Note 5. Equity Investments

At March 31, 2013 and December 31, 2012, we had the following equity investments in Government Properties Income Trust, or GOV, and Affiliates Insurance Company, or AIC (including 100% attribution of SIR’s 12.5% equity ownership interest in AIC):

	Ownership Percentage				Equity Investments				Equity in Earnings
									Three Months Ended
	March 31,		December 31,		March 31,		December 31,		March 31,
	2013		2012		2013		2012		2013		2012
GOV	—	%	18.2	%	$	—	$	173,452	$	4,111	$	2,913
AIC	25.0	%	25.0	%	11,394		11,259		151		45
					$	11,394	$	184,711	$	4,262	$	2,958

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

During the three months ended March 31, 2013 and 2012, we received cash distributions from GOV totaling $4,279 and $4,179, respectively.

The following summarized financial data of GOV is as reported in GOV’s Quarterly Report on Form 10-Q for the period ended March 31, 2013, or the GOV Quarterly Report. References in our financial statements to the GOV Quarterly Report are included as references to the source of the data only, and the information in the GOV Quarterly Report is not incorporated by reference into our financial statements.

Condensed Consolidated Balance Sheet:

	December 31,
	2012
Real estate properties, net	$	1,357,986
Acquired real estate leases, net	144,484
Cash and cash equivalents	5,255
Rents receivable, net	29,099
Other assets, net	25,310
Total assets	$	1,562,134

Unsecured revolving credit facility	$	49,500
Unsecured term loan	350,000
Mortgage notes payable	93,127
Assumed real estate lease obligations, net	19,129
Other liabilities	22,927
Shareholders’ equity	1,027,451
Total liabilities and shareholders’ equity	$	1,562,134

Condensed Consolidated Statements of Income:

	Three Months Ended March 31,
	2013			2012
Rental income	$	57,678		$	49,997
Operating expenses	(20,068		)	(17,977		)
Depreciation and amortization	(13,696		)	(11,910		)
Acquisition related costs	(34		)	(49		)
General and administrative	(3,249		)	(3,002		)
Operating income	20,631			17,059

Interest and other income	11			8
Interest expense	(4,147		)	(4,023		)
Equity in earnings of an investee	76			45
Income before income tax expense	16,571			13,089
Income tax expense	(43		)	(45		)
Income from continuing operations	16,528			13,044
Discontinued operations:
Income from discontinued operations	30			15
Net gain on sale of properties from discontinued operations	8,168			—
Net income	$	24,726		$	13,059

Weighted average common shares outstanding	54,645			47,052

Per common share:
Income from continuing operations	$	0.30		$	0.28
Income from discontinued operations	$	0.15		$	—
Net income	$	0.45		$	0.28

As of March 31, 2013, we and SIR have invested a total of $10,544 in AIC, an insurance company owned in equal proportion by Reit Management & Research LLC, our business and property manager, or RMR, us (excluding SIR’s AIC interest), SIR and five other companies to which RMR provides management services, including GOV. We and SIR may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we and SIR are not obligated to do so. At March 31, 2013, we (without SIR) and SIR each owned 12.5% of AIC with a combined carrying value of $11,394. We and SIR use the equity method to account for this investment because we and SIR believe that we each have significant influence over AIC because all of our Trustees and all of SIR’s trustees are also directors of AIC. Under the equity method, we record our and SIR’s percentage share of net earnings from AIC in our condensed consolidated statements of operations. If we determine there is an “other than temporary” decline in the fair value of this investment, we would record a charge to earnings. In evaluating the fair value of this investment, we have considered, among other things, the assets and liabilities held by AIC, AIC’s overall financial condition and the financial condition and prospects for AIC’s insurance business. See Note 14 for additional information about our and SIR’s investment in AIC.