10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-35442

SELECT INCOME REIT

(Exact Name of Registrant as Specified in Its Charter)

Maryland	45-4071747
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts	02458-1634
(Address of Principal Executive Offices)	(Zip Code)

617-796-8303

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes o  No x

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

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

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

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

Number of registrant’s common shares of beneficial interest, $0.01 par value per share, outstanding as of April 1, 2012:  31,200,000

SELECT INCOME REIT

FORM 10-Q

March 31, 2012

INDEX

		Page
PART I	Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets — March 31, 2012 and December 31, 2011	1
	Condensed Consolidated Statements of Income — Three Months Ended March 31, 2012 and 2011	2
	Condensed Consolidated Statements of Cash Flows — Three Months Ended March 31, 2012 and 2011	3
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
	Warning Concerning Forward Looking Statements	21
	Statement Concerning Limited Liability	23
PART II	Other Information
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 6.	Exhibits	24
	Signatures	26

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

PART I          Financial Information

Item 1.  Financial Statements

SELECT INCOME REIT

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

(unaudited)

	March 31,			December 31,
	2012			2011
ASSETS
Real estate properties:
Land	$	614,702		$	614,702
Buildings and improvements	292,850			292,634
	907,552			907,336
Accumulated depreciation	(38,189		)	(36,240		)
	869,363			871,096
Acquired real estate leases, net	43,111			44,333
Cash and cash equivalents	18,358			—
Rents receivable, net	31,917			35,024
Deferred leasing costs, net	3,571			3,418
Deferred financing costs, net	4,116			—
Due from related persons	1,095			—
Other assets, net	3,698			661
Total assets	$	975,229		$	954,532
LIABILITIES AND SHAREHOLDERS’ EQUITY
Revolving credit facility	$	227,000		$	—
Accounts payable and accrued expenses	15,852			14,217
Assumed real estate lease obligations, net	20,582			21,005
Rents collected in advance	6,397			6,229
Security deposits	8,126			8,281
Total liabilities	277,957			49,732
Commitments and contingencies
Shareholders’ equity:
Common shares of beneficial interest, $0.01 par value:
50,000,000 shares authorized, 31,200,000 and 1,000 shares issued and outstanding, respectively	312			—
Additional paid in capital	693,928			—
Cumulative net income	3,032			—
Ownership Interest	—			904,800
Total shareholders’ equity	697,272			904,800
Total liabilities and shareholders’ equity	$	975,229		$	954,532

See accompanying notes

1

SELECT INCOME REIT

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	2012			2011
Revenues
Rental income	$	24,074		$	23,737
Tenant reimbursements and other income	3,513			4,043
Total revenues	27,587			27,780
Expenses
Real estate taxes	3,641			3,603
Other operating expenses	1,777			2,532
Depreciation and amortization	2,773			2,712
General and administrative	1,404			1,456
Total expenses	9,595			10,303
Operating income	17,992			17,477
Interest expense (including amortization of deferred financing fees of $53 and $0, respectively)	(337		)	—
Net income	$	17,655		$	17,477
Weighted average common shares outstanding	13,205			—
Net income per common share	$	1.34		$	—

See accompanying notes

2

SELECT INCOME REIT

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

	Three Months Ended March 31,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	17,655		$	17,477
Adjustments to reconcile net income to cash provided by operating activities
Depreciation	1,959			1,939
Net amortization of deferred financing fees	53			—
Amortization of acquired real estate leases	800			757
Amortization of deferred leasing costs	130			122
Provision for losses on rents receivable	98			—
Straight line rental income	(773		)	(1,523		)
Change in assets and liabilities:
(Increase) decrease in rents receivable	3,781			(4,830		)
Increase in deferred leasing costs	(284		)	(400		)
Increase in other assets	(3,037		)	(2,871		)
Increase in due from related persons	(1,095		)	—
Increase in accounts payable and accrued expenses	1,487			1,433
Increase in rents collected in advance	168			1,439
Increase (decrease) in security deposits	(155		)	7
Cash provided by operating activities	20,787			13,550
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions	—			(10,000		)
Real estate improvements	(76		)	(651		)
Cash used in investing activities	(76		)	(10,651		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares, net	180,954			—
Borrowings on revolving credit facility	251,500			—
Repayments on revolving credit facility	(24,500		)	—
Deferred financing fees	(4,169		)	—
Repayment of demand note	(400,000		)	—
Net distributions	(6,138		)	(2,899		)
Cash used in financing activities	(2,353		)	(2,899		)
Increase in cash and cash equivalents	18,358			—
Cash and cash equivalents at beginning of period	—			—
Cash and cash equivalents at end of period	$	18,358		$	—

See accompanying notes

3

SELECT INCOME REIT

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(amounts in thousands)

(unaudited)

	Three Months Ended March 31,
	2012		2011
SUPPLEMENTAL CASH FLOW INFORMATION:
Real estate acquired by the issuance of shares and assumption of demand note	$	913,286	$	—
Non-cash financing activities
Issuance of common shares	$	513,286	$	—
Issuance of demand note	400,000		—

See accompanying notes

4

SELECT INCOME REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Note 1.  Basis of Presentation

The accompanying condensed consolidated financial statements of Select Income REIT and its subsidiaries, or SIR, we, us or our, have been prepared without audit.  Certain information and footnote 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 Combined Financial Statements of Selected Properties of CommonWealth REIT as of December 31, 2011 and 2010 and for the three years in the period ending December 31, 2011 and notes thereto contained in our Prospectus, dated March 6, 2012, or our Prospectus, filed with Securities and Exchange Commission, or the SEC, in accordance with Rule 424(b) of the Securities Act of 1933, as amended, or the Securities Act, which is accessible on the SEC’s website at www.sec.gov.  These combined financial statements include 251 properties with a total of approximately 21.4 million rentable square feet, or the Properties, that were owned by CommonWealth REIT and its subsidiaries, or CWH, until they were contributed to us by CWH on February 16, 2012.  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 subsidiaries have been eliminated.  Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.  Because of the significant changes resulting from our initial public offering, or IPO, in March 2012, the financial results reported are not indicative of our expected future results. Reclassifications have been made to the prior years’ financial statements to conform to the current year’s presentation.

These condensed consolidated financial statements are presented as if we were a legal entity separate from CWH at all times for the periods presented, despite our not being in existence until December 19, 2011, and the fact that thereafter we were a wholly owned consolidated subsidiary of CWH until March 12, 2012.

Note 2.  Organization

SIR, a Maryland real estate investment trust, or REIT, was organized on December 19, 2011 as a wholly owned subsidiary of CWH.

On February 16, 2012, CWH contributed the Properties to us. In return, we issued to CWH: (i) 22,000,000 common shares (including 1,000 common shares initially issued to CWH on December 21, 2011 in connection with our formation) and (ii) a $400,000 demand promissory note, or the CWH Note.

On March 6, 2012, we priced our IPO of 8,000,000 common shares. The sale of these shares and an additional 1,200,000 of our common shares pursuant to the exercise in full of our IPO underwriters’ over allotment option closed on March 12, 2012, or the Closing Date, and we became a public company. We used the net proceeds from the IPO and borrowings under our revolving credit facility to repay in full the CWH Note.

Note 3.  Summary of Significant Accounting Policies

Basis of Presentation.  Prior to our IPO, CWH owned us, and we have presented certain historical transactions at CWH’s historical basis.  Historically, substantially all of the rental income received by CWH from the tenants of our Properties were deposited in and commingled with CWH’s general funds. Certain capital investments and other cash requirements of our Properties were paid by CWH and were charged directly to our Properties. General and administrative costs of CWH were allocated to our Properties based on the historical costs of the real estate investments for our Properties as a percentage of CWH’s historical cost of all of CWH’s real estate investments until the Closing Date. In our opinion, and in accordance with applicable accounting guidance, this method for allocating general and administrative expenses is reasonable. However, actual expenses may have been different from allocated expenses if our Properties had operated as a standalone entity and differences might be material.  Since the Closing Date, we have recorded general and administrative expenses at our direct cost.  The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts.  Actual results could differ from those estimates.  Significant estimates in the condensed consolidated financial statements include the allowance for doubtful accounts, purchase price allocations and useful lives of fixed assets.

Real Estate Properties.  As required by GAAP, we have generally adopted the accounting treatment and policies for our properties and business which were previously employed by CWH.

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SELECT INCOME REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 4.  Real Estate Properties

On February 16, 2012, CWH contributed the Properties to us. In return, we issued to CWH: (i) 22,000,000 common shares (including 1,000 common shares initially issued to CWH on December 21, 2011 in connection with our formation) and (ii) the CWH Note.

Since completing our IPO on March 12, 2012, we have entered agreements to acquire two properties for an aggregate purchase price of approximately $104,400, excluding closing costs:

·In April 2012, we entered an agreement to acquire a 100% net leased, single tenant office building located in Provo, UT with 405,699 square feet.  The purchase price is $85,500, excluding closing costs.  This pending acquisition is subject to our satisfactory completion of diligence and other customary closing conditions; accordingly, we can provide no assurance that we will acquire this property.

·Also in April 2012, we entered an agreement to acquire a 100% net leased, single tenant office building located in Englewood, CO with 140,162 square feet.  The purchase price is $18,900, excluding closing costs.  This pending acquisition is subject to our satisfactory completion of diligence and other customary closing conditions; accordingly, we can provide no assurance that we will acquire this property.

A “net leased property” or a property being “net leased” means that the property’s lease requires the tenant to pay rent and also pay or reimburse us for all, or substantially all, property level operating expenses and capital expenditures, such as real estate taxes, insurance, utilities, maintenance and repairs, other than, in certain circumstances, roof and structural element related expenditures or in some instances to reimburse all expenses in excess of certain amounts included in the stated rent.

Note 5.  Tenant Concentration and Segment Information

We operate in one business segment: ownership of properties that are primarily net leased to single tenants.  No single tenant currently accounts for more than 10% of our total revenues.  We define a single tenant leased property as a property which is at least 90% leased to one tenant; however, we also own a few multi tenant buildings in Hawaii.

Note 6.  Indebtedness

On February 16, 2012, we issued the CWH Note as part of the consideration for the Properties contributed to us by CWH.  Simultaneous with closing of our IPO on March 12, 2012, we repaid the CWH Note in full using net proceeds from our IPO and borrowings under our revolving credit facility.

Simultaneous with the closing of our IPO, we entered into a $500,000 revolving credit facility that is available for general business purposes, including acquisitions.  Our revolving credit facility is scheduled to mature on March 11, 2016, and subject to the payment of an extension fee and meeting certain other conditions, we have an option to extend the stated maturity date by one year. Interest is calculated at floating rates based upon LIBOR plus premiums that vary depending upon our leverage and credit rating.  The weighted average interest rate for this facility was approximately 1.55% for the period of March 12, 2012 to March 31, 2012.  As of March 31, 2012, we had $227,000 of borrowings and $273,000 available for additional borrowings under our revolving credit facility.

Our revolving credit facility agreement includes various financial and other covenants that generally restrict our ability to incur debts in excess of calculated amounts, restrict our ability to make distributions under certain circumstances and require us to maintain certain financial ratios.  We believe we were in compliance with the terms of our revolving credit facility agreement at March 31, 2012.

The revolving credit facility is secured by a pledge of the equity of certain of our subsidiaries.

Note 7.  Shareholders’ Equity

We were formed on December 19, 2011 as a wholly owned subsidiary of CWH.  On December 21, 2011, we issued 1,000 common shares to CWH in connection with our formation.  On February 16, 2012, we issued

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SELECT INCOME REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

22,000,000 common shares (including the 1,000 common shares issued to CWH on December 21, 2011 in connection with our formation) to CWH as part of the consideration for the Properties contributed to us by CWH.

In March 2012, we issued 9,200,000 of our common shares in our IPO, including 1,200,000 common shares issued when the underwriters exercised in full their over allotment option, at a price of $21.50 per share, raising net proceeds of approximately $180,954.  We used the net proceeds from this offering to repay part of the CWH Note.

Note 8.  Income Taxes

Through the Closing Date, while we were 100% owned by CWH, our operations were included in CWH’s income tax returns.  CWH is a real estate investment trust under the Internal Revenue Code of 1986, as amended, or the Code.  Accordingly, CWH is not subject to federal and most state income taxes provided it distributes its taxable income and meets certain other requirements to qualify as a real estate investment trust.  However, CWH is subject to certain state and local taxes.

From and after the Closing Date, we intend to qualify for taxation as a real estate investment trust under the Code.  As such, we expect to generally not be subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain requirements to qualify as a real estate investment trust. However, we expect to be subject to income tax in certain states and local jurisdictions despite our real estate investment trust status.

Note 9.  Related Person Transactions

We have no employees.  Personnel and various services we require to operate our business are provided to us by Reit Management & Research LLC, or RMR.  We have two agreements with RMR to provide management and administrative services to us: (1) a business management agreement and (2) a property management agreement.  Under our business management agreement with RMR, we acknowledge that RMR also provides management services to other companies, including CWH.  One of our Managing Trustees, Mr. Barry Portnoy, is Chairman, majority owner and an employee of RMR.  Our other Managing Trustee, Mr. Adam Portnoy, is the son of Mr. Barry Portnoy and an owner, President, Chief Executive Officer and a director of RMR.  Each of our other executive officers is also an officer of RMR.  CWH’s executive officers are officers of RMR.  Our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR provides management services.  Mr. Barry Portnoy serves as a managing director or managing trustee of those companies, and Mr. Adam Portnoy serves as a managing trustee of a majority of those companies.

Pursuant to our business management agreement with RMR, we incurred expenses of $247 for the period beginning on March 12, 2012, the date on which we entered into the agreement, through March 31, 2012.  These amounts are included in general and administrative expenses in our condensed consolidated financial statements.  In connection with our property management agreement with RMR, we incurred property management and construction supervision fees of $158 for the period beginning on March 12, 2012, the date on which we entered into the agreement, through March 31, 2012.  These amounts are included in operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

We were formerly a 100% owned subsidiary of CWH.  CWH is our largest shareholder and, as of the date of this report, CWH owned 22,000,000 of our common shares, or approximately 70.5% of our outstanding common shares.  One of our Managing Trustees, Mr. Barry Portnoy, is a managing trustee of CWH.  Our other Managing Trustee, Mr. Adam Portnoy, is a managing trustee and President of CWH.   In addition, Mr. John Popeo, our Treasurer and Chief Financial Officer, also serves as the Treasurer and Chief Financial Officer of CWH, and one of our Independent Trustees, Mr. William Lamkin, is also an independent trustee of CWH.  RMR provides management services to both us and CWH.

In March 2012, we completed our IPO of 9,200,000 of our common shares (including 1,200,000 common shares sold pursuant to the full exercise of the underwriters’ over allotment option), for net proceeds (after deducting underwriters’ discounts and commissions and estimated expenses) of $180,954.  We applied those net proceeds, along with proceeds of our initial borrowings under our $500,000 revolving credit facility, to repay in full the CWH Note and to reimburse CWH for costs that CWH incurred in connection with our organization and preparation for our IPO.  In connection with our IPO, we and CWH entered into a transaction agreement that governs our relationship with CWH.  The transaction agreement provides that, among other things, (1) the current assets and liabilities of the Properties, as of the time of closing of the IPO, were settled between us and CWH so that CWH will retain all pre-closing current assets and liabilities and we will assume all post-closing current assets and liabilities

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SELECT INCOME REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

and (2) we will indemnify CWH with respect to any liability relating to any property transferred by CWH to us, including any liability which relates to periods prior to our formation, other than the pre-closing current assets and current liabilities that CWH retained with respect to the Properties.

For further information about these and other such relationships and related person transactions, please see elsewhere in this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” in Part I, Item 2 and “Warning Concerning Forward Looking Statements,” and our Prospectus, including the sections captioned “Business,”  “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions,” “Certain Relationships and Related Person Transactions” and “Cautionary Statement Regarding Forward Looking Statements”.  In addition, please see the section captioned “Risk Factors” in our Prospectus for a description of risks that may arise from these transactions and relationships.  Our filings with the SEC, including our Prospectus, are available at the SEC’s website at www.sec.gov.  In addition, copies of certain of our agreements with these parties, including our business management agreement and property management agreement with RMR and various agreements we have with CWH, are also publicly available as exhibits to our public filings with the SEC and accessible at the SEC’s website.

Note 10.  Subsequent Events

Subsequent events have been disclosed within other notes to these condensed consolidated financial statements.

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

The following discussion of our financial condition and results of operations should be read together with our condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with the Combined Financial Statements of Selected Properties of CommonWealth REIT as of December 31, 2011 and 2010 and for the three years in the period ended December 31, 2011 and notes thereto contained in our Prospectus.

OVERVIEW

As of March 31, 2012, we owned 251 properties, located in 14 states, that contain approximately 21.4 million rentable square feet and were approximately 95.2% leased (based upon rentable square feet).  For the three months ended March 31, 2012, approximately 68.3% of our total annualized rental revenues were from 228 properties with 17.8 million rentable square feet we own on Oahu, HI.  The remainder of our total annualized rental revenues for this period were from 23 properties located throughout the mainland United States.

Property Operations

As of March 31, 2012, 95.2% of our total square feet was leased, compared to 95.9% leased as of March 31, 2011.  These results reflect a 0.7 percentage point decrease in occupancy at properties we or CWH owned continuously since January 1, 2011, partially offset by a property acquisition made by CWH since that date, which property was included in the Properties CWH contributed to us in February 2012.  Occupancy data for 2012 and 2011 is as follows (square feet and dollars in thousands):

	All Properties		Comparable Properties (1)
	As of March 31,		For the Three Months Ended March 31,
	2012	2011	2012	2011
Total properties	251	251	250	250
Total rentable square feet	21,404	21,442	21,306	21,344
Percent leased (2)	95.2%	95.9%	95.2%	95.9%

(1)Based on properties owned continuously since January 1, 2011 by us or, prior to the completion of our IPO on March 12, 2012, by CWH.

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

The average annualized effective rental rate per square foot, as defined below, for our properties for the periods ended March 31, 2012 and 2011 are as follows:

	Three Months Ended March 31,
	2012		2011
Average annualized effective rental rate per square foot (1)	$	5.31	$	5.46

(1)Average annualized effective rental rate per square foot represents annualized total revenue during the period specified adjusted for tenant concessions including free rent and tenant reimbursements divided by the average rentable square feet occupied during the period specified.

During the three months ended March 31, 2012, we entered lease renewals for approximately 146,000 square feet and new leases for approximately 96,000 square feet, which had combined weighted average rental rates that were 11.6% higher than prior rents for the same space.  The weighted average lease term for new leases and lease renewals entered into during the first quarter of 2012 was 6.5 years.  Commitments for tenant improvement, leasing commission costs and concessions for leases entered during the quarter ended March 31, 2012 totaled $1.34 per square foot on average, or approximately $0.21 per square foot per year of the lease term.  All leasing activity during the quarter ended March 31, 2012 occurred at properties located in Hawaii.

9

We concluded rent resets at properties located in Hawaii for approximately 47,000 square feet of land during the quarter ended March 31, 2012, which had combined weighted average reset rates that were 52.0% higher than prior rates.

The U.S. economy has recently experienced a severe recession, and the recovery to date has been slow, unsteady and incomplete. We believe that the high current unemployment rate and weak national leasing market conditions may lead to a continued decrease in national occupancy and effective rental rates through the end of 2012. However, because our weighted average remaining lease term (based on annualized rental revenue) was approximately 12.1 years as of March 31, 2012, we do not expect our occupancy rate to materially change through the end of 2012. In addition, despite the recent recession and incomplete recovery of the U.S. economy, revenues from our properties located in Hawaii, which represented approximately 68.3% of our total annualized rental revenues for the three months ended March 31, 2012, have generally increased under CWH’s prior ownership as leases for those properties have reset or renewed. Nevertheless, because of the current U.S. and global economic uncertainty, there are too many variables for us to reasonably project what the financial impact of changing market conditions will be on our occupancy or financial results.

As shown in the table below, approximately 4.6% of our rented square feet and approximately 3.2% of total annualized rental revenue are included in leases scheduled to expire by December 31, 2012. Lease renewals and rental rates for which available space may be relet in the future will depend on prevailing market conditions at the times these renewals, new leases and rent reset rates are negotiated. However, all of our leases scheduled to expire through December 31, 2014 relate to properties located in Oahu, Hawaii, and, as stated above, revenues from our properties in Hawaii have generally increased under CWH’s prior ownership as the leases for those properties have been reset or renewed. As of March 31, 2012, lease expirations by year are as follows (square feet and dollars in thousands):

									Cumulative
					Cumulative		Percent of		Percent of
				Percent of	Percent of		Total		Total
	Number of			Total	Total	Annualized	Annualized		Annualized
	Tenants with	Rented		Rented	Rented	Rental	Rental		Rental
	Expiring	Square Feet		Square Feet	Square Feet	Revenue	Revenue		Revenue
Year	Leases	Expiring(1)		Expiring(1)	Expiring(1)	Expiring(2)	Expiring(2)		Expiring(2)
2012	26	946		4.6%	4.6%	3,537	3.2%		3.2%
2013	12	373		1.8%	6.4%	1,798	1.6%		4.8%
2014	9	117		0.6%	7.0%	579	0.5%		5.3%
2015	14	545		2.7%	9.7%	5,142	4.7%		10.0%
2016	21	1,288		6.3%	16.0%	8,464	7.7%		17.7%
2017	7	407		2.0%	18.0%	5,626	5.1%		22.8%
2018	6	1,152		5.7%	23.7%	10,521	9.6%		32.4%
2019	10	1,630		8.0%	31.7%	5,812	5.3%		37.7%
2020	5	318		1.6%	33.3%	4,598	4.2%		41.9%
2021	5	566		2.8%	36.1%	2,085	1.9%		43.8%
Thereafter	131	13,040		63.9%	100.0%	61,365	56.2%		100.0%
	246	20,382		100.0%		109,527	100.0%
Weighted average remaining lease term (in years)		12.9	(3)				12.1	(4)

(1)Rented square feet is pursuant to existing leases as of March 31, 2012, and includes (a) space being fitted out for occupancy pursuant to existing leases and (b) space which is leased but is not occupied or is being offered for sublease by tenants.

(2)Annualized rental revenue is rents pursuant to existing leases as of March 31, 2012, plus estimated expense reimbursements; excludes lease value amortization.

(3)Based on rentable square feet.

(4)Based on annualized rental revenue.

10

A majority of our Hawaii properties are lands leased for rents that are periodically reset based on fair market values, generally every five to ten years.  The following chart shows the annualized rental revenue as of March 31, 2012, scheduled to reset at our Hawaii lands through December 31, 2015.

Scheduled Rent Resets At Hawaii Lands

(dollars in thousands)

	Annualized Rental Revenue(1) as of March 31, 2012 Scheduled to Reset
2012	$	3,020
2013	9,638
2014	7,343
2015 and thereafter	17,257
Total	$	37,258

(1)   Annualized rental revenue is rents pursuant to existing leases as of March 31, 2012, plus estimated expense reimbursements; excludes lease value amortization.

We intend to continue to seek to negotiate with our tenants as rents under their leases are scheduled to reset in order to achieve new rents based on the then current fair market values. Despite CWH’s and our prior experience with rent resets in Hawaii, our ability to increase rents when rent resets occur depends upon market conditions which are beyond our control. Accordingly, we can provide no assurance that the historical increases in rents which CWH achieved pursuant to contractual rent resets will be repeated in the future, and it is possible that rents could reset to a lower level if fair market values decrease.

We intend to seek to renew or extend the terms of leases relating to our mainland properties when they expire. Because these properties are each leased to a single tenant, we believe that there is a greater likelihood that these tenants will renew or extend their leases when they expire as compared to tenants in a property with multiple tenants because of the capital many of these tenants have invested into the improvements and the fact that our properties are sometimes of strategic importance to the tenants’ business.  However, we also believe that if a building previously occupied by a single tenant becomes vacant, it may take longer and cost more to locate a new tenant than when space becomes vacant in a multi-tenant property. Whenever we extend, renew or enter into new leases for our properties, we intend to seek rents which are equal to or higher than our historical rents for the same properties; however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions which are beyond our control.

Our manager, RMR, employs a tenant review process for us. RMR assesses tenants on an individual basis and does not employ a uniform set of credit criteria. In general, depending on facts and circumstances, RMR evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources. RMR also often uses a third party service to monitor the credit ratings of debt securities of our existing tenants whose debt securities are rated by a nationally recognized statistical rating organization.

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Our principal source of funds for our operations to pay our debt service and our distributions to shareholders is rents from tenants at our properties.  Rents are generally received from our tenants monthly in advance.  As of March 31, 2012, tenants representing 1% or more of our total annualized rental revenues were as follows (square feet in thousands):

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

					% of
				% of Total	Annualized Rental
Tenant		Property Type	Sq. Ft. (1)	Sq. Ft. (1)	Revenue (2)	Expiration
1	Tesoro Hawaii Corporation	Hawaii Properties	3,148	15.4%	5.4%	4/30/2019; 12/31/2019; 3/31/2024
2	The Southern Company	Mainland Properties	448	2.2%	4.4%	12/31/2018
3	Bookspan	Mainland Properties	502	2.5%	3.4%	9/23/2028
4	Micron Technology, Inc.	Mainland Properties	96	0.5%	3.2%	4/30/2020
5	Shurtape Technologies, LLC	Mainland Properties	645	3.2%	3.2%	5/28/2024
6	Stratus Technologies, Inc.	Mainland Properties	287	1.4%	3.1%	5/31/2016
7	Servco Pacific, Inc.	Hawaii Properties	537	2.6%	2.8%	1/31/2029; 2/29/2032
8	Safeway Stores, Inc.	Hawaii Properties	146	0.7%	2.2%	10/31/2018
9	BCI Coca-Cola Bottling Company	Hawaii Properties	351	1.7%	2.1%	12/31/2022; 7/31/2039
10	Allied Building Products Corporation	Hawaii Properties	310	1.5%	2.1%	12/31/2028
11	Manheim Services Corporation	Hawaii Properties	338	1.7%	2.0%	5/31/2016
12	Mattson Technology Inc.	Mainland Properties	101	0.5%	1.9%	5/31/2017
13	Cisco Systems Inc.	Mainland Properties	149	0.7%	1.9%	12/31/2015
14	AES Hawaii Inc.	Hawaii Properties	1,242	6.1%	1.8%	3/31/2040
15	Kaiser Foundation Health Plan	Hawaii Properties	217	1.1%	1.6%	4/30/2026; 6/30/2046
16	Waikiki Pearl Company Inc.	Hawaii Properties	278	1.4%	1.5%	12/31/2029
17	Element K	Mainland Properties	95	0.5%	1.4%	12/31/2017
18	Pahounui Partners LLC	Hawaii Properties	191	0.9%	1.3%	6/30/2027
19	US Airways Group Inc.	Mainland Properties	101	0.5%	1.3%	8/31/2015
20	Trex Company Inc.	Mainland Properties	308	1.5%	1.3%	12/31/2021
21	TPI Composites Inc.	Mainland Properties	317	1.6%	1.3%	7/31/2018
22	Ameron International Corp.	Hawaii Properties	146	0.7%	1.2%	12/31/2027
23	Convergys Corporation	Mainland Properties	86	0.4%	1.1%	9/30/2022
24	Fileminders	Hawaii Properties	85	0.4%	1.1%	5/31/2022
25	Bradley Shopping Ctr Company	Hawaii Properties	334	1.6%	1.1%	4/22/2033
26	Honolulu Warehouse Co. Ltd.	Hawaii Properties	298	1.5%	1.0%	1/31/2044
	Total		10,756	52.8%	54.4%

(1)Square feet is pursuant to existing leases as of March 31, 2012, and includes (i) space being fitted out for occupancy and (ii) space which is leased but is not occupied or is being offered for sublease.

(2)Annualized rental revenue is rents pursuant to existing leases as of March 31, 2012, plus estimated expense reimbursements; excludes lease value amortization.

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Investment Activities

We did not acquire any properties during the three months ended March 31, 2012, other than the 251 properties that CWH contributed to us on February 16, 2012, nor did we dispose of any of our properties during that time.  Our strategy related to property acquisitions and dispositions is materially unchanged from that disclosed in our Prospectus.  We anticipate seeking to negotiate with tenants at our Hawaii properties as rents under their leases are scheduled to reset. We may explore redevelopment opportunities at some of our Hawaii properties as leases expire. We will also seek to expand our portfolio by acquiring additional single tenant properties. We expect that most of our acquisition efforts will focus on office and industrial properties; however, we may consider acquiring other types of properties, including properties which are net leased to single tenants for retail uses and properties specifically suited to particular tenants’ requirements.

Since completing our IPO on March 12, 2012, we have entered agreements to acquire two properties for an aggregate purchase price of approximately $104.4 million, excluding closing costs:

·In April 2012, we entered an agreement to acquire a 100% net leased, single tenant office building located in Provo, UT with 405,699 square feet.  The purchase price is $85.5 million, excluding closing costs.  This pending acquisition is subject to our satisfactory completion of diligence and other customary closing conditions; accordingly, we can provide no assurance that we will acquire this property.

·Also in April 2012, we entered an agreement to acquire a 100% net leased, single tenant office building located in Englewood, CO with 140,162 square feet.  The purchase price is $18.9 million, excluding closing costs.  This pending acquisition is subject to our satisfactory completion of diligence and other customary closing conditions; accordingly, we can provide no assurance that we will acquire this property.

Financing Activities

On February 16, 2012, CWH contributed the Properties to us. In return, we issued to CWH: (i) 22,000,000 common shares (including 1,000 common shares initially issued to CWH on December 21, 2011 in connection with our formation) and (ii) the CWH Note.

On March 12, 2012, we issued 9,200,000 common shares in connection with our IPO, including 1,200,000 shares issued when the underwriters exercised in full their over allotment option, at a price of $21.50 per share, raising net proceeds of approximately $181.0 million.  We used the net proceeds from our IPO and drawings under our revolving credit facility to repay the CWH note.

Simultaneous with the closing of our IPO, we entered into a $500.0 million revolving credit facility that is available for general business purposes, including acquisitions.  Our revolving credit facility agreement includes various financial and other covenants that generally restrict our ability to incur debts in excess of calculated amounts, restrict our ability to make distributions under certain circumstances and require us to maintain certain financial ratios.  The revolving credit facility is secured by a pledge of the equity of certain of our subsidiaries.  We believe we were in compliance with the terms of our revolving credit facility agreement at March 31, 2012.  Interest under our revolving credit facility is calculated at floating rates based upon LIBOR plus premiums that vary depending upon our leverage and credit rating.  The weighted average annual interest rate for our revolving credit facility was 1.55% for the period ended March 31, 2012.  As of March 31, 2012, we had $227.0 million outstanding and $273.0 million available for additional borrowings under our revolving credit facility.

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RESULTS OF OPERATIONS

Three Months Ended March 31, 2012, Compared to Three Months Ended March 31, 2011 (dollars in thousands, except per share data)

	Comparable Properties Results (1)								Acquired Properties Results (2)							Consolidated Results
	Three Months Ended March 31,								Three Months Ended March 31,							Three Months Ended March 31,
					$			%					$		%						$			%
	2012		2011		Change			Change	2012		2011		Change		Change	2012			2011		Change			Change
Revenues
Rental income	$	23,814	$	23,493	$	321		1.4%	$	260	$	244	$	16	6.6%	$	24,074		$	23,737	$	337		1.4%
Tenant reimbursements and other income	3,479		4,041		(562		)	(13.9)%	34		2		32		1600.0%	3,513			4,043		(530		)	(13.1)%
Total revenues	$	27,293	$	27,534	$	(241	)	(0.9)%	$	294	$	246	$	48	19.5%	$	27,587		$	27,780	$	(193	)	(0.7)%
Operating expenses:
Real estate taxes	3,641		3,603		38			1.1%	—		—		—		—	3,641			3,603		38			1.1%
Other operating expenses	1,763		2,525		(762		)	(30.2)%	14		7		7		100.0%	1,777			2,532		(755		)	(29.8)%
Total operating expenses	5,404		6,128		(724		)	(11.8)%	14		7		7		100.0%	5,418			6,135		(717		)	(11.7)%
Net operating income (3)	$	21,889	$	21,406	$	483		2.3%	$	280	$	239	$	41	17.2%	22,169			21,645		524			2.4%
Other expenses
Depreciation and amortization																2,773			2,712		61			2.2%
General and administrative																1,404			1,456		(52		)	(3.6)%
Total other expenses																4,177			4,168		9			0.2%
Operating income																17,992			17,477		515			2.9%
Interest expense																(337		)	—		(337		)	—
Net income																$	17,655		$	17,477	$	178		1.0%
Weighted average common shares outstanding																13,205			—
Net income per common share																$	1.34		—
Calculation of Funds From Operations (4)
Net income																$	17,655		$	17,477
Depreciation and amortization																2,773			2,712
Funds from operations																$	20,428		$	20,189
Funds from operations per common share																$	1.55

(1)Includes properties owned continuously since January 1, 2011 by us or CWH.

(2)Includes properties acquired after January 1, 2011 by CWH.

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

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(4) We calculate Funds from Operations, or FFO, as shown above.  FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or NAREIT, which is net income, calculated in accordance with GAAP, plus real estate depreciation and amortization.  We consider FFO to be an appropriate measure of performance for a REIT, along with net income and cash flow from operating, investing and financing activities.  We believe that FFO provides useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO can facilitate a comparison of operating performances between periods.  FFO is among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders.  Other factors include, but are not limited to, requirements to maintain our status as a REIT, limitations in our revolving credit facility, the availability of debt and equity capital to us and our expectation of our future capital requirements and operating performance. FFO does not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net income, operating income or cash flow from operating activities, determined in accordance with GAAP, or as an indicator of our financial performance or liquidity, nor is this measure necessarily indicative of sufficient cash flow to fund all of our needs.  We believe that FFO may facilitate an understanding of our consolidated historical operating results. FFO should be considered in conjunction with net income, operating income and cash flow from operating activities as presented in our Consolidated Statements of Income and Consolidated Statements of Cash Flows.  Other REITs and real estate companies may calculate FFO differently than us.

References to changes in the income and expense categories below relate to the comparison of results for the three month period ended March 31, 2012, compared to the three month period ended March 31, 2011.

Rental income.  The increase in rental income primarily reflects increases from rent resets at our comparable properties located in Hawaii.  Rental income includes non-cash straight line rent adjustments totaling approximately $773 for the first quarter 2012 and approximately $1,523 in 2011, and amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately ($116) for the first quarter 2012 and approximately ($106) in 2011.

Tenant reimbursements and other income.  The decrease in tenant reimbursements and other income primarily reflects adjustments to estimated tenant reimbursement billings at our comparable properties based on audited reimbursable expense amounts.

Real estate taxes.  There were no significant changes to real estate tax expense within our portfolio of comparable properties.

Other operating expenses.  Other operating expenses include payroll, property maintenance, environmental remediation, utilities, insurance and property management fees.  The decrease in other operating expenses primarily reflects environmental remediation charges of approximately $800 during the first quarter of 2011 at our comparable properties.

Depreciation and amortization.  The increase in depreciation and amortization primarily reflects a full three months of depreciation from an acquisition in January 2011 as well as depreciation on improvements made to our properties throughout the first quarter of 2012.

General and administrative.  General and administrative expenses include legal, audit and business management fee expenses.  General and administrative expenses were allocated to us by CWH through March 12, 2012 and are our direct costs since the Closing Date.

Interest expense.  The increase in interest expense reflects interest on borrowings under our revolving credit facility that commenced in March 2012.

Net income.  The increase in net income for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 reflects the changes noted above.  The number of common shares as of March 31, 2012 used to determine our net income per share include the weighted average common shares issued to CWH through February 2012 and shares issued as part of our IPO on March 12, 2012.

Weighted average common shares outstanding.  The increase in weighted average common shares outstanding reflects 22,000,000 shares issued to CWH through February 2012 and 9,200,000 shares issued in our IPO on March 12, 2012, including 1,200,000 common shares issued when the underwriters exercised in full their over allotment option.

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LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources

Our principal source of funds to meet operating expenses, debt service obligations and pay distributions on our common shares is rents from our properties.  Under CWH’s prior ownership, the flow of funds from our properties historically has been sufficient to pay operating expenses for those properties. Our operating expenses as a separate public company will be higher than the operating expenses were when our properties were directly under CWH’s control. These additional costs are currently estimated to be $1.3 million per year for legal and audit fees and $300,000 per year in fees for trustees, internal audit expenses and other costs.  We believe that our operating cash flow will be sufficient to meet our operating expenses, debt service obligations and planned distributions on our shares for the next 12 months and for the reasonably foreseeable future thereafter.  Our future cash flows from operating activities will depend primarily upon our ability to:

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

·control operating cost increases at our properties; and

·purchase additional properties which produce positive cash flows from operations.

Cash flows provided by (used in) operating, investing and financing activities were approximately $20.8 million, ($0.1) million and ($2.4) million, respectively, for the three months ended March 31, 2012, and $13.6 million, ($10.7) million and ($2.9) million, respectively, for the three months ended March 31, 2011.  Changes in the operating and financing activities categories between 2012 and 2011 primarily relate to our IPO that took place on March 12, 2012, including borrowings under our revolving credit facility and repayment of the CWH Note.  Changes in the investing activities category between 2012 and 2011 are primarily related to an acquisition in January 2011.

Our Investment and Financing Liquidity and Resources

In order to fund acquisitions and to accommodate cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions or pay operating or capital expenses, we maintain a $500.0 million revolving credit facility with a group of institutional lenders that has a maturity date of March 11, 2016.  Subject to the payment of an extension fee and meeting certain other conditions, we have an option to extend the stated maturity date by one year.  In addition, we had a one-time option exercisable no later than 30 days after March 12, 2012, to convert up to $250.0 million of amounts outstanding under the revolving credit facility into a term loan; we elected not to exercise that option.  At March 31, 2012, $227.0 million of borrowings were outstanding and $273.0 million were available for additional borrowings under our revolving credit facility.  The weighted average annual interest rate for our revolving credit facility was 1.55% for the period March 12 to March 31, 2012.  At March 31, 2012 we had cash and cash equivalents of approximately $18.4 million.  We expect to use cash balances, borrowings under our revolving credit facility and net proceeds from offerings of equity or debt securities we may issue from time to time to fund our continuing operations, debt repayments and future property acquisitions.

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

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

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During the three months ended March 31, 2012 and 2011, cash expenditures made and capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows (amounts in thousands):

	Three Months Ended March 31,
	2012		2011
Leasing Capital (1)	$	362	$	376
Building Improvements (2)	7		11
Development and redevelopment activities (3)	144		333

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

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

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

Commitments made for expenditures, such as tenant improvements and leasing costs, and concessions, such as free rent and tenant reimbursements, in connection with leasing space during the three months ended March 31, 2012, were as follows (amounts in thousands, except as noted):

	New Leases		Renewals		Total
Square feet leased during the period	96		146		242
Total commitments for tenant improvements and leasing costs	$	238	$	6	$	244
Free rent, tenant reimbursements and other concessions	80		—		80
Total leasing costs and concessions	$	318	$	6	$	324
Leasing costs and concessions per square foot (whole dollars)	$	3.32	$	0.04	$	1.34
Average lease term (years)	5.0		6.8		6.5
Leasing costs and concessions per square foot per year (whole dollars)	$	0.66	$	0.01	$	0.21

Off Balance Sheet Arrangements

As of March 31, 2012, we had no off balance sheet arrangements that we would expect would have had or would be reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.  We have no commercial paper, swaps or hedges as of March 31, 2012.

Debt Covenants

Our principal debt obligation at March 31, 2012 was our revolving credit facility.  Our revolving credit facility agreement includes various financial and other covenants generally described above under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financing Activities”.  Our revolving credit facility agreement contains default provisions; among other events of default, termination of our business management agreement with RMR would cause a default under our revolving credit facility, if not approved by a majority of our lenders.  At March 31, 2012, we believe we were in compliance with all of our covenants under our revolving credit agreement.

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Related Person Transactions

We have relationships and historical and continuing transactions with our Trustees, our executive officers, RMR, CWH and other companies to which RMR provides management services and others affiliated with or related to them.  For example: we have no employees and personnel and various services we require to operate our business are provided to us by RMR pursuant to management agreements; and RMR is owned by our Managing Trustees.  Also, as a further example, we have or had relationships with other companies to which RMR provides management services and which have trustees, directors and officers who are also Trustees, directors or officers of ours or RMR, including CWH, which previously wholly owned us, which currently is our largest shareholder and with respect to which we are currently its majority owned subsidiary.  For further information about these and other such relationships and related person transactions, please see Note 9 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.  In addition, for more information about these transactions and relationships, please see elsewhere in this Quarterly Report on Form 10-Q, including “Warning Concerning Forward Looking Statements,” and our Prospectus and our other filings with the SEC, including the sections captioned “Business,”  “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions,” “Certain Relationships and Related Person Transactions” and “Cautionary Statement Regarding Forward Looking Statements” of our Prospectus.  In addition, please see the section captioned “Risk Factors” of our Prospectus for a description of risks that may arise from these transactions and relationships.  Our filings with the SEC, including our Prospectus, are available at the SEC’s website at www.sec.gov.  In addition, copies of certain of our agreements with these parties, including our business management agreement and property management agreement with RMR and various agreements we have with CWH, are also publicly available as exhibits to our public filings with the SEC and accessible at the SEC’s website.

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

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We are exposed to risks associated with market changes in interest rates.

Interest Rate Risk

We manage our exposure to interest rate risk by monitoring available financing alternatives.  Our strategy to manage exposure to changes in interest rates is materially unchanged from that described in our Prospectus.  Other than as described below, we do not currently expect any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.

At March 31, 2012, $227.0 million of borrowings were outstanding and $273.0 million were available for additional borrowings under our revolving credit facility.  Our revolving credit facility matures on March 11, 2016 and, subject to the payment of an extension fee and meeting certain other conditions, we have the option to extend the stated maturity date by one year.  Repayments under our revolving credit facility may be made at any time without penalty.  We borrow in U.S. dollars and borrowings under our revolving credit facility requires interest at LIBOR plus a margin.  Accordingly, we are vulnerable to changes in U.S. dollar based short term rates, specifically LIBOR.  The weighted average interest rate payable on our revolving credit facility was 1.55% during the period March 12 to March 31, 2012.  A change in interest rates would not affect the value of this floating rate debt but would affect our operating results.  The following table presents the impact a 10% change in interest rates would have on our floating rate interest expense as of March 31, 2012 (dollars in thousands):

	Impact of Changes in Interest Rates
	Interest Rate  Per Year	Outstanding Debt		Total Interest  Expense Per Year
At March 31, 2012	1.55%	$	227,000	$	3,519
10% reduction	1.40%	$	227,000	$	3,178
10% increase	1.71%	$	227,000	$	3,882

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

Item 4.  Controls and Procedures

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

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WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE” OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. FORWARD LOOKING STATEMENTS IN THIS REPORT RELATE TO VARIOUS ASPECTS OF OUR BUSINESS, INCLUDING:

·THE CREDIT QUALITY OF OUR TENANTS,

·THE LIKELIHOOD THAT OUR RENTS MAY INCREASE WHEN WE RESET TENANT RENTS AT OUR LANDS IN HAWAII,

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

·OUR ACQUISITIONS OF PROPERTIES,

·OUR ABILITY TO COMPETE FOR ACQUISITIONS AND TENANCIES EFFECTIVELY,

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

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

·OUR POLICIES AND PLANS REGARDING INVESTMENTS AND FINANCINGS,

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

·OUR TAX STATUS AS A REIT,

·OUR ABILITY TO RAISE EQUITY OR DEBT CAPITAL, AND

·OTHER MATTERS.

OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN 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, FUNDS FROM OPERATIONS, NET OPERATING INCOME, 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 OR THOSE INDUSTRIES IN WHICH OUR TENANTS OPERATE,

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

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

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

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

FOR EXAMPLE:

·RENTS THAT WE CAN CHARGE AT OUR PROPERTIES MAY DECLINE OR NOT OTHERWISE BE AT A LEVEL SUFFICIENT TO COVER OUR OPERATING COSTS,

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

·THE CURRENT HIGH UNEMPLOYMENT RATE IN THE U.S. MAY CONTINUE FOR A LONG TIME OR BECOME WORSE IN THE FUTURE.  SUCH CIRCUMSTANCES MAY FURTHER REDUCE DEMAND FOR LEASING OFFICE AND INDUSTRIAL SPACE.  IF THE DEMAND FOR LEASING OFFICE AND INDUSTRIAL SPACE BECOMES FURTHER DEPRESSED, OR REMAINS DEPRESSED FOR A LONG PERIOD, WE MAY BE UNABLE TO RENEW LEASES WITH OUR TENANTS AS LEASES EXPIRE AND OCCUPANCY AND OPERATING RESULTS OF OUR PROPERTIES MAY DECLINE,

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

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

·OUR PENDING ACQUISITIONS ARE CONTINGENT UPON COMPLETION OF DILIGENCE AND OTHER CUSTOMARY CLOSING CONDITIONS.  ACCORDINGLY, SOME OR ALL OF THESE PURCHASES MAY BE DELAYED OR MAY NOT OCCUR,

·OUR ABILITY TO MAKE FUTURE DISTRIBUTIONS DEPENDS UPON A NUMBER OF FACTORS, INCLUDING OUR FUTURE EARNINGS,

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

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

·IF THE AVAILABILITY OF DEBT CAPITAL BECOMES RESTRICTED, WE MAY BE UNABLE TO REFINANCE OR REPAY OUR DEBT OBLIGATIONS WHEN THEY BECOME DUE OR ON TERMS WHICH ARE AS FAVORABLE AS WE NOW HAVE,  AND

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

THESE RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH ARE BEYOND OUR CONTROL, SUCH AS NATURAL DISASTERS, CHANGES IN OUR TENANTS’

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FINANCIAL CONDITIONS, THE MARKET DEMAND FOR LEASED SPACE OR CHANGES IN CAPITAL MARKETS OR THE ECONOMY GENERALLY.

THE INFORMATION CONTAINED ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q AND IN OUR FILINGS WITH THE SEC, INCLUDING UNDER THE CAPTION “RISK FACTORS” IN OUR PROSPECTUS AND HEREIN, 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 AT THE SEC’S WEBSITE AT WWW.SEC.GOV.

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

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

STATEMENT CONCERNING LIMITED LIABILITY

THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING SELECT INCOME REIT, DATED MARCH 6, 2012, AS AMENDED AND SUPPLEMENTED, AS FILED WITH THE MARYLAND STATE DEPARTMENT OF ASSESSMENTS AND TAXATION, PROVIDES THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF SELECT INCOME REIT SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, SELECT INCOME REIT.  ALL PERSONS DEALING WITH SELECT INCOME REIT IN ANY WAY SHALL LOOK ONLY TO THE ASSETS OF SELECT INCOME REIT FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

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Part II.Other Information

Item 1A. Risk Factors

Our business faces many risks, a number of which are described under “Risk Factors” in our Prospectus dated March 6, 2012, or the Prospectus, filed with the Securities and Exchange Commission in accordance with Rule 424(b) of the Securities Act of 1933, as amended, or the Securities Act, which is accessible on the SEC’s website at www.sec.gov. The risks so described may not be the only risks we face. Additional risks of which we are not yet aware, or that we currently believe are immaterial, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors contained in our Prospectus occurs, our business, financial condition or results of operations could decline and the trading price of our equity securities could decline. Investors and prospective investors should consider the risks described in our Prospectus and the information contained in this Quarterly Report on Form 10-Q under the heading “Warning Concerning Forward Looking Statements” before deciding whether to invest in our securities.

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

In connection with our formation and initial capitalization, on December 21, 2011, we issued 1,000 common shares to CommonWealth REIT, or CWH, for an aggregate purchase price of $10. These common shares were issued in reliance on the exemption set forth in Section 4(2) of the Securities Act.

On February 16, 2012, CWH contributed 251 properties to us. In return, we issued to CWH an additional 21,999,000 common shares and a $400 million demand promissory note, or the CWH Note. These common shares were issued in reliance on the exemption set forth in Section 4(2) of the Securities Act.

The effective date of our registration statement filed on Form S-11 under the Securities Act (File No. 333-178720) relating to our initial public offering, or our IPO, was February 27, 2012. A total of 9,200,000 of our common shares, including the underwriters’ full over allotment, were sold in our IPO. Morgan Stanley & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC acted as representatives for the underwriters.

The IPO and the full underwriters’ over allotment sale were completed in March 2012. The aggregate offering price for our common shares sold was $197.8 million. The underwriting discounts were $12.4 million, estimated expenses were $4.4 million and the net proceeds totaled $181.0 million. We used the net proceeds from our IPO to repay part of the CWH Note.

Item 6. Exhibits

1.1	Underwriting Agreement, dated March 6, 2012, by and between Select Income REIT and Morgan Stanley & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as representatives of the several underwriters named therein. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 12, 2012.)
3.1	Amended and Restated Declaration of Trust of Select Income REIT. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 12, 2012.)
3.2	Amended and Restated Bylaws of Select Income REIT. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 12, 2012.)
10.1	Credit Agreement, dated as of March 12, 2012, by and among Select Income REIT, as borrower, Wells Fargo Bank, National Association, as administrative agent, and the other financial institutions party thereto. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 12, 2012.)
10.2	Pledge Agreement, dated as of March 12, 2012, in favor of Wells Fargo Bank, National Association, in its capacity as administrative agent for the lenders under that certain Credit Agreement dated as of March 12, 2012. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 12, 2012.)
10.3	Business Management Agreement, dated as of March 12, 2012, between Select Income REIT and Reit Management & Research LLC. (Incorporated by reference to the Company’s Current Report on Form 8-K

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	dated March 12, 2012.)
10.4	Property Management Agreement, dated as of March 12, 2012, between Select Income REIT and Reit Management & Research LLC. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 12, 2012.)
10.5	Form of Indemnification Agreement. (Filed herewith.)
10.6	Transaction Agreement, dated as of March 12, 2012, between Select Income REIT and CommonWealth REIT. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 12, 2012.)
10.7	Demand Promissory Note dated February 16, 2012 issued to CommonWealth REIT. (Incorporated by reference to the Company’s Amendment No. 4 to the Company’s Registration Statement filed on Form S-11 dated February 27, 2012.)
10.8	2012 Equity Compensation Plan. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 12, 2012.)
10.9	Summary of Trustee Compensation. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 12, 2012.)
31.1	Rule 13a-14(a) Certification. (Filed herewith.)
31.2	Rule 13a-14(a) Certification. (Filed herewith.)
31.3	Rule 13a-14(a) Certification. (Filed herewith.)
31.4	Rule 13a-14(a) Certification. (Filed herewith.)
32.1	Section 1350 Certification. (Furnished herewith.)
101.1	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) related notes to these financial statements, tagged as blocks of text. (Furnished herewith.)

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SIGNATURES

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

SELECT INCOME REIT
By:	/s/ David M. Blackman
	David M. Blackman
	President and Chief Operating Officer
	Dated: May 3, 2012
By:	/s/ John C. Popeo
	John C. Popeo
	Treasurer and Chief Financial Officer
	(principal financial and accounting officer)
	Dated: May 3, 2012

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EX-10.5

Exhibit 10.5

FORM OF INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (this “Agreement”) is made and entered into as of [                ] (the “Effective Date”), by and between Select Income REIT, a Maryland real estate investment trust (the “Company”), and [                ] (“Indemnitee”).

WHEREAS, Indemnitee currently serves as a [                ] of the Company and may, in connection therewith, be subjected to claims, suits or proceedings arising from such service; and

WHEREAS, as an inducement to Indemnitee to continue to serve as such [                ], the Company has agreed to indemnify and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the maximum extent permitted by law as hereinafter provided; and

WHEREAS, the parties by this Agreement desire to set forth their agreement regarding indemnification and advance of expenses;

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

Section 1.           Definitions.  For purposes of this Agreement:

(a)       “Change in Control” means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the “Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of all the Company’s then-outstanding securities entitled to vote generally in the election of trustees without the prior approval of at least two-thirds of the members of the Board of Trustees of the Company (the “Board of Trustees”) in office immediately prior to such person attaining such percentage interest; (ii) there occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board of Trustees then in office, as a consequence of which members of the Board of Trustees in office immediately prior to such transaction or event constitute less than a majority of the Board of Trustees thereafter; or (iii) during any period of two consecutive years, other than as a result of an event described in clause (a)(ii) of this Section 

1, individuals who at the beginning of such period constituted the Board of Trustees (including for this purpose any new trustee whose election or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the trustees then still in office who were trustees at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Trustees.

(b)       “Corporate Status” means the status of a person who is or was a director, trustee, officer or agent of the Company and the status of a person who, while a director, trustee, officer or agent of the Company, is or was serving at the request of the Company as a director, trustee, officer or agent of another foreign or domestic real estate investment trust, corporation, partnership, limited liability company, joint venture, trust, other enterprise or employee benefit plan.

(c)       “Disinterested Trustee” means a trustee of the Company who is not and was not a party to the Proceeding in respect of which indemnification and/or advance of Expenses is sought by Indemnitee.

(d)       “Expenses” means all expenses, including, but not limited to, all reasonable attorneys’ fees and costs, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding.

(e)       “Independent Counsel” means a law firm, or a member of a law firm, selected by the Indemnitee and reasonably acceptable to the Company, that is experienced in matters of business law and that neither is, nor in the past two years has been, retained to represent (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement or of other indemnities of the Company under similar indemnification agreements), or (ii) any other party to or participant or witness in the Proceeding giving rise to a claim for indemnification or advance of Expenses hereunder.

(f)        “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative (including on appeal), except one initiated by an Indemnitee pursuant to Section 9.

Section 2.           Indemnification - General.  The Company shall indemnify, and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the maximum extent permitted by Maryland law in effect on the Effective Date and as amended from time to time; provided, however, that no change in Maryland law shall have the effect of reducing the benefits available to Indemnitee hereunder based on Maryland law as in effect on the Effective

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Date.  The rights of Indemnitee provided in this Section 2 shall include, without limitation, the rights set forth in the other sections of this Agreement, including any additional indemnification permitted by Section 2-418(g) of the Maryland General Corporation Law (“MGCL”), as applicable to a Maryland real estate investment trust by virtue of Section 8-301(15) of the Maryland REIT Law.

Section 3.           Proceedings Other Than Derivative Proceedings by or in the Right of the Company.  Indemnitee shall be entitled to the rights of indemnification provided in this Section 3 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to any threatened, pending, or completed Proceeding, other than a derivative Proceeding by or in the right of the Company (or, if applicable, such other enterprise at which Indemnitee is or was serving at the request of the Company).  Pursuant to this Section 3, Indemnitee shall be indemnified against all judgments, penalties, fines and amounts paid in settlement and all Expenses incurred by him or on his behalf in connection with a Proceeding by reason of Indemnitee’s Corporate Status unless it is established that (i) the act or omission of Indemnitee was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty, (ii) Indemnitee actually received an improper personal benefit in money, property or services, or (iii) in the case of any criminal Proceeding, Indemnitee had reasonable cause to believe that his conduct was unlawful.

Section 4.           Derivative Proceedings by or in the Right of the Company.  Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to any threatened, pending or completed derivative Proceeding brought by or in the right of the Company (or, if applicable, such other enterprise at which Indemnitee is or was serving at the request of the Company) to procure a judgment in its favor.  Pursuant to this Section 4, Indemnitee shall be indemnified against all amounts paid in settlement and all Expenses incurred by him or on his behalf in connection with such Proceeding unless it is established that (i) the act or omission of Indemnitee was material to the matter giving rise to such a Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (ii) Indemnitee actually received an improper personal benefit in money, property or services.

Section 5.           Indemnification for Expenses of a Party Who is Partly Successful.  Without limitation on Section 3 and Section 4, if Indemnitee is not wholly successful in any Proceeding covered by this Agreement, but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee under this Section 5 for all Expenses incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter, allocated on a reasonable and proportionate basis.  For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

Section 6.           Advance of Expenses.  The Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding to which Indemnitee is, or is threatened to be, made a party or a witness, within ten days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall

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reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written affirmation by Indemnitee of Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Company as authorized by law and by this Agreement has been met and a written undertaking by or on behalf of Indemnitee, in substantially the form attached hereto as Exhibit A or in such form as may be required under applicable law as in effect at the time of the execution thereof, to reimburse the portion of any Expenses advanced to Indemnitee relating to claims, issues or matters in the Proceeding as to which it shall ultimately be established that the standard of conduct has not been met and which have not been successfully resolved as described in Section 5.  To the extent that Expenses advanced to Indemnitee do not relate to a specific claim, issue or matter in the Proceeding, such Expenses shall be allocated on a reasonable and proportionate basis.  The undertaking required by this Section 6 shall be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee’s financial ability to repay such advanced Expenses and without any requirement to post security therefor.

Section 7.           Procedure for Determination of Entitlement to Indemnification.

(a)       To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification.  The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Trustees in writing that Indemnitee has requested indemnification.

(b)       Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 7(a) hereof, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall promptly be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board of Trustees, a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control shall not have occurred or if after a Change of Control Indemnitee shall so request, (A) by the Board of Trustees (or a duly authorized committee thereof) by a majority vote of a quorum consisting of Disinterested Trustees (as herein defined), or (B) if a quorum of the Board of Trustees consisting of Disinterested Trustees is not obtainable or, even if obtainable, such quorum of Disinterested Trustees so directs, by Independent Counsel in a written opinion to the Board of Trustees, a copy of which shall be delivered to Indemnitee, or (C) if so directed by a majority of the members of the Board of Trustees, by the shareholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten days after such determination.  Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination.  Any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as

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to Indemnitee’s entitlement to indemnification) and the Company shall indemnify and hold Indemnitee harmless therefrom.

(c)       The Company shall pay the fees and expenses of Independent Counsel, if one is appointed pursuant to this Section 7.

Section 8.           Presumptions and Effect of Certain Proceedings.

(a)       In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 7(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.

(b)       The termination of any Proceeding by judgment, order, settlement, conviction, a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard of conduct described herein for indemnification.

Section 9.           Remedies of Indemnitee.

(a)       If (i) a determination is made pursuant to Section 7 that Indemnitee is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made pursuant to Section 6, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 7(b) within 30 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5 within ten days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall (A) unless the Company demands arbitration as provided by Section 16, be entitled to an adjudication in an appropriate court of the State of Maryland or in any other court of competent jurisdiction or (B) be entitled to seek an award in arbitration as provided by Section 16, in each case of his entitlement to such indemnification or advance of Expenses.

(b)       In any judicial proceeding or arbitration commenced pursuant to this Section 9, the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be.

(c)       If a determination shall have been made pursuant to Section 7(b) that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 9, absent a

5

misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification.

(d)       In the event that Indemnitee, pursuant to this Section 9, seeks a judicial adjudication of or an award in arbitration as provided by Section 16 to enforce his rights under, or to recover damages for breach of, this Agreement by the Company, Indemnitee shall be entitled to recover in full from the Company, and shall be indemnified in full by the Company for, any and all Expenses incurred by him in such judicial adjudication or arbitration if it is determined that the Indemnitee is entitled to enforce any of his rights under, or to recover any damages for breach of, this Agreement by the Company.

Section 10.         Defense of the Underlying Proceeding.

(a)       Indemnitee shall notify the Company promptly upon being served with or receiving any summons, citation, subpoena, complaint, indictment, information, notice, request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder; provided, however, that the failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company’s ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is thereby actually so prejudiced.

(b)       Subject to the provisions of the last sentence of this Section 10(b) and of Section 10(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to indemnification hereunder; provided, however, that the Company shall notify Indemnitee of any such decision to defend within 15 calendar days following receipt of notice of any such Proceeding under Section 10(a) above, and the counsel selected by the Company shall be reasonably satisfactory to Indemnitee.  The Company shall not, without the prior written consent of Indemnitee, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee or (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance reasonably satisfactory to Indemnitee.  This Section 10(b) shall not apply to a Proceeding brought by Indemnitee under Section 9 above or Section 15.

(c)       Notwithstanding the provisions of Section 10(b), if in a Proceeding to which Indemnitee is a party by reason of Indemnitee’s Corporate Status, (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that he may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other defendants in such Proceeding, (ii) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that an

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actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee’s choice, subject to the prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company.  In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee’s choice, subject to the prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company (subject to Section 9(d)), to represent Indemnitee in connection with any such matter.

Section 11.         Liability Insurance.  To the extent the Company maintains an insurance policy or policies providing liability insurance for any of its directors, trustees or officers, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director, trustee or officer during the Indemnitee’s tenure as a director, trustee or officer and, following a termination of Indemnitee’s service in connection with a Change in Control, for a period of six years thereafter.

Section 12.         Non-Exclusivity; Survival of Rights; Subrogation.

(a)       The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Amended and Restated Declaration of Trust (as the same may be further amended from time to time, the “Declaration of Trust”) or Amended and Restated Bylaws of the Company (as the same may be further amended from time to time, the “Bylaws”), any agreement or a resolution of the shareholders entitled to vote generally in the election of trustees or of the Board of Trustees, or otherwise.  No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal.

(b)       In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(c)       The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable or payable or reimbursable as Expenses hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

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Section 13.         Binding Effect.

(a)       The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, trustee, officer, employee or agent of the Company or of any other real estate investment trust, corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the written request of the Company, and shall inure to the benefit of Indemnitee and his or her spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

(b)       Any successor of the Company (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company shall be automatically deemed to have assumed and agreed to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place, provided that no such assumption shall relieve the Company of its obligations hereunder.  To the extent required by applicable law to give effect to the foregoing sentence and to the extent requested by Indemnitee, the Company shall require and cause any such successor to expressly assume and agree to perform this Agreement by written agreement in form and substance satisfactory to Indemnitee.

Section 14.         Severability.  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

Section 15.         Limitation and Exception to Right of Indemnification or Advance of Expenses.  Notwithstanding any other provision of this Agreement, (a) any indemnification or advance of Expenses to which Indemnitee is otherwise entitled under the terms of this Agreement shall be made only to the extent such indemnification or advance of Expenses does not conflict with applicable Maryland law and (b) Indemnitee shall not be entitled to indemnification or advance of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee, unless (i) the Proceeding is brought to enforce indemnification under this Agreement, the Declaration of Trust, the Bylaws, liability insurance policy or policies, if any, or otherwise or (ii) the Declaration of Trust, the Bylaws, a resolution of the shareholders entitled to vote generally in the election of trustees or of the Board of Trustees or an agreement approved by the Board of Trustees to which the Company is a party expressly provides otherwise.

8

Section 16.         Arbitration.

(a)       Any disputes, claims or controversies between the parties (i) regarding the Indemnitee’s entitlement to indemnification or advance of Expenses hereunder or otherwise arising out of or relating to this Agreement, or (ii) brought by or on behalf of any shareholder of the Company (which, for purposes of this Section 16, shall mean any shareholder of record or any beneficial owner of shares of the Company, or any former shareholder of record or beneficial owner of shares of the Company), either on his, her or its own behalf, on behalf of the Company or on behalf of any series or class of shares of the Company or shareholders of the Company against the Company or any trustee, officer, manager (including Reit Management & Research LLC or its successor), agent or employee of the Company, including disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, including this arbitration agreement, the Declaration of Trust or the Bylaws (all of which are referred to as “Disputes”) or relating in any way to such a Dispute or Disputes, shall on the demand of any party to such Dispute be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Section 16.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against trustees, officers or managers of the Company and class actions by a shareholder against those individuals or entities and the Company.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.

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

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

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

9

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

(f)        Except to the extent expressly provided by this Agreement (including Section 5 and Section 9(d)) or as otherwise agreed by the parties, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action by a shareholder of the Company, award any portion of the Company’s award to the claimant or the claimant’s attorneys.  Each party (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third appointed arbitrator.

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

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

Section 17.         Period of Limitations.  To the fullest extent permitted by law, no legal action shall be brought, and no cause of action shall be asserted, by or on behalf of the Company or any controlled affiliate of the Company against Indemnitee, Indemnitee’s spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company or its controlled affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

10

Section 18.         Reports to Shareholders.  To the extent required by the MGCL, the Company shall report in writing to its shareholders the payment of any amounts for indemnification of, or advance of Expenses to, Indemnitee under this Agreement arising out of a derivative Proceeding by or in the right of the Company with the notice of the meeting of shareholders of the Company next following the date of the payment of any such indemnification or advance of Expenses or prior to such meeting.

Section 19.         Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.  One such counterpart signed by the party against whom enforceability is sought shall be sufficient to evidence the existence of this Agreement.

Section 20.         Headings.  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

Section 21.         Modification and Waiver.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

Section 22.         Notices.  Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication is accepted by the party to whom it is given, and shall be given by being delivered at the following addresses to the parties hereto:

(a)       If to Indemnitee, to:  The address set forth on the signature page hereto.

(b)       If to the Company to:

Select Income REIT
Two Newton Place

255 Washington Street, Suite 300

Newton, Massachusetts 02458-1634
Attn:  Secretary

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

Section 23.         Governing Law.  The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Maryland, without regard to its conflicts of laws rules.

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Section 24.         Miscellaneous.  Use of the masculine pronoun in this Agreement shall be deemed to include usage of the feminine pronoun where appropriate.

[SIGNATURE PAGE FOLLOWS]

12

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

SELECT INCOME REIT

By:

Name:

Title:

INDEMNITEE

Name:

Address:

EXHIBIT A

FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED

The Board of Trustees of Select Income REIT

Re:  Undertaking to Repay Expenses Advanced

Ladies and Gentlemen:

This undertaking is being provided pursuant to that certain Indemnification Agreement dated                             , 20    , by and between Select Income REIT (the “Company”) and the undersigned Indemnitee (the “Indemnification Agreement”), pursuant to which I am entitled to advance of expenses in connection with [Description of Proceeding] (the “Proceeding”).

Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement.

I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity.  I hereby affirm that at all times, insofar as I was involved as [a trustee] [an officer] of the Company, in any of the facts or events giving rise to the Proceeding, I (1) did not act with bad faith or active or deliberate dishonesty, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any criminal proceeding, had no reasonable cause to believe that any act or omission by me was unlawful.

In consideration of the advance of Expenses by the Company for reasonable attorneys’ fees and related expenses incurred by me in connection with the Proceeding (the “Advanced Expenses”), I hereby agree that if, in connection with the Proceeding, it is established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper personal benefit in money, property or services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse the portion of the Advanced Expenses relating to the claims, issues or matters in the Proceeding as to which the foregoing findings have been established and which have not been successfully resolved as described in Section 5 of the Indemnification Agreement.  To the extent that Advanced Expenses do not relate to a specific claim, issue or matter in the Proceeding, I agree that such Expenses shall be allocated on a reasonable and proportionate basis.

IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this                 day of                    , 20    .

WITNESS:
	(SEAL)

Schedule to Exhibit 10.5

The following individuals are parties to Indemnification Agreements with the Company which are substantially identical in all material respects to the representative Indemnification Agreement filed herewith and are dated as of the respective dates listed below.  The other Indemnification Agreements are omitted pursuant to Instruction 2 to Item 601 of Regulation S-K.

Name of Signatory	Date
David M. Blackman	March 8, 2012
President and Chief Operating Officer
Jennifer B. Clark	March 8, 2012
Secretary
Donna D. Fraiche	March 8, 2012
Independent Trustee
William A. Lamkin	March 8, 2012
Independent Trustee
John C. Popeo	March 8, 2012
Treasurer and Chief Financial Officer
Adam D. Portnoy	March 8, 2012
Managing Trustee
Barry M. Portnoy	March 8, 2012
Managing Trustee
Jeffrey P. Somers	March 8, 2012
Independent Trustee
Vern D. Larkin	March 8, 2012
Director of Internal Audit
Jacquelyn S. Anderson	April 23, 2012
Assistant Secretary

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 of Select Income REIT;

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

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

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

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

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

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

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

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

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

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

Date:	May 3, 2012	/s/ David M. Blackman
		David M. Blackman
		President and Chief Operating Officer

EX-31.2

EXHIBIT 31.2

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

I, John C. Popeo, certify that:

1.I have reviewed this Quarterly Report of Select Income REIT;

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

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

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

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

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

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

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

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

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

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

Date:	May 3, 2012	/s/ John C. Popeo
		John C. Popeo
		Treasurer and Chief Financial Officer

EX-31.3

EXHIBIT 31.3

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

I, Barry M. Portnoy, certify that:

1.I have reviewed this Quarterly Report of Select Income REIT;

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

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

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

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

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

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

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

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

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

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

Date:	May 3, 2012	/s/ Barry M. Portnoy
		Barry M. Portnoy
		Managing Trustee

EX-31.4

EXHIBIT 31.4

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

I, Adam D. Portnoy, certify that:

1.I have reviewed this Quarterly Report of Select Income REIT;

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

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

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

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

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

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

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

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

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

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

Date:	May 3, 2012	/s/ Adam D. Portnoy
		Adam D. Portnoy
		Managing Trustee

EX-32.1

Exhibit 32.1

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

In connection with the filing by Select Income REIT (the “Company”) of the Quarterly Report on Form 10-Q for the period ended March 31, 2012 (the “Report”), each of the undersigned hereby certifies, to the best of his knowledge:

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

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

/s/ Barry M. Portnoy	/s/ David M. Blackman
Barry M. Portnoy	David M. Blackman
Managing Trustee	President and Chief Operating Officer
/s/ Adam D. Portnoy	/s/ John C. Popeo
Adam D. Portnoy	John C. Popeo
Managing Trustee	Treasurer and Chief Financial Officer
Date:  May 3, 2012

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2012

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 3.  Summary of Significant Accounting Policies

Basis of Presentation.  Prior to our IPO, CWH owned us, and we have presented certain historical transactions at CWH’s historical basis.  Historically, substantially all of the rental income received by CWH from the tenants of our Properties were deposited in and commingled with CWH’s general funds. Certain capital investments and other cash requirements of our Properties were paid by CWH and were charged directly to our Properties. General and administrative costs of CWH were allocated to our Properties based on the historical costs of the real estate investments for our Properties as a percentage of CWH’s historical cost of all of CWH’s real estate investments until the Closing Date. In our opinion, and in accordance with applicable accounting guidance, this method for allocating general and administrative expenses is reasonable. However, actual expenses may have been different from allocated expenses if our Properties had operated as a standalone entity and differences might be material.  Since the Closing Date, we have recorded general and administrative expenses at our direct cost.  The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts.  Actual results could differ from those estimates.  Significant estimates in the condensed consolidated financial statements include the allowance for doubtful accounts, purchase price allocations and useful lives of fixed assets.

Real Estate Properties.  As required by GAAP, we have generally adopted the accounting treatment and policies for our properties and business which were previously employed by CWH.

XML

Organization

3 Months Ended

Mar. 31, 2012

Organization

Organization

Note 2.  Organization

            SIR, a Maryland real estate investment trust, or REIT, was organized on December 19, 2011 as a wholly owned subsidiary of CWH.

            On February 16, 2012, CWH contributed the Properties to us. In return, we issued to CWH: (i) 22,000,000 common shares (including 1,000 common shares initially issued to CWH on December 21, 2011 in connection with our formation) and (ii) a $400,000 demand promissory note, or the CWH Note.

            On March 6, 2012, we priced our IPO of 8,000,000 common shares. The sale of these shares and an additional 1,200,000 of our common shares pursuant to the exercise in full of our IPO underwriters’ over allotment option closed on March 12, 2012, or the Closing Date, and we became a public company. We used the net proceeds from the IPO and borrowings under our revolving credit facility to repay in full the CWH Note.

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Real estate properties:
Land	$ 614,702	$ 614,702
Buildings and improvements	292,850	292,634
Real estate properties, gross	907,552	907,336
Accumulated depreciation	(38,189)	(36,240)
Real estate properties, net	869,363	871,096
Acquired real estate leases, net	43,111	44,333
Cash and cash equivalents	18,358	0
Rents receivable, net	31,917	35,024
Deferred leasing costs, net	3,571	3,418
Deferred financing costs, net	4,116
Due from related persons	1,095
Other assets, net	3,698	661
Total assets	975,229	954,532
LIABILITIES AND SHAREHOLDERS' EQUITY
Revolving credit facility	227,000
Accounts payable and accrued expenses	15,852	14,217
Assumed real estate lease obligations, net	20,582	21,005
Rents collected in advance	6,397	6,229
Security deposits	8,126	8,281
Total liabilities	277,957	49,732
Commitments and contingencies
Shareholders' equity:
Common shares of beneficial interest, $0.01 par value: 50,000,000 shares authorized, 31,200,000 and 1,000 shares issued and outstanding, respectively	312
Additional paid in capital	693,928
Cumulative net income	3,032
Ownership Interest		904,800
Total shareholders' equity	697,272	904,800
Total liabilities and shareholders' equity	$ 975,229	$ 954,532

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 17,655	$ 17,477
Adjustments to reconcile net income to cash provided by operating activities
Depreciation	1,959	1,939
Net amortization of deferred financing fees	53
Amortization of acquired real estate leases	800	757
Amortization of deferred leasing costs	130	122
Provision for losses on rents receivable	98
Straight line rental income	(773)	(1,523)
Change in assets and liabilities:
(Increase) decrease in rents receivable	3,781	(4,830)
Increase in deferred leasing costs	(284)	(400)
Increase in other assets	(3,037)	(2,871)
Increase in due from related persons	(1,095)
Increase in accounts payable and accrued expenses	1,487	1,433
Increase in rents collected in advance	168	1,439
Increase (decrease) in security deposits	(155)	7
Cash provided by operating activities	20,787	13,550
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions		(10,000)
Real estate improvements	(76)	(651)
Cash used in investing activities	(76)	(10,651)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares, net	180,954
Borrowings on revolving credit facility	251,500
Repayments on revolving credit facility	(24,500)
Deferred financing fees	(4,169)
Repayment of demand note	(400,000)
Net distributions	(6,138)	(2,899)
Cash used in financing activities	(2,353)	(2,899)
Increase in cash and cash equivalents	18,358
Cash and cash equivalents at beginning of period	0
Cash and cash equivalents at end of period	18,358
SUPPLEMENTAL CASH FLOW INFORMATION:
Real estate acquired by the issuance of shares and assumption of demand note	913,286
Non-cash financing activities
Issuance of common shares	513,286
Issuance of demand note	$ 400,000

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Basis of Presentation

3 Months Ended

Mar. 31, 2012

Basis of Presentation

Basis of Presentation

Note 1.  Basis of Presentation

The accompanying condensed consolidated financial statements of Select Income REIT and its subsidiaries, or SIR, we, us or our, have been prepared without audit.  Certain information and footnote 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 Combined Financial Statements of Selected Properties of CommonWealth REIT as of December 31, 2011 and 2010 and for the three years in the period ending December 31, 2011 and notes thereto contained in our Prospectus, dated March 6, 2012, or our Prospectus, filed with Securities and Exchange Commission, or the SEC, in accordance with Rule 424(b) of the Securities Act of 1933, as amended, or the Securities Act, which is accessible on the SEC’s website at www.sec.gov.  These combined financial statements include 251 properties with a total of approximately 21.4 million rentable square feet, or the Properties, that were owned by CommonWealth REIT and its subsidiaries, or CWH, until they were contributed to us by CWH on February 16, 2012.  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 subsidiaries have been eliminated.  Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.  Because of the significant changes resulting from our initial public offering, or IPO, in March 2012, the financial results reported are not indicative of our expected future results. Reclassifications have been made to the prior years’ financial statements to conform to the current year’s presentation.

These condensed consolidated financial statements are presented as if we were a legal entity separate from CWH at all times for the periods presented, despite our not being in existence until December 19, 2011, and the fact that thereafter we were a wholly owned consolidated subsidiary of CWH until March 12, 2012.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Mar. 31, 2012	Dec. 31, 2011
CONDENSED CONSOLIDATED BALANCE SHEETS
Common shares, par value (in dollars per share)	$ 0.01	$ 0.01
Common shares, shares authorized	50,000,000	50,000,000
Common shares, shares issued	31,200,000	1,000
Common shares, shares outstanding	31,200,000	1,000

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Document and Entity Information	3 Months Ended
	Mar. 31, 2012	Apr. 01, 2012
Document and Entity Information
Entity Registrant Name	Select Income REIT
Entity Central Index Key	0001537667
Document Type	10-Q
Document Period End Date	Mar. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	No
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		31,200,000
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Revenues
Rental income	$ 24,074	$ 23,737
Tenant reimbursements and other income	3,513	4,043
Total revenues	27,587	27,780
Expenses
Real estate taxes	3,641	3,603
Other operating expenses	1,777	2,532
Depreciation and amortization	2,773	2,712
General and administrative	1,404	1,456
Total expenses	9,595	10,303
Operating income	17,992	17,477
Interest expense (including amortization of deferred financing fees of $53 and $0, respectively)	(337)
Net income	$ 17,655	$ 17,477
Weighted average common shares outstanding (in shares)	13,205
Net income per common share (in dollars per share)	$ 1.34

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Indebtedness

3 Months Ended

Mar. 31, 2012

Indebtedness

Indebtedness

Note 6.  Indebtedness

On February 16, 2012, we issued the CWH Note as part of the consideration for the Properties contributed to us by CWH.  Simultaneous with closing of our IPO on March 12, 2012, we repaid the CWH Note in full using net proceeds from our IPO and borrowings under our revolving credit facility.

Simultaneous with the closing of our IPO, we entered into a $500,000 revolving credit facility that is available for general business purposes, including acquisitions.  Our revolving credit facility is scheduled to mature on March 11, 2016, and subject to the payment of an extension fee and meeting certain other conditions, we have an option to extend the stated maturity date by one year. Interest is calculated at floating rates based upon LIBOR plus premiums that vary depending upon our leverage and credit rating.  The weighted average interest rate for this facility was approximately 1.55% for the period of March 12, 2012 to March 31, 2012.  As of March 31, 2012, we had $227,000 of borrowings and $273,000 available for additional borrowings under our revolving credit facility.

Our revolving credit facility agreement includes various financial and other covenants that generally restrict our ability to incur debts in excess of calculated amounts, restrict our ability to make distributions under certain circumstances and require us to maintain certain financial ratios.  We believe we were in compliance with the terms of our revolving credit facility agreement at March 31, 2012.

The revolving credit facility is secured by a pledge of the equity of certain of our subsidiaries.

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Tenant Concentration and Segment Information

3 Months Ended

Mar. 31, 2012

Tenant Concentration and Segment Information

Tenant Concentration and Segment Information

Note 5.  Tenant Concentration and Segment Information

We operate in one business segment: ownership of properties that are primarily net leased to single tenants.  No single tenant currently accounts for more than 10% of our total revenues.  We define a single tenant leased property as a property which is at least 90% leased to one tenant; however, we also own a few multi tenant buildings in Hawaii.

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Related Person Transactions

3 Months Ended

Mar. 31, 2012

Related Person Transactions

Related Person Transactions

Note 9.  Related Person Transactions

            We have no employees.  Personnel and various services we require to operate our business are provided to us by Reit Management & Research LLC, or RMR.  We have two agreements with RMR to provide management and administrative services to us: (1) a business management agreement and (2) a property management agreement.  Under our business management agreement with RMR, we acknowledge that RMR also provides management services to other companies, including CWH.  One of our Managing Trustees, Mr. Barry Portnoy, is Chairman, majority owner and an employee of RMR.  Our other Managing Trustee, Mr. Adam Portnoy, is the son of Mr. Barry Portnoy and an owner, President, Chief Executive Officer and a director of RMR.  Each of our other executive officers is also an officer of RMR.  CWH’s executive officers are officers of RMR.  Our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR provides management services.  Mr. Barry Portnoy serves as a managing director or managing trustee of those companies, and Mr. Adam Portnoy serves as a managing trustee of a majority of those companies.

            Pursuant to our business management agreement with RMR, we incurred expenses of $247 for the period beginning on March 12, 2012, the date on which we entered into the agreement, through March 31, 2012.  These amounts are included in general and administrative expenses in our condensed consolidated financial statements.  In connection with our property management agreement with RMR, we incurred property management and construction supervision fees of $158 for the period beginning on March 12, 2012, the date on which we entered into the agreement, through March 31, 2012.  These amounts are included in operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

            We were formerly a 100% owned subsidiary of CWH.  CWH is our largest shareholder and, as of the date of this report, CWH owned 22,000,000 of our common shares, or approximately 70.5% of our outstanding common shares.  One of our Managing Trustees, Mr. Barry Portnoy, is a managing trustee of CWH.  Our other Managing Trustee, Mr. Adam Portnoy, is a managing trustee and President of CWH.   In addition, Mr. John Popeo, our Treasurer and Chief Financial Officer, also serves as the Treasurer and Chief Financial Officer of CWH, and one of our Independent Trustees, Mr. William Lamkin, is also an independent trustee of CWH.  RMR provides management services to both us and CWH.

            In March 2012, we completed our IPO of 9,200,000 of our common shares (including 1,200,000 common shares sold pursuant to the full exercise of the underwriters’ over allotment option), for net proceeds (after deducting underwriters’ discounts and commissions and estimated expenses) of $180,954.  We applied those net proceeds, along with proceeds of our initial borrowings under our $500,000 revolving credit facility, to repay in full the CWH Note and to reimburse CWH for costs that CWH incurred in connection with our organization and preparation for our IPO.  In connection with our IPO, we and CWH entered into a transaction agreement that governs our relationship with CWH.  The transaction agreement provides that, among other things, (1) the current assets and liabilities of the Properties, as of the time of closing of the IPO, were settled between us and CWH so that CWH will retain all pre-closing current assets and liabilities and we will assume all post-closing current assets and liabilities and (2) we will indemnify CWH with respect to any liability relating to any property transferred by CWH to us, including any liability which relates to periods prior to our formation, other than the pre-closing current assets and current liabilities that CWH retained with respect to the Properties.

            For further information about these and other such relationships and related person transactions, please see elsewhere in this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” in Part I, Item 2 and “Warning Concerning Forward Looking Statements,” and our Prospectus, including the sections captioned “Business,”  “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions,” “Certain Relationships and Related Person Transactions” and “Cautionary Statement Regarding Forward Looking Statements”.  In addition, please see the section captioned “Risk Factors” in our Prospectus for a description of risks that may arise from these transactions and relationships.  Our filings with the SEC, including our Prospectus, are available at the SEC’s website at www.sec.gov.  In addition, copies of certain of our agreements with these parties, including our business management agreement and property management agreement with RMR and various agreements we have with CWH, are also publicly available as exhibits to our public filings with the SEC and accessible at the SEC’s website.

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Shareholders' Equity

3 Months Ended

Mar. 31, 2012

Shareholders' Equity

Shareholders' Equity

Note 7.  Shareholders’ Equity

            We were formed on December 19, 2011 as a wholly owned subsidiary of CWH.  On December 21, 2011, we issued 1,000 common shares to CWH in connection with our formation.  On February 16, 2012, we issued 22,000,000 common shares (including the 1,000 common shares issued to CWH on December 21, 2011 in connection with our formation) to CWH as part of the consideration for the Properties contributed to us by CWH.

In March 2012, we issued 9,200,000 of our common shares in our IPO, including 1,200,000 common shares issued when the underwriters exercised in full their over allotment option, at a price of $21.50 per share, raising net proceeds of approximately $180,954.  We used the net proceeds from this offering to repay part of the CWH Note.

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Income Taxes

3 Months Ended

Mar. 31, 2012

Income Taxes

Income Taxes

Note 8.  Income Taxes

Through the Closing Date, while we were 100% owned by CWH, our operations were included in CWH’s income tax returns.  CWH is a real estate investment trust under the Internal Revenue Code of 1986, as amended, or the Code.  Accordingly, CWH is not subject to federal and most state income taxes provided it distributes its taxable income and meets certain other requirements to qualify as a real estate investment trust.  However, CWH is subject to certain state and local taxes.

From and after the Closing Date, we intend to qualify for taxation as a real estate investment trust under the Code.  As such, we expect to generally not be subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain requirements to qualify as a real estate investment trust. However, we expect to be subject to income tax in certain states and local jurisdictions despite our real estate investment trust status.

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Subsequent Events

3 Months Ended

Mar. 31, 2012

Subsequent Events

Subsequent Events

Note 10.  Subsequent Events

            Subsequent events have been disclosed within other notes to these condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Deferred financing fees	$ 53	$ 0

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Real Estate Properties

3 Months Ended

Mar. 31, 2012

Real Estate Properties

Real Estate Properties

Note 4.  Real Estate Properties

On February 16, 2012, CWH contributed the Properties to us. In return, we issued to CWH: (i) 22,000,000 common shares (including 1,000 common shares initially issued to CWH on December 21, 2011 in connection with our formation) and (ii) the CWH Note.

Since completing our IPO on March 12, 2012, we have entered agreements to acquire two properties for an aggregate purchase price of approximately $104,400, excluding closing costs:

·In April 2012, we entered an agreement to acquire a 100% net leased, single tenant office building located in Provo, UT with 405,699 square feet.  The purchase price is $85,500, excluding closing costs.  This pending acquisition is subject to our satisfactory completion of diligence and other customary closing conditions; accordingly, we can provide no assurance that we will acquire this property.

·Also in April 2012, we entered an agreement to acquire a 100% net leased, single tenant office building located in Englewood, CO with 140,162 square feet.  The purchase price is $18,900, excluding closing costs.  This pending acquisition is subject to our satisfactory completion of diligence and other customary closing conditions; accordingly, we can provide no assurance that we will acquire this property.

A “net leased property” or a property being “net leased” means that the property’s lease requires the tenant to pay rent and also pay or reimburse us for all, or substantially all, property level operating expenses and capital expenditures, such as real estate taxes, insurance, utilities, maintenance and repairs, other than, in certain circumstances, roof and structural element related expenditures or in some instances to reimburse all expenses in excess of certain amounts included in the stated rent.