10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2012

OR

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

Commission File Number 1-34364

GOVERNMENT PROPERTIES INCOME TRUST

(Exact Name of Registrant as Specified in Its Charter)

Maryland	26-4273474
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634

 (Address of Principal Executive Offices)  (Zip Code)

617-219-1440

(Registrant’s Telephone Number, Including Area Code)

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 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 x	Accelerated filer o
Non-accelerated filer o	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 August 2, 2012:  47,099,971

GOVERNMENT PROPERTIES INCOME TRUST

FORM 10-Q

June 30, 2012

INDEX

PART I	Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets — June 30, 2012 and December 31, 2011	1
	Condensed Consolidated Statements of Income and Comprehensive Income — Three and Six Months Ended June 30, 2012 and 2011	2
	Condensed Consolidated Statements of Cash Flows — Six Months Ended June 30, 2012 and 2011	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	22
	Warning Concerning Forward Looking Statements	23
	Statement Concerning Limited Liability	25
PART II	Other Information
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 6.	Exhibits	27
	Signatures	28

PART I       Financial Information

Item 1.  Financial Statements

GOVERNMENT PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

(unaudited)

	June 30, 2012			December 31, 2011
ASSETS
Real estate properties:
Land	$	228,824		$	224,674
Buildings and improvements	1,147,361			1,129,994
	1,376,185			1,354,668
Accumulated depreciation	(164,890		)	(156,618		)
	1,211,295			1,198,050
Acquired real estate leases, net	110,805			117,596
Cash and cash equivalents	1,394			3,272
Restricted cash	3,970			1,736
Rents receivable, net	27,086			29,000
Deferred leasing costs, net	3,498			3,074
Deferred financing costs, net	6,624			5,550
Other assets, net	18,152			10,297
Total assets	$	1,382,824		$	1,368,575
LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured revolving credit facility	$	27,000		$	345,500
Unsecured term loan	350,000			—
Mortgage notes payable	94,271			95,383
Accounts payable and accrued expenses	19,652			20,691
Due to related persons	2,878			4,071
Assumed real estate lease obligations, net	10,721			11,262
Total liabilities	504,522			476,907
Commitments and contingencies
Shareholders’ equity:
Common shares of beneficial interest, $.01 par value: 70,000,000 shares authorized, 47,099,971 and 47,051,650 shares issued and outstanding, respectively	471			471
Additional paid in capital	936,603			935,438
Cumulative net income	112,346			87,333
Cumulative other comprehensive income	73			77
Cumulative common distributions	(171,191		)	(131,651		)
Total shareholders’ equity	878,302			891,668
Total liabilities and shareholders’ equity	$	1,382,824		$	1,368,575

See accompanying notes.

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GOVERNMENT PROPERTIES INCOME TRUST

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,
	2012			2011			2012			2011
Rental income	$	50,273		$	42,107		$	100,728		$	81,335
Expenses:
Real estate taxes	5,949			4,637			11,482			9,094
Utility expenses	3,870			3,540			7,705			7,047
Other operating expenses	9,325			7,260			18,178			14,181
Depreciation and amortization	12,153			9,097			24,225			17,483
Acquisition related costs	245			1,009			294			1,838
General and administrative	2,719			2,566			5,758			4,909
Total expenses	34,261			28,109			67,642			54,552
Operating income	16,012			13,998			33,086			26,783
Interest and other income	6			20			14			35
Interest expense (including net amortization of debt premiums and deferred financing fees of $335, $262, $659 and $521, respectively)	(4,096		)	(3,076		)	(8,119		)	(5,613		)
Equity in earnings of an investee	76			46			121			83
Income before income tax expense	11,998			10,988			25,102			21,288
Income tax expense	(44		)	(56		)	(89		)	(102		)
Net income	11,954			10,932			25,013			21,186
Other comprehensive income (loss):
Equity in unrealized gain (loss) of an investee	(1		)	39			(4		)	43
Other comprehensive income (loss)	(1		)	39			(4		)	43
Comprehensive income	$	11,953		$	10,971		$	25,009		$	21,229
Weighted average common shares outstanding	47,098			40,506			47,075			40,503
Net income per common share	$	0.25		$	0.27		$	0.53		$	0.52

See accompanying notes.

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GOVERNMENT PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

	Six Months Ended June 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	25,013		$	21,186
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	15,656			12,353
Net amortization of debt premium and deferred financing fees	659			521
Straight line rental income	(1,564		)	(161		)
Amortization of acquired real estate leases	9,274			4,604
Amortization of deferred leasing costs	387			236
Other non-cash expenses	646			256
Equity in earnings of an investee	(121		)	(83		)
Change in assets and liabilities:
(Increase) decrease in restricted cash	(2,234		)	(45		)
(Increase) decrease in deferred leasing costs	(811		)	(210		)
(Increase) decrease in rents receivable	3,478			(1,839		)
(Increase) decrease in other assets	2,162			(879		)
Increase (decrease) in accounts payable and accrued expenses	486			1,883
Increase (decrease) in due to related persons	(463		)	1,712
Cash provided by operating activities	52,568			39,534
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions and deposits	(38,850		)	(223,780		)
Real estate improvements	(4,711		)	(3,092		)
Cash used in investing activities	(43,561		)	(226,872		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgage notes payable	(881		)	(399		)
Borrowings on unsecured revolving credit facility	27,000			262,000
Repayments on unsecured revolving credit facility	(345,500		)	(42,000		)
Proceeds from unsecured term loan	350,000			—
Financing fees	(1,964		)	(3		)
Distributions to common shareholders	(39,540		)	(33,616		)
Cash (used in) provided by financing activities	(10,885		)	185,982
Increase (decrease) in cash and cash equivalents	(1,878		)	(1,356		)
Cash and cash equivalents at beginning of period	3,272			2,437
Cash and cash equivalents at end of period	$	1,394		$	1,081
Supplemental cash flow information
Interest paid	$	7,695		$	4,161
Income taxes paid	86			51
Non-cash financing activities
Issuance of common shares	$	1,165		$	256

See accompanying notes.

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GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 1.   Basis of Presentation

The accompanying condensed consolidated financial statements of Government Properties Income Trust and its subsidiaries, or GOV, the Company, we or us, are unaudited.  We operate in one business segment: ownership of properties that are primarily leased to government tenants.  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, 2011, 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 between the Company and its subsidiaries have been eliminated.  Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

The preparation of 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, useful lives of fixed assets and impairment of real estate and intangible assets.

Note 2.   Recent Accounting Pronouncements

In January 2012, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS.  This update clarified the application of existing fair value measurement requirements.  This update also required reporting entities to disclose additional information regarding fair value measurements categorized within Level 3 of the fair value hierarchy.  This update was effective for interim and annual reporting periods beginning after December 15, 2011.  The implementation of this update did not cause any material changes to the disclosures in, or presentation of, our condensed consolidated financial statements.

In January 2012, we adopted FASB Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income.  This update eliminated the option to report other comprehensive income and its components in the statement of shareholders’ equity.  This update was intended to enhance comparability between entities that report under GAAP and to provide a more consistent method of presenting non-owner transactions that affect an entity’s equity.  This standard was effective for interim and annual reporting periods beginning after December 15, 2011.  The implementation of this update did not cause any changes to our condensed consolidated financial statements other than the presentation of the condensed consolidated statements of income.

Note 3. Real Estate Properties

As of June 30, 2012, we owned 74 properties representing an aggregate investment of approximately $1,526,652.  We generally lease space in our properties on a gross lease or modified gross lease basis pursuant to fixed term operating leases expiring between 2012 and 2025.  Certain of our government tenants have the right to cancel their leases before the lease term expires, although we currently expect that few will do so.  Our leases generally require us to pay all or some property operating expenses and to provide all or most property management services.  During the three months ended June 30, 2012, we entered into 14 leases for 205,503 rentable square feet for a weighted average (by revenue) lease term of 4.7 years and made commitments for approximately $2,651 of leasing related costs.  During the six months ended June 30, 2012, we entered into 21 leases for 243,625 rentable square feet for a weighted average (by revenue) lease term of 4.7 years and made commitments for approximately $2,948 of leasing related costs. We have unspent leasing related obligations of approximately $7,299 as of June 30, 2012.

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GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

During the six months ended June 30, 2012, we acquired three office properties located in two states for an aggregate purchase price of $28,950, excluding acquisition costs.  We allocated the purchase price of these acquisitions based on the estimated fair values of the acquired assets and assumed liabilities as follows:

								Buildings				Acquired
Acquisition		Number of	Square	Purchase				and		Acquired		Lease
Date	Location	Properties	Feet	Price(1)		Land		Improvements		Leases		Obligations
June 2012	Albany, NY	1	64,000	$	8,525	$	790	$	6,400	$	1,578	$	(243	)
June 2012	Everett, WA	2	111,908	20,425		3,360		15,376		2,449		(760		)
		3	175,908	$	28,950	$	4,150	$	21,776	$	4,027	$	(1,003	)

(1)            Purchase price excludes acquisition related costs.

In June 2012, we acquired two office properties located in Everett, WA with 111,908 rentable square feet.  These properties are 100% leased to the State of Washington and occupied by the Department of Social and Health Services.  The purchase price was $20,425, excluding acquisition costs.

Also in June 2012, we acquired an office property located in Albany, NY with 64,000 rentable square feet.  This property is 100% leased to the State of New York and occupied by the Department of Agriculture.  The purchase price was $8,525, excluding acquisition costs.

In July 2012, we acquired an office property located in Stockton, CA with 22,012 rentable square feet.  This property is 100% leased to the U.S. Government and occupied by the Department of Immigration and Customs Enforcement.  The purchase price was $8,251, excluding acquisition costs.

Also in July 2012, we acquired office properties located in each of Atlanta, GA and Jackson, MS and an office warehouse property located in Ellenwood, GA with a combined total of 552,571 rentable square feet.  These properties are 100% leased to the U.S. Government and occupied by the Department of Homeland Security, Immigration and Customs Enforcement, the Federal Bureau of Investigation and the National Archives and Records Administration, respectively.  The aggregate purchase price was $88,000, excluding acquisition costs.

Note 4.  Concentration

Tenant and Credit Concentration

We define annualized rental income as the annualized contractual base rents from our tenants pursuant to our lease agreements with them as of the measurement date, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization. The U.S. Government, 10 state governments and the United Nations, an international intergovernmental organization, combined were responsible for approximately 92.7% and 93.6% of our annualized rental income as of June 30, 2012 and 2011, respectively. The U.S. Government is our largest tenant by annualized rental income and was responsible for approximately 67.7% and 74.2% of our annualized rental income as of June 30, 2012 and 2011, respectively.

Geographic Concentration

At June 30, 2012, our 74 properties were located in 29 states and the District of Columbia.  Properties located in Maryland, California, the District of Columbia, New York, Georgia, Massachusetts, Colorado and Indiana were responsible for approximately 12.8%, 12.7%, 10.1%, 9.9%, 7.4%, 6.8%, 5.5% and 5.2% of our annualized rental income as of June 30, 2012, respectively.

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GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 5.  Indebtedness

At June 30, 2012 and December 31, 2011, our outstanding indebtedness consisted of the following:

	June 30,		December 31,
	2012		2011
Unsecured revolving credit facility, due in 2015	$	27,000	$	345,500
Unsecured term loan, due in 2017	350,000		—
Mortgage note payable, 5.73% interest rate, including unamortized premium of $724, due in 2015(1)	49,701		50,118
Mortgage note payable, 6.21% interest rate, due in 2016(1)	24,579		24,713
Mortgage note payable, 7.00% interest rate, including unamortized premium of $942, due in 2019(1)	10,406		10,559
Mortgage note payable, 8.15% interest rate, including unamortized premium of $716, due in 2021(1)	9,585		9,993
	$	471,271	$	440,883

(1)We assumed these mortgages in connection with our acquisition 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, if any, to interest expense over the respective terms of the mortgages to reduce interest expense to the estimated market interest rates as of the date of acquisition.

We have a $550,000 unsecured revolving credit facility that is available for acquisitions, working capital and general business purposes.  Our revolving credit facility has a maturity date of October 19, 2015 and, subject to meeting certain conditions and the payment of a fee, we may extend the maturity date to October 19, 2016.  In addition, our revolving credit facility includes a feature under which maximum borrowings may be increased to up to $1,100,000 in certain circumstances.  Interest under our revolving credit facility is based upon LIBOR plus a spread that is subject to adjustment based upon changes to our senior unsecured debt ratings.  The weighted average annual interest rate for borrowings under our revolving credit facility was 1.75% and 1.80% for the three and six months ended June 30, 2012, respectively.  As of June 30, 2012, we had $27,000 outstanding under our revolving credit facility.

On January 12, 2012, we entered into a five year $350,000 unsecured term loan. Our term loan matures on January 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 spread that is subject to adjustment based upon changes to our senior unsecured debt ratings.  We used the net proceeds of our term loan to repay amounts outstanding under our revolving credit facility and to fund general business activities.  The weighted average annual interest rate for the amount outstanding under our term loan was 2.00% for the three months ended June 30, 2012 and 2.01% for the period from January 12, 2012 to June 30, 2012.

Our revolving credit facility agreement and our term loan agreement contain a number of covenants that 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.  We believe we were in compliance with the terms and conditions of our revolving credit facility agreement and our term loan agreement at June 30, 2012.

At June 30, 2012, five of our properties with an aggregate net book value of $123,105 were secured by four mortgage notes with a then aggregate principal amount outstanding of $91,889.  We assumed these mortgage notes in connection with certain of our acquisitions. Our mortgage notes are non-recourse and do not contain any material financial covenants.

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GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 6. Fair Value of Financial Instruments

Our financial instruments at June 30, 2012 include cash and cash equivalents, restricted cash, rents receivable, mortgage notes payable, accounts payable, our revolving credit facility and our term loan, amounts due to related persons, other accrued expenses and security deposits.  At June 30, 2012, the fair value of our financial instruments approximated their carrying values in our condensed consolidated financial statements, except as follows:

	Carrying Amount		Fair Value
Mortgage note payable, 5.73% interest rate, including unamortized premium of $724, due in 2015	$	49,701	$	50,268
Mortgage note payable, 6.21% interest rate, due in 2016	24,579		26,936
Mortgage note payable, 7.00% interest rate, including unamortized premium of $942, due in 2019	10,406		11,031
Mortgage note payable, 8.15% interest rate, including unamortized premium of $716, due in 2021	9,585		10,777
	$	94,271	$	99,012

We estimate the fair values of our mortgage notes payable by using discounted cash flow analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP).

Note 7. Shareholders’ Equity

Distributions

On February 24, 2012, we paid a distribution to common shareholders in the amount of $0.42 per share, or $19,762, that was declared on January 9, 2012 and was payable to shareholders of record on January 26, 2012.

On May 24, 2012, we paid a distribution to common shareholders in the amount of $0.42 per share, or $19,778, that was declared on April 9, 2012 and was payable to shareholders of record on April 26, 2012.

On July 9, 2012, we declared a distribution payable to common shareholders of record on July 23, 2012, in the amount of $0.42 per share, or $19,782.  We expect to pay this distribution on or about August 22, 2012.

Share Issuances

As further described in Note 8, under the terms of our business management agreement with Reit Management & Research LLC, or RMR, on March 29, 2012 we issued 39,141 of our common shares of beneficial interest, $.01 par value per share, or our common shares, to RMR in payment of an incentive fee of approximately $833 for services rendered to us by RMR during 2011.

On May 16, 2012, pursuant to our equity compensation plan, we granted 2,000 of our common shares, valued at $22.43 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.

We have no dilutive securities.

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 and (2) a property management agreement.  Under our business management agreement with RMR, we acknowledge that RMR also provides management services to other companies, which include CommonWealth REIT, or 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

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GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

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.

Pursuant to our business management agreement with RMR, we incurred expenses of $2,028 and $1,805 for the three months ended June 30, 2012 and 2011, respectively, and $4,258 and $3,479 for the six months ended June 30, 2012 and 2011, respectively. These amounts are included in general and administrative expenses in our condensed consolidated financial statements.  In March 2012, we issued 39,141 of our common shares to RMR in satisfaction of the incentive fee RMR earned for services provided to us during 2011, in accordance with the terms of our business management agreement.  In connection with our property management agreement with RMR, we incurred property management and construction supervision fees of $1,610 and $1,509 for the three months ended June 30, 2012 and 2011, respectively, and $3,205 and $2,833 for the six months ended June 30, 2012 and 2011, respectively.  These amounts are included in other operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

CWH organized us as a 100% owned subsidiary.  In 2009, we completed our initial public offering, or the GOV IPO, pursuant to which we ceased to be a majority owned subsidiary of CWH.  In connection with the GOV IPO, we and CWH entered into a transaction agreement which governs our separation from and relationship with CWH.  Pursuant to this transaction agreement, among other things, CWH granted us a right of first refusal to acquire any property owned by CWH that CWH determines to divest, if the property is then majority leased to a government tenant, including 15 properties that we bought from CWH during 2010.

CWH is our largest shareholder and, as of the date of this report, CWH owned 9,950,000 of our common shares, or approximately 21.1% 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.  RMR provides management services to both us and CWH.

We, RMR, CWH and five other companies to which RMR provides management services each currently own 12.5% of Affiliates Insurance Company, or AIC, an Indiana insurance company.  One of those five other companies became a shareholder of AIC during the quarter ended June 30, 2012.  All of our Trustees and nearly all of the trustees and directors of the other AIC shareholders 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 $5,526 and $5,409 as of June 30, 2012 and December 31, 2011, respectively.  We recognized income of $76 and $46 for the three months ended June 30, 2012 and 2011, respectively, and $121 and $83 for the six months ended June 30, 2012 and 2011, respectively, 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 modified and extended in June 2012 for a one year term and we paid a premium, including taxes and fees, of $410 in connection with that renewal, which amount may be adjusted from time to time in response to our acquisition and disposition of properties that are included in that program.  We are also currently investigating the possibilities to expand our insurance relationships with AIC to include other types of insurance.  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.

For further information about these and other such relationships and related person transactions, please see elsewhere in this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” in Part I, Item 2 and “Warning Concerning Forward Looking Statements,” and our Annual Report, our Proxy Statement for our 2012 Annual Meeting of Shareholders dated February 23, 2012, or our Proxy Statement, and our other filings with the Securities and Exchange Commission, or SEC, including Note 5 to our Consolidated Financial Statements included in our Annual Report, the sections captioned “Business” and “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 from these 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.  In addition, copies of

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GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

certain of our agreements with these parties, including our business management agreement and property management agreement with RMR, various agreements we have with CWH and our shareholders agreement with AIC and its shareholders, are also publicly available as exhibits to our public filings with the SEC and accessible at the SEC’s website.

9

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

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

OVERVIEW

As of June 30, 2012, we owned 74 properties located in 29 states and the District of Columbia containing approximately 9.1 million rentable square feet, of which 63.7% was leased to the U.S. Government, 19.1% was leased to 10 state governments, and 2.0% was leased to the United Nations, an international intergovernmental organization.  The U.S. Government, 10 state governments and the United Nations combined were responsible for 92.7% and 93.6% of our annualized rental income, as defined below, as of June 30, 2012 and 2011, respectively.

Property Operations

As of June 30, 2012, 92.2% of our rentable square feet were leased, compared to 96.5% of our rentable square feet as of June 30, 2011.  Occupancy data for our properties as of June 30, 2012 and 2011 is as follows (square feet in thousands):

					Comparable
	All Properties				Properties(1)
	June 30,				June 30,
	2012		2011		2012		2011
Total properties (end of period)	74		64		55		55
Total square feet	9,126		7,553		6,805		6,805
Percent leased(2)	92.2	%	96.5	%	91.3	%	96.1	%

(1)Based on properties we owned on June 30, 2012 and which we owned continuously since January 1, 2011.  Our comparable properties increased from 33 properties at June 30, 2011 as a result of acquisitions we completed during the year ended December 31, 2010.

(2)Percent leased includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any, as of the measurement date.

The average effective rental rate per square foot for our properties for the periods ended June 30, 2012 and 2011 were as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
Average effective rental rate per square foot:(1)
All properties	$	24.45	$	24.13	$	24.39	$	23.83
Comparable properties(2)	$	23.66	$	23.75	$	23.76	$	23.66

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

(2)Comparable properties for the three months ended June 30, 2012 consist of 58 properties we owned on June 30, 2012 and which we owned continuously since April 1, 2011.  Comparable properties for the six months ended June 30, 2012 consist of 55 properties we owned on June 30, 2012 and which we owned continuously since January 1, 2011.

We currently believe that U.S. leasing market conditions are slowly improving, but remain weak in many U.S. markets. Our historical experience, including that of our predecessor, CWH, with respect to properties of the type we own that are majority leased to

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government tenants has been that government tenants frequently renew leases to avoid the costs and disruptions that may result from relocating their operations. We believe that current budgetary pressures may cause increased demand for leased space by government tenants, as opposed to new buildings built on behalf of government tenants. However, these same increased budgetary pressures upon the U.S. Government and state governments could also result in a decrease in government employment and consolidation of operations into government owned properties, thereby reducing the need for government leased space. Accordingly, we are unable to reasonably project what the financial impact of market conditions will be on our financial results for future periods.

As of June 30, 2012, leases totaling 650,015 rentable square feet are scheduled to expire through September 30, 2012. Based upon current market conditions and tenant negotiations for leases scheduled to expire through September 30, 2012, we expect that rental rates we are likely to achieve on new or renewed leases will, in the aggregate and on a weighted average basis, approximate the rates currently being paid, thereby generally resulting in a minimal change in revenue from the same space absent an increase in vacancies.  However, we can provide no assurance that the rental rates we expect will occur or that we will not experience material declines in our rental income due to vacancies upon lease expirations.  Prevailing market conditions at the time our leases expire will generally determine lease renewals and rental rates for space in our properties; and market conditions are generally beyond our control. As of June 30, 2012, lease expirations at our properties by year are as follows (square feet and dollars in thousands):

							Annualized
	Number of	Expirations of			Cumulative		Rental				Cumulative
	Tenants	Occupied Square	Percent		Percent		Income		Percent		Percent
Year(1)	Expiring	Feet(2)	of Total		of Total		Expiring(3)		of Total		of Total
2012	38	988	11.7	%	11.7	%	$	25,474	12.9	%	12.9	%
2013	38	958	11.4	%	23.1	%	14,242		7.2	%	20.1	%
2014	38	458	5.4	%	28.5	%	8,544		4.3	%	24.4	%
2015	37	1,275	15.2	%	43.7	%	28,688		14.5	%	38.9	%
2016	35	603	7.2	%	50.9	%	14,652		7.4	%	46.3	%
2017	28	617	7.3	%	58.2	%	12,584		6.4	%	52.7	%
2018	13	584	6.9	%	65.1	%	22,480		11.4	%	64.1	%
2019	15	1,365	16.2	%	81.3	%	31,622		16.0	%	80.1	%
2020	17	668	7.9	%	89.2	%	19,167		9.7	%	89.8	%
2021 and thereafter	12	902	10.8	%	100.0	%	20,083		10.2	%	100.0	%
Total	271	8,418	100.0	%			$	197,536	100.0	%
Weighted average remaining lease term (in years)		4.6					4.8

(1)The year of lease expiration is pursuant to current contract terms. Some government tenants have the right to vacate their space before the stated expirations of their leases. As of June 30, 2012, government tenants occupying approximately 14.8% of our rentable square feet and responsible for approximately 10.8% of our annualized rental income as of June 30, 2012 have currently exercisable rights to terminate their leases before the stated expirations. Also in 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019 and 2020, early termination rights become exercisable by other tenants who currently occupy an additional approximately 0.3%, 3.9%, 4.1%, 0.6%, 6.3%, 0.6%, 1.2%, 1.0% and 0.6% of our rentable square feet, respectively, and contribute an additional approximately 0.3%, 3.4%, 4.7%, 0.6%, 9.5%, 0.7%, 1.5%, 1.0% and 0.8% of our annualized rental income, respectively, as of June 30, 2012.  In addition, as of June 30, 2012, 10 of our state government tenants have currently exercisable rights to terminate their leases if these states do not appropriate rent in their respective annual budgets. These 10 tenants occupy approximately 8.6% of our rentable square feet and contribute approximately 8.7% of our annualized rental income as of June 30, 2012.

(2)Occupied square feet is pursuant to leases existing as of June 30, 2012, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any.

(3)Annualized rental income is the annualized contractual base rents from our tenants pursuant to our lease agreements as of June 30, 2012, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

Investment Activities (dollar amounts in thousands)

During the six months ended June 30, 2012, we acquired three properties for an aggregate purchase price of $28,950, excluding acquisition related costs.  We acquired these properties at a range of capitalization rates from 8.6% to 9.3%, with a weighted average (by purchase price) capitalization rate of 9.1%.  We calculate the capitalization rate for property acquisitions as the ratio of (x) annual straight line rental income, excluding the impact of above and below market lease amortization, based on leases then in effect at the acquisition date, less estimated annual property operating expenses, excluding depreciation and amortization expense, to

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(y) the acquisition purchase price, including assumed debt and excluding acquisition costs.  For more information about these acquisitions, please see Note 3 to our Condensed Consolidated Financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In July 2012, we acquired an office property located in Stockton, CA with 22,012 rentable square feet.  This property is 100% leased to the U.S. Government and occupied by the Department of Immigration and Customs Enforcement.  The purchase price was $8,251, excluding acquisition costs.

Also in July 2012, we acquired office properties located in each of Atlanta, GA and Jackson, MS and an office warehouse property located in Ellenwood, GA with a combined total of 552,571 rentable square feet.  These properties are 100% leased to the U.S. Government and occupied by the Department of Homeland Security, Immigration and Customs Enforcement, the Federal Bureau of Investigation and the National Archives and Records Administration, respectively.  The aggregate purchase price was $88,000, excluding acquisition costs.

In April 2012, we entered into an agreement to acquire an office property located in Madison, WI with 56,889 rentable square feet.  This acquisition was subject to our satisfactory completion of diligence and in May 2012 we terminated this acquisition agreement.

Our strategy related to property acquisitions and dispositions is materially unchanged from that disclosed in our Annual Report.  We continue to explore and evaluate for possible acquisition additional properties that are majority leased to government tenants; however, we can provide no assurance that we will reach agreements to acquire, or that if we do reach such agreements that we will complete the acquisitions of, such properties.

Although we may sell properties on occasion, we do not currently plan to dispose of any of our properties.  Future changes in market conditions, property performance or our plans with regard to particular properties may change our disposition strategy.

Financing Activities (dollar amounts in thousands, except per share amounts)

We have a $550,000 unsecured revolving credit facility that is available for acquisitions, working capital and general business purposes.  As of June 30, 2012, we had $27,000 outstanding under our revolving credit facility.  Interest under our revolving credit facility is based upon LIBOR plus 150 basis points, subject to adjustment based upon changes to our senior unsecured debt ratings.  The weighted average annual interest rate for our revolving credit facility was 1.75% and 1.80% for the three and six months ended June 30, 2012, respectively.

On January 12, 2012, we entered into a five year $350,000 unsecured term loan.  Our term loan matures on January 11, 2017, and is prepayable without penalty at any time.  Our term loan bears interest at a rate of LIBOR plus 175 basis points, subject to adjustment based upon changes to our senior unsecured debt ratings.  We used the net proceeds of our term loan to repay amounts outstanding under our revolving credit facility and to fund general business activities.  The weighted average annual interest rate for the amount outstanding under our term loan was 2.00% for the three months ended June 30, 2012 and 2.01% for the period January 12, 2012 to June 30, 2012.  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.  Increases in LIBOR would increase the amount of interest we pay under our revolving credit facility and our term loan agreement.

Our revolving credit facility agreement and our term loan agreement contain a number of covenants that 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.  We believe we were in compliance with the terms and conditions of our revolving credit facility agreement and our term loan agreement at June 30, 2012.

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RESULTS OF OPERATIONS (amounts in thousands, except per share amounts)

Three Months June 30, 2012, Compared to Three Months Ended June 30, 2011

	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,
					$			%						$		%								$			%
	2012		2011		Change			Change		2012		2011		Change		Change		2012			2011			Change			Change
Rental income	$	38,214	$	40,452	$	(2,238	)	(5.5	)%	$	12,059	$	1,655	$	10,404	628.6	%	$	50,273		$	42,107		$	8,166		19.4	%
Operating expenses:
Real estate taxes	4,817		4,501		316			7.0	%	1,132		136		996		732.4	%	5,949			4,637			1,312			28.3	%
Utility expenses	2,949		3,430		(481		)	(14.0	)%	921		110		811		737.3	%	3,870			3,540			330			9.3	%
Other operating expenses	7,062		7,125		(63		)	(0.9	)%	2,263		135		2,128		1,576.2	%	9,325			7,260			2,065			28.4	%
Total operating expenses	14,828		15,056		(228		)	(1.5	)%	4,316		381		3,935		1,032.8	%	19,144			15,437			3,707			24.0	%
Net operating income (3)	$	23,386	$	25,396	$	(2,010	)	(7.91	)%	$	7,743	$	1,274	$	6,469	508	%	31,129			26,670			4,459			16.7	%
Other expenses
Depreciation and amortization																		12,153			9,097			3,056			33.6	%
Acquisition related costs																		245			1,009			(764		)	(75.7	)%
General and administrative																		2,719			2,566			153			6.0	%
Total other expenses																		15,117			12,672			2,445			19.3	%
Operating income																		16,012			13,998			2,014			14.4	%
Interest and other income																		6			20			(14		)	(70.0	)%
Interest expense (including net amortization of debt premiums and deferred financing fees of $335 and $262, respectively)																		(4,096		)	(3,076		)	(1,020		)	33.2	%
Equity in earnings of an investee																		76			46			30			65	%
Income before income tax expense																		11,998			10,988			1,010			9.2	%
Income tax expense																		(44		)	(56		)	12			(21.4	)%
Net income																		$	11,954		$	10,932		$	1,022		9.4	%
Weighted average common shares outstanding																		47,098			40,506			6,592			16.3	%
Net income per common share																		$	0.25		$	0.27		$	(0.02	)	(7.41	)%
Calculation of Funds From Operations and Normalized Funds From Operations (4)
Net income																		$	11,954		$	10,932
Depreciation and amortization																		12,153			9,097
Funds from operations																		24,107			20,029
Acquisition related costs																		245			1,009
Normalized funds from operations																		$	24,352		$	21,038
Funds from operations per common share																		$	0.51		$	0.49
Normalized funds from operations per common share																		$	0.52		$	0.52

(1)Comparable properties consist of 58 properties we owned on June 30, 2012 and which we owned continuously since April 1, 2011.

(2)Acquired properties consist of the 16 and six (which six are included in the previously referenced 16) properties we owned on June 30, 2012 and June 30, 2011, respectively, and which we acquired during the period from April 1, 2011 to June 30, 2012.

(3)We calculate net operating income, or NOI, as shown above.  We define NOI as rental income from real estate less our property operating expenses.  We consider NOI to be appropriate supplemental information 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 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, as an indicator of our financial performance or liquidity, nor is NOI 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.  NOI 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 Condensed Consolidated Statements of Cash Flows.  Other real estate investment trusts, or 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 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.  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 performance for a REIT, along with net income, operating income and cash flow from operating, investing and financing 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 can facilitate a comparison of operating performances between periods.  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 and our expectation of our future capital requirements and operating performance.  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 Condensed Consolidated Statements of Cash Flows.  Other REITs and real estate companies may calculate FFO and Normalized FFO differently than we do.

We refer to the 58 properties we owned on June 30, 2012 and which we have owned continuously since April 1, 2011 as comparable properties.  We refer to the 16 and six (which six are included in the previously referenced 16) properties that we owned as of June 30, 2012 and 2011, respectively, which we acquired during the period from April 1, 2011 to June 30, 2012 as acquired properties.  Our condensed consolidated income statement for the three months ended June 30, 2012 includes the operating results of 13 acquired properties for the entire period and three properties for less than the entire period, as we acquired those 13 properties prior to April 1, 2012 and we acquired those three properties during that period.  Our condensed consolidated income statement for the three months ended June 30, 2011 includes the operating results of six acquired properties for less than the entire period, as those properties were purchased during that period.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three month period ended June 30, 2012, compared to the three month period ended June 30, 2011.

Rental income.  The increase in rental income reflects the effects of acquired properties, partially offset by lower revenues for comparable properties.  Rental income for acquired properties increased $7,517 due to properties acquired after June 30, 2011 and $2,887 for properties acquired during the 2011 period.  Rental income for comparable properties decreased primarily due to a decrease in occupancy at four of our properties that was partially offset by the effect of rental increases at certain of our comparable properties.  Rental income includes non-cash straight line rent adjustments totaling $695 in 2012 and $43 in 2011 and amortization of acquired leases and assumed lease obligations totaling ($537) in 2012 and $116 in 2011.

Real estate taxes. The increase in real estate taxes reflects the effects of acquired properties, plus an increase in real estate taxes for comparable properties.  Real estate taxes for acquired properties increased $601 due to properties acquired after June 30, 2011 and $395 due to properties acquired during the 2011 period.  Real estate taxes for comparable properties increased due to higher valuations assessed at certain of our properties.

Utility expenses.  The increase in utility expenses reflects the effects of acquired properties, partially offset by lower utility expenses for comparable properties.  Utility expenses for acquired properties increased $729 due to properties acquired after June 30, 2011 and $82 due to properties acquired during the 2011 period.  Utility expenses at comparable properties declined due primarily to decreased usage at certain of our properties as a result of increased vacancies and the impact of lower electricity rates at certain of our properties.

Other operating expenses.  Other operating expenses consist of property management fees, salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense and other direct costs of operating our properties. The increase in other operating expenses reflects the effects of acquired properties, partially offset by lower expenses for comparable properties.  Other operating expenses for acquired properties increased $1,765 due to properties acquired after June 30, 2011 and $363 due to properties acquired during the 2011 period.  Other operating expenses at comparable properties decreased slightly as a result of lower cleaning and property management fee expenses at certain of our properties due to increased vacancies, partially offset by higher repair and maintenance costs at certain of our properties.

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Depreciation and amortization.  The increase in depreciation and amortization reflects the effect of property acquisitions and improvements made to certain of our properties since April 1, 2011.  Depreciation and amortization for acquired properties increased $2,150 due to properties acquired after April 1, 2011 and $1,341 due to properties acquired during the 2011 period.

Acquisition related costs.  Acquisition related costs represent legal and due diligence costs incurred in connection with our acquisition activity during the respective 2012 and 2011 periods.

General and administrative.  General and administrative expenses consist of fees pursuant to our business management agreement with RMR, equity compensation expense, legal and accounting fees, Trustees’ fees and expenses, securities listing and transfer agency fees and other costs relating to our status as a publicly traded company.  The increase in general and administrative expenses primarily reflects the increase in business management fees due to our property acquisitions since April 1, 2011.

Interest and other income.  The decrease in interest and other income is primarily the result of a smaller average amount of investable cash in 2012 compared to the same period in 2011.

Interest expense.  The increase in interest expense reflects a larger average outstanding debt balance during the 2012 period compared to the 2011 period, partially offset by a lower weighted average interest rate in 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 was essentially unchanged.

Net income.  Our net income increased as a result of the changes noted above.  On a per share basis, net income is lower principally due to our issuance of common shares pursuant to a public equity offering in July 2011.

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RESULTS OF OPERATIONS (amounts in thousands, except per share amounts)

Six Months Ended June 30, 2012, Compared to Six Months Ended June 30, 2011

	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,
					$			%						$		%								$			%
	2012		2011		Change			Change		2012		2011		Change		Change		2012			2011			Change			Change
Rental income	$	74,044	$	77,324	$	(3,280	)	(4.2	)%	$	26,684	$	4,011	$	22,673	565.3	%	$	100,728		$	81,335		$	19,393		23.8	%
Operating expenses:
Real estate taxes	8,944		8,775		169			1.9	%	2,538		319		2,219		695.6	%	11,482			9,094			2,388			26.3	%
Utility expenses	5,483		6,643		(1,160		)	(17.5	)%	2,222		404		1,818		450.0	%	7,705			7,047			658			9.3	%
Other operating expenses	13,291		13,644		(353		)	(2.6	)%	4,887		537		4,350		810.1	%	18,178			14,181			3,997			28.2	%
Total operating expenses	27,718		29,062		(1,344		)	(4.6	)%	9,647		1,260		8,387		665.6	%	37,365			30,322			7,043			23.2	%
Net operating income	$	46,326	$	48,262	$	(1,936	)	(4.0	)%	$	17,037	$	2,751	$	14,286	519.3	%	63,363			51,013			12,350			24.2	%
Other expenses
Depreciation and amortization																		24,225			17,483			6,742			38.6	%
Acquisition related costs																		294			1,838			(1,544		)	(84.0	)%
General and administrative																		5,758			4,909			849			17.3	%
Total other expenses																		30,277			24,230			6,047			25.0	%
Operating income																		33,086			26,783			6,303			23.5	%
Interest and other income																		14			35			(21		)	(60.0	)%
Interestexpense(includingnetamortizationofdebtpremiumsanddeferredfinancingfeesof$659and$521,respectively)																		(8,119		)	(5,613		)	(2,506		)	44.6	%
Equity in earnings of an investee																		121			83			38			45.8	%
Income before income tax expense																		25,102			21,288			3,814			17.9	%
Income tax expense																		(89		)	(102		)	13			(12.7	)%
Net income																		$	25,013		$	21,186		$	3,827		18.1	%
Weighted average common shares outstanding																		47,075			40,503			6,572			16.2	%
Net income per common share																		$	0.53		$	0.52		$	0.01		1.9	%
Calculation of Funds From Operations and Normalized Funds From Operations
Net income																		$	25,013		$	21,186
Depreciation and amortization																		24,225			17,483
Funds from operations																		49,238			38,669
Acquisition related costs																		294			1,838
Normalized funds from operations																		$	49,532		$	40,507
Funds from operations per common share																		$	1.05		$	0.95
Normalized funds from operations per common share																		$	1.05		$	1.00

(1)Comparable properties consist of 55 properties we owned on June 30, 2012 and which we owned continuously since January 1, 2011.

(2)Acquired properties consist of the 19 and nine (which nine are included in the previously referenced 19) properties we owned on June 30, 2012 and June 30, 2011, respectively, and which we acquired during the period from January 1, 2011 to June 30, 2012.

We refer to the 55 properties we owned on June 30, 2012 and which we have owned continuously since January 1, 2011 as comparable properties.  We refer to the 19 and  nine (which nine are included in the previously referenced 19) properties that we owned as of June 30, 2012 and 2011, respectively, which we acquired during the period from January 1, 2011 to June 30, 2012 as acquired properties.  Our condensed consolidated income statement for the six months ended June 30, 2012 includes the operating results of 16 acquired properties for the entire period and three properties for less than the entire period, as we acquired those 16  properties prior to January 1, 2012 and we acquired those three properties during that period.  Our condensed consolidated income statement for the six months ended June 30, 2011 includes the operating results of nine acquired properties for less than the entire period, as those properties were purchased during that period.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the six month period ended June 30, 2012, compared to the six month period ended June 30, 2011.

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Rental income.  The increase in rental income reflects the effects of acquired properties, partially offset by lower revenues for comparable properties.  Rental income for acquired properties increased $14,397 due to properties acquired after June 30, 2011 and $8,276 for properties acquired during the 2011 period.  Rental income for comparable properties decreased primarily due to a decrease in occupancy at four of our properties that was partially offset by the effect of rental increases at certain of our comparable properties.  Rental income includes non-cash straight line rent adjustments totaling $1,564 in 2012 and $161 in 2011 and amortization of acquired leases and assumed lease obligations totaling ($1,091) in 2012 and $288 in 2011.

Real estate taxes. The increase in real estate taxes reflects the effects of acquired properties, in addition to a slight increase in real estate taxes for comparable properties.  Real estate taxes for acquired properties increased $1,185 due to properties acquired after June 30, 2011 and $1,034 due to properties acquired during the 2011 period.  Real estate taxes for comparable properties increased slightly due to higher assessed values at certain of our properties, partially offset by lower expenses from successful property tax appeals at certain of our properties.

Utility expenses.  The increase in utility expenses reflects the effects of acquired properties, partially offset by lower utility expenses for comparable properties.  Utility expenses for acquired properties increased $1,493 due to properties acquired after June 30, 2011 and $325 due to properties acquired during the 2011 period.  Utility expenses at comparable properties declined due to decreased tenant usage as a result of the warmer than normal temperatures experienced in many parts of the United States in early 2012, a decrease in usage at certain of our properties as a result of increased vacancies and the impact of lower electricity rates at certain of our properties.

Other operating expenses.  The increase in other operating expenses reflects the effects of acquired properties, partially offset by lower expenses for comparable properties.  Other operating expenses for acquired properties increased $3,297 due to properties acquired after June 30, 2011 and $1,053 due to properties acquired during the 2011 period.  Other operating expenses at comparable properties decreased primarily as a result of lower snow removal costs at certain of our properties, partially offset by higher repair and maintenance expense at certain of our properties.

Depreciation and amortization.  The increase in depreciation and amortization reflects the effect of property acquisitions and improvements made to certain of our properties since January 1, 2011.  Depreciation and amortization for acquired properties increased $4,309 due to properties acquired after June 30, 2011 and $2,450 due to properties acquired during the 2011 period.

Acquisition related costs.  Acquisition related costs represent legal and due diligence costs incurred in connection with our acquisition activity during the respective 2012 and 2011 periods.

General and administrative.  The increase in general and administrative expenses primarily reflects the increase in business management fees due to our property acquisitions since January 1, 2011.

Interest and other income.  The decrease in interest and other income is primarily the result of a smaller average amount of investable cash in 2012 compared to the same period in 2011.

Interest expense.  The increase in interest expense reflects a larger average outstanding debt balance during the 2012 period compared to the 2011 period, partially offset by a lower weighted average interest rate in 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 was essentially unchanged.

Net income.  Our net income increased as a result of the changes noted above.  On a per share basis, the percentage increase in net income is lower due principally to our issuance of common shares pursuant to a public equity offering in July 2011.

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LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources (dollar amounts in thousands)

Our principal source of funds to meet operating expenses and pay distributions on our common shares is rental income from our properties. We believe that our operating cash flow will be sufficient to pay our operating expenses, debt service and distributions on our common shares for the next 12 months and the foreseeable future thereafter.  Our future cash flows from operating activities will depend primarily upon our ability to:

·maintain or increase the occupancy of, and the rental rates at, our properties;

·control operating cost increases at our properties; and

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

We generally do not intend to purchase “turn around” properties, or properties which do not generate positive cash flows. Our future purchases of properties which generate positive cash flow cannot be accurately projected because such purchases depend upon available opportunities which come to our attention and upon our ability to successfully acquire such properties.

Our changes in cash flows for the six month period ended June 30, 2012 compared to the same period in 2011 were as follows: (i) cash provided by operating activities increased from $39,534 in 2011 to $52,568 in 2012; (ii) cash used in investment activities decreased from $226,872 in 2011 to $43,561 in 2012; and (iii) cash provided by (used in) financing activities decreased from $185,982 in 2011 to ($10,885) in 2012.

The increase in cash provided by operating activities for the six month period ended June 30, 2012 as compared to the corresponding prior year period is due primarily to increased operating cash flow from our acquisition of 19 properties after January 1, 2011 and changes in our working capital.  The decrease in cash used in investing activities for the six month period ended June 30, 2012 as compared to the corresponding prior year period was due primarily to our acquisition of nine properties during the 2011 period as compared to three properties during the 2012 period.  The decrease in cash provided by financing activities for the six month period ended June 30, 2012 as compared to the corresponding prior year period was due primarily to increased borrowings under our revolving credit facility during the 2011 period to fund acquisitions and an increase in distributions paid to common shareholders during the 2012 period.

Our Investment and Financing Liquidity and Resources (dollar amounts in thousands, except per share and per square foot amounts).

In order to fund acquisitions and to accommodate 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 $550,000 revolving credit facility from a syndicate of financial institutions.  At June 30, 2012 and August 2, 2012, $27,000 and $112,000 was outstanding, respectively, and $523,000 and $438,000 was available for borrowing, respectively, under our revolving credit facility.

In January 2012, we entered into a five year $350,000 unsecured term loan.  Our term loan matures on January 11, 2017, and is prepayable at any time.  We used the net proceeds of our term loan to repay amounts outstanding under our revolving credit facility and to fund general business activities.

We currently expect to use cash balances, borrowings under our revolving credit facility and net proceeds from offerings of equity or debt securities to fund our future operations, distributions to our shareholders and any future property acquisitions.  When significant amounts are outstanding under our revolving credit facility or the maturity date of our revolving credit facility or our other debts approach, we intend to explore alternatives for repaying or refinancing such amounts. Such alternatives may include incurring additional term debt, issuing new equity securities and extending the maturity date of our revolving credit facility.  Although we can provide no assurance that we will be successful in consummating any particular type of financing, we believe that we will have access to financing, such as debt and equity offerings, to fund future acquisitions and capital expenditures and to pay our obligations. We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.

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Our ability to obtain, and the costs of, our future financings will depend primarily on market conditions and our creditworthiness. We have no control over market conditions. Potential investors and lenders likely will evaluate our ability to pay distributions to shareholders, fund required debt service and repay debts when they become due by reviewing our business practices and plans to balance our use of debt and equity capital so that our financial profile 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 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.

On each of February 24, 2012 and May 24, 2012, we paid a $0.42 per share distribution to our common shareholders. We funded these distributions using cash on hand.  On July 9, 2012, we declared a distribution payable to common shareholders of record on July 23, 2012, in the amount of $0.42 per share.  We expect to pay this distribution on or about August 22, 2012 using existing cash balances and borrowings under our revolving credit facility.

During the three and six months ended  June 30, 2012 and 2011, cash expenditures made and capitalized at our properties for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows (dollars in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
Leasing capital(1)	$	905	$	585	$	1,331	$	745
Building improvements(2)	$	660	$	537	$	854	$	566
Development, redevelopment and other activities(3)	$	1,194	$	96	$	1,599	$	226

(1)Leasing capital includes tenant improvements and leasing costs.

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

(3)Development, redevelopment and other activities generally include non-recurring expenditures that we believe increase the value of our properties.

Leases totaling 186,037 and 508,785 rentable square feet, respectively, expired during the three and six months ended June 30, 2012.  During the three and six months ended June 30, 2012, we entered into leases totaling 205,503 and 243,625 rentable square feet, respectively, which includes renewals of 162,779 and 198,137 rentable square feet, respectively. The weighted average rental rates for leases of 159,487 and 188,532 rentable square feet entered into with government tenants during the three and six months ended June 30, 2012 increased by 10.9% and 9.9%, respectively, when compared to the weighted average rental rates previously charged for the same space. The weighted average (by square feet) rental rates for leases of 46,016 and 55,093 rentable square feet entered into with non-government tenants during the three and six months ended June 30, 2012 decreased by 14.0% and 13.7%, respectively, when compared to the weighted average (by square feet) rental rates previously charged for the same space.

In connection with leases entered into during the six months ended June 30, 2012, we have committed to fund future expenditures as follows (dollars in thousands, except per square foot amounts):

	New		Lease
	Leases		Renewals		Total
Rentable square feet leased during the period	45,488		198,137		243,625
Total commitments for tenant improvements and leasing costs	$	2,208	$	740	$	2,948
Leasing costs per rentable square foot	$	48.55	$	3.73	$	12.10
Average lease term (years)	8.7		3.5		4.7
Leasing costs per rentable square foot per year	$	5.57	$	1.08	$	2.59

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Off Balance Sheet Arrangements

As of June 30, 2012, 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 (dollars in thousands)

Our principal debt obligations at June 30, 2012 were our $550,000 revolving credit facility, our $350,000 term loan and four secured mortgage loans assumed in connection with certain of our acquisitions. Our mortgage loans are non-recourse 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 agreement and our term loan agreement 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 of us, including a change in our management by RMR. We believe we were in compliance with all of our covenants under our revolving credit facility agreement and our term loan agreement at June 30, 2012.

Our revolving credit facility agreement and term loan agreement contain cross default provisions, which are generally triggered upon default of any of our other debts of at least $25,000 or more that are recourse debts and to any other debts of $50,000 or more that are non-recourse debts.  Termination of our business management agreement with RMR would cause a default under our revolving credit facility and term loan, if not approved by a majority of our lenders.

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 or related to 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 or had 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 is our former parent and is our largest shareholder and from which we have previously purchased properties that are majority leased to government tenants; and AIC, an Indiana insurance company, of which we, RMR, CWH and five other companies to which RMR provides management services each currently own 12.5%, and with respect to which 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,” and our Annual Report, our Proxy Statement and our other filings with the SEC, including Note 5 to our Consolidated Financial Statements included in our Annual Report, the sections captioned “Business” and “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” of 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 from these 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.  In addition, copies of certain of our agreements with these parties, including our business management agreement and property management agreement with RMR, various agreements we have with CWH and our shareholders agreement with AIC and its shareholders, are also 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 this market risk by monitoring available financing alternatives.  Our strategy to manage exposure to changes in interest rates has not materially changed since December 31, 2011.  Other than as described below, we do not foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the future.

At June 30, 2012, our outstanding fixed rate debt included the following:

			Annual		Annual			Interest
	Principal		Interest		Interest			Payments
Debt	Balance(1)		Rate(1)		Expense(1)		Maturity	Due
Mortgage	$	48,977	5.73	%	$	2,845	2015	Monthly
Mortgage	24,579		6.21	%	1,548		2016	Monthly
Mortgage	9,464		7.00	%	662		2019	Monthly
Mortgage	8,869		8.15	%	723		2021	Monthly
	$	91,889			$	5,778

(1)The principal balances, annual interest rates and annual interest expense are the amounts stated in 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 Notes 5 and 6 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Because these debts bear interest at a fixed rate, changes in market interest rates during the term of these debts will not affect our operating results.  If these debts are refinanced at interest rates which are 10% higher or lower than shown above, our per annum interest cost would increase or decrease, respectively, by approximately $578.

Changes in market interest rates also 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, 2012 and discounted cash flow analysis through the maturity date of our fixed rate debt obligations, a hypothetical immediate 10% change in interest rates would change the fair value of those obligations by approximately $1,058.

As of June 30, 2012, we had $27,000 outstanding and $523,000 of borrowings available under our $550,000 unsecured revolving credit facility, and we had $350,000 of floating rate term debt outstanding.    Our revolving credit facility matures on October 19, 2015, and subject to meeting certain conditions and the payment of a fee, we have the option to extend the stated maturity of the facility for one year to October 19, 2016.  We are able to make repayments and drawings under our revolving credit facility at any time without penalty.  In January 2012, we entered into a five year $350,000 unsecured term loan.  Our term loan matures on January 11, 2017 and is prepayable without penalty at any time.  Borrowings under our revolving credit facility and our term loan are in U.S. dollars and accrue interest at LIBOR plus a spread which varies depending on our senior unsecured debt credit ratings.  Accordingly, we are exposed to risks resulting from changes in U.S. dollar based short term rates, specifically LIBOR.  In addition, upon renewal or refinancing of our revolving credit facility or our term loan, we are vulnerable to increases in credit spreads due to market conditions.  A change in interest rates generally would not affect the value of our floating rate debt but would affect our operating results.  For example, the weighted average interest rate payable on our floating rate debt was 2.0% during the six months ended June 30, 2012.  The following table presents the impact a 10% change in interest rates would have on our annual floating rate interest expense at June 30, 2012:

	Impact of Changes in Interest Rates
			Outstanding		Total Interest
	Interest Rate		Debt		Expense Per Year
At June 30, 2012	2.000	%	$	377,000	$	7,645
10% increase	2.200	%	377,000		8,409
10% reduction	1.800	%	377,000		6,880

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The foregoing table shows the impact of an immediate change in floating interest rates.  If interest rates were to change 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 under our revolving credit facility or other floating rate debt.

The following table presents the impact a 10% change in interest rates would have on our annual floating rate interest expense at June 30, 2012 if we were fully drawn on our revolving credit facility and our $350,000 term loan remained outstanding:

	Impact of Changes in Interest Rates
			Outstanding		Total Interest
	Interest Rate		Debt		Expense Per Year
At June 30, 2012	2.000	%	$	900,000	$	18,250
10% increase	2.200	%	900,000		20,075
10% reduction	1.800	%	900,000		16,425

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, President and Chief Operating Officer and Treasurer and Chief Financial Officer of the effectiveness of our disclosure controls and procedures pursuant to the Securities Exchange Act of 1934, as amended, Rules 13a-15 and 15d-15. Based upon that evaluation, our Managing Trustees, President and Chief Operating Officer and 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, 2012 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 WHICH 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:

·OUR ABILITY TO PAY DISTRIBUTIONS AND THE AMOUNTS OF SUCH DISTRIBUTIONS,

·OUR  ACQUISITIONS OF PROPERTIES,

·THE CREDIT QUALITY OF OUR TENANTS,

·THE LIKELIHOOD THAT OUR TENANTS WILL PAY RENT, RENEW LEASES, ENTER INTO NEW LEASES, NOT EXERCISE EARLY TERMINATION OPTIONS PURSUANT TO THEIR LEASES OR BE AFFECTED BY CYCLICAL ECONOMIC CONDITIONS,

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

·OUR POLICIES AND PLANS REGARDING INVESTMENTS AND FINANCINGS,

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

·OUR ABILITY TO COMPETE FOR ACQUISITIONS AND TENANCIES EFFECTIVELY,

·OUR TAX STATUS AS A REIT,

·OUR ABILITY TO RAISE EQUITY OR DEBT CAPITAL,

·OUR EXPECTATION THAT THERE WILL BE OPPORTUNITIES FOR US TO ACQUIRE, AND THAT WE WILL ACQUIRE, ADDITIONAL PROPERTIES THAT ARE MAJORITY LEASED TO GOVERNMENT TENANTS,

·OUR EXPECTATION THAT THERE MAY BE AN INCREASE IN DEMAND FOR LEASED SPACE BY THE U.S. GOVERNMENT AND STATE AND LOCAL GOVERNMENTS,

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

·COMPETITION WITHIN THE REAL ESTATE INDUSTRY,

·THE IMPACT OF CHANGES IN THE REAL ESTATE NEEDS AND FINANCIAL CONDITIONS OF THE U.S. GOVERNMENT AND STATE AND LOCAL GOVERNMENTS,

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

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

·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, AND

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

FOR EXAMPLE:

·CONTINGENCIES IN OUR ACQUISITION AGREEMENTS MAY CAUSE OUR ACQUISITIONS NOT TO OCCUR OR TO BE DELAYED,

·OUR ABILITY TO MAKE FUTURE DISTRIBUTIONS DEPENDS UPON A NUMBER OF FACTORS, INCLUDING OUR FUTURE EARNINGS. WE MAY BE UNABLE TO MAINTAIN OUR CURRENT RATE OF DISTRIBUTIONS  AND FUTURE DISTRIBUTIONS MAY BE SUSPENDED OR PAID AT A LESSER RATE THAN THE DISTRIBUTIONS WE NOW PAY,

·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 EXPENSES, 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,

·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,

·SOME GOVERNMENT TENANTS MAY EXERCISE THEIR RIGHT TO VACATE THEIR SPACE BEFORE THE STATED EXPIRATION OF THEIR LEASES AND WE MAY BE UNABLE TO LOCATE NEW TENANTS TO MAINTAIN THE HISTORICAL OCCUPANCY RATES OF, OR RENTS FROM, OUR PROPERTIES,

·RENTS THAT WE CAN CHARGE AT OUR PROPERTIES MAY DECLINE,

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

·ACTUAL ANNUAL 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,

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

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

·THIS QUARTERLY REPORT ON FORM 10-Q STATES THAT WE BELIEVE THAT OUR CONTINUING RELATIONSHIPS WITH CWH, RMR AND AIC AND THEIR AFFILIATED AND RELATED PERSONS AND ENTITIES MAY BENEFIT US AND PROVIDE US WITH 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 GOVERNMENT TENANTS’ NEEDS FOR LEASED SPACE, NATURAL DISASTERS OR CHANGES IN CAPITAL MARKETS OR THE ECONOMY GENERALLY.

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THE INFORMATION CONTAINED ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q OR 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 ON 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.

STATEMENT CONCERNING LIMITED LIABILITY

THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING GOVERNMENT PROPERTIES INCOME TRUST, DATED JUNE 8, 2009, AS AMENDED, AS FILED WITH THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF GOVERNMENT PROPERTIES INCOME TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, GOVERNMENT PROPERTIES INCOME TRUST.  ALL PERSONS DEALING WITH GOVERNMENT PROPERTIES INCOME TRUST IN ANY WAY SHALL LOOK ONLY TO THE ASSETS OF GOVERNMENT PROPERTIES INCOME TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

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Part II.   Other Information

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

As previously reported, on May 16, 2012 we granted 2,000 of our common shares, valued at $22.43 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(2) of the Securities Act of 1933, as amended.

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Item 6.	Exhibits.
3.1	Composite Copy of Amended and Restated Declaration of Trust, dated June 8, 2009, as amended to date. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.)
3.2	Amended and Restated Bylaws of the Company, adopted February 21, 2012. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.)
4.1	Form of Common Share Certificate. (Incorporated by reference to Amendment No. 2 to the Company’s Registration Statement on Form S-11/A, File No. 333-157455.)
10.1	Amended and Restated Shareholders Agreement, dated May 21, 2012, by and among Affiliates Insurance Company, Five Star Quality Care, Inc., Hospitality Properties Trust, CommonWealth REIT, Senior Housing Properties Trust, TravelCenters of America LLC, Reit Management & Research LLC, the Company and Select Income REIT. (Filed herewith.)
10.2	Summary of Trustee Compensation. (Incorporated by reference to the Company’s Current Report on Form 8-K dated May 16, 2012.)
10.3	Form of Indemnification Agreement. (Incorporated by reference to the Company’s Current Report on Form 8-K dated May 16, 2012.)
31.1	Rule 13a-14(a) Certification. (Filed herewith.)
31.2	Rule 13a-14(a) Certification. (Filed herewith.)
31.3	Rule 13a-14(a) Certification. (Filed herewith.)
31.4	Rule 13a-14(a) Certification. (Filed herewith.)
32.1	Section 1350 Certification. (Furnished herewith.)
101.1	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter and six months ended June 30, 2012 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 in detail. (Filed 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.

GOVERNMENT PROPERTIES INCOME TRUST
By:	/s/ David M. Blackman
	David M. Blackman
	President and Chief Operating Officer
	Dated: August 3, 2012
By:	/s/ Mark L. Kleifges
	Mark L. Kleifges
	Treasurer and Chief Financial Officer
	(principal financial and accounting officer)
	Dated: August 3, 2012

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EX-10.1

Exhibit 10.1

AMENDED AND RESTATED

SHAREHOLDERS AGREEMENT

by and among

AFFILIATES INSURANCE COMPANY,

FIVE STAR QUALITY CARE, INC.,

HOSPITALITY PROPERTIES TRUST,

COMMONWEALTH REIT,

SENIOR HOUSING PROPERTIES TRUST,

TRAVELCENTERS OF AMERICA LLC,

REIT MANAGEMENT & RESEARCH LLC,

GOVERNMENT PROPERTIES INCOME TRUST

and

SELECT INCOME REIT

May 21, 2012

TABLE OF CONTENTS

		Page
ARTICLE I
INVESTMENT IN THE COMPANY; FORMATION AND LICENSING EXPENSES
1.1	Share Issuances to Current Shareholders	2
1.2	Share Issuance to SIR	2
1.3	Future Share Issuances	2
1.4	Formation and Licensing Expenses	2
ARTICLE II
BOARD COMPOSITION
2.1	Board Composition	2
ARTICLE III
TRANSFER OF SHARES;
PREEMPTIVE RIGHTS; CALL RIGHTS
3.1	Transfer of Shares; No Pledging of Shares	4
3.2	Preemptive Rights	4
3.3	Change of Control Call Option	7
3.4	Permitted New Issuance of Shares	10
ARTICLE IV
SPECIAL SHAREHOLDER APPROVAL REQUIREMENTS.
4.1	Special Shareholder Approval Requirements	10
ARTICLE V
OTHER COVENANTS AND AGREEMENTS
5.1	Organizational Documents	10
5.2	Reports and Information Access	11
5.3	Compliance with Laws	11
5.4	Cooperation; Further Assurances	11
5.5	Confidentiality	12
5.6	Required Regulatory Approvals	12
5.7	REIT Matters	12

ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1	The Company	13
6.2	The Shareholders	14
ARTICLE VII
TERMINATION
7.1	Termination	16
ARTICLE VIII
MISCELLANEOUS
8.1	Notices	16
8.2	Successors and Assigns; Third Party Beneficiaries	18
8.3	Amendment and Waiver	19
8.4	Counterparts	19
8.5	Headings	19
8.6	Governing Law	19
8.7	Dispute Resolution	19
8.8	Interpretation and Construction	21
8.9	Severability	22
8.10	Entire Agreement	22
8.11	Non-liability of Trustees and Directors	22

AMENDED AND RESTATED

SHAREHOLDERS AGREEMENT

AFFILIATES INSURANCE COMPANY

This Amended and Restated Shareholders Agreement (this “Agreement”), dated May 21, 2012, by and among Affiliates Insurance Company, an Indiana insurance corporation (the “Company”), Five Star Quality Care, Inc., a Maryland corporation (“FVE”), Hospitality Properties Trust, a Maryland real estate investment trust (“HPT”), CommonWealth REIT, a Maryland real estate investment trust (“CWH”), Senior Housing Properties Trust, a Maryland real estate investment trust (“SNH”), TravelCenters of America LLC, a Delaware limited liability company (“TA”), Reit Management & Research LLC, a Delaware limited liability company (“RMR”), and Government Properties Income Trust, a Maryland real estate investment trust (“GOV”, and together with FVE, HPT, CWH, SNH, TA and RMR, the “Current Shareholders”), and Select Income REIT, a Maryland real estate investment trust (“SIR”, and together with the Current Shareholders, the “Shareholders”), amends and restates the Amended and Restated Shareholders Agreement (the “Shareholders Agreement”), dated December 16, 2009, by and among the Company and the Current Shareholders, effective as of the date first set forth above.

RECITALS

WHEREAS, the Company has been formed and licensed as an insurance corporation domiciled in the State of Indiana;

WHEREAS, the Current Shareholders previously made the capital contributions to the Company contemplated by Section 1.1 of this Agreement;

WHEREAS, in connection with the purchase by SIR from the Company of 20,000 shares of common stock, par value of $10.00 per share, of the Company (the “Shares”) pursuant to a Subscription Agreement (the “SIR Subscription Agreement”) to be entered into by the Company and SIR, concurrently with the execution and delivery of this Agreement, the Company, the Current Shareholders and SIR desire to enter into this Agreement to, among other things, add SIR as a Shareholder hereunder; and

WHEREAS, the Shareholders and the Company desire to enter into this Agreement in order to set forth certain agreements and understandings relating to the business and governance of the Company, the Shares held by the Shareholders and certain other matters.

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I

INVESTMENT IN THE COMPANY; FORMATION AND LICENSING EXPENSES

1.1           Share Issuances to Current Shareholders.  The Company previously issued and sold to each of the Current Shareholders, and each of the Current Shareholders purchased from the Company, 20,000 Shares.

1.2           Share Issuance to SIR.  As described in the recitals, concurrently with the execution and delivery of this Agreement, SIR is purchasing 20,000 Shares from the Company pursuant to the SIR Subscription Agreement and, upon such purchase, SIR shall then become a Shareholder effective as of such purchase.

1.3           Future Share Issuances.  No Shareholder shall be obligated to purchase additional Shares or any other securities of the Company and any future proposed issuance and sale of Shares or any other securities of the Company shall be subject to Section 3.2, except to the extent otherwise provided under this Agreement; provided, however, that the parties hereto acknowledge that the Company may need to seek additional capital in the future and that it is the intention of the Shareholders that they each may, but shall not be obligated to, contribute to the Company up to an additional $5 million of capital during the period between February 27, 2011 and February 27, 2014.

1.4           Formation and Licensing Expenses.  The Company shall pay for all costs, fees and expenses in connection with the formation and licensing of the Company as an Indiana insurance company.  The Current Shareholders shall reimburse the Company for such amounts paid by the Company prior to the date hereof in equal proportion.  The Shareholders shall reimburse the Company for such amounts paid by the Company on or after the date hereof in equal proportion.

ARTICLE II

BOARD COMPOSITION

2.1           Board Composition.

(a)        For as long as the Shareholders collectively own a majority of the issued and outstanding Shares, the board of directors of the Company (the “Board”) shall consist of not less than five nor more than seventeen members, with the actual number determined in accordance with the Bylaws of the Company, as in effect from time to time, and subject in all instances to this Section 2.1.  As of the date of this Agreement, the Board shall consist of fourteen members.  For so long as required by applicable Indiana law, at least one member of the

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Board shall be an Indiana resident.  Except as otherwise provided in Section 2.1(c), no Shareholder having a right to designate any director pursuant to this Article II shall be required to designate an Indiana resident as a director pursuant to such right; provided, however, that this sentence shall in no way limit the application of the immediately preceding sentence.

(b)        For so long as a Shareholder (other than RMR) owns not less than 10% of the issued and outstanding Shares, such Shareholder shall have the right to designate two directors for election to the Board.

(c)        For so long as RMR owns not less than 10% of the issued and outstanding Shares, RMR shall have the right to designate three directors for election to the Board.  For so long as RMR has the right to designate directors pursuant to the immediately preceding sentence, Indiana law requires the Board to include an Indiana resident as a director of the Company and no other Shareholder designates an Indiana resident as a director of the Company, RMR shall designate at least one Indiana resident to be a director.

(d)        Each Shareholder will vote, execute and deliver written consents and take all other necessary action (including, if necessary, causing the Company to call a special meeting of shareholders of the Company) in favor of the election of each director designated by a Shareholder in accordance with this Article II and otherwise to ensure that the composition of the Board is at all times as set forth in this Article II.  Each Shareholder agrees that it will not vote any of its Shares in favor of removal of any director designated by another Shareholder unless such other Shareholder shall have consented to such removal in writing.  Each Shareholder agrees to cause to be called, if necessary, a special meeting of shareholders of the Company and to vote all the Shares owned by such Shareholder for, or to take all actions in lieu of any such meeting necessary to cause, the removal of any director designated by such Shareholder if the Shareholder entitled to designate such director requests in writing, signed by such Shareholder, such director’s removal for any reason or no reason.

(e)        If, as a result of death, disability, retirement, resignation, removal or otherwise, there shall exist or occur any vacancy with respect to any director previously designated by a Shareholder in accordance with such Shareholder’s right under this Article II to so designate such director, such Shareholder shall have the right to designate a replacement director.  Upon such designation, the Shareholders shall promptly take all action necessary to ensure the election of such replacement director to fill the unexpired term of the director whom such new director is replacing, including, if necessary, calling a special meeting of shareholders of the Company and voting their Shares, or executing any written consent in lieu thereof, in favor of the election of such director.

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ARTICLE III

TRANSFER OF SHARES;
PREEMPTIVE RIGHTS; CALL RIGHTS

3.1           Transfer of Shares; No Pledging of Shares.

(a)        The Shareholders may not, directly or indirectly, transfer any Shares, except that a Shareholder may transfer Shares owned by it to a wholly owned subsidiary of such Shareholder, to another Shareholder or to a wholly owned subsidiary of another Shareholder.  Any purported transfer of Shares in contravention of this Section 3.1 shall be null and void and of no force or effect.

(b)        The Shareholders may not pledge their Shares (other than pledges arising from the operation of law and not as a result of the Shareholder’s express granting of a pledge); provided, however, that any pledge or other lien, charge or encumbrance which may arise by application of the terms of any agreement, contract, license, permit or instrument existing, for any of the Shareholders (an “Existing Pledge”), on a Shareholder’s Shares shall not be a violation of this Section 3.1(b); and provided further, however, any transfer which results from exercise of rights under a permitted lien, charge or encumbrance shall be subject to the call rights of the Company and the other Shareholders set forth in Section 3.3 to the fullest extent permitted by applicable law and existing contracts as if such a transfer constitutes a “Change of Control”.  Any Shareholder whose Shares would be subject to an Existing Pledge shall use best efforts to cause the pledgee under an Existing Pledge, prior to any exercise by the pledgee of its rights on the Shareholder’s Shares, to take all actions under applicable law which are required to be taken prior to any such exercise, including obtaining any necessary approvals from the Indiana Department of Insurance and Indiana Insurance Commissioner.

3.2           Preemptive Rights.

(a)        If, at any time after the date hereof, the Company wishes to issue any capital stock of the Company or any other securities convertible into or exchangeable or exercisable for capital stock of the Company (collectively, “New Securities”) to any person or entity (the “Subject Purchaser”), then the Company shall first offer the Appropriate Percentage (as defined herein) of the New Securities (the “Allocated Shares”) to each Shareholder (each, a “Preemptive Rightholder” and collectively, the “Preemptive Rightholders”) by sending written notice (the “New Issuance Notice”) to each of the Preemptive Rightholders, which New Issuance Notice shall state the terms of such proposed issuance, including the number of New Securities proposed to be issued and the proposed purchase price per security of the New Securities (the “Proposed Price”).  Upon delivery of the New Issuance Notice, such offer shall be irrevocable unless and until the Company shall have terminated the contemplated issuance of New Securities in its entirety at which time the rights set forth herein shall be applicable to any proposed issuance subsequent to any such termination.  For purposes of this Section 3.2, “Appropriate Percentage” shall mean that percentage of the New Securities determined by dividing (i) the total

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number of Shares then owned by a Preemptive Rightholder by (ii) the total number of Shares owned by all the Preemptive Rightholders.

(b)        For a period of 20 days after the giving of the New Issuance Notice pursuant to Section 3.2(a) (the “Initial Preemptive Subscription Period”), each of the Preemptive Rightholders shall have the right to purchase, in whole or in part, the Allocated Shares offered to such Preemptive Rightholder as determined pursuant to Section 3.2(a) at a purchase price equal to the Proposed Price and upon the terms and conditions set forth in the New Issuance Notice.

(c)        The right of each Preemptive Rightholder to purchase the New Securities so offered under Section 3.2(b) shall be exercisable by delivering written notice of the exercise thereof, prior to the expiration of the Initial Preemptive Subscription Period, to the Company, which notice shall state the amount of New Securities that such Preemptive Rightholder elects to purchase pursuant to Section 3.2(a).  The failure of a Preemptive Rightholder to respond prior to the expiration of the Initial Preemptive Subscription Period shall be deemed to be a waiver of such Preemptive Rightholder’s rights under this Agreement solely with respect to its right to purchase the New Securities referenced in the New Issuance Notice; provided that each Preemptive Rightholder may waive its rights under Section 3.2(b) prior to the expiration of the Initial Preemptive Subscription Period by giving written notice of such waiver to the Company.

(d)        If as of the expiration of the Initial Preemptive Subscription Period, some but not all of the Preemptive Rightholders have exercised their right to purchase the full amount of New Securities to which they are entitled to purchase pursuant to Sections 3.2(b) and (c) (any such Preemptive Rightholder which has exercised in full its rights to purchase such New Securities, a “Fully Exercising Preemptive Rightholder”), the Fully Exercising Preemptive Rightholders shall have the right to purchase, in whole or in part, their Oversubscription Appropriate Percentage (as defined herein) of the New Securities which the Preemptive Rightholders did not exercise their right to purchase pursuant to Sections 3.2(b) and (c) (the “Undersubscribed Shares”) at a purchase price equal to the Proposed Price and upon the terms and conditions set forth in the New Issuance Notice.  The right of the Fully Exercising Preemptive Rightholders to purchase the Undersubscribed Shares may be exercised for a period of ten days following the earlier of the expiration of the Initial Preemptive Subscription Period or the date on which notice is given by the Company to such Fully Exercising Preemptive Rightholders that all the Preemptive Rightholders have either exercised their right to purchase the New Securities pursuant to Sections 3.2(b) and (c) or waived their rights to purchase any of such New Securities pursuant to Section 3.2(c) (the “Oversubscription Period”).  For purposes of this Section 3.2, “Oversubscription Appropriate Percentage” shall mean that percentage of the Undersubscribed Shares determined by dividing (i) the total number of Shares then owned by a Fully Exercising Preemptive Rightholder by (ii) the total number of Shares owned by all the Fully Exercising Preemptive Rightholders.

(e)        The right of each Fully Exercising Preemptive Rightholder to purchase Undersubscribed Shares pursuant to Section 3.2(d) shall be exercisable by delivering written notice of the exercise thereof, prior to the expiration of the Oversubscription Period, to the Company, which notice shall state the amount of Undersubscribed Shares that such Fully Exercising Preemptive Rightholder elects to purchase pursuant to Section 3.2(d).  The failure of

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a Fully Exercising Preemptive Rightholder to respond prior to the expiration of the Oversubscription Period shall be deemed to be a waiver of such Fully Exercising Preemptive Rightholder’s rights under this Agreement solely with respect to its right to purchase the Undersubscribed Shares included in the New Securities referenced in the New Issuance Notice; provided that each Fully Exercising Preemptive Rightholder may waive its rights under Section 3.2(d) prior to the expiration of the Oversubscription Period by giving written notice of such waiver to the Company.

(f)         The closing of the purchase of New Securities subscribed for by the Preemptive Rightholders, including the Fully Exercising Preemptive Rightholders, pursuant to this Section 3.2 shall be held at such time and place as the parties to the transaction may reasonably agree.  At such closing, the New Securities subscribed for shall be issued by the Company free and clear of all liens, charges or encumbrances (other than those arising hereunder and those attributable to actions by the purchasers thereof).  Each Preemptive Rightholder, including each Fully Exercising Preemptive Rightholder, purchasing the New Securities shall deliver at the closing payment in full in immediately available funds for the New Securities purchased by it.  At such closing, all of the parties to the transaction shall execute such additional documents as are otherwise necessary, appropriate or customary for similar financing transactions.  If any Preemptive Rightholder, including any Fully Exercising Preemptive Rightholder, fails to purchase any New Securities for which it exercised its right to purchase pursuant to Sections 3.2(b) and (c) or 3.2(d) and (e), such New Securities may be purchased by the Fully Exercising Preemptive Rightholders which did purchase all the New Securities for which they exercised their rights to purchase pursuant to Sections 3.2(b), (c), (d) and (e) in the same manner provided in this Section 3.2 with respect to Undersubscribed Shares and the resulting Oversubscription Period with respect to such right to purchase shall be an “Oversubscription Period” for all instances such term is used in this Section 3.2.  Notwithstanding the preceding sentence, the obligations and liability of any Preemptive Rightholder, including any Fully Exercising Preemptive Rightholder, which fails to purchase any New Securities for which it exercised its right to purchase pursuant to Sections 3.2(b) and (c) or 3.2(d) and (e) shall not be relieved as a result of any Fully Exercising Preemptive Rightholder’s right to purchase, or any actual purchase by any Fully Exercising Preemptive Rightholder of, any such New Securities.

(g)        Following the expiration of the later of the Initial Preemptive Subscription Period and, if applicable, the Oversubscription Period, if the Preemptive Rightholders, including any Fully Exercising Preemptive Rightholders, did not exercise their right to purchase any of the New Securities, including the Undersubscribed Shares, which were originally the subject of the New Issuance Notice, then the Company may sell the remaining New Securities to the Subject Purchaser on terms and conditions that are no more favorable to the Subject Purchaser than those set forth in the New Issuance Notice; provided, however, that such sale is bona fide and made pursuant to a contract entered into between the Company and the Subject Purchaser and that such sale is consummated by not later than 90 days following the earlier to occur of (i) receipt by the Company of written waivers pursuant to Section 3.2(c) from all the Preemptive Rightholders of their rights to purchase the Appropriate Percentage of New Securities and, if applicable, written waivers pursuant to Section 3.2(e) from all the Fully Exercising Preemptive Rightholders of their rights to purchase the Oversubscription Appropriate Percentage of New Securities, and (ii) the expiration of the Oversubscription Period, if

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applicable, and if not applicable, the expiration of the Initial Preemptive Subscription Period.  If the sale of any of the New Securities is not consummated by the expiration of such 90 day period, then the preemptive rights afforded to the Shareholders under this Section 3.2 shall again become effective, and no issuance and sale of New Securities may be made thereafter by the Company without again offering the same in accordance with this Section 3.2.

3.3Change of Control Call Option.

(a)By not later than five days following a Change of Control (as defined herein or in Section 3.1(b)) of any Shareholder, such Shareholder shall give the Company and each other Shareholder notice of such Change of Control and shall disclose the number of Shares and any other securities of the Company which were owned by the Shareholder as of immediately prior to such Change of Control of such Shareholder (the “Change of Control Securities”).  If the Shareholder fails to give the notice required by the preceding sentence by the time required thereby, and another Shareholder or the Company is or becomes aware that such Shareholder underwent a Change of Control, then (i) if it is a Shareholder that is or becomes aware of such Change of Control, that Shareholder shall reasonably promptly inform the Company of such Change of Control and upon the Company being of the reasonable belief that such a Change of Control has occurred, the Company shall reasonably promptly provide the notice to the Shareholders that such Shareholder which underwent the Change of Control failed to provide, or (ii) if it is the Company that is or becomes aware of such Change of Control, the Company shall reasonably promptly provide the notice that such Shareholder which underwent the Change of Control failed to provide.  Any liability of a Shareholder which undergoes a Change of Control for failure to give the notice required by the first sentence of this Section 3.3(a) shall not be relieved as a result of the Company or any other Shareholder being obligated to give, or giving, the notice required by the second sentence of this Section 3.3(a).

(b)For a period of 20 days following the receipt of a notice given pursuant to Section 3.3(a), the Company shall have the right to purchase from such Shareholder (or its successor, as applicable), in whole or in part, the Change of Control Securities.  The purchase price for the Change of Control Securities shall be the book value, as determined in accordance with the statutory accounting principles applicable to the Company, of the Change of Control Securities as of the time such Shareholder underwent the Change of Control (the “Call Option Purchase Price”).  To exercise its right to purchase the Change of Control Securities, the Company shall deliver written notice of such exercise to the Shareholder which underwent the Change of Control and the other Shareholders prior to the expiration of such 20 day call exercise period.  The closing for any such exercised call option shall occur on the fifth business day (or such longer period as may be required by applicable law or in order to obtain applicable regulatory approval) following receipt of the Company’s notice of exercise of its call option by the Shareholder which underwent the Change of Control, or on such other date as may be agreed by the Company and such Shareholder.  At its option, the Company may pay in cash the entire amount of the Call Option Purchase Price at such closing or it may elect to defer any amount of the Call Option Purchase Price.  Any amounts so deferred shall bear interest at the Deferred Interest Rate (as defined herein).  The Company may pay any such deferred amounts and accrued interest thereon at any time and from time to time; provided, however, that all such deferred

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amounts and accrued but unpaid interest, shall be due and payable on the fifth anniversary of the closing of the applicable call option exercise.

(c)Shareholders other than the Shareholder which underwent the Change of Control shall have the right to purchase, in whole or in part, any Change of Control Securities not elected to be purchased by the Company pursuant to Section 3.3(b) at a price equal to the Call Option Purchase Price.  To exercise its right to purchase the Change of Control Securities, the applicable Shareholder shall deliver written notice of such exercise to the Shareholder which underwent the Change of Control, the Company and the other Shareholders by not later than the 20 days following the earlier of (i) the expiration of the 20 day period during which the Company has the right to exercise its call option for the Change of Control Securities pursuant to Section 3.3(b) and (ii) the date the Company waives its right to purchase such Change of Control Securities and has given notice of the same to all the Shareholders (such deadline for exercising a right to purchase Change of Control Securities referred to as the “Call Option Exercise Deadline”).  The notice of exercise shall indicate the number of Change of Control Securities that the Shareholder seeks to purchase.  If the aggregate number of Change of Control Securities sought to be purchased by the exercising Shareholders (determined by adding all the eligible securities each Shareholder states it seeks to purchase in its notice of exercise) exceeds the actual number of Change of Control Securities eligible for purchase, the number of Change of Control Securities which may be purchased by a particular applicable Shareholder shall be reduced by an amount equal to the product of the aggregate number of such excess Change of Control Securities sought to be purchased by all the exercising Shareholders multiplied by the quotient of (x) the number of Shares owned by all eligible Shareholders which are exercising their call option rights minus the number of Shares owned by the particular applicable exercising Shareholder divided by (y) the number of Shares owned by all eligible Shareholders which are exercising their call option rights, with any such result rounded up or down to the nearest whole share as reasonably determined by the Company.  The closing of any such exercised call option shall occur on the fifth business day (or such longer period as may be required by applicable law or in order to obtain applicable regulatory approval) following the Call Option Exercise Deadline, or on such other date as may be agreed by the exercising Shareholder, the Company and the Shareholder which underwent the Change of Control.  At its option, the exercising Shareholder may pay in cash the entire amount of the Call Option Purchase Price at such closing or it may elect to defer any amount of the Call Option Purchase Price.  Any amounts so deferred shall bear interest at the Deferred Interest Rate.  The exercising Shareholder may pay any such deferred amounts and accrued interest thereon at any time and from time to time; provided, however, that all such deferred amounts and accrued but unpaid interest, shall be due and payable on the fifth anniversary of the closing of the applicable call option exercise.

(d)Definitions.  For purposes of this Section 3.3, the following terms have the meanings set forth below:

(i)“Change of Control” means (A) the acquisition by any person or entity, or two or more persons or entities acting in concert, of beneficial ownership (such term, for purposes of this Section 3.3(d)(i), having the meaning provided such term in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of 9.8% or more, or rights, options or warrants to acquire 9.8% or more, or any combination

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thereof, of the outstanding shares of voting stock or other voting interests of the Shareholder, including voting proxies for such shares, or the power to direct the management and policies of the Shareholder, directly or indirectly, excluding with respect to RMR, any person or entity, or two or more persons or entities acting in concert, beneficially owning 9.8% or more of RMR’s outstanding voting interests as of the date of this Agreement, and excluding with respect to FVE, persons or entities that have rights to acquire 9.8% or more of FVE’s shares of common stock by virtue of their holding convertible notes of FVE outstanding as of the date of this Agreement, (B) the merger or consolidation of the Shareholder with or into any other person or entity (other than the merger or consolidation of any person or entity into the Shareholder that does not result in a Change of Control of the Shareholder under clauses (A), (C), (D) or (E) of this definition), (C) any one or more sales or conveyances to any person or entity of all or any material portion of the assets (including capital stock or other equity interests) or business of the Shareholder, (D) the cessation, for any reason, of the individuals who at the beginning of any 38 consecutive month period constituted the board of directors (or analogous governing body) of the Shareholder (together with any new directors (or analogous position) whose election by such board or whose nomination for election by the shareholders of the Shareholder was approved by a vote of a majority of the directors (or analogous position) then still in office who were either directors (or analogous position) at the beginning of any such period or whose election or nomination for election was previously so approved) to constitute a majority of the board of directors (or analogous governing body) of the Shareholder then in office or (E) in respect of a Shareholder other than RMR, the termination (including by means of nonrenewal) of the Shareholder’s management agreement with RMR by such Shareholder or, in response to a breach of such agreement by such Shareholder, by RMR; provided, however, a Change of Control shall not include:  (1) the acquisition by any person or entity, or two or more persons or entities acting in concert, of beneficial ownership of 9.8% or more of the outstanding shares of voting stock or other voting interests of a Shareholder if such acquisition is approved by the governing board of such Shareholder in accordance with the organizational documents of such Shareholder and if such acquisition is otherwise in compliance with applicable law; (2) the merger or consolidation of a Shareholder with one or more other Shareholders or wholly owned subsidiaries of any such Shareholders; or (3) a Change of Control which is approved by Shareholders owning 75% of the Shares owned by all Shareholders.

(ii)“Deferred Interest Rate” means the London Interbank Offered Rate (rounded upward, if necessary, to the nearest 1/100th of 1%) appearing on Reuters Screen LIBO Page (or any successor page) as the London interbank offered rate for three month deposits in U.S. dollars at approximately 11:00 a.m. (London time) two days prior to applicable closing date (provided that if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates), plus 100 basis points, and this rate shall be adjusted in three month intervals thereafter, in accordance with the foregoing, with such adjustment date being treated as an “applicable closing date” for purposes of determining the adjusted rate in accordance with the foregoing, for so long as any deferred amount pursuant to Sections 3.2(b) or 3.2(c) may be unpaid.

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3.4Permitted New Issuance of Shares.  The prohibition on transfer of Shares, the preemptive rights and the change of control call options created by Sections 3.1, 3.2 and 3.3 of this Article III shall not apply to any sale of Shares by the Company, or by any Shareholder or Shareholders, if the Shares are sold to an entity which is managed by RMR that purchases insurance from the Company, provided that any such sale does not reduce the ownership of any Shareholder to less than ten percent (10%) of the Company’s outstanding voting Shares.  The prohibition on the preemptive rights and the change of control call options created by Sections 3.2 and 3.3, respectively, of this Article III shall not apply to the 20,000 Shares issued and sold by the Company to each of GOV and SIR, and each of the Shareholders waive any rights they may have or have had under Sections 3.2 and 3.3 of this Article III with respect to such transactions.

ARTICLE IV

SPECIAL SHAREHOLDER APPROVAL REQUIREMENTS.

4.1Special Shareholder Approval Requirements.  For so long as the Shareholders beneficially own a majority of the Company’s issued and outstanding Shares, no action by the Company shall be taken with respect to any of the following matters without the prior affirmative approval of Shareholders owning 75% of the Shares owned by all the Shareholders:

(a)any amendment to the articles of incorporation or bylaws of the Company;

(b)any merger of the Company;

(c)the sale of all or substantially all of the Company’s assets;

(d)any reorganization or recapitalization of the Company; or

(e)any liquidation or dissolution of the Company.

If applicable law permits any of the foregoing actions to be taken by the Company without a shareholders vote, the vote of all directors of the Company designated by a Shareholder shall be considered the vote of the Shareholder for purposes of any such action.

ARTICLE V

OTHER COVENANTS AND AGREEMENTS

5.1Organizational Documents.  Subject to applicable law, each Shareholder shall vote its Shares or execute any consents necessary, and each Shareholder and the Company shall take all other actions necessary, to ensure that the Company’s organizational documents facilitate, and do not at any time conflict with any provision of, this Agreement or any applicable law, and to ensure that the provisions hereof are implemented notwithstanding any inconsistent

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provision in the Company’s organizational documents.  The parties hereto agree to amend, if necessary, the Company’s organizational documents to conform to the provisions set forth in this Agreement, to the extent permitted by applicable law.  In the event of any actual or apparent inconsistency between this Agreement and the organizational documents, then, as among the Shareholders, to the extent permitted by applicable law, this Agreement shall control.

5.2Reports and Information Access.  For so long as a Shareholder owns not less than 10% of all the issued and outstanding Shares, the Company shall provide periodically, through the director(s) designated by such Shareholder under Section 2.1, to the Shareholder financial information regarding the Company and its operations and the Company shall permit the Shareholder and its representatives reasonable access to the financial reports and records of the Company so that the Shareholder may comply with its financial reporting and tax reporting obligations and procedures, and disclosure obligations under the federal securities laws and other applicable laws.

5.3Compliance with Laws.  The Company shall comply in all material respects with all applicable laws governing its business and operations.  Except as provided in Section 5.7, if a Shareholder, by virtue of such Shareholder’s ownership interest in the Company or actions taken by the Shareholder affecting the Company, triggers the application of any requirement or regulation of any federal, state, municipal or other governmental or regulatory body on the Company or any subsidiary of the Company or any of their respective businesses, assets or operations, including any obligations to make any filing with or otherwise notifying or obtaining the consent, approval or other action of any federal, state, municipal or other governmental or regulatory body, such Shareholder shall promptly take all actions necessary and fully cooperate with the Company to ensure that such requirements or regulations are satisfied without restricting, imposing additional obligations on or in any way limiting the business, assets, operations or prospects of the Company or any subsidiary of the Company.  Each Shareholder shall use best efforts to cause its shareholders, directors (or analogous position), nominees for director (or analogous position), officers, employees and agents to comply with any applicable laws impacting the Company or any of its subsidiaries or their respective businesses, assets or operations.

5.4Cooperation; Further Assurances.

(a)The Shareholders shall cooperate with each other and the Company in furtherance of the Company’s underwriting of insurance policies and coverage with respect to the Shareholders and their respective businesses, assets and properties as well as in furtherance of the development and execution of the Company’s business as an insurer.  The Shareholders intend to transition (but shall not be obligated to do so) their applicable insurance policies and coverage to the Company so that the Company or its third party agents or contracting parties shall become the underwriters of such current and future policies and coverage.

(b)Each of the parties shall execute such documents and perform such further acts (including obtaining any consents, exemptions, authorizations or other actions by, or giving any notices to, or making any filings with, any governmental authority) as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement or

11

the transactions contemplated hereby, including in connection with any subsequent exercise by a party of a right afforded hereunder to such party.

5.5Confidentiality.  Except as may be required by applicable law or the rules of any national securities exchange upon which a party’s shares are listed for trading, none of the parties hereto shall make any disclosure concerning this Agreement, the transactions contemplated hereby or the business, operations and financial affairs of the Company without prior approval by the other parties hereto; provided, however, that nothing in this Agreement shall restrict any of the parties from disclosing information (a) that is already publicly available, (b) that was known to such party on a non-confidential basis prior to any relevant disclosure, (c) that may be required or appropriate in response to any summons or subpoena or in connection with any litigation, provided that such party will use reasonable efforts to notify the other party in advance of such disclosure so as to permit the other party to seek a protective order or otherwise contest such disclosure, and such party will use reasonable efforts to cooperate, at the expense of the other party, with the other party in pursuing any such protective order, (d) to the extent that such party reasonably believes it appropriate in order to protect its investment in its Shares in order to comply with any applicable law, (e) to such party’s officers, directors, trustees, advisors, employees, auditors or counsel or (f) as warranted pursuant to the parties’ disclosure obligations under federal securities laws.

5.6Required Regulatory Approvals.  Certain transactions required, permitted or otherwise contemplated by this Agreement may under certain circumstances require prior filings with and approvals, or non-disapprovals, from the Indiana Department of Insurance or the Indiana Insurance Commissioner.  Such transactions include: (a) issuance or purchase of any additional capital stock of the Company or other securities convertible into or exchangeable or exercisable for capital stock of the Company pursuant to Sections 1.2 or 3.4; (b) transfer of Shares to a wholly owned subsidiary of a Shareholder, to another Shareholder or to a wholly owned subsidiary of another Shareholder pursuant to Sections 3.1(a) or 3.4; (c) exercise of preemptive rights by a Shareholder pursuant to Section 3.2; and (d) exercise of call rights by the Company or a Shareholder pursuant to Section 3.3 (including pursuant to the two provisos in Section 3.1(b)).  Notwithstanding anything to the contrary contained in this Agreement, any such transactions requiring filings with and approvals, or non-disapprovals, from the Indiana Department of Insurance or the Indiana Insurance Commissioner shall not, to the extent within the control of a party hereto, be entered into or consummated unless and until the required filings have been made and the required approvals (or non-disapprovals) have been obtained, and to the extent not within the control of an applicable party hereto, such party shall use best efforts to cause such transactions not to be entered into or consummated unless and until the required filings have been made and the required approvals (or non-disapprovals) have been obtained.

5.7REIT Matters.  At the request of any Shareholder that intends (for itself or for any of its affiliates) to qualify and be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”), the Company shall (a) join with such Shareholder (or, as applicable, such Shareholder’s affiliate) in making a “taxable REIT subsidiary” election under Section 856(l) of the Code and (b) otherwise reasonably cooperate with any request of such Shareholder (or its affiliate) pertaining to such real estate investment trust status or taxation under the Code.

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ARTICLE VI

REPRESENTATIONS AND WARRANTIES

6.1The Company.  The Company represents and warrants to each Shareholder, as of the date of this Agreement (unless any such representation or warranty speaks as of another date, in which case, as of such date), as follows:

(a)Organization, Existence, Good Standing and Power.  The Company is an Indiana insurance corporation duly organized, validly existing and in good standing under the laws of the State of Indiana and has the power and authority to execute, deliver and perform its obligations under this Agreement.

(b)Capitalization; Subsidiaries.

(i)As of immediately prior to the execution and delivery of this Agreement, there are no securities of the Company issued and outstanding, except for the Shares previously issued pursuant to Section 1.1.  Except as provided and contemplated by this Agreement, as of the date of this Agreement, the Company has no commitment or arrangement to issue securities of the Company to any person or entity.

(ii)As of the date of this Agreement, the Company has no subsidiaries.

(c)Valid Issuance of Shares.  The Shares being purchased by the Shareholders hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and under applicable law.

(d)Binding Effect.  This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability (regardless of whether considered in a proceeding at law or in equity).

(e)No Contravention.  The execution and delivery of this Agreement by the Company and the performance of its obligations hereunder and the consummation by the Company of the transactions contemplated by this Agreement and compliance by the Company with the provisions of this Agreement (i) have been duly authorized by all necessary company action, (ii) do not contravene the terms of the Company’s organizational documents, (iii) do not materially violate, conflict with or result in any breach or contravention of, or the creation of any material lien, charge or encumbrance under, any material agreement, contract, license, permit or instrument to which the Company is a party or by which the Company or any of its assets or

13

properties are bound and (iv) do not materially violate any law, statute, regulation, order or decree applicable to, or binding upon, the Company or any of its assets or properties.

(f)Consents.  No approval, consent, compliance, exemption, authorization or other action by, or notice to, or filing with, any local, state or federal governmental authority or any other person or entity (individually and collectively, a “Consent”), not already obtained or made, and no lapse of a waiting period under any applicable law, statute, regulation, order or decree, is necessary or required in connection with the execution, delivery or performance by the Company of this Agreement or the transactions contemplated hereby; provided, however, that the foregoing representation and warranty shall not apply to any Consent which may be required in the future as a result of the application of the rights and obligations provided for hereunder or the conducting of the Company’s business.

(g)Compliance with Laws.  The Company is in compliance in all material respects with all applicable laws, statutes, regulations, orders or decrees applicable to, or binding upon, the Company or any of its assets or properties.

(h)Offering.  Subject to the accuracy of the Shareholder’s representations and warranties set forth in Sections 6.2(f) through 6.2(i), the offer, sale and issuance of the Shares to be issued in conformity with the terms of this Agreement constitute transactions which are exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), and from all applicable state registration or qualification requirements.  Neither the Company nor any person or entity acting on its behalf will take any action that would cause the loss of such exemption.

(i)No Integration.  The Company has not, directly or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the Shares sold pursuant to this Agreement in a manner that would require the registration of the Shares under the Securities Act.

6.2The Shareholders.  Each Shareholder represents and warrants to the Company and the other Shareholders, as of the date of this Agreement, as follows:

(a)Organization, Existence, Good Standing and Power.  The Shareholder (i) is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation; (ii) has all requisite power and authority to conduct the business in which it is currently engaged; and (iii) has the power and authority to execute, deliver and perform its obligations under this Agreement.

(b)Binding Effect.  This Agreement has been duly executed and delivered by the Shareholder and constitutes the legal, valid and binding obligations of the Shareholder, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability (regardless of whether considered in a proceeding at law or in equity).

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(c)No Contravention.  The execution and delivery of this Agreement by the Shareholder and the performance of its obligations hereunder and the consummation by the Shareholder of the transactions contemplated by this Agreement and compliance by the Shareholder with the provisions of this Agreement (i) have been duly authorized by all necessary company action, (ii) do not contravene the terms of the Shareholder’s organizational documents, (iii) do not materially violate, conflict with or result in any breach or contravention of, or, except with respect to any Existing Pledge which the Shareholder or any of its assets or properties may be subject, the creation of any material lien, charge or encumbrance under, any material agreement, contract, license, permit or instrument to which the Shareholder is a party or by which the Shareholder or any of its assets or properties are bound and (iv) do not materially violate any law, statute, regulation, order or decree applicable to, or binding upon, the Shareholder or any of its assets or properties.

(d)Consents.  No Consent, not already obtained or made, and no lapse of a waiting period under any applicable law, statute, regulation, order or decree, is necessary or required in connection with the execution, delivery or performance by the Shareholder of this Agreement or the transactions contemplated hereby; provided, however, that the foregoing representation and warranty shall not apply to any Consent which may be required in the future as a result of the application of the rights and obligations provided for hereunder or the conducting of the Company’s business.

(e)Compliance with Laws.  The Shareholder is in compliance in all material respects with all applicable laws, statutes, regulations, orders or decrees applicable to, or binding upon, the Shareholder or any of its assets or properties.

(f)Purchase Entirely for Own Account.  The Shares are being acquired for investment for the Shareholder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Shareholder has no present intention of selling, granting any participation with respect to or otherwise distributing the Shares.  Except as provided by this Agreement, the Shareholder does not have any contract, undertaking, agreement or arrangement with any person or entity to sell or transfer to any person or entity, or grant participation rights to any person or entity with respect to, any of the Shares.

(g)Disclosure of Information.  The Shareholder has received all the information from the Company and its management that the Shareholder considers necessary or appropriate for deciding whether to purchase the Shares hereunder.  The Shareholder further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the Company, its financial condition, results of operations and prospects and the terms and conditions of the offering of the Shares sufficient to enable it to evaluate its investment.

(h)Investment Experience and Accredited Investor Status.  The Shareholder is an “accredited investor” (as defined in Regulation D under the Securities Act).  The Shareholder has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Shares to be purchased hereunder.

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(i)Restricted Securities.  The Shareholder understands that the Shares, when issued, shall be “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws the Shares may be resold without registration under the Securities Act only in certain limited circumstances.

ARTICLE VII

TERMINATION

7.1Termination.  This Agreement shall remain in full force and effect until the sooner of:  (a) its termination pursuant to the next succeeding sentence of this Section 7.1 or (b) the dissolution of the Company; provided, however, that the dissolution of the Company, the merger of the Company with, or the transfer of all or substantially all the assets of the Company to, another entity which continues substantially all of the Company’s business shall not of itself terminate this Agreement.  This Agreement may be terminated at any time by the Shareholders owning at least 75% of the issued and outstanding Shares owned by all Shareholders.  Section 5.5 and Article VIII shall survive any termination or expiration of this Agreement.

ARTICLE VIII

MISCELLANEOUS

8.1Notices.  Any notices or other communications required or permitted under, or otherwise in connection with, this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person, upon confirmation of receipt when transmitted by facsimile transmission, on the next business day if transmitted by a nationally recognized overnight courier or on the third business day following mailing by first class mail, postage prepaid, in each case as follows (or at such other United States address or facsimile number for a party as shall be specified by like notice):

Notices to the Company:

Affiliates Insurance Company
101 West Washington Street, Suite 1100
Indianapolis, Indiana 46204
Attention:  President/Vice President
Facsimile No.:   (317) 632-2883

with a copy to:

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Affiliates Insurance Company
Two Newton Place

255 Washington Street

Suite 300
Newton, Massachusetts 02458
Attention:  President/Vice President
Facsimile No.:  (617) 928-1305

Notices to FVE:

Five Star Quality Care, Inc.
400 Centre Street
Newton, Massachusetts 02458
Attention:  President
Facsimile No.:  (617) 796-8385

Notices to HPT:

Hospitality Properties Trust
Two Newton Place

255 Washington Street

Suite 300
Newton, Massachusetts 02458
Attention:  President
Facsimile No.:  (617) 969-5730

Notices to CWH:

CommonWealth REIT

Two Newton Place

255 Washington Street

Suite 300
Newton, Massachusetts 02458
Attention:  President
Facsimile No.:  (617) 332-2261

Notices to SNH:

Senior Housing Properties Trust

Two Newton Place

255 Washington Street

Suite 300
Newton, Massachusetts 02458
Attention:  President
Facsimile No.:  (617) 796-8349

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Notices to TA:

TravelCenters of America LLC

24601 Center Ridge Road, Suite 200
Westlake, Ohio 44145
Attention:  President
Facsimile No.:  (440) 808-3301

Notices to RMR:

Reit Management & Research LLC

Two Newton Place

255 Washington Street

Suite 300
Newton, Massachusetts 02458
Attention:  President
Facsimile No.:  (617) 928-1305

Notices to GOV:

Government Properties Income Trust
Two Newton Place

255 Washington Street

Suite 300
Newton, Massachusetts 02458
Attention:  President
Facsimile No.:  (617) 219-1441

and

Notices to SIR:

Select Income REIT

Two Newton Place

255 Washington Street

Suite 300
Newton, Massachusetts 02458
Attention:  President
Facsimile No.:  (617) 796-8335

8.2Successors and Assigns; Third Party Beneficiaries.  This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto.  Except as permitted by Section 3.1 and Section 3.4, no party may assign this Agreement or its rights hereunder or delegate its duties hereunder without the written consent of the other parties.  Except as otherwise provided in Section 8.7, no person or entity other than the parties

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hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement.

8.3Amendment and Waiver.

(a)No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to each party at law, in equity or otherwise.  Any party hereto may waive in whole or in part any right afforded to such party hereunder.

(b)Any amendment, supplement or modification of or to any provision of this Agreement, shall be effective upon the written agreement of the Company and the Shareholders owning not less than 75% of all Shares owned by the Shareholders; provided, however, that any amendment, supplement or modification of Article I or Article II shall require the approval of any Shareholder which may be adversely affected by any such amendment, supplement or modification.

8.4Counterparts.  This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

8.5Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

8.6Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana without regard to the conflicts of laws rules thereof, which would require the application of the laws of another jurisdiction.

8.7Dispute Resolution.

(a)Any disputes, claims or controversies between the parties (i) arising out of or relating to this Agreement, the Company, its business, assets or operations or any insurance policies or coverage underwritten by the Company or any of its third party agents in furtherance of the Company’s insurance business or (ii) brought by or on behalf of any shareholder of the Company (which, for purposes of this Section 8.7, shall mean any shareholder of record or any beneficial owner of shares of the Company, or any former shareholder of record or beneficial owner of shares of the Company), either on his, her or its own behalf, on behalf of the Company or on behalf of any series or class of shares of the Company or shareholders of the Company against the Company or any director, officer, manager (including RMR or its successor), agent or employee of the Company, including disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement or the articles of incorporation or bylaws of the Company (all of which are referred to as “Disputes”), or relating in any way to such a Dispute or Disputes shall, on the demand of any party to such Dispute, be resolved through binding and final arbitration in accordance with the

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Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Section 8.7.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against directors, officers or managers of the Company and class actions by a shareholder against those individuals or entities and the Company.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.

(b)There shall be three arbitrators.  If there are only two parties to the Dispute, each party shall select one arbitrator within 15 days after receipt by respondent of a copy of the demand for arbitration.  Such arbitrators may be affiliated or interested persons of such parties.  If either party fails to timely select an arbitrator, the other party to the Dispute shall select the second arbitrator who shall be neutral and impartial and shall not be affiliated with or an interested person of either party.  If there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one arbitrator. Such arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be.  If either all claimants or all respondents fail to timely select an arbitrator then such arbitrator (who shall be neutral, impartial and unaffiliated with any party) shall be appointed by the parties who have appointed the first arbitrator.  The two arbitrators so appointed shall jointly appoint the third and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within 15 days of the appointment of the second arbitrator.  If the third arbitrator has not been appointed within the time limit specified herein, then the AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party having a limited number of strikes, excluding strikes for cause.

(c)The place of arbitration shall be Indianapolis, Indiana unless otherwise agreed by the parties.

(d)There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators.

(e)In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the State of Indiana.  Any arbitration proceedings or Award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  The Award shall be in writing and may, but shall not be required to, briefly state the findings of fact and conclusions of law on which it is based.

(f)Except to the extent otherwise agreed by the parties, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of the Company’s award to the claimant or the claimant’s attorneys.  Each party (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and

20

all respondents, on the other hand) shall equally bear the costs and expenses of the third appointed arbitrator.

(g)An Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between such parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators.  Judgment upon the Award may be entered in any court having jurisdiction.  To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(h)Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  Each party against which the Award assesses a monetary obligation shall pay that obligation on or before the 30th day following the date of the Award or such other date as the Award may provide.

(i)This Section 8.7 is intended to benefit and be enforceable by the shareholders, directors, officers, managers (including RMR or its successor), agents or employees of the Company and the Company and shall be binding on the shareholders of the Company and the Company, as applicable, and shall be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

8.8Interpretation and Construction.

(a)The words “hereof”, “herein”, “hereby” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement.

(b)Unless the context otherwise requires, references to sections, subsections or Articles refer to sections, subsections or Articles of this Agreement.

(c)Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa.

(d)The words “include” and “including” and words of similar import shall be deemed to be followed by the words “without limitation”.

(e)Words importing gender include both genders.

(f)Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments

21

incorporated therein.  In addition, references to any statute are to that statute and to the rules and regulations promulgated thereunder.

(g)The parties hereto have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.

8.9Severability.  If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

8.10Entire Agreement.  This Agreement and the SIR Subscription Agreement constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement.

8.11Non-liability of Trustees and Directors.

(a)COPIES OF THE DECLARATIONS OF TRUST OF HPT, CWH, SNH, GOV AND SIR, AS IN EFFECT ON THE DATE HEREOF, TOGETHER WITH ALL AMENDMENTS AND SUPPLEMENTS THERETO, IF ANY, ARE DULY FILED IN THE OFFICE OF THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND.  THE DECLARATIONS OF TRUST, AS AMENDED AND SUPPLEMENTED, OF HPT, CWH, SNH, GOV AND SIR, PROVIDE THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF HPT, CWH, SNH, GOV AND SIR, AS APPLICABLE, SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, HPT, CWH, SNH, GOV AND SIR.  ALL PERSONS DEALING WITH HPT, CWH, SNH, GOV AND SIR IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF HPT, CWH, SNH, GOV AND SIR, AS APPLICABLE, FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

(b)A COPY OF THE ARTICLES OF INCORPORATION, AS IN EFFECT ON THE DATE HEREOF, OF FVE, TOGETHER WITH ALL AMENDMENTS AND SUPPLEMENTS THERETO, IS DULY FILED IN THE OFFICE OF THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND.  NO DIRECTOR, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF FVE SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, FVE.  ALL PERSONS DEALING WITH FVE, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF FVE FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

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(c)A COPY OF THE LIMITED LIABILITY COMPANY AGREEMENT, AS IN EFFECT ON THE DATE HEREOF, OF TA, TOGETHER WITH ALL AMENDMENTS THERETO, IS AVAILABLE TO A SHAREHOLDER PARTY HERETO UPON WRITTEN REQUEST MADE TO TA.  NO DIRECTOR, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF TA SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, TA.  ALL PERSONS DEALING WITH TA, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF TA FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

[The Remainder of This Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Amended and Restated Shareholders Agreement on the date first written above.

AFFILIATES INSURANCE COMPANY
By:	/s/ Jennifer B. Clark
	Name:	Jennifer B. Clark
	Title:	President
FIVE STAR QUALITY CARE, INC.
By:	/s/ Bruce J. Mackey Jr.
	Name:	Bruce J. Mackey Jr.
	Title:	President and Chief Executive Officer
HOSPITALITY PROPERTIES TRUST
By:	/s/ John G. Murray
	Name:	John G. Murray
	Title:	President and Chief Operating Officer
COMMONWEALTH REIT
By:	/s/ John C. Popeo
	Name:	John C. Popeo
	Title:	Treasurer and Chief Financial Officer
SENIOR HOUSING PROPERTIES TRUST
By:	/s/ David J. Hegarty
	Name:	David J. Hegarty
	Title:	President and Chief Operating Officer

TRAVELCENTERS OF AMERICA LLC
By:	/s/ Thomas M. O’Brien
	Name:	Thomas M. O’Brien
	Title:	President and Chief Executive Officer
REIT MANAGEMENT & RESEARCH LLC
By:	/s/ Adam D. Portnoy
	Name:	Adam D. Portnoy
	Title:	President
GOVERNMENT PROPERTIES INCOME TRUST
By:	/s/ Mark L. Kleifges
	Name:	Mark L. Kleifges
	Title:	Treasurer and Chief Financial Officer
SELECT INCOME REIT
By:	/s/ David M. Blackman
	Name:	David M. Blackman
	Title:	President and Chief Operating Officer

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 Government Properties Income Trust;

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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 3, 2012
		/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, Mark L. Kleifges, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Government Properties Income Trust;

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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 3, 2012
		/s/ Mark L. Kleifges
		Mark L. Kleifges
		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 Government Properties Income Trust;

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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 3, 2012
		/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 of Government Properties Income Trust;

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))  and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))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)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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 3, 2012
		/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 Government Properties Income Trust (the “Company”) of the Quarterly Report in Form 10-Q for the period ended June 30, 2012 (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/ Adam D. Portnoy
Barry M. Portnoy	Adam D. Portnoy
Managing Trustee	Managing Trustee
/s/ David M. Blackman	/s/ Mark L. Kleifges
David M. Blackman	Mark L. Kleifges
President and Chief Operating Officer	Treasurer and Chief Financial Officer

Date:    August 3, 2012

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Real Estate Properties

6 Months Ended

Jun. 30, 2012

Real Estate Properties

Real Estate Properties

Note 3. Real Estate Properties

As of June 30, 2012, we owned 74 properties representing an aggregate investment of approximately $1,526,652.  We generally lease space in our properties on a gross lease or modified gross lease basis pursuant to fixed term operating leases expiring between 2012 and 2025.  Certain of our government tenants have the right to cancel their leases before the lease term expires, although we currently expect that few will do so.  Our leases generally require us to pay all or some property operating expenses and to provide all or most property management services.  During the three months ended June 30, 2012, we entered into 14 leases for 205,503 rentable square feet for a weighted average (by revenue) lease term of 4.7 years and made commitments for approximately $2,651 of leasing related costs.  During the six months ended June 30, 2012, we entered into 21 leases for 243,625 rentable square feet for a weighted average (by revenue) lease term of 4.7 years and made commitments for approximately $2,948 of leasing related costs. We have unspent leasing related obligations of approximately $7,299 as of June 30, 2012.

During the six months ended June 30, 2012, we acquired three office properties located in two states for an aggregate purchase price of $28,950, excluding acquisition costs.  We allocated the purchase price of these acquisitions based on the estimated fair values of the acquired assets and assumed liabilities as follows:

								Buildings				Acquired
Acquisition		Number of	Square	Purchase				and		Acquired		Lease
Date	Location	Properties	Feet	Price(1)		Land		Improvements		Leases		Obligations
June 2012	Albany, NY	1	64,000	$	8,525	$	790	$	6,400	$	1,578	$	(243	)
June 2012	Everett, WA	2	111,908	20,425		3,360		15,376		2,449		(760		)
		3	175,908	$	28,950	$	4,150	$	21,776	$	4,027	$	(1,003	)

(1)            Purchase price excludes acquisition related costs.

In June 2012, we acquired two office properties located in Everett, WA with 111,908 rentable square feet.  These properties are 100% leased to the State of Washington and occupied by the Department of Social and Health Services.  The purchase price was $20,425, excluding acquisition costs.

Also in June 2012, we acquired an office property located in Albany, NY with 64,000 rentable square feet.  This property is 100% leased to the State of New York and occupied by the Department of Agriculture.  The purchase price was $8,525, excluding acquisition costs.

In July 2012, we acquired an office property located in Stockton, CA with 22,012 rentable square feet.  This property is 100% leased to the U.S. Government and occupied by the Department of Immigration and Customs Enforcement.  The purchase price was $8,251, excluding acquisition costs.

Also in July 2012, we acquired office properties located in each of Atlanta, GA and Jackson, MS and an office warehouse property located in Ellenwood, GA with a combined total of 552,571 rentable square feet.  These properties are 100% leased to the U.S. Government and occupied by the Department of Homeland Security, Immigration and Customs Enforcement, the Federal Bureau of Investigation and the National Archives and Records Administration, respectively.  The aggregate purchase price was $88,000, excluding acquisition costs.

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2012

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Note 2.   Recent Accounting Pronouncements

In January 2012, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS.  This update clarified the application of existing fair value measurement requirements.  This update also required reporting entities to disclose additional information regarding fair value measurements categorized within Level 3 of the fair value hierarchy.  This update was effective for interim and annual reporting periods beginning after December 15, 2011.  The implementation of this update did not cause any material changes to the disclosures in, or presentation of, our condensed consolidated financial statements.

In January 2012, we adopted FASB Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income.  This update eliminated the option to report other comprehensive income and its components in the statement of shareholders’ equity.  This update was intended to enhance comparability between entities that report under GAAP and to provide a more consistent method of presenting non-owner transactions that affect an entity’s equity.  This standard was effective for interim and annual reporting periods beginning after December 15, 2011.  The implementation of this update did not cause any changes to our condensed consolidated financial statements other than the presentation of the condensed consolidated statements of income.

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Real estate properties:
Land	$ 228,824	$ 224,674
Buildings and improvements	1,147,361	1,129,994
Total real estate properties, at cost, gross	1,376,185	1,354,668
Accumulated depreciation	(164,890)	(156,618)
Total real estate properties, at cost, net	1,211,295	1,198,050
Acquired real estate leases, net	110,805	117,596
Cash and cash equivalents	1,394	3,272
Restricted cash	3,970	1,736
Rents receivable, net	27,086	29,000
Deferred leasing costs, net	3,498	3,074
Deferred financing costs, net	6,624	5,550
Other assets, net	18,152	10,297
Total assets	1,382,824	1,368,575
LIABILITIES AND SHAREHOLDERS' EQUITY
Unsecured revolving credit facility	27,000	345,500
Unsecured term loan	350,000
Mortgage notes payable	94,271	95,383
Accounts payable and accrued expenses	19,652	20,691
Due to related persons	2,878	4,071
Assumed real estate lease obligations, net	10,721	11,262
Total liabilities	504,522	476,907
Commitments and contingencies
Shareholders' equity:
Common shares of beneficial interest, $.01 par value: 70,000,000 shares authorized, 47,099,971 and 47,051,650 shares issued and outstanding, respectively	471	471
Additional paid in capital	936,603	935,438
Cumulative net income	112,346	87,333
Cumulative other comprehensive income	73	77
Cumulative common distributions	(171,191)	(131,651)
Total shareholders' equity	878,302	891,668
Total liabilities and shareholders' equity	$ 1,382,824	$ 1,368,575

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 25,013	$ 21,186
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	15,656	12,353
Net amortization of debt premium and deferred financing fees	659	521
Straight line rental income	(1,564)	(161)
Amortization of acquired real estate leases	9,274	4,604
Amortization of deferred leasing costs	387	236
Other non-cash expenses	646	256
Equity in earnings of an investee	(121)	(83)
Change in assets and liabilities:
(Increase) decrease in restricted cash	(2,234)	(45)
(Increase) decrease in deferred leasing costs	(811)	(210)
(Increase) decrease in rents receivable	3,478	(1,839)
(Increase) decrease in other assets	2,162	(879)
Increase (decrease) in accounts payable and accrued expenses	486	1,883
Increase (decrease) in due to related persons	(463)	1,712
Cash provided by operating activities	52,568	39,534
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions and deposits	(38,850)	(223,780)
Real estate improvements	(4,711)	(3,092)
Cash used in investing activities	(43,561)	(226,872)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgage notes payable	(881)	(399)
Borrowings on unsecured revolving credit facility	27,000	262,000
Repayments on unsecured revolving credit facility	(345,500)	(42,000)
Proceeds from unsecured term loan	350,000
Financing fees	(1,964)	(3)
Distributions to common shareholders	(39,540)	(33,616)
Cash (used in) provided by financing activities	(10,885)	185,982
Increase (decrease) in cash and cash equivalents	(1,878)	(1,356)
Cash and cash equivalents at beginning of period	3,272	2,437
Cash and cash equivalents at end of period	1,394	1,081
Supplemental cash flow information
Interest paid	7,695	4,161
Income taxes paid	86	51
Non-cash financing activities
Issuance of common shares	$ 1,165	$ 256

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Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Fair Value of Financial Instruments
Mortgage notes payable	$ 94,271	$ 95,383
5.73% Mortgage notes due in 2015
Fair Value of Financial Instruments
Mortgage notes payable	49,701	50,118
Interest rate (as a percent)	5.73%	5.73%
Unamortized fair value premium included in mortgage notes	724	724
6.21% Mortgage notes due in 2016
Fair Value of Financial Instruments
Mortgage notes payable	24,579	24,713
Interest rate (as a percent)	6.21%	6.21%
7% Mortgage notes due in 2019
Fair Value of Financial Instruments
Mortgage notes payable	10,406	10,559
Interest rate (as a percent)	7.00%	7.00%
Unamortized fair value premium included in mortgage notes	942	942
8.15% Mortgage notes due in 2021
Fair Value of Financial Instruments
Mortgage notes payable	9,585	9,993
Interest rate (as a percent)	8.15%	8.15%
Unamortized fair value premium included in mortgage notes	716	716
Carrying Amount
Fair Value of Financial Instruments
Mortgage notes payable	94,271
Carrying Amount | 5.73% Mortgage notes due in 2015
Fair Value of Financial Instruments
Mortgage notes payable	49,701
Carrying Amount | 6.21% Mortgage notes due in 2016
Fair Value of Financial Instruments
Mortgage notes payable	24,579
Carrying Amount | 7% Mortgage notes due in 2019
Fair Value of Financial Instruments
Mortgage notes payable	10,406
Carrying Amount | 8.15% Mortgage notes due in 2021
Fair Value of Financial Instruments
Mortgage notes payable	9,585
Fair Value
Fair Value of Financial Instruments
Mortgage notes payable	99,012
Fair Value | 5.73% Mortgage notes due in 2015
Fair Value of Financial Instruments
Mortgage notes payable	50,268
Fair Value | 6.21% Mortgage notes due in 2016
Fair Value of Financial Instruments
Mortgage notes payable	26,936
Fair Value | 7% Mortgage notes due in 2019
Fair Value of Financial Instruments
Mortgage notes payable	11,031
Fair Value | 8.15% Mortgage notes due in 2021
Fair Value of Financial Instruments
Mortgage notes payable	$ 10,777

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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			1 Months Ended	3 Months Ended		6 Months Ended				1 Months Ended	3 Months Ended		6 Months Ended
	Mar. 31, 2012	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Mar. 31, 2012 RMR	Jun. 30, 2012 RMR entity Agreement	Jun. 30, 2011 RMR	Jun. 30, 2012 RMR entity Agreement	Jun. 30, 2011 RMR	Jun. 30, 2012 CWH	Dec. 31, 2010 CWH Acquisition property	Jun. 30, 2010 AIC	Jun. 30, 2012 AIC entity	Jun. 30, 2011 AIC	Jun. 30, 2012 AIC item entity	Jun. 30, 2011 AIC	Dec. 31, 2011 AIC	Jun. 30, 2012 AIC Maximum
Related Party Transaction
Number of agreements to avail management and administrative services								2		2
Percentage of interest in subsidiaries												100.00%
Expenses incurred pursuant to our business management agreement								$ 2,028	$ 1,805	$ 4,258	$ 3,479
Number of shares issued in payment of incentive fee for services rendered	39,141						39,141
Property management and construction supervision fees incurred								1,610	1,509	3,205	2,833
Number of other companies owning interest in equity method investment								5		5					5		5
Number of properties acquired or agreed to be acquired													15
Common shares owned		47,099,971		47,099,971		47,051,650						9,950,000
Investment at carrying value															5,526		5,526		5,409
Recognized income (loss) related to investment in AIC		76	46	121	83										76	46	121	83
Coverage of purchased property insurance														500,000
Premium for property insurance																	$ 410
Percentage of interest												21.10%			12.50%		12.50%			20.00%
Represents the number of companies who became shareholders																	1
Program extension term																	1 year

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Basis of Presentation

6 Months Ended

Jun. 30, 2012

Basis of Presentation

Basis of Presentation

Note 1.   Basis of Presentation

The accompanying condensed consolidated financial statements of Government Properties Income Trust and its subsidiaries, or GOV, the Company, we or us, are unaudited.  We operate in one business segment: ownership of properties that are primarily leased to government tenants.  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, 2011, 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 between the Company and its subsidiaries have been eliminated.  Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

The preparation of 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, useful lives of fixed assets and impairment of real estate and intangible assets.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Jun. 30, 2012	Dec. 31, 2011
CONDENSED CONSOLIDATED BALANCE SHEETS
Common shares of beneficial interest, par value (in dollars per share)	$ 0.01	$ 0.01
Common shares of beneficial interest, shares authorized	70,000,000	70,000,000
Common shares of beneficial interest, shares issued	47,099,971	47,051,650
Common shares of beneficial interest, shares outstanding	47,099,971	47,051,650

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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value of Financial Instruments

Schedule of fair value and carrying value of financial instruments

	Carrying Amount		Fair Value
Mortgage note payable, 5.73% interest rate, including unamortized premium of $724, due in 2015	$	49,701	$	50,268
Mortgage note payable, 6.21% interest rate, due in 2016	24,579		26,936
Mortgage note payable, 7.00% interest rate, including unamortized premium of $942, due in 2019	10,406		11,031
Mortgage note payable, 8.15% interest rate, including unamortized premium of $716, due in 2021	9,585		10,777
	$	94,271	$	99,012

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 02, 2012
Document and Entity Information
Entity Registrant Name	Government Properties Income Trust
Entity Central Index Key	0001456772
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		47,099,971
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2

XML

Basis of Presentation (Details)	6 Months Ended
	Jun. 30, 2012 segment
Basis of Presentation
Number of business segments	1

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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, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Rental income	$ 50,273	$ 42,107	$ 100,728	$ 81,335
Expenses:
Real estate taxes	5,949	4,637	11,482	9,094
Utility expenses	3,870	3,540	7,705	7,047
Other operating expenses	9,325	7,260	18,178	14,181
Depreciation and amortization	12,153	9,097	24,225	17,483
Acquisition related costs	245	1,009	294	1,838
General and administrative	2,719	2,566	5,758	4,909
Total expenses	34,261	28,109	67,642	54,552
Operating income	16,012	13,998	33,086	26,783
Interest and other income	6	20	14	35
Interest expense (including net amortization of debt premiums and deferred financing fees of $335, $262, $659 and $521, respectively)	(4,096)	(3,076)	(8,119)	(5,613)
Equity in earnings of an investee	76	46	121	83
Income before income tax expense	11,998	10,988	25,102	21,288
Income tax expense	(44)	(56)	(89)	(102)
Net income	11,954	10,932	25,013	21,186
Other comprehensive income (loss):
Equity in unrealized gain (loss) of an investee	(1)	39	(4)	43
Other comprehensive income (loss)	(1)	39	(4)	43
Comprehensive income	$ 11,953	$ 10,971	$ 25,009	$ 21,229
Weighted average common shares outstanding	47,098	40,506	47,075	40,503
Net income per common share (in dollars per share)	$ 0.25	$ 0.27	$ 0.53	$ 0.52

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2012

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Note 6. Fair Value of Financial Instruments

Our financial instruments at June 30, 2012 include cash and cash equivalents, restricted cash, rents receivable, mortgage notes payable, accounts payable, our revolving credit facility and our term loan, amounts due to related persons, other accrued expenses and security deposits.  At June 30, 2012, the fair value of our financial instruments approximated their carrying values in our condensed consolidated financial statements, except as follows:

	Carrying Amount		Fair Value
Mortgage note payable, 5.73% interest rate, including unamortized premium of $724, due in 2015	$	49,701	$	50,268
Mortgage note payable, 6.21% interest rate, due in 2016	24,579		26,936
Mortgage note payable, 7.00% interest rate, including unamortized premium of $942, due in 2019	10,406		11,031
Mortgage note payable, 8.15% interest rate, including unamortized premium of $716, due in 2021	9,585		10,777
	$	94,271	$	99,012

We estimate the fair values of our mortgage notes payable by using discounted cash flow analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP).

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Indebtedness

6 Months Ended

Jun. 30, 2012

Indebtedness

Indebtedness

Note 5.  Indebtedness

At June 30, 2012 and December 31, 2011, our outstanding indebtedness consisted of the following:

	June 30,		December 31,
	2012		2011
Unsecured revolving credit facility, due in 2015	$	27,000	$	345,500
Unsecured term loan, due in 2017	350,000		—
Mortgage note payable, 5.73% interest rate, including unamortized premium of $724, due in 2015(1)	49,701		50,118
Mortgage note payable, 6.21% interest rate, due in 2016(1)	24,579		24,713
Mortgage note payable, 7.00% interest rate, including unamortized premium of $942, due in 2019(1)	10,406		10,559
Mortgage note payable, 8.15% interest rate, including unamortized premium of $716, due in 2021(1)	9,585		9,993
	$	471,271	$	440,883

(1)We assumed these mortgages in connection with our acquisition 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, if any, to interest expense over the respective terms of the mortgages to reduce interest expense to the estimated market interest rates as of the date of acquisition.

We have a $550,000 unsecured revolving credit facility that is available for acquisitions, working capital and general business purposes.  Our revolving credit facility has a maturity date of October 19, 2015 and, subject to meeting certain conditions and the payment of a fee, we may extend the maturity date to October 19, 2016.  In addition, our revolving credit facility includes a feature under which maximum borrowings may be increased to up to $1,100,000 in certain circumstances.  Interest under our revolving credit facility is based upon LIBOR plus a spread that is subject to adjustment based upon changes to our senior unsecured debt ratings.  The weighted average annual interest rate for borrowings under our revolving credit facility was 1.75% and 1.80% for the three and six months ended June 30, 2012, respectively.  As of June 30, 2012, we had $27,000 outstanding under our revolving credit facility.

On January 12, 2012, we entered into a five year $350,000 unsecured term loan. Our term loan matures on January 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 spread that is subject to adjustment based upon changes to our senior unsecured debt ratings.  We used the net proceeds of our term loan to repay amounts outstanding under our revolving credit facility and to fund general business activities.  The weighted average annual interest rate for the amount outstanding under our term loan was 2.00% for the three months ended June 30, 2012 and 2.01% for the period from January 12, 2012 to June 30, 2012.

Our revolving credit facility agreement and our term loan agreement contain a number of covenants that 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.  We believe we were in compliance with the terms and conditions of our revolving credit facility agreement and our term loan agreement at June 30, 2012.

At June 30, 2012, five of our properties with an aggregate net book value of $123,105 were secured by four mortgage notes with a then aggregate principal amount outstanding of $91,889.  We assumed these mortgage notes in connection with certain of our acquisitions. Our mortgage notes are non-recourse and do not contain any material financial covenants.

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Shareholders' Equity (Details) (USD $) In Thousands, except Share data, unless otherwise specified	1 Months Ended
	Jul. 31, 2012	May 31, 2012	Mar. 31, 2012	Feb. 29, 2012	Jun. 30, 2012	May 16, 2012 item	Mar. 29, 2012	Dec. 31, 2011
Distributions
Distribution payable declared (in dollars per share)	$ 0.42	$ 0.42		$ 0.42
Distribution to common shareholders	$ 19,782	$ 19,778		$ 19,762
Share Issuances
Number of shares issued in payment of incentive fee for services rendered			39,141
Shares granted for equity compensation plan		2,000
Closing share price of the entity's common shares (in dollars per share)						$ 22.43
Number of trustees						5
Par value of shares granted for equity compensation plan (in dollars per share)					$ 0.01	$ 0.01	$ 0.01	$ 0.01
Incentive fee for services rendered by RMR			$ 833

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Real Estate Properties (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended		3 Months Ended	6 Months Ended		6 Months Ended		1 Months Ended		6 Months Ended				7 Months Ended
	Jun. 30, 2012 lease sqft state property	Jun. 30, 2012 sqft lease state property	Jun. 30, 2012 Office property	Jun. 30, 2012 Acquisition Office state	Jun. 30, 2012 Acquisition Office sqft state	Jun. 30, 2012 Everett, WA property	Jun. 30, 2012 Everett, WA Acquisition Office sqft	Jun. 30, 2012 Everett, WA Acquisition Office State of Washington and occupied by Department of Social and Health Services	Jul. 31, 2012 Stockton, CA Acquisition Office sqft	Jul. 31, 2012 Stockton, CA Acquisition Office U.S. Government and occupied by Department of Immigration and Customs Enforcement	Jun. 30, 2012 Albany, NY Acquisition Office sqft	Jun. 30, 2012 Albany, NY Acquisition Office State of New York and occupied by Department of Agriculture	Jul. 31, 2012 Atlanta, GA Acquisition Office U.S. Government and occupied by National Archives and Records Administration	Jun. 30, 2012 Atlanta, GA Agreement to acquire Office property	Jul. 31, 2012 Atlanta, GA, Jackson, MS and Ellenwood, GA properties Agreement to acquire Office
Real estate properties
Number of properties owned	74	74
Aggregate investment in properties	$ 1,526,652	$ 1,526,652
Number of leases executed	14	21
Weighted average lease term	4 years 8 months 12 days	4 years 8 months 12 days
Expenditures committed on leases	2,651	2,948
Committed but unspent tenant related obligations	7,299	7,299
Number of properties acquired or agreed to be acquired			3			2								2
Number of states in which acquired properties located	29	29		2	2
Square Feet	205,503	243,625			175,908		111,908		22,012		64,000				552,571
Purchase Price				28,950	28,950		20,425		8,251		8,525				88,000
Land				4,150	4,150		3,360				790
Buildings and Improvements				21,776	21,776		15,376				6,400
Acquired Leases				4,027	4,027		2,449				1,578
Acquired Lease Obligations				$ (1,003)	$ (1,003)		$ (760)				$ (243)
Percentage of property leased								100.00%		100.00%		100.00%	100.00%

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Real Estate Properties (Tables)

6 Months Ended

Jun. 30, 2012

Real Estate Properties

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

								Buildings				Acquired
Acquisition		Number of	Square	Purchase				and		Acquired		Lease
Date	Location	Properties	Feet	Price(1)		Land		Improvements		Leases		Obligations
June 2012	Albany, NY	1	64,000	$	8,525	$	790	$	6,400	$	1,578	$	(243	)
June 2012	Everett, WA	2	111,908	20,425		3,360		15,376		2,449		(760		)
		3	175,908	$	28,950	$	4,150	$	21,776	$	4,027	$	(1,003	)

(1)            Purchase price excludes acquisition related costs.

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Shareholders' Equity

6 Months Ended

Jun. 30, 2012

Shareholders' Equity

Shareholders' Equity

Note 7. Shareholders’ Equity

Distributions

On February 24, 2012, we paid a distribution to common shareholders in the amount of $0.42 per share, or $19,762, that was declared on January 9, 2012 and was payable to shareholders of record on January 26, 2012.

On May 24, 2012, we paid a distribution to common shareholders in the amount of $0.42 per share, or $19,778, that was declared on April 9, 2012 and was payable to shareholders of record on April 26, 2012.

On July 9, 2012, we declared a distribution payable to common shareholders of record on July 23, 2012, in the amount of $0.42 per share, or $19,782.  We expect to pay this distribution on or about August 22, 2012.

Share Issuances

As further described in Note 8, under the terms of our business management agreement with Reit Management & Research LLC, or RMR, on March 29, 2012 we issued 39,141 of our common shares of beneficial interest, $.01 par value per share, or our common shares, to RMR in payment of an incentive fee of approximately $833 for services rendered to us by RMR during 2011.

On May 16, 2012, pursuant to our equity compensation plan, we granted 2,000 of our common shares, valued at $22.43 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.

We have no dilutive securities.

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Related Person Transactions

6 Months Ended

Jun. 30, 2012

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 and (2) a property management agreement.  Under our business management agreement with RMR, we acknowledge that RMR also provides management services to other companies, which include CommonWealth REIT, or 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.

Pursuant to our business management agreement with RMR, we incurred expenses of $2,028 and $1,805 for the three months ended June 30, 2012 and 2011, respectively, and $4,258 and $3,479 for the six months ended June 30, 2012 and 2011, respectively. These amounts are included in general and administrative expenses in our condensed consolidated financial statements.  In March 2012, we issued 39,141 of our common shares to RMR in satisfaction of the incentive fee RMR earned for services provided to us during 2011, in accordance with the terms of our business management agreement.  In connection with our property management agreement with RMR, we incurred property management and construction supervision fees of $1,610 and $1,509 for the three months ended June 30, 2012 and 2011, respectively, and $3,205 and $2,833 for the six months ended June 30, 2012 and 2011, respectively.  These amounts are included in other operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

CWH organized us as a 100% owned subsidiary.  In 2009, we completed our initial public offering, or the GOV IPO, pursuant to which we ceased to be a majority owned subsidiary of CWH.  In connection with the GOV IPO, we and CWH entered into a transaction agreement which governs our separation from and relationship with CWH.  Pursuant to this transaction agreement, among other things, CWH granted us a right of first refusal to acquire any property owned by CWH that CWH determines to divest, if the property is then majority leased to a government tenant, including 15 properties that we bought from CWH during 2010.

CWH is our largest shareholder and, as of the date of this report, CWH owned 9,950,000 of our common shares, or approximately 21.1% 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.  RMR provides management services to both us and CWH.

We, RMR, CWH and five other companies to which RMR provides management services each currently own 12.5% of Affiliates Insurance Company, or AIC, an Indiana insurance company.  One of those five other companies became a shareholder of AIC during the quarter ended June 30, 2012.  All of our Trustees and nearly all of the trustees and directors of the other AIC shareholders 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 $5,526 and $5,409 as of June 30, 2012 and December 31, 2011, respectively.  We recognized income of $76 and $46 for the three months ended June 30, 2012 and 2011, respectively, and $121 and $83 for the six months ended June 30, 2012 and 2011, respectively, 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 modified and extended in June 2012 for a one year term and we paid a premium, including taxes and fees, of $410 in connection with that renewal, which amount may be adjusted from time to time in response to our acquisition and disposition of properties that are included in that program.  We are also currently investigating the possibilities to expand our insurance relationships with AIC to include other types of insurance.  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.

For further information about these and other such relationships and related person transactions, please see elsewhere in this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” in Part I, Item 2 and “Warning Concerning Forward Looking Statements,” and our Annual Report, our Proxy Statement for our 2012 Annual Meeting of Shareholders dated February 23, 2012, or our Proxy Statement, and our other filings with the Securities and Exchange Commission, or SEC, including Note 5 to our Consolidated Financial Statements included in our Annual Report, the sections captioned “Business” and “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 from these 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.  In addition, copies of certain of our agreements with these parties, including our business management agreement and property management agreement with RMR, various agreements we have with CWH and our shareholders agreement with AIC and its shareholders, are also publicly available as exhibits to our public filings with the SEC and accessible at the SEC’s website.

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Indebtedness (Tables)

6 Months Ended

Jun. 30, 2012

Indebtedness

Composition of outstanding indebtness

	June 30,		December 31,
	2012		2011
Unsecured revolving credit facility, due in 2015	$	27,000	$	345,500
Unsecured term loan, due in 2017	350,000		—
Mortgage note payable, 5.73% interest rate, including unamortized premium of $724, due in 2015(1)	49,701		50,118
Mortgage note payable, 6.21% interest rate, due in 2016(1)	24,579		24,713
Mortgage note payable, 7.00% interest rate, including unamortized premium of $942, due in 2019(1)	10,406		10,559
Mortgage note payable, 8.15% interest rate, including unamortized premium of $716, due in 2021(1)	9,585		9,993
	$	471,271	$	440,883

(1)We assumed these mortgages in connection with our acquisition 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, if any, to interest expense over the respective terms of the mortgages to reduce interest expense to the estimated market interest rates as of the date of acquisition.

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Indebtedness (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended		3 Months Ended	6 Months Ended										1 Months Ended	3 Months Ended	6 Months Ended
	Jun. 30, 2012 loan property	Dec. 31, 2011	Jun. 30, 2012 Unsecured revolving credit facility due in 2015	Jun. 30, 2012 Unsecured revolving credit facility due in 2015	Dec. 31, 2011 Unsecured revolving credit facility due in 2015	Jun. 30, 2012 5.73% Mortgage notes due in 2015	Dec. 31, 2011 5.73% Mortgage notes due in 2015	Jun. 30, 2012 6.21% Mortgage notes due in 2016	Dec. 31, 2011 6.21% Mortgage notes due in 2016	Jun. 30, 2012 7% Mortgage notes due in 2019	Dec. 31, 2011 7% Mortgage notes due in 2019	Jun. 30, 2012 8.15% Mortgage notes due in 2021	Dec. 31, 2011 8.15% Mortgage notes due in 2021	Jan. 31, 2012 Unsecured term loan	Jun. 30, 2012 Unsecured term loan	Jun. 30, 2012 Unsecured term loan
Indebtedness
Unsecured revolving credit facility	$ 27,000	$ 345,500	$ 27,000	$ 27,000	$ 345,500
Term loan														350,000		350,000
Mortgage notes payable	94,271	95,383				49,701	50,118	24,579	24,713	10,406	10,559	9,585	9,993
Total	471,271	440,883
Interest rate (as a percent)						5.73%	5.73%	6.21%	6.21%	7.00%	7.00%	8.15%	8.15%
Unamortized fair value premium included in mortgage notes						724	724			942	942	716	716
Maximum borrowing capacity on revolving credit facility			550,000	550,000
Revolving credit facility, interest rate basis				LIBOR
Maximum borrowing capacity on facilities may be increased under certain conditions			1,100,000	1,100,000											700,000	700,000
Term loan, interest rate basis																LIBOR
The weighted average annual interest rate (as a percent)			1.75%	1.80%											2.00%	2.01%
Term of loan																5 years
Number of assumed secured mortgage loans	4
Aggregate net book value of secured properties	123,105
Properties	5
Mortgage notes, aggregate principal amount	$ 91,889

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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, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Amortization of debt premiums and deferred financing fees	$ 335	$ 262	$ 659	$ 521

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Concentration

6 Months Ended

Jun. 30, 2012

Concentration

Concentration

Note 4.  Concentration

Tenant and Credit Concentration

We define annualized rental income as the annualized contractual base rents from our tenants pursuant to our lease agreements with them as of the measurement date, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization. The U.S. Government, 10 state governments and the United Nations, an international intergovernmental organization, combined were responsible for approximately 92.7% and 93.6% of our annualized rental income as of June 30, 2012 and 2011, respectively. The U.S. Government is our largest tenant by annualized rental income and was responsible for approximately 67.7% and 74.2% of our annualized rental income as of June 30, 2012 and 2011, respectively.

Geographic Concentration

At June 30, 2012, our 74 properties were located in 29 states and the District of Columbia.  Properties located in Maryland, California, the District of Columbia, New York, Georgia, Massachusetts, Colorado and Indiana were responsible for approximately 12.8%, 12.7%, 10.1%, 9.9%, 7.4%, 6.8%, 5.5% and 5.2% of our annualized rental income as of June 30, 2012, respectively.

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Concentration (Details)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Concentration
Number of properties owned	74
Number of states in which acquired properties located	29
Concentration
Number of state governments	10
Annualized rental income | California
Concentration
Annualized Rental income percent	0.127
Annualized rental income | Maryland
Concentration
Annualized Rental income percent	0.128
Annualized rental income | District of Columbia
Concentration
Annualized Rental income percent	0.101
Annualized rental income | New York
Concentration
Annualized Rental income percent	0.099
Annualized rental income | Georgia
Concentration
Annualized Rental income percent	0.074
Annualized rental income | Massachusetts
Concentration
Annualized Rental income percent	0.068
Annualized rental income | Colorado
Concentration
Annualized Rental income percent	0.055
Annualized rental income | Indiana
Concentration
Annualized Rental income percent	0.052
Annualized rental income | Tenant concentration | U.S. Government, state governments and the United Nations
Concentration
Concentration risk, percentage	92.70%	93.60%
Annualized rental income | Tenant concentration | U.S. Government
Concentration
Concentration risk, percentage	67.70%	74.20%