10-Q

Xa

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2016

OR

☐TRANSITION 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 ☒  No ☐

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 ☒  No ☐

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 ☒	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
(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 ☐  No ☒

Number of registrant’s common shares of beneficial interest, $.01 par value per share, outstanding as of April 26, 2016: 71,126,308

GOVERNMENT PROPERTIES INCOME TRUST

FORM 10-Q

March 31, 2016

INDEX

PART I	Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets — March 31, 2016 and December 31, 2015	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) — Three Months Ended March 31, 2016 and 2015	3
	Condensed Consolidated Statements of Cash Flows —Three Months Ended March 31, 2016 and 2015	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30
	Warning Concerning Forward Looking Statements	31
	Statement Concerning Limited Liability	34
PART II	Other Information
Item 1A.	Risk Factors	35
Item 6.	Exhibits	36
	Signatures	37

References in this Quarterly Report on Form 10-Q to “the Company”, “GOV”, ”we”, “us” or “our” include Government Properties Income Trust and its consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.

1

PART I.       Financial Information

Item 1.  Financial Statements

GOVERNMENT PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

(unaudited)

	March 31,		December 31,
	2016		2015
ASSETS
Real estate properties:
Land	$	257,716	$	253,058
Buildings and improvements		1,509,921		1,443,074
Total real estate properties, gross		1,767,637		1,696,132
Accumulated depreciation		(265,843)		(255,879)
Total real estate properties, net		1,501,794		1,440,253
Equity investment in Select Income REIT		493,259		491,369
Assets of discontinued operations		12,502		12,468
Assets of property held for sale		3,098		3,098
Acquired real estate leases, net		123,300		118,267
Cash and cash equivalents		15,698		8,785
Restricted cash		713		1,022
Rents receivable, net		46,617		45,269
Deferred leasing costs, net		17,909		14,299
Other assets, net		44,505		33,680
Total assets	$	2,259,395	$	2,168,510
LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured revolving credit facility	$	311,000	$	117,000
Unsecured term loans, net		546,660		546,490
Senior unsecured notes, net		346,095		345,809
Mortgage notes payable, net		29,053		136,299
Liabilities of discontinued operations		75		54
Liabilities of property held for sale		32		43
Accounts payable and other liabilities		48,979		50,543
Due to related persons		4,380		2,886
Assumed real estate lease obligations, net		12,224		12,735
Total liabilities		1,298,498		1,211,859
Commitments and contingencies
Shareholders’ equity:
Common shares of beneficial interest, $.01 par value: 100,000,000 shares
authorized, 71,126,308 shares issued and outstanding		711		711
Additional paid in capital		1,472,510		1,472,482
Cumulative net income		55,873		38,486
Cumulative other comprehensive income (loss)		2,548		(14,867)
Cumulative common distributions		(570,745)		(540,161)
Total shareholders’ equity		960,897		956,651
Total liabilities and shareholders’ equity	$	2,259,395	$	2,168,510

See accompanying notes.

2

GOVERNMENT PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(amounts in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	2016		2015
Rental income	$	63,611	$	62,659
Expenses:
Real estate taxes		7,653		7,410
Utility expenses		4,174		4,571
Other operating expenses		12,911		12,210
Depreciation and amortization		18,324		17,215
Acquisition related costs		152		6
General and administrative		3,526		4,004
Total expenses		46,740		45,416
Operating income		16,871		17,243
Interest income		6		12
Interest expense (including net amortization of debt premium and discounts
and debt issuance costs of $471 and $332, respectively)		(9,364)		(9,302)
Gain on early extinguishment of debt		104		—
Loss on issuance of shares by Select Income REIT		—		(40,771)
Income (loss) from continuing operations before income taxes
and equity in earnings (losses) of investees		7,617		(32,818)
Income tax expense		(15)		(30)
Equity in earnings (losses) of investees		9,934		(316)
Income (loss) from continuing operations		17,536		(33,164)
Loss from discontinued operations		(149)		(206)
Net income (loss)		17,387		(33,370)
Other comprehensive income
Unrealized gain on investment in available for sale securities		12,871		—
Equity in unrealized gain of investees		4,544		58
Other comprehensive income		17,415		58
Comprehensive income (loss)	$	34,802	$	(33,312)
Weighted average common shares outstanding (basic and diluted)		71,031		70,266
Per common share amounts (basic and diluted):
Income (loss) from continuing operations	$	0.25	$	(0.47)
Income (loss) from discontinued operations	$	—	$	—
Net income (loss)	$	0.24	$	(0.47)

See accompanying notes.

3

GOVERNMENT PROPERTIES INCOME TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

	Three Months Ended March 31,
	2016		2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	17,387	$	(33,370)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation		10,237		9,626
Net amortization of debt premiums and discounts and debt issuance costs		471		332
Gain on early extinguishment of debt		(104)		—
Straight line rental income		(149)		(663)
Amortization of acquired real estate leases		7,712		7,340
Amortization of deferred leasing costs		709		556
Other non-cash (income) expense, net		(105)		507
Equity in (earnings) losses of investees		(9,934)		316
Loss on issuance of shares by Select Income REIT		—		40,771
Distributions of earnings from Select Income REIT		9,117		2,176
Change in assets and liabilities:
Restricted cash		309		(762)
Deferred leasing costs		(1,989)		(412)
Rents receivable		(1,215)		1,587
Other assets		1,849		2,699
Accounts payable and accrued expenses		(4,577)		(2,656)
Due to related persons		1,494		201
Net cash provided by operating activities		31,212		28,248
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions and deposits		(79,244)		—
Real estate improvements		(4,964)		(2,678)
Investment in Select Income REIT		—		(95,821)
Distributions in excess of earnings from Select Income REIT		3,342		11,354
Proceeds from sale of properties, net		—		30,521
Net cash used in investing activities		(80,866)		(56,624)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgage notes payable		(106,849)		(610)
Borrowings on unsecured revolving credit facility		204,000		75,000
Repayments on unsecured revolving credit facility		(10,000)		(20,000)
Debt issuance costs		—		(16)
Distributions to common shareholders		(30,584)		(30,252)
Net cash provided by financing activities		56,567		24,122
Increase (decrease) in cash and cash equivalents		6,913		(4,254)
Cash and cash equivalents at beginning of period		8,785		13,791
Cash and cash equivalents at end of period	$	15,698	$	9,537

Supplemental cash flow information:
Interest paid	$	12,319	$	12,078
Income taxes paid	$	44	$	131

See accompanying notes.

4

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 we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted.  We believe the disclosures made are adequate to make the information presented not misleading.  However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2015, 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 intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated.  Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. Reclassifications have been made to the prior years’ condensed consolidated financial statements to conform to the current year’s presentation.

The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates.  Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets, impairment of real estate and equity method investments and the valuation of intangible assets.

Note 2. Recent Accounting Pronouncements

On January 1, 2016, we adopted the Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU, No. 2015-02, Consolidation. Among other things, this update changes how an entity determines the primary beneficiary of a variable interest entity. The implementation of this update did not have an impact in our condensed consolidated financial statements.

On January 1, 2016, we adopted FASB ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability, and ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements – Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting, which addresses the presentation of debt issuance costs related to line of credit arrangements. The implementation of these updates resulted in the reclassification of certain of our capitalized debt issuance costs as an offset to the associated debt liability in our condensed consolidated balance sheets. The classification of capitalized debt issuance costs related to our unsecured revolving credit facility remains unchanged in accordance with ASU No. 2015-15. As of December 31, 2015, debt issuance costs related to our unsecured term loans, senior unsecured notes and mortgage notes payable of $3,510, $2,172 and $344, respectively, were reclassified from assets to the associated debt liability in our condensed consolidated balance sheets.

On January 1, 2016, we adopted FASB ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The implementation of this update did not have an impact in our condensed consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which changes how entities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. This update is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted subject to certain conditions. Currently, changes in fair value of these investments are recorded through other comprehensive income. Under this ASU, these changes will be recorded through earnings. We are continuing to evaluate this guidance, but we expect the implementation of this guidance will affect available for sale equity investments we hold.

5

GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

In February 2016, the FASB issued ASU No. 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU No. 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the potential impact the adoption of ASU No. 2016-02 will have in our condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, which identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. ASU No. 2016-09 is effective for reporting periods beginning after December 15, 2016.  We are currently assessing the potential impact that the adoption of ASU No. 2016-09 will have in our condensed consolidated financial statements.   

Note 3. Per Common Share Amounts

The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands):

	For the Three Months
	Ended March 31,
	2016		2015
Weighted average common shares for basic earnings per share		71,031		70,266
Effect of dilutive securities: unvested share awards		-		-
Weighted average common shares for diluted earnings per share		71,031		70,266

Note 4.   Real Estate Properties

As of March 31, 2016, we owned 72 properties (92 buildings), with an undepreciated carrying value of $1,770,983,  excluding one property (one building) classified as discontinued operations with an undepreciated carrying value of $12,260. We generally lease space at our properties on a gross lease or modified gross lease basis pursuant to fixed term operating leases expiring between 2016 and 2032.  Our leases generally require us to pay all or some property operating expenses and to provide all or most property management services.  During the three months ended March 31, 2016, we entered into 20 leases for 522,962 rentable square feet, including a 25,579 square foot expansion to be constructed at an existing property, for a weighted (by rentable square feet) average lease term of 11.6 years and we made commitments for approximately $20,469 of leasing related costs. We have estimated unspent leasing related obligations of $22,752 as of March 31, 2016. In addition, prior to the commencement of the lease, we have committed to redevelop and expand the existing property referenced above at an estimated cost of approximately $12,800.

Acquisition Activities

During the three months ended March 31, 2016, we acquired one office property (one building) located in Sacramento, CA with 337,811 rentable square feet.  This property was 86% leased, of which 71% was leased to the State of California and occupied by three separate agencies on the date of acquisition.  The purchase price was $79,244, excluding acquisition costs.  Our allocation of the purchase price of this acquisition based on the estimated fair values of

6

GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

the acquired assets and assumed liabilities is presented in the table below. The allocation of the purchase price is based on preliminary estimates and may change upon completion of third party appraisals.

Number

of

Buildings

Acquired

Other

Acquisition

Properties/

Square

Purchase

and

Acquired

Lease

Assumed

Date

Location

Type

Buildings

Feet

Price

Land

Improvements

Leases

Obligations

Liabilities

January 2016

Sacramento, CA

Office

1 / 1

337,811

$

79,244

$

4,658

$

61,330

$

13,525

$

(269)

$

—

In April 2016, we exercised our option to purchase for $1,623 an adjacent land parcel at one of our existing properties in Atlanta, GA. We expect this transaction to close during the third quarter of 2016.

We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of long lived assets. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. We determine the amount of any impairment loss by comparing the historical carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. In addition to consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining lives of our long lived assets. If we change our estimate of the remaining lives, we allocate the carrying value of the affected assets over their revised remaining lives.

Disposition Activities – Continuing Operations

In 2015, we began marketing for sale an office property (one building) in Savannah, GA with 35,228 rentable square feet and a net book value of $3,071 at March 31, 2016.  In March 2016, we entered into an agreement to sell this property.  The contract sales price is $4,500, which amount is before transaction costs we may incur.  This sale is subject to conditions and is currently expected to occur in the third quarter of 2016.  We can provide no assurance that the sale of this property will occur, that the sale will not be delayed or that its terms will not change. We have classified this property as held for sale as of March 31, 2016.  The results of operations for this property are included in continuing operations in our condensed consolidated financial statements.  Summarized balance sheet information for the property is as follows:

	March 31,		December 31,
	2016		2015
Real estate properties, net	$	3,071	$	3,071
Rents receivable		-		1
Other assets		27		26
Assets of property held for sale	$	3,098	$	3,098
Other liabilities	$	32	$	43
Liabilities of property held for sale	$	32	$	43

Disposition Activities – Discontinued Operations

In March 2016, we entered into an agreement to sell an office property (one building) in Falls Church, VA with 164,746 rentable square feet and a net book value of $12,282 at March 31, 2016.  The contract sales price is $14,750, which amount is before transaction costs we may incur.  This sale is subject to conditions, including the purchaser obtaining certain zoning entitlements, and is currently expected to occur in the first quarter of 2017.  We can provide no assurance that the sale of this property will occur, that the sale will not be delayed or that its terms will not change. We have classified this property, which was held for sale prior to our adoption of ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, as a discontinued operation in our condensed consolidated financial statements. Summarized balance sheet and income statement information for the property is as follows:

7

GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Balance Sheets:

	March 31,		December 31,
	2016		2015
Real estate properties, net	$	12,260	$	12,260
Rents receivable		17		-
Other assets		225		208
Assets of discontinued operations	$	12,502	$	12,468
Other liabilities	$	75	$	54
Liabilities of discontinued operations	$	75	$	54

Statements of Operations

	Three Months ended March 31,
	2016		2015
Rental income	$	28	$	31
Real estate taxes		(23)		(70)
Utility expenses		(50)		(67)
Other operating expenses		(76)		(71)
General and administrative		(28)		(29)
Loss from discontinued operations	$	(149)	$	(206)

Note 5.   Revenue Recognition

We recognize rental income from operating leases that contain fixed contractual rent changes on a straight line basis over the term of the lease agreements.  Certain of our leases with government tenants provide the tenant the right to terminate before the lease expiration date if its respective legislature or other funding authority does not appropriate the funding necessary for the government tenant to meet its lease obligations; we have determined the fixed non-cancelable lease term of these leases to be the fully executed term of the lease because we believe the occurrence of early terminations to be remote contingencies based on both our historical experience and our assessment of the likelihood of lease cancellation on a separate lease basis.

We increased rental income to record revenue on a straight line basis by $149 and $663 for the three months ended March 31, 2016 and 2015, respectively.  Rents receivable include $19,144 and $18,995 of straight line rent receivables at March 31, 2016 and December 31, 2015, respectively.

Note 6.   Concentration

Tenant and Credit Concentration

We define annualized rental income as the annualized contractual base rents from our tenants pursuant to our lease agreements as of the measurement date, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization. The U.S. Government, 12 state governments, and three other government tenants combined were responsible for approximately 92.8% and 92.7% of our annualized rental income, excluding one property (one building) classified as discontinued operations, as of March 31, 2016 and 2015, respectively. The U.S. Government is our largest tenant by annualized rental income and was responsible for approximately 64.6% and 67.7% of our annualized rental income, excluding one property classified as discontinued operations, as of March 31, 2016 and 2015, respectively.

8

GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Geographic Concentration

At March 31, 2016, our 72 properties (92 buildings), excluding one property (one building) classified as discontinued operations, were located in 31 states and the District of Columbia.  Properties located in California, Virginia, the District of Columbia, Georgia, Maryland, New York and Massachusetts were responsible for approximately 14.6%, 10.0%, 9.9%, 8.8%, 8.2%, 8.0% and 5.3% of our annualized rental income as of March 31, 2016, respectively.

Note 7.   Indebtedness

Our principal debt obligations at March 31, 2016 were: (1) outstanding borrowings under our $750,000 unsecured revolving credit facility; (2) $550,000 aggregate outstanding principal amount of term loans (3) $350,000 of senior unsecured notes; and (4) $28,592 aggregate principal amount of mortgage notes. 

Our $750,000 unsecured revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our unsecured revolving credit facility is January 31, 2019 and, subject to the payment of an extension fee and meeting other conditions, we have an option to extend the stated maturity date of our unsecured revolving credit facility by one year to January 31, 2020.  We can borrow, repay and reborrow funds available under our unsecured revolving credit facility until maturity and no principal repayment is due until maturity. We are required to pay interest at a rate of LIBOR plus a premium, which was 125 basis points per annum at March 31, 2016, on borrowings under our unsecured revolving credit facility.  We also pay a facility fee on the total amount of lending commitments under our unsecured revolving credit facility, which was 25 basis points per annum at March 31, 2016.  Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings.  As of March 31, 2016, the annual interest rate payable on borrowings under our unsecured revolving credit facility was 1.6% and the weighted average annual interest rate for borrowings under our unsecured revolving credit facility was 1.6% and 2.0%, respectively, for the three months ended March 31, 2016 and 2015.  As of March 31, 2016 and April 26, 2016, we had $311,000 and $303,000 outstanding under our unsecured revolving credit facility, respectively.

Our $300,000 unsecured term loan, which matures on March 31, 2020, is prepayable without penalty at any time. We are required to pay interest at a rate of LIBOR plus a premium, which was 140 basis points per annum at March 31, 2016, on the amount outstanding under our $300,000 unsecured term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings.  As of March 31, 2016, the annual interest rate for the amount outstanding under our $300,000 unsecured term loan was 1.8%. The weighted average annual interest rate under our $300,000 unsecured term loan was 1.8% and 1.6%, respectively, for the three months ended March 31, 2016 and 2015.

Our $250,000 unsecured term loan, which matures on March 31, 2022, is prepayable at any time. If our $250,000 unsecured term loan is repaid on or prior to November 21, 2016, a prepayment premium of 1.0% of the amount repaid will be payable. Subsequent to November 21, 2016, no prepayment premium will be payable. We are required to pay interest at a rate of LIBOR plus a premium, which was 180 basis points per annum as of March 31, 2016, on the amount outstanding under our $250,000 unsecured term loan.  The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of March 31, 2016, the annual interest rate for the amount outstanding under our $250,000 unsecured term loan was 2.2%.  The weighted average annual interest rate under our $250,000 unsecured term loan was 2.2% and 2.0%, respectively, for the three months ended March 31, 2016 and 2015.

Our $750,000 unsecured revolving credit facility, our $300,000 unsecured term loan and our $250,000 unsecured term loan are governed by a credit agreement with a syndicate of institutional lenders that includes a number of features common to all of these credit arrangements. This credit agreement also includes a feature under which the maximum aggregate borrowing availability may be increased to up to $2,500,000 on a combined basis in certain circumstances.

Our $350,000 of 3.75% senior unsecured notes due 2019 are governed by an indenture and a supplement to the indenture, and require semi-annual payments of interest only through maturity.  The outstanding amount of these notes

9

GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

may be prepaid at par (plus accrued and unpaid interest) on or after July 15, 2019 or before that date together with a make whole premium.

Our credit agreement and senior unsecured notes indenture and its supplement provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business manager and property manager.  Our credit agreement and our senior unsecured notes indenture and itssupplement also contain a number of covenants, including covenants that restrict our ability to incur debts, require us to maintain certain financial ratios and, in the case of our credit agreement, restrict our ability to make distributions under certain circumstances.  We believe we were in compliance with the terms and conditions of the respective covenants under our credit agreement and senior unsecured notesindenture anditssupplement at March 31, 2016.

In February 2016, we repaid, at par, a $23,473 mortgage note requiring annual interest of 6.21% which was secured by one office property (one building) located in Landover, MD. This mortgage note was scheduled to mature in August 2016.  We recorded a loss on extinguishment of debt of $21 in the three months ended March 31, 2016, which represented unamortized debt issuance costs related to this note.

In March 2016, we repaid, at par, an $83,000 mortgage note requiring annual interest of 5.55% which was secured by one office property (two buildings) located in Reston, VA.  This mortgage note was scheduled to mature in April 2016.  We recorded a gain on extinguishment of debt of $125 in the three months ended March 31, 2016, which represented the net unamortized debt premium and debt issuance costs related to this note.

At March 31, 2016, three of our properties (three buildings) with an aggregate net book value of $54,684 secured three mortgage notes with an aggregate principal amount of $28,592. Our mortgage notes are non-recourse, subject to certain limited exceptions and do not contain any material financial covenants.

10

GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 8.   Fair Value of Assets and Liabilities

The table below presents certain of our assets measured at fair value at March 31, 2016, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset:

				Fair Value at Reporting Date Using
				Quoted Prices in				Significant
		Estimated		Active Markets for		Significant Other		Unobservable
		Fair		Identical Assets		Observable Inputs		Inputs
Description		Value		(Level 1)		(Level 2)		(Level 3)
Recurring Fair Value Measurements
	Assets:
	Investment in RMR Inc. (1)	$	30,368	$	30,368	$	—	$	—
Non-Recurring Fair Value Measurements
	Assets:
	Property held for sale and classified as discontinued operations (2)	$	12,260	$	—	$	—	$	12,260

⁽¹⁾ Our 1,214,225 shares of class A common stock of The RMR Group Inc., or RMR Inc., which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs).  Our historical cost basis for these shares is $26,888 as of March 31, 2016.  The net unrealized gain of $3,480 for these shares as of March 31, 2016 is included in cumulative other comprehensive income (loss) in our condensed consolidated balance sheets.

⁽²⁾ We estimated the fair value of this property at March 31, 2016 based upon broker estimates of value less estimated sale costs (Level 3 inputs as defined in the fair value hierarchy under GAAP).

In addition to the assets described in the table above, our financial instruments include cash and cash equivalents, restricted cash, rents receivable, mortgage notes payable, accounts payable, senior unsecured notes, an unsecured revolving credit facility, unsecured term loans, amounts due to related persons, other accrued expenses and security deposits.  At March 31, 2016 and December 31, 2015, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements due to their short term nature or variable interest rates, except as follows:

	As of March 31, 2016				As of December 31, 2015
	Carrying Amount (1)		Fair Value		Carrying Amount (1)		Fair Value
Senior unsecured notes, 3.75% interest rate, due in 2019	$	346,095	$	358,376	$	345,809	$	351,692
Mortgage note payable, 6.21% interest rate, due in 2016(2) (3)		—		—		23,476		24,038
Mortgage note payable, 5.55% interest rate, due in 2016(2) (4)		—		—		83,375		83,457
Mortgage note payable, 5.88% interest rate, due in 2021(2)		13,994		14,921		14,045		14,678
Mortgage note payable, 7.00% interest rate, due in 2019(2)		9,055		9,600		9,145		9,645
Mortgage note payable, 8.15% interest rate, due in 2021(2)		6,004		6,506		6,258		6,711
	$	375,148	$	389,403	$	482,108	$	490,221

⁽¹⁾ Carrying amount includes certain unamortized debt issuance costs and unamortized premiums and discounts.

⁽²⁾ We assumed these mortgages in connection with our acquisitions of the encumbered 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.

⁽³⁾ This mortgage note was repaid, at par, in February 2016.

⁽⁴⁾ This mortgage note was repaid, at par, in March 2016.

We estimate the fair value of our senior unsecured notes using an average of the bid and ask price of the notes as of the measurement date (Level 2 inputs as defined in the fair value hierarchy under GAAP). 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).  Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.

11

GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 9.   Shareholders’ Equity

Distributions

On February 25, 2016, we paid a regular quarterly distribution to common shareholders of record on January 22, 2016 of $0.43 per share, or $30,584.

On April 13, 2016, we declared a regular quarterly distribution payable to common shareholders of record on April 25, 2016, in the amount of $0.43 per share, or $30,584.We expect to pay this distribution on or about May 23, 2016 using cash on hand and borrowings under our unsecured revolving credit facility.

Cumulative Other Comprehensive Income (Loss)

Cumulative other comprehensive income (loss) represents the unrealized gain on the RMR Inc. shares we own and our share of the comprehensive income (loss) of Select Income REIT, or SIR, and Affiliates Insurance Company, or AIC. The following table presents changes in the amounts we recognized in cumulative other comprehensive income (loss) by component for the three months ended March 31, 2016:

		Unrealized Gain (Loss)		Equity in
		on Investment in		Unrealized Gain
		Available for		(Loss) of
		Sale Securities		Investees	Total
Balance at December 31, 2015	$	(9,391)	$	(5,476)	$	(14,867)
Other comprehensive income before reclassifications		12,871		4,545		17,416
Amounts reclassified from cumulative other comprehensive income (loss) to net income (1)		-		(1)		(1)
Net current period other comprehensive income		12,871		4,544		17,415
Balance at March 31, 2016	$	3,480	$	(932)	$	2,548

⁽¹⁾ Amounts reclassified from cumulative other comprehensive income (loss) are included in equity in earnings (losses) of investees in our condensed consolidated statements of comprehensive income (loss).

Note 10.   Related Person Transactions

We have relationships and historical and continuing transactions with RMR LLC and others related to it, including other companies to which RMR LLC provides management services and which have trustees, directors and officers who are also trustees or officers of us.  These relationships include our ownership of approximately 27.9% of the outstanding common shares of SIR, at March 31, 2016.  For further information about these and other such relationships and certain other related person transactions, please refer to our Annual Report.

RMR LLC:  Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $2,508 and $2,561 for the three months ended March 31, 2016 and 2015, respectively.  No incentive fees were estimated to be payable to RMR LLC for the three months ended March 31, 2016 and 2015, respectively.  The net business management fees we recognized for the 2016 and 2015 periods are included in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

In accordance with the terms of our business management agreement, we issued 11,157 of our common shares to RMR LLC for the three months ended March 31, 2015as payment for a part of the business management fee we recognized for that period.  Beginning June 2015, all management fees under our business management agreement are paid in cash.

12

GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of $2,109 and $2,016 for the three months ended March 31, 2016 and 2015, respectively.  These amounts are included in other operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

We are generally responsible for all of our operating expenses, including certain expenses incurred by RMR LLC on our behalf.  Our property level operating expenses are generally incorporated into rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC.  We reimbursed RMR LLC $2,944 and $2,510 for property management related expenses for the three months ended March 31, 2016 and 2015, respectively; these amounts are included in other operating expenses in our condensed consolidated statements of comprehensive income (loss).

We have historically awarded share grants to certain RMR LLC employees under our equity compensation plan.In addition, under our business management agreement we reimburse RMR LLC for our allocable costs for internal audit services.  The amounts recognized as expense for share grants to RMR LLC employees and internal audit costs were $234 and $314 for the three months ended March 31, 2016 and 2015, respectively; these amounts are included in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

We lease office space to RMR LLC in certain of our properties for its property management offices.  Pursuant to our lease agreements with RMR LLC, we recognized rental income from RMR LLC for leased office space of approximately $91 and $15 for the three months ended March 31, 2016 and 2015, respectively.

RMR Inc.:  In June 2015, we and three other real estate investment trusts, or REITs, to which RMR LLC provides management services, including SIR, or collectively, the Other REITs, participated in a transaction whereby we and the Other REITs each acquired shares of class A common stock of RMR Inc. and simultaneously amended our business and property management agreements with RMR LLC to, among other things, provide for continuing 20 year terms.  RMR Inc. is the managing member of RMR LLC and RMR LLC is a subsidiary of RMR Inc.  The controlling shareholder of RMR Inc., ABP Trust, is owned by our Managing Trustees.

In connection with our acquisition of shares of class A common stock of RMR Inc., we recorded a liability for the amount by which the estimated fair value of these shares exceeded the price we paid for these shares; this liability is included in accounts payable and other liabilities in our condensed consolidated balance sheets.  We are amortizing this liability ratably through December 31, 2035 as a reduction to our management fees expense.  For the three months ended March 31, 2016, we amortized $272 of this liability, which amount is reflected in the net business management and property management fee amounts for the period referenced above.  As of March 31, 2016, the unamortized amount of this liability was $21,482.

As of March 31, 2016, we own 1,214,225 shares of class A common stock of RMR Inc.  We receive dividends on these shares as declared and paid by RMR Inc. to all holders of shares of RMR Inc. class A common stock. We did not receive any dividends on these shares during the three months ended March 31, 2016. However, on April 13, 2016, RMR Inc. declared a dividend of $0.2993 on its shares of class A common stock payable to shareholders of record on April 25, 2016.  RMR Inc. has indicated that this dividend represents a regular quarterly dividend of $0.25 per share of class A common stock for the quarter ended March 31, 2016 plus a pro rata dividend of $0.0493 per share of class A common stock for the period from December 14, 2015 to December 31, 2015.  RMR Inc. has indicated that it expects to pay this dividend on or about May 19, 2016.

SIR:  We receive distributions on the common shares of SIR we own as declared and paid by SIR to all holders of its common shares. During the three months ended March 31, 2016 and 2015, we received distributions of $12,459 and $13,530, respectively, on our SIR common shares. In addition, on April 13, 2016, SIR declared a dividend of $0.50 per common share payable to shareholders of record on April 25, 2016. SIR has indicated that it expects to pay this dividend on or about May 19, 2016. For additional information about our ownership of SIR shares, see Note 11 below.

13

GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

AIC:  We and six other companies to which RMR LLC provides management services each own in equal amounts of AIC.  We and the other AIC shareholders participate in a combined property insurance program arranged and reinsured in part by AIC.

As of March 31, 2016, our investment in AIC had a carrying value of $7,075; this amount is included in other assets in our condensed consolidated balance sheets.  We recognized income of $77 and $72 related to our investment in AIC for the three months ended March 31, 2016 and 2015, respectively.  Our other comprehensive income (loss) includes our proportional share of unrealized gains on securities which are owned by AIC of $52 and $45 for the three months ended March 31, 2016 and 2015, respectively.

Note 11.   Equity Investment in Select Income REIT

As of March 31, 2016, we owned 24,918,421, or approximately 27.9%, of the then outstanding SIR common shares.  SIR is a REIT that is primarily focused on owning and investing in net leased, single tenant properties. 

We account for our investment in SIR under the equity method.  Under the equity method, we record our proportionate share of SIR’s net income as equity in earnings of an investee in our condensed consolidated statements of comprehensive income (loss).  For the three months ended March 31, 2016 and 2015, we recorded $9,857 and $2,176 of equity in the earnings of SIR, respectively. Our other comprehensive income (loss) includes unrealized gains attributable to our investment in SIR of $4,492 and $13 for the three months ended March 31, 2016 and 2015, respectively.

As of March 31, 2016, our investment in SIR had a carrying value of $493,259 and a market value, based on the closing price of SIR common shares on the New York Stock Exchange on March 31, 2016, of $574,370. We periodically evaluate our equity investment in SIR for possible indicators of other than temporary impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable.  These indicators may include the length of time the market value of our investment is below our cost basis, the financial condition of SIR, our intent and ability to be a long term holder of the investment and other considerations.  If the decline in fair value is judged to be other than temporary, we may record an impairment charge to adjust the basis of the investment to its fair value.

During the three months ended March 31, 2015, SIR issued 28,453,447 common shares, which included 28,439,111 common shares issued in connection with SIR’s acquisition of Cole Corporate Income Trust, Inc. on January 29, 2015.  We recognized a loss on issuance of shares by SIR of $40,771 during the three months ended March 31, 2015 as a result of the per share issuance price of these SIR common shares being below the then average per share carrying value of our SIR common shares.

The cost of our investments in SIR exceeded our proportionate share of SIR’s total shareholders’ equity book value on their dates of acquisition by an aggregate of $166,272. As required under GAAP, we were amortizing this difference to equity in earnings of investees over the average remaining useful lives of the real estate assets and intangible assets and liabilities owned by SIR as of the respective dates of our acquisitions.  This amortization decreased our equity in the earnings of SIR by $2,564 for the three months ended March 31, 2015.  We recorded a loss on impairment of our SIR investment during the three months ended June 30, 2015 resulting in the carrying value of our SIR investment to be less than our proportionate share of SIR’s total shareholders’ book equity as of June 30, 2015.  As a result, the previous basis difference was eliminated and we are currently amortizing a basis difference of ($95,035) to earnings over the estimated remaining useful lives of the real estate assets and intangible assets and liabilities owned by SIR as of June 30, 2015.  This amortization increased our equity in the earnings of SIR by $740 for the three months ended March 31, 2016.

During the three months ended March 31, 2016 and 2015, we received cash distributions from SIR totaling $12,459 and $13,530, respectively.

14

GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

The following summarized financial data of SIR as reported in SIR’s Quarterly Report on Form 10-Q for the three months ended March 31, 2016, or the SIR Quarterly Report. References in our financial statements to the SIR Quarterly Report are included as references to the source of the data only, and the information in the SIR Quarterly Report is not incorporated by reference into our financial statements.

Condensed Consolidated Balance Sheets:

	March 31,		December 31,
	2016		2015
Real estate properties, net	$	3,936,299	$	3,954,889
Acquired real estate leases, net		550,664		566,195
Cash and cash equivalents		31,294		17,876
Rents receivable, net		106,741		99,307
Other assets, net		67,812		46,078
Total assets	$	4,692,810	$	4,684,345
Unsecured revolving credit facility	$	328,000	$	303,000
Unsecured term loan, net		348,000		347,876
Senior unsecured notes, net		1,427,169		1,426,025
Mortgage notes payable, net		286,516		286,706
Assumed real estate lease obligations, net		84,255		86,495
Other liabilities		117,793		137,283
Shareholders' equity		2,101,077		2,096,960
Total liabilities and shareholders' equity	$	4,692,810	$	4,684,345

Condensed Consolidated Statements of Income:

	Three Months Ended March 31,
	2016		2015
Rental income	$	97,860	$	80,478
Tenant reimbursements and other income		19,372		13,937
Total revenues		117,232		94,415
Real estate taxes		10,288		8,357
Other operating expenses		12,958		9,007
Depreciation and amortization		33,469		24,719
Acquisition related costs		58		20,539
General and administrative		6,976		6,792
Total expenses		63,749		69,414
Operating income		53,483		25,001
Interest expense		(20,609)		(14,179)
Loss on early extinguishment of debt		—		(6,845)
Income before income tax expense and equity in earnings of an investee		32,874		3,977
Income tax expense		(139)		(31)
Equity in earnings of an investee		77		72
Net income		32,812		4,018
Net income allocated to noncontrolling interest		(33)		(41)
Net income attributed to SIR	$	32,779	$	3,977
Weighted average common shares outstanding (basic)		89,286		79,489
Weighted average common shares outstanding (diluted)		89,295		79,498
Net income attributed to SIR per common share (basic and diluted)	$	0.37	$	0.05

15

GOVERNMENT PROPERTIES INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

Note 12.   Segment Information

We operate in two separate reportable business segments: ownership of properties that are primarily leased to government tenants and our equity method investment in SIR.

	Three Months Ended March 31, 2016
	Investment		Investment
	in Real Estate		in SIR		Corporate		Consolidated
Rental income	$	63,611	$	—	$	—	$	63,611
Expenses:
Real estate taxes		7,653		—		—		7,653
Utility expenses		4,174		—		—		4,174
Other operating expenses		12,911		—		—		12,911
Depreciation and amortization		18,324		—		—		18,324
Acquisition related costs		152		—		—		152
General and administrative		—		—		3,526		3,526
Total expenses		43,214		—		3,526		46,740
Operating income (loss)		20,397		—		(3,526)		16,871
Interest income		—		—		6		6
Interest expense		(8,269)		—		(1,095)		(9,364)
Gain on early extinguishment of debt		104		—		—		104
Income (loss) from continuing operations before income taxes and
equity in earnings of investees		12,232		—		(4,615)		7,617
Income tax expense		—		—		(15)		(15)
Equity in earnings of investees		—		9,857		77		9,934
Income (loss) from continuing operations		12,232		9,857		(4,553)		17,536
Loss from discontinued operations		(149)		—		—		(149)
Net income (loss)	$	12,083	$	9,857	$	(4,553)	$	17,387
	As of March 31, 2016
	Investment		Investment
	in Real Estate		in SIR		Corporate		Consolidated
Total Assets	$	1,708,910	$	493,259	$	57,226	$	2,259,395

	Three Months Ended March 31, 2015
	Investment		Investment
	in Real Estate		in SIR		Corporate		Consolidated
Rental income	$	62,659	$	—	$	—	$	62,659
Expenses:
Real estate taxes		7,410		—		—		7,410
Utility expenses		4,571		—		—		4,571
Other operating expenses		12,210		—		—		12,210
Depreciation and amortization		17,215		—		—		17,215
Acquisition related costs		6		—		—		6
General and administrative		—		—		4,004		4,004
Total expenses		41,412		—		4,004		45,416
Operating income (loss)		21,247		—		(4,004)		17,243
Interest income		—		—		12		12
Interest expense		(2,267)		—		(7,035)		(9,302)
Loss on issuance of shares by Select Income REIT		—		(40,771)				(40,771)
Income (loss) from continuing operations before income taxes and
equity in earnings (losses) of investees		18,980		(40,771)		(11,027)		(32,818)
Income tax expense		—		—		(30)		(30)
Equity in earnings (losses) of investees		—		(388)		72		(316)
Income (loss) from continuing operations		18,980		(41,159)		(10,985)		(33,164)
Loss from discontinued operations		(206)		—		—		(206)
Net income (loss)	$	18,774	$	(41,159)	$	(10,985)	$	(33,370)
	As of December 31, 2015
	Investment		Investment
	in Real Estate		in SIR		Corporate		Consolidated
Total Assets	$	1,639,462	$	491,369	$	37,679	$	2,168,510

16

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

The following information should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2015, or our Annual Report.

OVERVIEW

We are a real estate investment trust, or REIT, organized under Maryland law. As of March 31, 2016, we owned 72 properties (92 buildings), excluding one property (one building) classified as discontinued operations.  Our properties are located in 31 states and the District of Columbia and contain approximately 11.0 million rentable square feet, of which 61.7% was leased to the U.S. Government, 22.2% was leased to 12 state governments, 2.7% was leased to three other government tenants, 8.3% was leased to various non-governmental organizations and 5.1% was available for lease as of March 31, 2016. The U.S. Government, 12 state governments and three other government tenants combined were responsible for 92.8% and 92.7% of our annualized rental income, as defined below, as of March 31, 2016 and 2015, respectively.

As of March 31, 2016, we also owned 24,918,421 common shares, or approximately 27.9% of the then outstanding common shares, of Select Income REIT, or SIR. SIR is a REIT that is primarily focused on owning and investing in net leased, single tenant properties.  See Notes 10 and 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding our investment in SIR. We account for our investment in SIR under the equity method.

Property Operations

As of March 31, 2016, excluding one property (one building) classified as discontinued operations, 94.9% of our rentable square feet was leased, compared to 94.8% of our rentable square feet as of March 31, 2015.  Occupancy data for our properties as of March 31, 2016 and 2015 is as follows (square feet in thousands):

			Comparable
	All Properties(1)		Properties(2)
	March 31,		March 31,
	2016	2015	2016	2015
Total properties	72	71	71	71
Total buildings	92	91	91	91
Total square feet(3)	10,985	10,699	10,648	10,699
Percent leased(3)(4)	94.9%	94.8%	95.1%	94.8%

(1) Based on properties we owned on March 31, 2016 and 2015, respectively,  and excludes one property (one building) classified as discontinued operations.

(2) Based on properties we owned on March 31, 2016 and which we owned continuously since January 1, 2015, and excludes one property (one building) classified as discontinued operations.  Our comparable properties increased from 67 properties (86 buildings) at March 31, 2015 as a result of our acquisition of four properties (five buildings) during the year ended December 31, 2014.

(3) Subject to changes when space is re-measured or re-configured for tenants.

(4) 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 annualized effective rental rate per square foot for our properties for the three months ended March 31, 2016 and 2015 are as follows:

	Three Months Ended March 31,
	2016		2015
Average annualized effective rental rate per square foot(1):
All properties(2)	$	25.04	$	24.43
Comparable properties(3)	$	24.87	$	24.24

(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 leased during the period specified. Excludes one property (one building) classified as discontinued operations.

(2) Based on properties we owned on March 31, 2016 and excludes one property (one building) classified as discontinued operations.

(3) Based on properties we owned on March 31, 2016 and which we owned continuously since January 1, 2015, and excludes one property (one building) classified as discontinued operations.

17

During the three months ended March 31, 2016, changes in rentable square feet leased and available for lease at our properties, excluding one property (one building) classified as discontinued operations, were as follows:

	Three Months Ended March 31, 2016
		Available
	Leased	for Lease	Total
Beginning of period	10,115,001	585,963	10,700,964
Changes resulting from:
Acquisition of properties	290,879	46,932	337,811
Lease expirations	(477,134)	477,134	—
Lease renewals(1)	388,726	(388,726)	—
New leases(1)(2)	108,657	(108,657)	—
Re-measurements(3)	—	(53,408)	(53,408)
End of period	10,426,129	559,238	10,985,367

(1) Based on leases entered into during the three months ended March 31, 2016.

(2) Square footage excludes a 25,579 square foot expansion to be constructed at an existing property prior to the commencement of the lease.

(3) Subject to changes when space is re-measured or re-configured for tenants.

Leases at our properties totaling 477,134 rentable square feet expired during the three months ended March 31, 2016.  During the three months ended March 31, 2016, we entered into leases totaling 522,962 rentable square feet, including a 25,579 square foot expansion to be constructed at an existing property, and lease renewals of 388,726 rentable square feet.  The weighted (by rentable square feet) average rental rates for leases of 460,620rentable square feet entered into with government tenants (which includes the 25,579 square foot expansion referenced above) during the three months ended March 31, 2016 increased by 14.4% when compared to the weighted (by rentable square feet) average prior rents for the same space. The weighted (by rentable square feet) average rental rates for leases of 62,342rentable square feet entered into with non-government tenants during the three months ended March 31, 2016 decreased by 2.3% when compared to the weighted (by rentable square feet) average rental rates previously charged for the same space.

During the three months ended March 31, 2016, changes in effective rental rates per square foot achieved for new leases and lease renewals that commenced during the three months ended March 31, 2016, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as follows:

	Three Months Ended March 31, 2016
	Old Effective		New Effective
	Rent Per		Rent Per		Rentable
	Square Foot(1)		Square Foot(1)		Square Feet
New leases	$	18.64	$	28.89	26,267
Lease renewals	$	25.46	$	27.96	252,402
Total leasing activity	$	24.82	$	28.05	278,669

(1) Effective rental rate includes contractual base rents from our tenants pursuant to our lease agreements, plus straight line rent adjustments and estimated expense reimbursements to be paid to us, and excluding lease value amortization.

18

During the three months ended March 31, 2016, commitments made for expenditures, such as tenant improvements and leasing costs, in connection with leasing space at ourproperties were as follows:

	Government		Non-Government
Three Months Ended March 31, 2016	Leases		Leases		Total
Rentable square feet leased during the period (1)		460,620		62,342		522,962
Tenant leasing costs and concession commitments(2)(3) (in thousands)	$	18,420	$	2,049	$	20,469
Tenant leasing costs and concession commitments per rentable square foot(2)(3)	$	39.99	$	32.87	$	39.14
Weighted (by square feet) average lease term (years)		12.0		8.1		11.6
Total leasing costs and concession commitments per rentable square foot per year(2)(3)	$	3.32	$	4.04	$	3.38

(1) Square footage includes a 25,579 square foot expansion to be constructed at an existing property prior to the commencement of the lease.

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

(3) Excludes the estimated cost of $12,800 to redevelop and expand an existing property prior to the commencement of the lease.

During the three months ended March 31, 2016 and 2015, amounts capitalized at our properties, excluding one property (one building) classified as discontinued operations, for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows (dollars in thousands):

	Three Months Ended
	March 31,
	2016		2015
Tenant improvements(1)	$	1,989	$	1,320
Leasing costs(2)	$	4,312	$	651
Building improvements(3)	$	3,033	$	748
Development, redevelopment and other activities(4)	$	768	$	-

(1) Tenant improvements include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space.

(2) Leasing costs include leasing related costs, such as brokerage commissions and other tenant inducements.

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

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

We have estimated unspent leasing related obligations of $22,752 as of March 31, 2016, which excludes the estimated $12,800 cost of the expansion to be constructed at an existing property referenced above.

We believe that current government budgetary pressures may cause an increased demand for leased space by government tenants, as opposed to governments acquiring buildings or constructing new buildings.  However, these same budgetary pressures have also resulted in a decrease in government employment, government tenants improving their space utilization and consolidation into existing government owned properties, thereby reducing the demand for government leased space. Our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants frequently renew leases to avoid the costs and disruptions that may result from relocating their operations. However, relocation may become more prevalent if efforts by government tenants to improve their space utilization require significant reconfiguration of currently leased space. Accordingly, we are unable to reasonably project what the financial impact of market conditions or changing government financial circumstances will be on our financial results for future periods.

As of March 31, 2016, we had leases totaling 871,373 rentable square feet that were scheduled to expire through March 31, 2017. As of April 26, 2016, tenants with leases totaling 166,068 rentable square feet, that are scheduled to expire through March 31, 2017, have notified us that they do not plan to renew their leases upon expiration and we can provide no assurance as to whether additional tenants may or may not renew their leases upon expiration.  Based upon current market conditions and tenant negotiations for leases scheduled to expire through March 31, 2017, we expect that the rental rates we are likely to achieve on new or renewed leases for space under expiring leases through March 31, 2017 will, in the aggregate and on a weighted (by annualized revenues) average basis, be modestly lower than the rates currently being paid, thereby generally resulting in lower revenue from the same space. We can provide no assurance regarding the rental rates which will result from our ongoing negotiations regarding lease renewals; also, we may experience material declines in our rental income due to vacancies upon lease expirations.  Prevailing market conditions and government tenants' needs at the time we negotiate and conclude leases will generally determine rental rates and demand for leased space in our properties, and market conditions and government tenants' needs are beyond our control. 

19

As of March 31, 2016, lease expirations at our properties, excluding one property (one building) classified as discontinued operations, by year are as follows (dollars in thousands):

	Number	Expirations				Annualized
	of	of Leased			Cumulative	Rental			Cumulative
	Tenants	Square		Percent	Percent	Income		Percent	Percent
Year(1)	Expiring	Feet(2)		of Total	of Total	Expiring(4)		of Total	of Total
2016	35	778,890		7.5%	7.5%	$	28,439	11.1%	11.1%
2017	41	824,303		7.9%	15.4%		17,257	6.7%	17.8%
2018	41	1,167,026		11.2%	26.6%		32,253	12.6%	30.4%
2019	36	1,911,715		18.3%	44.9%		48,237	18.9%	49.3%
2020	33	1,306,531		12.5%	57.4%		31,004	12.2%	61.5%
2021	25	919,553		8.8%	66.2%		17,871	7.0%	68.5%
2022	12	694,233		6.7%	72.9%		14,957	5.8%	74.3%
2023	14	536,625		5.1%	78.0%		12,382	4.8%	79.1%
2024	10	810,281		7.8%	85.8%		17,491	6.8%	85.9%
2025 and thereafter	27	1,476,972	(3)	14.2%	100.0%		35,842	14.1%	100.0%
Total	274	10,426,129		100.0%		$	255,733	100.0%
Weighted average remaining lease term (in years)		5.0					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 March 31, 2016, government tenants occupying approximately 10.1% of our rentable square feet and responsible for approximately 7.5% of our annualized rental income as of March 31, 2016 have currently exercisable rights to terminate their leases before the stated terms of their leases expire. Also, in 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2026 and 2027, early termination rights become exercisable by other tenants who currently occupy an additional approximately 4.0%, 3.1%, 1.2%, 4.6%, 5.1%, 0.4%, 2.1%, 2.0%, 0.9% and 0.6% of our rentable square feet, respectively, and contribute an additional approximately 4.2%, 2.4%, 1.4%, 5.0%, 5.4%, 0.4%, 1.3%, 1.8%, 1.3% and 0.7% of our annualized rental income, respectively, as of March 31, 2016. In addition, as of March 31, 2016, 14 of our government tenants have currently exercisable rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These 14 tenants occupy approximately 15.0% of our rentable square feet and contribute approximately 15.4% of our annualized rental income as of March 31, 2016.

(2) Leased square feet is pursuant to leases existing as of March 31, 2016, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any.  Square feet measurements are subject to changes when space is re-measured or re-configured for new tenants.

(3) Square footage excludes a 25,579 square foot expansion to be constructed at an existing property prior to the commencement of the lease.

(4) Annualized rental income is calculated using the annualized contractual base rents from our tenants pursuant to our lease agreements as of March 31, 2016, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

Acquisition and Disposition Activities (dollar amounts in thousands)

During the three months ended March 31, 2016, we acquired one office property (one building) located in Sacramento, CA with 337,811 rentable square feet for a purchase price of $79,244, excluding acquisition costs.  We acquired this property at a capitalization rate of 7.2%.  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 in effect on the acquisition date, less estimated annual property operating expenses as of the acquisition date, excluding depreciation and amortization expense, to (y) the acquisition purchase price, including the principal amount of assumed debt, if any, and excluding acquisition costs.

In March 2016, we entered into an agreement to sell an office property (one building) located in Savannah, GA with 35,228 rentable square feet and a net book value of $3,071 at March 31, 2016.  The contract sales price is $4,500, which amount is before transaction costs we may incur.  This sale is subject to conditions and is currently expected to occur in the third quarter of 2016.  We can provide no assurance that the sale of this property will occur, that the sale will not be delayed or that its terms will not change.

Also in March 2016, we entered into an agreement to sell an office property (one building) located in Falls Church, VA with 164,746 rentable square feet and a net book value of $12,282 at March 31, 2016.  The contract sales price is $14,750, which amount is before transaction costs we may incur.  This sale is subject to conditions, including the purchaser obtaining certain zoning entitlements, and is currently expected to occur in the first quarter of 2017.  We can provide no assurance that the sale of this property will occur, that the sale will not be delayed or that its terms will not change.

20

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 any agreement to acquire such properties, or that if we do reach any such agreement, that we will complete any acquisitions. Although we have not identified other properties for disposition, we expect to periodically identify properties for sale based on future changes in market conditions, changes in property performance, our expectation regarding lease renewals, our plans with regard to particular properties or alternative opportunities we may wish to pursue. Our plans for particular properties and other strategic considerations may cause us to change our acquisition and disposition strategies, and we may do so at any time and without shareholder approval.

21

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

Three Months Ended March 31, 2016, Compared to Three Months Ended March 31, 2015

									Acquired Property Results(2)				Disposed Property Results(3)
	Comparable Properties Results(1)								Three Months Ended				Three Months Ended				Consolidated Results
	Three Months Ended March 31,								March 31,				March 31,				Three Months Ended March 31,
						$	%															$	%
	2016		2015			Change	Change		2016		2015		2016		2015		2016		2015			Change	Change
Rental income	$	62,079	$	61,126	$	953	1.6	%	$	1,532	$	—	$	—	$	1,533	$	63,611	$	62,659	$	952	1.5	%
Operating expenses:
Real estate taxes		7,526		7,219		307	4.3	%		127		—		—		191		7,653		7,410		243	3.3	%
Utility expenses		4,076		4,572		(496)	(10.8)	%		98		—		—		(1)		4,174		4,571		(397)	(8.7)	%
Other operating expenses		12,564		11,846		718	6.1	%		347		—		—		364		12,911		12,210		701	5.7	%
Total operating expenses		24,166		23,637		529	2.2	%		572		—		—		554		24,738		24,191		547	2.3	%
Net operating income(4)	$	37,913	$	37,489	$	424	1.1	%	$	960	$	—	$	—	$	979		38,873		38,468		405	1.1	%
Other expenses:
Depreciation and amortization																		18,324		17,215		1,109	6.4	%
Acquisition related costs																		152		6		146	2,433.3	%
General and administrative																		3,526		4,004		(478)	(11.9)	%
Total other expenses																		22,002		21,225		777	3.7	%
Operating income																		16,871		17,243		(372)	(2.2)	%
Interest income																		6		12		(6)	(50.0)	%
Interest expense (including net amortization of debt premiums and discounts and debt issuance costs of $471 and $332, respectively)																		(9,364)		(9,302)		(62)	0.7	%
Gain on early extinguishment of debt																		104		—		104	nm
Loss on issuance of shares by Select Income REIT																		—		(40,771)		40,771	nm
Income (loss) from continuing operations before income taxes and equity in earnings of investees																		7,617		(32,818)		40,435	(123.2)	%
Income tax expense																		(15)		(30)		15	(50.0)	%
Equity in earnings (losses) of investees																		9,934		(316)		10,250	nm
Income (loss) from continuing operations																		17,536		(33,164)		50,700	(152.9)	%
Loss from discontinued operations																		(149)		(206)		57	(27.7)	%
Net income (loss)																	$	17,387	$	(33,370)	$	50,757	nm
Weighted average common shares outstanding (basic and diluted)																		71,031		70,266		765	1.1	%
Per common share amounts (basic and diluted):
Income (loss) from continuing operations																	$	0.25	$	(0.47)	$	0.72	nm
Income (loss) from discontinued operations																	$	—	$	—	$	—	nm
Net income (loss)																	$	0.24	$	(0.47)	$	0.71	nm
Calculation of Funds From Operations and Normalized Funds From Operations(5)
Net income (loss)																	$	17,387	$	(33,370)
Plus: Depreciation and amortization																		18,324		17,215
Plus: FFO attributable to Select Income REIT investment																		18,458		8,894
Plus: Equity in loss of Select Income REIT																		—		388
Less: Equity in earnings from Select Income REIT																		(9,857)		—
Funds from operations																		44,312		(6,873)
Plus: Acquisition related costs																		152		6
Plus: Loss on issuance of shares by Select Income REIT																		—		40,771
Plus: Normalized FFO attributable to Select Income REIT investment																		18,475		15,779
Less: FFO attributable to Select Income REIT investment																		(18,458)		(8,894)
Less: Gain on early extinguishment of debt																		(104)		—
Normalized funds from operations																	$	44,377	$	40,789
Funds from operations per common share (basic and diluted)																	$	0.62	$	(0.10)
Normalized funds from operations per common share (basic and diluted)																	$	0.62	$	0.58

(1) Comparable properties consist of 71 properties (91 buildings) we owned on March 31, 2016 and which we owned continuously since January 1, 2015, and excludes one property (one building) classified as discontinued operations.

(2) Acquired property consists of one property (one building) we owned on March 31, 2016, which we acquired during the three months ended March 31, 2016.

(3) Disposed property consists of one property (one building) we sold during the three months ended March 31, 2015.

22

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

(5) We calculate funds from operations, or FFO, and normalized funds from operations, or Normalized FFO, as shown above. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or NAREIT, which is net income (loss), calculated in accordance with GAAP, plus real estate depreciation and amortization and the difference between FFO attributable to an equity investment and equity in earnings (losses) of an equity investee but excluding impairment charges on real estate assets, carrying value adjustments of real estate assets held for sale, any gain or loss on sale of properties, as well as certain other adjustments currently not applicable to us. Our calculation of Normalized FFO differs from NAREIT's definition of FFO because we include the difference between FFO and Normalized FFO attributable to our equity investment in SIR, we include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as expense in accordance with GAAP and we exclude acquisition related costs, gains or losses on early extinguishment of debt and losses on issuance of shares by SIR. We consider FFO and Normalized FFO to be appropriate measures of operating performance for a REIT, along with net income (loss), operating income and cash flow from operating activities. We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO may facilitate a comparison of our operating performance between periods and with other REITs. FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance, our receipt of distributions from SIR and our expected needs and availability of cash to pay our obligations. FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income (loss), 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. These measures should be considered in conjunction with net income (loss), operating income and cash flow from operating activities as presented in our Condensed Consolidated Statements of Comprehensive Income (Loss) 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 71 properties (91 buildings) we owned on March 31, 2016 and which we have owned continuously since January 1, 2015, excluding one property (one building) classified as discontinued operations, as comparable properties. We refer to the one property (one building) that we owned as of March 31, 2016, which we acquired during the three months ended March 31, 2016, as the acquired property. We refer to the one property (one building) that we sold during the three months ended March 31, 2015 as the disposed property.

Our condensed consolidated statements of comprehensive income (loss) for the three months ended March 31, 2016 include the operating results of the acquired property for less than the entire period, as we acquired this property during the 2016 period and exclude the operating results of the disposed property for the entire period, as we sold that property prior to January 1, 2016.  Our condensed consolidated statements of comprehensive income (loss) for the three months ended March 31, 2015 exclude the operating results of the acquired property for the entire period, as we acquired that property after March 31, 2015, and include the operating results of the disposed property for less than the entire period, as we sold that property during the 2015 period.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three month period ended March 31, 2016, compared to the three month period ended March 31, 2015.

Rental income. The increase in rental income reflects the net effect of acquired and disposed properties and an increase in rental income for comparable properties.  Rental income increased $1,532 as a result of the acquired property.  Rental income declined $1,533 as a result of the disposed property.  Rental income for comparable properties increased $953 due primarily to an increase in occupied space at certain of our properties in the 2016 period.  Rental income includes non-cash straight line rent adjustments totaling $149 in the 2016 period and $663 in the 2015 period, and amortization of acquired leases and assumed lease obligations totaling ($307) in the 2016 period and ($278) in the 2015 period.

Real estate taxes. The increase in real estate taxes reflects the net effect of acquired and disposed properties and an increase in real estate taxes for comparable properties. Real estate taxes increased $127 as a result of the acquired property.  Real estate taxes declined $191 as a result of the disposed property.  Real estate taxes for comparable properties increased $307 due primarily to the effect of higher real estate tax valuation assessments at certain of our properties in the 2016 period.

Utility expenses. The decrease in utility expenses reflects the net effect of acquired and disposed properties and a decrease in utility expenses for comparable properties. Utility expenses increased $98 as a result of the acquired property.  Utility expenses increased $1 as a result of the disposed property.  Utility expenses at comparable properties

23

declined $496 primarily due to warmer temperatures experienced in certain parts of the United States during the 2016 period compared to the 2015 period.

Other operating expenses. Other operating expenses consist of salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense, other direct costs of operating our properties, and property management fees, net of amortization of the liability we recorded in connection with our June 2015 acquisition of shares of The RMR Group Inc., or RMR Inc. (see Note 10 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q). The increase in other operating expenses reflects the net effect of acquired and disposed properties and an increase in expenses for comparable properties. Other operating expenses increased $347 as a result of the acquired property.  Other operating expenses declined $364 as a result of the disposed property.  Other operating expenses at comparable properties increased $718 primarily as a result of higher repair and maintenance costs partially offset by lower snow removal costs at certain of our properties during the 2016 period.

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, 2015, partially offset by the effect of certain assets becoming fully depreciated. Depreciation and amortization increased $1,262 as a result of the acquired property.  Depreciation and amortization at comparable properties declined $153 due primarily to certain depreciable leasing related assets becoming fully depreciated in 2015 and 2016, partially offset by depreciation and amortization of improvements made to certain of our properties after January 1, 2015.

Acquisition related costs. Acquisition related costs in both the 2016 and 2015 periods include legal and due diligence costs incurred in connection with our property acquisitions and other investment activity.

General and administrative. General and administrative expenses consist of fees pursuant to our business management agreement, net of amortization of the liability we recorded in connection with our June 2015 acquisition of RMR Inc. shares (see Note 10 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q), 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 decrease in general and administrative expenses primarily reflects the decrease in legal and accounting fees during the 2016 period.

Interest income. The decrease in interest income is primarily the result of a smaller amount of investable cash in the 2016 period compared to the 2015 period.

Interest expense. The increase in interest expense reflects higher average outstanding debt balances and higher weighted average interest rates on those borrowings during the 2016 period compared to the 2015 period.

Gain on early extinguishment of debt.  We recorded a net $104 gain on early extinguishment of debt in the 2016 period in connection with the prepayment of two mortgage notes. 

Loss on issuance of shares by Select Income REIT. Loss on issuance of shares by SIR is a result of the issuance of common shares by SIR at prices below our then per share carrying value of our SIR common shares during the 2015 period.

Income tax expense. The decrease in income tax expense reflects lower operating income in certain jurisdictions in the 2016 period that is subject to state income taxes.

Equity in earnings (losses) of investees. Equity in earnings (losses) of investees represents our proportionate share of earnings from our investments in SIR and Affiliates Insurance Company, or AIC.

Loss from discontinued operations. Loss from discontinued operations reflects operating results for one property (one building) included in discontinued operations as of March 31, 2016.  

Net income (loss). Our net income increased in the 2016 period compared to the 2015 period as a result of the changes noted above.

24

LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources (dollar amounts in thousands)

Our principal sources of funds to meet operating and capital expenses, debt service obligations and pay distributions on our common shares are the operating cash flow we generate as rental income from our properties, the distributions we receive from our investment in SIR and borrowings under our unsecured revolving credit facility. We believe that these sources of funds will be sufficient to meet our operating and capital expenses and debt service obligations and pay distributions on our common shares for the next 12 months and for 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;

· our ability to control operating expenses at our properties;

· our ability to purchase additional properties which produce cash flows from operations in excess of our cost of acquisition capital and property operating expenses; and

· our receipt of distributions from our investment in SIR.

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

Our changes in cash flows for the three months ended March 31, 2016 compared to the same period in 2015 were as follows: (i) cash provided by operating activities increased from $28,248 in 2015 to $31,212in 2016; (ii) cash used in investing activities increased from $56,624 in 2015 to $80,866 in 2016; and (iii) cash provided by financing activities increased from $24,122 in 2015 to $56,567 in 2016.

The increase in cash provided by operating activities for the three month period ended March 31, 2016 as compared to the corresponding prior year period primarily reflects an increase in property net operating income and an increase in distributions of earnings received from our investment in SIR common shares, partially offset by unfavorable changes in working capital in the 2016 period. The increase in cash used in investing activities for the three month period ended March 31, 2016 as compared to the corresponding prior year period was due primarily to an increase in acquisition activity in the 2016 period versus disposition activity in the 2015 period, partially offset by our investment in SIR in the 2015 period and by a decrease in distributions in excess of earnings from our investment in SIR in the 2016 period. The increase in cash provided by financing activities for the three month period ended March 31, 2016 as compared to the corresponding prior year period was due primarily to an increase in net borrowings to fund higher net investment activity in the 2016 period, partially offset by the repayment of mortgage debt.

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 meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $750,000 unsecured revolving credit facility. The maturity date of our unsecured revolving credit facility is January 31, 2019 and, subject to the payment of an extension fee and meeting other conditions, we have an option to extend the stated maturity date of our unsecured revolving credit facility by one year to January 31, 2020. We are required to pay interest at a rate of LIBOR plus a premium, which was 125 basis points per annum at March 31, 2016, on the amount outstanding under our unsecured revolving credit facility. We also pay a facility fee on the total amount of lending commitments under our unsecured revolving credit facility, which was 25 basis points per annum at March 31, 2016. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings. We can borrow, repay and reborrow funds available under our unsecured revolving credit facility until maturity, and no principal repayment is due until maturity. As of March 31, 2016, the annual interest rate payable on borrowings under our unsecured revolving credit facility was 1.6%. As of March 31, 2016 and April 26, 2016, we had $311,000 and $303,000, respectively, outstanding and $439,000 and $447,000, respectively, available to borrow under our unsecured revolving credit facility.

25

Our $750,000 unsecured revolving credit facility is governed by a credit agreement with a syndicate of institutional lenders, which also governs our two unsecured term loans:

· Our $300,000 unsecured term loan, which matures on March 31, 2020, is prepayable without penalty at any time. We are required to pay interest at LIBOR plus a premium, which was 140 basis points per annum at March 31, 2016, on the amount outstanding under our $300,000 unsecured term loan.  The interest rate premium is subject to adjustment based upon changes to our credit ratings.  As of March 31, 2016, the annual interest rate for the amount outstanding under our $300,000 unsecured term loan was 1.8%.

· Our $250,000 unsecured term loan, which matures on March 31, 2022, is prepayable at any time. If our $250,000 unsecured term loan is repaid on or prior to November 21, 2016, a prepayment premium of 1.0% of the amount repaid would be payable. Subsequent to November 21, 2016, no prepayment premium would be payable. We are required to pay interest at LIBOR plus a premium, which was 180 basis points per annum at March 31, 2016, on the amount outstanding under our $250,000 unsecured term loan.  The interest rate premium is subject to adjustment based upon changes to our credit ratings.  As of March 31, 2016, the annual interest rate for the amount outstanding under our $250,000 unsecured term loan was 2.2%.

Our credit agreement also includes a feature under which the maximum borrowing availability may be increased to up to $2,500,000 on a combined basis in certain circumstances.

Our credit agreement for our unsecured revolving credit facility and term loans provides that, with certain exceptions, a subsidiary of ours is required to guaranty our obligations under the unsecured revolving credit facility and term loans only if that subsidiary has separately incurred debt (other than nonrecourse debt), within the meaning specified in the credit agreement, or provided a guarantee of debt incurred by us or any of our other subsidiaries.

Our $350,000 of 3.75% senior unsecured notes due 2019 are governed by an indenture and a supplement to the indenture and require semi-annual payments of interest only through maturity.

None of our unsecured debt obligations require sinking fund payments prior to their maturity dates.  Our $28,592 in mortgage debts generally require monthly payments of principal and interest through maturity.

In addition to our debt obligations, as of March 31, 2016, we have estimated unspent leasing related obligations of $22,752, which excludes the estimated $12,800 cost of the expansion to be constructed at an existing property.  Our debt maturities (other than our unsecured revolving credit facility) are as follows: $1,084 in 2016, $1,549 in 2017, $1,671 in 2018, $359,439 in 2019, $301,619 in 2020 and $263,230 thereafter. 

We currently expect to use cash balances, borrowings under our unsecured revolving credit facility, net proceeds from our property sales, distributions received from our investment in SIR, assumption of mortgage debt and net proceeds from offerings of equity or debt securities to fund our future operations, capital expenditures, distributions to our shareholders and property acquisitions. When significant amounts are outstanding under our unsecured revolving credit facility or the maturity date of our unsecured revolving credit facility, unsecured term loans, senior unsecured notes, mortgage notes 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 equity or debt securities, extending the maturity date of our unsecured revolving credit facility and entering into a new revolving credit facility. We may assume additional mortgage debt in connection with our acquisition of properties or elect to place new mortgages on properties we own as a source of financing. Although we cannot provide 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.

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

26

business in a manner which will afford us reasonable access to capital for investment and financing activities, but we cannot provide assurance that we will be able to successfully carry out this intention.

On February 25, 2016, we paid a regular quarterly distribution to common shareholders of record on January 22, 2016 of $0.43 per share, or approximately $30,584.  We funded this distribution using cash on hand and borrowings under our unsecured revolving credit facility. On April 13, 2016, we declared a regular quarterly distribution payable to common shareholders of record on April 25, 2016 of $0.43 per share, or approximately $30,584. We expect to pay this distribution on or about May 23, 2016 using cash on hand and borrowings under our unsecured revolving credit facility. 

In February 2016, we repaid, at par, a $23,473 mortgage note requiring annual interest at 6.21% which was secured by one office property (one building) located in Landover, MD using cash on hand and borrowings under our unsecured revolving credit facility. This mortgage note was scheduled to mature in August 2016.

In March 2016, we repaid, at par, an $83,000 mortgage note requiring annual interest at 5.55% which was secured by one office property (two buildings) located in Reston, VA using cash on hand and borrowings under our unsecured revolving credit facility.  This mortgage note was scheduled to mature in April 2016.

In April 2016, we exercised our option to purchase for $1,623 an adjacent land parcel at one of our existing properties in Atlanta, GA. We expect this transaction to close during the third quarter of 2016 and expect to fund this purchase using cash on hand.

Off Balance Sheet Arrangements

As of March 31, 2016, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a 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 March 31, 2016 consisted of borrowings under our $750,000 unsecured revolving credit facility, our $300,000 unsecured term loan, our $250,000 unsecured term loan, $350,000 of publicly issued senior unsecured notes and three secured mortgage notes that were assumed in connection with certain of our acquisitions. Our publicly issued senior unsecured notes are governed by an indenture.  Our senior unsecured notes indenture and its supplement and the credit agreement for our unsecured revolving credit facility and our two unsecured term loans providefor acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business manager and property manager. Our senior unsecured notes indenture anditssupplement and ourcreditagreement also contain a number of covenants which generally restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, require us to maintain various financial ratios, and, in the case of our credit agreement, restrict our ability to make distributions under certain circumstances. Our mortgage notes are non-recourse, subject to certain limited exceptions, and do not contain any material financial covenants.  As of March 31, 2016, we believe we were in compliance with the terms and conditions of our respective covenants under oursenior unsecured notesindenture and its supplementand our credit agreement.

Neither our credit agreement nor oursenior unsecured notesindenture and its supplement contain provisions for acceleration which could be triggered by our debt ratings. However, under our credit agreement our highest senior unsecured debt rating is used to determine the fees and interest rates we pay. Accordingly, if that debt rating is downgraded by certain credit rating agencies, our interest expense and related costs under our credit agreement would increase.

Our credit agreement has cross default provisions to other indebtedness that is recourse of $25,000 or more and indebtedness that is non-recourse of$50,000 or more. Similarly, our seniorunsecured notesindenture and its supplement contain cross default provisions to any other debts of more than $25,000.

27

Related Person Transactions

We have relationships and historical and continuing transactions with RMR LLC, SIR and others related to them.  For example, we have no employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to management agreements; RMR Inc. is the managing member of RMR LLC and we own shares of class A common stock of RMR Inc. and the controlling shareholder of RMR Inc., ABP Trust, is owned by our Managing Trustees. Also, we own common shares of SIR; and we and six other companies to which RMR LLC provides management services own in equal amounts AIC, an insurance company, and we participate in a combined property insurance program arranged and reinsured in part by AIC. For further information about these and other such relationships and related person transactions, please see Notes 10 and 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference, our Annual Report, our definitive Proxy Statement for our 2016 Annual Meeting of Shareholders and our other filings with the Securities and Exchange Commission, or SEC.  In addition, please see the section captioned “Risk Factors” of our Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships.  Our filings with the SEC and copies of certain of our agreements with these related parties are publicly available as exhibits to our public filings with the SEC and accessible at the SEC’s website, www.sec.gov.  We may engage in additional transactions with related persons, including companies to which RMR LLC or its affiliates provide management services.

28

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, 2015. Other than as described below, we do not currently foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.

Fixed Rate Debt

At March 31, 2016, our outstanding fixed rate debt consisted of the following:

			Annual		Annual			Interest
	Principal		Interest		Interest			Payments
Debt	Balance(1)		Rate(1)		Expense(1)		Maturity	Due
Senior unsecured notes	$	350,000	3.75	%	$	13,307	2019	Semi-annually
Mortgage		14,104	5.88	%		841	2021	Monthly
Mortgage		8,669	7.00	%		615	2019	Monthly
Mortgage		5,819	8.15	%		481	2021	Monthly
	$	378,592			$	15,244

(1) The principal balances and interest rates are the amounts determined pursuant to the 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 issued or assumed these debts.  For more information, see Notes 7 and 8 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Our senior unsecured notes require semi-annual interest payments through maturity.  Our mortgages generally require principal and interest payments through maturity pursuant to amortization schedules.  Because these debts require interest at a fixed rate, changes in market interest rates during the term of these debts will not affect our interest obligations.  If these debts were refinanced at interest rates which are 100 basis points higher or lower than shown above, our per annum interest cost would increase or decrease, respectively, by approximately $3,821.

Changes in market interest rates would affect the fair value of our fixed rate debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt.  Based on the balances outstanding at March 31, 2016, and discounted cash flow analysis through the respective maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligations, a hypothetical immediate 100 basis point increase in interest rates would change the fair value of those obligations by approximately $6,300.

Some of our fixed rate secured debt arrangements allow us to make repayments earlier than the stated maturity date. In some cases, we are not allowed to make early repayment prior to a cutoff date and we are generally allowed to make prepayments only at a premium equal to a make whole amount, as defined, which is generally designed to preserve a stated yield to the note holder. These prepayment rights may afford us opportunities to mitigate the risk of refinancing our debts at maturity at higher rates by refinancing prior to maturity.

Floating Rate Debt

At March 31, 2016, our floating rate debt consisted of $311,000 outstanding under our $750,000 unsecured revolving credit facility, our $300,000 unsecuredterm loan and our $250,000 unsecured term loan. Our unsecured revolving credit facility matures in January 2019 and, subject to the payment of an extension fee and our meeting certain other conditions, we have the option to extend the stated maturity by one year toJanuary 2020. No principal repayments are required under our unsecured revolving credit facility or our unsecured term loansprior to maturity,and we can borrow, repay and reborrow funds available under our unsecured revolving credit facility, subject to conditions, at any time without penalty. Our $300,000 unsecured term loan matures on March 31, 2020. Our $250,000 unsecured term loan matures on March 31, 2022. Amounts outstanding under our unsecured term loans may be repaid at any time, but after they are repaid amounts may not be redrawn. Our $300,000 unsecured term loan may be repaid without penalty at any time. If our $250,000 unsecured term loan is repaid on or prior to November 21, 2016, a prepayment premium of 1.0% of the amount repaid would be incurred.  Subsequent to November 21, 2016, no prepayment premium would be incurred.

29

Borrowings under our $750,000 unsecured revolving credit facility and unsecured term loans are in U.S. dollars and require interest at a rate of LIBOR plus premiums that are subject to adjustment based upon changes to our credit ratings. Accordingly, we are vulnerable to changes in U.S. dollar based short term rates, specifically LIBOR. In addition, upon renewal or refinancing of our unsecured revolving credit facility or unsecured term loans, we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit characteristics. Generally, a change in interest rates would not affect the value of our floating rate debt but would affect our operating results.

The following table presents the impact a 100 basis point increase in interest rates would have on our annual floating rate interest expense as of March 31, 2016:

	Impact of Changes in Interest Rates
	Annual		Outstanding		Total Interest		Annual Earnings
	Interest Rate(1)		Debt		Expense Per Year		Per Share Impact(2)
At March 31, 2016	1.9	%	$	861,000	$	16,586	$	0.23
100 bps increase	2.9	%	$	861,000	$	25,316	$	0.36

(1) Weighted based on the respective interest rates and outstanding borrowings under our unsecured revolving credit facility and unsecured term loans as of March 31, 2016.

(2) Based on the weighted average shares outstanding (diluted) for the three months ended March 31, 2016.

The following table presents the impact a 100 basis point increase in interest rates would have on our annual floating rate interest expense as of March 31, 2016 if we were fully drawn on our unsecured revolving credit facility and our unsecured term loans remained outstanding:

	Impact of Changes in Interest Rates
	Annual		Outstanding		Total Interest		Annual Earnings
	Interest Rate(1)		Debt		Expense Per Year		Per Share Impact(2)
At March 31, 2016	1.8	%	$	1,300,000	$	23,725	$	0.33
100 bps increase	2.8	%	$	1,300,000	$	36,906	$	0.52

(1) Weighted based on the respective interest rates and outstanding borrowings under our unsecured revolving credit facility (assuming fully drawn) and our unsecured term loans as of March 31, 2016. 

(2) Based on the weighted average shares outstanding (diluted) for the three months ended March 31, 2016.

The foregoing tables show the impact of an immediate change in floating interest rates as of March 31, 2016.  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 unsecured revolving credit facility, our unsecured term loans or our other floating rate debt, if any. Although we have no present plans to do so, we may in the future enter into hedge arrangements from time to time to mitigate our exposure to changes in interest rates.

Item 4.  Controls and Procedures

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our Managing Trustees, our President and Chief Operating Officer and our Treasurer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Managing Trustees, our President and Chief Operating Officer and our Treasurer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

30

WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS.  ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE”, “MAY” 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 ACQUISITIONS AND SALES OF PROPERTIES,

· OUR ABILITY TO COMPETE FOR ACQUISITIONS AND TENANCIES EFFECTIVELY,

· 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 OR GOVERNMENT BUDGET CONSTRAINTS,

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

· OUR EXPECTATION THAT WE BENEFIT FINANCIALLY FROM OUR OWNERSHIP INTEREST IN SIR,

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

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

· 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 EXPECTATIONS REGARDING DEMAND FOR LEASED SPACE BY THE U.S. GOVERNMENT AND STATE AND LOCAL GOVERNMENTS,

· OUR ABILITY TO RAISE EQUITY OR DEBT CAPITAL,

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

· OUR ABILITY TO APPROPRIATELY BALANCE OUR DEBT AND EQUITY CAPITAL,

· OUR CREDIT RATINGS,

· OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP OF RMR INC.,

· OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP OF AIC AND FROM OUR PARTICIPATION IN INSURANCE PROGRAMS ARRANGED BY AIC,

· THE CREDIT QUALITIES OF OUR TENANTS,

· OUR QUALIFICATION FOR TAXATION AS A REAL ESTATE INVESTMENT TRUST, OR REIT, AND

· OTHER MATTERS.

31

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 BASIS NOI, CASH FLOWS, LIQUIDITY AND PROSPECTS INCLUDE, BUT ARE NOT LIMITED TO:

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

· COMPETITION WITHIN THE REAL ESTATE INDUSTRY, PARTICULARLY WITH RESPECT TO THOSE MARKETS IN WHICH OUR PROPERTIES ARE LOCATED AND WITH RESPECT TO GOVERNMENT TENANCIES,

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

· 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 RELATED PARTIES, INCLUDING OUR MANAGING TRUSTEES, RMR LLC, RMR INC., SIR, AIC AND OTHERS AFFILIATED WITH THEM,

· LIMITATIONS IMPOSED ON OUR BUSINESS AND OUR ABILITY TO SATISFY COMPLEX RULES IN ORDER FOR US TO QUALIFY FOR TAXATION 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:

· OUR ABILITY TO MAKE PAYMENTS OF PRINCIPAL AND INTEREST ON OUR INDEBTEDNESS AND TO MAKE FUTURE DISTRIBUTIONS TO OUR SHAREHOLDERS DEPENDS UPON A NUMBER OF FACTORS, INCLUDING OUR FUTURE EARNINGS, THE CAPITAL COSTS WE INCUR TO LEASE OUR PROPERTIES AND OUR RECEIPT OF DISTRIBUTIONS FROM SIR, 

· WE MAY BE UNABLE TO PAY OUR DEBT OBLIGATIONS OR TO MAINTAIN OUR CURRENT RATE OF DISTRIBUTIONS ON OUR COMMON SHARES AND FUTURE DISTRIBUTIONS MAY BE REDUCED OR ELIMINATED,

· OUR ABILITY TO GROW OUR BUSINESS AND INCREASE DISTRIBUTIONS TO OUR SHAREHOLDERS 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 OBTAIN NEW TENANTS TO MAINTAIN OR INCREASE THE HISTORICAL OCCUPANCY RATES OF, OR RENTS FROM, OUR PROPERTIES,

32

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

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

· CONTINGENCIES IN OUR ACQUISITION AND SALE AGREEMENTS MAY NOT BE SATISFIED AND OUR PENDING ACQUISITIONS AND SALES MAY NOT OCCUR, MAY BE DELAYED OR THE TERMS OF SUCH TRANSACTIONS MAY CHANGE,

· CONTINUED AVAILABILITY OF BORROWINGS UNDER OUR UNSECURED REVOLVING CREDIT FACILITY IS SUBJECT TO OUR SATISFYING CERTAIN FINANCIAL COVENANTS AND OTHER CONDITIONS THAT WE MAY BE UNABLE TO SATISFY,

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

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

· THE MAXIMUM BORROWING AVAILABILITY UNDER OUR UNSECURED REVOLVING CREDIT FACILITY AND TERM LOANS MAY BE INCREASED TO UP TO $2.5 BILLION ON A COMBINED BASIS IN CERTAIN CIRCUMSTANCES; HOWEVER, INCREASING THE MAXIMUM BORROWING AVAILABILITY UNDER OUR UNSECURED REVOLVING CREDIT FACILITY AND TERM LOANS IS SUBJECT TO OUR OBTAINING ADDITIONAL COMMITMENTS FROM LENDERS, WHICH MAY NOT OCCUR,

· WE HAVE THE OPTION TO EXTEND THE MATURITY DATE OF OUR UNSECURED REVOLVING CREDIT FACILITY UPON PAYMENT OF A FEE AND MEETING OTHER CONDITIONS.  HOWEVER, THE APPLICABLE CONDITIONS MAY NOT BE MET,

· THE BUSINESS MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS BETWEEN US AND RMR LLC HAVE CONTINUING 20 YEAR TERMS.  HOWEVER, THOSE AGREEMENTS INCLUDE TERMS WHICH PERMIT EARLY TERMINATION IN CERTAIN CIRCUMSTANCES.  ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THESE AGREEMENTS WILL REMAIN IN EFFECT FOR CONTINUING 20 YEAR TERMS OR FOR SHORTER TERMS,

· WE BELIEVE THAT OUR RELATIONSHIPS WITH OUR RELATED PARTIES, INCLUDING RMR LLC, RMR INC., SIR, AIC AND OTHERS AFFILIATED WITH THEM MAY BENEFIT US AND PROVIDE US WITH COMPETITIVE ADVANTAGES IN OPERATING AND GROWING OUR BUSINESS. IN FACT, THE ADVANTAGES WE BELIEVE WE MAY REALIZE FROM THESE RELATIONSHIPS MAY NOT MATERIALIZE,

· THE PREMIUMS USED TO DETERMINE THE INTEREST RATE PAYABLE ON OUR UNSECURED REVOLVING CREDIT FACILITY AND UNSECURED TERM LOANS AND THE FACILITY FEE PAYABLE ON OUR UNSECURED REVOLVING CREDIT FACILITY ARE BASED ON OUR CREDIT RATINGS.  FUTURE CHANGES IN OUR CREDIT RATINGS MAY CAUSE THE INTEREST AND FEES WE PAY TO INCREASE,

· SIR MAY REDUCE THE AMOUNT OF ITS DISTRIBUTIONS TO ITS SHAREHOLDERS, INCLUDING US,

33

· WE MAY BE UNABLE TO SELL OUR SIR COMMON SHARES FOR AN AMOUNT EQUAL TO OUR CARRYING VALUE OF THOSE SHARES AND ANY SUCH SALE MAY BE AT A DISCOUNT TO MARKET PRICE BECAUSE OF THE LARGE SIZE OF OUR SIR HOLDINGS OR OTHERWISE; WE MAY REALIZE A LOSS ON OUR INVESTMENT IN OUR SIR SHARES, AND

· WE CURRENTLY EXPECT TO SPEND APPROXIMATELY $12.8 MILLION TO REDEVELOP AND EXPAND AN EXISTING PROPERTY IN CONNECTION WITH A NEW LEASE AGREEMENT.  IN ADDITION, AS OF MARCH 31, 2016, WE HAVE ESTIMATED UNSPENT LEASING RELATED OBLIGATIONS OF $22.8 MILLION, WHICH EXCLUDES THE ESTIMATED DEVELOPMENT COSTS NOTED IN THE PRECEDING SENTENCE. IT IS DIFFICULT TO ACCURATELY ESTIMATE DEVELOPMENT COSTS.  THIS DEVELOPMENT PROJECT AND OUR UNSPENT LEASING RELATED OBLIGATIONS MAY COST MORE OR LESS AND MAY TAKE LONGER TO COMPLETE THAN WE CURRENTLY EXPECT, AND WE MAY INCUR INCREASING AMOUNTS FOR THESE AND SIMILAR MATTERS IN THE FUTURE.

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

THE INFORMATION CONTAINED ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q AND IN OUR ANNUAL REPORT OR IN OUR OTHER FILINGS WITH THE SEC, INCLUDING UNDER THE CAPTION “RISK FACTORS”, OR INCORPORATED HEREIN OR 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.

34

Part II.   Other Information

Item1A. Risk Factors

There have been no material changes to risk factors from those we previously disclosed in our Annual Report.

35

Item 6. Exhibits

Exhibit Number	Description
3.1	Composite Copy of Amended and Restated Declaration of Trust, dated September 8, 2009, as amended to date. (Incorporated by reference to the Company’s Current Report on Form 8-K dated July 28, 2014.)
3.2	Composite Copy of Amended and Restated Bylaws of the Company, as amended to date. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015.)
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.)
4.2	Indenture, dated as of August 18, 2014, between the Company and U.S. Bank National Association. (Incorporated by reference to the Company’s Current Report on Form 8-K dated August 18, 2014.)
4.3	Supplemental Indenture No. 1, dated as of August 18, 2014, between the Company and U.S. Bank National Association, relating to the Company’s 3.75% Senior Notes due 2019, including form thereof. (Incorporated by reference to the Company’s Current Report on Form 8-K dated August 18, 2014.)
4.4	Registration Rights and Lock-Up Agreement, dated June 5, 2015, among the Company, ABP Trust, Barry M. Portnoy and Adam D. Portnoy. (Incorporated by reference to the Company’s Current Report on Form 8-K dated June 5, 2015.)
12.1	Computation of Ratio of Earnings to Fixed Charges. (Filed herewith.)
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 ended March 31, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (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.)

36

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: April 28, 2016
By:	/s/ Mark L. Kleifges
	Mark L. Kleifges Treasurer and Chief Financial Officer (principal financial and accounting officer) Dated: April 28, 2016

37

EX-12.1

Exhibit 12.1

GOVERNMENT PROPERTIES INCOME TRUST

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(IN THOUSANDS, EXCEPT RATIO AMOUNTS)

		Three Months Ended
		March 31,		Year Ended December 31,
		2016		2015			2014		2013		2012
Income (loss) from continuing operations (including gain on sale of
	properties, if any) before income tax expense and equity in
	earnings (losses) of investees	$	7,617	$	(227,990)		$	42,190	$	55,308	$	48,903
Distributions of earnings from equity investees			9,117		21,882			17,046		—		—
Fixed charges			9,364		37,008			28,048		16,831		16,892
Adjusted earnings (loss)		$	26,098	$	(169,100)		$	87,284	$	72,139	$	65,795
Fixed Charges:
Interest on indebtedness and net amortization of deferred
	finance costs and debt premiums and discounts	$	9,364	$	37,008		$	28,048	$	16,831	$	16,892
Ratio of adjusted earnings (loss) to fixed charges			2.8x		(4.6x)	(1)		3.1x		4.3x		3.9x

(1)The deficiency for the year ended December 31, 2015 was approximately $206.1 million.

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:April 28, 2016	/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:April 28, 2016	/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:April 28, 2016	/s/ Barry M. Portnoy
	Barry M. Portnoy Managing Trustee

EX-31.4

EXHIBIT 31.4

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

I, Adam D. Portnoy, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of 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:April 28, 2016	/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 on Form10-Q for the period ended March 31, 2016 (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 Managing Trustee	Adam D. Portnoy Managing Trustee
/s/ David M. Blackman	/s/ Mark L. Kleifges
David M. Blackman President and Chief Operating Officer	Mark L. Kleifges Treasurer and Chief Financial Officer

Date:    April 28, 2016

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	Apr. 26, 2016
Document and Entity Information
Entity Registrant Name	Government Properties Income Trust
Entity Central Index Key	0001456772
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
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		71,126,308
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Real estate properties:
Land	$ 257,716	$ 253,058
Buildings and improvements	1,509,921	1,443,074
Total real estate properties, gross	1,767,637	1,696,132
Accumulated depreciation	(265,843)	(255,879)
Total real estate properties, net	1,501,794	1,440,253
Equity investment in Select Income REIT	493,259	491,369
Assets of discontinued operations	12,502	12,468
Assets of property held for sale	3,098	3,098
Acquired real estate leases, net	123,300	118,267
Cash and cash equivalents	15,698	8,785
Restricted cash	713	1,022
Rents receivable, net	46,617	45,269
Deferred leasing costs, net	17,909	14,299
Other assets, net	44,505	33,680
Total assets	2,259,395	2,168,510
LIABILITIES AND SHAREHOLDERS' EQUITY
Unsecured revolving credit facility	311,000	117,000
Unsecured term loans, net	546,660	546,490
Senior unsecured notes, net	346,095	345,809
Mortgage notes payable, net	29,053	136,299
Liabilities of discontinued operations	75	54
Liabilities of property held for sale	32	43
Accounts payable and other liabilities	48,979	50,543
Due to related persons	4,380	2,886
Assumed real estate lease obligations, net	12,224	12,735
Total liabilities	$ 1,298,498	$ 1,211,859
Commitments and contingencies
Shareholders' equity:
Common shares of beneficial interest, $.01 par value: 100,000,000 shares authorized, 71,126,308 shares issued and outstanding	$ 711	$ 711
Additional paid in capital	1,472,510	1,472,482
Cumulative net income	55,873	38,486
Cumulative other comprehensive income (loss)	2,548	(14,867)
Cumulative common distributions	(570,745)	(540,161)
Total shareholders' equity	960,897	956,651
Total liabilities and shareholders' equity	$ 2,259,395	$ 2,168,510

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Mar. 31, 2016	Dec. 31, 2015
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	100,000,000	100,000,000
Common shares of beneficial interest, shares issued	71,126,308	71,126,308
Common shares of beneficial interest, shares outstanding	71,126,308	71,126,308

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Rental income	$ 63,611	$ 62,659
Expenses:
Real estate taxes	7,653	7,410
Utility expenses	4,174	4,571
Other operating expenses	12,911	12,210
Depreciation and amortization	18,324	17,215
Acquisition related costs	152	6
General and administrative	3,526	4,004
Total expenses	46,740	45,416
Operating income	16,871	17,243
Interest income	6	12
Interest expense (including net amortization of debt premiums and discounts and debt issuance costs of $471 and $332, respectively)	(9,364)	(9,302)
Gain on early extinguishment of debt	104
Loss on issuance of shares by Select Income REIT		(40,771)
Income (loss) from continuing operations before income taxes and equity in earnings (losses) of investees	7,617	(32,818)
Income tax expense	(15)	(30)
Equity in earnings (losses) of investees	9,934	(316)
Income (loss) from continuing operations	17,536	(33,164)
Loss from discontinued operations	(149)	(206)
Net income (loss)	17,387	(33,370)
Other comprehensive income
Unrealized gain on investment in available for sale securities	12,871
Equity in unrealized gain of investees	4,544	58
Other comprehensive income	17,415	58
Comprehensive income (loss)	$ 34,802	$ (33,312)
Weighted average common shares outstanding (basic and diluted)	71,031	70,266
Per common share amounts (basic and diluted):
Income (loss) from continuing operations (in dollars per share)	$ 0.25	$ (0.47)
Net income (loss) (in dollars per share)	$ 0.24	$ (0.47)

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net amortization of debt premiums and discounts and deferred financing fees	$ 471	$ 332

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ 17,387	$ (33,370)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation	10,237	9,626
Net amortization of debt premiums and discounts and debt issuance costs	471	332
Gain on early extinguishment of debt	(104)
Straight line rental income	(149)	(663)
Amortization of acquired real estate leases	7,712	7,340
Amortization of deferred leasing costs	709	556
Other non-cash (income) expense, net	(105)	507
Equity in earnings (losses) of investees	(9,934)	316
Loss on issuance of shares by Select Income REIT		40,771
Distributions of earnings from Select Income REIT	9,117	2,176
Change in assets and liabilities:
Restricted cash	309	(762)
Deferred leasing costs	(1,989)	(412)
Rents receivable	(1,215)	1,587
Other assets	1,849	2,699
Accounts payable and accrued expenses	(4,577)	(2,656)
Due to related persons	1,494	201
Net cash provided by operating activities	31,212	28,248
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions and deposits	(79,244)
Real estate improvements	(4,964)	(2,678)
Investment in Select Income REIT		(95,821)
Distributions in excess of earnings from Select Income REIT	3,342	11,354
Proceeds from sale of properties, net		30,521
Net cash used in investing activities	(80,866)	(56,624)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgage notes payable	(106,849)	(610)
Borrowings on unsecured revolving credit facility	204,000	75,000
Repayments on unsecured revolving credit facility	(10,000)	(20,000)
Debt issuance costs		(16)
Distributions to common shareholders	(30,584)	(30,252)
Net cash provided by financing activities	56,567	24,122
Increase (decrease) in cash and cash equivalents	6,913	(4,254)
Cash and cash equivalents at beginning of period	8,785	13,791
Cash and cash equivalents at end of period	15,698	9,537
Supplemental cash flow information:
Interest paid	12,319	12,078
Income taxes paid	$ 44	$ 131

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2016

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 we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted.  We believe the disclosures made are adequate to make the information presented not misleading.  However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2015, 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 intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated.  Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. Reclassifications have been made to the prior years’ condensed consolidated financial statements to conform to the current year’s presentation.

The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates.  Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets, impairment of real estate and equity method investments and the valuation of intangible assets.

XML

Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2016

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Note 2. Recent Accounting Pronouncements

On January 1, 2016, we adopted the Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU, No. 2015-02, Consolidation. Among other things, this update changes how an entity determines the primary beneficiary of a variable interest entity. The implementation of this update did not have an impact in our condensed consolidated financial statements.

On January 1, 2016, we adopted FASB ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability, and ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements – Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting, which addresses the presentation of debt issuance costs related to line of credit arrangements. The implementation of these updates resulted in the reclassification of certain of our capitalized debt issuance costs as an offset to the associated debt liability in our condensed consolidated balance sheets. The classification of capitalized debt issuance costs related to our unsecured revolving credit facility remains unchanged in accordance with ASU No. 2015-15. As of December 31, 2015, debt issuance costs related to our unsecured term loans, senior unsecured notes and mortgage notes payable of $3,510,  $2,172 and $344, respectively, were reclassified from assets to the associated debt liability in our condensed consolidated balance sheets.

On January 1, 2016, we adopted FASB ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The implementation of this update did not have an impact in our condensed consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which changes how entities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. This update is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted subject to certain conditions. Currently, changes in fair value of these investments are recorded through other comprehensive income. Under this ASU, these changes will be recorded through earnings. We are continuing to evaluate this guidance, but we expect the implementation of this guidance will affect available for sale equity investments we hold.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU No. 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the potential impact the adoption of ASU No. 2016-02 will have in our condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, which identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. ASU No. 2016-09 is effective for reporting periods beginning after December 15, 2016.  We are currently assessing the potential impact that the adoption of ASU No. 2016-09 will have in our condensed consolidated financial statements.   

XML

Per Common Share Amounts

3 Months Ended

Mar. 31, 2016

Per Common Share Amounts

Per Common Share Amounts

Note 3. Per Common Share Amounts

The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands):

	For the Three Months
	Ended March 31,
	2016		2015
Weighted average common shares for basic earnings per share		71,031		70,266
Effect of dilutive securities: unvested share awards		-		-
Weighted average common shares for diluted earnings per share		71,031		70,266

XML

Real Estate Properties

3 Months Ended

Mar. 31, 2016

Real Estate Properties

Real Estate Properties

Note 4.   Real Estate Properties

As of March 31, 2016, we owned 72 properties (92 buildings), with an undepreciated carrying value of $1,770,983,  excluding one property (one building) classified as discontinued operations with an undepreciated carrying value of $12,260. We generally lease space at our properties on a gross lease or modified gross lease basis pursuant to fixed term operating leases expiring between 2016 and 2032.  Our leases generally require us to pay all or some property operating expenses and to provide all or most property management services.  During the three months ended March 31, 2016, we entered into 20 leases for 522,962 rentable square feet, including a 25,579 square foot expansion to be constructed at an existing property, for a weighted (by rentable square feet) average lease term of 11.6 years and we made commitments for approximately $20,469 of leasing related costs. We have estimated unspent leasing related obligations of $22,752 as of March 31, 2016. In addition, prior to the commencement of the lease, we have committed to redevelop and expand the existing property referenced above at an estimated cost of approximately $12,800.

Acquisition Activities

During the three months ended March 31, 2016, we acquired one office property (one building) located in Sacramento, CA with 337,811 rentable square feet.  This property was 86% leased, of which 71% was leased to the State of California and occupied by three separate agencies on the date of acquisition.  The purchase price was $79,244, excluding acquisition costs.  Our allocation of the purchase price of this acquisition based on the estimated fair values of the acquired assets and assumed liabilities is presented in the table below. The allocation of the purchase price is based on preliminary estimates and may change upon completion of third party appraisals.

Number

of

Buildings

Acquired

Other

Acquisition

Properties/

Square

Purchase

and

Acquired

Lease

Assumed

Date

Location

Type

Buildings

Feet

Price

Land

Improvements

Leases

Obligations

Liabilities

January 2016

Sacramento, CA

Office

1 / 1

337,811

$

79,244

$

4,658

$

61,330

$

13,525

$

(269)

$

—

In April 2016, we exercised our option to purchase for $1,623 an adjacent land parcel at one of our existing properties in Atlanta, GA. We expect this transaction to close during the third quarter of 2016.

We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of long lived assets. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. We determine the amount of any impairment loss by comparing the historical carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. In addition to consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining lives of our long lived assets. If we change our estimate of the remaining lives, we allocate the carrying value of the affected assets over their revised remaining lives.

Disposition Activities – Continuing Operations

In 2015, we began marketing for sale an office property (one building) in Savannah, GA with 35,228 rentable square feet and a net book value of $3,071 at March 31, 2016.  In March 2016, we entered into an agreement to sell this property.  The contract sales price is $4,500, which amount is before transaction costs we may incur.  This sale is subject to conditions and is currently expected to occur in the third quarter of 2016.  We can provide no assurance that the sale of this property will occur, that the sale will not be delayed or that its terms will not change. We have classified this property as held for sale as of March 31, 2016.  The results of operations for this property are included in continuing operations in our condensed consolidated financial statements.  Summarized balance sheet information for the property is as follows:

	March 31,		December 31,
	2016		2015
Real estate properties, net	$	3,071	$	3,071
Rents receivable		-		1
Other assets		27		26
Assets of property held for sale	$	3,098	$	3,098
Other liabilities	$	32	$	43
Liabilities of property held for sale	$	32	$	43

Disposition Activities – Discontinued Operations

In March 2016, we entered into an agreement to sell an office property (one building) in Falls Church, VA with 164,746 rentable square feet and a net book value of $12,282 at March 31, 2016.  The contract sales price is $14,750, which amount is before transaction costs we may incur.  This sale is subject to conditions, including the purchaser obtaining certain zoning entitlements, and is currently expected to occur in the first quarter of 2017.  We can provide no assurance that the sale of this property will occur, that the sale will not be delayed or that its terms will not change. We have classified this property, which was held for sale prior to our adoption of ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, as a discontinued operation in our condensed consolidated financial statements. Summarized balance sheet and income statement information for the property is as follows:

Balance Sheets:

	March 31,		December 31,
	2016		2015
Real estate properties, net	$	12,260	$	12,260
Rents receivable		17		-
Other assets		225		208
Assets of discontinued operations	$	12,502	$	12,468
Other liabilities	$	75	$	54
Liabilities of discontinued operations	$	75	$	54

Statements of Operations

	Three Months ended March 31,
	2016		2015
Rental income	$	28	$	31
Real estate taxes		(23)		(70)
Utility expenses		(50)		(67)
Other operating expenses		(76)		(71)
General and administrative		(28)		(29)
Loss from discontinued operations	$	(149)	$	(206)

XML

Revenue Recognition

3 Months Ended

Mar. 31, 2016

Revenue Recognition

Revenue Recognition

Note 5.   Revenue Recognition

We recognize rental income from operating leases that contain fixed contractual rent changes on a straight line basis over the term of the lease agreements.  Certain of our leases with government tenants provide the tenant the right to terminate before the lease expiration date if its respective legislature or other funding authority does not appropriate the funding necessary for the government tenant to meet its lease obligations; we have determined the fixed non-cancelable lease term of these leases to be the fully executed term of the lease because we believe the occurrence of early terminations to be remote contingencies based on both our historical experience and our assessment of the likelihood of lease cancellation on a separate lease basis.

We increased rental income to record revenue on a straight line basis by $149 and $663 for the three months ended March 31, 2016 and 2015, respectively.  Rents receivable include $19,144 and $18,995 of straight line rent receivables at March 31, 2016 and December 31, 2015, respectively.

XML

Concentration

3 Months Ended

Mar. 31, 2016

Concentration

Concentration

Note 6.   Concentration

Tenant and Credit Concentration

We define annualized rental income as the annualized contractual base rents from our tenants pursuant to our lease agreements as of the measurement date, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization. The U.S. Government, 12 state governments, and three other government tenants combined were responsible for approximately 92.8% and 92.7% of our annualized rental income, excluding one property (one building) classified as discontinued operations, as of March 31, 2016 and 2015, respectively. The U.S. Government is our largest tenant by annualized rental income and was responsible for approximately 64.6% and 67.7% of our annualized rental income, excluding one property classified as discontinued operations, as of March 31, 2016 and 2015, respectively.

Geographic Concentration

At March 31, 2016, our 72 properties (92 buildings), excluding one property (one building) classified as discontinued operations, were located in 31 states and the District of Columbia.  Properties located in California,  Virginia,  the District of Columbia,  Georgia,  Maryland,  New Yorkand Massachusetts were responsible for approximately 14.6%,  10.0%,  9.9%,  8.8%,  8.2%,  8.0% and 5.3% of our annualized rental income as of March 31, 2016, respectively.

XML

Indebtedness

3 Months Ended

Mar. 31, 2016

Indebtedness

Indebtedness

Note 7.   Indebtedness

Our principal debt obligations at March 31, 2016 were: (1) outstanding borrowings under our $750,000 unsecured revolving credit facility; (2) $550,000 aggregate outstanding principal amount of term loans (3) $350,000 of senior unsecured notes; and (4) $28,592 aggregate principal amount of mortgage notes. 

Our $750,000 unsecured revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our unsecured revolving credit facility is January 31, 2019 and, subject to the payment of an extension fee and meeting other conditions, we have an option to extend the stated maturity date of our unsecured revolving credit facility by one year to January 31, 2020.  We can borrow, repay and reborrow funds available under our unsecured revolving credit facility until maturity and no principal repayment is due until maturity. We are required to pay interest at a rate of LIBOR plus a premium, which was 125 basis points per annum at March 31, 2016, on borrowings under our unsecured revolving credit facility.  We also pay a facility fee on the total amount of lending commitments under our unsecured revolving credit facility, which was 25 basis points per annum at March 31, 2016.  Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings.  As of March 31, 2016, the annual interest rate payable on borrowings under our unsecured revolving credit facility was 1.6% and the weighted average annual interest rate for borrowings under our unsecured revolving credit facility was 1.6% and 2.0%, respectively, for the three months ended March 31, 2016 and 2015.  As of March 31, 2016 and April 26, 2016, we had $311,000 and $303,000 outstanding under our unsecured revolving credit facility, respectively.

Our $300,000 unsecured term loan, which matures on March 31, 2020, is prepayable without penalty at any time. We are required to pay interest at a rate of LIBOR plus a premium, which was 140 basis points per annum at March 31, 2016, on the amount outstanding under our $300,000 unsecured term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings.  As of March 31, 2016, the annual interest rate for the amount outstanding under our $300,000 unsecured term loan was 1.8%. The weighted average annual interest rate under our $300,000 unsecured term loan was 1.8% and 1.6%, respectively, for the three months ended March 31, 2016 and 2015.

Our $250,000 unsecured term loan, which matures on March 31, 2022, is prepayable at any time. If our $250,000 unsecured term loan is repaid on or prior to November 21, 2016, a prepayment premium of 1.0% of the amount repaid will be payable. Subsequent to November 21, 2016, no prepayment premium will be payable. We are required to pay interest at a rate of LIBOR plus a premium, which was 180 basis points per annum as of March 31, 2016, on the amount outstanding under our $250,000 unsecured term loan.  The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of March 31, 2016, the annual interest rate for the amount outstanding under our $250,000 unsecured term loan was2.2%.  The weighted average annual interest rate under our $250,000 unsecured term loan was 2.2% and 2.0%, respectively, for the three months ended March 31, 2016 and 2015.

Our $750,000 unsecured revolving credit facility, our $300,000 unsecured term loan and our $250,000 unsecured term loan are governed by a credit agreement with a syndicate of institutional lenders that includes a number of features common to all of these credit arrangements. This credit agreement also includes a feature under which the maximum aggregate borrowing availability may be increased to up to $2,500,000 on a combined basis in certain circumstances.

Our $350,000 of 3.75% senior unsecured notes due 2019 are governed by an indenture and a supplement to the indenture, and require semi-annual payments of interest only through maturity.  The outstanding amount of these notes may be prepaid at par (plus accrued and unpaid interest) on or after July 15, 2019 or before that date together with a make whole premium.

Our credit agreement and senior unsecured notes indenture and its supplement provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business manager and property manager.  Our credit agreement and our senior unsecured notes indenture and itssupplement also contain a number of covenants, including covenants that restrict our ability to incur debts, require us to maintain certain financial ratios and, in the case of our credit agreement, restrict our ability to make distributions under certain circumstances.  We believe we were in compliance with the terms and conditions of the respective covenants under our credit agreement and senior unsecured notesindenture anditssupplement at March 31, 2016.

In February 2016, we repaid, at par, a $23,473 mortgage note requiring annual interest of 6.21% which was secured by one office property (one building) located in Landover, MD. This mortgage note was scheduled to mature in August 2016.  We recorded a loss on extinguishment of debt of $21 in the three months ended March 31, 2016, which represented unamortized debt issuance costs related to this note.

In March 2016, we repaid, at par, an $83,000 mortgage note requiring annual interest of 5.55% which was secured by one office property (two buildings) located in Reston, VA.  This mortgage note was scheduled to mature in April 2016.  We recorded a gain on extinguishment of debt of $125 in the three months ended March 31, 2016, which represented the net unamortized debt premium and debt issuance costs related to this note.

At March 31, 2016,  three of our properties (three buildings) with an aggregate net book value of $54,684 secured three mortgage notes with an aggregate principal amount of $28,592. Our mortgage notes are non-recourse, subject to certain limited exceptions and do not contain any material financial covenants.

XML

Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2016

Fair Value of Assets and Liabilities

Fair Value of Assets and Liabilities

Note 8.   Fair Value of Assets and Liabilities

The table below presents certain of our assets measured at fair value at March 31, 2016, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset:

				Fair Value at Reporting Date Using
				Quoted Prices in				Significant
		Estimated		Active Markets for		Significant Other		Unobservable
		Fair		Identical Assets		Observable Inputs		Inputs
Description		Value		(Level 1)		(Level 2)		(Level 3)
Recurring Fair Value Measurements
	Assets:
	Investment in RMR Inc. (1)	$	30,368	$	30,368	$	—	$	—
Non-Recurring Fair Value Measurements
	Assets:
	Property held for sale and classified as discontinued operations (2)	$	12,260	$	—	$	—	$	12,260

⁽¹⁾ Our 1,214,225 shares of class A common stock of The RMR Group Inc., or RMR Inc., which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs).  Our historical cost basis for these shares is $26,888 as of March 31, 2016.  The net unrealized gain of $3,480 for these shares as of March 31, 2016 is included in cumulative other comprehensive income (loss) in our condensed consolidated balance sheets.

⁽²⁾ We estimated the fair value of this property at March 31, 2016 based upon broker estimates of value less estimated sale costs (Level 3 inputs as defined in the fair value hierarchy under GAAP).

In addition to the assets described in the table above, our financial instruments include cash and cash equivalents, restricted cash, rents receivable, mortgage notes payable, accounts payable, senior unsecured notes, an unsecured revolving credit facility, unsecured term loans, amounts due to related persons, other accrued expenses and security deposits.  At March 31, 2016 and December 31, 2015, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements due to their short term nature or variable interest rates, except as follows:

	As of March 31, 2016				As of December 31, 2015
	Carrying Amount (1)		Fair Value		Carrying Amount (1)		Fair Value
Senior unsecured notes, 3.75% interest rate, due in 2019	$	346,095	$	358,376	$	345,809	$	351,692
Mortgage note payable, 6.21% interest rate, due in 2016(2) (3)		—		—		23,476		24,038
Mortgage note payable, 5.55% interest rate, due in 2016(2) (4)		—		—		83,375		83,457
Mortgage note payable, 5.88% interest rate, due in 2021(2)		13,994		14,921		14,045		14,678
Mortgage note payable, 7.00% interest rate, due in 2019(2)		9,055		9,600		9,145		9,645
Mortgage note payable, 8.15% interest rate, due in 2021(2)		6,004		6,506		6,258		6,711
	$	375,148	$	389,403	$	482,108	$	490,221

⁽¹⁾ Carrying amount includes certain unamortized debt issuance costs and unamortized premiums and discounts.

⁽²⁾ We assumed these mortgages in connection with our acquisitions of the encumbered 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.

⁽³⁾ This mortgage note was repaid, at par, in February 2016.

⁽⁴⁾ This mortgage note was repaid, at par, in March 2016.

We estimate the fair value of our senior unsecured notes using an average of the bid and ask price of the notes as of the measurement date (Level 2 inputs as defined in the fair value hierarchy under GAAP). 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).  Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.

XML

Shareholders' Equity

3 Months Ended

Mar. 31, 2016

Shareholders' Equity

Shareholders' Equity

Note 9.   Shareholders’ Equity

Distributions

On February 25, 2016, we paid a regular quarterly distribution to common shareholders of record on January 22, 2016 of $0.43 per share, or $30,584.

On April 13, 2016, we declared a regular quarterly distribution payable to common shareholders of record on April 25, 2016, in the amount of $0.43 per share, or $30,584.We expect to pay this distribution on or about May 23, 2016 using cash on hand and borrowings under our unsecured revolving credit facility.

Cumulative Other Comprehensive Income (Loss)

Cumulative other comprehensive income (loss) represents the unrealized gain on the RMR Inc. shares we own and our share of the comprehensive income (loss) of Select Income REIT, or SIR, and Affiliates Insurance Company, or AIC. The following table presents changes in the amounts we recognized in cumulative other comprehensive income (loss) by component for the three months ended March 31, 2016:

		Unrealized Gain (Loss)		Equity in
		on Investment in		Unrealized Gain
		Available for		(Loss) of
		Sale Securities		Investees	Total
Balance at December 31, 2015	$	(9,391)	$	(5,476)	$	(14,867)
Other comprehensive income before reclassifications		12,871		4,545		17,416
Amounts reclassified from cumulative other comprehensive income (loss) to net income (1)		-		(1)		(1)
Net current period other comprehensive income		12,871		4,544		17,415
Balance at March 31, 2016	$	3,480	$	(932)	$	2,548

⁽¹⁾ Amounts reclassified from cumulative other comprehensive income (loss) are included in equity in earnings (losses) of investees in our condensed consolidated statements of comprehensive income (loss).

XML

Related Person Transactions

3 Months Ended

Mar. 31, 2016

Related Person Transactions

Related Person Transactions

Note 10.   Related Person Transactions

We have relationships and historical and continuing transactions with RMR LLC and others related to it, including other companies to which RMR LLC provides management services and which have trustees, directors and officers who are also trustees or officers of us.  These relationships include our ownership of approximately 27.9% of the outstanding common shares of SIR, at March 31, 2016.  For further information about these and other such relationships and certain other related person transactions, please refer to our Annual Report.

RMR LLC:  Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $2,508 and $2,561 for the three months ended March 31, 2016 and 2015, respectively.  No incentive fees were estimated to be payable to RMR LLC for the three months ended March 31, 2016 and 2015, respectively.  The net business management fees we recognized for the 2016 and 2015 periods are included in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

In accordance with the terms of our business management agreement, we issued 11,157 of our common shares to RMR LLC for the three months ended March 31, 2015as payment for a part of the business management fee we recognized for that period.  Beginning June 2015, all management fees under our business management agreement are paid in cash.

Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of $2,109and $2,016for the three months ended March 31, 2016 and 2015, respectively.  These amounts are included in other operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

We are generally responsible for all of our operating expenses, including certain expenses incurred by RMR LLC on our behalf.  Our property level operating expenses are generally incorporated into rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC.  We reimbursed RMR LLC $2,944 and $2,510 for property management related expenses for the three months ended March 31, 2016 and 2015, respectively; these amounts are included in other operating expenses in our condensed consolidated statements of comprehensive income (loss).

We have historically awarded share grants to certain RMR LLC employees under our equity compensation plan.In addition, under our business management agreement we reimburse RMR LLC for our allocable costs for internal audit services.  The amounts recognized as expense for share grants to RMR LLC employees and internal audit costs were $234 and $314 for the three months ended March 31, 2016 and 2015, respectively; these amounts are included in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

We lease office space to RMR LLC in certain of our properties for its property management offices.  Pursuant to our lease agreements with RMR LLC, we recognized rental income from RMR LLC for leased office space of approximately$91 and $15 for the three months ended March 31, 2016 and 2015, respectively.

RMR Inc.:  In June 2015, we and three other real estate investment trusts, or REITs, to which RMR LLC provides management services, including SIR, or collectively, the Other REITs, participated in a transaction whereby we and the Other REITs each acquired shares of class A common stock of RMR Inc. and simultaneously amended our business and property management agreements with RMR LLC to, among other things, provide for continuing 20 year terms.  RMR Inc. is the managing member of RMR LLC and RMR LLC is a subsidiary of RMR Inc.  The controlling shareholder of RMR Inc., ABP Trust, is owned by our Managing Trustees.

In connection with our acquisition of shares of class A common stock of RMR Inc., we recorded a liability for the amount by which the estimated fair value of these shares exceeded the price we paid for these shares; this liability is included in accounts payable and other liabilities in our condensed consolidated balance sheets.  We are amortizing this liability ratably through December 31, 2035 as a reduction to our management fees expense.  For the three months ended March 31, 2016, we amortized $272 of this liability, which amount is reflected in the net business management and property management fee amounts for the period referenced above.  As of March 31, 2016, the unamortized amount of this liability was $21,482.

As of March 31, 2016, we own 1,214,225 shares of class A common stock of RMR Inc.  We receive dividends on these shares as declared and paid by RMR Inc. to all holders of shares of RMR Inc. class A common stock. We did not receive any dividends on these shares during the three months ended March 31, 2016. However, on April 13, 2016, RMR Inc. declared a dividend of $0.2993 on its shares of class A common stock payable to shareholders of record on April 25, 2016.  RMR Inc. has indicated that this dividend represents a regular quarterly dividend of $0.25 per share of class A common stock for the quarter ended March 31, 2016 plus a pro rata dividend of $0.0493 per share of class A common stock for the period from December 14, 2015 to December 31, 2015.  RMR Inc. has indicated that it expects to pay this dividend on or about May 19, 2016.

SIR:  We receive distributions on the common shares of SIR we own as declared and paid by SIR to all holders of its common shares. During the three months ended March 31, 2016 and 2015, we received distributions of $12,459 and $13,530, respectively, on our SIR common shares. In addition, on April 13, 2016, SIR declared a dividend of $0.50 per common share payable to shareholders of record on April 25, 2016. SIR has indicated that it expects to pay this dividend on or about May 19, 2016. For additional information about our ownership of SIR shares, see Note 11 below.

AIC:  We and six other companies to which RMR LLC provides management services each own in equal amounts of AIC.  We and the other AIC shareholders participate in a combined property insurance program arranged and reinsured in part by AIC.

As of March 31, 2016, our investment in AIC had a carrying value of $7,075; this amount is included in other assets in our condensed consolidated balance sheets.  We recognized income of $77 and $72 related to our investment in AIC for the three months ended March 31, 2016 and 2015, respectively.  Our other comprehensive income (loss) includes our proportional share of unrealized gains on securities which are owned by AIC of $52 and $45 for the three months ended March 31, 2016 and 2015, respectively.

XML

Equity Investment in Select Income REIT

3 Months Ended

Mar. 31, 2016

Equity Investment in Select Income REIT

Equity Investment in Select Income REIT

Note 11.   Equity Investment in Select Income REIT

As of March 31, 2016, we owned 24,918,421, or approximately 27.9%, of the then outstanding SIR common shares.  SIR is a REIT that is primarily focused on owning and investing in net leased, single tenant properties. 

We account for our investment in SIR under the equity method.  Under the equity method, we record our proportionate share of SIR’s net income as equity in earnings of an investee in our condensed consolidated statements of comprehensive income (loss).  For the three months ended March 31, 2016 and 2015, we recorded $9,857 and $2,176 of equity in the earnings of SIR, respectively. Our other comprehensive income (loss) includes unrealized gains attributable to our investment in SIR of $4,492 and $13 for the three months ended March 31, 2016 and 2015, respectively.

As of March 31, 2016, our investment in SIR had a carrying value of $493,259 and a market value, based on the closing price of SIR common shares on the New York Stock Exchange on March 31, 2016, of $574,370. We periodically evaluate our equity investment in SIR for possible indicators of other than temporary impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable.  These indicators may include the length of time the market value of our investment is below our cost basis, the financial condition of SIR, our intent and ability to be a long term holder of the investment and other considerations.  If the decline in fair value is judged to be other than temporary, we may record an impairment charge to adjust the basis of the investment to its fair value.

During the three months ended March 31, 2015, SIR issued 28,453,447 common shares, which included 28,439,111 common shares issued in connection with SIR’s acquisition of Cole Corporate Income Trust, Inc. on January 29, 2015.  We recognized a loss on issuance of shares by SIR of $40,771 during the three months ended March 31, 2015 as a result of the per share issuance price of these SIR common shares being below the then average per share carrying value of our SIR common shares.

The cost of our investments in SIR exceeded our proportionate share of SIR’s total shareholders’ equity book value on their dates of acquisition by an aggregate of $166,272. As required under GAAP, we were amortizing this difference to equity in earnings of investees over the average remaining useful lives of the real estate assets and intangible assets and liabilities owned by SIR as of the respective dates of our acquisitions.  This amortization decreased our equity in the earnings of SIR by $2,564 for the three months ended March 31, 2015.  We recorded a loss on impairment of our SIR investment during the three months ended June 30, 2015 resulting in the carrying value of our SIR investment to be less than our proportionate share of SIR’s total shareholders’ book equity as of June 30, 2015.  As a result, the previous basis difference was eliminated and we are currently amortizing a basis difference of ($95,035) to earnings over the estimated remaining useful lives of the real estate assets and intangible assets and liabilities owned by SIR as of June 30, 2015.  This amortization increased our equity in the earnings of SIR by $740 for the three months ended March 31, 2016.

During the three months ended March 31, 2016 and 2015, we received cash distributions from SIR totaling $12,459and $13,530, respectively.

The following summarized financial data of SIR as reported in SIR’s Quarterly Report on Form 10-Q for the three months ended March 31, 2016, or the SIR Quarterly Report. References in our financial statements to the SIR Quarterly Report are included as references to the source of the data only, and the information in the SIR Quarterly Report is not incorporated by reference into our financial statements.

Condensed Consolidated Balance Sheets:

	March 31,		December 31,
	2016		2015
Real estate properties, net	$	3,936,299	$	3,954,889
Acquired real estate leases, net		550,664		566,195
Cash and cash equivalents		31,294		17,876
Rents receivable, net		106,741		99,307
Other assets, net		67,812		46,078
Total assets	$	4,692,810	$	4,684,345
Unsecured revolving credit facility	$	328,000	$	303,000
Unsecured term loan, net		348,000		347,876
Senior unsecured notes, net		1,427,169		1,426,025
Mortgage notes payable, net		286,516		286,706
Assumed real estate lease obligations, net		84,255		86,495
Other liabilities		117,793		137,283
Shareholders' equity		2,101,077		2,096,960
Total liabilities and shareholders' equity	$	4,692,810	$	4,684,345

Condensed Consolidated Statements of Income:

	Three Months Ended March 31,
	2016		2015
Rental income	$	97,860	$	80,478
Tenant reimbursements and other income		19,372		13,937
Total revenues		117,232		94,415
Real estate taxes		10,288		8,357
Other operating expenses		12,958		9,007
Depreciation and amortization		33,469		24,719
Acquisition related costs		58		20,539
General and administrative		6,976		6,792
Total expenses		63,749		69,414
Operating income		53,483		25,001
Interest expense		(20,609)		(14,179)
Loss on early extinguishment of debt		—		(6,845)
Income before income tax expense and equity in earnings of an investee		32,874		3,977
Income tax expense		(139)		(31)
Equity in earnings of an investee		77		72
Net income		32,812		4,018
Net income allocated to noncontrolling interest		(33)		(41)
Net income attributed to SIR	$	32,779	$	3,977
Weighted average common shares outstanding (basic)		89,286		79,489
Weighted average common shares outstanding (diluted)		89,295		79,498
Net income attributed to SIR per common share (basic and diluted)	$	0.37	$	0.05

XML

Segment Information

3 Months Ended

Mar. 31, 2016

Segment Information

Segment Information

Note 12.   Segment Information

We operate in two separate reportable business segments: ownership of properties that are primarily leased to government tenants and our equity method investment in SIR.

	Three Months Ended March 31, 2016
	Investment		Investment
	in Real Estate		in SIR		Corporate		Consolidated
Rental income	$	63,611	$	—	$	—	$	63,611
Expenses:
Real estate taxes		7,653		—		—		7,653
Utility expenses		4,174		—		—		4,174
Other operating expenses		12,911		—		—		12,911
Depreciation and amortization		18,324		—		—		18,324
Acquisition related costs		152		—		—		152
General and administrative		—		—		3,526		3,526
Total expenses		43,214		—		3,526		46,740
Operating income (loss)		20,397		—		(3,526)		16,871
Interest income		—		—		6		6
Interest expense		(8,269)		—		(1,095)		(9,364)
Gain on early extinguishment of debt		104		—		—		104
Income (loss) from continuing operations before income taxes and
equity in earnings of investees		12,232		—		(4,615)		7,617
Income tax expense		—		—		(15)		(15)
Equity in earnings of investees		—		9,857		77		9,934
Income (loss) from continuing operations		12,232		9,857		(4,553)		17,536
Loss from discontinued operations		(149)		—		—		(149)
Net income (loss)	$	12,083	$	9,857	$	(4,553)	$	17,387
	As of March 31, 2016
	Investment		Investment
	in Real Estate		in SIR		Corporate		Consolidated
Total Assets	$	1,708,910	$	493,259	$	57,226	$	2,259,395

	Three Months Ended March 31, 2015
	Investment		Investment
	in Real Estate		in SIR		Corporate		Consolidated
Rental income	$	62,659	$	—	$	—	$	62,659
Expenses:
Real estate taxes		7,410		—		—		7,410
Utility expenses		4,571		—		—		4,571
Other operating expenses		12,210		—		—		12,210
Depreciation and amortization		17,215		—		—		17,215
Acquisition related costs		6		—		—		6
General and administrative		—		—		4,004		4,004
Total expenses		41,412		—		4,004		45,416
Operating income (loss)		21,247		—		(4,004)		17,243
Interest income		—		—		12		12
Interest expense		(2,267)		—		(7,035)		(9,302)
Loss on issuance of shares by Select Income REIT		—		(40,771)				(40,771)
Income (loss) from continuing operations before income taxes and
equity in earnings (losses) of investees		18,980		(40,771)		(11,027)		(32,818)
Income tax expense		—		—		(30)		(30)
Equity in earnings (losses) of investees		—		(388)		72		(316)
Income (loss) from continuing operations		18,980		(41,159)		(10,985)		(33,164)
Loss from discontinued operations		(206)		—		—		(206)
Net income (loss)	$	18,774	$	(41,159)	$	(10,985)	$	(33,370)
	As of December 31, 2015
	Investment		Investment
	in Real Estate		in SIR		Corporate		Consolidated
Total Assets	$	1,639,462	$	491,369	$	37,679	$	2,168,510

XML

Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2016

Summary of Significant Accounting Policies

Description of New Accounting Pronouncements Not yet Adopted [Text Block]

Recent Accounting Pronouncements

On January 1, 2016, we adopted the Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU, No. 2015-02, Consolidation. Among other things, this update changes how an entity determines the primary beneficiary of a variable interest entity. The implementation of this update did not have an impact in our condensed consolidated financial statements.

On January 1, 2016, we adopted FASB ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability, and ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements – Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting, which addresses the presentation of debt issuance costs related to line of credit arrangements. The implementation of these updates resulted in the reclassification of certain of our capitalized debt issuance costs as an offset to the associated debt liability in our condensed consolidated balance sheets. The classification of capitalized debt issuance costs related to our unsecured revolving credit facility remains unchanged in accordance with ASU No. 2015-15. As of December 31, 2015, debt issuance costs related to our unsecured term loans, senior unsecured notes and mortgage notes payable of $3,510,  $2,172 and $344, respectively, were reclassified from assets to the associated debt liability in our condensed consolidated balance sheets.

On January 1, 2016, we adopted FASB ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The implementation of this update did not have an impact in our condensed consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which changes how entities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. This update is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted subject to certain conditions. Currently, changes in fair value of these investments are recorded through other comprehensive income. Under this ASU, these changes will be recorded through earnings. We are continuing to evaluate this guidance, but we expect the implementation of this guidance will affect available for sale equity investments we hold.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU No. 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the potential impact the adoption of ASU No. 2016-02 will have in our condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, which identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. ASU No. 2016-09 is effective for reporting periods beginning after December 15, 2016.  We are currently assessing the potential impact that the adoption of ASU No. 2016-09 will have in our condensed consolidated financial statements.   

XML

Per Common Share Amounts (Tables)

3 Months Ended

Mar. 31, 2016

Per Common Share Amounts

Weighted Average Common Share Amounts

	For the Three Months
	Ended March 31,
	2016		2015
Weighted average common shares for basic earnings per share		71,031		70,266
Effect of dilutive securities: unvested share awards		-		-
Weighted average common shares for diluted earnings per share		71,031		70,266

XML

Real Estate Properties (Tables)

3 Months Ended

Mar. 31, 2016

Real Estate Properties

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

Number

of

Buildings

Acquired

Other

Acquisition

Properties/

Square

Purchase

and

Acquired

Lease

Assumed

Date

Location

Type

Buildings

Feet

Price

Land

Improvements

Leases

Obligations

Liabilities

January 2016

Sacramento, CA

Office

1 / 1

337,811

$

79,244

$

4,658

$

61,330

$

13,525

$

(269)

$

—

Summarized balance sheet information for properties classified as held for sale

	March 31,		December 31,
	2016		2015
Real estate properties, net	$	3,071	$	3,071
Rents receivable		-		1
Other assets		27		26
Assets of property held for sale	$	3,098	$	3,098
Other liabilities	$	32	$	43
Liabilities of property held for sale	$	32	$	43

Summarized balance sheet and income statement information for properties classified as discontinued operations

Balance Sheets:

	March 31,		December 31,
	2016		2015
Real estate properties, net	$	12,260	$	12,260
Rents receivable		17		-
Other assets		225		208
Assets of discontinued operations	$	12,502	$	12,468
Other liabilities	$	75	$	54
Liabilities of discontinued operations	$	75	$	54

Statements of Operations

	Three Months ended March 31,
	2016		2015
Rental income	$	28	$	31
Real estate taxes		(23)		(70)
Utility expenses		(50)		(67)
Other operating expenses		(76)		(71)
General and administrative		(28)		(29)
Loss from discontinued operations	$	(149)	$	(206)

XML

Fair Value of Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2016

Fair Value of Assets and Liabilities

Schedule of assets measured on a recurring and non-recurring basis at fair value, categorized by the level of inputs used in the valuation assets

The table below presents certain of our assets measured at fair value at March 31, 2016, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset:

				Fair Value at Reporting Date Using
				Quoted Prices in				Significant
		Estimated		Active Markets for		Significant Other		Unobservable
		Fair		Identical Assets		Observable Inputs		Inputs
Description		Value		(Level 1)		(Level 2)		(Level 3)
Recurring Fair Value Measurements
	Assets:
	Investment in RMR Inc. (1)	$	30,368	$	30,368	$	—	$	—
Non-Recurring Fair Value Measurements
	Assets:
	Property held for sale and classified as discontinued operations (2)	$	12,260	$	—	$	—	$	12,260

⁽¹⁾ Our 1,214,225 shares of class A common stock of The RMR Group Inc., or RMR Inc., which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs).  Our historical cost basis for these shares is $26,888 as of March 31, 2016.  The net unrealized gain of $3,480 for these shares as of March 31, 2016 is included in cumulative other comprehensive income (loss) in our condensed consolidated balance sheets.

⁽²⁾ We estimated the fair value of this property at March 31, 2016 based upon broker estimates of value less estimated sale costs (Level 3 inputs as defined in the fair value hierarchy under GAAP).

Schedule of fair value and carrying value of financial instruments

	As of March 31, 2016				As of December 31, 2015
	Carrying Amount (1)		Fair Value		Carrying Amount (1)		Fair Value
Senior unsecured notes, 3.75% interest rate, due in 2019	$	346,095	$	358,376	$	345,809	$	351,692
Mortgage note payable, 6.21% interest rate, due in 2016(2) (3)		—		—		23,476		24,038
Mortgage note payable, 5.55% interest rate, due in 2016(2) (4)		—		—		83,375		83,457
Mortgage note payable, 5.88% interest rate, due in 2021(2)		13,994		14,921		14,045		14,678
Mortgage note payable, 7.00% interest rate, due in 2019(2)		9,055		9,600		9,145		9,645
Mortgage note payable, 8.15% interest rate, due in 2021(2)		6,004		6,506		6,258		6,711
	$	375,148	$	389,403	$	482,108	$	490,221

⁽¹⁾ Carrying amount includes certain unamortized debt issuance costs and unamortized premiums and discounts.

⁽²⁾ We assumed these mortgages in connection with our acquisitions of the encumbered 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.

⁽³⁾ This mortgage note was repaid, at par, in February 2016.

⁽⁴⁾ This mortgage note was repaid, at par, in March 2016.

XML

Shareholders' Equity (Tables)

3 Months Ended

Mar. 31, 2016

Shareholders' Equity

Schedule of changes in each component of cumulative other comprehensive income (loss)

		Unrealized Gain (Loss)		Equity in
		on Investment in		Unrealized Gain
		Available for		(Loss) of
		Sale Securities		Investees	Total
Balance at December 31, 2015	$	(9,391)	$	(5,476)	$	(14,867)
Other comprehensive income before reclassifications		12,871		4,545		17,416
Amounts reclassified from cumulative other comprehensive income (loss) to net income (1)		-		(1)		(1)
Net current period other comprehensive income		12,871		4,544		17,415
Balance at March 31, 2016	$	3,480	$	(932)	$	2,548

⁽¹⁾ Amounts reclassified from cumulative other comprehensive income (loss) are included in equity in earnings (losses) of investees in our condensed consolidated statements of comprehensive income (loss).

XML

Equity Investment in Select Income REIT (Tables) - SIR

3 Months Ended

Mar. 31, 2016

Schedule Of Summarized Balance Sheet Information Of Equity Method Investee Table Text Block

	March 31,		December 31,
	2016		2015
Real estate properties, net	$	3,936,299	$	3,954,889
Acquired real estate leases, net		550,664		566,195
Cash and cash equivalents		31,294		17,876
Rents receivable, net		106,741		99,307
Other assets, net		67,812		46,078
Total assets	$	4,692,810	$	4,684,345
Unsecured revolving credit facility	$	328,000	$	303,000
Unsecured term loan, net		348,000		347,876
Senior unsecured notes, net		1,427,169		1,426,025
Mortgage notes payable, net		286,516		286,706
Assumed real estate lease obligations, net		84,255		86,495
Other liabilities		117,793		137,283
Shareholders' equity		2,101,077		2,096,960
Total liabilities and shareholders' equity	$	4,692,810	$	4,684,345

Schedule Of Summarized Income Statement Information Of Equity Method Investee Table Text Block

	Three Months Ended March 31,
	2016		2015
Rental income	$	97,860	$	80,478
Tenant reimbursements and other income		19,372		13,937
Total revenues		117,232		94,415
Real estate taxes		10,288		8,357
Other operating expenses		12,958		9,007
Depreciation and amortization		33,469		24,719
Acquisition related costs		58		20,539
General and administrative		6,976		6,792
Total expenses		63,749		69,414
Operating income		53,483		25,001
Interest expense		(20,609)		(14,179)
Loss on early extinguishment of debt		—		(6,845)
Income before income tax expense and equity in earnings of an investee		32,874		3,977
Income tax expense		(139)		(31)
Equity in earnings of an investee		77		72
Net income		32,812		4,018
Net income allocated to noncontrolling interest		(33)		(41)
Net income attributed to SIR	$	32,779	$	3,977
Weighted average common shares outstanding (basic)		89,286		79,489
Weighted average common shares outstanding (diluted)		89,295		79,498
Net income attributed to SIR per common share (basic and diluted)	$	0.37	$	0.05

XML

Segment Information (Tables)

3 Months Ended

Mar. 31, 2016

Segment Information

Schedule of ownership of properties that are primarily leased to government tenants and our equity method investment in SIR

	Three Months Ended March 31, 2016
	Investment		Investment
	in Real Estate		in SIR		Corporate		Consolidated
Rental income	$	63,611	$	—	$	—	$	63,611
Expenses:
Real estate taxes		7,653		—		—		7,653
Utility expenses		4,174		—		—		4,174
Other operating expenses		12,911		—		—		12,911
Depreciation and amortization		18,324		—		—		18,324
Acquisition related costs		152		—		—		152
General and administrative		—		—		3,526		3,526
Total expenses		43,214		—		3,526		46,740
Operating income (loss)		20,397		—		(3,526)		16,871
Interest income		—		—		6		6
Interest expense		(8,269)		—		(1,095)		(9,364)
Gain on early extinguishment of debt		104		—		—		104
Income (loss) from continuing operations before income taxes and
equity in earnings of investees		12,232		—		(4,615)		7,617
Income tax expense		—		—		(15)		(15)
Equity in earnings of investees		—		9,857		77		9,934
Income (loss) from continuing operations		12,232		9,857		(4,553)		17,536
Loss from discontinued operations		(149)		—		—		(149)
Net income (loss)	$	12,083	$	9,857	$	(4,553)	$	17,387
	As of March 31, 2016
	Investment		Investment
	in Real Estate		in SIR		Corporate		Consolidated
Total Assets	$	1,708,910	$	493,259	$	57,226	$	2,259,395

XML

Recent Accounting Pronouncements (Details) - Accounting Standards Update 2015-03 $ in Thousands	12 Months Ended
	Dec. 31, 2015 USD ($)
Unsecured term loan
New Accounting Pronouncements or Change in Accounting Principle
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification	$ 3,510
Senior Notes.
New Accounting Pronouncements or Change in Accounting Principle
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification	2,172
Mortgage Notes Payable
New Accounting Pronouncements or Change in Accounting Principle
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification	$ 344

XML

Per Common Share Amounts (Details) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Per Common Share Amounts
Weighted average common shares outstanding (basic) (in shares)	71,031	70,266
Weighted average common shares outstanding (diluted) (in shares)	71,031	70,266

XML

Real Estate Properties (Details) $ in Thousands	1 Months Ended	3 Months Ended
	Jan. 31, 2016 USD ($) ft² property building	Mar. 31, 2016 USD ($) ft² property	Apr. 28, 2016 USD ($) property	Mar. 31, 2016 building	Mar. 31, 2016 item	Mar. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Mar. 31, 2015 property building
Real estate properties
Number of properties owned | property		72
Number of buildings				92	92
Total real estate properties, gross						$ 1,767,637	$ 1,696,132
Number of leases entered | property		20
Expansion of area square foot | ft²		25,579
Square Feet | ft²		522,962
Weighted average lease term		11 years 7 months 6 days
Expenditures committed on leases		$ 20,469
Committed but unspent tenant related obligations estimated						22,752
Continuing operations
Real estate properties
Total real estate properties, gross						1,770,983
Discontinued operations
Real estate properties
Number of properties owned | property		1						1
Number of buildings				1	1			1
Real estate properties, net						$ 12,260
Square foot expansion cost		$ 12,800
Sacramento, CA
Real estate properties
Property leased		86.00%
Sacramento, CA | State of California
Real estate properties
Property leased		71.00%
Number of agencies | item					3
Sacramento, CA | Office
Real estate properties
Square Feet | ft²	337,811
Number of Properties Acquired | property	1
Number of Buildings Acquired | building	1
Purchase Price	$ 79,244
Land	4,658
Buildings and Improvement	61,330
Acquired leases	13,525
Acquired Lease obligation	$ (269)
Atlanta, GA
Real estate properties
Number of properties owned | property			1
Land			$ 1,623

XML

Real Estate Properties Disposition Acitivities (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($) ft²	Mar. 31, 2015 USD ($)	Mar. 31, 2016 building	Mar. 31, 2016 item	Mar. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Real estate properties
Number of Buildings			92	92
Net book value					$ 1,501,794	$ 1,440,253
Balance Sheets:
Assets of property held for sale					3,098	3,098
Assets of discontinued operations					12,502	12,468
Liabilities of property held for sale					32	43
Liabilities of discontinued operations					75	54
Statement of Operations:
Income (loss) from discontinued operations	$ (149)	$ (206)
Continuing operations.
Balance Sheets:
Real estate properties, net					3,071	3,071
Rents receivable						1
Other assets					27	26
Assets of property held for sale					3,098	3,098
Other liabilities					32	43
Liabilities of property held for sale					32	43
Continuing operations. | Office | Savannah GA
Real estate properties
Number of Buildings | building			1
Discontinued operations
Balance Sheets:
Real estate properties, net					12,260
Rents receivable					17
Other assets					225
Assets of discontinued operations					12,502
Other liabilities					75
Liabilities of discontinued operations					75
Statement of Operations:
Rental income	28	31
Real estate taxes	(23)	(70)
Utility expenses	(50)	(67)
Other operating expenses	(76)	(71)
General and administrative	(28)	(29)
Income (loss) from discontinued operations	$ (149)	$ (206)
Discontinued operations | Discontinued Operations, Held-for-sale
Balance Sheets:
Real estate properties, net						12,260
Other assets						208
Assets of discontinued operations						12,468
Other liabilities						54
Liabilities of discontinued operations						$ 54
One building | Continuing operations. | Office | Savannah GA
Real estate properties
Rentable square feet of properties | ft²	35,228
Net book value					3,071
Option purchase price					4,500
One building | Discontinued Operations, Held-for-sale | Office | Falls Church, VA
Real estate properties
Number of Buildings | building			1
Rentable square feet of properties | ft²	164,746
Net book value					12,282
Aggregate sale price of properties sold, excluding closing costs					$ 14,750

XML

Revenue Recognition (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Revenue Recognition
Increase in rental income to record revenue on straight line basis	$ 149	$ 663
Straight line rent receivables (liabilities)	$ 19,144		$ 18,995

XML

Concentration (Details)	3 Months Ended
	Mar. 31, 2016 state	Mar. 31, 2015 property building	Mar. 31, 2016 property	Mar. 31, 2016 building	Mar. 31, 2016 item
Concentration
Number of properties owned | property			72
Number of buildings				92	92
Number of states in which acquired properties located | state	31
Number of state governments | state	12
Number of other governments | item					3
Annualized rental income, excluding properties classified as discontinued operations | California
Concentration
Annualized Rental income percent	14.6
Annualized rental income, excluding properties classified as discontinued operations | Virginia
Concentration
Annualized Rental income percent	10.0
Annualized rental income, excluding properties classified as discontinued operations | District of Columbia
Concentration
Annualized Rental income percent	9.9
Annualized rental income, excluding properties classified as discontinued operations | Georgia
Concentration
Annualized Rental income percent	8.8
Annualized rental income, excluding properties classified as discontinued operations | New York
Concentration
Annualized Rental income percent	8.0
Annualized rental income, excluding properties classified as discontinued operations | Maryland
Concentration
Annualized Rental income percent	8.2
Annualized rental income, excluding properties classified as discontinued operations | Massachusetts
Concentration
Annualized Rental income percent	5.3
Annualized rental income, excluding properties classified as discontinued operations | Tenant concentration | U.S. Government, state governments and Other Three Government
Concentration
Concentration risk, percentage	92.80%	92.70%
Annualized rental income, excluding properties classified as discontinued operations | Tenant concentration | U.S. Government
Concentration
Concentration risk, percentage	64.60%	67.70%
Discontinued operations
Concentration
Number of properties owned | property		1	1
Number of buildings		1		1	1

XML

Indebtedness (Details) $ in Thousands	1 Months Ended		3 Months Ended
	Mar. 31, 2016 USD ($) property building item	Feb. 29, 2016 USD ($) property building	Mar. 31, 2016 USD ($) property building item loan	Mar. 31, 2015	Apr. 26, 2016 USD ($)	Dec. 31, 2015 USD ($)
Indebtedness
Unsecured revolving credit facility	$ 311,000		$ 311,000			$ 117,000
Unsecured term loans, net	546,660		546,660			546,490
Senior Notes	346,095		346,095			345,809
Mortgage notes payable, net	29,053		29,053			$ 136,299
Maximum borrowing capacity on debt instruments may be increased under certain conditions	$ 2,500,000		2,500,000
Gain (Loss) on early extinguishment of debt			$ 104
Number of properties secured by mortgage notes | property	3		3
Number of buildings secured by mortgage notes | item	3		3
Aggregate net book value of secured properties	$ 54,684		$ 54,684
Number of assumed secured mortgage loans | loan			3
Aggregate principal amount on secured properties	28,592		$ 28,592
Unsecured revolving credit facility
Indebtedness
Unsecured revolving credit facility	$ 311,000		$ 311,000		$ 303,000
Interest rate (as a percent)	1.60%		1.60%
Maximum borrowing capacity on revolving credit facility	$ 750,000		$ 750,000
Option to extend the maturity date subject to certain conditions and the payment of a fee			1 year
The weighted average annual interest rate (as a percent)			1.60%	2.00%
Term loan, interest rate basis			LIBOR
Interest rate premium (as a percent)			1.25%
Facility fee (as a percent)			0.25%
Unsecured term loan, due in 2020
Indebtedness
Face amount	$ 300,000		$ 300,000
Interest rate (as a percent)	1.80%		1.80%
The weighted average annual interest rate (as a percent)			1.80%	1.60%
Term loan, interest rate basis			LIBOR
Interest rate premium (as a percent)			1.40%
Unsecured term loan, due in 2022
Indebtedness
Face amount	$ 250,000		$ 250,000
Interest rate (as a percent)	2.20%		2.20%
The weighted average annual interest rate (as a percent)			2.20%	2.00%
Term loan, interest rate basis			LIBOR
Interest rate premium (as a percent)			1.80%
Loan prepayment premium prior to November 21, 2016 (as a percent)			1.00%
Loan prepayment premium subsequent to November 21, 2016 (as a percent)			0.00%
3.75% Senior unsecured note due In 2019
Indebtedness
Face amount	$ 350,000		$ 350,000
Interest rate (as a percent)	3.75%		3.75%			3.75%
5.55% Mortgage notes due in 2016
Indebtedness
Interest rate (as a percent)	5.55%		5.55%			5.55%
Mortgage note repaid	$ 83,000
Gain (Loss) on early extinguishment of debt	$ 125
Number of properties secured by mortgage notes | property	1		1
Number of buildings secured by mortgage notes | building	2		2
6.21% Mortgage notes due in 2016
Indebtedness
Interest rate (as a percent)	6.21%	6.21%	6.21%			6.21%
Mortgage note repaid		$ 23,473
Gain (Loss) on early extinguishment of debt			$ (21)
Number of properties secured by mortgage notes | property		1
Number of buildings secured by mortgage notes | building		1
5.88% Mortgage notes due in 2021
Indebtedness
Interest rate (as a percent)	5.88%		5.88%			5.88%
7% Mortgage notes due in 2019
Indebtedness
Interest rate (as a percent)	7.00%		7.00%			7.00%
8.15% Mortgage notes due in 2021
Indebtedness
Interest rate (as a percent)	8.15%		8.15%			8.15%

XML

Fair Value of Assets and Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Feb. 29, 2016	Dec. 31, 2015
Fair Value of Financial Instruments
Mortgage notes payable, net	$ 29,053		$ 136,299
Senior Notes	$ 346,095		$ 345,809
3.75% Senior unsecured note due In 2019
Fair Value of Financial Instruments
Interest rate (as a percent)	3.75%		3.75%
5.55% Mortgage notes due in 2016
Fair Value of Financial Instruments
Interest rate (as a percent)	5.55%		5.55%
6.21% Mortgage notes due in 2016
Fair Value of Financial Instruments
Interest rate (as a percent)	6.21%	6.21%	6.21%
5.88% Mortgage notes due in 2021
Fair Value of Financial Instruments
Interest rate (as a percent)	5.88%		5.88%
7% Mortgage notes due in 2019
Fair Value of Financial Instruments
Interest rate (as a percent)	7.00%		7.00%
8.15% Mortgage notes due in 2021
Fair Value of Financial Instruments
Interest rate (as a percent)	8.15%		8.15%
Carrying Amount
Fair Value of Financial Instruments
Mortgage notes payable, net	$ 375,148		$ 482,108
Carrying Amount | 3.75% Senior unsecured note due In 2019
Fair Value of Financial Instruments
Senior Notes	346,095		345,809
Carrying Amount | 5.55% Mortgage notes due in 2016
Fair Value of Financial Instruments
Mortgage notes payable, net			83,375
Carrying Amount | 6.21% Mortgage notes due in 2016
Fair Value of Financial Instruments
Mortgage notes payable, net			23,476
Carrying Amount | 5.88% Mortgage notes due in 2021
Fair Value of Financial Instruments
Mortgage notes payable, net	13,994		14,045
Carrying Amount | 7% Mortgage notes due in 2019
Fair Value of Financial Instruments
Mortgage notes payable, net	9,055		9,145
Carrying Amount | 8.15% Mortgage notes due in 2021
Fair Value of Financial Instruments
Mortgage notes payable, net	6,004		6,258
Fair Value
Fair Value of Financial Instruments
Mortgage notes payable, net	389,403		490,221
Fair Value | 3.75% Senior unsecured note due In 2019
Fair Value of Financial Instruments
Senior Notes	358,376		351,692
Fair Value | 5.55% Mortgage notes due in 2016
Fair Value of Financial Instruments
Mortgage notes payable, net			83,457
Fair Value | 6.21% Mortgage notes due in 2016
Fair Value of Financial Instruments
Mortgage notes payable, net			24,038
Fair Value | 5.88% Mortgage notes due in 2021
Fair Value of Financial Instruments
Mortgage notes payable, net	14,921		14,678
Fair Value | 7% Mortgage notes due in 2019
Fair Value of Financial Instruments
Mortgage notes payable, net	9,600		9,645
Fair Value | 8.15% Mortgage notes due in 2021
Fair Value of Financial Instruments
Mortgage notes payable, net	$ 6,506		$ 6,711

XML

Fair Value of Assets and Liabilities Financial Instruments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Fair Value of Assets and Liabilities
Property held for sale	$ 1,501,794	$ 1,440,253
Common shares owned in RMR Inc.	1,214,225
Historical cost	$ 26,888
Unrealized gain on investment in available for sale securities	3,480
Recurring
Fair Value of Assets and Liabilities
Investment in RMR Inc.	30,368
Recurring | Level 1 inputs
Fair Value of Assets and Liabilities
Investment in RMR Inc.	30,368
Discontinued Operations, Held-for-sale | Nonrecurring
Fair Value of Assets and Liabilities
Property held for sale and classified as discontinued opeations (2)	12,260
Discontinued Operations, Held-for-sale | Nonrecurring | Level 3 inputs
Fair Value of Assets and Liabilities
Property held for sale and classified as discontinued opeations (2)	12,260
Discontinued operations
Fair Value of Assets and Liabilities
Property held for sale and classified as discontinued opeations (2)	$ 12,260

XML

Shareholders' Equity (Details) - USD ($) $ / shares in Units, $ in Thousands			3 Months Ended
	Apr. 13, 2016	Feb. 25, 2016	Mar. 31, 2016
Distributions
Cash distribution to common shareholders (in dollars per share)		$ 0.43
Distribution payable to common shareholders (in dollars per share)	$ 0.43
Distribution paid to common shareholders	$ 30,584	$ 30,584
Cumulative Other Comprehensive Income (Loss)
Balance at the beginning of the period			$ (14,867)
Other comprehensive loss before reclassifications			17,416
Amounts reclassified from cumulative other comprehensive loss to net income			(1)
Net current period other comprehensive loss			17,415
Balance at the end of the period			2,548
Unrealized Loss on Investment in Available for Sale Securities
Cumulative Other Comprehensive Income (Loss)
Balance at the beginning of the period			(9,391)
Other comprehensive loss before reclassifications			12,871
Net current period other comprehensive loss			12,871
Balance at the end of the period			3,480
Equity in Unrealized Gain (Loss) of an Investee
Cumulative Other Comprehensive Income (Loss)
Balance at the beginning of the period			(5,476)
Other comprehensive loss before reclassifications			4,545
Amounts reclassified from cumulative other comprehensive loss to net income			(1)
Net current period other comprehensive loss			4,544
Balance at the end of the period			$ (932)

XML

Related Person Transactions - RMR LLC Management Fees and Reimbursements (Details) - RMR LLC - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Related Person Transaction
Business management fees	$ 2,508	$ 2,561
Number of shares issued		11,157
Incentive fees payable	0	$ 0
Property management and construction supervision fees	2,109	2,016
Related party reimbursement expenses	2,944	2,510
Accrual for RMR LLC employee share grants and internal audit services	234	314
Rental income earned	$ 91	$ 15
Percentage of ownership interest	27.90%

XML

Related Person Transactions - REITs, for which RMR LLC provides Management Services (Details) $ / shares in Units, $ in Thousands		1 Months Ended	3 Months Ended
	Apr. 13, 2016 $ / shares	Jun. 30, 2015 agreement	Mar. 31, 2016 USD ($) agreement shares	Mar. 31, 2015 USD ($) shares	Apr. 25, 2016 $ / shares	Dec. 31, 2015 USD ($) $ / shares
Related Person Transaction
Proceeds from Equity Method Investment, Dividends or Distributions			$ 9,117	$ 2,176
Investment at carrying value			493,259			$ 491,369
Recognized income (loss) related to investment			$ 9,934	(316)
SIR
Related Person Transaction
Percentage of ownership interest			27.90%
Quarterly dividend payable on common stock (in dollars per share) | $ / shares					$ 0.50
Proceeds from Equity Method Investment, Dividends or Distributions			$ 12,459	13,530
SIR
Related Person Transaction
Percentage of ownership interest			27.90%
Proceeds from Equity Method Investment, Dividends or Distributions			$ 12,459	13,530
Investment at carrying value			493,259
Recognized income (loss) related to investment			9,857	$ 2,176
SIR | SIR
Related Person Transaction
Number of common shares sold in public offering | shares				28,453,447
Recognized income (loss) related to investment			$ 77	$ 72
RMR LLC
Related Person Transaction
Percentage of ownership interest			27.90%
AIC
Related Person Transaction
Investment at carrying value			$ 7,075
Recognized income (loss) related to investment			77	72
Other Comprehensive Income, Other, Net of Tax			$ 52	$ 45
AIC | RMR LLC
Related Person Transaction
Number of entities to whom RMR provides management services | agreement			6
RMR Inc | RMR LLC
Related Person Transaction
Number of entities to whom RMR provides management services | agreement		3
Management agreement continuing terms (in years)		20 years
Class A common shares | RMR LLC
Related Person Transaction
Shares holding | shares			1,214,225
Common distributions declared (in dollars per share) | $ / shares	$ 0.2993
Quarterly dividend payable on common stock (in dollars per share) | $ / shares	$ 0.25					$ 0.0493
RMR Inc
Related Person Transaction
Initial Other Liabilities			$ 21,482
Recognized amortization of the liability			$ 272

XML

Equity Investment in Select Income REIT (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015	Jun. 30, 2015	Dec. 31, 2014
Equity Investment in Select Income REIT
Income (Loss) from Equity Method Investments	$ 9,934	$ (316)
Equity in unrealized gain of investees	4,544	58
Investment at carrying value	493,259		$ 491,369
Loss on issuance of shares by Select Income REIT		(40,771)
Proceeds from Equity Method Investment, Dividends or Distributions	9,117	2,176
Equity Method Investment Summarized Balance Sheet Information Abstract
Real estate properties, net	1,501,794		1,440,253
Acquired real estate leases, net	123,300		118,267
Cash and cash equivalents	15,698	9,537	8,785		$ 13,791
Rents receivable, net	46,617		45,269
Other assets, net	44,505		33,680
Total assets	2,259,395		2,168,510
Unsecured revolving credit facility	311,000		117,000
Unsecured term loan, net	546,660		546,490
Senior unsecured notes, net	346,095		345,809
Mortgage notes payable, net	29,053		136,299
Assumed real estate lease obligations, net	12,224		12,735
Other Liabilities	48,979		50,543
Shareholders' equity	960,897		956,651
Total liabilities and shareholders' equity	2,259,395		2,168,510
Income Statements:
Total revenues	63,611	62,659
Real estate taxes	7,653	7,410
Other operating expenses	12,911	12,210
Depreciation and amortization	18,324	17,215
Acquisition related costs	152	6
General and administrative	3,526	4,004
Total expenses	46,740	45,416
Operating income	16,871	17,243
Interest expense	(9,364)	(9,302)
Gain (Loss) on early extinguishment of debt	104
Income (loss) from continuing operations before income taxes and equity in earnings (losses) of investees	7,617	(32,818)
Income tax expense	(15)	(30)
Equity in earnings (losses) of investees	$ 9,934	$ (316)
Weighted average common shares outstanding (basic) (in shares)	71,031,000	70,266,000
Weighted average common shares outstanding (diluted) (in shares)	71,031,000	70,266,000
Basic and diluted net income attributed to SIR per common share	$ 0.24	$ (0.47)
SIR
Equity Investment in Select Income REIT
Percentage of outstanding shares owned	27.90%
Proceeds from Equity Method Investment, Dividends or Distributions	$ 12,459	$ 13,530
SIR
Equity Investment in Select Income REIT
Equity investments, common shares owned	24,918,421
Percentage of outstanding shares owned	27.90%
Income (Loss) from Equity Method Investments	$ 9,857	2,176
Equity in unrealized gain of investees	4,492	13
Investment at carrying value	493,259
Equity Investments, market value	574,370
The amount of investment in exceed the underlying equity of the investee	166,272
Amortization of the difference between carrying value and share of underlying equity		2,564
Difference in basis to be amortized over remaining period				$ 95,035
Amortization of the difference between carrying value and share of underlying equity upon recording loss on impairment	740
Proceeds from Equity Method Investment, Dividends or Distributions	12,459	13,530
Income Statements:
Equity in earnings (losses) of investees	9,857	2,176
SIR | SIR
Equity Investment in Select Income REIT
Income (Loss) from Equity Method Investments	77	$ 72
Number of common shares issued during period		28,453,447
Common share issuance		28,439,111
Loss on issuance of shares by Select Income REIT		$ 40,771
Equity Method Investment Summarized Balance Sheet Information Abstract
Real estate properties, net	3,936,299		3,954,889
Acquired real estate leases, net	550,664		566,195
Cash and cash equivalents	31,294		17,876
Rents receivable, net	106,741		99,307
Other assets, net	67,812		46,078
Total assets	4,692,810		4,684,345
Unsecured revolving credit facility	328,000		303,000
Unsecured term loan, net	348,000		347,876
Senior unsecured notes, net	1,427,169		1,426,025
Mortgage notes payable, net	286,516		286,706
Assumed real estate lease obligations, net	84,255		86,495
Other Liabilities	117,793		137,283
Shareholders' equity	2,101,077		2,096,960
Total liabilities and shareholders' equity	4,692,810		$ 4,684,345
Income Statements:
Rental income	97,860	80,478
Tenant Reimbursements And Other income	19,372	13,937
Total revenues	117,232	94,415
Real estate taxes	10,288	8,357
Other operating expenses	12,958	9,007
Depreciation and amortization	33,469	24,719
Acquisition related costs	58	20,539
General and administrative	6,976	6,792
Total expenses	63,749	69,414
Operating income	53,483	25,001
Interest expense	(20,609)	(14,179)
Gain (Loss) on early extinguishment of debt		(6,845)
Income (loss) from continuing operations before income taxes and equity in earnings (losses) of investees	32,874	3,977
Income tax expense	(139)	(31)
Equity in earnings (losses) of investees	77	72
Net income	32,812	4,018
Net income allocated to noncontrolling interest	33	41
Net income attributed to SIR	$ 32,779	$ 3,977
Weighted average common shares outstanding (basic) (in shares)	89,286,000	79,489,000
Weighted average common shares outstanding (diluted) (in shares)	89,295,000	79,498,000
Basic and diluted net income attributed to SIR per common share	$ 0.37	$ 0.05

XML

Segment Information (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($) item	Mar. 31, 2015 USD ($)	Dec. 31, 2015 USD ($)
Segment Information.
Number of segments | item	2
Rental income	$ 63,611	$ 62,659
Expenses:
Real estate taxes	7,653	7,410
Utility expenses	4,174	4,571
Other operating expenses	12,911	12,210
Depreciation and amortization	18,324	17,215
Acquisition related costs	152	6
General and administrative	3,526	4,004
Total expenses	46,740	45,416
Operating income (loss)	16,871	17,243
Interest income	6	12
Interest expense	(9,364)	(9,302)
Gain on early extinguishment of debt	104
Loss on issuance of shares by Select Income REIT		(40,771)
Income (loss) from continuing operations before income taxes and equity in earnings (losses) of investees	7,617	(32,818)
Income tax expense	(15)	(30)
Equity in earnings (losses) of investees	9,934	(316)
Income (loss) from continuing operations	17,536	(33,164)
Loss from discontinued operations	(149)	(206)
Net income (loss)	17,387	(33,370)
Total assets	2,259,395		$ 2,168,510
Operating Segments | Investment in Real Estate
Segment Information.
Rental income	63,611	62,659
Expenses:
Real estate taxes	7,653	7,410
Utility expenses	4,174	4,571
Other operating expenses	12,911	12,210
Depreciation and amortization	18,324	17,215
Acquisition related costs	152	6
Total expenses	43,214	41,412
Operating income (loss)	20,397	21,247
Interest expense	(8,269)	(2,267)
Gain on early extinguishment of debt	104
Income (loss) from continuing operations before income taxes and equity in earnings (losses) of investees	12,232	18,980
Income (loss) from continuing operations	12,232	18,980
Loss from discontinued operations	(149)	(206)
Net income (loss)	12,083	18,774
Total assets	1,708,910		1,639,462
Operating Segments | Investment in SIR
Expenses:
Loss on issuance of shares by Select Income REIT		(40,771)
Income (loss) from continuing operations before income taxes and equity in earnings (losses) of investees		(40,771)
Equity in earnings (losses) of investees	9,857	(388)
Income (loss) from continuing operations	9,857	(41,159)
Net income (loss)	9,857	(41,159)
Total assets	493,259		491,369
Corporate, Non-Segment
Expenses:
General and administrative	3,526	4,004
Total expenses	3,526	4,004
Operating income (loss)	(3,526)	(4,004)
Interest income	6	12
Interest expense	(1,095)	(7,035)
Income (loss) from continuing operations before income taxes and equity in earnings (losses) of investees	(4,615)	(11,027)
Income tax expense	(15)	(30)
Equity in earnings (losses) of investees	77	72
Income (loss) from continuing operations	(4,553)	(10,985)
Net income (loss)	(4,553)	$ (10,985)
Total assets	$ 57,226		$ 37,679