10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

OR

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

Commission File Number 1-35442

SELECT INCOME REIT

(Exact Name of Registrant as Specified in Its Charter)

Maryland	45-4071747
(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)

617-796-8303

(Registrant’s Telephone Number, Including Area Code)

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 x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check One):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(Do not check if a smaller reporting company)

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

Number of registrant’s common shares of beneficial interest, $.01 par value per share, outstanding as of July 26, 2013:  49,792,592

SELECT INCOME REIT

FORM 10-Q

June 30, 2013

INDEX

		Page
PART I	Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets — June 30, 2013 and December 31, 2012	1
	Condensed Consolidated Statements of Income and Comprehensive Income — Three and Six Months Ended June 30, 2013 and 2012	2
	Condensed Consolidated Statements of Cash Flows — Six Months Ended June 30, 2013 and 2012	3
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	23
	Warning Concerning Forward Looking Statements	24
	Statement Concerning Limited Liability	27
PART II	Other Information
Item 1.	Legal Proceedings	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 6.	Exhibits	28
	Signatures	29

References in this Form 10-Q to “we”, “us” and “our” refer to Select Income REIT and its consolidated subsidiaries, unless otherwise noted.

PART I          Financial Information

Item 1.  Financial Statements

SELECT INCOME REIT

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

(unaudited)

	June 30,			December 31,
	2013			2012
ASSETS
Real estate properties:
Land	$	691,796		$	675,092
Buildings and improvements	754,985			620,686
	1,446,781			1,295,778
Accumulated depreciation	(56,023		)	(46,697		)
	1,390,758			1,249,081
Acquired real estate leases, net	98,440			95,248
Cash and cash equivalents	12,286			20,373
Restricted cash	42			42
Rents receivable, net of allowance for doubtful accounts of $690 and $644, respectively	45,919			38,885
Deferred leasing costs, net	5,589			4,816
Deferred financing costs, net	5,791			5,517
Due from related persons	141			585
Other assets	21,807			16,105
Total assets	$	1,580,773		$	1,430,652
LIABILITIES AND SHAREHOLDERS' EQUITY
Revolving credit facility	$	235,000		$	95,000
Term loan	350,000			350,000
Mortgage notes payable	27,471			27,778
Accounts payable and accrued expenses	19,346			19,703
Assumed real estate lease obligations, net	19,771			20,434
Rents collected in advance	5,762			6,518
Security deposits	9,635			9,335
Due to related persons	1,864			1,701
Total liabilities	668,849			530,469
Commitments and contingencies
Shareholders' equity:
Common shares of beneficial interest, $0.01 par value: 75,000,000 and 50,000,000 shares authorized, respectively, 39,292,592 and 39,282,592 shares issued and outstanding, respectively	393			393
Additional paid in capital	877,108			876,920
Cumulative net income	96,668			51,251
Cumulative other comprehensive income	(56		)	25
Cumulative common distributions	(62,189		)	(28,406		)
Total shareholders' equity	911,924			900,183
Total liabilities and shareholders' equity	$	1,580,773		$	1,430,652

See accompanying notes

1

SELECT INCOME REIT

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(amounts in thousands, except per share data)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Revenues:
Rental income	$	38,706		$	23,754		$	76,164		$	47,828
Tenant reimbursements and other income	7,240			4,166			13,642			7,679
Total revenues	45,946			27,920			89,806			55,507
Expenses:
Real estate taxes	5,159			3,677			9,785			7,318
Other operating expenses	3,852			2,023			7,100			3,800
Depreciation and amortization	7,295			3,021			13,960			5,794
Acquisition related costs	156			675			689			675
General and administrative	2,957			1,634			5,676			3,038
Total expenses	19,419			11,030			37,210			20,625
Operating income	26,527			16,890			52,596			34,882
Interest expense (including amortization of debt premiums and deferred financing fees of $385, $258, $721 and $311, respectively)	(3,779		)	(1,632		)	(7,252		)	(1,969		)
Equity in earnings of an investee	79			74			155			74
Income before income tax expense	22,827			15,332			45,499			32,987
Income tax expense	(40		)	—			(80		)	—
Net income	22,787			15,332			45,419			32,987
Other comprehensive income:
Equity in unrealized loss of an investee	(73		)	(1		)	(81		)	(1		)
Other comprehensive loss	(73		)	(1		)	(81		)	(1		)
Comprehensive income	$	22,714		$	15,331		$	45,338		$	32,986
Weighted average common shares outstanding	39,288			31,200			39,285			22,202
Net income per common share	$	0.58		$	0.49		$	1.16		$	1.49

See accompanying notes

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SELECT INCOME REIT

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

	Six Months Ended June 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	45,419		$	32,987
Adjustments to reconcile net income to cash provided by operating activities
Depreciation	9,327			4,109
Net amortization of debt premiums and deferred financing fees	721			311
Amortization of acquired real estate leases	4,756			1,650
Amortization of deferred leasing costs	402			274
Provision for losses on rents receivable	46			340
Straight line rental income	(5,655		)	(2,067		)
Other non-cash expenses	746			—
Equity in earnings of equity investments	(155		)	(74		)
Change in assets and liabilities:
Rents receivable	(1,425		)	2,335
Deferred leasing costs	(1,175		)	(766		)
Other assets	(1,268		)	207
Due from related persons	444			—
Accounts payable and accrued expenses	1,056			1,116
Rents collected in advance	(756		)	(664		)
Security deposits	300			(44		)
Due to related persons	(230		)	44
Cash provided by operating activities	52,553			39,758
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions	(162,925		)	(115,380		)
Real estate improvements	(2,534		)	(595		)
Investment in Affiliates Insurance Company	—			(5,335		)
Cash used in investing activities	(165,459		)	(121,310		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (cost of) issuance of common shares, net	(96		)	180,814
Proceeds from borrowings	163,000			357,500
Payments on borrowings	(23,108		)	(36,500		)
Deferred financing fees	(1,194		)	(4,131		)
Repayment of demand note	—			(400,000		)
Distributions to common shareholders	(33,783		)	—
Owner's net distributions	—			(6,138		)
Cash provided by financing activities	104,819			91,545
Increase (decrease) in cash and cash equivalents	(8,087		)	9,993
Cash and cash equivalents at beginning of period	20,373			—
Cash and cash equivalents at end of period	$	12,286		$	9,993

See accompanying notes

3

SELECT INCOME REIT

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(amounts in thousands)

(unaudited)

	Six Months Ended June 30,
	2013		2012
Supplemental disclosures:
Interest paid	$	6,245	$	879
Income taxes paid	$	305	$	—
Non-cash investing activities:
Real estate acquired by issuance of shares and assumption of demand note	$	—	$	(913,286	)
Non-cash financing activities:
Issuance of common shares	$	284	$	513,286
Issuance of demand note	$	—	$	400,000

See accompanying notes

4

SELECT INCOME REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Note 1.  Basis of Presentation

The accompanying condensed consolidated financial statements of Select Income REIT and its subsidiaries, or SIR, 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 financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2012, or our Annual Report. In the opinion of our management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. All material intercompany transactions and balances have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. Certain prior year amounts have been reclassified to conform to the current year presentation.

The preparation of 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 the allowance for doubtful accounts, purchase price allocations and useful lives of fixed assets.

The accompanying condensed consolidated financial statements include the 251 properties, or the Initial Properties, that were owned by CommonWealth REIT and its subsidiaries, or CWH, until they were contributed to us by CWH on February 16, 2012.  Our condensed consolidated financial statements for the six months ended June 30, 2012, include information for that period when we were a wholly owned subsidiary of CWH, January 1, 2012 to March 12, 2012. Because of the significant changes resulting from our initial public offering, or IPO, in March 2012, our financial results for the six months ended June 30, 2013 are not comparable to our financial results for the six months ended June 30, 2012.

Note 2.  Recent Accounting Pronouncements

Effective January 2013, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  This update is the culmination of the FASB’s deliberation on reporting reclassification adjustments from accumulated other comprehensive income, or AOCI.  This standard does not change the current requirements for reporting net income or other comprehensive income.  However, it requires disclosure of amounts reclassified out of AOCI in their entirety, by component, on the face of the statement of operations or in the notes thereto.  Amounts that are not required to be reclassified in their entirety to net income must be cross referenced to other disclosures that provide additional detail.  This update was effective prospectively for interim and annual reporting periods beginning after December 15, 2012.  The implementation of this update did not cause any material changes to the disclosures in, or the presentation of, our condensed consolidated financial statements.

Note 3.  Real Estate Properties

During the six months ended June 30, 2013, we acquired five properties with a combined 779,010 square feet for an aggregate purchase price of $158,320, excluding closing costs. We allocated the purchase prices of these acquisitions based on the estimated fair values of the acquired assets and assumed liabilities. Details of these completed acquisitions are as follows:

												Assumed
										Acquired		Real Estate
		Number of	Square	Purchase				Building and		Real Estate		Lease
Date	Location	Properties	Feet	Price (1)		Land		Improvements		Leases		Obligations
January 2013	Addison, TX(2)	2	553,799	$	105,000	$	10,107	$	94,893	$	—	$	—
February 2013	Provo, UT	2	125,225	34,720		3,400		25,938		5,382		—
March 2013	San Antonio, TX	1	99,986	18,600		3,197		12,175		3,507		(279		)
		5	779,010	$	158,320	$	16,704	$	133,006	$	8,889	$	(279	)

(1)Purchase price excludes acquisition costs. Except as otherwise noted, all acquisitions were accounted for as business combinations.

(2)Property was acquired and simultaneously leased back to the seller in a sale/leaseback transaction. We accounted for this transaction as an acquisition of assets. We recognized acquisition costs of $226 which we capitalized as part of the transaction.

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In July 2013, we acquired a single tenant, net leased office property located in Richmond, VA with 310,950 square feet. The purchase price of this property was $143,600, excluding closing costs. This acquisition was accounted for as a business combination, and due to the timing of this acquisition, the purchase price allocation is not yet complete.

Certain of our real estate assets contain hazardous substances, including asbestos. We believe the asbestos at our properties is contained in accordance with current environmental regulations and we have no current plans to remove it. If these properties were demolished today, certain environmental regulations specify the manner in which the asbestos must be removed and we could incur substantial costs complying with such regulations. Certain of our industrial lands in Hawaii may require environmental remediation, especially if the use of those lands is changed; however, we do not have any present plans to change the use of those land parcels or to undertake this environmental cleanup. We do not have any insurance designated to limit any losses that we may incur as a result of known or unknown environmental conditions which are not caused by an insured event, such as, for example, fire or flood. However, as of June 30, 2013 and December 31, 2012, accrued environmental remediation costs totaling $8,386 and $8,644, respectively, were included in accounts payable and accrued expenses in our condensed consolidated balance sheets. These accrued expenses relate to maintenance of our properties for current uses. We do not believe that there are environmental conditions at any of our properties that will have a material adverse effect on us. However, no assurances can be given that such conditions are not present in our properties or that other costs we incur to remediate contamination will not have a material adverse effect on our business or financial condition. Charges for environmental remediation costs are included in other operating expenses in the condensed consolidated statements of income and comprehensive income.

Note 4.  Tenant Concentration and Segment Information

We operate in one business segment: ownership of properties that are primarily net leased to single tenants.  A “net leased property” or a property being “net leased” means that the property’s lease requires the tenant to pay rent and also pay or reimburse us for all, or substantially all, property level operating expenses and capital expenditures, such as real estate taxes, insurance, utilities, maintenance and repairs, other than, in certain circumstances, roof and structural element related expenditures; in some instances, tenants instead reimburse us for all expenses in excess of certain amounts included in the stated rent.  No single tenant currently accounts for more than 10% of our total revenues.  We define a single tenant leased property as a property with at least 90% of its rentable square footage leased to one tenant; however, we do also own some multi tenant buildings on the island of Oahu, HI.

Note 5.  Indebtedness

At June 30, 2013 and December 31, 2012, our outstanding indebtedness consisted of the following:

	June 30,		December 31,
	2013		2012
Revolving credit facility, due in 2016	$	235,000	$	95,000
Term loan, due in 2017	350,000		350,000
Mortgage note payable, 5.950% interest rate, including unamortized premium of $1,280 and $1,415, respectively, due in 2017 (1)	19,618		19,862
Mortgage note payable, 5.689% interest rate, including unamortized premium of $352 and $416, respectively, due in 2016 (1)	7,853		7,916
	$	612,471	$	472,778

(1)We assumed these mortgages in connection with our acquisitions of certain properties. The stated interest rates for these mortgage debts are the contractually stated rates; we recorded the assumed mortgages at estimated fair value on the date of acquisition and we are amortizing the fair value premiums to interest expense over the respective terms of the mortgages to reduce interest expense based on the estimated market interest rates as of the date of acquisition.

We have a $750,000 unsecured revolving credit facility that is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is March 11, 2016 and, subject to the payment of an extension fee and meeting certain other conditions, our revolving credit facility includes an option for us to extend the stated maturity date by one year to March 11, 2017.  In addition, our revolving credit facility includes a feature under which maximum borrowings may be increased to $1,000,000 in certain circumstances. In February 2013, we partially exercised our option to increase the available borrowing amount under our revolving credit facility from $500,000 to $750,000.  Borrowings under our revolving credit facility bear interest at LIBOR plus a premium.  We also pay a facility fee on the total amount of lending commitments under our revolving credit facility. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our leverage or credit ratings. At June 30, 2013, the interest rate premium on our revolving credit facility was 130 basis points and our facility fee was 30 basis points.  As of June 30, 2013, the interest rate payable on borrowings under our revolving credit facility was 1.50% and the weighted average annual interest rate for borrowings under the revolving credit facility was 1.50% for both the three and six months ended June 30, 2013. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. As of June 30, 2013 and July 26, 2013, we had $235,000 and $75,000, respectively, outstanding under our revolving credit facility.

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We also have a $350,000 unsecured term loan that matures on July 11, 2017 and is prepayable without penalty at any time. In addition, our term loan includes a feature under which maximum borrowings may be increased to up to $700,000 in certain circumstances. Our term loan bears interest at a rate of LIBOR plus a premium, which was 155 basis points as of June 30, 2013. The interest rate premium is subject to adjustment based upon changes to our leverage or credit ratings. As of June 30, 2013, the interest rate payable for the amount outstanding under our term loan was 1.75% and the weighted average interest rate for the amount outstanding under our term loan was 1.75% and 1.76% for the three and six months ended June 30, 2013, respectively.

Our credit facility agreement and our term loan agreement provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, including a change of control of us and the termination of our business management agreement or our property management agreement with Reit Management & Research LLC, or RMR. Our credit facility agreement and our term loan agreement also contain a number of financial and other covenants, including covenants that restrict our ability to incur indebtedness or to make distributions under certain circumstances and require us to maintain financial ratios and a minimum net worth. We believe we were in compliance with the terms of our revolving credit facility and term loan covenants at June 30, 2013.

At June 30, 2013, three of our properties with an aggregate net book value of $29,573 secured two mortgage notes we assumed in connection with our acquisition of such properties. The aggregate principal amount outstanding under those two mortgage notes as of June 30, 2013, was $25,839. These mortgage notes are non-recourse, subject to certain limited exceptions, and do not contain any material financial covenants.

Note 6. Fair Value of Financial Instruments

Our financial instruments at June 30, 2013 include cash and cash equivalents, rents receivable, equity investments, mortgage notes payable, our revolving credit facility, our term loan, amounts due to and from related persons, accounts payable and other accrued expenses.  At June 30, 2013, the fair value of our financial instruments approximated their carrying values in our condensed consolidated financial statements.

As of June 30, 2013, our carrying value and the estimated fair market value of our mortgage notes payable were as follows:

	Carrying		Estimated
	Amount		Fair Value
Mortgage notes payable	$	27,471	$	27,629

We estimate the fair values of our mortgage notes payable by using discounted cash flow analyses and currently prevailing market rates for similar mortgage notes as of June 30, 2013.  These inputs are categorized as level 3 inputs as defined in the fair value hierarchy under the accounting standards for Fair Value Measurements and Disclosures.  Because level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.

Note 7.  Shareholders’ Equity

On June 27, 2013, we amended our declaration of trust, increasing the number of our authorized shares of beneficial interest from 50,000,000 to 75,000,000. All of our authorized shares are currently classified as common shares, $.01 par value per share, or our common shares.

Share Issuances:

On May 13, 2013, we granted 2,000 of our common shares, valued at $27.61 per share, the closing price of our common shares on the New York Stock Exchange, or the NYSE, on that day, to each of our five Trustees as part of their annual compensation.

In July 2013, we sold 10,500,000 of our common shares in a public offering at a price of $28.25 per share, raising net proceeds of approximately $283,655.  We used the net proceeds from this offering to partially repay amounts outstanding under our revolving credit facility and for general business purposes, including the acquisition we made in July 2013, which is further described above, in Note 3.

Distributions:

In February 2013, we paid a distribution on our common shares of $0.42 per share, or approximately $16,499, to shareholders of record on January 22, 2013.

7

In May 2013, we paid a distribution on our common shares of $0.44 per share, or approximately $17,284, to shareholders of record on April 23, 2013.

In July 2013, we declared a regular quarterly distribution of $0.44 per common share, or approximately $21,909, to shareholders of record on July 24, 2013. We expect to pay this distribution on or about August 20, 2013 using existing cash balances and borrowings under our revolving credit facility.

Note 8.  Related Person Transactions

We have no employees.  Personnel and various services we require to operate our business are provided to us by RMR.  We have two agreements with RMR to provide management and administrative 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.

Under our business management agreement with RMR, we acknowledge that RMR also provides management services to other companies, which include CWH.  One of our Managing Trustees, Mr. Barry Portnoy, is Chairman, majority owner and an employee of RMR.  Our other Managing Trustee, Mr. Adam Portnoy, is the son of Mr. Barry Portnoy, and an owner, President, Chief Executive Officer and a director of RMR.  Each of our executive officers is also an officer of RMR.  CWH’s executive officers are officers of RMR.  Our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR provides management services.  Mr. Barry Portnoy serves as a managing director or managing trustee of those companies and Mr. Adam Portnoy serves as a managing trustee of a majority of those companies.  In addition, officers of RMR serve as officers of those companies.

Pursuant to our business management agreement with RMR, we recognized business management fees of $2,259 and $1,252 for the three months ended June 30, 2013 and 2012, respectively.  We recognized business management fees of $4,426 for the six months ended June 30, 2013 and $1,500 for the period beginning on March 12, 2012, the date on which we entered into the business management agreement, through June 30, 2012.  These amounts are included in general and administrative expenses in our condensed consolidated financial statements.

In connection with our property management agreement with RMR, we recognized aggregate property management and construction supervision fees of $1,311 and $807 for the three months ended June 30, 2013 and 2012, respectively.  We recognized aggregate property management and construction supervision fees of $2,569 for the six months ended June 30, 2013 and $965 for the period beginning on March 12, 2012, the date on which we entered into the property management agreement, through June 30, 2012.  These amounts are included in operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

We were formerly a 100% owned subsidiary of CWH.  CWH is our largest shareholder and, as of June 30, 2013, CWH owned 22,000,000 of our common shares, or approximately 56.0% of our outstanding common shares.  Following completion of our public offering of common shares on July 2, 2013, CWH owned approximately 44.2% of our outstanding common shares.   One of our Managing Trustees, Mr. Barry Portnoy, is a managing trustee of CWH.  Our other Managing Trustee, Mr. Adam Portnoy, is a managing trustee and the President of CWH.  In addition, Mr. John Popeo, our Treasurer and Chief Financial Officer, also serves as the Treasurer and Chief Financial Officer of CWH, and one of our Independent Trustees, Mr. William Lamkin, is an independent trustee of CWH.  RMR provides management services to both us and CWH.

In March 2012, we completed our IPO of 9,200,000 of our common shares (including 1,200,000 common shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares) for net proceeds (after deducting underwriters’ discounts and commissions and estimated expenses) of approximately $180,814.  We applied those net proceeds, along with proceeds of our initial borrowings under our $500,000 revolving credit facility, to repay in full a note to CWH for $400,000, or the CWH Note, which we issued to CWH at the time it transferred the Initial Properties to us, and to reimburse CWH for costs that CWH incurred in connection with our organization and preparation for our IPO.  In connection with our IPO, we and CWH entered into a transaction agreement that governs our separation from and relationship with CWH.  The transaction agreement provides that, among other things, (1) the current assets and liabilities of the Initial Properties, as of the time of closing of the IPO, were settled between us and CWH so that CWH will retain all pre-closing current assets and liabilities and we will assume all post-closing current assets and liabilities and (2) we will indemnify CWH with respect to any liability relating to any property transferred by CWH to us, including any liability which relates to periods prior to our formation, other than the pre-closing current assets and current liabilities that CWH retained with respect to the Initial Properties.

On March 25, 2013, we entered into a registration agreement with CWH, pursuant to which we agreed to register for resale by CWH up to 22,000,000 of our common shares owned by CWH, or an Offering.  We currently have an effective registration statement on Form S-3 that may provide for that possible resale by CWH.  However, pursuant to our underwritten public offering of

8

common shares we completed on July 2, 2013, CWH agreed to not sell our common shares it owns prior to August 27, 2013, without the consent of the designated underwriter.  Under the registration agreement, CWH agreed to pay all expenses incurred by us relating to the registration and sale of the shares in an Offering.  Our obligation to register the shares for resale in an Offering is subject to certain conditions and may be terminated in certain circumstances, in each case, as described in the registration agreement.  CWH agreed to indemnify us, our officers, Trustees and controlling persons, and we agreed to indemnify CWH and CWH’s officers, trustees and controlling persons, against certain liabilities in connection with an Offering, including liabilities under the Securities Act of 1933, as amended, and we and CWH agreed to reimburse payments that the other may make in respect of those liabilities. As of June 30, 2013, we paid or accrued $622 of amounts due from CWH related to this agreement.

In May 2012, we purchased 20,000 shares of common stock of Affiliates Insurance Company, or AIC, for approximately $5,335.  Concurrently with this purchase, we entered into an amended and restated shareholders agreement with AIC, RMR, CWH and five other companies to which RMR provides management services.  We, RMR, CWH and five other companies to which RMR provides management services each currently own 12.5% of AIC.  All of our Trustees, all of the trustees and directors of the other publicly held AIC shareholders and nearly all of the directors of RMR currently serve on the board of directors of AIC.  RMR provides management and administrative services to AIC pursuant to a management and administrative services agreement with AIC.

Although we own less than 20% of AIC, we use the equity method to account for this investment because we believe that we have significant influence over AIC because all of our Trustees are also directors of AIC.  Our investment in AIC had a carrying value of $5,703 and $5,629 as of June 30, 2013 and December 31, 2012, respectively, which amounts are included in other assets on our condensed consolidated balance sheets.  We recognized income of $79 and $154 for the three and six months ended June 30, 2013, respectively, related to our investment in AIC.   During the period from May 21, 2012, to June 30, 2012, we recognized income of $74 related to this investment.  We and the other shareholders of AIC have purchased property insurance providing $500,000 of coverage pursuant to an insurance program arranged by AIC and with respect to which AIC is a reinsurer of certain coverage amounts.  This program was entered into in June 2013 for a one year term, and we paid a premium, including taxes and fees, of $559, which amount may be adjusted from time to time as we acquire or dispose of properties that are included in this program.  We periodically consider the possibilities for expanding our insurance relationships with AIC to include other types of insurance and may in the future participate in additional insurance offerings AIC may provide or arrange.  We may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so.  By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses or by realizing our pro rata share of any profits of this insurance business.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and notes thereto included in this Quarterly Report on Form 10-Q and in our Annual Report.

OVERVIEW

We are a real estate investment company, or REIT, organized under Maryland law.  We intend to elect and qualify for taxation as a real estate investment trust, or REIT, for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2012, and to maintain such qualification thereafter. As of June 30, 2013, we owned 272 properties with approximately 25.4 million rentable square feet that were approximately 95.5% leased (based on rentable square feet).  These properties consisted of (i) 229 properties located on the island of Oahu, HI, or our Hawaii Properties, which included approximately 17.8 million rentable square feet that are primarily lands leased to industrial and commercial tenants and (ii) 43 office and industrial properties located in 18 states throughout the mainland United States, or our Mainland Properties, with approximately 7.6 million rentable square feet.

Property Operations

As of June 30, 2013, 95.5% of our rentable square feet were leased, compared to 95.6% of our rentable square feet as of June 30, 2012.  Occupancy data for 2013 and 2012 is as follows (square feet in thousands):

	All Properties		Comparable Properties (1)
	As of June 30,		As of June 30,
	2013	2012	2013	2012
Total properties	272	253	251	251
Total rentable square feet	25,391	21,950	21,393	21,404
Percent leased (2)	95.5%	95.6%	94.6%	95.4%

(1)Consists of properties that were owned continuously since January 1, 2012 by CWH until contributed to us on February 16, 2012.

(2)Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

The financial impact from the decline in occupancy at our comparable properties was more than offset by increases in rents during the period at some of our comparable leased land properties located in Hawaii, as further described below.

The average annualized effective rental rate per square foot, as defined below, for our properties for the periods ended June 30, 2013 and 2012 are as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Average annualized effective rental rate per square foot leased: (1)
All Properties	$	7.53	$	5.44	$	7.44	$	5.37
Comparable Properties (2)	$	5.70	$	5.36	$	5.73	$	5.35

(1)Average annualized effective rental rate per square foot leased represents annualized total revenue during the period specified divided by the average rentable square feet leased during the period specified.

(2)Comparable properties for the three months ended June 30, 2013 and 2012 consist of properties that we owned continuously since April 1, 2012. Comparable properties for the six months ended June 30, 2013 and 2012 consist of properties that were owned continuously since January 1, 2012 by CWH until contributed to us on February 16, 2012.

During the three months ended June 30, 2013, we entered lease renewal and new leases for approximately 52,000 square feet at weighted average rental rates that were approximately 38.0% higher than prior rates for the same space.  The weighted average lease term for leases entered during the second quarter of 2013 was 16.0 years.  Commitments for tenant improvements, leasing commission costs and concessions for leases entered during the three months ended June 30, 2013 totaled approximately $437,000, or approximately $0.53 per square foot per year of the weighted average lease term.  All leasing activity during the three months ended June 30, 2013 occurred at our Hawaii Properties.

During the three months ended June 30, 2013, we also executed two rent resets at our Hawaii Properties for approximately 69,000 square feet of land, at weighted average reset rates that were approximately 57.0% higher than prior rates.

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We currently believe that U.S. real estate leasing market conditions are slowly improving, but remain weak in many U.S. markets. However, because our weighted average remaining lease term (based on annualized rental revenue, as defined below) was approximately 11.4 years as of June 30, 2013, and because only 1.5% of our total rented square feet is scheduled to expire during the remainder of 2013, we do not expect our occupancy rate to materially change through the end of 2013. In addition, despite the recent recession and incomplete recovery of the U.S. economy, revenues from our Hawaii Properties, which represented approximately 45.0% of our total rental revenue for the three months ended June 30, 2013, have generally increased under our ownership and CWH’s prior ownership as leases for those properties have reset or renewed; this is because of the relatively long periods which have generally passed since these rents were last set. Nevertheless, because of the current U.S. and global economic uncertainty, there are too many variables for us to reasonably project what the financial impact of changing market conditions will be on our occupancy, rents or financial results.

As shown in the table below, approximately 1.5% of our rented square feet and approximately 1.2% of our total annualized rental revenue (determined as described in footnote (2) to the table below) are included in leases scheduled to expire by December 31, 2013. Lease renewals and rental rates for which available space may be relet in the future will depend on prevailing market conditions at the times these renewals, new leases and rent reset rates are negotiated. However, substantially all of our leases scheduled to expire through December 31, 2014 relate to our Hawaii Properties, and, as stated above, revenues from these properties have generally increased during our and CWH’s prior ownership as the leases for those properties have been reset or renewed. As of June 30, 2013, our lease expirations by year are as follows (square feet and dollars in thousands):

								Cumulative
				Cumulative			Percent of	Percent of
			Percent of	Percent of			Total	Total
	Number of		Total	Total	Annualized		Annualized	Annualized
	Tenants with	Rented	Rented	Rented	Rental		Rental	Rental
	Expiring	Square Feet	Square Feet	Square Feet	Revenue		Revenue	Revenue
Year	Leases	Expiring (1)	Expiring (1)	Expiring (1)	Expiring (2)		Expiring (2)	Expiring (2)
7/1/2013 - 12/31/2013	20	358	1.5%	1.5%	$	2,071	1.2%	1.2%
2014	12	249	1.0%	2.5%	1,026		0.6%	1.8%
2015	24	566	2.3%	4.8%	5,722		3.2%	5.0%
2016	22	1,288	5.3%	10.1%	8,497		4.7%	9.7%
2017	9	411	1.7%	11.8%	5,739		3.2%	12.9%
2018	12	1,590	6.6%	18.4%	14,939		8.3%	21.2%
2019	14	1,774	7.3%	25.7%	6,922		3.8%	25.0%
2020	5	318	1.3%	27.0%	4,207		2.3%	27.3%
2021	6	666	2.7%	29.7%	4,852		2.7%	30.0%
2022	66	3,062	12.6%	42.3%	21,261		11.8%	41.8%
Thereafter	84	13,960	57.7%	100.0%	104,813		58.2%	100.0%
	274	24,242	100.0%		$	180,049	100.0%
Weighted average remaining lease term (in years)		12.3			11.4

(1)Rented square feet is pursuant to existing leases as of June 30, 2013, and includes (i) space being fitted out for occupancy pursuant to existing leases, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

(2)Annualized rental revenue is the annualized contractual rents from our tenants pursuant to existing leases as of June 30, 2013, including straight line rent adjustments and estimated recurring expense reimbursements, but excluding lease value amortization.

A majority of our Hawaii Properties are lands leased for rents that are periodically reset based on fair market values, generally every five to ten years.  The following chart shows the annualized rental revenue as of June 30, 2013 scheduled to reset at our Hawaii lands.

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Scheduled Rent Resets At Hawaii Lands

(dollars in thousands)

	Annualized
	Rental Revenue (1)
	as of June 30,
	2013
	Scheduled
	to Reset
7/1/2013 — 12/31/2013	$	7,541	(2)
2014	4,685
2015	2,322
2016 and thereafter	24,137
Total	$	38,685

(1)Annualized rental revenue is the annualized contractual rents from our tenants pursuant to existing leases as of June 30, 2013, including straight line rent adjustments and estimated recurring expense reimbursements, but excluding lease value amortization.

(2)This amount includes rents currently being paid excluding rent resets not yet established.  However, rental income in our condensed consolidated statement of income includes estimated rental rate adjustments related to approximately 98% of the amount scheduled to be reset between July 1, 2013 and December 31, 2013.

With respect to our Hawaiian land leases, we intend to negotiate with our tenants as rents under their leases are scheduled to reset in order to achieve new rents based on the then current fair market values. If we are unable to reach agreement with a tenant on a rent reset, our Hawaiian land leases typically provide that rent is reset based on an appraisal process. Despite CWH’s and our prior experience with rent resets in Hawaii, our ability to increase rents when rent resets occur depends upon market conditions which are beyond our control. Accordingly, we can provide no assurance that the historical increases in rents which we and CWH have achieved in the past will be repeated in the future, and it is possible that rents could reset to a lower level if fair market values decrease.

We expect to seek to renew or extend the terms of leases relating to our Mainland Properties when they expire. Because of the capital many of these tenants have invested in improvements and because many of our properties may be of strategic importance to the tenants’ businesses, we believe that there is a greater likelihood that these tenants will renew or extend their leases when they expire as compared to tenants in a property with multiple tenants. However, we also believe that if a building previously occupied by a single tenant becomes vacant, it may take longer and cost more to locate a new tenant than when space becomes vacant in a multi-tenant property because in place improvements designed specifically for the needs of the prior single tenant may need to be replaced.

Whenever we extend, 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.

Our principal source of funds to meet operating expenses and debt service obligations and to pay distributions on our common shares is rents from tenants at our properties.  Rents are generally received from our tenants monthly in advance.  As of June 30, 2013, tenants representing 1% or more of our total annualized rental revenues were as follows (square feet in thousands):

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Tenants Representing 1% or More of Our Total Annualized Rental Revenues:

					% of
				% of Total	Annualized Rental
Tenant		Property Type	Sq. Ft. (1)	Sq. Ft. (1)	Revenue (2)	Expiration
1	Bank of America, N.A.	Mainland Properties	554	2.3%	8.1%	1/31/2026
2	Orbital Sciences Corporation	Mainland Properties	337	1.4%	5.7%	6/30/2023
3	Cinram Group, Inc.	Mainland Properties	1,371	5.7%	5.1%	8/30/2032
4	Novell, Inc.	Mainland Properties	406	1.7%	4.4%	11/30/2024
5	The Southern Company	Mainland Properties	448	1.8%	2.7%	12/31/2018
6	Tesoro Hawaii Corporation	Hawaii Properties	3,148	13.0%	2.4%	4/30/2019; 12/31/2019; 3/31/2024
7	Bookspan	Mainland Properties	502	2.1%	2.1%	9/23/2028
8	Vivint, Inc.	Mainland Properties	125	0.5%	2.0%	11/30/2024
9	Merkle Group, Inc.	Mainland Properties	120	0.5%	2.0%	5/31/2023
10	Shurtape Technologies, LLC	Mainland Properties	645	2.7%	1.9%	5/28/2024
11	Micron Technology, Inc.	Mainland Properties	96	0.4%	1.9%	4/30/2020
12	Stratus Technologies, Inc.	Mainland Properties	287	1.2%	1.9%	5/31/2016
13	Servco Pacific, Inc.	Hawaii Properties	537	2.2%	1.9%	1/31/2029; 2/29/2032
14	Colgate - Palmolive Company	Mainland Properties	142	0.6%	1.8%	1/31/2024
15	Hartford Fire Insurance Company	Mainland Properties	100	0.4%	1.5%	6/30/2021
16	Ruckus Wireless, Inc.	Mainland Properties	96	0.4%	1.5%	11/30/2022
17	Arrowhead General Insurance Agency, Inc.	Mainland Properties	95	0.4%	1.4%	7/31/2019
18	Valassis Communications, Inc.	Mainland Properties	268	1.1%	1.4%	9/30/2023
19	BCI Coca-Cola Bottling Company	Hawaii Properties	351	1.4%	1.3%	12/31/2022; 7/31/2039
20	Allied Building Products Corporation	Hawaii Properties	310	1.3%	1.3%	12/31/2028
21	Sprint Nextel Corporation	Mainland Properties	140	0.6%	1.2%	7/31/2018
22	Safeway Stores, Inc.	Hawaii Properties	146	0.6%	1.2%	10/30/2018
23	Manheim Services Corporation	Hawaii Properties	338	1.4%	1.2%	5/31/2016
24	Mattson Technology, Inc.	Mainland Properties	101	0.4%	1.2%	5/31/2017
25	Cisco Systems, Inc.	Mainland Properties	149	0.6%	1.1%	12/31/2015; 12/31/2017
	Total		10,812	44.7%	58.2%

(1)Square feet is pursuant to existing leases as of June 30, 2013, and includes (i) space being fitted out for occupancy pursuant to existing leases, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.

(2)Annualized rental revenue is the annualized contractual rents from our tenants pursuant to existing leases as of June 30, 2013, including straight line rent adjustments and estimated recurring expense reimbursements, but excluding lease value amortization.

Investment Activities (dollar amounts in thousands)

During the six months ended June 30, 2013, we acquired five properties with a combined 779,010 square feet for an aggregate purchase price of $158,320, excluding closing costs.  In July 2013, we acquired a property with 310,950 square feet for a purchase price of $143,600, excluding closing costs. For more information regarding properties that we have acquired, see Note 3 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Our strategy related to property acquisitions and dispositions is materially unchanged from that disclosed in our Annual Report.  We currently intend to expand our investments by primarily acquiring additional single tenant, net leased properties throughout the mainland United States. We believe that there are significant investment opportunities in single tenant, net leased properties, especially in suburban areas, where there is less capital dedicated to acquiring such properties at this time. We expect to use the extensive nationwide resources and services of RMR to locate and acquire such properties. One of our goals in acquiring additional properties will be to further diversify our sources of rents with the intention of improving the security of our revenues. Another goal will be to purchase properties that produce rents, less operating costs, that are greater than our capital costs to acquire the properties and, accordingly, allow us to increase distributions to our shareholders over time. We expect that most of our acquisition efforts will focus on office and industrial properties; however, we may consider acquiring other types of properties, including properties which are net leased to single tenants for retail uses and special purpose properties specifically suited to particular tenants’ requirements.  We may acquire additional properties in Hawaii, but we currently expect this will not be a significant part of our future acquisitions because there are limited opportunities to acquire properties in Hawaii, especially to acquire lands which are leased to third party tenants.  Also, we may explore redevelopment opportunities at some of our Hawaii Properties as leases expire or terminate.

Financing Activities (dollar amounts in thousands)

Our revolving credit facility includes a feature under which maximum borrowings may be increased to $1,000,000, in certain circumstances.  In February 2013, we partially exercised our option to increase the available borrowing amount under our revolving credit facility from $500,000 to $750,000.

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In July 2013, we sold 10,500,000 of our common shares in a public offering at a price of $28.25 per share, raising net proceeds of approximately $283,655.  We used the net proceeds from this offering to partially repay amounts outstanding under our revolving credit facility and for general business purposes, including the acquisition we made in July 2013 noted above, under the heading Investment Activities.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2013, Compared to Three Months Ended June 30, 2012 (dollars in thousands, except per share data)

	Comparable Properties Results (1)									Acquired Properties Results (2)						Consolidated Results
	Three Months Ended June 30,									Three Months Ended June 30,						Three Months Ended June 30,
					$			%						$								$			%
	2013		2012		Change			Change		2013		2012		Change		2013			2012			Change			Change
Revenues
Rental income	$	24,912	$	23,026	$	1,886		8.2%		$	13,794	$	728	$	13,066	$	38,706		$	23,754		$	14,952		62.9%
Tenant reimbursements and other income	4,285		4,136		149			3.6%		2,955		30		2,925		7,240			4,166			3,074			73.8%
Total revenues	$	29,197	$	27,162	$	2,035		7.5%		$	16,749	$	758	$	15,991	$	45,946		$	27,920		$	18,026		64.6%
Operating expenses:
Real estate taxes	3,737		3,658		79			2.2%		1,422		19		1,403		5,159			3,677			1,482			40.3%
Other operating expenses	1,847		1,996		(149		)	(7.5%	)	2,005		27		1,978		3,852			2,023			1,829			90.4%
Total operating expenses	5,584		5,654		(70		)	(1.2%	)	3,427		46		3,381		9,011			5,700			3,311			58.1%
Net operating income (3)	$	23,613	$	21,508	$	2,105		9.8%		$	13,322	$	712	$	12,610	36,935			22,220			14,715			66.2%
Other expenses
Depreciation and amortization																7,295			3,021			4,274			141.5%
Acquisition related costs																156			675			(519		)	(76.9%	)
General and administrative																2,957			1,634			1,323			81.0%
Total other expenses																10,408			5,330			5,078			95.3%
Operating income																26,527			16,890			9,637			57.1%
Interest expense																(3,779		)	(1,632		)	(2,147		)	131.6%
Equity in earnings of an investee																79			74			5			6.8%
Income before income tax expense																22,827			15,332			7,495			48.9%
Income tax expense																(40		)	—			(40		)	—
Net income																$	22,787		$	15,332		$	7,455		48.6%
Weighted average common shares outstanding																39,288			31,200			8,088			25.9%
Net income per common share																$	0.58		$	0.49		$	0.09		18.0%
Calculation of Funds From Operations and Normalized Funds From Operations (4)
Net income																$	22,787		$	15,332
Depreciation and amortization																7,295			3,021
Funds from operations																30,082			18,353
Acquisition related costs																156			675
Normalized funds from operations																$	30,238		$	19,028
Funds from operations per common share																$	0.77		$	0.59
Normalized funds from operations per common share																$	0.77		$	0.61

(1)    Consists of properties that we owned continuously since April 1, 2012.

(2)    Consists of properties we acquired during the period from April 1, 2012 to June 30, 2013.

(3)    We calculate net operating income, or NOI, as shown above.  We define NOI as income from our rental of real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions. We consider NOI to be an appropriate supplemental measure to net income because it may help both investors and management to understand the operations of our properties.  We use NOI internally to evaluate individual and company wide property level performance, and we believe that NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are incurred at the property level and may facilitate comparisons of our operating performance between periods.  The calculation of NOI excludes certain components of net income in order to provide results that are more closely related to our properties’ results of operations. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net income, operating income or cash flow from operating activities, determined in accordance with GAAP or as an indicator of our financial performance or liquidity, nor is this measure necessarily indicative of sufficient cash flow to fund all of our needs.  We believe that NOI may facilitate an understanding of our consolidated historical operating results.  This measure should be considered in conjunction with net income, operating income and cash flow from operating activities as presented in our Condensed Consolidated Statements of Income and Comprehensive Income and Condensed Consolidated Statements of Cash Flows.  Other REITs and real estate companies may calculate NOI differently than we do.

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(4)We calculate funds from operations, or FFO, and normalized funds from operations, or Normalized FFO, as shown above. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or NAREIT, which is net income, calculated in accordance with GAAP, plus real estate depreciation and amortization as well as other adjustments currently not applicable to us. Our calculation of Normalized FFO differs from NAREIT’s definition of FFO because we exclude acquisition related costs.  We consider FFO and Normalized FFO to be appropriate measures of operating performance for a REIT, along with net income, operating income and cash flow from operating activities. We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO may facilitate a comparison of our operating performance between periods and between us and other REITs. FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our status as a REIT, limitations in our revolving credit facility and term loan agreements, the availability of debt and equity capital to us, our expectation of our future capital requirements and operating performance, and our expected needs and availability of cash to pay our obligations. FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income, operating income or cash flow from operating activities, determined in accordance with GAAP, or as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs. We believe that FFO and Normalized FFO may facilitate an understanding of our consolidated historical operating results. These measures should be considered in conjunction with net income, operating income and cash flow from operating activities as presented in our Condensed Consolidated Statements of Income and Comprehensive Income and Condensed Consolidated Statements of Cash Flows. Other REITs and real estate companies may calculate FFO and Normalized FFO differently than we do.

References to changes in the income and expense categories below relate to the comparison of results for the three month period ended June 30, 2013, compared to the three month period ended June 30, 2012.

Consolidated Results

Rental income.  The increase in rental income primarily reflects our acquisition of two properties in June 2012 and 19 properties during the period from July 1, 2012 to June 30, 2013, plus increases from rent resets, partially offset by a 1.0% decline in occupancy at our comparable properties located in Hawaii.  Rental income includes non-cash straight line rent adjustments totaling approximately $3,034 for the 2013 period and approximately $1,294 for the 2012 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately ($226) for the 2013 period and approximately ($123) for the 2012 period.

Tenant reimbursements and other income.  The increase in tenant reimbursements and other income primarily reflects our acquisition of two properties in June 2012 and 19 properties during the period from July 1, 2012 to June 30, 2013.

Real estate taxes.  The increase in real estate taxes primarily reflects our acquisition of two properties in June 2012 and 19 properties during the period from July 1, 2012 to June 30, 2013.

Other operating expenses.  Other operating expenses primarily include property maintenance, environmental remediation, utilities, insurance, bad debt and property management fees.  The increase in other operating expenses primarily reflects our acquisition of two properties in June 2012 and 19 properties during the period from July 1, 2012 to June 30, 2013.

Depreciation and amortization.  The increase in depreciation and amortization primarily reflects our acquisition of two properties in June 2012 and 19 properties during the period from July 1, 2012 to June 30, 2013, plus depreciation of capital improvements made during the period from April 1, 2012 to June 30, 2013.

Acquisition related costs.  Acquisition related costs for the 2013 period primarily reflect accrued acquisition costs related to our July 2013 acquisition, plus additional acquisition costs related to acquisitions that took place during the three months ended March 31, 2013. Acquisition related costs for the 2012 period primarily reflect our acquisition of five properties during June and July 2012.

General and administrative.  General and administrative expenses primarily include fees pursuant to our business management agreement, legal fees, audit fees, trustee fees and non-cash equity compensation awarded to our Trustees, our officers and certain other RMR employees. The increase in general and administrative expenses primarily reflects increased fees pursuant to our business management agreement resulting from our acquisition of two properties in June 2012 and 19 properties during the period from July 1, 2012 to June 30, 2013, plus other administrative expenses as a result of our becoming a separate public company.

Interest expense.  The increase in interest expense reflects a larger average outstanding debt balance for the 2013 period compared to the 2012 period primarily due to our obtaining our term loan and our assumption of mortgage debt after June 30, 2012.

Equity in earnings of an investee. Equity in earnings of an investee represents our proportionate share of earnings from our investment in AIC.

Income tax expense.  Income tax expense represents state income tax expense.

Net income.  The increase in net income for the 2013 period compared to the 2012 period reflects the changes noted above.

15

Weighted average common shares outstanding.  The number of common shares as of June 30, 2013 used to determine our net income per share primarily includes shares issued to CWH through February 2012, shares sold in our IPO in March 2012 and shares sold in our public offering in December 2012. The increase in weighted average common shares outstanding primarily reflects these shares being outstanding for the entire three month period ended June 30, 2013.

Net income per common share.  The increase in net income per common share primarily reflects the increase in net income noted above, as well as the increase in weighted average common shares outstanding noted above.

Comparable Property Results

Rental income.  The increase in rental income primarily reflects increases from rent resets, partially offset by the decline in occupancy at our comparable properties located in Hawaii.

Tenant reimbursements and other income.  The modest increase in tenant reimbursements and other income primarily reflects increases in real estate tax and operating expense reimbursements from tenants.

Real estate taxes.  The modest increase in real estate taxes reflects general valuation and rate increases throughout our comparable property portfolio.

Other operating expenses.  The decrease in other operating expenses primarily reflects a decrease in non-recoverable roof repairs and other non-recoverable expenses incurred throughout our comparable property portfolio.

Six Months Ended June 30, 2013, Compared to Six Months Ended June 30, 2012 (dollars in thousands, except per share data)

	Comparable Properties Results (1)									Acquired Properties Results (2)						Consolidated Results
	Six Months Ended June 30,									Six Months Ended June 30,						Six Months Ended June 30,
					$			%						$								$			%
	2013		2012 (3)		Change			Change		2013		2012 (3)		Change		2013			2012 (3)			Change			Change
Revenues
Rental income	$	49,860	$	47,100	$	2,760		5.9%		$	26,304	$	728	$	25,576	$	76,164		$	47,828		$	28,336		59.2%
Tenant reimbursements and other income	8,389		7,650		739			9.7%		5,253		29		5,224		13,642			7,679			5,963			77.7%
Total revenues	$	58,249	$	54,750	$	3,499		6.4%		$	31,557	$	757	$	30,800	$	89,806		$	55,507		$	34,299		61.8%
Operating expenses:
Real estate taxes	7,486		7,299		187			2.6%		2,299		19		2,280		9,785			7,318			2,467			33.7%
Other operating expenses	3,646		3,772		(126		)	(3.3%	)	3,454		28		3,426		7,100			3,800			3,300			86.8%
Total operating expenses	11,132		11,071		61			0.6%		5,753		47		5,706		16,885			11,118			5,767			51.9%
Net operating income (4)	$	47,117	$	43,679	$	3,438		7.9%		$	25,804	$	710	$	25,094	72,921			44,389			28,532			64.3%
Other expenses
Depreciation and amortization																13,960			5,794			8,166			140.9%
Acquisition related costs																689			675			14			2.1%
General and administrative																5,676			3,038			2,638			86.8%
Total other expenses																20,325			9,507			10,818			113.8%
Operating income																52,596			34,882			17,714			50.8%
Interest expense																(7,252		)	(1,969		)	(5,283		)	268.3%
Equity in earnings of an investee																155			74			81			109.5%
Income before income tax expense																45,499			32,987			12,512			37.9%
Income tax expense																(80		)	—			(80		)	—
Net income																$	45,419		$	32,987		$	12,432		37.7%
Weighted average common shares outstanding																39,285			22,202
Net income per common share																$	1.16		$	1.49
Calculation of Funds From Operations and Normalized Funds From Operations (5)
Net income																$	45,419		$	32,987
Depreciation and amortization																13,960			5,794
Funds from operations																59,379			38,781
Acquisition related costs																689			675
Normalized funds from operations																$	60,068		$	39,456
Funds from operations per common share																$	1.51		$	1.75
Normalized funds from operations per common share																$	1.53		$	1.78

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(1)Consists of properties that were owned continuously since January 1, 2012 by CWH until contributed to us on February 16, 2012.

(2)Consists of properties we acquired after our IPO.

(3)Results of operations for the six months ended June 30, 2012 have been derived from our results for the period of time we have been a public company and from certain financial information of CWH prior to our becoming a public company.

(4)See footnote (3) on page 14 for the definition of NOI.

(5)See footnote (4) on page 15 for the definitions of FFO and Normalized FFO.

References to changes in the income and expense categories below relate to the comparison of results for the six month period ended June 30, 2013, compared to the six month period ended June 30, 2012.

Consolidated Results

Rental income.  The increase in rental income primarily reflects our acquisition of two properties in June 2012 and 19 properties during the period from July 1, 2012 to June 30, 2013, plus increases from rent resets, partially offset by a 1.0% decline in occupancy at our comparable properties located in Hawaii. Rental income includes non-cash straight line rent adjustments totaling approximately $5,655 for the 2013 period and approximately $2,067 for the 2012 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately ($496) for the 2013 period and approximately ($239) for the 2012 period.

Tenant reimbursements and other income.  The increase in tenant reimbursements and other income primarily reflects our acquisition of two properties in June 2012 and 19 properties during the period from July 1, 2012 to June 30, 2013, plus adjustments to reduce 2011 estimated tenant reimbursement billings during the first quarter of 2012 at our comparable properties based on actual reimbursable expense amounts.

Real estate taxes.  The increase in real estate taxes primarily reflects our acquisition of two properties in June 2012 and 19 properties during the period from July 1, 2012 to June 30, 2013.

Other operating expenses.  Other operating expenses primarily include property maintenance, environmental remediation, utilities, insurance, bad debt and property management fees.  The increase in other operating expenses primarily reflects our acquisition of two properties in June 2012 and 19 properties during the period from July 1, 2012 to June 30, 2013.

Depreciation and amortization.  The increase in depreciation and amortization primarily reflects our acquisition of two properties in June 2012 and 19 properties during the period from July 1, 2012 to June 30, 2013, plus depreciation of capital improvements made since January 1, 2012.

Acquisition related costs.  Acquisition related costs for the 2013 period primarily reflect our acquisition of five properties in the first quarter of 2013, plus accrued acquisition costs related to our July 2013 acquisition. Acquisition related costs for the 2012 period primarily reflect our acquisition of five properties in June and July 2012.

General and administrative.  General and administrative expenses primarily include fees pursuant to our business management agreement, legal fees, audit fees, trustee fees and non-cash equity compensation awarded to our Trustees, our officers and certain other RMR employees. General and administrative expenses were allocated to us by CWH through March 12, 2012, the date we completed our IPO, and are our direct costs since that date. The increase in general and administrative expenses primarily reflects the increased costs for legal, accounting, trustees fees, internal audit expenses, share grant awards and other administrative expenses as a result of our becoming a separate public company, plus increased fees pursuant to our business management agreement resulting from our acquisition of two properties in June 2012 and 19 properties during the period from July 1, 2012 to June 30, 2013.

Interest expense.  The increase in interest expense reflects a larger average outstanding debt balance for the 2013 period compared to the 2012 period primarily due to our obtaining our term loan, borrowings under our credit facility and assumption of mortgage debt since completing our IPO in March 2012.

Equity in earnings of an investee. Equity in earnings of an investee represents our proportionate share of earnings from our investment in AIC.

Income tax expense.  Income tax expense represents state income tax expense.

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Net income.  The increase in net income for the 2013 period compared to the 2012 period reflects the changes noted above.

Weighted average common shares outstanding.  The number of common shares as of June 30, 2013 used to determine our net income per share primarily includes shares issued to CWH through February 2012, shares sold in our IPO in March 2012 and shares sold in our public offering in December 2012. The increase in weighted average common shares outstanding primarily reflects these shares being outstanding for the entire six month period ended June 30, 2013.

Net income per common share.  The decrease in net income per common share primarily reflects the increase in weighted average common shares outstanding noted above, as well as the changes to net income noted above.

Comparable Property Results

Rental income.  The increase in rental income primarily reflects increases from rent resets, partially offset by the decline in occupancy at our comparable properties located in Hawaii.

Tenant reimbursements and other income.  The increase in tenant reimbursements and other income primarily reflects adjustments to reduce 2011 estimated tenant reimbursement billings during the first quarter of 2012.

Real estate taxes.  The modest increase in real estate taxes reflects general valuation and rate increases throughout our comparable property portfolio.

Other operating expenses.  The decrease in other operating expenses primarily reflects a decrease in non-recoverable roof repairs and other non-recoverable expenses incurred throughout our comparable property portfolio.

LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources (dollars in thousands)

Our principal source of funds to meet operating expenses, debt service obligations and pay distributions on our common shares is rents from tenants at our properties.  Under CWH’s prior ownership, the flow of funds from the properties CWH transferred to us in February 2012 historically had been sufficient to pay operating expenses for those properties. Our operating expenses as a separate public company are higher than the operating expenses when our properties were directly under CWH’s control.  Nonetheless, we believe that our operating cash flow will be sufficient to meet our operating expenses, debt service obligations and planned distributions on our shares for the next 12 months and for the reasonably foreseeable future thereafter.  Our future cash flows from operating activities will depend primarily upon our ability to:

·maintain or improve the occupancy of, and the rent rates at, our properties;

·control our operating cost increases; and

·purchase additional properties which produce cash flows in excess of our costs of acquisition capital and property operating expenses.

Cash flows provided by (used in) operating, investing and financing activities were approximately $52,553, ($165,459) and $104,819, respectively, for the six months ended June 30, 2013, and $39,758, ($121,310) and $91,545, respectively, for the six months ended June 30, 2012. The change in the operating activities category for the six months ended June 30, 2013 compared to the corresponding prior year period is primarily due to increased operating cash flow from our acquisition of two properties in June 2012 and 19 properties during the period from July 1, 2012 to June 30, 2013. The change in the investing activities category for the six months ended June 30, 2013 compared to the corresponding prior year period is primarily due to our acquisition of three properties during the first quarter of 2013 and the payment of a deposit related to our July 2013 acquisition exceeding the investing activities that we made in the 2012 period, which primarily includes our acquisition of two properties in June 2012 and our investment in AIC in May 2012.

The change in the financing activities category for the six months ended June 30, 2013 compared to the corresponding prior year period is primarily due to (i) our IPO in March 2012 and borrowings under our revolving credit facility offset by repayment in full of the CWH Note in 2012, (ii) borrowings under our revolving credit facility to fund general business operations, including our acquisitions and (iii) distributions to our common shareholders in 2013.

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Our Investment and Financing Liquidity and Resources (dollars in thousands except per share data)

In order to fund acquisitions and to meet cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions or pay operating or capital expenses, we maintain a $750,000 revolving credit facility (increased from $500,000 in February 2013) with a group of institutional lenders. The maturity date of our revolving credit facility is March 11, 2016 and, subject to the payment of an extension fee and meeting certain other conditions, our revolving credit facility includes an option for us to extend the stated maturity date by one year to March 11, 2017. In addition, our revolving credit facility also includes a feature under which maximum borrowings may be increased to up to $1,000,000 in certain circumstances. Borrowings under our revolving credit facility bear interest at LIBOR plus a premium. We also pay a facility fee on the total amount of lending commitments under our revolving credit facility. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our leverage or credit ratings.  At June 30, 2013, the interest rate premium on our revolving credit facility was 130 basis points and our facility fee was 30 basis points. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. As of June 30, 2013, the interest rate payable on borrowings under our revolving credit facility was 1.50%. As of June 30, 2013 and July 26, 2013, we had $235,000 and $75,000, respectively, outstanding under our revolving credit facility and $515,000 and $675,000, respectively available to borrow under our revolving credit facility.

We have a $350,000 unsecured term loan that matures on July 11, 2017 and is prepayable by us at any time without penalty.  In addition, the term loan includes a feature under which maximum borrowings may be increased to up to $700,000 in certain circumstances. As of June 30, 2013, the interest rate payable on borrowings under our term loan was 1.75%.

As of June 30, 2013, we had $12,286 of cash and cash equivalents. We expect to use cash balances, borrowings under our revolving credit facility, net proceeds from offerings of equity or debt securities, and the cash flow from our operations to fund debt repayments, future property acquisitions and other general business purposes.

When significant amounts are outstanding under our revolving credit facility, or as the maturity of our revolving credit facility and term loan approaches, we expect to explore alternatives for repaying or refinancing such amounts. Such alternatives may include incurring additional term debt, issuing new equity securities, extending the maturity of our revolving credit facility and entering into a new or expanded revolving credit facility.

The completion and the costs of any future financings will depend primarily upon market conditions. In particular, the feasibility and cost of any future debt financings will depend primarily on credit markets and our then current creditworthiness. We have no control over market conditions. Potential lenders in future debt transactions will evaluate our creditworthiness and our ability to fund required debt service and repay principal balances when they become due by reviewing our results of operations, financial condition, business practices and plans and our ability to maintain our earnings, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. We intend to conduct our business activities in a manner which will continue to afford us reasonable access to capital for investment and financing activities, but there can be no assurance that we will be able to successfully carry out this intention.

In February 2013, we paid a $0.42 per share distribution to our common shareholders. In April 2013, we announced a new quarterly distribution rate of $0.44 per share which we paid in May 2013. We funded these distributions using existing cash balances and borrowings under our revolving credit facility.  In July 2013, we declared a distribution payable to our common shareholders of record on July 24, 2013, in the amount of $0.44 per share. We expect to pay this distribution on or about August 20, 2013 using existing cash balances and borrowings under our revolving credit facility.

During the three and six months ended June 30, 2013 and 2012, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013			2012
Tenant improvements	$	656	$	30	$	894		$	106
Leasing costs	956		489		1,169			776
Building improvements (1)	71		192		86			199
Development, redevelopment and other activities (2)	363		71		68		(3)	216
	$	2,046	$	782	$	2,217		$	1,297

(1)Building improvements generally include: (i) expenditures to replace obsolete building components and (ii) expenditures that extend the useful life of existing assets.

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(2)Development, redevelopment and other activities generally include (i) major capital expenditures that are identified at the time of a property acquisition and incurred within a short time period after acquiring the property and (ii) major capital expenditure projects that reposition a property or result in new sources of revenues.

(3)Includes defective building materials received and accrued for during the fourth quarter of 2012 that were returned to the supplier during the first quarter of 2013.

During the three months ended June 30, 2013, commitments made for expenditures, such as tenant improvements and leasing costs in connection with leasing space, were as follows (dollars and square feet in thousands, except per square foot amounts):

	New Leases		Renewals		Totals
Square feet leased during the period	51		1		52
Total leasing costs and concession commitments (1)	$	432	$	5	$	437
Total leasing costs and concession commitments per square foot (1)	$	8.47	$	5.00	$	8.40
Weighted average lease term by square feet (years)		16.4	3.3		16.0
Total leasing costs and concession commitments per square foot per year (1)	$	0.52	$	1.52	$	0.53

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

Off Balance Sheet Arrangements

As of June 30, 2013, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Debt Covenants

Our principal debt obligations at June 30, 2013 were borrowings outstanding under our revolving credit facility, our term loan and two secured mortgage loans assumed in connection with certain of our acquisitions.  Our mortgage loans are non-recourse, subject to certain limited exceptions, and do not contain any material financial covenants.  Our revolving credit facility agreement and our term loan agreement contain a number of covenants which restrict our ability to incur debts in excess of calculated amounts, restrict our ability to make distributions under certain circumstances and generally require us to maintain certain financial ratios. Our revolving credit facility and term loan provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default or upon a change of control, including a termination of the business management agreement or property management agreement with RMR. We believe we were in compliance with all of our terms and covenants under our revolving credit facility agreement and our term loan agreement at June 30, 2013.

Emerging Growth Company

We are and we will remain an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, until the earliest to occur of (1) the last day of the fiscal year during which our total annual gross revenues equal or exceed $1.0 billion (subject to adjustment for inflation), (2) the last day of the fiscal year following the fifth anniversary of our IPO, (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt, or (4) the date on which we are deemed a large accelerated filer under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. Additionally, we are eligible to take advantage of certain other exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We have chosen to “opt out” of the extended transition period related to new or revised accounting standards, and as a result we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. We have availed ourselves of certain scaled compensation disclosure pursuant to the JOBS Act in the past and may continue to do so and we may elect to take advantage of additional exemptions available to us under the JOBS Act.

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Related Person Transactions (dollars in thousands)

We have relationships and historical and continuing transactions with our Trustees, our executive officers, RMR, CWH, AIC and other companies to which RMR provides management services and others affiliated with them.  For example, we have no employees and personnel and various services we require to operate our business are provided to us by RMR pursuant to management agreements; and RMR is owned by our Managing Trustees.  Also, as a further example, we have relationships with other companies to which RMR provides management services and which have trustees, directors and officers who are also trustees, directors or officers of ours or RMR, including: CWH, which previously wholly owned us, which currently is our largest shareholder and which transferred 251 properties to us in connection with our IPO; we, RMR, CWH and five other companies to which RMR provides management services each currently own 12.5% of AIC, and we and the other shareholders of AIC have property insurance in place providing $500,000 of coverage pursuant to an insurance program arranged by AIC and with respect to which AIC is a reinsurer of certain coverage amounts.  For further information about these and other such relationships and related person transactions, please see Note 8 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.  In addition, for more information about these transactions and relationships, please see elsewhere in this Quarterly Report on Form 10-Q, including “Warning Concerning Forward Looking Statements” in Part I, and our Annual Report, our definitive Proxy Statement for the Annual Meeting of Shareholders held on May 13, 2013, or our Proxy Statement, and our other filings with the Securities and Exchange Commissions, or SEC, including Note 9 to our consolidated financial statements included in our Annual Report, the sections captioned “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” and “Warning Concerning Forward Looking Statements” of our Annual Report and the section captioned “Related Person Transactions and Company Review of Such Transactions” and the information regarding our Trustees and executive officers in our Proxy Statement.  In addition, please see the section captioned “Risk Factors” of our Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships.  Our filings with the SEC, including our Annual Report and our Proxy Statement, are available at the SEC’s website at www.sec.gov.  Copies of certain of our agreements with these related parties, including our business management agreement and property management agreement with RMR, various agreements we have entered into with CWH and our shareholders agreement with AIC and its shareholders, are publicly available as exhibits to our public filings with the SEC and accessible at the SEC’s website.

We believe that our agreements with RMR, CWH and AIC are on commercially reasonable terms.  We also believe that our relationships with RMR, CWH and AIC and their affiliated and related persons and entities benefit us and, in fact, provide us with competitive advantages in operating and growing our business.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk (dollar amounts in thousands)

We are exposed to risks associated with market changes in interest rates. We manage our exposure to interest rate risk by monitoring available financing alternatives.  Our strategy to manage exposure to changes in interest rates is materially unchanged since December 31, 2012. Other than as described below, we do not currently expect any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.

At June 30, 2013, our outstanding fixed rate debt consisted of the following mortgage notes:

			Annual	Annual			Interest
	Principal		Interest	Interest			Payments
Debt	Balance (1)		Rate (1)	Expense (1)		Maturity	Due
Mortgage note	$	18,339	5.950%	$	1,091	2017	Monthly
Mortgage note	7,500		5.689%	427		2016	Monthly
	$	25,839		$	1,518

(1)The principal balances, annual interest rates and annual interest expense are the amounts stated in, or determined pursuant to, the applicable contracts. In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we assumed these debts. See Note 5 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Because these mortgage notes bear interest at a fixed rate, changes in market interest rates during the term of these debts will not affect our interest obligations. If these debts were refinanced at interest rates which are 100 bps higher or lower than shown above, our per annum interest cost would increase or decrease by approximately $258.

Changes in market interest rates would affect the fair value of our fixed rate debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt. Based on the balances outstanding at June 30, 2013, and discounted cash flow analyses through the respective maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligations, a hypothetical immediate 100 bps change in interest rates would change the fair value of those obligations by approximately $915.

At June 30, 2013, our floating rate debt consisted of a combined total of $585,000 outstanding under our revolving credit facility and our term loan.

Our revolving credit facility matures in March 2016 and, subject to our meeting certain conditions, including our payment of an extension fee, we have the option to extend the stated maturity date by one year to March 2017.  No principal repayments are required under our revolving credit facility or term loan prior to maturity, and prepayments may be made at any time without penalty.

Borrowings under our revolving credit facility and term loan are in U.S. dollars and bear interest at LIBOR plus a premium that is subject to adjustment based upon changes to our leverage or credit ratings.  Accordingly, we are vulnerable to changes in U.S. dollar based short term rates, specifically LIBOR.  There have been recent governmental inquiries regarding the setting of LIBOR, which may result in changes to that process that could have the effect of increasing LIBOR.  In addition, upon renewal or refinancing of our revolving credit facility or our term loan, we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit risk.  Generally, a change in interest rates would not affect the value of our floating rate debt but would affect our operating results.  The following table presents the approximate impact a 100 bps increase in interest rates would have on our annual floating rate interest expense at June 30, 2013:

	Impact of an Increase in Interest Rates
				Total Interest		Annual
	Interest Rate	Outstanding		Expense		Earnings Per
	Per Year (1)	Debt		Per Year		Share Impact
At June 30, 2013	1.65%	$	585,000	$	9,653	$	0.25
100 bps increase	2.65%	$	585,000	$	15,503	$	0.39

(1)Weighted based on the respective interest rates and outstanding borrowings under our revolving credit facility and term loan as of June 30, 2013.

The following table presents the impact a 100 bps increase in interest rates would have on our annual floating rate interest expense at June 30, 2013 if we were fully drawn on our revolving credit facility and our term loan remained outstanding:

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	Impact of an Increase in Interest Rates
				Total Interest		Annual
	Interest Rate	Outstanding		Expense		Earnings Per
	Per Year (1)	Debt		Per Year		Share Impact
At June 30, 2013	1.58%	$	1,100,000	$	17,380	$	0.44
100 bps increase	2.58%	$	1,100,000	$	28,380	$	0.72

(1)Weighted based on the respective interest rates and outstanding borrowings under our revolving credit facility and term loan as of June 30, 2013 assuming we were fully drawn.

The foregoing tables show the impact of an immediate increase in floating interest rates.  If interest rates were to increase gradually over time, the impact would be spread over time.  Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amount of our revolving credit facility, term loan or other floating rate debt.

Item 4.  Controls and Procedures

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our Managing Trustees, our President and our Treasurer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to the Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, our Managing Trustees, our President and our Treasurer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS QUARTERLY REPORT ON FORM 10-Q 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” OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. FORWARD LOOKING STATEMENTS IN THIS REPORT RELATE TO VARIOUS ASPECTS OF OUR BUSINESS, INCLUDING:

·THE LIKELIHOOD THAT OUR TENANTS WILL PAY RENT, RENEW LEASES, ENTER INTO NEW LEASES OR BE AFFECTED BY CYCLICAL ECONOMIC CONDITIONS,

·THE LIKELIHOOD THAT OUR RENTS MAY INCREASE WHEN RENTS ARE RESET AT OUR LEASED LANDS IN HAWAII,

·OUR ACQUISITIONS OF PROPERTIES,

·OUR ABILITY TO COMPETE FOR ACQUISITIONS AND TENANCIES EFFECTIVELY,

·OUR ABILITY TO PAY DISTRIBUTIONS TO OUR SHAREHOLDERS AND THE AMOUNT OF SUCH DISTRIBUTIONS,

·OUR ABILITY TO PAY INTEREST ON AND PRINCIPAL OF OUR DEBT,

·THE FUTURE AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY,

·OUR POLICIES AND PLANS REGARDING INVESTMENTS, FINANCINGS AND DISPOSITIONS,

·OUR TAX STATUS AS A REIT,

·OUR ABILITY TO RAISE EQUITY OR DEBT CAPITAL,

·OUR BELIEF THAT THERE IS A LIKELIHOOD THAT OUR SINGLE TENANT LESSEES WILL EXTEND OR RENEW THEIR LEASES WITH US,

·OUR EXPECTATION THAT WE WILL BENEFIT FINANCIALLY BY PARTICIPATING IN AIC, WITH RMR, AND COMPANIES TO WHICH RMR PROVIDES MANAGEMENT SERVICES,

·THE CREDIT QUALITY OF OUR TENANTS, AND

·OTHER MATTERS.

OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS.  FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FORWARD LOOKING STATEMENTS AND UPON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION, FFO, NORMALIZED FFO, NOI, CASH FLOWS, LIQUIDITY AND PROSPECTS INCLUDE, BUT ARE NOT LIMITED TO:

·THE IMPACT OF CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS ON US AND OUR TENANTS,

·COMPETITION WITHIN THE REAL ESTATE INDUSTRY, PARTICULARLY IN THOSE MARKETS IN WHICH OUR PROPERTIES ARE LOCATED,

·COMPLIANCE WITH, AND CHANGES TO, FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS, ACCOUNTING RULES, TAX LAWS AND SIMILAR MATTERS,

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·LIMITATIONS IMPOSED ON OUR BUSINESS AND OUR ABILITY TO SATISFY COMPLEX RULES IN ORDER FOR US TO QUALIFY AS A REIT FOR U.S. FEDERAL INCOME TAX PURPOSES,

·ACTUAL AND POTENTIAL CONFLICTS OF INTEREST WITH OUR MANAGING TRUSTEES, CWH, RMR, AIC, AND THEIR RELATED PERSONS AND ENTITIES, AND

·ACTS OF TERRORISM, OUTBREAKS OF SO CALLED PANDEMICS OR OTHER MANMADE OR NATURAL DISASTERS BEYOND OUR CONTROL.

FOR EXAMPLE:

·OUR ABILITYTO MAKE FUTURE DISTRIBUTIONS DEPENDS UPON A NUMBER OF FACTORS, INCLUDING OUR FUTURE EARNINGS AND THE CAPITAL COSTS WE INCUR TO LEASE OUR PROPERTIES.  WE MAY BE UNABLE TO MAINTAIN OUR CURRENT RATE OF DISTRIBUTIONS, AND FUTURE DISTRIBUTIONS MAY BE SUSPENDED,

·CONTINGENCIES IN OUR FUTURE ACQUISITION AGREEMENTS MAY NOT BE SATISFIED AND COULD RESULT IN THOSE ACQUISITIONS NOT OCCURRING OR BEING DELAYED OR IN THE TERMS OF THE ACQUISITIONS CHANGING,

·OUR ABILITY TO GROW OUR BUSINESS AND INCREASE OUR DISTRIBUTIONS DEPENDS IN LARGE PART UPON OUR ABILITY TO BUY PROPERTIES AND LEASE THEM FOR RENTS, LESS PROPERTY OPERATING COSTS, THAT EXCEED OUR CAPITAL COSTS.  WE MAY BE UNABLE TO IDENTIFY PROPERTIES THAT WE WANT TO ACQUIRE OR TO NEGOTIATE ACCEPTABLE PURCHASE PRICES, ACQUISITION FINANCING OR LEASE TERMS FOR NEW PROPERTIES,

·RENTS THAT WE CAN CHARGE AT OUR PROPERTIES MAY DECLINE BECAUSE OF CHANGING MARKET CONDITIONS OR OTHERWISE,

·A MAJORITY OF OUR HAWAII PROPERTIES ARE LANDS LEASED FOR RENTS THAT ARE PERIODICALLY RESET BASED ON FAIR MARKET VALUES. THIS QUARTERLY REPORT STATES THAT REVENUES FROM OUR PROPERTIES IN HAWAII HAVE GENERALLY INCREASED DURING OUR AND CWH’S PRIOR OWNERSHIP AS THE LEASES FOR THOSE PROPERTIES HAVE BEEN RESET OR RENEWED.  THERE CAN BE NO ASSURANCE THAT REVENUES FROM OUR HAWAII PROPERTIES WILL INCREASE AS A RESULT OF FUTURE RENT RESETS OR LEASE RENEWALS, AND FUTURE RESET RENTS COULD DECREASE,

·WE MAY NOT SUCCEED IN DIVERSIFYING OUR TENANTS AND ANY DIVERSIFICATION WE MAY ACHIEVE MAY NOT MITIGATE OUR PORTFOLIO RISKS OR IMPROVE THE SECURITY OF OUR REVENUES OR OUR OPERATING PERFORMANCE,

·OUR INTENTION TO REDEVELOP CERTAIN OF OUR HAWAII PROPERTIES MAY NOT BE REALIZED OR BE SUCCESSFUL,

·THE CURRENT HIGH UNEMPLOYMENT RATE IN THE UNITED STATES MAY CONTINUE FOR A LONG TIME OR BECOME WORSE IN THE FUTURE.  SUCH CIRCUMSTANCES MAY REDUCE DEMAND FOR LEASING OFFICE AND INDUSTRIAL SPACE.  IF THE DEMAND FOR LEASING OFFICE AND INDUSTRIAL SPACE REMAINS OR BECOMES FURTHER DEPRESSED, WE MAY BE UNABLE TO RENEW LEASES WITH OUR TENANTS AS LEASES EXPIRE OR ENTER INTO NEW LEASES AT RENTAL RATES AS HIGH AS EXPIRING RATES AND OUR FINANCIAL RESULTS MAY DECLINE,

·OUR BELIEF THAT THERE IS A LIKELIHOOD THAT TENANTS MAY RENEW OR EXTEND OUR LEASES WHEN THEY EXPIRE WHENEVER THEY MAY HAVE MADE SIGNIFICANT INVESTMENTS IN THE LEASED PROPERTIES MAY NOT BE REALIZED,

·CONTINUED AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY IS SUBJECT TO OUR SATISFYING CERTAIN FINANCIAL COVENANTS AND MEETING OTHER

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CUSTOMARY CREDIT FACILITY CONDITIONS,

·ACTUAL COSTS UNDER OUR REVOLVING CREDIT FACILITY WILL BE HIGHER THAN LIBOR PLUS A PREMIUM BECAUSE OF OTHER FEES AND EXPENSES ASSOCIATED WITH OUR REVOLVING CREDIT FACILITY,

·SOME OF OUR TENANTS MAY NOT RENEW EXPIRING LEASES, AND WE MAY BE UNABLE TO LOCATE NEW TENANTS TO MAINTAIN OR INCREASE THE HISTORICAL OCCUPANCY RATES OF, OR RENTS FROM, OUR PROPERTIES,

·WE MAY BE UNABLE TO REPAY OUR DEBT OBLIGATIONS WHEN THEY BECOME DUE,

·INCREASING THE MAXIMUM BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY AND OUR TERM LOAN IS SUBJECT TO OBTAINING ADDITIONAL COMMITMENTS FROM LENDERS, WHICH MAY NOT OCCUR,

·THIS QUARTERLY REPORT ON FORM 10-Q STATES THAT THE PREMIUM USED TO DETERMINE INTEREST AND THE FACILITY FEE WE PAY ON OUR REVOLVING CREDIT FACILITY AND TERM LOAN MAY BE BASED ON OUR CREDIT RATINGS.  WE DO NOT CURRENTLY HAVE ANY CREDIT RATINGS.  THERE CAN BE NO ASSURANCES THAT WE WILL OBTAIN CREDIT RATINGS IN THE FUTURE OR WHAT THOSE RATINGS MAY BE, AND

·THIS QUARTERLY REPORT ON FORM 10-Q STATES THAT WE BELIEVE THAT OUR CONTINUING RELATIONSHIPS WITH CWH, RMR, AIC AND THEIR AFFILIATED AND RELATED PERSONS AND ENTITIES MAY BENEFIT US AND PROVIDE US WITH COMPETITIVE ADVANTAGES IN OPERATING AND GROWING OUR BUSINESS.  IN FACT, THE ADVANTAGES WE BELIEVE WE MAY REALIZE FROM THESE RELATIONSHIPS MAY NOT MATERIALIZE.

THESE RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH ARE BEYOND OUR CONTROL, SUCH AS NATURAL DISASTERS, CHANGES IN OUR TENANTS’ FINANCIAL CONDITIONS, THE MARKET DEMAND FOR LEASED SPACE OR CHANGES IN CAPITAL MARKETS OR THE ECONOMY GENERALLY.

THE INFORMATION CONTAINED ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q AND IN OUR ANNUAL REPORT, INCLUDING UNDER THE CAPTION “RISK FACTORS” OR INCORPORATED THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM OUR FORWARD LOOKING STATEMENTS.  OUR FILINGS WITH THE SEC ARE AVAILABLE AT THE SEC’S WEBSITE AT WWW.SEC.GOV.

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON OUR FORWARD LOOKING STATEMENTS.

EXCEPT AS REQUIRED BY LAW, WE DO NOT INTEND TO UPDATE OR CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

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STATEMENT CONCERNING LIMITED LIABILITY

THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING SELECT INCOME REIT, DATED MARCH 9, 2012, AS AMENDED, AS FILED WITH THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF SELECT INCOME REIT SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, SELECT INCOME REIT.  ALL PERSONS DEALING WITH SELECT INCOME REIT IN ANY WAY SHALL LOOK ONLY TO THE ASSETS OF SELECT INCOME REIT FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

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Part II.Other Information

Item 1. Legal Proceedings

On October 11, 2012, a group of commercial lessees of our Hawaii Properties filed suit against us in the Circuit Court of the First Circuit of the State of Hawaii seeking consolidation of rent-appraisal proceedings.  The dispute arose out of separate long-term lease agreements for 24 different properties, with each lease providing for appraisal proceedings to determine the reset rental price of the property.  The lessees have moved under Hawaii’s arbitration law for consolidation of those proceedings, asking to have rental prices for all 24 properties determined in a single proceeding before a single panel of appraisers.  We removed the case to the United States District Court for the District of Hawaii on November 9, 2012.  We opposed the lessees’ consolidation request and have moved to dismiss the court proceedings.  On June 27, 2013, the District Court held that consolidation of arbitration proceedings was not permitted under federal law and denied the lessees’ motion to consolidate.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

As previously reported, on May 13, 2013 we granted 2,000 of our common shares, valued at $27.61 per share, the closing price of our common shares on the NYSE on that day, to each of our five Trustees.  We made these grants pursuant to an exemption from registration contained in Section 4(a)(2) of the Securities Act.

Item 6. Exhibits

3.1Composite Copy of Amended and Restated Declaration of Trust, dated March 9, 2012, as amended to date. (Filed herewith.)

3.2Composite Copy of Amended and Restated Declaration of Trust, dated March 9, 2012, as amended to date (marked copy). (Filed herewith.)

4.1Form of Common Share Certificate. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012.)

10.1Summary of Trustee Compensation. (Incorporated by reference to the Company’s Current Report on Form 8-K dated May 13, 2013.)

31.1Rule 13a-14(a) Certification. (Filed herewith.)

31.2Rule 13a-14(a) Certification. (Filed herewith.)

31.3Rule 13a-14(a) Certification. (Filed herewith.)

31.4Rule 13a-14(a) Certification. (Filed herewith.)

32.1Section 1350 Certification. (Furnished herewith.)

101.1The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income and Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) related notes to these financial statements, tagged as blocks of text and detail. (Furnished herewith.)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SELECT INCOME REIT
By:	/s/ David M. Blackman
	David M. Blackman
	President and Chief Operating Officer
	Dated: August 2, 2013
By:	/s/ John C. Popeo
	John C. Popeo
	Treasurer and Chief Financial Officer
	(principal financial and accounting officer)
	Dated: August 2, 2013

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EX-3.1

Exhibit 3.1

SELECT INCOME REIT

AMENDED AND RESTATED DECLARATION OF TRUST

March 9, 2012

As Amended June 27, 2013

SELECT INCOME REIT

ARTICLES OF AMENDMENT AND RESTATEMENT

FIRST:  Select Income REIT, a Maryland real estate investment trust (the “Trust”), formed under Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland (“Title 8”), desires to amend and restate its Declaration of Trust as currently in effect and as hereinafter amended.

SECOND:  The following provisions are all the provisions of the Declaration of Trust currently in effect and as hereinafter amended:

ARTICLE I

FORMATION

Section 1.1            Formation.  The Trust is a real estate investment trust within the meaning of Title 8.  The Trust shall not be deemed to be a general partnership, limited partnership, joint venture, joint stock company or a corporation, but nothing herein shall preclude the Trust from being treated for tax purposes as an association under the Code (as defined in ARTICLE VII below); nor shall the Trustees or shareholders or any of them for any purpose be, nor be deemed to be, nor be treated in any way whatsoever as, liable or responsible hereunder as partners or joint venturers.

ARTICLE II

NAME

Section 2.1            Name.  The name of the Trust is:

Select Income REIT

Under circumstances in which the Board of Trustees of the Trust (the “Board of Trustees” or “Board”) determines that the use of the name of the Trust is not practicable or desirable, the Trust may use any other designation or name for the Trust.

ARTICLE III

PURPOSES AND POWERS

Section 3.1            Purposes.  The purposes for which the Trust is formed are to invest in and to acquire, hold, manage, administer, control and dispose of property and interests in property, including, without limitation or obligation, engaging in business as a real estate investment trust under the Code.

Section 3.2            Powers.  The Trust shall have all of the powers granted to real estate investment trusts by Title 8 and all other powers set forth in this Declaration of Trust which are not inconsistent with law and are appropriate to promote and attain the purposes set forth in this Declaration of Trust.

ARTICLE IV

RESIDENT AGENT

Section 4.1            Resident Agent.  The name of the resident agent of the Trust in the State of Maryland is CSC-Lawyers Incorporating Service Company, whose address is 7 St. Paul Street, Suite 1660, Baltimore, Maryland 21202.  The resident agent is a Maryland corporation.  The Trust may change such resident

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agent from time to time as the Board of Trustees shall determine.  The Trust may have such offices or places of business within or outside the State of Maryland as the Board of Trustees may from time to time determine.

ARTICLE V

BOARD OF TRUSTEES

Section 5.1            Powers.  Subject to any express limitations contained in this Declaration of Trust or in the Bylaws, (a) the business and affairs of the Trust shall be managed under the direction of the Board of Trustees and (b) the Board shall have full, exclusive and absolute power, control and authority over any and all property of the Trust.  The Board may take any action as in its sole judgment and discretion is necessary or appropriate to conduct the business and affairs of the Trust.  This Declaration of Trust shall be construed with the presumption in favor of the grant of power and authority to the Board.  Any construction of this Declaration of Trust or determination made in good faith by the Board concerning its powers and authority hereunder shall be conclusive.  The enumeration and definition of particular powers of the Trustees included in this Declaration of Trust or in the Bylaws of the Trust (the “Bylaws”) shall in no way be construed or deemed by inference or otherwise in any manner to exclude or limit the powers conferred upon the Board or the Trustees under the general laws of the State of Maryland or any other applicable laws.

The Board, without any action by the shareholders of the Trust, shall have and may exercise, on behalf of the Trust, without limitation, the power to terminate the status of the Trust as a real estate investment trust under the Code; to determine that compliance with any restriction or limitations on ownership and transfers of shares of the Trust’s beneficial interest set forth in ARTICLE VII is no longer required in order for the Trust to qualify as a real estate investment trust; to adopt, amend and repeal Bylaws; to elect officers in the manner prescribed in the Bylaws; to solicit proxies from holders of shares of beneficial interest of the Trust; and to do any other acts and deliver any other documents necessary or appropriate to the foregoing powers.

Section 5.2            Number; Initial Trustees; Classification; Qualifications.

(a)           The trustees of the Trust (hereinafter, the “Trustees”), and such other persons as the Trustee or Trustees then in office shall elect, shall serve until the first meeting of shareholders at which Trustees of his or her Class (as defined below) are elected and until his or her successor is duly elected and qualified, or until he or she sooner dies, resigns, retires, or is disqualified or removed from office.  Any person serving as Trustee shall meet the criteria and qualifications for office set forth from time to time in the Bylaws.  The Board of Trustees shall be comprised of Independent Trustees and Managing Trustees (as each term is defined in the Bylaws) in such number as set forth from time to time in the Bylaws.  The number of Trustees shall initially be five and, subject to the voting powers of one or more classes or series of Shares (as defined in Section 6.1 below) as set forth in the Bylaws, the number of Trustees shall be such number as shall be fixed from time to time by the Trustees; provided, however, that the number of Trustees shall in no event be less than three.  The names of the individuals who shall serve as initial Trustees are as follows:

Managing Trustees:

Adam D. Portnoy
Barry M. Portnoy

Independent Trustees:

William A. Lamkin
Jeffrey P. Somers
Donna D. Fraiche

(b)           Annual meetings of Shareholders shall be held as specified in the Bylaws.  The Trustees shall be classified, with respect to the time for which they severally hold office, into the following three classes (each a “Class”): Class I, whose term expires at the initial annual meeting; Class II, whose term expires at the next succeeding annual meeting after the initial annual meeting (the “second annual meeting”); and Class III,

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whose term expires at the next succeeding annual meeting after the second annual meeting.  Each Class shall consist of at least one Trustee.  At each annual meeting beginning with the initial annual meeting, the successors of the Class of Trustees whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting held in the third year following the year of their election, with each Trustee holding office until the expiration of the term of the relevant Class and the election and qualification of his or her successor, or until he or she sooner dies, resigns, retires, or is disqualified or removed from office.  The Trustees shall assign by resolution Trustees to each of the three Classes.  The Trustees also may determine by resolution those Trustees in each Class that shall be elected by shareholders of a particular class or series of Shares.  If the number of Trustees is changed, any increase or decrease shall be apportioned among the Classes by resolution of the Trustees.

(c)           Vacancies on the Board of Trustees, whether resulting from an increase in the number of Trustees or otherwise, shall be filled in the manner provided in the Bylaws.  It shall not be necessary to list in this Declaration of Trust the names and addresses of any Trustees hereinafter elected.  No reduction in the number of Trustees shall have the effect of removing any Trustee from office prior to the expiration of his or her term unless the Trustee is specifically removed pursuant to Section 5.3 at the time of the decrease.  Subject to the provisions of Section 5.3, each Trustee shall hold office until the election and qualification of his or her successor.  There shall be no cumulative voting in the election of Trustees.

Section 5.3            Resignation or Removal.  Any Trustee may resign or retire as a Trustee by an instrument in writing signed by him and delivered to the secretary of the Trust, and such resignation or retirement shall be effective upon such delivery, or at a later date according to the terms of the instrument.  A Trustee judged incompetent or for whom a guardian or conservator has been appointed shall be deemed to have resigned as of the date of such adjudication or appointment.  A Trustee may be removed at any time (a) solely with cause, at a meeting of the shareholders properly called for that purpose, by the affirmative vote of the holders of not less than 75% of the Shares then outstanding and entitled to vote in the election of such Trustee or (b) with or without cause by the affirmative vote of not less than 75% of the remaining Trustees.  For the purpose of this paragraph, “cause” shall have the meaning assigned to it in the Bylaws.

Section 5.4            Determinations by Board.  The determination as to any of the following matters, made by or pursuant to the direction of the Board of Trustees consistent with this Declaration of Trust, shall be final and conclusive and shall be binding upon the Trust and every holder of Shares: the amount of the net income of the Trust for any period and the amount of assets at any time legally available for the payment of dividends, redemption of Shares or the payment of other distributions on Shares; the amount of paid-in surplus, net assets, other surplus, annual or other cash flow, funds from operations, net profit, net assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged); any interpretation of the terms, preferences, conversion or other rights, voting powers or rights, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of any class or series of Shares; the fair value, or any sale, bid or asked price to be applied in determining the fair value, of any asset owned or held by the Trust or of any Shares; the number of Shares of any class of the Trust; any matter relating to the acquisition, holding and disposition of any assets by the Trust; or any other matter relating to the business and affairs of the Trust or required or permitted by applicable law, this Declaration of Trust or the Bylaws or otherwise to be determined by the Board of Trustees.

ARTICLE VI

SHARES OF BENEFICIAL INTEREST

Section 6.1            Authorized Shares.  The beneficial interest of the Trust shall be divided into shares of beneficial interest (the “Shares”).  The Trust has authority to issue 75,000,000 Shares, consisting of 75,000,000 common shares of beneficial interest, $.01 par value per share (“Common Shares”).  If shares of one class or series are classified or reclassified into shares of another class or series of shares pursuant to this ARTICLE VI, the number of authorized shares of the former class or series shall be automatically decreased and the number of shares of the latter class or series shall be automatically increased, in each case by the number of shares so classified or reclassified, so that the aggregate number of shares of beneficial interest of all classes and series that the Trust has

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authority to issue shall not be more than the total number of shares of beneficial interest set forth in the second sentence of this paragraph.  The Board of Trustees, without any action by the shareholders of the Trust, may amend this Declaration of Trust from time to time to increase or decrease the aggregate number of Shares or the number of Shares of any class or series that the Trust has authority to issue.

Section 6.2            Common Shares.  Subject to the provisions of ARTICLE VII, and except as may be otherwise specified in the Declaration of Trust, each Common Share shall entitle the holder thereof to one vote on each matter upon which holders of Common Shares are entitled to vote.  The Board of Trustees may reclassify any unissued Common Shares from time to time into one or more classes or series of Shares.

Section 6.3            Classified or Reclassified Shares.  Prior to issuance of classified or reclassified Shares of any class or series, the Board of Trustees by resolution shall (a) designate that class or series; (b) specify the number of Shares to be included in the class or series; (c) set, subject to the provisions of ARTICLE VII, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for each class or series; and (d) cause the Trust to file articles supplementary with the State Department of Assessments and Taxation of Maryland (the “SDAT”).  Any of the terms of any class or series of Shares set pursuant to clause (c) of this Section 6.3 may be made dependent upon facts ascertainable outside this Declaration of Trust (including the occurrence of any event, determination or action by the Trust or any other person or body) and may vary among holders thereof, provided that the manner in which such facts or variations shall operate upon the terms of such class or series of Shares is clearly and expressly set forth in the articles supplementary filed with the SDAT.

Section 6.4            Authorization by Board of Share Issuance.  The Board of Trustees may authorize the issuance from time to time of Shares of any class or series, whether now or hereafter authorized, or securities or rights convertible into Shares of any class or series, whether now or hereafter authorized, for such consideration (whether in cash, property, past or future services, obligation for future payment or otherwise) as the Board of Trustees may deem advisable (or without consideration), subject to such restrictions or limitations, if any, as may be set forth in this Declaration of Trust or the Bylaws of the Trust.

Section 6.5            Dividends and Distributions.  The Board of Trustees may from time to time authorize and cause the Trust to declare to shareholders such dividends or distributions, in cash or other assets of the Trust or in securities of the Trust or from any other source as the Board of Trustees in its discretion shall determine.  Shareholders shall have no right to any dividend or distribution unless and until authorized by the Board of Trustees and declared by the Trust.  The exercise of the powers and rights of the Board of Trustees pursuant to this Section 6.5 shall be subject to the provisions of any class or series of Shares at the time outstanding.

Section 6.6            General Nature of Shares.  All Shares shall be personal property entitling the shareholders only to those rights provided in this Declaration of Trust.  The shareholders shall have no interest in the property of the Trust and shall have no right to compel any partition, division, dividend or distribution of the Trust or of the property of the Trust.  The death of a shareholder shall not terminate the Trust or affect its continuity nor give his or her legal representative any rights whatsoever, whether against or in respect of other shareholders, the Trustees or the trust estate or otherwise, except the sole right to demand and, subject to the provisions of this Declaration of Trust, the Bylaws and any requirements of law, to receive a new certificate for Shares registered in the name of such legal representative, in exchange for the certificate held by such shareholder.  The Trust is entitled to treat as shareholders only those persons in whose names Shares are registered as holders of Shares on the beneficial interest ledger of the Trust.

Section 6.7            Fractional Shares.  The Trust may, without the consent or approval of any shareholder, issue fractional Shares, eliminate a fraction of a Share by rounding up or down to a full Share, arrange for the disposition of a fraction of a Share by the person entitled to it or pay cash for the fair value of a fraction of a Share.

Section 6.8            Declaration and Bylaws.  All shareholders are subject to the provisions of this Declaration of Trust and the Bylaws of the Trust.  The Bylaws of the Trust may address any matters of governance so long as they do contradict any express provision of the Declaration of Trust.

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Section 6.9            Divisions and Combinations of Shares.  Subject to an express provision to the contrary in the terms of any class or series of beneficial interest hereafter authorized, the Board of Trustees shall have the power to divide, split or combine (by issuing or redeeming, as applicable, Shares pro rata or by any other lawful means) the outstanding shares of any class or series of beneficial interest, without a vote of shareholders.

ARTICLE VII

RESTRICTIONS ON TRANSFER AND OWNERSHIP OF SHARES

Section 7.1            Definitions.  For the purpose of this ARTICLE VII, the following terms shall have the following meanings:

“Affiliate” shall mean, with respect to any Person, another Person controlled by, controlling or under common control with such Person.

“Beneficial Ownership” shall mean ownership of Shares by a Person, whether the interest in Shares is held directly or indirectly (including by a nominee), and shall include, but not be limited to, interests that would be treated as owned through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code.  The terms “Beneficial Owner,” “Beneficially Owns” and “Beneficially Owned” shall have the correlative meanings.

“Charitable Beneficiary” shall mean one or more beneficiaries of the Charitable Trust as determined pursuant to Section 7.3(g), provided that each such organization shall be described in Sections 501(c)(3), 170(b)(1)(A) (other than clause (vii) or (viii) thereof) and 170(c)(2) of the Code and contributions to each such organization shall be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.

“Charitable Trust” shall mean any trust provided for in Section 7.2(a)(ii) and Section 7.3(a).

“Charitable Trustee” shall mean each Person, unaffiliated with the Trust and a Prohibited Owner, that is appointed by the Trust from time to time to serve as a trustee of a Charitable Trust as provided by Section 7.3(a).

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Common Shares” shall mean the common shares of beneficial interest designated as such in this Declaration of Trust.

“Constructive Ownership” shall mean ownership of Shares by a Person, whether the interest in Shares is held directly or indirectly (including by a nominee), and shall include any interests that would be treated as owned through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, or treated as beneficially owned under Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The terms “Constructive Owner,” “Constructively Owns” and “Constructively Owned” shall have the correlative meanings.

“Excepted Holder” shall mean (a) a shareholder of the Trust for whom an Excepted Holder Limit (if any) is created by the Board of Trustees pursuant to Section 7.2(e)(i), (b) CommonWealth REIT, (c) the Trust’s manager (the “Manager”), (d) Affiliates of CommonWealth REIT or the Manager and (e) on account of Constructive Ownership, Persons to whom CommonWealth REIT’s or the Manager’s share ownership is attributable or whose share ownership is attributable to CommonWealth REIT or the Manager.

“Excepted Holder Limit” shall mean, provided that and only so long as the affected Excepted Holder complies with all of the requirements (if any) established by the Board of Trustees pursuant to Section 7.2(e), the percentage limit (if any) established by the Board of Trustees with respect to such Excepted Holder.

“Market Price” with respect to Shares on any date shall mean the last sale price for such Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular

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way, for such Shares, in either case as reported on the principal consolidated transaction reporting system with respect to such Shares, or if such Shares are not listed or admitted to trading on any National Securities Exchange, the last sale price in the over the counter market, or if no trading price is available for such Shares, the fair market value of such Shares as determined in good faith by the Board of Trustees.

“National Securities Exchange” means an exchange registered with the Securities and Exchange Commission under Section 6(a) of the Exchange Act, as amended, supplemented or restated from time to time, and any successor to such statute.

“Ownership Limit” shall mean (a) with respect to Common Shares, 9.8% (in value or number of shares, whichever is more restrictive) of the Common Shares outstanding at the time of determination and (b) with respect to any other class or series of Shares, 9.8% (in value or number of shares, whichever is more restrictive) of the Shares of such class or series outstanding at the time of determination.

“Person” shall mean and include individuals, corporations, limited partnerships, general partnerships, joint stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts and other entities and governments and agencies and political subdivisions thereof.

“Prohibited Owner” shall mean any Person who, but for the provisions of Section 7.2(a), would Beneficially Own or Constructively Own Shares in excess of the Ownership Limit, and if appropriate in the context, shall also mean any Person who would have been the holder of record in the books of the Trust or the Trust’s transfer agent of Shares that the Prohibited Owner would have so owned.

“REIT” shall mean a “real estate investment trust” within the meaning of Section 856 of the Code.

“Shares” shall mean the shares of beneficial interest of the Trust.

“Transfer” shall mean any issuance, sale, transfer, gift, assignment, devise or other disposition, as well as any other event (or any agreement to take any such actions or cause any such events) that causes any Person to acquire Beneficial Ownership or Constructive Ownership of Shares or the right to vote or receive distributions on Shares, including, without limitation, (a) any change in the capital structure of the Trust which has the effect of increasing the total equity interest of any Person in the Trust, (b) a change in the relationship between two or more Persons which causes a change in ownership of Shares by application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, (c) the grant or exercise of any option or warrant (or any disposition of any option or warrant, or any event that causes any option or warrant not theretofore exercisable to become exercisable), pledge, security interest or similar right to acquire Shares, (d) any disposition of any securities or rights convertible into or exchangeable for Shares or any interest in Shares or any exercise of any such conversion or exchange right, and (e) transfers of interests in other entities that result in changes in Beneficial Ownership or Constructive Ownership of Shares, in each case, whether voluntary or involuntary, whether owned of record or Beneficially Owned or Constructively Owned, and whether by operation of law or otherwise.  The terms “Transferring” and “Transferred” shall have the correlative meanings.

Section 7.2            Restrictions on Ownership.

(a)           Ownership Limitations.

(i)            Basic Restrictions.  (A) No Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own Shares in excess of the Ownership Limit.  (B) No Excepted Holder shall Beneficially Own or Constructively Own Shares in excess of the Excepted Holder Limit (if any) for such Excepted Holder.  (C) No Person shall Beneficially Own or Constructively Own Shares to the extent that such Beneficial Ownership or Constructive Ownership of Shares would result in the Trust being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year), or otherwise failing to qualify as a REIT (including, without limitation, Beneficial Ownership or Constructive Ownership that would result in the Trust owning (actually or

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Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Trust from such tenant would cause the Trust to fail to satisfy any of the gross income requirements of Section 856(c) of the Code). (D) Subject to Section 7.6, notwithstanding any other provisions contained herein, any Transfer of Shares (whether or not such Transfer is the result of a transaction entered into through the facilities of a National Securities Exchange or automated inter-dealer quotation system) that, if effective, would result in Shares being beneficially owned by less than 100 Persons (determined under the principles of Section 856(a)(5) of the Code) shall be void ab initio, and the intended transferee shall acquire no rights in such Shares.

(ii)           Transfer in Trust or Voided Transfer.  If any Transfer of Shares occurs (whether or not such Transfer is the result of a transaction entered into through the facilities of a National Securities Exchange or automated inter-dealer quotation system) which, if effective, would result in any Person Beneficially Owning or Constructively Owning Shares in violation of Section 7.2(a)(i)(A), Section 7.2(a)(i)(B) or Section 7.2(a)(i)(C), as applicable, then the Board of Trustees shall be authorized and empowered to deem (and if so deemed, such action and result shall be deemed to occur and the officers of the Trust shall be authorized to take such actions in the name and on behalf of the Trust authorized by the Board of Trustees to effectuate the same): (A) that number of Shares the Beneficial Ownership or Constructive Ownership of which otherwise would cause such Person to violate Section 7.2(a)(i)(A), Section 7.2(a)(i)(B) or Section 7.2(a)(i)(C) (rounded upward to the nearest whole share, and such excess shares, including as so rounded, the “Excess Shares”) to be automatically transferred to a Charitable Trust or Charitable Trusts for the benefit of a Charitable Beneficiary, as described in Section 7.3, effective as of the close of business on the business day prior to the date of such determination of such Transfer or at such other time determined by the Board of Trustees, and such Person shall acquire no rights in the Excess Shares; or (B) to the fullest extent permitted by law, the Transfer of Excess Shares to be void ab initio, in which case, the intended transferee shall acquire no rights in the Excess Shares.

(iii)          Cooperation.  The shareholder that would otherwise qualify as a Prohibited Owner absent the application of the provisions of Section 7.2(a)(ii) shall use best efforts and take all actions necessary or requested by the Trust to cooperate with effecting the actions taken by the Board of Trustees pursuant to Section 7.2(a)(ii), including, without limitation, informing the Trust where any Excess Shares may be held and instructing its agents to cooperate in the prompt implementation and effectuation of the actions so taken by the Board of Trustees.

(b)           Remedies for Breach.  If the Board of Trustees or any duly authorized committee thereof shall at any time determine that a Transfer or other event has taken place that results in a violation of Section 7.2(a)(i) or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any Shares in violation of Section 7.2(a)(i) (whether or not such violation is intended), the Board of Trustees or a committee thereof may take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or other event, including, without limitation, causing the Trust to redeem Shares, refusing to give effect to such Transfer on the books of the Trust or the Trust’s transfer agent or instituting proceedings to enjoin such Transfer or other event and such Person shall be liable, without limitation, for all costs incurred in connection therewith and pursuant to Section 8.6, including the costs and expenses of the Charitable Trustee.  This Section 7.2(b) shall not in any way limit the provisions of Section 7.2(a)(ii).

(c)           Notice of Restricted Transfer.  Any Person who acquires or attempts or intends to acquire Beneficial Ownership or Constructive Ownership of Shares that will or may violate Section 7.2(a)(i), or any Person who would have owned Excess Shares, shall immediately give written notice to the Trust of such event, or in the case of such a proposed or attempted transaction, give at least 15 days prior written notice, and shall provide to the Trust such other information as the Trust may request.

(d)           Owners Required to Provide Information.  Every shareholder of five percent or more (or such lower percentage as required by the Code or the regulations promulgated thereunder) of the Shares of any series or class outstanding at the time of determination, within 30 days after the end of each taxable year and

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also within three business days after a request from the Trust, shall give written notice to the Trust stating the name and address of such owner, the number of Shares Beneficially Owned, and a description of the manner in which such Shares are held; provided that a shareholder who holds Shares as nominee for another Person, which other Person is required to include in gross income the distributions received on such Shares (an “Actual Owner”), shall give written notice to the Trust stating the name and address of such Actual Owner and the number of Shares of such Actual Owner with respect to which the shareholder is nominee.  Each Person who is a Beneficial Owner or Constructive Owner of Shares and each Person (including the shareholder) who is holding Shares for a Beneficial Owner or Constructive Owner shall provide to the Trust such information as the Trust may request, in good faith, in order to determine the Trust’s status as a REIT, to determine the Trust’s compliance with other applicable laws or requirements of any governmental authority and to comply with requirements of any taxing authority or other governmental authority or to determine such compliance.

(e)           Exceptions.

(i)            The Board of Trustees, in its sole discretion, may grant to any Person who makes a request therefor (a “Requesting Person”) an exception to the Ownership Limit (or one or more elements thereof) with respect to the ownership of any series or class of Shares, subject to the following conditions and limitations: (A) the Board of Trustees shall have determined, in its discretion, that: (1) the Beneficial Ownership or Constructive Ownership of Shares by such shareholder in excess of the Ownership Limit would not violate Section 7.2(a)(i)(C), (2) the Requesting Person does not and will not own, actually or Constructively, an interest in a tenant of the Trust (or a tenant of any entity owned or controlled by the Trust) that would cause the Trust to own, actually or Constructively, more than a 9.8% interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant, (3) the Requesting Person’s ownership of Shares in excess of the Ownership Limit pursuant to the exception requested hereunder (together with the ownership of Shares by all other Persons as permitted under this ARTICLE VII, taking into account any previously granted exceptions pursuant hereto) would not cause a default under the terms of any contract to which the Trust or any of its subsidiaries is a party or reasonably expects to become a party and (4) the Requesting Person’s ownership of Shares in excess of the Ownership Limit pursuant to the exception requested hereunder (together with the ownership of Shares by all other Persons as permitted under this ARTICLE VII, taking into account any previously granted exceptions pursuant hereto) is in the best interests of the Trust; and (B)(1) prior to granting any exception pursuant to this Section 7.2(e)(i), the Board of Trustees may require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board of Trustees in their sole discretion, as they may deem necessary or advisable in order to determine or ensure the Trust’s status as a REIT and (2) such Requesting Person provides to the Board of Trustees, for the benefit of the Trust, such representations and undertakings, if any, as the Board of Trustees may, in its discretion, determine to be necessary in order for it to make the determination that the conditions set forth in Section 7.2(e)(i)(A) have been and/or will continue to be satisfied (including, without limitation, an agreement as to a reduced Ownership Limit or Excepted Holder Limit (if any) for such Requesting Person with respect to the Constructive Ownership of one or more other classes or series of Shares not subject to the exception), and such Requesting Person agrees that any violation of such representations and undertakings or any attempted violation thereof will give rise to the application of the remedies set forth in Section 7.2(a)(ii) and Section 7.2(b) with respect to Shares held in excess of the Ownership Limit or the Excepted Holder Limit (as may be applicable) with respect to such Requesting Person (determined without regard to the exception granted such Requesting Person under this Section 7.2(e)(i)).  If a member of the Board of Trustees requests that the Board of Trustees grant an exception pursuant to this Section 7.2(e) with respect to such member, or with respect to any other Person if such member of the Board of Trustees would be considered to be the Beneficial Owner or Constructive Owner of Shares owned by such other Person, such member of the Board of Trustees shall not participate in the decision of the Board of Trustees as to whether to grant any such exception.

(ii)           In determining whether to grant any exemption pursuant to Section 7.2(e)(i), the Board of Trustees may, but need not, consider, among other factors, (A) the general

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reputation and moral character of the Requesting Person, (B) whether ownership of Shares would be direct or through ownership attribution, (C) whether the Requesting Person’s ownership of Shares would interfere with the conduct of the Trust’s business, including, without limitation, the Trust’s ability to acquire additional properties, (D) whether granting an exemption for the Requesting Person would adversely affect any of the Trust’s existing contractual arrangements or business policies, (E) whether the Requesting Person to whom the exception would apply has been approved as an owner of the Trust by all regulatory or other governmental authorities who have jurisdiction over the Trust and (F) whether the Requesting Person to whom the exemption would apply is attempting to change control of the Trust or affect its policies in a way which the Board of Trustees, in its discretion, considers adverse to the best interests of the Trust or the shareholders.  Nothing in this Section 7.2(e)(ii) shall be interpreted to mean that the Board of Trustees may not act in its discretion in making any determination under Section 7.2(e)(i).

(iii)          An underwriter or initial purchaser that participates in a public offering or a private placement of Shares (or securities convertible into or exchangeable for Shares) may Beneficially Own or Constructively Own Shares (or securities convertible into or exchangeable for Shares) in excess of the Ownership Limit, but only to the extent necessary to facilitate such public offering or private placement as determined by the Board of Trustees.

Section 7.3            Transfer of Shares.

(a)           Ownership in Trust.  Upon any purported Transfer or other event described in Section 7.2(a)(ii) that results in a transfer of Shares to a Charitable Trust, such Shares shall be deemed to have been transferred to the Charitable Trustee as trustee or trustees, as applicable, of a Charitable Trust for the exclusive benefit of one or more Charitable Beneficiaries (except to the extent otherwise provided in Section 7.3(e)).  Such transfer to the Charitable Trustee shall be deemed to be effective as of the time provided in Section 7.2(a)(ii).  Any Charitable Trustee shall be appointed by the Trust and shall be a Person unaffiliated with the Trust and any Prohibited Owner.  Each Charitable Beneficiary shall be designated by the Trust as provided in Section 7.3(g).

(b)           Status of Shares Held by a Charitable Trustee.  Shares held by a Charitable Trustee shall be issued and outstanding Shares of the Trust.  The Prohibited Owner shall:

(i)            have no rights in the Shares held by the Charitable Trustee;

(ii)           not benefit economically from ownership of any Shares held in trust by the Charitable Trustee (except to the extent otherwise provided in Section 7.3(e));

(iii)          have no rights to dividends or other distributions;

(iv)          not possess any rights to vote or other rights attributable to the Shares held in the Charitable Trust; and

(v)           have no claim, cause of action or other recourse whatsoever against the purported transferor of such Shares.

(c)           Dividend and Voting Rights.  The Charitable Trustee shall have all voting rights and rights to dividends or other distributions with respect to Shares held in the Charitable Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary (except to the extent otherwise provided in Section 7.3(e)).  Any dividend or other distribution paid with respect to any Shares which constituted Excess Shares at such time and prior to Shares having been transferred to the Charitable Trustee shall be paid to the Charitable Trustee by the Prohibited Owner upon demand and any dividend or other distribution authorized but unpaid with respect to such Shares shall be paid when due to the Charitable Trustee.  Any dividends or distributions so paid to the Charitable Trustee shall be held in trust for the Charitable Beneficiary.  The Prohibited Owner shall have no voting rights with respect to Shares held in the Charitable Trust and, effective as of the date that Shares have been transferred to the Charitable Trustee, the Charitable Trustee shall have the authority (at the Charitable Trustee’s discretion) (i) to rescind as void any vote cast by a Prohibited Owner with respect to such Shares at any time such

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Shares constituted Excess Shares with respect to such Prohibited Owner and (ii) to recast such vote in accordance with the desires of the Charitable Trustee acting for the benefit of the Charitable Beneficiary; provided, however, that if the Trust has already taken irreversible action, then the Charitable Trustee shall not have the power to rescind and recast such vote.  Notwithstanding the provisions of this ARTICLE VII, until the Shares have been transferred into a Charitable Trust, the Trust shall be entitled to rely on its share transfer and other shareholder records for purposes of preparing lists of shareholders entitled to vote at meetings, determining the validity and authority of proxies, and otherwise conducting votes of shareholders.

(d)           Rights upon Liquidation.  Upon any voluntary or involuntary liquidation, dissolution or winding up of or any distribution of the assets of the Trust, the Charitable Trustee shall be entitled to receive, ratably with each other holder of Shares of the class or series of Shares that is held in the Charitable Trust, that portion of the assets of the Trust available for distribution to the holders of such class or series (determined based upon the ratio that the number of Shares of such class or series of Shares held by the Charitable Trustee bears to the total number of Shares of such class or series of Shares then outstanding).  The Charitable Trustee shall distribute any such assets received in respect of the Shares held in the Charitable Trust in any liquidation, dissolution or winding up or distribution of the assets of the Trust, in accordance with Section 7.3(e).

(e)           Sale of Shares by Charitable Trustee.  Unless otherwise directed by the Board of Trustees, within 20 days of receiving notice from the Trust that Shares have been transferred to the Charitable Trust, or as soon thereafter as practicable, the Charitable Trustee shall sell the Shares held in the Charitable Trust (together with the right to receive dividends or other distributions with respect to such Shares as to any Shares transferred to the Charitable Trustee as a result of the operation of Section 7.2(a)(ii)) to a Person, designated by the Charitable Trustee, whose ownership of the Shares will not violate the ownership limitations set forth in Section 7.2(a)(i).  Upon such sale, the interest of the Charitable Beneficiary in the Shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary as provided in this Section 7.3(e).

A Prohibited Owner shall receive the lesser of (A) the net price paid by the Prohibited Owner for the Shares or, if the Prohibited Owner did not give value for the Shares in connection with the event causing the Shares to be held in the Charitable Trust (for example, in the case of a gift, devise or other such transaction), the Market Price of the Shares on the day of the event causing the Shares to be held in the Charitable Trust, less the costs, expenses and compensation of the Charitable Trustee and the Trust as provided in Section 7.4 and (B) the net sales proceeds received by the Charitable Trustee from the sale or other disposition of the Shares held in the Charitable Trust.  Any net sales proceeds in excess of the amount payable to the Prohibited Owner shall be paid to the Charitable Beneficiary, less the costs, expenses and compensation of the Charitable Trustee and the Trust as provided in Section 7.4.  If such Shares are sold by a Prohibited Owner, then (A) such Shares shall be deemed to have been sold on behalf of the Charitable Trust and (B) to the extent that the Prohibited Owner received an amount for such Shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant to this Section 7.3(e), such excess shall be paid promptly to the Charitable Trustee upon demand.

(f)            Trust’s Purchase Right in Excess Shares.  Notwithstanding any transfer of Excess Shares to a Charitable Trust pursuant to this ARTICLE VII, Excess Shares shall be deemed to have been offered for sale to the Trust, or its designee, at a price per Share equal to the lesser of (i) the price per Share in the transaction that resulted in such Shares becoming Excess Shares (or, if the Prohibited Owner did not give value for such Shares, such as in the case of a devise, gift or other such transaction, the Market Price per such Share on the day of the event causing the Shares to become Excess Shares) and (ii) the Market Price per such Share on the date the Trust, or its designee, accepts such offer, in each case of clauses (i) and (ii) of this sentence, less the costs, expenses and compensation of the Charitable Trustee, if any, and the Trust as provided in Section 7.4.  The Trust shall have the right to accept such offer until the Charitable Trustee, if any, has sold the Shares held in the Charitable Trust, if any, pursuant to Section 7.3(e).  Upon such a sale to the Trust, if a Charitable Trust has been established pursuant to this ARTICLE VII, the interest of the Charitable Beneficiary in the Shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and the Charitable Beneficiary as provided in Section 7.3(e).

(g)           Designation of Charitable Beneficiaries.  By written notice to the Charitable Trustee, the Trust shall designate from time to time one or more nonprofit organizations to be the Charitable

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Beneficiary of the interest in the Charitable Trust such that (i) Shares held in the Charitable Trust would not violate the restrictions set forth in Section 7.2(a)(i) in the hands of such Charitable Beneficiary and (ii) contributions to each such organization shall be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.  The Charitable Beneficiary shall not obtain any enforceable right to the Charitable Trust or any of its trust corpus until so designated and thereafter any such rights remain subject to the provisions of this ARTICLE VII, including, without limitation, Section 7.3(h).  Neither the failure of the Trust to make such designation nor the failure of the Trust to appoint the Trustee before the automatic transfer provided for in Section 7.2.(a)(ii) shall make such transfer ineffective, provided that the Trust thereafter makes such designation and appointment.

(h)           Retroactive Changes.  Notwithstanding any other provisions of this ARTICLE VII, the Board of Trustees is authorized and empowered to retroactively amend, alter or repeal any rights which the Charitable Trust, the Charitable Trustee or the Charitable Beneficiary may have under this ARTICLE VII, including, without limitation, granting retroactive Excepted Holder status to any otherwise Prohibited Owner, with the effect of any transfer of Excess Shares to a Charitable Trust being fully and retroactively revoked; provided, however, that the Board of Trustees shall not have the authority or power to retroactively amend, alter or repeal any obligations to pay amounts incurred prior to such time and owed or payable to the Charitable Trustee pursuant to Section 7.4.

Section 7.4            Costs, Expenses and Compensation of Charitable Trustee and the Trust.

(a)           The Charitable Trustee shall be indemnified by the Trust or from the proceeds from the sale of Shares held in the Charitable Trust, as further provided in this ARTICLE VII, for its costs and expenses reasonably incurred in connection with conducting its duties and satisfying its obligations pursuant to this ARTICLE VII.

(b)           The Charitable Trustee shall be entitled to receive reasonable compensation for services provided by the Charitable Trustee in connection with serving as a Charitable Trustee, the amount and form of which shall be determined by agreement of the Board of Trustees and the Charitable Trustee.

(c)           Costs, expenses and compensation payable to the Charitable Trustee pursuant to Section 7.4(a) and Section 7.4(b) may be funded from the Charitable Trust or by the Trust.  The Trust shall be entitled to reimbursement on a first priority basis (after payment in full of amounts payable to the Charitable Trustee pursuant to Section 7.4(a) and Section 7.4(b)) from the Charitable Trust for any such amounts funded by the Trust.

(d)           Costs and expenses incurred by the Trust in the process of enforcing the ownership limitation set forth in Section 7.2(a)(i), in addition to reimbursement of costs, expenses and compensation of the Charitable Trustee which have been funded by the Trust, may be collected from the Charitable Trust; provided, however, that the ability of the Trust to fund its costs from the Charitable Trust shall not relieve the Prohibited Owner from his or her obligation to reimburse the Trust for costs under Section 8.6 of this Declaration of Trust, except to the extent the Trust has in fact been previously paid from the Charitable Trust; nor will the possibility of the Trust receiving payment from the Charitable Trust create a marshalling obligation which would require the Trust to reimburse itself from the Charitable Trust before enforcing the Trust’s claims under Section 8.6 or otherwise.

Section 7.5            Legend.  Each certificate for Shares, if any, shall bear a legend describing the restrictions on transferability of Shares contained herein or, instead of a legend, the certificate may state that the Trust will furnish a full statement about certain restrictions on transferability to a shareholder on request and without charge.

Section 7.6            Transactions on a National Securities Exchange.  Nothing in this ARTICLE VII shall preclude the settlement of any transaction entered into through the facilities of a National Securities Exchange or any automated inter-dealer quotation system.  The fact that the settlement of any transaction takes place shall not negate the effect of any other provision of this ARTICLE VII and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this ARTICLE VII.

Section 7.7            Enforcement.  The Trust is authorized specifically to seek equitable relief, including injunctive relief, to enforce the provisions of this ARTICLE VII.

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Section 7.8            Non-Waiver.  No delay or failure on the part of the Trust or the Board of Trustees in exercising any right hereunder shall operate as a waiver of any right of the Trust or the Board of Trustees, as the case may be, except to the extent specifically waived in writing.

Section 7.9            Enforceability.  If any of the restrictions on transfer of Shares contained in this ARTICLE VII are determined to be void, invalid or unenforceable by any court of competent jurisdiction, then, to the fullest extent permitted by law, the Prohibited Owner may be deemed, at the option of the Trust, to have acted as an agent of the Trust in acquiring such Shares and to hold such Shares on behalf of the Trust.

ARTICLE VIII

SHAREHOLDERS

Section 8.1            Meetings.  There shall be an annual meeting of the shareholders, to be held on proper notice at such time and convenient location as shall be determined by or in the manner prescribed in the Bylaws, for the election of the Trustees, if required, and for the transaction of any other business within the powers of the Trust.  Except as otherwise provided in this Declaration of Trust, special meetings of shareholders may be called in the manner provided in the Bylaws.  Shareholders meetings, including the annual meeting and any special meetings, may be called only by the Board of Trustees.  If there are no Trustees, the officers of the Trust shall promptly call a special meeting of the shareholders entitled to vote for the election of successor Trustees.  Any meeting may be adjourned and reconvened as the Trustees determine or as provided in the Bylaws.

Section 8.2            Voting Rights.  Subject to the provisions of any class or series of Shares then outstanding, the shareholders shall be entitled to vote only on the following matters: (a) election of Trustees as provided in Section 5.2 and the removal of Trustees as provided in Section 5.3; (b) amendment of this Declaration of Trust as provided in ARTICLE X; (c) termination of the Trust as provided in Section 12.2; (d) merger or consolidation of the Trust to the extent required by Title 8, or the sale or disposition of substantially all of the Trust Property, as provided in ARTICLE XI; and (e) such other matters with respect to which the Board of Trustees has adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted to the shareholders for approval or ratification.  Except with respect to the foregoing matters, no action taken by the shareholders at any meeting shall in any way bind the Board of Trustees.

Section 8.3            Preemptive and Appraisal Rights.  Except as may be provided by the Board of Trustees in setting the terms of classified or reclassified Shares pursuant to Section 6.3, or as may otherwise be provided by contract approved by the Board of Trustees, no holder of Shares shall, as such holder, (a) have any preemptive right to purchase or subscribe for any additional Shares of the Trust or any other security of the Trust which it may issue or sell or (b) have any right to require the Trust to pay him the fair value of his Shares in an appraisal or similar proceeding, including, without limitation, any right to exercise the rights of an objecting shareholder provided for under Title 8 and Title 3, Subtitle 2 of the Maryland General Corporation Law or any successor statute, unless the Board of Trustees, upon the affirmative vote of a majority of the Board of Trustees, shall determine that such rights apply, with respect to all or any classes or series of Shares, to one or more transactions occurring after the date of such determination in connection with which holders of such Shares would otherwise be entitled to exercise such rights.

Section 8.4            Extraordinary Actions.  Except as specifically provided in Section 5.3 (relating to removal of Trustees) or the Bylaws and subject to Section 8.5 and Section 10.3, notwithstanding any provision of law permitting or requiring any action to be taken or authorized by the affirmative vote of the holders of a greater number of votes, any such action shall be effective and valid if approved or declared advisable by the Board of Trustees and taken or approved by (a) the affirmative vote of holders of Shares entitled to cast a majority of all the votes entitled to be cast on the matter, or (b) if Maryland law hereafter permits the effectiveness of a vote described in this clause (b), the affirmative vote of a majority of the votes cast on the matter.

Section 8.5            Board Approval.  The submission of any action to the shareholders for their consideration shall first be approved or advised by the Board of Trustees, and the shareholders shall not otherwise be entitled to act thereon except as otherwise expressly required by law.

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Section 8.6            Indemnification of the Trust.  Each shareholder will be liable to the Trust for, and indemnify and hold harmless the Trust (and any affiliates thereof) from and against, all costs, expenses, penalties, fines or other amounts, including without limitation, reasonable attorneys’ and other professional fees, whether third party or internal, arising from such shareholder’s breach of or failure to fully comply with any covenant, condition or provision of this Declaration of Trust or the Bylaws or any action by or against the Trust in which such shareholder is not the prevailing party, and shall pay such amounts on demand, together with interest on such amounts, which interest will accrue at the lesser of 18% per annum and the maximum amount permitted by law, from the date such costs or the like are incurred until the receipt of payment.

Section 8.7            Compliance with Law.  Shareholders shall comply with this Declaration of Trust, the Bylaws, all applicable requirements of federal and state laws, including all rules and regulations promulgated thereunder, and the contractual obligations of the Trust, in connection with such shareholder’s ownership interest in the Trust and all other laws which apply to the Trust or any subsidiary of the Trust or their respective businesses, assets or operations and which require action or inaction on the part of the shareholder.

ARTICLE IX

LIABILITY LIMITATION, INDEMNIFICATION
AND TRANSACTIONS WITH THE TRUST

Section 9.1            Limitation of Shareholder Liability.  No shareholder shall be personally liable for any debt, claim, demand, judgment or obligation of any kind of the Trust by reason of his being a shareholder.

Section 9.2            Limitation of Trustee and Officer Liability.  To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of trustees and officers of a real estate investment trust, no current or former Trustee or officer of the Trust shall be liable to the Trust or to any shareholder for money damages.  Neither the amendment nor repeal of this Section 9.2, nor the adoption or amendment of any other provision of this Declaration of Trust inconsistent with this Section 9.2, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.  In the absence of any Maryland statute limiting the liability of trustees and officers of a Maryland real estate investment trust for money damages in a suit by or on behalf of the Trust or by any shareholder, or arising by reason of his or her action on behalf of the Trust, no Trustee or officer of the Trust shall be liable to the Trust or to any shareholder for money damages except to the extent that (a) the Trustee or officer actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received, or (b) a judgment or other final adjudication adverse to the Trustee or officer is entered in a proceeding based on a finding in the proceeding that the Trustee’s or officer’s action or failure to act was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.

Section 9.3            Express Exculpatory Clauses and Instruments.  Any written instrument creating an obligation of the Trust shall, to the extent practicable, include a reference to this Declaration and provide that neither the shareholders nor the Trustees nor any officers, employees or agents (including the Manager) of the Trust shall be liable thereunder and that all persons shall look solely to the trust estate for the payment of any claim thereunder or for the performance thereof; however, the omission of such provision from any such instrument shall not render the shareholders, any Trustee, or any officer, employee or agent (including the Manager) of the Trust liable, nor shall the shareholders, any Trustee or any officer, employee or agent (including the Manager) of the Trust be liable to anyone for such omission.

Section 9.4            Indemnification.  The Trust shall have the power, to the maximum extent permitted by Maryland law in effect from time to time, to obligate itself to indemnify, and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to, (a) any individual who is a present or former Trustee or officer of the Trust or (b) any individual who, while a Trustee or officer of the Trust and at the request of the Trust, serves or has served as a trustee, director, officer, partner, member, manager, employee or agent of another real estate investment trust, corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise from and against any claim or liability to which such person may

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become subject or which such person may incur by reason of his or her service in that capacity.  The Trust shall have the power, with the approval of its Board of Trustees, to provide such indemnification and advancement of expenses to a person who served a predecessor of the Trust in any of the capacities described in (a) or (b) above.

Section 9.5            Transactions Between the Trust and its Trustees, Officers, Employees and Agents.

(a)           Subject to any express restrictions adopted by the Trustees in the Bylaws or by resolution, the Trust may enter into any contract or transaction of any kind, whether or not any of its Trustees, officers, employees or agents has a financial interest in such transaction, with any person, including any Trustee, officer, employee or agent of the Trust or any person affiliated with a Trustee, officer, employee or agent of the Trust or in which a Trustee, officer, employee or agent of the Trust has a material financial interest.

(b)           To the extent permitted by Maryland law, a contract or other transaction between the Trust and any Trustee or between the Trust and the Manager or any other corporation, trust, firm, or other entity in which any Trustee is a director or trustee or has a material financial interest shall not be void or voidable if:

(i)            The fact of the common directorship, trusteeship or interest is disclosed or known to:

(A)          The Board of Trustees or a proper committee thereof, and the Board of Trustees or such Committee authorizes, approves or ratifies the contract or transaction by the affirmative vote of a majority of disinterested Trustees, even if the disinterested Trustees constitute less than a quorum, or if there are no disinterested Trustees, then the approval shall be by a majority vote of the entire Board of Trustees and by a majority vote of the Independent Trustees; or

(B)          The shareholders entitled to vote, and the contract or transaction is authorized, approved, or ratified by a majority of the votes cast by the shareholders entitled to vote other than the votes of shares owned of record or beneficially by the interested trustee, corporation, trust, firm or other entity; or

(C)          The contract or transaction is fair and reasonable to the Trust.

(ii)           Common or interested trustees or the shares owned by them or by an interested corporation, trust, firm or other entity may be counted in determining the presence of a quorum at a meeting of the Board of Trustees or a committee thereof or at a meeting of the shareholders, as the case may be, at which the contract or transaction is authorized, approved or ratified.

(c)           The failure of a contract or other transaction between the Trust and any Trustee or between the Trust and the Manager or any other corporation, trust, firm, or other entity in which any Trustee is a director or trustee or has a material financial interest to satisfy the criteria set forth in Section 9.5(b) shall not create any presumption that such contract or other transaction is void, voidable or otherwise invalid, and any such contract or other transaction shall be valid to the fullest extent permitted by Maryland law.  To the fullest extent permitted by Maryland law, (i) the fixing by the Board of Trustees of compensation for a Trustee (whether as a Trustee or in any other capacity) and (ii) Section 9.4 of this Declaration of Trust or any provision of the Bylaws or any contract or transaction requiring or permitting indemnification (including advancing of expenses) in accordance with terms and procedures not materially less favorable to the Trust than those described in Section 2-418 (or any successor section thereto) of the Maryland General Corporation Law (as in effect at the time such provision was adopted or such contract or transaction was entered into or as it may thereafter be in effect) shall be deemed to have satisfied the criteria set forth in Section 9.5(b).

Section 9.6            Right of Trustees, Officers, Employees and Agents to Own Shares or Other Property and to Engage in Other Business.  Subject to any restrictions which may be adopted by the Trustees in the

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Bylaws or otherwise: any Trustee or officer, employee or agent of the Trust may acquire, own, hold and dispose of Shares in the Trust, for his or her individual account, and may exercise all rights of a shareholder to the same extent and in the same manner as if he or she were not a Trustee or officer, employee or agent of the Trust.  Any Trustee or officer, employee or agent of the Trust may, in his or her personal capacity or in the capacity of trustee, officer, director, stockholder, partner, member, advisor or employee of any Person or otherwise, have business interests and engage in business activities similar to or in addition to those relating to the Trust, which interests and activities may be similar to and competitive with those of the Trust and may include the acquisition, syndication, holding, management, development, operation or disposition, for his or her own account, or for the account of such Person or others, of interests in mortgages, interests in real property, or interests in Persons engaged in the real estate business.  Each Trustee, officer, employee and agent of the Trust shall be free of any obligation to present to the Trust any investment opportunity which comes to him or her in any capacity other than solely as a Trustee, officer, employee or agent of the Trust even if such opportunity is of a character which, if presented to the Trust, could be taken by the Trust.  Any Trustee or officer, employee or agent of the Trust may be interested as a trustee, officer, director, stockholder, partner, member, advisor or employee of, or otherwise have a direct or indirect interest in, any Person who may be engaged to render advice or services to the Trust, and may receive compensation from such Person as well as compensation as a Trustee, officer, employee or agent or otherwise hereunder.  None of these activities shall be deemed to conflict with his or her duties and powers as a Trustee or officer, employee or agent of the Trust.

Section 9.7            Persons Dealing with Trustees, Officers, Employees or Agents.  Any act of the Trustees or of the officers, employees or agents of the Trust purporting to be done in their capacity as such, shall, as to any Persons dealing with such Trustees, officers, employees or agents, be conclusively deemed to be within the purposes of this Trust and within the powers of such Trustees or officers, employees or agents.  No Person dealing with the Board or any of the Trustees or with the officers, employees or agents of the Trust shall be bound to see to the application of any funds or property passing into their hands or control.  The receipt of the Board or any of the Trustees, or of authorized officers, employees or agents of the Trust, for moneys or other consideration, shall be binding upon the Trust.

Section 9.8            Reliance.  Each Trustee, officer, employee and agent of the Trust shall, in the performance of his or her duties with respect to the Trust, be entitled to rely on any information, opinion, report or statement, including any financial statement or other financial data, prepared or presented by an officer or employee of the Trust or by the Manager, accountants, appraisers or other experts or consultants selected by the Board of Trustees or officers of the Trust, regardless of whether such counsel or expert may also be a Trustee.

ARTICLE X

AMENDMENTS

Section 10.1          General.  The Trust reserves the right from time to time to make any amendment to this Declaration of Trust, now or hereafter authorized by law, including any amendment altering the terms or contract rights, as expressly set forth in this Declaration of Trust, of any Shares, except that the provisions governing the personal liability of the shareholders, Trustees and of the officers, employees and agents of the Trust and the prohibition of assessments upon shareholders may not be amended in any respect that could increase the personal liability of such shareholders, Trustees or officers, employees and agents of the Trust.  All rights and powers conferred by this Declaration of Trust on shareholders, Trustees and officers are granted subject to this reservation.  All references to this Declaration of Trust shall include all amendments and supplements thereto.

Section 10.2          By Trustees.  The Trustees may amend this Declaration of Trust from time to time, in the manner provided by Title 8, without any action by the shareholders, to qualify as a real estate investment trust under the Code or under Title 8 and as otherwise provided in Section 8-501(e) of Title 8 and this Declaration of Trust, including, to the extent permitted by law, supplying any omission, curing any ambiguity, correcting any defective or inconsistent provision or error or clarifying the meaning and intent of this Declaration of Trust.  If permitted by Maryland law as in effect from time to time, the Trustees may amend this Declaration of Trust from time to time in any other respect, in accordance with such law, without any action by the shareholders.

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Section 10.3          By Shareholders.  Except as otherwise provided in Section 10.2 and subject to the following sentence, any amendment to this Declaration of Trust must first be approved by 60% of the Trustees then in office, including 60% of the Independent Trustees then in office, and then shall be valid only if approved by (a) the affirmative vote of a majority of all the votes entitled to be cast on the matter or (b) if Maryland law hereafter permits the effectiveness of a vote described in this clause (b), the affirmative vote of a majority of the votes cast on the matter.  Any amendment to Section 5.2(b) or Section 5.3 or to this sentence of this Declaration of Trust shall be valid only if approved by the Board of Trustees and then by the affirmative vote of two-thirds of all votes entitled to be cast on the matter.

ARTICLE XI

MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY

Section 11.1          Merger, Consolidation or Sale.  Subject to the provisions of any class or series of Shares at the time outstanding, the Trust may (a) merge with or into another entity, (b) consolidate with one or more other entities into a new entity or (c) sell, lease, exchange or otherwise transfer all or substantially all of the trust property.  Any such action must first be approved by 60% of the Trustees then in office, including 60% of the Independent Trustees then in office, and, after notice to all shareholders entitled to vote on the matter, by (i) the affirmative vote of a majority of all the votes entitled to be cast on the matter or (ii) if Maryland law hereafter permits the effectiveness of a vote described in this clause (ii), the affirmative vote of a majority of the votes cast on the matter.

ARTICLE XII

DURATION AND TERMINATION OF TRUST

Section 12.1          Duration.  The Trust shall continue perpetually unless terminated pursuant to Section 12.2.

Section 12.2          Termination.

(a)           Subject to the provisions of any class or series of Shares at the time outstanding, after approval by 60% of the Trustees then in office, including 60% of the Independent Trustees then in office, the Trust may be terminated at any meeting of shareholders by (i) the affirmative vote of a majority of all the votes entitled to be cast on the matter or (ii) or if hereafter expressly authorized by Title 8, the affirmative vote of a majority of the votes cast on the matter.  Upon the termination of the Trust:

(i)            The Trust shall carry on no business except for the purpose of winding up its affairs.

(ii)           The Trustees shall proceed to wind up the affairs of the Trust and all of the powers of the Trustees under this Declaration of Trust shall continue, including the powers to fulfill or discharge the Trust’s contracts, collect its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part of the remaining property of the Trust to one or more persons at public or private sale for consideration which may consist in whole or in part of cash, securities or other property of any kind, discharge or pay its liabilities and do all other acts appropriate to liquidate its business.

(iii)          After paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and agreements as they deem necessary for their protection, the Trust may distribute the remaining property of the Trust among the shareholders so that after payment in full or the setting apart for payment of such preferential amounts, if any, to which the holders of any Shares at the time outstanding shall be entitled, the remaining property of the Trust shall, subject to any participating or similar rights of Shares at the time outstanding, be distributed ratably among the holders of Common Shares at the time outstanding.

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(b)           After termination of the Trust, the liquidation of its business and the distribution to the shareholders as herein provided, a majority of the Trustees shall execute and file with the Trust’s records a document certifying that the Trust has been duly terminated and the Trustees shall be discharged from all liabilities and duties hereunder, and the rights and interests of all shareholders shall cease.

ARTICLE XIII

MISCELLANEOUS

Section 13.1          Governing Law.  This Declaration of Trust is executed and delivered with reference to the laws of the State of Maryland, and the rights of all parties and the validity, construction and effect of every provision hereof shall be subject to and construed according to the laws of the State of Maryland.

Section 13.2          Ambiguity.  In the case of an ambiguity in the application of any provision of this Declaration of Trust or any definition contained in this Declaration of Trust, the Board of Trustees shall have the sole power to determine the application of such provisions with respect to any situation based on the facts known to it and such determination shall be final and binding unless determined by a court of competent jurisdiction to have been made in bad faith.

Section 13.3          Reliance by Third Parties.  Any certificate shall be final and conclusive as to any person dealing with the Trust if executed by the Secretary or an Assistant Secretary of the Trust or a Trustee, and if certifying to: (a) the number or identity of Trustees, officers of the Trust or shareholders; (b) the due authorization of the execution of any document; (c) the action or vote taken, and the existence of a quorum, at a meeting of the Board of Trustees or shareholders; (d) a copy of this Declaration of Trust or of the Bylaws as a true and complete copy as then in force; (e) an amendment or supplement to this Declaration of Trust; (f) the termination of the Trust; or (g) the existence of any fact relating to the affairs of the Trust.  No purchaser, lender, transfer agent or other person shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the Trust on its behalf or by any officer, employee or agent of the Trust.

Section 13.4          Severability.

(a)           The provisions of this Declaration of Trust are severable, and if the Board of Trustees shall determine, with the advice of counsel, that any one or more of such provisions (the “Conflicting Provisions”) are in conflict with the Code, Title 8 or other applicable federal or state laws, the Conflicting Provisions, to the extent of the conflict, shall be deemed never to have constituted a part of this Declaration of Trust, even without any amendment of this Declaration of Trust pursuant to ARTICLE X and without affecting or impairing any of the remaining provisions of this Declaration of Trust or rendering invalid or improper any action taken or omitted (including but not limited to the election of Trustees) prior to such determination.  No Trustee shall be liable for making or failing to make such a determination.  In the event of any such determination by the Board of Trustees, the Board shall amend this Declaration of Trust in the manner provided in Section 10.2.

(b)           If any provision of this Declaration of Trust shall be held invalid or unenforceable in any jurisdiction, such holding shall apply only to the extent of any such invalidity or unenforceability and shall not in any manner affect, impair or render invalid or unenforceable such provision in any other jurisdiction or any other provision of this Declaration of Trust in any jurisdiction.

Section 13.5          Construction.  In this Declaration of Trust, unless the context otherwise requires, words used in the singular or in the plural include both the plural and singular and words denoting any gender include all genders.  The title and headings of different parts are inserted for convenience and shall not affect the meaning, construction or effect of this Declaration of Trust.  In defining or interpreting the powers and duties of the Trust and its Trustees and officers, reference may be made by the Trustees or officers, to the extent appropriate and not inconsistent with the Code, to Title 8 or to Titles 1 through 3 of the Corporations and Associations Article of the Annotated Code of Maryland.  In furtherance and not in limitation of the foregoing, in accordance with the provisions of Title 3, Subtitles 6 and 7, of the Corporations and Associations Article of the Annotated Code of Maryland, the Trust shall be included within the definition of “corporation” for purposes of such provisions.

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Section 13.6          Recordation.  This Declaration of Trust and any amendment hereto shall be filed for record with the SDAT and may also be filed or recorded in such other places as the Trustees deem appropriate, but failure to file for record this Declaration of Trust or any amendment hereto in any office other than in the State of Maryland shall not affect or impair the validity or effectiveness of this Declaration of Trust or any amendment or supplement hereto.  A restated Declaration of Trust shall, upon filing, be conclusive evidence of all amendments and supplements contained therein and may thereafter be referred to in lieu of the original Declaration of Trust and the various amendments and supplements thereto.

THIRD:  The amendment to and restatement of the Declaration of Trust of the Trust as hereinabove set forth have been duly advised by the Board of Trustees and approved by the sole shareholder of the Trust as required by law.

FOURTH:  The foregoing amendment and restatement of the Declaration of Trust does not increase the authorized number of shares of beneficial interest of the Trust.

FIFTH:  These Articles of Amendment and Restatement shall become effective at 9:00 a.m. on March 12, 2012.

The undersigned President acknowledges these Articles of Amendment and Restatement to be the trust act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned President acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Trust has caused these Articles of Amendment and Restatement to be signed in its name and on its behalf by its President and attested to by its Secretary on this 9th day of March, 2012.

ATTEST:		SELECT INCOME REIT
/s/ Jennifer B. Clark		/s/ David M. Blackman
Name:	Jennifer B. Clark	Name:	David M. Blackman
Title:	Secretary	Title:	President

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EX-3.2

Exhibit 3.2

SELECT INCOME REIT

AMENDED AND RESTATED DECLARATION OF TRUST

March 9, 2012

As Amended June 27, 2013

SELECT INCOME REIT

ARTICLES OF AMENDMENT AND RESTATEMENT

FIRST:  Select Income REIT, a Maryland real estate investment trust (the “Trust”), formed under Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland (“Title 8”), desires to amend and restate its Declaration of Trust as currently in effect and as hereinafter amended.

SECOND:  The following provisions are all the provisions of the Declaration of Trust currently in effect and as hereinafter amended:

ARTICLE I

FORMATION

Section 1.1            Formation.  The Trust is a real estate investment trust within the meaning of Title 8.  The Trust shall not be deemed to be a general partnership, limited partnership, joint venture, joint stock company or a corporation, but nothing herein shall preclude the Trust from being treated for tax purposes as an association under the Code (as defined in ARTICLE VII below); nor shall the Trustees or shareholders or any of them for any purpose be, nor be deemed to be, nor be treated in any way whatsoever as, liable or responsible hereunder as partners or joint venturers.

ARTICLE II

NAME

Section 2.1            Name.  The name of the Trust is:

Select Income REIT

Under circumstances in which the Board of Trustees of the Trust (the “Board of Trustees” or “Board”) determines that the use of the name of the Trust is not practicable or desirable, the Trust may use any other designation or name for the Trust.

ARTICLE III

PURPOSES AND POWERS

Section 3.1            Purposes.  The purposes for which the Trust is formed are to invest in and to acquire, hold, manage, administer, control and dispose of property and interests in property, including, without limitation or obligation, engaging in business as a real estate investment trust under the Code.

Section 3.2            Powers.  The Trust shall have all of the powers granted to real estate investment trusts by Title 8 and all other powers set forth in this Declaration of Trust which are not inconsistent with law and are appropriate to promote and attain the purposes set forth in this Declaration of Trust.

ARTICLE IV

RESIDENT AGENT

Section 4.1            Resident Agent.  The name of the resident agent of the Trust in the State of Maryland is CSC-Lawyers Incorporating Service Company, whose address is 7 St. Paul Street, Suite 1660, Baltimore, Maryland 21202.  The resident agent is a Maryland corporation.  The Trust may change such resident

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agent from time to time as the Board of Trustees shall determine.  The Trust may have such offices or places of business within or outside the State of Maryland as the Board of Trustees may from time to time determine.

ARTICLE V

BOARD OF TRUSTEES

Section 5.1            Powers.  Subject to any express limitations contained in this Declaration of Trust or in the Bylaws, (a) the business and affairs of the Trust shall be managed under the direction of the Board of Trustees and (b) the Board shall have full, exclusive and absolute power, control and authority over any and all property of the Trust.  The Board may take any action as in its sole judgment and discretion is necessary or appropriate to conduct the business and affairs of the Trust.  This Declaration of Trust shall be construed with the presumption in favor of the grant of power and authority to the Board.  Any construction of this Declaration of Trust or determination made in good faith by the Board concerning its powers and authority hereunder shall be conclusive.  The enumeration and definition of particular powers of the Trustees included in this Declaration of Trust or in the Bylaws of the Trust (the “Bylaws”) shall in no way be construed or deemed by inference or otherwise in any manner to exclude or limit the powers conferred upon the Board or the Trustees under the general laws of the State of Maryland or any other applicable laws.

The Board, without any action by the shareholders of the Trust, shall have and may exercise, on behalf of the Trust, without limitation, the power to terminate the status of the Trust as a real estate investment trust under the Code; to determine that compliance with any restriction or limitations on ownership and transfers of shares of the Trust’s beneficial interest set forth in ARTICLE VII is no longer required in order for the Trust to qualify as a real estate investment trust; to adopt, amend and repeal Bylaws; to elect officers in the manner prescribed in the Bylaws; to solicit proxies from holders of shares of beneficial interest of the Trust; and to do any other acts and deliver any other documents necessary or appropriate to the foregoing powers.

Section 5.2            Number; Initial Trustees; Classification; Qualifications.

(a)           The trustees of the Trust (hereinafter, the “Trustees”), and such other persons as the Trustee or Trustees then in office shall elect, shall serve until the first meeting of shareholders at which Trustees of his or her Class (as defined below) are elected and until his or her successor is duly elected and qualified, or until he or she sooner dies, resigns, retires, or is disqualified or removed from office.  Any person serving as Trustee shall meet the criteria and qualifications for office set forth from time to time in the Bylaws.  The Board of Trustees shall be comprised of Independent Trustees and Managing Trustees (as each term is defined in the Bylaws) in such number as set forth from time to time in the Bylaws.  The number of Trustees shall initially be five and, subject to the voting powers of one or more classes or series of Shares (as defined in Section 6.1 below) as set forth in the Bylaws, the number of Trustees shall be such number as shall be fixed from time to time by the Trustees; provided, however, that the number of Trustees shall in no event be less than three.  The names of the individuals who shall serve as initial Trustees are as follows:

Managing Trustees:

Adam D. Portnoy
Barry M. Portnoy

Independent Trustees:

William A. Lamkin
Jeffrey P. Somers
Donna D. Fraiche

(b)           Annual meetings of Shareholders shall be held as specified in the Bylaws.  The Trustees shall be classified, with respect to the time for which they severally hold office, into the following three classes (each a “Class”): Class I, whose term expires at the initial annual meeting; Class II, whose term expires at the next succeeding annual meeting after the initial annual meeting (the “second annual meeting”); and Class III,

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whose term expires at the next succeeding annual meeting after the second annual meeting.  Each Class shall consist of at least one Trustee.  At each annual meeting beginning with the initial annual meeting, the successors of the Class of Trustees whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting held in the third year following the year of their election, with each Trustee holding office until the expiration of the term of the relevant Class and the election and qualification of his or her successor, or until he or she sooner dies, resigns, retires, or is disqualified or removed from office.  The Trustees shall assign by resolution Trustees to each of the three Classes.  The Trustees also may determine by resolution those Trustees in each Class that shall be elected by shareholders of a particular class or series of Shares.  If the number of Trustees is changed, any increase or decrease shall be apportioned among the Classes by resolution of the Trustees.

(c)           Vacancies on the Board of Trustees, whether resulting from an increase in the number of Trustees or otherwise, shall be filled in the manner provided in the Bylaws.  It shall not be necessary to list in this Declaration of Trust the names and addresses of any Trustees hereinafter elected.  No reduction in the number of Trustees shall have the effect of removing any Trustee from office prior to the expiration of his or her term unless the Trustee is specifically removed pursuant to Section 5.3 at the time of the decrease.  Subject to the provisions of Section 5.3, each Trustee shall hold office until the election and qualification of his or her successor.  There shall be no cumulative voting in the election of Trustees.

Section 5.3            Resignation or Removal.  Any Trustee may resign or retire as a Trustee by an instrument in writing signed by him and delivered to the secretary of the Trust, and such resignation or retirement shall be effective upon such delivery, or at a later date according to the terms of the instrument.  A Trustee judged incompetent or for whom a guardian or conservator has been appointed shall be deemed to have resigned as of the date of such adjudication or appointment.  A Trustee may be removed at any time (a) solely with cause, at a meeting of the shareholders properly called for that purpose, by the affirmative vote of the holders of not less than 75% of the Shares then outstanding and entitled to vote in the election of such Trustee or (b) with or without cause by the affirmative vote of not less than 75% of the remaining Trustees.  For the purpose of this paragraph, “cause” shall have the meaning assigned to it in the Bylaws.

Section 5.4            Determinations by Board.  The determination as to any of the following matters, made by or pursuant to the direction of the Board of Trustees consistent with this Declaration of Trust, shall be final and conclusive and shall be binding upon the Trust and every holder of Shares: the amount of the net income of the Trust for any period and the amount of assets at any time legally available for the payment of dividends, redemption of Shares or the payment of other distributions on Shares; the amount of paid-in surplus, net assets, other surplus, annual or other cash flow, funds from operations, net profit, net assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged); any interpretation of the terms, preferences, conversion or other rights, voting powers or rights, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of any class or series of Shares; the fair value, or any sale, bid or asked price to be applied in determining the fair value, of any asset owned or held by the Trust or of any Shares; the number of Shares of any class of the Trust; any matter relating to the acquisition, holding and disposition of any assets by the Trust; or any other matter relating to the business and affairs of the Trust or required or permitted by applicable law, this Declaration of Trust or the Bylaws or otherwise to be determined by the Board of Trustees.

ARTICLE VI

SHARES OF BENEFICIAL INTEREST

Section 6.1            Authorized Shares.  The beneficial interest of the Trust shall be divided into shares of beneficial interest (the “Shares”).  The Trust has authority to issue 50,000,00075,000,000 Shares, consisting of 50,000,00075,000,000 common shares of beneficial interest, $.01 par value per share (“Common Shares”).  If shares of one class or series are classified or reclassified into shares of another class or series of shares pursuant to this ARTICLE VI, the number of authorized shares of the former class or series shall be automatically decreased and the number of shares of the latter class or series shall be automatically increased, in each case by the number of shares so classified or reclassified, so that the aggregate number of shares of beneficial interest of all

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classes and series that the Trust has authority to issue shall not be more than the total number of shares of beneficial interest set forth in the second sentence of this paragraph.  The Board of Trustees, without any action by the shareholders of the Trust, may amend this Declaration of Trust from time to time to increase or decrease the aggregate number of Shares or the number of Shares of any class or series that the Trust has authority to issue.

Section 6.2            Common Shares.  Subject to the provisions of ARTICLE VII, and except as may be otherwise specified in the Declaration of Trust, each Common Share shall entitle the holder thereof to one vote on each matter upon which holders of Common Shares are entitled to vote.  The Board of Trustees may reclassify any unissued Common Shares from time to time into one or more classes or series of Shares.

Section 6.3            Classified or Reclassified Shares.  Prior to issuance of classified or reclassified Shares of any class or series, the Board of Trustees by resolution shall (a) designate that class or series; (b) specify the number of Shares to be included in the class or series; (c) set, subject to the provisions of ARTICLE VII, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for each class or series; and (d) cause the Trust to file articles supplementary with the State Department of Assessments and Taxation of Maryland (the “SDAT”).  Any of the terms of any class or series of Shares set pursuant to clause (c) of this Section 6.3 may be made dependent upon facts ascertainable outside this Declaration of Trust (including the occurrence of any event, determination or action by the Trust or any other person or body) and may vary among holders thereof, provided that the manner in which such facts or variations shall operate upon the terms of such class or series of Shares is clearly and expressly set forth in the articles supplementary filed with the SDAT.

Section 6.4            Authorization by Board of Share Issuance.  The Board of Trustees may authorize the issuance from time to time of Shares of any class or series, whether now or hereafter authorized, or securities or rights convertible into Shares of any class or series, whether now or hereafter authorized, for such consideration (whether in cash, property, past or future services, obligation for future payment or otherwise) as the Board of Trustees may deem advisable (or without consideration), subject to such restrictions or limitations, if any, as may be set forth in this Declaration of Trust or the Bylaws of the Trust.

Section 6.5            Dividends and Distributions.  The Board of Trustees may from time to time authorize and cause the Trust to declare to shareholders such dividends or distributions, in cash or other assets of the Trust or in securities of the Trust or from any other source as the Board of Trustees in its discretion shall determine.  Shareholders shall have no right to any dividend or distribution unless and until authorized by the Board of Trustees and declared by the Trust.  The exercise of the powers and rights of the Board of Trustees pursuant to this Section 6.5 shall be subject to the provisions of any class or series of Shares at the time outstanding.

Section 6.6            General Nature of Shares.  All Shares shall be personal property entitling the shareholders only to those rights provided in this Declaration of Trust.  The shareholders shall have no interest in the property of the Trust and shall have no right to compel any partition, division, dividend or distribution of the Trust or of the property of the Trust.  The death of a shareholder shall not terminate the Trust or affect its continuity nor give his or her legal representative any rights whatsoever, whether against or in respect of other shareholders, the Trustees or the trust estate or otherwise, except the sole right to demand and, subject to the provisions of this Declaration of Trust, the Bylaws and any requirements of law, to receive a new certificate for Shares registered in the name of such legal representative, in exchange for the certificate held by such shareholder.  The Trust is entitled to treat as shareholders only those persons in whose names Shares are registered as holders of Shares on the beneficial interest ledger of the Trust.

Section 6.7            Fractional Shares.  The Trust may, without the consent or approval of any shareholder, issue fractional Shares, eliminate a fraction of a Share by rounding up or down to a full Share, arrange for the disposition of a fraction of a Share by the person entitled to it or pay cash for the fair value of a fraction of a Share.

Section 6.8            Declaration and Bylaws.  All shareholders are subject to the provisions of this Declaration of Trust and the Bylaws of the Trust.  The Bylaws of the Trust may address any matters of governance so long as they do contradict any express provision of the Declaration of Trust.

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Section 6.9            Divisions and Combinations of Shares.  Subject to an express provision to the contrary in the terms of any class or series of beneficial interest hereafter authorized, the Board of Trustees shall have the power to divide, split or combine (by issuing or redeeming, as applicable, Shares pro rata or by any other lawful means) the outstanding shares of any class or series of beneficial interest, without a vote of shareholders.

ARTICLE VII

RESTRICTIONS ON TRANSFER AND OWNERSHIP OF SHARES

Section 7.1            Definitions.  For the purpose of this ARTICLE VII, the following terms shall have the following meanings:

“Affiliate” shall mean, with respect to any Person, another Person controlled by, controlling or under common control with such Person.

“Beneficial Ownership” shall mean ownership of Shares by a Person, whether the interest in Shares is held directly or indirectly (including by a nominee), and shall include, but not be limited to, interests that would be treated as owned through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code.  The terms “Beneficial Owner,” “Beneficially Owns” and “Beneficially Owned” shall have the correlative meanings.

“Charitable Beneficiary” shall mean one or more beneficiaries of the Charitable Trust as determined pursuant to Section 7.3(g), provided that each such organization shall be described in Sections 501(c)(3), 170(b)(1)(A) (other than clause (vii) or (viii) thereof) and 170(c)(2) of the Code and contributions to each such organization shall be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.

“Charitable Trust” shall mean any trust provided for in Section 7.2(a)(ii) and Section 7.3(a).

“Charitable Trustee” shall mean each Person, unaffiliated with the Trust and a Prohibited Owner, that is appointed by the Trust from time to time to serve as a trustee of a Charitable Trust as provided by Section 7.3(a).

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Common Shares” shall mean the common shares of beneficial interest designated as such in this Declaration of Trust.

“Constructive Ownership” shall mean ownership of Shares by a Person, whether the interest in Shares is held directly or indirectly (including by a nominee), and shall include any interests that would be treated as owned through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, or treated as beneficially owned under Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The terms “Constructive Owner,” “Constructively Owns” and “Constructively Owned” shall have the correlative meanings.

“Excepted Holder” shall mean (a) a shareholder of the Trust for whom an Excepted Holder Limit (if any) is created by the Board of Trustees pursuant to Section 7.2(e)(i), (b) CommonWealth REIT, (c) the Trust’s manager (the “Manager”), (d) Affiliates of CommonWealth REIT or the Manager and (e) on account of Constructive Ownership, Persons to whom CommonWealth REIT’s or the Manager’s share ownership is attributable or whose share ownership is attributable to CommonWealth REIT or the Manager.

“Excepted Holder Limit” shall mean, provided that and only so long as the affected Excepted Holder complies with all of the requirements (if any) established by the Board of Trustees pursuant to Section 7.2(e), the percentage limit (if any) established by the Board of Trustees with respect to such Excepted Holder.

“Market Price” with respect to Shares on any date shall mean the last sale price for such Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular

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way, for such Shares, in either case as reported on the principal consolidated transaction reporting system with respect to such Shares, or if such Shares are not listed or admitted to trading on any National Securities Exchange, the last sale price in the over the counter market, or if no trading price is available for such Shares, the fair market value of such Shares as determined in good faith by the Board of Trustees.

“National Securities Exchange” means an exchange registered with the Securities and Exchange Commission under Section 6(a) of the Exchange Act, as amended, supplemented or restated from time to time, and any successor to such statute.

“Ownership Limit” shall mean (a) with respect to Common Shares, 9.8% (in value or number of shares, whichever is more restrictive) of the Common Shares outstanding at the time of determination and (b) with respect to any other class or series of Shares, 9.8% (in value or number of shares, whichever is more restrictive) of the Shares of such class or series outstanding at the time of determination.

“Person” shall mean and include individuals, corporations, limited partnerships, general partnerships, joint stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts and other entities and governments and agencies and political subdivisions thereof.

“Prohibited Owner” shall mean any Person who, but for the provisions of Section 7.2(a), would Beneficially Own or Constructively Own Shares in excess of the Ownership Limit, and if appropriate in the context, shall also mean any Person who would have been the holder of record in the books of the Trust or the Trust’s transfer agent of Shares that the Prohibited Owner would have so owned.

“REIT” shall mean a “real estate investment trust” within the meaning of Section 856 of the Code.

“Shares” shall mean the shares of beneficial interest of the Trust.

“Transfer” shall mean any issuance, sale, transfer, gift, assignment, devise or other disposition, as well as any other event (or any agreement to take any such actions or cause any such events) that causes any Person to acquire Beneficial Ownership or Constructive Ownership of Shares or the right to vote or receive distributions on Shares, including, without limitation, (a) any change in the capital structure of the Trust which has the effect of increasing the total equity interest of any Person in the Trust, (b) a change in the relationship between two or more Persons which causes a change in ownership of Shares by application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, (c) the grant or exercise of any option or warrant (or any disposition of any option or warrant, or any event that causes any option or warrant not theretofore exercisable to become exercisable), pledge, security interest or similar right to acquire Shares, (d) any disposition of any securities or rights convertible into or exchangeable for Shares or any interest in Shares or any exercise of any such conversion or exchange right, and (e) transfers of interests in other entities that result in changes in Beneficial Ownership or Constructive Ownership of Shares, in each case, whether voluntary or involuntary, whether owned of record or Beneficially Owned or Constructively Owned, and whether by operation of law or otherwise.  The terms “Transferring” and “Transferred” shall have the correlative meanings.

Section 7.2            Restrictions on Ownership.

(a)           Ownership Limitations.

(i)            Basic Restrictions.  (A) No Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own Shares in excess of the Ownership Limit.  (B) No Excepted Holder shall Beneficially Own or Constructively Own Shares in excess of the Excepted Holder Limit (if any) for such Excepted Holder.  (C) No Person shall Beneficially Own or Constructively Own Shares to the extent that such Beneficial Ownership or Constructive Ownership of Shares would result in the Trust being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year), or otherwise failing to qualify as a REIT (including, without limitation, Beneficial Ownership or Constructive Ownership that would result in the Trust owning (actually or

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Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Trust from such tenant would cause the Trust to fail to satisfy any of the gross income requirements of Section 856(c) of the Code). (D) Subject to Section 7.6, notwithstanding any other provisions contained herein, any Transfer of Shares (whether or not such Transfer is the result of a transaction entered into through the facilities of a National Securities Exchange or automated inter-dealer quotation system) that, if effective, would result in Shares being beneficially owned by less than 100 Persons (determined under the principles of Section 856(a)(5) of the Code) shall be void ab initio, and the intended transferee shall acquire no rights in such Shares.

(ii)           Transfer in Trust or Voided Transfer.  If any Transfer of Shares occurs (whether or not such Transfer is the result of a transaction entered into through the facilities of a National Securities Exchange or automated inter-dealer quotation system) which, if effective, would result in any Person Beneficially Owning or Constructively Owning Shares in violation of Section 7.2(a)(i)(A), Section 7.2(a)(i)(B) or Section 7.2(a)(i)(C), as applicable, then the Board of Trustees shall be authorized and empowered to deem (and if so deemed, such action and result shall be deemed to occur and the officers of the Trust shall be authorized to take such actions in the name and on behalf of the Trust authorized by the Board of Trustees to effectuate the same): (A) that number of Shares the Beneficial Ownership or Constructive Ownership of which otherwise would cause such Person to violate Section 7.2(a)(i)(A), Section 7.2(a)(i)(B) or Section 7.2(a)(i)(C) (rounded upward to the nearest whole share, and such excess shares, including as so rounded, the “Excess Shares”) to be automatically transferred to a Charitable Trust or Charitable Trusts for the benefit of a Charitable Beneficiary, as described in Section 7.3, effective as of the close of business on the business day prior to the date of such determination of such Transfer or at such other time determined by the Board of Trustees, and such Person shall acquire no rights in the Excess Shares; or (B) to the fullest extent permitted by law, the Transfer of Excess Shares to be void ab initio, in which case, the intended transferee shall acquire no rights in the Excess Shares.

(iii)          Cooperation.  The shareholder that would otherwise qualify as a Prohibited Owner absent the application of the provisions of Section 7.2(a)(ii) shall use best efforts and take all actions necessary or requested by the Trust to cooperate with effecting the actions taken by the Board of Trustees pursuant to Section 7.2(a)(ii), including, without limitation, informing the Trust where any Excess Shares may be held and instructing its agents to cooperate in the prompt implementation and effectuation of the actions so taken by the Board of Trustees.

(b)           Remedies for Breach.  If the Board of Trustees or any duly authorized committee thereof shall at any time determine that a Transfer or other event has taken place that results in a violation of Section 7.2(a)(i) or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any Shares in violation of Section 7.2(a)(i) (whether or not such violation is intended), the Board of Trustees or a committee thereof may take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or other event, including, without limitation, causing the Trust to redeem Shares, refusing to give effect to such Transfer on the books of the Trust or the Trust’s transfer agent or instituting proceedings to enjoin such Transfer or other event and such Person shall be liable, without limitation, for all costs incurred in connection therewith and pursuant to Section 8.6, including the costs and expenses of the Charitable Trustee.  This Section 7.2(b) shall not in any way limit the provisions of Section 7.2(a)(ii).

(c)           Notice of Restricted Transfer.  Any Person who acquires or attempts or intends to acquire Beneficial Ownership or Constructive Ownership of Shares that will or may violate Section 7.2(a)(i), or any Person who would have owned Excess Shares, shall immediately give written notice to the Trust of such event, or in the case of such a proposed or attempted transaction, give at least 15 days prior written notice, and shall provide to the Trust such other information as the Trust may request.

(d)           Owners Required to Provide Information.  Every shareholder of five percent or more (or such lower percentage as required by the Code or the regulations promulgated thereunder) of the Shares of any series or class outstanding at the time of determination, within 30 days after the end of each taxable year and

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also within three business days after a request from the Trust, shall give written notice to the Trust stating the name and address of such owner, the number of Shares Beneficially Owned, and a description of the manner in which such Shares are held; provided that a shareholder who holds Shares as nominee for another Person, which other Person is required to include in gross income the distributions received on such Shares (an “Actual Owner”), shall give written notice to the Trust stating the name and address of such Actual Owner and the number of Shares of such Actual Owner with respect to which the shareholder is nominee.  Each Person who is a Beneficial Owner or Constructive Owner of Shares and each Person (including the shareholder) who is holding Shares for a Beneficial Owner or Constructive Owner shall provide to the Trust such information as the Trust may request, in good faith, in order to determine the Trust’s status as a REIT, to determine the Trust’s compliance with other applicable laws or requirements of any governmental authority and to comply with requirements of any taxing authority or other governmental authority or to determine such compliance.

(e)           Exceptions.

(i)            The Board of Trustees, in its sole discretion, may grant to any Person who makes a request therefor (a “Requesting Person”) an exception to the Ownership Limit (or one or more elements thereof) with respect to the ownership of any series or class of Shares, subject to the following conditions and limitations: (A) the Board of Trustees shall have determined, in its discretion, that: (1) the Beneficial Ownership or Constructive Ownership of Shares by such shareholder in excess of the Ownership Limit would not violate Section 7.2(a)(i)(C), (2) the Requesting Person does not and will not own, actually or Constructively, an interest in a tenant of the Trust (or a tenant of any entity owned or controlled by the Trust) that would cause the Trust to own, actually or Constructively, more than a 9.8% interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant, (3) the Requesting Person’s ownership of Shares in excess of the Ownership Limit pursuant to the exception requested hereunder (together with the ownership of Shares by all other Persons as permitted under this ARTICLE VII, taking into account any previously granted exceptions pursuant hereto) would not cause a default under the terms of any contract to which the Trust or any of its subsidiaries is a party or reasonably expects to become a party and (4) the Requesting Person’s ownership of Shares in excess of the Ownership Limit pursuant to the exception requested hereunder (together with the ownership of Shares by all other Persons as permitted under this ARTICLE VII, taking into account any previously granted exceptions pursuant hereto) is in the best interests of the Trust; and (B)(1) prior to granting any exception pursuant to this Section 7.2(e)(i), the Board of Trustees may require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board of Trustees in their sole discretion, as they may deem necessary or advisable in order to determine or ensure the Trust’s status as a REIT and (2) such Requesting Person provides to the Board of Trustees, for the benefit of the Trust, such representations and undertakings, if any, as the Board of Trustees may, in its discretion, determine to be necessary in order for it to make the determination that the conditions set forth in Section 7.2(e)(i)(A) have been and/or will continue to be satisfied (including, without limitation, an agreement as to a reduced Ownership Limit or Excepted Holder Limit (if any) for such Requesting Person with respect to the Constructive Ownership of one or more other classes or series of Shares not subject to the exception), and such Requesting Person agrees that any violation of such representations and undertakings or any attempted violation thereof will give rise to the application of the remedies set forth in Section 7.2(a)(ii) and Section 7.2(b) with respect to Shares held in excess of the Ownership Limit or the Excepted Holder Limit (as may be applicable) with respect to such Requesting Person (determined without regard to the exception granted such Requesting Person under this Section 7.2(e)(i)).  If a member of the Board of Trustees requests that the Board of Trustees grant an exception pursuant to this Section 7.2(e) with respect to such member, or with respect to any other Person if such member of the Board of Trustees would be considered to be the Beneficial Owner or Constructive Owner of Shares owned by such other Person, such member of the Board of Trustees shall not participate in the decision of the Board of Trustees as to whether to grant any such exception.

(ii)           In determining whether to grant any exemption pursuant to Section 7.2(e)(i), the Board of Trustees may, but need not, consider, among other factors, (A) the general

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reputation and moral character of the Requesting Person, (B) whether ownership of Shares would be direct or through ownership attribution, (C) whether the Requesting Person’s ownership of Shares would interfere with the conduct of the Trust’s business, including, without limitation, the Trust’s ability to acquire additional properties, (D) whether granting an exemption for the Requesting Person would adversely affect any of the Trust’s existing contractual arrangements or business policies, (E) whether the Requesting Person to whom the exception would apply has been approved as an owner of the Trust by all regulatory or other governmental authorities who have jurisdiction over the Trust and (F) whether the Requesting Person to whom the exemption would apply is attempting to change control of the Trust or affect its policies in a way which the Board of Trustees, in its discretion, considers adverse to the best interests of the Trust or the shareholders.  Nothing in this Section 7.2(e)(ii) shall be interpreted to mean that the Board of Trustees may not act in its discretion in making any determination under Section 7.2(e)(i).

(iii)          An underwriter or initial purchaser that participates in a public offering or a private placement of Shares (or securities convertible into or exchangeable for Shares) may Beneficially Own or Constructively Own Shares (or securities convertible into or exchangeable for Shares) in excess of the Ownership Limit, but only to the extent necessary to facilitate such public offering or private placement as determined by the Board of Trustees.

Section 7.3            Transfer of Shares.

(a)           Ownership in Trust.  Upon any purported Transfer or other event described in Section 7.2(a)(ii) that results in a transfer of Shares to a Charitable Trust, such Shares shall be deemed to have been transferred to the Charitable Trustee as trustee or trustees, as applicable, of a Charitable Trust for the exclusive benefit of one or more Charitable Beneficiaries (except to the extent otherwise provided in Section 7.3(e)).  Such transfer to the Charitable Trustee shall be deemed to be effective as of the time provided in Section 7.2(a)(ii).  Any Charitable Trustee shall be appointed by the Trust and shall be a Person unaffiliated with the Trust and any Prohibited Owner.  Each Charitable Beneficiary shall be designated by the Trust as provided in Section 7.3(g).

(b)           Status of Shares Held by a Charitable Trustee.  Shares held by a Charitable Trustee shall be issued and outstanding Shares of the Trust.  The Prohibited Owner shall:

(i)            have no rights in the Shares held by the Charitable Trustee;

(ii)           not benefit economically from ownership of any Shares held in trust by the Charitable Trustee (except to the extent otherwise provided in Section 7.3(e));

(iii)          have no rights to dividends or other distributions;

(iv)          not possess any rights to vote or other rights attributable to the Shares held in the Charitable Trust; and

(v)           have no claim, cause of action or other recourse whatsoever against the purported transferor of such Shares.

(c)           Dividend and Voting Rights.  The Charitable Trustee shall have all voting rights and rights to dividends or other distributions with respect to Shares held in the Charitable Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary (except to the extent otherwise provided in Section 7.3(e)).  Any dividend or other distribution paid with respect to any Shares which constituted Excess Shares at such time and prior to Shares having been transferred to the Charitable Trustee shall be paid to the Charitable Trustee by the Prohibited Owner upon demand and any dividend or other distribution authorized but unpaid with respect to such Shares shall be paid when due to the Charitable Trustee.  Any dividends or distributions so paid to the Charitable Trustee shall be held in trust for the Charitable Beneficiary.  The Prohibited Owner shall have no voting rights with respect to Shares held in the Charitable Trust and, effective as of the date that Shares have been transferred to the Charitable Trustee, the Charitable Trustee shall have the authority (at the Charitable Trustee’s discretion) (i) to rescind as void any vote cast by a Prohibited Owner with respect to such Shares at any time such

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Shares constituted Excess Shares with respect to such Prohibited Owner and (ii) to recast such vote in accordance with the desires of the Charitable Trustee acting for the benefit of the Charitable Beneficiary; provided, however, that if the Trust has already taken irreversible action, then the Charitable Trustee shall not have the power to rescind and recast such vote.  Notwithstanding the provisions of this ARTICLE VII, until the Shares have been transferred into a Charitable Trust, the Trust shall be entitled to rely on its share transfer and other shareholder records for purposes of preparing lists of shareholders entitled to vote at meetings, determining the validity and authority of proxies, and otherwise conducting votes of shareholders.

(d)           Rights upon Liquidation.  Upon any voluntary or involuntary liquidation, dissolution or winding up of or any distribution of the assets of the Trust, the Charitable Trustee shall be entitled to receive, ratably with each other holder of Shares of the class or series of Shares that is held in the Charitable Trust, that portion of the assets of the Trust available for distribution to the holders of such class or series (determined based upon the ratio that the number of Shares of such class or series of Shares held by the Charitable Trustee bears to the total number of Shares of such class or series of Shares then outstanding).  The Charitable Trustee shall distribute any such assets received in respect of the Shares held in the Charitable Trust in any liquidation, dissolution or winding up or distribution of the assets of the Trust, in accordance with Section 7.3(e).

(e)           Sale of Shares by Charitable Trustee.  Unless otherwise directed by the Board of Trustees, within 20 days of receiving notice from the Trust that Shares have been transferred to the Charitable Trust, or as soon thereafter as practicable, the Charitable Trustee shall sell the Shares held in the Charitable Trust (together with the right to receive dividends or other distributions with respect to such Shares as to any Shares transferred to the Charitable Trustee as a result of the operation of Section 7.2(a)(ii)) to a Person, designated by the Charitable Trustee, whose ownership of the Shares will not violate the ownership limitations set forth in Section 7.2(a)(i).  Upon such sale, the interest of the Charitable Beneficiary in the Shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary as provided in this Section 7.3(e).

A Prohibited Owner shall receive the lesser of (A) the net price paid by the Prohibited Owner for the Shares or, if the Prohibited Owner did not give value for the Shares in connection with the event causing the Shares to be held in the Charitable Trust (for example, in the case of a gift, devise or other such transaction), the Market Price of the Shares on the day of the event causing the Shares to be held in the Charitable Trust, less the costs, expenses and compensation of the Charitable Trustee and the Trust as provided in Section 7.4 and (B) the net sales proceeds received by the Charitable Trustee from the sale or other disposition of the Shares held in the Charitable Trust.  Any net sales proceeds in excess of the amount payable to the Prohibited Owner shall be paid to the Charitable Beneficiary, less the costs, expenses and compensation of the Charitable Trustee and the Trust as provided in Section 7.4.  If such Shares are sold by a Prohibited Owner, then (A) such Shares shall be deemed to have been sold on behalf of the Charitable Trust and (B) to the extent that the Prohibited Owner received an amount for such Shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant to this Section 7.3(e), such excess shall be paid promptly to the Charitable Trustee upon demand.

(f)            Trust’s Purchase Right in Excess Shares.  Notwithstanding any transfer of Excess Shares to a Charitable Trust pursuant to this ARTICLE VII, Excess Shares shall be deemed to have been offered for sale to the Trust, or its designee, at a price per Share equal to the lesser of (i) the price per Share in the transaction that resulted in such Shares becoming Excess Shares (or, if the Prohibited Owner did not give value for such Shares, such as in the case of a devise, gift or other such transaction, the Market Price per such Share on the day of the event causing the Shares to become Excess Shares) and (ii) the Market Price per such Share on the date the Trust, or its designee, accepts such offer, in each case of clauses (i) and (ii) of this sentence, less the costs, expenses and compensation of the Charitable Trustee, if any, and the Trust as provided in Section 7.4.  The Trust shall have the right to accept such offer until the Charitable Trustee, if any, has sold the Shares held in the Charitable Trust, if any, pursuant to Section 7.3(e).  Upon such a sale to the Trust, if a Charitable Trust has been established pursuant to this ARTICLE VII, the interest of the Charitable Beneficiary in the Shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and the Charitable Beneficiary as provided in Section 7.3(e).

(g)           Designation of Charitable Beneficiaries.  By written notice to the Charitable Trustee, the Trust shall designate from time to time one or more nonprofit organizations to be the Charitable

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Beneficiary of the interest in the Charitable Trust such that (i) Shares held in the Charitable Trust would not violate the restrictions set forth in Section 7.2(a)(i) in the hands of such Charitable Beneficiary and (ii) contributions to each such organization shall be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.  The Charitable Beneficiary shall not obtain any enforceable right to the Charitable Trust or any of its trust corpus until so designated and thereafter any such rights remain subject to the provisions of this ARTICLE VII, including, without limitation, Section 7.3(h).  Neither the failure of the Trust to make such designation nor the failure of the Trust to appoint the Trustee before the automatic transfer provided for in Section 7.2.(a)(ii) shall make such transfer ineffective, provided that the Trust thereafter makes such designation and appointment.

(h)           Retroactive Changes.  Notwithstanding any other provisions of this ARTICLE VII, the Board of Trustees is authorized and empowered to retroactively amend, alter or repeal any rights which the Charitable Trust, the Charitable Trustee or the Charitable Beneficiary may have under this ARTICLE VII, including, without limitation, granting retroactive Excepted Holder status to any otherwise Prohibited Owner, with the effect of any transfer of Excess Shares to a Charitable Trust being fully and retroactively revoked; provided, however, that the Board of Trustees shall not have the authority or power to retroactively amend, alter or repeal any obligations to pay amounts incurred prior to such time and owed or payable to the Charitable Trustee pursuant to Section 7.4.

Section 7.4            Costs, Expenses and Compensation of Charitable Trustee and the Trust.

(a)           The Charitable Trustee shall be indemnified by the Trust or from the proceeds from the sale of Shares held in the Charitable Trust, as further provided in this ARTICLE VII, for its costs and expenses reasonably incurred in connection with conducting its duties and satisfying its obligations pursuant to this ARTICLE VII.

(b)           The Charitable Trustee shall be entitled to receive reasonable compensation for services provided by the Charitable Trustee in connection with serving as a Charitable Trustee, the amount and form of which shall be determined by agreement of the Board of Trustees and the Charitable Trustee.

(c)           Costs, expenses and compensation payable to the Charitable Trustee pursuant to Section 7.4(a) and Section 7.4(b) may be funded from the Charitable Trust or by the Trust.  The Trust shall be entitled to reimbursement on a first priority basis (after payment in full of amounts payable to the Charitable Trustee pursuant to Section 7.4(a) and Section 7.4(b)) from the Charitable Trust for any such amounts funded by the Trust.

(d)           Costs and expenses incurred by the Trust in the process of enforcing the ownership limitation set forth in Section 7.2(a)(i), in addition to reimbursement of costs, expenses and compensation of the Charitable Trustee which have been funded by the Trust, may be collected from the Charitable Trust; provided, however, that the ability of the Trust to fund its costs from the Charitable Trust shall not relieve the Prohibited Owner from his or her obligation to reimburse the Trust for costs under Section 8.6 of this Declaration of Trust, except to the extent the Trust has in fact been previously paid from the Charitable Trust; nor will the possibility of the Trust receiving payment from the Charitable Trust create a marshalling obligation which would require the Trust to reimburse itself from the Charitable Trust before enforcing the Trust’s claims under Section 8.6 or otherwise.

Section 7.5            Legend.  Each certificate for Shares, if any, shall bear a legend describing the restrictions on transferability of Shares contained herein or, instead of a legend, the certificate may state that the Trust will furnish a full statement about certain restrictions on transferability to a shareholder on request and without charge.

Section 7.6            Transactions on a National Securities Exchange.  Nothing in this ARTICLE VII shall preclude the settlement of any transaction entered into through the facilities of a National Securities Exchange or any automated inter-dealer quotation system.  The fact that the settlement of any transaction takes place shall not negate the effect of any other provision of this ARTICLE VII and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this ARTICLE VII.

Section 7.7            Enforcement.  The Trust is authorized specifically to seek equitable relief, including injunctive relief, to enforce the provisions of this ARTICLE VII.

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Section 7.8            Non-Waiver.  No delay or failure on the part of the Trust or the Board of Trustees in exercising any right hereunder shall operate as a waiver of any right of the Trust or the Board of Trustees, as the case may be, except to the extent specifically waived in writing.

Section 7.9            Enforceability.  If any of the restrictions on transfer of Shares contained in this ARTICLE VII are determined to be void, invalid or unenforceable by any court of competent jurisdiction, then, to the fullest extent permitted by law, the Prohibited Owner may be deemed, at the option of the Trust, to have acted as an agent of the Trust in acquiring such Shares and to hold such Shares on behalf of the Trust.

ARTICLE VIII

SHAREHOLDERS

Section 8.1            Meetings.  There shall be an annual meeting of the shareholders, to be held on proper notice at such time and convenient location as shall be determined by or in the manner prescribed in the Bylaws, for the election of the Trustees, if required, and for the transaction of any other business within the powers of the Trust.  Except as otherwise provided in this Declaration of Trust, special meetings of shareholders may be called in the manner provided in the Bylaws.  Shareholders meetings, including the annual meeting and any special meetings, may be called only by the Board of Trustees.  If there are no Trustees, the officers of the Trust shall promptly call a special meeting of the shareholders entitled to vote for the election of successor Trustees.  Any meeting may be adjourned and reconvened as the Trustees determine or as provided in the Bylaws.

Section 8.2            Voting Rights.  Subject to the provisions of any class or series of Shares then outstanding, the shareholders shall be entitled to vote only on the following matters: (a) election of Trustees as provided in Section 5.2 and the removal of Trustees as provided in Section 5.3; (b) amendment of this Declaration of Trust as provided in ARTICLE X; (c) termination of the Trust as provided in Section 12.2; (d) merger or consolidation of the Trust to the extent required by Title 8, or the sale or disposition of substantially all of the Trust Property, as provided in ARTICLE XI; and (e) such other matters with respect to which the Board of Trustees has adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted to the shareholders for approval or ratification.  Except with respect to the foregoing matters, no action taken by the shareholders at any meeting shall in any way bind the Board of Trustees.

Section 8.3            Preemptive and Appraisal Rights.  Except as may be provided by the Board of Trustees in setting the terms of classified or reclassified Shares pursuant to Section 6.3, or as may otherwise be provided by contract approved by the Board of Trustees, no holder of Shares shall, as such holder, (a) have any preemptive right to purchase or subscribe for any additional Shares of the Trust or any other security of the Trust which it may issue or sell or (b) have any right to require the Trust to pay him the fair value of his Shares in an appraisal or similar proceeding, including, without limitation, any right to exercise the rights of an objecting shareholder provided for under Title 8 and Title 3, Subtitle 2 of the Maryland General Corporation Law or any successor statute, unless the Board of Trustees, upon the affirmative vote of a majority of the Board of Trustees, shall determine that such rights apply, with respect to all or any classes or series of Shares, to one or more transactions occurring after the date of such determination in connection with which holders of such Shares would otherwise be entitled to exercise such rights.

Section 8.4            Extraordinary Actions.  Except as specifically provided in Section 5.3 (relating to removal of Trustees) or the Bylaws and subject to Section 8.5 and Section 10.3, notwithstanding any provision of law permitting or requiring any action to be taken or authorized by the affirmative vote of the holders of a greater number of votes, any such action shall be effective and valid if approved or declared advisable by the Board of Trustees and taken or approved by (a) the affirmative vote of holders of Shares entitled to cast a majority of all the votes entitled to be cast on the matter, or (b) if Maryland law hereafter permits the effectiveness of a vote described in this clause (b), the affirmative vote of a majority of the votes cast on the matter.

Section 8.5            Board Approval.  The submission of any action to the shareholders for their consideration shall first be approved or advised by the Board of Trustees, and the shareholders shall not otherwise be entitled to act thereon except as otherwise expressly required by law.

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Section 8.6            Indemnification of the Trust.  Each shareholder will be liable to the Trust for, and indemnify and hold harmless the Trust (and any affiliates thereof) from and against, all costs, expenses, penalties, fines or other amounts, including without limitation, reasonable attorneys’ and other professional fees, whether third party or internal, arising from such shareholder’s breach of or failure to fully comply with any covenant, condition or provision of this Declaration of Trust or the Bylaws or any action by or against the Trust in which such shareholder is not the prevailing party, and shall pay such amounts on demand, together with interest on such amounts, which interest will accrue at the lesser of 18% per annum and the maximum amount permitted by law, from the date such costs or the like are incurred until the receipt of payment.

Section 8.7            Compliance with Law.  Shareholders shall comply with this Declaration of Trust, the Bylaws, all applicable requirements of federal and state laws, including all rules and regulations promulgated thereunder, and the contractual obligations of the Trust, in connection with such shareholder’s ownership interest in the Trust and all other laws which apply to the Trust or any subsidiary of the Trust or their respective businesses, assets or operations and which require action or inaction on the part of the shareholder.

ARTICLE IX

LIABILITY LIMITATION, INDEMNIFICATION
AND TRANSACTIONS WITH THE TRUST

Section 9.1            Limitation of Shareholder Liability.  No shareholder shall be personally liable for any debt, claim, demand, judgment or obligation of any kind of the Trust by reason of his being a shareholder.

Section 9.2            Limitation of Trustee and Officer Liability.  To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of trustees and officers of a real estate investment trust, no current or former Trustee or officer of the Trust shall be liable to the Trust or to any shareholder for money damages.  Neither the amendment nor repeal of this Section 9.2, nor the adoption or amendment of any other provision of this Declaration of Trust inconsistent with this Section 9.2, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.  In the absence of any Maryland statute limiting the liability of trustees and officers of a Maryland real estate investment trust for money damages in a suit by or on behalf of the Trust or by any shareholder, or arising by reason of his or her action on behalf of the Trust, no Trustee or officer of the Trust shall be liable to the Trust or to any shareholder for money damages except to the extent that (a) the Trustee or officer actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received, or (b) a judgment or other final adjudication adverse to the Trustee or officer is entered in a proceeding based on a finding in the proceeding that the Trustee’s or officer’s action or failure to act was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.

Section 9.3            Express Exculpatory Clauses and Instruments.  Any written instrument creating an obligation of the Trust shall, to the extent practicable, include a reference to this Declaration and provide that neither the shareholders nor the Trustees nor any officers, employees or agents (including the Manager) of the Trust shall be liable thereunder and that all persons shall look solely to the trust estate for the payment of any claim thereunder or for the performance thereof; however, the omission of such provision from any such instrument shall not render the shareholders, any Trustee, or any officer, employee or agent (including the Manager) of the Trust liable, nor shall the shareholders, any Trustee or any officer, employee or agent (including the Manager) of the Trust be liable to anyone for such omission.

Section 9.4            Indemnification.  The Trust shall have the power, to the maximum extent permitted by Maryland law in effect from time to time, to obligate itself to indemnify, and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to, (a) any individual who is a present or former Trustee or officer of the Trust or (b) any individual who, while a Trustee or officer of the Trust and at the request of the Trust, serves or has served as a trustee, director, officer, partner, member, manager, employee or agent of another real estate investment trust, corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise from and against any claim or liability to which such person may

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become subject or which such person may incur by reason of his or her service in that capacity.  The Trust shall have the power, with the approval of its Board of Trustees, to provide such indemnification and advancement of expenses to a person who served a predecessor of the Trust in any of the capacities described in (a) or (b) above.

Section 9.5            Transactions Between the Trust and its Trustees, Officers, Employees and Agents.

(a)           Subject to any express restrictions adopted by the Trustees in the Bylaws or by resolution, the Trust may enter into any contract or transaction of any kind, whether or not any of its Trustees, officers, employees or agents has a financial interest in such transaction, with any person, including any Trustee, officer, employee or agent of the Trust or any person affiliated with a Trustee, officer, employee or agent of the Trust or in which a Trustee, officer, employee or agent of the Trust has a material financial interest.

(b)           To the extent permitted by Maryland law, a contract or other transaction between the Trust and any Trustee or between the Trust and the Manager or any other corporation, trust, firm, or other entity in which any Trustee is a director or trustee or has a material financial interest shall not be void or voidable if:

(i)            The fact of the common directorship, trusteeship or interest is disclosed or known to:

(A)          The Board of Trustees or a proper committee thereof, and the Board of Trustees or such Committee authorizes, approves or ratifies the contract or transaction by the affirmative vote of a majority of disinterested Trustees, even if the disinterested Trustees constitute less than a quorum, or if there are no disinterested Trustees, then the approval shall be by a majority vote of the entire Board of Trustees and by a majority vote of the Independent Trustees; or

(B)          The shareholders entitled to vote, and the contract or transaction is authorized, approved, or ratified by a majority of the votes cast by the shareholders entitled to vote other than the votes of shares owned of record or beneficially by the interested trustee, corporation, trust, firm or other entity; or

(C)          The contract or transaction is fair and reasonable to the Trust.

(ii)           Common or interested trustees or the shares owned by them or by an interested corporation, trust, firm or other entity may be counted in determining the presence of a quorum at a meeting of the Board of Trustees or a committee thereof or at a meeting of the shareholders, as the case may be, at which the contract or transaction is authorized, approved or ratified.

(c)           The failure of a contract or other transaction between the Trust and any Trustee or between the Trust and the Manager or any other corporation, trust, firm, or other entity in which any Trustee is a director or trustee or has a material financial interest to satisfy the criteria set forth in Section 9.5(b) shall not create any presumption that such contract or other transaction is void, voidable or otherwise invalid, and any such contract or other transaction shall be valid to the fullest extent permitted by Maryland law.  To the fullest extent permitted by Maryland law, (i) the fixing by the Board of Trustees of compensation for a Trustee (whether as a Trustee or in any other capacity) and (ii) Section 9.4 of this Declaration of Trust or any provision of the Bylaws or any contract or transaction requiring or permitting indemnification (including advancing of expenses) in accordance with terms and procedures not materially less favorable to the Trust than those described in Section 2-418 (or any successor section thereto) of the Maryland General Corporation Law (as in effect at the time such provision was adopted or such contract or transaction was entered into or as it may thereafter be in effect) shall be deemed to have satisfied the criteria set forth in Section 9.5(b).

Section 9.6            Right of Trustees, Officers, Employees and Agents to Own Shares or Other Property and to Engage in Other Business.  Subject to any restrictions which may be adopted by the Trustees in the

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Bylaws or otherwise: any Trustee or officer, employee or agent of the Trust may acquire, own, hold and dispose of Shares in the Trust, for his or her individual account, and may exercise all rights of a shareholder to the same extent and in the same manner as if he or she were not a Trustee or officer, employee or agent of the Trust.  Any Trustee or officer, employee or agent of the Trust may, in his or her personal capacity or in the capacity of trustee, officer, director, stockholder, partner, member, advisor or employee of any Person or otherwise, have business interests and engage in business activities similar to or in addition to those relating to the Trust, which interests and activities may be similar to and competitive with those of the Trust and may include the acquisition, syndication, holding, management, development, operation or disposition, for his or her own account, or for the account of such Person or others, of interests in mortgages, interests in real property, or interests in Persons engaged in the real estate business.  Each Trustee, officer, employee and agent of the Trust shall be free of any obligation to present to the Trust any investment opportunity which comes to him or her in any capacity other than solely as a Trustee, officer, employee or agent of the Trust even if such opportunity is of a character which, if presented to the Trust, could be taken by the Trust.  Any Trustee or officer, employee or agent of the Trust may be interested as a trustee, officer, director, stockholder, partner, member, advisor or employee of, or otherwise have a direct or indirect interest in, any Person who may be engaged to render advice or services to the Trust, and may receive compensation from such Person as well as compensation as a Trustee, officer, employee or agent or otherwise hereunder.  None of these activities shall be deemed to conflict with his or her duties and powers as a Trustee or officer, employee or agent of the Trust.

Section 9.7            Persons Dealing with Trustees, Officers, Employees or Agents.  Any act of the Trustees or of the officers, employees or agents of the Trust purporting to be done in their capacity as such, shall, as to any Persons dealing with such Trustees, officers, employees or agents, be conclusively deemed to be within the purposes of this Trust and within the powers of such Trustees or officers, employees or agents.  No Person dealing with the Board or any of the Trustees or with the officers, employees or agents of the Trust shall be bound to see to the application of any funds or property passing into their hands or control.  The receipt of the Board or any of the Trustees, or of authorized officers, employees or agents of the Trust, for moneys or other consideration, shall be binding upon the Trust.

Section 9.8            Reliance.  Each Trustee, officer, employee and agent of the Trust shall, in the performance of his or her duties with respect to the Trust, be entitled to rely on any information, opinion, report or statement, including any financial statement or other financial data, prepared or presented by an officer or employee of the Trust or by the Manager, accountants, appraisers or other experts or consultants selected by the Board of Trustees or officers of the Trust, regardless of whether such counsel or expert may also be a Trustee.

ARTICLE X

AMENDMENTS

Section 10.1          General.  The Trust reserves the right from time to time to make any amendment to this Declaration of Trust, now or hereafter authorized by law, including any amendment altering the terms or contract rights, as expressly set forth in this Declaration of Trust, of any Shares, except that the provisions governing the personal liability of the shareholders, Trustees and of the officers, employees and agents of the Trust and the prohibition of assessments upon shareholders may not be amended in any respect that could increase the personal liability of such shareholders, Trustees or officers, employees and agents of the Trust.  All rights and powers conferred by this Declaration of Trust on shareholders, Trustees and officers are granted subject to this reservation.  All references to this Declaration of Trust shall include all amendments and supplements thereto.

Section 10.2          By Trustees.  The Trustees may amend this Declaration of Trust from time to time, in the manner provided by Title 8, without any action by the shareholders, to qualify as a real estate investment trust under the Code or under Title 8 and as otherwise provided in Section 8-501(e) of Title 8 and this Declaration of Trust, including, to the extent permitted by law, supplying any omission, curing any ambiguity, correcting any defective or inconsistent provision or error or clarifying the meaning and intent of this Declaration of Trust.  If permitted by Maryland law as in effect from time to time, the Trustees may amend this Declaration of Trust from time to time in any other respect, in accordance with such law, without any action by the shareholders.

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Section 10.3          By Shareholders.  Except as otherwise provided in Section 10.2 and subject to the following sentence, any amendment to this Declaration of Trust must first be approved by 60% of the Trustees then in office, including 60% of the Independent Trustees then in office, and then shall be valid only if approved by (a) the affirmative vote of a majority of all the votes entitled to be cast on the matter or (b) if Maryland law hereafter permits the effectiveness of a vote described in this clause (b), the affirmative vote of a majority of the votes cast on the matter.  Any amendment to Section 5.2(b) or Section 5.3 or to this sentence of this Declaration of Trust shall be valid only if approved by the Board of Trustees and then by the affirmative vote of two-thirds of all votes entitled to be cast on the matter.

ARTICLE XI

MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY

Section 11.1          Merger, Consolidation or Sale.  Subject to the provisions of any class or series of Shares at the time outstanding, the Trust may (a) merge with or into another entity, (b) consolidate with one or more other entities into a new entity or (c) sell, lease, exchange or otherwise transfer all or substantially all of the trust property.  Any such action must first be approved by 60% of the Trustees then in office, including 60% of the Independent Trustees then in office, and, after notice to all shareholders entitled to vote on the matter, by (i) the affirmative vote of a majority of all the votes entitled to be cast on the matter or (ii) if Maryland law hereafter permits the effectiveness of a vote described in this clause (ii), the affirmative vote of a majority of the votes cast on the matter.

ARTICLE XII

DURATION AND TERMINATION OF TRUST

Section 12.1          Duration.  The Trust shall continue perpetually unless terminated pursuant to Section 12.2.

Section 12.2          Termination.

(a)           Subject to the provisions of any class or series of Shares at the time outstanding, after approval by 60% of the Trustees then in office, including 60% of the Independent Trustees then in office, the Trust may be terminated at any meeting of shareholders by (i) the affirmative vote of a majority of all the votes entitled to be cast on the matter or (ii) or if hereafter expressly authorized by Title 8, the affirmative vote of a majority of the votes cast on the matter.  Upon the termination of the Trust:

(i)            The Trust shall carry on no business except for the purpose of winding up its affairs.

(ii)           The Trustees shall proceed to wind up the affairs of the Trust and all of the powers of the Trustees under this Declaration of Trust shall continue, including the powers to fulfill or discharge the Trust’s contracts, collect its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part of the remaining property of the Trust to one or more persons at public or private sale for consideration which may consist in whole or in part of cash, securities or other property of any kind, discharge or pay its liabilities and do all other acts appropriate to liquidate its business.

(iii)          After paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and agreements as they deem necessary for their protection, the Trust may distribute the remaining property of the Trust among the shareholders so that after payment in full or the setting apart for payment of such preferential amounts, if any, to which the holders of any Shares at the time outstanding shall be entitled, the remaining property of the Trust shall, subject to any participating or similar rights of Shares at the time outstanding, be distributed ratably among the holders of Common Shares at the time outstanding.

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(b)           After termination of the Trust, the liquidation of its business and the distribution to the shareholders as herein provided, a majority of the Trustees shall execute and file with the Trust’s records a document certifying that the Trust has been duly terminated and the Trustees shall be discharged from all liabilities and duties hereunder, and the rights and interests of all shareholders shall cease.

ARTICLE XIII

MISCELLANEOUS

Section 13.1          Governing Law.  This Declaration of Trust is executed and delivered with reference to the laws of the State of Maryland, and the rights of all parties and the validity, construction and effect of every provision hereof shall be subject to and construed according to the laws of the State of Maryland.

Section 13.2          Ambiguity.  In the case of an ambiguity in the application of any provision of this Declaration of Trust or any definition contained in this Declaration of Trust, the Board of Trustees shall have the sole power to determine the application of such provisions with respect to any situation based on the facts known to it and such determination shall be final and binding unless determined by a court of competent jurisdiction to have been made in bad faith.

Section 13.3          Reliance by Third Parties.  Any certificate shall be final and conclusive as to any person dealing with the Trust if executed by the Secretary or an Assistant Secretary of the Trust or a Trustee, and if certifying to: (a) the number or identity of Trustees, officers of the Trust or shareholders; (b) the due authorization of the execution of any document; (c) the action or vote taken, and the existence of a quorum, at a meeting of the Board of Trustees or shareholders; (d) a copy of this Declaration of Trust or of the Bylaws as a true and complete copy as then in force; (e) an amendment or supplement to this Declaration of Trust; (f) the termination of the Trust; or (g) the existence of any fact relating to the affairs of the Trust.  No purchaser, lender, transfer agent or other person shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the Trust on its behalf or by any officer, employee or agent of the Trust.

Section 13.4          Severability.

(a)           The provisions of this Declaration of Trust are severable, and if the Board of Trustees shall determine, with the advice of counsel, that any one or more of such provisions (the “Conflicting Provisions”) are in conflict with the Code, Title 8 or other applicable federal or state laws, the Conflicting Provisions, to the extent of the conflict, shall be deemed never to have constituted a part of this Declaration of Trust, even without any amendment of this Declaration of Trust pursuant to ARTICLE X and without affecting or impairing any of the remaining provisions of this Declaration of Trust or rendering invalid or improper any action taken or omitted (including but not limited to the election of Trustees) prior to such determination.  No Trustee shall be liable for making or failing to make such a determination.  In the event of any such determination by the Board of Trustees, the Board shall amend this Declaration of Trust in the manner provided in Section 10.2.

(b)           If any provision of this Declaration of Trust shall be held invalid or unenforceable in any jurisdiction, such holding shall apply only to the extent of any such invalidity or unenforceability and shall not in any manner affect, impair or render invalid or unenforceable such provision in any other jurisdiction or any other provision of this Declaration of Trust in any jurisdiction.

Section 13.5          Construction.  In this Declaration of Trust, unless the context otherwise requires, words used in the singular or in the plural include both the plural and singular and words denoting any gender include all genders.  The title and headings of different parts are inserted for convenience and shall not affect the meaning, construction or effect of this Declaration of Trust.  In defining or interpreting the powers and duties of the Trust and its Trustees and officers, reference may be made by the Trustees or officers, to the extent appropriate and not inconsistent with the Code, to Title 8 or to Titles 1 through 3 of the Corporations and Associations Article of the Annotated Code of Maryland.  In furtherance and not in limitation of the foregoing, in accordance with the provisions of Title 3, Subtitles 6 and 7, of the Corporations and Associations Article of the Annotated Code of Maryland, the Trust shall be included within the definition of “corporation” for purposes of such provisions.

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Section 13.6          Recordation.  This Declaration of Trust and any amendment hereto shall be filed for record with the SDAT and may also be filed or recorded in such other places as the Trustees deem appropriate, but failure to file for record this Declaration of Trust or any amendment hereto in any office other than in the State of Maryland shall not affect or impair the validity or effectiveness of this Declaration of Trust or any amendment or supplement hereto.  A restated Declaration of Trust shall, upon filing, be conclusive evidence of all amendments and supplements contained therein and may thereafter be referred to in lieu of the original Declaration of Trust and the various amendments and supplements thereto.

THIRD:  The amendment to and restatement of the Declaration of Trust of the Trust as hereinabove set forth have been duly advised by the Board of Trustees and approved by the sole shareholder of the Trust as required by law.

FOURTH:  The foregoing amendment and restatement of the Declaration of Trust does not increase the authorized number of shares of beneficial interest of the Trust.

FIFTH:  These Articles of Amendment and Restatement shall become effective at 9:00 a.m. on March 12, 2012.

The undersigned President acknowledges these Articles of Amendment and Restatement to be the trust act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned President acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Trust has caused these Articles of Amendment and Restatement to be signed in its name and on its behalf by its President and attested to by its Secretary on this 9th day of March, 2012.

ATTEST:		SELECT INCOME REIT
/s/ Jennifer B. Clark		/s/ David M. Blackman
Name:	Jennifer B. Clark	Name:	David M. Blackman
Title:	Secretary	Title:	President

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EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, David M. Blackman, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Select Income REIT;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)[paragraph omitted in accordance with Exchange Act Rule 13a-14(a).]

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 2, 2013	/s/ David M. Blackman
		David M. Blackman
		President and Chief Operating Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, John C. Popeo, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Select Income REIT;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)[paragraph omitted in accordance with Exchange Act Rule 13a-14(a).]

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 2, 2013	/s/ John C. Popeo
		John C. Popeo
		Treasurer and Chief Financial Officer

EX-31.3

EXHIBIT 31.3

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, Barry M. Portnoy, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Select Income REIT;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)[paragraph omitted in accordance with Exchange Act Rule 13a-14(a).]

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 2, 2013	/s/ Barry M. Portnoy
		Barry M. Portnoy
		Managing Trustee

EX-31.4

EXHIBIT 31.4

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, Adam D. Portnoy, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Select Income REIT;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)[paragraph omitted in accordance with Exchange Act Rule 13a-14(a).]

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 2, 2013	/s/ Adam D. Portnoy
		Adam D. Portnoy
		Managing Trustee

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Sec. 1350

In connection with the filing by Select Income REIT (the “Company”) of the Quarterly Report on Form 10-Q for the period ended June 30, 2013 (the “Report”), each of the undersigned hereby certifies, to the best of his knowledge:

1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Barry M. Portnoy	/s/ David M. Blackman
Barry M. Portnoy	David M. Blackman
Managing Trustee	President and Chief Operating Officer
/s/ Adam D. Portnoy	/s/ John C. Popeo
Adam D. Portnoy	John C. Popeo
Managing Trustee	Treasurer and Chief Financial Officer
Date: August 2, 2013

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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value of Financial Instruments

Schedule of carrying value and the estimated fair market value of mortgage notes payable

	Carrying		Estimated
	Amount		Fair Value
Mortgage notes payable	$	27,471	$	27,629

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenues:
Rental income	$ 38,706	$ 23,754	$ 76,164	$ 47,828
Tenant reimbursements and other income	7,240	4,166	13,642	7,679
Total revenues	45,946	27,920	89,806	55,507
Expenses:
Real estate taxes	5,159	3,677	9,785	7,318
Other operating expenses	3,852	2,023	7,100	3,800
Depreciation and amortization	7,295	3,021	13,960	5,794
Acquisition related costs	156	675	689	675
General and administrative	2,957	1,634	5,676	3,038
Total expenses	19,419	11,030	37,210	20,625
Operating income	26,527	16,890	52,596	34,882
Interest expense (including amortization of debt premiums and deferred financing fees of $385, $258, $721 and $311, respectively)	(3,779)	(1,632)	(7,252)	(1,969)
Equity in earnings of an investee	79	74	155	74
Income before income tax expense	22,827	15,332	45,499	32,987
Income tax expense	(40)		(80)
Net income	22,787	15,332	45,419	32,987
Other comprehensive income:
Equity in unrealized loss of an investee	(73)	(1)	(81)	(1)
Other comprehensive loss	(73)	(1)	(81)	(1)
Comprehensive income	$ 22,714	$ 15,331	$ 45,338	$ 32,986
Weighted average common shares outstanding (in shares)	39,288	31,200	39,285	22,202
Net income per common share (in dollars per share)	$ 0.58	$ 0.49	$ 1.16	$ 1.49

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Tenant Concentration and Segment Information

6 Months Ended

Jun. 30, 2013

Tenant Concentration and Segment Information

Tenant Concentration and Segment Information

Note 4.  Tenant Concentration and Segment Information

We operate in one business segment: ownership of properties that are primarily net leased to single tenants.  A “net leased property” or a property being “net leased” means that the property’s lease requires the tenant to pay rent and also pay or reimburse us for all, or substantially all, property level operating expenses and capital expenditures, such as real estate taxes, insurance, utilities, maintenance and repairs, other than, in certain circumstances, roof and structural element related expenditures; in some instances, tenants instead reimburse us for all expenses in excess of certain amounts included in the stated rent.  No single tenant currently accounts for more than 10% of our total revenues.  We define a single tenant leased property as a property with at least 90% of its rentable square footage leased to one tenant; however, we do also own some multi tenant buildings on the island of Oahu, HI.

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Related Person Transactions (Details) (USD $) In Thousands, except Share data, unless otherwise specified	1 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended			6 Months Ended	0 Months Ended				1 Months Ended			3 Months Ended	6 Months Ended
	Jul. 31, 2013	Mar. 31, 2012	Jun. 30, 2013 item	Jun. 30, 2012	Jun. 30, 2013 item	Jun. 30, 2012	Jun. 30, 2013 RMR item	Jun. 30, 2012 RMR	Jun. 30, 2012 RMR	Jun. 30, 2013 RMR item	Mar. 25, 2013 CWH	Jul. 02, 2013 CWH	Jun. 30, 2013 CWH	Mar. 31, 2012 CWH	Jun. 30, 2013 AIC item	Jun. 30, 2012 AIC	May 31, 2012 AIC	Jun. 30, 2013 AIC item	Jun. 30, 2013 AIC item	Dec. 31, 2012 AIC
Related Person Transactions
Number of employees			0		0
Number of agreements to avail management and administrative services							2			2
Business management fees incurred							$ 2,259	$ 1,252	$ 1,500	$ 4,426
Property management and construction supervision fees incurred							1,311	807	965	2,569
Ownership interest previously held (as a percent)													100.00%
Common shares owned													22,000,000
Percentage of outstanding common shares owned												44.20%	56.00%
Common shares issued, including shares issued under underwriters' option to purchase additional shares		9,200,000
Common shares sold pursuant to option to purchase additional shares		1,200,000
Net proceeds from issuance of common shares	283,655	180,814			(96)	180,814
Maximum borrowing capacity of revolving credit facility		500,000
Note repayed														400,000
Number of common shares issued											22,000,000
Related party reimbursement													622
Common shares issued by equity method investee																	20,000
Investment at carrying value															5,703		5,335	5,703	5,703	5,629
Number of other companies owning outstanding shares															5			5	5
Percentage of interest															12.50%			12.50%	12.50%
Recognized income related to investment			79	74	155	74										74		79	154
Coverage of property insurance																			500,000
Property insurance program term															1 year
Premium paid															$ 559

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Basis of Presentation (Details) (CWH)	Jun. 30, 2013 item
CWH
Basis of Presentation
Number of properties owned	251

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 45,419	$ 32,987
Adjustments to reconcile net income to cash provided by operating activities
Depreciation	9,327	4,109
Net amortization of debt premiums and deferred financing fees	721	311
Amortization of acquired real estate leases	4,756	1,650
Amortization of deferred leasing costs	402	274
Provision for losses on rents receivable	46	340
Straight line rental income	(5,655)	(2,067)
Other non-cash expenses	746
Equity in earnings of equity investments	(155)	(74)
Change in assets and liabilities:
Rents receivable	(1,425)	2,335
Deferred leasing costs	(1,175)	(766)
Other assets	(1,268)	207
Due from related persons	444
Accounts payable and accrued expenses	1,056	1,116
Rents collected in advance	(756)	(664)
Security deposits	300	(44)
Due to related persons	(230)	44
Cash provided by operating activities	52,553	39,758
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions	(162,925)	(115,380)
Real estate improvements	(2,534)	(595)
Investment in Affiliates Insurance Company		(5,335)
Cash used in investing activities	(165,459)	(121,310)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (cost of) issuance of common shares, net	(96)	180,814
Proceeds from borrowings	163,000	357,500
Payments on borrowings	(23,108)	(36,500)
Deferred financing fees	(1,194)	(4,131)
Repayment of demand note		(400,000)
Distributions to common shareholders	(33,783)
Owner's net distributions		(6,138)
Cash provided by financing activities	104,819	91,545
Increase (decrease) in cash and cash equivalents	(8,087)	9,993
Cash and cash equivalents at beginning of period	20,373
Cash and cash equivalents at end of period	12,286	9,993
Supplemental disclosures:
Interest paid	6,245	879
Income taxes paid	305
Non-cash investing activities:
Real estate acquired by issuance of shares and assumption of demand note		(913,286)
Non-cash financing activities:
Issuance of common shares	284	513,286
Issuance of demand note		$ 400,000

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2013

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Note 2.  Recent Accounting Pronouncements

Effective January 2013, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  This update is the culmination of the FASB’s deliberation on reporting reclassification adjustments from accumulated other comprehensive income, or AOCI.  This standard does not change the current requirements for reporting net income or other comprehensive income.  However, it requires disclosure of amounts reclassified out of AOCI in their entirety, by component, on the face of the statement of operations or in the notes thereto.  Amounts that are not required to be reclassified in their entirety to net income must be cross referenced to other disclosures that provide additional detail.  This update was effective prospectively for interim and annual reporting periods beginning after December 15, 2012.  The implementation of this update did not cause any material changes to the disclosures in, or the presentation of, our condensed consolidated financial statements.

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Indebtedness

6 Months Ended

Jun. 30, 2013

Indebtedness

Indebtedness

Note 5.  Indebtedness

At June 30, 2013 and December 31, 2012, our outstanding indebtedness consisted of the following:

	June 30,		December 31,
	2013		2012
Revolving credit facility, due in 2016	$	235,000	$	95,000
Term loan, due in 2017	350,000		350,000
Mortgage note payable, 5.950% interest rate, including unamortized premium of $1,280 and $1,415, respectively, due in 2017 (1)	19,618		19,862
Mortgage note payable, 5.689% interest rate, including unamortized premium of $352 and $416, respectively, due in 2016 (1)	7,853		7,916
	$	612,471	$	472,778

(1) We assumed these mortgages in connection with our acquisitions of certain properties. The stated interest rates for these mortgage debts are the contractually stated rates; we recorded the assumed mortgages at estimated fair value on the date of acquisition and we are amortizing the fair value premiums to interest expense over the respective terms of the mortgages to reduce interest expense based on the estimated market interest rates as of the date of acquisition.

We have a $750,000 unsecured revolving credit facility that is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is March 11, 2016 and, subject to the payment of an extension fee and meeting certain other conditions, our revolving credit facility includes an option for us to extend the stated maturity date by one year to March 11, 2017.  In addition, our revolving credit facility includes a feature under which maximum borrowings may be increased to $1,000,000 in certain circumstances. In February 2013, we partially exercised our option to increase the available borrowing amount under our revolving credit facility from $500,000 to $750,000.  Borrowings under our revolving credit facility bear interest at LIBOR plus a premium.  We also pay a facility fee on the total amount of lending commitments under our revolving credit facility. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our leverage or credit ratings. At June 30, 2013, the interest rate premium on our revolving credit facility was 130 basis points and our facility fee was 30 basis points.  As of June 30, 2013, the interest rate payable on borrowings under our revolving credit facility was 1.50% and the weighted average annual interest rate for borrowings under the revolving credit facility was 1.50% for both the three and six months ended June 30, 2013. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. As of June 30, 2013 and July 26, 2013, we had $235,000 and $75,000, respectively, outstanding under our revolving credit facility.

We also have a $350,000 unsecured term loan that matures on July 11, 2017 and is prepayable without penalty at any time. In addition, our term loan includes a feature under which maximum borrowings may be increased to up to $700,000 in certain circumstances. Our term loan bears interest at a rate of LIBOR plus a premium, which was 155 basis points as of June 30, 2013. The interest rate premium is subject to adjustment based upon changes to our leverage or credit ratings. As of June 30, 2013, the interest rate payable for the amount outstanding under our term loan was 1.75% and the weighted average interest rate for the amount outstanding under our term loan was 1.75% and 1.76% for the three and six months ended June 30, 2013, respectively.

Our credit facility agreement and our term loan agreement provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, including a change of control of us and the termination of our business management agreement or our property management agreement with Reit Management & Research LLC, or RMR. Our credit facility agreement and our term loan agreement also contain a number of financial and other covenants, including covenants that restrict our ability to incur indebtedness or to make distributions under certain circumstances and require us to maintain financial ratios and a minimum net worth. We believe we were in compliance with the terms of our revolving credit facility and term loan covenants at June 30, 2013.

At June 30, 2013, three of our properties with an aggregate net book value of $29,573 secured two mortgage notes we assumed in connection with our acquisition of such properties. The aggregate principal amount outstanding under those two mortgage notes as of June 30, 2013, was $25,839. These mortgage notes are non-recourse, subject to certain limited exceptions, and do not contain any material financial covenants.

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Real Estate Properties

6 Months Ended

Jun. 30, 2013

Real Estate Properties

Real Estate Properties

Note 3.  Real Estate Properties

During the six months ended June 30, 2013, we acquired five properties with a combined 779,010 square feet for an aggregate purchase price of $158,320, excluding closing costs. We allocated the purchase prices of these acquisitions based on the estimated fair values of the acquired assets and assumed liabilities. Details of these completed acquisitions are as follows:

												Assumed
										Acquired		Real Estate
		Number of	Square	Purchase				Building and		Real Estate		Lease
Date	Location	Properties	Feet	Price (1)		Land		Improvements		Leases		Obligations
January 2013	Addison, TX(2)	2	553,799	$	105,000	$	10,107	$	94,893	$	—	$	—
February 2013	Provo, UT	2	125,225	34,720		3,400		25,938		5,382		—
March 2013	San Antonio, TX	1	99,986	18,600		3,197		12,175		3,507		(279		)
		5	779,010	$	158,320	$	16,704	$	133,006	$	8,889	$	(279	)

(1) Purchase price excludes acquisition costs. Except as otherwise noted, all acquisitions were accounted for as business combinations.

(2) Property was acquired and simultaneously leased back to the seller in a sale/leaseback transaction. We accounted for this transaction as an acquisition of assets. We recognized acquisition costs of $226 which we capitalized as part of the transaction.

In July 2013, we acquired a single tenant, net leased office property located in Richmond, VA with 310,950 square feet. The purchase price of this property was $143,600, excluding closing costs. This acquisition was accounted for as a business combination, and due to the timing of this acquisition, the purchase price allocation is not yet complete.

Certain of our real estate assets contain hazardous substances, including asbestos. We believe the asbestos at our properties is contained in accordance with current environmental regulations and we have no current plans to remove it. If these properties were demolished today, certain environmental regulations specify the manner in which the asbestos must be removed and we could incur substantial costs complying with such regulations. Certain of our industrial lands in Hawaii may require environmental remediation, especially if the use of those lands is changed; however, we do not have any present plans to change the use of those land parcels or to undertake this environmental cleanup. We do not have any insurance designated to limit any losses that we may incur as a result of known or unknown environmental conditions which are not caused by an insured event, such as, for example, fire or flood. However, as of June 30, 2013 and December 31, 2012, accrued environmental remediation costs totaling $8,386 and $8,644, respectively, were included in accounts payable and accrued expenses in our condensed consolidated balance sheets. These accrued expenses relate to maintenance of our properties for current uses. We do not believe that there are environmental conditions at any of our properties that will have a material adverse effect on us. However, no assurances can be given that such conditions are not present in our properties or that other costs we incur to remediate contamination will not have a material adverse effect on our business or financial condition. Charges for environmental remediation costs are included in other operating expenses in the condensed consolidated statements of income and comprehensive income.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
CONDENSED CONSOLIDATED BALANCE SHEETS
Rents receivable, allowance for doubtful accounts (in dollars)	$ 690	$ 644
Common shares, par value (in dollars per share)	$ 0.01	$ 0.01
Common shares, shares authorized	75,000,000	50,000,000
Common shares, shares issued	39,292,592	39,282,592
Common shares, shares outstanding	39,292,592	39,282,592

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Related Person Transactions

6 Months Ended

Jun. 30, 2013

Related Person Transactions

Related Person Transactions

Note 8.  Related Person Transactions

We have no employees.  Personnel and various services we require to operate our business are provided to us by RMR.  We have two agreements with RMR to provide management and administrative 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.

Under our business management agreement with RMR, we acknowledge that RMR also provides management services to other companies, which include CWH.  One of our Managing Trustees, Mr. Barry Portnoy, is Chairman, majority owner and an employee of RMR.  Our other Managing Trustee, Mr. Adam Portnoy, is the son of Mr. Barry Portnoy, and an owner, President, Chief Executive Officer and a director of RMR.  Each of our executive officers is also an officer of RMR.  CWH’s executive officers are officers of RMR.  Our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR provides management services.  Mr. Barry Portnoy serves as a managing director or managing trustee of those companies and Mr. Adam Portnoy serves as a managing trustee of a majority of those companies.  In addition, officers of RMR serve as officers of those companies.

Pursuant to our business management agreement with RMR, we recognized business management fees of $2,259 and $1,252 for the three months ended June 30, 2013 and 2012, respectively.  We recognized business management fees of $4,426 for the six months ended June 30, 2013 and $1,500 for the period beginning on March 12, 2012, the date on which we entered into the business management agreement, through June 30, 2012.  These amounts are included in general and administrative expenses in our condensed consolidated financial statements.

In connection with our property management agreement with RMR, we recognized aggregate property management and construction supervision fees of $1,311 and $807 for the three months ended June 30, 2013 and 2012, respectively.  We recognized aggregate property management and construction supervision fees of $2,569 for the six months ended June 30, 2013 and $965 for the period beginning on March 12, 2012, the date on which we entered into the property management agreement, through June 30, 2012.  These amounts are included in operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

We were formerly a 100% owned subsidiary of CWH.  CWH is our largest shareholder and, as of June 30, 2013, CWH owned 22,000,000 of our common shares, or approximately 56.0% of our outstanding common shares.  Following completion of our public offering of common shares on July 2, 2013, CWH owned approximately 44.2% of our outstanding common shares.   One of our Managing Trustees, Mr. Barry Portnoy, is a managing trustee of CWH.  Our other Managing Trustee, Mr. Adam Portnoy, is a managing trustee and the President of CWH.  In addition, Mr. John Popeo, our Treasurer and Chief Financial Officer, also serves as the Treasurer and Chief Financial Officer of CWH, and one of our Independent Trustees, Mr. William Lamkin, is an independent trustee of CWH.  RMR provides management services to both us and CWH.

In March 2012, we completed our IPO of 9,200,000 of our common shares (including 1,200,000 common shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares) for net proceeds (after deducting underwriters’ discounts and commissions and estimated expenses) of approximately $180,814.  We applied those net proceeds, along with proceeds of our initial borrowings under our $500,000 revolving credit facility, to repay in full a note to CWH for $400,000, or the CWH Note, which we issued to CWH at the time it transferred the Initial Properties to us, and to reimburse CWH for costs that CWH incurred in connection with our organization and preparation for our IPO.  In connection with our IPO, we and CWH entered into a transaction agreement that governs our separation from and relationship with CWH.  The transaction agreement provides that, among other things, (1) the current assets and liabilities of the Initial Properties, as of the time of closing of the IPO, were settled between us and CWH so that CWH will retain all pre-closing current assets and liabilities and we will assume all post-closing current assets and liabilities and (2) we will indemnify CWH with respect to any liability relating to any property transferred by CWH to us, including any liability which relates to periods prior to our formation, other than the pre-closing current assets and current liabilities that CWH retained with respect to the Initial Properties.

On March 25, 2013, we entered into a registration agreement with CWH, pursuant to which we agreed to register for resale by CWH up to 22,000,000 of our common shares owned by CWH, or an Offering.  We currently have an effective registration statement on Form S-3 that may provide for that possible resale by CWH.  However, pursuant to our underwritten public offering of common shares we completed on July 2, 2013, CWH agreed to not sell our common shares it owns prior to August 27, 2013, without the consent of the designated underwriter.  Under the registration agreement, CWH agreed to pay all expenses incurred by us relating to the registration and sale of the shares in an Offering.  Our obligation to register the shares for resale in an Offering is subject to certain conditions and may be terminated in certain circumstances, in each case, as described in the registration agreement.  CWH agreed to indemnify us, our officers, Trustees and controlling persons, and we agreed to indemnify CWH and CWH’s officers, trustees and controlling persons, against certain liabilities in connection with an Offering, including liabilities under the Securities Act of 1933, as amended, and we and CWH agreed to reimburse payments that the other may make in respect of those liabilities. As of June 30, 2013, we paid or accrued $622 of amounts due from CWH related to this agreement.

In May 2012, we purchased 20,000 shares of common stock of Affiliates Insurance Company, or AIC, for approximately $5,335.  Concurrently with this purchase, we entered into an amended and restated shareholders agreement with AIC, RMR, CWH and five other companies to which RMR provides management services.  We, RMR, CWH and five other companies to which RMR provides management services each currently own 12.5% of AIC.  All of our Trustees, all of the trustees and directors of the other publicly held AIC shareholders and nearly all of the directors of RMR currently serve on the board of directors of AIC.  RMR provides management and administrative services to AIC pursuant to a management and administrative services agreement with AIC.

Although we own less than 20% of AIC, we use the equity method to account for this investment because we believe that we have significant influence over AIC because all of our Trustees are also directors of AIC.  Our investment in AIC had a carrying value of $5,703 and $5,629 as of June 30, 2013 and December 31, 2012, respectively, which amounts are included in other assets on our condensed consolidated balance sheets.  We recognized income of $79 and $154 for the three and six months ended June 30, 2013, respectively, related to our investment in AIC.   During the period from May 21, 2012, to June 30, 2012, we recognized income of $74 related to this investment.  We and the other shareholders of AIC have purchased property insurance providing $500,000 of coverage pursuant to an insurance program arranged by AIC and with respect to which AIC is a reinsurer of certain coverage amounts.  This program was entered into in June 2013 for a one year term, and we paid a premium, including taxes and fees, of $559, which amount may be adjusted from time to time as we acquire or dispose of properties that are included in this program.  We periodically consider the possibilities for expanding our insurance relationships with AIC to include other types of insurance and may in the future participate in additional insurance offerings AIC may provide or arrange.  We may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so.  By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses or by realizing our pro rata share of any profits of this insurance business.

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Interest expense, amortization of debt premiums and deferred financing fees	$ 385	$ 258	$ 721	$ 311

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Real estate properties:
Land	$ 691,796	$ 675,092
Buildings and improvements	754,985	620,686
Real estate properties, gross	1,446,781	1,295,778
Accumulated depreciation	(56,023)	(46,697)
Real estate properties, net	1,390,758	1,249,081
Acquired real estate leases, net	98,440	95,248
Cash and cash equivalents	12,286	20,373
Restricted cash	42	42
Rents receivable, net of allowance for doubtful accounts of $690 and $644, respectively	45,919	38,885
Deferred leasing costs, net	5,589	4,816
Deferred financing costs, net	5,791	5,517
Due from related persons	141	585
Other assets	21,807	16,105
Total assets	1,580,773	1,430,652
LIABILITIES AND SHAREHOLDERS' EQUITY
Revolving credit facility	235,000	95,000
Term loan	350,000	350,000
Mortgage notes payable	27,471	27,778
Accounts payable and accrued expenses	19,346	19,703
Assumed real estate lease obligations, net	19,771	20,434
Rents collected in advance	5,762	6,518
Security deposits	9,635	9,335
Due to related persons	1,864	1,701
Total liabilities	668,849	530,469
Commitments and contingencies
Shareholders' equity:
Common shares of beneficial interest, $0.01 par value: 75,000,000 and 50,000,000 shares authorized, respectively, 39,292,592 and 39,282,592 shares issued and outstanding, respectively	393	393
Additional paid in capital	877,108	876,920
Cumulative net income	96,668	51,251
Cumulative other comprehensive income	(56)	25
Cumulative common distributions	(62,189)	(28,406)
Total shareholders' equity	911,924	900,183
Total liabilities and shareholders' equity	$ 1,580,773	$ 1,430,652

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Shareholders' Equity (Details) (USD $) In Thousands, except Share data, unless otherwise specified	0 Months Ended		1 Months Ended		6 Months Ended				0 Months Ended
	May 31, 2013	Feb. 28, 2013	Jul. 31, 2013	Mar. 31, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 27, 2013	Dec. 31, 2012	May 13, 2013 Trustees item	Jul. 31, 2013 Subsequent event Distribution declared
Shareholders' Equity
Common shares, shares authorized					75,000,000		75,000,000	50,000,000
Common shares, par value (in dollars per share)					$ 0.01		$ 0.01	$ 0.01
Number of shares granted to each trustee under the award plan									2,000
Closing share price of the entity's common shares (in dollars per share)									$ 27.61
Number of trustees									5
Number of common shares sold in public offering			10,500,000
Price per share (in dollars per share)			$ 28.25
Net proceeds from issuance of common shares			$ 283,655	$ 180,814	$ (96)	$ 180,814
Distributions
Distribution paid on common shares (in dollars per share)	$ 0.44	$ 0.42
Distribution to common shareholders	$ 17,284	$ 16,499								$ 21,909
Distribution payable declared (in dollars per share)										$ 0.44

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Shareholders' Equity

6 Months Ended

Jun. 30, 2013

Shareholders' Equity

Shareholders' Equity

Note 7.  Shareholders’ Equity

On June 27, 2013, we amended our declaration of trust, increasing the number of our authorized shares of beneficial interest from 50,000,000 to 75,000,000. All of our authorized shares are currently classified as common shares, $.01 par value per share, or our common shares.

Share Issuances:

On May 13, 2013, we granted 2,000 of our common shares, valued at $27.61 per share, the closing price of our common shares on the New York Stock Exchange, or the NYSE, on that day, to each of our five Trustees as part of their annual compensation.

In July 2013, we sold 10,500,000 of our common shares in a public offering at a price of $28.25 per share, raising net proceeds of approximately $283,655.  We used the net proceeds from this offering to partially repay amounts outstanding under our revolving credit facility and for general business purposes, including the acquisition we made in July 2013, which is further described above, in Note 3.

Distributions:

In February 2013, we paid a distribution on our common shares of $0.42 per share, or approximately $16,499, to shareholders of record on January 22, 2013.

In May 2013, we paid a distribution on our common shares of $0.44 per share, or approximately $17,284, to shareholders of record on April 23, 2013.

In July 2013, we declared a regular quarterly distribution of $0.44 per common share, or approximately $21,909, to shareholders of record on July 24, 2013. We expect to pay this distribution on or about August 20, 2013 using existing cash balances and borrowings under our revolving credit facility.

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Indebtedness (Tables)

6 Months Ended

Jun. 30, 2013

Indebtedness

Schedule of outstanding indebtedness

	June 30,		December 31,
	2013		2012
Revolving credit facility, due in 2016	$	235,000	$	95,000
Term loan, due in 2017	350,000		350,000
Mortgage note payable, 5.950% interest rate, including unamortized premium of $1,280 and $1,415, respectively, due in 2017 (1)	19,618		19,862
Mortgage note payable, 5.689% interest rate, including unamortized premium of $352 and $416, respectively, due in 2016 (1)	7,853		7,916
	$	612,471	$	472,778

(1) We assumed these mortgages in connection with our acquisitions of certain properties. The stated interest rates for these mortgage debts are the contractually stated rates; we recorded the assumed mortgages at estimated fair value on the date of acquisition and we are amortizing the fair value premiums to interest expense over the respective terms of the mortgages to reduce interest expense based on the estimated market interest rates as of the date of acquisition.

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2013

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Note 6. Fair Value of Financial Instruments

Our financial instruments at June 30, 2013 include cash and cash equivalents, rents receivable, equity investments, mortgage notes payable, our revolving credit facility, our term loan, amounts due to and from related persons, accounts payable and other accrued expenses.  At June 30, 2013, the fair value of our financial instruments approximated their carrying values in our condensed consolidated financial statements.

As of June 30, 2013, our carrying value and the estimated fair market value of our mortgage notes payable were as follows:

	Carrying		Estimated
	Amount		Fair Value
Mortgage notes payable	$	27,471	$	27,629

We estimate the fair values of our mortgage notes payable by using discounted cash flow analyses and currently prevailing market rates for similar mortgage notes as of June 30, 2013.  These inputs are categorized as level 3 inputs as defined in the fair value hierarchy under the accounting standards for Fair Value Measurements and Disclosures.  Because level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.

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Basis of Presentation

6 Months Ended

Jun. 30, 2013

Basis of Presentation

Basis of Presentation

Note 1.  Basis of Presentation

The accompanying condensed consolidated financial statements of Select Income REIT and its subsidiaries, or SIR, 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 financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2012, or our Annual Report. In the opinion of our management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. All material intercompany transactions and balances have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. Certain prior year amounts have been reclassified to conform to the current year presentation.

The preparation of 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 the allowance for doubtful accounts, purchase price allocations and useful lives of fixed assets.

The accompanying condensed consolidated financial statements include the 251 properties, or the Initial Properties, that were owned by CommonWealth REIT and its subsidiaries, or CWH, until they were contributed to us by CWH on February 16, 2012.  Our condensed consolidated financial statements for the six months ended June 30, 2012, include information for that period when we were a wholly owned subsidiary of CWH, January 1, 2012 to March 12, 2012. Because of the significant changes resulting from our initial public offering, or IPO, in March 2012, our financial results for the six months ended June 30, 2013 are not comparable to our financial results for the six months ended June 30, 2012.

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Real Estate Properties (Details) (USD $) In Thousands, unless otherwise specified			1 Months Ended
	Jun. 30, 2013 item sqft	Dec. 31, 2012	Jan. 31, 2013 Addison, TX item sqft	Feb. 28, 2013 Provo, UT sqft item	Mar. 31, 2013 San Antonio, TX item sqft	Jul. 31, 2013 Richmond, VA Office building sqft
Purchase price allocation of real estate properties acquired
Number of properties	5		2	2	1
Square Feet	779,010		553,799	125,225	99,986	310,950
Purchase price	$ 158,320		$ 105,000	$ 34,720	$ 18,600	$ 143,600
Land	16,704		10,107	3,400	3,197
Buildings and Improvements	133,006		94,893	25,938	12,175
Acquired Real Estate Leases	8,889			5,382	3,507
Assumed Real Estate Lease Obligations	(279)				(279)
Acquisition costs			226
Accrued environmental remediation costs	$ 8,386	$ 8,644

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Real Estate Properties (Tables)

6 Months Ended

Jun. 30, 2013

Real Estate Properties

Purchase prices of acquisitions allocated based on the estimated fair values of the acquired assets and assumed liabilities

												Assumed
										Acquired		Real Estate
		Number of	Square	Purchase				Building and		Real Estate		Lease
Date	Location	Properties	Feet	Price (1)		Land		Improvements		Leases		Obligations
January 2013	Addison, TX(2)	2	553,799	$	105,000	$	10,107	$	94,893	$	—	$	—
February 2013	Provo, UT	2	125,225	34,720		3,400		25,938		5,382		—
March 2013	San Antonio, TX	1	99,986	18,600		3,197		12,175		3,507		(279		)
		5	779,010	$	158,320	$	16,704	$	133,006	$	8,889	$	(279	)

(1) Purchase price excludes acquisition costs. Except as otherwise noted, all acquisitions were accounted for as business combinations.

(2) Property was acquired and simultaneously leased back to the seller in a sale/leaseback transaction. We accounted for this transaction as an acquisition of assets. We recognized acquisition costs of $226 which we capitalized as part of the transaction.

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Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Fair Value of Financial Instruments
Mortgage notes payable	$ 27,471	$ 27,778
Carrying Amount | Mortgage note payable
Fair Value of Financial Instruments
Mortgage notes payable	27,471
Fair Value | Mortgage note payable
Fair Value of Financial Instruments
Mortgage notes payable	$ 27,629

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Tenant Concentration and Segment Information (Details)	6 Months Ended
	Jun. 30, 2013 item
Tenant Concentration and Segment Information
Number of business segments	1
Minimum percentage of rentable square footage of property leased to single tenant	90.00%
Number of tenants under single tenant leased property	1

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Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Jul. 26, 2013
Document and Entity Information
Entity Registrant Name	Select Income REIT
Entity Central Index Key	0001537667
Document Type	10-Q
Document Period End Date	Jun. 30, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		49,792,592
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2

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Indebtedness (Details) (USD $) In Thousands, unless otherwise specified				3 Months Ended	6 Months Ended					3 Months Ended	6 Months Ended
	Jun. 30, 2013 item	Dec. 31, 2012	Mar. 31, 2012	Jun. 30, 2013 Revolving credit facility, due in 2016	Jun. 30, 2013 Revolving credit facility, due in 2016	Jul. 26, 2013 Revolving credit facility, due in 2016	Feb. 28, 2013 Revolving credit facility, due in 2016	Jan. 31, 2013 Revolving credit facility, due in 2016	Dec. 31, 2012 Revolving credit facility, due in 2016	Jun. 30, 2013 Term loan, due in 2017	Jun. 30, 2013 Term loan, due in 2017	Dec. 31, 2012 Term loan, due in 2017	Jun. 30, 2013 Mortgage note payable, due in 2017	Dec. 31, 2012 Mortgage note payable, due in 2017	Jun. 30, 2013 Mortgage note payable, due in 2016	Dec. 31, 2012 Mortgage note payable, due in 2016	Jun. 30, 2013 Mortgage note payable
Indebtedness
Unsecured revolving credit facility	$ 235,000	$ 95,000		$ 235,000	$ 235,000				$ 95,000
Term loan	350,000	350,000								350,000	350,000	350,000
Mortgage notes payable	27,471	27,778											19,618	19,862	7,853	7,916
Total	612,471	472,778
Interest rate (as a percent)													5.95%	5.95%	5.689%	5.689%
Unamortized premium													1,280	1,415	352	416
Maximum borrowing capacity of revolving credit facility			500,000	750,000	750,000		750,000	500,000
Period of extension in maturity					1 year
Increased maximum borrowing capacity				1,000,000	1,000,000
Variable base rate					LIBOR						LIBOR
Spread on variable rate (as a percent)				1.30%	1.30%					1.55%	1.55%
Facility fee (as a percent)					0.30%
Interest rate at the end of the period (as a percent)				1.50%	1.50%					1.75%	1.75%
Weighted average annual interest rate (as a percent)				1.50%	1.50%					1.75%	1.76%
Principal repayment due until maturity					0
Borrowings outstanding				235,000	235,000	75,000
Maximum borrowings										700,000	700,000
Number of real estate properties collateralized	3
Aggregate net book value of secured properties	29,573
Total																	$ 25,839
Number of assumed secured mortgage loans	2