[PART I. Financial Information](index=4&type=section&id=PART%20I.%20Financial%20Information) [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements and accompanying notes for the periods ended September 30, 2021 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Total Assets | $4,239,878 | $3,946,436 | +$293,442 | | Total Liabilities | $2,733,898 | $2,337,044 | +$396,854 | | Total Shareholders' Equity | $1,505,980 | $1,609,392 | -$103,412 | | Real Estate Properties, net | $3,378,357 | $3,070,229 | +$308,128 | | Senior Unsecured Notes, net | $2,477,730 | $2,033,242 | +$444,488 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (YoY) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (YoY) | | :-------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Rental income | $147,572 | $145,806 | +1.2% | $429,195 | $441,294 | -2.7% | | Total expenses | $113,971 | $122,283 | -6.8% | $407,673 | $360,177 | +13.2% | | Loss on impairment of real estate | $(3) | $2,954 | -100.1% | $55,854 | $2,954 | +1789.4% | | Net income (loss) | $3,712 | $(3,797) | +197.8% | $(25,125) | $8,342 | -401.7% | | Net income (loss) per share (basic & diluted) | $0.08 | $(0.08) | +200.0% | $(0.52) | $0.17 | -405.9% | [Condensed Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) | Metric (in thousands) | Dec 31, 2020 | Sep 30, 2021 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Total Shareholders' Equity | $1,609,392 | $1,505,980 | -$103,412 | | Cumulative Net Income | $183,895 | $158,770 | -$25,125 | | Cumulative Common Distributions | $(1,190,291) | $(1,270,025) | -$79,734 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Net cash provided by operating activities | $158,682 | $166,098 | -$7,416 | | Net cash (used in) provided by investing activities | $(435,698) | $18,104 | -$453,802 | | Net cash provided by (used in) financing activities | $276,181 | $(227,259) | +$503,440 | | Cash, cash equivalents and restricted cash at end of period | $56,020 | $57,639 | -$1,619 | - Investing activities saw a significant increase in real estate acquisitions (**$563,447 thousand in 2021** vs $11,864 thousand in 2020) and real estate improvements (**$65,186 thousand in 2021** vs $55,135 thousand in 2020)[18](index=18&type=chunk) - Financing activities were boosted by proceeds from issuance of senior unsecured notes (**$1,041,809 thousand in 2021** vs $408,932 thousand in 2020), partially offset by higher repayments of senior unsecured notes (**$610,000 thousand in 2021** vs $400,000 thousand in 2020) and mortgage notes payable (**$72,238 thousand in 2021** vs $154,734 thousand in 2020)[18](index=18&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide essential context for the financial statements, covering accounting policies, real estate, debt, and related person transactions [Note 1. Basis of Presentation](index=10&type=section&id=Note%201.%20Basis%20of%20Presentation) - Financial statements are unaudited and condensed, prepared in conformity with GAAP, and rely on estimates and assumptions[24](index=24&type=chunk)[25](index=25&type=chunk) [Note 2. Per Common Share Amounts](index=10&type=section&id=Note%202.%20Per%20Common%20Share%20Amounts) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Weighted average common shares for basic earnings per share | 48,211 | 48,132 | 48,179 | 48,111 | | Weighted average common shares for diluted earnings per share | 48,244 | 48,132 | 48,179 | 48,111 | [Note 3. Real Estate Properties](index=10&type=section&id=Note%203.%20Real%20Estate%20Properties) - As of September 30, 2021, the company's portfolio included **178 wholly-owned properties** (23,274,000 rentable square feet) and noncontrolling interests in two unconsolidated joint ventures owning three properties (444,000 rentable square feet)[27](index=27&type=chunk) - During the nine months ended September 30, 2021, the company entered into **65 leases** for approximately 1,782,000 rentable square feet with a weighted average lease term of **10.9 years**, committing approximately **$129,980 thousand** in leasing-related costs[27](index=27&type=chunk) [Acquisition Activities](index=11&type=section&id=Acquisition%20Activities) | Acquisition Date | Location | Number of Properties | Rentable Square Feet | Purchase Price (in thousands) | | :--------------- | :------- | :------------------- | :------------------- | :---------------------------- | | June 2021 | Chicago, IL | 1 | 531,000 | $368,331 | | June 2021 | Atlanta, GA | 1 | 346,000 | $180,602 | | August 2021 | Boston, MA | 1 | 49,000 | $27,545 | | **Total** | | **3** | **926,000** | **$576,478** | [Disposition Activities](index=11&type=section&id=Disposition%20Activities) - Sold six properties and one warehouse facility (2,565,000 rentable square feet) for **$198,415 thousand**, resulting in a **$54,154 thousand gain on sale**[31](index=31&type=chunk)[32](index=32&type=chunk) - As of September 30, 2021, five properties and two land parcels were classified as held for sale, with an aggregate sales price of **$84,500 thousand**[34](index=34&type=chunk) - Recorded a **$10,658 thousand impairment loss** on three properties classified as held for sale[36](index=36&type=chunk) [Unconsolidated Joint Ventures](index=12&type=section&id=Unconsolidated%20Joint%20Ventures) | Joint Venture | OPI Ownership | OPI Carrying Value (Sep 30, 2021, in thousands) | Number of Properties | Rentable Square Feet | Mortgage Debt (in thousands) | | :-------------------- | :------------ | :-------------------------------------------- | :------------------- | :------------------- | :--------------------------- | | Prosperity Metro Plaza | 51% | $21,142 | 2 | 329,000 | $50,000 | | 1750 H Street, NW | 50% | $14,686 | 1 | 115,000 | $32,000 | | **Total** | | **$35,828** | **3** | **444,000** | **$82,000** | - The mortgage debt of unconsolidated joint ventures is **non-recourse** to OPI[39](index=39&type=chunk) [Note 4. Leases](index=13&type=section&id=Note%204.%20Leases) - Rental income from operating leases is recognized on a **straight-line basis**[41](index=41&type=chunk) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Straight line rent adjustments | $3,924 | $3,912 | $13,128 | $12,963 | | Variable payments (incl. reimbursements) | $24,098 | $18,606 | $60,446 | $56,654 | [Note 5. Concentration](index=13&type=section&id=Note%205.%20Concentration) | Tenant Type | % of Annualized Rental Income (Sep 30, 2021) | % of Annualized Rental Income (Sep 30, 2020) | | :-------------------- | :------------------------------------------- | :------------------------------------------- | | U.S. Government | 19.7% | 25.2% | | All Government Tenants | 29.8% | 35.6% | - Geographic concentration: **21.5% of annualized rental income** is derived from properties located in the metropolitan Washington, D.C. market area[100](index=100&type=chunk) - As of September 30, 2021, **52.3% of annualized rental income** came from investment-grade rated tenants (or those with investment-grade parent guarantees), with an additional 10.2% from subsidiaries of investment-grade parents without guarantees[101](index=101&type=chunk) [Note 6. Indebtedness](index=13&type=section&id=Note%206.%20Indebtedness) | Debt Type | Outstanding Principal (Sep 30, 2021, in thousands) | | :-------------------- | :------------------------------------------- | | Senior unsecured notes | $2,512,000 | | Mortgage notes | $98,604 | - The company has a **$750,000 thousand revolving credit facility**, with no outstanding amounts as of September 30, 2021, and October 27, 2021[47](index=47&type=chunk)[48](index=48&type=chunk) [Senior Unsecured Note Issuances](index=14&type=section&id=Senior%20Unsecured%20Note%20Issuances) | Issue Date | Amount (in thousands) | Interest Rate | Maturity Date | Net Proceeds (in thousands) | | :--------- | :-------------------- | :------------ | :------------ | :-------------------------- | | May 2021 | $300,000 | 2.650% | June 15, 2026 | $296,826 | | August 2021 | $350,000 | 2.400% | Feb 1, 2027 | $346,630 | | Sept 2021 | $400,000 | 3.450% | Oct 15, 2031 | $395,698 | [Senior Unsecured Note Redemptions](index=14&type=section&id=Senior%20Unsecured%20Note%20Redemptions) - Redeemed **$310,000 thousand** of 5.875% senior unsecured notes due 2046 in June 2021, recognizing an **$8,581 thousand loss** on early extinguishment of debt[53](index=53&type=chunk) - Redeemed **$300,000 thousand** of 4.15% senior unsecured notes due 2022 in September 2021, recognizing a **$2,274 thousand loss** on early extinguishment of debt[54](index=54&type=chunk) [Mortgage Note Repayment](index=14&type=section&id=Mortgage%20Note%20Repayment) - Prepaid a **$71,000 thousand mortgage note** in June 2021, resulting in a **$3,213 thousand loss** on early extinguishment of debt[55](index=55&type=chunk) [Note 7. Fair Value of Assets and Liabilities](index=15&type=section&id=Note%207.%20Fair%20Value%20of%20Assets%20and%20Liabilities) | Financial Instrument (in thousands) | Carrying Value (Sep 30, 2021) | Fair Value (Sep 30, 2021) | Carrying Value (Dec 31, 2020) | Fair Value (Dec 31, 2020) | | :-------------------------------- | :---------------------------- | :------------------------ | :---------------------------- | :------------------------ | | Senior unsecured notes, total | $2,477,730 (net) | $2,609,692 (est) | $2,033,242 (net) | $2,159,900 (est) | | Mortgage notes payable | $98,460 | $101,351 | $169,729 | $174,952 | - Recorded impairment charges of **$10,658 thousand** to reduce the carrying value of three properties held for sale to their estimated fair value less costs to sell[57](index=57&type=chunk) [Note 8. Shareholders' Equity](index=16&type=section&id=Note%208.%20Shareholders%27%20Equity) - Awarded **3,500 common shares** to eight Trustees on June 17, 2021, valued at $29.88 per share[61](index=61&type=chunk) - Awarded **117,800 common shares** to officers and RMR LLC employees on September 15, 2021, valued at $25.42 per share[62](index=62&type=chunk) - Purchased **25,533 common shares** during Q3 2021 and **37,542 shares** during the nine months ended September 30, 2021, at weighted average prices of $25.24 and $26.55 per share, respectively, to satisfy tax withholding obligations[63](index=63&type=chunk) [Distributions](index=16&type=section&id=Distributions) | Declaration Date | Record Date | Paid Date | Distributions Per Common Share | Total Distributions (in thousands) | | :--------------- | :---------- | :-------- | :----------------------------- | :--------------------------------- | | Jan 14, 2021 | Jan 25, 2021 | Feb 18, 2021 | $0.55 | $26,575 | | April 15, 2021 | April 26, 2021 | May 20, 2021 | $0.55 | $26,575 | | July 15, 2021 | July 26, 2021 | Aug 19, 2021 | $0.55 | $26,584 | | **Total (9 months)** | | | **$1.65** | **$79,734** | [Note 9. Business and Property Management Agreements with RMR LLC](index=16&type=section&id=Note%209.%20Business%20and%20Property%20Management%20Agreements%20with%20RMR%20LLC) - OPI has **no employees** and relies on RMR LLC for all management services[65](index=65&type=chunk) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net business management fees | $(1,738) | $4,236 | $18,287 | $13,237 | | Net property management & construction supervision fees | $5,519 | $5,189 | $15,045 | $15,381 | - The business management agreement was amended effective August 1, 2021, to replace the SNL U.S. REIT Office Index with the **MSCI U.S. REIT/Office REIT Index** for incentive management fee calculation[67](index=67&type=chunk) [Note 10. Related Person Transactions](index=17&type=section&id=Note%2010.%20Related%20Person%20Transactions) - Adam Portnoy, Chair of OPI's Board, is also the controlling shareholder of RMR Inc. (parent of RMR LLC) and a director/controlling shareholder of Sonesta. Other OPI officers are also RMR LLC employees[70](index=70&type=chunk) [Leases with RMR LLC](index=18&type=section&id=Leases%20with%20RMR%20LLC) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Rental income from RMR LLC | $275 | $282 | $850 | $836 | [Sonesta](index=18&type=section&id=Sonesta) - Entered a **30-year lease** with Sonesta for a hotel component in a Washington, D.C. redevelopment, with an estimated annual base rent of **$6,436 thousand** starting Q1 2023[74](index=74&type=chunk) - Estimated total cost to build the hotel space is approximately **$66,000 thousand**[74](index=74&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial condition, operating results, performance drivers, and liquidity [OVERVIEW](index=19&type=section&id=OVERVIEW) The overview details the company's property portfolio, tenant base, and recent acquisition, disposition, and financing activities - OPI is a REIT with **178 wholly-owned properties** and interests in two unconsolidated joint ventures, totaling approximately **23,274,000 rentable square feet** across 33 states and D.C[78](index=78&type=chunk) - Weighted average remaining lease term is approximately **6.0 years**, with the U.S. government as the largest tenant, representing **19.7% of annualized rental income**[78](index=78&type=chunk) [COVID-19 Pandemic](index=19&type=section&id=COVID-19%20Pandemic) - COVID-19 pandemic has **not had a significant impact** on OPI's business to date[79](index=79&type=chunk) - Granted **$2,483 thousand** in temporary rent assistance to 18 tenants (3.3% of annualized rental income), with **over 95% of deferred rents collected** as of October 26, 2021[79](index=79&type=chunk) [Property Operations](index=19&type=section&id=Property%20Operations) | Metric | Sep 30, 2021 | Sep 30, 2020 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total rentable square feet | 23,274,000 | 24,909,000 | -6.6% | | Percent leased | 89.0% | 91.2% | -2.2 pp | | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Average effective rental rate per sq ft (All properties) | $28.86 | $25.85 | $27.12 | $25.89 | | Average effective rental rate per sq ft (Comparable properties) | $27.40 | $27.26 | $27.37 | $27.22 | | Leasing Activity (9 Months Ended Sep 30, 2021) | New Leases | Renewals | Total | | :------------------------------------------- | :--------- | :--------- | :---- | | Rentable square feet leased (in thousands) | 576 | 1,206 | 1,782 | | Weighted average rental rate change | 9.8% | 5.3% | 7.0% | | Weighted average lease term (years) | 18.9 | 7.1 | 10.9 | - As of September 30, 2021, **2,317,000 rentable square feet** are scheduled to expire through December 31, 2022, with **758,000 square feet expected not to renew**[93](index=93&type=chunk) - Tenants with early termination rights occupy approximately **5.6% of rentable square feet** and contribute **5.5% of annualized rental income**[95](index=95&type=chunk) - 14 government tenants (**6.0% of rentable square feet**, 6.6% of annualized rental income) have termination rights if funding is not appropriated[95](index=95&type=chunk) [Acquisition Activities](index=25&type=section&id=Acquisition%20Activities) - Acquired three properties (926,000 rentable square feet) for **$576,975 thousand** during the nine months ended September 30, 2021[104](index=104&type=chunk) [Disposition Activities](index=26&type=section&id=Disposition%20Activities) - Sold six properties and one warehouse facility (2,565,000 rentable square feet) for **$198,415 thousand** during the nine months ended September 30, 2021[105](index=105&type=chunk) - Sold two vacant land parcels for **$28,500 thousand** in October 2021[105](index=105&type=chunk) - Agreement to sell five properties for **$56,000 thousand** is pending; 17 properties (2,161,000 rentable square feet) are currently marketed for sale, expected to generate **$200,000 thousand** in gross proceeds by mid-2022[106](index=106&type=chunk) [Financing Activities](index=26&type=section&id=Financing%20Activities) - Engaged in significant debt refinancing, issuing new senior unsecured notes and redeeming existing ones to manage interest rates and maturities[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk) [Senior Unsecured Note Issuances](index=26&type=section&id=Senior%20Unsecured%20Note%20Issuances) - Issued **$300,000 thousand** of 2.650% notes due 2026, **$350,000 thousand** of 2.400% notes due 2027, and **$400,000 thousand** of 3.450% notes due 2031[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) [Senior Unsecured Note Redemptions](index=26&type=section&id=Senior%20Unsecured%20Note%20Redemptions) - Redeemed **$310,000 thousand** of 5.875% senior unsecured notes due 2046 in June 2021[111](index=111&type=chunk) - Redeemed **$300,000 thousand** of 4.15% senior unsecured notes due 2022 in September 2021[111](index=111&type=chunk) [Mortgage Note Repayment](index=26&type=section&id=Mortgage%20Note%20Repayment) - Prepaid a **$71,000 thousand mortgage note** in June 2021[112](index=112&type=chunk) [Segment Information](index=26&type=section&id=Segment%20Information) - OPI operates in one business segment: **ownership of real estate properties**[113](index=113&type=chunk) [RESULTS OF OPERATIONS](index=27&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes financial performance for the three and nine months ended September 30, 2021, compared to the prior year [Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020](index=27&type=section&id=Three%20Months%20Ended%20September%2030%2C%202021%2C%20Compared%20to%20Three%20Months%20Ended%20September%2030%2C%202020) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | $ Change | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :------- | :------- | | Rental income | $147,572 | $145,806 | $1,766 | 1.2% | | Total expenses | $113,971 | $122,283 | $(8,312) | -6.8% | | Loss on impairment of real estate | $(3) | $2,954 | $(2,957) | -100.1% | | General and administrative | $448 | $7,059 | $(6,611) | -93.7% | | Net income (loss) | $3,712 | $(3,797) | $7,509 | -197.8% | - General and administrative expenses decreased significantly due to a **$6,627 thousand reversal** of previously accrued estimated business management incentive fees[124](index=124&type=chunk) - Interest expense decreased due to **lower weighted average interest rates** incurred on outstanding balances as a result of financing activities since July 1, 2020[127](index=127&type=chunk) [Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020](index=29&type=section&id=Nine%20Months%20Ended%20September%2030%2C%202021%2C%20Compared%20to%20Nine%20Months%20Ended%20September%2030%2C%202020) | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | $ Change | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :------- | :------- | | Rental income | $429,195 | $441,294 | $(12,099) | -2.7% | | Total operating expenses | $148,138 | $146,511 | $1,627 | 1.1% | | Loss on impairment of real estate | $55,854 | $2,954 | $52,900 | n/m | | General and administrative | $24,690 | $21,372 | $3,318 | 15.5% | | Gain on sale of real estate | $54,154 | $10,822 | $43,332 | n/m | | Interest expense | $(84,728) | $(79,461) | $(5,267) | 6.6% | | Net income (loss) | $(25,125) | $8,342 | $(33,467) | n/m | - Loss on impairment of real estate increased significantly to **$55,854 thousand** (from $2,954 thousand), including **$45,196 thousand** related to sold properties and **$10,658 thousand** for properties held for sale[139](index=139&type=chunk) - Interest expense increased due to **higher average outstanding debt balances** from new senior unsecured note issuances, partially offset by lower interest rates on outstanding amounts[143](index=143&type=chunk) [Non-GAAP Financial Measures](index=31&type=section&id=Non-GAAP%20Financial%20Measures) This section presents and reconciles non-GAAP measures like NOI and FFO used by management to evaluate operating performance [Net Operating Income](index=31&type=section&id=Net%20Operating%20Income) - NOI is a non-GAAP measure used to evaluate property-level performance, excluding depreciation, amortization, impairment, and gains/losses on real estate sales[147](index=147&type=chunk)[148](index=148&type=chunk) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (YoY) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (YoY) | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | NOI | $93,579 | $95,763 | -2.3% | $281,057 | $294,783 | -4.7% | [Funds From Operations and Normalized Funds From Operations](index=32&type=section&id=Funds%20From%20Operations%20and%20Normalized%20Funds%20From%20Operations) - FFO and Normalized FFO are non-GAAP measures used to assess operating performance and inform distribution decisions[151](index=151&type=chunk) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (YoY) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (YoY) | | :-------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | FFO | $63,951 | $62,628 | +2.1% | $158,240 | $193,536 | -18.2% | | Normalized FFO | $59,598 | $62,628 | -4.9% | $176,792 | $197,375 | -10.4% | | FFO per common share | $1.33 | $1.30 | +2.3% | $3.28 | $4.02 | -18.4% | | Normalized FFO per common share | $1.24 | $1.30 | -4.6% | $3.67 | $4.10 | -10.5% | [LIQUIDITY AND CAPITAL RESOURCES](index=32&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's ability to meet financial obligations, detailing its sources of cash and capital recycling strategy - Principal sources of funds include operating cash flows, net proceeds from property sales, and borrowings under the **$750,000 thousand revolving credit facility**[154](index=154&type=chunk)[159](index=159&type=chunk) - The company expects to accretively grow its portfolio through a **capital recycling program**, selling properties to fund acquisitions and maintain investment-grade ratings[157](index=157&type=chunk) [Our Operating Liquidity and Resources](index=32&type=section&id=Our%20Operating%20Liquidity%20and%20Resources) - Net cash provided by operating activities decreased to **$158,682 thousand** for the nine months ended September 30, 2021, from $166,098 thousand in the prior year, primarily due to a decline in NOI[158](index=158&type=chunk) - Declared a regular quarterly cash distribution of **$0.55 per common share** ($2.20 per common share per year)[156](index=156&type=chunk) [Our Investment and Financing Liquidity and Resources](index=33&type=section&id=Our%20Investment%20and%20Financing%20Liquidity%20and%20Resources) - **$750,000 thousand revolving credit facility** available for borrowing, with no outstanding amounts as of September 30, 2021, and October 27, 2021[160](index=160&type=chunk) - The maximum borrowing availability under the revolving credit facility can be increased to up to **$1,950,000 thousand** in certain circumstances[161](index=161&type=chunk) - Estimated unspent leasing related obligations of **$129,369 thousand** as of September 30, 2021, with **$69,248 thousand** expected to be spent in the next 12 months[170](index=170&type=chunk) - Redeveloping a property in Washington, D.C., with estimated total project costs of **$200,000 thousand** and completion in Q1 2023; **54% pre-leased**[171](index=171&type=chunk) [Senior Unsecured Note Issuances](index=34&type=section&id=Senior%20Unsecured%20Note%20Issuances) - Issued **$300,000 thousand** of 2.650% notes due 2026, **$350,000 thousand** of 2.400% notes due 2027, and **$400,000 thousand** of 3.450% notes due 2031[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) [Senior Unsecured Note Redemptions](index=34&type=section&id=Senior%20Unsecured%20Note%20Redemptions) - Redeemed **$310,000 thousand** of 5.875% senior unsecured notes due 2046 in June 2021[166](index=166&type=chunk) - Redeemed **$300,000 thousand** of 4.15% senior unsecured notes due 2022 in September 2021[166](index=166&type=chunk) [Mortgage Note Repayment](index=34&type=section&id=Mortgage%20Note%20Repayment) - Prepaid a **$71,000 thousand mortgage note** in June 2021[167](index=167&type=chunk) [U.S. Government Funding](index=36&type=section&id=U.S.%20Government%20Funding) - U.S. government debt ceiling increased, providing funding until December 3, 2021; future increases are uncertain and could impact rent payments[177](index=177&type=chunk) [Debt Covenants](index=36&type=section&id=Debt%20Covenants) - OPI was **in compliance with all debt covenants** under its credit agreement and senior unsecured notes indentures as of September 30, 2021[178](index=178&type=chunk) - Covenants restrict debt incurrence and distributions, and a downgrade in credit rating would increase interest expense and costs under the credit agreement[178](index=178&type=chunk)[179](index=179&type=chunk) [Related Person Transactions](index=36&type=section&id=Related%20Person%20Transactions) - OPI has ongoing relationships and transactions with RMR LLC, RMR Inc., and other related parties, as detailed in Notes 9 and 10[181](index=181&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's exposure to market risks, primarily interest rate fluctuations, and its management strategies - OPI manages interest rate exposure by monitoring financing alternatives, with **no material change in strategy** since December 31, 2020[182](index=182&type=chunk) [Fixed Rate Debt](index=37&type=section&id=Fixed%20Rate%20Debt) | Debt Type | Principal Balance (Sep 30, 2021, in thousands) | Annual Interest Rate | | :-------------------- | :------------------------------------------- | :------------------- | | Senior unsecured notes | $2,512,000 | 2.400% - 6.375% | | Mortgage notes | $98,604 | 3.700% - 4.800% | | **Total** | **$2,610,604** | | - A hypothetical one percentage point increase in interest rates would increase annual interest cost by approximately **$26,106 thousand** if fixed-rate debt were refinanced[184](index=184&type=chunk) - A hypothetical one percentage point increase in interest rates would decrease the fair value of fixed-rate debt obligations by approximately **$119,658 thousand**[185](index=185&type=chunk) [Floating Rate Debt](index=38&type=section&id=Floating%20Rate%20Debt) - **No outstanding floating rate debt** as of September 30, 2021[189](index=189&type=chunk) | Scenario | Outstanding Debt (in thousands) | Annual Interest Expense (in thousands) | Annual Earnings Per Share Impact | | :-------------------------------- | :------------------------------ | :------------------------------------- | :------------------------------- | | Fully drawn revolving credit facility (Sep 30, 2021) | $750,000 | $9,000 (at 1.2%) | $0.19 | | +1% interest rate increase | $750,000 | $16,500 (at 2.2%) | $0.34 | [LIBOR Phase Out](index=38&type=section&id=LIBOR%20Phase%20Out) - LIBOR is expected to be phased out by **June 30, 2023**, for pre-existing contracts[194](index=194&type=chunk) - The company expects its revolving credit facility's interest rate determination to be revised to approximate existing LIBOR-based rates, but cannot be sure of the outcome[194](index=194&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms management's evaluation of disclosure controls and procedures, concluding they are effective - Disclosure controls and procedures were evaluated and **deemed effective** as of September 30, 2021[195](index=195&type=chunk) - **No material changes** in internal control over financial reporting occurred during the quarter ended September 30, 2021[196](index=196&type=chunk) [Warning Concerning Forward-Looking Statements](index=39&type=section&id=Warning%20Concerning%20Forward-Looking%20Statements) This section cautions that the report contains forward-looking statements and actual results may differ materially due to various risks - The report contains forward-looking statements regarding business aspects like COVID-19 impact, tenant strength, leasing, capital recycling, and financial performance[198](index=198&type=chunk)[199](index=199&type=chunk) - Actual results may differ materially due to known and unknown risks, uncertainties, and other factors, many of which are beyond the company's control[201](index=201&type=chunk)[206](index=206&type=chunk) [Statement Concerning Limited Liability](index=43&type=section&id=Statement%20Concerning%20Limited%20Liability) This statement clarifies that the company's declaration of trust limits the personal liability of its trustees, officers, and agents - The declaration of trust limits personal liability for trustees, officers, shareholders, employees, or agents, directing all claims solely to the assets of Office Properties Income Trust[210](index=210&type=chunk) [PART II. Other Information](index=42&type=section&id=PART%20II.%20Other%20Information) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) This section states there have been no material changes to the risk factors previously disclosed in the 2020 Annual Report - **No material changes** to risk factors from the 2020 Annual Report[211](index=211&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's purchases of its own equity securities during the quarter to satisfy tax withholding obligations | Calendar Month | Number of Shares Purchased | Average Price Paid per Share | | :------------- | :------------------------- | :--------------------------- | | September 2021 | 25,533 | $25.24 | - Share purchases were made to satisfy tax withholding and payment obligations for share awards to Trustees, officers, and RMR LLC employees[212](index=212&type=chunk) [Item 6. Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section provides a comprehensive list of all exhibits filed as part of the Form 10-Q - Lists various exhibits, including organizational documents, indentures for senior unsecured notes, management agreements, and certifications[213](index=213&type=chunk)[215](index=215&type=chunk)[217](index=217&type=chunk) [SIGNATURES](index=46&type=section&id=SIGNATURES) [SIGNATURES](index=46&type=section&id=SIGNATURES) This section contains the official signatures of the company's officers, certifying the filing of the report - The report was signed by Christopher J. Bilotto (President and Chief Operating Officer) and Matthew C. Brown (Chief Financial Officer and Treasurer) on October 28, 2021[220](index=220&type=chunk)

Office Properties Income Trust (NASDAQ:OPI) Q2 2021 Earnings Conference Call July 30, 2021 10:00 AM ET Company Participants Olivia Snyder - Manager, Investor Relations Chris Bilotto - President and Chief Operating Officer Matt Brown - Chief Financial Officer and Treasurer Conference Call Participants Bryan Maher - B. Riley FBR Vikram Malhotra - Morgan Stanley Jason Idoine - RBC Capital Markets Operator Good day and welcome to the Office Properties Income Trust Second Quarter 2021 Earnings Conference Call. [ ...

PART I. Financial Information [Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements, detailing balance sheets, income, and cash flows, with key insights into asset changes and net loss [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$4.21 billion** as of June 30, 2021, driven by real estate, while liabilities grew and equity decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total real estate properties, net** | $3,392,829 | $3,070,229 | | **Total assets** | **$4,211,213** | **$3,946,436** | | Unsecured revolving credit facility | $385,000 | $— | | Senior unsecured notes, net | $2,032,764 | $2,033,242 | | **Total liabilities** | **$2,682,663** | **$2,337,044** | | **Total shareholders' equity** | **$1,528,550** | **$1,609,392** | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) The company reported a net loss of **$66.7 million** for Q2 2021, primarily due to a **$48.2 million** real estate impairment and debt extinguishment losses Quarterly Performance Comparison (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Rental Income | $137,099 | $145,603 | | Loss on impairment of real estate | $48,197 | $— | | Net Income (Loss) | $(66,697) | $1,299 | | Net Income (Loss) per Share | $(1.38) | $0.03 | Six-Month Performance Comparison (in thousands, except per share data) | Metric | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Rental Income | $281,623 | $295,488 | | Gain on sale of real estate | $54,118 | $10,822 | | Net Income (Loss) | $(28,837) | $12,139 | | Net Income (Loss) per Share | $(0.60) | $0.25 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities was **$117.4 million** for H1 2021, with **$400.5 million** used in investing for acquisitions, and **$246.3 million** provided by financing Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $117,376 | $111,190 | | Net cash (used in) provided by investing activities | $(400,467) | $40,934 | | Net cash provided by (used in) financing activities | $246,317 | $(222,719) | | **Decrease in cash, cash equivalents and restricted cash** | **$(36,774)** | **$(70,595)** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail significant accounting policies, property acquisitions and sales, debt financing activities, and the U.S. government's tenant contribution - During the first six months of 2021, OPI acquired two properties for an aggregate purchase price of **$548.9 million** and sold two properties and a warehouse facility for an aggregate sales price of **$169.8 million**[26](index=26&type=chunk)[29](index=29&type=chunk) - The U.S. government is the largest tenant, representing **22.0%** of annualized rental income as of June 30, 2021, down from **25.2%** a year prior[41](index=41&type=chunk) - In May 2021, the company issued **$300 million** of **2.650%** senior notes due 2026. In June 2021, it redeemed all **$310 million** of its **5.875%** senior notes due 2046, resulting in a loss on early extinguishment of debt of **$8.6 million**[46](index=46&type=chunk)[47](index=47&type=chunk) - The company declared and paid two quarterly distributions of **$0.55 per common share** during the first six months of 2021, totaling **$53.15 million**[57](index=57&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's performance, property operations, and financial condition, highlighting portfolio occupancy, limited COVID-19 impact, capital recycling, and non-GAAP measures [Overview](index=17&type=section&id=Overview) As of June 30, 2021, OPI owned **181 properties** totaling **24.1 million** square feet, with the U.S. government as the largest tenant and limited COVID-19 impact - As of June 30, 2021, OPI's portfolio comprised **181 wholly-owned properties** with approximately **24.1 million rentable square feet**[71](index=71&type=chunk) - The impact of the COVID-19 pandemic has been limited. As of July 27, 2021, the company granted temporary rent deferrals totaling **$2,483 thousand** to 18 tenants, and has collected **$2,259 thousand (91.0%)** of this amount[72](index=72&type=chunk) [Property Operations](index=17&type=section&id=Property%20Operations) Portfolio occupancy was **89.5%** as of June 30, 2021, with **1.12 million** square feet leased in H1 2021 at an **11.2%** rental rate increase, and **54.1%** of income from investment-grade tenants Occupancy Data (All Properties) | Metric | June 30, 2021 | June 30, 2020 | | :--- | :--- | :--- | | Total properties | 181 | 184 | | Total rentable square feet (thousands) | 24,091 | 24,909 | | Percent leased | 89.5% | 91.7% | Leasing Activity - Six Months Ended June 30, 2021 | Leasing Type | Rentable Square Feet (thousands) | Weighted Avg. Rental Rate Change | Weighted Avg. Lease Term (Years) | | :--- | :--- | :--- | :--- | | New Leases | 302 | +23.3% | 24.3 | | Renewals | 821 | +5.3% | 6.0 | | **Total** | **1,123** | **+11.2%** | **10.9** | - As of June 30, 2021, **54.1%** of annualized rental income came from investment-grade rated tenants[94](index=94&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Q2 2021 saw a **5.8%** decrease in rental income and a net loss of **$66.7 million**, primarily due to a **$48.2 million** impairment charge and an **80.0%** rise in G&A expenses Consolidated Results - Three Months Ended June 30 (in thousands) | Line Item | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Rental income | $137,099 | $145,603 | $(8,504) | (5.8%) | | Net operating income (NOI) | $90,979 | $98,834 | $(7,855) | (7.9%) | | Loss on impairment of real estate | $48,197 | $— | $48,197 | n/m | | General and administrative | $12,970 | $7,204 | $5,766 | 80.0% | | Net income (loss) | $(66,697) | $1,299 | $(67,996) | n/m | - The decrease in rental income for Q2 2021 was primarily due to property dispositions (**$4.7 million**) and properties undergoing redevelopment (**$4.2 million**)[110](index=110&type=chunk) - The increase in G&A expenses for Q2 2021 was mainly due to recording **$5.9 million** of estimated business management incentive fees, which were not recorded in the 2020 period[116](index=116&type=chunk) [Non-GAAP Financial Measures](index=29&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures like FFO and Normalized FFO, with Q2 2021 Normalized FFO at **$1.15 per share**, down from **$1.40 per share** in Q2 2020 due to lower NOI FFO and Normalized FFO Reconciliation - Q2 (in thousands, except per share) | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Net income (loss) | $(66,697) | $1,299 | | **FFO** | **$37,680** | **$66,640** | | **Normalized FFO** | **$55,385** | **$67,197** | | FFO per common share | $0.78 | $1.39 | | Normalized FFO per common share | $1.15 | $1.40 | FFO and Normalized FFO Reconciliation - H1 (in thousands, except per share) | Metric | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Net income (loss) | $(28,837) | $12,139 | | **FFO** | **$94,289** | **$130,908** | | **Normalized FFO** | **$117,194** | **$134,747** | | FFO per common share | $1.96 | $2.72 | | Normalized FFO per common share | $2.43 | $2.80 | [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity relies on operating cash flow, property sales, and its **$750 million** revolving credit facility, with **$365 million** available and manageable debt maturities - The company maintains a **$750 million** revolving credit facility. As of July 28, 2021, **$380 million** was outstanding, with **$370 million** available for borrowing[150](index=150&type=chunk)[151](index=151&type=chunk) - The company has estimated unspent leasing-related obligations of **$113.1 million**, with **$67.3 million** expected to be spent over the next 12 months[157](index=157&type=chunk) - A redevelopment project in Washington, D.C. is estimated to cost **$200 million**, with completion expected in Q1 2023. The project is **54%** pre-leased[158](index=158&type=chunk) - The company believes it was in compliance with all debt covenants as of June 30, 2021[164](index=164&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with **$2.16 billion** in fixed-rate debt and **$385 million** in floating-rate debt, and is monitoring the LIBOR phase-out - As of June 30, 2021, the company had **$2.16 billion** of fixed-rate debt. A hypothetical **1%** increase in interest rates would decrease the fair value of this debt by approximately **$76.9 million**[169](index=169&type=chunk)[171](index=171&type=chunk) - The company had **$385 million** of floating-rate debt outstanding. A **1%** increase in interest rates would increase annual interest expense by **$3.85 million**, impacting annual EPS by approximately **$0.08**[175](index=175&type=chunk)[177](index=177&type=chunk) - The company is monitoring the planned phase-out of LIBOR, which is the benchmark for its revolving credit facility, and expects the agreement to be amended to provide for a comparable replacement rate[181](index=181&type=chunk) [Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2021, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[182](index=182&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[183](index=183&type=chunk) PART II. Other Information [Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors from those previously disclosed in the 2020 Annual Report on Form 10-K - There have been no material changes to the risk factors from those previously disclosed in the 2020 Annual Report[199](index=199&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2021, the company purchased **12,009** common shares at an average price of **$29.33 per share** to satisfy tax withholding obligations for share awards Issuer Purchases of Equity Securities - June 2021 | Calendar Month | Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | June 2021 | 12,009 | $29.33 | [Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including supplemental indentures for new debt, officer certifications, and XBRL data files - Key exhibits filed include the Third Supplemental Indenture for the **2.650%** Senior Notes due 2026, Rule 13a-14(a) certifications, and the Section 1350 certification[202](index=202&type=chunk)[204](index=204&type=chunk)

OFFICE PROPERTIES FIRST QUARTER 2021 Supplemental Operating and Financial Data ALL AMOUNTS IN THIS REPORT ARE UNAUDITED. Atlanta, GA Table of Contents Please refer to Non-GAAP Financial Measures and Certain Definitions for terms used throughout this document. | --- | --- | |--------------------------------------------------------------------------------------|-------| | | | | CORPORATE INFORMATION | | | Company Profile | | | Investor Information. | | | Research Coverage | | | FINANCIALS | | | Key Financial ...

Financial Data and Key Metrics Changes - Normalized FFO for Q1 2021 was $61.8 million or $1.28 per share, exceeding expectations and consensus estimates by $0.04 due to higher than forecasted NOI [27] - CAD for Q1 2021 was $47.7 million or $0.99 per share, with a rolling four-quarter CAD payout ratio of 59% [27] - G&A expense for Q1 was $11.3 million, including $5.2 million of estimated business management incentive fees, down from $7.1 million in the same period last year [28] Business Line Data and Key Metrics Changes - Same property cash basis NOI decreased by $1.6 million or 1.8% compared to Q1 2020, slightly outperforming guidance [32] - Leasing results included 575,000 square feet of new and renewal leasing with a 3.2% roll-up in rent and a consolidated occupancy of 90.8% at the end of the quarter [16][27] Market Data and Key Metrics Changes - Current building utilization is at 30% of portfolio square footage, with expectations for tenants to advance re-entry plans into Q3 and Q4 [15] - The overall leasing pipeline remains robust with discussions covering 3.1 million square feet, including 106,000 square feet of new and renewal leasing signed since quarter end [18] Company Strategy and Development Direction - The company is focused on capital recycling, with a plan to dispose of $100 million to $300 million of properties to invest in newer, less capital-intensive buildings [13] - The acquisition pipeline is trending in excess of $400 million, with an active market for acquisitions and a disciplined approach to transactions [11][10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the portfolio's performance despite challenges from the COVID-19 pandemic, with rent collections trending above 99% [9] - The company anticipates a decline in same property cash basis NOI for Q2 2021 between 3.5% and 5.5% compared to Q2 2020, driven by known vacancies and lease expirations [33] Other Important Information - The company received the 2021 ENERGY STAR Partner of the Year Sustained Excellence Award, marking the fourth consecutive year of recognition [25] - Interest expense for Q1 was $28.8 million, flat sequentially but up $1.6 million from the prior year due to previous unsecured senior notes issuance [31] Q&A Session Summary Question: On the Boston property that you bought, is there any opportunity to increase occupancy? - Management indicated the goal is to pursue short-term leases while evaluating a larger plan for the consolidated assets in Boston [38] Question: Is the occupancy decline due to the Boston project? - Management clarified that the decline was primarily driven by known move-outs in the Chicago submarket, not the Boston project [39] Question: What are the updated costs and timing for the redevelopment of the vacated property? - The plan is to move forward with redevelopment, targeting Q1 2023 for delivery, with total construction costs around $150 million [41] Question: How competitive is the acquisition pipeline? - Management noted that cap rates for targeted assets remain competitive, with many buyers chasing similar types of assets [42][43] Question: Was the tenant that moved out included in the occupancy numbers? - Management confirmed that the tenant was included in the numbers and will reflect in Q2 [48] Question: What is the expected trajectory for occupancy throughout the year? - Management anticipates occupancy to end the year around 89% to 90%, depending on various factors including asset dispositions [50] Question: Can you break down the leasing pipeline in terms of new leasing versus renewals? - Management indicated that the pipeline is approximately 60% renewal and 40% new leasing [66] Question: What is the coverage of the dividend post-incentive fees? - The year-end projection, including the incentive fee, would result in a payout ratio of about 84% [61]

PART I. Financial Information [Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Presents unaudited condensed consolidated financial statements for Office Properties Income Trust, including Balance Sheets, Income, Equity, and Cash Flow Statements, with essential notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total real estate properties, net** | $3,007,696 | $3,070,229 | | **Cash and cash equivalents** | $184,462 | $42,045 | | **Total assets** | $3,952,579 | $3,946,436 | | **Senior unsecured notes, net** | $2,035,304 | $2,033,242 | | **Total liabilities** | $2,331,581 | $2,337,044 | | **Total shareholders' equity** | $1,620,998 | $1,609,392 | Condensed Consolidated Statements of Comprehensive Income Highlights (in thousands) | Account | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | **Rental income** | $144,524 | $149,885 | | **Total expenses** | $131,044 | $119,751 | | **Gain on sale of real estate** | $54,004 | $10,756 | | **Net income** | $37,860 | $10,840 | | **Net income per share (basic and diluted)** | $0.78 | $0.23 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $57,942 | $37,601 | | **Net cash provided by investing activities** | $113,896 | $42,095 | | **Net cash used in financing activities** | ($27,218) | ($146,386) | | **Increase (decrease) in cash** | $144,620 | ($66,690) | [Notes to Financial Statements - Real Estate Properties (Note 3)](index=9&type=section&id=Note%203.%20Real%20Estate%20Properties) Details the company's **180-property** portfolio, Q1 **2021** dispositions totaling **$130.8 million** with a **$54.0 million** gain, a **$7.7 million** impairment loss, and a planned **$27.0 million** acquisition - As of March 31, **2021**, the portfolio consisted of **180 wholly-owned properties** with approximately **24.6 million rentable square feet**[22](index=22&type=chunk) - During Q1 **2021**, the company entered into **20 leases** for approximately **575,000 rentable square feet** with a weighted average lease term of **5.4 years**[22](index=22&type=chunk) Q1 2021 Disposition and Impairment Activity (in thousands) | Activity | Details | Amount | | :--- | :--- | :--- | | **Dispositions** | Sale of 2 properties (321,000 sq. ft.) | $130,845 (Sales Price) | | | | $54,004 (Gain on Sale) | | **Impairment** | Impairment on 2 properties held for sale | $7,660 (Loss) | - The company has an agreement to acquire a property in Boston, MA for **$27.0 million**, with the acquisition expected to occur before the end of Q2 **2021**[25](index=25&type=chunk) [Notes to Financial Statements - Leases and Concentration (Notes 4 & 5)](index=11&type=section&id=Note%204.%20Leases%20%26%20Note%205.%20Concentration) The company granted **$2,483,000** in COVID-19 rent assistance, while the portfolio shows concentration with the U.S. government as the largest tenant (**25.9% of annualized rental income**) and **36.3%** of income from California, Virginia, and D.C - As of April 26, **2021**, the company granted temporary rent assistance of **$2,483,000** to **18 tenants** impacted by the COVID-19 pandemic, generally structured as 12-month deferral plans[38](index=38&type=chunk)[39](index=39&type=chunk) - The U.S. government is the largest tenant, representing approximately **25.9% of annualized rental income** as of March 31, **2021**, up from **25.0% a year prior**[40](index=40&type=chunk) - The portfolio has geographic concentration, with properties in California (**12.7%**), Virginia (**12.7%**), and the District of Columbia (**10.9%**) accounting for a significant portion of annualized rental income[41](index=41&type=chunk) [Notes to Financial Statements - Indebtedness (Note 6)](index=12&type=section&id=Note%206.%20Indebtedness) Total debt was **$2.24 billion** (**$2.07 billion** unsecured notes, **$170.2 million** mortgages), with **$750 million** available on the credit facility and no outstanding borrowings, and compliance with all debt covenants - Principal debt obligations at March 31, **2021**, were **$2.07 billion** in senior unsecured notes and **$170.2 million** in mortgage notes[42](index=42&type=chunk) - As of March 31, **2021**, there were no amounts outstanding under the **$750 million** revolving credit facility, which matures in January **2023**[44](index=44&type=chunk) - The company believes it was in compliance with all covenants under its credit agreement and senior unsecured notes indentures as of March 31, **2021**[46](index=46&type=chunk) [Notes to Financial Statements - Shareholders' Equity (Note 8)](index=14&type=section&id=Note%208.%20Shareholders'%20Equity) In Q1 **2021**, the company declared and paid a **$0.55 per share** common share distribution, totaling **$26,575**, with a similar distribution declared for Q2 Q1 2021 Common Share Distribution | Declaration Date | Record Date | Paid Date | Per Share | Total (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Jan 14, 2021 | Jan 25, 2021 | Feb 18, 2021 | $0.55 | $26,575 | - On April 15, **2021**, a further quarterly distribution of **$0.55 per share** was declared, payable in May **2021**[51](index=51&type=chunk) [Notes to Financial Statements - Related Party Transactions (Notes 9 & 10)](index=14&type=section&id=Note%209.%20Business%20and%20Property%20Management%20Agreements%20with%20RMR%20LLC%20%26%20Note%2010.%20Related%20Person%20Transactions) The company, managed by RMR LLC, recognized **$9,474,000** in Q1 **2021** business management fees (including **$5,200,000** incentive fee) and **$4,612,000** in property management fees - The company has no employees and is managed by RMR LLC under separate business and property management agreements[52](index=52&type=chunk) - Net business management fees for Q1 **2021** were **$9,474,000**, including **$5,200,000** of estimated business management incentive fees This compares to **$4,699,000** in Q1 **2020**, which had no incentive fee[53](index=53&type=chunk) - Property management and construction supervision fees paid to RMR LLC totaled **$4,612,000** for Q1 **2021**, down from **$5,064,000** in Q1 **2020**[54](index=54&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 **2021** performance, noting stable operations, capital recycling, and strong liquidity, with net income up due to property sales, though Normalized FFO per share decreased from **$1.40** to **$1.28** [Overview and Property Operations](index=16&type=section&id=Overview%20and%20Property%20Operations) The **180-property** portfolio was **90.8%** leased, with **$2,483,000** in COVID-19 rent deferrals; Q1 leasing totaled **575,000 rentable square feet** with a **3.2%** rent roll-up, and the U.S. government is the largest tenant (**25.9% of annualized rental income**) - The COVID-19 pandemic has not had a significant impact on business to date The company granted temporary rent assistance of **$2,483,000** to **18 tenants**, with **$2,118,000 (85.3%)** collected as of April 26, **2021**[63](index=63&type=chunk) Portfolio Occupancy | Metric | March 31, 2021 | March 31, 2020 | | :--- | :--- | :--- | | Total Properties | 180 | 184 | | Total Rentable Sq. Ft. (thousands) | 24,568 | 24,906 | | Percent Leased | **90.8%** | **91.5%** | - In Q1 **2021**, the company executed leases for **575,000 rentable square feet** The weighted average rent increase was **3.2%** above prior rents for the same space, with a weighted average lease term of **5.4 years**[73](index=73&type=chunk) - Tenants with investment-grade credit ratings (or guarantees from investment-grade parents) accounted for **56.1%** of annualized rental income as of March 31, **2021**[87](index=87&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Q1 **2021** rental income decreased **3.6%** to **$144,524** due to dispositions, while net income surged to **$37,860** from **$10,840** due to a **$54,004** gain on sales, and G&A rose **58.6%** to **$11,272** Financial Performance Comparison (in thousands) | Metric | Q1 2021 | Q1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Rental Income | $144,524 | $149,885 | (3.6%) | | Net Operating Income (NOI) | $96,499 | $100,186 | (3.7%) | | General & Administrative | $11,272 | $7,109 | 58.6% | | Gain on sale of real estate | $54,004 | $10,756 | n/m | | Net Income | $37,860 | $10,840 | n/m | - The decrease in rental income was primarily due to property disposition activities[98](index=98&type=chunk) - The increase in G&A expenses was primarily the result of **$5.2 million** of estimated business management incentive fees recorded in the **2021** period[104](index=104&type=chunk) [Non-GAAP Financial Measures](index=24&type=section&id=Non-GAAP%20Financial%20Measures) Q1 **2021** NOI was **$96,499** (down from **$100,186**), FFO per diluted share was **$1.17** (down from **$1.34**), and Normalized FFO per diluted share was **$1.28** (down from **$1.40**) NOI Reconciliation (in thousands) | | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net Income | $37,860 | $10,840 | | *Reconciling Items* | ... | ... | | **NOI** | **$96,499** | **$100,186** | FFO and Normalized FFO Reconciliation (in thousands, except per share) | | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net Income | $37,860 | $10,840 | | **FFO** | **$56,609** | **$64,268** | | **Normalized FFO** | **$61,809** | **$67,550** | | FFO per diluted share | $1.17 | $1.34 | | Normalized FFO per diluted share | $1.28 | $1.40 | [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$750 million** available on its credit facility and no debt maturities until **2022**; Q1 operating cash flow was **$57,942**, and **$130.8 million** in property sales funded capital recycling - As of April 28, **2021**, the company had **$750 million** available under its revolving credit facility and no debt maturities until **2022**[121](index=121&type=chunk) - The capital recycling program is a key strategy, with two properties sold in Q1 **2021** for **$130.8 million** and another sold in April **2021** for **$39.0 million**[123](index=123&type=chunk) Debt Maturities as of March 31, 2021 (in thousands) | Year | Debt Maturities | | :--- | :--- | | 2021 | $896 | | 2022 | $625,518 | | 2023 | $143,784 | | 2024 | $350,000 | | 2025 | $650,000 | | Thereafter | $472,000 | | **Total** | **$2,242,198** | [Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate exposure, managed by **$2.24 billion** in fixed-rate debt; the **$750 million** revolving credit facility is LIBOR-tied, and the company monitors LIBOR's phase-out - At March 31, **2021**, total outstanding fixed-rate debt was **$2.24 billion**[141](index=141&type=chunk) - A hypothetical immediate one percentage point increase in interest rates would decrease the fair value of the company's fixed-rate debt obligations by approximately **$103.6 million**[143](index=143&type=chunk) - At March 31, **2021**, the company had no outstanding floating-rate debt Its **$750 million** revolving credit facility is tied to LIBOR, which is expected to be phased out[147](index=147&type=chunk)[152](index=152&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, **2021**, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures are effective as of March 31, **2021**[153](index=153&type=chunk) - There were no material changes in internal control over financial reporting during the first quarter of **2021**[154](index=154&type=chunk) PART II. Other Information [Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's **2020** Annual Report on Form 10-K - There have been no material changes to the risk factors from those previously disclosed in our **2020** Annual Report[170](index=170&type=chunk) [Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate governance documents, debt indentures, officer certifications, and XBRL data files - The report includes a list of filed exhibits, such as the Amended and Restated Declaration of Trust, various debt indentures, and required officer certifications[171](index=171&type=chunk)[173](index=173&type=chunk)

Fort Mill, SC OFFICE PROPERTIES FOURTH QUARTER 2020 Supplemental Operating and Financial Data ALL AMOUNTS IN THIS REPORT ARE UNAUDITED. Table of Contents CORPORATE INFORMATION Please refer to Non-GAAP Financial Measures and Certain Definitions for terms used throughout this document. | --- | --- | |---------------------------------------------------------------------------------------|-------| | Company Profile | | | Investor Information . | | | Research Coverage | | | FINANCIALS | | | Key Financial Data | ...

Office Properties Income Trust (NASDAQ:OPI) Q4 2020 Earnings Conference Call February 19, 2021 10:00 AM ET Company Participants Olivia Snyder - Manager, Investor Relations Chris Bilotto - President and Chief Executive Officer Matt Brown - Chief Financial Officer and Treasurer Conference Call Participants Bryan Maher - B. Riley Securities Jason Idoine - RBC Capital Omotayo Okusanya - Mizuho James Feldman - Bank of America/Merrill Lynch Operator Good morning and welcome to the Office Properties Income Trust F ...

Part I [Business](index=8&type=section&id=Item%201.%20Business) Office Properties Income Trust (OPI) is a REIT focused on owning, operating, and leasing properties primarily to single tenants and those with high credit quality, with the U.S. government as its largest tenant, managing a 24.9 million square foot portfolio through capital recycling and external management [Our Company and COVID-19 Pandemic](index=8&type=section&id=Our%20Company%20and%20COVID-19%20Pandemic) OPI's 2020 portfolio comprised 181 properties totaling 24.9 million square feet, with the U.S. government as its largest tenant, and the company provided **$2.5 million** in temporary rent assistance due to COVID-19 while maintaining strong liquidity Portfolio Overview as of December 31, 2020 | Metric | Value | | :--- | :--- | | Wholly Owned Properties | 181 | | Rentable Square Feet | 24.9 million | | Undepreciated Carrying Value | $3.5 billion | | Number of Tenants | 349 | | Weighted Average Remaining Lease Term | 5.1 years | | Largest Tenant (U.S. Government) | 25.2% of annualized rental income | - In response to the COVID-19 pandemic, OPI granted temporary rent assistance of **$2.5 million** to 19 tenants, representing **3.3%** of annualized rental income, with **78.5%** of these deferrals collected as of February 16, 2021[31](index=31&type=chunk) - As of February 18, 2021, the company had **$750.0 million** available under its revolving credit facility and no significant debt maturities until 2022, providing substantial liquidity[35](index=35&type=chunk) [Business and Growth Strategy](index=10&type=section&id=Business%20and%20Growth%20Strategy) OPI's strategy focuses on acquiring and managing single-tenant and high-credit-quality properties, employing a capital recycling program to enhance portfolio quality and pursuing growth through strategic acquisitions - The company's business plan focuses on owning properties leased to single tenants and tenants with high credit quality, such as government entities[41](index=41&type=chunk) - OPI employs a capital recycling program, selectively selling properties to reinvest proceeds into new acquisitions that aim to reduce the average property age, lengthen the weighted average lease term, and lower ongoing capital requirements[43](index=43&type=chunk)[45](index=45&type=chunk) - Acquisition targets are primarily U.S. office properties in strong economic markets, focusing on single-tenant properties strategic to the tenant and properties leased to government agencies with high security needs[49](index=49&type=chunk) [Financing Policies and Other Information](index=13&type=section&id=Financing%20Policies%20and%20Other%20Information) OPI funds operations and growth through capital recycling, a **$750 million** credit facility, and debt/equity issuances, aiming for investment-grade ratings, while being externally managed by The RMR Group LLC and emphasizing sustainability - OPI's financing strategy involves using proceeds from its capital recycling program, its **$750.0 million** revolving credit facility, and debt/equity issuances to fund operations, acquisitions, and distributions, while aiming to maintain investment-grade ratings[60](index=60&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) - The company has no employees; all personnel and services are provided by its external manager, The RMR Group LLC (RMR LLC)[65](index=65&type=chunk)[66](index=66&type=chunk) - As of December 31, 2020, **28 properties** (**18.2%** of total rentable square feet) were LEED® designated, and as of February 16, 2021, **31 properties** had been awarded ENERGY STAR certification[68](index=68&type=chunk)[69](index=69&type=chunk) [Material United States Federal Income Tax Considerations](index=16&type=section&id=Material%20United%20States%20Federal%20Income%20Tax%20Considerations) This section outlines the complex U.S. federal income tax rules for OPI as a REIT and its shareholders, detailing the stringent tests for REIT qualification and the tax implications of distributions - OPI has elected to be taxed as a REIT and believes it has operated in compliance with REIT qualification rules since its 2009 taxable year, generally not being subject to federal income tax on income distributed to shareholders[84](index=84&type=chunk)[85](index=85&type=chunk) - To maintain REIT status, OPI must annually satisfy two gross income tests (**75%** and **95%** from real estate-related sources) and several asset tests at the end of each quarter[105](index=105&type=chunk)[115](index=115&type=chunk) - OPI is required to distribute at least **90%** of its annual REIT taxable income (excluding net capital gains) to shareholders to maintain its REIT qualification[60](index=60&type=chunk)[120](index=120&type=chunk) - Distributions to non-corporate U.S. shareholders are generally not eligible for the preferential tax rates on qualified dividends but may be eligible for a deduction under Section 199A of the IRC for taxable years before 2026[85](index=85&type=chunk)[135](index=135&type=chunk) [Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant business risks from the COVID-19 pandemic, tenant issues, and government budgetary pressures, alongside management and relationship risks due to its external manager, and financial and tax risks related to debt and REIT status - **Business Risks**: The COVID-19 pandemic may adversely affect tenants' ability to pay rent and reduce demand for office space; the company faces risks of non-renewal of leases, tenant bankruptcies, and dependence on single tenants; government budgetary pressures and a property concentration in the Washington, D.C. market also pose significant risks[179](index=179&type=chunk)[185](index=185&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk)[191](index=191&type=chunk) - **Management and Relationship Risks**: OPI is dependent on its external manager, RMR LLC, for all operations, creating potential conflicts of interest due to cross-ownership and management of other companies, with management agreements not negotiated at arm's length and containing substantial termination fees that could discourage a change of control[222](index=222&type=chunk)[224](index=224&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk) - **Financial and Tax Risks**: REIT distribution requirements may limit the company's ability to retain cash for operations and growth; the company has significant debt, and failure to comply with covenants could trigger defaults; failure to maintain REIT tax status would have severe adverse consequences, including corporate-level taxation[196](index=196&type=chunk)[202](index=202&type=chunk)[245](index=245&type=chunk) - **Organizational and Securities Risks**: Ownership limitations (**9.8%**) and provisions in governing documents may deter a change in control; the value of the company's securities is subject to market conditions, including interest rate changes, and future issuances of debt or equity could dilute existing shareholders[234](index=234&type=chunk)[257](index=257&type=chunk)[258](index=258&type=chunk) [Properties](index=54&type=section&id=Item%202.%20Properties) As of December 31, 2020, OPI's portfolio included 181 wholly-owned properties across 34 states, totaling 24.9 million square feet with a **$3.6 billion** carrying value, plus interests in three joint venture properties, with some properties encumbered by mortgages Wholly Owned Properties by State (Top 5 by Annualized Rental Income) as of Dec 31, 2020 | State | Number of Properties | Undepreciated Carrying Value ($ thousands) | Annualized Rental Income ($ thousands) | | :--- | :--- | :--- | :--- | | Virginia | 26 | $498,308 | $71,088 | | California | 24 | $483,503 | $70,978 | | District of Columbia | 7 | $548,385 | $62,997 | | Texas | 16 | $260,241 | $48,206 | | Maryland | 14 | $255,011 | $37,847 | | **Grand Total (All States)** | **181** | **$3,577,232** | **$578,018** | - In addition to its wholly-owned portfolio, OPI has noncontrolling ownership interests (**51%** and **50%**) in three properties through two unconsolidated joint ventures[269](index=269&type=chunk) - As of year-end 2020, seven properties were encumbered by mortgages totaling **$170.8 million**[272](index=272&type=chunk) Part II [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=55&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes OPI's 2020 financial performance, covering property operations, capital recycling activities, a decline in rental income and net income due to dispositions, and strong liquidity, along with non-GAAP reconciliations and critical accounting estimates [Property Operations](index=56&type=section&id=Property%20Operations) As of December 31, 2020, OPI's portfolio occupancy was **91.2%**, with **1.97 million** square feet leased at a **6.9%** rent increase, and **$93.1 million** in capital expenditures, while the U.S. Government remained the largest tenant Occupancy Data Comparison | Metric | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | All Properties Percent Leased | 91.2% | 92.4% | | Comparable Properties Percent Leased | 92.1% | 93.3% | 2020 Leasing Activity | Metric | Value | | :--- | :--- | | Total Square Feet Leased | 1,965,000 | | Change in Rent vs. Prior Leases | +6.9% | | Weighted Average Lease Term | 7.3 years | | Total Leasing Costs & Concessions ($ millions) | $43.4 | 2020 Capital Expenditures ($ thousands) | Category | Amount | | :--- | :--- | | Lease related costs | $34,972 | | Building improvements | $41,280 | | Development, redevelopment and other | $16,858 | | **Total Capital Expenditures** | **$93,110** | - As of December 31, 2020, leases representing **16.1%** of leased square feet and **12.1%** of annualized rental income are scheduled to expire in 2021[297](index=297&type=chunk) [Acquisition, Disposition, and Financing Activities](index=61&type=section&id=Acquisition%2C%20Disposition%2C%20and%20Financing%20Activities) In 2020, OPI acquired two properties for **$46.6 million** and sold ten for **$110.5 million**, while issuing **$412 million** in new senior notes and repaying **$552 million** in existing debt - During 2020, OPI acquired two properties for an aggregate purchase price of **$46.6 million**[307](index=307&type=chunk) - The company sold 10 properties for an aggregate sales price of **$110.5 million** during 2020[310](index=310&type=chunk) - Key financing activities in 2020 included issuing **$412 million** in new senior unsecured notes and redeeming or repaying **$552 million** in existing senior and mortgage notes[313](index=313&type=chunk)[314](index=314&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk)[318](index=318&type=chunk)[319](index=319&type=chunk) [Results of Operations](index=63&type=section&id=Results%20of%20Operations) OPI's net income significantly decreased in 2020 to **$6.7 million** (**$0.14** per share) from **$30.3 million** (**$0.63** per share) in 2019, primarily due to a **$90.5 million** decline in rental income from property dispositions and lower gains on real estate sales Consolidated Results of Operations (Year Ended Dec 31, $ in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Rental Income | $587,919 | $678,404 | | Total Operating Expenses | $195,968 | $228,962 | | Net Operating Income (NOI) | $391,951 | $449,442 | | Gain on sale of real estate | $10,855 | $105,131 | | Interest Expense | ($108,303) | ($134,880) | | **Net Income** | **$6,678** | **$30,335** | | **Net Income per Share** | **$0.14** | **$0.63** | - The **$90.5 million** (**13.3%**) decrease in consolidated rental income was primarily due to property dispositions[323](index=323&type=chunk)[325](index=325&type=chunk) - Total operating expenses decreased by **$33.0 million** (**14.4%**), also mainly due to property sales, with utility expenses for comparable properties declining due to cost savings initiatives implemented during the COVID-19 pandemic[323](index=323&type=chunk)[327](index=327&type=chunk)[328](index=328&type=chunk) [Non-GAAP Financial Measures](index=65&type=section&id=Non-GAAP%20Financial%20Measures) OPI's 2020 NOI decreased to **$392.0 million**, FFO to **$255.1 million** (**$5.30** per share), and Normalized FFO to **$259.2 million** (**$5.39** per share), reflecting property dispositions Reconciliation of Net Income to NOI ($ in thousands) | Line Item | 2020 | 2019 | | :--- | :--- | :--- | | Net income | $6,678 | $30,335 | | Adjustments (Depreciation, G&A, Interest, etc.) | $385,273 | $419,107 | | **NOI** | **$391,951** | **$449,442** | FFO and Normalized FFO Reconciliation ($ in thousands, except per share) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net Income | $6,678 | $30,335 | | Depreciation & Amortization | $256,369 | $295,788 | | Loss on Impairment | $2,954 | $22,255 | | (Gain) on Sale of Real Estate | ($10,855) | ($105,131) | | Loss on Equity Securities, net | $0 | $44,007 | | **FFO** | **$255,146** | **$287,254** | | FFO per share | $5.30 | $5.98 | | Adjustments | $4,071 | $1,451 | | **Normalized FFO** | **$259,217** | **$288,705** | | Normalized FFO per share | $5.39 | $6.01 | [Liquidity and Capital Resources](index=67&type=section&id=Liquidity%20and%20Capital%20Resources) OPI maintains strong liquidity through operating cash flow, property sales, and a fully available **$750 million** revolving credit facility, with net cash from operations increasing to **$233.6 million** in 2020 and no significant debt maturities until 2022 - Primary sources of liquidity are operating cash flows, property sales, and a **$750 million** revolving credit facility, which was fully available as of February 18, 2021[347](index=347&type=chunk)[348](index=348&type=chunk) Summary of Cash Flows ($ in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $233,628 | $215,329 | | Net Cash (Used in) Provided by Investing Activities | ($22,987) | $877,819 | | Net Cash Used in Financing Activities | ($254,482) | ($1,031,395) | - The company has no significant debt maturities until 2022, with **$625.5 million** due that year[348](index=348&type=chunk)[364](index=364&type=chunk) - As of December 31, 2020, the company was in compliance with all debt covenants under its credit agreement and senior note indentures[371](index=371&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=73&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) OPI's primary market risk is interest rate exposure, with **$2.24 billion** in fixed-rate debt as of December 31, 2020, and a floating-rate **$750 million** revolving credit facility, while monitoring the LIBOR phase-out Fixed Rate Debt Summary as of December 31, 2020 | Debt Type | Principal Balance ($ thousands) | Weighted Avg. Interest Rate | | :--- | :--- | :--- | | Senior unsecured notes | $2,072,000 | 4.78% | | Mortgage notes | $170,842 | 3.99% | | **Total** | **$2,242,842** | **4.72%** | - A hypothetical **1%** increase in interest rates would decrease the fair value of the company's fixed-rate debt by approximately **$110.5 million**[386](index=386&type=chunk) - The company had no floating-rate debt outstanding at year-end, but its **$750 million** revolving credit facility is exposed to LIBOR fluctuations, and the company is monitoring the planned phase-out of LIBOR[390](index=390&type=chunk)[395](index=395&type=chunk) [Controls and Procedures](index=75&type=section&id=Item%209A.%20Controls%20and%20Procedures) As of December 31, 2020, management concluded that OPI's disclosure controls and procedures and internal control over financial reporting were effective, with no material changes during the fourth quarter - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[398](index=398&type=chunk) - Management's assessment, based on the COSO 2013 framework, concluded that the company's internal control over financial reporting was effective as of December 31, 2020[401](index=401&type=chunk) Part III [Directors, Executive Officers, Compensation, and Corporate Governance](index=76&type=section&id=Item%2010%2C%2011%2C%2012%2C%2013%2C%2014) Information for Items 10-14, covering directors, executive officers, compensation, and corporate governance, is incorporated by reference from the 2021 Proxy Statement, with **1,094,909** common shares available under the 2009 Incentive Share Award Plan as of year-end 2020 - Most information for Part III (Items 10, 11, 12, 13, and 14) is incorporated by reference from the company's definitive Proxy Statement for the 2021 Annual Meeting of Shareholders[407](index=407&type=chunk)[408](index=408&type=chunk)[411](index=411&type=chunk)[412](index=412&type=chunk)[413](index=413&type=chunk) Equity Compensation Plan Information as of Dec 31, 2020 | Plan Category | Securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by securityholders | None | None | 1,094,909 | Part IV [Exhibits and Financial Statement Schedules](index=77&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section includes OPI's audited consolidated financial statements for 2020, with detailed notes on accounting policies, transactions, and related parties, along with an unqualified audit opinion from Deloitte & Touche LLP on both financial statements and internal controls [Financial Statements and Notes](index=80&type=section&id=Financial%20Statements%20and%20Notes) The audited financial statements for 2020 show total assets of **$3.95 billion**, total liabilities of **$2.34 billion**, and net income of **$6.7 million**, with detailed notes on debt, management agreements, and capital structure Consolidated Balance Sheet Summary (as of Dec 31, $ in thousands) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Total Real Estate Properties, net | $3,070,229 | $3,105,575 | | **Total Assets** | **$3,946,436** | **$4,193,136** | | Total Debt, net | $2,202,971 | $2,327,325 | | **Total Liabilities** | **$2,337,044** | **$2,487,382** | | **Total Shareholders' Equity** | **$1,609,392** | **$1,705,754** | Consolidated Income Statement Summary (Year Ended Dec 31, $ in thousands) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Rental Income | $587,919 | $678,404 | | Total Expenses | $479,163 | $574,512 | | **Net Income** | **$6,678** | **$30,335** | - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the 2020 financial statements and the effectiveness of internal control over financial reporting[426](index=426&type=chunk)[437](index=437&type=chunk) - The critical audit matter identified was the impairment of real estate properties, due to the significant management estimates and assumptions required to evaluate recoverability[431](index=431&type=chunk)[433](index=433&type=chunk)

INVESTOR PRESENTATION NOVEMBER 2020 OFFICE PROPERTIES INCOME TRUST WARNING REGARDING FORWARD LOOKING STATEMENTS, DISCLAIMERS AND NON-GAAP FINANCIAL MEASURES This presentation 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 expressi ...