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 September 30, 2011

OR

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

Commission File Number 1-9317

COMMONWEALTH REIT

(Exact Name of Registrant as Specified in Its Charter)

Maryland	04-6558834
(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)

617-332-3990

(Registrant’s Telephone Number, Including Area Code)

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

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

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

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

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

Number of registrant’s common shares of beneficial interest, $0.01 par value per share, outstanding as of November 2, 2011: 83,721,736.

COMMONWEALTH REIT

FORM 10-Q

September 30, 2011

INDEX

		Page
PART I	Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets – September 30, 2011 and December 31, 2010	1
	Condensed Consolidated Statements of Income – Three and Nine Months Ended September 30, 2011 and 2010	2
	Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2011 and 2010	3
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	45
	Warning Concerning Forward Looking Statements	46
	Statement Concerning Limited Liability	48
PART II	Other Information
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 5.	Other Information	49
Item 6.	Exhibits	49
	Signatures	52

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

PART I          Financial Information

Item 1.  Financial Statements

COMMONWEALTH REIT

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

(unaudited)

	September 30,			December 31,
	2011			2010
ASSETS
Real estate properties:
Land	$	1,445,301		$	1,339,133
Buildings and improvements	5,746,893			5,018,125
	7,192,194			6,357,258
Accumulated depreciation	(932,293		)	(850,261		)
	6,259,901			5,506,997
Properties held for sale	43,573			114,426
Acquired real estate leases, net	360,293			233,913
Equity investments	178,652			171,464
Cash and cash equivalents	210,673			194,040
Restricted cash	10,102			5,082
Rents receivable, net of allowance for doubtful accounts of $12,421 and $12,550, respectively	212,737			191,237
Other assets, net	182,259			171,380
Total assets	$	7,458,190		$	6,588,539
LIABILITIES AND SHAREHOLDERS’ EQUITY
Revolving credit facility	$	235,000		$	—
Senior unsecured debt, net	2,687,600			2,854,540
Mortgage notes payable, net	633,935			351,526
Liabilities related to properties held for sale	463			1,492
Accounts payable and accrued expenses	148,525			123,842
Assumed real estate lease obligations, net	72,619			65,940
Rent collected in advance	35,593			27,988
Security deposits	23,710			22,523
Due to related persons	28,448			8,998
Total liabilities	3,865,893			3,456,849
Shareholders’ equity:
Preferred shares of beneficial interest, $0.01 par value:
50,000,000 shares authorized;
Series C preferred shares; 7 1/8% cumulative redeemable since February 15, 2011; 6,000,000 shares issued and outstanding, aggregate liquidation preference $150,000	145,015			145,015
Series D preferred shares; 6 1/2% cumulative convertible; 15,180,000 shares issued and outstanding, aggregate liquidation preference $379,500	368,270			368,270
Series E preferred shares; 7 1/4% cumulative redeemable on or after May 15, 2016; 11,000,000 and zero shares issued and outstanding, respectively, aggregate liquidation preference $275,000	265,391			—
Common shares of beneficial interest, $0.01 par value:
350,000,000 shares authorized; 83,721,736 and 72,138,686 shares issued and outstanding, respectively	837			721
Additional paid in capital	3,613,828			3,348,849
Cumulative net income	2,467,448			2,372,337
Cumulative other comprehensive (loss) income	(21,489		)	4,706
Cumulative common distributions	(2,784,169		)	(2,675,956		)
Cumulative preferred distributions	(462,834		)	(432,252		)
Total shareholders’ equity	3,592,297			3,131,690
Total liabilities and shareholders’ equity	$	7,458,190		$	6,588,539

See accompanying notes

1

COMMONWEALTH REIT

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except per share data)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Rental income	$	238,790		$	193,059		$	662,596		$	572,205
Expenses:
Operating expenses	100,912			83,023			275,760			240,280
Depreciation and amortization	56,389			42,794			159,072			130,560
General and administrative	11,450			9,704			33,559			28,081
Loss on asset impairment	—			—			—			21,491
Acquisition related costs	4,805			1,559			9,722			2,965
Total expenses	173,556			137,080			478,113			423,377
Operating income	65,234			55,979			184,483			148,828
Interest and other income	369			571			1,428			2,134
Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $1,515, $1,784, $5,467 and $5,260, respectively)	(49,423		)	(44,192		)	(145,037		)	(133,716		)
Gain (loss) on early extinguishment of debt	310			(796		)	310			(796		)
Equity in earnings of investees	2,768			1,999			8,390			6,643
Gain on issuance of shares by an equity investee	11,177			18,390			11,177			34,808
Income from continuing operations before income tax expense	30,435			31,951			60,751			57,901
Income tax (expense) benefit	(307		)	34			(743		)	(329		)
Income from continuing operations	30,128			31,985			60,008			57,572
Discontinued operations:
Income from discontinued operations	653			6,673			2,777			16,877
Loss on asset impairment from discontinued operations	(9,247		)	—			(9,247		)	—
Loss on early extinguishment of debt from discontinued operations	—			(248		)	—			(248		)
Gain on sale of properties from discontinued operations	7,001			4,568			41,573			4,568
Income before gain on sale of properties	28,535			42,978			95,111			78,769
Gain on sale of properties	—			22,832			—			34,336
Net income	28,535			65,810			95,111			113,105
Preferred distributions	(13,823		)	(12,667		)	(33,162		)	(38,001		)
Net income available for common shareholders	$	14,712		$	53,143		$	61,949		$	75,104
Weighted average common shares outstanding – basic	81,536			65,173			75,307			62,198
Weighted average common shares outstanding – diluted	88,834			72,471			82,605			69,496
Basic and diluted earnings per common share:
Income from continuing operations available for common shareholders	$	0.20		$	0.65		$	0.36		$	0.87
(Loss) income from discontinued operations	$	(0.02	)	$	0.17		$	0.47		$	0.34
Net income available for common shareholders	$	0.18		$	0.82		$	0.82		$	1.21

See accompanying notes

2

COMMONWEALTH REIT

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

	Nine Months Ended September 30,
	2011			2010
Cash flows from operating activities:
Net income	$	95,111		$	113,105
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	123,324			117,575
Net amortization of debt discounts, premiums and deferred financing fees	5,467			5,644
Amortization of acquired real estate leases	33,654			23,420
Other amortization	12,186			12,216
Loss on asset impairment	9,247			21,491
(Gain) loss on early extinguishment of debt	(310		)	1,044
Equity in earnings of investees	(8,390		)	(6,643		)
Gain on issuance of shares by an equity investee	(11,177		)	(34,808		)
Distributions of earnings from investees	8,279			6,660
Gain on sale of properties	(41,573		)	(38,904		)
Change in assets and liabilities:
(Increase) decrease in restricted cash	(5,020		)	5,808
Increase in rents receivable and other assets	(56,972		)	(36,581		)
Increase (decrease) in accounts payable and accrued expenses	15,356			(10,951		)
Increase in rent collected in advance	6,667			2,049
Increase (decrease) in security deposits	2,072			(59		)
Increase in due to related persons	18,271			17,293
Cash provided by operating activities	206,192			198,359
Cash flows from investing activities:
Real estate acquisitions and improvements	(829,520		)	(406,983		)
Investment in direct financing lease, net	(38,635		)	—
Principal payments received from direct financing lease	3,643			—
Principal payments received from real estate mortgage receivable	8,183			—
Proceeds from investment in marketable pass through certificates	—			8,000
Proceeds from sale of properties, net	263,170			230,911
Distributions in excess of earnings from investees	4,159			5,379
Investment in Affiliates Insurance Company	—			(75		)
Increase in restricted cash	—			(1,221		)
Cash used in investing activities	(589,000		)	(163,989		)
Cash flows from financing activities:
Proceeds from issuance of common shares, net	264,056			430,778
Proceeds from issuance of preferred shares, net	265,391			—
Proceeds from borrowings	750,000			1,148,632
Payments on borrowings	(738,904		)	(1,317,027		)
Deferred financing fees	(853		)	(9,565		)
Distributions to common shareholders	(108,213		)	(90,168		)
Distributions to preferred shareholders	(30,582		)	(38,001		)
Purchase of noncontrolling equity interest	—			(2,500		)
Cash provided by financing activities	400,895			122,149
Effect of exchange rate changes on cash	(1,454		)	—
Increase in cash and cash equivalents	16,633			156,519
Cash and cash equivalents at beginning of period	194,040			18,204
Cash and cash equivalents at end of period	$	210,673		$	174,723

See accompanying notes

3

COMMONWEALTH REIT

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(amounts in thousands)

(unaudited)

	Nine Months Ended September 30,
	2011			2010
Supplemental cash flow information:
Interest paid	$	151,259		$	142,311
Taxes paid	403			543
Non-cash investing activities:
Real estate acquisitions	$	(321,235	)	$	—
Investment in real estate mortgage receivable	—			(8,288		)
Non-cash financing activities:
Issuance of common shares	$	1,039		$	896
Assumption of mortgage notes payable	321,235			—

See accompanying notes

4

COMMONWEALTH 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 CommonWealth REIT, or CWH, we, us or our, and its subsidiaries 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 consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2010, or our Annual Report.  In the opinion of our management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included.  All intercompany transactions and balances with or among our subsidiaries have been eliminated.  Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.  Reclassifications have been made to the prior years’ financial statements to conform to the current year’s presentation.

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

Note 2.  Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income.  This standard eliminates the current option to report other comprehensive income and its components in the statement of shareholders’ equity.  This standard is intended to enhance comparability between entities that report under GAAP and to provide a more consistent method of presenting non-owner transactions that affect an entity’s equity.  This standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  We do not expect the adoption of this standard to cause any material changes to our condensed consolidated financial statements.

Note 3.  Real Estate Properties

Since January 1, 2011, we acquired 23 properties with 6,806,615 square feet for an aggregate purchase price of $1,144,852, including the assumption of $321,235 of mortgage debt and excluding closing costs, and we sold 20 properties with approximately 2,148,000 square feet for an aggregate sale price of $265,145, excluding closing costs.  We also funded $65,176 of improvements to our owned properties during the nine months ended September 30, 2011.  In addition, we have entered into agreements to acquire two properties with a combined 1,891,243 square feet for an aggregate purchase price of $249,600, including the assumption of approximately $148,000 of mortgage debt and excluding closing costs.  We have also entered an agreement to sell 16 properties with approximately 570,000 combined square feet for $6,500, excluding closing costs.  Details of our completed and pending acquisitions and sales during 2011 are as follows:

Property Acquisitions:

In January 2011, we acquired three office properties located in Boca Raton, FL with a combined 639,830 square feet.  The aggregate purchase price was $171,000, excluding closing costs.  We allocated $15,900 to land, $129,790 to buildings and improvements and $25,310 to acquired real estate leases.

Also in January 2011, we acquired an office property located in Columbia, SC with 115,028 square feet.  The purchase price was $12,025, excluding closing costs.  We allocated $1,180 to land, $8,886 to buildings and improvements, $2,072 to acquired real estate leases and $113 to assumed real estate lease obligations.

Also in January 2011, we acquired an office property located in Chelmsford, MA with 98,048 square feet.  The purchase price was $10,000, excluding closing costs.  We allocated $1,410 to land, $7,322 to buildings and improvements, $1,711 to acquired real estate leases and $443 to assumed real estate lease obligations.

In February 2011, we acquired an office property located in Montvale, NJ with 119,089 square feet.  The purchase price was $20,600, excluding closing costs.  We allocated $3,650 to land, $13,726 to buildings and improvements, $3,954 to acquired real estate leases and $730 to assumed real estate lease obligations.

5

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

In March 2011, we acquired four properties located in Phoenix, AZ with a combined 1,063,364 square feet.  The aggregate purchase price was $136,500, excluding closing costs.  We allocated $30,985 to land, $55,733 to buildings and improvements, $38,635 to investment in direct financing lease, $15,706 to acquired real estate leases, $500 to assumed real estate lease obligations and $4,059 to notes payable.

In May 2011, we acquired an office property located in Chicago, IL with 1,070,388 square feet.  The purchase price was $162,202, excluding closing costs.  We allocated $34,300 to land, $110,245 to buildings and improvements, $24,399 to acquired real estate leases and $6,742 to assumed real estate lease obligations.

In June 2011, we acquired four office properties located in Stafford, VA with a combined 149,023 square feet.  The aggregate purchase price was $25,725, including the assumption of $14,960 of mortgage debt and excluding closing costs.  We allocated $4,150 to land, $21,795 to buildings and improvements, $815 to acquired real estate leases, $101 to assumed real estate lease obligations and $934 to premium on mortgage debt.

Also in June 2011, we acquired four office properties located in Folsom, CA with a combined 269,254 square feet.  The aggregate purchase price was $46,300, including the assumption of $41,275 of mortgage debt and excluding closing costs.  We allocated $4,370 to land, $41,748 to buildings and improvements, $3,729 to acquired real estate leases, $262 to assumed real estate lease obligations and $3,285 to premium on mortgage debt.

In July 2011, we acquired an office property located in Birmingham, AL with 514,893 square feet.  The purchase price was $68,500, excluding closing costs.  We allocated $1,740 to land, $49,565 to buildings and improvements, $17,552 to acquired real estate leases and $357 to assumed real estate lease obligations.

In August 2011, we acquired two office properties located in Chicago, IL with a combined 1,510,707 square feet.  The aggregate purchase price was $390,000, including the assumption of $265,000 of mortgage debt and excluding closing costs.  We allocated $34,980 to land, $310,574 to buildings and improvements, $62,016 to acquired real estate leases, $3,899 to assumed real estate lease obligations and $13,671 to premium on mortgage debt.

Also in August 2011, we acquired an office property located in New Orleans, LA with 1,256,991 square feet.  The purchase price was $102,000, excluding closing costs.  We allocated $9,100 to land, $78,540 to buildings and improvements, $17,743 to acquired real estate leases and $3,383 to assumed real estate lease obligations.

Also in August 2011, we entered an agreement to acquire an office property located in Chicago, IL with 1,006,574 square feet.  The purchase price is $150,600, including the assumption of approximately $148,000 of mortgage debt and excluding closing costs.  We expect to acquire this property during the fourth quarter of 2011; however, this acquisition is subject to our satisfactory completion of customary closing conditions, including the assumption of existing mortgage debt.  Accordingly, we can provide no assurance that we will acquire this property in that time period or at all.

In October 2011, we entered an agreement to acquire an office property located in Hartford, CT with 884,669 square feet.  The purchase price is $99,000, excluding closing costs.  We expect to acquire this property during the fourth quarter of 2011; however, this acquisition is subject to our satisfactory completion of diligence and other customary closing conditions and we can provide no assurance that we will acquire this property in that time period or at all.

6

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Property Sales:

In November 2010, we entered into various agreements to sell 27 properties which are majority leased as medical office, clinic and biotech laboratory buildings to Senior Housing Properties Trust, or SNH, for an aggregate sale price of $470,000, excluding closing costs.  In 2010, we sold 21 of these properties containing approximately 2,066,000 square feet for an aggregate sale price of $374,130, excluding closing costs, and recognized net gains totaling $133,272.  In January 2011, we sold the remaining six properties containing approximately 737,000 square feet for an aggregate sale price of $95,870, excluding closing costs, and recognized gains totaling $34,666.  In September 2011, we sold to SNH 13 additional properties located in eight states with approximately 1,310,000 square feet for an aggregate sale price of $167,000, excluding closing costs, and recognized net gains totaling $7,001.  We previously granted SNH a right of first refusal to purchase certain of our properties if we sought to sell them.  In connection with our September 2011 sale of 13 properties to SNH, we and SNH terminated the existing SNH right of first refusal as substantially all of the properties that were subject to that right of first refusal had been purchased by SNH.

In February 2011, we sold an industrial property located in Adairsville, GA with 101,400 square feet for $2,275, excluding closing costs, and recognized a loss of $94.

As of September 30, 2011, we had seven office properties with a combined 1,054,000 square feet and 20 industrial & other properties with a combined 1,835,000 square feet classified as held for sale in our condensed consolidated balance sheet.  In October 2011, we entered an agreement to sell 16 of the 20 industrial & other properties classified as held for sale, which are located in Dearborn, MI with approximately 570,000 combined square feet for $6,500, excluding closing costs, which approximates the carrying value of these properties as of September 30, 2011.  We expect to sell these properties during the fourth quarter of 2011; however, this sale is subject to satisfactory completion of buyer’s diligence and other customary closing conditions and we can provide no assurance that we will sell these properties in that time period or at all.  We are actively marketing the remaining properties for sale and expect to sell them within the next year; however, we can provide no assurance that we will receive acceptable offers to purchase these properties or that we will sell them.

We classify all properties actively marketed, under contract, in active negotiations or otherwise probable for sale within one year as held for sale in our condensed consolidated balance sheets.  Results of operations for properties sold or held for sale are included in discontinued operations in our condensed consolidated statements of income, except for properties sold during 2010 to Government Properties Income Trust, or GOV.  Properties that we sold to GOV are not considered discontinued operations under GAAP because of our retained equity interest in this former subsidiary.  Summarized balance sheet and income statement information for properties sold or held for sale, other than properties sold to GOV, is as follows:

Balance Sheets:

	September 30, 2011		December 31, 2010
Real estate properties	$	40,487	$	105,291
Acquired real estate leases	114		1,104
Rents receivable	202		4,446
Other assets, net	2,770		3,585
Properties held for sale	$	43,573	$	114,426
Assumed real estate lease obligations	$	7	$	7
Rent collected in advance	249		1,187
Security deposits	207		298
Liabilities related to properties held for sale	$	463	$	1,492

7

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Income Statements:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Rental income	$	8,296		$	24,999		$	24,994		$	73,590
Operating expenses	(5,832		)	(11,012		)	(16,219		)	(32,554		)
Depreciation and amortization	(1,336		)	(5,768		)	(4,467		)	(17,440		)
General and administrative	(470		)	(996		)	(1,433		)	(2,925		)
Acquisition related costs	(5		)	—			(148		)	(7		)
Operating income	653			7,223			2,727			20,664
Interest and other income	—			1			50			3
Interest expense	—			(551		)	—			(3,790		)
Income from discontinued operations	$	653		$	6,673		$	2,777		$	16,877

Note 4.  Investment in Direct Financing Lease

Our investment in a direct financing lease relates to the triple net lease with a term that exceeds 75% of the useful life of one office tower located within a mixed use property in Phoenix, AZ that we acquired in March 2011.  We recognize direct financing lease income using the effective interest method to produce a level yield on funds not yet recovered.  Estimated unguaranteed residual value represents our estimate of the fair value of the leased asset at the expiration of the lease, which does not exceed its original cost.  Significant assumptions used in estimating residual value include estimated net cash flows over the remaining lease term and expected future real estate value.  The following table summarizes the carrying amount of our net investment in the direct financing lease as of September 30, 2011.  The carrying amount of our net investment is included in other assets in our condensed consolidated balance sheet.

	September 30, 2011
Total minimum lease payments receivable	$	41,207
Estimated unguaranteed residual value of leased asset	4,951
Unearned income	(11,166		)
Net investment in direct financing lease	$	34,992

Additionally, we have determined that no allowance for losses related to our direct financing lease was necessary at September 30, 2011.

Our direct financing lease has an expiration date in 2045.  Future minimum rentals receivable on this direct financing lease as of September 30, 2011 are $2,024 in 2011, $8,098 in 2012, $8,098 in 2013, $8,098 in 2014, $8,098 in 2015 and $6,791 thereafter.

Note 5.  Equity Investments

At September 30, 2011 and December 31, 2010, we had the following equity investments in GOV and Affiliates Insurance Company, or AIC:

	Ownership Percentage				Equity Investments				Equity in Earnings (Loss)
	September 30,		December 31,		September 30,		December 31,		Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010		2011		2010		2011		2010
GOV	21.1	%	24.6	%	$	173,407	$	166,388	$	2,740	$	1,964	$	8,279	$	6,660
AIC	14.3	%	14.3	%	5,245		5,076		28		35		111		(17		)
					$	178,652	$	171,464	$	2,768	$	1,999	$	8,390	$	6,643

8

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

At September 30, 2011, we owned 9,950,000, or approximately 21.1%, of the common shares of beneficial interest of GOV, with a carrying value of $173,407 and a market value, based on quoted market prices, of $214,025 ($21.51 per share).  GOV is a real estate investment trust, or REIT, which primarily owns properties that are majority leased to government tenants and was our wholly owned subsidiary until its initial public offering, or the GOV IPO, in June 2009 when it became a separate public entity.  In July 2011, GOV issued 6,500,000 common shares in a public offering for $25.40 per common share, raising net proceeds of approximately $157,900.  As a result of this transaction at a price per share above our per share carrying value, our ownership percentage in GOV was reduced from 24.6% prior to this transaction to 21.1% after this transaction, and we recognized a gain of $11,177 (See Note 13).

Since the GOV IPO, we have accounted for our investment in it using the equity method.  Under the equity method, we record our percentage share of net earnings of GOV in our consolidated statements of income.  Prior to the GOV IPO, the operating results and investments of GOV were included in our results of operations and financial position.  The market value of our GOV common shares on the date of the GOV IPO exceeded our carrying value by $13,824.  We are amortizing the difference between our carrying value of GOV and our share of the underlying equity of GOV over a 30 year period, which approximates the remaining useful lives of the properties that we initially contributed to GOV.  If we determine there is an “other than temporary” decline in the fair value of this investment, we would record a charge to earnings.

During the nine months ended September 30, 2011 and 2010, we received cash distributions from GOV totaling $12,438 and $12,039, respectively.

The following summarized financial data of GOV is as reported in GOV’s Quarterly Report on Form 10-Q for the periods ended September 30, 2011.  References in our financial statements to the Quarterly Report on Form 10-Q for GOV are included as textual references only, and the information in GOV’s Quarterly Report on Form 10-Q is not incorporated by reference into our financial statements.

	September 30, 2011		December 31, 2010
Real estate properties, net	$	1,104,560	$	846,447
Acquired real estate leases, net	103,901		60,097
Cash and cash equivalents	5,724		2,437
Rents receivable, net	22,096		19,200
Other assets, net	30,387		23,107
Total assets	$	1,266,668	$	951,288
Revolving credit facility	$	282,500	$	118,000
Mortgage notes payable	45,608		46,428
Assumed real estate lease obligations, net	11,853		13,679
Other liabilities	28,518		15,784
Shareholders’ equity	898,189		757,397
Total liabilities and shareholders’ equity	$	1,266,668	$	951,288

9

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Income Statements:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Rental income	$	45,719		$	30,746		$	126,718		$	80,040
Operating expenses	(16,951		)	(11,275		)	(46,937		)	(27,537		)
Depreciation and amortization	(10,379		)	(6,321		)	(27,862		)	(16,602		)
Acquisition related costs	(1,008		)	(2,687		)	(2,846		)	(4,542		)
General and administrative	(2,746		)	(1,833		)	(7,655		)	(4,915		)
Operating income	14,635			8,630			41,418			26,444
Interest and other income	54			12			89			80
Interest expense	(3,162		)	(1,973		)	(8,775		)	(5,182		)
Equity in earnings (losses) of an investee	28			35			111			(17		)
Income before income tax expense	11,555			6,704			32,843			21,325
Income tax benefit (expense)	8			(35		)	(94		)	(71		)
Net income	$	11,563		$	6,669		$	32,749		$	21,254
Weighted average common shares outstanding	45,322			36,369			42,127			32,265
Net income per common share	$	0.26		$	0.18		$	0.78		$	0.66

As of September 30, 2011, we have invested $5,209 in AIC, an insurance company organized by Reit Management & Research LLC, or RMR, and five companies to which RMR provides management services, including GOV and SNH.  We may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so.  At September 30, 2011, we owned approximately 14.3% of AIC with a current carrying value of $5,245.  Although we own less than 20% of AIC, we use the equity method to account for this investment because we believe that we have significant influence over AIC because each of our Trustees is a director of AIC (See Note 13).  Under the equity method, we record our percentage share of net earnings from AIC in our consolidated statements of income.  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.

In 2010, AIC designed a combination property insurance program for us and other AIC shareholders in which AIC participated as a reinsurer.  That program was modified and extended in June 2011 for a one year term.  Our total premiums paid under this program in 2011 and 2010 were approximately $5,540 and $5,328, respectively.  The amounts we expensed in relation to those insurance premiums were $1,385 and $1,332 for the three months ended September 30, 2011 and 2010, respectively, and $4,067 and $1,776 for the nine months ended September 30, 2011 and 2010, respectively.  We are currently investigating the possibilities to expand our insurance relationships with AIC to include other types of insurance. By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses or by realizing our pro-rata share of any profits of this insurance business.

Note 6.  Real Estate Mortgage Receivable

We provided mortgage financing totaling $8,288 at 4.75% per annum maturing in September 2020 in connection with an office property sold in September 2010.  This real estate mortgage was prepaid in full in August 2011.  As of December 31, 2010, this mortgage had a carrying value of $8,183 and was included in other assets in our condensed consolidated balance sheet.

10

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 7.  Indebtedness

In March 2011, we repaid at maturity all $168,219 of our floating rate senior notes using borrowings under our revolving credit facility.  In June 2011, we repaid at maturity $29,188 of 7.435% mortgage debt using cash on hand.  In July 2011, we prepaid at par plus a premium $23,168 of 8.05% mortgage debt due in 2012 using cash on hand and proceeds from our common share offering completed in July 2011.  In connection with the mortgage prepaid in July 2011, we recorded a net gain on early extinguishment of debt of $310 from the write off of unamortized premiums and deferred financing fees.

In June 2011, we assumed mortgages on four properties totaling $14,960, which were recorded at a combined fair value of $15,894, in connection with our acquisition of those properties.  These debts bear interest at a weighted average rate of 6.35%, require monthly principal and interest payments and mature in 2012 and 2015.  In June 2011, we assumed $41,275 of mortgage debt, which was recorded at its fair value of $44,560, in connection with another acquisition.  This mortgage debt bears interest at 5.67%, requires monthly interest payments and matures in 2017.  In August 2011, we assumed $265,000 of mortgage debt, which was recorded at its fair value of $278,671, in connection with another acquisition.  This mortgage debt bears interest at 5.68%, requires monthly interest payments and matures in 2017.

At September 30, 2011, 23 properties costing $913,746 with an aggregate net book value of $804,357 were secured by mortgage notes totaling $633,935 (net of discounts and premiums) maturing from 2012 through 2027.

During October 2011, our $750,000 unsecured revolving credit facility that we use for acquisitions, working capital and general business purposes was amended.  Prior to this amendment, our credit facility matured on August 8, 2013 and included a conditional option for us to extend the facility for one year to August 8, 2014.  The October 2011 amendment extended the maturity date from August 8, 2013 to October 19, 2015, with an option to extend the facility an additional year to October 19, 2016, subject to satisfaction of certain conditions.  The amendment also reduced the interest rate paid on our borrowings under the revolving credit facility from LIBOR plus 200 basis points to LIBOR plus 125 basis points, subject to adjustments based on our credit ratings.  In addition, the amended revolving credit facility includes a feature under which our maximum borrowings can be increased up to $1,500,000 in certain circumstances.  The interest rate on our revolving credit facility averaged 2.2% and 1.5% per annum for the nine months ended September 30, 2011 and 2010, respectively.  As of September 30, 2011, we had $235,000 outstanding and $515,000 available under our revolving credit facility.

In October 2011, our existing term loan which had a principal balance of $400,000 at September 30, 2011 was amended.  Prior to this amendment, our term loan had a maturity date of December 15, 2015 and an interest rate set at LIBOR plus 200 basis points, subject to adjustments based on changes to our credit ratings.  The October 2011 amendment increased borrowings to $557,000 and, for $500,000 of the term loan, eliminated the prepayment premium, extended the maturity date to December 15, 2016, and reduced interest we pay on borrowings to LIBOR plus 150 basis points, subject to adjustments based on changes to our credit ratings.  In addition, the amended term loan includes a feature under which maximum borrowings may be increased by up to $1,000,000 in certain circumstances.  Three lenders representing $57,000 of aggregate borrowings were unable to commit to the amended term loan.  Accordingly, these three lenders will be subject to the terms of the old term loan and we have agreed to repay these lenders in December 2012 when there will be no prepayment penalty.

Our public debt indentures, our credit facility agreement and our term loan agreement contain a number of financial and other covenants, including a credit facility and term loan covenant that restricts our ability to make distributions under certain circumstances.  At September 30, 2011, we believe we were in compliance with all of our covenants under our public debt indentures, our revolving credit facility and term loan agreements.

11

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 8.  Shareholders’ Equity

On May 10, 2011, we issued 2,000 common shares of beneficial interest, par value $0.01 per share, valued at $26.57 per share, the closing price of our common shares on the New York Stock Exchange, or NYSE, on that day, to each of our five Trustees as part of their annual compensation.  On September 16, 2011, pursuant to our equity compensation plan, we granted an aggregate of 73,050 common shares valued at $19.96 per share, the closing price of our common shares on the NYSE on that day, to our officers and certain employees of our manager, RMR.

In June 2011, we issued 11,000,000 series E cumulative redeemable preferred shares in a public offering, raising net proceeds of $265,391.  Each series E preferred share has a liquidation preference of $25.00 and requires dividends payable in equal quarterly payments of $1.8125, 7 ¼% of the liquidation preference per annum.  Our series E preferred shares are redeemable, at our option, for $25.00 each plus accrued and unpaid dividends at any time on or after May 15, 2016.  Net proceeds from this offering were used to reduce amounts outstanding under our revolving credit facility.

In July 2011, we issued 11,500,000 common shares in a public offering, raising net proceeds of $264,056.  Net proceeds from this offering were used to repay amounts outstanding under our revolving credit facility and for general business purposes, including funding acquisitions.

Other comprehensive income includes unrealized gains or losses on the fair value of our interest rate swap agreements, other investments, and foreign currency translation adjustments.  Our interest rate swap agreements qualify as cash flow hedges and convert the floating interest rate on a $175,000 mortgage note payable to a fixed interest rate.  The following is a reconciliation of net income to total comprehensive (loss) income for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Comprehensive income:
Net income	$	28,535		$	65,810		$	95,111		$	113,105
Unrealized loss on derivative instrument	(6,577		)	(5,150		)	(8,651		)	(15,965		)
Unrealized loss on investment in available for sale securities	—			(141		)	—			(141		)
Realized gain on sale of investment in available for sale securities	—			—			(18		)	—
Foreign currency translation adjustments	(33,289		)	—			(17,584		)	—
Increase in share of investees other comprehensive income	14			—			58			—
Total comprehensive (loss) income	$	(11,317	)	$	60,519		$	68,916		$	96,999

Note 9.  Income Taxes

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and as such, are generally not subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements.  We are, however, subject to income tax in Australia and certain states despite our REIT status.  During the three and nine months ended September 30, 2011, we recognized current tax expense of $206 and $971, respectively, which includes $88 and $564 of foreign taxes, respectively, and $118 and $407 of certain state taxes, respectively.  In addition, during the three and nine months ended September 30, 2011, we recognized a deferred tax provision of $101 and a deferred tax benefit of $228, respectively, related to basis differences in our Australian properties.

12

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 10.  Fair Value of Assets and Liabilities

The table below presents certain of our assets and liabilities measured at fair value during 2011, categorized by the level of inputs used in the valuation of each asset and liability:

				Fair Value at Reporting Date Using
Description	Total			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Recurring Fair Value Measurements:
Effective portion of interest rate contracts (1)	$	(15,607	)	$	(15,607	)	$	—
Non-recurring Fair Value Measurements:
Properties held for sale (2)	$	33,033		$	24,813		$	8,220

(1)       The fair value of our interest rate swap contracts is determined using the net discounted cash flows of the expected cash flows of each derivative based on the market based interest rate curve (level 2 inputs) and adjusted for our credit spread and the actual and estimated credit spreads of the counterparties (level 3 inputs).  Although we have determined that the majority of the inputs used to value our derivatives fall within level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and the counterparties.  As of September 30, 2011, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.  As a result, we have determined that our derivative valuations in their entirety are classified as level 2 inputs in the fair value hierarchy.

(2)       Properties held for sale that were adjusted to fair value at September 30, 2011 includes six office properties and 20 industrial & other properties that we expect to sell within one year.  We recorded losses on asset impairment at these properties during the third quarter of 2011 of $9,247 to reduce the carrying value of these properties from $42,280 to their estimated fair value less costs to sell of $33,033.  We used negotiated sale prices for 16 properties under agreement for sale, broker information and comparable sales transactions for eight properties (level 2 inputs) and the sum of their expected future discounted cash flows for two properties (level 3 inputs) less estimated closing costs to determine the fair value of these properties.  We estimate aggregate future cash flows expected to be generated by each property based on a number of factors such as market rents, operating expenses, discount rates and capitalization rates.  These factors are generally based on our experience in local real estate markets and the effects of current market conditions.

13

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

We are exposed to certain risks relating to our ongoing business operations, including the effect of changes in foreign currency exchange rates and interest rates.  The only risk currently managed by using our derivative instruments is a part of our interest rate risk.  Although we have not done so as of September 30, 2011 and have no present intention to do so, we may manage our Australian currency exchange exposure by borrowing in Australian dollars or using derivative instruments in the future, depending on the relative significance of our business activities in Australia at that time.  We have interest rate swap agreements to manage our interest rate risk exposure on $175,000 of mortgage notes due 2019, which require interest at a spread over LIBOR.  The interest rate swap agreements utilized by us qualify as cash flow hedges and effectively modify our exposure to interest rate risk by converting our floating interest rate debt to a fixed interest rate basis for this loan through December 1, 2016, thus reducing the impact of interest rate changes on future interest expense.  These agreements involve the receipt of floating interest rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal amount.  The fair value of our derivative instruments decreased by $6,577 and $8,651 during the three and nine months ended September 30, 2011, respectively, based primarily on changes in market interest rates.  The fair value of our derivative instruments decreased by $5,150 and $15,965 during the three and nine months ended September 30, 2010, respectively, based primarily on changes in market interest rates.  As of September 30, 2011 and December 31, 2010, the fair value of these derivative instruments included in accounts payable and accrued expenses and cumulative other comprehensive (loss) income in our consolidated balance sheets totaled ($15,607) and ($6,956), respectively. We may enter additional interest rate swaps or hedge agreements to manage some of our additional interest rate risk associated with our floating rate borrowings.

In addition to the assets and liabilities described in the above table, our financial instruments include our cash and cash equivalents, rents receivable, equity investments, investment in direct financing lease receivable, restricted cash, revolving credit facility, senior notes and mortgage notes payable, accounts payable and accrued expenses, rent collected in advance, security deposits and amounts due to related persons.  At September 30, 2011 and December 31, 2010, the fair values of these additional financial instruments were not materially different from their carrying values, except as follows:

	September 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Equity investment in GOV	$	173,407	$	214,025	$	166,388	$	266,561
Senior notes and mortgage notes payable	$	2,746,535	$	2,885,908	$	2,462,847	$	2,599,075

At September 30, 2011 and December 31, 2010, the fair values of our equity investment in GOV are based on quoted market prices of $21.51 and $26.79, respectively.  The fair values of our senior notes and mortgage notes payable are based on estimates using discounted cash flow analyses and currently prevailing interest rates adjusted by credit risk spreads.

Other financial instruments that potentially subject us to concentrations of credit risk consist principally of rents receivable; however, no single tenant of ours is responsible for more than 2% of our total rents.

We maintain derivative financial instruments, including interest rate swaps, with major financial institutions and monitor the amount of credit exposure to any one counterparty.

Note 11.  Earnings Per Common Share

As of September 30, 2011, we had 15,180,000 shares of series D cumulative convertible preferred shares that were convertible into 7,298,165 of our common shares.  The effect of our convertible preferred shares on income from continuing operations available for common shareholders per share is anti-dilutive for the periods presented.

14

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 12.  Segment Information

As of September 30, 2011, we owned 44 Central Business District, or CBD, office properties, 266 suburban office properties and 179 industrial & other properties, excluding properties held for sale.  We account for all of these properties in geographic operating segments for financial reporting purposes based on our method of internal reporting.  We account for our properties by property type (i.e. CBD office, suburban office and industrial & other) and by geographic regions.  We define these individual geographic segments as those which currently, or during either of the last two quarters, represent or generate 5% or more of our total square feet, annualized revenues or property net operating income, or NOI, which we define as rental income less operating expenses.  Our geographic segments include Metro Philadelphia, PA, Oahu, HI, Metro Chicago, IL, Metro Washington, DC, Metro Denver, CO, Australia and Other Markets, which includes properties located elsewhere throughout the United States.  Prior periods have been restated to reflect 30 office properties and 25 industrial & other properties reclassified to discontinued operations during the fourth quarter of 2010 and 12 office properties and one industrial property reclassified to discontinued operations during the third quarter of 2011.  Property level information by geographic segment and property type as of and for the three and nine months ended September 30, 2011 and 2010 is as follows:

	As of September 30, 2011				As of September 30, 2010
	CBD Office	Suburban Office	Industrial & Other	Totals	CBD Office	Suburban Office	Industrial & Other	Totals
Property square feet (in thousands):
Metro Philadelphia, PA	4,591	462	—	5,053	4,592	462	—	5,054
Oahu, HI	—	—	17,896	17,896	—	—	17,914	17,914
Metro Chicago, IL	2,582	1,164	104	3,850	—	532	104	636
Metro Washington, DC	428	1,216	—	1,644	428	1,067	—	1,495
Metro Denver, CO	672	789	553	2,014	672	788	553	2,013
Australia	314	—	1,442	1,756	—	—	—	—
Other Markets	9,067	17,629	10,490	37,186	6,423	15,582	10,313	32,318
Totals	17,654	21,260	30,485	69,399	12,115	18,431	28,884	59,430

15

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

	Three Months Ended September 30, 2011								Three Months Ended September 30, 2010
	CBD Office		Suburban Office		Industrial & Other		Totals		CBD Office		Suburban Office		Industrial & Other		Totals
Property rental income:
Metro Philadelphia, PA	$	29,169	$	1,378	$	—	$	30,547	$	27,920	$	1,872	$	—	$	29,792
Oahu, HI	—		—		18,190		18,190		—		—		18,114		18,114
Metro Chicago, IL	14,272		6,783		111		21,166		—		3,441		116		3,557
Metro Washington, DC	4,726		8,772		—		13,498		4,284		7,471		—		11,755
Metro Denver, CO	4,998		4,005		2,324		11,327		5,238		3,778		2,124		11,140
Australia	5,265		—		3,230		8,495		—		—		—		—
Other Markets	46,569		72,330		16,668		135,567		38,210		63,731		16,760		118,701
Totals	$	104,999	$	93,268	$	40,523	$	238,790	$	75,652	$	80,293	$	37,114	$	193,059
Property net operating income:
Metro Philadelphia, PA	$	14,854	$	249	$	—	$	15,103	$	14,112	$	674	$	—	$	14,786
Oahu, HI	—		—		13,588		13,588		—		—		13,542		13,542
Metro Chicago, IL	8,044		3,683		104		11,831		—		2,429		101		2,530
Metro Washington, DC	3,942		5,957		—		9,899		2,747		4,372		—		7,119
Metro Denver, CO	3,136		3,085		1,191		7,412		3,409		2,773		1,201		7,383
Australia	4,296		—		2,438		6,734		—		—		—		—
Other Markets	22,613		39,667		11,031		73,311		17,727		34,759		12,190		64,676
Totals	$	56,885	$	52,641	$	28,352	$	137,878	$	37,995	$	45,007	$	27,034	$	110,036

	Nine Months Ended September 30, 2011								Nine Months Ended September 30, 2010
	CBD Office		Suburban Office		Industrial & Other		Totals		CBD Office		Suburban Office		Industrial & Other		Totals
Property rental income:
Metro Philadelphia, PA	$	85,779	$	3,957	$	—	$	89,736	$	84,165	$	5,522	$	—	$	89,687
Oahu, HI	—		—		54,872		54,872		—		—		54,457		54,457
Metro Chicago, IL	18,351		21,710		347		40,408		—		9,651		366		10,017
Metro Washington, DC	11,503		20,975		—		32,478		14,655		22,371		—		37,026
Metro Denver, CO	16,040		10,954		6,674		33,668		15,715		8,999		6,233		30,947
Australia	16,193		—		9,322		25,515		—		—		—		—
Other Markets	127,514		210,596		47,809		385,919		114,180		186,430		49,461		350,071
Totals	$	275,380	$	268,192	$	119,024	$	662,596	$	228,715	$	232,973	$	110,517	$	572,205
Property net operating income:
Metro Philadelphia, PA	$	43,919	$	384	$	—	$	44,303	$	43,066	$	1,965	$	—	$	45,031
Oahu, HI	—		—		40,803		40,803		—		—		40,569		40,569
Metro Chicago, IL	10,225		12,787		317		23,329		—		6,759		302		7,061
Metro Washington, DC	8,869		13,378		—		22,247		9,803		13,028		—		22,831
Metro Denver, CO	10,455		8,640		3,671		22,766		10,526		6,399		3,592		20,517
Australia	13,299		—		6,862		20,161		—		—		—		—
Other Markets	63,339		117,922		31,966		213,227		55,197		104,336		36,383		195,916
Totals	$	150,106	$	153,111	$	83,619	$	386,836	$	118,592	$	132,487	$	80,846	$	331,925

16

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

The following table reconciles our calculation of NOI to net income, the most directly comparable financial measure under GAAP reported in our consolidated financial statements.  We consider NOI to be appropriate supplemental information to net income because it helps both investors and management to understand the operations of our properties.  We use NOI internally to evaluate individual, regional and company wide property level performance and believe NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are incurred at the property level and may facilitate comparisons of our operating performance between periods.  The calculation of NOI excludes certain components of net income in order to provide results that are more closely related to our properties’ results of operations.  NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net income, net income available for common shareholders or cash flow from operating activities determined in accordance with GAAP, or as an indicator of our financial performance or liquidity, nor is NOI necessarily indicative of sufficient cash flow to fund all of our needs.  We believe that NOI may facilitate an understanding of our consolidated historical operating results.  NOI should be considered in conjunction with net income, net income available for common shareholders and cash flow from operating activities as presented in our condensed consolidated statements of income and condensed consolidated statements of cash flows.  A reconciliation of NOI to net income for the three and nine months ended September 30, 2011 and 2010, is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Rental income	$	238,790		$	193,059		$	662,596		$	572,205
Operating expenses	(100,912		)	(83,023		)	(275,760		)	(240,280		)
Property net operating income (NOI)	$	137,878		$	110,036		$	386,836		$	331,925
Property NOI	$	137,878		$	110,036		$	386,836		$	331,925
Depreciation and amortization	(56,389		)	(42,794		)	(159,072		)	(130,560		)
General and administrative	(11,450		)	(9,704		)	(33,559		)	(28,081		)
Loss on asset impairment	—			—			—			(21,491		)
Acquisition related costs	(4,805		)	(1,559		)	(9,722		)	(2,965		)
Operating income	65,234			55,979			184,483			148,828
Interest and other income	369			571			1,428			2,134
Interest expense	(49,423		)	(44,192		)	(145,037		)	(133,716		)
Gain (loss) on early extinguishment of debt	310			(796		)	310			(796		)
Equity in earnings of investees	2,768			1,999			8,390			6,643
Gain on issuance of shares by an equity investee	11,177			18,390			11,177			34,808
Income from continuing operations before income tax expense	30,435			31,951			60,751			57,901
Income tax (expense) benefit	(307		)	34			(743		)	(329		)
Income from continuing operations	30,128			31,985			60,008			57,572
Income from discontinued operations	653			6,673			2,777			16,877
Loss on asset impairment from discontinuing operations	(9,247		)	—			(9,247		)	—
Loss on early extinguishment of debt from discontinued operations	—			(248		)	—			(248		)
Gain on sale of properties from discontinued operations	7,001			4,568			41,573			4,568
Income before gain on sale of properties	28,535			42,978			95,111			78,769
Gain on sale of properties	—			22,832			—			34,336
Net income	$	28,535		$	65,810		$	95,111		$	113,105

17

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 13.  Related Person Transactions

We have no employees.  Instead, services that might be provided to us by employees are provided to us by RMR.  RMR provides both business and property management services to us under a business management agreement and a property management agreement.  RMR also provides management services to other companies, including GOV and SNH.  One of our Managing Trustees, Barry Portnoy, is Chairman and majority owner of RMR and serves as managing trustee of GOV and SNH.  Our other Managing Trustee and our President, Adam Portnoy, is Barry Portnoy’s son, and is an owner, President, Chief Executive Officer and a director of RMR and serves as a managing trustee of GOV and SNH.  Our executive officers and GOV’s and SNH’s executive officers are officers of RMR.  One of our Independent Trustees, Frederick Zeytoonjian, is also an independent trustee of SNH.  Our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR provides management services.  Barry Portnoy serves as a managing director or managing trustee of those companies and Adam Portnoy serves as a managing trustee of a majority of those companies.

Pursuant to our business management agreement with RMR, we recognized expenses of $9,862 and $8,881 for the three months ended September 30, 2011 and 2010, respectively, and $27,844 and $26,053 for the nine months ended September 30, 2011 and 2010, respectively.  These amounts are included in general and administrative expenses and income from discontinued operations in our condensed consolidated financial statements.  On November 1, 2011, we and RMR amended our business management agreement to provide that, for purposes of determining the fees we pay to RMR under that agreement, which are based on a percentage of the value of our properties as determined under the agreement, the value of properties we may acquire from certain other companies to which RMR provides management services will be based upon the seller’s historical cost for those properties rather than our acquisition costs and to provide other companies to which RMR provides management services a right of first offer on properties of ours that we determine to sell if such properties are primarily of a type that are within the investment focus of such other companies.  This amendment is further described in Part II, Item 5 of this Quarterly Report on Form 10-Q.  In connection with the property management agreement with RMR, we incurred property management and construction supervision fees of $7,767 and $6,592 for the three months ended September 30, 2011 and 2010, respectively, and $21,487 and $19,878 for the nine months ended September 30, 2011 and 2010, respectively.  These amounts are included in operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

GOV was formerly our 100% owned subsidiary.  We are GOV’s largest shareholder and, as of the date of this report, we owned 9,950,000 common shares of beneficial interest of GOV, which represented approximately 21.1% of GOV’s outstanding common shares of beneficial interest.  Our GOV common shares of beneficial interest had a carrying value of $173,407 and a market value, based on quoted market prices, of $214,025 ($21.51 per share) as of September 30, 2011.  In connection with the GOV IPO, we and GOV entered into a transaction agreement in which, among other things, we granted GOV the right of first refusal to acquire any property owned by us that we determine to divest, if the property is then majority leased to a government tenant, including 15 properties we sold to GOV during 2010.

SNH was formerly our 100% owned subsidiary.  It was spun off to our shareholders in 1999.  As previously reported, we previously granted SNH a right of first refusal to purchase certain of our properties if we sought to sell them.  In November 2010, we agreed to sell 27 properties (approximately 2,803,000 square feet of rental space), which were majority leased as medical office, clinic and biotech laboratory buildings, to SNH for an aggregate sale price of $470,000, excluding closing costs.  We completed the sale of all 27 of these properties between November 2010 and January 2011.  In September 2011, we sold to SNH 13 additional properties located in eight states with approximately 1,310,000 square feet for an aggregate sale price of $167,000, excluding closing costs.  Certain of the properties included in these sales were subject to SNH’s right of first refusal.  In connection with our September 2011 sale of 13 properties to SNH, we and SNH terminated the existing SNH right of first refusal, as substantially all of the properties that were subject to that right of first refusal had been purchased by SNH.  Special committees of each of our Board of Trustees and SNH’s board of trustees composed solely of Independent Trustees who were not also independent trustees of the other party and who were represented by separate counsel reviewed and approved the terms of these property sale transactions.

18

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

We and the other six current shareholders of AIC each own approximately 14.29% of the outstanding equity of AIC.  The other shareholders are RMR and five other companies, including GOV and SNH, to which RMR provides management services.  All of our Trustees, all of the trustees and directors of the other publicly held AIC shareholders and nearly all of the directors of RMR currently serve on the board of directors of AIC.  RMR provides management and administrative services to AIC.  Although we own less than 20% of AIC, we use the equity method to account for this investment because we believe that we have significant influence over AIC because all of our Trustees are also directors of AIC.  As of September 30, 2011, we have invested approximately $5,209 in AIC.  We may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so.  Our investment had a carrying value of $5,245 and $5,076 as of September 30, 2011 and December 31, 2010, respectively.  During the three and nine months ended September 30, 2011 and 2010, we recognized income of $28 and $111 and income of $35 and a loss of $17, respectively, related to this investment.  In 2010, AIC designed a combination property insurance program for us and other AIC shareholders in which AIC participated as a reinsurer.  This program was modified and extended in June 2011 for a one year term.  Our total premiums under this program for the policy years expiring May 31, 2011 and 2012 were approximately $5,540 and $5,328, respectively.  The amounts we expensed in relation to those insurance premiums were $1,385 and $1,332 for the three months ended September 30, 2011 and 2010, respectively, and $4,067 and $1,776 for the nine months ended September 30, 2011 and 2010, respectively.  We are currently investigating the possibilities to expand our insurance relationships with AIC to include other types of insurance.  By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses or by realizing our pro-rata share of any profits of this insurance business.

For more information about these and other relationships among us, our Trustees, our executive officers, GOV, RMR, SNH, AIC, other companies to which RMR provides management services, and others affiliated with or related to them and about the risks which may arise as a result of those and other related person transactions and relationships, 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 in our Annual Report, in our Proxy Statement for our 2011 Annual Meeting of Shareholders dated February 25, 2011, or our Proxy Statement, and in our other filings with the Securities and Exchange Commission, or the SEC, including the sections captioned “Business”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” and “Warning Concerning Forward Looking Statements” in our Annual Report, and the information regarding our Trustees and executive officers and the section captioned “Related Person Transactions and Company Review of Such Transactions” in our Proxy Statement.  In addition, please see the “Risk Factors” section of our Annual Report for a description of risks which may arise from these transactions and relationships.  Our filings with the SEC, including our Annual Report and our Proxy Statement, are available at the SEC’s website at www.sec.gov.  In addition, copies of certain of our agreements with these parties are also publicly available as exhibits to our public filings with the SEC and accessible at the SEC’s website, including our business management agreement and property management agreement with RMR.

19

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 14.  Pro Forma Information

During 2011, we purchased and continue to own 22 properties for $1,132,827, including the assumption of $321,235 of mortgage debt and excluding closing costs.  The following table presents our pro forma results of operations as if these acquisitions were completed on January 1, 2010.  This pro forma data is not necessarily indicative of what our actual results of operations would have been for the periods presented, nor does it represent the results of operations for any future period.  Differences could result from, but are not limited to, additional property acquisitions, property sales, changes in interest rates and changes in our debt or equity capital structure.

	Nine Months Ended September 30,
	2011		2010
Total revenues	$	727,786	$	686,463
Income from continuing operations	$	72,069	$	61,749
Per share data:
Income from continuing operations	$	0.52	$	0.93

During the nine months ended September 30, 2011, we recognized revenues and operating income of $50,881 and $32,688, respectively, arising from our acquisitions completed in 2011.

Note 15.  Subsequent Events

In October 2011, we declared a distribution of $0.50 per common share, or approximately $41,900, to be paid on or about November 22, 2011 to shareholders of record on October 21, 2011.  We also announced a distribution on our series C preferred shares of $0.4453 per share, or $2,672, a distribution on our series D preferred shares of $0.4063 per share, or $6,167, and a distribution on our series E preferred shares of $0.4531 per share, or $4,984, which we expect to pay on or about November 15, 2011 to our preferred shareholders of record as of November 1, 2011.  Other 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 should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and our Annual Report.

OVERVIEW

We primarily own office and industrial buildings in CBD and suburban locations throughout the United States.  We also own 17.9 million square feet of leased industrial and commercial lands located in Oahu, Hawaii and 1.8 million square feet of office and industrial buildings located in Australia.

Property Operations

As of September 30, 2011, 87.0% of our total square feet was leased, compared to 88.3% leased as of September 30, 2010.  These results reflect a 2.3 percentage point decrease in occupancy at properties we owned continuously since January 1, 2010, partially offset by property acquisitions.  Occupancy data for 2011 and 2010 is as follows (square feet in thousands):

	All Properties (1)				Comparable Properties (2)
	As of September 30,				For the Nine Months Ended September 30,
	2011		2010		2011		2010
Total properties	489		452		426		426
Total square feet	69,399		59,430		57,286		57,286
Percent leased (3)	87.0	%	88.3	%	85.8	%	88.1	%

(1)     Excludes properties classified in discontinued operations as of September 30, 2011.

(2)     Based on properties owned continuously since January 1, 2010, and excludes properties classified in discontinued operations as of September 30, 2011.

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

The average effective rental rate per square foot, as defined below, for our properties for the periods ended September 30, 2011 and 2010 are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Average annualized effective rent per square foot (1)	$	16.28	$	14.74	$	15.41	$	14.55

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

During the three months ended September 30, 2011, we signed lease renewals for 1,459,000 square feet and new leases for 423,000 square feet, at weighted average rental rates which were 1% above rents previously charged for the same space.  The average lease term for leases signed during the three months ended September 30, 2011 was 8.1 years.  Commitments for tenant improvement and leasing costs for leases signed during the three months ended September 30, 2011 totaled $28.3 million, or $15.05 per square foot on average (approximately $1.86/sq. ft. per year of the lease term).

21

During the past twelve months, leasing market conditions in the majority of our markets appear to be stabilizing but remain weak.  As a result, leasing activity within our portfolio is slow and our occupancy is declining slowly.  Required landlord funded tenant build outs and leasing commissions payable to tenant brokers for new leases and lease renewals have increased in certain markets since 2008.  These build out costs and leasing commissions are generally amortized as a reduction of our income during the terms of the affected leases.  We believe that the current high unemployment rate and weak leasing market conditions in the U.S. may lead to a continued decrease in occupancy and effective rents at our properties through the end of 2012, but we expect our occupancy may begin to improve in late 2012 and 2013.  However, 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 for future periods.

Approximately 12.7% of our leased square feet and 13.8% of our rents are included in leases scheduled to expire through December 31, 2012.  Lease renewals and rental rates at which available space may be relet in the future will depend on prevailing market conditions at the times these renewals and rates are negotiated.  Lease expirations by year, as of September 30, 2011, are as follows (square feet and dollars in thousands):

	Square Feet	% of Square Feet		Cumulative % of Square Feet		Annualized Rental Income		% of Annualized Rental Income		Cumulative % of Annualized Rental Income
Year	Expiring (1)	Expiring		Expiring		Expiring (2)		Expiring		Expiring
2011	2,369	3.9	%	3.9	%	$	32,926	3.4	%	3.4	%
2012	5,288	8.8	%	12.7	%	100,960		10.4	%	13.8	%
2013	5,488	9.1	%	21.8	%	94,063		9.7	%	23.5	%
2014	4,814	8.0	%	29.8	%	77,876		8.0	%	31.5	%
2015	4,555	7.5	%	37.3	%	102,188		10.5	%	42.0	%
2016	5,898	9.8	%	47.1	%	95,668		9.9	%	51.9	%
2017	3,055	5.0	%	52.1	%	80,963		8.4	%	60.3	%
2018	3,420	5.7	%	57.8	%	72,179		7.4	%	67.7	%
2019	3,578	5.9	%	63.7	%	42,411		4.4	%	72.1	%
2020	2,871	4.7	%	68.4	%	73,935		7.6	%	79.7	%
Thereafter	19,065	31.6	%	100.0	%	196,687		20.3	%	100.0	%
	60,401	100.0	%			$	969,856	100.0	%
Weighted average remaining lease term (in years):	8.0					6.3

(1)   Square feet is pursuant to signed leases as of September 30, 2011, 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 by tenants.  Excludes properties classified in discontinued operations.

(2)   Annualized rental income is rents pursuant to signed leases as of September 30, 2011, plus estimated expense reimbursements; includes some triple net lease rents and excludes lease value amortization.  Excludes properties classified in discontinued operations.

22

Our principal source of funds for our operations is rents from tenants at our properties.  Rents are generally received from our tenants monthly in advance, except from our government tenants, who usually pay rents monthly in arrears.  As of September 30, 2011, tenants responsible for 1% or more of our total rent were as follows (square feet in thousands):

Tenant		Square Feet (1)	% of Total Square Feet (1)		% of Annualized Rental Income (2)		Expiration
1.	Telstra Corporation Limited	311	0.5	%	1.9	%	2020
2.	U. S. Government (3)	646	1.1	%	1.9	%	2011 to 2031
3.	Office Depot, Inc.	651	1.1	%	1.8	%	2016 and 2023
4.	Expedia, Inc.	357	0.6	%	1.7	%	2018
5.	PNC Financial Services Group	593	1.0	%	1.6	%	2012 to 2021
6.	John Wiley & Sons, Inc.	342	0.6	%	1.6	%	2017
7.	Wells Fargo Bank	575	1.0	%	1.6	%	2011 to 2022
8.	GlaxoSmithKline plc	608	1.0	%	1.5	%	2013
9.	The Bank of New York Mellon Corp.	398	0.7	%	1.2	%	2011 to 2021
10.	Royal Dutch Shell plc	631	1.0	%	1.2	%	2012 and 2016
11.	Jones Day (law firm)	403	0.7	%	1.1	%	2012 and 2026
12.	Ballard Spahr Andrews & Ingersoll (law firm)	269	0.4	%	1.0	%	2012 and 2015
13.	JDA Software Group, Inc.	283	0.5	%	1.0	%	2011, 2012 and 2022
14.	Flextronics International Ltd.	896	1.5	%	1.0	%	2014
	Total	6,963	11.7	%	20.1	%

(1)Square feet is pursuant to signed leases as of September 30, 2011, 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 by tenants.  Excludes properties classified in discontinued operations.

(2)Annualized rental income is rents pursuant to signed leases as of September 30, 2011, plus estimated expense reimbursements.  Includes some triple net lease rents and excludes lease value amortization.  Excludes properties classified in discontinued operations.

(3)Including our 21.1% pro rata ownership of GOV as of September 30, 2011, the U.S. Government represents 1,885 square feet, or 3.1% of total square feet, and 4.7% of total rental income.

23

Investment Activities

Since January 1, 2011, we have acquired 23 office properties with a combined 6,806,615 square feet for an aggregate purchase price of $1.1 billion, including the assumption of $321.2 million of mortgage debt and excluding closing costs.  At the time of acquisition, these properties were 91.7% leased for a weighted average (by rents) term of 8.1 years and at rents which yielded approximately 9.0% of the aggregate gross purchase price, based on estimated annual NOI, which we define as GAAP rental income less property operating expenses, on the date of closing.

Since January 1, 2011, we have sold 20 office and industrial properties with a combined 2,148,000 square feet for $265.1 million, excluding closing costs, and recognized net gains of approximately $41.6 million.  Included in these sales were two portfolio transactions involving a related person:

·In November 2010, we entered into various purchase and sale agreements to sell 27 properties, which are majority leased as medical office, clinic and biotech laboratory buildings, to SNH for an aggregate sale price of $470.0 million, excluding closing costs.  In 2010, we sold 21 of these properties containing approximately 2,066,000 square feet for $374.1 million, excluding closing costs, and recognized net gains totaling $133.3 million.  In January 2011, we sold the remaining six properties containing approximately 737,000 square feet for an aggregate sale price of $95.9 million, excluding closing costs, and recognized gains totaling $34.7 million.  In September 2011, we sold to SNH an additional 13 properties located in eight states with approximately 1,310,000 square feet for an aggregate sale price of $167.0 million, excluding closing costs, and recognized net gains totaling $7.0 million.  We previously granted SNH a right of first refusal to purchase certain of our properties if we sought to sell them.  In connection with our September 2011 sale of 13 properties to SNH, we and SNH terminated the existing SNH right of first refusal as substantially all of the properties that were subject to that right of first refusal had been purchased by SNH.

Financing Activities

In March 2011, we repaid at maturity, all $168.2 million of our floating rate senior notes using borrowings under our revolving credit facility.  In June 2011, we repaid at maturity, $29.2 million of 7.435% mortgage debt using cash on hand.  In July 2011, we prepaid at par plus a premium, $23.2 million of 8.05% mortgage debt due in 2012 using cash on hand and proceeds from our common share offering discussed below.  In connection with the July prepayment, we recorded a net gain on early extinguishment of debt of $310,000 from the write off of unamortized premiums and deferred financing fees.

In June 2011, we issued 11,000,000 series E cumulative redeemable preferred shares in a public offering, raising net proceeds of $265.4 million.  Net proceeds from this offering were used to reduce amounts outstanding under our revolving credit facility.

In July 2011, we issued 11,500,000 common shares in a public offering, raising net proceeds of approximately $264.1 million.  Net proceeds from this offering were used to repay amounts outstanding under our revolving credit facility and for general business purposes, including funding acquisitions.

In October 2011, we amended our existing $750.0 million revolving credit facility to extend the maturity date from August 8, 2013 to October 19, 2015.  The interest rate paid on drawings under the amended revolving credit facility was reduced from LIBOR plus 200 basis points to LIBOR plus 125 basis points, subject to adjustments based on changes to our credit ratings.  In addition, our amended revolving credit facility includes a conditional option to extend the facility an additional year to October 19, 2016, and a feature under which maximum borrowings can be increased up to $1.5 billion in certain circumstances.

24

In October 2011, we amended our existing term loan.  Prior to this amendment, our term loan had a principal balance of $400.0 million, a maturity date of December 15, 2015 and interest paid on drawings of LIBOR plus 200 basis points, subject to adjustments based on changes to our credit ratings.  The amended term loan increases borrowings from $400.0 million to $557.0 million and, for $500.0 million of the term loan, eliminates the prepayment premium, extends the maturity date to December 15, 2016, and reduces interest paid on drawings from LIBOR plus 200 basis points to LIBOR plus 150 basis points, subject to adjustments based on changes to our credit ratings.  In addition, the amended term loan includes a feature under which maximum borrowings may be increased by up to $1.0 billion in certain circumstances.  We have agreed to repay on December 16, 2012, lenders representing $57.0 million who were unable to commit to amended terms.

25

RESULTS OF OPERATIONS

Three Months Ended September 30, 2011, Compared to Three Months Ended September 30, 2010

	Three Months Ended September 30,
	2011			2010			$ Change			% Change
	(in thousands, except per share data)
Rental income	$	238,790		$	193,059		$	45,731		23.7	%
Expenses:
Operating expenses	100,912			83,023			17,889			21.5	%
Depreciation and amortization	56,389			42,794			13,595			31.8	%
General and administrative	11,450			9,704			1,746			18.0	%
Acquisition related costs	4,805			1,559			3,246			208.2	%
Total expenses	173,556			137,080			36,476			26.6	%
Operating income	65,234			55,979			9,255			16.5	%
Interest and other income	369			571			(202		)	(35.4	)%
Interest expense	(49,423		)	(44,192		)	5,231			11.8	%
Gain (loss) on early extinguishment of debt	310			(796		)	1,106			138.9	%
Equity in earnings of investees	2,768			1,999			769			38.5	%
Gain on issuance of shares by an equity investee	11,177			18,390			(7,213		)	(39.2	)%
Income from continuing operations before income tax expense	30,435			31,951			(1,516		)	(4.7	)%
Income tax (expense) benefit	(307		)	34			(341		)	(1,002.9	)%
Income from continuing operations	30,128			31,985			(1,857		)	(5.8	)%
Discontinued operations:
Income from discontinued operations	653			6,673			(6,020		)	(90.2	)%
Loss on asset impairment from discontinued operations	(9,247		)	—			9,247			100.0	%
Loss on early extinguishment of debt from discontinued operations	—			(248		)	(248		)	(100.0	)%
Gain on sale of properties from discontinued operations	7,001			4,568			2,433			53.3	%
Income before gain on sale of properties	28,535			42,978			(14,443		)	(33.6	)%
Gain on sale of properties	—			22,832			(22,832		)	(100.0	)%
Net income	28,535			65,810			(37,275		)	(56.6	)%
Preferred distributions	(13,823		)	(12,667		)	1,156			9.1	%
Net income available for common shareholders	$	14,712		$	53,143		$	(38,431	)	(72.3	)%
Weighted average common shares outstanding — basic	81,536			65,173			16,363			25.1	%
Weighted average common shares outstanding — diluted	88,834			72,471			16,363			22.6	%
Basic and diluted earnings per common share:
Income from continuing operations available for common shareholders	$	0.20		$	0.65		$	(0.45	)	(69.2	)%
(Loss) income from discontinued operations	$	(0.02	)	$	0.17		$	(0.19	)	(111.8	)%
Net income available for common shareholders	$	0.18		$	0.82		$	(0.64	)	(78.0	)%

26

Calculation of Funds from Operations, or FFO, and Normalized FFO

		Three Months Ended September 30,
		2011			2010
		(in thousands, except per share data)
Calculation of FFO (1):
Net income		$	28,535		$	65,810
Plus:	depreciation and amortization from continuing operations	56,389			42,794
Plus:	depreciation and amortization from discontinued operations	1,336			5,768
Plus:	FFO from investees	4,918			3,544
Less:	gain on sale of properties	—			(22,832		)
Less:	gain on sale of properties from discontinued operations	(7,001		)	(4,568		)
Less:	equity in earnings of investees	(2,768		)	(1,999		)
FFO		81,409			88,517
Less:	preferred distributions	(13,823		)	(12,667		)
FFO available for common shareholders		$	67,586		$	75,850
Calculation of Normalized FFO (1):
FFO		$	81,409		$	88,517
Plus:	acquisition related costs from continuing operations	4,805			1,559
Plus:	acquisition related costs from discontinued operations	5			—
Plus:	loss on asset impairment from discontinued operations	9,247			—
Plus:	Normalized FFO from investees	5,142			4,223
Less:	(gain) loss on early extinguishment of debt from continuing operations	(310		)	796
Less:	loss on early extinguishment of debt from discontinued operations	—			248
Less:	early extinguishment of debt settled in cash	(232		)	—
Plus:	average minimum rent from direct financing lease	329			—
Less:	FFO from investees	(4,918		)	(3,544		)
Less:	interest earned from direct financing lease	(432		)	—
Less:	gain on issuance of shares by an equity investee	(11,177		)	(18,390		)
Normalized FFO		83,868			73,409
Less:	preferred distributions	(13,823		)	(12,667		)
Normalized FFO available for common shareholders		$	70,045		$	60,742
Per common share:
FFO available for common shareholders – basic		$	0.83		$	1.16
FFO available for common shareholders – diluted		$	0.83		$	1.13
Normalized FFO available for common shareholders – basic		$	0.86		$	0.93
Normalized FFO available for common shareholders – diluted		$	0.86		$	0.92

27

(1)       We compute FFO and Normalized FFO as shown above.  FFO is computed on the basis defined by The National Association of Real Estate Investment Trusts, or NAREIT, which is net income, computed in accordance with GAAP, excluding gain or loss on sale of properties, plus real estate depreciation and amortization and FFO from equity investees.  Our calculation of Normalized FFO differs from NAREIT’s definition of FFO because we exclude acquisition related costs, gains from issuance of shares by equity investees, gain and loss on early extinguishment of debt unless settled in cash, loss on asset impairment, the difference between average minimum rent and interest earned from direct financing lease and the difference between FFO and Normalized FFO from equity investees.  We consider FFO and Normalized FFO to be appropriate measures of performance for a REIT, along with net income and cash flow from operating, investing and financing activities. We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO can facilitate a comparison of operating performances between periods.  FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders.  Other factors include, but are not limited to, requirements to maintain our status as a REIT, limitations in our revolving credit facility, term loan agreement and public debt covenants, the availability of debt and equity capital to us and our expectation of our future capital requirements and operating performance.  FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income or cash flow from operating activities, determined in accordance with GAAP, as indicators of our financial performance or liquidity, nor are FFO and Normalized FFO necessarily indicative of sufficient cash flow to fund all of our needs.  We believe FFO and Normalized FFO may facilitate an understanding of our consolidated historical operating results.  FFO and Normalized FFO should be considered in conjunction with net income, net income available for common shareholders and cash flow from operating activities as presented in our condensed consolidated statements of income and condensed consolidated statements of cash flows.  Other REITs and real estate companies may calculate FFO and Normalized FFO differently than we do.

28

Rental income.  Rental income increased for the three months ended September 30, 2011, compared to the same period in 2010, primarily due to an increase in rental income from our Metro Chicago, IL, Other Markets, Australia and our Metro Washington DC segments, as presented in the segment information note to our condensed consolidated financial statements appearing above in this Quarterly Report on Form 10-Q.  The aggregate increase primarily reflects the acquisition of 57 properties in 2010 and 2011, offset by a decrease in rental income from the sale of 12 properties to GOV in 2010 and the decline in occupancy.  Rental income from our Metro Chicago, IL segment increased by $17.6 million, or 495.1%, primarily reflecting the acquisition of four properties in 2010 and 2011.  Rental income from our Other Markets segment increased $16.9 million, or 14.2%, primarily reflecting the acquisition of 35 properties during 2010 and 2011, offset by a decrease in rental income resulting from the sale of ten properties to GOV in 2010 and the decline in occupancy primarily from properties we owned continuously since July 1, 2010.  Rental income from our Australia segment totaling $8.5 million reflects our acquisition of 11 properties during the fourth quarter of 2010.  Rental income from our Metro Washington, DC segment increased by $1.7 million, or 14.8%, primarily reflecting the acquisition of six properties in 2010 and 2011 and lease termination revenue totaling $1.5 million received in 2011, offset by the sale of two properties to GOV in 2010.  Rental income includes non-cash straight line rent adjustments totaling $7.7 million in 2011 and $3.1 million in 2010 and amortization of acquired real estate leases and assumed real estate lease obligations totaling ($2.4) million in 2011 and ($1.7) million in 2010.  Rental income also includes lease termination fees totaling $2.0 million in 2011 and $554,000 in 2010.

Total expenses.  The increase in total expenses primarily reflects the acquisition of 57 properties during 2010 and 2011, offset by the sale of 12 properties to GOV during 2010.

Interest expense.  The increase in interest expense in 2011 primarily reflects the issuance of $250.0 million of 5.875% unsecured senior notes in September 2010, a $400.0 million floating rate term loan issued in December 2010, the increase in floating rates on our revolving credit facility and the assumption of $321.2 million of mortgage debt in 2011, offset by the prepayment of $182.4 million of mortgage debt and the repayment of $30.0 million of 8.875% unsecured senior notes in August 2010, $20.0 million of 8.625% unsecured senior notes in October 2010, $168.2 million of floating rate senior notes in March 2011, $29.2 million of 7.435% mortgage debt in June 2011 and $23.2 million of 8.05% mortgage debt in July 2011.

Gain (loss) on early extinguishment of debt.  The gain on early extinguishment of debt in 2011 reflects the write off of unamortized premiums and deferred financing fees associated with the prepayment of $23.2 million of 8.05% mortgage debt in July 2011.  The loss on early extinguishment of debt in 2010 reflects the write off of unamortized discounts and deferred financing fees associated with the prepayment of $182.4 million of mortgage debt in August 2010.

Equity in earnings of investees.  Equity in earnings of investees represents our proportionate shares of earnings from AIC and from GOV.  The increase in earnings of investees primarily reflects an increase in earnings from our ownership interest in GOV.

Gain on issuance of shares by an equity investee.  The gain on issuance of shares by an equity investee reflects the issuance of 6,500,000 common shares by GOV in July 2011 and the issuance of 9,200,000 common shares by GOV in August 2010 at prices above our per share carrying value.

Income from discontinued operations.  Income from discontinued operations reflects operating results from 37 office properties and six industrial properties sold in 2010 and 2011, and seven office properties and 20 industrial & other properties classified as held for sale as of September 30, 2011.  The properties sold to GOV during 2010 are not considered discontinued operations because of our continuing ownership of GOV.

Loss on asset impairment from discontinued operations.  The 2011 loss on asset impairment in discontinued operations reflects the write down to estimated fair value for 26 of the properties that we are currently marketing for sale.

Gain on sale of properties from discontinued operations.  Net sales proceeds and gain from the sale of 12 office properties and one industrial property in 2011 were $165.7 million and $7.0 million, respectively.  This $7.0 million gain was after taking account of certain closing costs, including approximately $3.4 million in committed building and tenant improvement costs that we had previously agreed to but which were unpaid as of the date of sale.  Net sales proceeds and gain from the sale of one office property in 2010 were $1.5 million and $4.6 million, respectively.

29

Gain on sale of properties.  Proceeds from the sale of 12 office properties to GOV during the third quarter of 2010 were $189.0 million.  We recognized gains on the sale of these properties totaling $22.8 million, exclusive of deferred gains of $9.2 million attributable to our ownership interest in GOV.  Gains from the sale of properties to GOV are not considered sales from discontinued operations because of our continuing ownership of GOV shares.

Net income and net income available for common shareholders.  The decrease in net income and net income available for common shareholders is due primarily to a decrease in rents from properties sold in 2010 and 2011, an increase in interest expense, the decline in occupancy in 2011, the loss on asset impairment in 2011, gains from the sale of properties to GOV in 2010, and a lower gain on issuance of common shares by GOV in 2011 compared to 2010, offset by income from acquisitions made during 2010 and 2011.  Net income available for common shareholders is net income reduced by preferred distributions.  The increase in preferred distributions primarily reflects distributions on 11,000,000 7 ¼% series E preferred shares issued in June 2011, offset by the redemption of 7,000,000 of our 8 ¾% series B preferred shares in October 2010.

Weighted average common shares outstanding — basic and diluted.  The increase in weighted average common shares outstanding reflects 11,500,000 common shares issued in July 2011 and 7,500,000 common shares issued in September 2010.

30

Nine Months Ended September 30, 2011, Compared to Nine Months Ended September 30, 2010

	Nine Months Ended September 30,
	2011			2010			$ Change			% Change
	(in thousands, except per share data)
Rental income	$	662,596		$	572,205		$	90,391		15.8	%
Expenses:
Operating expenses	275,760			240,280			35,480			14.8	%
Depreciation and amortization	159,072			130,560			28,512			21.8	%
General and administrative	33,559			28,081			5,478			19.5	%
Loss on asset impairment	—			21,491			(21,491		)	(100.0	)%
Acquisition related costs	9,722			2,965			6,757			227.9	%
Total expenses	478,113			423,377			54,736			12.9	%
Operating income	184,483			148,828			35,655			24.0	%
Interest and other income	1,428			2,134			(706		)	(33.1	)%
Interest expense	(145,037		)	(133,716		)	11,321			8.5	%
Gain (loss) on early extinguishment of debt	310			(796		)	1,106			138.9	%
Equity in earnings of investees	8,390			6,643			1,747			26.3	%
Gain on issuance of shares by an equity investee	11,177			34,808			(23,631		)	(67.9	)%
Income from continuing operations before income tax expense	60,751			57,901			2,850			4.9	%
Income tax expense	(743		)	(329		)	414			125.8	%
Income from continuing operations	60,008			57,572			2,436			4.2	%
Discontinued operations:
Income from discontinued operations	2,777			16,877			(14,100		)	(83.5	)%
Loss on asset impairment from discontinued operations	(9,247		)	—			9,247			100.0	%
Loss on early extinguishment of debt from discontinued operations	—			(248		)	(248		)	(100.0	)%
Gain on sale of properties from discontinued operations	41,573			4,568			37,005			810.1	%
Income before gain on sale of properties	95,111			78,769			16,342			20.7	%
Gain on sale of properties	—			34,336			(34,336		)	(100.0	)%
Net income	95,111			113,105			(17,994		)	(15.9	)%
Preferred distributions	(33,162		)	(38,001		)	(4,839		)	(12.7	)%
Net income available for common shareholders	$	61,949		$	75,104		$	(13,155	)	(17.5	)%
Weighted average common shares outstanding — basic	75,307			62,198			13,109			21.1	%
Weighted average common shares outstanding — diluted	82,605			69,496			13,109			18.9	%
Basic and diluted earnings per common share:
Income from continuing operations available for common shareholders	$	0.36		$	0.87		$	(0.51	)	(58.6	)%
Income from discontinued operations	$	0.47		$	0.34		$	0.13		38.2	%
Net income available for common shareholders	$	0.82		$	1.21		$	(0.39	)	(32.2	)%

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Calculation of FFO and Normalized FFO

		Nine Months Ended September 30,
		2011			2010
		(in thousands, except per share data)
Calculation of FFO (1):
Net income		$	95,111		$	113,105
Plus:	depreciation and amortization from continuing operations	159,072			130,560
Plus:	depreciation and amortization from discontinued operations	4,467			17,440
Plus:	FFO from investees	14,476			11,302
Less:	gain on sale of properties	—			(34,336		)
Less:	gain on sale of properties from discontinued operations	(41,573		)	(4,568		)
Less:	equity in earnings of investees	(8,390		)	(6,643		)
FFO		223,163			226,860
Less:	preferred distributions	(33,162		)	(38,001		)
FFO available for common shareholders		$	190,001		$	188,859
Calculation of Normalized FFO (1):
FFO		$	223,163		$	226,860
Plus:	acquisition related costs from continuing operations	9,722			2,965
Plus:	acquisition related costs from discontinued operations	148			7
Plus:	loss on asset impairment from continuing operations	—			21,491
Plus:	loss on asset impairment from discontinued operations	9,247			—
Plus:	Normalized FFO from investees	15,175			12,647
Less:	(gain) loss on early extinguishment of debt from continuing operations	(310		)	796
Less:	loss on early extinguishment of debt from discontinued operations	—			248
Less:	early extinguishment of debt settled in cash	(232		)	—
Plus:	average minimum rent from direct financing lease	768			—
Less:	FFO from investees	(14,476		)	(11,302		)
Less:	interest earned from direct financing lease	(1,036		)	—
Less:	gain on issuance of shares by an equity investee	(11,177		)	(34,808		)
Normalized FFO		230,992			218,904
Less:	preferred distributions	(33,162		)	(38,001		)
Normalized FFO available for common shareholders		$	197,830		$	180,903
Per common share:
FFO available for common shareholders – basic		$	2.52		$	3.04
FFO available for common shareholders – diluted		$	2.52		$	2.98
Normalized FFO available for common shareholders – basic		$	2.63		$	2.91
Normalized FFO available for common shareholders – diluted		$	2.62		$	2.87

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(1)We compute FFO and Normalized FFO as shown above.  FFO is computed on the basis defined by NAREIT, which is net income, computed in accordance with GAAP, excluding gain or loss on sale of properties, plus real estate depreciation and amortization and FFO from equity investees.  Our calculation of Normalized FFO differs from NAREIT’s definition of FFO because we exclude acquisition related costs, gains from issuance of shares by equity investees, gain and loss on early extinguishment of debt unless settled in cash, loss on asset impairment, the difference between average minimum rent and interest earned from direct financing lease and the difference between FFO and Normalized FFO from equity investees.  We consider FFO and Normalized FFO to be appropriate measures of performance for a REIT, along with net income and cash flow from operating, investing and financing activities. We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO can facilitate a comparison of operating performances between periods.  FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders.  Other factors include, but are not limited to, requirements to maintain our status as a REIT, limitations in our revolving credit facility, term loan agreement and public debt covenants, the availability of debt and equity capital to us and our expectation of our future capital requirements and operating performance.  FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income or cash flow from operating activities, determined in accordance with GAAP, as indicators of our financial performance or liquidity, nor are FFO and Normalized FFO necessarily indicative of sufficient cash flow to fund all of our needs.  We believe FFO and Normalized FFO may facilitate an understanding of our consolidated historical operating results.  FFO and Normalized FFO should be considered in conjunction with net income, net income available for common shareholders and cash flow from operating activities as presented in our condensed consolidated statements of income and condensed consolidated statements of cash flows.  Other REITs and real estate companies may calculate FFO and Normalized FFO differently than we do.

33

Rental income.  Rental income increased for the nine months ended September 30, 2011, compared to the same period in 2010, primarily due to an increase in rental income from our Other Markets, Metro Chicago, IL, Australia and Metro Denver, CO segments, offset by a decrease in rental income from our Metro Washington, DC segment, as presented in the segment information note to our condensed consolidated financial statements appearing above in this Quarterly Report on Form 10-Q.  The aggregate increase primarily reflects the acquisition of 63 properties in 2010 and 2011, offset by a decrease in rental income from the sale of 15 properties to GOV in 2010 and the decline in occupancy.  Rental income from our Other Markets segment increased $35.8 million, or 10.2%, primarily reflecting the acquisition of 40 properties during 2010 and 2011, offset by a decrease in rental income resulting from the sale of 13 properties to GOV in 2010 and the decline in occupancy primarily from properties we owned continuously since January 1, 2010.  Rental income from our Metro Chicago, IL segment increased by $30.4 million, or 303.4%, primarily reflecting the acquisition of two properties in 2010 and three properties in 2011.  Rental income from our Australia segment totaling $25.5 million reflects our acquisition of 11 properties during the fourth quarter of 2010.  Rental income from our Metro Denver, CO segment increased by $2.7 million, or 8.8%, primarily reflecting the acquisition of one property in 2010.  Rental income from our Metro Washington, DC segment decreased by $4.5 million, or 12.3%, primarily reflecting the sale of two properties to GOV in 2010, offset by an increase in rental income from two properties acquired during 2010 and four properties acquired during 2011.  Rental income includes non-cash straight line rent adjustments totaling $23.2 million in 2011 and $7.4 million in 2010 and amortization of acquired real estate leases and assumed real estate lease obligations totaling ($5.4) million in 2011 and ($4.5) million in 2010.  Rental income also includes lease termination fees totaling $3.7 million in 2011 and $1.8 million in 2010.

Total expenses.  The increase in total expenses primarily reflects the acquisition of 63 properties during 2010 and 2011, offset by the sale of 15 properties to GOV and the loss on asset impairment recorded during 2010 from the write down to estimated fair value for four of those properties.

Interest expense.  The increase in interest expense in 2011 primarily reflects the issuance of $250.0 million of 5.875% unsecured senior notes in September 2010, a $400.0 million floating rate term loan issued in December 2010, the increase in floating rates on our revolving credit facility and the assumption of $321.2 million of mortgage debt in 2011, offset by the prepayment of $182.4 million of mortgage debt and the repayment of $30.0 million of 8.875% unsecured senior notes in August 2010, $20.0 million of 8.625% unsecured senior notes in October 2010, $168.2 million floating rate senior notes in March 2011, $29.2 million of 7.435% mortgage debt in June 2011 and $23.2 million of 8.05% mortgage debt in July 2011.

Gain (loss) on early extinguishment of debt.  The gain on early extinguishment of debt in 2011 reflects the write off of unamortized premiums and deferred financing fees associated with the prepayment of $23.2 million of 8.05% mortgage debt in July 2011.  The loss on early extinguishment of debt in 2010 reflects the write off of unamortized discounts and deferred financing fees associated with the prepayment of $182.4 million of mortgage debt in August 2010.

Equity in earnings of investees.  Equity in earnings of investees represents our proportionate shares of earnings (loss) from AIC and from GOV.  The increase in earnings of investees primarily reflects an increase in earnings from our ownership interest in GOV.

Gain on issuance of shares by an equity investee.  The gain on issuance of shares by an equity investee reflects the issuance of 6,500,000 common shares by GOV in July 2011 and the issuance of 9,775,000 and 9,200,000 common shares by GOV in January and August 2010, respectively, at prices above our per share carrying value.

Income from discontinued operations.  Income from discontinued operations reflects operating results from 37 office properties and six industrial properties sold in 2010 and 2011, and seven office properties and 20 industrial & other properties classified as held for sale as of September 30, 2011.  The properties sold to GOV during 2010 are not considered as sold from discontinued operations because of our continuing ownership of GOV shares.

Loss on asset impairment from discontinued operations.  The 2011 loss on asset impairment in discontinued operations reflects the write down to estimated fair value for 26 of the properties that we are currently marketing for sale.

34

Gain on sale of properties from discontinued operations.  Net sales proceeds and net gains from the sale of 17 office properties and three industrial properties in 2011 were $263.1 million and $41.6 million, respectively.  Net sales proceeds and gains from the sale of one office property in 2010 were $1.5 million and $4.6 million, respectively.

Gain on sale of properties.  Net sales proceeds and gains from the sale of 15 office properties to GOV in 2010 were $229.4 million and $34.3 million, respectively.  Gains from the sale of properties to GOV are not considered sales from discontinued operations because of our continuing ownership of GOV.

Net income and net income available for common shareholders.  The decrease in net income and net income available for common shareholders reflects a decrease in rents from properties sold in 2010 and 2011, an increase in interest expense, the decline in occupancy in 2011, the loss on asset impairment in 2011 and a lower gain on issuance of common shares by GOV in 2010 compared to 2011, offset by an increase in net gains recognized on properties sold in 2011 compared to net gains recognized on properties sold in 2010, and income from acquisitions made during 2010 and 2011.  Net income available for common shareholders is net income reduced by preferred distributions.  The decrease in preferred distributions primarily reflects the redemption of 7,000,000 shares of our 8 3/4% series B preferred shares in October 2010, partially offset by distributions from 11,000,000 7 1/4% series E preferred shares issued in June 2011.

Weighted average common shares outstanding — basic and diluted.  The increase in weighted average common shares outstanding reflects 11,500,000 common shares issued in July 2011 and 16,125,000 common shares issued in March and September 2010.

35

LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources

Our principal source of funds to pay operating expenses, debt obligations and distributions on our common and preferred shares is rental income from our properties and distributions from our equity investment in GOV.  This flow of funds has historically been sufficient for us to pay our operating expenses, debt service and distributions to shareholders.  We believe that our operating cash flow will be sufficient to meet our operating expenses, debt service and distribution payments 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 current rent rates at, our properties;

·ability to control operating cost increases at our properties;

·receipt of distributions from our equity investment in GOV; and

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

We believe that present leasing market conditions in the majority of areas where our properties are located may result in decreases in occupancies and effective rents, or gross rents less amortization of landlord funded tenant improvements and leasing costs.  Also, volatility in energy costs may also cause our future operating costs to fluctuate; however, the impact of these fluctuations is expected to be largely offset by the pass throughs of operating costs to our tenants pursuant to lease terms.  We generally do not purchase turnaround properties or properties which do not generate positive cash flows.  Our future purchases of properties which generate positive cash flows cannot be accurately projected because such purchases depend upon available opportunities which come to our attention.

Cash flows provided by (used in) operating, investing and financing activities were $206.2 million, ($589.0) million and $400.9 million, respectively, for the nine months ended September 30, 2011, and $198.4 million, ($164.0) million and $122.1 million, respectively, for the nine months ended September 30, 2010.  Changes in all three categories between 2011 and 2010 are primarily related to property acquisitions and sales, borrowings and repayments on debt and net proceeds received from the issuance of preferred and common shares during 2011 and 2010.

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 $750.0 million unsecured revolving credit facility with a group of institutional lenders.  In October 2011, we amended this credit facility to extend the maturity date from August 8, 2013 to October 19, 2015, and to reduce interest paid on borrowings from LIBOR plus 200 basis points to LIBOR plus 125 basis points, subject to adjustments based on changes to our credit ratings.  Our amended credit facility also provides us with the conditional option to extend the maturity date for one year to October 19, 2016, and includes a feature under which maximum borrowings may be increased up to $1.5 billion in certain circumstances.  At September 30, 2011, $235.0 million was outstanding and $515.0 million was available under our revolving credit facility.  We also had cash and cash equivalents of $210.7 million, reflecting proceeds received from the sale of 13 properties to SNH in September 2011, which were used to repay amounts outstanding on our revolving credit facility in October 2011.  We expect to use cash balances, borrowings under our credit facility, proceeds from the sale of properties, distributions from our equity investment in GOV and net proceeds from offerings of equity or debt securities to fund our continuing operations, debt repayments and future property acquisitions.

As of November 2, 2011, zero was outstanding and $750.0 million was available under our revolving credit facility.

36

Our outstanding debt maturities and weighted average interest rates as of September 30, 2011 were as follows (dollars in thousands):

	Scheduled Principal Payments During Period
	Unsecured		Unsecured		Secured					Weighted
	Floating Rate		Fixed		Fixed					Average
Year	Debt		Rate Debt		Rate Debt			Total (2)		Interest Rate
2011	$	—	$	—	$	1,170		$	1,170	6.2	%
2012	—		150,680		14,246			164,926		6.9	%
2013	235,000		190,980		6,073			432,053		4.2	%
2014	—		244,655		18,187			262,842		5.7	%
2015	400,000		436,000		21,919			857,919		4.3	%
2016	—		400,000		59,768			459,768		6.2	%
2017	—		250,000		311,214			561,214		5.9	%
2018	—		250,000		5,283			255,283		6.6	%
2019	—		125,000		166,359		(1)	291,359		6.5	%
2020	—		250,000		3,320			253,320		5.9	%
Thereafter	—		—		14,816			14,816		6.0	%
	$	635,000	$	2,297,315	$	622,355		$	3,554,670	5.5	%

(1)We have a mortgage loan for $175.0 million secured by one property located in Philadelphia, PA that matures in 2019.  Interest on this loan is payable at a spread over LIBOR but has been fixed for the first seven years to 2016 with a cash flow hedge that sets the rate at approximately 5.66% per year.

(2)Total debt as of September 30, 2011, net of unamortized premiums and discounts, was $3,556,535.

In March 2011, we repaid at maturity, all $168.2 million of our floating rate senior notes using borrowings under our revolving credit facility.  In June 2011, we repaid at maturity, $29.2 million of 7.435% mortgage debt using cash on hand.  In July 2011, we prepaid at par plus a premium, $23.2 million of 8.05% mortgage debt due in 2012 using cash on hand and proceeds from our common share offering completed in July.  We recorded a net gain on early extinguishment of debt of $310,000 from the write off of unamortized premiums and deferred financing fees related to this mortgage.

In June 2011, we issued 11,000,000 series E cumulative redeemable preferred shares in a public offering, raising net proceeds of $265.4 million.  In July 2011, we issued 11,500,000 common shares in a public offering, raising net proceeds of approximately $264.1 million.  Net proceeds from these offerings were used to repay amounts outstanding under our revolving credit facility and for general business purposes, including funding acquisitions and repaying debt.

When significant amounts are outstanding under our revolving credit facility, or as the maturity dates of our revolving credit facility and term debts approach, we explore alternatives for the repayment of amounts due.  Such alternatives may include incurring additional debt and issuing new equity securities.  We have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.

We believe we will have access to various types of financings, including debt or equity offerings, to fund our future acquisitions and to pay our debts and other obligations as they become due.  The completion and the costs of our future debt transactions will depend primarily upon market conditions and our credit ratings.  We have no control over market conditions.  Our credit ratings depend upon evaluations by credit rating agencies of our business practices and plans and, in particular, whether we appear to have the ability to maintain our earnings, to space 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 anticipatable 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.  However, there can be no assurance that we will be able to complete any debt or equity offerings or that our cost of any future public or private financings will not increase.

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During the nine months ended September 30, 2011, we received cash distributions totaling $12.4 million from GOV.  At September 30, 2011, we owned 9,950,000, or 21.1%, of the common shares of beneficial interest of GOV with a carrying value of $173.4 million and a market value, based on quoted market prices, of $214.0 million ($21.51 per share).  In July 2011, GOV issued 6,500,000 common shares in a public offering for $25.40 per common share, raising net proceeds of approximately $157.9 million.  As a result of this transaction at a price per share above our per share carrying value, our ownership percentage in GOV was reduced from 24.6% prior to this transaction to 21.1% after this transaction, and we recognized a gain of $11.2 million.

Since January 1, 2011, we acquired 23 properties with 6,806,615 square feet for an aggregate purchase price of $1.1 billion, including the assumption of $321.2 million of mortgage debt and excluding closing costs, using cash on hand, borrowings under our revolving credit facility and proceeds from property sales.  We also have agreements to acquire two additional properties with 1,891,243 square feet for an aggregate purchase price of $249.6 million, including the assumption of approximately $148.0 million of mortgage debt and excluding closing costs.  We have also entered an agreement to sell 16 properties with approximately 570,000 combined square feet for $6.5 million, excluding closing costs.  Details of these transactions are as follows:

In January 2011, we acquired three office properties located in Boca Raton, FL with a combined 639,830 square feet.  These properties are 100% leased to Office Depot for 12.8 years.  The aggregate purchase price was $171.0 million, excluding closing costs.

In January 2011, we acquired an office property located in Columbia, SC with 115,028 square feet.  This property is 99% leased to six tenants for a weighted (by rents) average lease term of 4.8 years.  The purchase price was $12.0 million, excluding closing costs.

In January 2011, we acquired an office property located in Chelmsford, MA with 98,048 square feet.  This property is 100% leased to Comcast Corporation for 5.2 years.  The purchase price was $10.0 million, excluding closing costs.

In February 2011, we acquired an office property located in Montvale, NJ with 119,089 square feet.  This property is 100% leased to three tenants for a weighted (by rents) average lease term of 6.4 years.  The purchase price was $20.6 million, excluding closing costs.

In March 2011, we acquired four properties located in Phoenix, AZ with a combined 1,063,364 square feet.  These properties are 92% leased to 44 tenants for a weighted (by rents) average lease term of 9.8 years.  The purchase price was $136.5 million, excluding closing costs.

In May 2011, we acquired an office property located in Chicago, IL with 1,070,388 square feet.  This property is 85% leased to 60 tenants for a weighted (by rents) average lease term of 6.6 years.  The purchase price was $162.2 million, excluding closing costs.

In June 2011, we acquired four office properties located in Stafford, VA with a combined 149,023 square feet.  These properties are 100% leased to ten tenants for a weighted (by rents) average lease term of 1.7 years.  The aggregate purchase price was $25.7 million, including the assumption of $15.0 million of mortgage debt and excluding closing costs.

In June 2011, we acquired four office properties located in Folsom, CA with a combined 269,254 square feet.  These properties are 93% leased to nine tenants for a weighted (by rents) average lease term of 3.6 years.  The aggregate purchase price was $46.3 million, including the assumption of $41.3 million of mortgage debt and excluding closing costs.

In July 2011, we acquired an office property located in Birmingham, AL with 514,893 square feet.  This property is 76% leased to 14 tenants for a weighted (by rents) average lease term of 8.7 years.  The purchase price was $68.5 million, excluding closing costs.

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In August 2011, we acquired two office properties located in Chicago, IL with a combined 1,510,707 square feet.  These properties are 98% leased to 49 tenants for a weighted (by rents) average lease term of 8.1 years.  The aggregate purchase price was $390.0 million, including the assumption of $265.0 million of mortgage debt and excluding closing costs.

In August 2011, we acquired an office property located in New Orleans, LA with 1,256,991 square feet.  This property is 88% leased to 61 tenants for a weighted (by rents) average lease term of 4.9 years.  The purchase price was $102.0 million, excluding closing costs.

In August 2011, we entered an agreement to acquire an office property located in Chicago, IL with 1,006,574 square feet.  This property is 95% leased to 56 tenants for a weighted (by rents) average lease term of 5.1 years.  The purchase price is $150.6 million, including the assumption of approximately $148.0 million of mortgage debt and excluding closing costs.  We expect to acquire this property during the fourth quarter of 2011; however, this acquisition is subject to our satisfactory completion of customary closing conditions, including the assumption of existing mortgage debt.  Accordingly, we can provide no assurance that we will acquire this property in that time period or at all.

In October 2011, we entered an agreement to acquire an office property located in Hartford, CT with 884,669 square feet.  This property is 98% leased to 20 tenants for a weighted (by rents) average lease term of 7.5 years.  The purchase price is $99.0 million, excluding closing costs.  We expect to acquire this property during the fourth quarter of 2011; however, this acquisition is subject to our satisfactory completion of diligence and other customary closing conditions and we can provide no assurance that we will acquire this property in that time period or at all.

In November 2010, we entered into various purchase and sale agreements to sell 27 properties which are majority leased as medical office, clinic and biotech laboratory buildings to SNH for an aggregate sale price of $470.0 million, excluding closing costs.  In 2010, we sold 21 of these properties containing approximately 2,066,000 square feet for $374.1 million, excluding closing costs, and recognized net gains totaling $133.3 million.  In January 2011, we sold the remaining six properties containing approximately 737,000 square feet for an aggregate sale price of $95.9 million, excluding closing costs, and we recognized gains totaling $34.7 million.  In September 2011, we sold to SNH 13 additional properties located in eight states with approximately 1,310,000 square feet for an aggregate sale price of $167.0 million, excluding closing costs, and recognized net gains totaling $7.0 million.  At the conclusion of these transactions, substantially all of the properties that we leased to tenants in medical related businesses were sold to SNH and the existing right of first refusal between us and SNH terminated.  Because we and SNH have three trustees in common and we are both managed by RMR, the terms of these transactions were negotiated and approved by special committees of our and SNH’s boards of trustees composed solely of Independent Trustees who were not also Independent Trustees of both companies.

In February 2011, we sold an industrial property located in Adairsville, GA, with 101,400 square feet for $2.3 million, excluding closing costs, and recognized a loss of $94,000.

As of September 30, 2011, we had seven office properties with a combined 1,054,000 square feet and 20 industrial & other properties with a combined 1,835,000 square feet classified as held for sale in our consolidated balance sheet.  In October 2011, we entered an agreement to sell 16 of the 20 industrial & other properties classified as held for sale, which are located in Dearborn, MI with approximately 570,000 combined square feet for $6.5 million, excluding closing costs.  We expect to sell these properties during the fourth quarter of 2011; however, this sale is subject to satisfactory completion of buyer’s diligence and other customary closing conditions and we can provide no assurance that we will sell these properties in that time period or at all.  We continue to actively market the remaining properties for sale and expect to sell them within the next year; however, we can provide no assurance that we will receive acceptable offers to purchase these properties or that we will sell them.

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During the three and nine months ended September 30, 2011 and 2010, 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 September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Tenant improvements	$	12,547	$	9,803	$	37,272	$	24,965
Leasing costs (1)	8,035		5,749		17,900		14,901
Building improvements (2)	4,947		2,918		10,589		4,621
Development and redevelopment activities (3)	7,767		5,942		17,315		14,013

(1)     Leasing costs generally include leasing commissions and legal and other leasing costs.

(2)     Building improvements generally include construction costs, 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 in connection with leasing space during the three months ended September 30, 2011, were as follows (amounts in thousands, except as noted):

	New Leases (1)		Renewals (1)		Total
Square feet leased during the period	423		1,459		1,882
Total commitments for tenant improvements and leasing costs	$	9,539	$	18,777	$	28,316
Leasing costs per square foot (whole dollars)	$	22.55	$	12.87	$	15.05
Average lease term (years)	6.6		8.7		8.1
Leasing costs per square foot per year (whole dollars)	$	3.42	$	1.48	$	1.86

(1)  Excludes properties classified in discontinued operations.

Off Balance Sheet Arrangements

As of September 30, 2011, we had no off balance sheet arrangements that have had or are 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 September 30, 2011, other than the cash flow hedge on a $175.0 million mortgage loan described in Notes 8 and 10 of the notes to our condensed consolidated financial statements and under “Our Investment and Financing Liquidity and Resources” appearing above.

Debt Covenants

Our principal debt obligations at September 30, 2011, were our unsecured revolving credit facility, our unsecured term loan and our $2.3 billion of publicly issued unsecured term debt.  Our publicly issued debt is governed by an indenture.  Our public debt indenture and related supplements and our revolving credit facility and term loan agreements contain a number of financial ratio covenants which generally restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, require us to maintain a minimum net worth, restrict our ability to make distributions under certain circumstances and require us to maintain other financial ratios.  At September 30, 2011, we believe we were in compliance with all of our covenants under our indenture and related supplements and our revolving credit facility and term loan agreements.

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In addition to our unsecured debt obligations, we had $633.9 million (net of discounts) of mortgage notes outstanding at September 30, 2011.

None of our indenture and related supplements, our revolving credit facility, our term loan agreement or our mortgage notes contains provisions for acceleration or requires us to provide collateral security which could be triggered by our debt ratings.  However, our senior debt rating is used to determine the interest rate and the fees payable under our revolving credit facility and our term loan agreement.

Our public debt indenture and related supplements contain cross default provisions to any other debts of $20.0 million or more.  Similarly, our revolving credit facility and term loan agreements contain cross default provisions.  Any termination of our business management agreement with RMR would cause a default under our revolving credit facility and term loan, if not approved by a majority of our lenders.

Related Person Transactions

We have no employees.  Instead, services that might be provided to us by employees are provided to us by RMR.  RMR provides both business and property management services to us under a business management agreement and a property management agreement.  On November 1, 2011, we and RMR amended our business management agreement to provide that, for purposes of determining the fees we pay to RMR under that agreement, which are based on a percentage of the value of our properties as determined under the agreement, the value of properties we may acquire from certain other companies to which RMR provides management services will be based upon the seller’s historical cost for those properties rather than our acquisition costs and to provide other companies to which RMR provides management services a right of first offer on properties of ours that we determine to sell if such properties are primarily of a type that are within the investment focus of such other companies.  This amendment is further described in Part II, Item 5 of this Quarterly Report on Form 10-Q.  RMR also provides management services to other companies, including GOV and SNH.  One of our Managing Trustees, Barry Portnoy, is Chairman and majority owner of RMR and serves as managing trustee of GOV and SNH.  Our other Managing Trustee and our President, Adam Portnoy, is Barry Portnoy’s son, and is an owner, President, Chief Executive Officer and a director of RMR and serves as a managing trustee of GOV and SNH.  Our executive officers and GOV’s and SNH’s executive officers are officers of RMR.  One of our Independent Trustees, Frederick Zeytoonjian, is also an independent trustee of SNH.  Our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR provides management services.  Barry Portnoy serves as a managing director or managing trustee of those companies and Adam Portnoy serves as a managing trustee of a majority of those companies.

GOV was formerly our 100% owned subsidiary.  We are GOV’s largest shareholder and, as of the date of this report, we owned 9,950,000 common shares of beneficial interest of GOV, which represented approximately 21.1% of GOV’s outstanding common shares of beneficial interest.  Our GOV common shares of beneficial interest had a carrying value of $173.4 million and a market value, based on quoted market prices, of $214.0 million ($21.51 per share) as of September 30, 2011.

SNH was formerly our 100% owned subsidiary.  It was spun off to our shareholders in 1999.  As previously reported, we previously granted SNH a right of first refusal to purchase certain of our properties if we sought to sell them.  In November 2010, we agreed to sell 27 properties (approximately 2,803,000 square feet of rental space), which were majority leased as medical office, clinic and biotech laboratory buildings, to SNH for an aggregate sale price of $470.0 million, excluding closing costs.  We completed the sale of all 27 of these properties between November 2010 and January 2011.  In September 2011, we sold to SNH 13 additional properties located in eight states with approximately 1,310,000 square feet for an aggregate sale price of $167.0 million, excluding closing costs.  Certain of the properties included in these sales were subject to SNH’s right of first refusal.  In connection with our September 2011 sale of 13 properties to SNH, we and SNH terminated the existing SNH right of first refusal, as substantially all of the properties that were subject to that right of first refusal had been purchased by SNH.  Special committees of each of our Board of Trustees and SNH’s board of trustees composed solely of Independent Trustees who were not also independent trustees of the other party and who were represented by separate counsel reviewed and approved the terms of these property sale transactions.

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We and the other six current shareholders of AIC each own approximately 14.29% of the outstanding equity of AIC.  The other shareholders are RMR and five other companies, including GOV and SNH, to which RMR provides management services.  All of our Trustees, all of the trustees and directors of the other publicly held AIC shareholders and nearly all of the directors of RMR currently serve on the board of directors of AIC.  RMR provides management and administrative services to AIC.  In 2010, AIC designed a combination property insurance program for us and other AIC shareholders in which AIC participated as a reinsurer.  This program was modified and extended in June 2011 for a one year term.  We are currently investigating the possibilities to expand our insurance relationships with AIC to include other types of insurance.  By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses or by realizing our pro-rata share of any profits of this insurance business.

For more information about these and other relationships among us, our Trustees, our executive officers, GOV, RMR, SNH, AIC, other companies to which RMR provides management services, and others affiliated with or related to them and about the risks which may arise as a result of those and other related person transactions and relationships, please see Note 13 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated by reference herein.  In addition, for more information about these transactions and relationships, please also see elsewhere in this Quarterly Report on Form 10-Q, including “Related Person Transactions” in Part I, Item 2 and “Warning Concerning Forward Looking Statements”, and our Annual Report, our Proxy Statement, and our other filings with the Securities and Exchange Commission, or the SEC, including the sections captioned “Business”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” and “Warning Concerning Forward Looking Statements”, in our Annual Report, and the information regarding our Trustees and executive officers and the section captioned “Related Person Transactions and Company Review of Such Transactions” in our Proxy Statement.  In addition, please see the “Risk Factors” section of our Annual Report for a description of risks which may arise from these transactions and relationships.  Our filings with the SEC, including our Annual Report and our Proxy Statement, are available at the SEC’s website at www.sec.gov.  In addition, copies of certain of our agreements with these parties 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, GOV, SNH and AIC are on commercially reasonable terms.  We also believe that our relationships with RMR, GOV, SNH, AIC and their affiliated and related persons and entities benefit us, and in fact provide us with 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 and foreign-exchange related variability on our investments in Australia.

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 December 31, 2010.  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 September 30, 2011, our total outstanding fixed rate term debt consisted of the following fixed rate notes:

Amount	Coupon		Maturity
Unsecured senior notes:
$150.7 million	6.950	%	2012
$191.0 million	6.500	%	2013
$244.7 million	5.750	%	2014
$186.0 million	6.400	%	2015
$250.0 million	5.750	%	2015
$400.0 million	6.250	%	2016
$250.0 million	6.250	%	2017
$250.0 million	6.650	%	2018
$125.0 million	7.500	%	2019
$250.0 million	5.875	%	2020

No principal repayments are due under the fixed rate unsecured senior notes until maturity.

Amount	Coupon		Maturity
Secured notes:
$5.5 million	7.310	%	2012
$4.7 million	6.000	%	2012
$12.7 million	4.950	%	2014
$8.6 million	5.990	%	2015
$9.3 million	5.780	%	2015
$7.9 million	5.760	%	2016
$41.5 million	6.030	%	2016
$11.9 million	7.360	%	2016
$41.3 million	5.670	%	2017
$265.0 million	5.680	%	2017
$175.0 million	2.855	%(1)	2019
$4.1 million	6.750	%	2022
$13.7 million	6.140	%	2023
$8.1 million	5.710	%	2026
$13.0 million	6.060	%	2027

(1)Interest on this loan is payable at a spread over LIBOR but has been fixed for the first seven years to 2016 by a cash flow hedge which sets the rate at approximately 5.66%.  The coupon rate represents the floating interest rate at September 30, 2011.

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Our secured notes are collateralized by 23 of our properties and require principal and interest payments through maturity pursuant to amortization schedules.

We have interest rate swap agreements to manage our interest rate risk exposure on $175.0 million of mortgage notes due 2019, which require interest at a spread over LIBOR.  The interest rate swap agreements utilized by us effectively modify our exposure to interest rate risk arising from this floating rate mortgage loan by converting this floating rate debt to a fixed rate through December 1, 2016, thus reducing the impact of interest rate changes on future interest expense.  These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreements.  Approximately 4.9% ($175.0 million) of our total outstanding debt had interest payments designated as hedged transactions to interest rate swap agreements at September 30, 2011.  As of September 30, 2011, the fair value of our derivative instruments included in accounts payable and accrued expenses and cumulative other comprehensive (loss) income in our consolidated balance sheet totaled ($15.6) million.

Because our fixed rate unsecured and secured notes bear interest at fixed rates, changes in market interest rates during the term of these debts will not affect our operating results.  If all of our fixed rate unsecured and secured notes outstanding at September 30, 2011, were to be refinanced at interest rates which are 10% higher or lower than shown above, our per annum interest cost would increase or decrease, respectively, by approximately $18.0 million.

Changes in market interest rates would affect the fair value of our fixed rate debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the value of our fixed rate debt.  Based on the balances outstanding at September 30, 2011, and discounted cash flow analyses, a hypothetical immediate 10% change in interest rates would change the fair value of our fixed rate unsecured and secured debt obligations by approximately $60 million.

Each of our fixed rate unsecured and secured debt arrangements allows us to make repayments earlier than the stated maturity date.  In some cases, we are not allowed to make early repayment prior to a cutoff date, and in most cases we are allowed to make prepayments only at a premium equal to a make whole amount, as defined, generally designed to preserve a stated yield to the note holder.  These prepayment rights may afford us the opportunity to mitigate the risk of refinancing at maturity at higher rates by refinancing prior to maturity.  The majority of our fixed rate senior unsecured notes are publicly traded.  We have in the past and may in the future occasionally take advantage of market opportunities to repurchase notes which may also mitigate future refinancing risks.

Although we have no present plans to do so, we may in the future enter other hedge arrangements to mitigate our exposure to changes in interest rates.

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At September 30, 2011, $235.0 million was outstanding and $515.0 million was available for drawing under our unsecured revolving credit facility, and we had $400.0 million of floating rate term debt outstanding. Our revolving credit facility, as amended in October 2011, matures in October 2015 and includes a conditional option for us to extend the maturity by one year to October 2016. Repayments under our revolving credit facility may be made at any time without penalty. Our term loan was amended in October 2011 to increase borrowings to $557.0 million and to extend the maturity date to December 2016 for $500.0 million of the term loan. We agreed to repay on December 16, 2012 lenders representing $57.0 million who were unable to commit to amended terms. We borrow in U.S. dollars and borrowings under our revolving credit facility and our term loan require interest at LIBOR plus a premium. 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 and term loan was 2.2% during the nine months ended September 30, 2011. A change in interest rates would not affect the value of these floating rate unsecured debts 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 September 30, 2011 (dollars in thousands):

	Impact of Changes in Interest Rates
	Interest Rate Per Year		Outstanding Debt		Total Interest Expense Per Year
At September 30, 2011	2.2	%	$	635,000	$	13,970
10% reduction	2.0	%	$	635,000	$	12,700
10% increase	2.4	%	$	635,000	$	15,240

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.

Foreign Currency Risk

Foreign currency risk is the possibility that our financial results are affected by changes in currency exchange rates.  Our primary exposure to foreign currency exchange rates relates to the translation of the operating results of our Australian subsidiary from Australian dollars into U.S. dollars.  To mitigate our foreign currency exchange exposure in the future, depending on the significance of our business activities in Australia at that time, we may borrow in Australian currency.  We also may use foreign currency derivative contracts to manage foreign currency exchange rate risk associated with the projected net operating income of our Australian operations.  At September 30, 2011 and at November 2, 2011, we had no borrowings in Australian dollars and no derivative contracts outstanding and no present intention to borrow in Australian currency or otherwise to hedge our foreign currency risks.  Accordingly, we may experience future fluctuations in our earnings as a result of changes in foreign currency exchange rates.  We do not believe a 10% change in foreign currency exchange rates used to convert our 2011 Australian operating results to U.S. dollars would be material to our current year consolidated earnings.

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.

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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WARNING CONCERNING FORWARD LOOKING STATEMENTS

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

·THE CREDIT QUALITY OF OUR TENANTS,

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

·OUR ACQUISITIONS AND SALES 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,

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

·OTHER MATTERS.

OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN 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, NORMALIZED FUNDS FROM OPERATIONS, 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, GOV, SNH, 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, AND

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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.

FOR EXAMPLE:

·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, OCCUPANCY AND OPERATING RESULTS OF OUR PROPERTIES MAY DECLINE,

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

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

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

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

·OUR ABILITY TO GROW OUR BUSINESS AND INCREASE OUR DISTRIBUTIONS DEPENDS IN LARGE PART UPON OUR ABILITY TO BUY PROPERTIES AND LEASE THEM FOR RENTS THAT EXCEED OUR COST OF CAPITAL. 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 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,

·THE DISTRIBUTIONS WE RECEIVE FROM GOV MAY DECLINE OR WE MAY BE UNABLE TO SELL OUR GOV SHARES FOR AN AMOUNT EQUAL TO OUR CARRYING VALUE OF THOSE SHARES,

·      THIS QUARTERLY REPORT ON FORM 10-Q STATES THAT THE TERMS OF VARIOUS TRANSACTIONS BETWEEN US AND SNH WERE REVIEWED AND APPROVED BY SPECIAL COMMITTEES OF EACH OF OUR BOARD OF TRUSTEES AND SNH’S BOARD OF TRUSTEES COMPOSED SOLELY OF INDEPENDENT TRUSTEES WHO ARE NOT ALSO TRUSTEES OF THE OTHER PARTY TO THE TRANSACTION, THAT WE AND THEY WERE REPRESENTED BY SEPARATE COUNSEL AND THAT OUR COMPENSATION COMMITTEE, WHICH IS COMPOSED OF OUR INDEPENDENT TRUSTEES, APPROVED THE RECENT AMENDMENT TO OUR BUSINESS MANAGEMENT AGREEMENT THAT WE ENTERED INTO WITH RMR.  AN IMPLICATION OF THESE STATEMENTS MAY BE THAT THE SALE PRICES AND OTHER TERMS OF THESE TRANSACTIONS ARE AS FAVORABLE TO US AS THOSE WE COULD OBTAIN IN SIMILAR TRANSACTIONS WITH UNRELATED THIRD PARTIES.  HOWEVER, DESPITE THESE PROCEDURAL SAFEGUARDS, WE COULD STILL BE SUBJECTED TO CLAIMS CHALLENGING THESE TRANSACTIONS OR OUR ENTRY INTO THESE TRANSACTIONS BECAUSE OF THE MULTIPLE RELATIONSHIPS AMONG US, SNH AND THEIR RELATED PERSONS AND ENTITIES, AND DEFENDING SUCH CLAIMS COULD BE EXPENSIVE AND DISTRACTING TO MANAGEMENT, AND

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

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THESE RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH ARE BEYOND OUR CONTROL, SUCH AS NATURAL DISASTERS OR CHANGES IN OUR TENANTS’ FINANCIAL CONDITIONS OR 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 ANNUAL REPORT 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 COMMONWEALTH REIT, DATED JULY 1, 1994, AS AMENDED AND SUPPLEMENTED, AS FILED WITH THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF COMMONWEALTH REIT SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, COMMONWEALTH REIT.  ALL PERSONS DEALING WITH COMMONWEALTH REIT IN ANY WAY SHALL LOOK ONLY TO THE ASSETS OF COMMONWEALTH 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 Part I of our Annual Report and below. 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 impair our business operations or financial results. If any of the events or circumstances described in the risk factors contained in our Annual Report or described below occurs, our business, financial condition or results of operations could suffer and the trading price of our equity securities could decline. Investors and prospective investors should consider the risks described in our Annual Report and below 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.

We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.

We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, tenant and lease data.  We purchase some of our information technology from vendors, on whom our systems depend.  We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential tenant and other customer information, such as individually identifiable information, including information relating to financial accounts.  Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber attacks.  Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information.  Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.

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

On September 16, 2011, pursuant to our equity compensation plan, we granted an aggregate of 73,050 common shares of beneficial interest, par value $0.01 per share, valued at $19.96 per share, the closing price of our common shares on the New York Stock Exchange on that day, to our officers and certain employees of our manager, RMR.  We made these grants pursuant to an exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended.

Item 5.Other Information

On November 1, 2011, we and RMR amended our business management agreement under which RMR provides business management services to us.  The amendment was approved by our compensation committee, which is composed solely of our Independent Trustees.

The business management agreement provides, among other things, that RMR is entitled to a management fee at an annual rate equal to a percentage of our average invested capital, determined as specified in the business management agreement.  The business management agreement provides for compensation to RMR at an annual rate equal to 0.7% of the average historical cost of our real estate investments, as described in the business management agreement, located in the United States, Puerto Rico or Canada, for the first $250.0 million of such investments, and 0.5% thereafter, and 1.0% of the average historical cost of our real estate investments located outside of the United States, Puerto Rico and Canada (subject to RMR’s waiver of half of this fee with respect to our investments in Australia so long as our business and property management agreement with MacarthurCook Fund Management Limited with respect to those investments is in effect and we or any of our subsidiaries are paying the fees under that agreement).  In addition, RMR receives an incentive fee based upon increases in our FFO Per Share, as defined in the business management agreement. The incentive fee is paid in our common shares.

As amended, in determining the fees payable by us to RMR under the business management agreement, the average invested capital of any assets we have acquired or may in the future acquire from another real estate investment trust to which RMR provides business management or property management services, or an RMR Managed REIT, will be equal to the applicable selling RMR Managed REIT’s historical costs for those properties, determined in the manner specified in the business management agreement, rather than our acquisition costs for those properties.

In the business management agreement we acknowledge that RMR will not be required to present us with opportunities to invest in properties that are primarily of a type that are within the investment focus of another RMR Managed REIT.  The amendment added a provision that, with certain exceptions, if we determine to offer for sale or long term ground lease any real property that, at such time, is of a type within the investment focus of another RMR Managed REIT, we will first offer that property for purchase or lease to that RMR Managed REIT and negotiate in good faith for such purchase or lease.  If we and the other RMR Managed REIT do not reach an agreement within 15 days, we will be free to pursue the proposed transaction with others upon the same or substantially similar terms offered and for a price that is not less than 90% of the offered price.

The above description of the amendment to the business management agreement is qualified in its entirety by reference to the amended and restated business management agreement, a copy of which is filed as Exhibit 10.16 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

For additional information about the relationships among us, our Trustees, our executive officers, RMR and certain other RMR Managed REITs and others affiliated with or related to them and about the risks which may arise as a result of those and other related person transactions and relationships, please see Part I of this Quarterly Report on Form 10-Q, including Note 13 to the Notes to our Condensed Consolidated  Financial Statements included in Item 1, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” in Item 2 and “Warning Concerning Forward Looking Statements”, which are incorporated herein by reference, as well as our other filings with the SEC that are referred to in those items.

Item 6.Exhibits

10.1Purchase and Sale Agreement, dated as of September 20, 2011, between Hub Properties Trust, as Seller, and Senior Housing Properties Trust, as Purchaser (with respect to the property located at 3043 Walton Road, Plymouth Meeting, PA). (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 23, 2011, filed with the SEC on September 23, 2011, File No. 001-09317)

10.2Purchase and Sale Agreement, dated as of September 20, 2011, between Hub Properties Trust, as Seller, and Senior Housing Properties Trust, as Purchaser (with respect to the property located at 2200 County Road C West, Roseville, MN). (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 23, 2011, filed with the SEC on September 23, 2011, File No. 001-09317)

10.3Purchase and Sale Agreement, dated as of September 20, 2011, between Hub Properties Trust, as Seller, and Senior Housing Properties Trust, as Purchaser (with respect to the property located at 200 Old County Road, Mineola, NY). (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated September 23, 2011, filed with the SEC on September 23, 2011, File No. 001-09317)

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10.4Purchase and Sale Agreement, dated as of September 20, 2011, between Hub Properties Trust, as Seller, and Senior Housing Properties Trust, as Purchaser (with respect to the property located at 5823 Wildwaters Parkway, Dewitt, NY). (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated September 23, 2011, filed with the SEC on September 23, 2011, File No. 001-09317)

10.5Purchase and Sale Agreement, dated as of September 20, 2011, between Hub Mid-West LLC, as Seller, and Senior Housing Properties Trust, as Purchaser (with respect to the property located at 1615 Lakeside Drive, Waukegan, IL). (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated September 23, 2011, filed with the SEC on September 23, 2011, File No. 001-09317)

10.6Purchase and Sale Agreement, dated as of September 20, 2011, between Hub Mid-West LLC, as Seller, and Senior Housing Properties Trust, as Purchaser (with respect to the property located at 1675 Lakeside Drive, Waukegan, IL). (Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K dated September 23, 2011, filed with the SEC on September 23, 2011, File No. 001-09317)

10.7Purchase and Sale Agreement, dated as of September 20, 2011, between Hub Properties Trust, as Seller, and Senior Housing Properties Trust, as Purchaser (with respect to the property located at 47900 Bayside Parkway, Fremont, CA). (Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K dated September 23, 2011, filed with the SEC on September 23, 2011, File No. 001-09317)

10.8Purchase and Sale Agreement, dated as of September 20, 2011, between Hub Properties Trust, as Seller, and Senior Housing Properties Trust, as Purchaser (with respect to the property located at 47211/47215 Lakeview Boulevard, Freemont, CA). (Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K dated September 23, 2011, filed with the SEC on September 23, 2011, File No. 001-09317)

10.9Purchase and Sale Agreement, dated as of September 20, 2011, between Hub Properties Trust, as Seller, and Senior Housing Properties Trust, as Purchaser (with respect to the property located at 7909 Parklane Road, Columbia, SC). (Incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K dated September 23, 2011, filed with the SEC on September 23, 2011, File No. 001-09317)

10.10Purchase and Sale Agreement, dated as of September 20, 2011, between Hub Properties Trust, as Seller, and Senior Housing Properties Trust, as Purchaser (with respect to the property located at 47201 Lakeview Boulevard, Freemont, CA). (Incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K dated September 23, 2011, filed with the SEC on September 23, 2011, File No. 001-09317)

10.11Purchase and Sale Agreement, dated as of September 20, 2011, between CW Nom LLC, as Seller, and Senior Housing Properties Trust, as Purchaser (with respect to the property located at 5370 Naiman Parkway, Solon, OH). (Incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K dated September 23, 2011, filed with the SEC on September 23, 2011, File No. 001-09317)

10.12Purchase and Sale Agreement, dated as of September 20, 2011, between Hub Properties Trust, as Seller, and Senior Housing Properties Trust, as Purchaser (with respect to the property located at 11209-11211 N. Tatum Boulevard, Phoenix, AZ). (Incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K dated September 23, 2011, filed with the SEC on September 23, 2011, File No. 001-09317)

10.13Purchase and Sale Agreement, dated as of September 20, 2011, between Hub Properties Trust, as Seller, and Senior Housing Properties Trust, as Purchaser (with respect to the property located at 475 Virginia Drive, Ft Washington, PA). (Incorporated by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K dated September 23, 2011, filed with the SEC on September 23, 2011, File No. 001-09317)

10.14Second Amendment to Credit Agreement, dated as of October 18, 2011, among the Company, Wells Fargo Bank, National Association, as Administrative Agent, Bank of America, N.A., as Syndication Agent, and the other parties thereto. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 19, 2011, filed with the SEC on October 20, 2011, File No. 001-09317)

10.15First Amendment to Term Loan Agreement, dated as of October 26, 2011, among the Company, Wells Fargo Bank, National Association, as Administrative Agent, and the other parties thereto. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 26, 2011, filed with the SEC on October 28, 2011, File No. 001-09317)

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10.16Amended and Restated Business Management Agreement, dated as of November 1, 2011, between the Company and Reit Management & Research LLC. (filed herewith)

12.1Computation of Ratio of Earnings to Fixed Charges. (filed herewith)

12.2Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Distributions. (filed herewith)

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

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

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

32.1Section 1350 Certification. (furnished herewith)

101.1The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Cash Flows and (iv) related notes to these financial statements, tagged as blocks of text and in detail. (furnished herewith)

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SIGNATURES

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

COMMONWEALTH REIT
By:	/s/ Adam D. Portnoy
	Adam D. Portnoy
	President and Managing Trustee
	Dated: November 7, 2011
By:	/s/ John C. Popeo
	John C. Popeo
	Treasurer and Chief Financial Officer
	(principal financial and accounting officer)
	Dated: November 7, 2011

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EX-10.16

Exhibit 10.16

AMENDED AND RESTATED BUSINESS MANAGEMENT AGREEMENT

THIS AMENDED AND RESTATED BUSINESS MANAGEMENT AGREEMENT (this “Agreement”) is entered into effective as of November 1, 2011, by and between CommonWealth REIT, formerly known as HRPT Properties Trust, a Maryland real estate investment trust (the “Company”), and Reit Management & Research LLC, a Delaware limited liability company (the “Manager”).

WHEREAS, the Company and the Manager are parties to a Business Management Agreement, dated as of June 8, 2009 (as amended, the “Prior Agreement”); and

WHEREAS, the Company and Manager wish to amend and restate the Prior Agreement as hereinafter provided;

NOW, THEREFORE, in consideration of the mutual agreements herein set forth, the parties hereto agree as follows:

1.Engagement.  Subject to the terms and conditions hereinafter set forth, the Company hereby continues to engage the Manager to provide the management and real estate investment services contemplated by this Agreement with respect to the Company’s business and real estate investments and the Manager hereby accepts such continued engagement.

2.General Duties of the Manager.  The Manager shall use its reasonable best efforts to present to the Company a continuing and suitable real estate investment program consistent with the real estate investment policies and objectives of the Company.  Subject to the management, direction and supervision of the Company’s Board of Trustees (the “Trustees”), the Manager shall:

(a)provide research and economic and statistical data in connection with the Company’s real estate investments and recommend changes in the Company’s real estate investment policies when appropriate;

(b)(i) investigate and evaluate investments in, or acquisitions or dispositions of, real estate and related interests, and financing and refinancing opportunities, (ii) make recommendations concerning specific investments to the Trustees, and (iii) evaluate and negotiate contracts with respect to the foregoing, in each case, on behalf of the Company and in the furtherance of the Company’s real estate financing objectives;

(c)investigate, evaluate and negotiate the prosecution and negotiation of any claims of the Company in connection with its real estate investments;

(d)administer bookkeeping and accounting functions as are required for the management and operation of the Company, contract for audits and prepare or cause to be prepared such reports and filings as may be required by any governmental authority in connection with the ordinary conduct of the Company’s business, and otherwise advise and assist the Company with its compliance with applicable legal and regulatoryrequirements, including without limitation, periodic reports, returns or statements required under the Securities Exchange Act of 1934, as amended, the Internal Revenue Code of 1986, as amended (said Code, as in effect from time to time, together with any regulations and rulings thereunder, being hereinafter referred to as the “Internal Revenue Code”), the securities and tax statutes of any jurisdiction in which the Company is obligated to file such reports, or the rules and regulations promulgated under any of the foregoing;

(e)advise and assist in the preparation and filing of all offering documents (public and private), and all registration statements, prospectuses or other documents filed with the Securities and Exchange Commission (the “SEC”) or any state (it being understood that the Company shall be responsible for the content of any and all of its offering documents and SEC filings (including without limitation those filings referred to in Section 2(d) hereof), and the Manager shall not be held liable for any costs or liabilities arising out of any misstatements or omissions in the Company’s offering documents or SEC filings, whether or not material, and the Company shall promptly indemnify the Manager from such costs and liabilities);

(f)retain counsel, consultants and other third party professionals on behalf of the Company;

(g)provide internal audit services as hereinafter provided;

(h)advise and assist with the Company’s risk management and oversight function;

(i)to the extent not covered above, advise and assist the Company in the review and negotiation of the Company’s contracts and agreements, coordination and supervision of all third party legal services and oversight of processing of claims by or against the Company;

(j)advise and assist the Company with respect to the Company’s public relations, preparation of marketing materials, internet website and investor relations services;

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(k)provide office space, office equipment and the use of accounting or computing equipment when required;

(l)advise and assist with respect to: the design, operation and maintenance of network infrastructure, including telephone and data transmission lines, voice mail, facsimile machines, cellular phones, pager, etc.; and local area network and wide area network communications support; and

(m)provide personnel necessary for the performance of the foregoing services.

In performing its services under this Agreement, the Manager may utilize facilities, personnel and support services of various of its affiliates.  The Manager shall be responsible for paying such affiliates for their personnel and support services and facilities out of its own funds unless otherwise approved by a majority vote of the Independent Trustees (the “IndependentTrustees”), as defined in the Company’s Declaration of Trust and Bylaws, in each case, as in effect from time to time (the “Declaration of Trust” and the “Bylaws”, respectively).  Notwithstanding the foregoing, fees, costs and expenses of any third party which is not an affiliate of the Manager retained as permitted hereunder are to be paid by the Company.  Without limiting the foregoing sentence, any such fees, cost or expenses referred to in the immediately preceding sentence which may be paid by the Manager shall be reimbursed to the Manager by the Company promptly following submission to the Company of a statement of any such fees, costs or expenses by the Manager.

Notwithstanding anything herein, it is understood and agreed that the duties of, and services to be provided by, the Manager pursuant to this Agreement shall not include any investment management or related services with respect to any assets of the Company as the Company may wish to allocate from time to time to investments in “securities” (as defined in the Investment Advisers Act of 1940, as amended).

In performing its services hereunder with respect to the Company, the Manager shall adhere to, and shall require its officers and employees in the course of providing such services to the Company to adhere to, the Company’s Code of Business Conduct and Ethics, as in effect from time to time.  In addition, the Manager shall make available to its officers and employees providing such services to the Company the procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters relating to the Company and for the confidential, anonymous submission by such officers and employees of concerns regarding questionable accounting or auditing matters relating to the Company, as set forth in the Company’s Procedures for Handling Concerns or Complaints about Accounting, Internal Accounting Controls or Auditing Matters, as in effect from time to time.

3.Bank Accounts.  The Manager shall establish and maintain one or more bank accounts in its own name or, at the direction of the Trustees, in the name of the Company, and

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shall collect and deposit into such account or accounts and disburse therefrom any monies on behalf of the Company, provided that no funds in any such account shall be commingled with any funds of the Manager or any other person or entity.  The Manager shall from time to time, or at any time requested by the Trustees, render an appropriate accounting of such collections and payments to the Trustees and to the auditors of the Company.

4.Records.  The Manager shall maintain appropriate books of account and records relating to this Agreement, which books of account and records shall be available for inspection by representatives of the Company upon reasonable notice during ordinary business hours.

5.Information Furnished to Manager.  The Trustees shall at all times keep the Manager fully informed with regard to the real estate investment policies of the Company, the capitalization policy of the Company, and generally the Trustees’ then-current intentions as to the future of the Company.  In particular, the Trustees shall notify the Manager promptly of their intention to sell or otherwise dispose of any of the Company’s real estate investments or to make any new real estate investment.  The Company shall furnish the Manager with such information with regard to its affairs as the Manager may from time to time reasonably request.  The Company shall retain legal counsel and accountants to provide such legal and accounting advice and services as the Manager or the Trustees shall deem necessary or appropriate to adequatelyperform the functions of the Company, and shall have such legal or accounting opinions and advice as the Manager shall reasonably request.

6.REIT Qualification; Compliance with Law and Organizational Documents.  Anything else in this Agreement to the contrary notwithstanding, the Manager shall refrain from any action (including, without limitation, the furnishing or rendering of services to tenants of property or managing real property) which, in its good faith judgment, or in the judgment of the Trustees as transmitted to the Manager in writing, would (a) adversely affect the qualification of the Company as a real estate investment trust as defined and limited in the Internal Revenue Code or which would make the Company subject to the Investment Company Act of 1940, as amended (the “1940 Act”), (b) violate any law or rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company or over its securities, or (c) not be permitted by the Declaration of Trust or Bylaws, except if such action shall be approved by the Trustees, in which event the Manager shall promptly notify the Trustees of the Manager’s judgment that such action would adversely affect such qualification, make the Company subject to the 1940 Act or violate any such law, rule, regulation or policy, or the Declaration of Trust or Bylaws and shall refrain from taking such action pending further clarification or instructions from the Trustees.  In addition, the Manager shall take such affirmative steps which, in its judgment made in good faith, or in the judgment of the Trustees as transmitted to the Manager in writing, would prevent or cure any action described in (a), (b) or (c) above.

7.Self-Dealing.  Neither the Manager nor any affiliate of the Manager shall sell any property or assets to the Company or purchase any property or assets from the Company, directly or indirectly, except as approved by a majority of the Independent Trustees (or otherwise pursuant to the Declaration of Trust or Bylaws).  In addition, except as otherwise provided in

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Section 2, 10, 11 or 12 hereof, or except as approved by a majority of the Independent Trustees (or otherwise pursuant to the Declaration of Trust or Bylaws), neither the Manager nor any affiliate of the Manager shall receive any commission or other remuneration, directly or indirectly, in connection with the activities of the Company or any joint venture or partnership in which the Company is a party.  Except for compensation received by the Manager pursuant to Section 10 hereof, all commissions or other remuneration proposed to be received by the Manager or an affiliate of the Manager and not approved by the Independent Trustees (or otherwise pursuant to the Declaration of Trust or Bylaws) under Section 2, 11 or 12 hereof or this Section 7 shall be promptly reported to the Company for consideration by the Independent Trustees.

8.No Partnership or Joint Venture.  The Company and the Manager are not partners or joint venturers with each other and neither the terms of this Agreement nor the fact that the Company and the Manager have joint interests in any one or more investments, ownership or other interests in any one or more entities or may have common officers or employees or a tenancy relationship shall be construed so as to make them such partners or joint venturers or impose any liability as such on either of them.

9.Fidelity Bond.  The Manager shall not be required to obtain or maintain a fidelity bond in connection with the performance of its services hereunder.

10.Compensation.

(a)The Manager shall be paid, for the services rendered by it to the Company pursuant to this Agreement, an annual management fee (the “Management Fee”).  The Management Fee for each full fiscal year shall equal the sum of (i) seven tenths of one percent (0.7%) of the Annual Average Invested Capital (as defined below) up to $250,000,000, plus (ii) one half of one percent (0.5%) of the Annual Average Invested Capital exceeding $250,000,000, plus (iii) one percent (1.0%) of the Annual Average Foreign Invested Capital.  The Management Fee shall be prorated for any partial fiscal year of the Company during the term of this Agreement.

(b)In addition, the Manager shall be paid an annual incentive fee (the “Incentive Fee”) for each fiscal year of the Company, consisting of a number of shares of the Company’s common shares of beneficial interest (“Common Shares”) with an aggregate value (determined as provided below) equal to fifteen percent (15%) of the product of (i) the weighted average Common Shares of the Company outstanding on a fully diluted basis during such fiscal year and (ii) the excess if any of FFO Per Share (as defined below) for such fiscal year over the FFO Per Share for the preceding fiscal year.  In no event shall the aggregate value of the Incentive Fee (as determined pursuant to the immediately preceding sentence) payable in respect of any fiscal year exceed $.01 (the “Per Share Amount”) multiplied by the weighted average number of Common Shares

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outstanding on a fully diluted basis during such fiscal year.  (The Management Fee and Incentive Fee are hereinafter collectively referred to as the “Fees”.)

(c)For purposes of this Agreement:  (i) “Annual Average Foreign Invested Capital” of the Company shall mean the average of the aggregate historical cost (calculated as provided below) of the Foreign Assets (as defined below), all before reserves for depreciation, amortization, impairment charges or bad debts or other similar noncash reserves, computed by taking the average of such values at the end of each month during such period; (ii) “Annual Average Invested Capital” of the Company shall mean the average of the aggregate historical cost of the consolidated assets of the Company and its subsidiaries, excluding the Foreign Assets, invested, directly or indirectly, in equity interests in or loans secured by real estate and personal property owned in connection with such real estate (including acquisition related costs and costs which may be allocated to intangibles or are unallocated), all before reserves for depreciation, amortization, impairment charges or bad debts or other similar noncash reserves, computed by taking the average of such values at the end of each month during such period, other than any such interest of the Company or its subsidiaries as a result of its ownership of the securities of the Company’s former subsidiary, Government Properties Income Trust (“GOV”); (iii) “FFO Per Share” for any fiscal year shall mean (x) the Company’s consolidated net income, computed in accordance with generally accepted accounting principles in the United States, excluding gain or loss on sale of properties, acquisition costs and extraordinary items, depreciation, amortization, impairment charges and other non-cash items, including the Company’s pro rata share of the funds from operations (determined in accordance with this clause) for such fiscal year of (A) any unconsolidated subsidiary and (B) any entity for which the Company accounts by the equity method of accounting but not including (C) any income, loss or funds from operations attributable to the Company’s or its subsidiaries’ equity investment in GOV, with such resulting net income amount reduced by, if applicable, the amount of anypreferred shares dividends declared or otherwise payable (without duplication) during such fiscal year, determined for these purposes as of the date any such preferred shares dividend amounts are accrued by the Company in accordance with generally accepted accounting principles in the United States divided by (y) the weighted average number of Common Shares outstanding on a fully diluted basis during such fiscal year; and (iv) “Foreign Assets” shall mean the consolidated assets of the Company and its subsidiaries invested, directly or indirectly, in equity interests in or loans secured by real estate and personal property owned in connection with such real estate (including acquisition related costs and costs which may be allocated to intangibles or are unallocated) located outside the United States, Puerto Rico and Canada.  It is agreed and understood that, for purposes of this agreement, GOV and its subsidiaries shall not constitute a subsidiary of the Company or its subsidiaries.

(d)For purposes of determining the Incentive Fee, if there shall occur a share split, dividend, subdivision, combination, consolidation or recapitalization with respect to the Common Shares during a fiscal year involved in such determination, the number of Common Shares outstanding during the relevant periods and the Per Share Amount shall

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be proportionally adjusted to give effect to such share split, dividend, subdivision, combination, consolidation or recapitalization as if it had occurred as of the first day of the earliest of the applicable fiscal years.

Notwithstanding anything in this Section 10 to the contrary, with respect to any consolidated asset, other than Foreign Assets, acquired by the Company or any of its subsidiaries from a RMR Managed Company (as that term is defined in Section 13 below), the “Annual Average Invested Capital” thereof on the date of acquisition shall equal the aggregate historical cost of such consolidated asset on the books of the applicable RMR Managed Company immediately prior to the contribution, sale or other transfer of such property to the Company or its subsidiaries (including acquisition related costs and costs which may be allocated to intangibles or are unallocated), all before reserves for depreciation, amortization, impairment charges or bad debts or other similar noncash reserves, and all subsequent adjustments shall be based on such historical cost.

With respect to Foreign Assets, the historical cost shall be determined in United States dollars, such amounts to be calculated on the date of acquisition or expenditure (with such date determined based on Eastern time) using the applicable United States dollar exchange rate as published in the United States edition of The Wall Street Journal on the date of such acquisition or expenditure.

Unless the Company and the Manager otherwise agree, the Management Fee shall be computed and payable monthly by the Company on a year to date basis, with adjustments to account for previous payments, within thirty (30) days following the end of each fiscal month, and the Incentive Fee shall be computed and payable within thirty (30) days following the public availability of the Company’s annual audited financial statements for each fiscal year.  Such computations of the Management Fee shall be based upon the Company’s monthly or quarterly financial statements, as the case may be, and such computations of the Incentive Fee shall be based upon the Company’s annual audited financial statements, and all such computations shallbe in reasonable detail.  A copy of such computations shall promptly be delivered to the Manager accompanied by payment of the Fees shown thereon to be due and payable.

The payment of the aggregate annual Fees payable for any fiscal year shall be subject to adjustment as of the end of each fiscal year. On or before the 30th day after public availability of the Company’s annual audited financial statements for each fiscal year, the Company shall deliver to the Manager an officer’s certificate (a “Certificate”) reasonably acceptable to the Manager and certified by an authorized officer of the Company setting forth (i) the Annual Average Invested Capital, Annual Average Foreign Invested Capital, and FFO Per Share for the Company’s fiscal year ended upon the immediately preceding December 31, and (ii) the Company’s computation of the Fees payable for said fiscal year.

If the aggregate annual Fees payable for said fiscal year as shown in such Certificate exceed the aggregate amounts previously paid with respect thereto by the Company, the

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Company shall include its check for such deficit and deliver the same to the Manager with such Certificate.

If the aggregate annual Fees payable for said fiscal year as shown in such Certificate are less than the aggregate amounts previously paid with respect thereto by the Company, the Company shall specify in such Certificate whether the Manager should (i) remit to the Company its check in an amount equal to such difference or (ii) grant the Company a credit against the Fees next coming due in the amount of such difference until such amount has been fully paid or otherwise discharged.

Payment of the Incentive Fee shall be made by issuance of Common Shares under the Company’s 2003 Incentive Share Award Plan, as the same may be amended from time to time.  The number of shares to be issued in payment of the Incentive Fee shall be the whole number of shares (disregarding any fraction) equal to the value of the Incentive Fee, as provided above, divided by the average closing price of the Company’s Common Shares on the New York Stock Exchange (or such other stock exchange upon which the Common Shares are principally listed for trading) during the month of December in the year for which the computation is made.

11.Internal Audit Services.    The Manager shall provide to the Company an internal audit function meeting applicable requirements of the New York Stock Exchange and the Securities and Exchange Commission and otherwise in scope approved by the Company’s Audit Committee.  In addition to the Fees, the Company agrees to reimburse the Manager, within 30 days of the receipt of the invoice therefor, the Company’s pro rata share (as reasonably agreed to by the Independent Trustees from time to time) of the following:

(a)employment expenses of the Manager’s internal audit manager and other employees of the Manager actively engaged in providing internal audit services, including but not limited to salary, wages, payroll taxes and the cost of employee benefit plans; and

(b)the reasonable travel and other out-of-pocket expenses of the Manager relating to the activities of the Manager’s internal audit manager and other of the Manager’s employees actively engaged in providing internal audit services and thereasonable third party expenses which the Manager incurs in connection with its provision of internal audit services.

12.Additional Services.   If, and to the extent that, the Company shall request the Manager to render services on behalf of the Company other than those required to be rendered by the Manager in accordance with the terms of this Agreement, such additional services shall be compensated separately on terms to be agreed upon between the Manager and the Company from time to time.

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13.Right of First Offer.

(a)Subject to the Company’s Declaration of Trust and Bylaws, the Company hereby agrees with the Manager that if the Company or any of its subsidiaries determines to offer, directly or indirectly, for sale or long term ground lease (each a “Sale”) any real property that, at such time, is of a type within a principal investment focus of another real estate investment trust to which the Manager at such time provides business management or property management services (such other company, a “RMR Managed Company”), then prior to offering such real property for Sale to any other person, the Company shall provide notice of such proposed Sale to such RMR Managed Company, describing such proposed Sale in sufficient detail (including expected pricing, payment or lease terms, closing date and other material terms) and offering such RMR Managed Company the right to purchase or lease such real property, and shall negotiate in good faith with such RMR Managed Company for such purchase or lease.  If within fifteen (15) days after the Company has provided to such RMR Managed Company the notice of an offer to effect a Sale of such real property, the Company and such RMR Managed Company have not reached agreement on the terms of such Sale, the Company (or its subsidiary, as applicable) will be free to sell such real property to any person upon the same or substantially similar terms as those contained in the written notice described above (but in any event for a purchase price that is not less than 90% of the expected price), free of the restrictions of this Section 13.

(b)Notwithstanding the above, the following Sales shall be excluded from the right of first offer referred to herein:

(i)A transfer of a real property to a governmental or quasi-governmental agency (an “Agency”) as part of a tax reduction or tax abatement program in which the Company or its subsidiary leases such real property back from such Agency; provided, however, a transfer or assignment of the Company’s or its subsidiary’s interest as tenant in the lease of the real property from such Agency shall be subject to the terms and conditions of this Agreement and the right of first offer granted herein;

(ii)A transfer of a real property to an entity that is wholly owned, directly or indirectly, by the Company;

(iii)A transfer of a real property to any tenant or other party having a right of first refusal or offer to purchase in effect on the date hereof (or in effect on the date such property is acquired by the Company or its subsidiary, as applicable) on theterms and conditions of such right of first refusal or offer to purchase or hereafter granted in a bona fide lease negotiation;

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(iv)A transfer of a real property to the appropriate condemning authority pursuant to eminent domain or under threat of eminent domain; and

(v)Any financing, reorganization, recapitalization, reclassification, exchange of shares or spin-offs to the Company’s shareholders, in each case where there is no change of control.

14.Expenses of the Manager.  Without regard to and without limiting the compensation received by the Manager from the Company pursuant to this Agreement and except to the extent provided by Sections 2, 11 or 12, the Manager shall bear the following expenses incurred in connection with the performance of its duties under this Agreement:

(a)employment expenses of the personnel employed by the Manager, including but not limited to, salaries, wages, payroll taxes and the cost of employee benefit plans;

(b)fees and travel and other expenses paid to directors, officers and employees of the Manager, except fees and travel and other expenses of such persons who are Trustees or officers of the Company incurred in their capacities as Trustees or officers of the Company;

(c)rent, telephone, utilities, office furniture, equipment and machinery (including computers, to the extent utilized) and other office expenses of the Manager, except to the extent such expenses relate solely to an office maintained by the Company separate from the office of the Manager; and

(d)miscellaneous administrative expenses relating to performance by the Manager of its obligations hereunder.

15.Expenses of the Company.  Except as expressly otherwise provided in this Agreement, the Company shall pay all its expenses not payable by the Manager, and, without limiting the generality of the foregoing, it is specifically agreed that the following expenses of the Company shall be paid by the Company and shall not be paid by the Manager:

(a)the cost of borrowed money;

(b)taxes on income and taxes and assessments on real and personal property, if any, and all other taxes applicable to the Company;

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(c)legal, auditing, accounting, underwriting, brokerage, listing, reporting, registration and other fees, and printing, engraving and other expenses and taxes incurred in connection with the issuance, distribution, transfer, trading, registration and stock exchange listing of the Company’s securities, including transfer agent’s, registrar’s and indenture trustee’s fees and charges;

(d)expenses of organizing, restructuring, reorganizing or terminating the Company, or of revising, amending, converting or modifying the Company’s organizational documents;

(e)fees and travel and other expenses paid to Trustees and officers of the Company in their capacities as such (but not in their capacities as officers or employees of the Manager) and fees and travel and other expenses paid to advisors, contractors, mortgage servicers, consultants, and other agents and independent contractors employed by or on behalf of the Company;

(f)expenses directly connected with the investigation, acquisition, disposition or ownership of real estate interests or other property (including third party property diligence costs, appraisal reporting, the costs of foreclosure, insurance premiums, legal services, brokerage and sales commissions, maintenance, repair, improvement and local management of property), other than expenses with respect thereto of employees of the Manager, to the extent that such expenses are to be borne by the Manager pursuant to Section 14 above;

(g)all insurance costs incurred in connection with the Company (including officer and trustee liability insurance) or in connection with any officer and trustee indemnity agreement to which the Company is a party;

(h)expenses connected with payments of dividends or interest or contributions in cash or any other form made or caused to be made by the Trustees to holders of securities of the Company;

(i)all expenses connected with communications to holders of securities of the Company and other bookkeeping and clerical work necessary to maintaining relations with holders of securities, including the cost of preparing, printing, posting, distributing and mailing certificates for securities and proxy solicitation materials and reports to holders of the Company’s securities;

(j)legal, accounting and auditing fees and expenses, other than those described in subsection (c) above;

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(k)filing and recording fees for regulatory or governmental filings, approvals and notices to the extent not otherwise covered by any of the foregoing items of this Section 15;

(l)expenses relating to any office or office facilities maintained by the Company separate from the office of the Manager; and

(m)the costs and expenses of all equity award or compensation plans or arrangements established by the Company, including the value of awards made by the Company to the Manager or its employees, if any.

16.Limits of Manager Responsibility; Indemnification; Company Remedies.  The Manager assumes no responsibility other than to render the services described herein ingood faith and shall not be responsible for any action of the Trustees in following or declining to follow any advice or recommendation of the Manager.  The Manager, its shareholders, directors, officers, employees and affiliates will not be liable to the Company, its shareholders, or others, except by reason of acts constituting bad faith, willful or wanton misconduct or gross negligence in the performance of its obligations hereunder.  The Company shall reimburse, indemnify and hold harmless the Manager, its shareholders, directors, officers and employees and its affiliates for and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including without limitation all reasonable attorneys’, accountants’ and experts’ fees and expenses) in respect of or arising from any acts or omissions of the Manager with respect to the provision of services by it or performance of its obligations in connection with this Agreement or performance of other matters pursuant to specific instruction by the Trustees, except to the extent such provision or performance was in willful bad faith or grossly negligent.  Without limiting the foregoing, the Company shall promptly advance expenses incurred by the indemnitees referred to in this section for matters referred to in this section, upon request for such advancement.

17.Other Activities of Manager.  Nothing herein shall prevent the Manager from engaging in other activities or businesses or from acting as the Manager to any other person or entity (including other real estate investment trusts) even though such person or entity has investment policies and objectives similar to those of the Company.  The Manager shall notify the Company in writing in the event that it does so act as a manager to another business.  The Company acknowledges that the Manager manages real estate investment trusts and other entities (including, as of the date of this Agreement, Hospitality Properties Trust, GOV, Senior Housing Properties Trust, Five Star Quality Care, Inc. and TravelCenters of America LLC) and that the Manager shall be free from any obligation to present to the Company any particular investment opportunity which comes to the Manager and the Manager is not required to present the Company with opportunities to invest in properties that are primarily of a type that are the investment focus of another person or entity now or in the future managed by the Manager.  In addition, nothing herein shall prevent any shareholder or affiliate of the Manager from engaging in any other business or from rendering services of any kind to any other person or entity (including competitive business activities).  The Company acknowledges and agrees that the

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Manager has certain interests that may be divergent from those of the Company.  The parties agree that these relationships and interests shall not affect either party’s rights and obligations under this Agreement.  Without limiting the foregoing provisions, the Manager agrees, upon the request of any Trustee, to disclose certain real estate investment information concerning the Manager or certain of its affiliates; provided, however, that such disclosure shall be required only if it does not constitute a breach of any fiduciary duty or obligation of the Manager and the Company shall be required to keep such information confidential.

Directors, officers, employees and agents of the Manager or of its affiliates may serve as Trustees, officers, employees, agents, nominees or signatories of the Company.  When executing documents or otherwise acting in such capacities for the Company, such persons shall use their respective titles in the Company.  Such persons shall receive no compensation from the Company for their services to the Company in any such capacities, except that the Company may make awards to the employees of the Manager and others under the Company’s 2003 Incentive Share Award Plan or any equity plan adopted by the Company from time to time.

18.Term, Termination.  This Agreement shall continue in force and effect until December 31, 2011, and shall be automatically renewed for successive one year terms annually thereafter unless notice of non-renewal is given by the Company or the Manager before the end of the term.  It is expected that the terms and conditions may be reviewed by the Independent Trustees of the Compensation Committee of the Board of Trustees of the Company at least annually.

Notwithstanding any other provision of this Agreement to the contrary, this Agreement, or any extension thereof, may be terminated by either party hereto upon sixty (60) days’ written notice to the other party, which termination, if by the Company, must be approved by a majority vote of the Independent Trustees serving on the Compensation Committee of the Board of Trustees of the Company, or if by the Manager, must be approved by a majority vote of the directors of the Manager.

Section 19 hereof shall govern the rights, liabilities and obligations of the parties upon termination of this Agreement; and, except as provided in Sections 16 and 19, such termination shall be without further liability of either party to the other, other than for breach or violation of this Agreement prior to termination.

19.Action Upon Termination.  From and after the effective date of any termination of this Agreement pursuant to Section 18 hereof, the Manager shall be entitled to no compensation for services rendered hereunder for the pro-rata remainder of the then-current term of this Agreement, but shall be paid, on a pro rata basis as set forth in this Section 19, all compensation due for services performed prior to the effective date of such termination, including without limitation, a pro-rata portion of the current year’s Incentive Fee. Upon such termination, the Manager shall as promptly as practicable:

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(a)pay over to the Company all monies collected and held for the account of the Company by it pursuant to this Agreement, after deducting therefrom any accrued Fees  and reimbursements for its expenses to which it is then entitled;

(b)deliver to the Trustees a full and complete accounting, including a statement showing all sums collected by it and a statement of all sums held by it for the period commencing with the date following the date of its last accounting to the Trustees; and

(c)deliver to the Trustees all property and documents of the Company then in its custody or possession.

The amount of Fees paid to the Manager upon termination shall be subject to adjustment pursuant to the following mechanism.  On or before the 30th day after public availability of the Company’s annual audited financial statements for the fiscal year in which termination occurs, the Company shall deliver to the Manager a Certificate reasonably acceptable to the Manager and certified by an authorized officer of the Company setting forth (i) the Annual Average Invested Capital, Annual Average Foreign Invested Capital, and FFO Per Share for the Company’s fiscal year ended upon the immediately preceding December 31, and (ii) the Company’s computation of the Fees payable upon the date of termination.

If the annual Fees owed upon termination as shown in such Certificate exceed the Fees paid by the Company upon termination, the Company shall include its check for such deficit and deliver the same to the Manager with such Certificate.  If the annual Fees owed upon termination as shown in such Certificate are less than the Fees paid by the Company upon termination, the Manager shall remit to the Company its check in an amount equal to such difference.

The Incentive Fee for any partial fiscal year will be determined by multiplying the Incentive Fee for such year (assuming this Agreement were in effect for the entire year) by a fraction, the numerator of which is the number of days in the portion of such year during which this Agreement was in effect, and the denominator of which shall be 365.

20.Trustee Action.  Wherever action on the part of the Trustees is contemplated by this Agreement, action by a majority of the Trustees, including a majority of the Independent Trustees, shall constitute the action provided for herein.

21.TRUSTEES AND SHAREHOLDERS NOT LIABLE.  THE DECLARATION OF TRUST OF THE COMPANY, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS, IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND PROVIDES THAT THE NAME HRPT PROPERTIES TRUST REFERS TO THE TRUSTEES COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY.  NO TRUSTEE, OFFICER,

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SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY.  ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

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

If to the Company:

CommonWealth REIT
Two Newton Place

255 Washington Street, Suite 300
Newton, Massachusetts 02458
Attention:  Chief Financial Officer
Facsimile No.:  (617) 332-2261

If to the Manager:

Reit Management & Research LLC
Two Newton Place

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

23.Amendments.  This Agreement shall not be amended, changed, modified, terminated, or discharged in whole or in part except by an instrument in writing signed by each of the parties hereto, or by their respective successors or assigns, or otherwise as provided herein.

24.Assignment.  Neither party may assign this Agreement or its rights hereunder or delegate its duties hereunder without the written consent of the other party, except in the case of an assignment by the Manager to a corporation, partnership, limited liability company, association, trust, or other successor entity which may take over the property and carry on the affairs of the Manager and which remains under the control of the same persons who control the Manager.

25.Successors and Assigns.  This Agreement shall be binding upon any successors or permitted assigns of the parties hereto as provided herein.

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26.No Third Party Beneficiary.  Except as otherwise provided in Section 28(i), no person or entity other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement.

27.Governing Law.  The provisions of this Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts.

28.Arbitration.

(a)Any disputes, claims or controversies between the parties (i) arising out of or relating to this Agreement or the provision of services by the Manager pursuant to this Agreement, or (ii) brought by or on behalf of any shareholder of the Company (which, for purposes of this Section 28, 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 Manager 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 28.  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 thoseindividuals or entities and the Company.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.

(b)There shall be three arbitrators.  If there are only two parties to the Dispute, each party shall select one arbitrator within 15 days after receipt by respondent of a copy of the demand for arbitration.  Such arbitrators may be affiliated or interested persons of such parties.  If either party fails to timely select an arbitrator, the other party to the Dispute shall select the second arbitrator who shall be neutral and impartial and shall not be affiliated with or an interested person of either party.  If there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one arbitrator.  Such arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be.  If either all claimants or all respondents fail to timely select an arbitrator then such arbitrator (who shall be neutral, impartial and unaffiliated with any party) shall be appointed by the parties who have appointed the first arbitrator.  The two arbitrators so appointed shall jointly appoint the third and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any

16

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.

(e)In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of The Commonwealth of Massachusetts.  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 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, 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.

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

(i)This Section 28 is intended to benefit and be enforceable by the shareholders, directors, officers, managers (including the Manager or its successor), agents or employees of the Company and the Company and shall be binding on the shareholders of the Company and the Company, as applicable, and shall be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

29.Consent to Jurisdiction and Forum.  This Section 29 is subject to, and shall not in any way limit the application of, Section 28; in case of any conflict between this Section 29 and Section 28, Section 28 shall govern.  The exclusive jurisdiction and venue in any action brought by any party hereto pursuant to this Agreement shall lie in any federal or state court located in Boston, Massachusetts.  By execution and delivery of this Agreement, each party hereto irrevocably submits to the jurisdiction of such courts for itself and in respect of its property with respect to such action. The parties irrevocably agree that venue would be proper in such court, and hereby waive any objection that such court is an improper or inconvenient forum for the resolution of such action.  The parties further agree and consent to the service of any process required by any such court by delivery of a copy thereof in accordance with Section 22 and that any such delivery shall constitute valid and lawful service of process against it, without necessity for service by any other means provided by statute or rule of court.

30.Captions.  The captions included herein have been inserted for ease of reference only and shall not be construed to affect the meaning, construction or effect of this Agreement.

31.Entire Agreement.  This Agreement and the Advisory Agreement constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersede and cancel any pre-existing agreements with respect to such subject matter.

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

33.Survival.  The provisions of Sections 2 (limited to the obligation of the Company to indemnify the Manager for matters provided thereunder), 16, 17 (limited to the obligations of the Company to keep information provided to the Company by the Manager confidential as

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provided in the last proviso in such Section), 18 (limited to the last paragraph of such Section), 19, 21, 22, 26, 27, 28, 29, and 33 of this Agreement shall survive the termination hereof.

34.Prior Agreement.  This Agreement amends and restates the Prior Agreement in its entirety, effective as of the date hereof.  All references to the Prior Agreement in any agreement, instrument or document executed or delivered in connection herewith or therewith, including, for the avoidance of doubt, the letter from the Manager to the Company, dated October 29, 2010 regarding the Business and Property Management Agreement between the Company and MacarthurCook Fund Management Limited, shall be deemed to refer to this Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time.

35.Other Agreements.The parties hereto are also parties to an Amended and Restated Property Management Agreement, dated as of January 21, 2010, (as amended, the “Property Management Agreement”).  The parties agree that this Agreement does not include or otherwise address the rights and obligations of the parties under the Property Management Agreement and that the Property Management Agreement provides for its own separate rights and obligations of the parties thereto, including without limitation separate compensation payable by the Company and the other Owners (as defined in the Property Management Agreement) to the Manager thereunder for services to be provided by the Manager pursuant to the Property Management Agreement.

[Signature Page To Follow]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers, under seal, as of the day and year first above written.

COMMONWEALTH REIT
By:	/s/ John C. Popeo
	Name:  John C. Popeo
	Title:  Treasurer and Chief Financial Officer
REIT MANAGEMENT & RESEARCH LLC
By:	/s/ Adam D. Portnoy
	Name: Adam D. Portnoy
	Title: President

[Signature Page to Amended and Restated Business Management Agreement]

EX-12.1

Exhibit 12.1

COMMONWEALTH REIT

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(dollars in thousands)

	Nine Months Ended September 30,						Year Ended December 31,
	2011			2010(1)			2010(1)			2009(1)			2008(1)		2007(1)			2006(1)
Earnings:
Income from continuing operations	$	60,008		$	57,572		$	39,374		$	72,429		$	58,865	$	64,733		$	195,695
Equity in earnings and gains on equity transactions of investees	(19,567		)	(41,451		)	(43,272		)	(6,546		)	—		—			(119,423		)
Fixed charges	145,037			137,506			183,433			173,458			180,553		171,571			165,894
Distributions from investees	12,438			12,039			16,119			4,975			—		—			5,387
Capitalized interest	—			—			—			—			—		(489		)	(335		)
Adjusted Earnings	$	197,916		$	165,666		$	195,654		$	244,316		$	239,418	$	235,815		$	247,218
Fixed Charges:
Interest expense (including net amortization of debt discounts, premiums and deferred financing fees)	$	145,037		$	137,506		$	183,433		$	173,458		$	180,553	$	171,571		$	165,894
Capitalized interest	—			—			—			—			—		489			335
Total Fixed Charges	$	145,037		$	137,506		$	183,433		$	173,458		$	180,553	$	172,060		$	166,229
Ratio of Earnings to Fixed Charges	1.4x			1.2x			1.1x			1.4x			1.3x		1.4x			1.5x

(1)       Reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation.

EX-12.2

Exhibit 12.2

COMMONWEALTH REIT

COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS

(dollars in thousands)

	Nine Months Ended September 30,						Year Ended December 31,
	2011			2010(1)			2010(1)			2009(1)			2008(1)		2007(1)			2006(1)
Earnings:
Income from continuing operations	$	60,008		$	57,572		$	39,374		$	72,429		$	58,865	$	64,733		$	195,695
Equity in earnings and gains on equity transactions of investees	(19,567		)	(41,451		)	(43,272		)	(6,546		)	—		—			(119,423		)
Fixed charges before preferred distributions	145,037			137,506			183,433			173,458			180,553		171,571			165,894
Distributions from investees	12,438			12,039			16,119			4,975			—		—			5,387
Capitalized interest	—			—			—			—			—		(489		)	(335		)
Adjusted Earnings	$	197,916		$	165,666		$	195,654		$	244,316		$	239,418	$	235,815		$	247,218
Fixed Charges and Preferred Distributions:
Interest expense (including net amortization of debt discounts, premiums and deferred financing fees)	$	145,037		$	137,506		$	183,433		$	173,458		$	180,553	$	171,571		$	165,894
Capitalized interest	—			—			—			—			—		489			335
Preferred distributions	33,162			38,001			47,733			50,668			50,668		60,572			44,692
Combined Fixed Charges and Preferred Distributions	$	178,199		$	175,507		$	231,166		$	224,126		$	231,221	$	232,632		$	210,921
Ratio of Earnings to Combined Fixed Charges and Preferred Distributions	1.1x			0.9x			0.8x			1.1x			1.0x		1.0x			1.2x

(1)Reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation.

EX-31.1

EXHIBIT 31.1

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 CommonWealth 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

Date:	November 7, 2011	/s/ Adam D. Portnoy
		Adam D. Portnoy
		President and Managing Trustee

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 CommonWealth 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

Date:	November 7, 2011	/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 CommonWealth 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

Date:	November 7, 2011	/s/ Barry M. Portnoy
		Barry M. Portnoy
		Managing Trustee

EX-32.1

Exhibit 32.1

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

(Section 906 of the Sarbanes — Oxley Act of 2002)

In connection with the filing by CommonWealth REIT (the “Company”) of the Quarterly Report on Form 10-Q for the period ended September 30, 2011 (the “Report”), each of the undersigned hereby certifies, to the best of his knowledge:

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

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

/s/ Barry M. Portnoy	/s/ Adam D. Portnoy
Barry M. Portnoy	Adam D. Portnoy
Managing Trustee	President and Managing Trustee
/s/ John C. Popeo
John C. Popeo
Treasurer and Chief Financial Officer

Date:  November 7, 2011

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Rental income	$ 238,790	$ 193,059	$ 662,596	$ 572,205
Expenses:
Operating expenses	100,912	83,023	275,760	240,280
Depreciation and amortization	56,389	42,794	159,072	130,560
General and administrative	11,450	9,704	33,559	28,081
Loss on asset impairment				21,491
Acquisition related costs	4,805	1,559	9,722	2,965
Total expenses	173,556	137,080	478,113	423,377
Operating income	65,234	55,979	184,483	148,828
Interest and other income	369	571	1,428	2,134
Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $1,515, $1,784, $5,467 and $5,260, respectively)	(49,423)	(44,192)	(145,037)	(133,716)
Gain (loss) on early extinguishment of debt	310	(796)	310	(796)
Equity in earnings of investees	2,768	1,999	8,390	6,643
Gain on issuance of shares by an equity investee	11,177	18,390	11,177	34,808
Income from continuing operations before income tax expense	30,435	31,951	60,751	57,901
Income tax (expense) benefit	(307)	34	(743)	(329)
Income from continuing operations	30,128	31,985	60,008	57,572
Discontinued operations:
Income from discontinued operations	653	6,673	2,777	16,877
Loss on asset impairment from discontinued operations	(9,247)		(9,247)
Loss on early extinguishment of debt from discontinued operations		(248)		(248)
Gain on sale of properties from discontinued operations	7,001	4,568	41,573	4,568
Income before gain on sale of properties	28,535	42,978	95,111	78,769
Gain on sale of properties		22,832		34,336
Net income	28,535	65,810	95,111	113,105
Preferred distributions	(13,823)	(12,667)	(33,162)	(38,001)
Net income available for common shareholders	$ 14,712	$ 53,143	$ 61,949	$ 75,104
Weighted average common shares outstanding - basic (in shares)	81,536	65,173	75,307	62,198
Weighted average common shares outstanding - diluted (in shares)	88,834	72,471	82,605	69,496
Basic and diluted earnings per common share:
Income from continuing operations available for common shareholders (in dollars per share)	$ 0.20	$ 0.65	$ 0.36	$ 0.87
(Loss) income from discontinued operations (in dollars per share)	$ (0.02)	$ 0.17	$ 0.47	$ 0.34
Net income available for common shareholders (in dollars per share)	$ 0.18	$ 0.82	$ 0.82	$ 1.21

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Parenthetical) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Amortization of debt discounts, premiums and deferred financing fees	$ 1,515	$ 1,784	$ 5,467	$ 5,260

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Equity Investments (Tables)

9 Months Ended

Sep. 30, 2011

Equity Investments

Schedule of equity investments

	Ownership Percentage				Equity Investments				Equity in Earnings (Loss)
	September 30,		December 31,		September 30,		December 31,		Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010		2011		2010		2011		2010
GOV	21.1	%	24.6	%	$	173,407	$	166,388	$	2,740	$	1,964	$	8,279	$	6,660
AIC	14.3	%	14.3	%	5,245		5,076		28		35		111		(17		)
					$	178,652	$	171,464	$	2,768	$	1,999	$	8,390	$	6,643

Schedule of summarized balance sheet information of equity method investee

	September 30, 2011		December 31, 2010
Real estate properties, net	$	1,104,560	$	846,447
Acquired real estate leases, net	103,901		60,097
Cash and cash equivalents	5,724		2,437
Rents receivable, net	22,096		19,200
Other assets, net	30,387		23,107
Total assets	$	1,266,668	$	951,288
Revolving credit facility	$	282,500	$	118,000
Mortgage notes payable	45,608		46,428
Assumed real estate lease obligations, net	11,853		13,679
Other liabilities	28,518		15,784
Shareholders’ equity	898,189		757,397
Total liabilities and shareholders’ equity	$	1,266,668	$	951,288

Schedule of summarized income statement information of equity method investee

Income Statements:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Rental income	$	45,719		$	30,746		$	126,718		$	80,040
Operating expenses	(16,951		)	(11,275		)	(46,937		)	(27,537		)
Depreciation and amortization	(10,379		)	(6,321		)	(27,862		)	(16,602		)
Acquisition related costs	(1,008		)	(2,687		)	(2,846		)	(4,542		)
General and administrative	(2,746		)	(1,833		)	(7,655		)	(4,915		)
Operating income	14,635			8,630			41,418			26,444
Interest and other income	54			12			89			80
Interest expense	(3,162		)	(1,973		)	(8,775		)	(5,182		)
Equity in earnings (losses) of an investee	28			35			111			(17		)
Income before income tax expense	11,555			6,704			32,843			21,325
Income tax benefit (expense)	8			(35		)	(94		)	(71		)
Net income	$	11,563		$	6,669		$	32,749		$	21,254
Weighted average common shares outstanding	45,322			36,369			42,127			32,265
Net income per common share	$	0.26		$	0.18		$	0.78		$	0.66

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
Real estate properties:
Land	$ 1,445,301	$ 1,339,133
Buildings and improvements	5,746,893	5,018,125
Total real estate properties, at cost, gross	7,192,194	6,357,258
Accumulated depreciation	(932,293)	(850,261)
Total real estate properties, at cost, net	6,259,901	5,506,997
Properties held for sale	43,573	114,426
Acquired real estate leases, net	360,293	233,913
Equity investments	178,652	171,464
Cash and cash equivalents	210,673	194,040
Restricted cash	10,102	5,082
Rents receivable, net of allowance for doubtful accounts of $12,421 and $12,550, respectively	212,737	191,237
Other assets, net	182,259	171,380
Total assets	7,458,190	6,588,539
LIABILITIES AND SHAREHOLDERS' EQUITY
Revolving credit facility	235,000
Senior unsecured debt, net	2,687,600	2,854,540
Mortgage notes payable, net	633,935	351,526
Liabilities related to properties held for sale	463	1,492
Accounts payable and accrued expenses	148,525	123,842
Assumed real estate lease obligations, net	72,619	65,940
Rent collected in advance	35,593	27,988
Security deposits	23,710	22,523
Due to related persons	28,448	8,998
Total liabilities	3,865,893	3,456,849
Common shares of beneficial interest, $0.01 par value:
Common shares of beneficial interest, $0.01 par value: 350,000,000 shares authorized; 83,721,736 and 72,138,686 shares issued and outstanding, respectively	837	721
Additional paid in capital	3,613,828	3,348,849
Cumulative net income	2,467,448	2,372,337
Cumulative other comprehensive (loss) income	(21,489)	4,706
Cumulative common distributions	(2,784,169)	(2,675,956)
Cumulative preferred distributions	(462,834)	(432,252)
Total shareholders' equity	3,592,297	3,131,690
Total liabilities and shareholders' equity	7,458,190	6,588,539
Series C
50,000,000 shares authorized;
Preferred shares of beneficial interest, $0.01 par value:	145,015	145,015
Series D
50,000,000 shares authorized;
Preferred shares of beneficial interest, $0.01 par value:	368,270	368,270
Series E
50,000,000 shares authorized;
Preferred shares of beneficial interest, $0.01 par value:	$ 265,391

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2011

Segment Information

Property level information by geographic segment and property type, property square feet

	As of September 30, 2011				As of September 30, 2010
	CBD Office	Suburban Office	Industrial & Other	Totals	CBD Office	Suburban Office	Industrial & Other	Totals
Property square feet (in thousands):
Metro Philadelphia, PA	4,591	462	—	5,053	4,592	462	—	5,054
Oahu, HI	—	—	17,896	17,896	—	—	17,914	17,914
Metro Chicago, IL	2,582	1,164	104	3,850	—	532	104	636
Metro Washington, DC	428	1,216	—	1,644	428	1,067	—	1,495
Metro Denver, CO	672	789	553	2,014	672	788	553	2,013
Australia	314	—	1,442	1,756	—	—	—	—
Other Markets	9,067	17,629	10,490	37,186	6,423	15,582	10,313	32,318
Totals	17,654	21,260	30,485	69,399	12,115	18,431	28,884	59,430

Property level information, excluding discontinued operations, property rental income and net operating income

	Three Months Ended September 30, 2011								Three Months Ended September 30, 2010
	CBD Office		Suburban Office		Industrial & Other		Totals		CBD Office		Suburban Office		Industrial & Other		Totals
Property rental income:
Metro Philadelphia, PA	$	29,169	$	1,378	$	—	$	30,547	$	27,920	$	1,872	$	—	$	29,792
Oahu, HI	—		—		18,190		18,190		—		—		18,114		18,114
Metro Chicago, IL	14,272		6,783		111		21,166		—		3,441		116		3,557
Metro Washington, DC	4,726		8,772		—		13,498		4,284		7,471		—		11,755
Metro Denver, CO	4,998		4,005		2,324		11,327		5,238		3,778		2,124		11,140
Australia	5,265		—		3,230		8,495		—		—		—		—
Other Markets	46,569		72,330		16,668		135,567		38,210		63,731		16,760		118,701
Totals	$	104,999	$	93,268	$	40,523	$	238,790	$	75,652	$	80,293	$	37,114	$	193,059
Property net operating income:
Metro Philadelphia, PA	$	14,854	$	249	$	—	$	15,103	$	14,112	$	674	$	—	$	14,786
Oahu, HI	—		—		13,588		13,588		—		—		13,542		13,542
Metro Chicago, IL	8,044		3,683		104		11,831		—		2,429		101		2,530
Metro Washington, DC	3,942		5,957		—		9,899		2,747		4,372		—		7,119
Metro Denver, CO	3,136		3,085		1,191		7,412		3,409		2,773		1,201		7,383
Australia	4,296		—		2,438		6,734		—		—		—		—
Other Markets	22,613		39,667		11,031		73,311		17,727		34,759		12,190		64,676
Totals	$	56,885	$	52,641	$	28,352	$	137,878	$	37,995	$	45,007	$	27,034	$	110,036

	Nine Months Ended September 30, 2011								Nine Months Ended September 30, 2010
	CBD Office		Suburban Office		Industrial & Other		Totals		CBD Office		Suburban Office		Industrial & Other		Totals
Property rental income:
Metro Philadelphia, PA	$	85,779	$	3,957	$	—	$	89,736	$	84,165	$	5,522	$	—	$	89,687
Oahu, HI	—		—		54,872		54,872		—		—		54,457		54,457
Metro Chicago, IL	18,351		21,710		347		40,408		—		9,651		366		10,017
Metro Washington, DC	11,503		20,975		—		32,478		14,655		22,371		—		37,026
Metro Denver, CO	16,040		10,954		6,674		33,668		15,715		8,999		6,233		30,947
Australia	16,193		—		9,322		25,515		—		—		—		—
Other Markets	127,514		210,596		47,809		385,919		114,180		186,430		49,461		350,071
Totals	$	275,380	$	268,192	$	119,024	$	662,596	$	228,715	$	232,973	$	110,517	$	572,205
Property net operating income:
Metro Philadelphia, PA	$	43,919	$	384	$	—	$	44,303	$	43,066	$	1,965	$	—	$	45,031
Oahu, HI	—		—		40,803		40,803		—		—		40,569		40,569
Metro Chicago, IL	10,225		12,787		317		23,329		—		6,759		302		7,061
Metro Washington, DC	8,869		13,378		—		22,247		9,803		13,028		—		22,831
Metro Denver, CO	10,455		8,640		3,671		22,766		10,526		6,399		3,592		20,517
Australia	13,299		—		6,862		20,161		—		—		—		—
Other Markets	63,339		117,922		31,966		213,227		55,197		104,336		36,383		195,916
Totals	$	150,106	$	153,111	$	83,619	$	386,836	$	118,592	$	132,487	$	80,846	$	331,925

Reconciliation of NOI to net income

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Rental income	$	238,790		$	193,059		$	662,596		$	572,205
Operating expenses	(100,912		)	(83,023		)	(275,760		)	(240,280		)
Property net operating income (NOI)	$	137,878		$	110,036		$	386,836		$	331,925
Property NOI	$	137,878		$	110,036		$	386,836		$	331,925
Depreciation and amortization	(56,389		)	(42,794		)	(159,072		)	(130,560		)
General and administrative	(11,450		)	(9,704		)	(33,559		)	(28,081		)
Loss on asset impairment	—			—			—			(21,491		)
Acquisition related costs	(4,805		)	(1,559		)	(9,722		)	(2,965		)
Operating income	65,234			55,979			184,483			148,828
Interest and other income	369			571			1,428			2,134
Interest expense	(49,423		)	(44,192		)	(145,037		)	(133,716		)
Gain (loss) on early extinguishment of debt	310			(796		)	310			(796		)
Equity in earnings of investees	2,768			1,999			8,390			6,643
Gain on issuance of shares by an equity investee	11,177			18,390			11,177			34,808
Income from continuing operations before income tax expense	30,435			31,951			60,751			57,901
Income tax (expense) benefit	(307		)	34			(743		)	(329		)
Income from continuing operations	30,128			31,985			60,008			57,572
Income from discontinued operations	653			6,673			2,777			16,877
Loss on asset impairment from discontinuing operations	(9,247		)	—			(9,247		)	—
Loss on early extinguishment of debt from discontinued operations	—			(248		)	—			(248		)
Gain on sale of properties from discontinued operations	7,001			4,568			41,573			4,568
Income before gain on sale of properties	28,535			42,978			95,111			78,769
Gain on sale of properties	—			22,832			—			34,336
Net income	$	28,535		$	65,810		$	95,111		$	113,105

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2011	Nov. 02, 2011
Document and Entity Information
Entity Registrant Name	CommonWealth REIT
Entity Central Index Key	0000803649
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		83,721,736
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3

XML

Indebtedness

9 Months Ended

Sep. 30, 2011

Indebtedness

Indebtedness

Note 7.  Indebtedness

In March 2011, we repaid at maturity all $168,219 of our floating rate senior notes using borrowings under our revolving credit facility.  In June 2011, we repaid at maturity $29,188 of 7.435% mortgage debt using cash on hand.  In July 2011, we prepaid at par plus a premium $23,168 of 8.05% mortgage debt due in 2012 using cash on hand and proceeds from our common share offering completed in July 2011.  In connection with the mortgage prepaid in July 2011, we recorded a net gain on early extinguishment of debt of $310 from the write off of unamortized premiums and deferred financing fees.

In June 2011, we assumed mortgages on four properties totaling $14,960, which were recorded at a combined fair value of $15,894, in connection with our acquisition of those properties.  These debts bear interest at a weighted average rate of 6.35%, require monthly principal and interest payments and mature in 2012 and 2015.  In June 2011, we assumed $41,275 of mortgage debt, which was recorded at its fair value of $44,560, in connection with another acquisition.  This mortgage debt bears interest at 5.67%, requires monthly interest payments and matures in 2017.  In August 2011, we assumed $265,000 of mortgage debt, which was recorded at its fair value of $278,671, in connection with another acquisition.  This mortgage debt bears interest at 5.68%, requires monthly interest payments and matures in 2017.

At September 30, 2011, 23 properties costing $913,746 with an aggregate net book value of $804,357 were secured by mortgage notes totaling $633,935 (net of discounts and premiums) maturing from 2012 through 2027.

During October 2011, our $750,000 unsecured revolving credit facility that we use for acquisitions, working capital and general business purposes was amended.  Prior to this amendment, our credit facility matured on August 8, 2013 and included a conditional option for us to extend the facility for one year to August 8, 2014.  The October 2011 amendment extended the maturity date from August 8, 2013 to October 19, 2015, with an option to extend the facility an additional year to October 19, 2016, subject to satisfaction of certain conditions.  The amendment also reduced the interest rate paid on our borrowings under the revolving credit facility from LIBOR plus 200 basis points to LIBOR plus 125 basis points, subject to adjustments based on our credit ratings.  In addition, the amended revolving credit facility includes a feature under which our maximum borrowings can be increased up to $1,500,000 in certain circumstances.  The interest rate on our revolving credit facility averaged 2.2% and 1.5% per annum for the nine months ended September 30, 2011 and 2010, respectively.  As of September 30, 2011, we had $235,000 outstanding and $515,000 available under our revolving credit facility.

In October 2011, our existing term loan which had a principal balance of $400,000 at September 30, 2011 was amended.  Prior to this amendment, our term loan had a maturity date of December 15, 2015 and an interest rate set at LIBOR plus 200 basis points, subject to adjustments based on changes to our credit ratings.  The October 2011 amendment increased borrowings to $557,000 and, for $500,000 of the term loan, eliminated the prepayment premium, extended the maturity date to December 15, 2016, and reduced interest we pay on borrowings to LIBOR plus 150 basis points, subject to adjustments based on changes to our credit ratings.  In addition, the amended term loan includes a feature under which maximum borrowings may be increased by up to $1,000,000 in certain circumstances.  Three lenders representing $57,000 of aggregate borrowings were unable to commit to the amended term loan.  Accordingly, these three lenders will be subject to the terms of the old term loan and we have agreed to repay these lenders in December 2012 when there will be no prepayment penalty.

Our public debt indentures, our credit facility agreement and our term loan agreement contain a number of financial and other covenants, including a credit facility and term loan covenant that restricts our ability to make distributions under certain circumstances.  At September 30, 2011, we believe we were in compliance with all of our covenants under our public debt indentures, our revolving credit facility and term loan agreements.

XML

Pro Forma Information (Tables)

9 Months Ended

Sep. 30, 2011

Pro Forma Information

Schedule of pro forma results of operations

	Nine Months Ended September 30,
	2011		2010
Total revenues	$	727,786	$	686,463
Income from continuing operations	$	72,069	$	61,749
Per share data:
Income from continuing operations	$	0.52	$	0.93

XML

Segment Information (Details 2) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Segment Information
Rental income	$ 238,790	$ 193,059	$ 662,596	$ 572,205
Operating expenses	(100,912)	(83,023)	(275,760)	(240,280)
Property net operating income (NOI)	137,878	110,036	386,836	331,925
Reconciliation of NOI to net income
Property NOI	137,878	110,036	386,836	331,925
Depreciation and amortization	(56,389)	(42,794)	(159,072)	(130,560)
General and administrative	(11,450)	(9,704)	(33,559)	(28,081)
Loss on asset impairment				(21,491)
Acquisition related costs	(4,805)	(1,559)	(9,722)	(2,965)
Operating income	65,234	55,979	184,483	148,828
Interest and other income	369	571	1,428	2,134
Interest expense	(49,423)	(44,192)	(145,037)	(133,716)
Gain (loss) on early extinguishment of debt	310	(796)	310	(796)
Equity in earnings of investees	2,768	1,999	8,390	6,643
Gain on issuance of shares by an equity investee	11,177	18,390	11,177	34,808
Income (loss) from continuing operations before income tax expense	30,435	31,951	60,751	57,901
Income tax (expense) benefit	(307)	34	(743)	(329)
Income (loss) from continuing operations	30,128	31,985	60,008	57,572
Income from discontinued operations	653	6,673	2,777	16,877
Loss on asset impairment from discontinued operations	(9,247)		(9,247)
Gain on sale of properties from discontinued operations	7,001	4,568	41,573	4,568
Income before gain on sale of properties	28,535	42,978	95,111	78,769
Gain on sale of properties		22,832		34,336
Net income	28,535	65,810	95,111	113,105
Loss on early extinguishment of debt from discontinued operations		$ (248)		$ (248)

XML

Income Taxes (Details) (USD $) In Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2011
Income Taxes
Current income tax expense	$ 206	$ 971
Current foreign income tax expense	88	564
Current state income tax expense	118	407
Deferred tax provision	101	101
Recognized deferred tax provision (benefit)	$ 228	$ 228

XML

Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2011

Fair Value of Assets and Liabilities

Schedule of assets and liabilities measured at fair value

				Fair Value at Reporting Date Using
Description	Total			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Recurring Fair Value Measurements:
Effective portion of interest rate contracts (1)	$	(15,607	)	$	(15,607	)	$	—
Non-recurring Fair Value Measurements:
Properties held for sale (2)	$	33,033		$	24,813		$	8,220

(1)       The fair value of our interest rate swap contracts is determined using the net discounted cash flows of the expected cash flows of each derivative based on the market based interest rate curve (level 2 inputs) and adjusted for our credit spread and the actual and estimated credit spreads of the counterparties (level 3 inputs).  Although we have determined that the majority of the inputs used to value our derivatives fall within level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and the counterparties.  As of September 30, 2011, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.  As a result, we have determined that our derivative valuations in their entirety are classified as level 2 inputs in the fair value hierarchy.

(2)       Properties held for sale that were adjusted to fair value at September 30, 2011 includes six office properties and 20 industrial & other properties that we expect to sell within one year.  We recorded losses on asset impairment at these properties during the third quarter of 2011 of $9,247 to reduce the carrying value of these properties from $42,280 to their estimated fair value less costs to sell of $33,033.  We used negotiated sale prices for 16 properties under agreement for sale, broker information and comparable sales transactions for eight properties (level 2 inputs) and the sum of their expected future discounted cash flows for two properties (level 3 inputs) less estimated closing costs to determine the fair value of these properties.  We estimate aggregate future cash flows expected to be generated by each property based on a number of factors such as market rents, operating expenses, discount rates and capitalization rates.  These factors are generally based on our experience in local real estate markets and the effects of current market conditions.

Fair value and carrying value of financial instruments

	September 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Equity investment in GOV	$	173,407	$	214,025	$	166,388	$	266,561
Senior notes and mortgage notes payable	$	2,746,535	$	2,885,908	$	2,462,847	$	2,599,075

XML

Segment Information

9 Months Ended

Sep. 30, 2011

Segment Information

Segment Information

Note 12.  Segment Information

As of September 30, 2011, we owned 44 Central Business District, or CBD, office properties, 266 suburban office properties and 179 industrial & other properties, excluding properties held for sale.  We account for all of these properties in geographic operating segments for financial reporting purposes based on our method of internal reporting.  We account for our properties by property type (i.e. CBD office, suburban office and industrial & other) and by geographic regions.  We define these individual geographic segments as those which currently, or during either of the last two quarters, represent or generate 5% or more of our total square feet, annualized revenues or property net operating income, or NOI, which we define as rental income less operating expenses.  Our geographic segments include Metro Philadelphia, PA, Oahu, HI, Metro Chicago, IL, Metro Washington, DC, Metro Denver, CO, Australia and Other Markets, which includes properties located elsewhere throughout the United States.  Prior periods have been restated to reflect 30 office properties and 25 industrial & other properties reclassified to discontinued operations during the fourth quarter of 2010 and 12 office properties and one industrial property reclassified to discontinued operations during the third quarter of 2011.  Property level information by geographic segment and property type as of and for the three and nine months ended September 30, 2011 and 2010 is as follows:

	As of September 30, 2011				As of September 30, 2010
	CBD Office	Suburban Office	Industrial & Other	Totals	CBD Office	Suburban Office	Industrial & Other	Totals
Property square feet (in thousands):
Metro Philadelphia, PA	4,591	462	—	5,053	4,592	462	—	5,054
Oahu, HI	—	—	17,896	17,896	—	—	17,914	17,914
Metro Chicago, IL	2,582	1,164	104	3,850	—	532	104	636
Metro Washington, DC	428	1,216	—	1,644	428	1,067	—	1,495
Metro Denver, CO	672	789	553	2,014	672	788	553	2,013
Australia	314	—	1,442	1,756	—	—	—	—
Other Markets	9,067	17,629	10,490	37,186	6,423	15,582	10,313	32,318
Totals	17,654	21,260	30,485	69,399	12,115	18,431	28,884	59,430

	Three Months Ended September 30, 2011								Three Months Ended September 30, 2010
	CBD Office		Suburban Office		Industrial & Other		Totals		CBD Office		Suburban Office		Industrial & Other		Totals
Property rental income:
Metro Philadelphia, PA	$	29,169	$	1,378	$	—	$	30,547	$	27,920	$	1,872	$	—	$	29,792
Oahu, HI	—		—		18,190		18,190		—		—		18,114		18,114
Metro Chicago, IL	14,272		6,783		111		21,166		—		3,441		116		3,557
Metro Washington, DC	4,726		8,772		—		13,498		4,284		7,471		—		11,755
Metro Denver, CO	4,998		4,005		2,324		11,327		5,238		3,778		2,124		11,140
Australia	5,265		—		3,230		8,495		—		—		—		—
Other Markets	46,569		72,330		16,668		135,567		38,210		63,731		16,760		118,701
Totals	$	104,999	$	93,268	$	40,523	$	238,790	$	75,652	$	80,293	$	37,114	$	193,059
Property net operating income:
Metro Philadelphia, PA	$	14,854	$	249	$	—	$	15,103	$	14,112	$	674	$	—	$	14,786
Oahu, HI	—		—		13,588		13,588		—		—		13,542		13,542
Metro Chicago, IL	8,044		3,683		104		11,831		—		2,429		101		2,530
Metro Washington, DC	3,942		5,957		—		9,899		2,747		4,372		—		7,119
Metro Denver, CO	3,136		3,085		1,191		7,412		3,409		2,773		1,201		7,383
Australia	4,296		—		2,438		6,734		—		—		—		—
Other Markets	22,613		39,667		11,031		73,311		17,727		34,759		12,190		64,676
Totals	$	56,885	$	52,641	$	28,352	$	137,878	$	37,995	$	45,007	$	27,034	$	110,036

	Nine Months Ended September 30, 2011								Nine Months Ended September 30, 2010
	CBD Office		Suburban Office		Industrial & Other		Totals		CBD Office		Suburban Office		Industrial & Other		Totals
Property rental income:
Metro Philadelphia, PA	$	85,779	$	3,957	$	—	$	89,736	$	84,165	$	5,522	$	—	$	89,687
Oahu, HI	—		—		54,872		54,872		—		—		54,457		54,457
Metro Chicago, IL	18,351		21,710		347		40,408		—		9,651		366		10,017
Metro Washington, DC	11,503		20,975		—		32,478		14,655		22,371		—		37,026
Metro Denver, CO	16,040		10,954		6,674		33,668		15,715		8,999		6,233		30,947
Australia	16,193		—		9,322		25,515		—		—		—		—
Other Markets	127,514		210,596		47,809		385,919		114,180		186,430		49,461		350,071
Totals	$	275,380	$	268,192	$	119,024	$	662,596	$	228,715	$	232,973	$	110,517	$	572,205
Property net operating income:
Metro Philadelphia, PA	$	43,919	$	384	$	—	$	44,303	$	43,066	$	1,965	$	—	$	45,031
Oahu, HI	—		—		40,803		40,803		—		—		40,569		40,569
Metro Chicago, IL	10,225		12,787		317		23,329		—		6,759		302		7,061
Metro Washington, DC	8,869		13,378		—		22,247		9,803		13,028		—		22,831
Metro Denver, CO	10,455		8,640		3,671		22,766		10,526		6,399		3,592		20,517
Australia	13,299		—		6,862		20,161		—		—		—		—
Other Markets	63,339		117,922		31,966		213,227		55,197		104,336		36,383		195,916
Totals	$	150,106	$	153,111	$	83,619	$	386,836	$	118,592	$	132,487	$	80,846	$	331,925

The following table reconciles our calculation of NOI to net income, the most directly comparable financial measure under GAAP reported in our consolidated financial statements.  We consider NOI to be appropriate supplemental information to net income because it helps both investors and management to understand the operations of our properties.  We use NOI internally to evaluate individual, regional and company wide property level performance and believe NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are incurred at the property level and may facilitate comparisons of our operating performance between periods.  The calculation of NOI excludes certain components of net income in order to provide results that are more closely related to our properties’ results of operations.  NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net income, net income available for common shareholders or cash flow from operating activities determined in accordance with GAAP, or as an indicator of our financial performance or liquidity, nor is NOI necessarily indicative of sufficient cash flow to fund all of our needs.  We believe that NOI may facilitate an understanding of our consolidated historical operating results.  NOI should be considered in conjunction with net income, net income available for common shareholders and cash flow from operating activities as presented in our condensed consolidated statements of income and condensed consolidated statements of cash flows.  A reconciliation of NOI to net income for the three and nine months ended September 30, 2011 and 2010, is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Rental income	$	238,790		$	193,059		$	662,596		$	572,205
Operating expenses	(100,912		)	(83,023		)	(275,760		)	(240,280		)
Property net operating income (NOI)	$	137,878		$	110,036		$	386,836		$	331,925
Property NOI	$	137,878		$	110,036		$	386,836		$	331,925
Depreciation and amortization	(56,389		)	(42,794		)	(159,072		)	(130,560		)
General and administrative	(11,450		)	(9,704		)	(33,559		)	(28,081		)
Loss on asset impairment	—			—			—			(21,491		)
Acquisition related costs	(4,805		)	(1,559		)	(9,722		)	(2,965		)
Operating income	65,234			55,979			184,483			148,828
Interest and other income	369			571			1,428			2,134
Interest expense	(49,423		)	(44,192		)	(145,037		)	(133,716		)
Gain (loss) on early extinguishment of debt	310			(796		)	310			(796		)
Equity in earnings of investees	2,768			1,999			8,390			6,643
Gain on issuance of shares by an equity investee	11,177			18,390			11,177			34,808
Income from continuing operations before income tax expense	30,435			31,951			60,751			57,901
Income tax (expense) benefit	(307		)	34			(743		)	(329		)
Income from continuing operations	30,128			31,985			60,008			57,572
Income from discontinued operations	653			6,673			2,777			16,877
Loss on asset impairment from discontinuing operations	(9,247		)	—			(9,247		)	—
Loss on early extinguishment of debt from discontinued operations	—			(248		)	—			(248		)
Gain on sale of properties from discontinued operations	7,001			4,568			41,573			4,568
Income before gain on sale of properties	28,535			42,978			95,111			78,769
Gain on sale of properties	—			22,832			—			34,336
Net income	$	28,535		$	65,810		$	95,111		$	113,105

XML

Real Estate Properties

9 Months Ended

Sep. 30, 2011

Real Estate Properties

Real Estate Properties

Note 3.  Real Estate Properties

Since January 1, 2011, we acquired 23 properties with 6,806,615 square feet for an aggregate purchase price of $1,144,852, including the assumption of $321,235 of mortgage debt and excluding closing costs, and we sold 20 properties with approximately 2,148,000 square feet for an aggregate sale price of $265,145, excluding closing costs.  We also funded $65,176 of improvements to our owned properties during the nine months ended September 30, 2011.  In addition, we have entered into agreements to acquire two properties with a combined 1,891,243 square feet for an aggregate purchase price of $249,600, including the assumption of approximately $148,000 of mortgage debt and excluding closing costs.  We have also entered an agreement to sell 16 properties with approximately 570,000 combined square feet for $6,500, excluding closing costs.  Details of our completed and pending acquisitions and sales during 2011 are as follows:

Property Acquisitions:

In January 2011, we acquired three office properties located in Boca Raton, FL with a combined 639,830 square feet.  The aggregate purchase price was $171,000, excluding closing costs.  We allocated $15,900 to land, $129,790 to buildings and improvements and $25,310 to acquired real estate leases.

Also in January 2011, we acquired an office property located in Columbia, SC with 115,028 square feet.  The purchase price was $12,025, excluding closing costs.  We allocated $1,180 to land, $8,886 to buildings and improvements, $2,072 to acquired real estate leases and $113 to assumed real estate lease obligations.

Also in January 2011, we acquired an office property located in Chelmsford, MA with 98,048 square feet.  The purchase price was $10,000, excluding closing costs.  We allocated $1,410 to land, $7,322 to buildings and improvements, $1,711 to acquired real estate leases and $443 to assumed real estate lease obligations.

In February 2011, we acquired an office property located in Montvale, NJ with 119,089 square feet.  The purchase price was $20,600, excluding closing costs.  We allocated $3,650 to land, $13,726 to buildings and improvements, $3,954 to acquired real estate leases and $730 to assumed real estate lease obligations.

In March 2011, we acquired four properties located in Phoenix, AZ with a combined 1,063,364 square feet.  The aggregate purchase price was $136,500, excluding closing costs.  We allocated $30,985 to land, $55,733 to buildings and improvements, $38,635 to investment in direct financing lease, $15,706 to acquired real estate leases, $500 to assumed real estate lease obligations and $4,059 to notes payable.

In May 2011, we acquired an office property located in Chicago, IL with 1,070,388 square feet.  The purchase price was $162,202, excluding closing costs.  We allocated $34,300 to land, $110,245 to buildings and improvements, $24,399 to acquired real estate leases and $6,742 to assumed real estate lease obligations.

In June 2011, we acquired four office properties located in Stafford, VA with a combined 149,023 square feet.  The aggregate purchase price was $25,725, including the assumption of $14,960 of mortgage debt and excluding closing costs.  We allocated $4,150 to land, $21,795 to buildings and improvements, $815 to acquired real estate leases, $101 to assumed real estate lease obligations and $934 to premium on mortgage debt.

Also in June 2011, we acquired four office properties located in Folsom, CA with a combined 269,254 square feet.  The aggregate purchase price was $46,300, including the assumption of $41,275 of mortgage debt and excluding closing costs.  We allocated $4,370 to land, $41,748 to buildings and improvements, $3,729 to acquired real estate leases, $262 to assumed real estate lease obligations and $3,285 to premium on mortgage debt.

In July 2011, we acquired an office property located in Birmingham, AL with 514,893 square feet.  The purchase price was $68,500, excluding closing costs.  We allocated $1,740 to land, $49,565 to buildings and improvements, $17,552 to acquired real estate leases and $357 to assumed real estate lease obligations.

In August 2011, we acquired two office properties located in Chicago, IL with a combined 1,510,707 square feet.  The aggregate purchase price was $390,000, including the assumption of $265,000 of mortgage debt and excluding closing costs.  We allocated $34,980 to land, $310,574 to buildings and improvements, $62,016 to acquired real estate leases, $3,899 to assumed real estate lease obligations and $13,671 to premium on mortgage debt.

Also in August 2011, we acquired an office property located in New Orleans, LA with 1,256,991 square feet.  The purchase price was $102,000, excluding closing costs.  We allocated $9,100 to land, $78,540 to buildings and improvements, $17,743 to acquired real estate leases and $3,383 to assumed real estate lease obligations.

Also in August 2011, we entered an agreement to acquire an office property located in Chicago, IL with 1,006,574 square feet.  The purchase price is $150,600, including the assumption of approximately $148,000 of mortgage debt and excluding closing costs.  We expect to acquire this property during the fourth quarter of 2011; however, this acquisition is subject to our satisfactory completion of customary closing conditions, including the assumption of existing mortgage debt.  Accordingly, we can provide no assurance that we will acquire this property in that time period or at all.

In October 2011, we entered an agreement to acquire an office property located in Hartford, CT with 884,669 square feet.  The purchase price is $99,000, excluding closing costs.  We expect to acquire this property during the fourth quarter of 2011; however, this acquisition is subject to our satisfactory completion of diligence and other customary closing conditions and we can provide no assurance that we will acquire this property in that time period or at all.

Property Sales:

In November 2010, we entered into various agreements to sell 27 properties which are majority leased as medical office, clinic and biotech laboratory buildings to Senior Housing Properties Trust, or SNH, for an aggregate sale price of $470,000, excluding closing costs.  In 2010, we sold 21 of these properties containing approximately 2,066,000 square feet for an aggregate sale price of $374,130, excluding closing costs, and recognized net gains totaling $133,272.  In January 2011, we sold the remaining six properties containing approximately 737,000 square feet for an aggregate sale price of $95,870, excluding closing costs, and recognized gains totaling $34,666.  In September 2011, we sold to SNH 13 additional properties located in eight states with approximately 1,310,000 square feet for an aggregate sale price of $167,000, excluding closing costs, and recognized net gains totaling $7,001.  We previously granted SNH a right of first refusal to purchase certain of our properties if we sought to sell them.  In connection with our September 2011 sale of 13 properties to SNH, we and SNH terminated the existing SNH right of first refusal as substantially all of the properties that were subject to that right of first refusal had been purchased by SNH.

In February 2011, we sold an industrial property located in Adairsville, GA with 101,400 square feet for $2,275, excluding closing costs, and recognized a loss of $94.

As of September 30, 2011, we had seven office properties with a combined 1,054,000 square feet and 20 industrial & other properties with a combined 1,835,000 square feet classified as held for sale in our condensed consolidated balance sheet.  In October 2011, we entered an agreement to sell 16 of the 20 industrial & other properties classified as held for sale, which are located in Dearborn, MI with approximately 570,000 combined square feet for $6,500, excluding closing costs, which approximates the carrying value of these properties as of September 30, 2011.  We expect to sell these properties during the fourth quarter of 2011; however, this sale is subject to satisfactory completion of buyer’s diligence and other customary closing conditions and we can provide no assurance that we will sell these properties in that time period or at all.  We are actively marketing the remaining properties for sale and expect to sell them within the next year; however, we can provide no assurance that we will receive acceptable offers to purchase these properties or that we will sell them.

We classify all properties actively marketed, under contract, in active negotiations or otherwise probable for sale within one year as held for sale in our condensed consolidated balance sheets.  Results of operations for properties sold or held for sale are included in discontinued operations in our condensed consolidated statements of income, except for properties sold during 2010 to Government Properties Income Trust, or GOV.  Properties that we sold to GOV are not considered discontinued operations under GAAP because of our retained equity interest in this former subsidiary.  Summarized balance sheet and income statement information for properties sold or held for sale, other than properties sold to GOV, is as follows:

Balance Sheets:

	September 30, 2011		December 31, 2010
Real estate properties	$	40,487	$	105,291
Acquired real estate leases	114		1,104
Rents receivable	202		4,446
Other assets, net	2,770		3,585
Properties held for sale	$	43,573	$	114,426
Assumed real estate lease obligations	$	7	$	7
Rent collected in advance	249		1,187
Security deposits	207		298
Liabilities related to properties held for sale	$	463	$	1,492

Income Statements:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Rental income	$	8,296		$	24,999		$	24,994		$	73,590
Operating expenses	(5,832		)	(11,012		)	(16,219		)	(32,554		)
Depreciation and amortization	(1,336		)	(5,768		)	(4,467		)	(17,440		)
General and administrative	(470		)	(996		)	(1,433		)	(2,925		)
Acquisition related costs	(5		)	—			(148		)	(7		)
Operating income	653			7,223			2,727			20,664
Interest and other income	—			1			50			3
Interest expense	—			(551		)	—			(3,790		)
Income from discontinued operations	$	653		$	6,673		$	2,777		$	16,877

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Real Estate Mortgage Receivable (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2010	Dec. 31, 2010
Real Estate Mortgage Receivable
Mortgage financing related to office property sold	$ 8,288
Interest rate on real estate mortgage receivable (as a percent)	4.75%
Real estate mortgage receivable included in other assets, carrying value		$ 8,183

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Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes

Income Taxes

Note 9.  Income Taxes

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and as such, are generally not subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements.  We are, however, subject to income tax in Australia and certain states despite our REIT status.  During the three and nine months ended September 30, 2011, we recognized current tax expense of $206 and $971, respectively, which includes $88 and $564 of foreign taxes, respectively, and $118 and $407 of certain state taxes, respectively.  In addition, during the three and nine months ended September 30, 2011, we recognized a deferred tax provision of $101 and a deferred tax benefit of $228, respectively, related to basis differences in our Australian properties.

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Pro Forma Information

9 Months Ended

Sep. 30, 2011

Pro Forma Information

Pro Forma Information

Note 14.  Pro Forma Information

During 2011, we purchased and continue to own 22 properties for $1,132,827, including the assumption of $321,235 of mortgage debt and excluding closing costs.  The following table presents our pro forma results of operations as if these acquisitions were completed on January 1, 2010.  This pro forma data is not necessarily indicative of what our actual results of operations would have been for the periods presented, nor does it represent the results of operations for any future period.  Differences could result from, but are not limited to, additional property acquisitions, property sales, changes in interest rates and changes in our debt or equity capital structure.

	Nine Months Ended September 30,
	2011		2010
Total revenues	$	727,786	$	686,463
Income from continuing operations	$	72,069	$	61,749
Per share data:
Income from continuing operations	$	0.52	$	0.93

During the nine months ended September 30, 2011, we recognized revenues and operating income of $50,881 and $32,688, respectively, arising from our acquisitions completed in 2011.

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Fair Value of Assets and Liabilities

9 Months Ended

Sep. 30, 2011

Fair Value of Assets and Liabilities

Fair Value of Assets and Liabilities

Note 10.  Fair Value of Assets and Liabilities

The table below presents certain of our assets and liabilities measured at fair value during 2011, categorized by the level of inputs used in the valuation of each asset and liability:

				Fair Value at Reporting Date Using
Description	Total			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Recurring Fair Value Measurements:
Effective portion of interest rate contracts (1)	$	(15,607	)	$	(15,607	)	$	—
Non-recurring Fair Value Measurements:
Properties held for sale (2)	$	33,033		$	24,813		$	8,220

(1)       The fair value of our interest rate swap contracts is determined using the net discounted cash flows of the expected cash flows of each derivative based on the market based interest rate curve (level 2 inputs) and adjusted for our credit spread and the actual and estimated credit spreads of the counterparties (level 3 inputs).  Although we have determined that the majority of the inputs used to value our derivatives fall within level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and the counterparties.  As of September 30, 2011, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.  As a result, we have determined that our derivative valuations in their entirety are classified as level 2 inputs in the fair value hierarchy.

(2)       Properties held for sale that were adjusted to fair value at September 30, 2011 includes six office properties and 20 industrial & other properties that we expect to sell within one year.  We recorded losses on asset impairment at these properties during the third quarter of 2011 of $9,247 to reduce the carrying value of these properties from $42,280 to their estimated fair value less costs to sell of $33,033.  We used negotiated sale prices for 16 properties under agreement for sale, broker information and comparable sales transactions for eight properties (level 2 inputs) and the sum of their expected future discounted cash flows for two properties (level 3 inputs) less estimated closing costs to determine the fair value of these properties.  We estimate aggregate future cash flows expected to be generated by each property based on a number of factors such as market rents, operating expenses, discount rates and capitalization rates.  These factors are generally based on our experience in local real estate markets and the effects of current market conditions.

We are exposed to certain risks relating to our ongoing business operations, including the effect of changes in foreign currency exchange rates and interest rates.  The only risk currently managed by using our derivative instruments is a part of our interest rate risk.  Although we have not done so as of September 30, 2011 and have no present intention to do so, we may manage our Australian currency exchange exposure by borrowing in Australian dollars or using derivative instruments in the future, depending on the relative significance of our business activities in Australia at that time.  We have interest rate swap agreements to manage our interest rate risk exposure on $175,000 of mortgage notes due 2019, which require interest at a spread over LIBOR.  The interest rate swap agreements utilized by us qualify as cash flow hedges and effectively modify our exposure to interest rate risk by converting our floating interest rate debt to a fixed interest rate basis for this loan through December 1, 2016, thus reducing the impact of interest rate changes on future interest expense.  These agreements involve the receipt of floating interest rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal amount.  The fair value of our derivative instruments decreased by $6,577 and $8,651 during the three and nine months ended September 30, 2011, respectively, based primarily on changes in market interest rates.  The fair value of our derivative instruments decreased by $5,150 and $15,965 during the three and nine months ended September 30, 2010, respectively, based primarily on changes in market interest rates.  As of September 30, 2011 and December 31, 2010, the fair value of these derivative instruments included in accounts payable and accrued expenses and cumulative other comprehensive (loss) income in our consolidated balance sheets totaled ($15,607) and ($6,956), respectively. We may enter additional interest rate swaps or hedge agreements to manage some of our additional interest rate risk associated with our floating rate borrowings.

In addition to the assets and liabilities described in the above table, our financial instruments include our cash and cash equivalents, rents receivable, equity investments, investment in direct financing lease receivable, restricted cash, revolving credit facility, senior notes and mortgage notes payable, accounts payable and accrued expenses, rent collected in advance, security deposits and amounts due to related persons.  At September 30, 2011 and December 31, 2010, the fair values of these additional financial instruments were not materially different from their carrying values, except as follows:

	September 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Equity investment in GOV	$	173,407	$	214,025	$	166,388	$	266,561
Senior notes and mortgage notes payable	$	2,746,535	$	2,885,908	$	2,462,847	$	2,599,075

At September 30, 2011 and December 31, 2010, the fair values of our equity investment in GOV are based on quoted market prices of $21.51 and $26.79, respectively.  The fair values of our senior notes and mortgage notes payable are based on estimates using discounted cash flow analyses and currently prevailing interest rates adjusted by credit risk spreads.

Other financial instruments that potentially subject us to concentrations of credit risk consist principally of rents receivable; however, no single tenant of ours is responsible for more than 2% of our total rents.

We maintain derivative financial instruments, including interest rate swaps, with major financial institutions and monitor the amount of credit exposure to any one counterparty.

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Equity Investments (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended			1 Months Ended	3 Months Ended		9 Months Ended			3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Dec. 31, 2010	Jul. 31, 2011 GOV	Sep. 30, 2011 GOV	Sep. 30, 2010 GOV	Sep. 30, 2011 GOV	Sep. 30, 2010 GOV	Dec. 31, 2010 GOV	Sep. 30, 2011 AIC entity	Sep. 30, 2010 AIC	Sep. 30, 2011 AIC Y entity	Sep. 30, 2010 AIC	Dec. 31, 2010 AIC
Equity Investments
Equity method investments, ownership percentage							21.10%		21.10%		24.60%	14.30%		14.30%		14.30%
Equity investments	$ 178,652		$ 178,652		$ 171,464		$ 173,407		$ 173,407		$ 166,388	$ 5,245		$ 5,245		$ 5,076
Equity investments, common shares owned (in shares)							9,950,000		9,950,000
Equity in earnings (losses) of an investee	2,768	1,999	8,390	6,643			2,740	1,964	8,279	6,660		28	35	111	(17)
Equity investments, quoted market price of common share (in dollars per share)							$ 21.51		$ 21.51		$ 26.79
Common shares issued (in shares)						6,500,000
Common stock price per share (in dollars per share)						$ 25.40
Ownership percentage prior to transaction (as a percent)						24.60%
Ownership percentage after the transaction (as a percent)						21.10%
Recognized gain						11,177
Net proceeds received on issuance of common shares						157,900
Market value of common shares exceeded carrying value							13,824		13,824
Amortizing the difference between carrying value and share of underlying equity (in years)									30Y
Cash distributions									12,438	12,039
Amount invested in equity investee												5,209		5,209
Number of companies to which RMR provides management services												5		5
Period for which property insurance program was extended (in years)														1
Premium for property insurance														5,540		5,328
Amount expensed in relation to insurance premiums												$ 1,385	$ 1,332	$ 4,067	$ 1,776

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Shareholders' Equity

9 Months Ended

Sep. 30, 2011

Shareholders' Equity

Shareholders' Equity

Note 8.  Shareholders’ Equity

On May 10, 2011, we issued 2,000 common shares of beneficial interest, par value $0.01 per share, valued at $26.57 per share, the closing price of our common shares on the New York Stock Exchange, or NYSE, on that day, to each of our five Trustees as part of their annual compensation.  On September 16, 2011, pursuant to our equity compensation plan, we granted an aggregate of 73,050 common shares valued at $19.96 per share, the closing price of our common shares on the NYSE on that day, to our officers and certain employees of our manager, RMR.

In June 2011, we issued 11,000,000 series E cumulative redeemable preferred shares in a public offering, raising net proceeds of $265,391.  Each series E preferred share has a liquidation preference of $25.00 and requires dividends payable in equal quarterly payments of $1.8125, 7 ¼% of the liquidation preference per annum.  Our series E preferred shares are redeemable, at our option, for $25.00 each plus accrued and unpaid dividends at any time on or after May 15, 2016.  Net proceeds from this offering were used to reduce amounts outstanding under our revolving credit facility.

In July 2011, we issued 11,500,000 common shares in a public offering, raising net proceeds of $264,056.  Net proceeds from this offering were used to repay amounts outstanding under our revolving credit facility and for general business purposes, including funding acquisitions.

Other comprehensive income includes unrealized gains or losses on the fair value of our interest rate swap agreements, other investments, and foreign currency translation adjustments.  Our interest rate swap agreements qualify as cash flow hedges and convert the floating interest rate on a $175,000 mortgage note payable to a fixed interest rate.  The following is a reconciliation of net income to total comprehensive (loss) income for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Comprehensive income:
Net income	$	28,535		$	65,810		$	95,111		$	113,105
Unrealized loss on derivative instrument	(6,577		)	(5,150		)	(8,651		)	(15,965		)
Unrealized loss on investment in available for sale securities	—			(141		)	—			(141		)
Realized gain on sale of investment in available for sale securities	—			—			(18		)	—
Foreign currency translation adjustments	(33,289		)	—			(17,584		)	—
Increase in share of investees other comprehensive income	14			—			58			—
Total comprehensive (loss) income	$	(11,317	)	$	60,519		$	68,916		$	96,999

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Basis of Presentation

9 Months Ended

Sep. 30, 2011

Basis of Presentation

Basis of Presentation

Note 1.  Basis of Presentation

The accompanying condensed consolidated financial statements of CommonWealth REIT, or CWH, we, us or our, and its subsidiaries 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 consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2010, or our Annual Report.  In the opinion of our management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included.  All intercompany transactions and balances with or among our subsidiaries have been eliminated.  Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.  Reclassifications have been made to the prior years’ financial statements to conform to the current year’s presentation.

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

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Investment in Direct Financing Lease

9 Months Ended

Sep. 30, 2011

Investment in Direct Financing Lease

Investment in Direct Financing Lease

Note 4.  Investment in Direct Financing Lease

Our investment in a direct financing lease relates to the triple net lease with a term that exceeds 75% of the useful life of one office tower located within a mixed use property in Phoenix, AZ that we acquired in March 2011.  We recognize direct financing lease income using the effective interest method to produce a level yield on funds not yet recovered.  Estimated unguaranteed residual value represents our estimate of the fair value of the leased asset at the expiration of the lease, which does not exceed its original cost.  Significant assumptions used in estimating residual value include estimated net cash flows over the remaining lease term and expected future real estate value.  The following table summarizes the carrying amount of our net investment in the direct financing lease as of September 30, 2011.  The carrying amount of our net investment is included in other assets in our condensed consolidated balance sheet.

	September 30, 2011
Total minimum lease payments receivable	$	41,207
Estimated unguaranteed residual value of leased asset	4,951
Unearned income	(11,166		)
Net investment in direct financing lease	$	34,992

Additionally, we have determined that no allowance for losses related to our direct financing lease was necessary at September 30, 2011.

Our direct financing lease has an expiration date in 2045.  Future minimum rentals receivable on this direct financing lease as of September 30, 2011 are $2,024 in 2011, $8,098 in 2012, $8,098 in 2013, $8,098 in 2014, $8,098 in 2015 and $6,791 thereafter.

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Fair Value of Assets and Liabilities (Details 2) (USD $) In Thousands, except Per Share data, unless otherwise specified	Sep. 30, 2011	Dec. 31, 2010
Fair value of financial instruments
Equity investments	$ 178,652	$ 171,464
Percentage of concentration of credit risk rents receivable from tenants (as a percent)	2.00%
GOV | Carrying Amount
Fair value of financial instruments
Equity investments	173,407	166,388
Carrying Amount
Fair value of financial instruments
Senior notes and mortgage notes payable	2,746,535	2,462,847
GOV | Total Fair value
Fair value of financial instruments
Equity investments	214,025	266,561
Total Fair value
Fair value of financial instruments
Senior notes and mortgage notes payable	2,885,908	2,599,075
GOV
Fair value of financial instruments
Equity investments	$ 173,407	$ 166,388
Quoted market price (in dollars per share)	$ 21.51	$ 26.79

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Investment in Direct Financing Lease (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2011 officetower
Investment in Direct Financing Lease
Percentage of term exceeding useful life of one office tower (as a percent)	75.00%
Number of office towers located within a mixed use property	1
Total minimum lease payments receivable	$ 41,207
Estimated unguaranteed residual value of leased asset	4,951
Unearned income	(11,166)
Net investment in direct financing lease	34,992
Future minimum rentals receivable on direct financing lease
2011	2,024
2012	8,098
2013	8,098
2014	8,098
2015	8,098
Thereafter	$ 6,791

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Equity Investments

9 Months Ended

Sep. 30, 2011

Equity Investments

Equity Investments

Note 5.  Equity Investments

At September 30, 2011 and December 31, 2010, we had the following equity investments in GOV and Affiliates Insurance Company, or AIC:

	Ownership Percentage				Equity Investments				Equity in Earnings (Loss)
	September 30,		December 31,		September 30,		December 31,		Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010		2011		2010		2011		2010
GOV	21.1	%	24.6	%	$	173,407	$	166,388	$	2,740	$	1,964	$	8,279	$	6,660
AIC	14.3	%	14.3	%	5,245		5,076		28		35		111		(17		)
					$	178,652	$	171,464	$	2,768	$	1,999	$	8,390	$	6,643

At September 30, 2011, we owned 9,950,000, or approximately 21.1%, of the common shares of beneficial interest of GOV, with a carrying value of $173,407 and a market value, based on quoted market prices, of $214,025 ($21.51 per share).  GOV is a real estate investment trust, or REIT, which primarily owns properties that are majority leased to government tenants and was our wholly owned subsidiary until its initial public offering, or the GOV IPO, in June 2009 when it became a separate public entity.  In July 2011, GOV issued 6,500,000 common shares in a public offering for $25.40 per common share, raising net proceeds of approximately $157,900.  As a result of this transaction at a price per share above our per share carrying value, our ownership percentage in GOV was reduced from 24.6% prior to this transaction to 21.1% after this transaction, and we recognized a gain of $11,177 (See Note 13).

Since the GOV IPO, we have accounted for our investment in it using the equity method.  Under the equity method, we record our percentage share of net earnings of GOV in our consolidated statements of income.  Prior to the GOV IPO, the operating results and investments of GOV were included in our results of operations and financial position.  The market value of our GOV common shares on the date of the GOV IPO exceeded our carrying value by $13,824.  We are amortizing the difference between our carrying value of GOV and our share of the underlying equity of GOV over a 30 year period, which approximates the remaining useful lives of the properties that we initially contributed to GOV.  If we determine there is an “other than temporary” decline in the fair value of this investment, we would record a charge to earnings.

During the nine months ended September 30, 2011 and 2010, we received cash distributions from GOV totaling $12,438 and $12,039, respectively.

The following summarized financial data of GOV is as reported in GOV’s Quarterly Report on Form 10-Q for the periods ended September 30, 2011.  References in our financial statements to the Quarterly Report on Form 10-Q for GOV are included as textual references only, and the information in GOV’s Quarterly Report on Form 10-Q is not incorporated by reference into our financial statements.

	September 30, 2011		December 31, 2010
Real estate properties, net	$	1,104,560	$	846,447
Acquired real estate leases, net	103,901		60,097
Cash and cash equivalents	5,724		2,437
Rents receivable, net	22,096		19,200
Other assets, net	30,387		23,107
Total assets	$	1,266,668	$	951,288
Revolving credit facility	$	282,500	$	118,000
Mortgage notes payable	45,608		46,428
Assumed real estate lease obligations, net	11,853		13,679
Other liabilities	28,518		15,784
Shareholders’ equity	898,189		757,397
Total liabilities and shareholders’ equity	$	1,266,668	$	951,288

Income Statements:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Rental income	$	45,719		$	30,746		$	126,718		$	80,040
Operating expenses	(16,951		)	(11,275		)	(46,937		)	(27,537		)
Depreciation and amortization	(10,379		)	(6,321		)	(27,862		)	(16,602		)
Acquisition related costs	(1,008		)	(2,687		)	(2,846		)	(4,542		)
General and administrative	(2,746		)	(1,833		)	(7,655		)	(4,915		)
Operating income	14,635			8,630			41,418			26,444
Interest and other income	54			12			89			80
Interest expense	(3,162		)	(1,973		)	(8,775		)	(5,182		)
Equity in earnings (losses) of an investee	28			35			111			(17		)
Income before income tax expense	11,555			6,704			32,843			21,325
Income tax benefit (expense)	8			(35		)	(94		)	(71		)
Net income	$	11,563		$	6,669		$	32,749		$	21,254
Weighted average common shares outstanding	45,322			36,369			42,127			32,265
Net income per common share	$	0.26		$	0.18		$	0.78		$	0.66

As of September 30, 2011, we have invested $5,209 in AIC, an insurance company organized by Reit Management & Research LLC, or RMR, and five companies to which RMR provides management services, including GOV and SNH.  We may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so.  At September 30, 2011, we owned approximately 14.3% of AIC with a current carrying value of $5,245.  Although we own less than 20% of AIC, we use the equity method to account for this investment because we believe that we have significant influence over AIC because each of our Trustees is a director of AIC (See Note 13).  Under the equity method, we record our percentage share of net earnings from AIC in our consolidated statements of income.  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.

In 2010, AIC designed a combination property insurance program for us and other AIC shareholders in which AIC participated as a reinsurer.  That program was modified and extended in June 2011 for a one year term.  Our total premiums paid under this program in 2011 and 2010 were approximately $5,540 and $5,328, respectively.  The amounts we expensed in relation to those insurance premiums were $1,385 and $1,332 for the three months ended September 30, 2011 and 2010, respectively, and $4,067 and $1,776 for the nine months ended September 30, 2011 and 2010, respectively.  We are currently investigating the possibilities to expand our insurance relationships with AIC to include other types of insurance. By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses or by realizing our pro-rata share of any profits of this insurance business.

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Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended			9 Months Ended
	Sep. 30, 2011 property	Dec. 31, 2010 property	Sep. 30, 2010	Sep. 30, 2011 sqft property	Sep. 30, 2010 sqft
Segment information
Factors used to define individual geographic segments				We define these individual geographic segments as those which currently, or during either of the last two quarters, represent or generate 5% or more of our total square feet, annualized revenues or property net operating income, or NOI, which we define as rental income less operating expenses
Geographic segments, number of immediately preceding quarters				2
Geographic segments, minimum percentage of total square feet, annualized revenues or property net operating income, or net operating income defined as rental income less operating expenses				5.00%
Property square feet				69,399,000	59,430,000
Property rental income	$ 238,790		$ 193,059	$ 662,596	$ 572,205
Property net operating income	137,878		110,036	386,836	331,925
Metro Philadelphia, PA
Segment information
Property square feet				5,053,000	5,054,000
Property rental income	30,547		29,792	89,736	89,687
Property net operating income	15,103		14,786	44,303	45,031
Metro Philadelphia, PA | CBD Office
Segment information
Property square feet				4,591,000	4,592,000
Property rental income	29,169		27,920	85,779	84,165
Property net operating income	14,854		14,112	43,919	43,066
Metro Philadelphia, PA | Suburban Office
Segment information
Property square feet				462,000	462,000
Property rental income	1,378		1,872	3,957	5,522
Property net operating income	249		674	384	1,965
Industrial & Other | Oahu, HI
Segment information
Property square feet				17,896,000	17,914,000
Property rental income	18,190		18,114	54,872	54,457
Property net operating income	13,588		13,542	40,803	40,569
Oahu, HI
Segment information
Property square feet				17,896,000	17,914,000
Property rental income	18,190		18,114	54,872	54,457
Property net operating income	13,588		13,542	40,803	40,569
Industrial & Other | Metro Chicago, IL
Segment information
Property square feet				104,000	104,000
Property rental income	111		116	347	366
Property net operating income	104		101	317	302
Metro Chicago, IL
Segment information
Property square feet				3,850,000	636,000
Property rental income	21,166		3,557	40,408	10,017
Property net operating income	11,831		2,530	23,329	7,061
Metro Chicago, IL | CBD Office
Segment information
Property square feet				2,582,000
Property rental income	14,272			18,351
Property net operating income	8,044			10,225
Metro Chicago, IL | Suburban Office
Segment information
Property square feet				1,164,000	532,000
Property rental income	6,783		3,441	21,710	9,651
Property net operating income	3,683		2,429	12,787	6,759
Metro Washington, DC
Segment information
Property square feet				1,644,000	1,495,000
Property rental income	13,498		11,755	32,478	37,026
Property net operating income	9,899		7,119	22,247	22,831
Metro Washington, DC | CBD Office
Segment information
Property square feet				428,000	428,000
Property rental income	4,726		4,284	11,503	14,655
Property net operating income	3,942		2,747	8,869	9,803
Metro Washington, DC | Suburban Office
Segment information
Property square feet				1,216,000	1,067,000
Property rental income	8,772		7,471	20,975	22,371
Property net operating income	5,957		4,372	13,378	13,028
Industrial & Other | Metro Denver, CO
Segment information
Property square feet				553,000	553,000
Property rental income	2,324		2,124	6,674	6,233
Property net operating income	1,191		1,201	3,671	3,592
Metro Denver, CO
Segment information
Property square feet				2,014,000	2,013,000
Property rental income	11,327		11,140	33,668	30,947
Property net operating income	7,412		7,383	22,766	20,517
Metro Denver, CO | CBD Office
Segment information
Property square feet				672,000	672,000
Property rental income	4,998		5,238	16,040	15,715
Property net operating income	3,136		3,409	10,455	10,526
Metro Denver, CO | Suburban Office
Segment information
Property square feet				789,000	788,000
Property rental income	4,005		3,778	10,954	8,999
Property net operating income	3,085		2,773	8,640	6,399
Industrial & Other | Australia
Segment information
Property square feet				1,442,000
Property rental income	3,230			9,322
Property net operating income	2,438			6,862
Australia
Segment information
Property square feet				1,756,000
Property rental income	8,495			25,515
Property net operating income	6,734			20,161
Australia | CBD Office
Segment information
Property square feet				314,000
Property rental income	5,265			16,193
Property net operating income	4,296			13,299
Industrial & Other | Other markets
Segment information
Property square feet				10,490,000	10,313,000
Property rental income	16,668		16,760	47,809	49,461
Property net operating income	11,031		12,190	31,966	36,383
Other markets
Segment information
Property square feet				37,186,000	32,318,000
Property rental income	135,567		118,701	385,919	350,071
Property net operating income	73,311		64,676	213,227	195,916
Other markets | CBD Office
Segment information
Property square feet				9,067,000	6,423,000
Property rental income	46,569		38,210	127,514	114,180
Property net operating income	22,613		17,727	63,339	55,197
Other markets | Suburban Office
Segment information
Property square feet				17,629,000	15,582,000
Property rental income	72,330		63,731	210,596	186,430
Property net operating income	39,667		34,759	117,922	104,336
Office
Segment information
Number of properties reclassified to discontinued operations		30		12
CBD Office
Segment information
Properties owned	44			44
Property square feet				17,654,000	12,115,000
Property rental income	104,999		75,652	275,380	228,715
Property net operating income	56,885		37,995	150,106	118,592
Suburban Office
Segment information
Properties owned	266			266
Property square feet				21,260,000	18,431,000
Property rental income	93,268		80,293	268,192	232,973
Property net operating income	52,641		45,007	153,111	132,487
Industrial & Other
Segment information
Properties owned	179			179
Number of properties reclassified to discontinued operations		25		1
Property square feet				30,485,000	28,884,000
Property rental income	40,523		37,114	119,024	110,517
Property net operating income	$ 28,352		$ 27,034	$ 83,619	$ 80,846

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Real Estate Properties (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended		1 Months Ended																		12 Months Ended	1 Months Ended		9 Months Ended
	Sep. 30, 2010	Sep. 30, 2011 sqft property quarter	Sep. 30, 2010 sqft	Jan. 31, 2011 Boca Raton, FL Acquisition Office property sqft	Jan. 31, 2011 Columbia, SC Acquisition Office sqft	Jan. 31, 2011 Chelmsford, MA Acquisition Office sqft	Feb. 28, 2011 Montvale, NJ Acquisition Office sqft	Mar. 31, 2011 Phoenix, AZ Acquisition Office property sqft	Aug. 31, 2011 Chicago, IL Acquisition Office sqft property	May 31, 2011 Chicago, IL Acquisition Office sqft	Aug. 31, 2011 Chicago, IL Agreement to acquire Office sqft	Jun. 30, 2011 Stafford, VA Acquisition Office property sqft	Jun. 30, 2011 Folsom, CA Acquisition Office sqft property	Jul. 31, 2011 Birmingham, AL Acquisition Office sqft	Aug. 31, 2011 New Orleans, LA Acquisition Office sqft	Oct. 31, 2011 Hartford, CT Agreement to acquire Office sqft	Feb. 28, 2011 Adairsville, GA Sale Industrial & Other sqft	Oct. 31, 2011 Dearborn, MI SNH Agreement to sell Industrial property sqft	Sep. 30, 2011 SNH property sqft state	Sep. 30, 2011 SNH Sale sqft	Jan. 31, 2011 SNH Sale property sqft	Dec. 31, 2010 SNH Sale property sqft	Sep. 30, 2011 SNH Agreement to sell	Nov. 30, 2010 SNH Agreement to sell property sqft	Sep. 30, 2011 Real estate properties held for sale Office sqft property	Sep. 30, 2011 Real estate properties held for sale Industrial & Other sqft property	Sep. 30, 2011 Acquisition property sqft	Sep. 30, 2011 Sale property sqft	Sep. 30, 2011 Agreement to acquire sqft property	Sep. 30, 2011 Agreement to sell sqft property	Sep. 30, 2011 Industrial & Other sqft property	Sep. 30, 2010 Industrial & Other sqft
Real estate properties information
Number of properties acquired or agreed to be acquired		23		3				4	2			4	4																2
Number of properties acquired and continue to own																											22
Property square feet		69,399,000	59,430,000	639,830	115,028	98,048	119,089	1,063,364	1,510,707	1,070,388	1,006,574	149,023	269,254	514,893	1,256,991	884,669	101,400	570,000	1,310,000	1,310,000	737,000	2,066,000		2,803,000	1,054,000	1,835,000	6,806,615	2,148,000	1,891,243	570,000	30,485,000	28,884,000
Aggregate purchase price of properties acquired or agreed to be acquired, excluding closing costs		$ 1,144,852		$ 171,000	$ 12,025	$ 10,000	$ 20,600	$ 136,500	$ 390,000	$ 162,202	$ 150,600	$ 25,725	$ 46,300		$ 102,000	$ 99,000				$ 167,000							$ 1,132,827		$ 249,600
Assumption of mortgage debt		321,235							265,000		148,000	14,960	41,275														321,235		148,000
Number of properties sold or agreed to be sold																		16	13		6	21		27				20		16
Aggregate sale price of properties sold or agreed to be sold, excluding closing costs														68,500			2,275	6,500			95,870	374,130	167,000	470,000				265,145		6,500
Number of states in which properties are located																			8
Funded real estate improvements		65,176
Real estate purchase price allocation, land				15,900	1,180	1,410	3,650	30,985	34,980	34,300		4,150	4,370	1,740	9,100
Real estate purchase price allocation, buildings and improvements				129,790	8,886	7,322	13,726	55,733	310,574	110,245		21,795	41,748	49,565	78,540
Real estate purchase price allocation, (discount) premium on mortgage debt									13,671			934	3,285
Real estate purchase price allocation, acquired real estate leases				25,310	2,072	1,711	3,954	15,706	62,016	24,399		815	3,729	17,552	17,743
Real estate purchase price allocation, direct financing lease								38,635
Real estate purchase price allocation, assumed real estate lease obligations					113	443	730	500	3,899	6,742		101	262	357	3,383
Real estate purchase price allocation, notes payable								4,059
Gain (loss) on sale of properties	$ 22,832		$ 34,336														$ (94)			$ 7,001	$ 34,666	$ 133,272
Properties owned																									7	20					179

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Equity Investments (Details 2) (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010	Sep. 30, 2010	Dec. 31, 2009
Balance Sheets:
Real estate properties, net	$ 6,259,901	$ 5,506,997
Acquired real estate leases, net	360,293	233,913
Cash and cash equivalents	210,673	194,040	174,723	18,204
Rents receivable, net	212,737	191,237
Other assets, net	182,259	171,380
Total assets	7,458,190	6,588,539
Revolving credit facility	235,000
Mortgage notes payable	633,935	351,526
Assumed real estate lease obligations, net	72,619	65,940
Other liabilities	148,525	123,842
Total liabilities and shareholders' equity	7,458,190	6,588,539
GOV
Balance Sheets:
Real estate properties, net	1,104,560	846,447
Acquired real estate leases, net	103,901	60,097
Cash and cash equivalents	5,724	2,437
Rents receivable, net	22,096	19,200
Other assets, net	30,387	23,107
Total assets	1,266,668	951,288
Revolving credit facility	282,500	118,000
Mortgage notes payable	45,608	46,428
Assumed real estate lease obligations, net	11,853	13,679
Other liabilities	28,518	15,784
Shareholders' equity	898,189	757,397
Total liabilities and shareholders' equity	$ 1,266,668	$ 951,288

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Earnings Per Share (Details)	Sep. 30, 2011	Dec. 31, 2010
Common shares from conversion of preferred shares	83,721,736	72,138,686
Series D Convertible Preferred Stock
Preferred shares converted into common shares	15,180,000
Common Stock
Common shares from conversion of preferred shares	7,298,165

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Real Estate Properties (Details 3) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Income Statements:
Rental income	$ 238,790	$ 193,059	$ 662,596	$ 572,205
Operating expenses	(100,912)	(83,023)	(275,760)	(240,280)
Depreciation and amortization	(56,389)	(42,794)	(159,072)	(130,560)
General and administrative	(11,450)	(9,704)	(33,559)	(28,081)
Acquisition related costs	(4,805)	(1,559)	(9,722)	(2,965)
Operating income	65,234	55,979	184,483	148,828
Interest and other income	369	571	1,428	2,134
Interest expense	(49,423)	(44,192)	(145,037)	(133,716)
Income from discontinued operations	653	6,673	2,777	16,877
Discontinued operations, properties sold or held for sale
Income Statements:
Rental income	8,296	24,999	24,994	73,590
Operating expenses	(5,832)	(11,012)	(16,219)	(32,554)
Depreciation and amortization	(1,336)	(5,768)	(4,467)	(17,440)
General and administrative	(470)	(996)	(1,433)	(2,925)
Acquisition related costs	(5)		(148)	(7)
Operating income	653	7,223	2,727	20,664
Interest and other income		1	50	3
Interest expense		(551)		(3,790)
Income from discontinued operations	$ 653	$ 6,673	$ 2,777	$ 16,877

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Related Person Transactions

9 Months Ended

Sep. 30, 2011

Related Person Transactions

Related Person Transactions

Note 13.  Related Person Transactions

We have no employees.  Instead, services that might be provided to us by employees are provided to us by RMR.  RMR provides both business and property management services to us under a business management agreement and a property management agreement.  RMR also provides management services to other companies, including GOV and SNH.  One of our Managing Trustees, Barry Portnoy, is Chairman and majority owner of RMR and serves as managing trustee of GOV and SNH.  Our other Managing Trustee and our President, Adam Portnoy, is Barry Portnoy’s son, and is an owner, President, Chief Executive Officer and a director of RMR and serves as a managing trustee of GOV and SNH.  Our executive officers and GOV’s and SNH’s executive officers are officers of RMR.  One of our Independent Trustees, Frederick Zeytoonjian, is also an independent trustee of SNH.  Our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR provides management services.  Barry Portnoy serves as a managing director or managing trustee of those companies and Adam Portnoy serves as a managing trustee of a majority of those companies.

Pursuant to our business management agreement with RMR, we recognized expenses of $9,862 and $8,881 for the three months ended September 30, 2011 and 2010, respectively, and $27,844 and $26,053 for the nine months ended September 30, 2011 and 2010, respectively.  These amounts are included in general and administrative expenses and income from discontinued operations in our condensed consolidated financial statements.  On November 1, 2011, we and RMR amended our business management agreement to provide that, for purposes of determining the fees we pay to RMR under that agreement, which are based on a percentage of the value of our properties as determined under the agreement, the value of properties we may acquire from certain other companies to which RMR provides management services will be based upon the seller’s historical cost for those properties rather than our acquisition costs and to provide other companies to which RMR provides management services a right of first offer on properties of ours that we determine to sell if such properties are primarily of a type that are within the investment focus of such other companies.  This amendment is further described in Part II, Item 5 of this Quarterly Report on Form 10-Q.  In connection with the property management agreement with RMR, we incurred property management and construction supervision fees of $7,767 and $6,592 for the three months ended September 30, 2011 and 2010, respectively, and $21,487 and $19,878 for the nine months ended September 30, 2011 and 2010, respectively.  These amounts are included in operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

GOV was formerly our 100% owned subsidiary.  We are GOV’s largest shareholder and, as of the date of this report, we owned 9,950,000 common shares of beneficial interest of GOV, which represented approximately 21.1% of GOV’s outstanding common shares of beneficial interest.  Our GOV common shares of beneficial interest had a carrying value of $173,407 and a market value, based on quoted market prices, of $214,025 ($21.51 per share) as of September 30, 2011.  In connection with the GOV IPO, we and GOV entered into a transaction agreement in which, among other things, we granted GOV the right of first refusal to acquire any property owned by us that we determine to divest, if the property is then majority leased to a government tenant, including 15 properties we sold to GOV during 2010.

SNH was formerly our 100% owned subsidiary.  It was spun off to our shareholders in 1999.  As previously reported, we previously granted SNH a right of first refusal to purchase certain of our properties if we sought to sell them.  In November 2010, we agreed to sell 27 properties (approximately 2,803,000 square feet of rental space), which were majority leased as medical office, clinic and biotech laboratory buildings, to SNH for an aggregate sale price of $470,000, excluding closing costs.  We completed the sale of all 27 of these properties between November 2010 and January 2011.  In September 2011, we sold to SNH 13 additional properties located in eight states with approximately 1,310,000 square feet for an aggregate sale price of $167,000, excluding closing costs.  Certain of the properties included in these sales were subject to SNH’s right of first refusal.  In connection with our September 2011 sale of 13 properties to SNH, we and SNH terminated the existing SNH right of first refusal, as substantially all of the properties that were subject to that right of first refusal had been purchased by SNH.  Special committees of each of our Board of Trustees and SNH’s board of trustees composed solely of Independent Trustees who were not also independent trustees of the other party and who were represented by separate counsel reviewed and approved the terms of these property sale transactions.

We and the other six current shareholders of AIC each own approximately 14.29% of the outstanding equity of AIC.  The other shareholders are RMR and five other companies, including GOV and SNH, to which RMR provides management services.  All of our Trustees, all of the trustees and directors of the other publicly held AIC shareholders and nearly all of the directors of RMR currently serve on the board of directors of AIC.  RMR provides management and administrative services to AIC.  Although we own less than 20% of AIC, we use the equity method to account for this investment because we believe that we have significant influence over AIC because all of our Trustees are also directors of AIC.  As of September 30, 2011, we have invested approximately $5,209 in AIC.  We may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so.  Our investment had a carrying value of $5,245 and $5,076 as of September 30, 2011 and December 31, 2010, respectively.  During the three and nine months ended September 30, 2011 and 2010, we recognized income of $28 and $111 and income of $35 and a loss of $17, respectively, related to this investment.  In 2010, AIC designed a combination property insurance program for us and other AIC shareholders in which AIC participated as a reinsurer.  This program was modified and extended in June 2011 for a one year term.  Our total premiums under this program for the policy years expiring May 31, 2011 and 2012 were approximately $5,540 and $5,328, respectively.  The amounts we expensed in relation to those insurance premiums were $1,385 and $1,332 for the three months ended September 30, 2011 and 2010, respectively, and $4,067 and $1,776 for the nine months ended September 30, 2011 and 2010, respectively.  We are currently investigating the possibilities to expand our insurance relationships with AIC to include other types of insurance.  By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses or by realizing our pro-rata share of any profits of this insurance business.

For more information about these and other relationships among us, our Trustees, our executive officers, GOV, RMR, SNH, AIC, other companies to which RMR provides management services, and others affiliated with or related to them and about the risks which may arise as a result of those and other related person transactions and relationships, 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 in our Annual Report, in our Proxy Statement for our 2011 Annual Meeting of Shareholders dated February 25, 2011, or our Proxy Statement, and in our other filings with the Securities and Exchange Commission, or the SEC, including the sections captioned “Business”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” and “Warning Concerning Forward Looking Statements” in our Annual Report, and the information regarding our Trustees and executive officers and the section captioned “Related Person Transactions and Company Review of Such Transactions” in our Proxy Statement.  In addition, please see the “Risk Factors” section of our Annual Report for a description of risks which may arise from these transactions and relationships.  Our filings with the SEC, including our Annual Report and our Proxy Statement, are available at the SEC’s website at www.sec.gov.  In addition, copies of certain of our agreements with these parties are also publicly available as exhibits to our public filings with the SEC and accessible at the SEC’s website, including our business management agreement and property management agreement with RMR.

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Real Estate Mortgage Receivable

9 Months Ended

Sep. 30, 2011

Real Estate Mortgage Receivable

Real Estate Mortgage Receivable

Note 6.  Real Estate Mortgage Receivable

We provided mortgage financing totaling $8,288 at 4.75% per annum maturing in September 2020 in connection with an office property sold in September 2010.  This real estate mortgage was prepaid in full in August 2011.  As of December 31, 2010, this mortgage had a carrying value of $8,183 and was included in other assets in our condensed consolidated balance sheet.

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Real Estate Properties (Tables)

9 Months Ended

Sep. 30, 2011

Real Estate Properties

Summary of balance sheet information for all properties classified as held for sale

Balance Sheets:

	September 30, 2011		December 31, 2010
Real estate properties	$	40,487	$	105,291
Acquired real estate leases	114		1,104
Rents receivable	202		4,446
Other assets, net	2,770		3,585
Properties held for sale	$	43,573	$	114,426
Assumed real estate lease obligations	$	7	$	7
Rent collected in advance	249		1,187
Security deposits	207		298
Liabilities related to properties held for sale	$	463	$	1,492

Summary of income statement information for properties sold or held for sale, other than for properties sold to GOV

Income Statements:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Rental income	$	8,296		$	24,999		$	24,994		$	73,590
Operating expenses	(5,832		)	(11,012		)	(16,219		)	(32,554		)
Depreciation and amortization	(1,336		)	(5,768		)	(4,467		)	(17,440		)
General and administrative	(470		)	(996		)	(1,433		)	(2,925		)
Acquisition related costs	(5		)	—			(148		)	(7		)
Operating income	653			7,223			2,727			20,664
Interest and other income	—			1			50			3
Interest expense	—			(551		)	—			(3,790		)
Income from discontinued operations	$	653		$	6,673		$	2,777		$	16,877

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Fair Value of Assets and Liabilities (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Dec. 31, 2010
Non-recurring Fair Value Measurements
Loss on asset impairment	$ 9,247		$ 9,247
Carrying value of properties	43,573		43,573		114,426
Interest rate swap agreements qualifying as cash flow hedges used for hedging mortgage note payable	175,000		175,000
Decrease in fair value of interest rate cash flow hedges	6,577	5,150	8,651	15,965
Fair value of derivative instruments included in accounts payable and accrued expenses and cumulative other comprehensive (loss) income	(15,607)		(15,607)		(6,956)
Recurring | Total Fair value
Recurring Fair Value Measurements:
Effective portion of interest rate contracts	(15,607)		(15,607)
Recurring | Fair Value at Reporting Date Using Significant Other Observable Inputs (Level 2)
Recurring Fair Value Measurements:
Effective portion of interest rate contracts	(15,607)		(15,607)
Nonrecurring | Total Fair value
Non-recurring Fair Value Measurements
Properties held for sale	33,033		33,033
Nonrecurring | Fair Value at Reporting Date Using Significant Other Observable Inputs (Level 2)
Non-recurring Fair Value Measurements
Properties held for sale	24,813		24,813
Nonrecurring | Fair Value at Reporting Date Using Significant Unobservable Inputs (Level 3)
Non-recurring Fair Value Measurements
Properties held for sale	8,220		8,220
Fair Value at Reporting Date Using Quoted Prices in Active Markets for Identical Assets (Level 1) | Office, industrial and other properties
Non-recurring Fair Value Measurements
Properties expected to sell within one year	16		16
Fair Value at Reporting Date Using Significant Other Observable Inputs (Level 2) | Office, industrial and other properties
Non-recurring Fair Value Measurements
Properties expected to sell within one year	8		8
Fair Value at Reporting Date Using Significant Unobservable Inputs (Level 3) | Office, industrial and other properties
Non-recurring Fair Value Measurements
Properties expected to sell within one year	2		2
Interest Rate Swap
Non-recurring Fair Value Measurements
Interest rate swap agreements qualifying as cash flow hedges used for hedging mortgage note payable	175,000		175,000
Derivative, variable rate basis			LIBOR
Office, industrial and other properties
Non-recurring Fair Value Measurements
Carrying value of properties	$ 42,280		$ 42,280
Office
Non-recurring Fair Value Measurements
Properties expected to sell within one year	6		6
Industrial & Other
Non-recurring Fair Value Measurements
Properties expected to sell within one year	20		20

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Real Estate Properties (Details 2) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2011 Y	Dec. 31, 2010
Balance Sheets:
Real estate properties	$ 7,192,194	$ 6,357,258
Acquired real estate leases	360,293	233,913
Rents receivable, net	212,737	191,237
Other assets, net	182,259	171,380
Properties held for sale	43,573	114,426
Assumed real estate lease obligations	72,619	65,940
Rent collected in advance	35,593	27,988
Security deposits	23,710	22,523
Liabilities related to properties held for sale	463	1,492
Real estate properties held for sale
Real estate properties information
Probable selling period of property to be classified as held-for-sale (in years)	1
Balance Sheets:
Real estate properties	40,487	105,291
Acquired real estate leases	114	1,104
Rents receivable, net	202	4,446
Other assets, net	2,770	3,585
Properties held for sale	43,573	114,426
Assumed real estate lease obligations	7	7
Rent collected in advance	249	1,187
Security deposits	207	298
Liabilities related to properties held for sale	$ 463	$ 1,492

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities:
Net income	$ 95,111	$ 113,105
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	123,324	117,575
Net amortization of debt discounts, premiums and deferred financing fees	5,467	5,644
Amortization of acquired real estate leases	33,654	23,420
Other amortization	12,186	12,216
Loss on asset impairment	9,247	21,491
(Gain) loss on early extinguishment of debt	(310)	1,044
Equity in earnings of investees	(8,390)	(6,643)
Gain on issuance of shares by an equity investee	(11,177)	(34,808)
Distributions of earnings from investees	8,279	6,660
Gain on sale of properties	(41,573)	(38,904)
Change in assets and liabilities:
(Increase) decrease in restricted cash	(5,020)	5,808
Increase in rents receivable and other assets	(56,972)	(36,581)
Increase (decrease) in accounts payable and accrued expenses	15,356	(10,951)
Increase in rent collected in advance	6,667	2,049
Increase (decrease) in security deposits	2,072	(59)
Increase in due to related persons	18,271	17,293
Cash provided by operating activities	206,192	198,359
Cash flows from investing activities:
Real estate acquisitions and improvements	(829,520)	(406,983)
Investment in direct financing lease, net	(38,635)
Principal payments received from direct financing lease	3,643
Principal payments received from real estate mortgage receivable	8,183
Proceeds from investment in marketable pass through certificates		8,000
Proceeds from sale of properties, net	263,170	230,911
Distributions in excess of earnings from investees	4,159	5,379
Investment in Affiliates Insurance Company		(75)
Increase in restricted cash		(1,221)
Cash used in investing activities	(589,000)	(163,989)
Cash flows from financing activities:
Proceeds from issuance of common shares, net	264,056	430,778
Proceeds from issuance of preferred shares, net	265,391
Proceeds from borrowings	750,000	1,148,632
Payments on borrowings	(738,904)	(1,317,027)
Deferred financing fees	(853)	(9,565)
Distributions to common shareholders	(108,213)	(90,168)
Distributions to preferred shareholders	(30,582)	(38,001)
Purchase of noncontrolling equity interest		(2,500)
Cash provided by financing activities	400,895	122,149
Effect of exchange rate changes on cash	(1,454)
Increase in cash and cash equivalents	16,633	156,519
Cash and cash equivalents at beginning of period	194,040	18,204
Cash and cash equivalents at end of period	210,673	174,723
Supplemental cash flow information:
Interest paid	151,259	142,311
Taxes paid	403	543
Non-cash investing activities:
Real estate acquisitions	(321,235)
Investment in real estate mortgage receivable		(8,288)
Non-cash financing activities:
Issuance of common shares	1,039	896
Assumption of mortgage notes payable	$ 321,235

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Investment in Direct Financing Lease (Tables)

9 Months Ended

Sep. 30, 2011

Investment in Direct Financing Lease

Carrying amount of net investment in direct financing lease

	September 30, 2011
Total minimum lease payments receivable	$	41,207
Estimated unguaranteed residual value of leased asset	4,951
Unearned income	(11,166		)
Net investment in direct financing lease	$	34,992

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Related Person Transactions (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended			12 Months Ended		3 Months Ended		9 Months Ended		12 Months Ended	1 Months Ended		1 Months Ended		3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011 sqft property quarter officetower	Sep. 30, 2010 sqft	Dec. 31, 2010	Dec. 31, 2010 GOV property	Sep. 30, 2011 GOV	Sep. 30, 2011 AIC entity	Sep. 30, 2010 AIC	Sep. 30, 2011 AIC Y entity	Sep. 30, 2010 AIC	Dec. 31, 2010 AIC	Sep. 30, 2011 SNH property sqft state	Jun. 30, 1999 SNH	Sep. 30, 2011 SNH Agreement to sell	Nov. 30, 2010 SNH Agreement to sell property sqft	Sep. 30, 2011 RMR	Sep. 30, 2010 RMR	Sep. 30, 2011 RMR	Sep. 30, 2010 RMR	Sep. 30, 2011 Agreement to sell sqft property
Related person transactions
Business management agreement expense																	$ 9,862	$ 8,881	$ 27,844	$ 26,053
Property management agreement expense																	7,767	6,592	21,487	19,878
Equity method investments, ownership percentage formerly held							100.00%
Equity investments, common shares owned (in shares)							9,950,000
Equity method investments, ownership percentage							21.10%	14.29%		14.29%				100.00%
Equity investments	178,652		178,652		171,464	166,388	173,407	5,245		5,245		5,076
Equity investments, market value based on quoted market prices							214,025
Equity investments, quoted market price of common share (in dollars per share)						$ 26.79	$ 21.51
Number of properties sold or agreed to be sold						15							13			27					16
Property square feet			69,399,000	59,430,000									1,310,000			2,803,000					570,000
Aggregate sale price of properties sold or agreed to be sold, excluding closing costs															167,000	470,000					6,500
Number of states in which properties are located													8
Number of other shareholders of related party								6		6
Number of companies to which RMR provides management services								5		5
Ownership percentage in equity method investment								20.00%		20.00%
Amount invested in equity investee								5,209		5,209
Income (loss) from equity method investments	2,768	1,999	8,390	6,643				28	35	111	(17)
Period for which property insurance program was extended (in years)										1
Premium for property insurance										5,540		5,328
Amount expensed in relation to insurance premiums								$ 1,385	$ 1,332	$ 4,067	$ 1,776

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Shareholders' Equity (Tables)

9 Months Ended

Sep. 30, 2011

Shareholders' Equity

Schedule of reconciliation of net income to total comprehensive income

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Comprehensive income:
Net income	$	28,535		$	65,810		$	95,111		$	113,105
Unrealized loss on derivative instrument	(6,577		)	(5,150		)	(8,651		)	(15,965		)
Unrealized loss on investment in available for sale securities	—			(141		)	—			(141		)
Realized gain on sale of investment in available for sale securities	—			—			(18		)	—
Foreign currency translation adjustments	(33,289		)	—			(17,584		)	—
Increase in share of investees other comprehensive income	14			—			58			—
Total comprehensive (loss) income	$	(11,317	)	$	60,519		$	68,916		$	96,999

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2011

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Note 2.  Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income.  This standard eliminates the current option to report other comprehensive income and its components in the statement of shareholders’ equity.  This standard is intended to enhance comparability between entities that report under GAAP and to provide a more consistent method of presenting non-owner transactions that affect an entity’s equity.  This standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  We do not expect the adoption of this standard to cause any material changes to our condensed consolidated financial statements.

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Earnings Per Common Share

9 Months Ended

Sep. 30, 2011

Earnings Per Common Share

Earnings Per Common Share

Note 11.  Earnings Per Common Share

As of September 30, 2011, we had 15,180,000 shares of series D cumulative convertible preferred shares that were convertible into 7,298,165 of our common shares.  The effect of our convertible preferred shares on income from continuing operations available for common shareholders per share is anti-dilutive for the periods presented.

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Equity Investments (Details 3) (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Income Statements:
Rental income	$ 238,790	$ 193,059	$ 662,596	$ 572,205
Operating expenses	(100,912)	(83,023)	(275,760)	(240,280)
Depreciation and amortization	(56,389)	(42,794)	(159,072)	(130,560)
Acquisition related costs	(4,805)	(1,559)	(9,722)	(2,965)
General and administrative	(11,450)	(9,704)	(33,559)	(28,081)
Operating income	65,234	55,979	184,483	148,828
Interest and other income	369	571	1,428	2,134
Interest expense	(49,423)	(44,192)	(145,037)	(133,716)
Equity in earnings (losses) of an investee	2,768	1,999	8,390	6,643
Income before income tax expense	30,435	31,951	60,751	57,901
Income tax benefit (expense)	(307)	34	(743)	(329)
Net income	28,535	65,810	95,111	113,105
Weighted average common shares outstanding (in shares)	81,536	65,173	75,307	62,198
GOV
Income Statements:
Rental income	45,719	30,746	126,718	80,040
Operating expenses	(16,951)	(11,275)	(46,937)	(27,537)
Depreciation and amortization	(10,379)	(6,321)	(27,862)	(16,602)
Acquisition related costs	(1,008)	(2,687)	(2,846)	(4,542)
General and administrative	(2,746)	(1,833)	(7,655)	(4,915)
Operating income	14,635	8,630	41,418	26,444
Interest and other income	54	12	89	80
Interest expense	(3,162)	(1,973)	(8,775)	(5,182)
Equity in earnings (losses) of an investee	28	35	111	(17)
Income before income tax expense	11,555	6,704	32,843	21,325
Income tax benefit (expense)	8	(35)	(94)	(71)
Net income	$ 11,563	$ 6,669	$ 32,749	$ 21,254
Weighted average common shares outstanding (in shares)	45,322	36,369	42,127	32,265
Net income per common share (in dollars per share)	$ 0.26	$ 0.18	$ 0.78	$ 0.66

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Subsequent Events

9 Months Ended

Sep. 30, 2011

Subsequent Events

Subsequent Events

Note 15.  Subsequent Events

In October 2011, we declared a distribution of $0.50 per common share, or approximately $41,900, to be paid on or about November 22, 2011 to shareholders of record on October 21, 2011.  We also announced a distribution on our series C preferred shares of $0.4453 per share, or $2,672, a distribution on our series D preferred shares of $0.4063 per share, or $6,167, and a distribution on our series E preferred shares of $0.4531 per share, or $4,984, which we expect to pay on or about November 15, 2011 to our preferred shareholders of record as of November 1, 2011.  Other subsequent events have been disclosed within other notes to these condensed consolidated financial statements.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2011	Dec. 31, 2010	Sep. 30, 2011 Series C	Dec. 31, 2010 Series C	Sep. 30, 2011 Series D	Dec. 31, 2010 Series D	Sep. 30, 2011 Series E	Dec. 31, 2010 Series E
Rents receivable, allowance for doubtful accounts (in dollars)	$ 12,421	$ 12,550
Preferred shares of beneficial interest, par value (in dollars per share)			$ 0.01	$ 0.01			$ 0.01
Preferred shares of beneficial interest, par value (in dollars per share)					$ 0.01	$ 0.01
Preferred shares of beneficial interest, shares authorized	50,000,000	50,000,000
Preferred shares, dividend yield (as a percent)			7.125%	7.125%	6.50%	6.50%	7.25%
Preferred shares of beneficial interest, shares issued			6,000,000	6,000,000	15,180,000	15,180,000	11,000,000	0
Preferred shares of beneficial interest, shares outstanding			6,000,000	6,000,000	15,180,000	15,180,000	11,000,000	0
Preferred shares, aggregate liquidation preference (in dollars)			$ 150,000	$ 150,000	$ 379,500	$ 379,500	$ 275,000	$ 0
Common shares of beneficial interest, par value (in dollars per share)	$ 0.01	$ 0.01
Common shares of beneficial interest, shares authorized	350,000,000	350,000,000
Common shares of beneficial interest, shares issued	83,721,736	72,138,686
Common shares of beneficial interest, shares outstanding	83,721,736	72,138,686

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Indebtedness (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended			1 Months Ended					1 Months Ended		9 Months Ended			1 Months Ended	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Dec. 31, 2010	Mar. 31, 2011 Senior notes.	Jun. 30, 2011 Secured mortgage debt Acquisition one property	Sep. 30, 2011 Mortgage notes maturing from 2012 through 2027 property	Aug. 31, 2011 Mortgages debt due in 2017 Another acquisition	Jun. 30, 2011 Mortgages debt due in 2017 Another acquisition	Jul. 31, 2011 Mortgages debt due in 2012	Jun. 30, 2011 7.435% Mortgage debt	Sep. 30, 2011 Unsecured revolving credit facility	Sep. 30, 2010 Unsecured revolving credit facility	Oct. 31, 2011 Unsecured revolving credit facility Y	Oct. 31, 2011 Term loan lender	Sep. 30, 2011 Term loan
Indebtedness
Repayments on maturity						$ 168,219
Repayments on maturity												29,188
Interest rate stated percentage (as a percent)									5.68%	5.67%	8.05%	7.435%
Prepayment at premium											23,168
Loss (gain) on early extinguishment of debt	(310)	796	(310)	796
Number of properties mortgaged							4	23
Debt assumed in connection with acquisition							14,960		265,000	41,275
Fair value of mortgages assumed							15,894		278,671	44,560
Interest rate weighted percentage (as a percent)							6.35%
Cost of properties mortgaged	7,192,194		7,192,194		6,357,258			913,746
Mortgaged properties aggregate net book value	6,259,901		6,259,901		5,506,997			804,357
Mortgage notes	633,935		633,935		351,526			633,935
Revolving credit facility, maximum borrowing capacity	1,500,000		1,500,000												750,000
Revolving credit facility, possible option for extension of tenure of facility (in years)															1
Revolving credit facility, interest rate basis													LIBOR
Revolving credit facility, average interest rate (as a percent)													2.20%	1.50%
Revolving credit facility, amount outstanding	235,000		235,000										235,000
Revolving credit facility, available under facility													515,000
Interest rate added to the base rate before amendment (as a percent)													2.00%				2.00%
Interest rate added to the base rate after amendment (as a percent)															1.25%	1.50%
Amount up to which maximum borrowing capacity can be increased in certain circumstances															1,500,000
Principal balance																557,000	400,000
Amount up to which the prepayment premium is eliminated																500,000
Revolving credit facility, maximum borrowing capacity as a result of increase in borrowing capacity under the facility													1,500,000
Interest rate basis																	LIBOR
Maximum amount by which maximum borrowing capacity of debt instrument may be increased																1,000,000
Number of lenders who were unable to commit to the amended term loan																3
Amount agreed to be repaid representing lenders who were unable to commit to amended terms																$ 57,000

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Pro Forma Information (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Pro Forma Information
Purchase price of properties acquired			$ 1,144,852
Assumption of mortgage debt			321,235
Pro forma information
Total revenues			727,786	686,463
Income from continuing operations			72,069	61,749
Per share data :
Income from continuing operations (in dollars per share)			$ 0.52	$ 0.93
Pro Forma Information
Revenues from acquisitions completed in 2011	238,790	193,059	662,596	572,205
Operating income from acquisitions completed in 2011	65,234	55,979	184,483	148,828
Acquisition
Pro Forma Information
Number of properties acquired and continue to own			22
Purchase price of properties acquired			1,132,827
Assumption of mortgage debt			321,235
Pro Forma Information
Revenues from acquisitions completed in 2011			50,881
Operating income from acquisitions completed in 2011			$ 32,688

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Subsequent Events (Details) (Dividends declared in subsequent month, USD $) In Thousands, except Per Share data	Sep. 30, 2011
Series C
Subsequent events
Dividend declared per share (in dollars per share)	$ 0.4453
Amount of dividend declared	$ 2,672
Series D
Subsequent events
Dividend declared per share (in dollars per share)	$ 0.4063
Amount of dividend declared	6,167
Series E
Subsequent events
Dividend declared per share (in dollars per share)	$ 0.4531
Amount of dividend declared	4,984
Common Stock
Subsequent events
Dividend declared per share (in dollars per share)	$ 0.50
Amount of dividend declared	$ 41,900

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Shareholders' Equity (Details) (USD $) In Thousands, except Share data, unless otherwise specified	1 Months Ended			3 Months Ended		9 Months Ended					6 Months Ended
	Sep. 30, 2011	Jul. 31, 2011	May 31, 2011 trustee	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Sep. 16, 2011	May 10, 2011	Dec. 31, 2010	Jun. 30, 2011 Series E	Sep. 30, 2011 Series E	Dec. 31, 2010 Series E
Shareholders' Equity
Common shares issued to trustees as part of annual compensation (in shares)			2,000
Common shares of beneficial interest, par value (in dollars per share)	$ 0.01			$ 0.01		$ 0.01			$ 0.01	$ 0.01
Stock price per share which is the closing price at NYSE (in dollars per share)									$ 26.57
Number of trustees receiving shares as part of annual compensation			5
Aggregate common shares of beneficial interest granted (in shares)	73,050
Common stock price per share which is the closing price of common shares on the NYSE (in dollars per share)								$ 19.96
Interest rate swap agreements qualifying as cash flow hedges used for hedging mortgage note payable	$ 175,000			$ 175,000		$ 175,000
Comprehensive income:
Net income				28,535	65,810	95,111	113,105
Unrealized loss on derivative instrument				(6,577)	(5,150)	(8,651)	(15,965)
Unrealized loss on investment in available for sale securities					(141)		(141)
Realized gain on sale of investment in available for sale securities						(18)
Foreign currency translation adjustments				(33,289)		(17,584)
Increase in share of investees other comprehensive income				14		58
Total comprehensive (loss) income				(11,317)	60,519	68,916	96,999
Cumulative redeemable preferred shares issued (in shares)											11,000,000	11,000,000	0
Proceeds from cumulative redeemable preferred shares											265,391
Liquidation preference (in dollars per share)												$ 25.00
Preferred shares dividend (in dollars per share)												$ 1.8125
Preferred shares, dividend yield (as a percent)												7.25%
Issuance of common shares in public offerings (in shares)		11,500,000
Proceeds from common shares		$ 264,056				$ 264,056	$ 430,778