0001456772-21-000018.txt : 20210429 0001456772-21-000018.hdr.sgml : 20210429 20210429163304 ACCESSION NUMBER: 0001456772-21-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 53 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210429 DATE AS OF CHANGE: 20210429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OFFICE PROPERTIES INCOME TRUST CENTRAL INDEX KEY: 0001456772 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 264273474 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-34364 FILM NUMBER: 21871248 BUSINESS ADDRESS: STREET 1: C/O THE RMR GROUP STREET 2: TWO NEWTON PL., 255 WASH. ST., STE. 300 CITY: NEWTON STATE: MA ZIP: 02458 BUSINESS PHONE: (617) 219-1440 MAIL ADDRESS: STREET 1: C/O THE RMR GROUP STREET 2: TWO NEWTON PL., 255 WASH. ST., STE. 300 CITY: NEWTON STATE: MA ZIP: 02458 FORMER COMPANY: FORMER CONFORMED NAME: GOVERNMENT PROPERTIES INCOME TRUST DATE OF NAME CHANGE: 20161006 FORMER COMPANY: FORMER CONFORMED NAME: Government Properties Income Trust DATE OF NAME CHANGE: 20090220 10-Q 1 opi-20210331.htm 10-Q opi-20210331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2021
 
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number 1-34364
 
OFFICE PROPERTIES INCOME TRUST
(Exact Name of Registrant as Specified in Its Charter)
 
Maryland 26-4273474
(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.)
 
Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634
(Address of Principal Executive Offices)  (Zip Code)
 
617-219-1440
(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name Of Each Exchange On Which Registered
Common Shares of Beneficial InterestOPIThe Nasdaq Stock Market LLC
5.875% Senior Notes due 2046OPINIThe Nasdaq Stock Market LLC
6.375% Senior Notes due 2050OPINLThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer Accelerated filer
   
Non-accelerated filer Smaller reporting company
  
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

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

Number of registrant’s common shares of beneficial interest, $.01 par value per share, outstanding as of April 28, 2021: 48,318,366


OFFICE PROPERTIES INCOME TRUST

FORM 10-Q

March 31, 2021
 
INDEX
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
References in this Quarterly Report on Form 10-Q to “the Company”, “OPI”, “we”, “us” or “our” include Office Properties Income Trust and its consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.

2

PART I.    Financial Information 
Item 1.    Financial Statements
OFFICE PROPERTIES INCOME TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited) 
 March 31,December 31,
 20212020
ASSETS  
Real estate properties:  
Land$824,622 $830,884 
Buildings and improvements2,650,159 2,691,259 
Total real estate properties, gross3,474,781 3,522,143 
Accumulated depreciation(467,085)(451,914)
Total real estate properties, net3,007,696 3,070,229 
Assets of properties held for sale47,918 75,177 
Investments in unconsolidated joint ventures37,402 37,951 
Acquired real estate leases, net505,582 548,943 
Cash and cash equivalents184,462 42,045 
Restricted cash17,013 14,810 
Rents receivable94,879 101,766 
Deferred leasing costs, net44,680 42,626 
Other assets, net12,947 12,889 
Total assets$3,952,579 $3,946,436 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Unsecured revolving credit facility$ $ 
Senior unsecured notes, net2,035,304 2,033,242 
Mortgage notes payable, net169,204 169,729 
Liabilities of properties held for sale84 891 
Accounts payable and other liabilities103,617 116,480 
Due to related persons13,370 6,114 
Assumed real estate lease obligations, net10,002 10,588 
Total liabilities2,331,581 2,337,044 
Commitments and contingencies
Shareholders’ equity:  
Common shares of beneficial interest, $0.01 par value: 200,000,000 shares authorized, 48,318,366 shares issued and outstanding
483 483 
Additional paid in capital2,615,626 2,615,305 
Cumulative net income221,755 183,895 
Cumulative common distributions(1,216,866)(1,190,291)
Total shareholders’ equity1,620,998 1,609,392 
Total liabilities and shareholders’ equity$3,952,579 $3,946,436 

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

3

OFFICE PROPERTIES INCOME TRUST
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in thousands, except per share data)
(unaudited) 
 Three Months Ended March 31,
 20212020
Rental income $144,524 $149,885 
Expenses:  
Real estate taxes16,154 16,807 
Utility expenses6,432 7,012 
Other operating expenses25,439 25,880 
Depreciation and amortization64,087 62,943 
Loss on impairment of real estate7,660  
General and administrative11,272 7,109 
Total expenses131,044 119,751 
Gain on sale of real estate54,004 10,756 
Interest and other income5 706 
Interest expense (including net amortization of debt premiums, discounts and issuance costs of $2,432 and $2,283, respectively)
(28,798)(27,159)
Loss on early extinguishment of debt (3,282)
Income before income tax expense and equity in net losses of investees 38,691 11,155 
Income tax expense(435)(39)
Equity in net losses of investees(396)(276)
Net income37,860 10,840 
Other comprehensive loss:
Unrealized loss on financial instrument (61)
Other comprehensive loss (61)
Comprehensive income$37,860 $10,779 
Weighted average common shares outstanding (basic)48,161 48,095 
Weighted average common shares outstanding (diluted)48,196 48,095 
Per common share amounts (basic and diluted):
Net income$0.78 $0.23 

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


4

OFFICE PROPERTIES INCOME TRUST
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(dollars in thousands)
(unaudited)
 Number
of Shares
Common SharesAdditional
Paid In Capital
Cumulative
Net Income
Cumulative
Other
Comprehensive
Loss
Cumulative
Common
Distributions
Total Shareholders’ Equity
Balance at December 31, 202048,318,366$483 $2,615,305 $183,895 $ $(1,190,291)$1,609,392 
Share grants— — 321 — — — 321 
Net income— — — 37,860 — — 37,860 
Distributions to common shareholders— — — — — (26,575)(26,575)
Balance at March 31, 202148,318,366$483 $2,615,626 $221,755 $ $(1,216,866)$1,620,998 

Balance at December 31, 201948,201,941$482 $2,612,425 $177,217 $(200)$(1,084,170)$1,705,754 
Share grants— 379 — — — 379 
Share repurchases(1,012)— (27)— — — (27)
Net current period other comprehensive loss— — — — (61)— (61)
Net income — — — 10,840 — — 10,840 
Distributions to common shareholders— — — — — (26,511)(26,511)
Balance at March 31, 202048,200,929$482 $2,612,777 $188,057 $(261)$(1,110,681)$1,690,374 

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

5

OFFICE PROPERTIES INCOME TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
 Three Months Ended March 31,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income$37,860 $10,840 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation21,629 20,499 
Net amortization of debt premiums, discounts and issuance costs2,432 2,283 
Amortization of acquired real estate leases41,575 42,457 
Amortization of deferred leasing costs1,820 1,665 
Gain on sale of real estate(54,004)(10,756)
Loss on impairment of real estate7,660  
Loss on early extinguishment of debt 2,144 
Straight line rental income(5,357)(5,583)
Other non-cash expenses, net49 107 
Equity in net losses of investees396 276 
Change in assets and liabilities:
Rents receivable11,320 (1,087)
Deferred leasing costs(4,826)(4,466)
Other assets(259)180 
Accounts payable and other liabilities(9,609)(21,790)
Due to related persons7,256 832 
Net cash provided by operating activities57,942 37,601 
  
CASH FLOWS FROM INVESTING ACTIVITIES:  
Real estate acquisitions (11,864)
Real estate improvements(15,329)(14,525)
Distributions in excess of earnings from unconsolidated joint ventures153 51 
Proceeds from sale of properties, net129,072 68,433 
Net cash provided by investing activities113,896 42,095 
CASH FLOWS FROM FINANCING ACTIVITIES:  
Repayment of mortgage notes payable(643)(67,848)
Repayment of senior unsecured notes (400,000)
Borrowings on unsecured revolving credit facility 418,467 
Repayments on unsecured revolving credit facility (70,467)
Repurchase of common shares (27)
Distributions to common shareholders(26,575)(26,511)
Net cash used in financing activities(27,218)(146,386)
Increase (decrease) in cash, cash equivalents and restricted cash144,620 (66,690)
Cash, cash equivalents and restricted cash at beginning of period56,855 100,696 
Cash, cash equivalents and restricted cash at end of period$201,475 $34,006 

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

6

OFFICE PROPERTIES INCOME TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(dollars in thousands)
(unaudited)


Three Months Ended March 31,
20212020
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid$36,136 $37,715 
NON-CASH INVESTING ACTIVITIES:
Real estate improvements accrued, not paid$9,164 $12,294 
Sale of properties$ $13,095 
Capitalized interest$50 $28 
NON-CASH FINANCING ACTIVITIES:
Repayment of mortgage notes payable related to properties sold$ $(13,095)

SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows:
As of March 31,
20212020
Cash and cash equivalents $184,462 $29,657 
Restricted cash (1)
17,013 4,349 
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows$201,475 $34,006 
(1)Restricted cash consists of amounts escrowed for future real estate taxes, insurance, leasing costs, capital expenditures and debt service, as required by certain of our mortgage debts.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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OFFICE PROPERTIES INCOME TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(unaudited)

Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements of Office Properties Income Trust and its subsidiaries, or OPI, we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2020, or our 2020 Annual Report. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.
The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets and assessment of impairment of real estate and the related intangibles.
Note 2. Per Common Share Amounts
We calculate basic earnings per common share by dividing net income by the weighted average number of our common shares outstanding during the period. We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares, together with the related impact on earnings, are considered when calculating diluted earnings per share. The calculation of basic and diluted earnings per share is as follows:
Three Months Ended March 31,
20212020
Numerators:
Net income$37,860 $10,840 
Income attributable to unvested participating securities(123)(15)
Net income used in calculating earnings per share$37,737 $10,825 
Denominators:
Weighted average common shares outstanding - basic48,161 48,095 
Effect of dilutive securities: unvested share awards (1)
35  
Weighted average common shares outstanding - diluted48,196 48,095 
Net income per common share - basic$0.78 $0.23 
Net income per common share - diluted$0.78 $0.23 
(1)For the three months ended March 31, 2020, six unvested common shares were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.
Note 3. Real Estate Properties
As of March 31, 2021, our wholly owned properties were comprised of 180 properties containing a combined approximately 24,568,000 rentable square feet, with an aggregate undepreciated carrying value of $3,520,526, including $45,745 classified as held for sale, and we had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties containing a combined approximately 444,000 rentable square feet. We generally lease space at our properties on a gross lease, modified gross lease or net lease basis pursuant to fixed term contracts expiring between 2021 and 2040. Some of our leases generally require us to pay all or some property operating expenses and to provide all or most property management services. During the three months ended March 31, 2021, we entered into 20 leases for approximately 575,000 rentable square feet for a weighted (by rentable square feet) average lease term of 5.4 years and we made commitments
8

OFFICE PROPERTIES INCOME TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
(unaudited)
for approximately $7,145 of leasing related costs. As of March 31, 2021, we have estimated unspent leasing related obligations of $50,405.
We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of our long lived assets. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. The future net undiscounted cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. We determine the amount of any impairment loss by comparing the historical carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. In addition to the consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining lives of our long lived assets. If we change our estimate of the remaining lives, we allocate the carrying value of the affected assets over their revised remaining lives.
Acquisition Activities
As of April 28, 2021, we have entered into an agreement to acquire a property adjacent to a property we own in Boston, MA containing approximately 49,000 rentable square feet for $26,975, excluding acquisition related costs. This acquisition is expected to occur before the end of the second quarter. However, this acquisition is subject to conditions; accordingly, we cannot be sure that we will complete this acquisition or that this acquisition will not be delayed or the terms will not change.
Disposition Activities
During the three months ended March 31, 2021, we sold two properties containing a combined approximately 321,000 rentable square feet for an aggregate sales price of $130,845, excluding closing costs. The sales of these properties, as presented in the table below, do not represent significant dispositions, individually or in the aggregate, nor do they represent a strategic shift in our business. As a result, the results of operations of these properties are included in continuing operations through the date of sale in our condensed consolidated statements of comprehensive income.
Date of SaleNumber of Properties LocationRentable Square Feet
Gross
 Sales Price (1)
Gain (Loss) on Sale of Real Estate
January 2021
Kansas City, MO (2)
10,000$845 $(63)
January 20211Richmond, VA311,000130,000 54,067 
1321,000$130,845 $54,004 
(1)Gross sales price is the gross contract price, includes purchase price adjustments, if any, and excludes closing costs.
(2)Consists of a warehouse facility adjacent to a property we own in Kansas City, MO.
As of March 31, 2021, we had two properties under agreement to sell for an aggregate sales price of $49,700, excluding closing costs. These properties were classified as held for sale in our condensed consolidated balance sheet as of March 31, 2021 and are summarized below:
Date of Sale AgreementNumber of Properties LocationRentable Square Feet
Gross
 Sales Price (1)
Loss on Impairment of Real Estate
February 20211
Huntsville, AL (2)
1,371,000$39,000 $2,289 
March 20211
Stoneham, MA (3)
98,00010,700 5,371 
21,469,000$49,700 $7,660 
(1)Gross sales price is the gross contract price, includes purchase price adjustments, if any, and excludes closing costs.
(2)The sale of this property was completed in April 2021.
(3)The agreement to sell this property was terminated in April 2021.
In addition, in April 2021 we entered into an agreement to sell a property located in Liverpool, NY containing approximately 38,000 rentable square feet for a sales price of $650, excluding closing costs. This sale is expected to occur before the end of the second quarter of 2021. However, this sale is subject to conditions; accordingly, we cannot be sure that we will complete this sale or that this sale will not be delayed or the terms will not change.
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OFFICE PROPERTIES INCOME TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
(unaudited)
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 March 31, 2021 and December 31, 2020, our investments in unconsolidated joint ventures consisted of the following:
OPI Carrying Value of Investments at
Joint VentureOPI OwnershipMarch 31,
2021
December 31, 2020Number of PropertiesLocationRentable Square Feet
Prosperity Metro Plaza51%$21,715 $21,888 2Fairfax, VA329,000 
1750 H Street, NW50%15,687 16,063 1Washington, D.C.115,000 
Total $37,402 $37,951 3444,000 
The following table provides a summary of the mortgage debt of our two unconsolidated joint ventures:
Joint Venture
 Interest Rate (1)
Maturity Date
Principal Balance at March 31, 2021 and December 31, 2020 (2)
Prosperity Metro Plaza4.09%12/1/2029$50,000 
1750 H Street, NW3.69%8/1/202432,000 
Weighted Average / Total3.93%$82,000 
(1)Includes the effect of mark to market purchase accounting.
(2)Reflects the entire balance of the debt secured by the properties and is not adjusted to reflect the interests in the joint ventures we do not own. None of the debt is recourse to us.
At March 31, 2021, the aggregate unamortized basis difference of our two unconsolidated joint ventures of $7,341 is primarily attributable to the difference between the amount we paid to purchase our interest in these joint ventures, including transaction costs, and the historical carrying value of the net assets of these joint ventures. This difference is being amortized over the remaining useful life of the related properties and the resulting amortization expense is included in equity in net losses of investees in our condensed consolidated statements of comprehensive income.
Note 4. Leases
Our leases provide for base rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market-based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. In certain circumstances, some leases provide the tenant with the right to terminate if the legislature or other funding authority does not appropriate the funding necessary for the tenant to meet its lease obligations; we have determined the fixed non-cancelable lease term of these leases to be the full term of the lease because we believe the occurrence of early terminations to be a remote contingency based on both our historical experience and our assessments of the likelihood of lease cancellation on a separate lease basis.
We increased rental income to record revenue on a straight line basis by $5,357 and $5,583 for the three months ended March 31, 2021 and 2020, respectively. Rents receivable, excluding properties classified as held for sale, include $73,434 and $68,824 of straight line rent receivables at March 31, 2021 and December 31, 2020, respectively.
We do not include in our measurement of our lease receivables certain variable payments, including payments determined by changes in the index or market-based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. Such payments totaled $18,860 and $19,746 for the three months ended March 31, 2021 and 2020, respectively, of which tenant reimbursements totaled $17,803 and $18,622, respectively.
As a result of the COVID-19 pandemic, some of our tenants have requested rent assistance. As of April 26, 2021, we have granted temporary rent assistance totaling $2,483 to 18 tenants who represent approximately 3.2% of our annualized rental income, as defined below in Note 5, as of March 31, 2021, pursuant to deferred payment plans. These tenants are obligated to
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OFFICE PROPERTIES INCOME TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
(unaudited)
pay, in most cases, the deferred rent over a 12-month period, all of which have commenced. We have elected to use the Financial Accounting Standards Board, or FASB, relief package regarding the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. The FASB relief package provides entities with the option to account for lease concessions resulting from the COVID-19 pandemic outside of the existing lease modification guidance if the resulting cash flows from the modified lease are substantially the same as or less than the original lease. Because the deferred rent amounts referenced above will be repaid, the cash flows from the respective leases are substantially the same as before the rent deferrals. The deferred amounts did not impact our operating results for the three months ended March 31, 2021. As of March 31, 2021, deferred payments totaling $411 are included in rents receivable in our condensed consolidated balance sheet.
Note 5. Concentration 
Tenant and Credit Concentration 
We define annualized rental income as the annualized contractual base rents from our tenants pursuant to our lease agreements as of the measurement date, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization. As of March 31, 2021, the U.S. government, 11 state governments and three other government tenants combined were responsible for approximately 36.3% of our annualized rental income. As of March 31, 2020, the U.S. government, 10 state governments and two other government tenants combined were responsible for approximately 34.6% of our annualized rental income. The U.S. government is our largest tenant by annualized rental income and represented approximately 25.9% and 25.0% of our annualized rental income as of March 31, 2021 and 2020, respectively. 
Geographic Concentration 
At March 31, 2021, our 180 wholly owned properties were located in 34 states and the District of Columbia. Properties located in California, Virginia, the District of Columbia, Texas and Maryland were responsible for 12.7%, 12.7%, 10.9%, 7.9% and 6.7% of our annualized rental income as of March 31, 2021, respectively.
Note 6. Indebtedness
Our principal debt obligations at March 31, 2021 were: (1) $2,072,000 aggregate outstanding principal amount of senior unsecured notes; and (2) $170,198 aggregate outstanding principal amount of mortgage notes.
Our $750,000 revolving credit facility is governed by a credit agreement, or our credit agreement, with a syndicate of institutional lenders that includes a feature under which the maximum aggregate borrowing availability may be increased to up to $1,950,000 in certain circumstances.
Our $750,000 revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is January 31, 2023 and, subject to our payment of an extension fee and meeting certain other conditions, we have the option to extend the stated maturity date of our revolving credit facility by two additional six month periods. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity and no principal repayment is due until maturity. We are required to pay interest at a rate of LIBOR plus a premium, which was 110 basis points per annum at March 31, 2021, on the amount outstanding under our revolving credit facility, if any. We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at March 31, 2021. Both the interest rate premium and facility fee are subject to adjustment based upon changes to our credit ratings. As of March 31, 2021 and December 31, 2020, the annual interest rate payable on borrowings under our revolving credit facility was 1.2%. We did not borrow any funds under our revolving credit facility during the three months ended March 31, 2021. The weighted average annual interest rate for borrowings under our revolving credit facility was 2.6% for the three months ended March 31, 2020. As of March 31, 2021 and April 28, 2021, we had no amounts outstanding under our revolving credit facility and $750,000 available for borrowing.
Our credit agreement and senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business and property manager. Our credit agreement and senior unsecured notes indentures and their supplements also contain covenants, including covenants that restrict our ability to incur debts, require us to comply with certain financial covenants and, in the case of our credit agreement, restrict our ability to make distributions under certain circumstances. We believe we were in
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OFFICE PROPERTIES INCOME TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
(unaudited)
compliance with the terms and conditions of the respective covenants under our credit agreement and senior unsecured notes indentures and their supplements at March 31, 2021.
At March 31, 2021, six of our properties with an aggregate net book value of $279,559 were encumbered by mortgage notes with an aggregate principal amount of $170,198. Our mortgage notes are non-recourse, subject to certain limited exceptions and do not contain any material financial covenants.
Note 7. Fair Value of Assets and Liabilities
The following table presents certain of our assets measured at fair value at March 31, 2021, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset:
Fair Value at Reporting Date Using
DescriptionTotalQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
Non-recurring Fair Value Measurements Assets
Assets of properties held for sale (1)
$49,700 $ $49,700 $ 

(1)We recorded impairment charges of $7,660 to reduce the carrying value of two properties that are classified as held for sale in our condensed consolidated balance sheet to their estimated fair value, less estimated costs to sell of $2,000, based upon negotiated sales prices with third party buyers (Level 2 inputs as defined in the fair value hierarchy under GAAP). See Note 3 for more information.
In addition to the assets described in the table above, our financial instruments include our cash and cash equivalents, restricted cash, rents receivable, accounts payable, a revolving credit facility, senior unsecured notes, mortgage notes payable, amounts due to related persons, other accrued expenses and security deposits. At March 31, 2021 and December 31, 2020, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or floating interest rates, except as follows:
 As of March 31, 2021As of December 31, 2020
Financial Instrument
Carrying Value (1)
Fair Value
Carrying Value (1)
Fair Value
Senior unsecured notes, 4.15% interest rate, due in 2022
$299,118 $306,261 $298,853 $306,192 
Senior unsecured notes, 4.00% interest rate, due in 2022
298,809 307,919 298,579 306,756 
Senior unsecured notes, 4.25% interest rate, due in 2024
342,870 368,921 342,299 365,435 
Senior unsecured notes, 4.50% interest rate, due in 2025
636,783 686,862 635,921 688,399 
Senior unsecured notes, 5.875% interest rate, due in 2046
301,350 312,108 301,264 322,028 
Senior unsecured notes, 6.375% interest rate, due in 2050
156,374 174,118 156,326 171,590 
Mortgage notes payable169,204 174,894 169,729 174,952 
Total$2,204,508 $2,331,083 $2,202,971 $2,335,352 

(1)Includes unamortized debt premiums, discounts and issuance costs totaling $37,690 and $39,871 as of March 31, 2021 and December 31, 2020, respectively.

We estimated the fair value of our senior unsecured notes (except for our senior unsecured notes due 2046 and 2050) using an average of the bid and ask price of the notes (Level 2 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. We estimated the fair value of our senior unsecured notes due 2046 and 2050 based on the closing price on The Nasdaq Stock Market LLC, or Nasdaq, (Level 1 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. We estimated the fair values of our mortgage notes payable using discounted cash flow analyses and currently prevailing market rates (Level 3 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. Because Level 3 inputs are unobservable, our estimated fair values may differ materially from the actual fair values.
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OFFICE PROPERTIES INCOME TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
(unaudited)
Note 8. Shareholders’ Equity
Distributions
During the three months ended March 31, 2021, we declared and paid a regular quarterly distribution to common shareholders as follows:
Declaration DateRecord DatePaid DateDistributions Per Common ShareTotal Distributions
January 14, 2021January, 25, 2021February 18, 2021$0.55 $26,575 
On April 15, 2021, we declared a regular quarterly distribution to common shareholders of record on April 26, 2021 of $0.55 per share, or approximately $26,600. We expect to pay this distribution on or about May 20, 2021.
Note 9. Business and Property Management Agreements with RMR LLC
We have no employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have two agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to our property level operations.
Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $9,474 and $4,699 for the three months ended March 31, 2021 and 2020, respectively. The net business management fees we recognized for the three months ended March 31, 2021 include $5,200 of estimated business management incentive fees based on our common share total return, as defined in our business management agreement, as of March 31, 2021. We did not recognize any estimated business management incentive fees for the three months ended March 31, 2020. The actual amount of annual business management incentive fees for 2021, if any, will be based on our common share total return, as defined in our business management agreement, for the three-year period ending December 31, 2021, and will be payable in January 2022. We did not incur a business management incentive fee payable to RMR LLC for the year ended December 31, 2020. We include business management fees in general and administrative expenses in our condensed consolidated statements of comprehensive income.
Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of $4,612 and $5,064 for the three months ended March 31, 2021 and 2020, respectively. Of those amounts for the three months ended March 31, 2021 and 2020, $4,080 and $4,408, respectively, were expensed to other operating expenses in our condensed consolidated statements of comprehensive income and $532 and $656, respectively, were capitalized as building improvements, in our condensed consolidated balance sheets.
We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. We are generally not responsible for payment of RMR LLC’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC’s employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR LLC’s centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit function and as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC. We reimbursed RMR LLC $6,052 and $5,991 for these expenses and costs for the three months ended March 31, 2021 and 2020, respectively. We included these amounts in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income.
Note 10. Related Person Transactions
We have relationships and historical and continuing transactions with RMR LLC, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR LLC is a majority owned subsidiary of RMR Inc. The Chair of our Board of Trustees and one of our Managing Trustees, Adam Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC. David Blackman
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OFFICE PROPERTIES INCOME TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
(unaudited)
resigned as our President and Chief Executive Officer, effective December 31, 2020. Mr. Blackman will remain in his position as our Managing Trustee, until the earliest of our 2021 annual meeting of shareholders, June 30, 2021 or such earlier date as his successor Managing Trustee is elected to our Board. In replacement of Mr. Blackman, Christopher J. Bilotto was appointed as our President and Chief Operating Officer, effective January 1, 2021. Mr. Bilotto previously served as our Vice President and Chief Operating Officer, and he is an officer and employee of RMR LLC. In addition, each of our other officers is also an officer and employee of RMR LLC. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as chair of the boards of trustees or boards of directors of several of these public companies and as a managing director or managing trustee of these public companies. Other officers of RMR LLC, including certain of our officers, serve as managing trustees, managing directors or officers of certain of these companies.
Our Manager, RMR LLC. We have two agreements with RMR LLC to provide management services to us. See Note 9 for more information regarding our management agreements with RMR LLC.
Leases with RMR LLC. We lease office space to RMR LLC in certain of our properties for RMR LLC’s property management offices. Pursuant to our lease agreements with RMR LLC, we recognized rental income from RMR LLC for leased office space of $288 and $280 for the three months ended March 31, 2021 and 2020, respectively.
For more information about these and other such relationships and certain other related person transactions, refer to our 2020 Annual Report.
14

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our 2020 Annual Report.
OVERVIEW (dollars in thousands, except per share and per square foot data)
We are a real estate investment trust, or REIT, organized under Maryland law. As of March 31, 2021, our wholly owned properties were comprised of 180 properties and we had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties containing a combined approximately 444,000 rentable square feet. As of March 31, 2021, our properties are located in 34 states and the District of Columbia and contain approximately 24,568,000 rentable square feet. As of March 31, 2021, our properties were leased to 340 different tenants with a weighted average remaining lease term (based on annualized rental income) of approximately 4.9 years. The U.S. government is our largest tenant, representing approximately 25.9% of our annualized rental income as of March 31, 2021. The term annualized rental income as used herein is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of March 31, 2021, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.
COVID-19 Pandemic
The COVID-19 pandemic and the various governmental and market responses intended to contain and mitigate the spread of the virus and its detrimental public health impact, as well as the general uncertainty surrounding the dangers and impact of the pandemic, continue to have a significant impact on the global economy, including the U.S. economy. To date, the COVID-19 pandemic has not had a significant impact on our business and we believe that our current financial resources, the characteristics of our portfolio, including the diversity of our tenant base, both geographically and by industry, and the financial strength and resources of our tenants, will enable us to withstand the COVID-19 pandemic. However, we have received requests from some of our tenants for rent assistance. As of April 26, 2021, we have granted temporary rent assistance totaling $2,483 to 18 tenants who represent approximately 3.2% of our annualized rental income as of March 31, 2021. This assistance generally entails a deferral of, in most cases, one month of rent pursuant to deferred payment plans which require the deferred rent amounts be payable over a 12-month period, all of which have commenced. As of April 26, 2021, we have collected $2,118, or 85.3%, of our granted rent deferrals.
Our manager, RMR LLC, has taken various actions in response to the COVID-19 pandemic to address its operating and financial impact on us and to protect the health and safety of our tenants and other persons who visit our properties. In addition, we are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business. For more information regarding these actions and monitoring activities, see our 2020 Annual Report.
The U.S economy has been growing as COVID-19 vaccinations are increasingly administered, commercial activities increasingly return to pre-pandemic practices and operations, and as a result of recent and expected future government spending on COVID-19 pandemic relief, infrastructure and other matters. However, there remains uncertainty as to the ultimate duration and severity of the COVID-19 pandemic on commercial activities, including risks that may arise from mutations or related strains of the virus, the ability to successfully administer vaccinations to a sufficient number of persons or attain immunity to the virus by natural or other means to achieve herd immunity, and the impact on the U.S. economy that may result from the inability of other countries to administer vaccinations to their citizens or their citizens’ ability to otherwise achieve immunity to the virus. As a result, we are unable to determine what the ultimate impact will be on our, our tenants’ and other stakeholders’ businesses, operations, financial results and financial position. For more information and risks relating to the COVID-19 pandemic on us and our business, see Part I, Item 1, “Business—COVID-19 Pandemic” and Part I, Item 1A, “Risk Factors”, of our 2020 Annual Report.
Property Operations
Unless otherwise noted, the data presented in this section includes properties classified as held for sale as of March 31, 2021 and excludes three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests. For
15

more information regarding our properties classified as held for sale and our two unconsolidated joint ventures, see Note 3 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Occupancy data for our properties as of March 31, 2021 and 2020 was as follows (square feet in thousands):
 
All Properties (1)
Comparable Properties (2)
March 31,March 31,
 2021202020212020
Total properties (3)
180 184 175 175 
Total rentable square feet (4)
24,568 24,906 22,662 22,658 
Percent leased (5)
90.8 %91.5 %91.3 %92.1 %

(1)Based on properties we owned on March 31, 2021 and 2020, respectively.
(2)Based on properties we owned continuously since January 1, 2020; excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.
(3)Includes one leasable land parcel.
(4)Subject to changes when space is remeasured or reconfigured for tenants.
(5)Percent leased includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any, as of the measurement date.
The average effective rental rate per square foot for our properties for the three months ended March 31, 2021 and 2020 are as follows:
 Three Months Ended March 31,
 20212020
Average effective rental rate per square foot (1):
  
  All properties (2)
$25.95 $26.03 
  Comparable properties (3)
$27.39 $27.28 

(1)Average effective rental rate per square foot represents annualized total rental income during the period specified divided by the average rentable square feet leased during the period specified.
(2)Based on properties we owned on March 31, 2021 and 2020, respectively.
(3)Based on properties we owned continuously since January 1, 2020; excludes properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which we own 51% and 50% interests.
During the three months ended March 31, 2021, changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands): 
 Three Months Ended March 31, 2021
 Leased Available for LeaseTotal
Beginning of period22,705 2,184 24,889 
Changes resulting from: 
Disposition of properties(321)— (321)
Lease expirations(658)658 — 
Lease renewals (1)
542 (542)— 
New leases (1)
33 (33)— 
Remeasurements (2)
(1)— 
End of period22,302 2,266 24,568 

(1)Based on leases entered during the three months ended March 31, 2021.
(2)Rentable square feet are subject to changes when space is remeasured or reconfigured for tenants.
Leases at our properties totaling approximately 658,000 rentable square feet expired during the three months ended March 31, 2021. During the three months ended March 31, 2021, we entered leases totaling approximately 575,000 rentable square feet, including lease renewals of approximately 542,000 rentable square feet and new leases of approximately 33,000 rentable square feet. The weighted (by rentable square feet) average rents were 3.2% above prior rents for the same space and the weighted (by rentable square feet) average lease term for new and renewal leases entered during the three months ended March 31, 2021 was 5.4 years.
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During the three months ended March 31, 2021, commitments made for expenditures, such as tenant improvements and leasing costs, in connection with leasing space at our properties were as follows (square feet in thousands):
Three Months Ended March 31, 2021
New LeasesRenewalsTotal
Rentable square feet leased 33 542 575 
Tenant leasing costs and concession commitments (1)
$1,207 $5,938 $7,145 
Tenant leasing costs and concession commitments per rentable square foot (1)
$35.97 $10.96 $12.42 
Weighted (by square feet) average lease term (years)7.0 5.3 5.4 
Total leasing costs and concession commitments per rentable square foot per year (1)
$5.12 $2.05 $2.28 
(1)Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.
During the three months ended March 31, 2021, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three months ended March 31, 2021, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as follows (square feet in thousands): 
 Three Months Ended March 31, 2021
 
Old Effective Rent Per Square Foot (1)
New Effective Rent Per Square Foot (1)
Rentable Square Feet
New leases$17.46 $21.29 79 
Lease renewals$24.31 $25.66 529 
Total leasing activity$23.42 $25.10 608 
(1)Effective rental rate includes contractual base rents from our tenants pursuant to our lease agreements, plus straight line rent adjustments and estimated expense reimbursements to be paid to us, and excludes lease value amortization.
During the three months ended March 31, 2021 and 2020, amounts capitalized at our properties for lease related costs, building improvements and development, redevelopment and other activities were as follows:
 Three Months Ended March 31,
 20212020
Lease related costs (1)
$6,970 $7,113 
Building improvements (2)
4,526 9,230 
Recurring capital expenditures11,496 16,343 
Development, redevelopment and other activities (3)
4,906 3,161 
Total capital expenditures$16,402 $19,504 
(1)Lease related costs generally include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space and leasing related costs, such as brokerage commissions and other tenant inducements.
(2)Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets.
(3)Development, redevelopment and other activities generally include capital expenditure projects that reposition a property or result in new sources of revenue.

As of March 31, 2021, we have estimated unspent leasing related obligations of $50,405, of which we expect to spend $25,939 over the next 12 months.
As of March 31, 2021, we had leases at our properties totaling approximately 3,517,000 rentable square feet that were scheduled to expire through March 31, 2022. As of April 28, 2021, we expect tenants with leases totaling approximately 2,701,000 rentable square feet that are scheduled to expire through March 31, 2022, to not renew their leases upon expiration and we cannot be sure as to whether other tenants will renew their leases upon expiration. Of the approximately 2,701,000 rentable square feet that are expiring and expected to not renew, 1,371,000 rentable square feet have been sold and 263,000 rentable square feet are within a property that is in the planning stage for a potential redevelopment. As a result of the COVID-19 pandemic and its economic impact, overall new leasing volume has remained at a reduced level during the three months ended March 31, 2021 and that trend may continue until market conditions meaningfully improve for a sustained period. However, we remain focused on proactive dialogues with our existing tenants and overall tenant retention. Prevailing market conditions and government and other tenants’ needs at the time we negotiate and enter leases or lease renewals will
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generally determine rental rates and demand for leased space at our properties, and market conditions and our tenants’ needs are beyond our control. Whenever we renew or enter into new leases for our properties, we intend to seek rents which are equal to or higher than our historical rents for the same properties; however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control. We cannot be sure of the rental rates which will result from our ongoing negotiations regarding lease renewals or any new or renewed leases we may enter; also, we may experience material declines in our rental income due to vacancies upon lease expirations or early terminations.
As of March 31, 2021, our lease expirations by year are as follows (square feet in thousands):
Year (1)
Number of Leases Expiring
Leased
Square Feet Expiring (2)
Percent of Total Cumulative Percent of TotalAnnualized Rental Income ExpiringPercent of Total Cumulative Percent of Total
202157 3,219 14.4 %14.4 %$56,305 10.0 %10.0 %
202282 2,120 9.5 %23.9 %60,395 10.8 %20.8 %
202363 2,402 10.8 %34.7 %77,080 13.7 %34.5 %
202456 3,534 15.8 %50.5 %88,579 15.8 %50.3 %
202555 2,146 9.6 %60.1 %46,562 8.3 %58.6 %
202632 1,734 7.8 %67.9 %46,244 8.2 %66.8 %
202732 1,923 8.6 %76.5 %48,638 8.7 %75.5 %
202815 875 3.9 %80.4 %25,723 4.6 %80.1 %
202915 934 4.2 %84.6 %24,831 4.4 %84.5 %
2030 and thereafter43 3,415 15.4 %100.0 %86,667 15.5 %100.0 %
Total450 22,302 100.0 % $561,024 100.0 % 
Weighted average remaining lease term (in years)
4.9  4.9  

(1)The year of lease expiration is pursuant to current contract terms. Some of our leases allow the tenants to vacate the leased premises before the stated expirations of their leases with little or no liability. As of March 31, 2021, tenants occupying approximately 6.5% of our rentable square feet and responsible for approximately 7.5% of our annualized rental income as of March 31, 2021 currently have exercisable rights to terminate their leases before the stated terms of their leases expire. Also, in 2021, 2022, 2023, 2024, 2025, 2026, 2027, 2028, 2029, and 2035, early termination rights become exercisable by other tenants who currently occupy an additional approximately 1.3%, 2.9%, 1.5%, 1.1%, 2.1%, 1.1%, 0.6%, 1.1%, 0.1%, and 0.3% of our rentable square feet, respectively, and contribute an additional approximately 1.6%, 3.1%, 1.7%, 1.8%, 3.7%, 1.4%, 1.1%, 1.4%, 0.2%, and 0.4% of our annualized rental income, respectively, as of March 31, 2021. In addition, as of March 31, 2021, pursuant to leases with 13 of our tenants, these tenants have rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These 13 tenants occupy approximately 5.1% of our rentable square feet and contribute approximately 6.1% of our annualized rental income as of March 31, 2021.
(2)Leased square feet is pursuant to leases existing as of March 31, 2021, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any. Square feet measurements are subject to changes when space is remeasured or reconfigured for new tenants.
We generally will seek to renew or extend the terms of leases in our single tenant properties when they expire. Because of the capital many of the tenants in these properties have invested in the properties and because many of these properties appear to be of strategic importance to the tenants’ businesses, we believe that it is likely that these tenants will renew or extend their leases prior to when they expire. If we are unable to extend or renew our leases, it may be time consuming and expensive to relet some of these properties.
We believe that recent government budgetary and spending priorities and enhancements in technology have resulted in a decrease in government office use for employees. Furthermore, over the past several years, government tenants have reduced their space utilization per employee and consolidated government tenants into existing government owned properties. This activity has reduced the demand for government leased space. Our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants frequently renew leases to avoid the costs and disruptions that may result from relocating their operations. However, efforts to manage space utilization rates may result in our tenants exercising early termination rights under our leases, vacating our properties upon expiration of our leases in order to relocate, or renewing their leases for less space than they currently occupy. Also, our government tenants’ desire to reconfigure leased office space to manage utilization per employee may require us to spend significant amounts for tenant improvements, and tenant relocations are often more prevalent in those circumstances. Increasing uncertainty with respect to government agency budgets and funding to implement relocations, consolidations and reconfigurations has resulted in delayed decisions by some of our government tenants and their reliance on short term lease renewals; however, activity prior to the outbreak of the COVID-19 pandemic suggested that the U.S. government had begun to shift its leasing strategy to include
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longer term leases and was actively exploring 10 to 20 year lease terms at renewal, in some instances. It is also possible that as a result of the COVID-19 pandemic, government tenants may seek to manage space utilization rates in order to provide greater physical distancing for employees, mostly through lease renewals, which may require us to spend significant amounts for tenant improvements. However, the COVID-19 pandemic and its aftermath have had negative impacts on government budgets and resources, although there are indications that to date, certain of those impacts may not have been as negative as originally expected, and it is unclear what the effect of these impacts will be on government demand for leasing office space. In addition, the new presidential administration may result in a change in the federal government’s policy priorities, which may impact leasing at our government leased properties. Given the significant uncertainties, including as to the COVID-19 pandemic, its economic impact and its aftermath and the new presidential administration, we are unable to reasonably project what the financial impact of market conditions or changing government circumstances will be on our financial results for future periods.
As of March 31, 2021, we derive 24.0% of our annualized rental income from our properties located in the metropolitan Washington, D.C. market area, which includes Washington, D.C., Northern Virginia and suburban Maryland. A downturn in economic conditions in this area, including as a result of the COVID-19 pandemic, could result in reduced demand from tenants for our properties or reduce the rents that our tenants in this area are willing to pay when our leases expire or terminate and when renewal or new terms are negotiated. Additionally, in recent years there has been a decrease in demand for new leased office space by the U.S. government in the metropolitan Washington, D.C. market area, and that could increase competition for government tenants and adversely affect our ability to retain government tenants when our leases expire.
Our manager, RMR LLC, employs a tenant review process for us. RMR LLC assesses tenants on an individual basis based on various applicable credit criteria. In general, depending on facts and circumstances, RMR LLC evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources. RMR LLC also often uses a third party service to monitor the credit ratings, both actual and implied, of our existing tenants. We consider investment grade tenants to include: (a) investment grade rated tenants; (b) tenants with investment grade rated parent entities that guarantee the tenant’s lease obligations; and/or (c) tenants with investment grade rated parent entities that do not guarantee the tenant’s lease obligations. As of March 31, 2021, tenants contributing 56.1% of annualized rental income were investment grade rated (or their payment obligations were guaranteed by an investment grade rated parent) and tenants contributing an additional 8.6% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).
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As of March 31, 2021, tenants representing 1% or more of our total annualized rental income were as follows:
TenantCredit RatingSq. Ft.% of Leased Sq. Ft.Annualized Rental Income % of Total Annualized Rental Income
U.S. GovernmentInvestment Grade5,310 23.8 %$145,196 25.9 %
Shook, Hardy & Bacon L.L.P.Not Rated596 2.7 %19,377 3.5 %
State of CaliforniaInvestment Grade648 2.9 %19,243 3.4 %
Bank of America CorporationInvestment Grade577 2.6 %15,803 2.8 %
F5 Networks, Inc.Not Rated299 1.3 %13,027 2.3 %
Commonwealth of MassachusettsInvestment Grade311 1.4 %12,281 2.2 %
CareFirst Inc.Not Rated207 0.9 %11,870 2.1 %
Northrop Grumman CorporationInvestment Grade337 1.5 %11,447 2.0 %
Tyson Foods, Inc.Investment Grade248 1.1 %11,198 2.0 %
10 Micro Focus International plcNon Investment Grade406 1.8 %8,710 1.6 %
11 CommScope Holding Company IncNon Investment Grade228 1.0 %8,166 1.5 %
12 State of GeorgiaInvestment Grade308 1.4 %7,248 1.3 %
13 PNC BankInvestment Grade441 2.0 %6,915 1.2 %
14 Compass Group plcInvestment Grade267 1.2 %6,639 1.2 %
15 ServiceNow, Inc.Investment Grade149 0.7 %6,623 1.2 %
16 Allstate Insurance Co.Investment Grade468 2.1 %6,473 1.2 %
17 Automatic Data Processing, Inc.Investment Grade289 1.3 %6,037 1.1 %
18 Church & Dwight Co., Inc.Investment Grade250 1.1 %6,031 1.1 %
Total11,339 50.8 %$322,284 57.6 %
Acquisition Activities
As of April 28, 2021, we have entered into an agreement to acquire a property adjacent to a property we own in Boston, MA containing approximately 49,000 rentable square feet for $26,975, excluding acquisition related costs. This acquisition is expected to occur before the end of the second quarter. However, this acquisition is subject to conditions; accordingly, we cannot be sure that we will complete this acquisition or that this acquisition will not be delayed or the terms will not change.
For more information about our acquisition activities, see Note 3 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Disposition Activities
During the three months ended March 31, 2021, we sold two properties containing a combined approximately 321,000 rentable square feet for an aggregate sales price of $130,845, excluding closing costs.
In April 2021, we sold a property located in Huntsville, AL containing approximately 1,371,000 rentable square feet for a sales price of $39,000, excluding closing costs.
Also in April 2021, we entered into an agreement to sell a property located in Liverpool, NY containing approximately 38,000 rentable square feet for a sales price of $650, excluding closing costs. This sale is expected to occur before the end of the second quarter. However, this sale is subject to conditions; accordingly, we cannot be sure that we will complete this sale or that this sale will not be delayed or the terms will not change.
For more information about our disposition activities, see Note 3 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Segment Information
We operate in one business segment: ownership of real estate properties.
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RESULTS OF OPERATIONS (amounts in thousands, except per share amounts)
 
Three Months Ended March 31, 2021, Compared to Three Months Ended March 31, 2020
 
Comparable Properties (1) Results
 Three Months Ended March 31,
Non-Comparable 
Properties Results
Three Months Ended March 31,
Consolidated Results
Three Months Ended March 31,
 20212020$ Change% Change2021202020212020$ Change% Change
Rental income$140,975 $140,931 $44 — %$3,549 $8,954 $144,524 $149,885 $(5,361)(3.6 %)
Operating expenses:          
Real estate taxes15,907 15,688 219 1.4 %247 1,119 16,154 16,807 (653)(3.9 %)
Utility expenses6,274 6,767 (493)(7.3 %)158 245 6,432 7,012 (580)(8.3 %)
Other operating expenses24,935 24,376 559 2.3 %504 1,504 25,439 25,880 (441)(1.7 %)
Total operating expenses47,116 46,831 285 0.6 %909 2,868 48,025 49,699 (1,674)(3.4 %)
Net operating income (2)
$93,859 $94,100 $(241)(0.3 %)$2,640 $6,086 96,499 100,186 (3,687)(3.7 %)
Other expenses:          
Depreciation and amortization64,087 62,943 1,144