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Real Estate Properties

12 Months Ended

Dec. 31, 2019

As of December 31, 2019, our wholly owned properties were comprised of 189 properties with approximately 25.7 million rentable square feet, with an aggregate undepreciated carrying value of $3,555,131, including $61,900 classified as held for sale, and we had a noncontrolling ownership interest in three properties totaling approximately 0.4 million rentable square feet through two unconsolidated joint ventures in which we own 51% and 50% interests. We generally lease space at our properties on a gross lease, modified gross lease or net lease basis pursuant to fixed term contracts expiring between 2020 and 2039. Some of our leases generally require us to pay all or some property operating expenses and to provide all or most property management services. During the year ended December 31, 2019, we entered into 107 leases for 2.9 million rentable square feet for a weighted (by rentable square feet) average lease term of 8.6 years and we made commitments for approximately $77,541 of leasing related costs. As of December 31, 2019, we have estimated unspent leasing related obligations of $55,984.

Merger with Select Income REIT

As described in Note 1, on December 31, 2018, we completed the SIR Merger, pursuant to which we acquired SIR’s property portfolio of 99 properties with approximately 16.5 million rentable square feet. The total consideration transferred and assumed debt for the SIR Merger was $2,409,740, including the assumption of $1,719,772 of debt and excluding acquisition related costs.

The following table summarizes the consideration transferred and liabilities assumed:



Total Purchase Price (excluding acquisition costs):
	OPI common shares issued	23,282,704
	Closing price of OPI common shares on December 31, 2018	$	27.48
	Value of consideration transferred	$	639,809
	Cash consideration for fractional shares	8
	Equity issuance costs	(239		)
	Value of consideration transferred	639,578

	Assumed working capital	50,390
	Assumed senior unsecured notes, principal balance	1,450,000
	Assumed mortgage notes payable, principal balance	161,772
	Select Income REIT unsecured revolving credit facility repaid at closing	108,000
	Non-cash portion of purchase price	1,770,162
	Total consideration transferred and liabilities assumed	$	2,409,740

As of December 31, 2019, we finalized the purchase price allocation for the SIR Merger from the preliminary amounts reported as of December 31, 2018. The adjustments made during the year ended December 31, 2019 to the fair value of acquired assets and liabilities assumed did not have a significant impact on our consolidated balance sheets or our consolidated statements of comprehensive income (loss). The following table summarizes the purchase price allocation for SIR based on estimated fair values as of the December 31, 2018:



Purchase Price Allocation:
	Land	$	477,977
	Buildings and improvements	956,801
	Assets of properties held for sale	6,846
	Acquired real estate leases	854,431
	Cash	24,744
	Restricted cash	476
	Rents receivable	11,370
	Other assets ⁽¹⁾	88,658
	Total assets	2,421,303
	Unsecured revolving credit facility ⁽²⁾	(108,000		)
	Senior unsecured notes ⁽³⁾	(1,410,947		)
	Mortgage notes payable ⁽⁴⁾	(159,490		)
	Accounts payable and other liabilities	(61,289		)
	Assumed real estate lease obligations	(11,879		)
	Due to related persons	(30,120		)
	Net assets acquired	639,578
	Assumed working capital	50,390
	Select Income REIT unsecured revolving credit facility repaid at closing ⁽²⁾	108,000
	Assumed senior unsecured notes, principal balance	1,450,000
	Assumed mortgage notes payable, principal balance	161,772
	Consideration transferred and liabilities assumed ⁽⁵⁾	$	2,409,740


(1)	Other assets include $84,229 for SIR’s investment in shares of class A common stock of RMR Inc. which was recorded at fair value as of December 31, 2018.


(2)	We repaid the outstanding balance under SIR’s revolving credit facility at the closing of the SIR Merger with borrowings under our revolving credit facility.


(3)	The aggregate principal balance of the senior unsecured notes was $1,450,000 as of December 31, 2018.


(4)	The aggregate principal balance of the mortgage notes payable was $161,772 as of December 31, 2018.


(5)	Purchase price excludes acquisition related costs.

We were the accounting acquirer of SIR and accounted for the SIR Merger as a business combination because substantially all of the fair value of the gross assets acquired was not concentrated in a single identifiable asset or a group of similar identifiable assets and we acquired inputs and a substantive process that together significantly contributed to the ability to create outputs. Although we have and SIR had no employees, the personnel and various services required to operate our and SIR’s businesses are and were provided pursuant to business and property management agreements with RMR LLC. These agreements were in effect before, and, in our case, remain in effect after, the SIR Merger. As a result, our acquisition of SIR included a substantive process for accounting purposes.

The assets acquired and liabilities assumed were recorded at their respective fair values and added to our consolidated balance sheet as of December 31, 2018. We allocated the purchase price based on the estimated fair values of the acquired assets and liabilities assumed in a manner consistent with our purchase price allocation accounting policy described in Note 2. We engaged an independent real estate consulting firm to assist us with determining the purchase price allocations and to provide market information and evaluations which are relevant to purchase price allocations and determinations of useful lives. As of the date acquired, the weighted average amortization periods for capitalized above market lease values, lease origination value and capitalized below market lease values were 5.8 years, 7.2 years and 5.7 years, respectively.

FPO Transaction

On October 2, 2017, we completed our acquisition of FPO, as a result of which we acquired 72 properties with 6.0 million rentable square feet, and FPO’s 51% and 50% interests in two joint ventures that own three properties with 0.4 million rentable square feet, or collectively, the FPO Transaction. The aggregate value we paid for FPO was $1,370,888, including $651,696 in cash to FPO’s shareholders, the repayment of $483,000 of FPO debt and the assumption of $167,548 of mortgage debt; this amount excludes the $82,000 of mortgage debt that encumber the three properties owned by the two joint ventures and the payment of certain transaction fees and expenses, net of FPO cash on hand. We financed the cash payments for the FPO Transaction with borrowings under our revolving credit facility and with cash on hand, including net proceeds from our public offerings of common shares and senior unsecured notes. We accounted for the FPO Transaction as an asset acquisition. Our allocation of the purchase price was based on estimates of the relative fair value of the acquired assets and assumed liabilities.

The following table summarizes the total consideration paid and the estimated fair values of the assets acquired and liabilities assumed in the FPO Transaction:



Total Purchase Price:
	Cash consideration	$	1,175,140
	Acquisition related costs	9,575
	Total cash consideration	1,184,715
	Preferred units of limited partnership issued ⁽¹⁾	20,221
	Acquired net working capital	(1,596		)
	Assumed mortgage notes	167,548
	Non-cash portion of purchase price	186,173
	Gross purchase price	$	1,370,888

Purchase Price Allocation:
	Land	$	360,909
	Buildings and improvements	681,340
	Acquired real estate leases ⁽²⁾	283,498
	Investment in unconsolidated joint ventures	51,305
	Cash	11,191
	Restricted cash	1,018
	Rents receivable	2,672
	Other assets	3,640
	Total assets	1,395,573

	Mortgage notes payable ⁽³⁾	(167,936		)
	Assumed real estate lease obligations ⁽²⁾	(5,776		)
	Accounts payable and accrued expenses	(10,640		)
	Rents collected in advance	(1,436		)
	Security deposits	(4,849		)
	Net assets acquired	1,204,936

	Assumed working capital	(1,596		)
	Assumed principal balance of debt	167,548
	Gross purchase price	$	1,370,888


(1)	Pursuant to the terms of the FPO Transaction, each unit of limited partnership interest in FPO’s operating partnership that was not liquidated on the closing date was exchanged on a one-for-one basis for 5.5% Series A Cumulative Preferred Units of the surviving subsidiary. As of December 31,

2017, the carrying value of these Series A Cumulative Preferred Units was $20,496 and was recorded as temporary equity on our consolidated balance sheet. On May 1, 2018, we redeemed all 1,813,504 of the outstanding 5.5% Series A Cumulative Preferred Units for $11.15 per unit (plus accrued and unpaid distributions) for an aggregate of $20,310.


(2)	As of the date acquired, the weighted average amortization periods for capitalized above market lease values, lease origination value and capitalized below market lease values were 3.2 years, 3.1 years and 3.8 years, respectively.


(3)	Includes fair value adjustments totaling $388 on $167,936 principal amount of mortgage notes we assumed in connection with the FPO Transaction.

Pro Forma Information (Unaudited)

The following table presents our pro forma results of operations for the year ended December 31, 2018 as if the SIR Transactions and related financing activities, had occurred on January 1, 2018. The SIR results of operations included in this pro forma financial information have been adjusted to remove ILPT’s results of operations for the year ended December 31, 2018. The effect of these adjustments was to decrease pro forma rental income and pro forma net income by $152,735 and $46,237, respectively, for the year ended December 31, 2018.

This pro forma financial information is not necessarily indicative of what our actual financial position or results of operations would have been for the period presented or for any future period. Differences could result from numerous factors, including future changes in our portfolio of investments, capital structure, property level operating expenses and revenues, including rents expected to be received on our existing leases, leases we entered since December 31, 2018, or leases we may enter in the future, changes in interest rates and other reasons. Actual future results are likely to be different from amounts presented in this pro forma financial information and such differences could be significant.



	Year Ended December 31,
	2018
Rental income	$	758,596
Net loss	$	(87,240	)
Net loss per common share	$	(1.82	)

During the year ended December 31, 2018, we did not recognize any revenue or operating income from the assets acquired and liabilities assumed in the SIR Merger.

Unconsolidated Joint Ventures

We own interests in two joint ventures that own three properties. We account for these investments under the equity method of accounting. As of December 31, 2019 and 2018, our investment in unconsolidated joint ventures consisted of the following:



	OPI Ownership	OPI Carrying Value of Investment at December 31,				Number of Properties	Location	Square Feet
Joint Venture	OPI Ownership	2019		2018		Number of Properties	Location	Square Feet
Prosperity Metro Plaza	51%	$	22,483	$	23,969	2	Fairfax, VA	328,456
1750 H Street, NW	50%	17,273		19,696		1	Washington, D.C.	115,411
Total		$	39,756	$	43,665	3		443,867

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



Joint Venture	Interest Rate ⁽¹⁾	Maturity Date	Principal Balance at December 31, 2019 and 2018
Prosperity Metro Plaza	4.09%	12/1/2029	$	50,000
1750 H Street, NW	3.69%	8/1/2024	32,000
Weighted Average/Total	3.93%		$	82,000


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

At December 31, 2019, the aggregate unamortized basis difference of our two unconsolidated joint ventures of $7,951 is primarily attributable to the difference between the amount for which we purchased our interest in the joint ventures, including transaction costs, and the historical carrying value of the net assets of the joint ventures. This difference will be amortized over the remaining useful life of the related properties and included in the reported amount of equity in net earnings (losses) of investees.

2019 Disposition Activities

During the year ended December 31, 2019, we sold 58 properties with a combined 6.2 million rentable square feet for an aggregate sales price of $848,853, excluding closing costs. The sales of these properties, as presented in the following table (except for the March 2019 sale), do not represent significant dispositions individually or in the aggregate nor do they represent a strategic shift. As a result, the results of operations of these properties are included in continuing operations through the date of sale in our consolidated statements of comprehensive income (loss).



Date of Sale	Number of Properties	Location	Square Feet	Gross Sale Price ⁽¹⁾		Gain (Loss) on Sale of Real Estate			Loss on Impairment of Real Estate
February 2019	34	Northern Virginia and Maryland	1,635,868	$	198,500	$	—		$	732
March 2019	1	Washington, D.C.	129,035	70,000		22,075			—
May 2019	1	Buffalo, NY	121,711	16,900		—			5,137
May 2019	1	Maynard, MA	287,037	5,000		(227		)	—
June 2019	1	Kapolei, HI	416,956	7,100		—			—
July 2019	1	San Jose, CA	71,750	14,000		(270		)	—
July 2019	1	Nashua, NH	321,800	25,000		8,401			—
August 2019	1	Arlington, TX	182,630	14,900		187			—
August 2019	1	Rochester, NY	94,800	4,765		(104		)	—
August 2019	1	Hanover, PA	502,300	5,500		(417		)	—
August 2019	1	San Antonio, TX	618,017	198,000		3,869			—
September 2019	1	Topeka, KS	143,934	15,600		36			—
September 2019	1	Falling Waters, WV	40,348	650		—			2,179
September 2019	1	San Diego, CA	43,918	8,950		3,062			—
October 2019	3	Columbia, SC	180,703	10,750		—			3,581
November 2019	3	Metro DC - MD	372,605	61,938		1,177			—
December 2019	1	San Diego, CA	148,488	23,750		6,823			—
December 2019	1	Phoenix, AZ	122,646	12,850		860			—
December 2019	1	Houston, TX	497,477	130,000		59,992			—
December 2019	1	Kansas City, KS	170,817	11,700		—			1,172
December 2019	1	San Jose, CA	75,621	13,000		(333		)	—
	58		6,178,461	$	848,853	$	105,131		$	12,801


(1)	Gross sale price is the gross contract price, includes purchase price adjustments, if any, and excludes closing costs.

As of December 31, 2019, we had six properties with an aggregate undepreciated carrying value of $61,900 under agreements to sell, as presented in the following table. We have classified these properties as held for sale in our consolidated balance sheet at December 31, 2019.



Date of Sale Agreement	Number of Properties	Location	Square Feet	Gross Sale Price ⁽¹⁾
October 2019 ⁽²⁾	2	Stafford, VA	64,656	$	14,063
October 2019	1	Fairfax, VA	83,130	22,200
October 2019 ⁽²⁾	1	Windsor, CT	97,256	7,000
November 2019 ⁽³⁾	1	Trenton, NJ	267,025	30,100
November 2019	1	Lincolnshire, IL	222,717	12,000
	6		734,784	$	85,363


(1)	Gross sale price is the gross contract price, includes purchase price adjustments, if any, and excludes closing costs.


(2)	The sale of these properties was completed in January 2020.


(3)	We recorded a $9,454 loss on impairment of real estate during the year ended December 31, 2019 to adjust the carrying value of this property to its estimated fair value less costs to sell.

2018 Disposition Activities

During the year ended December 31, 2018, we sold 19 properties with a combined 2.2 million rentable square feet for an aggregate purchase price of $320,255, excluding closing costs. The sales of these properties, as presented in the following table, do not represent significant dispositions individually or in the aggregate nor do they represent a strategic shift. As a result, the results of operations of these properties are included in continuing operations through the date of sale in our consolidated statements of comprehensive income (loss).



Date of Sale	Number of Properties	Location	Square Feet	Gross Sale Price ⁽¹⁾		Gain on Sale of Real Estate		Loss on Impairment of Real Estate
March 2018	1	Minneapolis, MN	193,594	$	20,000	$	—	$	640
May 2018	1	New York, NY	187,060	118,500		17,249		—
May 2018	1	Sacramento, CA	110,500	10,755		—		3,029
November 2018	1	Golden, CO	43,231	4,000		54		—
December 2018	15	Southern Virginia	1,640,252	167,000		3,358		—
	19		2,174,637	$	320,255	$	20,661	$	3,669


(1)	Gross sale price is the gross contract price, includes purchase price adjustments, if any, and excludes closing costs.

In February 2018, we entered an agreement to sell an office property located in Safford, AZ with 36,139 rentable square feet for $8,250. We recorded a $2,453 loss on impairment of real estate to reduce the carrying value of the property to its estimated fair value less costs to sell in the three months ended March 31, 2018. In April 2018, the buyer terminated the sale agreement and we removed this property from held for sale status. We recorded a $322 adjustment to impairment of real estate to increase the carrying value of the property to its estimated fair value during the year ended December 31, 2018. During the year ended December 31, 2018, we also recorded a $2,830 loss on impairment of real estate to reduce the carrying value of a portfolio of 34 properties, which was classified as held for sale as of December 31, 2018, to its estimated fair value less costs to sell.

2017 Disposition Activities - Continuing Operations

In October 2017, we sold one vacant office property located in Albuquerque, NM with 29,045 rentable square feet and a net book value of $1,885 as of the date of sale, for $2,000, excluding closing costs. During the year ended December 31, 2017, we recorded a $230 loss on impairment of real estate to reduce the carrying value of this property to its estimated fair value.

2017 Disposition Activities – Discontinued Operations

In August 2017, we sold one vacant office property in Falls Church, VA with 0.2 million rentable square feet and a net book value of $12,901 as of the date of sale for $13,523, excluding closing costs. Results of operations for this property, which qualified as held for sale prior to our adoption in 2014 of ASU No. 2014-8, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, are classified as discontinued operations in our consolidated financial statements. During the year ended December 31, 2017, we recorded an adjustment of $619 to increase the carrying value of this property to its estimated fair value less costs to sell.

Summarized income statement information for this property is as follows:

Statements of Income (Loss)



	Year Ended
	December 31, 2017
Rental income	$	17
Real estate taxes	(88		)
Utility expenses	(97		)
Other operating expenses	(202		)
General and administrative	(76		)
Increase in carrying value of property included in discontinued operations	619
Income from discontinued operations	$	173

2019 and 2020 Acquisition Activities

In November 2019, we acquired a land parcel for $2,900, excluding acquisition related costs, and in January 2020, we entered into an agreement to acquire a property for $11,500, excluding acquisition related costs, both of which are adjacent to a property we own in Boston, MA.

Other 2017 Acquisition Activities

During the year ended December 31, 2017, we acquired one property located in Manassas, VA with 0.1 million rentable square feet. This property was 100% leased to Prince William County on the date of acquisition. This transaction was accounted for as an asset acquisition. The purchase price was $12,657, including capitalized acquisition costs of $37. Our allocation of the purchase price of this acquisition is based on the relative estimated fair value of the acquired assets and assumed liabilities is presented in the following table.



Acquisition Date	Location	Number of Properties	Square Feet	Purchase Price		Land		Building and Improvements		Other Assumed Assets
Jan 2017	Manassas, VA	1	69,374	$	12,657	$	1,562	$	8,253	$	2,842

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