Note 6. Equity Investments

At December 31, 2013 and 2012, we had the following equity investments in SIR, GOV and AIC:

	Ownership Percentage						Equity Investments				Equity in Earnings

	December 31,						December 31,				Year Ended December 31,
	2013			2012			2013		2012		2013		2012		2011
SIR		44.2	%		56.0%	⁽¹⁾	$	512,078	$	—	$	21,153	$	—	$	—
GOV		0.0	%		18.2%			—		173,452		4,111		10,836		11,238
AIC		12.5	%		25.0%			5,913		11,259		490		584		139


							$	517,991	$	184,711	$	25,754	$	11,420	$	11,377

⁽¹⁾: SIR's financial position and results of operations were consolidated in our financial statements as of December 31, 2012, and therefore not reflected in the table above.

At December 31, 2013, we owned 22,000,000, or approximately 44.2%, of the common shares of beneficial interest of SIR, with a carrying value of $512,078 and a market value, based on quoted market prices, of $588,280 ($26.74 per share). SIR is a REIT that is primarily focused on owning and investing in net leased, single tenant properties and was one of our consolidated subsidiaries until July 2, 2013. On July 2, 2013, SIR issued and sold to the public 10,500,000 of its common shares for $28.25 per common share. Prior to the completion of this offering, our 22,000,000 common shares of SIR represented approximately 56.0% of SIR's outstanding common shares, and SIR was one of our consolidated subsidiaries. Following the completion of this offering, our 22,000,000 common shares of SIR represented approximately 44.2% of SIR's outstanding common shares and SIR ceased to be our consolidated subsidiary. Accordingly, since the completion of this offering on July 2, 2013, we no longer consolidate our investment in SIR, but instead account for this investment under the equity method. Under the equity method, we record our percentage share of net earnings of SIR in our consolidated statements of operations. Prior to July 2, 2013, the operating results and investments of SIR were included in our consolidated results of operations and financial position. On July 2, 2013, our share of the underlying equity of SIR exceeded our carrying value by $17,609. As required under GAAP, we are amortizing this difference to equity in earnings of investees over a 34 year period, which approximates the average remaining useful lives of the buildings owned by SIR as of July 2, 2013. If we determine there is an "other than temporary" decline in the fair value of this investment, we would record a charge to earnings. See Notes 1 and 12 for additional information regarding SIR.

Since July 2, 2013, we have received cash distributions from SIR totaling $19,800.

The following summarized financial data of SIR as reported in SIR's Annual Report on Form 10-K for the year ended December 31, 2013, or the SIR Annual Report, includes the financial position and results of operations for periods prior to July 2, 2013 (the date SIR ceased to be our consolidated subsidiary), which are included in our consolidated results of operations when SIR was our consolidated subsidiary. References in our financial statements to the SIR Annual Report are included as references to the source of the data only, and the information in the SIR Annual Report is not incorporated by reference into our financial statements.

Consolidated Balance Sheets:

	December 31,

	2013		2012
Real estate properties, net	$	1,579,234	$	1,249,081
Acquired real estate leases, net		129,426		95,248
Cash and cash equivalents		20,025		20,373
Rents receivable, net		55,335		38,885
Other assets, net		17,839		27,065


Total assets	$	1,801,859	$	1,430,652




Revolving credit facility	$	159,000	$	95,000
Term loan		350,000		350,000
Mortgage notes payable		27,147		27,778
Assumed real estate lease obligations, net		26,966		20,434
Other liabilities		40,055		37,257
Shareholders' equity		1,198,691		900,183


Total liabilities and shareholders' equity	$	1,801,859	$	1,430,652

Consolidated Statements of Income:

	Year Ended December 31,

	2013			2012			2011
Rental income	$	159,011		$	105,559		$	91,775
Tenant reimbursements and other income		29,312			17,231			16,847


Total revenues		188,323			122,790			108,622


Operating expenses		36,382			23,796			22,946
Depreciation and amortization		31,091			14,860			11,205
Acquisition related costs		2,002			2,470			—
General and administrative		12,423			8,203			5,528


Total expenses		81,898			49,329			39,679


Operating income		106,425			73,461			68,943
Interest expense		(13,763	)		(7,565	)		—


Income before income tax expense and equity in earnings of an investee		92,662			65,896			68,943
Income tax benefit (expense)		96			(290	)		—
Equity in earnings of an investee		334			269			—


Net income	$	93,092		$	65,875		$	68,943




Weighted average common shares outstanding		44,565			27,122			—




Net income per common share	$	2.09		$	2.43			N/A

On March 15, 2013, we sold all 9,950,000 common shares that we owned of GOV in a public offering for $25.20 per common share, raising gross proceeds of $250,740 ($239,576 after deducting underwriters' discounts and commissions and expenses). We recognized a gain on this sale of an equity investment of $66,293 as a result of the per share sales price of this transaction being above our per share carrying value. GOV is a REIT which primarily owns properties that are majority leased to government tenants and was our wholly owned subsidiary until its initial public offering in June 2009 when it became a separate public entity.

During the years ended December 31, 2013, 2012 and 2011, we received cash distributions from GOV totaling $4,279, $16,816 and $16,617, respectively.

The following summarized financial data of GOV as of December 31, 2012 and for the two years then ended, is as reported in GOV's Annual Report on Form 10-K for the year ended December 31, 2013, or the GOV Annual Report. References in our financial statements to the GOV Annual Report are included as references to the source of the data only, and the information in the GOV Annual Report is not incorporated by reference into our financial statements.

Consolidated Balance Sheets:

	December 31, 2012

Real estate properties, net	$	1,311,202
Assets of discontinued operations		47,142
Acquired real estate leases, net		144,402
Cash and cash equivalents		5,255
Rents receivable, net		28,882
Other assets, net		25,251


Total assets	$	1,562,134




Unsecured revolving credit facility	$	49,500
Unsecured term loan		350,000
Mortgage notes payable		93,127
Liabilities of discontinued operations		298
Assumed real estate lease obligations, net		19,129
Other liabilities		22,629
Shareholders' equity		1,027,451


Total liabilities and shareholders' equity	$	1,562,134

Consolidated Statements of Income:

	Year Ended December 31,

	2012			2011
Rental income	$	203,700		$	168,074


Operating expenses		75,326			62,117
Depreciation and amortization		49,070			37,776
Acquisition related costs		1,614			3,504
General and administrative		11,924			10,469


Total expenses		137,934			113,866


Operating income		65,766			54,208
Interest and other income		29			104
Interest expense		(16,892	)		(12,057	)


Income from continuing operations before income tax expense and equity in earnings of an investee		48,903			42,255
Income tax expense		(159	)		(203	)
Equity in earnings of an investee		316			139


Income from continuing operations		49,060			42,191
Income from discontinued operations		900			3,806


Net income	$	49,960		$	45,997




Weighted average common shares outstanding		48,617			43,368




Per common share:
Income from continuing operations	$	1.01		$	0.97




Income from discontinued operations	$	0.02		$	0.09




Net income	$	1.03		$	1.06

As of December 31, 2013, we have invested $5,209 in AIC, an insurance company owned in equal proportion by us, RMR, GOV, SIR and four other companies to which RMR provides management services. At December 31, 2013, we owned 12.5% of AIC with a carrying value of $5,913. For the period that SIR was both a shareholder of AIC and our consolidated subsidiary, from May 2012 until July 2, 2013, our consolidated financial statements include SIR's equity investment interest in AIC. We and SIR use the equity method to account for our and SIR's investment in AIC because we and SIR believe that we each have significant influence over AIC because a majority of our Trustees and all of SIR's trustees are also directors of AIC. Following our deconsolidation of SIR, we continue to account for our investment in AIC under the equity method, as we continue to believe we have significant influence over AIC for the same reason. Under the equity method, we record our and our percentage share of SIR's percentage share of net earnings from AIC in our consolidated statements of operations. If we determine there is an "other than temporary" decline in the fair value of this investment, we would record a charge to earnings. In evaluating the fair value of this investment, we have considered, among other things, the assets and liabilities held by AIC, AIC's overall financial condition and the financial condition and prospects for AIC's insurance business. See Note 12 for additional information about our investment in AIC.