Equity Investments

At September 30, 2014, and December 31, 2013, we had the following equity investments in Select Income REIT (SIR), Government Properties Income Trust (GOV), and Affiliates Insurance Company (AIC) (dollars in thousands):



	Ownership Percentage				Equity Investments				Equity in Earnings (Loss)
									Three Months Ended				Nine Months Ended
	September 30,		December 31,		September 30,		December 31,		September 30,				September 30,
	2014		2013		2014		2013		2014		2013		2014			2013
SIR	—	%	44.2	%	$	—	$	512,078	$	1,072	$	10,428	$	24,516		$	10,428
GOV	—	%	—	%	—		—		—		—		—			4,111
AIC	—	%	12.5	%	—		5,913		—		64		(56		)	374
					$	—	$	517,991	$	1,072	$	10,492	$	24,460		$	14,913

Investment in SIR

SIR is a publicly traded real estate investment trust, or REIT, that is primarily focused on owning and investing in net leased, single tenant properties. SIR was an unconsolidated equity investment until July 9, 2014. During the second quarter of 2014, SIR issued 10,000,000 common shares in a public offering for $29.00 per common share, raising net proceeds (after deducting underwriters’ discounts and commissions and expenses) of approximately $277.4 million. We recognized a gain on this sale by an equity investee of $16.9 million as a result of the per share sales price of this transaction being above our per share carrying value. Our ownership percentage in SIR was reduced to 36.7% as a result of the transaction.

On July 9, 2014, we sold our entire stake of 22,000,000 common shares of SIR. We received $704.8 million in cash representing $32.04 per share and recognized a gain on sale of equity investment of $171.8 million in our condensed consolidated statement of operations. Proceeds from this sale were used to repay our revolving credit facility and certain mortgage loans (Note 8). As a result of this sale, we no longer hold any interest in SIR.

During the nine months ended September 30, 2014, we received cash distributions from SIR totaling $20.7 million.

SIR was one of our consolidated subsidiaries until July 2, 2013. On July 2, 2013, our ownership percentage of SIR was reduced to below 50% and we began accounting for our investment in SIR under the equity method. Under the equity method, we record our percentage share of net earnings of SIR in our consolidated statements of operations. Prior to July 2, 2013, the operating results and investments of SIR were included in our consolidated results of operations and financial position. On July 2, 2013, our share of the underlying equity of SIR exceeded our carrying value by $17.6 million. As required under GAAP, we amortized this difference to equity in earnings of investees over a 34 year period, which approximates the average remaining useful lives of the buildings owned by SIR as of July 2, 2013.

The following summarized financial data of SIR is unaudited and includes the results of operations for periods prior to July 2, 2013 (the date on which SIR ceased to be our consolidated subsidiary), which are included on a consolidated basis in our condensed consolidated results of operations when SIR was our consolidated subsidiary. Summarized balance sheet information of SIR as of July 9, 2014, the date of sale, and December 31, 2013 and income statement information through July 9, 2014 is as follows (in thousands, except per share data):



	July 9, 2014		December 31, 2013
Real estate properties, net	$	1,772,684	$	1,579,234
Acquired real estate leases, net	125,163		129,426
Cash and cash equivalents	27,531		20,025
Rents receivable, net	60,474		55,335
Other assets, net	17,698		17,839
Total assets	$	2,003,550	$	1,801,859

Revolving credit facility	$	74,000	$	159,000
Term loan	350,000		350,000
Mortgage notes payable	19,069		27,147
Assumed real estate lease obligations, net	26,945		26,966
Other liabilities	44,225		40,055
Shareholders’ equity	1,489,311		1,198,691
Total liabilities and shareholders’ equity	$	2,003,550	$	1,801,859



	For the Period from July 1, 2014 through July 9, 2014 and for the Three Months Ended September 30, 2013						For the Period from January 1, 2014 through July 9, 2014 and for the Nine Months Ended September 30, 2013
	2014			2013			2014			2013
Rental income	4,698			41,169			98,226			117,333
Tenant reimbursements and other income	923			7,415			16,980			21,057
Total revenues	5,621			48,584			115,206			138,390

Operating expenses	1,018			9,287			20,982			26,172
Depreciation and amortization	1,043			8,485			20,832			22,445
Acquisition related costs	—			790			374			1,479
General and administrative	357			3,208			7,731			8,884
Total expenses	2,418			21,770			49,919			58,980

Operating income	3,203			26,814			65,287			79,410

Interest expense	(295		)	(3,232		)	(7,287		)	(10,484		)
Gain on early extinguishment of debt	—			—			243			—
Income before income tax expense and equity in earnings of an investee	2,908			23,582			58,243			68,926
Income tax expense	—			(52		)	(90		)	(132		)
Equity in earnings of an investee	11			64			32			219
Net income	$	2,919		$	23,594		$	58,185		$	69,013

Weighted average common shares outstanding	59,889			49,686			52,394			42,790

Net income per common share	$	0.05		$	0.47		$	1.11		$	1.61

Investment in AIC

As of May 9, 2014, we had a net investment of $5.8 million in AIC, an insurance company that was owned in equal proportion until May 9, 2014 by us, our former manager Reit Management & Research LLC, or RMR, GOV, SIR and four other companies to which RMR provides management services. On May 9, 2014, as a result of the removal of the Prior Trustees and in accordance with the terms of the shareholders agreement between us and the other AIC shareholders, the other AIC shareholders exercised their right to purchase all of the 20,000 shares of AIC we then owned. We received $5.8 million in aggregate proceeds from this sale. We no longer own any interest in AIC. Our participation in the AIC property insurance program expired in June 2014. See Note 16 for additional information about our investment in AIC.