Financial Data and Key Metrics Changes - Normalized FFO for Q3 2023 was $1.02 per share, exceeding the high end of guidance by $0.01, compared to $1.11 per share in Q2 2023, reflecting a decrease primarily due to higher interest expenses and lower NOI [5][21] - Same-property cash basis NOI decreased by 9.2% year-over-year, aligning with guidance of a decline between 8% to 10% [49] - The company expects normalized FFO for Q4 2023 to be between $0.96 and $0.98 per share, driven by increased interest expenses and operating costs [22] Business Line Data and Key Metrics Changes - The company executed 586,000 square feet of new and renewal leasing, with an average lease term of 7.4 years and a rent roll-down of 2.7% [5][7] - New leasing accounted for 104,000 square feet with a roll-up of 1.9%, increasing total activity for the year to over 390,000 square feet [14] - Concessions and capital commitments declined year-over-year to $5.89 per square foot, per lease year [14] Market Data and Key Metrics Changes - Portfolio occupancy was approximately 89.9% at quarter end, a decrease of 70 basis points from the previous quarter, largely due to a known downsizing of a primary tenant [5] - The leasing environment remains challenging with elevated vacancy and sublease levels, although there are encouraging signs of a return to office mandates across industries [6] Company Strategy and Development Direction - The company is focused on upcoming lease expirations and existing vacancies, as well as managing maturing credit facilities and debt maturities [40] - An active leasing pipeline of close to 2.8 million square feet is in place, with 25% associated with 2024 renewals [12] - The company is evaluating properties for potential sales and is considering a range of financing options to manage debt maturities [53] Management's Comments on Operating Environment and Future Outlook - Management noted that the investment sales market has been slow due to rising interest rates, but they are optimistic about properties with strong fundamentals [13] - The company anticipates continued pressure on tenant retention as they evaluate their space needs, with 12% of annualized rental income represented by lease expirations in 2024 [18] - Management expressed confidence in the ongoing construction of the Life Science Tree Development in Seattle, which is 28% pre-leased [19] Other Important Information - The company sold one property for $10.5 million in Q3, bringing total asset sales to $23.6 million for the year [5][26] - The company declared a regular quarterly distribution of $0.25 per share, representing a trailing four-quarter CAD payout ratio of 65% [49] Q&A Session Summary Question: Is there anything particular going on with asset sales? - Management confirmed a one-time item in Q3 related to a successful multiyear tax appeal, which will not recur in Q4 [28] Question: Are you actively marketing assets for sale? - Management indicated they are evaluating the market and expect to be more active in Q4 with additional assets [29][57] Question: What is the strategy for addressing upcoming debt maturities? - Management is exploring various options, including asset sales and secured financing, to manage the $350 million of senior notes due in May 2024 [31][53] Question: Can you provide details on the remaining capital spend for development projects? - Management stated that $25 million to $30 million will be spent by the end of Q1 2024, primarily for construction capital and tenant improvement allowances [74]

(1) Includes capitalized interest and other operating costs of $13,207 since July 1, 2022. (2) Estimated project costs include future, estimated lease related costs associated with achieving stabilized occupancy that will be incurred subsequent to the estimated completion date. (3) Estimated completion date can depend on various factors, including when lease agreements are signed with tenants. Therefore, the actual completion dates may vary. (4) Physical improvements made at this project were substantially ...

Property and Occupancy - As of September 30, 2023, the company owned 154 properties with a total of approximately 20,705,000 rentable square feet, leased to 263 tenants[78]. - The occupancy rate for all properties decreased to 89.9% as of September 30, 2023, down from 90.7% in 2022[83]. - The average effective rental rate per square foot for all properties increased slightly to $29.37 for the three months ended September 30, 2023, compared to $29.19 in 2022[85]. - The U.S. government is the largest tenant, accounting for approximately 20.0% of the company's annualized rental income as of September 30, 2023[78]. - The company derived 21.6% of its annualized rental income from properties located in the metropolitan Washington, D.C. market area as of September 30, 2023[102]. - Tenants contributing 53.6% of annualized rental income were investment grade rated, with an additional 10.4% from subsidiaries of investment grade rated parents[103]. - As of September 30, 2023, the company had leases totaling approximately 2,614,820 rentable square feet scheduled to expire through September 30, 2024, with 1,832,201 square feet expected to expire, excluding re-leased space[97]. - The weighted average remaining lease term is 6.0 years, with 350 leases expiring in total[99]. - In 2023, 5.9% of leases expiring were in 2023, while 13.5% are scheduled for 2024[99]. Financial Performance - Rental income for the three months ended September 30, 2023, was $133,361, a decrease of $4,322 or 3.1% compared to $137,683 in the same period of 2022[110]. - Net operating income for the three months ended September 30, 2023, was $83,698, down $1,848 or 2.2% from $85,546 in the prior year[110]. - Total operating expenses for the three months ended September 30, 2023, were $49,663, a decrease of $2,474 or 4.7% compared to $52,137 in 2022[110]. - The company recorded a net loss of $19,593 for the three months ended September 30, 2023, compared to a net income of $16,964 in the same period of 2022, representing a change of $36,557[110]. - For the nine months ended September 30, 2023, rental income was $399,780, a decrease of $26,573 or 6.2% from $426,353 in the same period of 2022[124]. - Net loss for the nine months ended September 30, 2023, was $32,281, an increase of $19,782 or 158.3% compared to a net loss of $12,499 in 2022[124]. - Net Operating Income (NOI) for the nine months ended September 30, 2023, was $253,190, down from $274,443 in 2022, reflecting a decrease of approximately 7.8%[142]. - Funds From Operations (FFO) for the nine months ended September 30, 2023, was $125,329, compared to $175,146 in 2022, indicating a decline of about 28.5%[144]. - Normalized FFO for the nine months ended September 30, 2023, was $155,863, down from $175,447 in 2022, representing a decrease of approximately 11.2%[144]. Capital Expenditures and Investments - Total capital expenditures for the nine months ended September 30, 2023, amounted to $193.655 million, compared to $172.799 million in 2022[93]. - The company has estimated unspent leasing-related obligations of $137.223 million, with $73.666 million expected to be spent over the next 12 months[96]. - The company sold six properties containing approximately 376,000 rentable square feet for an aggregate sales price of $23,575,000 during the nine months ended September 30, 2023[106]. - As of October 27, 2023, the company has entered into agreements to sell two properties containing approximately 177,000 rentable square feet for an aggregate sales price of $21,299,000[107]. - The company completed the redevelopment of a property in Washington, D.C., with total project costs estimated at $227,000, and the property is currently 55% leased[157]. - The company is redeveloping a three-property campus in Seattle, WA, with estimated costs of $162,000 and completion expected in Q1 2024, currently 28% pre-leased[158]. Debt and Interest Expenses - The company issued six mortgage notes totaling $177,320 with a weighted average interest rate of 7.8% during the nine months ended September 30, 2023[154]. - As of September 30, 2023, the company had total debt maturities of $2,389,320, with $350,000 due in 2024 and $650,000 due in 2025[155]. - The company has a $750,000 revolving credit facility, with $200,000 outstanding as of September 30, 2023, and $550,000 available for borrowing[151]. - Interest expense increased by $3,866 or 15.5% to $28,835 in the three months ended September 30, 2023, compared to $24,969 in 2022[110]. - The annual interest expense for the floating rate debt at September 30, 2023, is $13,800, which would increase to $15,800 with a one percentage point rise in interest rates[178]. - A one percentage point increase in interest rates would increase the annual interest cost of fixed rate debt by approximately $23,893[171]. - A hypothetical one percentage point increase in interest rates would decrease the fair value of fixed rate debt obligations by approximately $68,555[172]. - The company’s fixed rate debt arrangements may allow for early repayments, potentially mitigating refinancing risks[173]. Strategic Decisions and Market Conditions - The company terminated its merger agreement with DHC on September 1, 2023, which may impact future strategic decisions[81]. - The company faces challenges in office space demand due to trends such as increased remote work and tenant consolidations, creating uncertainty in the leasing market[79]. - Inflationary pressures and rising interest rates have raised concerns about potential economic recession, which could adversely affect the company's financial condition and tenant operations[80]. - The company is focused on tenant retention and may incur significant costs to renew leases with current tenants[101]. - The company continues to evaluate its portfolio and may seek to sell additional properties in the future[107]. - The company expects future cash flows to depend on the ability to collect rent, maintain occupancy, control expenses, and successfully sell properties[146]. Risk Factors - The company acknowledges potential risks from competition within the commercial real estate industry, particularly in its property locations[192]. - The company notes the impact of U.S. government actions, such as shutdowns or debt ceiling issues, on rent collection and operational expenses[192]. - The company identifies risks related to compliance with federal, state, and local laws, as well as changes in accounting and tax regulations[192]. - The company is aware of risks from external factors such as terrorism, pandemics, and climate change that could disrupt operations[192]. - There have been no significant changes in critical accounting estimates since December 31, 2022[168]. - There have been no material changes to the risk factors disclosed in the 2022 Annual Report[193].

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-34364 | Title of Each Class | Trading Symbol(s) | Name Of Each Exchange On Which Registered | | --- | --- | --- | | Common Shares of Beneficial Interest | OPI ...

Financial Data and Key Metrics Changes - Normalized FFO for Q1 2023 was $52.7 million or $1.09 per share, down from $54.5 million or $1.13 per share in Q4 2022, primarily due to higher utility and interest expenses [21] - Same-property cash basis NOI decreased by 4% compared to Q1 2022, driven mainly by elevated free rent [21][22] - CAD decreased by approximately 16% to $2.21 per share, resulting in a payout ratio of 99.5%, indicating unsustainable dividend levels [22][51] Business Line Data and Key Metrics Changes - Leasing activity showed a decline with weighted average rent spreads down 18.5%, influenced by concessions at a property in Greater Washington, D.C. [15] - Portfolio occupancy increased by 170 basis points year-over-year to 90.5%, with 203,000 square feet of leasing completed [43] - The leasing pipeline includes approximately 2.7 million square feet of potential leasing activity, with a projected rent roll-up of 6% to 8% [45] Market Data and Key Metrics Changes - National office leasing volume declined for the third consecutive quarter, with negative absorption impacting occupancy gains [10] - The office sector faces challenges from corporate cost-cutting, elevated sublease space, and macroeconomic uncertainty, leading to declining cash flows and asset values [38] Company Strategy and Development Direction - The company announced a merger with Diversified Healthcare Trust to create a larger, scalable, and diversified REIT, expected to enhance cash flow stability and competitive positioning [41][42] - A reduction in the quarterly dividend to $0.25 per share was made to enhance liquidity and financial flexibility, reflecting a focus on capital preservation [11][51] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging outlook for the office sector, citing tenant retention risks and a rising CAD payout ratio [11][39] - The company expects normalized FFO for Q2 2023 to be between $1.07 and $1.09 per share, with same-property cash basis NOI expected to decline by 5% to 7% compared to Q2 2022 [23][52] Other Important Information - The company is committed to enhancing corporate sustainability practices, as highlighted in the RMR Group's Annual Sustainability Report [19] - The company plans to recast its existing $750 million revolving credit facility in connection with the proposed merger [53] Q&A Session Summary Question: Occupancy outlook for the year - Management indicated that most known vacates are scheduled for the back half of the year, impacting performance heavily towards that period [58] Question: Update on the credit facility - A recast or amended revolver is a condition to closing the merger, with preliminary discussions already underway [59][66] Question: Development updates for Seattle and 20 Mass Ave - The hotel at 20 Mass Ave is expected to deliver at the end of Q2, with lease commencement in early Q3, including 18 months of free rent [71] Question: Leasing activity expectations - Management confirmed that the leasing pipeline includes over 700,000 square feet in advanced stages, with expectations for a good portion to mature in Q2 [72]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q 617-219-1440 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 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) (State or Other Jurisdiction of Incorporation or Org ...

Financial Data and Key Metrics Changes - The company reported normalized FFO of $1.13 per share, exceeding the high end of guidance, compared to $1.11 per share in the previous quarter [62] - Same-property cash basis NOI decreased by 1.4% compared to Q4 2021, driven by higher free rent and operating expenses [45] - G&A expense for Q4 was $5.8 million, down from $6.6 million in Q3, reflecting a reduction in business management fees [18] Business Line Data and Key Metrics Changes - New leasing activity included 705,000 square feet, a 16% increase from Q3, with a weighted average lease term of 10.1 years [33] - The company completed 2.6 million square feet of leasing in 2022, achieving a roll-up in rent of 5.6% [29] - The weighted average rent spread for Q4 declined by 6.7%, primarily due to a significant renewal with a defense contractor [11] Market Data and Key Metrics Changes - Total portfolio occupancy increased by approximately 110 basis points to 90.6%, above the national office market average [9] - The company is tracking approximately 2.7 million square feet of activity in its pipeline, with over 1.1 million square feet attributable to new leasing [37] - Industry utilization is currently trending near 50%, indicating gradual improvements in office space demand [41] Company Strategy and Development Direction - Capital recycling remains a principal strategy, focusing on portfolio enhancement and reducing leverage [31] - The company has two redevelopment projects underway, with anticipated stabilization yields of 8% to 10% for Washington, D.C. and 10% to 12% for Seattle [40] - The company aims to manage through economic uncertainty by enhancing tenant experiences and sustainability initiatives [17] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding leasing activity in 2023, expecting a gradual pace as tenants evaluate their real estate needs [12] - The company anticipates macroeconomic uncertainty in commercial real estate financing to continue impacting market activity [10] - Management highlighted the importance of retaining tenants amid economic challenges, emphasizing the value of long-term leases [76] Other Important Information - The company ended the year with 160 properties and approximately 63% of annualized rental income from investment-grade rated tenants [32] - The company has nearly $570 million of liquidity, with 92% of its debt at fixed rates [32] - The regular quarterly dividend declared was $0.55 per share, resulting in a normalized FFO payout ratio of 49% [66] Q&A Session Summary Question: Can you elaborate on the capital recycling plan and outlook for 2023? - Management indicated that capital recycling will be somewhat muted in 2023 due to uncertainty in capital markets, with a focus on $100 million to $300 million in activity as part of a long-term strategy [50][51] Question: What are the known vacates and their prospects? - Management clarified that known vacates represent 5% to 6% of annualized rental income, with some properties likely to be re-leased while others may be sold [52][73] Question: Any updates on the redevelopment project in Downtown Boston? - Management stated that while they are focused on the project, there are no significant updates or capital expenditures expected in the near term [56] Question: How are tenant negotiations progressing amid the work-from-home trend? - Management noted that while tenants may feel they have leverage, the focus remains on retaining tenants and managing inflationary costs [76]

Financial Structure and Taxation - The company has a $750.0 million unsecured revolving credit facility for working capital and general business purposes, including funding acquisitions and development efforts[47]. - The company intends to manage leverage to achieve and maintain "investment grade" ratings from recognized rating organizations[48]. - The company has no preferred shares outstanding at this time, and distributions are allocated first to common shares[77]. - The company may be subject to a 4% nondeductible excise tax if it fails to distribute at least 85% of its REIT ordinary income for the year[81]. - The company has not received a ruling from the IRS regarding its REIT status, and future legislative changes could impact its tax treatment[73]. - The company may face tax on undistributed REIT taxable income, including ordinary income and net capital gains[81]. - If the company acquires a REIT asset with a tax basis determined by a C corporation, it may be subject to federal income taxation on built-in gains[82]. - The company must meet specific REIT qualification requirements, including conditions related to share ownership and income sources, to avoid federal income tax as a regular C corporation[84]. - If the company fails to qualify as a REIT for any year, it may reduce or eliminate distributions to shareholders or incur substantial indebtedness to pay corporate-level income taxes[83]. - At least 75% of the company's gross income must be derived from real property investments to maintain REIT status[97]. - The company believes it has complied with the REIT qualification requirements during the requisite periods and will continue to do so in the future[84]. - The company must distribute all inherited C corporation earnings and profits from acquisitions to maintain REIT qualification[84]. - The company believes that all or substantially all of its rents and related service charges qualify as "rents from real property" under the IRC[100]. - The company must satisfy the asset percentage tests at the close of each calendar quarter to maintain REIT status[108]. - The company must make annual distributions to shareholders at least equal to the excess of its real estate investment trust taxable income[113]. - The company generally depreciates real property on a straight-line basis over 40 years and personal property over shorter applicable periods[124]. - The company may elect to retain some or all of its net capital gain and pay income tax on such gain, affecting shareholders' tax basis[131]. - If a dividend is declared in the last quarter and paid in January, it is treated as paid on December 31 of the prior taxable year for tax purposes[132]. - U.S. shareholders are subject to a 3.8% Medicare tax on net investment income, including dividends and gains from share dispositions, if their total adjusted income exceeds applicable thresholds[134]. - Non-U.S. shareholders' distributions not designated as capital gain dividends are subject to a 30% U.S. federal income tax withholding rate[141]. - Non-U.S. shareholders may seek a refund from the IRS for amounts withheld in excess of their allocable share of current and accumulated earnings and profits[141]. - If shares are not listed on a U.S. national securities exchange, distributions attributable to gain from the sale of U.S. real property interests may be taxed as effectively connected income[145]. - Non-U.S. shareholders may be subject to U.S. federal income tax reporting requirements if their shares are not classified as USRPIs[149]. - Backup withholding may apply to distributions or proceeds paid to shareholders if they do not provide correct taxpayer identification[151]. - Information reporting requirements apply to distributions made to non-U.S. shareholders regardless of withholding status[152]. Environmental and Sustainability Initiatives - As of December 31, 2022, 43 properties, totaling 6.6 million rentable square feet, are ENERGY STAR certified, representing 28.5% of eligible properties[59]. - The company aims to reduce scope 1 and 2 emissions by 50% by 2030 from a 2019 baseline as part of its zero emissions goal[55]. - RMR's real-time energy monitoring program has captured data from 38 properties, generating $1.7 million in cumulative savings, with $0.2 million saved in 2022[56]. - The company has implemented restrictions to prevent concentrated ownership positions that could jeopardize REIT qualification[84]. - RMR announced a zero emissions goal to reduce scope 1 and 2 emissions to net zero by 2050, with a 50% reduction commitment by 2030 from a 2019 baseline[206]. - The company may incur significant costs in complying with ESG policies or third-party expectations, which could negatively impact financial results[206]. - Environmental risks and liabilities, including those from climate change, pose significant risks to the company's real estate holdings[168]. - The company is exposed to risks from adverse weather and climate change, which could significantly impact its properties and financial condition[202]. Operational Risks and Market Conditions - The company recognizes the competitive nature of the real estate market, competing against various entities with potentially greater resources[66]. - The company performs environmental site assessments before acquiring properties to mitigate risks associated with environmental matters[64]. - The company is subject to risks related to high interest rates, inflation, and potential economic downturns that may adversely affect its operations and tenants' ability to meet lease obligations[168]. - The company may face challenges in renewing leases due to rising remote work arrangements and economic conditions, which could lead to tenants seeking to renew for less space[170]. - The company faces risks related to rising interest rates, high inflation, and supply chain challenges, which could adversely affect its financial condition and ability to pay distributions to shareholders[172]. - The company is exposed to risks associated with property development, redevelopment, and repositioning, including cost overruns and delays due to supply chain constraints[183]. - A prolonged U.S. government shutdown could impair the company's ability to fund operations and pay distributions, as tenants may not pay rent during the shutdown[181]. - The company’s capital recycling program aims to improve asset quality and increase cash available for distribution, but its success is uncertain due to market conditions[182]. - Changes in space utilization and remote work arrangements may reduce demand for office leasing, impacting tenant retention and rental income[176]. - Government budgetary pressures and trends in government employment may adversely impact the demand for leased space[179]. - The company faces significant competition for acquisition opportunities from other investors, which may limit its ability to acquire desirable properties[188]. - The company may incur significant costs for leasing commissions, tenant improvements, or other tenant inducements when renewing leases or leasing to new tenants[171]. - The company’s ability to access capital may be limited due to covenants in debt agreements and potential credit rating downgrades[168]. - Rising market interest rates have significantly increased the company's interest expense, impacting cash flows and the ability to pay distributions to shareholders[197]. - The company may incur additional debt financing in the future, which could have more restrictive covenants than existing agreements[196]. - A downgrade in the company's credit ratings could increase its cost of capital and adversely affect its business and financial condition[199]. - The company may face challenges in complying with debt covenants, which could limit its ability to grow or meet obligations[195]. Governance and Management Structure - Approximately 44% of the Board of Trustees are female, and 11% are members of underrepresented communities as of December 31, 2022[65]. - The company has no employees; services are provided by RMR and its Managing Trustees and officers[50]. - The management agreements with RMR were not negotiated on an arm's length basis, which may increase the risk of investment in the company's common shares[216]. - Termination of management agreements with RMR may require substantial termination fees, limiting the company's ability to end its relationship with RMR[217]. - The company is subject to risks related to conflicts of interest due to its management structure and relationships with RMR and its affiliates[219]. - Ownership limitations in the declaration of trust restrict any shareholder, other than RMR and its affiliates, from owning more than 9.8% of the company's shares, potentially deterring unsolicited acquisition proposals[222]. - RMR has broad discretion in operating the company's day-to-day business, which may lead to investment returns that are substantially below expectations[210]. - The company may change its operational and investment policies without shareholder approval, potentially affecting distributions to shareholders[169]. - The company may change its operational, financing, and investment policies without shareholder approval, potentially increasing leverage and risk of default on debt obligations[230]. - The company’s bylaws designate the Circuit Court for Baltimore City, Maryland as the exclusive forum for certain shareholder actions, potentially limiting favorable judicial options[229]. - Shareholder litigation may be subject to mandatory arbitration, which could restrict shareholders' rights compared to traditional court litigation[225]. - The company’s declaration of trust limits the liability of its Trustees and officers, potentially reducing shareholder recourse in certain situations[224]. Shareholder and Distribution Policies - The company must distribute at least 90% of its REIT taxable income annually to maintain its REIT status, which could limit growth opportunities and affect market price[235]. - If the company fails to qualify as a REIT, it may face significant federal and state income taxes, reducing cash available for distribution to shareholders[233]. - The company may elect to pay distributions in forms other than cash, such as issuing additional common shares, to preserve liquidity[240]. - The company may face tax liabilities even if it remains qualified as a REIT, which could decrease cash available for distribution[237]. - Changes in tax laws could materially and adversely affect the company and its shareholders, impacting REIT qualification and tax consequences[238]. - Distributions to shareholders may include cash, property, and deemed distributions, with tax treatment varying based on shareholder status[126]. - Shareholders will recognize gain or loss based on the difference between the amount realized and their adjusted basis in the shares sold or exchanged[133]. - Noncorporate U.S. shareholders can only deduct interest on borrowed funds to the extent of their net investment income, which includes ordinary income dividends received[136]. - Tax-exempt U.S. shareholders receiving distributions or proceeds from share sales are generally not treated as UBTI if they have not financed their acquisition with debt[138].

Financial Data and Key Metrics Changes - Normalized FFO for Q3 2022 was $53.8 million or $1.11 per share, which was $0.01 below the low end of guidance due to timing of property dispositions [24] - Same property cash basis NOI increased by 30 basis points compared to Q3 2021, reaching the high end of guidance [25] - The normalized FFO payout ratio was 50%, with a rolling 4-quarter CAD payout ratio of 67% [24] Business Line Data and Key Metrics Changes - The company completed 606,000 square feet of new and renewal leasing, with a 21.6% weighted average roll-up in rent and a 7.2-year weighted average lease term [12] - Year-to-date, the company completed over 1.8 million square feet of leasing with an 11% roll-up in rent [13] - Portfolio occupancy improved to 90.7%, a 130 basis points increase from Q2 and a 170 basis points increase from the prior year [10] Market Data and Key Metrics Changes - Overall U.S. leasing activity is trending at just over 70% of pre-pandemic levels, with gateway markets lagging behind secondary growth markets [13] - Investor interest remains mixed due to higher inflation and interest rates, leading to a thinning pool of buyers [11] Company Strategy and Development Direction - The company plans to continue capital recycling efforts into 2023, focusing on leasing, operational efficiencies, and completion of existing development projects [11][22] - The leasing pipeline remains strong with approximately 3.2 million square feet of active prospects [20] - The company is strategically allocating capital to improve common areas and expand the amenity base, resulting in increased occupancy [15] Management's Comments on Operating Environment and Future Outlook - Management noted that aggressive monetary policy and inflation are weighing on market fundamentals, which will continue to be a factor in 2023 [22] - The company remains cautious about the overall economic environment but is pleased with its portfolio position, which includes 63% of rental income from investment-grade tenants [23] Other Important Information - The company sold 10 properties containing 1.3 million square feet for $118 million at a weighted average cap rate of approximately 6.2% [10] - The balance sheet is well positioned with $2.4 billion of outstanding debt at a weighted average interest rate below 4% [27] Q&A Session Summary Question: Confidence in closing on the 5 properties discussed - Management expressed confidence in closing the properties as they are in advanced stages under PSA or LOI [33] Question: Outlook for property dispositions in 2023 - Management indicated a fluid list of assets for potential dispositions in 2023, with a focus on being disciplined in the market [34] Question: Target leverage ratio and capital deployment in 2023 - Management aims to reduce leverage to between 6x and 6.5x, while remaining investment-grade rated [36] Question: Sustainability of the dividend given market perceptions - Management remains comfortable with the current dividend coverage, citing low payout ratios and external factors affecting the office market [40] Question: Expected cash and GAAP NOI from upcoming developments - Management projected cash-on-cash stabilized returns of 8% to 10% for 20 Mass Ave and 10% to 12% for Seattle [42] Question: Plans for debt maturities and potential pay down with dispositions - Management plans to use cash on hand and the line of credit to pay off maturing mortgages, with no immediate plans to accelerate debt pay down [47]

Property and Occupancy - As of September 30, 2022, the company owned 162 properties with a total of approximately 21,211,000 rentable square feet, leased to 276 tenants[69]. - The occupancy rate for all properties increased to 90.7% as of September 30, 2022, compared to 89.0% in the previous year[74]. - The average effective rental rate per square foot for all properties was $29.19 for the three months ended September 30, 2022, up from $28.86 in the same period of 2021[77]. - During the three months ended September 30, 2022, the company entered into new leases totaling 223,000 rentable square feet, with a weighted average rental rate change of 59.1%[80]. - The company reported a weighted average lease term of 9.9 years for new leases and 5.5 years for renewals during the three months ended September 30, 2022[80]. - As of September 30, 2022, the company had 359 leases expiring, totaling 19,236 thousand square feet, with an annualized rental income of $550,603, representing 100% of total rental income[87]. - 22.4% of annualized rental income is derived from properties located in the metropolitan Washington, D.C. market area, indicating potential vulnerability to economic downturns in that region[91]. - 52.4% of annualized rental income comes from investment-grade rated tenants, with an additional 10.6% from subsidiaries of investment-grade rated parents[92]. Financial Performance - Net income increased to $16,964 in Q3 2022, compared to $3,712 in Q3 2021, reflecting a significant increase of $13,252[1]. - Rental income for comparable properties increased by $770, or 0.6%, to $133,923 in Q3 2022 compared to Q3 2021[1]. - Total operating expenses rose by $2,191, or 4.6%, to $49,576 in Q3 2022, while net operating income decreased by $1,421, or 1.7%, to $84,347[1]. - The company recorded a net gain of $16,925 from the sale of 10 properties in the 2022 period[111]. - Rental income for the nine months ended September 30, 2022, was $364,924, a slight increase of $4,385 or 1.2% compared to $360,539 in 2021[117]. - Total operating expenses increased by $8,079 or 6.9% to $125,274 in 2022 from $117,195 in 2021[117]. - Net operating income (NOI) decreased by $3,694 or 1.5% to $239,650 in 2022 compared to $243,344 in 2021[117]. - The company recorded a net loss of $12,499 for the nine months ended September 30, 2022, a decrease of $12,626 or 50.3% from a net loss of $25,125 in 2021[117]. - The gain on sale of real estate was $7,437 in 2022, significantly lower than the $54,154 gain recorded in 2021, representing an 86.3% decrease[128]. Capital Expenditures and Debt - Total capital expenditures for the nine months ended September 30, 2022, were $172.8 million, significantly higher than $87.7 million in the same period of 2021[82]. - The company has a total of $2.28 billion in fixed rate debt, with annual interest expenses amounting to approximately $87.6 million[170]. - Debt maturities, excluding the revolving credit facility, total $2,284,901, with significant repayments due in 2024 and 2025[153]. - The company has $135 million in outstanding floating rate debt under its revolving credit facility, which matures on January 31, 2023[177]. - A one percentage point increase in interest rates would increase the annual interest cost on fixed rate debt by approximately $22.8 million[172]. - The company prepaid a mortgage note with an outstanding principal balance of $24,863 at an interest rate of 4.22% in April 2022[98]. - In June 2022, the company redeemed all $300,000 of its 4.00% senior unsecured notes due July 2022 using cash on hand and borrowings under its revolving credit facility[98]. - The company prepaid a mortgage note in October 2022 for $22,176, with an outstanding principal balance of $22,901 at an interest rate of 4.80%[99]. Future Outlook and Strategic Plans - The company expects approximately 696,000 rentable square feet of leases to expire through September 30, 2023, with uncertainty regarding tenant renewals[85]. - The company expects the pace of property dispositions to moderate due to current real estate market conditions, including rising interest rates[96]. - The company plans to strategically recycle capital by selectively selling properties to fund future acquisitions and manage leverage[145]. - The company expects to complete a redevelopment project in Washington, D.C., with estimated total costs of approximately $215,000, and has incurred about $125,667 as of September 30, 2022[156]. - The company is redeveloping a three-property campus in Seattle, WA, with total project costs estimated at approximately $162 million, and as of September 30, 2022, incurred costs of about $27.9 million[158]. - The company anticipates using cash balances, borrowings, and proceeds from property sales to fund future operations and acquisitions[159]. Interest Rate and Market Conditions - The company is facing challenges due to inflationary pressures and rising interest rates, which may impact financial conditions and tenant operations[71]. - The company is currently exposed to fluctuations in floating interest rates, which may change with the outstanding amount under the revolving credit facility[182]. - The LIBOR phase-out is expected to be completed for pre-existing contracts by June 30, 2023, with a potential transition to the secured overnight financing rate (SOFR)[183]. - The adoption of SOFR as an alternative interest rate index may lead to changes in the interest amounts payable by the company[183]. - A one percentage point increase in interest rates would raise the annual interest expense to $36,750, reflecting a new interest rate of 4.9%[180]. - The impact of the interest rate increase would also affect the annual earnings per share, increasing from $0.61 to $0.76[180]. Cash and Distributions - As of September 30, 2022, cash, cash equivalents, and restricted cash at the end of the period were $15,525, down from $56,020 at the end of the same period in 2021[146]. - The company announced a regular quarterly cash distribution of $0.55 per common share, equating to an annual distribution of $2.20 per common share[144]. - The company expects to pay quarterly distributions totaling $79.9 million for the nine months ended September 30, 2022, with a declared distribution of $0.55 per share, amounting to approximately $26.7 million[161].