for unsatisfactory performance, which may limit our ability to end our relationship with RMR.*

The terms of our management agreements with RMR automatically extend on December 31 of each year so that such terms thereafter end on the 20th anniversary of the date of the extension. We have the right to terminate these agreements: (1) at any time on 60 days’ written notice for convenience, (2) immediately upon written notice for cause, as defined in the agreements, (3) on written notice given within 60 days after the end of any applicable calendar year for a performance reason, as defined in the agreements, and (4) by written notice during the 12 months following a manager change of control, as defined in the agreements. However, if we terminate a management agreement for convenience, or if RMR terminates a management agreement with us for good reason, as defined in such agreement, we are obligated to pay RMR a termination fee in an amount equal to the sum of the present values of the monthly future fees, as defined in the applicable agreement, payable to RMR for the term that was remaining before such termination, which, depending on the time of termination, would be between 19 and 20 years. Additionally, if we terminate a management agreement for a performance reason, as defined in the agreement, we are obligated to pay RMR the termination fee calculated as described above, but assuming a remaining term of 10 years. These provisions substantially increase the cost to us of terminating the management agreements without cause, which may limit our ability to end our relationship with RMR as our manager. The payment of the termination fee could have a material adverse effect on our financial condition, including our ability to pay distributions to our shareholders.

*Our management arrangements with RMR may discourage a change of control of us.*

Our management agreements with RMR have continuing 20 year terms that renew annually. As noted in the preceding risk factor, if we terminate either of these management agreements other than for cause or upon a change of control of our manager, we are obligated to pay RMR a substantial termination fee. For these reasons, our management agreements with RMR may discourage a change of control of us, including a change of control which might result in payment of a premium for our common shares.

*We are party to transactions with related parties that may increase the risk of allegations of conflicts of interest.*

We are party to transactions with related parties, including with entities controlled by Adam Portnoy or to which RMR or its subsidiaries provide management services. Our agreements with related parties or in respect of transactions among related parties may not be on terms as favorable to us as they would have been if they had been negotiated among unrelated parties. We are subject to the risk that our shareholders or the shareholders of RMR Inc. or other related parties may challenge any such related party transactions. If challenges to related party transactions were to be successful, we might not realize the benefits expected from the transactions being challenged. Moreover, any such challenge could result in substantial costs and a diversion of our management’s attention, could have a material adverse effect on our reputation, business and growth and could adversely affect our ability to realize the benefits expected from the transactions, whether or not the allegations have merit or are substantiated.

*We may be at an increased risk for dissident shareholder activities due to perceived conflicts of interest arising from our management structure and relationships.*

Companies with business dealings with related persons and entities may more often be the target of dissident shareholder trustee nominations, dissident shareholder proposals and shareholder litigation alleging conflicts of interest in their business dealings. The various relationships noted above may precipitate such activities. Certain proxy advisory firms which have significant influence over the voting by shareholders of public companies have, in the past, recommended, and in the future may recommend, that shareholders withhold votes for the election of our incumbent Trustees, vote against our say on pay vote or other management proposals or vote for shareholder proposals that we oppose. These recommendations by proxy

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advisory firms in the future would likely affect the outcome of future Board of Trustees elections and votes on our say on pay, which may increase shareholder activism and litigation. These activities, if instituted against us, could result in substantial costs and diversion of our management's attention and could have a material adverse impact on our reputation and business.

### Risks Related to Our Organization and Structure

*Ownership limitations and certain provisions in our declaration of trust, bylaws and agreements, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals.*

Our declaration of trust prohibits any shareholder, other than RMR and its affiliates (as defined under Maryland law) and certain persons who have been exempted by our Board of Trustees, from owning, directly and by attribution, more than 9.8% of the number or value of shares (whichever is more restrictive) of any class or series of our outstanding shares of beneficial interest, including our common shares. This provision of our declaration of trust is intended to, among other purposes, assist with our REIT compliance under the IRC and otherwise promote our orderly governance. However, this provision may also inhibit acquisitions of a significant stake in us and may deter, delay or prevent a change in control of us or unsolicited acquisition proposals that a shareholder may consider favorable. Additionally, provisions contained in our declaration of trust and bylaws or under Maryland law may have a similar impact, including, for example, provisions relating to:

- • limitations on shareholder voting rights with respect to certain actions that are not approved by our Board of Trustees;
- • the authority of our Board of Trustees, and not our shareholders, to adopt, amend or repeal our bylaws and to fill vacancies on our Board of Trustees;
- • shareholder voting standards which require a supermajority of shares for approval of certain actions;
- • the fact that only our Board of Trustees, or, if there are no Trustees, our officers, may call shareholder meetings and that shareholders are not entitled to act without a meeting;
- • required qualifications for an individual to serve as a Trustee and a requirement that certain of our Trustees be 'Managing Trustees' and other Trustees be 'Independent Trustees,' as defined in our governing documents;
- • limitations on the ability of our shareholders to propose nominees for election as Trustees and propose other business to be considered at a meeting of our shareholders;
- • limitations on the ability of our shareholders to remove our Trustees;
- • the authority of our Board of Trustees to create and issue new classes or series of shares (including shares with voting rights and other rights and privileges that may deter a change in control) and issue additional common shares;
- • restrictions on business combinations between us and an interested shareholder that have not first been approved by our Board of Trustees (including a majority of Trustees not related to the interested shareholder); and
- • the authority of our Board of Trustees, without shareholder approval, to implement certain takeover defenses.

As changes occur in the marketplace for corporate governance policies, the above provisions may change, be removed, or new ones may be added.

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# ***Our rights and the rights of our shareholders to take action against our Trustees and officers are limited.***

Our declaration of trust limits the liability of our Trustees and officers to us and our shareholders for money damages to the maximum extent permitted under Maryland law. Under current Maryland law, our Trustees and officers will not have any liability to us and our shareholders for money damages other than liability resulting from:

- active and deliberate dishonesty by the Trustee or officer that was established by a final judgment as being material to the cause of action adjudicated.

Our declaration of trust authorizes us, and our bylaws and indemnification agreements require us, to indemnify, to the maximum extent permitted by Maryland law, any present or former Trustee or officer who is made or threatened to be made a party to a proceeding by reason of his or her service in these and certain other capacities. In addition, we may be obligated to pay or reimburse the expenses incurred by our present and former Trustees and officers without requiring a preliminary determination of their ultimate entitlement to indemnification. As a result of these limitations on liability and indemnification obligations, we and our shareholders may have more limited rights against our present and former Trustees and officers than might exist with other companies, which could limit shareholder recourse in the event of actions that some shareholders may believe are not in our best interest.

# ***Shareholder litigation against us or our Trustees, officers, manager or other agents may be referred to mandatory arbitration proceedings, which follow different procedures than in-court litigation and may be more restrictive to shareholders asserting claims than in-court litigation.***

Our shareholders agree, by virtue of becoming shareholders, that they are bound by our governing documents, including the arbitration provisions of our declaration of trust and bylaws, as they may be amended from time to time. Our governing documents provide that certain actions by one or more of our shareholders against us or any of our Trustees, officers, manager or other agents, other than disputes, or any portion thereof, regarding the meaning, interpretation or validity of any provision of our declaration of trust or bylaws, will be referred to mandatory, binding and final arbitration proceedings if we, or any other party to such dispute, including any of our Trustees, officers, manager or other agents unilaterally so demands. As a result, we and our shareholders would not be able to pursue litigation in state or federal court against us or our Trustees, officers, manager or other agents, including, for example, claims alleging violations of federal securities laws or breach of fiduciary duties or similar director or officer duties under Maryland law, if we or any of our Trustees, officers, manager or other agents against whom the claim is made unilaterally demands the matter be resolved by arbitration. Instead, our shareholders would be required to pursue such claims through binding and final arbitration.

Our governing documents provide that such arbitration proceedings would be conducted in accordance with the procedures of the Commercial Arbitration Rules of the American Arbitration Association, as modified in our bylaws. These procedures may provide materially more limited rights to our shareholders than litigation in a federal or state court. For example, arbitration in accordance with these procedures does not include the opportunity for a jury trial, document discovery is limited, arbitration hearings generally are not open to the public, there are no witness depositions in advance of arbitration hearings and arbitrators may have different qualifications or experiences than judges. In addition, although our governing documents' arbitration provisions contemplate that arbitration may be brought in a representative capacity or on behalf of a class of our shareholders, the rules governing such representation or class arbitration may be different from, and less favorable to shareholders than, the rules governing representative or class action litigation in courts. Our governing documents also generally provide that each party to such an arbitration is required to bear its own costs in the arbitration, including attorneys' fees, and that the arbitrators may not render an award that includes shifting of such costs or, in a derivative or class proceeding, award any portion of our award to any shareholder or such shareholder's attorneys. The arbitration provisions of our governing documents may discourage our shareholders from bringing, and attorneys from agreeing to represent our shareholders wishing to bring, litigation against us or our Trustees, officers, manager or other agents. Our agreements with RMR have similar arbitration provisions to those in our governing documents.

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We believe that the arbitration provisions in our governing documents are enforceable under both state and federal law, including with respect to federal securities laws claims. We are a Maryland real estate investment trust and Maryland courts have upheld the enforceability of arbitration bylaws. In addition, the U.S. Supreme Court has repeatedly upheld agreements to arbitrate other federal statutory claims, including those that implicate important federal policies. However, some academics, legal practitioners and others are of the view that charter or bylaw provisions mandating arbitration are not enforceable with respect to federal securities laws claims. It is possible that the arbitration provisions of our governing documents may ultimately be determined to be unenforceable.

By agreeing to the arbitration provisions of our governing documents, shareholders will not be deemed to have waived compliance by us with federal securities laws and the rules and regulations thereunder.

*Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our Trustees, officers, manager or other agents.*

Our bylaws currently provide that, unless the dispute has been referred to binding arbitration, the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for: (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim for breach of a fiduciary duty owed by any of our Trustees, officers, manager or other agents to us or our shareholders; (3) any action asserting a claim against us or any of our Trustees, officers, manager or other agents arising pursuant to Maryland law, our declaration of trust or bylaws brought by or on behalf of a shareholder, either on such shareholder’s own behalf, on our behalf or on behalf of any series or class of shares of beneficial interest of ours or by our shareholders against us or any of our Trustees, officers, manager or other agents, including any disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of our declaration of trust or bylaws; or (4) any action asserting a claim against us or any of our Trustees, officers, manager or other agents that is governed by the internal affairs doctrine of the State of Maryland. Our bylaws currently also provide that the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for any dispute, or portion thereof, regarding the meaning, interpretation or validity of any provision of our declaration of trust or bylaws. The exclusive forum provision of our bylaws does not apply to any action for which the Circuit Court for Baltimore City, Maryland does not have jurisdiction or to a dispute that has been referred to binding arbitration in accordance with our bylaws. The exclusive forum provision of our bylaws does not establish exclusive jurisdiction in the Circuit Court for Baltimore City, Maryland for claims that arise under the Securities Act, the Exchange Act or other federal securities laws if there is exclusive or concurrent jurisdiction in the federal courts. Any person or entity purchasing or otherwise acquiring or holding any interest in our shares of beneficial interest shall be deemed to have notice of and to have consented to these provisions of our bylaws, as they may be amended from time to time. The arbitration and exclusive forum provisions of our bylaws may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder believes is favorable for disputes with us or our Trustees, officers, manager or other agents, which may discourage lawsuits against us and our Trustees, officers, manager or other agents.

*We may change our operational, financing and investment policies without shareholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations.*

Our Board of Trustees determines our operational, financing and investment policies and may amend or revise our policies, including our policies with respect to our intention to remain qualified for taxation as a REIT, acquisitions, dispositions, growth, operations, indebtedness, capitalization and distributions, or approve transactions that deviate from these policies, without a vote of, or notice to, our shareholders. Policy changes could adversely affect the market price of our common shares and our ability to pay distributions to our shareholders. Further, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Our Board of Trustees may alter or eliminate our current policy on borrowing at any time without shareholder approval. If this policy changes, we could become more highly leveraged, which could result in an increase in our debt service costs or a further downgrade in our credit ratings. Higher leverage also increases the risk of default on our obligations. In addition, a change in our investment policies, including the manner in which we allocate our resources

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across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk.

### Risks Related to Our Taxation

*Our failure to remain qualified for taxation as a REIT under the IRC could have significant adverse consequences.*

As a REIT, we generally do not pay federal or most state income taxes as long as we distribute all of our REIT taxable income and meet other qualifications set forth in the IRC. However, actual qualification for taxation as a REIT under the IRC depends on our satisfying complex statutory requirements, for which there are only limited judicial and administrative interpretations. We believe that we have been organized and have operated, and will continue to be organized and to operate, in a manner that qualified and will continue to qualify us to be taxed as a REIT under the IRC. However, we cannot be sure that the IRS, upon review or audit, will agree with this conclusion. Furthermore, we cannot be sure that the federal government, or any state or other taxation authority, will continue to afford favorable income tax treatment to REITs and their shareholders.

Maintaining our qualification for taxation as a REIT under the IRC will require us to continue to satisfy tests concerning, among other things, the nature of our assets, the sources of our income and the amounts we distribute to our shareholders. In order to meet these requirements, it may be necessary for us to sell or forgo attractive investments.

If we cease to qualify for taxation as a REIT under the IRC, then our ability to raise capital might be adversely affected, we will be in breach under our credit agreement, we may be subject to material amounts of federal and state income taxes, our cash available for distribution to our shareholders could be reduced, and the market price of our common shares could decline. In addition, if we lose or revoke our qualification for taxation as a REIT under the IRC for a taxable year, we will generally be prevented from requalifying for taxation as a REIT for the next four taxable years.

*Distributions to shareholders generally will not qualify for reduced tax rates applicable to “qualified dividends.”*

Dividends payable by U.S. corporations to noncorporate shareholders, such as individuals, trusts and estates, are generally eligible for reduced federal income tax rates applicable to “qualified dividends.” Distributions paid by REITs generally are not treated as “qualified dividends” under the IRC and the reduced rates applicable to such dividends do not generally apply. However, for tax years beginning before 2026, REIT dividends paid to noncorporate shareholders are generally taxed at an effective tax rate lower than applicable ordinary income tax rates due to the availability of a deduction under the IRC for specified forms of income from passthrough entities. More favorable rates will nevertheless continue to apply to regular corporate “qualified” dividends, which may cause some investors to perceive that an investment in a REIT is less attractive than an investment in a non-REIT entity that pays dividends, thereby reducing the demand and market price of our common shares.

*REIT distribution requirements could adversely affect us and our shareholders.*

We generally must distribute annually at least 90% of our REIT taxable income, subject to specified adjustments and excluding any net capital gain, in order to maintain our qualification for taxation as a REIT under the IRC. To the extent that we satisfy this distribution requirement, federal corporate income tax will not apply to the earnings that we distribute, but if we distribute less than 100% of our REIT taxable income, then we will be subject to federal corporate income tax on our undistributed taxable income. We intend to pay distributions to our shareholders to comply with the REIT requirements of the IRC. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay to our shareholders in a calendar year is less than a minimum amount specified under federal tax laws.

From time to time, we may generate taxable income greater than our income for financial reporting purposes prepared in accordance with U.S. generally accepted accounting principles, or GAAP, or differences in timing between the recognition of taxable income and the actual receipt of cash may occur. If we do not have other funds available in these situations, among other things, we may borrow funds on unfavorable terms,

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sell investments at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions in order to pay distributions sufficient to enable us to distribute enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our shareholders' equity. Thus, compliance with the REIT distribution requirements may hinder our ability to grow, which could cause the market price of our common shares to decline.

*Even if we remain qualified for taxation as a REIT under the IRC, we may face other tax liabilities that reduce our cash flow.*

Even if we remain qualified for taxation as a REIT under the IRC, we may be subject to federal, state and local taxes on our income and assets, including taxes on any undistributed income, excise taxes, state or local income, property and transfer taxes, and other taxes. Also, some jurisdictions may in the future limit or eliminate favorable income tax deductions, including the dividends paid deduction, which could increase our income tax expense. In addition, in order to meet the requirements for qualification and taxation as a REIT under the IRC, prevent the recognition of particular types of non-cash income, or avert the imposition of a 100% tax that applies to specified gains derived by a REIT from dealer property or inventory, we may hold or dispose of some of our assets and conduct some of our operations through our TRSs or other subsidiary corporations that will be subject to corporate level income tax at regular rates. In addition, while we intend that our transactions with our TRSs will be conducted on arm's length bases, we may be subject to a 100% excise tax on a transaction that the IRS or a court determines was not conducted at arm's length. Any of these taxes would decrease cash available for distribution to our shareholders.

*Legislative or other actions affecting REITs could materially and adversely affect us and our shareholders.*

The rules dealing with U.S. federal, state, and local taxation are constantly under review by persons involved in the legislative process and by the IRS, the U.S. Department of the Treasury, and other taxation authorities. Changes to the tax laws, with or without retroactive application, could materially and adversely affect us and our shareholders. We cannot predict how changes in the tax laws might affect us or our shareholders. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to remain qualified for taxation as a REIT or the tax consequences of such qualification to us and our shareholders.

## **Risks Related to Our Securities**

*Our distributions to our shareholders may be reduced or eliminated and the form of payment could change.*

We intend to continue to pay regular quarterly distributions to our shareholders. However:

- our ability to pay distributions to our shareholders or sustain the rate of distributions may be adversely affected if any of the risks described in this Annual Report on Form 10-K occur, including any negative impact caused by current market and economic conditions, such as rising or sustained high interest rates and high inflation, supply chain challenges and economic downturns or recessions, on our business, results of operations and liquidity;
- our payment of distributions is subject to restrictions contained in our debt agreements and may be subject to restrictions in future debt obligations we may incur; during the continuance of any event of default under our debt agreements, we may be limited or, in some cases, prohibited from paying distributions to our shareholders; and
- the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including, but not limited to, our FFO, Normalized FFO, requirements to maintain our qualification for taxation as a REIT, limitations in our debt agreements, 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.

For these reasons, among others, our distribution rate may decline or we may cease paying distributions to our shareholders.

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Further, in order to preserve liquidity, we may elect to pay distributions to our shareholders in part in a form other than cash, such as issuing additional common shares of ours to our shareholders, as permitted by the applicable tax rules.

# ***The Notes are structurally subordinated to the payment of all indebtedness and other liabilities.***

We are the sole obligor on our outstanding senior unsecured notes and any notes or other debt securities we may issue in the future, or, together with our outstanding senior unsecured notes, the Notes, and such Notes are not, and any Notes we may issue in the future may not be, guaranteed by any of our subsidiaries. Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on the Notes, or to make any funds available therefor, whether by dividend, distribution, loan or other payments. The rights of holders of the Notes to benefit from any of the assets of our subsidiaries are subject to the prior satisfaction of claims of our subsidiaries' creditors. As a result, the Notes are, and, except to the extent that future Notes are guaranteed by our subsidiaries, will be, structurally subordinated to all indebtedness and other liabilities of our subsidiaries, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity. As of December 31, 2022, our subsidiaries had total indebtedness and other liabilities (excluding security and other deposits and guarantees) of $148.4 million.

# ***There may be no public market for certain of the Notes, and one may not develop, be maintained or be liquid.***

We have not applied for listing of certain of the Notes on any securities exchange or for quotation on any automatic dealer quotation system, and we may not do so for Notes issued in the future. We cannot be sure of the liquidity of any market that may develop for such Notes, the ability of any holder to sell such Notes or the price at which holders would be able to sell such Notes. If a market for such Notes does not develop, holders may be unable to resell such Notes for an extended period of time, if at all. If a market for such Notes does develop, it may not continue or it may not be sufficiently liquid to allow holders to resell such Notes. Consequently, holders of the Notes may not be able to liquidate their investment readily, and lenders may not readily accept such Notes as collateral for loans.

The Notes may trade at a discount from their initial issue price or principal amount, depending upon many factors, including prevailing interest rates, the ratings assigned by rating agencies, the market for similar securities and other factors, including general economic conditions and our financial condition, performance and prospects. Any decline in market prices, regardless of cause, may adversely affect the liquidity and trading markets for the Notes.

# **Item 1B. Unresolved Staff Comments**

None.

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## Item 2. Properties

As of December 31, 2022, our wholly owned properties were comprised of 160 properties located in 30 states and the District of Columbia containing approximately 21.0 million rentable square feet and we had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties totaling approximately 444,000 rentable square feet. The following table provides certain information about our wholly owned properties as of December 31, 2022 (dollars in thousands):

| State | Number of Properties | Undepreciated Carrying Value (1) | Depreciated Carrying Value (1) | Annualized Rental Income |
| --- | --- | --- | --- | --- |
| Alabama | 3 | $27,008 | $21,392 | $4,246 |
| Arizona | 5 | 31,079 | 27,009 | 4,829 |
| California | 23 | 431,840 | 368,639 | 63,837 |
| Colorado | 6 | 88,265 | 63,601 | 13,756 |
| District of Columbia | 7 | 715,576 | 622,976 | 57,254 |
| Florida | 3 | 60,032 | 46,739 | 9,419 |
| Georgia | 11 | 374,005 | 313,811 | 48,982 |
| Idaho | 3 | 33,517 | 25,682 | 4,256 |
| Illinois | 5 | 407,443 | 382,925 | 58,537 |
| Indiana | 5 | 102,211 | 77,277 | 13,150 |
| Iowa | 1 | 10,646 | 9,759 | 3,283 |
| Kentucky | 1 | 13,713 | 10,683 | 3,094 |
| Maryland | 13 | 249,636 | 206,373 | 32,304 |
| Massachusetts | 8 | 144,429 | 121,205 | 20,892 |
| Michigan | 2 | 27,686 | 21,276 | 4,083 |
| Minnesota | 1 | 8,264 | 3,628 | 1,126 |
| Mississippi | 1 | 26,459 | 19,659 | 4,710 |
| Missouri | 3 | 87,945 | 73,128 | 23,673 |
| Nebraska | 2 | 19,477 | 18,091 | 4,228 |
| New Jersey | 3 | 49,210 | 45,185 | 14,649 |
| New York | 2 | 10,550 | 8,568 | 2,018 |
| North Carolina | 2 | 23,609 | 20,884 | 7,134 |
| Ohio | 1 | 1,511 | 1,413 | 708 |
| Pennsylvania | 1 | 34,193 | 31,455 | 6,924 |
| South Carolina | 2 | 31,386 | 29,913 | 3,786 |
| Texas | 15 | 246,624 | 216,837 | 42,364 |
| Utah | 3 | 75,743 | 69,397 | 15,579 |
| Vermont | 1 | 9,256 | 6,514 | 1,202 |
| Virginia | 18 | 426,034 | 366,435 | 59,673 |
| Washington | 5 | 156,510 | 137,817 | 11,553 |
| Wyoming | 1 | 12,217 | 6,345 | 2,775 |
| Subtotal | 157 | 3,936,074 | 3,374,616 | 544,024 |
| Properties Held for Sale |  |  |  |  |
| Virginia (2) | 3 | 2,584 | 2,396 | - |
| Subtotal | 3 | 2,584 | 2,396 | - |
| Grand Total | 160 | $3,938,658 | $3,377,012 | $544,024 |

(1) Excludes purchase price allocations assigned to real estate intangibles.

(2) Properties were sold in January 2023.

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As of December 31, 2022, one of our properties with an undepreciated carrying value, excluding purchase price allocations assigned to real estate intangibles, of $40.3 million, was encumbered by a mortgage with a principal balance of $50.0 million. The three properties owned by our two unconsolidated joint ventures in which we own 51% and 50% interests were encumbered by two mortgages totaling $82.0 million as of December 31, 2022. For more information regarding our mortgage and our two unconsolidated joint ventures, see Notes 4 and 9 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

### **Item 3. Legal Proceedings**

From time to time, we may become involved in litigation matters incidental to the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, we are currently not a party to any litigation which we expect to have a material adverse effect on our business.

### **Item 4. Mine Safety Disclosures**

Not applicable.

## **PART II**

### **Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities**

Our common shares are traded on Nasdaq (symbol: OPI).

As of February 9, 2023, there were 1,922 shareholders of record of our common shares.

*Issuer purchases of equity securities.* The following table provides information about our purchases of our equity securities during the quarter ended December 31, 2022:

| 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 |
| --- | --- | --- | --- | --- |
| October 2022 . . . . . . . . . . . . . . . . | 147 | $13.98 | - | $- |
| December 2022 . . . . . . . . . . . . . . . . | 415 | $13.35 | - | - |
| Total/Weighted Average . . . . . . . . . . . . . . . | 562 | $13.51 | - | $- |

(1) These common share withholdings and purchases were made to satisfy tax withholding and payment obligations of former employees of RMR in connection with the vesting of prior awards of 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.

### **Item 6. [Reserved]**

### **Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations**

The following information should be read in conjunction with our Consolidated Financial Statements and accompanying notes included in Part IV, Item 15 of this Annual Report on Form 10-K.

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

We are a REIT organized under Maryland law. As of December 31, 2022, our wholly owned properties were comprised of 160 properties and we had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties containing approximately 444,000 rentable square feet. As of December 31, 2022, our properties are located in 30 states and the District of Columbia and contain approximately 20,969,000 rentable square feet. As of December 31, 2022, our properties were

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leased to 274 different tenants, with a weighted average remaining lease term (based on annualized rental income) of approximately 6.6 years. The U.S. government is our largest tenant, representing approximately 19.7% of our annualized rental income as of December 31, 2022.

Certain changes in office space utilization accelerated during the COVID-19 pandemic, including increased remote work arrangements, continue to impact the market. The utilization and demand for office space continues to evolve and the ultimate impact of current trends on the demands for office space at our properties remains uncertain and subject to change. Accordingly, we do not yet know what the full extent of the impacts will be on our or our tenants' businesses and operations.

In response to inflationary pressures, the U.S. Federal Reserve has increased the federal funds rate by 450 basis points since January 1, 2022 and has signaled that further increases are likely to occur throughout 2023. The inflationary pressures and rising interest rates in the United States and globally have given rise to increasing concerns that the U.S. economy may soon enter an economic recession and they have caused disruptions in the financial markets. Sustained inflationary pressures, increased interest rates, an economic recession or continued or intensified disruptions in the financial markets could adversely affect our financial condition and that of our tenants, could adversely impact the ability or willingness of our tenants to renew our leases or pay rent to us, would impair our ability to effectively deploy our capital or realize upon investments on favorable terms, may restrict our access to, and would likely increase our cost of, capital and may cause the values of our properties and our securities to decline.

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

### *Property Operations*

Unless otherwise noted, the data presented in this section includes properties classified as held for sale as of December 31, 2022 and excludes three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests. For more information regarding our properties classified as held for sale and our two unconsolidated joint ventures, see Note 4 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Occupancy data for our properties as of December 31, 2022 and 2021 was as follows (square feet in thousands):

|  | All Properties (1) December 31, |  | Comparable Properties (2) December 31, |  |
| --- | --- | --- | --- | --- |
|  | 2022 | 2021 | 2022 | 2021 |
| Total properties . . . . . | 160 | 178 | 149 | 149 |
| Total rentable square feet (3) . . . . . | 20,969 | 23,271 | 19,006 | 19,001 |
| Percent leased (4) . . . . . | 90.6% | 89.5% | 93.5% | 93.7% |

- (1) Based on properties we owned on December 31, 2022 and 2021, respectively. Includes one leasable land parcel as of December 31, 2021.
- (2) Based on properties we owned continuously since January 1, 2021; excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.
- (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.

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The average effective rental rate per square foot for our properties for the years ended December 31, 2022 and 2021 were as follows:

| Average effective rental rate per square foot (1) : | Year Ended December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| All properties (2) | $29.03 | $27.55 |
| Comparable properties (3) | $27.79 | $27.17 |

(1) Average effective rental rate per square foot represents total rental income during the period specified divided by the average rentable square feet leased during the period specified.
(2) Based on properties we owned on December 31, 2022 and 2021, respectively.
(3) Based on properties we owned continuously since January 1, 2021; excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.

During the year ended December 31, 2022, changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands):

|  | Year Ended December 31, 2022 |  |  |
| --- | --- | --- | --- |
|  | Leased | Available for Lease | Total |
| Beginning of year | 20,817 | 2,454 | 23,271 |
| Changes resulting from: |  |  |  |
| Disposition of properties | (1,489) | (837) | (2,326) |
| Lease expirations | (2,884) | 2,884 | - |
| Lease renewals (1) | 1,974 | (1,974) | - |
| New leases (1) | 588 | (588) | - |
| Remeasurements (2) | (2) | 26 | 24 |
| End of year | 19,004 | 1,965 | 20,969 |

(1) Based on leases entered during the year ended December 31, 2022.
(2) Rentable square feet are subject to changes when space is remeasured or reconfigured for tenants.

Leases at our properties totaling approximately 2,884,000 rentable square feet expired during the year ended December 31, 2022. During the year ended December 31, 2022, we entered into new and renewal leases as summarized in the following table (square feet in thousands):

|  | Year Ended December 31, 2022 |  |  |
| --- | --- | --- | --- |
|  | New Leases | Renewals | Total |
| Rentable square feet leased | 588 | 1,974 | 2,562 |
| Weighted average rental rate change (by rentable square feet) | 28.3% | (1.2)% | 5.6% |
| Tenant leasing costs and concession commitments (1) | $72,224 | $101,195 | $173,419 |
| Tenant leasing costs and concession commitments per rentable square foot (1) | $122.91 | $51.28 | $67.72 |
| Weighted (by square feet) average lease term (years) | 9.7 | 9.2 | 9.3 |
| Total leasing costs and concession commitments per rentable square foot per year (1) | $12.63 | $5.60 | $7.29 |

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

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During the year ended December 31, 2022, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the year ended December 31, 2022, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as follows (square feet in thousands):

|  | Year Ended December 31, 2022 |  |  |
| --- | --- | --- | --- |
|  | Old Effective Rent Per Square Foot (1) | New Effective Rent Per Square Foot (1) | Rentable Square Feet |
| New leases | $22.61 | $21.37 | 595 |
| Lease renewals | $28.97 | $28.97 | 1,976 |
| Total leasing activity | $27.50 | $27.21 | 2,571 |

(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.

During the years ended December 31, 2022 and 2021, amounts capitalized at our properties for lease related costs, building improvements and development, redevelopment and other activities were as follows:

|  | Year Ended December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Lease related costs (1) | $66,868 | $42,751 |
| Building improvements (2) | 33,393 | 30,103 |
| Recurring capital expenditures | 100,261 | 72,854 |
| Development, redevelopment and other activities (3) | 159,189 | 56,243 |
| Total capital expenditures | $259,450 | $129,097 |

(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.
(3) Development, redevelopment and other activities generally include capital expenditure projects that reposition a property or result in new sources of revenue.

In addition to the capital expenditures described above, we contributed \$3,851 to one of our unconsolidated joint ventures during the year ended December 31, 2022. We did not make any contributions to this unconsolidated joint venture during the year ended December 31, 2021. Also, as of December 31, 2022, we had estimated unspent leasing related obligations of \$156,693, of which we expect to spend \$86,031 over the next 12 months.

As of December 31, 2022, we had leases at our properties totaling approximately 1,886,000 rentable square feet that were scheduled to expire during 2023. As of February 14, 2023, we expect tenants with leases totaling approximately 1,120,000 rentable square feet that are scheduled to expire during 2023 not to renew or to downsize their leases upon expiration and we cannot be sure as to whether other tenants will renew their leases upon expiration. However, we are in advanced discussions to re-lease certain of this space to new tenants and we continue to proactively engage with our existing tenants and are focused on our overall tenant retention. Prevailing market conditions and government and other tenants' needs at the time we negotiate and enter leases or lease renewals will generally determine rental rates and demand for leased space at our properties, all of which factors are beyond our control. Whenever we renew or enter into new leases for our properties, we intend to seek rents which are equal to or higher than our historical rents for the same properties; however, our ability to maintain or increase the rents for our current properties

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will depend in large part upon market conditions, which are beyond our control. We cannot be sure of the rental rates which will result from our ongoing negotiations regarding lease renewals or any new or renewed leases we may enter. Also, we may experience material declines in our rental income due to vacancies upon lease expirations or early terminations or lower rents upon lease renewal or reletting. Additionally, we may incur significant costs and make significant concessions to renew our leases with current tenants or lease our properties to new tenants.

As of December 31, 2022, our lease expirations by year were as follows (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 | 74 | 1,886 | 9.9% | 9.9% | $61,049 | 11.2% | 11.2% |
| 2024 | 49 | 3,030 | 15.9% | 25.8% | 79,893 | 14.7% | 25.9% |
| 2025 | 42 | 1,959 | 10.3% | 36.1% | 41,510 | 7.6% | 33.5% |
| 2026 | 36 | 1,489 | 7.8% | 43.9% | 39,702 | 7.3% | 40.8% |
| 2027 | 35 | 2,055 | 10.8% | 54.7% | 52,078 | 9.6% | 50.4% |
| 2028 | 18 | 1,294 | 6.8% | 61.5% | 47,017 | 8.6% | 59.0% |
| 2029 | 20 | 760 | 4.0% | 65.5% | 23,308 | 4.3% | 63.3% |
| 2030 | 23 | 852 | 4.5% | 70.0% | 25,279 | 4.6% | 67.9% |
| 2031 | 15 | 876 | 4.6% | 74.6% | 24,494 | 4.5% | 72.4% |
| 2032 and thereafter | 45 | 4,803 | 25.4% | 100.0% | 149,694 | 27.6% | 100.0% |
| Total | 357 | 19,004 | 100.0% |  | $544,024 | 100.0% |  |
| Weighted average remaining lease term (in years) |  | 6.2 |  |  | 6.6 |  |  |

(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 December 31, 2022, tenants occupying approximately 2.4% of our rentable square feet and responsible for approximately 2.3% of our annualized rental income as of December 31, 2022, had exercisable rights to terminate their leases before the stated terms of their leases expire. Also, in 2023, 2024, 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2035, 2037 and 2040 early termination rights become exercisable by other tenants who occupied an additional approximately 4.6%, 2.8%, 4.5%, 0.9%, 0.9%, 3.3%, 0.8%, 0.7%, 0.1%, 0.8%, 0.1% and 0.3% of our rentable square feet, respectively, and contributed an additional approximately 4.8%, 3.1%, 7.9%, 1.2%, 1.3%, 3.8%, 1.3%, 0.9%, 0.1%, 1.2%, 0.2% and 0.4% of our annualized rental income, respectively, as of December 31, 2022. In addition, as of December 31, 2022, pursuant to leases with 10 of our tenants, these tenants had rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These 10 tenants occupied approximately 5.5% of our rentable square feet and contributed approximately 6.1% of our annualized rental income as of December 31, 2022.

(2) Leased square feet is pursuant to leases existing as of December 31, 2022, 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 remeasured or reconfigured for new tenants.

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

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Over the past several years, government tenants have reduced their space utilization per employee and consolidated government tenants into existing government owned properties. This activity has reduced the demand for government leased space. Our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants have generally renewed leases for mission critical space to avoid the costs and disruptions that may result from relocating their operations. However, efforts to manage space utilization rates may result in our tenants exercising early termination rights under our leases, vacating our properties upon expiration of our leases in order to relocate to government owned properties or consolidated leased space within a market, or renewing their leases for less space than they currently occupy. Also, our government tenants' desire to reconfigure leased office space to manage utilization per employee may require us to spend significant amounts for tenant improvements, and tenant relocations are often more prevalent in those circumstances. Increasing uncertainty with respect to government agency budgets and funding to implement relocations, consolidations and reconfigurations has, in some instances, resulted in delayed decisions by some of our government tenants and greater focus on short term lease renewals. Given the significant uncertainties, including the extent to which remote or alternative work arrangements may continue or increase, we are unable to reasonably project what the financial impact of market conditions or changing government circumstances will be on the demand for leased space at our properties and our financial results for future periods.

As of December 31, 2022, we derive 22.6% of our annualized rental income from our properties located in the metropolitan Washington, D.C. market area, which includes Washington, D.C., Northern Virginia and suburban Maryland. A downturn in economic conditions in this area or a possible recession, including as a result of current inflationary conditions or otherwise, could result in reduced demand from tenants for our properties, reduce rents that our tenants in this area are willing to pay when our leases expire and increase lease concessions for new leases and renewals. Additionally, there has been a decrease in demand for new leased office space by the U.S. government in the metropolitan Washington, D.C. market area, and that could increase competition for government tenants and adversely affect our ability to retain government tenants when our leases expire.

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 December 31, 2022, tenants contributing 52.8% 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 9.9% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

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As of December 31, 2022, 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 | 3,894 | 20.5% | $107,158 | 19.7% |
| 2 | Alphabet Inc. (Google) | Investment Grade | 386 | 2.0% | 21,192 | 3.9% |
| 3 | Shook, Hardy & Bacon L.L.P. | Not Rated | 596 | 3.1% | 19,336 | 3.6% |
| 4 | IG Investments Holdings LLC | Not Rated | 338 | 1.8% | 16,788 | 3.1% |
| 5 | State of California | Investment Grade | 519 | 2.7% | 15,865 | 2.9% |
| 6 | Bank of America Corporation | Investment Grade | 577 | 3.0% | 15,765 | 2.9% |
| 7 | Commonwealth of Massachusetts | Investment Grade | 311 | 1.6% | 12,260 | 2.3% |
| 8 | CareFirst Inc. | Not Rated | 207 | 1.1% | 11,498 | 2.1% |
| 9 | Tyson Foods, Inc. | Investment Grade | 248 | 1.3% | 11,042 | 2.0% |
| 10 | Sonesta International Hotels Corporation (1) | Not Rated | 230 | 1.2% | 10,745 | 2.0% |
| 11 | Northrop Grumman Corporation | Investment Grade | 337 | 1.8% | 10,639 | 2.0% |
| 12 | CommScope Holding Company Inc. | Non Investment Grade | 228 | 1.2% | 9,370 | 1.7% |
| 13 | Sonoma Biotherapeutics, Inc. (2) | Not Rated | 84 | 0.4% | 7,468 | 1.4% |
| 14 | State of Georgia | Investment Grade | 308 | 1.6% | 7,383 | 1.4% |
| 15 | PNC Bank | Investment Grade | 441 | 2.3% | 6,924 | 1.3% |
| 16 | Micro Focus International plc | Non Investment Grade | 215 | 1.1% | 6,905 | 1.3% |
| 17 | Compass Group plc | Investment Grade | 267 | 1.4% | 6,703 | 1.2% |
| 18 | ServiceNow, Inc. | Investment Grade | 149 | 0.8% | 6,637 | 1.2% |
| 19 | Allstate Insurance Co. | Investment Grade | 468 | 2.5% | 6,479 | 1.2% |
| 20 | Leidos Holdings Inc. | Investment Grade | 159 | 0.8% | 6,117 | 1.1% |
| 21 | Automatic Data Processing, Inc. | Investment Grade | 289 | 1.5% | 6,087 | 1.1% |
| 22 | Church & Dwight Co., Inc. | Investment Grade | 250 | 1.3% | 6,037 | 1.1% |
| 23 | Primerica, Inc. | Investment Grade | 344 | 1.8% | 5,442 | 1.0% |
|  |  |  | 10,845 | 56.8% | $333,840 | 61.5% |

(1) In June 2021, we entered into a 30-year lease with Sonesta. The lease relates to the redevelopment of a property we own in Washington, D.C to a mixed use and Sonesta's lease relates to the planned hotel component of the property. The term of the lease commences upon our delivery of the completed hotel, which is estimated to occur in the second quarter of 2023. For more information about our lease with Sonesta, see Note 7 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

(2) In August 2022, we entered into an approximately 10-year lease with Sonoma Biotherapeutics, Inc. at a property we own in Seattle, WA that is currently undergoing redevelopment. The term of the lease is estimated to commence in the fourth quarter of 2023.

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### *Disposition Activities*

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

As a result of current commercial real estate market conditions, including rising interest rates, the pace of our dispositions has moderated and we expect that trend to continue until commercial real estate industry conditions generally, and office market conditions specifically, improve. However, we continue to evaluate our portfolio to strategically recycle capital and are currently in various stages of marketing certain of our properties for sale, and we may decide to seek to sell additional properties in the future. As of February 14, 2023, we have entered into agreements to sell two properties containing approximately 207,000 rentable square feet for an aggregate sales price of $7,600, excluding closing costs. 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 “Business - Disposition Policies” in Part I, Item 1 of this Annual Report on Form 10-K and Note 4 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

### *Financing Activities*

#### *Senior Unsecured Note Redemption*

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

#### *Mortgage Note Prepayments*

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

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

#### *Revolving Credit Facility*

In November 2022, we exercised our option to extend the maturity date of our revolving credit facility by six months to July 31, 2023. Subject to the payment of an extension fee and meeting certain other conditions, we may extend the maturity date of our revolving credit facility by one additional six month period.

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

### *Segment Information*

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

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

# *Year Ended December 31, 2022, Compared to Year Ended December 31, 2021*

|  | Comparable Properties (1) Results Year Ended December 31, |  |  |  | Non-Comparable Properties Results Year Ended December 31, |  | Consolidated Results Year Ended December 31, |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2022 | 2021 | $ Change | % Change | 2022 | 2021 | 2022 | 2021 | $ Change | % Change |
| Rental income . . . . . | $484,943 | $477,801 | $7,142 | 1.5% | $69,332 | $98,681 | $554,275 | $576,482 | $(22,207) | (3.9)% |
| Operating expenses: |  |  |  |  |  |  |  |  |  |  |
| Real estate taxes . . . . . | 52,076 | 50,912 | 1,164 | 2.3% | 5,768 | 21,058 | 57,844 | 71,970 | (14,126) | (19.6)% |
| Utility expenses . . . . . | 23,713 | 20,461 | 3,252 | 15.9% | 3,292 | 4,790 | 27,005 | 25,251 | 1,754 | 6.9% |
| Other operating expenses . . . . . | 93,995 | 85,815 | 8,180 | 9.5% | 16,371 | 20,010 | 110,366 | 105,825 | 4,541 | 4.3% |
| Total operating expenses . . . . . | 169,784 | 157,188 | 12,596 | 8.0% | 25,431 | 45,858 | 195,215 | 203,046 | (7,831) | (3.9)% |
| Net operating income (2) . . . . . | $315,159 | $320,613 | $(5,454) | (1.7)% | $43,901 | $52,823 | 359,060 | 373,436 | (14,376) | (3.8)% |
| Other expenses: |  |  |  |  |  |  |  |  |  |  |
| Depreciation and amortization . . . . . |  |  |  |  |  |  | 222,564 | 241,494 | (18,930) | (7.8)% |
| Loss on impairment of real estate . . . . . |  |  |  |  |  |  | 21,820 | 62,420 | (40,600) | (65.0)% |
| Acquisition and transaction related costs . . . . . |  |  |  |  |  |  | 292 | - | 292 | n/m |
| General and administrative . . . . . |  |  |  |  |  |  | 25,134 | 26,858 | (1,724) | (6.4)% |
| Total other expenses . . . . . |  |  |  |  |  |  | 269,810 | 330,772 | (60,962) | (18.4)% |
| Gain on sale of real estate . . . . . |  |  |  |  |  |  | 11,001 | 78,354 | (67,353) | (86.0)% |
| Interest and other income . . . . . |  |  |  |  |  |  | 217 | 7 | 210 | n/m |
| Interest expense . . . . . |  |  |  |  |  |  | (103,480) | (112,385) | 8,905 | (7.9)% |
| Gain (loss) on early extinguishment of debt . . . . . |  |  |  |  |  |  | 682 | (14,068) | 14,750 | (104.8)% |
| Loss before income tax expense and equity in net losses of investees . . . . . |  |  |  |  |  |  | (2,330) | (5,428) | 3,098 | (57.1)% |
| Income tax expense . . . . . |  |  |  |  |  |  | (270) | (251) | (19) | 7.6% |
| Equity in net losses of investees . . . . . |  |  |  |  |  |  | (3,509) | (2,501) | (1,008) | 40.3% |
| Net loss . . . . . |  |  |  |  |  |  | $(6,109) | $(8,180) | $2,071 | (25.3)% |
| Weighted average common shares outstanding (basic and diluted) . . . . . |  |  |  |  |  |  | 48,278 | 48,195 | 83 | 0.2% |
| Per common share amounts (basic and diluted): |  |  |  |  |  |  |  |  |  |  |
| Net loss . . . . . |  |  |  |  |  |  | $(0.14) | $(0.17) | $0.03 | (17.6)% |

n/m - not meaningful

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

(2) Our definition of net operating income, or NOI, and our reconciliation of net loss to NOI are included below under the heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of consolidated results for the year ended December 31, 2022 compared to the year ended December 31, 2021. For a comparison of consolidated results for the year ended December 31, 2021 compared to the year ended December 31, 2020, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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

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properties. Rental income for acquired properties reflects a reduction to reimbursement revenue of $8,715 resulting from the reversal of previously estimated real estate taxes at two properties we acquired in 2021 due to favorable real estate tax assessments and successful appeals received in 2022. The decrease in rental income for properties undergoing significant redevelopment is primarily due to the reduction in occupied space at properties located in Washington, D.C. and Seattle, WA that began redevelopment projects during April 2021 and February 2022, respectively, partially offset by termination fee revenue at the Seattle, WA property related to the termination of the former tenant's lease in February 2022 prior to commencement of the redevelopment. The increase in rental income for comparable properties is primarily due to higher reimbursement revenue resulting from increased operating expenses due to higher building utilization levels in 2022 and operating expenses that were previously paid directly by certain of our tenants now being paid by and reimbursed to us pursuant to lease amendments with those tenants executed in 2022, as well as lease termination fee revenue received and higher parking income as a result of higher parking volumes, partially offset by reductions in occupied space at certain of our properties in 2022. Rental income includes non-cash straight line rent adjustments totaling $10,830 in 2022 and $15,368 in 2021, and amortization of acquired real estate leases and assumed real estate lease obligations totaling ($975) in 2022 and ($2,288) in 2021.

*Real estate taxes.* The decrease in real estate taxes reflects decreases in real estate taxes of $9,472 for acquired properties, $3,432 related to property disposition activities and $2,386 related to properties undergoing significant redevelopment, partially offset by an increase in real estate taxes of $1,164 for comparable properties. The decrease in real estate taxes for acquired properties reflects the reversal of previously estimated real estate taxes at two properties we acquired in 2021 due to favorable real estate tax assessments and successful appeals received in 2022. Real estate taxes for comparable properties increased primarily due to real estate taxes that were previously paid by certain of our tenants that are now being paid by us pursuant to lease amendments with those tenants executed in 2022.

*Utility expenses.* The increase in utility expenses reflects increases in utility expenses of $3,252 for comparable properties and $805 for acquired properties, partially offset by decreases in utility expenses of $1,999 related to property disposition activities and $304 for properties undergoing significant redevelopment. The increase in utility expenses for comparable properties is primarily due to increases in electricity usage as a result of higher building utilization levels at certain of our properties and the impact of inflation in 2022, as well as utility expenses that were previously paid directly by certain of our tenants that are now being paid by us pursuant to lease amendments with those tenants executed in 2022.

*Other operating expenses.* Other operating expenses consist of salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense, other direct costs of operating our properties and property management fees. The increase in other operating expenses reflects increases of $8,180 for comparable properties and $4,564 for acquired properties, partially offset by decreases of $6,982 related to property disposition activities and $1,221 related to properties undergoing significant redevelopment. The increase in other operating expenses for comparable properties is primarily due to higher repairs and maintenance costs, higher cleaning expenses due to increased building utilization levels and the impact of inflation in 2022, increased insurance costs and an increase related to other operating expenses that were previously paid by certain of our tenants that are now being paid by us pursuant to lease amendments with those tenants executed in 2022.

*Depreciation and amortization.* The decrease in depreciation and amortization reflects decreases of $18,921 related to property disposition activities, $9,990 for comparable properties and $2,656 related to properties undergoing significant redevelopment, partially offset by an increase of $12,637 for acquired properties. Depreciation and amortization for comparable properties declined due to certain leasing related assets becoming fully depreciated since January 1, 2021, partially offset by depreciation and amortization of improvements made to certain of our properties since January 1, 2021.

*Loss on impairment of real estate.* We recorded a $21,820 loss on impairment of real estate in 2022 to reduce the carrying value of seven properties to their estimated fair values less costs to sell. We recorded a $62,420 loss on impairment of real estate in 2021 to reduce the carrying value of eight properties to their estimated fair values less costs to sell.

*Acquisition and transaction related costs.* Acquisition and transaction related costs consist of costs related to our evaluation of potential acquisitions, dispositions and other strategic transactions.

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*General and administrative.* General and administrative expenses consist of fees pursuant to our business management agreement, equity compensation expense, legal and accounting fees, Trustees' fees and expenses, securities listing and transfer agency fees and other costs relating to our status as a publicly traded company. The decrease in general and administrative expenses is primarily the result of a decrease in base business management fees resulting from a decrease in average total market capitalization in 2022 compared to 2021 and a state franchise tax refund received in 2022.

*Gain on sale of real estate.* We recorded an $11,001 net gain on sale of real estate in 2022 resulting from the sale of 18 properties, including one leasable land parcel. We recorded a $78,354 net gain on sale of real estate in 2021 resulting from the sale of six properties, a warehouse facility and two vacant land parcels.

*Interest and other income.* The increase in interest and other income is primarily due to the effect of higher interest rates earned on cash balances invested in 2022 compared to 2021.

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

*Gain (loss) on early extinguishment of debt.* We recorded a net gain on early extinguishment of debt of $682 in 2022 resulting from the prepayment of a mortgage note due in 2023 at a discounted principal amount and the write off of the unamortized portion of certain premiums, discounts and debt issuance costs resulting from the prepayment of this mortgage note and the June 2022 redemption of our senior unsecured notes due July 2022. We recorded a loss on early extinguishment of debt of $14,068 in 2021 from prepayment fees incurred and the write off of unamortized discounts and debt issuance costs associated with the prepayment of one mortgage note due in 2023 and the redemption of our senior unsecured notes due in 2022 and 2046.

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

*Equity in net losses of investees.* Equity in net losses of investees represents our proportionate share of losses from our investments in two unconsolidated joint ventures. The increase in equity in net losses of investees was primarily due to reductions in occupied space at properties owned by our unconsolidated joint ventures in 2022.

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

## Non-GAAP Financial Measures

We present certain 'non-GAAP financial measures' within the meaning of the applicable SEC rules, including the calculations below of NOI, FFO and Normalized FFO. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income (loss) as presented in our consolidated statements of comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss). We 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.

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### *Net Operating Income*

The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations. 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 to NOI for the years ended December 31, 2022 and 2021:

|  | Year Ended December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Net loss | $(6,109) | $(8,180) |
| Equity in net losses of investees | 3,509 | 2,501 |
| Income tax expense | 270 | 251 |
| Loss before income tax expense and equity in net losses of investees | (2,330) | (5,428) |
| (Gain) loss on early extinguishment of debt | (682) | 14,068 |
| Interest expense | 103,480 | 112,385 |
| Interest and other income | (217) | (7) |
| Gain on sale of real estate | (11,001) | (78,354) |
| General and administrative | 25,134 | 26,858 |
| Acquisition and transaction related costs | 292 | - |
| Loss on impairment of real estate | 21,820 | 62,420 |
| Depreciation and amortization | 222,564 | 241,494 |
| NOI | $359,060 | $373,436 |

### *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 income (loss), calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets and any gain or loss on sale of real estate, as well as certain other adjustments currently not applicable to us. In calculating Normalized FFO, we adjust for the other items shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. FFO 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 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.

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The following table presents the reconciliation of net loss to FFO and Normalized FFO for the years ended December 31, 2022 and 2021:

|  | Year Ended December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Net loss | $(6,109) | $(8,180) |
| Add (less): Depreciation and amortization: |  |  |
| Consolidated properties | 222,564 | 241,494 |
| Unconsolidated joint venture properties | 3,058 | 3,427 |
| Loss on impairment of real estate | 21,820 | 62,420 |
| Gain on sale of real estate | (11,001) | (78,354) |
| FFO | 230,332 | 220,807 |
| Add (less): Acquisition and transaction related costs | 292 | - |
| (Gain) loss on early extinguishment of debt | (682) | 14,068 |
| Normalized FFO | $229,942 | $234,875 |
| Weighted average common shares outstanding (basic and diluted) | 48,278 | 48,195 |
| FFO per common share (basic and diluted) | $4.77 | $4.58 |
| Normalized FFO per common share (basic and diluted) | $4.76 | $4.87 |

## LIQUIDITY AND CAPITAL RESOURCES

### *Our Operating Liquidity and Resources (dollar amounts in thousands, except per share amounts)*

Our principal sources of funds to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are the operating cash flows we generate from our properties, net proceeds from 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, pay debt service obligations and make distributions to our 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
- • our ability to purchase additional properties which produce cash flows from operations in excess of our cost of acquisition capital and property operating and capital expenses.

On January 12, 2023, we announced a regular quarterly cash distribution of \$0.55 per common share (\$2.20 per common share per year). We determine our distribution payout ratio with consideration for our expected capital expenditures, as well as cash flows from operations and payment of debt obligations.

We expect to accretively grow our property portfolio through our capital recycling program, pursuant to which we plan to selectively sell certain properties from time to time to manage leverage levels and to acquire new properties or portfolios with a goal of improving our asset diversification, our geographical footprint and the average age of our properties, lengthening the weighted average term of our leases and increasing tenant retention, and increasing our distributions to shareholders. During the year ended December 31, 2022, we sold 18 properties, including one leasable land parcel, for an aggregate sales price of \$211,020, excluding closing costs. Since January 1, 2023, we sold three properties for a sales price of \$5,350, excluding closing costs. As a result of current real estate market conditions, including rising interest rates, the pace of our

61

dispositions has moderated and we expect that trend to continue until commercial real estate industry conditions generally, and office market conditions specifically, improve. However, we continue to evaluate our portfolio to strategically recycle capital and are currently in various stages of marketing certain of our properties for sale. As of February 14, 2023, we have entered into agreements to sell two properties for an aggregate sales price of $7,600, excluding closing costs. We continue to carefully consider our capital allocation strategy and believe we are well positioned to opportunistically recycle and deploy capital.

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

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

|  | Year Ended December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Cash, cash equivalents and restricted cash at beginning of period . . . . . | $84,515 | $56,855 |
| Net cash provided by (used in): |  |  |
| Operating activities . . . . . | 192,614 | 221,492 |
| Investing activities . . . . . | (4,624) | (442,985) |
| Financing activities . . . . . | (260,256) | 249,153 |
| Cash, cash equivalents and restricted cash at end of period . . . . . | $12,249 | $84,515 |

The decrease in cash provided by operating activities in 2022 compared to 2021 was primarily a result of higher deferred leasing costs incurred as a result of leasing activity, disposition activities and unfavorable changes in working capital in 2022. The decrease in cash used in investing activities in 2022 compared to 2021 is primarily due to higher acquisition activity in 2021, partially offset by increased capital expenditures in 2022 related to our two redevelopment projects in Washington, D.C. and Seattle, WA. The increase in cash used in financing activities in 2022 compared to 2021 is a result of net debt repayment activity in 2022 that included the redemption of all $300,000 of our 4.00% senior unsecured notes due July 2022 and the repayment of two mortgage notes with an aggregate principal balance of approximately $48,000, which was partially offset by borrowing activity under our revolving credit facility to facilitate these payments, compared to the aggregate issuance of $1,050,000 of senior unsecured notes in 2021, partially offset by the aggregate redemption of $610,000 of senior unsecured notes and the repayment of $71,000 of mortgage debt in 2021.

# ***Our Investment and Financing Liquidity and Resources (dollar amounts in thousands, except per share amounts)***

In order to fund acquisitions and to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $750,000 revolving credit facility. In November 2022, we exercised our option to extend the maturity date of our revolving credit facility by six months to July 31, 2023 and, subject to our payment of an extension fee and meeting certain other conditions, we have the option to extend the maturity date of our revolving credit facility by one additional six month period. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at December 31, 2022, on the amount outstanding under our revolving credit facility, if any. We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at December 31, 2022. Both the interest rate premium and facility fee are subject to adjustment based upon changes to our credit ratings. As of December 31, 2022, the annual interest rate payable on borrowings under our revolving credit facility was 5.4%. As of December 31, 2022 and February 14, 2023, we had $195,000 and $220,000 outstanding under our revolving credit facility and $555,000 and $530,000 available for borrowing.

Our credit agreement includes a feature under which the maximum borrowing availability may be increased to up to $1,950,000 in certain circumstances.

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

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

# *Senior Unsecured Note Redemption*

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

# *Mortgage Note Prepayments*

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

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

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

| Year | Debt Maturities |
| --- | --- |
| 2023 | $50,000 |
| 2024 | 350,000 |
| 2025 | 650,000 |
| 2026 | 300,000 |
| 2027 | 350,000 |
| Thereafter | 562,000 |
| Total | $2,262,000 |

None of our unsecured debt obligations require sinking fund payments prior to their maturity dates. Our $50,000 mortgage note requires monthly payments of interest only through maturity.

In addition to our debt obligations, as of December 31, 2022, we had estimated unspent leasing related obligations of $156,693, of which we expect to spend $86,031 over the next 12 months.

We are currently in the process of redeveloping a property located in Washington, D.C. containing approximately 340,000 rentable square feet. We currently estimate the total project costs associated with this redevelopment will be approximately $215,000 and completion of the redevelopment in the second quarter of 2023. As of December 31, 2022, we had incurred $148,107 related to this project. In June 2021, we entered into a 30-year lease for approximately 230,000 rentable square feet at this property that is approximately 25.1% higher than the prior rental rate for the same space, making the redevelopment project 54% pre-leased. See Note 7 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K for more information regarding this lease and related redevelopment costs.

We are also in the process of redeveloping a three-property campus located in Seattle, WA containing approximately 300,000 rentable square feet. This project includes the repositioning of two properties from office to life science and maintaining the third property for office use. We currently estimate the total project costs associated with this redevelopment will be approximately $162,000 and completion of the redevelopment in the fourth quarter of 2023. As of December 31, 2022, we had incurred $48,824 related to this project. In August 2022, we entered into an approximately 10-year lease for approximately 84,000 rentable

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square feet at one of the life science properties that is approximately 109.0% higher than the prior rental rate for the same space, making the redevelopment project 28% pre-leased.

We currently expect to use cash balances, borrowings under our revolving credit facility, net proceeds from property sales, incurrences or assumptions of mortgage debt and net proceeds from offerings of debt or equity securities to fund our future operations, capital expenditures, distributions to our shareholders and property acquisitions. When significant amounts are outstanding under our revolving credit facility or the maturities of our indebtedness approach, we expect to explore refinancing alternatives. Such alternatives may include incurring term debt, issuing debt or equity securities, extending the maturity date of our revolving credit facility and entering into a new revolving credit facility. We may assume additional mortgage debt in connection with our acquisitions or elect to place new mortgages on properties we own as a source of financing. We may also seek to participate in additional joint venture or other arrangements that may provide us with additional sources of financing. Although we cannot be sure that we will be successful in consummating any particular type of financing, we believe that we will have access to financing, such as debt and equity offerings, to fund future acquisitions and capital expenditures and to pay 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.

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 that will afford us reasonable access to capital for investment and financing activities, but we cannot be sure that we will be able to successfully carry out this intention. For instance, it is uncertain what the ultimate impacts of inflationary pressures, rising interest rates or any economic recession will be. A protracted and extensive economic recession or continued or intensified disruptions in capital markets could limit our access to financing from public sources and would likely increase our cost of capital.

During the year ended December 31, 2022, we paid quarterly distributions to our shareholders totaling $106,630 using cash on hand and borrowings under our revolving credit facility. On January 12, 2023, we declared a regular quarterly distribution payable to shareholders of record on January 23, 2023 in the amount of $0.55 per share, or approximately $26,700. We expect to pay this distribution on or about February 16, 2023 using cash on hand and borrowings under our revolving credit facility. For more information regarding the distributions we paid during 2022, see Note 11 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

We own 51% and 50% interests in two unconsolidated joint ventures which own three properties. The properties owned by these joint ventures are encumbered by an aggregate $82,000 principal amount of mortgage indebtedness, none of which is recourse to us. We do not control the activities that are most significant to these joint ventures and, as a result, we account for our investments in these joint ventures under the equity method of accounting. For more information on the financial condition and results of operations of these joint ventures, see Note 4 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Other than these joint ventures, as of December 31, 2022, 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.

#### ***Debt Covenants (dollars in thousands)***

Our principal debt obligations at December 31, 2022 consisted of $195,000 of borrowings outstanding under our $750,000 revolving credit facility, an outstanding principal balance of $2,212,000 of public issuances of senior unsecured notes and a mortgage note with an outstanding principal balance of $50,000 that was assumed in connection with an acquisition. Also, the three properties owned by two joint ventures in which we own 51% and 50% interests secure two additional mortgage notes. Our publicly issued senior

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unsecured notes are governed by indentures and their supplements. Our credit agreement and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes RMR ceasing to act as our business and property manager. Our credit agreement and our senior unsecured notes indentures and their supplements also contain a number of covenants, including those that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, require us to comply with certain financial covenants and, in the case of our credit agreement, restrict our ability to make distributions to our shareholders under certain circumstances. As of December 31, 2022, we believe we were in compliance with the terms and conditions of our respective covenants under our credit agreement and senior unsecured notes indentures and their supplements. Our mortgage note is non-recourse, subject to certain limited exceptions, and does not contain any material financial covenants.

Neither our credit agreement nor our senior unsecured notes indentures and their supplements contain provisions for acceleration which could be triggered by our credit ratings. However, under our credit agreement, our highest senior credit rating, as defined in our credit agreement, is used to determine the fees and interest rates we pay. Accordingly, if that credit rating is downgraded, our interest expense and related costs under our credit agreement would increase. In November 2022, Moody's downgraded our senior unsecured debt rating from Baa3 to Ba1. However, as of February 14, 2023, our highest senior credit rating, as defined in our credit agreement, remains unchanged and therefore, the fees and interest rates we pay under our credit agreement have not increased as a result of the downgrade to our senior unsecured debt rating.

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

### *Related Person Transactions*

We have relationships and historical and continuing transactions with RMR, RMR Inc. and others related to them. For more information about these and other such relationships and related person transactions, see Notes 6 and 7 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, which are incorporated herein by reference, and our other filings with the SEC, including our definitive Proxy Statement for our 2023 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2022. For more information about the risks that may arise as a result of these and other related person transactions and relationships, see elsewhere in this Annual Report on Form 10-K, including 'Warning Concerning Forward Looking Statements,' Part I, Item 1, 'Business' and Part I, Item 1A, 'Risk Factors.' We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services.

### *Critical Accounting Estimates*

Our critical accounting policies are those that will have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and estimates have been and will be consistently applied and produce financial information that fairly presents our results of operations. Our most critical accounting policies involve our investments in real property. These policies affect our:

- allocation of purchase prices between various asset categories, including allocations to above and below market leases and the related impact on the recognition of rental income and depreciation and amortization expenses; and

We allocate the acquisition cost of each property investment to various property components such as land, buildings and improvements and intangibles based on their fair values, and each component generally has a different useful life. For acquired real estate, we record land, buildings and improvements, and, if

65

applicable, the value of in place leases, the fair market value of above or below market leases and tenant relationships at fair value. For transactions that qualify as business combinations, we allocate the excess, if any, of the consideration over the fair value of assets acquired to goodwill. We base purchase price allocations and the determination of useful lives on our estimates and, under some circumstances, studies from independent real estate appraisers to provide market information and evaluations, which may involve estimated cash flows that are based on a number of factors, including capitalization rates and discount rates, among others, that are relevant to our purchase price allocations and determinations of useful lives; however, our management is ultimately responsible for the purchase price allocations and determination of useful lives.

We compute depreciation expense using the straight line method over estimated useful lives of up to 40 years for buildings and improvements, and up to seven years for personal property. We do not depreciate the allocated cost of land. We amortize capitalized above market lease values as a reduction to rental income over the terms of the respective leases. We amortize capitalized below market lease values as an increase to rental income over the terms of the respective leases. We amortize the value of acquired in place leases exclusive of the value of above market and below market acquired leases to expense over the periods of the respective leases. If a lease is terminated prior to its stated expiration, all unamortized amounts relating to that lease are written off. Purchase price allocations require us to make certain assumptions and estimates. Incorrect assumptions and estimates may result in inaccurate depreciation and amortization charges over future periods.

We periodically evaluate our properties for impairment. Impairment indicators may include declining tenant occupancy, our concerns about a tenant's financial condition (which may be endangered by a rent default or other information which comes to our attention) or our decision to dispose of an asset before the end of its estimated useful life and legislative, as well as market or industry changes that could permanently reduce the value of a property. If indicators of impairment are present, we evaluate the carrying value of the related property by comparing it to the expected future undiscounted cash flows to be generated from that property. If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to its fair value. This analysis requires us to judge whether indicators of impairment exist and to estimate likely future cash flows. The future net undiscounted cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. If we misjudge or estimate incorrectly or if future tenant operations, market or industry factors differ from our expectations we may record an impairment charge that is inappropriate or fail to record a charge when we should have done so, or the amount of any such charges may be inaccurate.

These accounting policies involve significant judgments made based upon our experience and the experience of our management and our Board of Trustees, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability and willingness of our tenants to perform their obligations to us, current and future economic conditions and competitive factors in the markets in which our properties are located. Competition, economic conditions, changing government priorities and other factors may cause occupancy declines in the future. In the future, we may need to revise our carrying value assessments to incorporate information which is not now known, and such revisions could increase or decrease our depreciation expense related to properties we own or decrease the carrying values of our assets.

### **Impact of Climate Change**

Concerns about climate change have resulted in various treaties, laws and regulations that are intended to limit carbon emissions and address other environmental concerns. These and other laws may cause energy or other costs at our properties to increase. We do not expect the direct impact of these increases to be material to our results of operations, because the increased costs either would be the responsibility of our tenants directly or in the longer term, passed through and paid by tenants of our properties. Although we do not believe it is likely in the foreseeable future, laws enacted to mitigate climate change may make some of our properties obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants and their ability to pay rent to us.

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In an effort to reduce the effects of any increased energy costs in the future, we continuously study ways to improve the energy efficiency at all of our properties. Our manager, RMR, is a member of the ENERGY STAR program, a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy that is focused on promoting energy efficiency at commercial properties through its “ENERGY STAR” program, and a member of the U.S. Green Building Council, a nonprofit organization focused on promoting energy efficiency at commercial properties through its LEED® green building program. RMR’s annual Sustainability Report summarizes the environmental, social and governance initiatives RMR and its clients, including OPI, employ. RMR’s Sustainability Report may be accessed on RMR Inc.’s website at www.rmrgroup.com/corporate-sustainability/default.aspx. The information on or accessible through RMR Inc.’s website is not incorporated by reference into this Annual Report on Form 10-K. For more information, see “Business - Corporate Sustainability” in Part I, Item 1 of this Annual Report on Form 10-K.

Some observers believe severe weather in different parts of the world over the last few years is evidence of global climate change. Severe weather may have an adverse effect on certain properties we own. Rising sea levels could cause flooding at some of our properties, which may have an adverse effect on individual properties we own. We mitigate these risks by procuring, or requiring our tenants to procure, insurance coverage we believe adequate to protect us from material damages and losses resulting from the consequences of losses caused by climate change. However, we cannot be sure that our mitigation efforts will be sufficient or that future storms, rising sea levels or other changes that may occur due to future climate change could not have a material adverse effect on our financial results.

# **Item 7A. 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. 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.

# *Fixed Rate Debt*

At December 31, 2022, 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 |
| Senior unsecured notes | 400,000 | 3.450% | 13,800 | 2031 | Semi-annually |
| Senior unsecured notes | 162,000 | 6.375% | 10,328 | 2050 | Quarterly |
| Mortgage note (one property in Chicago, IL) | 50,000 | 3.700% | 1,850 | 2023 | Monthly |
| Total | $2,262,000 |  | $86,453 |  |  |

(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 9 and 10 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Our senior unsecured notes require semi-annual or quarterly interest payments through maturity. Our mortgage requires interest only payments through 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

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obligations. If these debts were refinanced at interest rates which are one percentage point higher or lower than shown above, our annual interest cost would increase or decrease by approximately $22,620.

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. The U.S. Federal Reserve has raised interest rates several times since the beginning of 2022 in an effort to combat inflation and may continue to do so. Based on the balances outstanding at December 31, 2022, 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 one percentage point increase in interest rates would change the fair value of those obligations by approximately $80,103.

Our fixed rate 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 rate by refinancing prior to maturity.

In addition to the fixed rate debt presented in the table above, at December 31, 2022, we had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties that are secured by fixed rate debt consisting of the following mortgage 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 in Fairfax, VA) | 51% | $50,000 | 4.090% | $2,045 | 2029 | Monthly |
| Mortgage note (one property in Washington, D.C.) | 50% | 32,000 | 3.690% | 1,181 | 2024 | 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 do not own. None of the debt is recourse to us.

Table of Contents

Floating Rate Debt

At December 31, 2022, our floating rate debt consisted of $195,000 outstanding under our $750,000 revolving credit facility. Our revolving credit facility matures on July 31, 2023 and, subject to the payment of an extension fee and meeting certain other conditions, we have the option to extend the maturity date of our revolving credit facility by one additional six month period. No principal repayments are required under our revolving credit facility 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.

Borrowings under our revolving credit facility are in U.S. dollars and require interest to be paid at a rate of LIBOR 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, and to changes in our credit ratings. In addition, upon renewal or refinancing of our revolving credit facility, 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.

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The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of December 31, 2022:

|  | 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 December 31, 2022 . . . . . . . . . . | 5.4% | $195,000 | $10,530 | $0.22 |
| One percentage point increase . . . . . . . | 6.4% | $195,000 | $12,480 | $0.26 |

(1) Based on LIBOR plus a premium, which was 110 basis points per annum, at December 31, 2022.

(2) Based on the weighted average shares outstanding (diluted) for the year ended December 31, 2022.

The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of December 31, 2022, if we were fully drawn on our revolving credit 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 December 31, 2022 . . . . . . . . . . | 5.4% | $750,000 | $40,500 | $0.84 |
| One percentage point increase . . . . . . . | 6.4% | $750,000 | $48,000 | $0.99 |

(1) Based on LIBOR plus a premium, which was 110 basis points per annum, at December 31, 2022.

(2) Based on the weighted average shares outstanding (diluted) for the year ended December 31, 2022.

The foregoing tables show the impact of an immediate increase in floating interest rates as of December 31, 2022. If interest rates were to 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 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.

#### *LIBOR Phase Out*

We are required to pay interest on borrowings under our revolving credit facility at floating rates based on LIBOR. LIBOR has been phased out for new contracts and is expected to be phased out for pre-existing contracts by June 30, 2023. We currently expect that the determination of interest under our revolving credit facility will be revised as provided under our credit agreement or amended as necessary to provide for an alternative interest rate index. We expect that the alternative interest rate index would likely be SOFR because interest rates based on SOFR have gained significant market adoption as the replacement to LIBOR for debt facilities similar to ours. Any alternative interest rate index that may replace LIBOR may result in changes to the amount of interest we are required to pay and could result in our paying increased interest amounts.

#### **Item 8. Financial Statements and Supplementary Data**

The information required by this item is included in Item 15 of this Annual Report on Form 10-K.

#### **Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure**

None.

#### **Item 9A. Controls and Procedures**

As of the end of the period covered by this Annual Report on Form 10-K, our management carried out an evaluation, under the supervision and with the participation of our Managing Trustees, our President

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and Chief Operating 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 Exchange Act. Based upon that evaluation, our Managing Trustees, our President and Chief Operating 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 December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### **Management Report on Assessment of Internal Control Over Financial Reporting**

We are responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system is designed to provide reasonable assurance to our management and Board of Trustees regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) in *Internal Control - Integrated Framework*. Based on this assessment, we believe that, as of December 31, 2022, our internal control over financial reporting is effective.

Deloitte & Touche LLP, the independent registered public accounting firm that audited our 2022 Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, has issued an attestation report on our internal control over financial reporting. Its report appears elsewhere herein.

#### **Item 9B. Other Information**

None.

#### **Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections**

Not applicable.

### **PART III**

#### **Item 10. Directors, Executive Officers and Corporate Governance**

We have a Code of Conduct that applies to our officers and Trustees, RMR, senior and executive officers of RMR and members of the board of directors of RMR Inc. and employees of RMR who provide significant services to us. Our Code of Conduct is posted on our website, www.opireit.com. A printed copy of our Code of Conduct is also available free of charge to any person who requests a copy by writing to our Secretary, Office Properties Income Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, MA 02458-1634. We intend to satisfy the requirements under Item 5.05 of Form 8-K regarding disclosure of any amendments to, or waivers from, our Code of Conduct that apply to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on our website.

The remainder of the information required by Item 10 is incorporated by reference to our definitive Proxy Statement.

#### **Item 11. Executive Compensation**

The information required by Item 11 is incorporated by reference to our definitive Proxy Statement.

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# **Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters**

*Equity Compensation Plan Information.* We may grant common shares to our officers and other employees of RMR under our Amended and Restated 2009 Incentive Share Award Plan, or the 2009 Plan. In addition, each of our Trustees receives common shares as part of his or her annual compensation for serving as a Trustee and such shares are awarded under the 2009 Plan. The terms of awards made under the 2009 Plan are determined by the Compensation Committee of our Board of Trustees, at the time of the awards. The following table is as of December 31, 2022.

| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
| --- | --- | --- | --- |
| Equity compensation plans approved by securityholders - 2009 Plan | None. | None. | 847,631 (1) |
| Equity compensation plans not approved by securityholders | None. | None. | None. |
| Total | None. | None. | 847,631 (1) |

(1) Consists of common shares available for issuance pursuant to the terms of the 2009 Plan. Share awards that are repurchased or forfeited will be added to the common shares available for issuance under the 2009 Plan.

Payments by us to RMR employees are described in Notes 7 and 11 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. The remainder of the information required by Item 12 is incorporated by reference to our definitive Proxy Statement.

# **Item 13. Certain Relationships and Related Transactions, and Director Independence**

The information required by Item 13 is incorporated by reference to our definitive Proxy Statement.

# **Item 14. Principal Accountant Fees and Services**

The information required by Item 14 is incorporated by reference to our definitive Proxy Statement.

# **PART IV**

# **Item 15. Exhibits and Financial Statement Schedules**

# (a) *Index to Financial Statements and Financial Statement Schedules*

The following consolidated financial statements and financial statement schedule of Office Properties Income Trust are included on the pages indicated:

| Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 34) | F-1 |
| --- | --- |
| Consolidated Balance Sheets as of December 31, 2022 and 2021 | F-4 |
| Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the period ended December 31, 2022 | F-5 |
| Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 2022 | F-6 |
| Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2022 | F-7 |
| Notes to Consolidated Financial Statements | F-9 |

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All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, or are inapplicable, and therefore have been omitted.

# (b) *Exhibits*

Exhibits to our Annual Report on Form 10-K for the year ended December 31, 2022 have been included only with the version of that Annual Report on Form 10-K filed with the SEC.

A copy of our Annual Report on Form 10-K for the year ended December 31, 2022, including a list of exhibits, is available free of charge upon written request to Investor Relations, Office Properties Income Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, MA 02458-1634, telephone (617) 219-1440.

# **Item 16. Form 10-K Summary**

None.

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# Report of Independent Registered Public Accounting Firm

To the Trustees and Shareholders of Office Properties Income Trust

## Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Office Properties Income Trust (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income (loss), shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes and the schedule listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in *Internal Control - Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 15, 2023, expressed an unqualified opinion on the Company’s internal control over financial reporting.

## Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

## Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

## Impairment of Real Estate Properties - Refer to Notes 2 and 4 to the financial statements

### Critical Audit Matter Description

The Company’s investments in real estate properties were $3.37 billion, net of accumulated depreciation of $561 million as of December 31, 2022. These real estate properties are evaluated for impairment periodically or when events or changes in circumstances indicate that the carrying amount of a real estate property may not be recoverable. Impairment indicators may include declining tenant or resident occupancy, weak or declining profitability from the property, decreasing tenant cash flows or liquidity, the Company’s decision

F-1

to dispose of a property before the end of its estimated useful life, and legislative, market or industry changes that could permanently reduce the value of a property. If indicators of impairment are identified for any real estate property, the Company evaluates the recoverability of that real estate property by comparing undiscounted future cash flows expected to be generated by the real estate property over the Company's expected remaining hold period to the respective carrying amount. The Company's undiscounted future cash flows analysis requires management to make significant estimates and assumptions related to expected remaining hold periods, market rents, and terminal capitalization rates.

We identified the impairment of real estate properties as a critical audit matter because of the significant estimates and assumptions management makes to evaluate the recoverability of real estate properties. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of the significant estimates and assumptions related to expected remaining hold periods, market rents, and terminal capitalization rates within management's undiscounted future cash flows analysis which are sensitive to future market or industry considerations.

# *How the Critical Audit Matter Was Addressed in the Audit*

Our audit procedures related to the undiscounted cash flows analysis for each real estate property or group of properties with impairment indicators included the following among others:

- • We tested the effectiveness of controls over management's evaluation of the recoverability of real estate properties, including the key assumptions utilized in estimating the undiscounted future cash flows.
- • We evaluated the undiscounted cash flow analysis including estimates of expected remaining hold period, market rents, and terminal capitalization rates for each real estate property or group of properties with impairment indicators by (1) evaluating the source information and assumptions used by management and (2) comparing management's projections to external market sources and evidence obtained in other areas of our audit.
- • We evaluated the reasonableness of management's undiscounted future cash flows analysis by developing an independent expectation of future undiscounted cash flows based on third party market data and compared that independent estimate to the carrying amount of the real estate property or group of properties with indicators of impairment. We compared our analysis of the recoverability of the real estate property or group of properties to the Company's analysis.
- • We made inquiries of management about the current status of potential transactions and about management's judgments to understand the probability of future events that could affect the expected remaining hold period and other cash flow assumptions for the properties.

/s/ Deloitte & Touche LLP

Boston, Massachusetts

February 15, 2023

We have served as the Company's auditor since 2020.

F-2

# Report of Independent Registered Public Accounting Firm

To the Trustees and Shareholders of Office Properties Income Trust

## Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Office Properties Income Trust (the “Company”) as of December 31, 2022, based on criteria established in *Internal Control - Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in *Internal Control - Integrated Framework (2013)* issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 15, 2023, expressed an unqualified opinion on those financial statements.

## Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

## Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and trustees of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Boston, Massachusetts February 15, 2023

F-3

# **OFFICE PROPERTIES INCOME TRUST**  
 **CONSOLIDATED BALANCE SHEETS**  
 (dollars in thousands, except per share data)

|  | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| ASSETS |  |  |
| Real estate properties: |  |  |
| Land | $821,238 | $874,108 |
| Buildings and improvements | 3,114,836 | 3,036,978 |
| Total real estate properties, gross | 3,936,074 | 3,911,086 |
| Accumulated depreciation | (561,458) | (495,912) |
| Total real estate properties, net | 3,374,616 | 3,415,174 |
| Assets of properties held for sale | 2,516 | 26,598 |
| Investments in unconsolidated joint ventures | 35,129 | 34,838 |
| Acquired real estate leases, net | 369,333 | 505,629 |
| Cash and cash equivalents | 12,249 | 83,026 |
| Restricted cash | - | 1,489 |
| Rents receivable | 105,639 | 112,886 |
| Deferred leasing costs, net | 73,098 | 53,883 |
| Other assets, net | 7,397 | 8,160 |
| Total assets | $3,979,977 | $4,241,683 |
| LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |
| Unsecured revolving credit facility | $195,000 | $ - |
| Senior unsecured notes, net | 2,187,875 | 2,479,772 |
| Mortgage notes payable, net | 49,917 | 98,178 |
| Liabilities of properties held for sale | 73 | 594 |
| Accounts payable and other liabilities | 140,151 | 142,609 |
| Due to related persons | 6,469 | 6,787 |
| Assumed real estate lease obligations, net | 14,157 | 17,034 |
| Total liabilities | 2,593,642 | 2,744,974 |
| Commitments and contingencies |  |  |
| Shareholders' equity: |  |  |
| Common shares of beneficial interest, $.01 par value: 200,000,000 shares authorized, 48,565,644 and 48,425,665 shares issued and outstanding, respectively | 486 | 484 |
| Additional paid in capital | 2,619,532 | 2,617,169 |
| Cumulative net income | 169,606 | 175,715 |
| Cumulative common distributions | (1,403,289) | (1,296,659) |
| Total shareholders' equity | 1,386,335 | 1,496,709 |
| Total liabilities and shareholders' equity | $3,979,977 | $4,241,683 |

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

F-4

# **OFFICE PROPERTIES INCOME TRUST**  
 **CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**  
 (amounts in thousands, except per share data)

|  | Year Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Rental income | $554,275 | $576,482 | $587,919 |
| Expenses: |  |  |  |
| Real estate taxes | 57,844 | 71,970 | 65,119 |
| Utility expenses | 27,005 | 25,251 | 25,384 |
| Other operating expenses | 110,366 | 105,825 | 105,465 |
| Depreciation and amortization | 222,564 | 241,494 | 251,566 |
| Loss on impairment of real estate | 21,820 | 62,420 | 2,954 |
| Acquisition and transaction related costs | 292 | - | 232 |
| General and administrative | 25,134 | 26,858 | 28,443 |
| Total expenses | 465,025 | 533,818 | 479,163 |
| Gain on sale of real estate | 11,001 | 78,354 | 10,855 |
| Interest and other income | 217 | 7 | 779 |
| Interest expense (including net amortization of debt premiums, discounts and issuance costs of $9,134, $9,771 and $9,593, respectively) | (103,480) | (112,385) | (108,303) |
| Gain (loss) on early extinguishment of debt | 682 | (14,068) | (3,839) |
| Income (loss) before income tax expense and equity in net losses of investees | (2,330) | (5,428) | 8,248 |
| Income tax expense | (270) | (251) | (377) |
| Equity in net losses of investees | (3,509) | (2,501) | (1,193) |
| Net income (loss) | (6,109) | (8,180) | 6,678 |
| Other comprehensive income: |  |  |  |
| Unrealized gain on financial instrument | - | - | 200 |
| Other comprehensive income | - | - | 200 |
| Comprehensive income (loss) | $(6,109) | $(8,180) | $6,878 |
| Weighted average common shares outstanding (basic and diluted) | 48,278 | 48,195 | 48,124 |
| Per common share amounts (basic and diluted): |  |  |  |
| Net income (loss) | $(0.14) | $(0.17) | $0.14 |

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

F-5

# **OFFICE PROPERTIES INCOME TRUST**  
 **CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY**  
 (dollars in thousands)

|  | Number of Shares | Common Shares | Additional Paid In Capital | Cumulative Net Income | Cumulative Other Comprehensive Income (Loss) | Cumulative Common Distributions | Total |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Balance at December 31, 2019 | 48,201,941 | $482 | $2,612,425 | $177,217 | $(200) | $(1,084,170) | $1,705,754 |
| Share grants | 136,600 | 1 | 3,323 | - | - | - | 3,324 |
| Share forfeitures and repurchases | (20,175) | - | (443) | - | - | - | (443) |
| Amounts reclassified from cumulative other comprehensive loss to net income | - | - | - | - | 85 | - | 85 |
| Unrealized gain on financial instruments | - | - | - | - | 115 | - | 115 |
| Net income | - | - | - | 6,678 | - | - | 6,678 |
| Distributions to common shareholders | - | - | - | - | - | (106,121) | (106,121) |
| Balance at December 31, 2020 | 48,318,366 | 483 | 2,615,305 | 183,895 | - | (1,190,291) | 1,609,392 |
| Share grants | 145,800 | 1 | 2,872 | - | - | - | 2,873 |
| Share forfeitures and repurchases | (38,501) | - | (1,008) | - | - | - | (1,008) |
| Net loss | - | - | - | (8,180) | - | - | (8,180) |
| Distributions to common shareholders | - | - | - | - | - | (106,368) | (106,368) |
| Balance at December 31, 2021 | 48,425,665 | 484 | 2,617,169 | 175,715 | - | (1,296,659) | 1,496,709 |
| Share grants | 172,700 | 2 | 2,914 | - | - | - | 2,916 |
| Share forfeitures and repurchases | (32,721) | - | (551) | - | - | - | (551) |
| Net loss | - | - | - | (6,109) | - | - | (6,109) |
| Distributions to common shareholders | - | - | - | - | - | (106,630) | (106,630) |
| Balance at December 31, 2022 | 48,565,644 | $486 | $2,619,532 | $169,606 | $ - | $(1,403,289) | $1,386,335 |

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

F-6

# **OFFICE PROPERTIES INCOME TRUST**  
 **CONSOLIDATED STATEMENTS OF CASH FLOWS**  
 (dollars in thousands)

|  | Year Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |
| Net income (loss) | $(6,109) | $(8,180) | $6,678 |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |  |  |
| Depreciation | 96,966 | 92,266 | 83,828 |
| Net amortization of debt premiums, discounts and issuance costs | 9,134 | 9,771 | 9,593 |
| Amortization of acquired real estate leases and assumed real estate lease obligations, net | 119,703 | 144,826 | 167,192 |
| Amortization of deferred leasing costs | 7,994 | 7,878 | 6,887 |
| Gain on sale of real estate | (11,001) | (78,354) | (10,855) |
| Loss on impairment of real estate | 21,820 | 62,420 | 2,954 |
| (Gain) loss on early extinguishment of debt | (682) | 9,694 | 2,701 |
| Straight line rental income | (10,830) | (15,368) | (16,079) |
| Other non-cash expenses, net | 1,818 | 1,782 | 2,229 |
| Equity in net losses of investees | 3,509 | 2,501 | 1,193 |
| Change in assets and liabilities: |  |  |  |
| Rents receivable | 10,961 | 2,663 | (3,962) |
| Deferred leasing costs | (31,621) | (19,769) | (12,128) |
| Other assets | 484 | 1,538 | 2,505 |
| Accounts payable and other liabilities | (19,214) | 7,151 | (8,081) |
| Due to related persons | (318) | 673 | (1,027) |
| Net cash provided by operating activities | 192,614 | 221,492 | 233,628 |
| CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |
| Real estate acquisitions | - | (563,447) | (47,215) |
| Real estate improvements | (204,104) | (100,141) | (81,762) |
| Distributions in excess of earnings from unconsolidated joint ventures | 51 | 612 | 612 |
| Distributions in excess of earnings from Affiliates Insurance Company | - | 11 | 287 |
| Proceeds from sale of properties, net | 203,280 | 219,980 | 102,211 |
| Contributions to unconsolidated joint ventures | (3,851) | - | - |
| Proceeds from repayment of mortgage note receivable | - | - | 2,880 |
| Net cash used in investing activities | (4,624) | (442,985) | (22,987) |
| CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |
| Repayment of mortgage notes payable | (47,617) | (72,541) | (155,367) |
| Repayment of senior unsecured notes | (300,000) | (610,000) | (400,000) |
| Proceeds from issuance of senior unsecured notes, net | - | 1,041,809 | 408,932 |
| Borrowings on unsecured revolving credit facility | 385,000 | 755,000 | 561,467 |
| Repayments on unsecured revolving credit facility | (190,000) | (755,000) | (561,467) |
| Payment of debt issuance costs | (469) | (2,744) | (1,492) |
| Repurchase of common shares | (540) | (1,003) | (434) |
| Distributions to common shareholders | (106,630) | (106,368) | (106,121) |
| Net cash (used in) provided by financing activities | (260,256) | 249,153 | (254,482) |
| (Decrease) increase in cash, cash equivalents and restricted cash | (72,266) | 27,660 | (43,841) |
| Cash, cash equivalents and restricted cash at beginning of period | 84,515 | 56,855 | 100,696 |
| Cash, cash equivalents and restricted cash at end of period | $12,249 | $84,515 | $56,855 |

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

F-7

# **OFFICE PROPERTIES INCOME TRUST**  
 **CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)**  
 (dollars in thousands)

|  | Year Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| SUPPLEMENTAL CASH FLOW INFORMATION: |  |  |  |
| Interest paid | $104,174 | $103,200 | $100,083 |
| Income taxes paid | $352 | $299 | $1,377 |
| NON-CASH INVESTING ACTIVITIES: |  |  |  |
| Real estate improvements accrued, not paid | $42,772 | $18,492 | $11,981 |
| Real estate acquisition | $ - | $(13,031) | $ - |
| Capitalized interest | $4,578 | $795 | $199 |

# **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 consolidated balance sheets to the amounts shown in the consolidated statements of cash flows:

|  | As of December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Cash and cash equivalents | $12,249 | $83,026 | $42,045 |
| Restricted cash | - | 1,489 | 14,810 |
| Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | $12,249 | $84,515 | $56,855 |

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

F-8

# **OFFICE PROPERTIES INCOME TRUST**  
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**  
**(dollars in thousands, except per share amounts)**

# **Note 1. Organization**

Office Properties Income Trust, or OPI, we, us or our, is a real estate investment trust, or REIT, formed in 2009 under Maryland law.

As of December 31, 2022, our wholly owned properties were comprised of 160 properties containing approximately 20,969,000 rentable square feet and we had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties totaling approximately 444,000 rentable square feet.

# **Note 2. Summary of Significant Accounting Policies**

*Basis of Presentation.* These consolidated financial statements include the accounts of us and our subsidiaries, all of which are wholly owned directly or indirectly by us. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated.

*Real Estate Properties.* We record our properties at cost and provide depreciation on real estate investments on a straight line basis over estimated useful lives generally ranging from 7 to 40 years. In some circumstances, we engage independent real estate appraisal firms to provide market information and evaluations which are relevant to our purchase price allocations and determinations of useful lives; however, we are ultimately responsible for the purchase price allocations and determinations of useful lives.

We allocate the purchase prices of our properties to land, buildings and improvements based on determinations of the relative fair values of these assets assuming the properties are vacant. We determine the fair value of each property using methods similar to those used by independent appraisers, which may involve estimated cash flows that are based on a number of factors, including capitalization rates and discount rates, among others. We allocate a portion of the purchase price of our properties to above market and below market leases based on the present value (using an interest rate which reflects the risks associated with acquired in place leases at the time each property was acquired by us) of the difference, if any, between (i) the contractual amounts to be paid pursuant to the acquired in place leases and (ii) our estimates of fair market lease rates for the corresponding leases, measured over a period equal to the terms of the respective leases. We allocate a portion of the purchase price to acquired in place leases and tenant relationships based upon market estimates to lease up the property based on the leases in place at the time of purchase. We allocate this aggregate value between acquired in place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant's lease. However, we have not separated the value of tenant relationships from the value of acquired in place leases because such value and related amortization expense is immaterial to the accompanying consolidated financial statements. In making these allocations, we consider factors such as estimated carrying costs during the expected lease up periods, including real estate taxes, insurance and other operating income and expenses and costs, such as leasing commissions, legal and other related expenses, to execute similar leases in current market conditions at the time a property was acquired by us. If the value of tenant relationships becomes material in the future, we may separately allocate those amounts and amortize the allocated amounts over the estimated life of the relationships. For transactions that qualify as business combinations, we allocate the excess, if any, of the consideration over the fair value of the assets acquired to goodwill.

We amortize capitalized above market lease values (included in acquired real estate leases, net in our consolidated balance sheets) and below market lease values (presented as assumed real estate lease obligations, net in our consolidated balance sheets) as a reduction or increase, respectively, to rental income over the terms of the associated leases. Such amortization resulted in net decreases to rental income of $975, $2,288 and $5,440 during the years ended December 31, 2022, 2021 and 2020, respectively. We amortize the value of acquired in place leases (included in acquired real estate leases, net in our consolidated balance sheets), exclusive of the value of above market and below market acquired in place leases, over the terms of the associated leases. Such amortization, which is included in depreciation and amortization expense, amounted

F-9

# **OFFICE PROPERTIES INCOME TRUST**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**  
 **(dollars in thousands, except per share amounts)**

to $118,728, $142,538 and $161,752 during the years ended December 31, 2022, 2021 and 2020, respectively. If a lease is terminated prior to its stated expiration, we write off the unamortized amounts relating to that lease.

As of December 31, 2022 and 2021, our acquired real estate leases and assumed real estate lease obligations, excluding properties classified as held for sale, were as follows:

|  | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Acquired real estate leases: |  |  |
| Capitalized above market lease values | $15,792 | $29,925 |
| Less: accumulated amortization | (9,672) | (17,945) |
| Capitalized above market lease values, net | 6,120 | 11,980 |
| Lease origination value | 728,773 | 885,250 |
| Less: accumulated amortization | (365,560) | (391,601) |
| Lease origination value, net | 363,213 | 493,649 |
| Acquired real estate leases, net | $369,333 | $505,629 |
| Assumed real estate lease obligations: |  |  |
| Capitalized below market lease values | $27,033 | $29,488 |
| Less: accumulated amortization | (12,876) | (12,454) |
| Assumed real estate lease obligations, net | $14,157 | $17,034 |

As of December 31, 2022, the weighted average amortization periods for capitalized above market leases, lease origination value and capitalized below market lease values were 3.8 years, 6.4 years and 10.9 years, respectively. Future amortization of net intangible lease assets and liabilities, to be recognized over the current terms of the associated leases as of December 31, 2022 are estimated to be $90,999 in 2023, $73,905 in 2024, $53,792 in 2025, $39,983 in 2026, $31,313 in 2027 and $65,184 thereafter.

We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of long lived assets. Impairment indicators may include declining tenant occupancy, lack of progress releasing 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.

*Cash and Cash Equivalents.* We consider highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

*Restricted Cash.* 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.

F-10

# **OFFICE PROPERTIES INCOME TRUST**  
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**  
**(dollars in thousands, except per share amounts)**

*Deferred Leasing Costs.* Deferred leasing costs include brokerage costs and inducements associated with our entering leases. We amortize deferred leasing costs, which are included in depreciation and amortization expense, and inducements, which are included as a reduction to rental income, on a straight line basis over the terms of the respective leases. Legal costs associated with the execution of our leases are expensed as incurred and included in general and administrative expenses in our consolidated statements of comprehensive income (loss). We recorded amortization of deferred leasing costs of $6,869, $6,691 and $5,985, and reductions to rental income related to the amortization of inducements of $1,124, $1,187 and $902 for the years ended December 31, 2022, 2021 and 2020, respectively. Deferred leasing costs, excluding properties classified as held for sale, totaled $94,680 and $74,469 at December 31, 2022 and 2021, respectively, and accumulated amortization of deferred leasing costs totaled $21,582 and $20,586 at December 31, 2022 and 2021, respectively. Future amortization of deferred leasing costs to be recognized during the current terms of our existing leases as of December 31, 2022 are estimated to be $9,938 in 2023, $8,837 in 2024, $7,838 in 2025, $7,260 in 2026, $6,424 in 2027 and $32,801 thereafter.

*Debt Issuance Costs.* Costs related to the issuance or assumption of debt are capitalized and amortized to interest expense over the terms of the respective loans. Debt issuance costs, net of accumulated amortization, for our revolving credit facility are included in other assets in our consolidated balance sheets. As of December 31, 2022 and 2021, debt issuance costs for our revolving credit facility were $4,593 and $4,125, respectively, and accumulated amortization of debt issuance costs for our revolving credit facility were $4,072 and $3,079, respectively. Debt issuance costs, net of accumulated amortization, for our senior unsecured notes and mortgage notes payable are presented as a direct deduction from the associated debt liability in our consolidated balance sheets. As of December 31, 2022 and 2021, debt issuance costs, net of accumulated amortization, for our senior unsecured notes and mortgage notes payable totaled $13,589 and $16,120, respectively. Future amortization of debt issuance costs to be recognized with respect to our revolving credit facility and senior unsecured notes as of December 31, 2022 are estimated to be $2,676 in 2023, $2,155 in 2024, $1,669 in 2025, $1,335 in 2026, $595 in 2027 and $5,680 thereafter.

*Equity Method Investments.* We have noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties. The properties owned by these joint ventures are encumbered by an aggregate of $82,000 of mortgage indebtedness. 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. See Note 4 for more information regarding our unconsolidated joint ventures.

We periodically evaluate our equity method investments 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 and the extent to which the market value of our investment is below our carrying value, the financial condition of our investees, 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 record an impairment charge to adjust the basis of the investment to its estimated fair value.

*Other Liabilities.* We initially acquired 1,541,201 shares of class A common stock of The RMR Group Inc., or RMR Inc., on June 5, 2015 for cash and share consideration of $17,462. We concluded, for accounting purposes, that the cash and share consideration we paid for our investment in these shares represented a discount to the fair value of these shares. We initially accounted for this investment under the cost method of accounting and recorded this investment at its estimated fair value of $39,833 as of June 5, 2015 using Level 3 inputs, as defined in the fair value hierarchy under U.S. generally accepted accounting principles, or GAAP. As a result, we recorded a liability for the amount by which the estimated fair value of these shares exceeded the price we paid for these shares. This liability is included in accounts payable and other liabilities in our consolidated balance sheets. This liability is being amortized on a straight line basis through December 31, 2035 as an allocated reduction to our business management and property management fee expense. We amortized $1,087 of this liability during each of the years ended December 31, 2022, 2021

F-11

# **OFFICE PROPERTIES INCOME TRUST**  
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**  
**(dollars in thousands, except per share amounts)**

and 2020. These amounts are included in the net business management and property management fee amounts for such periods disclosed in Note 6. As of December 31, 2022, the remaining unamortized amount of this liability was $14,145. Future amortization of this liability as of December 31, 2022 is estimated to be $1,087 in 2023 through 2027 and $8,710 thereafter.

*Revenue Recognition.* We are a lessor of commercial office properties. Our leases provide our tenants with the contractual right to use and economically benefit from all of the physical space specified in the leases; therefore, we have determined to evaluate our leases as lease arrangements.

Our leases provide for base rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. Allowances for bad debts are recognized as a direct reduction of rental income.

Certain of our leases contain non-lease components, such as property level operating expenses and capital expenditures reimbursed by our tenants as well as other required lease payments. We have made the policy election to not separate the lease and non-lease components because (i) the lease components are operating leases and (ii) the timing and pattern of recognition of the non-lease components are the same as those of the lease components. We apply Accounting Standards Codification 842, *Leases*, to the combined component. Income derived by our leases is recorded in rental income in our consolidated statements of comprehensive income (loss).

Certain tenants are obligated to pay directly their obligations under their leases for insurance, real estate taxes and certain other expenses. These obligations, which have been assumed by the tenants under the terms of their respective leases, are not reflected in our consolidated financial statements. To the extent any tenant responsible for any such obligations under the applicable lease defaults on such lease or if it is deemed probable that the tenant will fail to pay for such obligations, we would record a liability for such obligations. See Note 5 for more information regarding our leases.

*Income Taxes.* We have elected to be taxed as a REIT under the United States Internal Revenue Code of 1986, as amended, and, accordingly, we generally will not be subject to federal income taxes provided we distribute our taxable income and meet certain other requirements to qualify for taxation as a REIT. We are, however, subject to certain state and local taxes.

*Cumulative Other Comprehensive Income (Loss).* Cumulative other comprehensive income (loss) represents our share of the cumulative comprehensive income and losses of our former equity method investees.

*Per Common Share Amounts.* We calculate basic earnings per common share using the two class method. We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares, together with the related impact on earnings, are considered when calculating diluted earnings per share.

*Use of Estimates.* Preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that may affect the amounts reported in these consolidated financial statements and related notes. The actual results could differ from these estimates. Significant estimates in the consolidated financial statements include purchase price allocations, useful lives of fixed assets and assessment of impairment of real estate and the related intangibles.

*Segment Reporting.* We operate in one business segment: direct ownership of real estate properties.

F-12

# **OFFICE PROPERTIES INCOME TRUST**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**  
 **(dollars in thousands, except per share amounts)**

# **Note 3. Per Common Share Amounts**

The calculation of basic and diluted earnings per share is as follows (amounts in thousands, except per share amounts):

|  | Year Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Numerators: |  |  |  |
| Net income (loss) . . . . . | $(6,109) | $(8,180) | $6,678 |
| Income attributable to unvested participating securities . . . . . | (427) | - | - |
| Net income (loss) used in calculating earnings per share . . . . . | $(6,536) | $(8,180) | $6,678 |
| Denominators: |  |  |  |
| Weighted average common shares outstanding - basic and diluted (1) . . . . . | 48,278 | 48,195 | 48,124 |
| Net income (loss) per common share - basic and diluted . . . . . | $(0.14) | $(0.17) | $0.14 |

(1) For the years ended December 31, 2022, 2021 and 2020, there were no dilutive common shares. In addition, for the years ended December 31, 2021 and 2020, 34 and 14 unvested common shares, respectively, were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

# **Note 4. Real Estate Properties**

As of December 31, 2022, our wholly owned properties were comprised of 160 properties containing approximately 20,969,000 rentable square feet, with an undepreciated carrying value of $3,938,658, including $2,584 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 444,000 rentable square feet. We generally lease space at our properties on a gross lease, modified gross lease or net lease basis pursuant to fixed term contracts expiring between 2023 and 2053. Some of our leases generally require us to pay all or some property operating expenses and to provide all or most property management services. During the year ended December 31, 2022, we entered into 75 leases for approximately 2,562,000 rentable square feet for a weighted (by rentable square feet) average lease term of 9.3 years and we made commitments for $173,419 of leasing related costs. As of December 31, 2022, we had estimated unspent leasing related obligations of $156,693.

# *Acquisition Activities*

# *2022 Acquisition Activities*

We did not acquire any properties during the year ended December 31, 2022.

F-13

# **OFFICE PROPERTIES INCOME TRUST**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**  
 **(dollars in thousands, except per share amounts)**

# *2021 Acquisition Activities*

During the year ended December 31, 2021, we acquired three properties containing approximately 926,000 rentable square feet for an aggregate purchase price of $576,478, including net purchase price adjustments of $1,761 and acquisition related costs of $1,264. These acquisitions were accounted for as asset acquisitions. We allocated the purchase prices of these acquisitions based on the relative estimated fair values of the acquired assets and assumed liabilities as follows:

| Acquisition Date | Location | Number of Properties | Rentable Square Feet | Purchase Price | Land | Buildings and Improvements | Acquired Real Estate Leases | Assumed Real Estate Lease Obligations |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| June 2021 . . . . | Chicago, IL (1) | 1 | 531,000 | $368,331 | $42,935 | $258,348 | $76,136 | $(9,088) |
| June 2021 . . . . | Atlanta, GA | 1 | 346,000 | 180,602 | 13,040 | 135,459 | 32,103 | - |
| August 2021 . . . | Boston, MA | 1 | 49,000 | 27,545 | 16,103 | 10,217 | 1,225 | - |
|  |  | 3 | 926,000 | $576,478 | $72,078 | $404,024 | $109,464 | $(9,088) |

(1) Purchase price includes an adjustment of $13,031 to record an estimated real estate tax liability as of the acquisition date.

# *2020 Acquisition Activities*

During the year ended December 31, 2020, we acquired two properties containing approximately 163,000 rentable square feet for an aggregate purchase price of $47,215, including capitalized acquisition related costs of $590. These acquisitions were accounted for as asset acquisitions. We allocated the purchase prices of these acquisitions based on the relative estimated fair values of the acquired assets as follows:

| Acquisition Date | Location | Number of Properties | Rentable Square Feet | Purchase Price | Land | Buildings and Improvements | Acquired Real Estate Leases |
| --- | --- | --- | --- | --- | --- | --- | --- |
| February 2020 . . . . . | Boston, MA | 1 | 13,000 | $11,864 | $2,618 | $9,246 | $ - |
| December 2020 . . . . . | Fort Mill, SC | 1 | 150,000 | 35,351 | 5,031 | 22,526 | 7,794 |
|  |  | 2 | 163,000 | $47,215 | $7,649 | $31,772 | $7,794 |

# *Disposition Activities*

The sales completed during the years ended December 31, 2022, 2021 and 2020, as presented in the tables below, do not represent significant dispositions individually or in the aggregate, nor do they represent a strategic shift in our business. As a result, the results of operations of these properties are included in continuing operations through the date of sale in our consolidated statements of comprehensive income (loss).

F-14

# **OFFICE PROPERTIES INCOME TRUST**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**  
 **(dollars in thousands, except per share amounts)**

# *2022 Disposition Activities*

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

| Date of Sale | Number of Properties | Location | Rentable Square Feet | Gross Sales Price (1) | Gain (Loss) on Sale of Real Estate | Loss on Impairment of Real Estate |
| --- | --- | --- | --- | --- | --- | --- |
| January 2022 | 1 | Rockville, MD (2) | 129,000 | $6,750 | $(72) | $ - |
| February 2022 | 2 | Chesapeake, VA (2) | 172,000 | 18,945 | 2,296 | - |
| March 2022 | 1 | Milwaukee, WI (2) | 29,000 | 3,775 | (75) | - |
| May 2022 | 1 | Holtsville, NY | 264,000 | 28,500 | 1,900 | - |
| June 2022 | 1 | Fairfax, VA | 184,000 | 19,750 | (13,537) | - |
| July 2022 | 1 | Houston, TX | 206,000 | 9,800 | (135) | 15,278 |
| August 2022 | 3 | Birmingham, AL | 448,000 | 16,050 | (265) | 3,709 |
| August 2022 | 1 | Erlanger, KY | 86,000 | 2,600 | 135 | 2,184 |
| September 2022 | 2 | Chesapeake, VA | 214,000 | 24,000 | 62 | 649 |
| September 2022 | 2 | Everett, WA | 112,000 | 31,500 | 11,959 | - |
| September 2022 | 1 | Salem, OR | 233,000 | 34,250 | 5,369 | - |
| November 2022 | 1 | Kapolei, HI (3) | 109,000 | 4,000 | 2,504 | - |
| November 2022 | 1 | Englewood, CO | 140,000 | 11,100 | 860 | - |
|  | 18 |  | 2,326,000 | $211,020 | $11,001 | $21,820 |

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

(2) Properties were classified as held for sale as of December 31, 2021.

(3) Property is a leasable land parcel.

As of December 31, 2022, we had three properties located in Richmond, VA containing approximately 89,000 rentable square feet classified as held for sale in our consolidated balance sheets. These properties were sold in January 2023 for a sales price of $5,350, excluding closing costs.

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

F-15

# **OFFICE PROPERTIES INCOME TRUST**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**  
 **(dollars in thousands, except per share amounts)**

# *2021 Disposition Activities*

During the year ended December 31, 2021, we sold six properties, a warehouse facility and two vacant land parcels containing approximately 2,565,000 rentable square feet for an aggregate sales price of $226,915, excluding closing costs.

| Date of Sale | Number of Properties | Location | Rentable Square Feet | Gross Sales Price (1) | Gain (Loss) on Sale of Real Estate | Loss on Impairment of Real Estate |
| --- | --- | --- | --- | --- | --- | --- |
| January 2021 . . . . . | - | Kansas City, MO (2)(3) | 10,000 | $845 | $(63) | $ - |
| January 2021 . . . . . | 1 | Richmond, VA (2) | 311,000 | 130,000 | 54,181 | - |
| April 2021 . . . . . | 1 | Huntsville, AL | 1,371,000 | 39,000 | - | 5,383 |
| July 2021 . . . . . | 1 | Fresno, CA | 532,000 | 6,000 | - | 33,902 |
| July 2021 . . . . . | 1 | Liverpool, NY | 38,000 | 650 | 31 | - |
| August 2021 . . . . . | 1 | Memphis, TN | 205,000 | 15,270 | 287 | - |
| September 2021 . . . . . | 1 | Stoneham, MA | 98,000 | 6,650 | (282) | 5,911 |
| October 2021 . . . . . | - | Sterling, VA (4) | - | 28,500 | 24,200 | - |
|  | 6 |  | 2,565,000 | $226,915 | $78,354 | $45,196 |

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

(2) Properties were classified as held for sale as of December 31, 2020.

(3) Consists of a warehouse facility.

(4) Consists of two vacant land parcels.

We also recorded a $10,658 loss on impairment of real estate to reduce the carrying value of three properties that were classified as held for sale to their estimated fair values less costs to sell as of September 30, 2021. Subsequently, we removed these properties from held for sale status due to a change of plan for sale and recorded an impairment adjustment of $425 to increase the carrying value of these properties to their estimated fair value as of December 31, 2021. In addition, we recorded a $6,991 loss on impairment of real estate to reduce the carrying value of two properties that were classified as held for sale as of December 31, 2021 and subsequently sold in 2022.

# *2020 Disposition Activities*

During the year ended December 31, 2020, we sold 10 properties containing approximately 906,000 rentable square feet for an aggregate sales price of $110,463, excluding closing costs and including the repayment of one mortgage note with an outstanding principal balance of $13,095, an annual interest rate of 5.9% and a maturity date in August 2021.

| Date of Sale | Number of Properties | Location | Rentable Square Feet | Gross Sales Price (1) | Gain (Loss) on Sale of Real Estate | Loss on Impairment of Real Estate |
| --- | --- | --- | --- | --- | --- | --- |
| January 2020 . . . . . | 2 | Stafford, VA | 65,000 | $14,063 | $4,771 | $ - |
| January 2020 . . . . . | 1 | Windsor, CT | 97,000 | 7,000 | 314 | - |
| February 2020 . . . . . | 1 | Lincolnshire, IL | 223,000 | 12,000 | 1,179 | - |
| March 2020 . . . . . | 1 | Trenton, NJ | 267,000 | 30,100 | (179) | - |
| March 2020 . . . . . | 1 | Fairfax, VA | 83,000 | 22,200 | 4,754 | - |
| October 2020 . . . . . | 4 | Fairfax, VA | 171,000 | 25,100 | 16 | 2,954 |
|  | 10 |  | 906,000 | $110,463 | $10,855 | $2,954 |

F-16

# **OFFICE PROPERTIES INCOME TRUST**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**  
 **(dollars in thousands, except per share amounts)**

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

# *Unconsolidated Joint Ventures*

We own interests in two joint ventures that own three properties. We account for these investments under the equity method of accounting. As of December 31, 2022 and 2021, our investments in unconsolidated joint ventures consisted of the following:

| Joint Venture | OPI Ownership | OPI Carrying Value of Investments at December 31, |  | Number of Properties | Location | Rentable Square Feet |
| --- | --- | --- | --- | --- | --- | --- |
|  |  | 2022 | 2021 |  |  |  |
| Prosperity Metro Plaza . . . . . | 51% | $19,237 | $20,672 | 2 | Fairfax, VA | 329,000 |
| 1750 H Street, NW . . . . . | 50% | 15,892 | 14,166 | 1 | Washington, D.C. | 115,000 |
| Total . . . . . |  | $35,129 | $34,838 | 3 |  | 444,000 |

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

| Joint Venture | Interest Rate (1) | Maturity Date | Principal Balance at December 31, 2022 and 2021 (2) |
| --- | --- | --- | --- |
| Prosperity Metro Plaza . . . . . | 4.09% | 12/1/2029 | $50,000 |
| 1750 H Street, NW . . . . . | 3.69% | 8/1/2024 | 32,000 |
| Weighted Average/Total . . . . . | 3.93% |  | $82,000 |

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

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

At December 31, 2022, the aggregate unamortized basis difference of our two unconsolidated joint ventures of $6,489 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 consolidated statements of comprehensive income (loss).

# **Note 5. Leases**

Rental income from operating leases, including payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. We increased rental income by $10,830, $15,368 and $16,079 to record revenue on a straight line basis during the years ended December 31, 2022, 2021 and 2020, respectively. Rents receivable, excluding properties classified as held for sale, include $86,305 and $82,978 of straight line rent receivables at December 31, 2022 and 2021, 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 $83,103, $85,107 and $75,851 for the years ended December 31, 2022, 2021 and 2020, respectively, of which tenant reimbursements totaled $78,388, $81,295 and $71,385, respectively.

F-17

# **OFFICE PROPERTIES INCOME TRUST**
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
**(dollars in thousands, except per share amounts)**

The following operating lease maturity analysis presents the future contractual lease payments to be received by us through 2053 as of December 31, 2022:

| Year | Amount |
| --- | --- |
| 2023 | $393,318 |
| 2024 | 358,254 |
| 2025 | 313,267 |
| 2026 | 279,820 |
| 2027 | 248,976 |
| Thereafter | 1,393,682 |
| Total | $2,987,317 |

As of December 31, 2022, tenants representing approximately 1.5% of our total operating lease maturities had exercisable rights to terminate their leases before the stated terms of their leases expire. In 2023, 2024, 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2035, 2037 and 2040, early termination rights become exercisable by other tenants who represented an additional approximately 1.3%, 2.4%, 5.6%, 1.6%, 1.6%, 5.5%, 2.1%, 1.6%, 0.3%, 3.5%, 0.4% and 1.7% of our total operating lease maturities, respectively. In certain circumstances, some leases provide the tenant with the right to terminate if the legislature or other funding authority does not appropriate the funding necessary for the tenant to meet its lease obligations; we have determined the fixed non-cancelable lease term of these leases to be the full term of the lease because we believe the occurrence of early terminations to be a remote contingency based on both our historical experience and our assessments of the likelihood of lease cancellation on a separate lease basis. As of December 31, 2022, 10 of our tenants had the right to terminate their leases if the respective legislature or other funding authority does not appropriate the funding necessary for the tenant to meet its obligation. These 10 tenants represented approximately 4.8% of our total operating lease maturities as of December 31, 2022.

*Leases where we are the lessee.* We had one lease where we were the lessee which expired on January 31, 2021. We subleased a portion of the space, which sublease also expired on January 31, 2021. Rent expense incurred under the lease, net of sublease revenue, was $79 and $1,749 for the years ended December 31, 2021 and 2020, respectively.

# **Note 6. Business and Property Management Agreements with RMR**

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

*Management Agreements with RMR.* Our management agreements with RMR provide for an annual base management fee, an annual incentive management fee and property management and construction supervision fees, payable in cash, among other terms:

- *Base Management Fee.* The annual base management fee payable to RMR by us for each applicable period is equal to the lesser of:
  - the sum of (a) 0.5% of the average aggregate historical cost of the real estate assets acquired from a REIT to which RMR provided business management or property management services, or the Transferred Assets, plus (b) 0.7% of the average aggregate historical cost of our real estate investments excluding the Transferred Assets up to $250,000, plus (c) 0.5% of the average aggregate historical cost of our real estate investments excluding the Transferred Assets exceeding $250,000; and

F-18

## OFFICE PROPERTIES INCOME TRUST

### NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share amounts)

- the sum of (a) 0.7% of the average closing price per share of our common shares on the stock exchange on which such shares are principally traded during such period, multiplied by the average number of our common shares outstanding during such period, plus the daily weighted average of the aggregate liquidation preference of each class of our preferred shares outstanding during such period, plus the daily weighted average of the aggregate principal amount of our consolidated indebtedness during such period, or, together, our Average Market Capitalization, up to $250,000, plus (b) 0.5% of our Average Market Capitalization exceeding $250,000.

The average aggregate historical cost of our real estate investments includes our consolidated assets invested, directly or indirectly, in equity interests in or loans secured by real estate and personal property owned in connection with such real estate (including acquisition related costs and costs which may be allocated to intangibles or are unallocated), all before reserves for depreciation, amortization, impairment charges or bad debts or other similar non-cash reserves.

- *Incentive Management Fee.* The incentive management fee which may be earned by RMR for an annual period is calculated as follows:
  - An amount, subject to a cap based on the value of our common shares outstanding, equal to 12% of the product of:
    - our equity market capitalization on the last trading day of the year immediately prior to the relevant three year measurement period, and
    - the amount (expressed as a percentage) by which the total return per share, as defined in the business management agreement and further described below, of our common shareholders (i.e., share price appreciation plus dividends) exceeds the total shareholder return of the applicable index, or the benchmark return per share, for the relevant measurement period. The MSCI U.S. REIT/Office REIT Index is the benchmark index for periods on and after August 1, 2021, and the SNL U.S. REIT Office Index is the benchmark index for periods prior to August 1, 2021.

For purposes of the total return per share of our common shareholders, share price appreciation for a measurement period is determined by subtracting (1) the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on the last trading day of the year immediately before the first year of the applicable measurement period, or the initial share price, from (2) the average closing price of our common shares on the 10 consecutive trading days having the highest average closing prices during the final 30 trading days in the last year of the measurement period.

- The calculation of the incentive management fee (including the determinations of our equity market capitalization, initial share price and the total return per share of our common shareholders) is subject to adjustments if we issue or repurchase our common shares, or if our common shares are forfeited, during the measurement period.
- No incentive management fee is payable by us unless our total return per share during the measurement period is positive.
- The measurement periods are three year periods ending with the year for which the incentive management fee is being calculated.
- If our total return per share exceeds 12% per year in any measurement period, the benchmark return per share is adjusted to be the lesser of the total shareholder return of the applicable index for such measurement period and 12% per year, or the adjusted benchmark return per share. In instances where the adjusted benchmark return per share applies, the incentive management fee will be reduced if our total return per share is between 200 basis points and 500 basis points below the applicable index in any year by a low return factor, as defined in the business management agreement, and there will be no incentive management fee paid if, in these instances, our total return per share is more than

F-19

# **OFFICE PROPERTIES INCOME TRUST**
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
**(dollars in thousands, except per share amounts)**

500 basis points below the applicable index in any year, determined on a cumulative basis (i.e., between 200 basis points and 500 basis points per year multiplied by the number of years in the measurement period and below the applicable market index).

- The incentive management fee is subject to a cap. The cap is equal to the value of the number of our common shares which would, after issuance, represent 1.5% of the number of our common shares then outstanding multiplied by the average closing price of our common shares during the 10 consecutive trading days having the highest average closing prices during the final 30 trading days of the relevant measurement period.
- Incentive management fees we paid to RMR for any period may be subject to “clawback” if our financial statements for that period are restated due to material non-compliance with any financial reporting requirements under the securities laws as a result of the bad faith, fraud, willful misconduct or gross negligence of RMR and the amount of the incentive management fee we paid was greater than the amount we would have paid based on the restated financial statements.

Pursuant to our business management agreement with RMR, we recognized net business management fees of $17,376, $18,637 and $17,358 for the years ended December 31, 2022, 2021 and 2020, respectively. The net business management fees we recognized are included in general and administrative expenses in our consolidated statements of comprehensive income (loss) for these periods. The net business management fees we recognized for each of the years ended December 31, 2022, 2021 and 2020 reflect a reduction of $603, for the amortization of the liability we recorded in connection with our former investment in RMR Inc., as further described in Note 2. We did not incur any incentive management fee pursuant to our business management agreement for the years ended December 31, 2022, 2021 or 2020.

- *Property Management and Construction Supervision Fees.* The property management fees payable to RMR by us for each applicable period are equal to 3.0% of gross collected rents and the construction supervision fees payable to RMR by us for each applicable period are equal to 5.0% of construction costs. Pursuant to our property management agreement with RMR, we recognized aggregate net property management and construction supervision fees of $25,756, $21,103 and $20,774 for each of the years ended December 31, 2022, 2021 and 2020, respectively. The net property management and construction supervision fees we recognized for the years ended December 31, 2022, 2021 and 2020 reflect a reduction of $484 for each of those years for the amortization of the liability we recorded in connection with our former investment in RMR Inc., as further described in Note 2. For the years ended December 31, 2022, 2021 and 2020, $15,839, $16,507 and $17,328, respectively, of the total net property management and construction supervision fees were expensed to other operating expenses in our consolidated statements of income (loss) and $9,917, $4,596 and $3,446, respectively, were capitalized as building improvements in our consolidated balance sheets. The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets.
- *Expense Reimbursement.* We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR on our behalf. We are generally not responsible for payment of RMR’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR’s centralized accounting personnel, our share of RMR’s costs for providing our internal audit function and as otherwise agreed. Our property level operating expenses are generally incorporated into rents charged to our tenants, including certain payroll and related costs incurred by RMR. We reimbursed RMR $24,371, $24,766 and $24,919 for these expenses and costs for each of the years ended December 31, 2022, 2021 and 2020, respectively. We included these amounts in other operating expenses and general and administrative expense, as applicable, for these periods.
- *Term.* Our management agreements with RMR have terms that end on December 31, 2042, and automatically extend on December 31st of each year for an additional year, so that the terms of our management agreements thereafter end on the 20th anniversary of the date of the extension.

F-20

# **OFFICE PROPERTIES INCOME TRUST**
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
**(dollars in thousands, except per share amounts)**

- *Termination Rights.* We have the right to terminate one or both of our management agreements with RMR: (i) at any time on 60 days' written notice for convenience, (ii) immediately on written notice for cause, as defined therein, (iii) on written notice given within 60 days after the end of an applicable calendar year for a performance reason, as defined therein, and (iv) by written notice during the 12 months following a change of control of RMR, as defined therein. RMR has the right to terminate the management agreements for good reason, as defined therein.
- *Termination Fee.* If we terminate one or both of our management agreements with RMR for convenience, or if RMR terminates one or both of our management agreements for good reason, we have agreed to pay RMR a termination fee in an amount equal to the sum of the present values of the monthly future fees, as defined therein, for the terminated management agreement(s) for the term that was remaining prior to such termination, which, depending on the time of termination, would be between 19 and 20 years. If we terminate one or both of our management agreements with RMR for a performance reason, we have agreed to pay RMR the termination fee calculated as described above, but assuming a 10-year term was remaining prior to the termination. We are not required to pay any termination fee if we terminate our management agreements with RMR for cause or as a result of a change of control of RMR.
- *Transition Services.* RMR has agreed to provide certain transition services to us for 120 days following an applicable termination by us or notice of termination by RMR, including cooperating with us and using commercially reasonable efforts to facilitate the orderly transfer of the management and real estate investment services provided under our business management agreement and to facilitate the orderly transfer of the management of the managed properties under our property management agreement, as applicable.
- *Vendors.* Pursuant to our management agreements with RMR, RMR may from time to time negotiate on our behalf with certain third party vendors and suppliers for the procurement of goods and services to us. As part of this arrangement, we may enter agreements with RMR and other companies to which RMR or its subsidiaries provide management services for the purpose of obtaining more favorable terms from such vendors and suppliers.
- *Investment Opportunities.* Under our business management agreement with RMR, we acknowledge that RMR may engage in other activities or businesses and act as the manager to any other person or entity (including other REITs) even though such person or entity has investment policies and objectives similar to ours and we are not entitled to preferential treatment in receiving information, recommendations and other services from RMR.

*Management Agreements between our Joint Ventures and RMR.* RMR provides management services to our two unconsolidated joint ventures. We are not obligated to pay management fees to RMR under our management agreements with RMR for the services it provides regarding the joint ventures. The joint ventures pay management fees directly to RMR.

# **Note 7. Related Person Transactions**

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

F-21

# **OFFICE PROPERTIES INCOME TRUST**  
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**  
**(dollars in thousands, except per share amounts)**

independent directors 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 director or managing trustee of these public companies. Other officers of RMR, including Ms. Clark, serve as managing trustees, managing directors or officers of certain of these companies.

*Our Manager, RMR.* We have two agreements with RMR to provide management services to us. RMR also provides management services to our unconsolidated joint ventures. See Note 6 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 $1,126, $1,138 and $1,120 for the years ended December 31, 2022, 2021 and 2020, respectively. Our office space leases with RMR are terminable by RMR if our management agreements with RMR are terminated.

*Share Awards to RMR Employees.* As described further in Note 11, we award shares to our officers and other employees of RMR annually. Generally, one fifth of these awards vest on the grant date and one fifth vests on each of the next four anniversaries of the grant dates. In certain instances, we may accelerate the vesting of an award, such as in connection with the award holder’s retirement as an officer of us or an officer or employee of RMR. These awards to RMR employees are in addition to the share awards to our Managing Trustees, as Trustee compensation, and the fees we paid to RMR. See Note 11 for more information regarding our share awards and activity as well as certain share purchases we made in connection with share award recipients satisfying tax withholding obligations on vesting share awards.

*Sonesta.* In June 2021, we entered into a 30-year lease agreement with a subsidiary of 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 planned full-service hotel component of the property that will include approximately 230,000 rentable square feet, which represents approximately 54% of the total square feet upon completion of the redevelopment. The term of the lease commences upon our delivery of the completed hotel, which we estimate to occur in the second quarter of 2023. Sonesta has two options to extend the term for 10 years each. Pursuant to the lease agreement, Sonesta will pay us annual base rent of approximately $6,436 beginning 18 months after the lease commences. The annual base rent will increase by 10% every five years throughout the term. Sonesta is also obligated to pay its pro rata share of the operating costs for the property. We estimate that the total cost to build the hotel space will be approximately $66,000. Mr. Portnoy is a director and controlling shareholder of Sonesta and Ms. Clark is a director of Sonesta. Another officer and employee of RMR is a director and the president and chief executive officer of Sonesta.

*Affiliates Insurance Company.* Until its dissolution on February 13, 2020, we, ABP Trust and five other companies to which RMR provides management services owned Affiliates Insurance Company, or AIC, in equal portions. In connection with AIC’s dissolution, we and each other AIC shareholder received a liquidating distribution of $287 in June 2020 and a final liquidating distribution of $11 in December 2021.

# **Note 8. Concentration**

# *Tenant and Credit Concentration*

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. As of December 31, 2022, 2021 and 2020, the U.S. government and certain state and other government tenants combined were responsible for approximately 28.5%, 28.9% and 35.3%, respectively, of our annualized rental income. The U.S. government is our largest tenant by annualized rental income and represented

F-22

# **OFFICE PROPERTIES INCOME TRUST**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**  
 **(dollars in thousands, except per share amounts)**

approximately 19.7%, 19.5%, and 25.2% of our annualized rental income as of December 31, 2022, 2021 and 2020, respectively.

# *Geographic Concentration*

At December 31, 2022, our 160 wholly owned properties were located in 30 states and the District of Columbia. Properties located in California, Virginia, Illinois, the District of Columbia and Georgia were responsible for approximately 11.7%, 11.0%, 10.8%, 10.5%, and 9.0% of our annualized rental income as of December 31, 2022, respectively.

# **Note 9. Indebtedness**

At December 31, 2022 and 2021, our outstanding indebtedness consisted of the following:

|  | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Revolving credit facility, due in 2023 | $195,000 | $ - |
| Senior unsecured notes, 4.00% interest rate, due in 2022 (1) | - | 300,000 |
| Senior unsecured notes, 4.25% interest rate, due in 2024 | 350,000 | 350,000 |
| Senior unsecured notes, 4.50% interest rate, due in 2025 | 650,000 | 650,000 |
| Senior unsecured notes, 2.650% interest rate, due in 2026 | 300,000 | 300,000 |
| Senior unsecured notes, 2.400% interest rate, due in 2027 | 350,000 | 350,000 |
| Senior unsecured notes, 3.450% interest rate, due in 2031 | 400,000 | 400,000 |
| Senior unsecured notes, 6.375% interest rate, due in 2050 | 162,000 | 162,000 |
| Mortgage note payable, 4.220% interest rate, due in 2022 (2) | - | 25,055 |
| Mortgage note payable, 3.700% interest rate, due in 2023 | 50,000 | 50,000 |
| Mortgage note payable, 4.800% interest rate, due in 2023 (3) | - | 23,246 |
|  | 2,457,000 | 2,610,301 |
| Unamortized debt premiums, discounts and issuance costs | (24,208) | (32,351) |
|  | $2,432,792 | $2,577,950 |

(1) These senior notes were redeemed in June 2022.

(2) This mortgage note was prepaid, at par plus accrued interest, in April 2022.

(3) This mortgage note was prepaid, at a discounted amount of $22,176 plus accrued interest, in October 2022.

Our $750,000 revolving credit facility is governed by a credit agreement, or our credit agreement, with a syndicate of institutional lenders that includes a feature under which the maximum aggregate borrowing availability may be increased to up to $1,950,000 in certain circumstances.

Our $750,000 revolving credit facility is available for general business purposes, including acquisitions. In November 2022, we exercised our option to extend the maturity date of our revolving credit facility to July 31, 2023 and paid an extension fee of $469 and, subject to our payment of an extension fee and meeting certain other conditions, we have the option to extend the maturity date of our revolving credit facility by one additional six month period. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity and no principal repayment is due until maturity. We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at December 31, 2022, on the amount outstanding under our revolving credit facility. We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at December 31, 2022. Both the interest rate premium and facility fee are subject to adjustment based upon changes to our credit ratings. As of December 31, 2022 and 2021, the annual interest rate payable on borrowings under our

F-23

# **OFFICE PROPERTIES INCOME TRUST**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**  
 **(dollars in thousands, except per share amounts)**

revolving credit facility was 5.4% and 1.2%, respectively. The weighted average annual interest rate for borrowings under our revolving credit facility was 4.0%, 1.2% and 2.0% for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022 and February 14, 2023, we had $195,000 and $220,000, respectively, outstanding under our revolving credit facility and $555,000 and $530,000, respectively, available for borrowing.

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 RMR ceasing to act as our business and property manager. Our credit agreement and senior unsecured notes indentures and their supplements also contain covenants, including covenants that restrict our ability to incur debts, require us to comply with certain financial covenants and, in the case of our credit agreement, restrict our ability to 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 December 31, 2022.

# *Senior Unsecured Note Redemption*

In June 2022, we redeemed, at par plus accrued interest, all $300,000 of our 4.00% senior unsecured notes due July 2022. As a result of this redemption, we recognized a loss on early extinguishment of debt of $77 during the year ended December 31, 2022, from the write off of unamortized discounts and debt issuance costs.

# *Mortgage Note Prepayments*

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

In October 2022, we prepaid, at a discounted amount of $22,176 plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $22,901, an annual interest rate of 4.80% and a maturity date in June 2023. As a result of this discounted prepayment, we recognized a gain on early extinguishment of debt of $759 during the year ended December 31, 2022, after the write off of unamortized premiums and debt issuance costs.

At December 31, 2022, one of our properties with a net book value of $55,071 was encumbered by a mortgage note with a principal balance of $50,000. Our mortgage note is non-recourse, subject to certain limited exceptions, and does not contain any material financial covenants.

None of our unsecured debt obligations require sinking fund payments prior to their maturity dates.

The required principal payments due during the next five years and thereafter under all our outstanding consolidated debt as of December 31, 2022 were as follows:

| Year | Principal Payment |
| --- | --- |
| 2023 | $245,000 |
| 2024 | 350,000 |
| 2025 | 650,000 |
| 2026 | 300,000 |
| 2027 | 350,000 |
| Thereafter | 562,000 |
| Total | $2,457,000 (1) |

(1) Total consolidated debt outstanding as of December 31, 2022, net of unamortized premiums, discounts and issuance costs totaling $24,208, was $2,432,792.

F-24

# **OFFICE PROPERTIES INCOME TRUST**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**  
 (dollars in thousands, except per share amounts)

# **Note 10. Fair Value of Assets and Liabilities**

Our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, accounts payable, a revolving credit facility, senior unsecured notes, a mortgage note payable, amounts due to related persons, other accrued expenses and security deposits. At December 31, 2022 and 2021, the fair values of our financial instruments approximated their carrying values in our consolidated financial statements, due to their short term nature or floating interest rates, except as follows:

| Financial Instrument | As of December 31, 2022 |  | As of December 31, 2021 |  |
| --- | --- | --- | --- | --- |
|  | Carrying Value (1) | Fair Value | Carrying Value (1) | Fair Value |
| Senior unsecured notes, 4.00% interest rate, due in 2022 (2) | $ - | $ - | $299,500 | $304,148 |
| Senior unsecured notes, 4.25% interest rate, due in 2024 | 346,863 | 331,601 | 344,581 | 365,449 |
| Senior unsecured notes, 4.50% interest rate, due in 2025 | 642,818 | 589,388 | 639,370 | 687,749 |
| Senior unsecured notes, 2.650% interest rate, due in 2026 | 297,839 | 232,770 | 297,213 | 298,502 |
| Senior unsecured notes, 2.400% interest rate, due in 2027 | 347,466 | 256,606 | 346,845 | 339,764 |
| Senior unsecured notes, 3.450% interest rate, due in 2031 | 396,178 | 268,004 | 395,744 | 388,458 |
| Senior unsecured notes, 6.375% interest rate, due in 2050 | 156,711 | 113,075 | 156,519 | 177,098 |
| Mortgage notes payable (3) | 49,917 | 49,099 | 98,178 | 100,294 |
| Total | $2,237,792 | $1,840,543 | $2,577,950 | $2,661,462 |

(1) Includes unamortized debt premiums, discounts and issuance costs totaling $24,208 and $32,351 as of December 31, 2022 and 2021, respectively.

(2) These senior notes were redeemed in June 2022.

(3) Balance as of December 31, 2021 includes a mortgage note secured by one property with an outstanding principal amount of $25,055 that was prepaid, at par plus accrued interest, in April 2022 and a mortgage note secured by one property with an outstanding principal balance of $23,246 that was prepaid, at a discounted amount of $22,176 plus accrued interest, in October 2022.

We estimated the fair values of our senior unsecured notes (except for our senior unsecured notes due 2050) using an average of the bid and ask price of the notes (Level 2 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. We estimated the fair values of our senior unsecured notes due 2050 based on the closing price on Nasdaq (Level 1 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. We estimated the fair values of our mortgage notes payable using discounted cash flow analyses and currently prevailing market rates (Level 3 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. Because Level 3 inputs are unobservable, our estimated fair values may differ materially from the actual fair values.

# **Note 11. Shareholders' Equity**

# *Share Awards*

We have common shares available for issuance under the terms of our Amended and Restated 2009 Incentive Share Award Plan, or the 2009 Plan. During the years ended December 31, 2022, 2021 and 2020,

F-25

# **OFFICE PROPERTIES INCOME TRUST**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**  
 **(dollars in thousands, except per share amounts)**

we awarded to our officers and other employees of RMR annual share awards of 141,200, 117,800 and 108,600 of our common shares, respectively, valued at $2,470, $2,994 and $2,502, in aggregate, respectively. We also awarded each of our then Trustees 3,500 of our common shares in each of 2022, 2021 and 2020 as part of their annual compensation. These awards had aggregate values of $593 ($66 per Trustee), $837 ($105 per Trustee) and $745 ($93 per Trustee) in 2022, 2021 and 2020, respectively. The values of the share awards were based upon the closing price of our common shares trading on Nasdaq on the date of award. The common shares awarded to our officers and certain other employees of RMR vest in five equal annual installments beginning on the date of award. The common shares awarded to our Trustees vest immediately. We recognize share forfeitures as they occur and include the value of awarded shares in general and administrative expenses ratably over the vesting period.

A summary of shares awarded, forfeited, vested and unvested under the terms of the 2009 Plan for the years ended December 31, 2022, 2021 and 2020, is as follows:

|  | 2022 |  | 2021 |  | 2020 |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Number of Shares | Weighted Average Grant Date Fair Value | Number of Shares | Weighted Average Grant Date Fair Value | Number of Shares | Weighted Average Grant Date Fair Value |
| Unvested at beginning of year . . . . . | 182,224 | $26.23 | 157,521 | $29.26 | 106,680 | $40.16 |
| Awarded . . . . . | 172,700 | $17.74 | 145,800 | $26.28 | 136,600 | $23.77 |
| Forfeited . . . . . | (1,900) | $25.97 | (700) | $25.97 | (586) | $43.75 |
| Vested . . . . . | (121,723) | $23.24 | (120,397) | $30.24 | (85,173) | $34.02 |
| Unvested at end of year . . . . . | 231,301 | $21.47 | 182,224 | $26.23 | 157,521 | $29.26 |

The 231,301 unvested shares as of December 31, 2022 are scheduled to vest as follows: 84,941 shares in 2023, 67,620 shares in 2024, 50,500 shares in 2025 and 28,240 shares in 2026. As of December 31, 2022, the estimated future compensation expense for the unvested shares was $4,343. The weighted average period over which the compensation expense will be recorded is approximately 22 months. During the years ended December 31, 2022, 2021 and 2020, we recorded $2,905, $2,868 and $3,315, respectively, of compensation expense related to the 2009 Plan. At December 31, 2022, 847,631 of our common shares remained available for issuance under the 2009 Plan.

# *Share Purchases*

During the years ended December 31, 2022, 2021 and 2020, we purchased 30,821, 37,801 and 19,589 of our common shares, respectively, valued at weighted average share prices of $17.54, $26.55 and $22.15 per common share, respectively, from certain of our current and former Trustees and officers and certain current and former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

F-26

# **OFFICE PROPERTIES INCOME TRUST**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**  
 **(dollars in thousands, except per share amounts)**

# *Distributions*

During the years ended December 31, 2022, 2021 and 2020, we paid distributions on our common shares as follows:

| Year | Annual Per Share Distribution | Total Distributions | Characterization of Distributions |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  | Return of Capital | Ordinary Income | Qualified Dividend |
| 2022 | $2.20 | $106,630 | 62.68% | 37.32% | -% |
| 2021 | $2.20 | $106,368 | -% | 100.00% | -% |
| 2020 | $2.20 | $106,121 | -% | 100.00% | -% |

On January 12, 2023, we declared a regular quarterly distribution payable to common shareholders of record on January 23, 2023 in the amount of $0.55 per share, or approximately $26,700. We expect to pay this distribution on or about February 16, 2023.

F-27

# OPI Performance Chart

The graph below shows the cumulative total shareholder return on our common shares (assuming a $100 investment on December 31, 2017) for the past five years as compared with (a) the MSCI U.S. REIT/Office REIT Index, (b) the MSCI U.S. REIT Index, and (c) the Standard & Poor's 500 Index, or the S&P 500. The graph assumes reinvestment of all cash distributions.

*Note: FactSet is the data source.*

![img-0.jpeg](img-0.jpeg)

# CORPORATE INFORMATION

EXECUTIVE OFFICES

Office Properties Income Trust
Two Newton Place
255 Washington Street, Suite 300
Newton, Massachusetts 02458-1634
(617) 219-1440
www.opireit.com

OFFICERS

Christopher J. Bilotto
President and Chief Operating Officer
Matthew C. Brown
Chief Financial Officer and Treasurer
Jennifer B. Clark
Secretary

BOARD OF TRUSTEES

Donna D. Fraiche*+
Independent Trustee;
Consultant

Barbara D. Gilmore*+
Independent Trustee;
Retired

John L. Harrington*
Independent Trustee;
Chairman of the Yawkey
Foundation

William A. Lamkin*
Independent Trustee;
Former Partner in
Ackrell Capital LLC

Elena Poptodorova*+%
Lead Independent Trustee;
Vice President and Director of
Euro-Atlantic Affairs of the
Atlantic Club of Bulgaria;
Vice President of the Atlantic
Treaty Association

Jeffrey P. Somers*%
Independent Trustee;
Of Counsel to Morse, Barnes-Brown
and Pendleton, P.C.

Mark A. Talley*+
Independent Trustee;
Principal
Greenwood Commercial Real Estate
Group

Jennifer B. Clark
Managing Trustee;
Executive Vice President, General
Counsel and Secretary of
The RMR Group LLC

Adam D. Portnoy
Chair of the Board and Managing Trustee;
President and Chief Executive Officer of
The RMR Group LLC

INTERNAL AUDIT

Vern D. Larkin
Director of Internal Audit

INVESTOR RELATIONS

Kevin P. Barry
Director, Investor Relations

MANAGER

The RMR Group LLC
Two Newton Place
255 Washington Street, Suite 300
Newton, Massachusetts 02458-1634

INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116

COUNSEL

Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109

STOCK TRANSFER AGENT
AND REGISTRAR

Equiniti Trust Company
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, Minnesota 55120-4100
(855) 235-0844
www.shareowneronline.com

SENIOR NOTES TRUSTEE
AND REGISTRAR

U.S. Bank Trust Company,
National Association
Corporate Trust Services
One Federal Street
Boston, Massachusetts 02110

ANNUAL MEETING

Our annual meeting of shareholders will be held
virtually on Tuesday, June 13,
2023 at 9:30 a.m.

AVAILABLE INFORMATION

A copy of our 2022 Annual Report on
Form 10-K, including the financial
statements and schedule (excluding
exhibits), as filed with the Securities
and Exchange Commission, can be
obtained without charge through our
website at www.opireit.com.

* Member of the Audit Committee.

+ Member of the Compensation Committee.

% Member of the Nominating and Governance Committee.

![img-0.jpeg](img-0.jpeg)

**Office Properties Income Trust**

Two Newton Place

255 Washington Street, Suite 300

Newton, Massachusetts 02458-1634

(617) 219-1440

www.opireit.com