10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2013

OR

oTRANSITION 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 4, 2013: 118,387,518.

COMMONWEALTH REIT

FORM 10-Q

September 30, 2013

INDEX

		Page
PART I	Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets – September 30, 2013 and December 31, 2012	1
	Condensed Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2013 and 2012	2
	Condensed Consolidated Statements of Comprehensive (Loss) Income – Three and Nine Months Ended September 30, 2013 and 2012	3
	Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2013 and 2012	4
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	52
	Warning Concerning Forward Looking Statements	53
	Statement Concerning Limited Liability	57
PART II	Other Information
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 6.	Exhibits	64
	Signatures	67

References in this Quarterly Report on Form 10-Q to the “Company”, “CWH”, “we”, “us” or “our” refer to CommonWealth REIT and its consolidated subsidiaries, as of September 30, 2013, unless the context indicates otherwise.  On July 2, 2013, Select Income REIT, or SIR, completed an underwritten public offering of its common shares, at which time CWH ceased to own a majority of SIR’s common shares.  Accordingly, following July 2, 2013, CWH no longer consolidates its investment in SIR, but instead accounts for such investment under the equity method.

The financial information presented in this Quarterly Report on Form 10-Q includes SIR’s financial position and results of operations for periods prior to July 2, 2013 when SIR was CWH’s consolidated subsidiary, unless the context indicates otherwise.  SIR is itself a public company that has common shares registered under the Securities Exchange Act of 1934, as amended.  For further information about SIR, please see SIR’s periodic reports and other filings with the Securities and Exchange Commission, or the SEC, which are available at the SEC’s website at www.sec.gov.  References in this Quarterly Report on Form 10-Q to SIR’s filings with the SEC are included as textual references only, and the information in SIR’s filings with the SEC is not incorporated by reference into this Quarterly Report on Form 10-Q unless otherwise expressly stated herein.

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,
	2013			2012
ASSETS
Real estate properties:
Land	$	740,613		$	1,531,416
Buildings and improvements	4,890,457			6,297,993
	5,631,070			7,829,409
Accumulated depreciation	(874,032		)	(1,007,606		)
	4,757,038			6,821,803
Properties held for sale	678,250			171,832
Acquired real estate leases, net	272,381			427,756
Equity investments	517,254			184,711
Cash and cash equivalents	165,990			102,219
Restricted cash	17,443			16,626
Rents receivable, net of allowance for doubtful accounts of $7,750 and $9,962, respectively	218,301			253,394
Other assets, net	195,330			211,293
Total assets	$	6,821,987		$	8,189,634
LIABILITIES AND SHAREHOLDERS’ EQUITY
Revolving credit facility	$	235,000		$	297,000
SIR revolving credit facility	—			95,000
Senior unsecured debt, net	1,954,701			2,972,994
Mortgage notes payable, net	925,120			984,827
Liabilities related to properties held for sale	30,322			2,339
Accounts payable and accrued expenses	169,498			194,184
Assumed real estate lease obligations, net	38,087			69,304
Rent collected in advance	29,220			35,700
Security deposits	12,442			23,860
Due to related persons	6,564			12,958
Total liabilities	3,400,954			4,688,166
Shareholders’ equity:
Shareholders’ equity attributable to CommonWealth REIT:
Preferred shares of beneficial interest, $0.01 par value: 50,000,000 shares authorized;
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 shares issued and outstanding, aggregate liquidation preference $275,000	265,391			265,391
Common shares of beneficial interest, $0.01 par value: 350,000,000 shares authorized; 118,387,518 and 83,804,068 shares issued and outstanding, respectively	1,184			838
Additional paid in capital	4,213,472			3,585,400
Cumulative net income	2,215,141			2,386,900
Cumulative other comprehensive (loss) income	(26,930		)	565
Cumulative common distributions	(3,052,675		)	(2,972,569		)
Cumulative preferred distributions	(562,820		)	(529,367		)
Total shareholders’ equity attributable to CommonWealth REIT	3,421,033			3,105,428
Noncontrolling interest in consolidated subsidiary	—			396,040
Total shareholders’ equity	3,421,033			3,501,468
Total liabilities and shareholders’ equity	$	6,821,987		$	8,189,634

See accompanying notes.

1

COMMONWEALTH REIT

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Rental income	$	201,741		$	226,802		$	699,207		$	662,587
Expenses:
Operating expenses	94,632			92,005			287,650			265,227
Depreciation and amortization	52,150			52,353			169,930			154,623
General and administrative	25,069			12,565			61,445			34,190
Acquisition related costs	(436		)	1,066			337			5,002
Total expenses	171,415			157,989			519,362			459,042
Operating income	30,326			68,813			179,845			203,545
Interest and other income	227			399			931			1,020
Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of ($589), $1,001, $321 and $2,717, respectively)	(39,359		)	(50,736		)	(134,824		)	(148,924		)
Loss on early extinguishment of debt	—			(220		)	(60,027		)	(287		)
Equity in earnings of investees	10,492			2,868			14,913			8,655
Gain on sale of equity investment	—			—			66,293			—
Income from continuing operations before income tax expense	1,686			21,124			67,131			64,009
Income tax expense	(785		)	(1,322		)	(2,527		)	(1,906		)
Income from continuing operations	901			19,802			64,604			62,103
Discontinued operations:
(Loss) income from discontinued operations	(28		)	774			4,390			4,891
Loss on asset impairment from discontinued operations	(217,080		)	—			(225,615		)	—
Loss on early extinguishment of debt from discontinued operations	—			—			—			(1,608		)
Net gain on sale of properties from discontinued operations	—			1,689			3,359			2,039
(Loss) income before gain on sale of properties	(216,207		)	22,265			(153,262		)	67,425
Gain on sale of properties	—			—			1,596			—
Net (loss) income	(216,207		)	22,265			(151,666		)	67,425
Net income attributable to noncontrolling interest in consolidated subsidiary	(108		)	(4,647		)	(20,093		)	(10,062		)
Net (loss) income attributable to CommonWealth REIT	(216,315		)	17,618			(171,759		)	57,363
Preferred distributions	(11,151		)	(12,755		)	(33,453		)	(40,401		)
Excess redemption price paid over carrying value of preferred shares	—			(4,985		)	—			(4,985		)
Net (loss) income available for CommonWealth REIT common shareholders	$	(227,466	)	$	(122	)	$	(205,212	)	$	11,977
Amounts attributable to CommonWealth REIT common shareholders:
(Loss) income from continuing operations	$	(10,358	)	$	(2,585	)	$	12,654		$	6,655
(Loss) income from discontinued operations	(28		)	774			4,390			4,891
Loss on asset impairment from discontinued operations	(217,080		)	—			(225,615		)	—
Loss on early extinguishment of debt from discontinued operations	—			—			—			(1,608		)
Net gain on sale of properties from discontinued operations	—			1,689			3,359			2,039
Net (loss) income	$	(227,466	)	$	(122	)	$	(205,212	)	$	11,977
Weighted average common shares outstanding — basic and diluted	118,328			83,745			110,353			83,731
Basic and diluted earnings per common share attributable to CommonWealth REIT common shareholders:
(Loss) income from continuing operations	$	(0.09	)	$	(0.03	)	$	0.11		$	0.08
(Loss) income from discontinued operations	$	(1.83	)	$	0.03		$	(1.97	)	$	0.06
Net (loss) income available for common shareholders	$	(1.92	)	$	—		$	(1.86	)	$	0.14

See accompanying notes.

2

COMMONWEALTH REIT

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(amounts in thousands)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Net (loss) income	$	(216,207	)	$	22,265		$	(151,666	)	$	67,425
Other comprehensive (loss) income, net of tax:
Unrealized gain (loss) on derivative instruments	178			454			4,011			(1,987		)
Foreign currency translation adjustments	5,455			4,516			(31,393		)	5,597
Equity in unrealized income (loss) of an investee	13			69			(149		)	65
Total comprehensive (loss) income	(210,561		)	27,304			(179,197		)	71,100
Less: comprehensive income attributable to noncontrolling interest in consolidated subsidiary	(108		)	(4,657		)	(20,057		)	(10,072		)
Comprehensive (loss) income attributable to CommonWealth REIT	$	(210,669	)	$	22,647		$	(199,254	)	$	61,028

See accompanying notes.

3

COMMONWEALTH REIT

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

	Nine Months Ended September 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(151,666	)	$	67,425
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Depreciation	140,357			137,039
Net amortization of debt discounts, premiums and deferred financing fees	321			2,752
Straight line rental income	(26,056		)	(28,666		)
Amortization of acquired real estate leases	46,350			44,154
Other amortization	14,727			14,610
Loss on asset impairment	225,615			—
Loss on early extinguishment of debt	60,027			1,895
Equity in earnings of investees	(14,913		)	(8,655		)
Gain on sale of equity investment	(66,293		)	—
Distributions of earnings from investees	13,791			8,230
Net gain on sale of properties	(4,955		)	(2,039		)
Change in assets and liabilities:
Restricted cash	2,149			(3,689		)
Rents receivable and other assets	(58,705		)	(46,790		)
Accounts payable and accrued expenses	11,116			(9,140		)
Rent collected in advance	1,945			(11,775		)
Security deposits	527			415
Due to related persons	(4,677		)	20,646
Cash provided by operating activities	189,660			186,412
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions	(154,430		)	(389,536		)
Real estate improvements	(80,239		)	(86,077		)
Principal payments received from direct financing lease	5,196			4,954
Principal payments received from real estate mortgages receivable	1,000			—
Proceeds from sale of properties, net	37,699			9,643
Proceeds from sale of equity investment, net	239,576			—
Distributions in excess of earnings from investees	168			4,307
Investment in Affiliates Insurance Company	—			(5,335		)
Increase in restricted cash	(3,008		)	(2,073		)
Deconsolidation of a subsidiary	(12,286		)	—
Cash provided by (used in) investing activities	33,676			(464,117		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares, net	626,809			180,814
Redemption of preferred shares	—			(150,000		)
Repurchase and retirement of outstanding debt securities	(728,021		)	—
Proceeds from borrowings	1,036,000			1,368,500
Payments on borrowings	(964,258		)	(1,055,681		)
Deferred financing fees	(1,204		)	(14,734		)
Distributions to common shareholders	(80,106		)	(125,588		)
Distributions to preferred shareholders	(33,453		)	(41,558		)
Distributions to noncontrolling interest in consolidated subsidiary	(14,863		)	(4,508		)
Cash (used in) provided by financing activities	(159,096		)	157,245
Effect of exchange rate changes on cash	(469		)	377
Increase (decrease) in cash and cash equivalents	63,771			(120,083		)
Cash and cash equivalents at beginning of period	102,219			192,763
Cash and cash equivalents at end of period	$	165,990		$	72,680

See accompanying notes.

4

COMMONWEALTH REIT

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(amounts in thousands)

(unaudited)

	Nine Months Ended September 30,
	2013			2012
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	156,841		$	165,874
Taxes paid	1,197			568
NON-CASH INVESTING ACTIVITIES:
Real estate acquisitions	$	—		$	(243,212	)
Investment in real estate mortgages receivable	(7,688		)	(1,419		)
NON-CASH FINANCING ACTIVITIES:
Issuance of common shares	$	1,535		$	986
Assumption of mortgage notes payable	—			243,212

See accompanying notes.

5

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 and its subsidiaries, or the Company, CWH, we, us or our, have been prepared without audit.  Certain information and footnote disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted.  We believe the disclosures made are adequate to make the information presented not misleading.  However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2012, 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 material 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.

On March 12, 2012, our then wholly owned subsidiary, Select Income REIT, completed an initial public offering of 9,200,000 of its common shares, or the SIR IPO.  We refer to Select Income REIT and its consolidated subsidiaries as SIR.  SIR is a real estate investment trust, or REIT.  On July 2, 2013, SIR issued and sold to the public 10,500,000 of its common shares of beneficial interest in an underwritten public offering.  Before this offering, our 22,000,000 common shares of SIR represented approximately 56.0% of SIR’s outstanding common shares and SIR was one of our consolidated subsidiaries.  As of September 30, 2013, we owned 22,000,000 SIR common shares, or approximately 44.2% of SIR’s outstanding common shares.  Since our investment in SIR is below 50% after this offering, effective July 2, 2013, we no longer consolidate our investment in SIR, but instead account for such investment under the equity method.   See Note 6 and Note 15 for additional information regarding SIR.

Note 2.  Recent Accounting Pronouncements

Effective January 2013, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  This update is the culmination of the FASB’s deliberation on reporting reclassification adjustments from accumulated other comprehensive income, or AOCI.  This standard does not change the current requirements for reporting net income or other comprehensive income.  However, it requires disclosure of amounts reclassified out of AOCI in their entirety, by component, on the face of the statement of operations or in the notes thereto.  Amounts that are not required to be reclassified in their entirety to net income must be cross referenced to other disclosures that provide additional detail.  This standard was effective prospectively for interim and annual reporting periods beginning after December 15, 2012.  The implementation of this update did not cause any material changes to the presentation of our condensed consolidated financial statements.

6

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 3.  Board of Trustees

On February 26, 2013, Corvex Management LP, or Corvex, Related Fund Management, LLC and certain of their affiliates, or together with Corvex, Corvex/Related, publicly disclosed their accumulation of the Company’s common shares.  Corvex/Related have since undertaken a series of actions in an effort to influence and control the Company, including publishing “open” letters to our Board of Trustees, announcing conditional, unfinanced purported offers to acquire all the common shares of the Company and running a purported consent solicitation seeking to remove, without cause, all of the members of our Board of Trustees.  Corvex/Related unilaterally, publicly stated that they believed the record date for their purported consent solicitation was April 22, 2013 and solicited consents from our shareholders as of that date to their removal proposal.  On June 21, 2013, Corvex delivered to the Company a letter and enclosed materials that it claimed were written consents from the Company’s shareholders that effectuated the immediate removal of the Company’s entire Board of Trustees.

The legal effectiveness of the Corvex/Related purported consent solicitation is the subject of legal proceedings before an arbitration panel.  We believe that the Corvex/Related consent solicitation has no legal effect because, among other things, under our declaration of trust and bylaws, the power to set a record date for a consent solicitation rests with the Company’s Board of Trustees and our Board of Trustees did not set such a record date for the Corvex/Related purported consent solicitation as the Corvex/Related request for a record date did not comply with requirements in our governing documents.  Moreover, our Board of Trustees believes that the removal of all of our Trustees without cause and in one removal action conflicts with our Board of Trustee’s election to be subject to certain provisions of the Maryland Unsolicited Takeovers Act.  On June 24, 2013, the Company responded to the June 21, 2013 letter from Corvex/Related pointing out that the legal effectiveness of the Corvex/Related consent solicitation is currently the subject of proceedings before an arbitration panel and that the Board of Trustees would continue to manage the Company unless and until the arbitration panel directs otherwise.  An evidentiary hearing on the legal effectiveness of the Corvex/Related consent solicitation was held before the arbitration panel from October 7, 2013 through October 17, 2013, and the parties submitted post-hearing briefs on October 30, 2013.  Our current expectation is that the arbitration panel will issue a ruling regarding these matters on or before November 29, 2013.

We believe that the Corvex/Related purported consent solicitation has no legal effect and to date, no court or arbitration panel has ruled that it is legally effective.  However, if the arbitration panel determines that the Corvex/Related consent solicitation is legally effective and the entire Board of Trustees has been removed as a result of the Corvex/Related consent solicitation, such removal may, among other things, disrupt the Company’s business and operations, give rise to preferred shareholder conversion rights and events of default under certain material agreements, affect our ability to pay dividends, borrow money and implement our business plan, and have other effects which may adversely affect us.

Note 4.  Real Estate Properties

The information presented in this Note 4 excludes information related to SIR and its consolidated subsidiaries, unless the context indicates otherwise.

We did not make any acquisitions during the nine months ended September 30, 2013.

During the nine months ended September 30, 2013, we made improvements totaling $75,431 to our properties, including improvements made by SIR to its properties for the period that SIR was our consolidated subsidiary, which was until July 2, 2013.

Property Sales:

During the nine months ended September 30, 2013, we sold nine properties (27 buildings) with a combined 2,394,680 square feet and two land parcels for an aggregate sale price of $46,712, excluding closing costs.  Details of these completed sales are as follows:

·In January 2013, we sold three suburban office and industrial properties (18 buildings) in suburbs of Detroit, MI with a combined 1,060,026 square feet for $10,250, excluding closing costs.  In connection with the sale of these properties, we

7

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

provided mortgage financing to the buyer, an unrelated third party, totaling $7,688 at 6.0% per annum and recognized a gain on sale of $1,277.

·As a result of an eminent domain taking in March 2013, we sold a land parcel adjacent to one of our central business district, or CBD, properties located in Boston, MA for $1,806, excluding closing costs, and recognized a gain on sale of $1,596.

·In April 2013, we sold a suburban property (one building) with 618,000 square feet for $830, excluding closing costs.

·In May 2013, we sold a suburban property (one building) with 57,250 square feet for $4,025, excluding closing costs.

·In June 2013, we sold a suburban property (two buildings) with a combined 356,045 square feet for an aggregate sale price of $16,300, excluding closing costs.

·Also in June 2013, we sold a suburban property (one building) with 30,105 square feet for $1,600, excluding closing costs, and recognized a gain on sale of $317.

·Also in June 2013, we sold a suburban property (one building) with 143,802 square feet for $5,250, excluding closing costs.

·Also in June 2013, we sold a parcel of land in Tukwila, WA for $2,551, excluding closing costs, and recognized a gain on sale of $1,765.

·In August 2013, we sold a suburban property (three buildings) with a combined 129,452 square feet for $4,100, excluding closing costs.

We classify all properties that meet the criteria outlined in the Property, Plant and Equipment Topic of the FASB Accounting Standards CodificationTM, or the Codification, as held for sale as such on our condensed consolidated balance sheets.  As of December 31, 2012, we had one CBD property (one building) and 39 suburban properties (93 buildings) with a combined 6,673,851 square feet held for sale.  As of September 30, 2013, we had four CBD properties (five buildings) and 72 suburban properties (172 buildings) with a combined 12,704,719 square feet held for sale.  As of November 4, 2013, we have sold 29 of these properties (65 buildings) with a combined 4,201,777 square feet for an aggregate sale price of $111,400, excluding closing costs.  In addition, as of November 4, 2013, we have two of these properties (two buildings) with a combined 77,394 square feet under agreement to sell for an aggregate sale price of $2,050, excluding closing costs.  We expect to complete the sale of these two properties currently under agreement for sale by year end 2013 and the remaining 45 properties listed for sale by mid-year 2014; however, no assurance can be given that these properties will be sold in those time periods or at all, or what the ultimate terms of those sales may be.  Results of operations for properties sold or held for sale are included in discontinued operations in our condensed consolidated statements of operations once the criteria for discontinued operations in the Presentation of Financial Statements Topic of the Codification are met.  Summarized balance sheet information for all properties classified as held for sale and income statement information for properties held for sale or sold is as follows:

8

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Balance Sheets:

	September 30, 2013		December 31, 2012
Real estate properties	$	631,057	$	164,041
Acquired real estate leases	9,416		453
Rents receivable	16,941		2,791
Other assets, net	20,836		4,547
Properties held for sale	$	678,250	$	171,832
Mortgage notes payable, net	$	20,127	$	—
Assumed real estate lease obligations	2,328		21
Rent collected in advance	4,202		854
Security deposits	3,665		1,464
Liabilities related to properties held for sale	$	30,322	$	2,339

Statements of Operations:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Rental income	$	27,619		$	34,859		$	89,399		$	105,694
Operating expenses	(17,417		)	(20,572		)	(54,226		)	(59,533		)
Depreciation and amortization	(8,157		)	(11,084		)	(24,289		)	(33,717		)
General and administrative	(1,761		)	(2,027		)	(5,553		)	(6,076		)
Operating income	284			1,176			5,331			6,368
Interest and other income	1			—			13			80
Interest expense	(313		)	(402		)	(954		)	(1,557		)
(Loss) income from discontinued operations	$	(28	)	$	774		$	4,390		$	4,891

Note 5.  Investment in Direct Financing Lease

We have an investment in a direct financing lease that relates to a lease with a term that exceeds 75% of the useful life of an office tower located within a mixed use property in Phoenix, AZ.  We recognize income using the effective interest method to produce a level yield on funds not yet recovered.  Estimated unguaranteed residual values at the date of lease inception represent our initial estimates of the fair value of the leased assets at the expiration of the lease, which do not exceed their original cost.  Significant assumptions used in estimating residual values include estimated net cash flows over the remaining lease term and expected future real estate values.  The carrying amount of our net investment is included in other assets in our condensed consolidated balance sheets.  The following table summarizes the carrying amount of our net investment in this direct financing lease:

	September 30,			December 31,
	2013			2012
Total minimum lease payments receivable	$	25,011		$	31,084
Estimated unguaranteed residual value of leased asset	4,951			4,951
Unearned income	(8,425		)	(9,302		)
Net investment in direct financing lease	$	21,537		$	26,733

We monitor the payment history and credit profile of the tenant and have determined that no allowance for losses related to our direct financing lease was necessary at September 30, 2013 and December 31, 2012.  Our direct financing lease has an expiration date in 2045.

9

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 6.  Equity Investments

At September 30, 2013 and December 31, 2012, we had the following equity investments in SIR, Government Properties Income Trust, or GOV, and Affiliates Insurance Company, or AIC:

	Ownership Percentage				Equity Investments				Equity in Earnings
									Three Months Ended				Nine Months Ended
	September 30,		December 31,		September 30,		December 31,		September 30,				September 30,
	2013		2012		2013		2012		2013		2012		2013		2012
SIR	44.2	%	Consolidated		$	511,473	$	—	$	10,428	$	—	$	10,428	$	—
GOV	—	%	18.2	%	—		173,452		—		2,638		4,111		8,231
AIC	12.5	%	25.0	%	5,781		11,259		64		230		374		424
					$	517,254	$	184,711	$	10,492	$	2,868	$	14,913	$	8,655

At September 30, 2013, we owned 22,000,000, or approximately 44.2%, of the common shares of beneficial interest of SIR, with a carrying value of $511,473 and a market value, based on quoted market prices, of $567,600 ($25.80 per share).  SIR is a REIT that is primarily focused on owning and investing in net leased, single tenant properties and was one of our consolidated subsidiaries until July 2, 2013.  On July 2, 2013, SIR issued and sold to the public 10,500,000 of its common shares for $28.25 per common share.  Prior to the completion of this offering, our 22,000,000 common shares of SIR represented approximately 56.0% of SIR’s outstanding common shares, and SIR was one of our consolidated subsidiaries.  Following the completion of this offering, our 22,000,000 common shares of SIR represented approximately 44.2% of SIR’s outstanding common shares and SIR ceased to be our consolidated subsidiary.  Accordingly, since the completion of this offering on July 2, 2013, we no longer consolidate our investment in SIR, but instead account for such investment under the equity method.  Under the equity method, we record our percentage share of net earnings of SIR in our condensed consolidated statements of operations.  Prior to July 2, 2013, the operating results and investments of SIR were included in our consolidated results of operations and financial position.  On July 2, 2013, our share of the underlying equity of SIR exceeded our carrying value by $17,590.  As required under GAAP, we are amortizing this difference to equity in earnings of investees over a 27 year period, which approximates the average remaining useful lives of the buildings owned by SIR as of July 2, 2013.  If we determine there is an “other than temporary” decline in the fair value of this investment, we would record a charge to earnings.  See Note 1 and Note 15 for additional information regarding SIR.

Since July 2, 2013, we received cash distributions from SIR totaling $9,680.

The following summarized financial data of SIR is as reported in SIR’s Quarterly Report on Form 10-Q for the period ended September 30, 2013, or the SIR Quarterly Report.  References in our financial statements to the SIR Quarterly Report are included as references to the source of the data only, and the information in the SIR Quarterly Report is not incorporated by reference into our financial statements.

10

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Condensed Consolidated Balance Sheets:

	September 30,		December 31,
	2013		2012
Real estate properties, net	$	1,510,338	$	1,249,081
Acquired real estate leases, net	114,937		95,248
Cash and cash equivalents	14,540		20,373
Rents receivable, net	52,174		38,885
Other assets, net	23,162		27,065
Total assets	$	1,715,151	$	1,430,652
Revolving credit facility	$	80,000	$	95,000
Term loan	350,000		350,000
Mortgage notes payable	27,309		27,778
Assumed real estate lease obligations, net	19,317		20,434
Other liabilities	40,999		37,257
Shareholders’ equity	1,197,526		900,183
Total liabilities and shareholders’ equity	$	1,715,151	1,430,652

Condensed Consolidated Statements of Income:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Total revenues	$	48,584		$	30,878		$	138,390		$	86,385
Operating expenses	(9,287		)	(5,710		)	(26,172		)	(16,828		)
Depreciation and amortization	(8,485		)	(3,888		)	(22,445		)	(9,682		)
Acquisition related costs	(790		)	(583		)	(1,479		)	(1,258		)
General and administrative	(3,208		)	(2,626		)	(8,884		)	(5,664		)
Operating income	26,814			18,071			79,410			52,953
Interest expense	(3,232		)	(2,467		)	(10,484		)	(4,436		)
Equity in earnings of an investee	64			115			219			189
Income before income tax expense	23,646			15,719			69,145			48,706
Income tax expense	(52		)	—			(132		)	—
Net income	$	23,594		$	15,719		$	69,013		$	48,706
Weighted average common shares outstanding	49,686			31,206			42,790			25,226
Net income per common share	$	0.47		$	0.50		$	1.61		$	1.93

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

During the nine months ended September 30, 2013 and 2012, we received cash distributions from GOV totaling $4,279 and $12,537, respectively.

As of September 30, 2013, we have invested $5,209 in AIC, an insurance company owned in equal proportion by us, Reit Management & Research LLC, our business and property manager, or RMR, GOV, SIR and four other companies to which RMR provides management services.  At September 30, 2013, we owned 12.5% of AIC with a carrying value of $5,781.  For the period that

11

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

SIR was both a shareholder of AIC and our consolidated subsidiary, from May 2012 until July 2, 2013, our condensed consolidated financial statements also include SIR’s equity investment in AIC.  We and SIR use the equity method to account for our and SIR’s investment in AIC because we and SIR believe that we each have significant influence over AIC because all of our Trustees and all of SIR’s trustees are also directors of AIC.  Following our deconsolidating SIR, we continue to account for our investment in AIC under the equity method, as we continue to believe we have significant influence over AIC for the same reason.  Under the equity method, we record our and our percentage share of SIR’s percentage share of net earnings from AIC in our 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 15 for additional information about our investment in AIC.

Note 7.  Real Estate Mortgages Receivable

We provided mortgage financing totaling $7,688 at 6.0% per annum in connection with three suburban office and industrial properties (18 buildings) sold in January 2013.  This real estate mortgage requires monthly interest payments and matures on January 24, 2023.  In addition, in September 2013, another borrower prepaid to us in full a $1,000 real estate mortgage that was scheduled to mature on July 1, 2017.  As of September 30, 2013 and December 31, 2012, we had total real estate mortgages receivable with an aggregate carrying value of $8,107 and $1,419, respectively, included in other assets in our condensed consolidated balance sheets.

Note 8.  Shareholders’ Equity

The following is a reconciliation of changes in shareholders’ equity for the nine months ended September 30, 2013:

	Shareholders’			Shareholders’
	Equity			Equity
	Attributable to			Attributable to			Total
	CommonWealth			Noncontrolling			Shareholders’
	REIT			Interest			Equity
Balances at December 31, 2012	$	3,105,428		$	396,040		$	3,501,468
Net (loss) income	(171,759		)	20,093			(151,666		)
Other comprehensive income (loss):
Unrealized gain on derivative instruments	4,011			—			4,011
Foreign currency translation adjustments	(31,393		)	—			(31,393		)
Equity in unrealized loss of an investee	(113		)	(36		)	(149		)
Total comprehensive (loss) income	(199,254		)	20,057			(179,197		)
Issuance of common shares, net	626,851			(42		)	626,809
Share grants	1,567			252			1,819
Distributions	(113,559		)	(14,863		)	(128,422		)
Deconsolidation of a subsidiary	—			(401,444		)	(401,444		)
Balances at September 30, 2013	$	3,421,033		$	—		$	3,421,033

Common Share Issuances by CWH:

In March 2013, we issued 34,500,000 common shares (including 4,500,000 common shares sold pursuant to the underwriters’ option to purchase additional shares) in a public offering for $19.00 per common share, raising gross proceeds of $655,500 ($626,904 after deducting underwriters’ discounts and commissions and expenses).  Net proceeds from this offering were used to repay indebtedness, including amounts borrowed under our revolving credit facility and to fund, in part, the purchase of the senior notes that were tendered in the tender offer discussed in Note 10.

12

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

On May 14, 2013, we granted 2,000 common shares of beneficial interest, par value $0.01 per share, valued at $20.13 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 13, 2013, pursuant to our equity compensation plan, we granted an aggregate of 73,450 common shares, which were valued at $23.72 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.

Common and Preferred Share Distributions:

On each of February 15, 2013, May 15, 2013, and August 15, 2013, we paid quarterly distributions on our series D preferred shares of $0.4063 per share, or $6,167, and quarterly distributions on our series E preferred shares of $0.4531 per share, or $4,984, both of which were paid to shareholders of record as of February 1, 2013, May 1, 2013, and August 1, 2013, respectively.

On February 21, 2013, we paid a quarterly distribution on our common shares of $0.25 per share, or $20,951, to shareholders of record on January 22, 2013.  On May 22, 2013, we paid a quarterly distribution on our common shares of $0.25 per share, or $29,576, to shareholders of record on April 23, 2013.  On August 23, 2013, we paid a quarterly distribution on our common shares of $0.25 per share, or $29,579, to shareholders of record on July 26, 2013.

In October 2013, we declared a distribution of $0.25 per common share, or approximately $29,600, which we expect to pay on or about November 22, 2013 to shareholders of record on October 25, 2013.  We also announced in October 2013 a quarterly distribution on our series D preferred shares of $0.4063 per share, or $6,167, and a quarterly distribution on our series E preferred shares of $0.4531 per share, or $4,984, both of which we expect to pay on or about November 15, 2013 to our preferred shareholders of record as of November 1, 2013.

Our revolving credit facility agreement and term loan agreement contain a number of financial and other covenants, including a covenant which restricts our ability to make distributions under certain circumstances.  See Note 10 for additional information about our revolving credit facility agreement and term loan agreement.

13

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 9.  Cumulative Other Comprehensive (Loss) Income

The following table presents a roll forward of amounts recognized in cumulative other comprehensive (loss) income by component for the three and nine months ended September 30, 2013:

	Three Months Ended September 30, 2013
	Unrealized			Foreign			Equity in
	Gain (Loss)			Currency			Unrealized
	on Derivative			Translation			Gain (Loss) of
	Instruments			Adjustments			an Investee			Total
Balances as of June 30, 2013	$	(12,791	)	$	(19,777	)	$	(8	)	$	(32,576	)
Other comprehensive income (loss) before reclassifications	(1,087		)	5,455			13			4,381
Amounts reclassified from cumulative other comprehensive income (loss) to net (loss) income	1,265			—			—			1,265
Net current period other comprehensive income	178			5,455			13			5,646
Balances as of September 30, 2013	$	(12,613	)	$	(14,322	)	$	5		$	(26,930	)

	Nine Months Ended September 30, 2013
	Unrealized			Foreign			Equity in
	Gain (Loss)			Currency			Unrealized
	on Derivative			Translation			Gain (Loss) of
	Instruments			Adjustments			an Investee			Total
Balances as of December 31, 2012	$	(16,624	)	$	17,071		$	118		$	565
Other comprehensive income (loss) before reclassifications	274			(31,393		)	(96		)	(31,215		)
Amounts reclassified from cumulative other comprehensive income (loss) to net (loss) income	3,737			—			(17		)	3,720
Net current period other comprehensive income (loss)	4,011			(31,393		)	(113		)	(27,495		)
Balances as of September 30, 2013	$	(12,613	)	$	(14,322	)	$	5		$	(26,930	)

14

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

The following table presents reclassifications out of cumulative other comprehensive income (loss) for the three and nine months ended September 30, 2013:

Three Months Ended September 30, 2013
	Amounts Reclassified from
Details about Cumulative Other	Cumulative Other Comprehensive		Affected Line Items in the
Comprehensive Income (Loss) Components	Income (Loss) to Net (Loss) Income		Statement of Operations
Interest rate swap contracts	$	1,265	Interest expense
Unrealized gains and losses on available for sale securities	—		Equity in earnings of investees
	$	1,265

Nine Months Ended September 30, 2013
	Amounts Reclassified from
Details about Cumulative Other	Cumulative Other Comprehensive			Affected Line Items in the
Comprehensive Income (Loss) Components	Income (Loss) to Net (Loss) Income			Statement of Operations
Interest rate swap contracts	$	3,737		Interest expense
Unrealized gains and losses on available for sale securities	(17		)	Equity in earnings of investees
	$	3,720

15

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 10.  Indebtedness

Indebtedness information in this Note 10 excludes information related to SIR and its consolidated subsidiaries.

Prepayments:

In March 2013, we purchased a total of $670,295 of the outstanding principal amount of the following senior notes for $726,151, excluding transaction costs, pursuant to a tender offer:

Senior Note	Principal		Purchase Price
5.75% Senior Notes due February 15, 2014	$	145,612	$	148,746
6.40% Senior Notes due February 15, 2015	152,560		164,140
5.75% Senior Notes due November 1, 2015	111,227		121,047
6.25% Senior Notes due August 15, 2016	260,896		292,218
	$	670,295	$	726,151

In connection with the purchase of these senior notes, we recognized a combined loss on early extinguishment of debt totaling $60,027, which includes the write off of unamortized discounts and deferred financing fees and expenses.

In October 2013, we prepaid at par all $99,043 of our 5.75% unsecured senior notes due 2014, using borrowings under our revolving credit facility.

Unsecured Revolving Credit Facility and Unsecured Term Loan:

We have a $750,000 unsecured revolving credit facility that is available for general business purposes, including acquisitions.  The maturity date of our revolving credit facility is October 19, 2015 and, subject to the payment of an extension fee and meeting certain other conditions, includes an option for us to extend the stated maturity date of our revolving credit facility by one year to October 19, 2016.  In addition, our revolving credit facility includes a feature under which maximum borrowings may be increased to up to $1,500,000 in certain circumstances.  Borrowings under our revolving credit facility bear interest at LIBOR plus a premium, which was 150 basis points as of September 30, 2013.  We also pay a facility fee of 35 basis points per annum on the total amount of lending commitments under our revolving credit facility.  Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings.  As of September 30, 2013, the interest rate payable on borrowings under our revolving credit facility was 1.7%.  The weighted average interest rate for borrowings under our revolving credit facility was 1.7% for both the three and nine months ended September 30, 2013, and 1.5% for both the three and nine months ended September 30, 2012.  As of September 30, 2013, we had $235,000 outstanding and $515,000 available under our revolving credit facility.

We also have a $500,000 unsecured term loan that matures in December 2016 and is prepayable without penalty at any time.  Our term loan includes a feature under which maximum borrowings may be increased to up to $1,000,000 in certain circumstances.  Our term loan bears interest at a rate of LIBOR plus a premium, which was 185 basis points as of September 30, 2013.  The interest rate premium is subject to adjustment based upon changes to our credit ratings.  As of September 30, 2013, the interest rate for the amount outstanding under our term loan was 2.0%.  The weighted average interest rate for the amount outstanding under our term loan was 2.0% and 2.1% for the three and nine months ended September 30, 2013, respectively, and 1.8% for both the three and nine months ended September 30, 2012.

Lenders under our revolving credit facility agreement and our term loan agreement may accelerate payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, including a change of control of us and the termination of our business management or property management agreements with RMR.  As stated in Note 3 above, we believe that the Corvex/Related consent solicitation has no legal effect.  However, if the arbitration panel determines that the Corvex/Related consent solicitation is legally effective and our entire Board of Trustees has been removed, such removal would constitute an event of default under our revolving credit facility and term loan agreements, giving either the administrative agent or the lenders with a majority in amount under each such agreement the right to accelerate payment of all amounts we may owe under such agreement.  Such event may also constitute an event of default under certain of our mortgage loans.  On

16

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

June 19, 2013, Corvex/Related filed with the SEC a public statement indicating that in the event our Board of Trustees is removed as a result of the Corvex/Related consent solicitation, they will offer to buy 51% of the debt outstanding under our revolving credit facility and term loan agreements at par value to prevent the acceleration of such loans.  However, waivers of defaults under our revolving credit facility and term loan agreements require the approval of two thirds of our lenders by amount. We provide no assurance that, in such event, Corvex/Related will be successful in buying any of our outstanding debts or credit commitments or in preventing the acceleration of these loans.

Credit Facility and Term Loan Debt Covenants:

Our public debt indentures and related supplements, our revolving credit facility agreement and our term loan agreement contain a number of financial and other covenants, including covenants that restrict our ability to incur indebtedness or to make distributions under certain circumstances and require us to maintain financial ratios and a minimum net worth.  At September 30, 2013, we believe we were in compliance with all of our respective covenants under our public debt indentures, our revolving credit facility and our term loan agreements.

Mortgage Debt:

At September 30, 2013, 14 of our continuing properties (19 buildings) costing $1,269,286 with an aggregate net book value of $1,116,162 secured mortgage notes totaling $925,120 (including net premiums and discounts) maturing from 2014 through 2026.  In addition, we had mortgage debt secured by two properties (three buildings) classified as held for sale totaling $20,127 (including net premiums and discounts).

Note 11.  Income Taxes

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and are generally not subject to federal and state income taxes provided we distribute a sufficient amount of our taxable income to our shareholders and meet other requirements for qualifying as a REIT.  However, we are subject to certain state, local and Australian taxes without regard to our REIT status.  Our provision for income taxes for the three and nine months ended September 30, 2013 and 2012 consists of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Current:
State	$	123	$	130	$	448	$	379
Foreign	561		—		1,943		—
	684		130		2,391		379
Deferred:
Foreign	101		1,192		136		1,527
	101		1,192		136		1,527
Income tax provision	$	785	$	1,322	$	2,527	$	1,906

At September 30, 2013 and December 31, 2012, we had deferred tax assets of $1,926 and $2,329, respectively, and deferred tax liabilities of $3,242 and $3,643, respectively, which primarily related to different carrying amounts for financial reporting and for Australian income tax purposes related to our properties and operations in Australia.  Because we are uncertain of our ability to realize the future benefit of certain Australian loss carry forwards, we have reduced our net deferred income tax assets by a valuation allowance of $536 and $598 as of September 30, 2013 and December 31, 2012, respectively.

17

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 12.  Fair Value of Assets and Liabilities

The table below presents certain of our assets and liabilities measured at fair value during 2013, categorized by the level of inputs used in the valuation of each asset and liability:

				Fair Value at Reporting Date Using
				Quoted Prices in					Significant
				Active Markets for		Significant Other			Unobservable
				Identical Assets		Observable Inputs			Inputs
Description	Total			(Level 1)		(Level 2)			(Level 3)
Recurring Fair Value Measurements:
Effective portion of interest rate swap contracts(1)	$	(12,613	)	$	—	$	(12,613	)	$	—
Non-Recurring Fair Value Measurements:
Properties held for sale(2)	$	494,713		$	—	$	—		$	494,713

(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, 2013, 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)As of September 30, 2013, we recorded a net loss on asset impairment totaling $223,192 for three of our CBD properties (four buildings) and 43 of our suburban properties (97 buildings) to reduce the aggregate carrying value of these properties from $717,905 to their estimated fair value less costs to sell of $494,713.  All of these properties were classified as held for sale as of September 30, 2013.  We used broker information, including recent purchase offers and comparable sales (level 3 inputs), in determining the fair value of these properties.  The valuation techniques and significant unobservable inputs used for our level 3 fair value measurements at September 30, 2013 were as follows:

Description	Fair Value at September 30, 2013		Valuation Techniques	Unobservable Inputs	Range
Properties held for sale for which we recognized impairment losses	$	36,373	Purchase Offers	N/A	N/A
Properties held for sale for which we recognized impairment losses	$	458,340	Discounted cash flows and comparable sales	Discount rate Exit capitalization rate Market rent growth rate	9% - 12% 8% - 10% 3%

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 we currently manage by using derivative instruments is a part of our interest rate risk.  Although we have not done so as of September 30, 2013, 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

18

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

interest rate risk exposure on $173,664 of mortgage debt due 2019, which require interest at a premium 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 increased by $178 and $4,011 during the three and nine months ended September 30, 2013, respectively, based primarily on changes in market interest rates.  The fair value of our derivative instruments increased by $454 during the three months ended September 30, 2012, and decreased by $1,987 during the nine months ended September 30, 2012, based primarily on changes in market interest rates.  As of September 30, 2013 and December 31, 2012, the fair value of these derivative instruments included in accounts payable and accrued expenses and cumulative other comprehensive (loss) income in our condensed consolidated balance sheets totaled ($12,613) and ($16,624), 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.  The table below presents the effects of our interest rate derivatives in our condensed consolidated statements of operations and condensed consolidated statements of comprehensive (loss) income for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Balance at beginning of period	$	(12,791	)	$	(18,237	)	$	(16,624	)	$	(15,796	)
Amount of income (loss) recognized in cumulative other comprehensive (loss) income	(1,087		)	(782		)	274			(5,673		)
Amount of loss reclassified from cumulative other comprehensive (loss) income into interest expense	1,265			1,236			3,737			3,686
Unrealized gain (loss) on derivative instruments	178			454			4,011			(1,987		)
Balance at end of period	$	(12,613	)	$	(17,783	)	$	(12,613	)	$	(17,783	)

Over the next 12 months, we estimate that approximately $4,854 will be reclassified from cumulative other comprehensive income as an increase to interest expense.

In addition to the assets and liabilities described in the above table, our financial instruments include our cash and cash equivalents, rents receivable, investment in direct financing lease receivable, real estate mortgages 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, 2013 and December 31, 2012, the fair values of these additional financial instruments were not materially different from their carrying values, except as follows:

	September 30, 2013				December 31, 2012
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Senior notes and mortgage notes payable	$	2,206,157	$	2,314,308	$	2,932,951	$	3,181,522

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 (level 3 inputs).

Other financial instruments that potentially subject us to concentrations of credit risk consist principally of rents receivable; however, as of September 30, 2013, no single tenant of ours is responsible for more than 3% of our total annualized 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.

19

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 13.  Earnings Per Common Share

Assuming no fundamental change (as described below) has occurred, as of September 30, 2013, we had 15,180,000 shares of series D cumulative convertible preferred shares that were convertible into 7,298,165 of our common shares and the effect of our convertible preferred shares on income from continuing operations attributable to CommonWealth REIT common shareholders per share is anti-dilutive for all periods presented.

As stated in Note 3 above, we believe that the Corvex/Related consent solicitation has no legal effect.  However, if the arbitration panel determines that the Corvex/Related consent solicitation is legally effective and our entire Board of Trustees has been removed, such removal would constitute a fundamental change under our 6.5% series D cumulative convertible preferred shares giving holders of such shares the option to convert these shares into common shares at a ratio based on 98% of the average closing market price for a period before such removal is effective unless we repurchase these shares for their par value plus accrued and unpaid distributions.  The issuance of such a large number of common shares as a result of the exercise of this conversion right after a fundamental change may have a dilutive effect on income from continuing operations attributable to CommonWealth REIT common shareholders per share.

Note 14.  Segment Information

Our primary business is the ownership and operation of a nationwide portfolio of office properties.  We account for each of our individual properties as a separate operating segment.  We have aggregated our separate operating segments into two reportable segments based on our primary method of internal reporting: CBD properties and suburban properties.  All of our CBD properties and more than 90% of our suburban properties are office properties.  As a result of our deconsolidation of SIR, we no longer include “industrial and other” among our reportable segments.  Each of our reportable segments includes properties with similar operating and economic characteristics that are subject to unique supply and demand conditions.  Geographic regions described in our Quarterly Report on Form 10-Q for the period ended June 30, 2013 were eliminated primarily because one of these regions included properties owned primarily by SIR which are no longer included in our consolidated financial statements as of September 30, 2013, and the remaining two regions no longer represent a meaningful portion of our consolidated portfolio.  See Note 6 for financial information relating to SIR. Our operating segments (i.e., our individual properties) are managed and operated consistently in accordance with our standard operating procedures, and our management responsibilities do not vary significantly from location to location based on the size of the property or geographic location within each primary reporting segment.  We use property net operating income, or NOI, to evaluate the performance of our operating segments.  We define NOI as income from our real estate including lease termination fees received from tenants less our property operating expenses, which expenses include property marketing costs.  NOI excludes amortization of capitalized tenant improvement costs and leasing commissions.

As of September 30, 2013, we owned 38 CBD properties (51 buildings) and 90 suburban properties (184 buildings), excluding properties classified as held for sale.  Prior periods have been restated to reflect one CBD property (one building) and 39 suburban properties (93 buildings) reclassified to discontinued operations from continuing operations as of December 31, 2012, three properties (three buildings) reclassified from our suburban properties segment to our CBD properties segment as of March 31, 2013, and three CBD properties (four buildings) and 42 suburban properties (106 buildings) reclassified to discontinued operations from continuing operations as of September 30, 2013.

Property level information by operating segment as of September 30, 2013 and for the three and nine months ended September 30, 2013 and 2012, is as follows:

20

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

	As of September 30,
	2013	2012
Square feet (in thousands):
CBD properties	20,930	20,166
Suburban properties	17,965	41,567
Total properties	38,895	61,733

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Rental income:
CBD properties	$	136,228	$	130,193	$	413,550	$	383,245
Suburban properties	65,513		96,609		285,657		279,342
Total properties	$	201,741	$	226,802	$	699,207	$	662,587
NOI:
CBD properties	$	68,663	$	70,208	$	220,182	$	210,250
Suburban properties	38,446		64,589		191,375		187,110
Total properties	$	107,109	$	134,797	$	411,557	$	397,360

As of September 30, 2013, our investment in CBD properties and suburban properties, net of accumulated depreciation, excluding properties classified as held for sale, was $2,999,964 and $1,757,074, respectively, including $149,075 of CBD properties and $92,956 of suburban properties located in Australia.

The following table includes the reconciliation of NOI to net (loss) income, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements.  We consider NOI to be an appropriate supplemental measure to net (loss) income because it may help 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 we believe that NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are incurred at the property level and may facilitate comparisons of our operating performance between periods and with other REITs.  The calculation of NOI excludes certain components of net (loss) 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 (loss) income, net (loss) income attributable to CommonWealth REIT, net (loss) income available for CommonWealth REIT common shareholders, operating income or cash flow from operating activities, determined in accordance with GAAP, or as an indicator of our financial performance or liquidity, nor is this measure necessarily indicative of sufficient cash flow to fund all of our needs.  This measure should be considered in conjunction with net (loss) income, net (loss) income attributable to CommonWealth REIT, net (loss) income available for CommonWealth REIT common shareholders, operating income and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive (loss) income and condensed consolidated statements of cash flows.  Other REITs and real estate companies may calculate NOI differently than we do.  A reconciliation of NOI to net (loss) income for the three and nine months ended September 30, 2013 and 2012 is as follows:

21

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Rental income	$	201,741		$	226,802		$	699,207		$	662,587
Operating expenses	(94,632		)	(92,005		)	(287,650		)	(265,227		)
NOI	$	107,109		$	134,797		$	411,557		$	397,360
NOI	$	107,109		$	134,797		$	411,557		$	397,360
Depreciation and amortization	(52,150		)	(52,353		)	(169,930		)	(154,623		)
General and administrative	(25,069		)	(12,565		)	(61,445		)	(34,190		)
Acquisition related costs	436			(1,066		)	(337		)	(5,002		)
Operating income	30,326			68,813			179,845			203,545
Interest and other income	227			399			931			1,020
Interest expense	(39,359		)	(50,736		)	(134,824		)	(148,924		)
Loss on early extinguishment of debt	—			(220		)	(60,027		)	(287		)
Equity in earnings of investees	10,492			2,868			14,913			8,655
Gain on sale of equity investment	—			—			66,293			—
Income from continuing operations before income tax expense	1,686			21,124			67,131			64,009
Income tax expense	(785		)	(1,322		)	(2,527		)	(1,906		)
Income from continuing operations	901			19,802			64,604			62,103
(Loss) income from discontinued operations	(28		)	774			4,390			4,891
Loss on asset impairment from discontinued operations	(217,080		)	—			(225,615		)	—
Loss on early extinguishment of debt from discontinued operations	—			—			—			(1,608		)
Net gain on sale of properties from discontinued operations	—			1,689			3,359			2,039
(Loss) income before gain on sale of properties	(216,207		)	22,265			(153,262		)	67,425
Gain on sale of properties	—			—			1,596			—
Net (loss) income	$	(216,207	)	$	22,265		$	(151,666	)	$	67,425

22

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 15.  Related Person Transactions

We have no employees.  Personnel and various services we require to operate our business are provided to us by RMR.  We have two agreements with RMR to provide management and administrative services to us: (1) a business management agreement, which relates to our business generally, and (2) a property management agreement, which relates to our property level operations.

Under our business management agreement with RMR, we acknowledge that RMR also provides management services to other companies, which include GOV and SIR.  One of our Managing Trustees, Mr. Barry Portnoy, is Chairman, majority owner and an employee of RMR.  Our other Managing Trustee, Mr. Adam Portnoy, who is also our President, is the son of Mr. Barry Portnoy, and an owner, President, Chief Executive Officer and a director of RMR.  Each of our other executive officers is also an officer of RMR.  GOV’s and SIR’s executive officers are officers of RMR.  A majority of our Independent Trustees also serve as independent trustees of other public companies to which RMR provides management services.  Mr. Barry Portnoy serves as a managing director or managing trustee of those companies and Mr. Adam Portnoy serves as a managing trustee of a majority of those companies.  In addition, officers of RMR serve as officers of those companies.

Pursuant to our business management agreement with RMR, we incurred business management fees of $9,844 and $11,057 for the three months ended September 30, 2013 and 2012, respectively, and $33,800 and $32,087 for the nine months ended September 30, 2013 and 2012, respectively.  These amounts are included in general and administrative expenses and income from discontinued operations, as appropriate, in our condensed consolidated financial statements.

In connection with our property management agreement with RMR, we incurred property management and construction supervision fees of $7,919 and $8,593 for the three months ended September 30, 2013 and 2012, respectively, and $24,903 and $24,483 for the nine months ended September 30, 2013 and 2012, respectively.  These amounts are included in operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

The business management fees, property management fees and construction supervision fees that we incurred during the nine months ended September 30, 2013 and 2012 include fees incurred by SIR through July 2, 2013, when SIR was a consolidated subsidiary of ours.

On September 20, 2013, we and RMR agreed to restructure the base business management and incentive fees payable to RMR under our business management agreement beginning in 2014, as follows:

·The base business management fees we pay to RMR will be calculated on the basis of the lower of: (i) gross historical cost of our U.S. real estate assets, as defined, or (ii) our total market capitalization.  Market capitalization will include the market value of our common shares, plus the liquidation preference of preferred shares, if any, and the principal amount of debt.  The market value of our common shares will be calculated based on the average shares outstanding multiplied by the average closing share price during the period in which the fees are earned.

·10% of the base business management fees we pay to RMR will be paid in our common shares.  The amount of our common shares granted as part of the base business management fee will be calculated based on the average closing share price during the period in which the fees are earned.

·The annual incentive fees which may be earned by RMR will be calculated based upon total returns realized by our common shareholders (i.e., share price appreciation plus dividends) in excess of benchmarks.  The benchmarks will be set by our Compensation Committee, which is comprised solely of Independent Trustees, and will be disclosed in our annual meeting proxy statements.  Incentive fees will be paid in our common shares which will vest over a multiyear period and will be subject to a “claw back” in the event of certain material restatements of our financial results.

·The annual management fee for foreign assets will be unchanged.

We, along with RMR, certain of our officers and current and former Trustees, have been named as defendants in a number of complaints seeking monetary damages and declaratory and injunctive relief, including, among other things, complaints filed by or on

23

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

behalf of Corvex/Related.  In connection with such litigation, we have agreed to indemnify our present or former Trustees or officers who are made or threatened to be made parties to a legal proceeding by reason of their service in that capacity and have also agreed to indemnify RMR for certain claims brought against RMR in its capacity as our business and property manager.

MacarthurCook Fund Management Limited, or MacarthurCook, previously provided us with business and property management services with respect to our investments in Australia.  Our contract with MacarthurCook terminated on January 31, 2013, and on that date we entered into a business and property management agreement, or the Australia Management Agreement, with RMR Australia Asset Management Pty Limited, or RMR Australia, for the benefit of CWH Australia Trust (formerly the MacarthurCook Industrial Property Fund), a subsidiary of ours.  The terms of the Australia Management Agreement are substantially similar to the terms of the management agreement we had with MacarthurCook.  RMR Australia is owned by our Managing Trustees and it has been granted an Australian financial services license by the Australian Securities & Investments Commission.  Similar to our prior arrangement with respect to fees we paid to MacarthurCook, RMR has agreed to waive half of the fees payable by us under our property management agreement with RMR and half of the business management fees otherwise payable by us under our business management agreement with RMR related to real estate investments that are subject to the Australia Management Agreement for so long as the Australia Management Agreement is in effect and we or any of our subsidiaries are paying the fees under that agreement.  Pursuant to the Australia Management Agreement, the aggregate business and property management fees we recognized during the three and nine months ended September 30, 2013 were $432 and $1,197, respectively.  The Australia Management Agreement was approved by our Compensation Committee, which is composed only of our Independent Trustees.

GOV was formerly our 100% owned subsidiary.  Our two Managing Trustees, Mr. Barry Portnoy and Mr. Adam Portnoy, are also managing trustees of GOV, and our President, Mr. Adam Portnoy, was the President of GOV from its formation in 2009 until January 2011.  RMR provides management services to both us and GOV.

In 2009, GOV completed an initial public offering pursuant to which GOV ceased to be a majority owned subsidiary of ours.  In connection with this offering, we and GOV entered into a transaction agreement that governs our separation from and relationship with GOV.  Pursuant to this transaction agreement, 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.  This right of first refusal applies in the event of an indirect sale of any such properties as a result of a change of control of us.

Until March 15, 2013, we were GOV’s largest shareholder.  On March 15, 2013, we sold all of our 9,950,000 common shares of GOV in a public offering for net proceeds (after deducting underwriters’ discounts and commissions and expenses) of $239,576 and we realized a gain of $66,293.  In connection with this public offering, on March 11, 2013, we entered into a registration agreement with GOV under which we agreed to pay all expenses incurred by GOV relating to the registration and sale of our GOV common shares.  We incurred $310 of reimbursements payable to GOV pursuant to this agreement.  In addition, under the registration agreement, we and GOV entered cross indemnity agreements with respect to our respective actions associated with our offering of GOV shares.  GOV agreed to indemnify CWH, our officers, Trustees and controlling persons, and we agreed to indemnify GOV and GOV’s officers, trustees and controlling persons, against certain liabilities related to the public offering, including liabilities under the Securities Act of 1933, as amended, or the Securities Act; and we and GOV agreed to reimburse payments that the other may make in respect of those liabilities.

SIR was formerly our 100% owned subsidiary.  We are SIR’s largest shareholder and, until July 2, 2013, SIR was one of our consolidated subsidiaries.  As of September 30, 2013, we owned 22,000,000 common shares of SIR, which represented approximately 44.2% of SIR’s outstanding common shares.  Our two Managing Trustees, Mr. Barry Portnoy and Mr. Adam Portnoy, are also managing trustees of SIR, and Mr. John Popeo, our Treasurer and Chief Financial Officer, also serves as the Treasurer and Chief Financial Officer of SIR.  In addition, one of our Independent Trustees, Mr. William Lamkin, is an independent trustee of SIR.  RMR provides management services to both us and SIR.

On March 12, 2012, SIR completed an initial public offering pursuant to which it issued 9,200,000 of its common shares for net proceeds (after deducting underwriters’ discounts and commissions and expenses) of $180,814.  SIR applied those net proceeds, along with proceeds from drawings under SIR’s revolving credit facility, to repay in full a $400,000 demand promissory note that we received from SIR on February 16, 2012, along with 22,000,000 SIR common shares (including SIR common shares that had been previously issued to us in connection with SIR’s formation), in exchange for our transfer to SIR of 79 properties (251 separate

24

COMMONWEALTH REIT

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

buildings or land parcels with a combined approximately 21,400,000 rentable square feet).  SIR also reimbursed us for costs that we incurred in connection with SIR’s organization and preparation for its initial public offering.

In connection with the SIR IPO, we and SIR entered into a transaction agreement that governs our separation from and relationship with SIR.  The transaction agreement provides that, among other things, (1) the current assets and liabilities of the 79 properties that we transferred to SIR, as of the time of closing of the SIR IPO, were settled between us and SIR so that we will retain all pre-closing current assets and liabilities and SIR will assume all post-closing current assets and liabilities and (2) SIR will indemnify us with respect to any liability relating to any property transferred by us to SIR, including any liability which relates to periods prior to SIR’s formation, other than the pre-closing current assets and current liabilities that we retained with respect to the 79 transferred properties.

On March 25, 2013, we entered into a registration agreement with SIR, pursuant to which SIR agreed to, among other things, file a registration statement with respect to an offering of up to all of the 22,000,000 common shares of SIR that we own, and we agreed to pay all expenses incurred by SIR relating to the registration and sale of the shares in an offering.  SIR’s obligation to register the shares for resale in an offering is subject to certain conditions and may be terminated in certain circumstances, in each case, as described in the registration agreement.  We incurred $636 of reimbursements payable to SIR pursuant to this agreement.  In connection with this registration agreement, we and SIR entered cross indemnity agreements with respect to our respective actions associated with our offering of SIR shares: SIR agreed to indemnify us, our officers, Trustees and controlling persons, and we agreed to indemnify SIR and SIR’s officers, trustees and controlling persons, against certain liabilities in connection with an offering, including liabilities under the Securities Act; and we and SIR agreed to reimburse payments that the other may make in respect of those liabilities.  SIR now has an effective registration statement on Form S-3, which permits resales of SIR’s shares by selling shareholders, pursuant to which, and subject to the terms of the registration agreement, we may be able to sell our SIR common shares in a registered offering.

We, RMR, GOV, SIR and four other companies to which RMR provides management services each currently own 12.5% of AIC, an Indiana insurance company.  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 pursuant to a management and administrative services agreement with AIC.  As of September 30, 2013, we have invested $5,209 in AIC since AIC’s formation in 2008.  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.  For the period that SIR was both a shareholder of AIC and our consolidated subsidiary, from May 2012 until July 2, 2013, our condensed consolidated financial statements include SIR’s equity investment interest in AIC.  We and the other shareholders of AIC have purchased property insurance providing $500,000 of coverage pursuant to an insurance program arranged by AIC and with respect to which AIC is a reinsurer of certain coverage amounts.  This program was modified and extended in June 2013 for a one year term, and we (excluding SIR) paid a premium, including taxes and fees, of $5,984 in connection with that renewal, which amount may be adjusted from time to time as we acquire or dispose of properties that are included in this program.  We periodically consider the possibilities for expanding our insurance relationships with AIC to include other types of insurance and may in the future participate in additional insurance offerings AIC may provide or arrange.  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.  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.

Effective July 2013, we, RMR, GOV, SIR and three other companies to which RMR provides management services purchased from an unrelated third party insurer a combined directors’ and officers’ liability insurance policy providing $10,000 of aggregate coverage.  We paid a premium of approximately $133 in connection with this policy.

25

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

The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K.

OVERVIEW

We are a REIT organized under Maryland law.  We primarily own office buildings in CBD and suburban locations throughout the United States, and we also own 1.8 million square feet of space in 11 properties (11 buildings) located in Australia, and 22,000,000 SIR common shares, or approximately 44.2%, a REIT that primarily owns net leased, single tenant office and industrial properties in the United States.

SIR was formerly our 100% owned subsidiary.  In March 2012, SIR completed its initial public offering and became a publicly held company with shares listed on the NYSE.  On July 2, 2013, SIR issued and sold to the public 10,500,000 of its common shares.  Prior to the completion of this offering, our 22,000,000 common shares of SIR represented approximately 56.0% of SIR’s outstanding common shares, and SIR was one of our consolidated subsidiaries.  Following the completion of this offering, our 22,000,000 common shares of SIR represented approximately 44.2% of SIR’s outstanding common shares and SIR ceased to be our consolidated subsidiary.  Beginning on July 2, 2013, we no longer consolidate SIR but instead account for our ownership of SIR using the equity method.  Under the equity method, we record our percentage share of net earnings of SIR in our condensed consolidated statements of operations.  Prior to July 2, 2013, SIR’s operating results and properties were included in our consolidated results of operations and financial position.  See Note 15 to the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information regarding our agreements with SIR.

GOV was formerly our 100% owned subsidiary.  In June 2009, GOV completed its initial public offering and became a publicly held company with shares listed on the NYSE.  We used the equity method to account for our ownership of GOV.  On March 15, 2013, we sold all 9,950,000 common shares that we owned of GOV in a public offering for net proceeds of $239.6 million (after deducting underwriters’ discounts and commissions and expenses).  We recognized a gain on the sale of this equity investment of $66.3 million as a result of the per share sales price of this transaction being above our per share carrying value.

On February 26, 2013, Corvex/Related publicly disclosed their accumulation of the Company’s common shares.  Corvex/Related have since undertaken a series of actions in an effort to influence and control us, including publishing “open” letters to our Board of Trustees, announcing conditional, unfinanced purported offers to acquire all the common shares of the Company, and running a purported consent solicitation seeking to remove, without cause, all of the members of our Board of Trustees.  By letter dated March 28, 2013, Corvex/Related made a conditional purported offer to purchase all of the Company’s common shares for $24.50 per share, without disclosing any specific financing plan, and presented the Company with three options:  accept Corvex/Related’s offer to acquire the Company, sell the Company to a higher bidder, or face a consent solicitation to remove the entire Board of Trustees of the Company without cause.  On April 15, 2013, we announced that, after considering the information provided by Corvex/Related, our Board of Trustees unanimously determined not to pursue discussions with Corvex/Related about their conditional, not fully financed, offer.  We also announced on that date that, after considering alternatives, and with the advice and assistance of financial and legal advisors, our Board of Trustees unanimously determined that the interests of the Company and our shareholders would be best served by continued implementation of our current business plan to (i) concentrate investments in CBD office properties, (ii) divest non-core properties and other assets, and (iii) reduce debt, and not to pursue a sale of the Company at the time.

On April 10, 2013, Corvex/Related filed a definitive consent solicitation statement for their proposal to remove, without cause, all of the members of our Board of Trustees.  Corvex/Related unilaterally, publicly stated that they believed the record date for their purported consent solicitation was April 22, 2013 and Corvex/Related solicited consents from our shareholders as of that date to their removal proposal.  On June 21, 2013, Corvex delivered to the Company a letter and enclosed materials that it claimed were written consents from the Company’s shareholders that effectuated the immediate removal of the Company’s entire Board of Trustees. That same day, Corvex/Related, delivered a second letter to our Independent Trustees repeating the assertion that the Independent Trustees are no longer Trustees of the Company and issued a press release making similar assertions and stating:

“[Corvex/Related] will hold each former trustee personally accountable if they attempt to illegitimately usurp corporate authority they do not have. [Corvex/Related] advise third parties that do business with CommonWealth that we reserve the right to challenge any corporate action that may be taken by these former trustees on or after today as invalid.”

26

The legal effectiveness of the Corvex/Related purported consent solicitation is the subject of legal proceedings before an arbitration panel.  We believe that the Corvex/Related consent solicitation has no legal effect because, among other things, under our declaration of trust and bylaws, the power to set a record date for a consent solicitation rests with the Company’s Board of Trustees and our Board of Trustees did not set such a record date for the Corvex/Related purported consent solicitation as the Corvex/Related request for a record date did not comply with requirements in our governing documents.  Moreover, our Board of Trustees believes that the removal of all of our Trustees without cause and in one removal action conflicts with our Board’s election to be subject to certain provisions of the Maryland Unsolicited Takeovers Act.  Because the validity of the Corvex/Related purported consent solicitation is the subject of legal proceedings before an arbitration panel, we determined not to solicit consent revocation cards to counter Corvex/Related’s purported consent solicitation. On June 24, 2013, the Company responded to the letters from Corvex/Related pointing out that the effectiveness of the Corvex/Related consent solicitation is currently the subject of proceedings before an arbitration panel and that the Board of Trustees would continue to manage the Company unless and until the arbitration panel directs otherwise.  By order dated August 7, 2013, the arbitration panel denied summary judgment on Corvex/Related’s claims that their consent solicitation was proper.  An evidentiary hearing on the legal effectiveness of the Corvex/Related consent solicitation was held before the arbitration panel from October 7, 2013 through October 17, 2013, and the parties submitted post-hearing briefs on October 30, 2013.  Our current expectation is that the arbitration panel will issue a ruling regarding these matters on or before November 29, 2013.

We believe that the Corvex/Related consent solicitation has no legal effect and to date, no court or arbitration panel has ruled that it is legally effective.  However, if the arbitration panel determines that the Corvex/Related consent solicitation is legally effective and our entire Board of Trustees has been removed as a result of the Corvex/Related consent solicitation, such removal may, among other things, disrupt our business and operations and affect our ability to pay dividends and borrow.  For a further discussion of the legal proceedings described above, please see the section captioned “Legal Proceedings” in Part II, Item 1 in this Quarterly Report on Form 10-Q; and for a further discussion of the risks related to the Corvex/Related activities, please see the section captioned “Risk Factors” in Part II, Item 1A in this Quarterly Report on Form 10-Q.

Property Operations

As of September 30, 2013, 88.6% of our total square feet was leased, compared to 90.9% leased as of September 30, 2012.  These results reflect the reduction in occupancy related to the deconsolidation of SIR as of July 2, 2013, offset by a 0.1 percentage point increase in occupancy at properties we owned continuously since July 1, 2012, and higher occupancy levels at properties acquired since July 1, 2012.  Occupancy data for 2013 and 2012 is as follows (square feet in thousands):

	All Properties(1)				Comparable Properties(2)
	As of September 30,				As of September 30,
	2013		2012		2013		2012
Total properties	128		214		126		126
Total square feet	38,895		61,733		37,500		37,500
Percent leased(3)	88.6	%	90.9	%	88.5	%	88.4	%

(1)Excludes properties classified in discontinued operations.

(2)Based on properties we owned continuously since July 1, 2012 and excludes properties classified in discontinued operations.

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

As of September 30, 2013, we had four CBD properties (five buildings) and 72 suburban properties (172 buildings) with a combined 12,704,719 square feet classified as held for sale.  Results of operations for properties sold or held for sale as of September 30, 2013 are included in discontinued operations in our condensed consolidated statements of operations.  These properties and their operating results are excluded from the data in the preceding paragraph and, except as noted, from the balance of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The average effective rental rate per square foot, as defined below, for our properties for the three and nine months ended September 30, 2013 and 2012 are as follows:

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	Average Effective Rental Rate Per Square Foot(1)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
CBD properties	$	30.03	$	30.04	$	30.05	$	30.10
Suburban properties	$	16.31	$	10.46	$	12.01	$	10.27
Total properties	$	23.59	$	16.71	$	18.62	$	16.59

(1)Average effective rental rate per square foot represents (x) total rental income during the period specified, adjusted for tenant concessions, including free rent and tenant reimbursements, divided by (y) the average rentable square feet leased during the period specified.  Data presented excludes properties classified in discontinued operations.

During the three months ended September 30, 2013, we renewed leases for 1,201,000 square feet and entered into new leases for 340,000 square feet, at weighted average cash rental rates that were approximately 4.3% below rents previously charged for the same space.  The weighted average lease term based on square feet for leases entered into during the three months ended September 30, 2013 was 8.9 years.  Commitments for tenant improvements, leasing commissions, tenant concessions, including free rent and tenant reimbursements, for leases entered into during the three months ended September 30, 2013 totaled $46.7 million, or $30.33 per square foot on average (approximately $3.41 per square foot per year of the lease term).

Leasing market conditions in the majority of our markets appear to be stabilizing, but remain weak.  Required tenant concessions, including tenant improvements, leasing brokerage commissions, tenant reimbursements and free rent, have increased in certain markets since 2008 and may continue to increase depending on market and competitive conditions.  Tenant concessions are generally amortized during the terms of the affected leases.  We believe that the stubbornly high unemployment rate and weak leasing market conditions in the United States may result in stable, or even decreases in, occupancies and effective rents, or gross rents less amortization of landlord funded tenant improvements and leasing costs, at our properties through 2014.  However, there are too many variables for us to reasonably project what the financial impact of changing market conditions will have on our occupancy, rental income or financial results for future periods.

We review all of our long lived assets for possible impairments following the end of each quarter and when there is an event or change in circumstances that indicates an impairment in value may have occurred.  We determined the net carrying value of one property (three buildings) sold during the three months ended September 30, 2013 and 46 properties (101 buildings) that were classified as held for sale as of September 30, 2013 exceeded their estimated fair value based on broker valuations, comparable sales transactions, current sales prices and purchase offers, resulting in impairment charges aggregating $217.1 million.

As of September 30, 2013, approximately 8.6% of our leased square feet and 7.8% of our annualized rental income, determined as set forth below, are included in leases scheduled to expire through December 31, 2014.  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 are negotiated.  Lease expirations by year, as of September 30, 2013, are as follows (square feet and dollars in thousands):

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											Cumulative
									% of		% of
					Cumulative		Annualized		Annualized		Annualized
	Number	Square	% of		% of Square		Rental		Rental		Rental
	of Tenants	Feet	Square Feet		Feet		Income		Income		Income
Year	Expiring	Expiring(1)	Expiring		Expiring		Expiring(2)		Expiring		Expiring
2013	164	1,020	3.0	%	3.0	%	$	16,946	2.3	%	2.3	%
2014	233	1,922	5.6	%	8.6	%	40,997		5.5	%	7.8	%
2015	254	3,941	11.4	%	20.0	%	83,924		11.2	%	19.0	%
2016	257	4,087	11.9	%	31.9	%	75,747		10.1	%	29.1	%
2017	216	3,239	9.4	%	41.3	%	79,012		10.5	%	39.6	%
2018	172	3,665	10.6	%	51.9	%	80,837		10.7	%	50.3	%
2019	76	3,441	10.0	%	61.9	%	61,362		8.2	%	58.5	%
2020	72	3,517	10.2	%	72.1	%	82,475		11.0	%	69.5	%
2021	45	1,833	5.3	%	77.4	%	41,659		5.5	%	75.0	%
2022	36	1,226	3.6	%	81.0	%	32,973		4.4	%	79.4	%
Thereafter	102	6,567	19.0	%	100.0	%	155,087		20.6	%	100.0	%
Total	1,627	34,458	100.0	%			$	751,019	100.0	%
Weighted average remaining lease term (in years):		6.0					6.0

(1)Square feet is pursuant to existing leases as of September 30, 2013, 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 annualized contractual rents from our tenants pursuant to existing leases as of September 30, 2013, plus straight-line rent adjustments and estimated recurring expense reimbursements; includes some triple net lease rents and excludes lease value amortization.  Excludes properties classified in discontinued operations.

A 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, 2013, tenants responsible for 1% or more of our total annualized rental income were as follows (square feet in thousands):

					% of
					Annualized
		Square	% of Total		Rental
Tenant		Feet(1)	Square Feet(1)		Income(2)		Expiration
1.	Telstra Corporation Limited	311	0.9	%	2.4	%	2020
2.	Office Depot, Inc.	651	1.9	%	2.3	%	2023
3.	Expedia, Inc.	371	1.1	%	2.1	%	2018
4.	PNC Financial Services Group	587	1.7	%	2.0	%	2017 to 2021
5.	John Wiley & Sons, Inc.	342	1.0	%	2.0	%	2017
6.	U.S. Government	507	1.5	%	1.9	%	2013 to 2032
7.	The Bank of New York Mellon Corp.	395	1.1	%	1.5	%	2015 to 2021
8.	Royal Dutch Shell plc	700	2.0	%	1.5	%	2016 and 2026
9.	J.P. Morgan Chase & Co.	375	1.1	%	1.5	%	2014 to 2025
10.	Flextronics International Ltd.	1,051	3.1	%	1.4	%	2019
11.	United Healthcare Services Inc.	479	1.4	%	1.4	%	2017 to 2023
12.	CNO Financial Group Inc.	363	1.1	%	1.3	%	2013 to 2023
13.	Wells Fargo & Co	353	1.0	%	1.2	%	2013 to 2022
14.	Ballard Spahr LLP (a law firm)	263	0.8	%	1.2	%	2014 to 2031
15.	Towers Watson & Co.	348	1.0	%	1.1	%	2013 to 2020
16.	Jones Day (a law firm)	343	1.0	%	1.1	%	2026
17.	Level 3 Communications, Inc.	212	0.6	%	1.1	%	2013 to 2026
18.	RE/MAX Holdings, Inc.	248	0.7	%	1.1	%	2028
19.	Carmike Cinemas, Inc.	552	1.6	%	1.0	%	2016
	Total	8,451	24.6	%	29.1	%

29

(1)Square feet is pursuant to existing leases as of September 30, 2013, 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 annualized contractual rents from our tenants pursuant to existing leases as of September 30, 2013, plus straight-line rent adjustments and estimated recurring expense reimbursements; includes some triple net lease rents and excludes lease value amortization.  Excludes properties classified in discontinued operations.

Investment and Disposition Activities (excluding SIR)

In early 2013, we announced that we would offer for sale 40 primarily suburban office and industrial properties (94 buildings) with a combined 6,673,851 square feet.  As of today, we have sold 38 of these properties (92 buildings) with a combined 6,596,457 square feet for an aggregate sale price of $156.3 million, excluding closing costs.  In addition, we have the remaining two properties (two buildings) with a combined 77,394 square feet under agreement to sell for a total of $2.1 million, excluding closing costs.  We expect to sell these two properties before year end 2013; however, no assurance can be given that any of these properties will be sold in that time period or at all.

In September 2013, our Board of Trustees approved a plan to sell an additional 45 non-core properties (110 buildings) with a combined 8,425,548 square feet, as part of our business plan to reposition our portfolio towards high quality office buildings located in CBDs and away from suburban office and industrial properties.  As of September 30, 2013, these 45 properties were reclassified to discontinued operations, and we recorded asset impairment charges totaling $217.1 million, primarily relating to certain of these properties.  We expect to sell these 45 properties by mid-year 2014; however, no assurance can be given that any of these properties will be sold in that time period or at all. From time to time we may consider selling additional properties.

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 $250.7 million ($239.6 million after deducting underwriters’ discounts and commissions and expenses).  We recognized a gain on this sale of an equity investment of $66.3 million as a result of the per share sales price of this transaction being above our per share carrying value.  Net proceeds from this sale were used to repay amounts outstanding under our revolving credit facility, which amounts were borrowed to fund, in part, the purchase of our senior notes that were tendered in the tender offer discussed below.

For more information regarding these transactions, please see Notes 4 and 6 to the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Financing Activities (excluding SIR)

In March 2013, we issued 34,500,000 common shares (including 4,500,000 common shares sold pursuant to the underwriters’ option to purchase additional shares) in a public offering for $19.00 per common share, raising gross proceeds of $655.5 million ($626.9 million after deducting underwriters’ discounts and commissions and expenses).  Net proceeds from this offering were used to repay indebtedness, including amounts borrowed under our revolving credit facility to fund, in part, the purchase of the senior notes that were tendered in the tender offer described below.

Also in March 2013, we purchased a total of $670.3 million of the outstanding principal amount of the following senior notes for $726.2 million, excluding transaction costs, pursuant to a tender offer (in thousands):

Senior Note	Principal		Purchase Price
5.75% Senior Notes due February 15, 2014	$	145,612	$	148,746
6.40% Senior Notes due February 15, 2015	152,560		164,140
5.75% Senior Notes due November 1, 2015	111,227		121,047
6.25% Senior Notes due August 15, 2016	260,896		292,218
	$	670,295	$	726,151

In connection with the purchase of these senior notes, we recognized a combined loss on early extinguishment of debt totaling $60.0 million, which includes the write off of unamortized discounts and deferred financing fees and expenses.

In October 2013, we prepaid at par all $99.0 million of our 5.75% unsecured senior notes due 2014, using borrowings under our revolving credit facility.

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For more information regarding our financing sources and activities, please see the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investment and Financing Liquidity and Resources” of this Quarterly Report on Form 10-Q.

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RESULTS OF OPERATIONS

Three Months Ended September 30, 2013, Compared to Three Months Ended September 30, 2012

										Other Properties Results (2)
	Comparable Properties Results(1)									Three Months Ended				Consolidated Results
	Three Months Ended September 30,									September 30,				Three Months Ended September 30,
					$			%												$			%
	2013		2012		Change			Change		2013		2012		2013			2012			Change			Change
	(in thousands)									(in thousands)				(in thousands, except per share data)
Rental income:
CBD properties	$	127,504	$	128,840	$	(1,336	)	(1.0	)%	$	8,724	$	1,353	$	136,228		$	130,193		$	6,035		4.6	%
Suburban properties	65,041		66,410		(1,369		)	(2.1	)%	472		30,199		65,513			96,609			(31,096		)	(32.2	)%
Rental income	192,545		195,250		(2,705		)	(1.4	)%	9,196		31,552		201,741			226,802			(25,061		)	(11.0	)%
Operating expenses:
CBD properties	63,363		59,583		3,780			6.3	%	4,202		402		67,565			59,985			7,580			12.6	%
Suburban properties	26,945		26,719		226			0.8	%	122		5,301		27,067			32,020			(4,953		)	(15.5	)%
Operating expenses	90,308		86,302		4,006			4.6	%	4,324		5,703		94,632			92,005			2,627			2.9	%
Net operating income :(3)
CBD properties	64,141		69,257		(5,116		)	(7.4	)%	4,522		951		68,663			70,208			(1,545		)	(2.2	)%
Suburban properties	38,096		39,691		(1,595		)	(4.0	)%	350		24,898		38,446			64,589			(26,143		)	(40.5	)%
Net operating income	$	102,237	$	108,948	$	(6,711	)	(6.2	)%	$	4,872	$	25,849	107,109			134,797			(27,688		)	(20.5	)%
Other expenses:
Depreciation and amortization														52,150			52,353			(203		)	(0.4	)%
General and administrative														25,069			12,565			12,504			99.5	%
Acquisition related costs														(436		)	1,066			(1,502		)	(140.9	)%
Total other expenses														76,783			65,984			10,799			16.4	%
Operating income														30,326			68,813			(38,487		)	(55.9	)%
Interest and other income														227			399			(172		)	(43.1	)%
Interest expense														(39,359		)	(50,736		)	11,377			(22.4	)%
Loss on early extinguishment of debt														—			(220		)	220			(100.0	)%
Equity in earnings of investees														10,492			2,868			7,624			265.8	%
Income from continuing operations before income tax expense														1,686			21,124			(19,438		)	(92.0	)%
Income tax expense														(785		)	(1,322		)	537			(40.6	)%
Income from continuing operations														901			19,802			(18,901		)	(95.4	)%
Discontinued operations:
(Loss) income from discontinued operations														(28		)	774			(802		)	(103.6	)%
Loss on asset impairment from discontinued operations														(217,080		)	—			(217,080		)	100.0	%
Net gain on sale of properties from discontinued operations														—			1,689			(1,689		)	(100.0	)%
Net (loss) income														(216,207		)	22,265			(238,472		)	(1071.1	)%
Net income attributable to noncontrolling interest in consolidated subsidiary														(108		)	(4,647		)	4,539			(97.7	)%
Net (loss) income attributable to CommonWealth REIT														(216,315		)	17,618			(233,933		)	(1327.8	)%
Preferred distributions														(11,151		)	(12,755		)	1,604			(12.6	)%
Excess redemption price paid over carrying value of preferred shares														—			(4,985		)	4,985			(100.0	)%
Net loss available for CommonWealth REIT common shareholders														$	(227,466	)	$	(122	)	$	(227,344	)	186347.5	%
Amounts attributable to CommonWealth REIT common shareholders:
Loss from continuing operations														$	(10,358	)	$	(2,585	)	$	(7,773	)	300.7	%
(Loss) income from discontinued operations														(28		)	774			(802		)	(103.6	)%
Loss on asset impairment from discontinued operations														(217,080		)	—			(217,080		)	100.0	%
Net gain on sale of properties from discontinued operations														—			1,689			(1,689		)	(100.0	)%
Net loss														$	(227,466	)	$	(122	)	$	(227,344	)	186347.5	%
Weighted average common shares outstanding — basic and diluted														118,328			83,745			34,583			41.3	%
Basic and diluted earnings per common share attributable to CommonWealth REIT common shareholders:
Loss from continuing operations														$	(0.09	)	$	(0.03	)	$	(0.06	)	200.0	%
(Loss) income from discontinued operations														$	(1.83	)	$	0.03		$	(1.86	)	(6200.0	)%
Net loss available for common shareholders														$	(1.92	)	$	—		$	(1.92	)	100.0	%

(1)Comparable properties consist of 126 properties (232 buildings) we owned continuously from July 1, 2012 to September 30, 2013, excluding properties classified as held for sale.

(2)Other properties consist of: (i) two (three buildings) and one (one building) (which one is included in the two) properties we owned on September 30, 2013 and 2012, respectively, and which we acquired during the period from July 1, 2012 to September 30, 2013, and (ii) properties owned by SIR when SIR was our consolidated subsidiary.

(3)We calculate NOI as shown above.  We define NOI as income from our real estate including lease termination fees received from tenants less our property operating expenses, which expenses include property marketing costs.  NOI excludes amortization of capitalized tenant improvement costs and leasing commissions.  We consider NOI to be an

32

appropriate supplemental measure to net (loss) income because it may help 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 we believe that NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are incurred at the property level and may facilitate comparisons of our operating performance between periods and with other REITs.  The calculation of NOI excludes certain components of net (loss) 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 (loss) income, net (loss) income attributable to CommonWealth REIT, net (loss) income available for CommonWealth REIT common shareholders, operating income or cash flow from operating activities, determined in accordance with GAAP, or as an indicator of our financial performance or liquidity, nor is this measure necessarily indicative of sufficient cash flow to fund all of our needs.  This measure should be considered in conjunction with net (loss) income, net (loss) income attributable to CommonWealth REIT, net (loss) income available for CommonWealth REIT common shareholders, operating income and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive (loss) income and condensed consolidated statements of cash flows.  Other REITs and real estate companies may calculate NOI differently than we do.

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

	Three Months Ended September 30,
	2013			2012
	(in thousands, except per share data)
Calculation of FFO:(1)
Net (loss) income attributable to CommonWealth REIT	$	(216,315	)	$	17,618
Plus: depreciation and amortization from continuing operations	52,150			52,353
Plus: depreciation and amortization from discontinued operations	8,157			11,084
Plus: loss on asset impairment from discontinued operations	217,080			—
Plus: FFO from investees	14,095			5,472
Plus: net income attributable to noncontrolling interest	108			4,647
Less: FFO attributable to noncontrolling interest	(142		)	(5,796		)
Less: net gain on sale of properties from discontinued operations	—			(1,689		)
Less: equity in earnings of investees	(10,492		)	(2,868		)
FFO attributable to CommonWealth REIT	64,641			80,821
Less: preferred distributions	(11,151		)	(12,755		)
FFO available for CommonWealth REIT common shareholders	$	53,490		$	68,066
Calculation of Normalized FFO:(1)
FFO attributable to CommonWealth REIT	$	64,641		$	80,821
Plus: acquisition related costs from continuing operations	(436		)	1,066
Plus: normalized FFO from investees	14,444			5,633
Plus: loss on early extinguishment of debt from continuing operations	—			220
Plus: shareholder litigation costs and related expenses	13,792			—
Plus: average minimum rent from direct financing lease	329			329
Plus: FFO attributable to noncontrolling interest	142			5,796
Less: normalized FFO attributable to noncontrolling interest	(142		)	(5,968		)
Less: FFO from investees	(14,095		)	(5,472		)
Less: interest earned from direct financing lease	(272		)	(353		)
Normalized FFO attributable to CommonWealth REIT	78,403			82,072
Less: preferred distributions	(11,151		)	(12,755		)
Normalized FFO available for CommonWealth REIT common shareholders	$	67,252		$	69,317
Weighted average common shares outstanding - basic and diluted(2)	118,328			83,745
Per common share:
FFO available for CommonWealth REIT common shareholders - basic and diluted(2)	$	0.45		$	0.81
Normalized FFO available for CommonWealth REIT common shareholders - basic and diluted(2)	$	0.57		$	0.83

(1)We calculate FFO and Normalized FFO as shown above.  FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or NAREIT, which is net income, calculated in accordance with GAAP, plus real estate depreciation and amortization, loss on real estate asset impairment, net income attributable to noncontrolling interest and FFO from equity investees, excluding any gain or loss on sale of properties, equity in earnings from investees and FFO attributable to noncontrolling interests.  Our calculation of Normalized FFO differs from NAREIT’s definition of FFO because we exclude acquisition related costs, gain from sale of equity investment, loss on early extinguishment of debt, shareholder litigation costs and related expenses, the difference between average minimum rent and interest earned from our direct financing lease and the difference between FFO and Normalized FFO from equity investees and noncontrolling interests.  We consider FFO and Normalized FFO to be appropriate measures of operating performance for a REIT, along with net (loss) income, net (loss) income attributable to CommonWealth REIT, net (loss) income available for CommonWealth REIT common shareholders, operating income and cash flow from operating activities. We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO may facilitate a comparison of our operating performance between periods and between us and other REITs.  FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders.  Other factors include, but are not limited to, requirements to maintain our status as a REIT, limitations in our revolving credit facility and term loan agreement and public debt covenants, the availability of debt and equity capital to us, our cash available for distribution, our expectation of our future capital requirements and operating performance, and our expected needs and availability of cash to pay our obligations.  FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net (loss) income, net (loss) income attributable to CommonWealth REIT, net (loss) income available for CommonWealth REIT common shareholders, operating income or cash flow from operating

34

activities, determined in accordance with GAAP, or as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs.  These measures should be considered in conjunction with net (loss) income, net (loss) income attributable to CommonWealth REIT, net (loss) income available for CommonWealth REIT common shareholders, operating income and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive (loss) income and condensed consolidated statements of cash flows.  Other REITs and real estate companies may calculate FFO and Normalized FFO differently than we do.

(2)Assuming no fundamental change (as described in Note 13 to the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q) has occurred, at September 30, 2013, we had 15,180 series D preferred shares outstanding that were convertible into 7,298 common shares and the effect of a conversion of our convertible preferred shares on FFO and Normalized FFO available for CommonWealth REIT common shareholders per share is anti-dilutive for all periods presented.

We refer to the 126 properties (232 buildings) we owned continuously from July 1, 2012 to September 30, 2013, excluding properties classified as held for sale, as comparable properties.  We refer to the two (three buildings) and one (one building) (which one is included in the two) properties that we owned as of September 30, 2013 and 2012, respectively, which we acquired during the period from July 1, 2012 to September 30, 2013, and for the 2012 period, properties owned by SIR when SIR was our consolidated subsidiary, as other properties.  Our condensed consolidated statement of operations for the three months ended September 30, 2013 includes the operating results of 128 properties for the entire period, as we acquired these properties prior to July 1, 2013.  Our condensed consolidated statement of operations for the three months ended September 30, 2012 includes the operating results of one property for less than the entire period, as this property was purchased during the period from July 1, 2012 to September 30, 2012.  Our condensed consolidated statements of operations for the three months ended September 30, 2013 and 2012 also include the operating results of properties owned by SIR when SIR was our consolidated subsidiary; SIR was our consolidated subsidiary until July 2, 2013.

The following table presents actual results, adjusted for both periods presented, to deconsolidate SIR and to account for our investment in SIR under the equity method since SIR’s initial public offering on March 12, 2012.  These adjusted historical results are provided for illustrative purposes only and are not necessarily indicative of our expected results of operations for any future period.  The deconsolidation of SIR and accounting for our investment in SIR under the equity method had no effect on net (loss) income attributable to CommonWealth REIT, FFO available for CommonWealth REIT common shareholders or Normalized FFO available for CommonWealth REIT common shareholders.

35

										Adjusted
										Other Properties Results (2)
	Adjusted Comparable Properties Results (1)									Three Months Ended						Adjusted Consolidated Results
	Three Months Ended September 30,									September 30,						Three Months Ended September 30,
					$			%														$			%
	2013		2012		Change			Change		2013			2012			2013			2012			Change			Change
	(in thousands)									(in thousands)						(in thousands, except per share data)
Rental income:
CBD properties	$	127,504	$	128,840	$	(1,336	)	(1.0	)%	$	8,710		$	277		$	136,214		$	129,117		$	7,097		5.5	%
Suburban properties	65,041		66,410		(1,369		)	(2.1	)%	(9		)	397			65,032			66,807			(1,775		)	(2.7	)%
Rental income	192,545		195,250		(2,705		)	(1.4	)%	8,701			674			201,246			195,924			5,322			2.7	%
Operating expenses:
CBD properties	63,363		59,583		3,780			6.3	%	4,198			99			67,561			59,682			7,879			13.2	%
Suburban properties	26,945		26,719		226			0.8	%	30			(106		)	26,975			26,613			362			1.4	%
Operating expenses	90,308		86,302		4,006			4.6	%	4,228			(7		)	94,536			86,295			8,241			9.5	%
NOI:
CBD properties	64,141		69,257		(5,116		)	(7.4	)%	4,512			178			68,653			69,435			(782		)	(1.1	)%
Suburban properties	38,096		39,691		(1,595		)	(4.0	)%	(39		)	503			38,057			40,194			(2,137		)	(5.3	)%
NOI(3)	$	102,237	$	108,948	$	(6,711	)	(6.2	)%	$	4,473		$	681		106,710			109,629			(2,919		)	(2.7	)%
Other expenses:
Depreciation and amortization																52,072			48,465			3,607			7.4	%
General and administrative																25,035			9,939			15,096			151.9	%
Acquisition related costs																(436		)	483			(919		)	(190.3	)%
Total other expenses																76,671			58,887			17,784			30.2	%
Operating income																30,039			50,742			(20,703		)	(40.8	)%
Interest and other income																227			399			(172		)	(43.1	)%
Interest expense																(39,317		)	(48,269		)	8,952			(18.5	)%
Loss on early extinguishment of debt																—			(220		)	220			(100.0	)%
Equity in earnings of investees																10,629			13,825			(3,196		)	(23.1	)%
Income from continuing operations before income tax expense																1,578			16,477			(14,899		)	(90.4	)%
Income tax expense																(785		)	(1,322		)	537			(40.6	)%
Income from continuing operations																793			15,155			(14,362		)	(94.8	)%
Discontinued operations:
(Loss) income from discontinued operations																(28		)	774			(802		)	(103.6	)%
Loss on asset impairment from discontinued operations																(217,080		)	—			(217,080		)	100.0	%
Net gain on sale of properties from discontinued operations																—			1,689			(1,689		)	(100.0	)%
Net (loss) income																(216,315		)	17,618			(233,933		)	(1327.8	)%
Net income attributable to noncontrolling interest in consolidated subsidiary																—			—			—			0.0	%
Net (loss) income attributable to CommonWealth REIT																(216,315		)	17,618			(233,933		)	(1327.8	)%
Preferred distributions																(11,151		)	(12,755		)	1,604			(12.6	)%
Excess redemption price paid over carrying value of preferred shares																—			(4,985		)	4,985			(100.0	)%
Net loss available for CommonWealth REIT common shareholders																$	(227,466	)	$	(122	)	$	(227,344	)	186347.5	%
Amounts attributable to CommonWealth REIT common shareholders:
Loss from continuing operations																$	(10,358	)	$	(2,585	)	$	(7,773	)	300.7	%
(Loss) income from discontinued operations																(28		)	774			(802		)	(103.6	)%
Loss on asset impairment from discontinued operations																(217,080		)	—			(217,080		)	100.0	%
Net gain on sale of properties from discontinued operations																—			1,689			(1,689		)	(100.0	)%
Net loss																$	(227,466	)	$	(122	)	$	(227,344	)	186347.5	%
Weighted average common shares outstanding — basic and diluted																118,328			83,745			34,583			41.3	%
Basic and diluted earnings per common share attributable to CommonWealth REIT common shareholders:
Loss from continuing operations																$	(0.09	)	$	(0.03	)	$	(0.06	)	200.0	%
(Loss) income from discontinued operations																$	(1.83	)	$	0.03		$	(1.86	)	(6200.0	)%
Net loss available for common shareholders																$	(1.92	)	$	—		$	(1.92	)	100.0	%

(1)Comparable properties consist of 126 properties (232 buildings) we owned continuously from July 1, 2012 to September 30, 2013, excluding properties classified as held for sale.

(2)Other properties consist of two (three buildings) and one (one building) (which one is included in the two) properties we owned on September 30, 2013 and 2012, respectively, and which we acquired during the period from July 1, 2012 to September 30, 2013.

(3)See Note (3) on page 32 for further information regarding NOI.

Differences between consolidated results and adjusted results are all attributable to the deconsolidation of SIR.  References to changes in the income and expense categories below relate to the comparison of adjusted results for the three months ended September 30, 2013, compared to the three months ended September 30, 2012.

Rental income.  Rental income increased for the three months ended September 30, 2013 compared to the same period in 2012, primarily due to our acquisition of two CBD properties (three buildings) in 2012 subsequent to July 1, 2012, partially offset by a

36

decrease in rental income at our comparable properties.  The decrease in comparable property rental income from our CBD segment of $1.3 million primarily reflects higher lease termination fees received in the prior year and the impact of the change in the value of the Australian dollar relative to the U.S. dollar, or foreign currency impact, on revenues from one of our CBD properties in Australia.  The decrease in comparable property rental income from our suburban segment of $1.4 million primarily reflects higher lease termination fees received in the prior year and the foreign currency impact on revenues for ten of our suburban properties in Australia.  Rental income includes non-cash straight line rent adjustments totaling $6.6 million in the 2013 period and $10.4 million in the 2012 period and reductions for amortization of acquired real estate leases and assumed real estate lease obligations totaling $2.2 million in the 2013 period and $2.1 million in the 2012 period.  Rental income also includes lease termination fees totaling $434,000 in the 2013 period and $1.2 million in the 2012 period.

Operating expenses.  The increase in operating expenses primarily reflects our acquisition of two CBD properties (three buildings) since July 1, 2012, and an increase in operating expenses at our comparable properties.  The increase in operating expenses at our comparable properties primarily reflects an increase in real estate tax rates and assessments at some of our CBD properties.

Total other expenses.  The increase in total other expenses primarily reflects depreciation resulting from acquisitions and capital improvements we made since July 1, 2012, and an increase in general and administrative expenses primarily for shareholder litigation costs and related expenses, partially offset by the reversal during the current period of a portion of estimated acquisition related costs recognized in the prior period.

Interest and other income.  The decrease in interest and other income primarily reflects lower interest income during the 2013 period, partially offset by interest income from mortgage financing we provided to the buyers of some of the properties we sold during 2013.

Interest expense.  The decrease in interest expense in the 2013 period primarily reflects the prepayment of $191.0 million of our 6.50% unsecured senior notes in July 2012 and the purchase of $670.3 million of unsecured senior notes pursuant to the tender offer we completed in March 2013, partially offset by the assumption of $156.3 million of mortgage debt since July 1, 2012 and our issuance of $175.0 million of 5.75% unsecured senior notes in July 2012.

Loss on early extinguishment of debt.  The loss on early extinguishment of debt in the 2012 period reflects the write off of unamortized discounts and deferred financing fees associated with the prepayment of $191.0 million of our 6.50% unsecured senior notes in July 2012.

Equity in earnings of investees.  Equity in earnings of investees represents our proportionate share of earnings from SIR, GOV and AIC.  The decrease in earnings of investees primarily reflects our sale in March 2013 of all 9,950,000 common shares that we owned of GOV.

Income tax expense.  The decrease in income tax expense primarily reflects retroactive increases in taxes during the third quarter of 2012 related to our Australian properties.

(Loss) income from discontinued operations.  (Loss) income from discontinued operations reflects operating results from 76 properties (177 buildings) that were being marketed for sale as of September 30, 2013, nine properties (27 buildings) and a land parcel sold from January 1, 2013 to September 30, 2013 and one property (one building) sold in the 2012 period.

Loss on asset impairment from discontinued operations.  The 2013 loss on asset impairment reflects the write down to estimated fair value of one suburban property (three buildings) sold during the three months ended September 30, 2013 and 43 properties (97 buildings) that are currently being marketed for sale.

Net gain on sale of properties from discontinued operations.  Net gain on sale of properties reflects net gains totaling $1.7 million from the sale of one suburban property (one building) during the 2012 period.

Net (loss) income.  The decrease in net income is primarily a result of the changes noted above.

Net (loss) income attributable to CommonWealth REIT and net (loss) income available for CommonWealth REIT common shareholders.  The decrease in net income attributable to CommonWealth REIT reflects the same factors noted above.  Net (loss) income available for CommonWealth REIT common shareholders is net (loss) income attributable to CommonWealth REIT reduced by preferred distributions.  The decrease in preferred distributions reflects the redemption of 6,000,000 of our 7 1/8% series C preferred shares in August 2012.

37

Weighted average common shares outstanding — basic and diluted.  The increase in weighted average common shares outstanding primarily reflects 34,500,000 common shares we issued in a public offering in March 2013.

38

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2013, Compared to Nine Months Ended September 30, 2012

										Other Properties Results(2)
	Comparable Properties Results(1)									Nine Months Ended				Consolidated Results
	Nine Months Ended September 30,									September 30,				Nine Months Ended September 30,
					$			%												$			%
	2013		2012		Change			Change		2013		2012		2013			2012			Change			Change
	(in thousands)									(in thousands)				(in thousands, except per share data)
Rental income:
CBD properties	$	343,439	$	347,731	$	(4,292	)	(1.2	)%	$	70,111	$	35,514	$	413,550		$	383,245		$	30,305		7.9	%
Suburban properties	197,723		195,386		2,337			1.2	%	87,934		83,956		285,657			279,342			6,315			2.3	%
Rental income	541,162		543,117		(1,955		)	(0.4	)%	158,045		119,470		699,207			662,587			36,620			5.5	%
Operating expenses:
CBD properties	157,333		153,865		3,468			2.3	%	36,035		19,130		193,368			172,995			20,373			11.8	%
Suburban properties	78,366		76,469		1,897			2.5	%	15,916		15,763		94,282			92,232			2,050			2.2	%
Operating expenses	235,699		230,334		5,365			2.3	%	51,951		34,893		287,650			265,227			22,423			8.5	%
NOI:
CBD properties	186,106		193,866		(7,760		)	(4.0	)%	34,076		16,384		220,182			210,250			9,932			4.7	%
Suburban properties	119,357		118,917		440			0.4	%	72,018		68,193		191,375			187,110			4,265			2.3	%
NOI(3)	$	305,463	$	312,783	$	(7,320	)	(2.3	)%	$	106,094	$	84,577	411,557			397,360			14,197			3.6	%
Other expenses:
Depreciation and amortization														169,930			154,623			15,307			9.9	%
General and administrative														61,445			34,190			27,255			79.7	%
Acquisition related costs														337			5,002			(4,665		)	(93.3	)%
Total other expenses														231,712			193,815			37,897			19.6	%
Operating income														179,845			203,545			(23,700		)	(11.6	)%
Interest and other income														931			1,020			(89		)	(8.7	)%
Interest expense														(134,824		)	(148,924		)	14,100			(9.5	)%
Loss on early extinguishment of debt														(60,027		)	(287		)	(59,740		)	20815.3	%
Equity in earnings of investees														14,913			8,655			6,258			72.3	%
Gain on sale of equity investment														66,293			—			66,293			100.0	%
Income from continuing operations before income tax expense														67,131			64,009			3,122			4.9	%
Income tax expense														(2,527		)	(1,906		)	(621		)	32.6	%
Income from continuing operations														64,604			62,103			2,501			4.0	%
Discontinued operations:
Income from discontinued operations														4,390			4,891			(501		)	(10.2	)%
Loss on asset impairment from discontinued operations														(225,615		)	—			(225,615		)	100.0	%
Loss on early extinguishment of debt from discontinued operations														—			(1,608		)	1,608			(100.0	)%
Net gain on sale of properties from discontinued operations														3,359			2,039			1,320			64.7	%
(Loss) income before gain on sale of properties														(153,262		)	67,425			(220,687		)	(327.3	)%
Gain on sale of properties														1,596			—			1,596			100.0	%
Net (loss) income														(151,666		)	67,425			(219,091		)	(324.9	)%
Net income attributable to noncontrolling interest in consolidated subsidiary														(20,093		)	(10,062		)	(10,031		)	99.7	%
Net (loss) income attributable to CommonWealth REIT														(171,759		)	57,363			(229,122		)	(399.4	)%
Preferred distributions														(33,453		)	(40,401		)	6,948			(17.2	)%
Excess redemption price paid over carrying value of preferred shares														—			(4,985		)	4,985			(100.0	)%
Net (loss) income available for CommonWealth REIT common shareholders														$	(205,212	)	$	11,977		$	(217,189	)	(1813.4	)%
Amounts attributable to CommonWealth REIT common shareholders:
Income from continuing operations														$	12,654		$	6,655		$	5,999		90.1	%
Income from discontinued operations														4,390			4,891			(501		)	(10.2	)%
Loss on asset impairment from discontinued operations														(225,615		)	—			(225,615		)	100.0	%
Loss on early extinguishment of debt from discontinued operations														—			(1,608		)	1,608			(100.0	)%
Net gain on sale of properties from discontinued operations														3,359			2,039			1,320			64.7	%
Net (loss) income														$	(205,212	)	$	11,977		$	(217,189	)	(1813.4	)%
Weighted average common shares outstanding — basic and diluted														110,353			83,731			26,622			31.8	%
Basic and diluted earnings per common share attributable to CommonWealth REIT common shareholders:
Income from continuing operations														$	0.11		$	0.08		$	0.03		37.5	%
(Loss) income from discontinued operations														$	(1.97	)	$	0.06		$	(2.03	)	(3383.3	)%
Net (loss) income available for common shareholders														$	(1.86	)	$	0.14		$	(2.00	)	(1428.6	)%

(1)Comparable properties consist of 124 properties (229 buildings) we owned continuously from January 1, 2012 to September 30, 2013, excluding properties classified as held for sale.

39

(2)Other properties consist of: (i) four (six buildings) and three (four buildings) (which three are included in the four) properties we owned on September 30, 2013 and 2012, respectively, and which we acquired during the period from January 1, 2012 to September 30, 2013, and (ii) properties owned by SIR when SIR was our consolidated subsidiary.

(3)See Note (3) on page 32 for further information regarding NOI.

Calculation of FFO and Normalized FFO

	Nine Months Ended September 30,
	2013			2012
	(in thousands, except per share data)
Calculation of FFO:(1)
Net (loss) income attributable to CommonWealth REIT	$	(171,759	)	$	57,363
Plus:depreciation and amortization from continuing operations	169,930			154,623
Plus:depreciation and amortization from discontinued operations	24,289			33,717
Plus:loss on asset impairment from discontinued operations	225,615			—
Plus:FFO from investees	18,996			16,070
Plus:net income attributable to noncontrolling interest	20,093			10,062
Less:FFO attributable to noncontrolling interest	(26,270		)	(12,270		)
Less:gain on sale of properties	(1,596		)	—
Less:net gain on sale of properties from discontinued operations	(3,359		)	(2,039		)
Less:equity in earnings of investees	(14,913		)	(8,655		)
FFO attributable to CommonWealth REIT	241,026			248,871
Less:preferred distributions	(33,453		)	(40,401		)
FFO available for CommonWealth REIT common shareholders	$	207,573		$	208,470
Calculation of Normalized FFO:(1)
FFO attributable to CommonWealth REIT	$	241,026		$	248,871
Plus:acquisition related costs from continuing operations	337			5,002
Plus:normalized FFO from investees	19,350			16,293
Plus:loss on early extinguishment of debt from continuing operations	60,027			287
Plus:loss on early extinguishment of debt from discontinued operations	—			1,608
Plus:shareholder litigation costs and related expenses	23,917			—
Plus:average minimum rent from direct financing lease	987			987
Plus:FFO attributable to noncontrolling interest	26,270			12,270
Less:normalized FFO attributable to noncontrolling interest	(26,573		)	(12,641		)
Less:FFO from investees	(18,996		)	(16,070		)
Less:interest earned from direct financing lease	(877		)	(1,119		)
Less:gain on sale of equity investment	(66,293		)	—
Normalized FFO attributable to CommonWealth REIT	259,175			255,488
Less:preferred distributions	(33,453		)	(40,401		)
Normalized FFO available for CommonWealth REIT common shareholders	$	225,722		$	215,087
Weighted average common shares outstanding - basic and diluted(2)	110,353			83,731
Per common share:
FFO available for CommonWealth REIT common shareholders - basic and diluted(2)	$	1.88		$	2.49
Normalized FFO available for CommonWealth REIT common shareholders - basic and diluted (2)	$	2.05		$	2.57

(1)See Note (1) on page 34 for further information regarding FFO and Normalized FFO.

(2)Assuming no fundamental change (as described in Note 13 to the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q) has occurred, at September 30, 2013, we had 15,180 series D preferred shares outstanding that were convertible into 7,298 common shares and the effect of a conversion of our convertible preferred shares on FFO and Normalized FFO available for CommonWealth REIT common shareholders per share is anti-dilutive for all periods presented.

We refer to the 124 properties (229 buildings) we owned continuously from January 1, 2012 to September 30, 2013, excluding properties classified as held for sale, as comparable properties.  We refer to the four (six buildings) and three (four buildings) (which three are included in the four) properties that we owned as of September 30, 2013 and 2012, respectively, which we acquired during the period from January 1, 2012 to September 30, 2013, and for the 2012 period, properties owned by SIR when SIR

40

was our consolidated subsidiary, as other properties.  Our condensed consolidated statement of operations for the nine months ended September 30, 2013 includes the operating results of 128 properties for the entire period, as we acquired these properties prior to January 1, 2013.  Our condensed consolidated statement of operations for the nine months ended September 30, 2012 includes the operating results of three properties for less than the entire period, as those properties were purchased during the period from January 1, 2012 to September 30, 2012.  Our condensed consolidated statements of operations for the nine months ended September 30, 2013 and 2012 also includes the operating results of properties owned by SIR when SIR was our consolidated subsidiary; SIR was our consolidated subsidiary until July 2, 2013.

The following table presents actual results, adjusted for both periods presented, to deconsolidate SIR and to account for our investment in SIR under the equity method since SIR’s initial public offering on March 12, 2012.  These adjusted historical results are provided for illustrative purposes only and are not necessarily indicative of our expected results of operations for any future period.  The deconsolidation of SIR and accounting for our investment in SIR under the equity method had no effect on net (loss) income attributable to CommonWealth REIT, FFO available for CommonWealth REIT common shareholders or Normalized FFO available for CommonWealth REIT common shareholders.

										Adjusted
										Other Properties Results (2)
	Adjusted Comparable Properties Results (1)									Nine Months Ended					Adjusted Consolidated Results
	Nine Months Ended September 30,									September 30,					Nine Months Ended September 30,
					$			%													$			%
	2013		2012		Change			Change		2013			2012		2013			2012			Change			Change
	(in thousands)									(in thousands)					(in thousands, except per share data)
Rental income:
CBD properties	$	343,439	$	347,731	$	(4,292	)	(1.2	)%	$	67,314		$	33,771	$	410,753		$	381,502		$	29,251		7.7	%
Suburban properties	197,723		195,386		2,337			1.2	%	430			21,410		198,153			216,796			(18,643		)	(8.6	)%
Rental income	541,162		543,117		(1,955		)	(0.4	)%	67,744			55,181		608,906			598,298			10,608			1.8	%
Operating expenses:
CBD properties	157,333		153,865		3,468			2.3	%	34,980			18,689		192,313			172,554			19,759			11.5	%
Suburban properties	78,366		76,469		1,897			2.5	%	(10		)	3,577		78,356			80,046			(1,690		)	(2.1	)%
Operating expenses	235,699		230,334		5,365			2.3	%	34,970			22,266		270,669			252,600			18,069			7.2	%
NOI:
CBD properties	186,106		193,866		(7,760		)	(4.0	)%	32,334			15,082		218,440			208,948			9,492			4.5	%
Suburban properties	119,357		118,917		440			0.4	%	440			17,833		119,797			136,750			(16,953		)	(12.4	)%
NOI(3)	$	305,463	$	312,783	$	(7,320	)	(2.3	)%	$	32,774		$	32,915	338,237			345,698			(7,461		)	(2.2	)%
Other expenses:
Depreciation and amortization															155,892			147,145			8,747			5.9	%
General and administrative															55,735			29,592			26,143			88.3	%
Acquisition related costs															(352		)	3,745			(4,097		)	(109.4	)%
Total other expenses															211,275			180,482			30,793			17.1	%
Operating income															126,962			165,216			(38,254		)	(23.2	)%
Interest and other income															931			1,020			(89		)	(8.7	)%
Interest expense															(127,530		)	(144,489		)	16,959			(11.7	)%
Loss on early extinguishment of debt															(60,027		)	(287		)	(59,740		)	20815.3	%
Equity in earnings of investees															40,329			32,487			7,842			24.1	%
Gain on sale of equity investment															66,293			—			66,293			100.0	%
Income from continuing operations before income tax expense															46,958			53,947			(6,989		)	(13.0	)%
Income tax expense															(2,447		)	(1,906		)	(541		)	28.4	%
Income from continuing operations															44,511			52,041			(7,530		)	(14.5	)%
Discontinued operations:
Income from discontinued operations															4,390			4,891			(501		)	(10.2	)%
Loss on asset impairment from discontinued operations															(225,615		)	—			(225,615		)	100.0	%
Loss on early extinguishment of debt from discontinued operations															—			(1,608		)	1,608			(100.0	)%
Net gain on sale of properties from discontinued operations															3,359			2,039			1,320			64.7	%
(Loss) income before gain on sale of properties															(173,355		)	57,363			(230,718		)	(402.2	)%
Gain on sale of properties															1,596			—			1,596			100.0	%
Net (loss) income															(171,759		)	57,363			(229,122		)	(399.4	)%
Net income attributable to noncontrolling interest in consolidated subsidiary															—			—			—			0.0	%
Net (loss) income attributable to CommonWealth REIT															(171,759		)	57,363			(229,122		)	(399.4	)%
Preferred distributions															(33,453		)	(40,401		)	6,948			(17.2	)%
Excess redemption price paid over carrying value of preferred shares															—			(4,985		)	4,985			(100.0	)%
Net (loss) income available for CommonWealth REIT common shareholders															$	(205,212	)	$	11,977		$	(217,189	)	(1813.4	)%
Amounts attributable to CommonWealth REIT common shareholders:
Income from continuing operations															$	12,654		$	6,655		$	5,999		90.1	%
Income from discontinued operations															4,390			4,891			(501		)	(10.2	)%
Loss on asset impairment from discontinued operations															(225,615		)	—			(225,615		)	100.0	%
Loss on early extinguishment of debt from discontinued operations															—			(1,608		)	1,608			100.0	%
Net gain on sale of properties from discontinued operations															3,359			2,039			1,320			64.7	%
Net (loss) income															$	(205,212	)	$	11,977		$	(217,189	)	(1813.4	)%
Weighted average common shares outstanding — basic and diluted															110,353			83,731			26,622			31.8	%
Basic and diluted earnings per common share attributable to CommonWealth REIT common shareholders:
Income from continuing operations															$	0.11		$	0.08		$	0.03		37.5	%
(Loss) income from discontinued operations															$	(1.97	)	$	0.06		$	(2.03	)	(3383.3	)%
Net (loss) income available for common shareholders															$	(1.86	)	$	0.14		$	(2.00	)	(1428.6	)%

(1)Comparable properties consist of 124 properties (229 buildings) we owned continuously from January 1, 2012 to September 30, 2013, excluding properties classified as held for sale.

(2)Other properties consist of four (six buildings) and three (four buildings) (which three are included in the four) properties we owned on September 30, 2013 and 2012, respectively, and which we acquired during the period from January 1, 2012 to September 30, 2013.

(3)See Note (3) on page 32 for further information regarding NOI.

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Differences between consolidated results and adjusted results are all attributable to the deconsolidation of SIR.  References to changes in the income and expense categories below relate to the comparison of adjusted results for the nine months ended September 30, 2013, compared to the nine months ended September 30, 2012.

Rental income.  Rental income increased for the nine months ended September 30, 2013 compared to the same period in 2012, primarily due to our acquisition of four CBD properties (six buildings) in 2012, partially offset by rents received from SIR properties while SIR was our wholly owned subsidiary until March 12, 2012, and a decrease in rental income at our comparable properties.  The decrease in comparable property rental income from our CBD segment of $4.3 million primarily reflects higher lease termination fees received in the prior year and the foreign currency impact on revenues from one of our CBD properties in Australia.  The increase in comparable property rental income from our suburban properties of $2.3 million primarily reflects the increase in occupancy.  Rental income includes non-cash straight line rent adjustments totaling $21.2 million in the 2013 period and $28.2 million in the 2012 period and reductions for amortization of acquired real estate leases and assumed real estate lease obligations totaling $6.6 million in the 2013 period and $6.7 million in the 2012 period.  Rental income also includes lease termination fees totaling $1.7 million in the 2013 period and $3.2 million in the 2012 period.

Operating expenses.  The increase in operating expenses primarily reflects our acquisition of four CBD properties (six buildings) since January 1, 2012 and an increase in operating expenses at our comparable properties, partially offset by operating expenses from SIR properties while SIR was our wholly owned consolidated subsidiary until March 12, 2012.  The increase in operating expenses at our comparable CBD and suburban properties primarily reflects an increase in real estate tax rates and assessments, and increases in utility expenses and snow removal costs related to a more typical winter season during the 2013 period, compared to a relatively mild winter season during the 2012 period.

Total other expenses.  The increase in total other expenses primarily reflects property acquisitions, depreciation resulting from acquisitions and capital improvements we made since January 1, 2012, an increase in general and administrative expenses primarily related to shareholder litigation costs and related expenses, partially offset by the reversal during the current period of a portion of estimated acquisition related costs recognized in the prior period.

Interest and other income.  The decrease in interest and other income primarily reflects lower interest income during the 2013 period, partially offset by interest income from mortgage financing we provided to the buyers of some of the properties we sold during the 2013 period and the 2012 period.

Interest expense.  The decrease in interest expense in the 2013 period primarily reflects the prepayment of $191.0 million of our 6.50% unsecured senior notes in July 2012 and the purchase of $670.3 million of unsecured senior notes pursuant to the tender offer we completed in March 2013, partially offset by the assumption of $333.2 million of mortgage debt since January 1, 2012, and our issuance of $175.0 million of 5.75% unsecured senior notes in July 2012.

Loss on early extinguishment of debt.  The loss on early extinguishment of debt in the 2013 period reflects the difference between $726.2 million paid to purchase $670.3 million of unsecured senior notes pursuant to the tender offer we completed in March 2013, plus the write off of unamortized discounts and deferred financing fees and expenses.  The loss on early extinguishment of debt in the 2012 period reflects the write off of unamortized discounts and deferred financing fees associated with the prepayments of $150.7 million of our 6.95% unsecured senior notes in January 2012 and the prepayment of $191.0 million of our 6.50% unsecured senior notes in July 2012.

Equity in earnings of investees.  Equity in earnings of investees represents our proportionate share of earnings from SIR, GOV and AIC.  The increase in earnings of investees primarily reflects an increase in earnings from SIR recognized under the equity method

42

since SIR’s initial public offering on March 12, 2012, partially offset by our sale in March 2013 of all 9,950,000 common shares that we owned of GOV.

Gain on sale of equity investment.  The gain on sale of equity investment reflects the sale in March 2013 of all 9,950,000 common shares that we owned of GOV at a per share sales price in excess of our per share carrying value.

Income tax expense.  The increase in income tax expense primarily reflects tax rate increases in Australia.

Income from discontinued operations.  Income from discontinued operations reflects operating results from 76 properties (177 buildings) that were being marketed for sale as of September 30, 2013, nine properties (27 buildings) and a land parcel sold from January 1, 2013 to September 30, 2013 and three properties (three buildings) sold in the 2012 period.

Loss on asset impairment from discontinued operations.  The 2013 loss on asset impairment reflects the write down to estimated fair value of six properties (nine buildings) sold during the nine months ended September 30, 2013 and 46 properties (101 buildings) that are currently being marketed for sale.

Loss on early extinguishment of debt from discontinued operations.  The loss on early extinguishment of debt in the 2012 period reflects the write off of unamortized discounts and deferred financing fees associated with the prepayment of $12.7 million of 6.06% mortgage debt in May 2012.

Net gain on sale of properties from discontinued operations.  Net gain on sale of properties reflects net gains totaling $3.4 million from the sale of four suburban properties (19 buildings) and one land parcel in the 2013 period, and $2.0 million from the sale of three suburban properties (three buildings) in the 2012 period.

Gain on sale of properties.  Gain on sale of properties reflects a gain of $1.6 million from the sale of a portion of the land at one of our CBD properties.

Net (loss) income.  The decrease in net income is primarily a result of the changes noted above.

Net (loss) income attributable to CommonWealth REIT and net (loss) income available for CommonWealth REIT common shareholders.  The decrease in net income attributable to CommonWealth REIT reflects the same factors noted above.  Net (loss) income available for CommonWealth REIT common shareholders is net (loss) income attributable to CommonWealth REIT reduced by preferred distributions.  The decrease in preferred distributions reflects the redemption of 6,000,000 of our 7 1/8% series C preferred shares in August 2012.

Weighted average common shares outstanding — basic and diluted.  The increase in weighted average common shares outstanding primarily reflects 34,500,000 common shares we issued in a public offering in March 2013.

LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources

As of September 30, 2013, we had $166.0 million of cash and cash equivalents and $515.0 million available to borrow under our revolving credit facility.  We expect to use cash balances, the cash flow from our operations, net proceeds from offerings of equity or debt securities or financings, net proceeds from the sale of properties, and possible borrowings under our revolving credit facility to fund our operations, debt repayments, distributions, future property acquisitions, tenant improvements and leasing costs and other general business purposes.  We believe those amounts will be sufficient to fund these activities for the next 12 months and the foreseeable future.

Our future cash flows from operating activities will depend primarily upon our:

·ability to maintain or improve the occupancy of, and the rental rates at, our properties;

·ability to control operating cost increases at our properties; and

·ability to purchase additional properties which produce rents, less property operating expenses, in excess of our costs of acquisition capital.

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We believe that present real estate leasing market conditions in the majority of areas where our properties are located, particularly at some of our suburban properties, may result in stable, or even decreases in, occupancies and effective rents, or gross rents less amortization of landlord funded tenant improvements and leasing costs, through 2014.  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 through of operating costs to our tenants pursuant to lease terms, although there can be no assurance that we will be able to successfully offset these costs or that doing so would not negatively impact our competitive position or business.  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, which we determine appropriate for us to purchase and upon our ability to successfully complete such acquisitions.

Cash flows provided by (used in) operating, investing and financing activities were $189.7 million, $33.7 million and ($159.1) million, respectively, for the nine months ended September 30, 2013, and $186.4 million, ($464.1) million and $157.2 million, respectively, for the nine months ended September 30, 2012.  Cash flows provided by operating activities related to SIR for the period from January 1, 2013 to July 2, 2013, totaled $52.6 million.  Cash flows used in investing activities related to SIR for the period from January 1, 2013 to July 2, 2013, totaled $165.5 million.  Cash flows provided by financing activities related to SIR for the period from January 1, 2013 to July 2, 2013, totaled $104.8 million.  Other changes in all three categories of our cash flows between 2013 and 2012 are primarily related to the sale of our GOV common shares, our reduced amount of acquisitions during the 2013 period compared to the 2012 period, our dispositions of properties, our issuance of common shares, our borrowings and repayments and repurchases of debt, and our distributions on our common and preferred shares.

Our Investment and Financing Liquidity and Resources (excluding SIR)

In order to fund acquisitions and to meet 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.  The maturity date of our revolving credit facility is October 19, 2015 and, subject to the payment of an extension fee and meeting certain other conditions, includes an option for us to extend the stated maturity date of our revolving credit facility by one year to October 19, 2016.  In addition, our revolving credit facility includes a feature under which maximum borrowings may be increased to up to $1.5 billion in certain circumstances.  Borrowings under our revolving credit facility bear interest at LIBOR plus a premium, which was 150 basis points as of September 30, 2013.  We also pay a facility fee of 35 basis points per annum on the total amount of lending commitments under our revolving credit facility.  Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings.  In the absence of a default (including a change of control of us), we may borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity.  As of September 30, 2013, the interest rate payable on borrowings under our revolving credit facility was 1.7%, and the weighted average interest rate for borrowings under our revolving credit facility was 1.7% for the nine months ended September 30, 2013.  As of September 30, 2013 and November 4, 2013, we had $235.0 million outstanding under our revolving credit facility.

In March 2013, we issued 34,500,000 common shares (including 4,500,000 common shares sold pursuant to the underwriters’ option to purchase additional shares) in a public offering, raising gross proceeds of $655.5 million ($626.9 million after deducting underwriters’ discounts and commissions and expenses).  Net proceeds from this offering were used to repay indebtedness, including amounts borrowed under our revolving credit facility to fund, in part, the purchase of the senior notes that were tendered in the tender offer described above under “Financing Activities.”

During the nine months ended September 30, 2013, we paid distributions on our common shares totaling $80.1 million.  We also paid an aggregate of $33.5 million of distributions on our series D and series E preferred shares.  In October 2013, we declared a distribution of $0.25 per common share, or approximately $29.6 million, which we expect to pay on or about November 22, 2013 to shareholders of record on October 25, 2013.  We also announced in October 2013 a quarterly distribution on our series D preferred shares of $0.4063 per share, or $6.2 million, and a quarterly distribution on our series E preferred shares of $0.4531 per share, or $5.0 million, both of which we expect to pay on or about November 15, 2013 to our preferred shareholders of record as of November 1, 2013.  We expect to fund these distributions using cash on hand and borrowings under our revolving credit facility.

Our outstanding debt maturities and weighted average interest rates as of September 30, 2013, excluding mortgage principal totaling $20,717 related to properties classified as held for sale, were as follows (dollars in thousands):

44

	Scheduled Principal Payments During Period
	Unsecured		Unsecured			Secured					Weighted
	Floating		Fixed			Fixed Rate					Average
Year	Rate Debt		Rate Debt			Debt			Total(2)		Interest Rate(3)
2013	$	—	$	—		$	1,817		$	1,817	6.0	%
2014	—		99,043		(4)	19,229			118,272		5.7	%
2015	235,000		172,213			15,035			422,248		3.5	%
2016	500,000		139,104			315,868			954,972		3.9	%
2017	—		250,000			310,592			560,592		5.9	%
2018	—		250,000			4,614			254,614		6.6	%
2019	—		125,000			165,422		(1)	290,422		6.5	%
2020	—		250,000			2,523			252,523		5.9	%
2021	—		—			60,470			60,470		5.5	%
2022	—		—			799			799		5.9	%
Thereafter	—		175,000			2,436			177,436		5.7	%
	$	735,000	$	1,460,360		$	898,805		$	3,094,165	5.1	%

(1)We have a mortgage loan with an aggregate outstanding principal balance as of September 30, 2013 of $173,664 secured by one property located in Philadelphia, PA that matures in 2019.  Interest on this loan is payable at a rate equal to a premium over LIBOR, but the interest rate has been fixed by a cash flow hedge which sets the rate at approximately 5.66% per year until December 1, 2016.

(2)Total debt outstanding as of September 30, 2013, including net unamortized premiums and discounts, equals $3,114,821.

(3)Includes current contractual interest rates.

(4)   These notes were prepaid at par in October 2013.

For a description of our financing activities since January 1, 2013, please see “Financing Activities” above.  Also, please see Note 10 to the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information about our indebtedness.

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, extending the maturity of our revolving credit facility and entering into a new revolving credit facility.  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 regarding our credit ratings, regarding our ability to complete any debt or equity offerings or that our cost of any future public or private financings will not increase.  Also, in the event we experience a change of control as a result of the activities of Corvex/Related as described above, we can provide no assurance regarding the availability of our revolving credit facility or whether some or all of our indebtedness may be accelerated.

Since July 2, 2013, we received cash distributions totaling $9.7 million from SIR.  During 2013, we received cash distributions totaling $4.3 million from GOV; in March 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 $250.7 million ($239.6 million after deducting underwriters’ discounts and commissions and expenses) and recognized a gain of $66.3 million as a result of the per share sales price of this transaction being above our per share carrying value.  We used the net proceeds from this GOV share sale to repay amounts outstanding under our revolving credit facility, which amounts were borrowed to fund, in part, the purchase of the senior notes tendered in the tender offer described above under “Financing Activities.”

45

As of September 30, 2013, four of our CBD properties (five buildings) and 72 of our suburban properties (172 buildings) with a combined 12,704,719 square feet located throughout the United States were classified as properties held for sale in our condensed consolidated balance sheet and included in discontinued operations in our condensed consolidated statements of operations.  As of November 4, 2013, we have sold 29 of these properties (65 buildings) with a combined 4,201,777 square feet for an aggregate sale price of $111.4 million, excluding closing costs.  In addition, as of November 4, 2013, we have two of these properties (two buildings) with a combined 77,394 square feet under agreement to sell for an aggregate sale price of $2.1 million, excluding closing costs.  We expect to complete the sale of these two properties currently under agreement for sale by year end 2013 and the remaining 45 properties listed for sale by mid-year 2014; however, no assurance can be given that these properties will be sold in those time periods or at all, or what the ultimate terms of those sales may be.

During the three and nine months ended September 30, 2013 and 2012, amounts capitalized at our properties for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows (amounts in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Tenant improvements(1)	$	15,405	$	17,924	$	48,243	$	48,604
Leasing costs(2)	14,382		8,974		29,842		27,023
Building improvements(3)	8,676		2,828		17,200		8,440
Development, redevelopment and other activities(4)	3,994		11,484		9,988		23,124

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

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

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

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

Commitments made for expenditures at our properties, such as tenant improvements and leasing costs, and concessions, including tenant reimbursements and free rent, in connection with leasing space during the three months ended September 30, 2013, were as follows (dollar and square foot measures in thousands, except per square foot measures): 

	New
	Leases		Renewals		Total
Rentable square feet leased during the period	340		1,201		1,541
Tenant leasing costs and concession commitments (1)	$	13,343	$	33,394	$	46,737
Tenant leasing costs and concession commitments per rentable square foot (1)	$	39.24	$	27.81	$	30.33
Weighted average lease term by square foot (years)	7.8		9.2		8.9
Total leasing costs and concession commitments per rentable square foot per year (1)	$	5.03	$	3.02	$	3.41

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

46

Following our deconsolidation of SIR, our contractual obligations as of September 30, 2013 were as follows (dollars in thousands):

	Payment Due by Period
			Less than						More than
Contractual Obligations	Total		1 year		1-3 years		3-5 years		5 years
Long term debt obligations (1)	$	3,094,165	$	118,237	$	878,034	$	1,315,060	$	782,834
Tenant related obligations(2)	104,603		70,484		33,043		179		897
Projected interest expense(3)	859,461		153,104		276,937		134,503		294,917
Ground lease obligation(4)	139,256		1,477		2,954		2,954		131,871
Long term debt obligations related to properties held for sale(5)	25,327		2,497		12,153		3,372		7,305
Total	$	4,222,812	$	345,799	$	1,203,121	$	1,456,068	$	1,217,824

(1)Excludes debt obligations related to properties classified as held for sale, which are set forth separately below.

(2)Committed tenant related obligations include leasing commissions and tenant improvements and are based on leases executed through September 30, 2013.

(3)Projected interest expense is attributable to only the long term debt obligations listed above at existing rates and is not intended to project future interest costs which may result from debt prepayments, new debt issuances or changes in interest rates.

(4)Ground lease obligation represents payments due by us pursuant to an operating ground lease at one of our properties under which we are the lessee.

(5)Long term debt obligations related to properties held for sale include principal and projected interest expense for mortgage debt on some of the properties that we expect to sell within the next year.

Off Balance Sheet Arrangements

As of September 30, 2013, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.  We had no swaps or hedges as of September 30, 2013, other than the cash flow hedge associated with our $173.7 million of mortgage debt described in Note 12 to the notes to our condensed consolidated financial statements and under “Quantitative and Qualitative Disclosures About Market Risk” included elsewhere in this Quarterly Report on Form 10-Q.

Debt Covenants

Our principal unsecured debt obligations at September 30, 2013, were amounts outstanding under our revolving credit facility, our unsecured term loan, and our approximately $1.5 billion of publicly issued unsecured term debt.  Our publicly issued debt is governed by an indenture.  Our public debt indenture and related supplements, our revolving credit facility and our term loan agreement 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, 2013, we believe we were in compliance with all covenants under our indenture and related supplements, and we believe we were in compliance with all respective covenants under our revolving credit facility and our term loan agreement.  In addition to our unsecured debt obligations, we had $945.2 million (including net unamortized premiums and discounts) of mortgage notes outstanding at September 30, 2013, which includes $20.1 million (including net unamortized premiums and discounts) of mortgage debt related to properties held for sale. As stated above, we believe that the Corvex/Related consent solicitation has no legal effect.  However, if the arbitration panel determines that the Corvex/Related consent solicitation is legally effective and our entire Board of Trustees has been removed, such removal would constitute an event of default under our revolving credit facility and term loan agreements, giving either the administrative agent or the lenders with a majority in amount under each such agreement the right to accelerate payment of all amounts we may owe under such agreement.  Such event may also constitute an event of default under certain of our mortgage loans.  For a discussion of the effects and risks related to the removal of all of the Company’s Trustees, please see Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q.

None of our indenture and related supplements, our revolving credit facility agreement, our term loan agreement, or our mortgage notes contain provisions for acceleration or require 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 agreements.

Our public debt indenture and related supplements contain cross default provisions, which are generally triggered upon default of any of our other debts of $20.0 million or more.  Our revolving credit facility agreement and our term loan agreement also contain certain cross default provisions, including providing that a termination of our business management agreement or our property management agreement with RMR would cause a default under our revolving credit facility agreement and our term loan agreement, if not approved by a majority of our lenders.  These defaults and possible cross defaults may also result if the arbitration panel

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determines that our entire Board of Trustees has been removed as a result of the Corvex/Related consent solicitation.  On June 19, 2013, Corvex/Related filed with the SEC a public statement indicating that in the event our Board of Trustees is removed as a result of their consent solicitation, they will offer to buy 51% of the debt outstanding under our revolving credit facility and term loan agreements at par value to prevent the acceleration of such loans.  However, waivers of defaults under our revolving credit facility and term loan agreements require the approval of two thirds of our lenders by amount. We provide no assurance that, in such event, Corvex/Related will be successful in buying any of our outstanding debts or credit commitments or preventing the acceleration of such loans.

Related Person Transactions

We have relationships and historical and continuing transactions with our Trustees, our executive officers, RMR, GOV, SIR, AIC and other companies to which RMR provides management services and others affiliated with them.  For example, we have no employees, and the personnel and various services we require to operate our business are provided to us by RMR pursuant to management agreements; and RMR is owned by our Managing Trustees.  Also, as a further example, we have or had relationships with other companies to which RMR provides management services and which have trustees, directors and officers who are also trustees, directors or officers of ours or RMR, including: GOV, which is also our former subsidiary, to which we have previously sold properties; SIR, which is our former consolidated subsidiary and we are its largest shareholder and to which we transferred 79 properties in connection with SIR’s initial public offering; and we, RMR, GOV, SIR and four other companies to which RMR provides management services each currently own 12.5% of AIC, and we and the other shareholders of AIC have property insurance in place providing $500.0 million of coverage pursuant to an insurance program arranged by AIC and with respect to which AIC is a reinsurer of certain coverage amounts.  For further information about these and other such relationships and related person transactions, please see Note 15 to the notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.  In addition, for more information about these transactions and relationships, please see elsewhere in this Quarterly Report on Form 10-Q, including “Warning Concerning Forward Looking Statements” in Part I, and our Annual Report, our definitive Proxy Statement for the Annual Meeting of Shareholders held on May 14, 2013, or our Proxy Statement, our Current Report on Form 8-K dated September 20, 2013, and our other filings with the SEC, including Note 10 to our consolidated financial statements included in our Annual Report, 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” of our Annual Report and the section captioned “Related Person Transactions and Company Review of Such Transactions” and the information regarding our Trustees and executive officers in our Proxy Statement.  In addition, please see the section captioned “Risk Factors” of our Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships.  Our filings with the SEC, including our Annual Report and our Proxy Statement, are available at the SEC’s website at www.sec.gov.  Copies of certain of our agreements with these related parties, including our business management agreements and property management agreements with RMR, various agreements we have entered into with GOV and SIR and our shareholders agreement with AIC and its shareholders, are 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, SIR and AIC are on commercially reasonable terms.  We also believe that our relationships with RMR, GOV, SIR and AIC and their affiliated and related persons and entities benefit us and, in fact, provide us with competitive advantages in operating and growing our business.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to risks associated with market changes in interest rates 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, 2012.  Other than as described below, we do not currently foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.

At September 30, 2013, our outstanding fixed rate debt consisted of the following unsecured senior notes and secured mortgage notes (dollars in thousands):

Unsecured Senior Notes:

			Annual		Annual
	Principal		Interest		Interest			Interest
Debt	Balance(1)		Rate(1)		Expense(1)		Maturity	Payment Due
Unsecured senior notes	$	99,043	5.750	%	$	5,695	2014 (2)	Semi-Annually
Unsecured senior notes	33,440		6.400	%	2,140		2015	Semi-Annually
Unsecured senior notes	138,773		5.750	%	7,979		2015	Semi-Annually
Unsecured senior notes	139,104		6.250	%	8,694		2016	Semi-Annually
Unsecured senior notes	250,000		6.250	%	15,625		2017	Semi-Annually
Unsecured senior notes	250,000		6.650	%	16,625		2018	Semi-Annually
Unsecured senior notes	125,000		7.500	%	9,375		2019	Quarterly
Unsecured senior notes	250,000		5.875	%	14,688		2020	Semi-Annually
Unsecured senior notes	175,000		5.750	%	10,063		2042	Quarterly
	$	1,460,360			$	90,884

(1)The principal balance, annual interest rate and annual interest expense are the amounts determined pursuant to the applicable contracts.  In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we issued these debts.  For more information, see Note 10 to the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

(2)These unsecured senior notes were prepaid at par in October 2013.

No principal repayments are due under our unsecured senior notes until their maturities.

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Secured Mortgage Notes:(1)

			Annual		Annual
	Principal		Interest		Interest			Interest
Debt	Balance(2)		Rate(2)		Expense(2)		Maturity	Payment Due
Mortgage notes payable	$	12,121	4.950	%	$	600	2014	Monthly
Mortgage notes payable	8,060		5.990	%	483		2015	Monthly
Mortgage notes payable	116,000		5.235	%	6,073		2016	Monthly
Mortgage notes payable	7,191		5.760	%	414		2016	Monthly
Mortgage notes payable	40,469		6.030	%	2,440		2016	Monthly
Mortgage notes payable	144,974		6.290	%	9,119		2016	Monthly
Mortgage notes payable	10,932		7.360	%	805		2016	Monthly
Mortgage notes payable	41,275		5.670	%	2,340		2017	Monthly
Mortgage notes payable	265,000		5.680	%	15,052		2017	Monthly
Mortgage notes payable	173,664		2.815	%(3)	4,889		2019	Monthly
Mortgage notes payable	28,495		5.690	%	1,621		2021	Monthly
Mortgage notes payable	39,749		5.300	%	2,107		2021	Monthly
Mortgage notes payable	3,534		6.750	%	239		2022	Monthly
Mortgage notes payable	7,341		5.710	%	419		2026	Monthly
	$	898,805			$	46,601

(1)Excludes mortgage principal related to properties held for sale totaling $20,717.  The excluded notes have maturity dates ranging from 2015 to 2023 and an aggregate annual interest expense of $1,240.

(2)The principal balance, annual interest rate and annual interest expense are the amounts determined pursuant to the applicable contracts.  In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we assumed these debts.  For more information, see below and Note 10 to the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

(3)Interest on this loan is payable at a rate equal to a premium over LIBOR, but the interest rate has been fixed by a cash flow hedge which sets the rate at approximately 5.66% until December 1, 2016.  The annual interest rate listed represents the floating interest rate at September 30, 2013.

Some of our secured notes require principal and interest payments through maturity pursuant to amortization schedules, and some of our secured notes require interest only payments through maturity.

We have interest rate swap agreements to manage our interest rate risk exposure on $173.7 million of mortgage notes due 2019, which require us to pay interest at a rate equal to a premium 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 5.6% ($173.7 million) of our total outstanding debt had interest payments designated as hedged transactions to interest rate swap agreements at September 30, 2013.  As of September 30, 2013, the fair value of our derivative instruments included in accounts payable and accrued expenses and cumulative other comprehensive (loss) income in our condensed consolidated balance sheet totaled $12.6 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 interest obligations.  If all of these notes included in the tables above were refinanced at interest rates which are 100 basis points higher or lower than shown above, our per annum interest cost would increase or decrease, respectively, by approximately $23.6 million.  The effect of a 100 basis point change in interest rates on our mortgage debt related to properties held for sale is not material to our per annum interest cost.

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, 2013, and discounted cash flow analyses through the respective maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligations, a hypothetical immediate 100 basis point increase in interest rates would change the fair value of those obligations included in the tables above by

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approximately $93.0 million.  The effect of a hypothetical immediate 100 basis point increase in interest rates on the fair value of our mortgage debt related to properties held for sale is not material.

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 we are generally allowed to make prepayments only at a premium equal to a make whole amount, as defined, which is generally designed to preserve a stated yield to the note holder.  Also, we have repurchased and retired some of our outstanding debts and we may do so again in the future.  These prepayment rights and our ability to repurchase and retire outstanding debt may afford us opportunities to mitigate the risk of refinancing our debts at maturity at higher rates by refinancing prior to maturity.

At September 30, 2013, our floating rate debt consisted of $235.0 million outstanding under our $750.0 million unsecured revolving credit facility, and our $500.0 million unsecured term loan.  Our revolving credit facility matures in October 2015 and, subject to our meeting certain conditions, including our payment of an extension fee, we have the option to extend the maturity by one year to October 2016.  Our $500.0 million unsecured term loan matures in December 2016.  In the absence of a default (including a change of control of us), no principal payments are required under our revolving credit facility or term loan prior to maturity, and prepayments may be made at any time without penalty.  Borrowings under our revolving credit facility and term loan are in U.S. dollars and bear interest at LIBOR plus a premium that is subject to adjustment based upon changes to our credit ratings.  Accordingly, we are vulnerable to changes in U.S. dollar based short term rates, specifically LIBOR.  There have been recent governmental inquiries regarding the setting of LIBOR, which may result in changes to that process that could have the effect of increasing LIBOR.  In addition, upon renewal or refinancing of our revolving credit facility or term loan, we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit risk.  Generally, a change in market interest rates would not affect the value of this floating rate debt, but would affect our operating results.  The following table presents the impact a 100 basis point increase in interest rates would have on our consolidated floating rate interest expense as of September 30, 2013 (dollars in thousands):

	Impact of Changes in Interest Rates
					Total Interest		Annual Per
	Interest Rate		Outstanding		Expense		Common Share
	Per Year(1)		Debt		Per Year		Impact(2)
At September 30, 2013	1.9	%	$	735,000	$	13,965	$	0.13
100 basis point increase	2.9	%	$	735,000	$	21,315	$	0.19

(1)Weighted based on the respective interest rates and outstanding borrowings of our floating rate debt as of September 30, 2013.

(2)Based on the weighted average shares outstanding for the nine months ended September 30, 2013.

The following table presents the impact a 100 basis point increase in interest rates would have on our annual floating rate interest expense as of September 30, 2013 if we were fully drawn on our revolving credit facility and our term loan remained outstanding (dollars in thousands):

	Impact of Changes in Interest Rates
					Total Interest		Annual Per
	Interest Rate		Outstanding		Expense		Common Share
	Per Year(1)		Debt		Per Year		Impact(2)
At September 30, 2013	1.8	%	$	1,250,000	$	22,500	$	0.20
100 basis point increase	2.8	%	$	1,250,000	$	35,000	$	0.32

(1)Weighted based on the respective interest rates of our floating rate debt as of September 30, 2013, assuming we were fully drawn on our revolving credit facility and our term loan remained outstanding.

(2)Based on the weighted average shares outstanding for the nine months ended September 30, 2013.

The foregoing tables show 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

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decrease in the future with increases or decreases in the outstanding amount of our revolving credit facility and term loan or our other floating rate debt.

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

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 relative 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, 2013 and at November 4, 2013, 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.  During the three months ended September 30, 2013, foreign currency exchange rates used to convert our Australian operating results increased approximately 2.0%; however, we believe the impact from this exchange rate change was not material to our consolidated earnings for that period.

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, or the Exchange Act, 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, 2013 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 THAT CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE” 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 RESULTS OF PENDING, THREATENED OR FUTURE LEGAL AND ARBITRATION PROCEEDINGS, INCLUDING CLAIMS REGARDING THE PUBLIC OFFERING AND SALE OF 34,500,000 OF OUR COMMON SHARES COMPLETED ON MARCH 5, 2013, THE PUBLIC OFFERING AND SALE OF 9,950,000 COMMON SHARES OF GOV THAT WE PREVIOUSLY OWNED COMPLETED ON MARCH 15, 2013 AND MATTERS RELATED TO THE CORVEX/RELATED CONSENT SOLICITATION,

·POSSIBLE DISRUPTION OR HARM TO OUR BUSINESS AS A RESULT OF THE  CORVEX/RELATED CONSENT SOLICITATION OR OTHER ACTIVITIES BY CORVEX/RELATED,

·POSSIBLE DISRUPTION OR HARM TO OUR BUSINESS OR A MATERIAL CHANGE IN OUR FINANCIAL POSITION AS A RESULT OF THE REMOVAL OF OUR BOARD OF TRUSTEES OR A CHANGE IN OUR MANAGEMENT IF THE CORVEX/RELATED CONSENT SOLICITATION IS DETERMINED TO BE LEGALLY EFFECTIVE,

·THE FUTURE AMOUNT OF LEASING ACTIVITY AND OCCUPANCY RATES AT OUR PROPERTIES,

·THE FUTURE RENT RATES WE WILL BE ABLE TO CHARGE AT OUR PROPERTIES,

·THE COSTS WE MAY INCUR TO LEASE SPACE IN OUR PROPERTIES,

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

·THE CREDIT QUALITY OF OUR TENANTS,

·THE LIKELIHOOD THAT OUR TENANTS WILL PAY RENT, RENEW LEASES, ENTER INTO 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 POLICIES AND PLANS REGARDING INVESTMENTS, FINANCINGS AND DISPOSITIONS,

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

·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,

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

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·OUR TAX STATUS AS A REIT, AND

·OTHER MATTERS.

OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FORWARD LOOKING STATEMENTS AND UPON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION, NET OPERATING INCOME, FUNDS FROM OPERATIONS, NORMALIZED FUNDS FROM OPERATIONS, CASH FLOWS, LIQUIDITY AND PROSPECTS INCLUDE, BUT ARE NOT LIMITED TO:

·THE RESULTS ACHIEVED IN OUR PENDING LITIGATION OR ARBITRATION PROCEEDINGS,

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

·COMPETITION WITHIN THE REAL ESTATE INDUSTRY, PARTICULARLY IN THOSE MARKETS IN WHICH OUR PROPERTIES ARE LOCATED,

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

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

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

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

FOR EXAMPLE:

·ON JUNE 21, 2013, CORVEX DELIVERED A LETTER TO US ASSERTING THAT OUR BOARD OF TRUSTEES HAD BEEN REMOVED AND NO LONGER HAS AUTHORITY TO ACT FOR US BY REASON OF A PURPORTED SHAREHOLDERS’ CONSENT SOLICITATION.  WE BELIEVE THIS PURPORTED SHAREHOLDERS’ CONSENT SOLICITATION HAS NO LEGAL EFFECT.  THE LEGAL EFFECTIVENESS OF THE CORVEX/RELATED ACTIVITIES TO REMOVE OUR ENTIRE BOARD OF TRUSTEES IS CURRENTLY THE SUBJECT OF LEGAL PROCEEDINGS BEFORE AN ARBITRATION PANEL UNDER THE AUSPICES OF THE AMERICAN ARBITRATION ASSOCIATION AND WE CURRENTLY EXPECT THE ARBITRATION PANEL WILL ISSUE A RULING ON THESE MATTERS ON OR BEFORE NOVEMBER 29, 2013.  THE RESULTS OF LITIGATION AND ARBITRATION PROCEEDINGS ARE DIFFICULT TO PREDICT AND WE ARE UNABLE TO PROVIDE ANY ASSURANCES REGARDING SUCH RESULTS OR THE ACTUAL TIMING OF THE ISSUANCE OF ANY RULING BY THE ARBITRATION PANEL,

·A DETERMINATION BY THE ARBITRATION PANEL THAT OUR ENTIRE BOARD OF TRUSTEES HAS BEEN REMOVED AS A RESULT OF THE CORVEX/RELATED CONSENT SOLICITATION COULD CAUSE SEVERAL ADVERSE CONSEQUENCES TO OUR CONTINUED OPERATIONS, INCLUDING:  (I) DEFAULT OF OUR REVOLVING CREDIT FACILITY AND TERM LOAN AGREEMENTS PERMITTING OUR LENDERS TO ACCELERATE REPAYMENTS, (II) ACTIVATION OF DILUTIVE EQUITY CONVERSION RIGHTS UNDER OUR SERIES D CUMULATIVE CONVERTIBLE PREFERRED SHARES, (III) POSSIBLE DEFAULTS OF CERTAIN OF OUR MORTGAGE DEBT OBLIGATIONS, (IV) POSSIBLE CROSS DEFAULTS OF OUR OTHER DEBT OBLIGATIONS INCLUDING OUR APPROXIMATELY $1.5 BILLION OF UNSECURED NOTES, AND (V) OUR FAILURE TO MEET NYSE AND SEC REQUIREMENTS TO ALLOW OUR SECURITIES TO CONTINUE TO BE PUBLICLY TRADED.  ON JUNE 19, 2013, CORVEX/RELATED FILED WITH THE SEC A PUBLIC STATEMENT INDICATING THAT IN THE EVENT OUR BOARD OF TRUSTEES IS REMOVED AS A RESULT OF THE CORVEX/RELATED CONSENT SOLICITATION, THEY WILL OFFER TO BUY 51% OF THE DEBT OUTSTANDING UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOAN AGREEMENTS AT PAR VALUE TO PREVENT THE ACCELERATION OF SUCH LOANS.  HOWEVER, WAIVERS OF DEFAULTS UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOAN AGREEMENTS REQUIRE THE APPROVAL OF TWO THIRDS OF

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OUR LENDERS BY AMOUNT. WE CANNOT GUARANTEE THAT CORVEX/RELATED WILL BE SUCCESSFUL IN BUYING ANY OF OUR OUTSTANDING DEBTS OR CREDIT COMMITMENTS OR IN PREVENTING THE ACCELERATION OF SUCH LOANS,

·OUR BOARD OF TRUSTEES RECENTLY DECLARED A REGULAR DISTRIBUTION PAYABLE ON OUR PREFERRED AND COMMON SHARES THAT ARE PAYABLE TO HOLDERS OF OUR PREFERRED SHARES ON NOVEMBER 1, 2013, AND HOLDERS OF OUR COMMON SHARES ON OCTOBER 25, 2013.  WE EXPECT TO PAY OUR DISTRIBUTIONS ON OUR PREFERRED SHARES ON OR ABOUT NOVEMBER 15, 2013, AND ON OUR COMMON SHARES ON OR ABOUT NOVEMBER 22, 2013.  IN THE EVENT THAT THE ARBITRATION PANEL DETERMINES THAT OUR BOARD OF TRUSTEES HAS BEEN REMOVED AS A RESULT OF THE CORVEX/RELATED CONSENT SOLICITATION, OUR DISTRIBUTION DECLARATIONS MAY BE VOID, THE DISTRIBUTIONS MAY NOT BE PAID ON NOVEMBER 15 AND NOVEMBER 22, 2013, AS APPLICABLE, OR EVER, OR, IF THEY ARE PAID, THOSE DISTRIBUTIONS AND OTHER DISTRIBUTIONS WE HAVE MADE SINCE JUNE 21, 2013, MAY BE RECLAIMED BY THE COMPANY,

·WE ARE CURRENTLY INVOLVED IN A NUMBER OF LITIGATION AND ARBITRATION PROCEEDINGS.  THE RESULTS OF SUCH PROCEEDINGS ARE DIFFICULT TO PREDICT AND WE CAN PROVIDE NO ASSURANCES REGARDING SUCH RESULTS.  EVEN IF WE ARE SUCCESSFUL IN SUCH LEGAL PROCEEDINGS, THE PENDENCY AND CONDUCT OF SUCH PROCEEDINGS MAY BE EXPENSIVE AND DISTRACTING TO OUR MANAGEMENT, AND COULD BE DISRUPTIVE TO OUR OPERATIONS OR CAUSE US TO EXPERIENCE LOSSES,

·THE CURRENT HIGH UNEMPLOYMENT RATE IN THE UNITED STATES MAY CONTINUE FOR A LONG TIME OR BECOME WORSE.  SUCH CIRCUMSTANCES MAY REDUCE DEMAND FOR LEASING OFFICE SPACE.  IF THE DEMAND FOR LEASING OFFICE SPACE REMAINS OR BECOMES FURTHER DEPRESSED, WE MAY BE UNABLE TO RENEW LEASES WITH OUR TENANTS AS LEASES EXPIRE OR ENTER INTO NEW LEASES AT RENTAL RATES AS HIGH AS EXPIRING RATES, AND OUR FINANCIAL RESULTS MAY DECLINE,

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

·OUR COSTS FOR TENANT IMPROVEMENTS AND LEASING COMMISSIONS MAY CONTINUE AT HIGH RATES OR EVEN INCREASE, AND ANY INVESTMENTS WE MAY MAKE IN AN ATTEMPT TO INCREASE OR MAINTAIN OUR OCCUPANCIES MAY NOT SUCCEED,

·LOWERING OUR HISTORICAL COMMON SHARE DISTRIBUTION RATE BEGINNING IN THE FOURTH QUARTER OF 2012 MAY ALLOW US TO RETAIN MORE CASH FLOW, WHICH COULD ALLOW US TO MORE AGGRESSIVELY LEASE SPACE AND INCREASE OCCUPANCY AT OUR PROPERTIES.  HOWEVER, THERE IS NO GUARANTEE THAT WE WILL BE SUCCESSFUL IN LEASING SPACE AND NO GUARANTEE THAT OUR OCCUPANCY WILL INCREASE AS A DIRECT OR INDIRECT RESULT OF LOWERING OUR COMMON SHARE DISTRIBUTION RATE OR OTHERWISE,

·OUR ABILITY TO MAKE FUTURE DISTRIBUTIONS DEPENDS UPON A NUMBER OF FACTORS, INCLUDING OUR FUTURE EARNINGS, THE CAPITAL COSTS WE INCUR TO LEASE OUR PROPERTIES AND OUR RECEIPT OF DISTRIBUTIONS FROM SIR UNLESS AND UNTIL WE MAY SELL OUR SIR SHARES.  WE MAY BE UNABLE TO MAINTAIN OUR CURRENT RATE OF DISTRIBUTIONS ON OUR COMMON AND PREFERRED SHARES, AND FUTURE DISTRIBUTIONS MAY BE SUSPENDED,

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

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

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

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

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

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

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

·WE MAY NOT SUCCEED IN SELLING THE PROPERTIES WE HAVE IDENTIFIED FOR SALE FOR PRICES AT LEAST EQUAL TO THEIR NET BOOK VALUE, ON TERMS WE ARE WILLING TO ACCEPT OR OTHERWISE, DURING 2013 AND 2014, OR AT ALL. ALSO, THE DETERMINATION TO SELL PROPERTIES AND ANY AGREEMENTS ENTERED INTO WITH RESPECT TO ANY OF OUR PROPERTIES MAY BE CHALLENGED IN THE EVENT THAT THE ARBITRATION PANEL DETERMINES THAT THE CORVEX/RELATED CONSENT SOLICITATION IS LEGALLY EFFECTIVE AND OUR ENTIRE BOARD OF TRUSTEES HAS BEEN REMOVED. ACCORDINGLY, SOME OR ALL OF THE PROPERTIES WE HAVE IDENTIFIED FOR SALE MAY NOT BE SOLD OR THE SALES OF THESE PROPERTIES MAY BE DELAYED,

·THE DISTRIBUTIONS WE RECEIVE FROM SIR MAY DECLINE OR WE MAY BE UNABLE TO SELL OUR SIR SHARES FOR AN AMOUNT EQUAL TO OUR CARRYING VALUE OF THOSE SHARES AND ANY SUCH SALE MAY BE AT A DISCOUNT TO MARKET PRICE BECAUSE OF THE LARGE SIZE OF OUR SIR HOLDINGS, OR OTHERWISE, AND

·WE BELIEVE THAT OUR HISTORICAL AND CONTINUING RELATIONSHIPS WITH GOV, SIR, RMR, AIC AND THEIR AFFILIATED AND RELATED PERSONS AND ENTITIES HAVE AND MAY CONTINUE TO BENEFIT US AND PROVIDE US WITH COMPETITIVE ADVANTAGES IN OPERATING AND GROWING OUR BUSINESS.  IN FACT, THE ADVANTAGES WE BELIEVE WE MAY REALIZE FROM THESE RELATIONSHIPS MAY NOT MATERIALIZE.

THESE RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH ARE BEYOND OUR CONTROL, SUCH AS THE RESULTS OF OUR PENDING LITIGATION AND ARBITRATION PROCEEDINGS, NATURAL DISASTERS, 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 OR IN OUR FILINGS WITH THE SEC, INCLUDING UNDER THE CAPTION “RISK FACTORS”, OR INCORPORATED HEREIN OR THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM OUR FORWARD LOOKING STATEMENTS.  OUR FILINGS WITH THE SEC ARE AVAILABLE ON THE SEC’S WEBSITE AT WWW.SEC.GOV.

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

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

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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 1. Legal Proceedings.

Young v. CommonWealth REIT

On December 27, 2012, David Young filed a putative federal securities class action in the United States District Court for the District of Massachusetts, or the Massachusetts District Court, titled Young v. CommonWealth REIT, Case No. 1:12-cv-12405-DJC, or the Young Action. The Young Action is brought on behalf of purchasers of our common shares between January 10, 2012 and August 8, 2012, and alleges securities fraud claims against CWH and certain of our officers under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The complaint alleges generally that CWH violated the federal securities laws by making false and misleading representations about our business, operations and management. The plaintiff seeks compensatory damages plus counsel fees and expenses. On January 22, 2013, CWH moved to dismiss the Young Action on the grounds that the claims asserted (1) are subject to binding arbitration under our bylaws, and (2) fail to state a claim for relief under Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5. We have also filed a demand for arbitration with the American Arbitration Association, or AAA. On February 25, 2013, Mr. Young filed a motion to appoint him as lead plaintiff and his counsel as lead counsel, which the Massachusetts District Court granted on May 20, 2013, all in accordance with customary procedures for purported class action litigation. On July 22, 2013, Mr. Young filed an amended complaint, and on September 20, 2013, we filed an opening brief in support of our motion to dismiss. Mr. Young filed his answering brief on November 4, 2013, and our reply brief in further support of our motion to dismiss is scheduled to be filed on December 3, 2013. We believe that the Young Action is without merit, and intend to defend against all claims asserted.

Corvex Management LP v. CommonWealth REIT

On February 27, 2013, Corvex/Related filed a complaint in the Circuit Court for Baltimore City, State of Maryland, or the Maryland Court, titled Corvex Management LP v. CommonWealth REIT Case No. 24-C-13-001111 against CWH, our Board of Trustees and RMR, or the Corvex/Related Maryland Action. The complaint generally alleges breaches of fiduciary duty, conflicts of interest, corporate waste and breach of contract. Corvex/Related sought declaratory and injunctive relief, rescission and damages, including counsel fees and expenses.

On the same day, we filed a demand for arbitration with the AAA on behalf of CWH and the individual defendants, with the exception of RMR, pursuant to our position that the claims in the Corvex/Related Maryland Action are subject to arbitration. On March 5, 2013, we amended our demand for arbitration to add Related Fund Management, LLC as a respondent. On March 12, 2013, RMR separately filed a demand for arbitration with the AAA, pursuant to RMR’s position that the claims in the Corvex/Related Maryland Action are subject to arbitration.

On March 13, 2013, Corvex/Related filed a Petition to Stay Arbitration and an Emergency Motion for Temporary Stay of Arbitration Proceedings and Request for Emergency Hearing in the Corvex/Related Maryland Action. On March 15, 2013, Corvex/Related filed an amended complaint and a partial motion for summary judgment asking the Maryland Court to invalidate certain provisions of our bylaws regarding nomination and removal of Trustees as inconsistent with our declaration of trust. On March 18, 2013, following a hearing, the Maryland Court denied the Corvex/Related Emergency Motion for Temporary Stay of Arbitration Proceedings. On April 1, 2013, Corvex/Related voluntarily dismissed their claims against RMR in the Corvex/Related Maryland Action without prejudice. On May 8, 2013, the Maryland Court denied the Corvex/Related Petition to Stay Arbitration and ordered the parties to arbitrate the claims in this dispute. In the same opinion, the Maryland Court denied the partial motion for summary judgment as moot. On June 6, 2013, Corvex/Related filed a notice of their intent to appeal the Maryland Court’s May 8 rulings, and, on June 21, 2013, Corvex/Related voluntarily dismissed their appeal. The parties agreed to consolidate this arbitration with RMR’s pending arbitration arising from this action, as well as the pending arbitration in the Corvex/Related Massachusetts Action, or together, the Corvex/Related Arbitration.

On May 30, 2013, Corvex/Related filed their statement of counterclaims, or the Counterclaims, which generally alleged that certain of our bylaws are invalid, and also alleged breaches of fiduciary duty, entrenchment, conflicts of interest and corporate waste. The Counterclaims sought declaratory and injunctive relief, including a declaration that our entire Board of Trustees may be removed without cause, and damages, including counsel fees and expenses. On June 10, 2013, Corvex/Related filed a motion for partial summary judgment, challenging the validity of certain provisions of our bylaws and further challenging the effect of our Board of

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Trustees’ decision to opt into certain provisions of the Maryland Unsolicited Takeovers Act on the ability of our shareholders to remove all of our Trustees without cause and in one removal action.

On June 17, 2013, we and our Board of Trustees each filed an amended statement of claims and answer to Corvex/Related’s Counterclaims, seeking a declaration that the record date bylaws are valid and that Corvex/Related’s purported consent solicitation was false and misleading for, among other reasons, their failure to disclose the true purpose of the consent solicitation, as well as material arrangements, agreements and understandings, as required by applicable law. On July 11, 2013, Corvex/Related filed a supporting motion for an order directing our officers to call a special meeting of shareholders to elect successor Trustees, and a hearing on both motions was held on July 26, 2013. By order dated August 7, 2013, the three-person arbitration panel, or the Arbitration Panel, denied summary judgment on Corvex/Related’s claims that their consent solicitation was proper. The Arbitration Panel also invalidated our bylaw providing that one or more shareholders requesting a record date for a consent solicitation to remove Trustees must have held at least three percent (3%) of our common shares for at least three years, but found that the previous Company bylaw requiring that a shareholder requesting a record date for a consent solicitation meet a $2,000 share ownership threshold for a period of at least one year remains in effect. The Arbitration Panel further found that Corvex/Related’s motion for an order directing our officers to convene a special meeting was premature and removed the motion from the calendar without prejudice as to further consideration at a later time, if appropriate.

On September 19, 2013, the Arbitration Panel dismissed with prejudice as to Corvex/Related Count VIII of Corvex/Related’s Counterclaims, which alleged derivative claims for breach of fiduciary duty and sought, among other things, money damages. On October 6, 2013, RMR and Corvex/Related entered into a stipulation dismissing with prejudice all claims previously asserted by Corvex/Related against RMR, and on October 7, 2013, the Arbitration Panel issued an order granting the parties’ stipulation and proposed order. An evidentiary hearing on all remaining matters in dispute was held from October 7, 2013 through October 17, 2013, and the parties submitted post-hearing briefs on October 30, 2013.  We currently expect a decision from the Arbitration Panel on or before November 29, 2013.  We believe that the Corvex/Related Arbitration is without merit, and intend to defend against all claims asserted.

Delaware County Employees Retirement Fund v. Portnoy

On February 28, 2013, Delaware County Employees Retirement Fund, or Del-Co, a purported CWH shareholder, filed a complaint in the Massachusetts District Court titled Delaware County Employees Retirement Fund v. Portnoy, Case No. 1:13-cv-10405-DJC, or the Del-Co Massachusetts Action. The Del-Co Massachusetts Action purports to bring claims individually and derivatively on behalf of the nominal defendant, CWH, against RMR and certain current and former officers and/or members of our Board of Trustees. The complaint in the Del-Co Massachusetts Action asserts claims against the defendants for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract, gross mismanagement, waste of corporate assets and abuse of control. Plaintiff Del-Co seeks declaratory and injunctive relief, as well as compensatory and rescissory damages, including counsel fees and expenses.

On March 1, 2013, Del-Co filed a motion requesting that the Massachusetts District Court, among other things, issue a temporary restraining order, or TRO, enjoining CWH and our Board of Trustees from consummating our then pending equity offering and debt tender offer. On March 4, 2013, a hearing was held before the court on the TRO motions filed in the Del-Co Massachusetts Action and in a related action by Corvex/Related, which is discussed below. Late in the afternoon on March 4, 2013, the Massachusetts District Court issued an order denying both motions for a TRO. Among other reasons for denying both motions, the Massachusetts District Court found that Del-Co and Corvex/Related failed to meet their burden of showing there was a likelihood that the claims asserted by them regarding the equity offering and, with respect to the Del-Co Massachusetts Action, the debt tender offer, would succeed on the merits. The equity offering closed the following morning, March 5, 2013.

On March 4, 2013, we filed a demand for arbitration with the AAA for the Del-Co Massachusetts Action on behalf of the Company and the individual defendants, with the exception of RMR, pursuant to our position that the claims in this action are subject to arbitration. On April 8, 2013, RMR was added as a co-claimant in the Del-Co arbitration. On March 19, 2013, the Massachusetts District Court granted the parties’ joint motion in support of a proposed stipulated order, or the Stipulated Order, which provides for the stay of any arbitration proceedings arising from the filing of the Del-Co Massachusetts Action and the prompt resolution of issues relating to the validity and enforceability of any arbitration clause. Pursuant to the Stipulated Order, the parties have completed briefing on Del-Co’s petition to stay arbitration and have subsequently submitted additional supplemental authority to the court. On September 30, 2013, the Massachusetts District Court set a hearing on Del-Co’s petition to stay arbitration for November 20, 2013. We believe that the Del-Co Massachusetts Action is without merit, and intend to defend against all claims asserted.

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Corvex Management LP v. CommonWealth REIT

On March 1, 2013, Corvex/Related filed a complaint in the Massachusetts District Court, titled Corvex Management LP v. CommonWealth REIT, Case No. 1:13-cv-10475-DJC, against CWH and our Board of Trustees, or the Corvex/Related Massachusetts Action. The Corvex/Related Massachusetts Action alleged securities fraud claims under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. Corvex/Related sought injunctive and declaratory relief in this action, including a declaration that our arbitration bylaw is unenforceable. Also on March 1, 2013, in connection with the Corvex/Related Massachusetts Action, Corvex/Related filed a motion requesting that the court, among other things, issue a TRO enjoining us and our Board of Trustees from consummating the March 2013 equity offering. As mentioned above, the court denied that motion on March 4, 2013.

On March 4, 2013, we filed a demand for arbitration with the AAA on behalf of CWH and the individual defendants pursuant to our position that the claims in the Corvex/Related Massachusetts Action are subject to arbitration. Pursuant to the parties’ agreement to consolidate this arbitration with the concurrently pending arbitration of Corvex/Related’s Maryland state law claims, Corvex/Related voluntarily dismissed this action on June 5, 2013. On June 17, 2013, we and our Board of Trustees each filed a separate request with the Arbitration Panel seeking an entry of award in our and their favor, and against Corvex/Related, for all claims previously asserted by Corvex/Related in this action.

William Gore v. Portnoy

On February 4, 2013, William Gore, a purported CWH shareholder, filed a complaint in the Circuit Court for Montgomery County, State of Maryland, titled William Gore v. Portnoy, Civil No. 373086-V, or the Gore Maryland Action. CWH was served in the Gore Maryland Action on March 1, 2013. The Gore Maryland Action purports to bring claims individually and derivatively on behalf of the nominal defendant, CWH, against our current and former Trustees, certain of our officers and CWH, as nominal defendant. The complaint alleges claims of breach of fiduciary duty, waste of corporate assets and unjust enrichment. The complaint seeks injunctive and declaratory relief, restitution and damages, including counsel fees and expenses. On March 7, 2013, we filed a demand for arbitration with the AAA for the Gore Maryland Action, pursuant to our position that the claims in this action are subject to arbitration. On March 21, 2013, the parties each selected an arbitrator in this matter. On March 27, 2013, the parties to the Gore Maryland Action agreed to stay all further proceedings pending a decision by the court on the arbitrability of Mr. Gore’s claims. On May 20, 2013, the CWH Trustees filed a petition for order to arbitrate and for a stay of proceedings pursuant to the Maryland Uniform Arbitration Act. On June 3, 2013, the parties filed a second joint management stipulation with competing proposals for a briefing schedule on the CWH Trustees’ petition. On June 21, 2013, Mr. Gore filed his response to the CWH Trustees’ petition for order to arbitrate, as well as a separate petition to stay arbitration. On July 8, 2013, we and our Trustees filed separate memoranda in opposition to Mr. Gore’s petition to stay arbitration and in further support of our and their respective petitions for an order to arbitrate, and Mr. Gore filed his reply on August 2, 2013. On August 29, 2013, the parties jointly filed a stipulation and proposed case management order staying the litigation, which the court denied on September 13, 2013. On September 26, 2013, the parties jointly filed a second stipulation and proposed case management order staying the litigation until the later of the Arbitration Panel’s ruling in the Corvex/Related Arbitration, or December 2, 2013, which the court granted on September 30, 2013. We believe that the Gore Maryland Action is without merit, and intend to defend against all claims asserted.

Katz v. CommonWealth REIT

On March 7, 2013, Jason Matthew Katz, a purported CWH shareholder, filed a complaint in the Circuit Court for Baltimore County, State of Maryland, titled Katz v. CommonWealth REIT, Civil No. 13001299, or the Katz Maryland Action. The Katz Maryland Action purports to bring claims individually and on behalf of all others similarly situated against CWH and our current and former Trustees. The complaint alleges claims of breach of fiduciary duty. The complaint seeks injunctive and declaratory relief, rescission of the March 2013 equity offering, restitution and damages, including counsel fees, expenses and, if applicable, pre-judgment and post-judgment interest. On April 1, 2013, we filed a demand for arbitration with the AAA for the Katz Maryland Action, pursuant to our position that the claims in this action are subject to arbitration. On April 15, 2013, the Maryland Court issued a scheduling order governing briefing on the arbitrability issue. Pursuant to the scheduling order, the plaintiff filed his opening brief in support of his petition to stay arbitration on April 19, 2013. On May 23, 2013, the parties filed a joint stipulation to stay the litigation indefinitely while Mr. Katz’s counsel considered the impact, if any, of the Maryland Court’s May 8, 2013 ruling in the Corvex/Related Maryland Action on Mr. Katz’s claims. On August 2, 2013, the parties entered into a stipulation to move forward with briefing on arbitrability, which they completed on September 16, 2013. On October 18, 2013, the parties filed a joint motion to stay this action pending a final ruling in the Corvex/Related Arbitration, which the

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Maryland Court granted on October 22, 2013. The parties are currently scheduled to file a joint status report on or before December 2, 2013. We believe that the Katz Maryland Action is without merit, and intend to defend against all claims asserted.

Central Laborers Pension Fund v. Portnoy

On April 5, 2013, the Central Laborers’ Pension Fund, or Central Laborers, a purported CWH shareholder, filed a complaint in the Maryland Court, titled Central Laborers Pension Fund v. Portnoy, Civil No. 24C13001966, or the Central Laborers Action. The Central Laborers Action purports to bring claims individually, on behalf of all others similarly situated, and on behalf of CWH against CWH and our Board of Trustees. The complaint alleges, among other things, claims for breaches of fiduciary duties, unjust enrichment and waste of corporate assets. The complaint seeks declaratory and injunctive relief, restitution and damages, including counsel fees and expenses. On April 17, 2013, Central Laborers filed an amended complaint, adding plaintiff William McGinley, a purported CWH shareholder, and requesting a declaration that CWH’s shareholders may remove Trustees without cause. Pursuant to our position that the claims in this action are subject to arbitration, we filed a demand for arbitration with the AAA on April 25, 2013. We and our Trustees filed motions for an order to arbitrate and for a stay of proceedings pursuant to the Maryland Uniform Arbitration Act on May 8, 2013 and May 16, 2013, respectively. On May 22, 2013, the court issued an order staying all proceedings in the litigation pending the court’s ruling on the pending petitions for an order to arbitrate. On May 28, 2013, Central Laborers filed a motion for a temporary restraining order staying the arbitration, which the court granted on June 4, 2013. On May 31, 2013, Central Laborers and Mr. McGinley filed a second amended complaint, adding plaintiff Howard Ginsberg, a purported CWH shareholder. Pursuant to the court’s scheduling order, the parties completed briefing on June 17, 2013. On July 12, 2013, the parties filed a joint motion to postpone the hearing date, which the court granted on July 15, 2013. On September 24, 2013, the parties filed a second joint motion to postpone the hearing date pending the Arbitration Panel’s final ruling in the Corvex/Related Arbitration, which the Maryland Court granted the same day. The parties are currently scheduled to file a joint status report on December 2, 2013. We believe that the Central Laborers Action is without merit, and intend to defend against all claims asserted.

Chashin v. REIT Management & Research LLC

On October 3, 2013, A. Bruce Chashin, a purported CWH shareholder, filed a complaint in the Massachusetts District Court, titled Chashin v. REIT Management & Research LLC, Civ. No. 1:13-cv-12472-DJC, or the Chashin Action. The Chashin Action purports to bring claims derivatively on behalf of CWH against CWH, current and former members of our Board of Trustees, certain of our officers and our manager, RMR. Among other things, the complaint challenges the arbitration clauses contained in our bylaws and our management agreements with RMR. The complaint also asserts, among other things, claims for breach of fiduciary duty, waste of corporate assets and abuse of a position of control. The complaint seeks declaratory and injunctive relief, restitution and damages, including the imposition of a constructive trust, and fees and expenses. On November 4, 2013, the defendants filed a demand for arbitration with the AAA. We believe that the Chashin Action is without merit, and intend to defend against all claims asserted.

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, in our Quarterly Reports on Form 10-Q filed with the SEC for the periods ended March 31, 2013 and June 30, 2013, 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 materially and adversely impact our business operations or financial results.  If any of the events or circumstances described in the risk factors contained in our Annual Report, in our Quarterly Reports on Form 10-Q filed with the SEC for the periods ended March 31, 2013 and June 30, 2013, or described below occurs, our business, financial condition or results of operations could decline and the trading price of our debt or equity securities could decline.  Investors and prospective investors should consider the risks described in our Annual Report, in our Quarterly Reports on Form 10-Q filed with the SEC for the periods ended March 31, 2013 and June 30, 2013, and those described below and the information contained under the heading “Warning Concerning Forward Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q before deciding whether to invest in our securities.

The Corvex/Related purported consent solicitation to remove of all of our Trustees and related activities may disrupt our business and operations, give rise to preferred shareholder conversion rights and events of default under certain material agreements, affect our ability to pay distributions, borrow money and implement our business plan, and have other effects which may adversely affect us.

We believe that the Corvex/Related purported consent solicitation has no legal effect.  However, if the arbitration panel determines that the Corvex/Related consent solicitation is legally effective and our entire Board of Trustees has been removed as a result of the Corvex/Related consent solicitation, such removal may, among other things, disrupt our business and operations, give rise

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to preferred shareholder conversion rights and events of default under certain material agreements, affect our ability to pay distributions, borrow money and implement our business plan, and have other effects which may adversely affect us.  For example:

·considering and responding to the Corvex/Related actions and allegations has been, and may continue to be, disruptive, costly and time consuming, and a significant distraction for our management;

·the removal of our entire Board of Trustees as a result of the Corvex/Related consent solicitation would constitute an event of default under our revolving credit facility and term loan agreement and may also constitute an event of default under certain mortgage loans, which could have material adverse consequences, including triggering limitations under our loan agreements on our ability to pay distributions or borrow money, possible acceleration of amounts outstanding under our loan agreements and possible cross defaults under, and acceleration of, our other debt obligations;

·the removal of our entire Board of Trustees as a result of the Corvex/Related consent solicitation would constitute a fundamental change under our 6.5% series D cumulative convertible preferred shares giving holders of such shares the option to convert these shares into common shares at a ratio based on 98% of the average closing market price for a period before such removal is effective, unless we repurchase these shares for their par value plus accrued and unpaid distributions;

·the removal of our entire Board of Trustees, as a result of the Corvex/Related consent solicitation may constitute a “change of control” under certain of our other material agreements, which could have material adverse consequences under such agreements;

·certain actions proposed by Corvex/Related, such as increasing our debt and paying distributions to shareholders or repurchasing our equity securities may result in the downgrading of our debt ratings and loss of our investment grade rating;

·the removal of our entire Board of Trustees and the calling of a special meeting for the election of replacement Trustees, as proposed by Corvex/Related, might leave us without any Trustees to manage our business and affairs until a special meeting is held and replacement Trustees are elected and qualified;

·perceived uncertainties as to our future direction, including, but not limited to, uncertainties related to the composition of our Board of Trustees and our management, as well as our future business plans, may result in the loss of potential business, opportunities and loss of bargaining power when leasing, disposing or acquiring properties;

·the termination of our business or property management agreements with RMR and internalization of our management, as proposed by Corvex/Related, may lead to significantly increased expenses and material disruption to our business;

·the removal of our entire Board of Trustees as a result of the Corvex/Related consent solicitation may adversely affect our ability to create additional value for our shareholders by effectively implementing our business plan;

·the removal of our entire Board of Trustees as a result of the Corvex/Related consent solicitation may make it difficult for us to comply with federal securities laws, including our obligation to file periodic reports and maintain effective internal control over financial reporting and disclosure controls and procedures, which may affect our liquidity;

·the removal of our entire Board of Trustees as a result of the Corvex/Related consent solicitation may give rise to our violation of the rules and regulations of the SEC requiring that we have an independent Audit Committee and certain NYSE continued listing requirements, which may result in the SEC or NYSE taking enforcement action against us, including action by the NYSE to delist our common shares;

·the actions taken by Corvex/Related have created an environment conducive to follow-on litigation, which serves as a further distraction to our management and may require us to incur significant costs.  Costs associated with the Corvex/Related activities, including their purported consent solicitation, related actions and litigation, may be substantial.  Further, if determined adversely, such litigation could materially and adversely affect us; and

·the removal of our entire Board of Trustees as a result of the Corvex/Related consent solicitation may facilitate the acquisition of control of us or other transactions on terms that are not in the best interests of the Company and our shareholders.

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You should also not assume that any actions or proposed actions described by Corvex/Related in the materials they have filed with the SEC will be taken, and you should not necessarily ascribe incremental value to our common shares as a result of the possibility of such actions.

Additional information about the risks which may arise from the activities by Corvex/Related is included in, and incorporated herein by reference to:  our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 filed with the SEC on August 7, 2013; our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 filed with the SEC on May 9, 2013; and our Investor Presentation and Supplemental Investor Presentation filed with the SEC on Schedule 14A on April 22, 2013 and May 31, 2013, respectively. We continue to review the possible implications of the Corvex/Related activities and may identify additional risks and uncertainties created by the Corvex/Related actions. Except as required by law, we undertake no obligation to update the status of the risks outlined above or to identify additional risks and uncertainties which it may discover.

We are a party to numerous legal proceedings, which could distract our Board of Trustees and management, affect the Corvex/Related consent solicitation and/or adversely affect us.

As noted above in Item 1 “Legal Proceedings”, we, along with RMR, our officers and current and former Trustees, have been named as defendants in a number of complaints seeking monetary damages and declaratory and injunctive relief, including, among other things, complaints filed by or on behalf of Corvex/Related seeking to invalidate certain provisions of our bylaws and challenging our recently completed equity offering and our legal conclusions regarding the effect of our Board of Trustees’ election to be subject to certain provisions of the Maryland Unsolicited Takeovers Act.  Additional claims may be filed against us in connection with the sale of our interest in GOV, our potential sale of our interest in SIR, past and future amendments to our bylaws, our Board of Trustees’ response to actions by Corvex/Related or others and other actions by our Board of Trustees and by us.  The results of litigation are difficult to predict and we can provide no assurance that our legal conclusions or positions will be upheld, including those relevant to the Corvex/Related purported consent solicitation.  Moreover, claims of this nature present a risk of protracted litigation, incurrence of significant attorneys’ fees, costs and expenses, and diversion of management’s attention from the operation of our business.  Adverse rulings in the legal proceedings noted in Item 1 “Legal Proceedings” could have a material adverse effect on our financial results and condition and cause substantial reputational harm and/or a decline in the market price of our shares.  In addition, we have agreed to indemnify our present or former Trustees or officers who are made or threatened to be made parties to a legal proceeding by reason of their service in that capacity and have also agreed to indemnify RMR for claims brought against RMR in its capacity as our business and property manager. We do not have insurance to cover certain of these potential claims and indemnification obligations and may incur significant costs in connection with these legal proceedings or our indemnity obligations.

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

On September 13, 2013, we granted an aggregate of 73,450 common shares of beneficial interest, par value $0.01 per share, valued at $23.72 per share, the closing price of our common shares on the NYSE on that day, to each of our officers and certain employees of our manager, RMR.

We made these grants pursuant to an exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.

Item 6.  Exhibits.

3.1	Composite Copy of Third Amendment and Restatement of Declaration of Trust of the Company, dated July 1, 1994, as amended to date. (Incorporated by reference to the Company’s Current Report on Form 8-K/A dated July 21, 2010.)
3.2	Articles Supplementary, dated November 4, 1994. (Incorporated by reference to the Company’s Current Report on Form 8-K dated May 27, 1998.)
3.3	Articles Supplementary, dated May 13, 1997. (Incorporated by reference to the Company’s Current Report on Form 8-K dated May 27, 1998.)
3.4	Articles Supplementary, dated May 22, 1998. (Incorporated by reference to the Company’s Current Report on Form 8-K dated May 27, 1998.)
3.5	Articles Supplementary, dated May 10, 2000. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.)
3.6	Articles Supplementary, dated June 17, 2003. (Incorporated by reference to the Company’s Current Report on Form 8-K dated January 7, 2004.)
3.7	Articles Supplementary, dated January 7, 2004. (Incorporated by reference to the Company’s Current Report on Form 8-K dated January 7, 2004.)
3.8	Articles Supplementary, dated March 16, 2005. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 16, 2005.)
3.9	Articles Supplementary, dated September 12, 2005. (Incorporated by reference to the Company’s Current Report on Form 8-K dated September 12, 2005.)
3.10	Articles Supplementary, dated February 3, 2006. (Incorporated by reference to the Company’s Current Report on Form 8-K dated February 2, 2006.)
3.11	Articles Supplementary, dated October 10, 2006. (Incorporated by reference to the Company’s Current Report on Form 8-K dated October 10, 2006.)
3.12	Articles Supplementary, dated December 29, 2006. (Incorporated by reference to the Company’s Current Report on Form 8-K dated December 29, 2006.)
3.13	Articles Supplementary, dated October 16, 2007. (Incorporated by reference to the Company’s Current Report on Form 8-K dated October 16, 2007.)
3.14	Articles Supplementary, dated May 31, 2011. (Incorporated by reference to the Company’s Current Report on Form 8-K dated May 26, 2011.)
3.15	Articles Supplementary, dated April 12, 2013. (Incorporated by reference to the Company’s Current Report on Form 8-K dated April 12, 2013.)
3.16	Composite Copy of Amended and Restated Bylaws of the Company, adopted April 12, 2013, as amended September 20, 2013. (filed

64

	herewith.)
3.17	Amendment to Amended and Restated Bylaws of the Company, dated September 20, 2013. (Incorporated by reference to the Company’s Current Report on Form 8-K dated September 20, 2013.)
3.18	Arbitration Panel Ruling Regarding the Amended and Restated Bylaws of the Company. (filed herewith.)
4.1	Form of Common Share Certificate. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.)
4.2	Form of 6 1/2% Series D Cumulative Convertible Preferred Share Certificate. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.)
4.3	Form of 7 1/4% Series E Cumulative Redeemable Preferred Share Certificate. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.)
4.4	Renewed Rights Agreement, dated as of March 10, 2004, between the Company and EquiServe Trust Company, N.A. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 10, 2004.)
4.5	Appointment of Successor Rights Agent, dated as of December 13, 2004, between the Company and Wells Fargo Bank, National Association. (Incorporated by reference to the Company’s Current Report on Form 8-K dated December 13, 2004.)
4.6	Indenture, dated as of July 9, 1997, between the Company and U.S. Bank National Association, or U.S. Bank (as successor trustee to State Street Bank and Trust Company, or State Street). (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997.)
4.7	Supplemental Indenture No. 12, dated as of January 30, 2003, between the Company and U.S. Bank, relating to the Company’s 6.40% Senior Notes due 2015, including form thereof. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.)
4.8	Supplemental Indenture No. 13, dated as of October 30, 2003, between the Company and U.S. Bank, relating to the Company’s 5.75% Senior Notes due 2014, including form thereof. (Incorporated by reference to the Company’s Current Report on Form 8-K dated January 7, 2004.)
4.9	Supplemental Indenture No. 14, dated as of August 5, 2004, between the Company and U.S. Bank, relating to the Company’s 6.25% Senior Notes due 2016, including form thereof. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.)
4.10	Supplemental Indenture No. 15, dated as of October 31, 2005, between the Company and U.S. Bank, relating to the Company’s 5.75% Senior Notes due 2015, including form thereof. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005.)
4.11	Supplemental Indenture No. 17, dated as of June 25, 2007, between the Company and U.S. Bank relating to the Company’s 6.25% Senior Notes due 2017, including form thereof. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.)
4.12	Supplemental Indenture No. 18, dated as of September 18, 2007, between the Company and U.S. Bank relating to the Company’s 6.65% Senior Notes due 2018, including form thereof. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.)
4.13	Supplemental Indenture No. 19, dated as of November 25, 2009, between the Company and U.S. Bank relating to the Company’s 7.50% Senior Notes due 2019, including form thereof. (Incorporated by reference to the Company’s Form 8-A dated November 25, 2009.)
4.14	Supplemental Indenture No. 20, dated as of September 17, 2010, between the Company and U.S. Bank relating to the Company’s 5.875% Senior Notes due 2020, including form thereof. (Incorporated by reference to the Company’s

65

	Quarterly Report on Form 10-Q for the quarter ended September 30, 2010.)
4.15	Supplemental Indenture No. 21, dated as of July 25, 2012, between the Company and U.S. Bank relating to the Company’s 5.75% Senior Notes due 2042, including form thereof. (Incorporated by reference to the Company’s Form 8-A dated July 25, 2012.)
10.1	Form of Restricted Share Agreement.  (filed herewith.)
10.2	Overview of Restructuring of Business Management Agreement with Reit Management & Research LLC dated September 20, 2013. (Incorporated by reference to the Company’s Current Report on Form 8-K dated September 20, 2013.)
10.3	Fourth Amendment to Credit Agreement, dated as of August 27, 2013, among the Company, Wells Fargo Bank, National Association, as Administrative Agent, and each of the other financial institutions party thereto.  (Incorporated by reference to the Company’s Current Report on Form 8-K dated August 27, 2013.)
10.4	Third Amendment to Term Loan Agreement, dated as of August 27, 2013, among the Company, Wells Fargo Bank, National Association, as Administrative Agent, and each of the other financial institutions party thereto.  (Incorporated by reference to the Company’s Current Report on Form 8-K dated August 27, 2013.)
12.1	Computation of Ratio of Earnings to Fixed Charges. (filed herewith)
12.2	Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Distributions. (filed herewith)
31.1	Rule 13a-14(a) Certification. (filed herewith)
31.2	Rule 13a-14(a) Certification. (filed herewith)
31.3	Rule 13a-14(a) Certification. (filed herewith)
32.1	Section 1350 Certification. (furnished herewith)
101.1	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) the Condensed Consolidated Statements of Cash Flows and (v) related notes to these condensed consolidated financial statements, tagged as blocks of text and in detail. (filed 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, 2013
By:	/s/ John C. Popeo
	John C. Popeo
	Treasurer and Chief Financial Officer
	(principal financial and accounting officer)
	Dated: November 7, 2013

67

EX-3.16

Exhibit 3.16

COMMONWEALTH REIT

AMENDED AND RESTATED BYLAWS

As Amended and Restated April 12, 2013, as amended September 20, 2013

Table of Contents

ARTICLE I OFFICES			1
	Section 1.1.	Principal Office	1
	Section 1.2.	Additional Offices	1
ARTICLE II MEETINGS OF SHAREHOLDERS			1
	Section 2.1.	Place	1
	Section 2.2.	Annual Meeting	1
	Section 2.3.	Special Meetings	1
	Section 2.3.1.	General	1
	Section 2.3.2.	Shareholder Requested Special Meetings	2
	Section 2.4.	Notice of Regular or Special Meetings	4
	Section 2.5.	Notice of Adjourned Meetings	4
	Section 2.6.	Scope of Meetings	4
	Section 2.7.	Organization of Shareholder Meetings	4
	Section 2.8.	Quorum	5
	Section 2.9.	Voting	5
	Section 2.10.	Proxies	6
	Section 2.11.	Record Date	6
	Section 2.12.	Voting of Shares by Certain Holders	6
	Section 2.13.	Inspectors	6
	Section 2.14.	Nominations and Other Proposals to be Considered at Meetings of Shareholders	7
	Section 2.14.1.	Annual Meetings of Shareholders	7
	Section 2.14.2.	Shareholder Nominations or Other Proposals Causing Covenant Breaches or Defaults	12
	Section 2.14.3.	Shareholder Nominations or Other Proposals Requiring Governmental Action	13
	Section 2.14.4.	Special Meetings of Shareholders	14
	Section 2.14.5.	General	14
	Section 2.15.	Shareholder Actions by Written Consent	16
	Section 2.16.	Voting by Ballot	17
	Section 2.17.	Proposals of Business Which Are Not Proper Matters For Action By Shareholders	17
ARTICLE III TRUSTEES			18
	Section 3.1.	General Powers; Qualifications; Trustees Holding Over	18
	Section 3.2.	Independent Trustees and Managing Trustees	18
	Section 3.3.	Number and Tenure	18
	Section 3.4.	Annual and Regular Meetings	19
	Section 3.5.	Special Meetings	19

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	Section 3.6.	Notice	19
	Section 3.7.	Quorum	19
	Section 3.8.	Voting	20
	Section 3.9.	Telephone Meetings	20
	Section 3.10.	Action by Written Consent of Trustees	20
	Section 3.11.	Waiver of Notice	20
	Section 3.12.	Vacancies	20
	Section 3.13.	Compensation	20
	Section 3.14.	Removal of Trustees	21
	Section 3.15.	Surety Bonds	21
	Section 3.16.	Reliance	21
	Section 3.17.	Interested Trustee Transactions	21
	Section 3.18.	Qualifying Shares Not Required	21
	Section 3.19.	Certain Rights of Trustees, Officers, Employees and Agents	21
	Section 3.20.	Emergency Provisions	21
ARTICLE IV COMMITTEES			22
	Section 4.1.	Number; Tenure and Qualifications	22
	Section 4.2.	Powers	22
	Section 4.3.	Meetings	22
	Section 4.4.	Telephone Meetings	23
	Section 4.5.	Action by Written Consent of Committees	23
	Section 4.6.	Vacancies	23
ARTICLE V OFFICERS			23
	Section 5.1.	General Provisions	23
	Section 5.2.	Removal and Resignation	23
	Section 5.3.	Vacancies	23
	Section 5.4.	Chief Executive Officer	24
	Section 5.5.	Chief Operating Officer	24
	Section 5.6.	Chief Financial Officer	24
	Section 5.7.	Chairman and Vice Chairman of the Board	24
	Section 5.8.	President	24
	Section 5.9.	Vice Presidents	24
	Section 5.10.	Secretary	24
	Section 5.11.	Treasurer	25
	Section 5.12.	Assistant Secretaries and Assistant Treasurers	25
ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS			25
	Section 6.1.	Contracts	25
	Section 6.2.	Checks and Drafts	25
	Section 6.3.	Deposits	25

ii

ARTICLE VII SHARES			25
	Section 7.1.	Certificates	25
	Section 7.2.	Transfers	26
	Section 7.3.	Lost Certificates	26
	Section 7.4.	Closing of Transfer Books or Fixing of Record Date	26
	Section 7.5.	Share Ledger	27
	Section 7.6.	Fractional Shares; Issuance of Units	27
ARTICLE VIII RESTRICTIONS ON TRANSFER AND OWNERSHIP OF SHARES			27
	Section 8.1.	Definitions	27
	Section 8.2.	Restrictions on Ownership	29
	Section 8.3.	Transfer of Shares	32
	Section 8.4.	Costs, Expenses and Compensation of Charitable Trustee and the Trust	35
	Section 8.5.	Transactions on a National Securities Exchange	35
	Section 8.6.	Enforcement	36
	Section 8.7.	Non-Waiver	36
	Section 8.8.	Enforceability	36
ARTICLE IX REGULATORY COMPLIANCE AND DISCLOSURE			36
	Section 9.1.	Actions Requiring Regulatory Compliance Implicating the Trust	36
	Section 9.2.	Compliance With Law	37
	Section 9.3.	Limitation on Voting Shares or Proxies	37
	Section 9.4.	Representations, Warranties and Covenants Made to Governmental or Regulatory Bodies	37
	Section 9.5.	Board of Trustees’ Determinations	37
ARTICLE X FISCAL YEAR			37
	Section 10.1.	Fiscal Year	37
ARTICLE XI DIVIDENDS AND OTHER DISTRIBUTIONS			38
	Section 11.1.	Dividends and Other Distributions	38
ARTICLE XII SEAL			38
	Section 12.1.	Seal	38
	Section 12.2.	Affixing Seal	38
ARTICLE XIII WAIVER OF NOTICE			38

iii

	Section 13.1.	Waiver of Notice	38
ARTICLE XIV AMENDMENT OF BYLAWS			38
	Section 14.1.	Amendment of Bylaws	38
ARTICLE XV MISCELLANEOUS			39
	Section 15.1.	References to Declaration of Trust	39
	Section 15.2.	Costs and Expenses	39
	Section 15.3.	Ratification	39
	Section 15.4.	Ambiguity	39
	Section 15.5.	Inspection of Bylaws	39
	Section 15.6.	Election to be Subject to Part of Title 3, Subtitle 8	40
	Section 15.7.	Special Voting Provisions relating to Control Shares	40
ARTICLE XVI ARBITRATION			40
	Section 16.1.	Procedures for Arbitration of Disputes	40
	Section 16.2.	Arbitrators	40
	Section 16.3.	Place of Arbitration	41
	Section 16.4.	Discovery	41
	Section 16.5.	Awards	41
	Section 16.6.	Costs and Expenses	41
	Section 16.7.	Final and Binding	41
	Section 16.8.	Beneficiaries	42

iv

COMMONWEALTH REIT

AMENDED AND RESTATED BYLAWS

ARTICLE I

OFFICES

Section 1.1.Principal Office.  The principal office of the Trust shall be located at such place or places as the Board of Trustees may designate.

Section 1.2.Additional Offices.  The Trust may have additional offices at such places as the Board of Trustees may from time to time determine or the business of the Trust may require.

ARTICLE II

MEETINGS OF SHAREHOLDERS

Section 2.1.Place.  All meetings of shareholders shall be held at the principal office of the Trust or at such other place as is designated by the Trustees or the chairman of the board or president.

Section 2.2.Annual Meeting.  An annual meeting of the shareholders for the election of Trustees and the transaction of any business within the powers of the Trust shall be held at such times as the Trustees may designate.  Failure to hold an annual meeting does not invalidate the Trust’s existence or affect any otherwise valid acts of the Trust.

Section 2.3.Special Meetings.

Section 2.3.1.General.

The chief executive officer of the Trust, the Board of Trustees or a majority of the Independent Trustees then in office (as defined in Section 3.2) may call a special meeting of the shareholders.  Subject to Section 2.3.2 and pursuant to the Articles Supplementary accepted for record by the State Department of Assessments and Taxation (the “SDAT”) as of May 10, 2000, a special meeting of shareholders shall also be called by the secretary of the Trust upon the written request of the shareholders entitled to cast not less than a majority of all the votes entitled to be cast at such meeting (the “Special Meeting Percentage”).

If there shall be no Trustees, the officers of the Trust shall promptly call a special meeting of the shareholders entitled to vote for the election of successor Trustees for the purpose of electing Trustees.

Section 2.3.2.Shareholder Requested Special Meetings.

(a)Any shareholder of record seeking to have shareholders request a special meeting shall, by sending written notice to the secretary of the Trust (the “Record Date Request Notice”) by registered mail, return receipt requested, request the Trustees to fix a record date to determine the shareholders entitled to request a special meeting (the “Request Record Date”).  No shareholder may make a Record Date Request Notice unless such shareholder (i) complies with the requirements set forth in Section 2.14.1(c)(ii)(A) and (ii) holds certificates for all shares of beneficial interest in the Trust owned by such shareholder during all times described in Section 2.14.1(c), and a copy of each such certificate held by such shareholder at the time of giving such written request shall accompany such shareholder’s written request to the secretary in order for such request to be effective.  The Record Date Request Notice shall set forth the purpose of the meeting and the matters proposed to be acted on at the meeting, shall be signed by one or more shareholders of record as of the date of signature (or their duly authorized agents), shall bear the date of signature of each such shareholder (or its duly authorized agent) signing the Record Date Request Notice and shall set forth all information that each such shareholder would be required to disclose in solicitations of proxies for election of Trustees in an election contest (even though an election contest is not involved), or is otherwise required, in each case, pursuant to Section 14 (or any successor provision) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, as well as additional information required by Section 2.14.  Upon receiving the Record Date Request Notice, the Board of Trustees may in its discretion fix a Request Record Date, which need not be the same date as that requested in the Record Date Request Notice.  The Request Record Date shall not precede, and shall not be more than 10 days after the close of business on, the date on which the resolution fixing the Request Record Date is adopted by the Board of Trustees.  If the Board of Trustees, within 10 days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution fixing the Request Record Date and make a public announcement (as defined in Section 2.14.5(c)) of such Request Record Date, the Request Record Date shall be the close of business on the 10th day after the date a valid Record Date Request Notice is received by the secretary.

(b)In order for any shareholder to request a special meeting, one or more written requests for a special meeting signed by shareholders of record (or their duly authorized agents) as of the Request Record Date entitled to cast not less than the Special Meeting Percentage (the “Special Meeting Request”) shall be delivered to the secretary.  No shareholder may make a Special Meeting Request unless such shareholder (i) complies with the requirements set forth in Section 2.14.1(c)(ii)(A) and (ii) holds certificates for all shares of beneficial interest in the Trust owned by such shareholder during all times described in Section 2.14.1(c), and a copy of each such certificate held by such shareholder at the time of giving such written request shall accompany such shareholder’s written request to the secretary in order for such request to be effective.  In addition, the Special Meeting Request shall set forth the purpose of the meeting and the matters proposed to be acted on at the meeting (which shall be limited to the matters set forth in the Record Date Request Notice received by the secretary), shall bear the date of signature of each such shareholder (or its duly authorized agent) signing the Special Meeting Request, shall set forth the name and address, as they appear in the Trust’s books, of each shareholder signing such request (or on whose behalf the Special Meeting Request is signed) and the class and number of shares of beneficial interest of the Trust which

2

are owned of record and beneficially by each such shareholder, shall be sent to the secretary by registered mail, return receipt requested, and shall be received by the secretary within 10 days after the Request Record Date.  Any requesting shareholder may revoke his, her or its request for a special meeting at any time by written revocation delivered to the secretary.

(c)The secretary shall inform the requesting shareholders of the reasonably estimated cost of preparing, mailing and filing the notice of meeting (including the Trust’s proxy materials).  The secretary shall not be required to call a special meeting upon shareholder request and such meeting shall not be held unless, in addition to the documents and information required by Section 2.3.2(b), the secretary receives payment of such reasonably estimated cost prior to the mailing of any notice of the meeting.

(d)Except as provided in the next sentence, any special meeting shall be held at such place, date and time as may be designated by the officer who called the meeting in accordance with Section 2.3.1, if any, and otherwise by the Board of Trustees.  In the case of any special meeting called by the secretary upon the request of shareholders (a “Shareholder Requested Meeting”), such meeting shall be held at such place, date and time as may be designated by the Board of Trustees; provided, however, that the date of any Shareholder Requested Meeting shall be not more than 60 days after the record date for such meeting (the “Meeting Record Date”); and provided further that if the Board of Trustees fails to designate, within 10 days after the date that a valid Special Meeting Request is actually received by the secretary (the “Delivery Date”), a date and time for a Shareholder Requested Meeting, then such meeting shall be held at 2:00 p.m. local time on the 60th day after the Meeting Record Date or, if such 60th day is not a Business Day (as defined below), on the first Business Day preceding such 60th day; and provided further that in the event that the Board of Trustees fails to designate a place for a Shareholder Requested Meeting within 10 days after the Delivery Date, then such meeting shall be held at the principal executive offices of the Trust.  In fixing a date for any special meeting, the chief executive officer, the Board of Trustees or a majority of the Independent Trustees may consider such factors as he, she or it deems relevant within the exercise of their business judgment, including, without limitation, the nature of the matters to be considered, the facts and circumstances surrounding any request for meeting and any plan of the Board of Trustees to call an annual meeting or a special meeting.  In the case of any Shareholder Requested Meeting, if the Board of Trustees fails to fix a Meeting Record Date that is a date within 30 days after the Delivery Date, then the close of business on the 30th day after the Delivery Date shall be the Meeting Record Date.

(e)If at any time as a result of written revocations of requests for the special meeting, shareholders of record (or their duly authorized agents) as of the Request Record Date entitled to cast less than the Special Meeting Percentage shall have delivered and not revoked requests for a special meeting, the secretary may refrain from mailing the notice of the meeting or, if the notice of the meeting has been mailed, the secretary may revoke the notice of the meeting at any time before 10 days before the meeting if the secretary has sent to all other requesting shareholders written notice of such revocation and of the intention to revoke the notice of the meeting, and the Trust may cancel and not hold such meeting.  Any request for a special meeting received after a revocation by the secretary of a notice of a meeting shall be considered a request for a new special meeting.

3

(f)The Board of Trustees shall determine the validity of any purported Record Date Request Notice or Special Meeting Request received by the secretary.  For the purpose of permitting the Board of Trustees to perform such review, no such purported request shall be deemed to have been delivered to the secretary until the earlier of (i) five Business Days after receipt by the secretary of such purported request and (ii) such date as the Board of Trustees may certify whether valid requests received by the secretary represent at least a majority of the issued and outstanding shares of beneficial interest in the Trust that would be entitled to vote at such meeting.

(g)For purposes of these Bylaws, “Business Day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the Commonwealth of Massachusetts are authorized or obligated by law or executive order to close.

Section 2.4.Notice of Regular or Special Meetings.  Written notice specifying the place, day and hour of any regular or special meeting, the purposes of the meeting, to the extent required by law to be provided, and all other matters required by law shall be given to each shareholder of record entitled to vote, either personally or by sending a copy thereof by mail, postage prepaid, to his or her address appearing on the books of the Trust or theretofore given by him or her to the Trust for the purpose of notice or, if no address appears or has been given, addressed to the place where the principal office of the Trust is situated, or by electronic transmission, including facsimile transmission, to any address or number of such shareholder at which the shareholder receives electronic transmissions.  If mailed, such notice shall be deemed to be given once deposited in the U.S.  mail addressed to the shareholder at his or her post office address as it appears on the records of the Trust, with postage thereon prepaid.  It shall be the duty of the secretary to give notice of each meeting of the shareholders.

Section 2.5.Notice of Adjourned Meetings.  It shall not be necessary to give notice of the time and place of any adjourned meeting or of the business to be transacted thereat other than by announcement at the meeting at which such adjournment is taken.

Section 2.6.Scope of Meetings.  Except as otherwise expressly set forth elsewhere in these Bylaws, no business shall be transacted at an annual or special meeting of shareholders except as specifically designated in the notice or otherwise properly brought before the meeting of shareholders by or at the direction of the Board of Trustees.

Section 2.7.Organization of Shareholder Meetings.  Every meeting of shareholders shall be conducted by an individual appointed by the Board of Trustees to be chairperson of the meeting or, in the absence of such appointment or the absence of the appointed individual, by the chairman of the board or, in the case of a vacancy in the office or absence of the chairman of the board, by one of the following officers present at the meeting in the following order: the vice chairman of the board, if there be one, the president, the vice presidents in their order of seniority or, in the absence of such officers, a chairperson chosen by the shareholders by the vote of holders of shares of beneficial interest representing a majority of the votes cast on such appointment by shareholders present in person or represented by proxy.  The secretary, an assistant secretary or a person appointed by the Trustees or, in the absence of such appointment, a person appointed by the chairperson of the meeting shall act as secretary of the meeting and record the minutes of the meeting.  If the secretary presides as chairperson at a

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meeting of the shareholders, then the secretary shall not also act as secretary of the meeting and record the minutes of the meeting.  The order of business and all other matters of procedure at any meeting of shareholders shall be determined by the chairperson of the meeting.  The chairperson of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of such chairperson, are appropriate for the proper conduct of the meeting, including, without limitation: (a) restricting admission to the time set for the commencement of the meeting; (b) limiting attendance at the meeting to shareholders of record of the Trust, their duly authorized proxies or other such persons as the chairperson of the meeting may determine; (c) limiting participation at the meeting on any matter to shareholders of record of the Trust entitled to vote on such matter, their duly authorized proxies or other such persons as the chairperson of the meeting may determine; (d) limiting the time allotted to questions or comments by participants; (e) maintaining order and security at the meeting; (f) removing any shareholder or other person who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairperson of the meeting; (g) concluding a meeting or recessing or adjourning the meeting to a later date and time and at a place announced at the meeting; and (h) complying with any state and local laws and regulations concerning safety and security.  Without limiting the generality of the powers of the chairperson of the meeting pursuant to the foregoing provisions, the chairperson may adjourn any meeting of shareholders for any reason deemed necessary by the chairperson, including, without limitation, if (i) no quorum is present for the transaction of the business, (ii) the Board of Trustees or the chairperson of the meeting determines that adjournment is necessary or appropriate to enable the shareholders to consider fully information that the Board of Trustees or the chairperson of the meeting determines has not been made sufficiently or timely available to shareholders or (iii) the Board of Trustees or the chairperson of the meeting determines that adjournment is otherwise in the best interests of the Trust.  Unless otherwise determined by the chairperson of the meeting, meetings of shareholders shall not be required to be held in accordance with the general rules of parliamentary procedure or any otherwise established rules of order.

Section 2.8.Quorum.  At any meeting of shareholders, the presence in person or by proxy of shareholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum; but this section shall not affect any requirement under any statute or the Declaration of Trust for the vote necessary for the adoption of any measure.  If, however, such quorum shall not be present at any meeting of the shareholders, the chairperson of the meeting shall have the power to adjourn the meeting from time to time without the Trust having to set a new record date or provide any additional notice of such meeting, subject to any obligation of the Trust to give notice pursuant to Section 2.5.  At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.  The shareholders present, either in person or by proxy, at a meeting of shareholders which has been duly called and convened and at which a quorum was established may continue to transact business until adjournment, notwithstanding the withdrawal of enough votes to leave less than a quorum then being present at the meeting.

Section 2.9.Voting.  At all elections of Trustees, voting by shareholders shall be conducted under the non-cumulative method and, except as otherwise required by the Declaration of Trust or applicable law, the election of each Trustee shall be by the affirmative vote of the holders of shares of beneficial interest in the Trust representing a majority of the total number of votes authorized to be cast by shares of beneficial interest in the Trust then

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outstanding and entitled to vote thereon; provided, however, the election of a Managing Trustee or an Independent Trustee in an uncontested election, which is an election in which the number of nominees for election equals (or is less than) the number to be elected at the meeting, shall be by the affirmative vote of shares of beneficial interest in the Trust representing a majority of the total number of share votes cast.  For all matters to be voted upon by shareholders other than the election of Trustees, unless otherwise required by applicable law, by the listing requirements of the principal exchange on which the Trust’s common shares are listed or by a specific provision of the Declaration of Trust, the vote required for approval shall be the affirmative vote of 75% of the votes entitled to be cast for each such matter unless such matter has been previously approved by the Board of Trustees, in which case the vote required for approval shall be a majority of the votes cast at a meeting of shareholders duly called and at which a quorum is present.

Section 2.10.Proxies.  A shareholder may cast the votes entitled to be cast by him or her either in person or by proxy executed by the shareholder or by his or her duly authorized agent in any manner permitted by law.  Such proxy shall be filed with such officer of the Trust or third party agent as the Board of Trustees shall have designated for such purpose for verification at or prior to such meeting.  Any proxy relating to the Trust’s shares of beneficial interest shall be valid until the expiration date therein or, if no expiration is so indicated, for such period as is permitted pursuant to Maryland law.  At a meeting of shareholders, all questions concerning the qualification of voters, the validity of proxies, and the acceptance or rejection of votes, shall be decided by or on behalf of the chairperson of the meeting, subject to Section 2.13.

Section 2.11.Record Date.  The Board of Trustees may fix the date for determination of shareholders entitled to notice of and to vote at a meeting of shareholders.  If no date is fixed for the determination of the shareholders entitled to vote at any meeting of shareholders, only persons in whose names shares entitled to vote are recorded on the share records of the Trust at the opening of business on the day of any meeting of shareholders shall be entitled to vote at such meeting.

Section 2.12.Voting of Shares by Certain Holders.  Shares of the Trust registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such shares pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or pursuant to an agreement of the partners of the partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such shares.  Any trustee or other fiduciary may vote shares registered in his or her name as such fiduciary, either in person or by proxy.

Section 2.13.Inspectors.

(a)Before or at any meeting of shareholders, the chairperson of the meeting may appoint one or more persons as inspectors for such meeting.  Such inspectors shall (i) ascertain and report the number of shares of beneficial interest represented at the meeting, in person or by proxy, and the validity and effect of proxies, (ii) receive and tabulate all votes,

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ballots or consents, (iii) report such tabulation to the chairperson of the meeting and (iv) perform such other acts as are proper to conduct the election or voting at the meeting.

(b)Each report of an inspector shall be in writing and signed by him or her or by a majority of them if there is more than one inspector acting at such meeting.  If there is more than one inspector, the report of a majority shall be the report of the inspectors.  The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.

Section 2.14.Nominations and Other Proposals to be Considered at Meetings of Shareholders.  Nominations of individuals for election to the Board of Trustees and the proposal of other business to be considered by the shareholders at meetings of shareholders may be properly brought before the meeting only as set forth in this Section 2.14.  All judgments and determinations made by the Board of Trustees or the chairperson of the meeting, as applicable, under this Section 2.14 (including, without limitation, judgments and determinations as to the propriety of a proposed nomination or a proposal of other business for consideration by shareholders) shall be final and binding unless determined by a court of competent jurisdiction to have been made in bad faith.

Section 2.14.1.Annual Meetings of Shareholders.

(a)A shareholder of the Trust may recommend to the Nominating and Governance Committee of the Board of Trustees an individual as a nominee for election to the Board of Trustees.  Such recommendation shall be made by written notice to the Chair of such committee and the Secretary of the Trust, which notice should contain or be accompanied by the information and documents with respect to such recommended nominee and shareholder that such shareholder believes to be relevant or helpful to the Nominating and Governance Committee’s deliberations.  In considering such recommendation, the Nominating and Governance Committee may request additional information concerning the recommended nominee or the shareholder making the recommendation.  The Nominating and Governance Committee of the Board of Trustees will consider any such recommendation in its discretion.  A shareholder seeking to make a nomination of an individual for election to the Board of Trustees must make such nomination in accordance with Section 2.14.1(b)(ii).

(b)Nominations of individuals for election to the Board of Trustees at an annual meeting of shareholders may be properly brought before the meeting (i) pursuant to the Trust’s notice of meeting by or at the direction of the Board of Trustees or (ii) by any one or more shareholders of the Trust who (A) (1) at the date of the giving of the notice provided for in this Section 2.14.1, individually or in the aggregate, hold at least 3% of the Trust’s shares of beneficial interest entitled to vote at the meeting on such election and have held such shares continuously for at least three years, and (2) continuously hold such shares through and including the time of the annual meeting (including any adjournment or postponement thereof), (B) are each a shareholder of record of the Trust at the time of giving the notice provided for in this Section 2.14.1 through and including the time of the annual meeting (including any adjournment or postponement thereof), (C) are each entitled to make nominations and to vote at the meeting on such election and (D) comply with the notice procedures set forth in this

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Section 2.14.1 as to such nomination.  Section 2.14.1(b)(ii) shall be the exclusive means for any shareholder to make nominations of individuals for election to the Board of Trustees.

(c)The proposal of business to be considered by the shareholders at an annual meeting of shareholders, other than the nomination of individuals for election to the Board of Trustees, may be properly brought before the meeting (i) pursuant to the Trust’s notice of meeting by or at the direction of the Board of Trustees or (ii) by any shareholder of the Trust who (A) has continuously held at least $2,000 in market value, or 1%, of the Trust’s shares entitled to vote at the meeting on the proposal for business for at least one year from the date such shareholder gives the notice provided for in this Section 2.14.1, and continuously holds such shares through and including the time of the annual meeting (including any adjournment or postponement thereof), (B) is a shareholder of record at the time of giving the notice provided for in this Section 2.14.1 through and including the time of the annual meeting (including any adjournment or postponement thereof), (C) is entitled to propose such business and to vote at the meeting on the proposal for such business and (D) complies with the notice procedures set forth in this Section 2.14.1 as to such business.  Section 2.14.1(c)(ii) shall be the exclusive means for a shareholder to propose business before an annual meeting of shareholders, except (x) to the extent of matters which are required to be presented to shareholders by applicable law which have been properly presented in accordance with the requirements of such law and (y) nominations of individuals for election to the Board of Trustees shall be made in accordance with Section 2.14.1(b).  For purposes of determining compliance with the requirement in subclause (A) of Section 2.14.1(c)(ii), the market value of the Trust’s shares held by the applicable shareholder shall be determined by multiplying the number of shares such shareholder continuously held for that one- year period by the highest selling price of the Trust shares as reported on the principal National Securities Exchange (for purposes of this Section 2.14, as defined in Section 8.1) on which the Trust’s shares are listed for trading during the 60 calendar days before the date such notice was submitted.

(d)For nominations for election to the Board of Trustees or other business to be properly brought before an annual meeting by one or more shareholders pursuant to Section 2.14.1, such shareholder(s) shall have given timely notice thereof in writing to the secretary of the Trust in accordance with this Section 2.14 and such other business shall otherwise be a proper matter for action by shareholders.  To be timely, the notice of such shareholder(s) shall set forth all information required under this Section 2.14 and shall be delivered to the secretary at the principal executive offices of the Trust not later than 5:00 p.m. (Eastern Time) on the 120th day nor earlier than the 150th day prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting; provided, however, that in the event that the annual meeting is called for a date that is more than 30 days earlier or later than the first anniversary of the date of the preceding year’s annual meeting, notice by such shareholder(s) to be timely shall be so delivered not later than 5:00 p.m. (Eastern Time) on the 10th day following the earlier of the day on which (i) notice of the date of the annual meeting is mailed or otherwise made available or (ii) public announcement of the date of the annual meeting is first made by the Trust.  Neither the postponement or adjournment of an annual meeting, nor the public announcement of such postponement or adjournment, shall commence a new time period for the giving of a notice of one or more shareholders as described above.  No shareholder may give a notice to the secretary described in this Section 2.14.1(d) unless such shareholder holds a certificate for all shares of beneficial interest of the

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Trust owned by such shareholder during all times described in Section 2.14.1(b), in the case of a nomination of one or more individuals for election to the Board of Trustees, or Section 2.14.1(c), in the case of the proposal of other business, and a copy of each such certificate held by such shareholder at the time of giving such notice shall accompany such shareholder’s notice to the secretary in order for such notice to be effective.

A notice of one or more shareholders pursuant to this Section 2.14.1 shall set forth:

(i)separately as to each individual whom such shareholder(s) propose to nominate for election or reelection as a Trustee (a “Proposed Nominee”) and any Proposed Nominee Associated Person (as defined in Section 2.14.1(g)), (1) the name, age, business address and residence address of such Proposed Nominee and the name and address of such Proposed Nominee Associated Person, (2) a statement of whether such Proposed Nominee is proposed for nomination as an Independent Trustee (as defined in Section 3.2) or a Managing Trustee (as defined in Section 3.2) and a description of such Proposed Nominee’s qualifications to be an Independent Trustee or Managing Trustee, as the case may be, and such Proposed Nominee’s qualifications to be a Trustee pursuant to the criteria set forth in Section 3.1, (3) the class, series and number of any shares of beneficial interest of the Trust that are, directly or indirectly, beneficially owned or owned of record by such Proposed Nominee or by such Proposed Nominee Associated Person, (4) the date such shares were acquired and the investment intent of such acquisition, (5) a description of all purchases and sales of securities of the Trust by such Proposed Nominee or by such Proposed Nominee Associated Person during the previous 36 month period, including the date of the transactions, the class, series and number of securities involved in the transactions and the consideration involved, (6) a description of all Derivative Transactions (as defined in Section 2.14.1(g)) by such Proposed Nominee or by such Proposed Nominee Associated Person during the previous 36 month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, the transactions, such description to include, without limitation, all information that such Proposed Nominee or Proposed Nominee Associated Person would be required to report on an Insider Report (as defined in Section 2.14.1(g)) if such Proposed Nominee or Proposed Nominee Associated Person were a Trustee of the Trust or the beneficial owner of more than 10% of the shares of the Trust at the time of the transactions, (7) any performance related fees (other than an asset based fee) to which such Proposed Nominee or such Proposed Nominee Associated Person is entitled based on any increase or decrease in the value of any shares of beneficial interest of the Trust or instrument or arrangement of the type contemplated within the definition of Derivative Transaction, if any, including, without limitation, any such interests held by members of such Proposed Nominee’s or such Proposed Nominee Associated Person’s immediate family sharing the same household with such Proposed Nominee or such Proposed Nominee Associated Person, (8) any proportionate interest in shares of the Trust or instrument or arrangement of the type contemplated within the definition of Derivative Transaction held, directly or indirectly, by a general or limited partnership in which such Proposed Nominee or such Proposed Nominee Associated Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, (9) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among any shareholder making the nomination, any Proposed Nominee Associated Person, or any of their respective

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affiliates and associates, or others acting in concert therewith, on the one hand, and each Proposed Nominee, or his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the U.S. Securities and Exchange Commission (the “S.E.C.”) (and any successor regulation), if any shareholder making the nomination and any Proposed Nominee Associated Person on whose behalf the nomination is made, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the Proposed Nominee were a director or executive officer of such registrant, (10) any rights to dividends on the shares of beneficial interest of the Trust owned beneficially by such Proposed Nominee or such Proposed Nominee Associated Person that are separated or separable from the underlying shares of the Trust, (11) to the extent known by such Proposed Nominee or such Proposed Nominee Associated Person, the name and address of any other person who owns, of record or beneficially, any shares of beneficial interest of the Trust and who supports the Proposed Nominee for election or reelection as a Trustee, and (12) all other information relating to such Proposed Nominee or such Proposed Nominee Associated Person that is required to be disclosed in solicitations of proxies for election of Trustees in an election contest (even if an election contest is not involved), or is otherwise required, in each case, pursuant to Section 14 (or any successor provision) of the Exchange Act and the rules and regulations promulgated thereunder;

(ii)as to any other business that the shareholder proposes to bring before the meeting, (1) a description of such business, (2) the reasons for proposing such business at the meeting and any material interest in such business of such shareholder or any Shareholder Associated Person (as defined in Section 2.14.1(g)), including any anticipated benefit to such shareholder or any Shareholder Associated Person therefrom, (3) a description of all agreements, arrangements and understandings between such shareholder and Shareholder Associated Person amongst themselves or with any other person or persons (including their names) in connection with the proposal of such business by such shareholder and (4) a representation that such shareholder intends to appear in person or by proxy at the meeting to bring the business before the meeting;

(iii)separately as to each shareholder giving the notice and any Shareholder Associated Person, (1) the class, series and number of all shares of the Trust that are owned of record by such shareholder or by such Shareholder Associated Person, if any, (2) the class, series and number of, and the nominee holder for, any shares of beneficial interests of the Trust that are owned, directly or indirectly, beneficially but not of record by such shareholder or by such Shareholder Associated Person, if any, (3) with respect to the shares referenced in the foregoing clauses (1) and (2), the date such shares were acquired and the investment intent of such acquisition, and (4) all information relating to such shareholder and Shareholder Associated Person that is required to be disclosed in connection with the solicitation of proxies for election of Trustees in an election contest (even if an election contest is not involved), or is otherwise required, in each case, pursuant to Section 14 (or any successor provision) of the Exchange Act and the rules and regulations promulgated thereunder;

(iv)separately as to each shareholder giving the notice and any Shareholder Associated Person, (1) the name and address of such shareholder, as they appear on the Trust’s share ledger and the current name and address, if different, of such shareholder and

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Shareholder Associated Person and (2) the investment strategy or objective, if any, of such shareholder or Shareholder Associated Person and a copy of the prospectus, offering memorandum or similar document, if any, provided to investors or potential investors in such shareholder or Shareholder Associated Person;

(v)           separately as to each shareholder giving the notice and any Shareholder Associated Person, (1) a description of all purchases and sales of securities of the Trust by such shareholder or Shareholder Associated Person during the previous 36 month period, including the date of the transactions, the class, series and number of securities involved in the transactions and the consideration involved, (2) a description of all Derivative Transactions by such shareholder or Shareholder Associated Person during the previous 36 month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, the transactions, such description to include, without limitation, all information that such shareholder or Shareholder Associated Person would be required to report on an Insider Report if such shareholder or Shareholder Associated Person were a Trustee of the Trust or the beneficial owner of more than 10% of the shares of the Trust at the time of the transactions, (3) any performance related fees (other than an asset based fee) to which such shareholder or Shareholder Associated Person is entitled based on any increase or decrease in the value of shares of the Trust or instrument or arrangement of the type contemplated within the definition of Derivative Transaction, if any, as of the date of such notice, including, without limitation, any such interests held by members of such shareholder’s or Shareholder Associated Person ‘s immediate family sharing the same household with such shareholder or Shareholder Associated Person, (4) any proportionate interest in shares of the Trust or instrument or arrangement of the type contemplated within the definition of Derivative Transaction held, directly or indirectly, by a general or limited partnership in which such shareholder or Shareholder Associated Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (5) any rights to dividends on the shares of the Trust owned beneficially by such shareholder or Shareholder Associated Person that are separated or separable from the underlying shares of the Trust;

(vi)          to the extent known by the shareholder giving the notice, the name and address of any other person who owns, beneficially or of record, any shares of beneficial interest of the Trust and who supports the nominee for election or reelection as a Trustee or the proposal of other business; and

(vii)         if more than one class or series of beneficial interest in the Trust is outstanding, the class and series of shares of beneficial interest of the Trust entitled to vote for such Proposed Nominee and/or shareholder’s proposal, as applicable.

(e)           A notice of one or more shareholders making a nomination pursuant to Section 2.14.1(b)(ii) shall be accompanied by:

(i)            a signed and notarized statement of each shareholder giving the notice certifying that (1) all information contained in the notice is true and complete in all respects, (2) the notice complies with this Section 2.14.1, and (3) such shareholder will continue to hold all shares referenced in Section 2.14.1(b)(ii)(A) through and including the time of the annual meeting (including any adjournment or postponement thereof); and

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(ii)           a signed and notarized certificate of each Proposed Nominee (1) certifying that the information contained in the notice regarding such Proposed Nominee and any Proposed Nominee Associated Person is true and complete and complies with this Section 2.14.1 and (2) consenting to being named in the shareholder’s proxy statement as a nominee and to serving as a Trustee if elected.

(f)            Notwithstanding anything in the second sentence of Section 2.14.1(d) to the contrary, in the event that the number of Trustees to be elected to the Board of Trustees is increased and there is no public announcement of such action at least 130 days prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting, a shareholder’s notice required by this Section 2.14.1 also shall be considered timely, but only with respect to nominees for any new positions created by such increase, if the notice is delivered to the secretary at the principal executive offices of the Trust not later than 5:00 p.m. (Eastern Time) on the 10th day immediately following the day on which such public announcement is first made by the Trust.

(g)           For purposes of this Section 2.14, (i) “Shareholder Associated Person” of any shareholder shall mean (A) any person acting in concert with, such shareholder, (B) any direct or indirect beneficial owner of shares of beneficial interest of the Trust owned of record or beneficially by such shareholder and (C) any person controlling, controlled by or under common control with such shareholder or a Shareholder Associated Person; (ii) “Proposed Nominee Associated Person” of any Proposed Nominee shall mean (A) any person acting in concert with such Proposed Nominee, (B) any direct or indirect beneficial owner of shares of beneficial interest of the Trust owned of record or beneficially by such Proposed Nominee and (C) any person controlling, controlled by or under common control with such Proposed Nominee or a Proposed Nominee Associated Person; (iii) “Derivative Transaction” by a person shall mean any (A) transaction in, or arrangement, agreement or understanding with respect to, any option, warrant, convertible security, stock appreciation right or similar right with an exercise, conversion or exchange privilege, or settlement payment or mechanism related to, any security of the Trust, or similar instrument with a value derived in whole or in part from the value of a security of the Trust, in any such case whether or not it is subject to settlement in a security of the Trust or otherwise or (B) any transaction, arrangement, agreement or understanding which included or includes an opportunity for such person, directly or indirectly, to profit or share in any profit derived from any increase or decrease in the value of any security of the Trust, to mitigate any loss or manage any risk associated with any increase or decrease in the value of any security of the Trust or to increase or decrease the number of securities of the Trust which such person was, is or will be entitled to vote, in any such case whether or not it is subject to settlement in a security of the Trust or otherwise; and (iv) “Insider Report” shall mean a statement required to be filed pursuant to Section 16 of the Exchange Act (or any successor provisions) by a person who is a Trustee of the Trust or who is directly or indirectly the beneficial owner of more than 10% of the shares of the Trust.

Section 2.14.2.             Shareholder Nominations or Other Proposals Causing Covenant Breaches or Defaults.   At the same time as the submission of any shareholder nomination or proposal of other business to be considered at a shareholders meeting that, if approved and implemented by the Trust, would cause the Trust or any subsidiary (as defined in Section 2.14.5(c)) of the Trust to be in breach of any covenant of the Trust or any subsidiary of

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the Trust or otherwise cause a default (in any case, with or without notice or lapse of time) in any existing debt instrument or agreement of the Trust or any subsidiary of the Trust or other material contract or agreement of the Trust or any subsidiary of the Trust, the proponent shareholder or shareholders shall submit to the secretary at the principal executive offices of the Trust (a) evidence satisfactory to the Board of Trustees of the lender’s or contracting party’s willingness to waive the breach of covenant or default or (b) a detailed plan for repayment of the indebtedness to the lender or curing the contractual breach or default and satisfying any resulting damage claim, specifically identifying the actions to be taken or the source of funds, which plan must be satisfactory to the Board of Trustees in its discretion, and evidence of the availability to the Trust of substitute credit or contractual arrangements similar to the credit or contractual arrangements which are implicated by the shareholder nomination or other proposal that are at least as favorable to the Trust, as determined by the Board of Trustees in its discretion.  As an example and not as a limitation, at the time these Bylaws are being amended and restated, the Trust is party to a bank credit facility that contains covenants which prohibit certain changes in the management and policies of the Trust without the approval of the lenders; accordingly, a shareholder nomination or proposal which implicates these covenants shall be accompanied by a waiver of these covenants duly executed by the banks or by evidence satisfactory to the Board of Trustees of the availability of funding to the Trust to repay outstanding indebtedness under this credit facility and of the availability of a new credit facility on terms as favorable to the Trust as the existing credit facility.

Section 2.14.3.             Shareholder Nominations or Other Proposals Requiring Governmental Action.  If (a) submission of any shareholder nomination or proposal of other business to be considered at a shareholders meeting that could not be considered or, if approved, implemented by the Trust without the Trust, any subsidiary of the Trust, the proponent shareholder, any Proposed Nominee of such shareholder, any Proposed Nominee Associated Person of such Proposed Nominee, any Shareholder Associated Person of such shareholder, the holder of proxies or their respective affiliates or associates filing with or otherwise notifying or obtaining the consent, approval or other action of any federal, state, municipal or other governmental or regulatory body (a “Governmental Action”) or (b) such shareholder’s ownership of shares of the Trust or any solicitation of proxies or votes or holding or exercising proxies by such shareholder, any Proposed Nominee of such shareholder, any Proposed Nominee Associated Person of such Proposed Nominee, any Shareholder Associated Person of such shareholder, or their respective affiliates or associates would require Governmental Action, then, at the same time as the submission of any shareholder nomination or proposal of other business to be considered at a shareholders meeting, the proponent shareholder or shareholders shall submit to the secretary at the principal executive offices of the Trust (x) evidence satisfactory to the Board of Trustees that any and all Governmental Action has been given or obtained, including, without limitation, such evidence as the Board of Trustees may require so that any nominee may be determined to satisfy any suitability or other requirements or (y) if such evidence was not obtainable from a governmental or regulatory body by such time despite the shareholder’s diligent and best efforts, a detailed plan for making or obtaining the Governmental Action prior to the election of any such Proposed Nominee or the implementation of such proposal, which plan must be satisfactory to the Board of Trustees in its discretion.  As an example and not as a limitation, at the time these Bylaws are being amended and restated, the Trust holds a controlling ownership position in a company formed and licensed as an insurance company in the State of Indiana.  The laws of the State of Indiana have certain regulatory

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requirements for any person who seeks to control (as defined under Indiana law) a company which itself controls an insurance company domiciled in the State of Indiana, including by exercising proxies representing 10% or more of its voting securities.  Accordingly, a shareholder who seeks to exercise proxies for a nomination or a proposal affecting the governance of the Trust shall obtain any applicable approvals from the Indiana insurance regulatory authorities prior to exercising such proxies.

Section 2.14.4.             Special Meetings of Shareholders.  As set forth in Section 2.6, only business brought before the meeting pursuant to the Trust’s notice of meeting shall be conducted at a special meeting of shareholders.  Nominations of individuals for election to the Board of Trustees only may be made at a special meeting of shareholders at which Trustees are to be elected: (a) pursuant to the Trust’s notice of meeting; (b) otherwise properly brought before the meeting by or at the direction of the Board of Trustees; or (c) provided that the Board of Trustees has determined that Trustees shall be elected at such special meeting, by any shareholder of the Trust who is a shareholder of record both at the time of giving of notice provided for in this Section 2.14.4 through and including the time of the special meeting, who is entitled to vote at the meeting on such election and who has complied with the notice procedures and other requirements set forth in this Section 2.14.4.  In the event the Trust calls a special meeting of shareholders for the purpose of electing one or more Trustees to the Board of Trustees, any such shareholder may nominate an individual or individuals (as the case may be) for election as a Trustee as specified in the Trust’s notice of meeting, if the shareholder satisfies the holding period and certificate requirements set forth in Section 2.14.1(b) and Section 2.14.1(d), the shareholder’s notice contains or is accompanied by the information and documents required by Section 2.14 and the shareholder has given timely notice thereof in writing to the secretary of the Trust at the principal executive offices of the Trust.  To be timely, a shareholder’s notice shall be delivered to the secretary of the Trust at the principal executive offices of the Trust not earlier than the 150th day prior to such special meeting and not later than 5:00 p.m. (Eastern Time) on the later of (i) the 120th day prior to such special meeting or (ii) the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Trustees to be elected at such meeting.  Neither the postponement or adjournment of a special meeting, nor the public announcement of such postponement or adjournment, shall commence a new time period for the giving of a shareholder’s notice as described above.

Section 2.14.5.             General.

(a)           If information submitted pursuant to this Section 2.14 by any shareholder proposing a nominee for election as a Trustee or any proposal for other business at a meeting of shareholders shall be deemed by the Board of Trustees incomplete or inaccurate, any authorized officer or the Board of Trustees or any committee thereof may treat such information as not having been provided in accordance with this Section 2.14.  Any notice submitted by a shareholder pursuant to this Section 2.14 that is deemed by the Board of Trustees inaccurate, incomplete or otherwise fails to satisfy completely any provision of this Section 2.14 shall be deemed defective and shall thereby render all proposals and nominations set forth in such notice defective.  Upon written request by the secretary of the Trust or the Board of Trustees or any committee thereof (which may be made from time to time), any shareholder proposing a nominee for election as a Trustee or any proposal for other business at

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a meeting of shareholders shall provide, within three business days after such request (or such other period as may be specified in such request), (i) written verification, satisfactory to the secretary or any other authorized officer or the Board of Trustees or any committee thereof, in his, her or its discretion, to demonstrate the accuracy of any information submitted by the shareholder pursuant to this Section 2.14, (ii) written responses to information reasonably requested by the secretary, the Board of Trustees or any committee thereof and (iii) a written update, to a current date, of any information submitted by the shareholder pursuant to this Section 2.14 as of an earlier date.  If a shareholder fails to provide such written verification, information or update within such period, the secretary or any other authorized officer or the Board of Trustees may treat the information which was previously provided and to which the verification, request or update relates as not having been provided in accordance with this Section 2.14; provided, however, that no such written verification, response or update shall cure any incompleteness, inaccuracy or failure in any notice provided by a shareholder pursuant to this Section 2.14.  It is the responsibility of a shareholder who wishes to make a nomination or other proposal to comply with the requirements of Section 2.14; nothing in this Section 2.14.5(a) or otherwise shall create any duty of the Trust, the Board of Trustees or any committee thereof nor any officer of the Trust to inform a shareholder that the information submitted pursuant to this Section 2.14 by or on behalf of such shareholder is incomplete or inaccurate or not otherwise in accordance with this Section 2.14 nor require the Trust, the Board of Trustees, any committee of the Board of Trustees or any officer of the Trust to request clarification or updating of information provided by any shareholder, but the Board of Trustees, a committee thereof or the secretary acting on behalf of the Board of Trustees or a committee, may do so in its, his or her discretion.

(b)           Only such individuals who are nominated in accordance with this Section 2.14 shall be eligible for election by shareholders as Trustees and only such business shall be conducted at a meeting of shareholders as shall have been properly brought before the meeting in accordance with this Section 2.14.  The chairperson of the meeting and the Board of Trustees shall each have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with this Section 2.14 and, if any proposed nomination or other business is determined not to be in compliance with this Section 2.14, to declare that such defective nomination or proposal be disregarded.

(c)           For purposes of this Section 2.14:  (i) “public announcement” shall mean disclosure in (A) a press release reported by the Dow Jones News Service, Associated Press, Business Wire, PR Newswire or any other widely circulated news or wire service or (B) a document publicly filed by the Trust with the S.E.C. pursuant to the Exchange Act; and (ii) “subsidiary” shall include, with respect to a person, any corporation, partnership, joint venture or other entity of which such person (A) owns, directly or indirectly, 10% or more of the outstanding voting securities or other interests or (B) has a person designated by such person serving on, or a right, contractual or otherwise, to designate a person, so to serve on, the board of directors (or analogous governing body).

(d)           Notwithstanding the foregoing provisions of this Section 2.14, a shareholder shall also comply with all applicable legal requirements, including, without limitation, applicable requirements of state law and the Exchange Act and the rules and

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regulations thereunder, with respect to the matters set forth in this Section 2.14.  Nothing in this Section 2.14 shall be deemed to require that a shareholder nomination of an individual for election to the Board of Trustees or a shareholder proposal relating to other business be included in the Trust’s proxy statement, except as may be required by law.

(e)           The Board of Trustees may from time to time require any individual nominated to serve as a Trustee to agree in writing with regard to matters of business ethics and confidentiality while such nominee serves as a Trustee, such agreement to be on the terms and in a form (the “Agreement”) determined satisfactory by the Board of Trustees, as amended and supplemented from time to time in the discretion of the Board of Trustees.  The terms of the Agreement may be substantially similar to the Code of Business Conduct and Ethics of the Trust or any similar code promulgated by the Trust (the “Code of Business Conduct”) or may differ from or supplement the Code of Business Conduct.

(f)            Determinations required or permitted to be made under this Section 2.14 by the Board of Trustees may be delegated by the Board of Trustees to a committee of the Board of Trustees, subject to applicable law.

Section 2.15.         Shareholder Actions by Written Consent.

(a)           Any shareholder or shareholders of record seeking to take action by written consent shall, by sending written notice to the secretary of the Trust (the “Consent Record Date Request Notice”) by registered mail, return receipt requested, request the Board of Trustees to fix a record date to determine the shareholders entitled to act by written consent (the “Consent Record Date”).  No shareholder may make a Consent Record Date Request Notice unless such shareholder (i) complies with the requirements set forth in Section 2.14.1, including Section 2.14.1(b)(ii) in the case of a nomination or election of Trustees and Section 2.14.1(c)(ii) in the case of the proposal of other business, and (ii) holds certificates for all shares of beneficial interest in the Trust owned by such shareholder during all times described in Section 2.14.1, and a copy of each such certificate held by such shareholder at the time of giving such notice shall accompany such shareholder’s notice to the secretary in order for such notice to be effective.  The Consent Record Date Request Notice shall set forth the proposed action(s) to be taken, shall be signed by one or more shareholders of record as of the date of the Consent Record Date Request Notice (or their agents duly authorized in writing), shall bear the date of signature of each such shareholder (or its duly authorized agent) and shall set forth all information that each such shareholder would be required to disclose in solicitations of proxies for election of Trustees in an election contest (even if an election contest is not involved), as applicable, or is otherwise required, in each case, pursuant to Section 14 (or any successor provision) of the Exchange Act and the rules and regulations promulgated thereunder, as well as additional information required by Section 2.14.  Upon receiving the Consent Record Date Request Notice, the Board of Trustees may fix a Consent Record Date.  The Consent Record Date shall not precede, and shall not be more than 60 days after the close of business on, the date on which the resolution fixing the Consent Record Date is adopted by the Board of Trustees.  If the Board of Trustees, within 30 days after the date on which a valid Consent Record Date Request Notice is received, fails to adopt a resolution fixing the Consent Record Date, the Consent Record Date shall be the close of business on the 60th day after the date the applicable Consent Record Date Request Notice is received by the secretary.

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(b)           In addition to the other requirements and procedures contained in this Section 2.15 regarding the ability of a shareholder to take action by written consent, in order for any shareholder to take action by written consent, one or more written consents signed by shareholders of record (or their agents duly authorized in writing) as of the Consent Record Date representing a majority (or such higher percentage as may be required by law or specified elsewhere in the Declaration of Trust) of the shares outstanding and entitled to vote shall be delivered to the secretary.  In addition, the written consent shall set forth the action(s) to be taken (which shall be limited to the matters set forth in the Consent Record Date Request Notice received by the secretary), shall bear the date of signature of each such shareholder (or its duly authorized agent) signing the written consent, shall set forth the name and address, as they appear in the Trust’s books, of each shareholder signing such written consent (or on whose behalf the written consent is signed), shall set forth the class, series and number of all shares of beneficial interest of the Trust which are owned of record by each such shareholder, as of the Consent Record Date, and, if applicable, nominee holder for, and number of, shares owned by such shareholder beneficially but not of record as of the Consent Record Date, shall be sent to the secretary by registered mail, return receipt requested, and shall be received by the secretary within 30 days after the Consent Record Date (the “Written Consent Window”).  Any shareholder may revoke his, her or its written consent at any time before the action directed by the written consent is taken, by written revocation delivered to the secretary.

(c)           The chief executive officer, president or the Board of Trustees may appoint regionally or nationally recognized independent inspectors of elections to act as the agent of the Trust for the purpose of performing a review of the validity of any written consent received by the secretary.  Following the end of the Written Consent Window, there will be a period of 90 days (the “Review Period”) to permit the inspectors to perform such review and certify the written consents if necessary or appropriate in the Board of Trustee’s discretion, during which time the Trust would not be required to take any other action regarding the written consent.  Nothing contained in this Section 2.15(c) shall in any way be construed to suggest or imply that the Trust or any shareholder shall not be entitled to contest the validity of any written consent, whether during or after such Review Period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).

Section 2.16.         Voting by Ballot.  Voting on any question or in any election may be voice vote unless the chairperson of the meeting or any shareholder shall demand that voting be by ballot.

Section 2.17.         Proposals of Business Which Are Not Proper Matters For Action By Shareholders.  Notwithstanding anything in these Bylaws to the contrary, subject to applicable law, any shareholder proposal for business the subject matter or effect of which would be within the exclusive purview of the Board of Trustees or would reasonably likely, if considered by the shareholders or approved or implemented by the Trust, result in an impairment of the limited liability status for the Trust’s shareholders, shall be deemed not to be a matter upon which the shareholders are entitled to vote.  The Board of Trustees in its discretion shall be entitled to determine whether a shareholder proposal for business is not a matter upon which the shareholders are entitled to vote pursuant to this Section 2.17, and its decision shall be final and binding unless determined by a court of competent jurisdiction to have been made in bad faith.

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ARTICLE III

TRUSTEES

Section 3.1.           General Powers; Qualifications; Trustees Holding Over.  The business and affairs of the Trust shall be managed under the direction of its Board of Trustees.  A Trustee shall be an individual at least 21 years of age who is not under legal disability.  To qualify for nomination or election as a Trustee, an individual, at the time of nomination and election, shall, without limitation, (a) have substantial expertise or experience relevant to the business of the Trust and its subsidiaries, (b) not have been convicted of a felony, (c) meet the qualifications of an Independent Trustee or a Managing Trustee, each as defined in Section 3.2, as the case may be, depending upon the position for which such individual may be nominated and elected and (d) have been nominated for election to the Board of Trustees in accordance with Section 2.14.1(b).  In case of failure to elect Trustees at an annual meeting of the shareholders, the incumbent Trustees shall hold over and continue to direct the management of the business and affairs of the Trust until they may resign or until their successors are elected and qualify.

Section 3.2.           Independent Trustees and Managing Trustees.  A majority of the Trustees holding office shall at all times be Independent Trustees; provided, however, that upon a failure to comply with this requirement as a result of the creation of a temporary vacancy which shall be filled by an Independent Trustee, whether as a result of enlargement of the Board of Trustees or the resignation, removal or death of a Trustee who is an Independent Trustee, such requirement shall not be applicable.  An “Independent Trustee” is one who is not an employee of the Advisor (as defined in the Declaration of Trust), who is not involved in the Trust’s day to day activities, who meets the qualifications of an independent trustee under the Declaration of Trust and who meets the qualifications of an independent director (not including the specific independence requirements applicable only to members of the Audit Committee of the Board of Trustees) under the applicable rules of each stock exchange upon which shares of the Trust are listed for trading and the S.E.C., as those requirements may be amended from time to time.  If the number of Trustees, at any time, is set at less than five, at least one Trustee shall be a Managing Trustee.  So long as the number of Trustees shall be five or greater, at least two Trustees shall be Managing Trustees.  “Managing Trustees” shall mean Trustees who are not Independent Trustees and who have been employees of the Advisor or involved in the day to day activities of the Trust for at least one year prior to their election.  If at any time the Board of Trustees shall not be comprised of a majority of Independent Trustees, the Board of Trustees shall take such actions as will cure such condition; provided that the fact that the Board of Trustees does not have a majority of Independent Trustees or has not taken such action at any time or from time to time shall not affect the validity of any action taken by the Board of Trustees.  If at any time the Board of Trustees shall not be comprised of a number of Managing Trustees as is required under this Section 3.2, the Board of Trustees shall take such actions as will cure such condition; provided that the fact that the Board of Trustees does not have the requisite number of Managing Trustees or has not taken such action at any time or from time to time shall not affect the validity of any action taken by the Board of Trustees.

Section 3.3.           Number and Tenure.  Pursuant to the Articles Supplementary accepted for record by the SDAT as of May 10, 2000, the number of Trustees constituting the entire Board of Trustees may be increased or decreased from time to time only by a vote of the

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Trustees; provided however that the tenure of office of a Trustee shall not be affected by any decrease in the number of Trustees.  The number of Trustees shall be five until increased or decreased by the Board of Trustees.

Section 3.4.           Annual and Regular Meetings.  An annual meeting of the Trustees shall be held immediately after the annual meeting of shareholders, no notice other than this Bylaw being necessary.  The time and place of the annual meeting of the Trustees may be changed by the Board of Trustees.  The Trustees may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Trustees without other notice than such resolution.  In the event any such regular meeting is not so provided for, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Trustees.

Section 3.5.           Special Meetings.  Special meetings of the Trustees may be called at any time by any Managing Trustee, the president or pursuant to the request of any two Trustees then in office.  The person or persons authorized to call special meetings of the Trustees may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Trustees called by them.

Section 3.6.           Notice.  Notice of any special meeting shall be given by written notice delivered personally or by electronic mail, telephoned, facsimile transmitted, overnight couriered (with proof of delivery) or mailed to each Trustee at his or her business or residence address.  Personally delivered, telephoned, facsimile transmitted or electronically mailed notices shall be given at least 24 hours prior to the meeting.  Notice by mail shall be deposited in the U.S.  mail at least 72 hours prior to the meeting.  If mailed, such notice shall be deemed to be given when deposited in the U.S.  mail properly addressed, with postage thereon prepaid.  Electronic mail notice shall be deemed to be given upon transmission of the message to the electronic mail address given to the Trust by the Trustee.  Telephone notice shall be deemed given when the Trustee is personally given such notice in a telephone call to which he is a party.  Facsimile transmission notice shall be deemed given upon completion of the transmission of the message to the number given to the Trust by the Trustee and receipt of a completed answer back indicating receipt.  If sent by overnight courier, such notice shall be deemed given when delivered to the courier.  Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Trustees need be stated in the notice, unless specifically required by statute or these Bylaws.

Section 3.7.           Quorum.  A majority of the Trustees shall constitute a quorum for transaction of business at any meeting of the Trustees, provided that, if less than a majority of such Trustees are present at a meeting, a majority of the Trustees present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to the Declaration of Trust or these Bylaws, the vote of a majority of a particular group of Trustees is required for action, a quorum for that action shall also include a majority of such group.  The Trustees present at a meeting of the Board of Trustees which has been duly called and convened and at which a quorum was established may continue to transact business until adjournment, notwithstanding the withdrawal of a number of Trustees resulting in less than a quorum then being present at the meeting.

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Section 3.8.           Voting.  The action of the majority of the Trustees present at a meeting at which a quorum is or was present shall be the action of the Trustees, unless the concurrence of a greater proportion is required for such action by specific provision of an applicable statute, the Declaration of Trust or these Bylaws.  If enough Trustees have withdrawn from a meeting to leave fewer than are required to establish a quorum, but the meeting is not adjourned, the action of the majority of that number of Trustees necessary to constitute a quorum at such meeting shall be the action of the Board of Trustees, unless the concurrence of a greater proportion is required for such action by applicable law, the Declaration of Trust or these Bylaws.

Section 3.9.           Telephone Meetings.  Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time.  Participation in a meeting by these means shall constitute presence in person at the meeting.  Such meeting shall be deemed to have been held at a place designated by the Trustees at the meeting.

Section 3.10.         Action by Written Consent of Trustees.  Unless specifically otherwise provided in the Declaration of Trust, any action required or permitted to be taken at any meeting of the Trustees may be taken without a meeting, if a majority of the Trustees shall individually or collectively consent in writing to such action.  Such written consent or consents shall be filed with the records of the Trust and shall have the same force and effect as the affirmative vote of such Trustees at a duly held meeting of the Trustees at which a quorum was present.

Section 3.11.         Waiver of Notice.  The actions taken at any meeting of the Trustees, however called and noticed or wherever held, shall be as valid as though taken at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the Trustees not present waives notice, consents to the holding of such meeting or approves the minutes thereof.

Section 3.12.         Vacancies.  Pursuant to the Articles Supplementary accepted for record by the SDAT as of May 10, 2000, if for any reason any or all the Trustees cease to be Trustees, such event shall not terminate the Trust or affect these Bylaws or the powers of the remaining Trustees hereunder (even if fewer than three Trustees remain).  Any vacancy on the Board of Trustees may be filled only by a majority of the remaining Trustees, even if the remaining Trustees do not constitute a quorum.  Any Trustee elected to fill a vacancy, whether occurring due to an increase in size of the Board of Trustees or by the death, resignation or removal of any Trustee, shall hold office for the remainder of the full term of the class of Trustees in which the vacancy occurred or was created and until a successor is elected and qualifies.

Section 3.13.         Compensation.  The Trustees shall be entitled to receive such reasonable compensation for their services as Trustees as the Trustees may determine from time to time.  Trustees may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Trustees or of any committee thereof; and for their expenses, if any, in connection with each property visit and any other service or activity performed or engaged in as Trustees.  The Trustees shall be entitled to receive remuneration for services rendered to the

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Trust in any other capacity, and such services may include, without limitation, services as an officer of the Trust, services as an employee of the Advisor, legal, accounting or other professional services, or services as a broker, transfer agent or underwriter, whether performed by a Trustee or any person affiliated with a Trustee.

Section 3.14.         Removal of Trustees.  A Trustee may be removed at any time (a) with cause by the affirmative vote of the holders of shares representing two-thirds of the total votes authorized to be cast by shares then outstanding and entitled to vote thereon, voting as a single class, at a meeting of shareholders properly called for that purpose or (b) with cause by the affirmative vote of all remaining Trustees.  For the avoidance of doubt, any shareholder seeking to take action at a meeting of shareholders or by written consent to remove one or more Trustees shall comply with all of the requirements in ARTICLE II applicable to a shareholder seeking to nominate an individual for election to the Board of Trustees.

Section 3.15.         Surety Bonds.  Unless specifically required by law, no Trustee shall be obligated to give any bond or surety or other security for the performance of any of his or her duties.

Section 3.16.         Reliance.  Each Trustee, officer, employee and agent of the Trust shall, in the performance of his or her duties with respect to the Trust, be entitled to rely on any information, opinion, report or statement, including any financial statement or other financial data, prepared or presented by an officer or employee of the Trust or by the Advisor, accountants, appraisers or other experts or consultants selected by the Board of Trustees or officers of the Trust, regardless of whether such counsel or expert may also be a Trustee.

Section 3.17.         Interested Trustee Transactions.  Section 2-419 of the Maryland General Corporation Law shall be available for and apply to any contract or other transaction between the Trust and any of its Trustees or between the Trust and any other trust, corporation, firm or other entity in which any of its Trustees is a trustee or director or has a material financial interest.

Section 3.18.         Qualifying Shares Not Required.  Trustees need not be shareholders of the Trust.

Section 3.19.         Certain Rights of Trustees, Officers, Employees and Agents.  A Trustee shall have no responsibility to devote his or her full time to the affairs of the Trust.  Any Trustee or officer, employee or agent of the Trust, in his or her personal capacity or in a capacity as an affiliate, employee or agent of any other person, or otherwise, may have business interests and engage in business activities similar or in addition to those of or relating to the Trust.

Section 3.20.         Emergency Provisions.  Notwithstanding any other provision in the Declaration of Trust or these Bylaws, this Section 3.20 shall apply during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board of Trustees under ARTICLE III cannot readily be obtained (an “Emergency”).  During any Emergency, unless otherwise provided by the Board of Trustees, (a) a meeting of the Board of Trustees may be called by any Managing Trustee or officer of the Trust by any means feasible under the circumstances and (b) notice of any meeting of the Board of Trustees during such an

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Emergency may be given less than 24 hours prior to the meeting to as many Trustees and by such means as it may be feasible at the time, including publication, television or radio.

ARTICLE IV

COMMITTEES

Section 4.1.           Number; Tenure and Qualifications.  The Board of Trustees shall appoint an Audit Committee, a Compensation Committee and a Nominating and Governance Committee.  Each of these committees shall be composed of three or more Trustees, to serve at the pleasure of the Board of Trustees.  The Board of Trustees may also appoint other committees from time to time composed of one or more members, at least one of which shall be a Trustee, to serve at the pleasure of the Board of Trustees.  The Board of Trustees shall adopt a charter with respect to the Audit Committee, the Compensation Committee and the Nominating and Governance Committee, which charter shall specify the purposes, the criteria for membership and the responsibility and duties and may specify other matters with respect to each committee.  The Board of Trustees may also adopt a charter with respect to other committees.

Section 4.2.           Powers.  The Trustees may delegate any of the powers of the Trustees to committees appointed under Section 4.1 and composed solely of Trustees, except as prohibited by law.  In the event that a charter has been adopted with respect to a committee composed solely of Trustees, the charter shall constitute a delegation by the Trustees of the powers of the Board of Trustees necessary to carry out the purposes, responsibilities and duties of a committee provided in the charter or reasonably related to those purposes, responsibilities and duties, to the extent permitted by law.

Section 4.3.           Meetings.  Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Trustees.  One-third, but not less than one, of the members of any committee shall be present in person at any meeting of a committee in order to constitute a quorum for the transaction of business at a meeting, and the act of a majority present at a meeting at the time of a vote if a quorum is then present shall be the act of a committee.  The Board of Trustees or, if authorized by the Board in a committee charter or otherwise, the committee members may designate a chairman of any committee, and the chairman or, in the absence of a chairman, a majority of any committee may fix the time and place of its meetings unless the Board shall otherwise provide.  In the absence or disqualification of any member of any committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another Trustee to act at the meeting in the place of absent or disqualified members.

Each committee shall keep minutes of its proceedings and shall periodically report its activities to the full Board of Trustees and, except as otherwise provided by law or under the rules of the S.E.C. and applicable stock exchanges on which the Trust’s shares are listed, any action by any committee shall be subject to revision and alteration by the Board of Trustees, provided that no rights of third persons shall be affected by any such revision or alteration.

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Section 4.4.           Telephone Meetings.  Members of a committee may participate in a meeting by means of a conference telephone or similar communications equipment and participation in a meeting by these means shall constitute presence in person at the meeting.

Section 4.5.           Action by Written Consent of Committees.  Any action required or permitted to be taken at any meeting of a committee of the Trustees may be taken without a meeting, if a consent in writing to such action is signed by a majority of the committee and such written consent is filed with the minutes of proceedings of such committee.

Section 4.6.           Vacancies.  Subject to the provisions hereof, the Board of Trustees shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee.

ARTICLE V

OFFICERS

Section 5.1.           General Provisions.  The officers of the Trust shall include a president, a secretary and a treasurer and may include a chairman of the board, a vice chairman of the board, a chief executive officer, a chief operating officer, a chief financial officer, one or more vice presidents, one or more assistant secretaries and one or more assistant treasurers.  In addition, the Trustees may from time to time appoint such other officers with such powers and duties as they shall deem necessary or desirable.  The officers of the Trust shall be elected annually by the Trustees at the first meeting of the Trustees held after each annual meeting of shareholders.  If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient.  Each officer shall hold office until his or her successor is elected and qualifies or until his or her death, resignation or removal in the manner hereinafter provided.  Any two or more offices, except president and vice president, may be held by the same person.  In their discretion, the Trustees may leave unfilled any office except that of president and secretary.  Election of an officer or agent shall not of itself create contract rights between the Trust and such officer or agent.

Section 5.2.           Removal and Resignation.  Any officer or agent of the Trust may be removed by the Trustees if in their judgment the best interests of the Trust would be served thereby, but the removal shall be without prejudice to the contract rights, if any, of the person so removed.  Any officer of the Trust may resign at any time by giving written notice of his or her resignation to the Trustees, the chairman of the board, the president or the secretary.  Any resignation shall take effect at any time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt.  The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation.  A resignation shall be without prejudice to the contract rights, if any, of the Trust.

Section 5.3.           Vacancies.  A vacancy in any office may be filled by the Trustees for the balance of the term.

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Section 5.4.           Chief Executive Officer.  The Trustees may designate a chief executive officer from among the Trustees or elected officers.  The chief executive officer shall have responsibility for implementation of the policies of the Trust, as determined by the Trustees, and for the administration of the business affairs of the Trust.  In the absence of both the chairman and vice chairman of the board, the chief executive officer shall preside over the meetings of the Board of Trustees at which he shall be present.  In the absence of a different designation, the Managing Trustees, or any of them, shall function as the chief executive officer of the Trust.

Section 5.5.           Chief Operating Officer.  The Trustees may designate a chief operating officer from among the elected officers.  Said officer will have the responsibilities and duties as set forth by the Trustees or the chief executive officer.

Section 5.6.           Chief Financial Officer.  The Trustees may designate a chief financial officer from among the elected officers.  Said officer will have the responsibilities and duties as set forth by the Trustees or the chief executive officer.

Section 5.7.           Chairman and Vice Chairman of the Board.  The chairman of the board, if any, and the vice chairman of the board, if any, shall perform such duties as may be assigned to him, her or them by the Trustees.  In the absence of a chairman and vice chairman of the board or if none are appointed, the Managing Trustees, or any of them, shall preside at meetings of the Board of Trustees.

Section 5.8.           President.  The president may execute any deed, mortgage, bond, lease, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Trustees or by these Bylaws to some other officer or agent of the Trust or shall be required by law to be otherwise executed, and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the chief executive officer or the Trustees.

Section 5.9.           Vice Presidents.  In the absence or unavailability of the president, the vice president (or in the event there be more than one vice president, any vice president) shall perform the duties of the president and when so acting shall have all the powers of the president; and shall perform such other duties as from time to time may be assigned to him or her by the president, the chief executive officer or by the Trustees.  The Trustees may designate one or more vice presidents as executive vice presidents, senior vice presidents or as vice presidents for particular areas of responsibility.

Section 5.10.         Secretary.  The secretary (or his or her designee) shall (a) keep the minutes of the proceedings of the shareholders, the Trustees and committees of the Trustees in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the Trust records and of the seal of the Trust, if any; (d) maintain a share register, showing the ownership and transfers of ownership of all shares of the Trust, unless a transfer agent is employed to maintain and does maintain such a share register; and (e) in general perform such other duties as from time to time may be assigned to the secretary by the chief executive officer or the Trustees.

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Section 5.11.         Treasurer.  The treasurer shall have the custody of the funds and securities of the Trust and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Trust and shall deposit all moneys and other valuable effects in the name and to the credit of the Trust in such depositories as may be authorized by the Trustees.  The treasurer shall also have such other responsibilities as may be assigned to him or her by the chief executive officer or the Trustees.

Section 5.12.         Assistant Secretaries and Assistant Treasurers.  The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or treasurer, respectively, or by the chief executive officer or the Trustees.

ARTICLE VI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 6.1.           Contracts.  The Board of Trustees may authorize any Trustee, officer or agent (including the Advisor or any officer of the Advisor) to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Trust and such authority may be general or confined to specific instances.  Any agreement, deed, mortgage, lease or other document executed by an authorized Trustee, officer or agent shall be valid and binding upon the Trustees and upon the Trust when authorized or ratified by action of the Trustees.

Section 6.2.           Checks and Drafts.  All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Trust shall be signed by such officer or agent of the Trust in such manner as shall from time to time be determined by the treasurer, the chief executive officer or the Trustees.

Section 6.3.           Deposits.  All funds of the Trust not otherwise employed shall be deposited from time to time to the credit of the Trust in such banks, trust companies or other depositories as the treasurer, the chief executive officer or the Trustees may designate.

ARTICLE VII

SHARES

Section 7.1.           Certificates.  Ownership of shares of any class of shares of beneficial ownership of the Trust shall be evidenced by certificates, or at the election of a shareholder in book entry form.  Unless otherwise determined by the Board of Trustees, any such certificates shall be signed by the chief executive officer, the president or a vice president and countersigned by the secretary or an assistant secretary or the treasurer or an assistant treasurer and may be sealed with the seal, if any, of the Trust.  The signatures may be either manual or facsimile.  Certificates shall be consecutively numbered and if the Trust shall from time to time issue several classes of shares, each class may have its own number series.  A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued.

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Section 7.2.           Transfers.

(a)           Shares of the Trust shall be transferable in the manner provided by applicable law, the Declaration of Trust and these Bylaws.  Certificates shall be treated as negotiable and title thereto and to the shares they represent shall be transferred, as described in Sections 6.2 and 6.6 of the Declaration of Trust.

(b)           The Trust shall be entitled to treat the holder of record of any share or shares as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided in these Bylaws or by the laws of the State of Maryland.

Section 7.3.           Lost Certificates.  For shares evidenced by certificates, any officer designated by the Trustees may direct a new certificate to be issued in place of any certificate previously issued by the Trust alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed.  When authorizing the issuance of a new certificate, an officer designated by the Trustees may, in such officer’s discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner’s legal representative to advertise the same in such manner as he shall require and/or to give bond, with sufficient surety, to the Trust to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate.

Section 7.4.           Closing of Transfer Books or Fixing of Record Date.

(a)           The Trustees may set, in advance, a record date for the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or determining shareholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of shareholders for any other proper purpose.

(b)           In lieu of fixing a record date, the Trustees may provide that the share transfer books shall be closed for a stated period but not longer than 20 days.  If the share transfer books are closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least 10 days before the date of such meeting.

(c)           If no record date is fixed and the share transfer books are not closed for the determination of shareholders, (i) the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day on which the notice of meeting is mailed or the 30th day before the meeting, whichever is the closer date to the meeting; and (ii) the record date for the determination of shareholders entitled to receive payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the Trustees, declaring the dividend or allotment of rights, is adopted.

(d)           When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any

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adjournment thereof unless the Board of Trustees shall set a new record date with respect thereto.

Section 7.5.           Share Ledger.  The Trust shall maintain at its principal office or at the office of its counsel, accountants or transfer agent a share ledger containing the name and address of each shareholder and the number of shares of each class held by such shareholder.

Section 7.6.           Fractional Shares; Issuance of Units.  The Trustees may issue fractional shares or provide for the issuance of scrip, as described in Section 6.3 of the Declaration of Trust.

ARTICLE VIII

RESTRICTIONS ON TRANSFER AND OWNERSHIP OF SHARES

Section 8.1.           Definitions.  For the purpose of this ARTICLE VIII, the following terms shall have the following meanings:

“Beneficial Ownership” shall mean ownership of Shares by a Person, whether the interest in Shares is held directly or indirectly (including by a nominee), and shall include, but not be limited to, interests that would be treated as owned through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code.  The terms “Beneficial Owner”, “Beneficially Owns” and “Beneficially Owned” shall have the correlative meanings.

“Charitable Beneficiary” shall mean one or more beneficiaries of the Charitable Trust as determined pursuant to Section 8.3(g), provided that each such organization shall be described in Sections 501(c)(3), 170(b)(1)(A) (other than clause (vii) or (viii) thereof) and 170(c)(2) of the Code and contributions to each such organization shall be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.

“Charitable Trust” shall mean any trust provided for in Section 8.2(a)(ii) and Section 8.3(a).

“Charitable Trustee” shall mean each Person, unaffiliated with the Trust and a Prohibited Owner, that is appointed by the Trust from time to time to serve as a trustee of a Charitable Trust as provided by Section 8.3(a).

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Common Shares” shall mean the common shares of beneficial interest designated as such in the Declaration of Trust.

“Constructive Ownership” shall mean ownership of Shares by a Person, whether the interest in Shares is held directly or indirectly (including by a nominee), and shall include any interests that would be treated as owned through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code or treated as beneficially owned under Rule 13d-3 under the Exchange Act.  The terms “Constructive Owner”, “Constructively Owns” and “Constructively Owned” shall have the correlative meanings.

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“Excepted Holder” shall mean a shareholder of the Trust for whom an Excepted Holder Limit is created by the Board of Trustees pursuant to Section 8.2(e)(i).

“Excepted Holder Limit” shall mean, provided that and only so long as the affected Excepted Holder complies with all of the requirements established by the Board of Trustees pursuant to Section 8.2(e), the percentage limit established by the Board of Trustees.

“Market Price” with respect to Shares on any date shall mean the last sale price for such Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such Shares, in either case as reported on the principal consolidated transaction reporting system with respect to such Shares, or if such Shares are not listed or admitted to trading on any National Securities Exchange, the last sale price in the over the counter market, or if no trading price is available for such Shares, the fair market value of such Shares as determined in good faith by the Board of Trustees.

“National Securities Exchange” means an exchange registered with the S.E.C. under Section 6(a) of the Exchange Act, as amended, supplemented or restated from time to time, and any successor to such statute.

“Ownership Limit” shall mean (a) with respect to Common Shares, 9.8% (in value or number of shares, whichever is more restrictive) of the  Common Shares outstanding at the time of determination and (b) with respect to any other class or series of Shares, 9.8% (in value or number of shares, whichever is more restrictive) of the Shares of such class or series outstanding at the time of determination.

“Person” shall mean and include individuals, corporations, limited partnerships, general partnerships, joint stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts and other entities and governments and agencies and political subdivisions thereof.

“Prohibited Owner” shall mean any Person who, but for the provisions of Section 8.2(a), would Beneficially Own or Constructively Own Shares in excess of the Ownership Limit, and if appropriate in the context, shall also mean any Person who would have been the holder of record in the books of the Trust or the Trust’s transfer agent of Shares that the Prohibited Owner would have so owned.

“REIT” shall mean a “real estate investment trust” within the meaning of Section 856 of the Code.

“Shares” shall mean the shares of beneficial interest of the Trust.

“Transfer” shall mean any issuance, sale, transfer, gift, assignment, devise or other disposition, as well as any other event (or any agreement to take any such actions or cause any such events) that causes any Person to acquire Beneficial Ownership or Constructive Ownership of Shares or the right to vote or receive distributions on Shares, including, without limitation, (a) any change in the capital structure of the Trust which has the effect of increasing the total equity interest of any Person in the Trust, (b) a change in the relationship between two or more Persons which causes a change in ownership of Shares by application of Section 318(a)

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of the Code, as modified by Section 856(d)(5) of the Code, (c) the grant or exercise of any option or warrant (or any disposition of any option or warrant, or any event that causes any option or warrant not theretofore exercisable to become exercisable), pledge, security interest or similar right to acquire Shares, (d) any disposition of any securities or rights convertible into or exchangeable for Shares or any interest in Shares or any exercise of any such conversion or exchange right, and (e) transfers of interests in other entities that result in changes in Beneficial Ownership or Constructive Ownership of Shares, in each case, whether voluntary or involuntary, whether owned of record or Beneficially Owned or Constructively Owned, and whether by operation of law or otherwise.  The terms “Transferring” and “Transferred” shall have the correlative meanings.

Section 8.2.           Restrictions on Ownership.

(a)           Ownership Limitations.

(i)            Basic Restrictions.  (A) No Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own Shares in excess of the Ownership Limit, (B) no Excepted Holder shall Beneficially Own or Constructively Own Shares in excess of the Excepted Holder Limit for such Excepted Holder, (C) no Person shall Beneficially Own or Constructively Own Shares to the extent that such Beneficial Ownership or Constructive Ownership of Shares would result in the Trust being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year), or otherwise failing to qualify as a REIT (including, without limitation, Beneficial Ownership or Constructive Ownership that would result in the Trust owning (actually or Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Trust from such tenant would cause the Trust to fail to satisfy any of the gross income requirements of Section 856(c) of the Code or (D) subject to Section 8.5, notwithstanding any other provisions contained herein, any Transfer of Shares (whether or not such Transfer is the result of a transaction entered into through the facilities of a National Securities Exchange or automated inter-dealer quotation system) that, if effective, would result in Shares being beneficially owned by less than 100 Persons (determined under the principles of Section 856(a)(5) of the Code) shall be void ab initio, and the intended transferee shall acquire no rights in such Shares.

(ii)           Transfer in Trust or Voided Transfer.  If any Transfer of Shares occurs (whether or not such Transfer is the result of a transaction entered into through the facilities of a National Securities Exchange or automated inter-dealer quotation system) which, if effective, would result in any Person Beneficially Owning or Constructively Owning Shares in violation of Section 8.2(a)(i)(A), Section 8.2(a)(i)(B) or Section 8.2(a)(i)(C), as applicable, then the Board of Trustees shall be authorized and empowered to deem (and if so deemed, such action and result shall be deemed to occur and the officers of the Trust shall be authorized to take such actions in the name and on behalf of the Trust authorized by the Board of Trustees to effectuate the same): (A) that number of Shares the Beneficial Ownership or Constructive Ownership of which otherwise would cause such Person to violate Section 8.2(a)(i)(A), Section 8.2(a)(i)(B) or Section 8.2(a)(i)(C) (rounded upward to the nearest whole share, and such excess shares, including as so rounded, the “Excess Shares”) to be automatically transferred to a Charitable Trust or Charitable Trusts for the benefit of a Charitable Beneficiary, as described in Section 8.3,

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effective as of the close of business on the Business Day prior to the date of such determination of such Transfer or at such other time determined by the Board of Trustees, and such Person shall acquire no rights in the Excess Shares; or (B) to the fullest extent permitted by law, the Transfer of Excess Shares to be void ab initio, in which case, the intended transferee shall acquire no rights in the Excess Shares.

(iii)          Cooperation.  The shareholder that would otherwise qualify as a Prohibited Owner absent the application of the provisions of Section 8.2(a)(ii) shall use best efforts and take all actions necessary or requested by the Trust to cooperate with effecting the actions taken by the Board of Trustees pursuant to Section 8.2(a)(ii), including, without limitation, informing the Trust where any Excess Shares may be held and instructing its agents to cooperate in the prompt implementation and effectuation of the actions so taken by the Board of Trustees.

(b)           Remedies for Breach.  If the Board of Trustees or any duly authorized committee thereof shall at any time determine that a Transfer or other event has taken place that results in a violation of Section 8.2(a)(i) or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any Shares in violation of Section 8.2(a)(i) (whether or not such violation is intended), the Board of Trustees or a committee thereof may take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or other event, including, without limitation, causing the Trust to redeem Shares, refusing to give effect to such Transfer on the books of the Trust or the Trust’s transfer agent or instituting proceedings to enjoin such Transfer or other event and such Person shall be liable, without limitation, for all costs incurred in connection therewith and pursuant to Section 15.2, including the costs and expenses of the Charitable Trustee.  This Section 8.2(b) shall not in any way limit the provisions of Section 8.2(a)(ii).

(c)           Notice of Restricted Transfer.  Any Person who acquires or attempts or intends to acquire Beneficial Ownership or Constructive Ownership of Shares that will or may violate Section 8.2(a)(i), or any Person who would have owned Excess Shares, shall immediately give written notice to the Trust of such event, or in the case of such a proposed or attempted transaction, give at least 15 days prior written notice, and shall provide to the Trust such other information as the Trust may request.

(d)           Owners Required to Provide Information.  Every shareholder of five percent or more of the Shares of any series or class outstanding at the time of determination, within 30 days after the end of each taxable year and also within three Business Days after a request from the Trust, shall give written notice to the Trust stating the name and address of such owner, the number of Shares Beneficially Owned, and a description of the manner in which such Shares are held; provided that a shareholder who holds Shares as nominee for another Person, which other Person is required to include in gross income the distributions received on such Shares (an “Actual Owner”), shall give written notice to the Trust stating the name and address of such Actual Owner and the number of Shares of such Actual Owner with respect to which the shareholder is nominee.  Each such shareholder and each Actual Owner shall provide to the Trust such additional information as the Trust may request in order to determine the Trust’s status as a REIT, to determine the Trust’s compliance with other applicable laws or requirements of any governmental authority or to ensure compliance with

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the Ownership Limit.  Each Person who is a Beneficial Owner or Constructive Owner of Shares and each Person (including the shareholder) who is holding Shares for a Beneficial Owner or Constructive Owner shall provide to the Trust such information as the Trust may request, in good faith, in order to determine the Trust’s status as a REIT, to determine the Trust’s compliance with other applicable laws or requirements of any governmental authority and to comply with requirements of any taxing authority or other governmental authority or to determine such compliance.

(e)           Exceptions.

(i)            The Board of Trustees, in its sole discretion, may grant to any Person who makes a request therefor (a “Requesting Person”) an exception to the Ownership Limit (or one or more elements thereof) with respect to the ownership of any series or class of Shares, subject to the following conditions and limitations: (A) the Board of Trustees shall have determined, in its discretion, that: (1) the Beneficial Ownership or Constructive Ownership of Shares by such shareholder in excess of the Ownership Limit would not violate Section 8.2(a)(i)(C), (2) the Requesting Person does not and will not own, actually or Constructively, an interest in a tenant of the Trust (or a tenant of any entity owned or controlled by the Trust) that would cause the Trust to own, actually or Constructively, more than a 9.8% interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant, (3) the Requesting Person’s ownership of Shares in excess of the Ownership Limit pursuant to the exception requested hereunder (together with the ownership of Shares by all other Persons as permitted under this ARTICLE VIII, taking into account any previously granted exceptions pursuant hereto) would not cause a default under the terms of any contract to which the Trust or any of its subsidiaries is a party or reasonably expects to become a party and (4) the Requesting Person’s ownership of Shares in excess of the Ownership Limit pursuant to the exception requested hereunder (together with the ownership of Shares by all other Persons as permitted under this ARTICLE VIII, taking into account any previously granted exceptions pursuant hereto) is in the best interests of the Trust; and (B)(1) prior to granting any exception pursuant to this Section 8.2(e)(i), the Board of Trustees may require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board of Trustees in their sole discretion, as they may deem necessary or advisable in order to determine or ensure the Trust’s status as a REIT and (2) such Requesting Person provides to the Board of Trustees, for the benefit of the Trust, such representations and undertakings, if any, as the Board of Trustees may, in its discretion, determine to be necessary in order for it to make the determination that the conditions set forth in Section 8.2(e)(i)(A) have been and/or will continue to be satisfied (including, without limitation, an agreement as to a reduced Ownership Limit or Excepted Holder Limit for such Requesting Person with respect to the Constructive Ownership of one or more other classes or series of Shares not subject to the exception), and such Requesting Person agrees that any violation of such representations and undertakings or any attempted violation thereof will give rise to the application of the remedies set forth in Section 8.2(a)(ii) and Section 8.2(b) with respect to Shares held in excess of the Ownership Limit or the Excepted Holder Limit (as may be applicable) with respect to such Requesting Person (determined without regard to the exception granted such Requesting Person under this Section 8.2(e)(i)).  If a member of the Board of Trustees requests that the Board of Trustees grant an exception pursuant to this Section 8.2(e) with respect to such member, or with respect to any other Person if such member of the Board of Trustees would be considered to be the Beneficial Owner or Constructive Owner of Shares

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owned by such other Person, such member of the Board of Trustees shall not participate in the decision of the Board of Trustees as to whether to grant any such exception.

(ii)           In determining whether to grant any exemption pursuant to Section 8.2(e)(i), the Board of Trustees may, but need not, consider, among other factors, (A) the general reputation and moral character of the Requesting Person, (B) whether ownership of Shares would be direct or through ownership attribution, (C) whether the Requesting Person’s ownership of Shares would interfere with the conduct of the Trust’s business, including, without limitation, the Trust’s ability to acquire additional properties or additional investments in issuers currently invested in by the Trust or other issuers, (D) whether granting an exemption for the Requesting Person would adversely affect any of the Trust’s existing contractual arrangements, (E) whether the Requesting Person to whom the exception would apply has been approved as an owner of the Trust by all regulatory or other governmental authorities who have jurisdiction over the Trust and (F) whether the Requesting Person to whom the exemption would apply is attempting to change control of the Trust or affect its policies in a way which the Board of Trustees, in its discretion, considers adverse to the best interest of the Trust or the shareholders.  Nothing in this Section 8.2(e)(ii) shall be interpreted to mean that the Board of Trustees may not act in its discretion in making any determination under Section 8.2(e)(i).

(iii)          An underwriter or initial purchaser that participates in a public offering or a private placement of Shares (or securities convertible into or exchangeable for Shares) may Beneficially Own or Constructively Own Shares (or securities convertible into or exchangeable for Shares) in excess of the Ownership Limit, but only to the extent necessary to facilitate such public offering or private placement as determined by the Board of Trustees.

Section 8.3.           Transfer of Shares.

(a)           Ownership in Trust.  Upon any purported Transfer or other event described in Section 8.2(a)(ii) that results in a transfer of Shares to a Charitable Trust, such Shares shall be deemed to have been transferred to the Charitable Trustee as trustee or trustees, as applicable, of a Charitable Trust for the exclusive benefit of one or more Charitable Beneficiaries (except to the extent otherwise provided in Section 8.3(e)).  Such transfer to the Charitable Trustee shall be deemed to be effective as of the time provided in Section 8.2(a)(ii).  Any Charitable Trustee shall be appointed by the Trust and shall be a Person unaffiliated with the Trust and any Prohibited Owner.  Each Charitable Beneficiary shall be designated by the Trust as provided in Section 8.3(g).

(b)           Status of Shares Held by a Charitable Trustee.  Shares held by a Charitable Trustee shall be issued and outstanding Shares of the Trust.  The Prohibited Owner shall:

(i)            have no rights in the Shares held by the Charitable Trustee;

(ii)           not benefit economically from ownership of any Shares held in trust by the Charitable Trustee (except to the extent otherwise provided in Section 8.3(e));

(iii)          have no rights to dividends or other distributions;

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(iv)          not possess any rights to vote or other rights attributable to the Shares held in the Charitable Trust; and

(v)           have no claim, cause of action or other recourse whatsoever against the purported transferor of such Shares.

(c)           Dividend and Voting Rights.  The Charitable Trustee shall have all voting rights and rights to dividends or other distributions with respect to Shares held in the Charitable Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary (except to the extent otherwise provided in Section 8.3(e)).  Any dividend or other distribution paid with respect to any Shares which constituted Excess Shares at such time and prior to Shares having been transferred to the Charitable Trustee shall be paid to the Charitable Trustee by the Prohibited Owner upon demand and any dividend or other distribution authorized but unpaid with respect to such Shares shall be paid when due to the Charitable Trustee.  Any dividends or distributions so paid to the Charitable Trustee shall be held in trust for the Charitable Beneficiary.  The Prohibited Owner shall have no voting rights with respect to Shares held in the Charitable Trust and, effective as of the date that Shares have been transferred to the Charitable Trustee, the Charitable Trustee shall have the authority (at the Charitable Trustee’s discretion) (i) to rescind as void any vote cast by a Prohibited Owner with respect to such Shares at any time such Shares constituted Excess Shares with respect to such Prohibited Owner and (ii) to recast such vote in accordance with the desires of the Charitable Trustee acting for the benefit of the Charitable Beneficiary; provided, however, that if the Trust has already taken irreversible action, then the Charitable Trustee shall not have the power to rescind and recast such vote.  Notwithstanding the provisions of this ARTICLE VIII, until the Shares have been transferred into a Charitable Trust, the Trust shall be entitled to rely on its stock transfer and other shareholder records for purposes of preparing lists of shareholders entitled to vote at meetings, determining the validity and authority of proxies, and otherwise conducting votes of shareholders.

(d)           Rights upon Liquidation.  Upon any voluntary or involuntary liquidation, dissolution or winding up of or any distribution of the assets of the Trust, the Charitable Trustee shall be entitled to receive, ratably with each other holder of Shares of the class or series of Shares that is held in the Charitable Trust, that portion of the assets of the Trust available for distribution to the holders of such class or series (determined based upon the ratio that the number of Shares of such class or series of Shares held by the Charitable Trustee bears to the total number of Shares of such class or series of Shares then outstanding).  The Charitable Trustee shall distribute any such assets received in respect of the Shares held in the Charitable Trust in any liquidation, dissolution or winding up or distribution of the assets of the Trust, in accordance with Section 8.3(e).

(e)           Sale of Shares by Charitable Trustee.  Unless otherwise directed by the Board of Trustees, within 20 days of receiving notice from the Trust that Shares have been transferred to the Charitable Trust, or soon thereafter as practicable, the Charitable Trustee shall sell the Shares held in the Charitable Trust (together with the right to receive dividends or other distributions with respect to such Shares as to any Shares transferred to the Charitable Trustee as a result of the operation of Section 8.2(a)(ii)) to a Person, designated by the Charitable Trustee, whose ownership of the Shares will not violate the ownership limitations

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set forth in Section 8.2(a)(i).  Upon such sale, the interest of the Charitable Beneficiary in the Shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary as provided in this Section 8.3(e).

A Prohibited Owner shall receive the lesser of (A) the net price paid by the Prohibited Owner for the Shares or, if the Prohibited Owner did not give value for the Shares in connection with the event causing the Shares to be held in the Charitable Trust (for example, in the case of a gift, devise or other such transaction), the Market Price of the Shares on the day of the event causing the Shares to be held in the Charitable Trust, less the costs, expenses and compensation of the Charitable Trustee and the Trust as provided in Section 8.4 and (B) the net sales proceeds received by the Charitable Trustee from the sale or other disposition of the Shares held in the Charitable Trust.  Any net sales proceeds in excess of the amount payable to the Prohibited Owner shall be paid to the Charitable Beneficiary, less the costs, expenses and compensation of the Charitable Trustee and the Trust as provided in Section 8.4.  If such Shares are sold by a Prohibited Owner, then (A) such Shares shall be deemed to have been sold on behalf of the Charitable Trust and (B) to the extent that the Prohibited Owner received an amount for such Shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant to this Section 8.3(e), such excess shall be paid promptly to the Charitable Trustee upon demand.

(f)            Trust’s Purchase Right in Excess Shares.  Notwithstanding any transfer of Excess Shares to a Charitable Trust pursuant to this ARTICLE VIII, Excess Shares shall be deemed to have been offered for sale to the Trust, or its designee, at a price per Share equal to the lesser of (i) the price per Share in the transaction that resulted in such Shares becoming Excess Shares (or, if the Prohibited Owner did not give value for such Shares, such as in the case of a devise, gift or other such transaction, the Market Price per such Share on the day of the event causing the Shares to become Excess Shares) and (ii) the Market Price per such Share on the date the Trust, or its designee, accepts such offer, in each case of clauses (i) and (ii) of this sentence, less the costs, expenses and compensation of the Charitable Trustee, if any, and the Trust as provided in Section 8.4.  The Trust shall have the right to accept such offer until the Charitable Trustee, if any, has sold the Shares held in the Charitable Trust, if any, pursuant to Section 8.3(e).  Upon such a sale to the Trust, if a Charitable Trust has been established pursuant to this ARTICLE VIII, the interest of the Charitable Beneficiary in the Shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and the Charitable Beneficiary as provided in Section 8.3(e).

(g)           Designation of Charitable Beneficiaries.  By written notice to the Charitable Trustee, the Trust shall designate from time to time one or more nonprofit organizations to be the Charitable Beneficiary of the interest in the Charitable Trust such that (i) Shares held in the Charitable Trust would not violate the restrictions set forth in Section 8.2(a)(i) in the hands of such Charitable Beneficiary and (ii) contributions to each such organization shall be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.  The Charitable Beneficiary shall not obtain any enforceable right to the Charitable Trust or any of its trust corpus until so designated and thereafter any such rights remain subject to the provisions of this ARTICLE VIII, including, without limitation, Section 8.3(h).

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(h)           Retroactive Changes.  Notwithstanding any other provisions of this ARTICLE VIII, the Board of Trustees is authorized and empowered to retroactively amend, alter or repeal any rights which the Charitable Trust, the Charitable Trustee or the Charitable Beneficiary may have under this ARTICLE VIII, including, without limitation, granting retroactive Excepted Holder status to any otherwise Prohibited Owner, with the effect of any transfer of Excess Shares to a Charitable Trust being fully and retroactively revoked; provided, however, that the Board of Trustees shall not have the authority or power to retroactively amend, alter or repeal any obligations to pay amounts incurred prior to such time and owed or payable to the Charitable Trustee pursuant to Section 8.4.

Section 8.4.           Costs, Expenses and Compensation of Charitable Trustee and the Trust.

(a)           The Charitable Trustee shall be indemnified by the Trust or from the proceeds from the sale of Shares held in the Charitable Trust, as further provided in this ARTICLE VIII, for its costs and expenses reasonably incurred in connection with conducting its duties and satisfying its obligations pursuant to this ARTICLE VIII.

(b)           The Charitable Trustee shall be entitled to receive reasonable compensation for services provided by the Charitable Trustee in connection with serving as a Charitable Trustee, the amount and form of which shall be determined by agreement of the Board of Trustees and the Charitable Trustee.

(c)           Costs, expenses and compensation payable to the Charitable Trustee pursuant to Section 8.4(a) and Section 8.4(b) may be funded from the Charitable Trust or by the Trust.  The Trust shall be entitled to reimbursement on a first priority basis (after payment in full of amounts payable to the Charitable Trustee pursuant to Section 8.4(a) and Section 8.4(b)) from the Charitable Trust for any such amounts funded by the Trust.

(d)           Costs and expenses incurred by the Trust in the process of enforcing the ownership limitation set forth in Section 8.2(a)(i), in addition to reimbursement of costs, expenses and compensation of the Charitable Trustee which have been funded by the Trust, may be collected from the Charitable Trust; provided, however, that the ability of the Trust to fund its costs from the Charitable Trust shall not relieve the Prohibited Owner from his or her obligation to reimburse the Trust for costs under Section 15.2 of these Bylaws, except to the extent the Trust has in fact been previously paid from the Charitable Trust; nor will the possibility of the Trust receiving payment from the Charitable Trust create a marshalling obligation which would require the Trust to reimburse itself from the Charitable Trust before enforcing the Trust’s claims under Section 15.2 or otherwise.

Section 8.5.           Transactions on a National Securities Exchange.  Nothing in this ARTICLE VIII shall preclude the settlement of any transaction entered into through the facilities of a National Securities Exchange or any automated inter-dealer quotation system.  The fact that the settlement of any transaction takes place shall not negate the effect of any other provision of this ARTICLE VIII and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this ARTICLE VIII.

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Section 8.6.           Enforcement.  The Trust is authorized specifically to seek equitable relief, including injunctive relief, to enforce the provisions of this ARTICLE VIII.

Section 8.7.           Non-Waiver.  No delay or failure on the part of the Trust or the Board of Trustees in exercising any right hereunder shall operate as a waiver of any right of the Trust or the Board of Trustees, as the case may be, except to the extent specifically waived in writing.

Section 8.8.           Enforceability.  If any of the restrictions on transfer of Shares contained in this ARTICLE VIII are determined to be void, invalid or unenforceable by any court of competent jurisdiction, then, to the fullest extent permitted by law, the Prohibited Owner may be deemed, at the option of the Trust, to have acted as an agent of the Trust in acquiring such Shares and to hold such Shares on behalf of the Trust.

ARTICLE IX

REGULATORY COMPLIANCE AND DISCLOSURE

Section 9.1.           Actions Requiring Regulatory Compliance Implicating the Trust.  If any shareholder (whether individually or constituting a group, as determined by the Board of Trustees), by virtue of such shareholder’s ownership interest in the Trust or actions taken by the shareholder affecting the Trust, triggers the application of any requirement or regulation of any federal, state, municipal or other governmental or regulatory body on the Trust or any subsidiary (for purposes of this ARTICLE IX, as defined in Section 2.14.5(c)) of the Trust or any of their respective businesses, assets or operations, including, without limitation, any obligations to make or obtain a Governmental Action (as defined in Section 2.14.3), such shareholder shall promptly take all actions necessary and fully cooperate with the Trust to ensure that such requirements or regulations are satisfied without restricting, imposing additional obligations on or in any way limiting the business, assets, operations or prospects of the Trust or any subsidiary of the Trust.  If the shareholder fails or is otherwise unable to promptly take such actions so to cause satisfaction of such requirements or regulations, the shareholder shall promptly divest a sufficient number of shares of the Trust necessary to cause the application of such requirement or regulation to not apply to the Trust or any subsidiary of the Trust.  If the shareholder fails to cause such satisfaction or divest itself of such sufficient number of shares of the Trust by not later than the 10th day after triggering such requirement or regulation referred to in this Section 9.1, then any shares of the Trust beneficially owned by such shareholder at and in excess of the level triggering the application of such requirement or regulation shall, to the fullest extent permitted by law, be deemed to constitute shares held in violation of the ownership limitations set forth in ARTICLE VIII and be subject to the provisions of ARTICLE VIII and any actions triggering the application of such a requirement or regulation may be deemed by the Trust to be of no force or effect.  Moreover, if the shareholder who triggers the application of any regulation or requirement fails to satisfy the requirements or regulations or to take curative actions within such 10 day period, the Trust may take all other actions which the Board of Trustees deems appropriate to require compliance or to preserve the value of the Trust’s assets; and the Trust may charge the offending shareholder for the Trust’s costs and expenses as well as any damages which may result to the Trust.

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As an example and not as a limitation, at the time these Bylaws are being amended and restated, the Trust holds a controlling ownership position in a company formed and licensed as an insurance company in the State of Indiana.  The laws of the State of Indiana have certain regulatory requirements for any person who seeks to control (as defined under Indiana law) a company which itself controls an insurance company domiciled in the State of Indiana, including by exercising proxies representing 10% or more of the Trust’s voting securities.  Accordingly, if a shareholder seeks to exercise proxies for a matter to be voted upon at a meeting of the Trust’s shareholders without having obtained any applicable approvals from the Indiana insurance regulatory authorities, such proxies representing 10% or more of the Trust’s voting securities will, subject to Section 9.3, be void and of no further force or effect.

Section 9.2.           Compliance With Law.  Shareholders shall comply with all applicable requirements of federal and state laws, including all rules and regulations promulgated thereunder, in connection with such shareholder’s ownership interest in the Trust and all other laws which apply to the Trust or any subsidiary of the Trust or their respective businesses, assets or operations and which require action or inaction on the part of the shareholder.

Section 9.3.           Limitation on Voting Shares or Proxies.  Without limiting the provisions of Section 9.1, if a shareholder (whether individually or constituting a group, as determined by the Board of Trustees), by virtue of such shareholder’s ownership interest in the Trust or its receipt or exercise of proxies to vote shares owned by other shareholders, would not be permitted to vote the shareholder’s shares of the Trust or proxies for shares of the Trust in excess of a certain amount pursuant to applicable law (including by way of example, applicable state insurance regulations) but the Board of Trustees determines that the excess shares or shares represented by the excess proxies are necessary to obtain a quorum, then such shareholder shall not be entitled to vote any such excess shares or proxies, and instead such excess shares or proxies may, to the fullest extent permitted by law, be voted by the Advisor (or by another person designated by the Trustees) in proportion to the total shares otherwise voted on such matter.

Section 9.4.           Representations, Warranties and Covenants Made to Governmental or Regulatory Bodies.  To the fullest extent permitted by law, any representation, warranty or covenant made by a shareholder with any governmental or regulatory body in connection with such shareholder’s interest in the Trust or any subsidiary of the Trust shall be deemed to be simultaneously made to, for the benefit of and enforceable by, the Trust and any applicable subsidiary of the Trust.

Section 9.5.           Board of Trustees’ Determinations.  The Board of Trustees shall be empowered to make all determinations regarding the interpretation, application, enforcement and compliance with any matters referred to or contemplated by this ARTICLE IX.

ARTICLE X

FISCAL YEAR

Section 10.1.         Fiscal Year.  The fiscal year of the Trust shall be the calendar year.

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ARTICLE XI

DIVIDENDS AND OTHER DISTRIBUTIONS

Section 11.1.         Dividends and Other Distributions.  Dividends and other distributions upon the shares of beneficial interest of the Trust may be authorized and declared by the Trustees.  Dividends and other distributions may be paid in cash, property or shares of the Trust.

ARTICLE XII

SEAL

Section 12.1.         Seal.  The Trustees may authorize the adoption of a seal by the Trust.  The Trustees may authorize one or more duplicate seals.

Section 12.2.         Affixing Seal.  Whenever the Trust is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word “(SEAL)” adjacent to the signature of the person authorized to execute the document on behalf of the Trust.

ARTICLE XIII

WAIVER OF NOTICE

Section 13.1.         Waiver of Notice.  Whenever any notice is required to be given pursuant to the Declaration of Trust, these Bylaws or applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, or a waiver by electronic transmission by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.  Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice or waiver by electronic transmission, unless specifically required by statute.  The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

ARTICLE XIV

AMENDMENT OF BYLAWS

Section 14.1.         Amendment of Bylaws.  Except for any change for which these Bylaws requires approval by more than a majority vote of the Trustees, these Bylaws may be amended or repealed or new or additional Bylaws may be adopted only by the vote or written consent of a majority of the Trustees.

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ARTICLE XV

MISCELLANEOUS

Section 15.1.         References to Declaration of Trust.  All references to the Declaration of Trust shall include any amendments thereto.

Section 15.2.         Costs and Expenses.  In addition to, and as further clarification of each shareholder’s obligation to indemnify and hold the Trust harmless from and against all costs, expenses, penalties, fines and other amounts, including, without limitation, attorneys’ and other professional fees, whether third party or internal, arising from such shareholder’s violation of any provision of the Declaration of Trust or these Bylaws pursuant to Section 7.12 of the Declaration of Trust, to the fullest extent permitted by law, each shareholder will be liable to the Trust (and any subsidiaries or affiliates thereof) for, and indemnify and hold harmless the Trust (and any subsidiaries or affiliates thereof) from and against, all costs, expenses, penalties, fines or other amounts, including, without limitation, reasonable attorneys’ and other professional fees, whether third party or internal, arising from such shareholder’s breach of or failure to fully comply with any covenant, condition or provision of these Bylaws or the Declaration of Trust (including Section 2.14 of these Bylaws) or any action by or against the Trust (or any subsidiaries or affiliates thereof) in which such shareholder is not the prevailing party, and shall pay such amounts to such indemnitee on demand, together with interest on such amounts, which interest will accrue at the lesser of the Trust’s highest marginal borrowing rate, per annum compounded, and the maximum amount permitted by law, from the date such costs or the like are incurred until the receipt of payment.

Section 15.3.         Ratification.  The Board of Trustees or the shareholders may ratify and make binding on the Trust any action or inaction by the Trust or its officers to the extent that the Board of Trustees or the shareholders could have originally authorized the matter.  Moreover, any action or inaction questioned in any shareholder’s derivative proceeding or any other proceeding on the ground of lack of authority, defective or irregular execution, adverse interest of a Trustee, officer or shareholder, non-disclosure, miscomputation, the application of improper principles or practices of accounting, or otherwise, may be ratified, before or after judgment, by the Board of Trustees or by the shareholders and, if so ratified, shall have the same force and effect as if the questioned action or inaction had been originally duly authorized, and such ratification shall be binding upon the Trust and its shareholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned action or inaction.

Section 15.4.         Ambiguity.  In the case of an ambiguity in the application of any provision of these Bylaws or any definition contained in these Bylaws, the Board of Trustees shall have the sole power to determine the application of such provisions with respect to any situation based on the facts known to it and such determination shall be final and binding unless determined by a court of competent jurisdiction to have been made in bad faith.

Section 15.5.         Inspection of Bylaws.  The Trustees shall keep at the principal office for the transaction of business of the Trust the original or a copy of the Bylaws as amended or otherwise altered to date, certified by the secretary, which shall be open to inspection by the shareholders at all reasonable times during office hours.

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Section 15.6.         Election to be Subject to Part of Title 3, Subtitle 8.  Notwithstanding any other provision contained in the Declaration of Trust or these Bylaws, the Trust hereby elects to be subject to Section 3-804(b) and (c) and Section 3-805 of Title 3, Subtitle 8 of the Maryland General Corporation Law (or any successor statute).  This Section 15.6 only may be repealed, in whole or in part, by a subsequent amendment to these Bylaws.

Section 15.7.         Special Voting Provisions relating to Control Shares.  Notwithstanding any other provision contained herein or in the Declaration of Trust or these Bylaws, Title 3, Subtitle 7 of the Maryland General Corporation Law (or any successor statute) shall not apply to any acquisition by any person of shares of beneficial interest of the Trust.  This section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent control share acquisition.

ARTICLE XVI

ARBITRATION

Section 16.1.         Procedures for Arbitration of Disputes.  Any disputes, claims or controversies brought by or on behalf of any shareholder of the Trust (which, for purposes of this ARTICLE XVI, shall mean any shareholder of record or any beneficial owner of shares of the Trust, or any former shareholder of record or beneficial owner of shares of the Trust), either on his, her or its own behalf, on behalf of the Trust or on behalf of any series or class of shares of the Trust or shareholders of the Trust against the Trust or any Trustee, officer, manager (including Reit Management & Research LLC or its successor), agent or employee of the Trust, including disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of the Declaration of Trust or these 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 ARTICLE XVI.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against Trustees, officers or managers of the Trust and class actions by shareholders against those individuals or entities and the Trust.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.

Section 16.2.         Arbitrators.  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)

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shall be appointed by the parties who have appointed the first arbitrator.  The two arbitrators so appointed shall jointly appoint the third and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within 15 days of the appointment of the second arbitrator.  If the third arbitrator has not been appointed within the time limit specified herein, then the AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party having a limited number of strikes, excluding strikes for cause.

Section 16.3.         Place of Arbitration.  The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.

Section 16.4.         Discovery.  There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators.

Section 16.5.         Awards.  In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the State of Maryland.  Any arbitration proceedings or Award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  The Award shall be in writing and may, but shall not be required to, briefly state the findings of fact and conclusions of law on which it is based.  Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  The party against which the Award assesses a monetary obligation shall pay that obligation on or before the 30th day following the date of the Award or such other date as the Award may provide.

Section 16.6.         Costs and Expenses.  Except as otherwise set forth in the Declaration of Trust or these Bylaws, including Section 15.2 of these Bylaws, or as otherwise agreed between 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 Trust’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.

Section 16.7.         Final and Binding.  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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Section 16.8.         Beneficiaries.  This ARTICLE XVI is intended to benefit and be enforceable by the shareholders, Trustees, officers, managers (including Reit Management & Research LLC or its successor), agents or employees of the Trust and the Trust and shall be binding on the shareholders of the Trust and the Trust, 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.

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AMENDMENT TO

AMENDED AND RESTATED BYLAWS

OF

COMMONWEALTH REIT

September 20, 2013

The second sentence of the first paragraph of Article II, Section 2.14.1(d) of the Amended and Restated Bylaws of CommonWealth REIT dated as of April 12, 2013 is hereby amended by the addition of the words “(A) in the case of the annual meeting held in 2014, not later than 5:00 p.m. (Eastern Time) on January 10, 2014 nor earlier than December 11, 2013, and (B) otherwise,” immediately after the phrase “principal executive offices of the Trust” as shown below:

To be timely, the notice of such shareholder(s) shall set forth all information required under this Section 2.14.1 and shall be delivered to the secretary at the principal executive offices of the Trust (A) in the case of the annual meeting held in 2014, not later than 5:00 p.m. (Eastern Time) on January 10, 2014 nor earlier than December 11, 2013, and (B) otherwise, not later than 5:00 p.m. (Eastern Time) on the 120th day nor earlier than the 150th day prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting; provided, however, that in the event that the annual meeting is called for a date that is more than 30 days earlier or later than the first anniversary of the date of the preceding year’s annual meeting, notice by such shareholder(s) to be timely shall be so delivered not later than 5:00 p.m. (Eastern Time) on the 10th day following the earlier of the day on which (i) notice of the date of the annual meeting is mailed or otherwise made available or (ii) public announcement of the date of the annual meeting is first made by the Trust.

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EX-3.18

Exhibit 3.18

Arbitration Panel Ruling

Regarding the Amended and Restated Bylaws of CommonWealth REIT

As described in the section entitled “Legal Proceedings” of the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2013 to which this is Exhibit 3.18, pursuant to Paragraph 1 of an Interim Order dated August 7, 2013, the Arbitration Panel in the proceedings between the Company and Corvex/Related, invalidated the Company’s bylaw which provided that one or more shareholders requesting a record date for a consent solicitation to remove Company Trustees must have held at least three percent (3%) of the Company’s common shares for at least three years and found that the previous Company bylaw requiring that a shareholder requesting a record date for a consent solicitation meet a $2,000 share ownership threshold for a period of at least one year remains in effect.  Capitalized terms used in this paragraph have the meanings ascribed to them in such Form 10-Q.  A copy of the Interim Order is attached hereto.

IN THE MATTER OF AN ARBITRATION BETWEEN

	)
COMMONWEALTH REIT, et al.,	)
	)
Claimants and Counterclaim Respondents,	)
	)
REIT MANAGEMENT & RESEARCH LLC,	)
	)	AAA No. 11-512-Y-276-13
Claimant,	)
	)
v.	)
	)
CORVEX MANAGEMENT LP, et al.,	)
	)
Respondents and Counterclaimants.	)
	)

INTERIM ORDER GRANTING IN PART AND DENYING IN PART
RESPONDENTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT

Upon consideration of all of the briefs, affidavits and exhibits submitted on behalf of the parties in support of and in opposition to the Motion for Partial Summary Judgment of Respondents and Counterclaimants Corvex Management LP and Related Fund Management, LLC (hereafter “Respondents”) on Counts I through VII of their Counterclaims (the “Motion”), and upon hearing and considering the oral arguments presented by counsel at a July 26, 2013 hearing held in New York, New York, the Motion is hereby GRANTED in part and DENIED in part.

1.With respect to what the parties have referred to as the 3+3 bylaws (which sets a minimum requirement for requesting a record date for a consent solicitation as holding 3% of the company stock for a 3 year period), the Panel has concluded as a matter of law that while some holding period and some minimum threshold ownership level either singularly or in combination can be set in the bylaws as a condition to a shareholder or shareholders obtaining a record date for a consent solicitation, the Trustees may not adopt either a minimum ownership threshold or a minimum holding period which operating either

1

separately or together substantially impairs the right of shareholders to proceed with a consent solicitation by making the obtaining of a record date on a consent solicitation unreasonably difficult to achieve. The Panel has determined that the 3+3 bylaws exceed this standard as a matter of law even though the Panel concludes that there is no evidence that the Trustees of CommonWealth REIT (“CWH”) were not acting in good faith in adopting the 3+3 bylaws.

The Panel further has determined that the effect of striking the 3+3 bylaws as invalid is to reinstate the prior version of that bylaw. The prior version of the 3+3 bylaw, which Respondents also have challenged, provided for a $2,000 stock ownership threshold and a 1-year holding period for a consent solicitation (the “2+1 bylaws”).

The validity of the 2+1 bylaws shall be determined, if necessary, after the full evidentiary hearing scheduled to commence on October 7, 2013 together with all of the other multiple unresolved issues raised by the Motion and other issues pertinent to the claims and counterclaims which have been alleged in this arbitration.

Having determined that the 3+3 bylaws are invalid as set out above, pending further order of the Panel or valid action of CWH, the Panel further finds that the 2+1 bylaws are in effect.

This Order should not be interpreted to hold as a matter of law that the ownership threshold or holding periods in the 2+1 bylaws are valid limits, but rather only that the limits in the 3+3 bylaws are invalid.

It is therefore ORDERED that Respondents’ Motion for Partial Summary Judgment is granted striking the current version of the 3+3 bylaws and that the prior version of such bylaws (the 2+1 bylaws) providing for a $2,000 ownership threshold and a 1 year holding period in order to apply for a record date for a consent solicitation is in effect and in force until further order of the Panel or valid action of CWH.

2.The balance of the relief requested by Respondents’ Motion for Partial Summary Judgment is DENIED so as to afford all Parties the opportunity at the evidentiary hearing to present and cross examine

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the pertinent evidence on all remaining claims, counterclaims and issues in the case. It is the intention of the Panel to render a single, final dispositive award, following the conclusion of the scheduled evidentiary hearing.

3.By way of guidance to the parties on one of the issues raised by the Motion, the parties hereby are informed that it is the Panel’s preliminary view that the opt-in by CWH to Section 3-803 of the Maryland General Corporation Law does not eliminate or otherwise modify the right of the shareholders of CWH under CWH’s Declaration of Trust to remove CWH’s Trustees without cause; this view is subject to change based upon the arguments and evidence presented at the evidentiary hearing in October 2013.

4.Given the Panel’s rulings above, a decision on Respondents’ additional motion for an order directing the officers of CWH to call a special meeting would be premature. Accordingly, that motion hereby is taken off calendar without prejudice to further consideration at a later date, if appropriate.

5.Any relief requested in connection with the Motion by any Party, which is not specifically granted, is DENIED.

Dated: August 7, 2013	/s/ Henry J. Silberberg
	Henry J. Silberberg, Panel Chair
Dated: August 7, 2013	/s/ Adrian M. Overstreet
	Adrian M. Overstreet, Arbitrator
Dated: August 7, 2013	/s/ William B. Chandler
	William B. Chandler, III, Arbitrator

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EX-10.1

Exhibit 10.1

COMMONWEALTH REIT

RESTRICTED SHARE AGREEMENT

This Restricted Share Agreement (this “Agreement”) is made as of «DATE», «YEAR», between «NAME» (the “Recipient”) and CommonWealth REIT (the “Company”).

In consideration of the mutual promises and covenants contained in this Agreement, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.             Grant of Shares.  Subject to the terms and conditions hereinafter set forth and the terms and conditions of the CommonWealth REIT 2012 Equity Compensation Plan, as it may be amended from time to time (the “Plan”), the Company hereby grants to the Recipient, effective as of the date of this Agreement, «NUMBER OF SHARES» of its common shares of beneficial interest, par value $.01 per share.  The shares so granted are hereinafter referred to as the “Shares,” which term shall also include any shares of the Company issued to the Recipient by virtue of his or her ownership of the Shares, by share dividend, share split, recapitalization or otherwise.

2.Vesting; Repurchase of Shares.

(a)Subject to Sections 2(b) and 2(c) hereof, the Shares shall vest one-fifth of the total number of Shares as of the date hereof and as to a further one-fifth of such total number of Shares on each anniversary of the date hereof for the next four calendar years.  Any Shares not vested as of any date are herein referred to as “Unvested Shares.”

(b)Subject to Section 2(c) hereof, at the option of the Company, in the event the Recipient ceases to render significant services, whether as an employee or otherwise, to (i) the Company, (ii) the entity which is the manager or shared services provider to the Company or an entity controlled by, under common control with or controlling such entity (collectively, the “Manager”), or (iii) an affiliate of the Company (which shall be deemed for such purpose to include any other entity to which the Manager is the manager or shared services provider), all or any portion of the Unvested Shares shall be forfeited by the Recipient as of the date the Recipient ceases to render such services.  The Company may exercise such option by delivering or mailing to the Recipient (or his or her estate), at any time after the Recipient has ceased to render such services, a written notice of exercise of such option.  Such notice shall specify the number of Unvested Shares to be forfeited.

(c)Notwithstanding anything in this Agreement to the contrary, immediately upon the occurrence of an Acceleration Event (as defined below), all of the Unvested Shares shall vest and any forfeiture or other rights of the Company described in Section 2(b) shall lapse in their entirety, and such vesting and lapse of forfeiture or other Company rights shall also immediately apply to each other common share of beneficial interest, par value $.01 per share, of the Company previously granted to the Recipient which then remains subject to comparable restrictions and rights.  For purposes of this Section 2(c), an Acceleration Event shall be deemed to occur immediately upon the

occurrence of any of the following events: a Change in Control, a Termination Event (as each such term is defined in Exhibit A hereto) or the death of the Recipient.

3.Legends.  Share certificates, if any, evidencing the Shares shall prominently bear legends in substantially the following terms:

“THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT OR AN OPINION OF THE TRUST’S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.

THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED PURSUANT TO AN EQUITY COMPENSATION PLAN MAINTAINED BY THE TRUST.  THESE SHARES MAY BE SUBJECT TO TRANSFER AND/OR VESTING RESTRICTIONS, AND UNVESTED SHARES ARE SUBJECT TO REPURCHASE RIGHTS AND FORFEITURE CONDITIONS CONTAINED IN THE PLAN, THE RELATED GRANT OF SHARES OR AN AGREEMENT BETWEEN THE TRUST AND THE INITIAL HOLDER OF THESE SHARES.  A COPY OF APPLICABLE RESTRICTIONS, REPURCHASE RIGHTS AND FORFEITURE CONDITIONS WILL BE FURNISHED TO THE HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON REQUEST TO THE SECRETARY OF THE TRUST.”

In the event that the Shares are not evidenced by share certificates, the share books and records of the Company shall contain a notation in substantially the following terms:

“THE SHARES COVERED BY THIS STATEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT OR AN OPINION OF THE TRUST’S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.

THE SHARES COVERED BY THIS STATEMENT WERE ISSUED PURSUANT TO AN EQUITY COMPENSATION PLAN MAINTAINED BY THE TRUST.  THESE SHARES MAY BE SUBJECT TO TRANSFER AND/OR VESTING RESTRICTIONS, AND UNVESTED SHARES ARE SUBJECT TO REPURCHASE RIGHTS AND FORFEITURE CONDITIONS CONTAINED IN THE PLAN, THE RELATED GRANT OF SHARES OR AN AGREEMENT BETWEEN THE TRUST AND THE INITIAL HOLDER OF THESE SHARES. A COPY OF APPLICABLE RESTRICTIONS, REPURCHASE RIGHTS AND FORFEITURE CONDITIONS WILL BE FURNISHED TO THE HOLDER OF

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THE SHARES COVERED BY THIS STATEMENT WITHOUT CHARGE UPON REQUEST TO THE SECRETARY OF THE TRUST.”

Certificates evidencing Shares and Shares not evidenced by certificates shall also bear or contain, as applicable, legends and notations as may be required by the Plan or the Company’s declaration of trust, any applicable supplement thereto or bylaws, each as in effect from time to time, or as the Company may otherwise determine appropriate.

Promptly following the request of the Recipient with respect to any Shares (or any other common share of beneficial interest, par value $.01 per share, of the Company previously granted to the Recipient) which have become vested, the Company shall take, at its sole cost and expense, all such actions as may be required to permit the Recipient to resell such shares including, without limitation, providing to the Company’s transfer agent certificates of officers of the Company, and opinions of counsel and/or filing an appropriate registration statement, and taking all such other actions as may be required to remove the legends set forth above with respect to transfer and vesting restrictions from the certificates evidencing such shares and, if applicable, from the share books and records of the Company.  The Company shall reimburse the Recipient, promptly upon the receipt of a request for payment, for all expenses (including legal expenses) reasonably incurred by the Recipient in connection with the enforcement of the Recipient’s rights under this paragraph.

4.Tax Withholding.  To the extent required by law, the Company shall withhold or cause to be withheld income and other taxes incurred by the Recipient by reason of a grant of Shares, and the Recipient agrees that he or she shall upon request of the Company pay to the Company an amount sufficient to satisfy its tax withholding obligations from time to time (including as Shares become vested) as the Company may request.

5.Miscellaneous.

(a)Amendments.  Neither this Agreement nor any provision hereof may be changed or modified except by an agreement in writing executed by the Recipient and the Company; provided, however, that any change or modification that does not adversely affect the rights hereunder of the Recipient, as they may exist immediately prior to the effective date of such change or modification, may be adopted by the Company without an agreement in writing executed by the Recipient, and the Company shall give the Recipient written notice of such change or modification reasonably promptly following the adoption of such change or modification.

(b)Binding Effect of the Agreement.  This Agreement shall inure to the benefit of, and be binding upon , the Company, the Recipient and their respective estates, heirs, executors, transferees, successors, assigns and legal representatives.

(c)Provisions Separable.  In the event that any of the terms of this Agreement shall be or become or is declared to be illegal or unenforceable by any court or other authority of competent jurisdiction, such terms shall be null and void and shall be deemed deleted from this Agreement, and all the remaining terms of this Agreement shall remain in full force and effect.

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(d)Notices.  Any notice in connection with this Agreement shall be deemed to have been properly delivered if it is in writing and is delivered by hand or by facsimile or sent by registered certified mail, postage prepaid, to the party addressed as follows, unless another address has been substituted by notice so given:

To the Recipient:	To the Recipient’s address as set forth on the signature page hereof.
To the Company:	CommonWealth REIT
	Two Newton Place
	255 Washington Street, Suite 300
	Newton, MA 02458
	Attn: Secretary

(e)Construction.  The headings and subheadings of this Agreement have been inserted for convenience only, and shall not affect the construction of the provisions hereof.  All references to sections of this Agreement shall be deemed to refer as well to all subsections which form a part of such section.

(f)Employment Agreement.  This Agreement shall not be construed as an agreement by the Company, the Manager or any affiliate of the Company or the Manager to employ the Recipient, nor is the Company, the Manager or any affiliate of the Company or the Manager obligated to continue employing the Recipient by reason of this Agreement or the grant of Shares to the Recipient hereunder.

(g)Applicable Law.  This Agreement shall be construed and enforced in accordance with the laws of The Commonwealth of Massachusetts.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or caused this Agreement to be executed under seal, as of the date first above written.

COMMONWEALTH REIT

By:

Title:

RECIPIENT:

«NAME»

«ADDRESS»

«CITY», «ST» «ZIP»

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Exhibit A

A “Change in Control” shall be deemed to have occurred if any of the events set forth in any one of the following paragraphs shall have occurred:

(a)any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50% or more of either the then outstanding common shares of the Company or the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in paragraph (c)(i) below;

(b)the following individuals cease for any reason to constitute a majority of the number of Trustees then serving: individuals who, on the date of the Agreement, constitute the Board and any new Trustee (other than a Trustee whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of Trustees) whose appointment or election by the Board or nomination for election by the Company’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the Trustees then in office who either were Trustees on the date of the Agreement or whose appointment, election or nomination for election was previously so approved or recommended;

(c)there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other entity, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 50% or more of the combined voting power of the Company’s then outstanding securities; or

(d)the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

A “Termination Event” shall occur if Reit Management & Research LLC (or any entity controlled by, under common control with or controlling Reit Management & Research LLC) ceases to be the manager or shared services provider to the Company.

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For purposes of the definitions set forth on this Exhibit A, the following definitions shall apply, with capitalized terms used but not defined in this Exhibit A having the meaning set forth in the Plan:

“Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.

“Agreement” shall mean the Restricted Share Agreement to which this Exhibit A is attached.

“Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities and (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of shares of the Company.

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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,
	2013			2012 (1)			2011 (1)			2010 (1)			2009 (1)			2008 (1)
Earnings:
Income from continuing operations before income tax expense	$	67,131		$	85,209		$	57,754		$	14,449		$	50,960		$	21,874
Equity in earnings and gains on equity transactions of investees	(14,913		)	(18,666		)	(22,554		)	(43,272		)	(6,546		)	—
Fixed charges	135,778			204,244			195,024			183,433			173,458			180,553
Distributions from investees	13,959			16,816			16,617			16,119			4,975			—
Adjusted Earnings	$	201,955		$	287,603		$	246,841		$	170,729		$	222,847		$	202,427
Fixed Charges:
Interest expense (including net amortization of debt discounts, premiums and deferred financing fees)	$	135,778		$	204,244		$	195,024		$	183,433		$	173,458		$	180,553
Total Fixed Charges	$	135,778		$	204,244		$	195,024		$	183,433		$	173,458		$	180,553
Ratio of Earnings to Fixed Charges	1.5x			1.4x			1.3x			0.9x		(2)	1.3x			1.1x

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

(2) The deficiency for this period was $12,704.

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,
	2013			2012 (1)			2011 (1)			2010 (1)			2009 (1)			2008 (1)
Earnings:
Income from continuing operations before income tax expense	$	67,131		$	85,209		$	57,754		$	14,449		$	50,960		$	21,874
Equity in earnings and gains on equity transactions of investees	(14,913		)	(18,666		)	(22,554		)	(43,272		)	(6,546		)	—
Fixed charges before preferred distributions	135,778			204,244			195,024			183,433			173,458			180,553
Distributions from investees	13,959			16,816			16,617			16,119			4,975			—
Adjusted Earnings	$	201,955		$	287,603		$	246,841		$	170,729		$	222,847		$	202,427
Fixed Charges and Preferred Distributions:
Interest expense (including net amortization of debt discounts, premiums and deferred financing fees)	$	135,778		$	204,244		$	195,024		$	183,433		$	173,458		$	180,553
Preferred distributions	33,453			51,552			46,985			47,733			50,668			50,668
Combined Fixed Charges and Preferred Distributions	$	169,231		$	255,796		$	242,009		$	231,166		$	224,126		$	231,221
Ratio of Earnings to Combined Fixed Charges and Preferred Distributions	1.2x			1.1x			1.0x			0.7x		(2)	1.0x		(3)	0.9x		(3)

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

(2) The deficiency for this period was $60,437 and primarily reflects a loss on asset impairment of $25,283 and acquisition related costs of $20,875.

(3) The deficiency for the years ended December 31, 2009 and 2008 was $1,279 and $28,794, respectively.

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 on Form 10-Q 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, 2013	/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 on Form 10-Q 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, 2013	/s/ John C. Popeo
		John C. Popeo
		Treasurer and Chief Financial Officer

EX-32.1

EXHIBIT 31.3

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

I, Barry M. Portnoy, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of 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, 2013	/s/ Barry M. Portnoy
		Barry M. Portnoy
		Managing Trustee

EX-32.2

Exhibit 32.1

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

In connection with the filing by CommonWealth REIT (the “Company”) of the Quarterly Report on Form 10-Q for the period ended September 30, 2013 (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, 2013

XML

Indebtedness

9 Months Ended

Sep. 30, 2013

Indebtedness

Indebtedness

Note 10.  Indebtedness

Indebtedness information in this Note 10 excludes information related to SIR and its consolidated subsidiaries.

Prepayments:

In March 2013, we purchased a total of $670,295 of the outstanding principal amount of the following senior notes for $726,151, excluding transaction costs, pursuant to a tender offer:

Senior Note	Principal		Purchase Price
5.75% Senior Notes due February 15, 2014	$	145,612	$	148,746
6.40% Senior Notes due February 15, 2015	152,560		164,140
5.75% Senior Notes due November 1, 2015	111,227		121,047
6.25% Senior Notes due August 15, 2016	260,896		292,218
	$	670,295	$	726,151

In connection with the purchase of these senior notes, we recognized a combined loss on early extinguishment of debt totaling $60,027, which includes the write off of unamortized discounts and deferred financing fees and expenses.

In October 2013, we prepaid at par all $99,043 of our 5.75% unsecured senior notes due 2014, using borrowings under our revolving credit facility.

Unsecured Revolving Credit Facility and Unsecured Term Loan:

We have a $750,000 unsecured revolving credit facility that is available for general business purposes, including acquisitions.  The maturity date of our revolving credit facility is October 19, 2015 and, subject to the payment of an extension fee and meeting certain other conditions, includes an option for us to extend the stated maturity date of our revolving credit facility by one year to October 19, 2016.  In addition, our revolving credit facility includes a feature under which maximum borrowings may be increased to up to $1,500,000 in certain circumstances.  Borrowings under our revolving credit facility bear interest at LIBOR plus a premium, which was 150 basis points as of September 30, 2013.  We also pay a facility fee of 35 basis points per annum on the total amount of lending commitments under our revolving credit facility.  Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings.  As of September 30, 2013, the interest rate payable on borrowings under our revolving credit facility was 1.7%.  The weighted average interest rate for borrowings under our revolving credit facility was 1.7% for both the three and nine months ended September 30, 2013, and 1.5% for both the three and nine months ended September 30, 2012.  As of September 30, 2013, we had $235,000 outstanding and $515,000 available under our revolving credit facility.

We also have a $500,000 unsecured term loan that matures in December 2016 and is prepayable without penalty at any time.  Our term loan includes a feature under which maximum borrowings may be increased to up to $1,000,000 in certain circumstances.  Our term loan bears interest at a rate of LIBOR plus a premium, which was 185 basis points as of September 30, 2013.  The interest rate premium is subject to adjustment based upon changes to our credit ratings.  As of September 30, 2013, the interest rate for the amount outstanding under our term loan was 2.0%.  The weighted average interest rate for the amount outstanding under our term loan was 2.0% and 2.1% for the three and nine months ended September 30, 2013, respectively, and 1.8% for both the three and nine months ended September 30, 2012.

Lenders under our revolving credit facility agreement and our term loan agreement may accelerate payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, including a change of control of us and the termination of our business management or property management agreements with RMR.  As stated in Note 3 above, we believe that the Corvex/Related consent solicitation has no legal effect.  However, if the arbitration panel determines that the Corvex/Related consent solicitation is legally effective and our entire Board of Trustees has been removed, such removal would constitute an event of default under our revolving credit facility and term loan agreements, giving either the administrative agent or the lenders with a majority in amount under each such agreement the right to accelerate payment of all amounts we may owe under such agreement.  Such event may also constitute an event of default under certain of our mortgage loans.  On June 19, 2013, Corvex/Related filed with the SEC a public statement indicating that in the event our Board of Trustees is removed as a result of the Corvex/Related consent solicitation, they will offer to buy 51% of the debt outstanding under our revolving credit facility and term loan agreements at par value to prevent the acceleration of such loans.  However, waivers of defaults under our revolving credit facility and term loan agreements require the approval of two thirds of our lenders by amount. We provide no assurance that, in such event, Corvex/Related will be successful in buying any of our outstanding debts or credit commitments or in preventing the acceleration of these loans.

Credit Facility and Term Loan Debt Covenants:

Our public debt indentures and related supplements, our revolving credit facility agreement and our term loan agreement contain a number of financial and other covenants, including covenants that restrict our ability to incur indebtedness or to make distributions under certain circumstances and require us to maintain financial ratios and a minimum net worth.  At September 30, 2013, we believe we were in compliance with all of our respective covenants under our public debt indentures, our revolving credit facility and our term loan agreements.

Mortgage Debt:

At September 30, 2013, 14 of our continuing properties (19 buildings) costing $1,269,286 with an aggregate net book value of $1,116,162 secured mortgage notes totaling $925,120 (including net premiums and discounts) maturing from 2014 through 2026.  In addition, we had mortgage debt secured by two properties (three buildings) classified as held for sale totaling $20,127 (including net premiums and discounts).

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Related Person Transactions (Details) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended			0 Months Ended			9 Months Ended				1 Months Ended	3 Months Ended		9 Months Ended			0 Months Ended	9 Months Ended	1 Months Ended		3 Months Ended	9 Months Ended
	Sep. 30, 2013 trustee item sqft	Dec. 31, 2012	Sep. 30, 2012 sqft	Jul. 02, 2013 SIR	Mar. 12, 2012 SIR	Feb. 16, 2012 SIR property	Sep. 30, 2013 SIR item	Nov. 04, 2013 Sale sqft	Sep. 30, 2013 Sale sqft	Feb. 16, 2012 Sale SIR sqft	Jul. 31, 2013 RMR	Sep. 30, 2013 RMR item	Sep. 30, 2012 RMR	Sep. 30, 2013 RMR item	Sep. 30, 2012 RMR	Sep. 20, 2013 RMR	Mar. 15, 2013 GOV	Sep. 30, 2013 GOV	Jun. 30, 2013 AIC	Sep. 30, 2013 AIC company	Sep. 30, 2013 RMR Australia	Sep. 30, 2013 RMR Australia
Related person transactions
Number of employees	0
Number of agreements												2		2
Business management fees												$ 9,844	$ 11,057	$ 33,800	$ 32,087						$ 432
Property management fees												7,919	8,593	24,903	24,483							1,197
Base business management fee payable in common shares (as a percent)																10.00%
Ownership percentage prior to transaction							100.00%											100.00%
Equity investments, common shares owned				22,000,000													9,950,000
Net proceeds received on sale of common shares																	239,576
Realized gain on sale of common shares																	66,293
Amount of reimbursements payable to related party	6,564	12,958					636											310
Less than wholly owned subsidiary, common shares owned							22,000,000
Less than wholly owned subsidiary, parent ownership interest percentage							44.20%
Number of common managing trustees	2
Issuance of shares, net				10,500,000	9,200,000
Proceeds from Issuance Initial Public Offering					180,814
Repayment of promissory note						400,000
Common shares consideration received on transfer of properties						22,000,000
Number of properties sold or transferred or agreed to be sold or transferred						79
Number of separate buildings or land parcels sold or transferred or agreed to be sold or transferred						251
Square feet	38,895,000		61,733,000					4,201,777	2,394,680	21,400,000
Number of other companies which are shareholders of related party																				4
Equity method investments, ownership percentage				56.00%																12.50%
Amount invested in equity investee																				5,209
Coverage amount for property insurance																				500,000
Premium for property insurance																			5,984
Period for which property insurance program was extended																			1 year
Number of independent trustees							1
Aggregate coverage of combined directors' and officers' liability insurance policy purchased by the entity											10,000
Premium paid for combined directors' and officers' liability insurance policy											$ 133

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Rental income	$ 201,741	$ 226,802	$ 699,207	$ 662,587
Expenses:
Operating expenses	94,632	92,005	287,650	265,227
Depreciation and amortization	52,150	52,353	169,930	154,623
General and administrative	25,069	12,565	61,445	34,190
Acquisition related costs	(436)	1,066	337	5,002
Total expenses	171,415	157,989	519,362	459,042
Operating income	30,326	68,813	179,845	203,545
Interest and other income	227	399	931	1,020
Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of ($589), $1,001, $321 and $2,717, respectively)	(39,359)	(50,736)	(134,824)	(148,924)
Loss on early extinguishment of debt		(220)	(60,027)	(287)
Equity in earnings of investees	10,492	2,868	14,913	8,655
Gain on sale of equity investment			66,293
Income from continuing operations before income tax expense	1,686	21,124	67,131	64,009
Income tax expense	(785)	(1,322)	(2,527)	(1,906)
Income from continuing operations	901	19,802	64,604	62,103
Discontinued operations:
(Loss) income from discontinued operations	(28)	774	4,390	4,891
Loss on asset impairment from discontinued operations	(217,080)		(225,615)
Loss on early extinguishment of debt from discontinued operations				(1,608)
Net gain on sale of properties from discontinued operations		1,689	3,359	2,039
(Loss) income before gain on sale of properties	(216,207)	22,265	(153,262)	67,425
Gain on sale of properties			1,596
Net (loss) income	(216,207)	22,265	(151,666)	67,425
Net income attributable to noncontrolling interest in consolidated subsidiary	(108)	(4,647)	(20,093)	(10,062)
Net (loss) income attributable to CommonWealth REIT	(216,315)	17,618	(171,759)	57,363
Preferred distributions	(11,151)	(12,755)	(33,453)	(40,401)
Excess redemption price paid over carrying value of preferred shares		(4,985)		(4,985)
Net (loss) income available for CommonWealth REIT common shareholders	(227,466)	(122)	(205,212)	11,977
Amounts attributable to CommonWealth REIT common shareholders:
(Loss) income from continuing operations	(10,358)	(2,585)	12,654	6,655
(Loss) income from discontinued operations	(28)	774	4,390	4,891
Loss on asset impairment from discontinued operations	(217,080)		(225,615)
Loss on early extinguishment of debt from discontinued operations				(1,608)
Net gain on sale of properties from discontinued operations		1,689	3,359	2,039
Net (loss) income available for CommonWealth REIT common shareholders	$ (227,466)	$ (122)	$ (205,212)	$ 11,977
Weighted average common shares outstanding - basic and diluted (in shares)	118,328	83,745	110,353	83,731
Basic and diluted earnings per common share attributable to CommonWealth REIT common shareholders:
(Loss) income from continuing operations (in dollars per share)	$ (0.09)	$ (0.03)	$ 0.11	$ 0.08
(Loss) income from discontinued operations (in dollars per share)	$ (1.83)	$ 0.03	$ (1.97)	$ 0.06
Net (loss) income available for common shareholders (in dollars per share)	$ (1.92)		$ (1.86)	$ 0.14

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Board of Trustees

9 Months Ended

Sep. 30, 2013

Board of Trustees

Board of Trustees

Note 3.  Board of Trustees

On February 26, 2013, Corvex Management LP, or Corvex, Related Fund Management, LLC and certain of their affiliates, or together with Corvex, Corvex/Related, publicly disclosed their accumulation of the Company’s common shares.  Corvex/Related have since undertaken a series of actions in an effort to influence and control the Company, including publishing “open” letters to our Board of Trustees, announcing conditional, unfinanced purported offers to acquire all the common shares of the Company and running a purported consent solicitation seeking to remove, without cause, all of the members of our Board of Trustees.  Corvex/Related unilaterally, publicly stated that they believed the record date for their purported consent solicitation was April 22, 2013 and solicited consents from our shareholders as of that date to their removal proposal.  On June 21, 2013, Corvex delivered to the Company a letter and enclosed materials that it claimed were written consents from the Company’s shareholders that effectuated the immediate removal of the Company’s entire Board of Trustees.

The legal effectiveness of the Corvex/Related purported consent solicitation is the subject of legal proceedings before an arbitration panel.  We believe that the Corvex/Related consent solicitation has no legal effect because, among other things, under our declaration of trust and bylaws, the power to set a record date for a consent solicitation rests with the Company’s Board of Trustees and our Board of Trustees did not set such a record date for the Corvex/Related purported consent solicitation as the Corvex/Related request for a record date did not comply with requirements in our governing documents.  Moreover, our Board of Trustees believes that the removal of all of our Trustees without cause and in one removal action conflicts with our Board of Trustee’s election to be subject to certain provisions of the Maryland Unsolicited Takeovers Act.  On June 24, 2013, the Company responded to the June 21, 2013 letter from Corvex/Related pointing out that the legal effectiveness of the Corvex/Related consent solicitation is currently the subject of proceedings before an arbitration panel and that the Board of Trustees would continue to manage the Company unless and until the arbitration panel directs otherwise.  An evidentiary hearing on the legal effectiveness of the Corvex/Related consent solicitation was held before the arbitration panel from October 7, 2013 through October 17, 2013, and the parties submitted post-hearing briefs on October 30, 2013.  Our current expectation is that the arbitration panel will issue a ruling regarding these matters on or before November 29, 2013.

We believe that the Corvex/Related purported consent solicitation has no legal effect and to date, no court or arbitration panel has ruled that it is legally effective.  However, if the arbitration panel determines that the Corvex/Related consent solicitation is legally effective and the entire Board of Trustees has been removed as a result of the Corvex/Related consent solicitation, such removal may, among other things, disrupt the Company’s business and operations, give rise to preferred shareholder conversion rights and events of default under certain material agreements, affect our ability to pay dividends, borrow money and implement our business plan, and have other effects which may adversely affect us.

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Investment in Direct Financing Lease (Tables)

9 Months Ended

Sep. 30, 2013

Investment in Direct Financing Lease

Carrying amount of net investment in direct financing lease

	September 30,			December 31,
	2013			2012
Total minimum lease payments receivable	$	25,011		$	31,084
Estimated unguaranteed residual value of leased asset	4,951			4,951
Unearned income	(8,425		)	(9,302		)
Net investment in direct financing lease	$	21,537		$	26,733

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Income Taxes

9 Months Ended

Sep. 30, 2013

Income Taxes

Income Taxes

Note 11.  Income Taxes

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and are generally not subject to federal and state income taxes provided we distribute a sufficient amount of our taxable income to our shareholders and meet other requirements for qualifying as a REIT.  However, we are subject to certain state, local and Australian taxes without regard to our REIT status.  Our provision for income taxes for the three and nine months ended September 30, 2013 and 2012 consists of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Current:
State	$	123	$	130	$	448	$	379
Foreign	561		—		1,943		—
	684		130		2,391		379
Deferred:
Foreign	101		1,192		136		1,527
	101		1,192		136		1,527
Income tax provision	$	785	$	1,322	$	2,527	$	1,906

At September 30, 2013 and December 31, 2012, we had deferred tax assets of $1,926 and $2,329, respectively, and deferred tax liabilities of $3,242 and $3,643, respectively, which primarily related to different carrying amounts for financial reporting and for Australian income tax purposes related to our properties and operations in Australia.  Because we are uncertain of our ability to realize the future benefit of certain Australian loss carry forwards, we have reduced our net deferred income tax assets by a valuation allowance of $536 and $598 as of September 30, 2013 and December 31, 2012, respectively.

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Fair Value of Assets and Liabilities (Details 2) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013 Total rents Credit concentration	Sep. 30, 2013 Carrying Amount	Dec. 31, 2012 Carrying Amount	Sep. 30, 2013 Fair Value	Dec. 31, 2012 Fair Value
Fair value of financial instruments
Senior notes and mortgage notes payable		$ 2,206,157	$ 2,932,951	$ 2,314,308	$ 3,181,522
Concentration risk, percentage	3.00%

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Equity Investments (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2012	Dec. 31, 2011
Balance Sheets:
Real estate properties, net	$ 4,757,038	$ 6,821,803
Acquired real estate leases, net	272,381	427,756
Cash and cash equivalents	165,990	102,219	72,680	192,763
Rents receivable, net	218,301	253,394
Other assets, net	195,330	211,293
Total assets	6,821,987	8,189,634
Revolving credit facility	235,000	297,000
Mortgage notes payable	925,120	984,827
Assumed real estate lease obligations, net	38,087	69,304
Other liabilities	169,498	194,184
Shareholders' equity	3,421,033	3,105,428
Total liabilities and shareholders' equity	6,821,987	8,189,634
SIR
Balance Sheets:
Real estate properties, net	1,510,338	1,249,081
Acquired real estate leases, net	114,937	95,248
Cash and cash equivalents	14,540	20,373
Rents receivable, net	52,174	38,885
Other assets, net	23,162	27,065
Total assets	1,715,151	1,430,652
Revolving credit facility	80,000	95,000
Term loan	350,000	350,000
Mortgage notes payable	27,309	27,778
Assumed real estate lease obligations, net	19,317	20,434
Other liabilities	40,999	37,257
Shareholders' equity	1,197,526	900,183
Total liabilities and shareholders' equity	$ 1,715,151	$ 1,430,652

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Cumulative Other Comprehensive (Loss) Income (Tables)

9 Months Ended

Sep. 30, 2013

Cumulative Other Comprehensive (Loss) Income

Schedule of amounts recognized in cumulative other comprehensive (loss) income by component

	Three Months Ended September 30, 2013
	Unrealized			Foreign			Equity in
	Gain (Loss)			Currency			Unrealized
	on Derivative			Translation			Gain (Loss) of
	Instruments			Adjustments			an Investee			Total
Balances as of June 30, 2013	$	(12,791	)	$	(19,777	)	$	(8	)	$	(32,576	)
Other comprehensive income (loss) before reclassifications	(1,087		)	5,455			13			4,381
Amounts reclassified from cumulative other comprehensive income (loss) to net (loss) income	1,265			—			—			1,265
Net current period other comprehensive income	178			5,455			13			5,646
Balances as of September 30, 2013	$	(12,613	)	$	(14,322	)	$	5		$	(26,930	)

	Nine Months Ended September 30, 2013
	Unrealized			Foreign			Equity in
	Gain (Loss)			Currency			Unrealized
	on Derivative			Translation			Gain (Loss) of
	Instruments			Adjustments			an Investee			Total
Balances as of December 31, 2012	$	(16,624	)	$	17,071		$	118		$	565
Other comprehensive income (loss) before reclassifications	274			(31,393		)	(96		)	(31,215		)
Amounts reclassified from cumulative other comprehensive income (loss) to net (loss) income	3,737			—			(17		)	3,720
Net current period other comprehensive income (loss)	4,011			(31,393		)	(113		)	(27,495		)
Balances as of September 30, 2013	$	(12,613	)	$	(14,322	)	$	5		$	(26,930	)

Schedule of reclassifications out of cumulative other comprehensive income (loss)

Three Months Ended September 30, 2013
	Amounts Reclassified from
Details about Cumulative Other	Cumulative Other Comprehensive		Affected Line Items in the
Comprehensive Income (Loss) Components	Income (Loss) to Net (Loss) Income		Statement of Operations
Interest rate swap contracts	$	1,265	Interest expense
Unrealized gains and losses on available for sale securities	—		Equity in earnings of investees
	$	1,265

Nine Months Ended September 30, 2013
	Amounts Reclassified from
Details about Cumulative Other	Cumulative Other Comprehensive			Affected Line Items in the
Comprehensive Income (Loss) Components	Income (Loss) to Net (Loss) Income			Statement of Operations
Interest rate swap contracts	$	3,737		Interest expense
Unrealized gains and losses on available for sale securities	(17		)	Equity in earnings of investees
	$	3,720

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Shareholders' Equity (Tables)

9 Months Ended

Sep. 30, 2013

Shareholders' Equity

Reconciliation of changes in shareholders equity

	Shareholders’			Shareholders’
	Equity			Equity
	Attributable to			Attributable to			Total
	CommonWealth			Noncontrolling			Shareholders’
	REIT			Interest			Equity
Balances at December 31, 2012	$	3,105,428		$	396,040		$	3,501,468
Net (loss) income	(171,759		)	20,093			(151,666		)
Other comprehensive income (loss):
Unrealized gain on derivative instruments	4,011			—			4,011
Foreign currency translation adjustments	(31,393		)	—			(31,393		)
Equity in unrealized loss of an investee	(113		)	(36		)	(149		)
Total comprehensive (loss) income	(199,254		)	20,057			(179,197		)
Issuance of common shares, net	626,851			(42		)	626,809
Share grants	1,567			252			1,819
Distributions	(113,559		)	(14,863		)	(128,422		)
Deconsolidation of a subsidiary	—			(401,444		)	(401,444		)
Balances at September 30, 2013	$	3,421,033		$	—		$	3,421,033

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Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Current:
State	$ 123	$ 130	$ 448	$ 379
Foreign	561		1,943
Current tax	684	130	2,391	379
Deferred:
Foreign	101	1,192	136	1,527
Deferred tax	101	1,192	136	1,527
Income tax provision	785	1,322	2,527	1,906
Deferred tax assets	1,926		1,926		2,329
Deferred tax liabilities	3,242		3,242		3,643
Valuation allowance	$ 536		$ 536		$ 598

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Real Estate Properties (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Balance Sheets:
Real estate properties	$ 5,631,070	$ 7,829,409
Acquired real estate leases	272,381	427,756
Rents receivable, net	218,301	253,394
Other assets, net	195,330	211,293
Properties held for sale	678,250	171,832
Mortgage notes payable, net	925,120	984,827
Assumed real estate lease obligations	38,087	69,304
Rent collected in advance	29,220	35,700
Security deposits	12,442	23,860
Liabilities related to properties held for sale	30,322	2,339
Real estate properties held for sale
Balance Sheets:
Real estate properties	631,057	164,041
Acquired real estate leases	9,416	453
Rents receivable, net	16,941	2,791
Other assets, net	20,836	4,547
Properties held for sale	678,250	171,832
Mortgage notes payable, net	20,127
Assumed real estate lease obligations	2,328	21
Rent collected in advance	4,202	854
Security deposits	3,665	1,464
Liabilities related to properties held for sale	$ 30,322	$ 2,339

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Real Estate Mortgages Receivable (Details) (USD $) In Thousands, unless otherwise specified	1 Months Ended	9 Months Ended
	Jan. 31, 2013 property	Sep. 30, 2013	Dec. 31, 2012
Real Estate Mortgages Receivable
Number of properties sold	3
Number of buildings sold	18
Mortgage financing related to suburban property sold	$ 7,688
Interest rate on real estate mortgage receivable (as a percent)	6.00%
Amount received from prepayment of real estate mortgage receivable		1,000
Total real estate mortgage receivable included in other assets, carrying value		$ 8,107	$ 1,419

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Fair Value of Assets and Liabilities (Details 3) (Properties held for sale for which we recognized impairment losses, Level 3, USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Purchase Offers
Fair Value of Assets and Liabilities
Fair value of assets	$ 36,373
Discounted cash flows and comparable sales
Fair Value of Assets and Liabilities
Fair value of assets	$ 458,340
Valuation techniques and significant unobservable inputs
Market rent growth rate (as a percent)	3.00%
Discounted cash flows and comparable sales | Minimum
Valuation techniques and significant unobservable inputs
Discount rate (as a percent)	9.00%
Exit capitalization rate (as a percent)	8.00%
Discounted cash flows and comparable sales | Maximum
Valuation techniques and significant unobservable inputs
Discount rate (as a percent)	12.00%
Exit capitalization rate (as a percent)	10.00%

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2013

Segment Information

Schedule of property level information by geographic region and property type, property square feet

	As of September 30,
	2013	2012
Square feet (in thousands):
CBD properties	20,930	20,166
Suburban properties	17,965	41,567
Total properties	38,895	61,733

Schedule of property level information by geographic region and property type, property rental income and net operating income

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Rental income:
CBD properties	$	136,228	$	130,193	$	413,550	$	383,245
Suburban properties	65,513		96,609		285,657		279,342
Total properties	$	201,741	$	226,802	$	699,207	$	662,587
NOI:
CBD properties	$	68,663	$	70,208	$	220,182	$	210,250
Suburban properties	38,446		64,589		191,375		187,110
Total properties	$	107,109	$	134,797	$	411,557	$	397,360

Schedule of reconciliation of NOI to net income

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Rental income	$	201,741		$	226,802		$	699,207		$	662,587
Operating expenses	(94,632		)	(92,005		)	(287,650		)	(265,227		)
NOI	$	107,109		$	134,797		$	411,557		$	397,360
NOI	$	107,109		$	134,797		$	411,557		$	397,360
Depreciation and amortization	(52,150		)	(52,353		)	(169,930		)	(154,623		)
General and administrative	(25,069		)	(12,565		)	(61,445		)	(34,190		)
Acquisition related costs	436			(1,066		)	(337		)	(5,002		)
Operating income	30,326			68,813			179,845			203,545
Interest and other income	227			399			931			1,020
Interest expense	(39,359		)	(50,736		)	(134,824		)	(148,924		)
Loss on early extinguishment of debt	—			(220		)	(60,027		)	(287		)
Equity in earnings of investees	10,492			2,868			14,913			8,655
Gain on sale of equity investment	—			—			66,293			—
Income from continuing operations before income tax expense	1,686			21,124			67,131			64,009
Income tax expense	(785		)	(1,322		)	(2,527		)	(1,906		)
Income from continuing operations	901			19,802			64,604			62,103
(Loss) income from discontinued operations	(28		)	774			4,390			4,891
Loss on asset impairment from discontinued operations	(217,080		)	—			(225,615		)	—
Loss on early extinguishment of debt from discontinued operations	—			—			—			(1,608		)
Net gain on sale of properties from discontinued operations	—			1,689			3,359			2,039
(Loss) income before gain on sale of properties	(216,207		)	22,265			(153,262		)	67,425
Gain on sale of properties	—			—			1,596			—
Net (loss) income	$	(216,207	)	$	22,265		$	(151,666	)	$	67,425

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Cumulative Other Comprehensive (Loss) Income (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013
Roll forward of amounts recognized in cumulative other comprehensive (loss) income by component
Balances at beginning of period	$ (32,576)	$ 565
Other comprehensive income (loss) before reclassifications	4,381	(31,215)
Amounts reclassified from cumulative other comprehensive income (loss) to net (loss) income	1,265	3,720
Net current period other comprehensive income	5,646	(27,495)
Balances at end of period	(26,930)	(26,930)
Unrealized Gain (Loss) on Derivative Instruments
Roll forward of amounts recognized in cumulative other comprehensive (loss) income by component
Balances at beginning of period	(12,791)	(16,624)
Other comprehensive income (loss) before reclassifications	(1,087)	274
Amounts reclassified from cumulative other comprehensive income (loss) to net (loss) income	1,265	3,737
Net current period other comprehensive income	178	4,011
Balances at end of period	(12,613)	(12,613)
Foreign Currency Translation Adjustments
Roll forward of amounts recognized in cumulative other comprehensive (loss) income by component
Balances at beginning of period	(19,777)	17,071
Other comprehensive income (loss) before reclassifications	5,455	(31,393)
Net current period other comprehensive income	5,455	(31,393)
Balances at end of period	(14,322)	(14,322)
Equity in Unrealized Gain (Loss) of an Investee
Roll forward of amounts recognized in cumulative other comprehensive (loss) income by component
Balances at beginning of period	(8)	118
Other comprehensive income (loss) before reclassifications	13	(96)
Amounts reclassified from cumulative other comprehensive income (loss) to net (loss) income		(17)
Net current period other comprehensive income	13	(113)
Balances at end of period	$ 5	$ 5

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Equity Investments (Tables)

9 Months Ended

Sep. 30, 2013

Equity Investments

Schedule of equity investments

	Ownership Percentage				Equity Investments				Equity in Earnings
									Three Months Ended				Nine Months Ended
	September 30,		December 31,		September 30,		December 31,		September 30,				September 30,
	2013		2012		2013		2012		2013		2012		2013		2012
SIR	44.2	%	Consolidated		$	511,473	$	—	$	10,428	$	—	$	10,428	$	—
GOV	—	%	18.2	%	—		173,452		—		2,638		4,111		8,231
AIC	12.5	%	25.0	%	5,781		11,259		64		230		374		424
					$	517,254	$	184,711	$	10,492	$	2,868	$	14,913	$	8,655

Summary of balance sheet information of equity method investee

	September 30,		December 31,
	2013		2012
Real estate properties, net	$	1,510,338	$	1,249,081
Acquired real estate leases, net	114,937		95,248
Cash and cash equivalents	14,540		20,373
Rents receivable, net	52,174		38,885
Other assets, net	23,162		27,065
Total assets	$	1,715,151	$	1,430,652
Revolving credit facility	$	80,000	$	95,000
Term loan	350,000		350,000
Mortgage notes payable	27,309		27,778
Assumed real estate lease obligations, net	19,317		20,434
Other liabilities	40,999		37,257
Shareholders’ equity	1,197,526		900,183
Total liabilities and shareholders’ equity	$	1,715,151	1,430,652

Summary of income statement information of equity method investee

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Total revenues	$	48,584		$	30,878		$	138,390		$	86,385
Operating expenses	(9,287		)	(5,710		)	(26,172		)	(16,828		)
Depreciation and amortization	(8,485		)	(3,888		)	(22,445		)	(9,682		)
Acquisition related costs	(790		)	(583		)	(1,479		)	(1,258		)
General and administrative	(3,208		)	(2,626		)	(8,884		)	(5,664		)
Operating income	26,814			18,071			79,410			52,953
Interest expense	(3,232		)	(2,467		)	(10,484		)	(4,436		)
Equity in earnings of an investee	64			115			219			189
Income before income tax expense	23,646			15,719			69,145			48,706
Income tax expense	(52		)	—			(132		)	—
Net income	$	23,594		$	15,719		$	69,013		$	48,706
Weighted average common shares outstanding	49,686			31,206			42,790			25,226
Net income per common share	$	0.47		$	0.50		$	1.61		$	1.93

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Net (loss) income	$ (216,207)	$ 22,265	$ (151,666)	$ 67,425
Other comprehensive (loss) income, net of tax:
Unrealized gain (loss) on derivative instruments	178	454	4,011	(1,987)
Foreign currency translation adjustments	5,455	4,516	(31,393)	5,597
Equity in unrealized income (loss) of an investee	13	69	(149)	65
Total comprehensive (loss) income	(210,561)	27,304	(179,197)	71,100
Less: comprehensive income attributable to noncontrolling interest in consolidated subsidiary	(108)	(4,657)	(20,057)	(10,072)
Comprehensive (loss) income attributable to CommonWealth REIT	$ (210,669)	$ 22,647	$ (199,254)	$ 61,028

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Basis of Presentation

9 Months Ended

Sep. 30, 2013

Basis of Presentation

Basis of Presentation

Note 1.  Basis of Presentation

The accompanying condensed consolidated financial statements of CommonWealth REIT and its subsidiaries, or the Company, CWH, we, us or our, have been prepared without audit.  Certain information and footnote disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted.  We believe the disclosures made are adequate to make the information presented not misleading.  However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2012, 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 material 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.

On March 12, 2012, our then wholly owned subsidiary, Select Income REIT, completed an initial public offering of 9,200,000 of its common shares, or the SIR IPO.  We refer to Select Income REIT and its consolidated subsidiaries as SIR.  SIR is a real estate investment trust, or REIT.  On July 2, 2013, SIR issued and sold to the public 10,500,000 of its common shares of beneficial interest in an underwritten public offering.  Before this offering, our 22,000,000 common shares of SIR represented approximately 56.0% of SIR’s outstanding common shares and SIR was one of our consolidated subsidiaries.  As of September 30, 2013, we owned 22,000,000 SIR common shares, or approximately 44.2% of SIR’s outstanding common shares.  Since our investment in SIR is below 50% after this offering, effective July 2, 2013, we no longer consolidate our investment in SIR, but instead account for such investment under the equity method.   See Note 6 and Note 15 for additional information regarding SIR.

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Real Estate Properties

9 Months Ended

Sep. 30, 2013

Real Estate Properties

Real Estate Properties

Note 4.  Real Estate Properties

The information presented in this Note 4 excludes information related to SIR and its consolidated subsidiaries, unless the context indicates otherwise.

We did not make any acquisitions during the nine months ended September 30, 2013.

During the nine months ended September 30, 2013, we made improvements totaling $75,431 to our properties, including improvements made by SIR to its properties for the period that SIR was our consolidated subsidiary, which was until July 2, 2013.

Property Sales:

During the nine months ended September 30, 2013, we sold nine properties (27 buildings) with a combined 2,394,680 square feet and two land parcels for an aggregate sale price of $46,712, excluding closing costs.  Details of these completed sales are as follows:

· In January 2013, we sold three suburban office and industrial properties (18 buildings) in suburbs of Detroit, MI with a combined 1,060,026 square feet for $10,250, excluding closing costs.  In connection with the sale of these properties, we provided mortgage financing to the buyer, an unrelated third party, totaling $7,688 at 6.0% per annum and recognized a gain on sale of $1,277.

· As a result of an eminent domain taking in March 2013, we sold a land parcel adjacent to one of our central business district, or CBD, properties located in Boston, MA for $1,806, excluding closing costs, and recognized a gain on sale of $1,596.

· In April 2013, we sold a suburban property (one building) with 618,000 square feet for $830, excluding closing costs.

· In May 2013, we sold a suburban property (one building) with 57,250 square feet for $4,025, excluding closing costs.

· In June 2013, we sold a suburban property (two buildings) with a combined 356,045 square feet for an aggregate sale price of $16,300, excluding closing costs.

· Also in June 2013, we sold a suburban property (one building) with 30,105 square feet for $1,600, excluding closing costs, and recognized a gain on sale of $317.

· Also in June 2013, we sold a suburban property (one building) with 143,802 square feet for $5,250, excluding closing costs.

· Also in June 2013, we sold a parcel of land in Tukwila, WA for $2,551, excluding closing costs, and recognized a gain on sale of $1,765.

· In August 2013, we sold a suburban property (three buildings) with a combined 129,452 square feet for $4,100, excluding closing costs.

We classify all properties that meet the criteria outlined in the Property, Plant and Equipment Topic of the FASB Accounting Standards CodificationTM, or the Codification, as held for sale as such on our condensed consolidated balance sheets.  As of December 31, 2012, we had one CBD property (one building) and 39 suburban properties (93 buildings) with a combined 6,673,851 square feet held for sale.  As of September 30, 2013, we had four CBD properties (five buildings) and 72 suburban properties (172 buildings) with a combined 12,704,719 square feet held for sale.  As of November 4, 2013, we have sold 29 of these properties (65 buildings) with a combined 4,201,777 square feet for an aggregate sale price of $111,400, excluding closing costs.  In addition, as of November 4, 2013, we have two of these properties (two buildings) with a combined 77,394 square feet under agreement to sell for an aggregate sale price of $2,050, excluding closing costs.  We expect to complete the sale of these two properties currently under agreement for sale by year end 2013 and the remaining 45 properties listed for sale by mid-year 2014; however, no assurance can be given that these properties will be sold in those time periods or at all, or what the ultimate terms of those sales may be.  Results of operations for properties sold or held for sale are included in discontinued operations in our condensed consolidated statements of operations once the criteria for discontinued operations in the Presentation of Financial Statements Topic of the Codification are met.  Summarized balance sheet information for all properties classified as held for sale and income statement information for properties held for sale or sold is as follows:

Balance Sheets:

	September 30, 2013		December 31, 2012
Real estate properties	$	631,057	$	164,041
Acquired real estate leases	9,416		453
Rents receivable	16,941		2,791
Other assets, net	20,836		4,547
Properties held for sale	$	678,250	$	171,832
Mortgage notes payable, net	$	20,127	$	—
Assumed real estate lease obligations	2,328		21
Rent collected in advance	4,202		854
Security deposits	3,665		1,464
Liabilities related to properties held for sale	$	30,322	$	2,339

Statements of Operations:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Rental income	$	27,619		$	34,859		$	89,399		$	105,694
Operating expenses	(17,417		)	(20,572		)	(54,226		)	(59,533		)
Depreciation and amortization	(8,157		)	(11,084		)	(24,289		)	(33,717		)
General and administrative	(1,761		)	(2,027		)	(5,553		)	(6,076		)
Operating income	284			1,176			5,331			6,368
Interest and other income	1			—			13			80
Interest expense	(313		)	(402		)	(954		)	(1,557		)
(Loss) income from discontinued operations	$	(28	)	$	774		$	4,390		$	4,891

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2013

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Note 2.  Recent Accounting Pronouncements

Effective January 2013, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  This update is the culmination of the FASB’s deliberation on reporting reclassification adjustments from accumulated other comprehensive income, or AOCI.  This standard does not change the current requirements for reporting net income or other comprehensive income.  However, it requires disclosure of amounts reclassified out of AOCI in their entirety, by component, on the face of the statement of operations or in the notes thereto.  Amounts that are not required to be reclassified in their entirety to net income must be cross referenced to other disclosures that provide additional detail.  This standard was effective prospectively for interim and annual reporting periods beginning after December 15, 2012.  The implementation of this update did not cause any material changes to the presentation of our condensed consolidated financial statements.

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Shareholders' Equity (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Reconciliation of changes in our shareholders equity
Balances			$ 3,501,468
Net (loss) income	(216,207)	22,265	(151,666)	67,425
Other comprehensive income (loss):
Unrealized gain on derivative instruments	178	454	4,011	(1,987)
Foreign currency translation adjustments	5,455	4,516	(31,393)	5,597
Equity in unrealized loss of an investee	13	69	(149)	65
Total comprehensive (loss) income	(210,561)	27,304	(179,197)	71,100
Issuance of common shares, net			(626,809)	(180,814)
Share grants			1,819
Distributions			(128,422)
Deconsolidation of a subsidiary			(401,444)
Balances	3,421,033		3,421,033
Shareholders' Equity Attributable to CommonWealth REIT
Reconciliation of changes in our shareholders equity
Balances			3,105,428
Net (loss) income			(171,759)
Other comprehensive income (loss):
Unrealized gain on derivative instruments			4,011
Foreign currency translation adjustments			(31,393)
Equity in unrealized loss of an investee			(113)
Total comprehensive (loss) income			(199,254)
Issuance of common shares, net			626,851
Share grants			1,567
Distributions			(113,559)
Balances	3,421,033		3,421,033
Shareholders' Equity Attributable to Noncontrolling Interest
Reconciliation of changes in our shareholders equity
Balances			396,040
Net (loss) income			20,093
Other comprehensive income (loss):
Equity in unrealized loss of an investee			(36)
Total comprehensive (loss) income			20,057
Issuance of common shares, net			(42)
Share grants			252
Distributions			(14,863)
Deconsolidation of a subsidiary			$ (401,444)

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Indebtedness (Tables)

9 Months Ended

Sep. 30, 2013

Indebtedness

Summary of outstanding senior notes purchased for cash pursuant to a tender offer

Senior Note	Principal		Purchase Price
5.75% Senior Notes due February 15, 2014	$	145,612	$	148,746
6.40% Senior Notes due February 15, 2015	152,560		164,140
5.75% Senior Notes due November 1, 2015	111,227		121,047
6.25% Senior Notes due August 15, 2016	260,896		292,218
	$	670,295	$	726,151

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Basis of Presentation (Details) (SIR)	0 Months Ended
	Jul. 02, 2013	Mar. 12, 2012	Sep. 30, 2013
Organization
Issuance of shares, net	10,500,000	9,200,000
Wholly owned subsidiary, common shares owned			22,000,000
Ownership percentage			44.20%
Previously reported
Organization
Ownership percentage			56.00%

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Equity Investments (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended			0 Months Ended	3 Months Ended	9 Months Ended	0 Months Ended	3 Months Ended	9 Months Ended			3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Jul. 02, 2013 SIR	Sep. 30, 2013 SIR	Sep. 30, 2013 SIR	Mar. 15, 2013 GOV	Sep. 30, 2012 GOV	Sep. 30, 2013 GOV	Sep. 30, 2012 GOV	Dec. 31, 2012 GOV	Sep. 30, 2013 AIC	Sep. 30, 2012 AIC	Sep. 30, 2013 AIC	Sep. 30, 2012 AIC	Dec. 31, 2012 AIC
Equity Investments
Equity method investments, ownership percentage							44.20%	44.20%					18.20%	12.50%		12.50%		25.00%
Equity investments	$ 517,254		$ 517,254		$ 184,711		$ 511,473	$ 511,473					$ 173,452	$ 5,781		$ 5,781		$ 11,259
Equity in Earnings	10,492	2,868	14,913	8,655			10,428	10,428		2,638	4,111	8,231		64	230	374	424
Equity investments, common shares owned							22,000,000	22,000,000	9,950,000
Equity investments, market value based on quoted market prices							567,600	567,600
Equity investments, quoted market price of common share (in dollars per share)							$ 25.80	$ 25.80
Gross proceeds received on issuance or sale of common shares									250,740
Net proceeds received on issuance or sale of common shares									239,576
Common stock price per share (in dollars per share)						$ 28.25			$ 25.20
Ownership percentage after offering						44.20%
Market value of common shares exceeding carrying value						17,590
Amortization of the difference between carrying value and share of underlying equity						27 years
Gain on sale of equity investment			66,293						66,293
Cash distributions						$ 9,680					$ 4,279	$ 12,537
Issuance of shares, net						10,500,000

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Earnings Per Common Share (Details)	9 Months Ended
	Sep. 30, 2013
Series D Convertible Preferred Stock
Number of cumulative convertible preferred shares to be converted to common shares	15,180,000
Preferred shares, dividend yield (as a percent)	6.50%
Percentage of average closing market price of the entity's common stock based on which ratio for conversion of preferred shares into common shares is determined	98.00%
Common Stock
Common shares from conversion of preferred shares	7,298,165

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Indebtedness (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended					1 Months Ended					3 Months Ended		9 Months Ended			3 Months Ended		9 Months Ended
	Mar. 31, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Sep. 30, 2013 Real estate properties held for sale property	Dec. 31, 2012 Real estate properties held for sale	Oct. 31, 2013 5.75% Senior Notes due February 15, 2014	Mar. 31, 2013 5.75% Senior Notes due February 15, 2014	Mar. 31, 2013 6.40% Senior Notes due February 15, 2015	Mar. 31, 2013 5.75% Senior Notes due November 1, 2015	Mar. 31, 2013 6.25% Senior Notes due August 15, 2016	Sep. 30, 2013 Unsecured revolving credit facility	Sep. 30, 2012 Unsecured revolving credit facility	Sep. 30, 2013 Unsecured revolving credit facility	Sep. 30, 2012 Unsecured revolving credit facility	Sep. 30, 2013 Mortgage notes maturing from 2014 through 2026 property	Sep. 30, 2013 Unsecured term loan	Sep. 30, 2012 Unsecured term loan	Sep. 30, 2013 Unsecured term loan	Sep. 30, 2012 Unsecured term loan	Sep. 30, 2013 Unsecured revolving credit facility and unsecured term loan	Jun. 19, 2013 Unsecured revolving credit facility and unsecured term loan
Indebtedness
Principal	$ 670,295								$ 145,612	$ 152,560	$ 111,227	$ 260,896
Purchase Price	726,151								148,746	164,140	121,047	292,218
Loss on early extinguishment of debt	(60,027)	(220)	(60,027)	(287)
Prepayment of debt								99,043
Maximum borrowing capacity													750,000		750,000
Maximum amount of borrowing													1,500,000		1,500,000
Maturity date extension period available															1 year
Interest rate stated percentage								5.75%	5.75%	6.40%	5.75%	6.25%
Increased maximum borrowing capacity available under specified circumstances																		1,000,000		1,000,000
Variable rate basis															LIBOR					LIBOR
Basis points on variable rate (as a percent)															1.50%					1.85%
Facility fee of lending commitments under our revolving credit facility (as a percent)															0.35%
Interest rate payable (as a percent)															1.70%					2.00%
Average interest rate (as a percent)													1.70%	1.50%	1.70%	1.50%		2.00%	1.80%	2.10%	1.80%
Amount outstanding													235,000		235,000
Available Borrowing Capacity													515,000		515,000
Loan maturing in December 2016																		500,000		500,000
Number of Real Estate Properties Secured by Mortgage						2											14
Number of buildings secured by mortgage						3											19
Cost of properties mortgaged			5,631,070		7,829,409	631,057	164,041										1,269,286
Mortgaged properties aggregate net book value			4,757,038		6,821,803												1,116,162
Mortgage notes payable, net			$ 925,120		$ 984,827	$ 20,127											$ 925,120
Percentage of principal amount at which the potential acquiring entity may offer to repurchase the note																							51.00%
Ratio of lenders by amount required for waivers of defaults under debt																						0.6667

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Rents receivable, allowance for doubtful accounts (in dollars)	$ 7,750	$ 9,962
Preferred shares of beneficial interest, shares authorized	50,000,000	50,000,000
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	118,387,518	83,804,068
Common shares of beneficial interest, shares outstanding	118,387,518	83,804,068
Series D
Preferred shares of beneficial interest, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred shares, dividend yield (as a percent)	6.50%	6.50%
Preferred shares of beneficial interest, shares issued	15,180,000	15,180,000
Preferred shares of beneficial interest, shares outstanding	15,180,000	15,180,000
Preferred shares, aggregate liquidation preference (in dollars)	379,500	379,500
Series E
Preferred shares of beneficial interest, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred shares, dividend yield (as a percent)	7.25%	7.25%
Preferred shares of beneficial interest, shares issued	11,000,000	11,000,000
Preferred shares of beneficial interest, shares outstanding	11,000,000	11,000,000
Preferred shares, aggregate liquidation preference (in dollars)	$ 275,000	$ 275,000

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Real Estate Mortgages Receivable

9 Months Ended

Sep. 30, 2013

Real Estate Mortgages Receivable

Real Estate Mortgages Receivable

Note 7.  Real Estate Mortgages Receivable

We provided mortgage financing totaling $7,688 at 6.0% per annum in connection with three suburban office and industrial properties (18 buildings) sold in January 2013.  This real estate mortgage requires monthly interest payments and matures on January 24, 2023.  In addition, in September 2013, another borrower prepaid to us in full a $1,000 real estate mortgage that was scheduled to mature on July 1, 2017.  As of September 30, 2013 and December 31, 2012, we had total real estate mortgages receivable with an aggregate carrying value of $8,107 and $1,419, respectively, included in other assets in our condensed consolidated balance sheets.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Amortization of debt discounts, premiums and deferred financing fees	$ (589)	$ 1,001	$ 321	$ 2,717

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Real estate properties:
Land	$ 740,613	$ 1,531,416
Buildings and improvements	4,890,457	6,297,993
Total real estate properties, at cost, gross	5,631,070	7,829,409
Accumulated depreciation	(874,032)	(1,007,606)
Total real estate properties, at cost, net	4,757,038	6,821,803
Properties held for sale	678,250	171,832
Acquired real estate leases, net	272,381	427,756
Equity investments	517,254	184,711
Cash and cash equivalents	165,990	102,219
Restricted cash	17,443	16,626
Rents receivable, net of allowance for doubtful accounts of $7,750 and $9,962, respectively	218,301	253,394
Other assets, net	195,330	211,293
Total assets	6,821,987	8,189,634
LIABILITIES AND SHAREHOLDERS' EQUITY
Revolving credit facility	235,000	297,000
SIR revolving credit facility		95,000
Senior unsecured debt, net	1,954,701	2,972,994
Mortgage notes payable, net	925,120	984,827
Liabilities related to properties held for sale	30,322	2,339
Accounts payable and accrued expenses	169,498	194,184
Assumed real estate lease obligations, net	38,087	69,304
Rent collected in advance	29,220	35,700
Security deposits	12,442	23,860
Due to related persons	6,564	12,958
Total liabilities	3,400,954	4,688,166
Common shares of beneficial interest, $0.01 par value:
Common shares of beneficial interest, $0.01 par value: 350,000,000 shares authorized; 118,387,518 and 83,804,068 shares issued and outstanding, respectively	1,184	838
Additional paid in capital	4,213,472	3,585,400
Cumulative net income	2,215,141	2,386,900
Cumulative other comprehensive (loss) income	(26,930)	565
Cumulative common distributions	(3,052,675)	(2,972,569)
Cumulative preferred distributions	(562,820)	(529,367)
Total shareholders' equity attributable to CommonWealth REIT	3,421,033	3,105,428
Noncontrolling interest in consolidated subsidiary		396,040
Total shareholders' equity	3,421,033	3,501,468
Total liabilities and shareholders' equity	6,821,987	8,189,634
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	$ 265,391

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Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013 sqft property	Sep. 30, 2012 sqft	Sep. 30, 2013 sqft property	Sep. 30, 2012 sqft	Mar. 31, 2013 property	Dec. 31, 2012 property
Segment information
Number of reportable segments			2
Number of geographical regions comprised mainly by properties owned by SIR			1
Number of remaining geographical regions			2
Square feet	38,895,000	61,733,000	38,895,000	61,733,000
Rental income	$ 201,741	$ 226,802	$ 699,207	$ 662,587
NOI	107,109	134,797	411,557	397,360
Investment in properties, net of accumulated depreciation	4,757,038		4,757,038			6,821,803
CBD Properties
Segment information
Number of Real Estate Properties	38		38
Number of buildings	51		51
Number of Real Estate Properties Reclassified to Discontinued Operations	3		3			1
Number of buildings reclassified to discontinued operations	4		4			1
Number of Real Estate Properties Reclassified from One Geographical Segment to Another Geographical Segment					3
Number of buildings reclassified from one geographical segment to another geographical segment					3
Square feet	20,930,000	20,166,000	20,930,000	20,166,000
Rental income	136,228	130,193	413,550	383,245
NOI	68,663	70,208	220,182	210,250
Investment in properties, net of accumulated depreciation	2,999,964		2,999,964
CBD Properties | Australia
Segment information
Investment in properties, net of accumulated depreciation	149,075		149,075
Suburban Properties
Segment information
Number of Real Estate Properties	90		90
Number of buildings	184		184
Number of Real Estate Properties Reclassified to Discontinued Operations	42		42			39
Number of buildings reclassified to discontinued operations	106		106			93
Number of Real Estate Properties Reclassified from One Geographical Segment to Another Geographical Segment					3
Number of buildings reclassified from one geographical segment to another geographical segment					3
Square feet	17,965,000	41,567,000	17,965,000	41,567,000
Rental income	65,513	96,609	285,657	279,342
NOI	38,446	64,589	191,375	187,110
Investment in properties, net of accumulated depreciation	1,757,074		1,757,074
Suburban Properties | Australia
Segment information
Investment in properties, net of accumulated depreciation	$ 92,956		$ 92,956
Suburban Properties | Minimum
Segment information
Percentage of real estate properties that are office properties			90.00%

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Income Taxes (Tables)

9 Months Ended

Sep. 30, 2013

Income Taxes

Schedule of components of provision for income taxes

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Current:
State	$	123	$	130	$	448	$	379
Foreign	561		—		1,943		—
	684		130		2,391		379
Deferred:
Foreign	101		1,192		136		1,527
	101		1,192		136		1,527
Income tax provision	$	785	$	1,322	$	2,527	$	1,906

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Real Estate Properties (Tables)

9 Months Ended

Sep. 30, 2013

Real Estate Properties

Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures

Balance Sheets:

	September 30, 2013		December 31, 2012
Real estate properties	$	631,057	$	164,041
Acquired real estate leases	9,416		453
Rents receivable	16,941		2,791
Other assets, net	20,836		4,547
Properties held for sale	$	678,250	$	171,832
Mortgage notes payable, net	$	20,127	$	—
Assumed real estate lease obligations	2,328		21
Rent collected in advance	4,202		854
Security deposits	3,665		1,464
Liabilities related to properties held for sale	$	30,322	$	2,339

Statements of Operations:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Rental income	$	27,619		$	34,859		$	89,399		$	105,694
Operating expenses	(17,417		)	(20,572		)	(54,226		)	(59,533		)
Depreciation and amortization	(8,157		)	(11,084		)	(24,289		)	(33,717		)
General and administrative	(1,761		)	(2,027		)	(5,553		)	(6,076		)
Operating income	284			1,176			5,331			6,368
Interest and other income	1			—			13			80
Interest expense	(313		)	(402		)	(954		)	(1,557		)
(Loss) income from discontinued operations	$	(28	)	$	774		$	4,390		$	4,891

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Cumulative Other Comprehensive (Loss) Income (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Reclassifications out of cumulative other comprehensive income (loss)
Interest expenses	$ 39,359	$ 50,736	$ 134,824	$ 148,924
Equity in earnings of investees	(10,492)	(2,868)	(14,913)	(8,655)
Total reclassifications	(1,265)		(3,720)
Amount Reclassified from Cumulative Other Comprehensive Income (Loss) to Net (Loss) Income
Reclassifications out of cumulative other comprehensive income (loss)
Total reclassifications	1,265		3,720
Unrealized gains and losses on available for sale securities
Reclassifications out of cumulative other comprehensive income (loss)
Total reclassifications			17
Unrealized gains and losses on available for sale securities | Amount Reclassified from Cumulative Other Comprehensive Income (Loss) to Net (Loss) Income
Reclassifications out of cumulative other comprehensive income (loss)
Equity in earnings of investees			(17)
Interest rate swap contracts | Amount Reclassified from Cumulative Other Comprehensive Income (Loss) to Net (Loss) Income
Reclassifications out of cumulative other comprehensive income (loss)
Interest expenses	$ 1,265		$ 3,737

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Equity Investments (Details 3) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Jul. 02, 2013
Income Statements:
Total revenues	$ 201,741	$ 226,802	$ 699,207	$ 662,587
Operating expenses	(94,632)	(92,005)	(287,650)	(265,227)
General and administrative	(25,069)	(12,565)	(61,445)	(34,190)
Operating income	30,326	68,813	179,845	203,545
Interest expense	(39,359)	(50,736)	(134,824)	(148,924)
Equity in earnings of investees	10,492	2,868	14,913	8,655
Income before income tax expense	1,686	21,124	67,131	64,009
Income tax expense	(785)	(1,322)	(2,527)	(1,906)
Net (loss) income	(216,207)	22,265	(151,666)	67,425
SIR
Income Statements:
Total revenues	48,584	30,878	138,390	86,385
Operating expenses	(9,287)	(5,710)	(26,172)	(16,828)
Depreciation and amortization	(8,485)	(3,888)	(22,445)	(9,682)
Acquisition related costs	(790)	(583)	(1,479)	(1,258)
General and administrative	(3,208)	(2,626)	(8,884)	(5,664)
Operating income	26,814	18,071	79,410	52,953
Interest expense	(3,232)	(2,467)	(10,484)	(4,436)
Equity in earnings of investees	64	115	219	189
Income before income tax expense	23,646	15,719	69,145	48,706
Income tax expense	(52)		(132)
Net (loss) income	23,594	15,719	69,013	48,706
Weighted average common shares outstanding	49,686	31,206	42,790	25,226
Net income per common share (in dollars per share)	$ 0.47	$ 0.50	$ 1.61	$ 1.93
Equity method investments, ownership percentage					56.00%
AIC
Income Statements:
Amount invested in equity investee	5,209		5,209
Combined carrying value of equity method investments	$ 5,781		$ 5,781
Number of other companies which are shareholders of related party	4		4
Equity method investments, ownership percentage	12.50%		12.50%

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Real Estate Properties (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Statements of Operations:
Rental income	$ 201,741	$ 226,802	$ 699,207	$ 662,587
Operating expenses	(94,632)	(92,005)	(287,650)	(265,227)
Depreciation and amortization	(52,150)	(52,353)	(169,930)	(154,623)
General and administrative	(25,069)	(12,565)	(61,445)	(34,190)
Operating income	30,326	68,813	179,845	203,545
Interest and other income	227	399	931	1,020
Interest expense	(39,359)	(50,736)	(134,824)	(148,924)
(Loss) income from discontinued operations	(28)	774	4,390	4,891
Discontinued operations, properties sold or held for sale
Statements of Operations:
Rental income	27,619	34,859	89,399	105,694
Operating expenses	(17,417)	(20,572)	(54,226)	(59,533)
Depreciation and amortization	(8,157)	(11,084)	(24,289)	(33,717)
General and administrative	(1,761)	(2,027)	(5,553)	(6,076)
Operating income	284	1,176	5,331	6,368
Interest and other income	1		13	80
Interest expense	(313)	(402)	(954)	(1,557)
(Loss) income from discontinued operations	$ (28)	$ 774	$ 4,390	$ 4,891

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Investment in Direct Financing Lease (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Investment in Direct Financing Lease
Percentage of term exceeding useful life of one office tower	75.00%
Total minimum lease payments receivable	$ 25,011	$ 31,084
Estimated unguaranteed residual value of leased asset	4,951	4,951
Unearned income	(8,425)	(9,302)
Net investment in direct financing lease	21,537	26,733
Allowance for losses related to our direct financing lease	$ 0	$ 0

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Equity Investments

9 Months Ended

Sep. 30, 2013

Equity Investments

Equity Investments

Note 6.  Equity Investments

At September 30, 2013 and December 31, 2012, we had the following equity investments in SIR, Government Properties Income Trust, or GOV, and Affiliates Insurance Company, or AIC:

	Ownership Percentage				Equity Investments				Equity in Earnings
									Three Months Ended				Nine Months Ended
	September 30,		December 31,		September 30,		December 31,		September 30,				September 30,
	2013		2012		2013		2012		2013		2012		2013		2012
SIR	44.2	%	Consolidated		$	511,473	$	—	$	10,428	$	—	$	10,428	$	—
GOV	—	%	18.2	%	—		173,452		—		2,638		4,111		8,231
AIC	12.5	%	25.0	%	5,781		11,259		64		230		374		424
					$	517,254	$	184,711	$	10,492	$	2,868	$	14,913	$	8,655

At September 30, 2013, we owned 22,000,000, or approximately 44.2%, of the common shares of beneficial interest of SIR, with a carrying value of $511,473 and a market value, based on quoted market prices, of $567,600 ($25.80 per share).  SIR is a REIT that is primarily focused on owning and investing in net leased, single tenant properties and was one of our consolidated subsidiaries until July 2, 2013.  On July 2, 2013, SIR issued and sold to the public 10,500,000 of its common shares for $28.25 per common share.  Prior to the completion of this offering, our 22,000,000 common shares of SIR represented approximately 56.0% of SIR’s outstanding common shares, and SIR was one of our consolidated subsidiaries.  Following the completion of this offering, our 22,000,000 common shares of SIR represented approximately 44.2% of SIR’s outstanding common shares and SIR ceased to be our consolidated subsidiary.  Accordingly, since the completion of this offering on July 2, 2013, we no longer consolidate our investment in SIR, but instead account for such investment under the equity method.  Under the equity method, we record our percentage share of net earnings of SIR in our condensed consolidated statements of operations.  Prior to July 2, 2013, the operating results and investments of SIR were included in our consolidated results of operations and financial position.  On July 2, 2013, our share of the underlying equity of SIR exceeded our carrying value by $17,590.  As required under GAAP, we are amortizing this difference to equity in earnings of investees over a 27 year period, which approximates the average remaining useful lives of the buildings owned by SIR as of July 2, 2013.  If we determine there is an “other than temporary” decline in the fair value of this investment, we would record a charge to earnings.  See Note 1 and Note 15 for additional information regarding SIR.

Since July 2, 2013, we received cash distributions from SIR totaling $9,680.

The following summarized financial data of SIR is as reported in SIR’s Quarterly Report on Form 10-Q for the period ended September 30, 2013, or the SIR Quarterly Report.  References in our financial statements to the SIR Quarterly Report are included as references to the source of the data only, and the information in the SIR Quarterly Report is not incorporated by reference into our financial statements.

Condensed Consolidated Balance Sheets:

	September 30,		December 31,
	2013		2012
Real estate properties, net	$	1,510,338	$	1,249,081
Acquired real estate leases, net	114,937		95,248
Cash and cash equivalents	14,540		20,373
Rents receivable, net	52,174		38,885
Other assets, net	23,162		27,065
Total assets	$	1,715,151	$	1,430,652
Revolving credit facility	$	80,000	$	95,000
Term loan	350,000		350,000
Mortgage notes payable	27,309		27,778
Assumed real estate lease obligations, net	19,317		20,434
Other liabilities	40,999		37,257
Shareholders’ equity	1,197,526		900,183
Total liabilities and shareholders’ equity	$	1,715,151	1,430,652

Condensed Consolidated Statements of Income:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Total revenues	$	48,584		$	30,878		$	138,390		$	86,385
Operating expenses	(9,287		)	(5,710		)	(26,172		)	(16,828		)
Depreciation and amortization	(8,485		)	(3,888		)	(22,445		)	(9,682		)
Acquisition related costs	(790		)	(583		)	(1,479		)	(1,258		)
General and administrative	(3,208		)	(2,626		)	(8,884		)	(5,664		)
Operating income	26,814			18,071			79,410			52,953
Interest expense	(3,232		)	(2,467		)	(10,484		)	(4,436		)
Equity in earnings of an investee	64			115			219			189
Income before income tax expense	23,646			15,719			69,145			48,706
Income tax expense	(52		)	—			(132		)	—
Net income	$	23,594		$	15,719		$	69,013		$	48,706
Weighted average common shares outstanding	49,686			31,206			42,790			25,226
Net income per common share	$	0.47		$	0.50		$	1.61		$	1.93

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

During the nine months ended September 30, 2013 and 2012, we received cash distributions from GOV totaling $4,279 and $12,537, respectively.

As of September 30, 2013, we have invested $5,209 in AIC, an insurance company owned in equal proportion by us, Reit Management & Research LLC, our business and property manager, or RMR, GOV, SIR and four other companies to which RMR provides management services.  At September 30, 2013, we owned 12.5% of AIC with a carrying value of $5,781.  For the period that SIR was both a shareholder of AIC and our consolidated subsidiary, from May 2012 until July 2, 2013, our condensed consolidated financial statements also include SIR’s equity investment in AIC.  We and SIR use the equity method to account for our and SIR’s investment in AIC because we and SIR believe that we each have significant influence over AIC because all of our Trustees and all of SIR’s trustees are also directors of AIC.  Following our deconsolidating SIR, we continue to account for our investment in AIC under the equity method, as we continue to believe we have significant influence over AIC for the same reason.  Under the equity method, we record our and our percentage share of SIR’s percentage share of net earnings from AIC in our 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 15 for additional information about our investment in AIC.

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Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2013

Fair Value of Assets and Liabilities

Schedule of assets and liabilities measured at fair value

				Fair Value at Reporting Date Using
				Quoted Prices in					Significant
				Active Markets for		Significant Other			Unobservable
				Identical Assets		Observable Inputs			Inputs
Description	Total			(Level 1)		(Level 2)			(Level 3)
Recurring Fair Value Measurements:
Effective portion of interest rate swap contracts(1)	$	(12,613	)	$	—	$	(12,613	)	$	—
Non-Recurring Fair Value Measurements:
Properties held for sale(2)	$	494,713		$	—	$	—		$	494,713

(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, 2013, 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) As of September 30, 2013, we recorded a net loss on asset impairment totaling $223,192 for three of our CBD properties (four buildings) and 43 of our suburban properties (97 buildings) to reduce the aggregate carrying value of these properties from $717,905 to their estimated fair value less costs to sell of $494,713.  All of these properties were classified as held for sale as of September 30, 2013.  We used broker information, including recent purchase offers and comparable sales (level 3 inputs), in determining the fair value of these properties.  The valuation techniques and significant unobservable inputs used for our level 3 fair value measurements at September 30, 2013 were as follows:

Schedule of valuation techniques and significant unobservable inputs used for level 3 fair value measurements

Description	Fair Value at September 30, 2013		Valuation Techniques	Unobservable Inputs	Range
Properties held for sale for which we recognized impairment losses	$	36,373	Purchase Offers	N/A	N/A
Properties held for sale for which we recognized impairment losses	$	458,340	Discounted cash flows and comparable sales	Discount rate Exit capitalization rate Market rent growth rate	9% - 12% 8% - 10% 3%

Schedule of effects of interest rate derivatives on our consolidated statements of operations and consolidated statements of comprehensive (loss) income

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Balance at beginning of period	$	(12,791	)	$	(18,237	)	$	(16,624	)	$	(15,796	)
Amount of income (loss) recognized in cumulative other comprehensive (loss) income	(1,087		)	(782		)	274			(5,673		)
Amount of loss reclassified from cumulative other comprehensive (loss) income into interest expense	1,265			1,236			3,737			3,686
Unrealized gain (loss) on derivative instruments	178			454			4,011			(1,987		)
Balance at end of period	$	(12,613	)	$	(17,783	)	$	(12,613	)	$	(17,783	)

Fair value and carrying value of financial instruments

	September 30, 2013				December 31, 2012
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Senior notes and mortgage notes payable	$	2,206,157	$	2,314,308	$	2,932,951	$	3,181,522

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Shareholders' Equity (Details 2) (USD $) In Thousands, except Share data, unless otherwise specified			0 Months Ended				1 Months Ended	0 Months Ended			1 Months Ended	0 Months Ended				1 Months Ended		0 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Jul. 02, 2013 SIR	Aug. 15, 2013 Series D	May 15, 2013 Series D	Feb. 15, 2013 Series D	Oct. 31, 2013 Series D	Aug. 15, 2013 Series E	May 15, 2013 Series E	Feb. 15, 2013 Series E	Oct. 31, 2013 Series E	Aug. 23, 2013 Common Shares	May 22, 2013 Common Shares	May 14, 2013 Common Shares trustee	Feb. 21, 2013 Common Shares	Oct. 31, 2013 Common Shares	Mar. 31, 2013 Common Shares	Sep. 13, 2013 Common Shares Equity compensation plan
Shareholders' Equity
Common shares issued			10,500,000														34,500,000
Common stock sold pursuant to the underwriters' option to purchase additional shares (in shares)																	4,500,000
Shares of beneficial interest granted														2,000
Price per common share (in dollars per share)														$ 20.13			$ 19.00	$ 23.72
Common shares granted under equity compensation plan																		73,450
Gross proceeds received on issuance of common shares																	$ 655,500
Net proceeds received on issuance of common shares																	626,904
Cash distributions paid on preferred shares (in dollars per share)				$ 0.4063	$ 0.4063	$ 0.4063		$ 0.4531	$ 0.4531	$ 0.4531
Distribution paid or declared on preferred shares				6,167	6,167	6,167	6,167	4,984	4,984	4,984	4,984
Par value of shares of beneficial interest (in dollars per share)	$ 0.01	$ 0.01												$ 0.01
Additional distributions on common stock declared (in dollars per share)												$ 0.25	$ 0.25		$ 0.25	$ 0.25
Distributions paid or declared on common shares												$ 29,579	$ 29,576		$ 20,951	$ 29,600
Distributions on preferred stock declared (in dollars per share)							$ 0.4063				$ 0.4531
Number of trustees to whom common shares granted														5

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Cumulative Other Comprehensive (Loss) Income

9 Months Ended

Sep. 30, 2013

Cumulative Other Comprehensive (Loss) Income

Cumulative Other Comprehensive (Loss) Income

Note 9.  Cumulative Other Comprehensive (Loss) Income

The following table presents a roll forward of amounts recognized in cumulative other comprehensive (loss) income by component for the three and nine months ended September 30, 2013:

	Three Months Ended September 30, 2013
	Unrealized			Foreign			Equity in
	Gain (Loss)			Currency			Unrealized
	on Derivative			Translation			Gain (Loss) of
	Instruments			Adjustments			an Investee			Total
Balances as of June 30, 2013	$	(12,791	)	$	(19,777	)	$	(8	)	$	(32,576	)
Other comprehensive income (loss) before reclassifications	(1,087		)	5,455			13			4,381
Amounts reclassified from cumulative other comprehensive income (loss) to net (loss) income	1,265			—			—			1,265
Net current period other comprehensive income	178			5,455			13			5,646
Balances as of September 30, 2013	$	(12,613	)	$	(14,322	)	$	5		$	(26,930	)

	Nine Months Ended September 30, 2013
	Unrealized			Foreign			Equity in
	Gain (Loss)			Currency			Unrealized
	on Derivative			Translation			Gain (Loss) of
	Instruments			Adjustments			an Investee			Total
Balances as of December 31, 2012	$	(16,624	)	$	17,071		$	118		$	565
Other comprehensive income (loss) before reclassifications	274			(31,393		)	(96		)	(31,215		)
Amounts reclassified from cumulative other comprehensive income (loss) to net (loss) income	3,737			—			(17		)	3,720
Net current period other comprehensive income (loss)	4,011			(31,393		)	(113		)	(27,495		)
Balances as of September 30, 2013	$	(12,613	)	$	(14,322	)	$	5		$	(26,930	)

The following table presents reclassifications out of cumulative other comprehensive income (loss) for the three and nine months ended September 30, 2013:

Three Months Ended September 30, 2013
	Amounts Reclassified from
Details about Cumulative Other	Cumulative Other Comprehensive		Affected Line Items in the
Comprehensive Income (Loss) Components	Income (Loss) to Net (Loss) Income		Statement of Operations
Interest rate swap contracts	$	1,265	Interest expense
Unrealized gains and losses on available for sale securities	—		Equity in earnings of investees
	$	1,265

Nine Months Ended September 30, 2013
	Amounts Reclassified from
Details about Cumulative Other	Cumulative Other Comprehensive			Affected Line Items in the
Comprehensive Income (Loss) Components	Income (Loss) to Net (Loss) Income			Statement of Operations
Interest rate swap contracts	$	3,737		Interest expense
Unrealized gains and losses on available for sale securities	(17		)	Equity in earnings of investees
	$	3,720

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Investment in Direct Financing Lease

9 Months Ended

Sep. 30, 2013

Investment in Direct Financing Lease

Investment in Direct Financing Lease

Note 5.  Investment in Direct Financing Lease

We have an investment in a direct financing lease that relates to a lease with a term that exceeds 75% of the useful life of an office tower located within a mixed use property in Phoenix, AZ.  We recognize income using the effective interest method to produce a level yield on funds not yet recovered.  Estimated unguaranteed residual values at the date of lease inception represent our initial estimates of the fair value of the leased assets at the expiration of the lease, which do not exceed their original cost.  Significant assumptions used in estimating residual values include estimated net cash flows over the remaining lease term and expected future real estate values.  The carrying amount of our net investment is included in other assets in our condensed consolidated balance sheets.  The following table summarizes the carrying amount of our net investment in this direct financing lease:

	September 30,			December 31,
	2013			2012
Total minimum lease payments receivable	$	25,011		$	31,084
Estimated unguaranteed residual value of leased asset	4,951			4,951
Unearned income	(8,425		)	(9,302		)
Net investment in direct financing lease	$	21,537		$	26,733

We monitor the payment history and credit profile of the tenant and have determined that no allowance for losses related to our direct financing lease was necessary at September 30, 2013 and December 31, 2012.  Our direct financing lease has an expiration date in 2045.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$ (151,666)	$ 67,425
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Depreciation	140,357	137,039
Net amortization of debt discounts, premiums and deferred financing fees	321	2,752
Straight line rental income	(26,056)	(28,666)
Amortization of acquired real estate leases	46,350	44,154
Other amortization	14,727	14,610
Loss on asset impairment	225,615
Loss on early extinguishment of debt	60,027	1,895
Equity in earnings of investees	(14,913)	(8,655)
Gain on sale of equity investment	(66,293)
Distributions of earnings from investees	13,791	8,230
Net gain on sale of properties	(4,955)	(2,039)
Change in assets and liabilities:
Restricted cash	2,149	(3,689)
Rents receivable and other assets	(58,705)	(46,790)
Accounts payable and accrued expenses	11,116	(9,140)
Rent collected in advance	1,945	(11,775)
Security deposits	527	415
Due to related persons	(4,677)	20,646
Cash provided by operating activities	189,660	186,412
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions	(154,430)	(389,536)
Real estate improvements	(80,239)	(86,077)
Principal payments received from direct financing lease	5,196	4,954
Principal payments received from real estate mortgages receivable	1,000
Proceeds from sale of properties, net	37,699	9,643
Proceeds from sale of equity investment, net	239,576
Distributions in excess of earnings from investees	168	4,307
Investment in Affiliates Insurance Company		(5,335)
Increase in restricted cash	(3,008)	(2,073)
Deconsolidation of a subsidiary	(12,286)
Cash provided by (used in) investing activities	33,676	(464,117)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares, net	626,809	180,814
Redemption of preferred shares		(150,000)
Repurchase and retirement of outstanding debt securities	(728,021)
Proceeds from borrowings	1,036,000	1,368,500
Payments on borrowings	(964,258)	(1,055,681)
Deferred financing fees	(1,204)	(14,734)
Distributions to common shareholders	(80,106)	(125,588)
Distributions to preferred shareholders	(33,453)	(41,558)
Distributions to noncontrolling interest in consolidated subsidiary	(14,863)	(4,508)
Cash (used in) provided by financing activities	(159,096)	157,245
Effect of exchange rate changes on cash	(469)	377
Increase (decrease) in cash and cash equivalents	63,771	(120,083)
Cash and cash equivalents at beginning of period	102,219	192,763
Cash and cash equivalents at end of period	165,990	72,680
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	156,841	165,874
Taxes paid	1,197	568
NON-CASH INVESTING ACTIVITIES:
Real estate acquisitions		(243,212)
Investment in real estate mortgages receivable	(7,688)	(1,419)
NON-CASH FINANCING ACTIVITIES:
Issuance of common shares	1,535	986
Assumption of mortgage notes payable		$ 243,212

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Segment Information (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended			9 Months Ended
	Sep. 30, 2013	Mar. 31, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Segment Information
Rental income	$ 201,741		$ 226,802	$ 699,207	$ 662,587
Operating expenses	(94,632)		(92,005)	(287,650)	(265,227)
NOI	107,109		134,797	411,557	397,360
Reconciliation of NOI to net income
NOI	107,109		134,797	411,557	397,360
Depreciation and amortization	(52,150)		(52,353)	(169,930)	(154,623)
General and administrative	(25,069)		(12,565)	(61,445)	(34,190)
Acquisition related costs	436		(1,066)	(337)	(5,002)
Operating income	30,326		68,813	179,845	203,545
Interest and other income	227		399	931	1,020
Interest expense	(39,359)		(50,736)	(134,824)	(148,924)
Loss on early extinguishment of debt		(60,027)	(220)	(60,027)	(287)
Equity in earnings of investees	10,492		2,868	14,913	8,655
Gain on sale of equity investment				66,293
Income from continuing operations before income tax expense	1,686		21,124	67,131	64,009
Income tax expense	(785)		(1,322)	(2,527)	(1,906)
Income from continuing operations	901		19,802	64,604	62,103
(Loss) income from discontinued operations	(28)		774	4,390	4,891
Loss on asset impairment from discontinued operations	(217,080)			(225,615)
Loss on early extinguishment of debt from discontinued operations					(1,608)
Net gain on sale of properties from discontinued operations			1,689	3,359	2,039
(Loss) income before gain on sale of properties	(216,207)		22,265	(153,262)	67,425
Gain on sale of properties				1,596
Net (loss) income	$ (216,207)		$ 22,265	$ (151,666)	$ 67,425

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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, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Nonrecurring Fair Value Measurements:
Properties held for sale	$ 4,757,038		$ 4,757,038		$ 6,821,803
Effects of interest rate derivatives on our consolidated statements of operations and consolidated statements of comprehensive income (loss)
Unrealized gain (loss) on derivative instruments	178	454	4,011	(1,987)
CBD
Nonrecurring Fair Value Measurements:
Net Loss on asset impairment			223,192
Interest Rate Swap
Recurring Fair Value Measurements:
Interest rate swap agreements qualifying as cash flow hedges used for hedging mortgage note payable	173,664		173,664
Derivative, variable rate basis			LIBOR
Interest Rate Swap | Cash Flow Hedges
Recurring Fair Value Measurements:
Effective portion of interest rate swap contracts	(12,613)	(17,783)	(12,613)	(17,783)
Nonrecurring Fair Value Measurements:
Decrease (Increase) in fair value of interest rate cash flow hedges	178	454	4,011	1,987
Effects of interest rate derivatives on our consolidated statements of operations and consolidated statements of comprehensive income (loss)
Balance at beginning of year	(12,791)	(18,237)	(16,624)	(15,796)
Amount of income (loss) recognized in cumulative other comprehensive (loss) income	(1,087)	(782)	274	(5,673)
Amount of loss reclassified from cumulative other comprehensive (loss) income into interest expense	1,265	1,236	3,737	3,686
Unrealized gain (loss) on derivative instruments	178	454	4,011	(1,987)
Balance at end of year	(12,613)	(17,783)	(12,613)	(17,783)
Reclassification from cumulative other comprehensive income (loss) into interest expense, over the next 12 months	4,854		4,854
Recurring | Total Fair value
Recurring Fair Value Measurements:
Effective portion of interest rate swap contracts	(12,613)		(12,613)
Effects of interest rate derivatives on our consolidated statements of operations and consolidated statements of comprehensive income (loss)
Balance at end of year	(12,613)		(12,613)
Recurring | Fair Value at Reporting Date Using Significant Other Observable Inputs (Level 2)
Recurring Fair Value Measurements:
Effective portion of interest rate swap contracts	(12,613)		(12,613)
Effects of interest rate derivatives on our consolidated statements of operations and consolidated statements of comprehensive income (loss)
Balance at end of year	(12,613)		(12,613)
Nonrecurring | Carrying Amount | Suburban Office Industrial and Other
Nonrecurring Fair Value Measurements:
Properties held for sale	717,905		717,905
Nonrecurring | Total Fair value
Nonrecurring Fair Value Measurements:
Properties held for sale	494,713		494,713
Nonrecurring | Total Fair value | Suburban Office Industrial and Other
Nonrecurring Fair Value Measurements:
Properties held for sale	494,713		494,713
Nonrecurring | Fair Value at Reporting Date Using Significant Unobservable Inputs (Level 3)
Nonrecurring Fair Value Measurements:
Properties held for sale	$ 494,713		$ 494,713
Nonrecurring | Fair Value at Reporting Date Using Significant Unobservable Inputs (Level 3) | Suburban Office
Nonrecurring Fair Value Measurements:
Number of Available for Sale Real Estate Properties Held for Sale Expected to Sell within One Year	43		43
Number of Available for Sale Real Estate buildings Held for Sale Expected to Sell within One Year	97		97
Nonrecurring | Fair Value at Reporting Date Using Significant Unobservable Inputs (Level 3) | CBD Office
Nonrecurring Fair Value Measurements:
Number of Available for Sale Real Estate Properties Held for Sale Expected to Sell within One Year	3		3
Number of Available for Sale Real Estate buildings Held for Sale Expected to Sell within One Year	4		4

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Real Estate Properties (Details) (USD $) In Thousands, unless otherwise specified	1 Months Ended	9 Months Ended				9 Months Ended					0 Months Ended	9 Months Ended		0 Months Ended		1 Months Ended					0 Months Ended		1 Months Ended
	Jan. 31, 2013 property sqft	Sep. 30, 2013 sqft	Nov. 05, 2013 property	Dec. 31, 2012 sqft	Sep. 30, 2012 sqft	Sep. 30, 2013 SIR	Sep. 30, 2013 Suburban property property	Dec. 31, 2012 Suburban property property	Sep. 30, 2013 CBD property	Dec. 31, 2012 CBD property	Nov. 04, 2013 Sale property sqft	Sep. 30, 2013 Sale property item sqft	Feb. 16, 2012 Sale SIR sqft	Jun. 28, 2013 Sale Suburban property property sqft	Jun. 29, 2013 Sale Suburban property property sqft	Aug. 31, 2013 Sale Suburban property property sqft	Jun. 30, 2013 Sale Suburban property property sqft	May 31, 2013 Sale Suburban property property sqft	Apr. 30, 2013 Sale Suburban property property sqft	Jan. 31, 2013 Sale Suburban property property sqft	Nov. 04, 2013 Agreement to sell property sqft	Mar. 31, 2013 Boston, MA Sale CBD	Mar. 31, 2013 Boston, MA Sale CBD	Jun. 30, 2013 Tukwila, WA Sale
Real estate properties information
Property square feet		38,895,000			61,733,000						4,201,777	2,394,680	21,400,000	143,802	30,105	129,452	356,045	57,250	618,000	1,060,026	77,394
Real estate improvements						$ 75,431
Aggregate sale price of properties sold or agreed to be sold, excluding closing costs											111,400	46,712		5,250	1,600	4,100	16,300	4,025	830	10,250	2,050	1,806		2,551
Mortgage financing related to suburban property sold	7,688																			7,688
Interest rate on real estate mortgage receivable (as a percent)	6.00%																			6.00%
Gain (loss) on sale of properties		$ 1,596													$ 317					$ 1,277			$ 1,596	$ 1,765
Number of Properties Sold	3										29	9								3	2
Number of Real Estate Properties Held for Sale			45				72	39	4	1
Number of buildings sold	18										65	27		1	1	3	2	1	1	18	2
Number of buildings held for sale							172	93	5	1
Property square feet, held for sale		12,704,719		6,673,851
Number of land parcels sold												2

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Fair Value of Assets and Liabilities

9 Months Ended

Sep. 30, 2013

Fair Value of Assets and Liabilities

Fair Value of Assets and Liabilities

Note 12.  Fair Value of Assets and Liabilities

The table below presents certain of our assets and liabilities measured at fair value during 2013, categorized by the level of inputs used in the valuation of each asset and liability:

				Fair Value at Reporting Date Using
				Quoted Prices in					Significant
				Active Markets for		Significant Other			Unobservable
				Identical Assets		Observable Inputs			Inputs
Description	Total			(Level 1)		(Level 2)			(Level 3)
Recurring Fair Value Measurements:
Effective portion of interest rate swap contracts(1)	$	(12,613	)	$	—	$	(12,613	)	$	—
Non-Recurring Fair Value Measurements:
Properties held for sale(2)	$	494,713		$	—	$	—		$	494,713

(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, 2013, 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) As of September 30, 2013, we recorded a net loss on asset impairment totaling $223,192 for three of our CBD properties (four buildings) and 43 of our suburban properties (97 buildings) to reduce the aggregate carrying value of these properties from $717,905 to their estimated fair value less costs to sell of $494,713.  All of these properties were classified as held for sale as of September 30, 2013.  We used broker information, including recent purchase offers and comparable sales (level 3 inputs), in determining the fair value of these properties.  The valuation techniques and significant unobservable inputs used for our level 3 fair value measurements at September 30, 2013 were as follows:

Description	Fair Value at September 30, 2013		Valuation Techniques	Unobservable Inputs	Range
Properties held for sale for which we recognized impairment losses	$	36,373	Purchase Offers	N/A	N/A
Properties held for sale for which we recognized impairment losses	$	458,340	Discounted cash flows and comparable sales	Discount rate Exit capitalization rate Market rent growth rate	9% - 12% 8% - 10% 3%

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 we currently manage by using derivative instruments is a part of our interest rate risk.  Although we have not done so as of September 30, 2013, 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 $173,664 of mortgage debt due 2019, which require interest at a premium 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 increased by $178 and $4,011 during the three and nine months ended September 30, 2013, respectively, based primarily on changes in market interest rates.  The fair value of our derivative instruments increased by $454 during the three months ended September 30, 2012, and decreased by $1,987 during the nine months ended September 30, 2012, based primarily on changes in market interest rates.  As of September 30, 2013 and December 31, 2012, the fair value of these derivative instruments included in accounts payable and accrued expenses and cumulative other comprehensive (loss) income in our condensed consolidated balance sheets totaled ($12,613) and ($16,624), 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.  The table below presents the effects of our interest rate derivatives in our condensed consolidated statements of operations and condensed consolidated statements of comprehensive (loss) income for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Balance at beginning of period	$	(12,791	)	$	(18,237	)	$	(16,624	)	$	(15,796	)
Amount of income (loss) recognized in cumulative other comprehensive (loss) income	(1,087		)	(782		)	274			(5,673		)
Amount of loss reclassified from cumulative other comprehensive (loss) income into interest expense	1,265			1,236			3,737			3,686
Unrealized gain (loss) on derivative instruments	178			454			4,011			(1,987		)
Balance at end of period	$	(12,613	)	$	(17,783	)	$	(12,613	)	$	(17,783	)

Over the next 12 months, we estimate that approximately $4,854 will be reclassified from cumulative other comprehensive income as an increase to interest expense.

In addition to the assets and liabilities described in the above table, our financial instruments include our cash and cash equivalents, rents receivable, investment in direct financing lease receivable, real estate mortgages 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, 2013 and December 31, 2012, the fair values of these additional financial instruments were not materially different from their carrying values, except as follows:

	September 30, 2013				December 31, 2012
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Senior notes and mortgage notes payable	$	2,206,157	$	2,314,308	$	2,932,951	$	3,181,522

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 (level 3 inputs).

Other financial instruments that potentially subject us to concentrations of credit risk consist principally of rents receivable; however, as of September 30, 2013, no single tenant of ours is responsible for more than 3% of our total annualized 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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Shareholders' Equity

9 Months Ended

Sep. 30, 2013

Shareholders' Equity

Shareholders' Equity

Note 8.  Shareholders’ Equity

The following is a reconciliation of changes in shareholders’ equity for the nine months ended September 30, 2013:

	Shareholders’			Shareholders’
	Equity			Equity
	Attributable to			Attributable to			Total
	CommonWealth			Noncontrolling			Shareholders’
	REIT			Interest			Equity
Balances at December 31, 2012	$	3,105,428		$	396,040		$	3,501,468
Net (loss) income	(171,759		)	20,093			(151,666		)
Other comprehensive income (loss):
Unrealized gain on derivative instruments	4,011			—			4,011
Foreign currency translation adjustments	(31,393		)	—			(31,393		)
Equity in unrealized loss of an investee	(113		)	(36		)	(149		)
Total comprehensive (loss) income	(199,254		)	20,057			(179,197		)
Issuance of common shares, net	626,851			(42		)	626,809
Share grants	1,567			252			1,819
Distributions	(113,559		)	(14,863		)	(128,422		)
Deconsolidation of a subsidiary	—			(401,444		)	(401,444		)
Balances at September 30, 2013	$	3,421,033		$	—		$	3,421,033

Common Share Issuances by CWH:

In March 2013, we issued 34,500,000 common shares (including 4,500,000 common shares sold pursuant to the underwriters’ option to purchase additional shares) in a public offering for $19.00 per common share, raising gross proceeds of $655,500 ($626,904 after deducting underwriters’ discounts and commissions and expenses).  Net proceeds from this offering were used to repay indebtedness, including amounts borrowed under our revolving credit facility and to fund, in part, the purchase of the senior notes that were tendered in the tender offer discussed in Note 10.

On May 14, 2013, we granted 2,000 common shares of beneficial interest, par value $0.01 per share, valued at $20.13 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 13, 2013, pursuant to our equity compensation plan, we granted an aggregate of 73,450 common shares, which were valued at $23.72 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.

Common and Preferred Share Distributions:

On each of February 15, 2013, May 15, 2013, and August 15, 2013, we paid quarterly distributions on our series D preferred shares of $0.4063 per share, or $6,167, and quarterly distributions on our series E preferred shares of $0.4531 per share, or $4,984, both of which were paid to shareholders of record as of February 1, 2013, May 1, 2013, and August 1, 2013, respectively.

On February 21, 2013, we paid a quarterly distribution on our common shares of $0.25 per share, or $20,951, to shareholders of record on January 22, 2013.  On May 22, 2013, we paid a quarterly distribution on our common shares of $0.25 per share, or $29,576, to shareholders of record on April 23, 2013.  On August 23, 2013, we paid a quarterly distribution on our common shares of $0.25 per share, or $29,579, to shareholders of record on July 26, 2013.

In October 2013, we declared a distribution of $0.25 per common share, or approximately $29,600, which we expect to pay on or about November 22, 2013 to shareholders of record on October 25, 2013.  We also announced in October 2013 a quarterly distribution on our series D preferred shares of $0.4063 per share, or $6,167, and a quarterly distribution on our series E preferred shares of $0.4531 per share, or $4,984, both of which we expect to pay on or about November 15, 2013 to our preferred shareholders of record as of November 1, 2013.

Our revolving credit facility agreement and term loan agreement contain a number of financial and other covenants, including a covenant which restricts our ability to make distributions under certain circumstances.  See Note 10 for additional information about our revolving credit facility agreement and term loan agreement.

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Related Person Transactions

9 Months Ended

Sep. 30, 2013

Related Person Transactions

Related Person Transactions

Note 15.  Related Person Transactions

We have no employees.  Personnel and various services we require to operate our business are provided to us by RMR.  We have two agreements with RMR to provide management and administrative services to us: (1) a business management agreement, which relates to our business generally, and (2) a property management agreement, which relates to our property level operations.

Under our business management agreement with RMR, we acknowledge that RMR also provides management services to other companies, which include GOV and SIR.  One of our Managing Trustees, Mr. Barry Portnoy, is Chairman, majority owner and an employee of RMR.  Our other Managing Trustee, Mr. Adam Portnoy, who is also our President, is the son of Mr. Barry Portnoy, and an owner, President, Chief Executive Officer and a director of RMR.  Each of our other executive officers is also an officer of RMR.  GOV’s and SIR’s executive officers are officers of RMR.  A majority of our Independent Trustees also serve as independent trustees of other public companies to which RMR provides management services.  Mr. Barry Portnoy serves as a managing director or managing trustee of those companies and Mr. Adam Portnoy serves as a managing trustee of a majority of those companies.  In addition, officers of RMR serve as officers of those companies.

Pursuant to our business management agreement with RMR, we incurred business management fees of $9,844 and $11,057 for the three months ended September 30, 2013 and 2012, respectively, and $33,800 and $32,087 for the nine months ended September 30, 2013 and 2012, respectively.  These amounts are included in general and administrative expenses and income from discontinued operations, as appropriate, in our condensed consolidated financial statements.

In connection with our property management agreement with RMR, we incurred property management and construction supervision fees of $7,919 and $8,593 for the three months ended September 30, 2013 and 2012, respectively, and $24,903 and $24,483 for the nine months ended September 30, 2013 and 2012, respectively.  These amounts are included in operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

The business management fees, property management fees and construction supervision fees that we incurred during the nine months ended September 30, 2013 and 2012 include fees incurred by SIR through July 2, 2013, when SIR was a consolidated subsidiary of ours.

On September 20, 2013, we and RMR agreed to restructure the base business management and incentive fees payable to RMR under our business management agreement beginning in 2014, as follows:

· The base business management fees we pay to RMR will be calculated on the basis of the lower of: (i) gross historical cost of our U.S. real estate assets, as defined, or (ii) our total market capitalization.  Market capitalization will include the market value of our common shares, plus the liquidation preference of preferred shares, if any, and the principal amount of debt.  The market value of our common shares will be calculated based on the average shares outstanding multiplied by the average closing share price during the period in which the fees are earned.

· 10% of the base business management fees we pay to RMR will be paid in our common shares.  The amount of our common shares granted as part of the base business management fee will be calculated based on the average closing share price during the period in which the fees are earned.

· The annual incentive fees which may be earned by RMR will be calculated based upon total returns realized by our common shareholders (i.e., share price appreciation plus dividends) in excess of benchmarks.  The benchmarks will be set by our Compensation Committee, which is comprised solely of Independent Trustees, and will be disclosed in our annual meeting proxy statements.  Incentive fees will be paid in our common shares which will vest over a multiyear period and will be subject to a “claw back” in the event of certain material restatements of our financial results.

· The annual management fee for foreign assets will be unchanged.

We, along with RMR, certain of our officers and current and former Trustees, have been named as defendants in a number of complaints seeking monetary damages and declaratory and injunctive relief, including, among other things, complaints filed by or on behalf of Corvex/Related.  In connection with such litigation, we have agreed to indemnify our present or former Trustees or officers who are made or threatened to be made parties to a legal proceeding by reason of their service in that capacity and have also agreed to indemnify RMR for certain claims brought against RMR in its capacity as our business and property manager.

MacarthurCook Fund Management Limited, or MacarthurCook, previously provided us with business and property management services with respect to our investments in Australia.  Our contract with MacarthurCook terminated on January 31, 2013, and on that date we entered into a business and property management agreement, or the Australia Management Agreement, with RMR Australia Asset Management Pty Limited, or RMR Australia, for the benefit of CWH Australia Trust (formerly the MacarthurCook Industrial Property Fund), a subsidiary of ours.  The terms of the Australia Management Agreement are substantially similar to the terms of the management agreement we had with MacarthurCook.  RMR Australia is owned by our Managing Trustees and it has been granted an Australian financial services license by the Australian Securities & Investments Commission.  Similar to our prior arrangement with respect to fees we paid to MacarthurCook, RMR has agreed to waive half of the fees payable by us under our property management agreement with RMR and half of the business management fees otherwise payable by us under our business management agreement with RMR related to real estate investments that are subject to the Australia Management Agreement for so long as the Australia Management Agreement is in effect and we or any of our subsidiaries are paying the fees under that agreement.  Pursuant to the Australia Management Agreement, the aggregate business and property management fees we recognized during the three and nine months ended September 30, 2013 were $432 and $1,197, respectively.  The Australia Management Agreement was approved by our Compensation Committee, which is composed only of our Independent Trustees.

GOV was formerly our 100% owned subsidiary.  Our two Managing Trustees, Mr. Barry Portnoy and Mr. Adam Portnoy, are also managing trustees of GOV, and our President, Mr. Adam Portnoy, was the President of GOV from its formation in 2009 until January 2011.  RMR provides management services to both us and GOV.

In 2009, GOV completed an initial public offering pursuant to which GOV ceased to be a majority owned subsidiary of ours.  In connection with this offering, we and GOV entered into a transaction agreement that governs our separation from and relationship with GOV.  Pursuant to this transaction agreement, 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.  This right of first refusal applies in the event of an indirect sale of any such properties as a result of a change of control of us.

Until March 15, 2013, we were GOV’s largest shareholder.  On March 15, 2013, we sold all of our 9,950,000 common shares of GOV in a public offering for net proceeds (after deducting underwriters’ discounts and commissions and expenses) of $239,576 and we realized a gain of $66,293.  In connection with this public offering, on March 11, 2013, we entered into a registration agreement with GOV under which we agreed to pay all expenses incurred by GOV relating to the registration and sale of our GOV common shares.  We incurred $310 of reimbursements payable to GOV pursuant to this agreement.  In addition, under the registration agreement, we and GOV entered cross indemnity agreements with respect to our respective actions associated with our offering of GOV shares.  GOV agreed to indemnify CWH, our officers, Trustees and controlling persons, and we agreed to indemnify GOV and GOV’s officers, trustees and controlling persons, against certain liabilities related to the public offering, including liabilities under the Securities Act of 1933, as amended, or the Securities Act; and we and GOV agreed to reimburse payments that the other may make in respect of those liabilities.

SIR was formerly our 100% owned subsidiary.  We are SIR’s largest shareholder and, until July 2, 2013, SIR was one of our consolidated subsidiaries.  As of September 30, 2013, we owned 22,000,000 common shares of SIR, which represented approximately 44.2% of SIR’s outstanding common shares.  Our two Managing Trustees, Mr. Barry Portnoy and Mr. Adam Portnoy, are also managing trustees of SIR, and Mr. John Popeo, our Treasurer and Chief Financial Officer, also serves as the Treasurer and Chief Financial Officer of SIR.  In addition, one of our Independent Trustees, Mr. William Lamkin, is an independent trustee of SIR.  RMR provides management services to both us and SIR.

On March 12, 2012, SIR completed an initial public offering pursuant to which it issued 9,200,000 of its common shares for net proceeds (after deducting underwriters’ discounts and commissions and expenses) of $180,814.  SIR applied those net proceeds, along with proceeds from drawings under SIR’s revolving credit facility, to repay in full a $400,000 demand promissory note that we received from SIR on February 16, 2012, along with 22,000,000 SIR common shares (including SIR common shares that had been previously issued to us in connection with SIR’s formation), in exchange for our transfer to SIR of 79 properties (251 separate buildings or land parcels with a combined approximately 21,400,000 rentable square feet).  SIR also reimbursed us for costs that we incurred in connection with SIR’s organization and preparation for its initial public offering.

In connection with the SIR IPO, we and SIR entered into a transaction agreement that governs our separation from and relationship with SIR.  The transaction agreement provides that, among other things, (1) the current assets and liabilities of the 79 properties that we transferred to SIR, as of the time of closing of the SIR IPO, were settled between us and SIR so that we will retain all pre-closing current assets and liabilities and SIR will assume all post-closing current assets and liabilities and (2) SIR will indemnify us with respect to any liability relating to any property transferred by us to SIR, including any liability which relates to periods prior to SIR’s formation, other than the pre-closing current assets and current liabilities that we retained with respect to the 79 transferred properties.

On March 25, 2013, we entered into a registration agreement with SIR, pursuant to which SIR agreed to, among other things, file a registration statement with respect to an offering of up to all of the 22,000,000 common shares of SIR that we own, and we agreed to pay all expenses incurred by SIR relating to the registration and sale of the shares in an offering.  SIR’s obligation to register the shares for resale in an offering is subject to certain conditions and may be terminated in certain circumstances, in each case, as described in the registration agreement.  We incurred $636 of reimbursements payable to SIR pursuant to this agreement.  In connection with this registration agreement, we and SIR entered cross indemnity agreements with respect to our respective actions associated with our offering of SIR shares: SIR agreed to indemnify us, our officers, Trustees and controlling persons, and we agreed to indemnify SIR and SIR’s officers, trustees and controlling persons, against certain liabilities in connection with an offering, including liabilities under the Securities Act; and we and SIR agreed to reimburse payments that the other may make in respect of those liabilities.  SIR now has an effective registration statement on Form S-3, which permits resales of SIR’s shares by selling shareholders, pursuant to which, and subject to the terms of the registration agreement, we may be able to sell our SIR common shares in a registered offering.

We, RMR, GOV, SIR and four other companies to which RMR provides management services each currently own 12.5% of AIC, an Indiana insurance company.  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 pursuant to a management and administrative services agreement with AIC.  As of September 30, 2013, we have invested $5,209 in AIC since AIC’s formation in 2008.  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.  For the period that SIR was both a shareholder of AIC and our consolidated subsidiary, from May 2012 until July 2, 2013, our condensed consolidated financial statements include SIR’s equity investment interest in AIC.  We and the other shareholders of AIC have purchased property insurance providing $500,000 of coverage pursuant to an insurance program arranged by AIC and with respect to which AIC is a reinsurer of certain coverage amounts.  This program was modified and extended in June 2013 for a one year term, and we (excluding SIR) paid a premium, including taxes and fees, of $5,984 in connection with that renewal, which amount may be adjusted from time to time as we acquire or dispose of properties that are included in this program.  We periodically consider the possibilities for expanding our insurance relationships with AIC to include other types of insurance and may in the future participate in additional insurance offerings AIC may provide or arrange.  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.  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.

Effective July 2013, we, RMR, GOV, SIR and three other companies to which RMR provides management services purchased from an unrelated third party insurer a combined directors’ and officers’ liability insurance policy providing $10,000 of aggregate coverage.  We paid a premium of approximately $133 in connection with this policy.

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Earnings Per Common Share

9 Months Ended

Sep. 30, 2013

Earnings Per Common Share

Earnings Per Common Share

Note 13.  Earnings Per Common Share

Assuming no fundamental change (as described below) has occurred, as of September 30, 2013, we had 15,180,000 shares of series D cumulative convertible preferred shares that were convertible into 7,298,165 of our common shares and the effect of our convertible preferred shares on income from continuing operations attributable to CommonWealth REIT common shareholders per share is anti-dilutive for all periods presented.

As stated in Note 3 above, we believe that the Corvex/Related consent solicitation has no legal effect.  However, if the arbitration panel determines that the Corvex/Related consent solicitation is legally effective and our entire Board of Trustees has been removed, such removal would constitute a fundamental change under our 6.5% series D cumulative convertible preferred shares giving holders of such shares the option to convert these shares into common shares at a ratio based on 98% of the average closing market price for a period before such removal is effective unless we repurchase these shares for their par value plus accrued and unpaid distributions.  The issuance of such a large number of common shares as a result of the exercise of this conversion right after a fundamental change may have a dilutive effect on income from continuing operations attributable to CommonWealth REIT common shareholders per share.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Nov. 04, 2013
Document and Entity Information
Entity Registrant Name	CommonWealth REIT
Entity Central Index Key	0000803649
Document Type	10-Q
Document Period End Date	Sep. 30, 2013
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		118,387,518
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3

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Segment Information

9 Months Ended

Sep. 30, 2013

Segment Information

Segment Information

Note 14.  Segment Information

Our primary business is the ownership and operation of a nationwide portfolio of office properties.  We account for each of our individual properties as a separate operating segment.  We have aggregated our separate operating segments into two reportable segments based on our primary method of internal reporting: CBD properties and suburban properties.  All of our CBD properties and more than 90% of our suburban properties are office properties.  As a result of our deconsolidation of SIR, we no longer include “industrial and other” among our reportable segments.  Each of our reportable segments includes properties with similar operating and economic characteristics that are subject to unique supply and demand conditions.  Geographic regions described in our Quarterly Report on Form 10-Q for the period ended June 30, 2013 were eliminated primarily because one of these regions included properties owned primarily by SIR which are no longer included in our consolidated financial statements as of September 30, 2013, and the remaining two regions no longer represent a meaningful portion of our consolidated portfolio.  See Note 6 for financial information relating to SIR. Our operating segments (i.e., our individual properties) are managed and operated consistently in accordance with our standard operating procedures, and our management responsibilities do not vary significantly from location to location based on the size of the property or geographic location within each primary reporting segment.  We use property net operating income, or NOI, to evaluate the performance of our operating segments.  We define NOI as income from our real estate including lease termination fees received from tenants less our property operating expenses, which expenses include property marketing costs.  NOI excludes amortization of capitalized tenant improvement costs and leasing commissions.

As of September 30, 2013, we owned 38 CBD properties (51 buildings) and 90 suburban properties (184 buildings), excluding properties classified as held for sale.  Prior periods have been restated to reflect one CBD property (one building) and 39 suburban properties (93 buildings) reclassified to discontinued operations from continuing operations as of December 31, 2012, three properties (three buildings) reclassified from our suburban properties segment to our CBD properties segment as of March 31, 2013, and three CBD properties (four buildings) and 42 suburban properties (106 buildings) reclassified to discontinued operations from continuing operations as of September 30, 2013.

Property level information by operating segment as of September 30, 2013 and for the three and nine months ended September 30, 2013 and 2012, is as follows:

	As of September 30,
	2013	2012
Square feet (in thousands):
CBD properties	20,930	20,166
Suburban properties	17,965	41,567
Total properties	38,895	61,733

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Rental income:
CBD properties	$	136,228	$	130,193	$	413,550	$	383,245
Suburban properties	65,513		96,609		285,657		279,342
Total properties	$	201,741	$	226,802	$	699,207	$	662,587
NOI:
CBD properties	$	68,663	$	70,208	$	220,182	$	210,250
Suburban properties	38,446		64,589		191,375		187,110
Total properties	$	107,109	$	134,797	$	411,557	$	397,360

As of September 30, 2013, our investment in CBD properties and suburban properties, net of accumulated depreciation, excluding properties classified as held for sale, was $2,999,964 and $1,757,074, respectively, including $149,075 of CBD properties and $92,956 of suburban properties located in Australia.

The following table includes the reconciliation of NOI to net (loss) income, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements.  We consider NOI to be an appropriate supplemental measure to net (loss) income because it may help 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 we believe that NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are incurred at the property level and may facilitate comparisons of our operating performance between periods and with other REITs.  The calculation of NOI excludes certain components of net (loss) 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 (loss) income, net (loss) income attributable to CommonWealth REIT, net (loss) income available for CommonWealth REIT common shareholders, operating income or cash flow from operating activities, determined in accordance with GAAP, or as an indicator of our financial performance or liquidity, nor is this measure necessarily indicative of sufficient cash flow to fund all of our needs.  This measure should be considered in conjunction with net (loss) income, net (loss) income attributable to CommonWealth REIT, net (loss) income available for CommonWealth REIT common shareholders, operating income and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive (loss) income and condensed consolidated statements of cash flows.  Other REITs and real estate companies may calculate NOI differently than we do.  A reconciliation of NOI to net (loss) income for the three and nine months ended September 30, 2013 and 2012 is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Rental income	$	201,741		$	226,802		$	699,207		$	662,587
Operating expenses	(94,632		)	(92,005		)	(287,650		)	(265,227		)
NOI	$	107,109		$	134,797		$	411,557		$	397,360
NOI	$	107,109		$	134,797		$	411,557		$	397,360
Depreciation and amortization	(52,150		)	(52,353		)	(169,930		)	(154,623		)
General and administrative	(25,069		)	(12,565		)	(61,445		)	(34,190		)
Acquisition related costs	436			(1,066		)	(337		)	(5,002		)
Operating income	30,326			68,813			179,845			203,545
Interest and other income	227			399			931			1,020
Interest expense	(39,359		)	(50,736		)	(134,824		)	(148,924		)
Loss on early extinguishment of debt	—			(220		)	(60,027		)	(287		)
Equity in earnings of investees	10,492			2,868			14,913			8,655
Gain on sale of equity investment	—			—			66,293			—
Income from continuing operations before income tax expense	1,686			21,124			67,131			64,009
Income tax expense	(785		)	(1,322		)	(2,527		)	(1,906		)
Income from continuing operations	901			19,802			64,604			62,103
(Loss) income from discontinued operations	(28		)	774			4,390			4,891
Loss on asset impairment from discontinued operations	(217,080		)	—			(225,615		)	—
Loss on early extinguishment of debt from discontinued operations	—			—			—			(1,608		)
Net gain on sale of properties from discontinued operations	—			1,689			3,359			2,039
(Loss) income before gain on sale of properties	(216,207		)	22,265			(153,262		)	67,425
Gain on sale of properties	—			—			1,596			—
Net (loss) income	$	(216,207	)	$	22,265		$	(151,666	)	$	67,425