Office Properties Income Trust: Form 10-Q for the period ended Sep 30, 2024

The following information should be read in conjunction with our Condensed Consolidated Financial Statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our 2023 Annual Report.

OVERVIEW (dollars in thousands, except per share and per square foot data)

We are a REIT organized under Maryland law. As of September 30, 2024, our wholly owned properties were comprised of 145 properties and we had a noncontrolling ownership interest of 51% in an unconsolidated joint venture that owned two properties containing approximately 346,000 rentable square feet. As of September 30, 2024, our properties are located in 30 states and the District of Columbia and contain approximately 19,543,000 rentable square feet. As of September 30, 2024, our properties were leased to 237 different tenants with a weighted average remaining lease term (based on annualized rental income) of approximately 7.2 years. The U.S. government is our largest tenant, representing approximately 16.6% of our annualized rental income as of September 30, 2024. The term annualized rental income as used herein is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of September 30, 2024, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

Leases representing approximately 4.4% and 9.8% of our annualized rental income are scheduled to expire during the remainder of 2024 and 2025, respectively, and we may be unable to renew leases or find replacement tenants. Certain changes in office space utilization, including increased remote work arrangements and tenants consolidating their real estate footprint, continue to impact the office sector and our portfolio. The utilization and demand for office space continues to face headwinds and the duration and ultimate impact of current trends on the demand for office space at our properties remains uncertain and subject to change. Accordingly, we do not yet know what the full extent of the impacts will be on our or our tenants’ businesses and operations nor the long-term outlook for leasing at our properties. Higher interest rates, inflationary pressures, geopolitical hostilities and tensions, and concerns that the U.S. economy may enter an economic recession have caused disruptions in the financial markets and these factors could adversely affect our and our tenants’ financial condition and the ability or willingness of our tenants to renew our leases or pay rent to us. We also have a significant amount of debt maturing in the next 12 months. As of October 30, 2024, our total available liquidity was comprised of $146,448 of cash and, in addition to long-term debt, we had $456,700 of the 2025 Notes due on February 1, 2025.

Given the limited alternatives available to us to obtain debt or equity to refinance our maturing debt, the illiquid nature of our real estate assets and our ability to incur additional debt while maintaining compliance with the financial covenants in our existing debt agreements, we are currently in negotiations with certain holders of the 2025 Notes regarding a potential note exchange. However, we are not able to conclude that it is probable that the negotiations will result in an exchange that refinances the 2025 Notes prior to their maturity. Accordingly, we have concluded that there is substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, or October 30, 2024.

For more information about the risks relating to these dynamics and conditions and their impacts on us and our business, see Part I, Item IA, “Risk Factors”, of our 2023 Annual Report.

Property Operations

Unless otherwise noted, the data presented in this section includes properties classified as held for sale as of September 30, 2024 and excludes two properties owned by an unconsolidated joint venture in which we owned a 51% interest. For more information regarding our properties classified as held for sale and our unconsolidated joint venture, see Note 4 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Occupancy data for our properties as of September 30, 2024 and 2023 was as follows (square feet in thousands):

(1) Based on properties we owned on September 30, 2024 and 2023, respectively.

(2) Based on properties we owned continuously since January 1, 2023; excludes 17 properties classified as held for sale, five properties affected by significant redevelopment activities and two properties owned by an unconsolidated joint venture in which we owned a 51% interest.

(3) Subject to changes when space is remeasured or reconfigured for tenants.

(4) Percent leased includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any, as of the measurement date.

The average effective rental rate per square foot for our properties for the three and nine months ended September 30, 2024 and 2023 were as follows:

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

(2) Based on properties we owned on September 30, 2024 and 2023, respectively.

(3) Based on properties we owned continuously since July 1, 2023 and January 1, 2023; excludes 17 properties classified as held for sale, five properties affected by significant redevelopment activities and two properties owned by an unconsolidated joint venture in which we owned a 51% interest.

During the three and nine months ended September 30, 2024, changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands):

(1) Based on leases entered during the three and nine months ended September 30, 2024, respectively.

During the three and nine months ended September 30, 2024, we entered into new and renewal leases as summarized in the following table (square feet in thousands):

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

During the three and nine months ended September 30, 2024, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three and nine months ended September 30, 2024, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as follows (square feet in thousands):

(1) Effective rental rates include contractual base rents from our tenants pursuant to our lease agreements, plus straight line rent adjustments and estimated expense reimbursements to be paid to us, and exclude lease value amortization.

During the three and nine months ended September 30, 2024 and 2023, amounts capitalized at our properties for lease related costs, building improvements and development, redevelopment and other activities were as follows:

(1) Lease related costs generally include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space and leasing related costs, such as brokerage commissions and other tenant inducements.

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

(3) Development, redevelopment and other activities generally include capital expenditure projects that reposition a property or result in new sources of revenue. Includes capitalized interest and other operating costs of $1,172 for the nine months ended September 30, 2024 and $1,978 and $8,691 for the three and nine months ended September 30, 2023, respectively. We did not capitalize any interest and other operating costs during the three months ended September 30, 2024.

As of September 30, 2024, we had estimated unspent leasing related obligations of $100,646, of which we expect to spend $66,949 over the next 12 months.

As of September 30, 2024, we had leases at our properties totaling approximately 3,090,000 rentable square feet that were scheduled to expire through December 31, 2025. As of October 29, 2024, we expect tenants with leases totaling approximately 2,637,000 rentable square feet that are scheduled to expire through December 31, 2025, excluding space that has been re-leased and space for which we are in advanced negotiations to re-lease, not to renew or to downsize their leased space upon expiration, and we cannot be sure as to whether other tenants will renew their leases upon expiration. Of the 2,637,000 rentable square feet leased to tenants known to be vacating, 1,765,000 rentable square feet relate to properties, excluding properties classified as held for sale, not encumbered by debt. We continue to proactively engage with our existing tenants and are focused on overall tenant retention. Prevailing market conditions and our tenants’ needs at the time we negotiate and enter leases or lease renewals will generally determine rental rates and demand for leased space at our properties, all of which are beyond our control. Whenever we renew or enter into new leases for our properties, we intend to seek rents which are equal to or higher than our historical rents for the same properties; however, our ability to maintain or increase the rents for our properties will depend in large part upon market conditions, which are beyond our control. We cannot be sure of the rental rates that will result from our ongoing negotiations regarding lease renewals or any new or renewed leases we may enter. Also, we may experience material declines in our rental income due to vacancies upon lease expirations, early terminations or lower rents upon lease renewal or reletting. Additionally, we may incur significant costs and make significant concessions to renew our leases with current tenants or attract new tenants to our properties.

As of September 30, 2024, our lease expirations by year were as follows (square feet in thousands):

(1) The year of lease expiration is pursuant to current contract terms. Some of our leases allow the tenants to vacate the leased premises before the stated expirations of their leases with little or no liability. As of September 30, 2024, tenants occupying approximately 2.2% of our rentable square feet and responsible for approximately 2.6% of our annualized rental income as of September 30, 2024 had exercisable rights to terminate their leases before the stated terms of their leases expire. Also, in 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2034, 2035, 2036, 2037 and 2040, early termination rights become exercisable by other tenants who occupied an additional approximately 2.0%, 1.4%, 1.6%, 4.1%, 2.7%, 1.8%, 0.6%, 3.2%, 0.3%, 0.9%, 0.1%, 0.2% and 0.3% of our rentable square feet, respectively, and contributed an additional approximately 0.1%, 2.4%, 2.2%, 2.3%, 5.1%, 2.5%, 2.4%, 0.7%, 4.4%, 0.7%, 1.4%, 0.3%, 0.2% and 0.4% of our annualized rental income, respectively, as of September 30, 2024. In addition, as of September 30, 2024, pursuant to leases with seven of our tenants, these tenants had rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These seven tenants occupied approximately 3.9% of our rentable square feet and contributed approximately 4.2% of our annualized rental income as of September 30, 2024.

(2) Leased square feet is pursuant to leases existing as of September 30, 2024, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any. Square feet measurements are subject to changes when space is remeasured or reconfigured for new tenants.

We generally will seek to renew or extend the terms of leases at properties with tenants when they expire. However, market and economic factors, along with increases in remote work, changes in space utilization and government spending and budget priorities, may cause our tenants not to renew or extend their leases when they expire, or to seek to renew their leases for less space than they currently occupy. If we are unable to extend or renew our leases, or we renew leases for reduced space, it may be time consuming and expensive to relet our properties.

As of September 30, 2024, we derived 24.1% of our annualized rental income from our properties located in the metropolitan Washington, D.C. market area, which includes Washington, D.C., Northern Virginia and suburban Maryland. Current economic conditions in this area or a possible recession, including as a result of current inflationary conditions or otherwise, could reduce demand from tenants for our properties, reduce rents that our tenants in this area are willing to pay when our leases expire and increase lease concessions for new leases and renewals. Additionally, there has been a decrease in demand for new leased office space by the U.S. government, including in the metropolitan Washington, D.C. market area, and that could increase competition for government tenants and adversely affect our ability to retain government tenants or maintain or increase our rents when our leases expire.

Our manager, RMR, employs a tenant review process for us. RMR assesses tenants on an individual basis based on various applicable credit criteria. In general, depending on facts and circumstances, RMR evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and, in some cases, information that is publicly available or obtained from third party sources. We consider investment grade tenants to include: (a) investment grade rated tenants; (b) tenants with investment grade rated parent entities that guarantee the tenant’s lease obligations; and/or (c) tenants with investment grade rated parent entities that do not guarantee the tenant’s lease obligations. As of September 30, 2024, tenants contributing 51.2% of annualized rental income were investment grade rated (or their payment obligations were guaranteed by an investment grade rated parent) and tenants contributing an additional 8.2% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

As of September 30, 2024, tenants representing 1% or more of our total annualized rental income were as follows (square feet in thousands):

Disposition Activities

During the nine months ended September 30, 2024, we sold seven properties containing approximately 998,000 rentable square feet for a sales price of $84,810, excluding closing costs. The net proceeds from these sales were used to repay amounts outstanding under our revolving credit facility.

We continue to evaluate our portfolio and are currently in various stages of marketing certain of our properties for sale, and we may seek to sell additional properties in the future. As of October 29, 2024, we have entered into agreements to sell 17 properties containing approximately 1,609,000 rentable square feet for an aggregate sales price of $119,152, excluding closing costs. We cannot be sure we will sell any properties we are marketing for sale for prices in excess of their carrying values or otherwise. In addition, our pending sales are subject to conditions; accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the pricing will not change.

For more information about our disposition activities, see Note 4 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Segment Information

We operate in one business segment: ownership of real estate properties.

RESULTS OF OPERATIONS (amounts in thousands, except per share amounts)

Three Months Ended September 30, 2024, Compared to Three Months Ended September 30, 2023

n/m - not meaningful

(1) Comparable properties consists of 123 properties we owned on September 30, 2024 and which we owned continuously since July 1, 2023 and excludes 17 properties classified as held for sale, five properties affected by significant redevelopment activities and two properties owned by an unconsolidated joint venture in which we own a 51% interest.

(2) Our definition of net operating income, or NOI, and our reconciliation of net income (loss) to NOI are included below under the heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Rental income. Rental income for non-comparable properties declined $14,129 related to our property disposition activities, partially offset by an increase in rental income of $4,546 due to the lease-up of certain properties affected by significant redevelopment activities. Rental income for comparable properties declined $3,158 as a result of increased vacancies and lower rents from lease renewals at certain of our properties in the 2024 period. Rental income includes non-cash straight line rent adjustments totaling $8,854 in the 2024 period and $8,691 in the 2023 period, and amortization of acquired real estate leases and assumed real estate lease obligations totaling ($59) in the 2024 period and $56 in the 2023 period.

Real estate taxes. Real estate taxes increased $2,217 for redevelopment properties due to the substantial completion of redevelopment activities at certain properties and $1,535 for comparable properties resulting from successful tax appeals at certain of our properties in the 2023 period, partially offset by a decrease of $1,082 related to our property disposition activities.

Utility expenses. Utility expenses for comparable properties increased $465 primarily due to higher electricity costs in the 2024 period and $51 due to the substantial completion of redevelopment activities at certain properties, partially offset by a decrease of $107 related to our property disposition activities.

Other operating expenses. Other operating expenses for non-comparable properties declined $2,133 related to our property disposition activities, partially offset by an increase of $609 due to the substantial completion of redevelopment activities at certain properties. Other operating expenses for comparable properties increased $197 due to higher repair and maintenance and salary costs in the 2024 period.

Depreciation and amortization. Depreciation and amortization for comparable properties declined $519 due to certain leasing related assets becoming fully depreciated since July 1, 2023, partially offset by depreciation and amortization of improvements made to certain of our properties since July 1, 2023. Depreciation and amortization for non-comparable properties increased $2,551 due to the substantial completion of redevelopment activities at certain properties, partially offset by a decline of $8,251 related to our property disposition activities.

Loss on impairment of real estate. We recorded a $41,847 loss on impairment of real estate in the 2024 period to reduce the carrying value of 10 properties to their estimated fair values less costs to sell.

Transaction related costs. Transaction related costs in the 2024 period consist of costs related to our evaluation of potential financing transactions. Transaction related costs in the 2023 period consist of costs incurred in connection with our terminated merger with Diversified Healthcare Trust, or DHC, and related financings.

General and administrative. The decrease in general and administrative expenses is primarily the result of a decrease in base business management fees resulting from a decrease in average total market capitalization and a decrease in share based compensation in the 2024 period compared to the 2023 period.

Gain on sale of real estate. We recorded a $8,456 net gain on sale of real estate resulting from the sale of six properties in the 2024 period. We recorded a $244 gain on sale of real estate resulting from the sale of one property in the 2023 period.

Interest and other income. The decrease in interest and other income is primarily due to the effect of lower cash balances invested in the 2024 period compared to the 2023 period.

Interest expense. The increase in interest expense is due to higher weighted average interest rates in the 2024 period.

Gain on early extinguishment of debt. We recorded a gain on early extinguishment of debt of $264 in the 2024 period resulting from the exchange of certain of the 2025 Notes for our common shares. For more information regarding these exchanges, see Note 7 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Income tax expense. Income tax expense is primarily the result of operating income earned in jurisdictions where we are subject to state income taxes and can fluctuate based on the timing of our income, including as a result of gains or losses on the sale of real estate or the repayment of debt.

Equity in net losses of investees. Equity in net losses of investees represents our proportionate share of losses from our investments in two unconsolidated joint ventures.

Net loss. Net loss and net loss per basic and diluted common share decreased in the 2024 period compared to the 2023 period primarily as a result of the changes noted above.

Nine Months Ended September 30, 2024, Compared to Nine Months Ended September 30, 2023

n/m - not meaningful

(1) Comparable properties consists of 123 properties we owned on September 30, 2024 and which we owned continuously since January 1, 2023 and excludes 17 properties classified as held for sale, five properties affected by significant redevelopment activities and two properties owned by an unconsolidated joint venture in which we own a 51% interest.

(2) Our definition of NOI and our reconciliation of net income (loss) to NOI are included below under the heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of consolidated results for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Rental income. Rental income for non-comparable properties decreased $18,197 related to our property disposition activities, partially offset by an increase in rental income of $13,081 due to the lease-up of certain properties affected by significant redevelopment activities. Rental income for comparable properties declined $10,923 as a result of increased vacancies and lower rents from lease renewals at certain of our properties in the 2024 period. Rental income includes non-cash straight line rent adjustments totaling $23,796 in the 2024 period and $17,120 in the 2023 period, and amortization of acquired real estate leases and assumed real estate lease obligations totaling $30 in the 2024 period and $196 in the 2023 period.

Real estate taxes. Real estate taxes for non-comparable properties increased $4,553 due to the substantial completion of redevelopment activities at certain properties, partially offset by a decrease of $3,404 related to our property disposition activities. Real estate taxes for comparable properties increased $723 primarily due to successful tax appeals at certain of our properties in the 2023 period.

Utility expenses. Utility expenses increased $536 due to the substantial completion of redevelopment activities at certain properties and $1,204 for comparable properties primarily due to the lease-up of certain previously vacant properties and increased utility expenses at newly vacant properties where tenants previously paid utility expenses directly in the 2024 period, partially offset by a decline of $420 related to our property disposition activities.

Other operating expenses. Other operating expenses for comparable properties increased $2,423 due to higher repair and maintenance costs, snow removal costs and insurance costs in the 2024 period and $1,778 due to the substantial completion of redevelopment activities at certain properties, partially offset by a decline of $3,741 related to our property disposition activities.

Depreciation and amortization. Depreciation and amortization for comparable properties declined $6,103 due to certain leasing related assets becoming fully depreciated since January 1, 2023, partially offset by depreciation and amortization of improvements made to certain of our properties since January 1, 2023. Depreciation and amortization for non-comparable properties increased $9,590 due to the substantial completion of redevelopment activities at certain properties, partially offset by a decline of $12,267 related to our property disposition activities.

Loss on impairment of real estate. We recorded a $173,579 loss on impairment of real estate in the 2024 period to reduce the carrying value of 16 properties to their estimated fair values less costs to sell.

Transaction related costs. Transaction related costs in the 2024 period consist of costs related to our evaluation of potential financing transactions. Transaction related costs in the 2023 period consist of costs incurred in connection with our terminated merger with DHC and related financings.

General and administrative. The decrease in general and administrative expenses is primarily the result of a decrease in base business management fees resulting from a decrease in average total market capitalization and a decrease in share based compensation in the 2024 period compared to the 2023 period.

Gain on sale of real estate. We recorded a $6,008 net gain on sale of real estate resulting from the sale of seven properties in the 2024 period. We recorded a $487 net gain on sale of real estate resulting from the sale of six properties in the 2023 period.

Interest and other income. The increase in interest and other income is primarily due to the effect of higher cash balances invested in the 2024 period compared to the 2023 period.

Interest expense. The increase in interest expense is due to higher weighted average interest rates in the 2024 period.

Gain on early extinguishment of debt. We recorded a gain on early extinguishment of debt of $225,637 in the 2024 period resulting from the Senior Note Exchange and exchanges of certain of the 2025 Notes for our common shares. For more information regarding the Senior Note Exchange and the exchanges of the 2025 Notes for our common shares, see Note 7 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Income tax expense. Income tax expense is primarily the result of operating income earned in jurisdictions where we are subject to state income taxes and can fluctuate based on the timing of our income, including as a result of gains or losses on the sale of real estate or repayment of debt.

Equity in net losses of investees. Equity in net losses of investees represents our proportionate share of losses from our investments in two unconsolidated joint ventures.

Net income (loss). Net income (loss) and net income (loss) per basic and diluted common share increased in the 2024 period compared to the 2023 period primarily as a result of the changes noted above.

Non-GAAP Financial Measures

We present certain “non-GAAP financial measures” within the meaning of the applicable SEC rules, including the calculations below of NOI, funds from operations, or FFO, and normalized funds from operations, or Normalized FFO. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net (loss) income as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net (loss) income as presented in our condensed consolidated statements of comprehensive net (loss) income. We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net (loss) income. We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.

Net Operating Income

The calculation of NOI excludes certain components of net (loss) income in order to provide results that are more closely related to our property level results of operations. We calculate NOI as shown below. We define NOI as income from our rental of real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization expense. We use NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate NOI differently than we do.

The following table presents the reconciliation of net income (loss) to NOI for the three and nine months ended September 30, 2024 and 2023:

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Funds From Operations and Normalized Funds From Operations

We calculate FFO and Normalized FFO as shown below. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net (loss) income, calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets and any gain or loss on sale of real estate, as well as certain other adjustments currently not applicable to us. In calculating Normalized FFO, we adjust for the other items shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. 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 qualification for taxation as a REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.

The following table presents the reconciliation of net (loss) income to FFO and Normalized FFO for the three and nine months ended September 30, 2024 and 2023:

LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources (dollar amounts in thousands, except per share amounts)

Our principal sources of funds to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are the operating cash flows we generate from our properties, net proceeds from property sales and borrowings under our revolving credit facility. Our future cash flows from operating activities will depend primarily upon:

• our ability to collect rent from our tenants;
• our ability to maintain or increase the occupancy of, and the rental rates at, our properties;
• our ability to control operating and capital expenses at our properties;
• our ability to successfully sell properties that we market for sale; and
• our ability to develop, redevelop or reposition properties to produce cash flows in excess of our cost of capital and property operating and capital expenses.

The office industry has been adversely affected by shifts in office space utilization, including increased remote work arrangements and tenants consolidating their real estate footprint. Demand for office space continues to face headwinds and the duration and ultimate impact of current trends on our properties remains uncertain and subject to change. These conditions continue to have a significant negative impact on our results of operations, financial position and cash flows. We are actively pursuing several strategic initiatives to improve liquidity, including asset sales and debt refinancing opportunities.

We plan to selectively sell certain properties from time to time to manage leverage levels and to improve our asset diversification, our geographic make-up and the average age of our properties, lengthen the weighted average term of our leases and increase tenant retention. During the nine months ended September 30, 2024, we sold seven properties for an aggregate sales price of $84,810, excluding closing costs. We continue to evaluate our portfolio and are currently in various stages of marketing certain of our properties for sale. As of October 29, 2024, we had 17 properties containing approximately 1,609,000 rentable square feet which are under agreement to sell for an aggregate sales price of $119,152. We cannot be sure we will sell any properties we are marketing for sale for prices in excess of their carrying values or otherwise. In addition, our pending sales are subject to conditions; accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the pricing will not change.

The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our condensed consolidated statements of cash flows:

The decrease in cash provided by operating activities for the 2024 period compared to the 2023 period was primarily due to higher interest expense and decreased NOI due to property dispositions and reductions in occupied space at certain of our properties in the 2024 period. The decrease in cash used in investing activities in the 2024 period compared to the 2023 period was primarily due to decreased capital expenditures in the 2024 period, partially offset by higher proceeds received from property sales. The change from cash provided by financing activities in the 2023 period to cash used in financing activities in the 2024 period was primarily due to lower net borrowings and payment of debt issuance costs, partially offset by decreased distributions to our common shareholders in the 2024 period.

Our Investment and Financing Liquidity and Resources (dollar amounts in thousands, except per share amounts)

In order to meet cash needs that may result from our desire or need to pay operating or capital expenses, make distributions or fund acquisitions, we maintain a revolving credit facility which is governed by our credit agreement. Our obligations under our credit agreement are secured by a pledge by certain of our subsidiaries of all of their respective equity interests in certain of our direct and indirect property owning subsidiaries and first mortgage liens on 19 properties owned by the pledged subsidiaries with a gross book value of real estate assets of $1,012,536 as of September 30, 2024. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayments are due until maturity. The maturity date of our credit agreement is January 29, 2027, and, subject to the payment of an extension fee and meeting certain other requirements, we can extend the stated maturity date of our revolving credit facility by one year. Our credit agreement contains a number of covenants, including covenants that require us to maintain certain financial ratios, restrict our ability to incur additional debt in excess of calculated amounts and, subject to limited exceptions, restrict our ability to increase our distribution rate above the current level of $0.01 per common share per quarter and enter into share repurchases. Availability of borrowings under our credit agreement is subject to ongoing minimum performance and market values of the 19 collateral properties, our satisfying certain financial covenants and other credit facility conditions.

Interest payable on borrowings under our credit agreement is based on a rate of SOFR plus a margin of 350 basis points. We are also required to pay an unused facility fee on the amount of total lending commitments, which was 25 basis points per annum at September 30, 2024. As of September 30, 2024, the annual interest rate payable on borrowings under our credit agreement was 8.4%. As of September 30, 2024, we had $200,000 outstanding under our revolving credit facility, $100,000 outstanding under our term loan and $125,000 available for borrowing under our revolving credit facility. In October 2024, we borrowed $125,000 under our revolving credit facility to preserve financial flexibility. As of October 29, 2024, we had fully drawn our $325,000 revolving credit facility and $100,000 was outstanding under our term loan.

Senior Secured Notes Issuance and Senior Unsecured Notes Redemption

In February 2024, we issued $300,000 of the 2029 Notes. The aggregate net proceeds from this offering were $270,712, after initial purchaser discounts and other offering expenses. The 2029 Notes are fully and unconditionally guaranteed on a joint, several and senior secured basis by certain of our subsidiaries and secured by a pledge of all of the respective equity interests of the subsidiary guarantors and first mortgage liens on 17 properties with a gross book value of real estate assets of $619,467 as of September 30, 2024. The 2029 Notes require semi-annual payments of interest only and are prepayable, at par plus accrued interest, after March 31, 2028.

In March 2024, we redeemed, at par plus accrued interest, all $350,000 of our 4.25% senior unsecured notes due 2024 using the proceeds from the 2029 Notes and borrowings under our revolving credit facility.

Senior Notes Exchanges

In June 2024, in connection with the Senior Note Exchange, we exchanged $567,429 of the New 2029 Notes for $865,219 aggregate principal of the Existing Notes. The New 2029 Notes are fully and unconditionally guaranteed on a joint, several and senior secured basis by certain of our subsidiaries and are secured by first mortgage liens on 19 properties with a gross book value of real estate assets of $716,969 as of September 30, 2024 and second mortgage liens on the 19 properties securing our credit agreement. The New 2029 Notes require semi-annual payments of interest only and are prepayable, at par plus accrued interest, after June 3, 2028.

During the three and nine months ended September 30, 2024, in a series of exchange transactions, we exchanged an aggregate principal amount of $8,300 of the 2025 Notes for an aggregate 3,184,432 of our common shares.

In October 2024, in a series of exchange transactions, we exchanged an additional aggregate principal amount of $34,154 of the 2025 Notes for an aggregate principal amount of $42,570 of new 9.0% senior secured notes due 2029 on substantially similar terms as the New 2029 Notes and 1,870,238 of our common shares. For more information regarding the Senior Note Exchange, our subsequent senior note exchanges and the New 2029 Notes, see Note 7 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As of September 30, 2024, our debt maturities (other than our revolving credit facility), consisting of senior notes, a term loan and mortgage notes, were as follows:

None of our unsecured debt obligations require sinking fund payments prior to their maturity dates. Our mortgage notes currently require monthly payments of interest only; however, certain of our mortgage notes will require payments of principal and interest after a specified date through maturity.

In addition to our debt obligations, as of September 30, 2024, we had estimated unspent leasing related obligations of $100,646, of which we expect to spend $66,949 over the next 12 months.

As of October 30, 2024, our total available liquidity was comprised of $146,448 of cash and, in addition to long-term debt, the 2025 Notes are due within one year from the date of issuance of these financial statements. We are currently in negotiations with certain holders of the 2025 Notes for a potential note exchange. While we believe a note exchange with certain holders of the 2025 Notes would alleviate the substantial doubt about our ability to continue as going concern, we are not able to conclude that it is probable that the negotiations will result in an exchange that satisfies the 2025 Notes prior to their maturity. If we are unable to consummate a transaction that refinances the 2025 Notes on terms which, in our view, allow us to continue as a going concern, our Board of Trustees may consider a reorganization in a bankruptcy court. As a result of the foregoing, we have concluded that there is substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, or October 30, 2024.

Our ability to obtain, and the costs of, our future debt financings will depend primarily on credit market conditions and our creditworthiness. We have no control over market conditions. Potential investors and lenders will likely evaluate our ability to fund required debt service, repay debts when they become due and pay distributions to shareholders by reviewing our business practices and plans to balance our use of debt and equity capital so that our financial profile and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. Similarly, our ability to raise equity capital in the future will depend primarily upon equity capital market conditions and our ability to conduct our business to maintain and grow our operating cash flows. It is uncertain what the ultimate impacts of inflationary pressures, sustained high interest rates, deteriorating office fundamentals and market sentiment toward the office sector or any economic recession will be. A protracted and extensive economic recession, further deterioration of office fundamentals or continued or intensified disruptions in capital markets could limit our access to financing from public sources, would likely increase our cost of capital and impact our ability to satisfy covenants and conditions under our credit agreement or senior notes.

During the nine months ended September 30, 2024, we paid quarterly distributions to our shareholders totaling $1,477 using cash on hand. On October 16, 2024, we declared a regular quarterly distribution payable to shareholders of record on October 28, 2024 of $0.01 per share, or approximately $555. We expect to pay this distribution on or about November 14, 2024 using cash on hand. We determine our distribution payout ratio with consideration for restrictions under our credit agreement, our expected capital expenditures, cash flows from operations and payment of debt obligations. For more information regarding the distributions we paid and declared during 2024, see Note 9 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We owned a 51% interest in an unconsolidated joint venture which owned two properties at September 30, 2024. As of September 30, 2024, the properties owned by this joint venture were encumbered by $50,000 principal amount of mortgage indebtedness, none of which is recourse to us. As of September 30, 2024, we did not control the activities that are most significant to this joint venture and, as a result, we accounted for our investment in this joint venture under the equity method of accounting. For more information on the financial condition and results of operations of this joint venture, see Note 4 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Other than this joint venture, as of September 30, 2024, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Debt Covenants (dollars in thousands)

Our principal debt obligations as of September 30, 2024 consisted of $200,000 of borrowings outstanding under our revolving credit facility, $100,000 outstanding principal amount under our secured term loan, an outstanding principal balance of $1,855,910 of senior notes and mortgage notes with an outstanding principal balance of $177,320. Also, the two properties owned by the joint venture in which we owned a 51% interest secured an additional mortgage note. Our senior notes are governed by indentures and their supplements. Our credit agreement and our senior notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes RMR ceasing to act as our business and property manager. Our credit agreement and our senior notes indentures and their supplements also contain a number of covenants, including those that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, require us to comply with certain financial covenants and, in the case of our credit agreement, restrict our ability to increase our distribution rate above the current level of $0.01 per common share per quarter. As of September 30, 2024, we believe we were in compliance with the terms and conditions of our respective covenants under our credit agreement and our senior notes indentures and their supplements. Our mortgage notes are non-recourse, subject to certain limited exceptions, and do not contain any material financial covenants.

As of September 30, 2024, adjusted total assets for covenant purposes as defined in our senior notes indentures were $5,173,078. Assets serving as collateral under our credit agreement, our secured senior notes or mortgage notes represented $2,756,946 of adjusted total assets, as defined in our senior notes indentures. Our unencumbered assets represented $2,416,132 of adjusted total assets.

The following table presents the calculation of adjusted total assets to total assets in accordance with GAAP as of September 30, 2024:

Neither our credit agreement nor our senior notes indentures and their supplements contain provisions for acceleration which could be triggered by our credit ratings.

Our credit agreement and our senior notes indentures and their supplements contain cross default provisions to any other debts of more than $25,000 (or more than $50,000 in certain circumstances).

Related Person Transactions

We have relationships and historical and continuing transactions with RMR, RMR Inc. and others related to them. For more information about these and other such relationships and related person transactions, see Notes 10 and 11 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2023 Annual Report, our definitive Proxy Statement for our 2024 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” in Part I, Item 1A of our 2023 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services.

Critical Accounting Estimates

The preparation of our Condensed Consolidated 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 purchase price allocations, useful lives of fixed assets and assessment of impairment of real estate and the related intangibles.

A discussion of our critical accounting estimates is included in our 2023 Annual Report. There have been no significant changes in our critical accounting estimates since the year ended December 31, 2023.

We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives. Our strategy to manage exposure to changes in interest rates has not materially changed since December 31, 2023. 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.

Fixed Rate Debt

As of September 30, 2024, our outstanding fixed rate debt consisted of the following:

(1) The principal balances and annual interest rates are the amounts stated in 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 or assumed these debts. For more information, see Notes 7 and 8 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Our senior notes require semi-annual or quarterly interest payments through maturity. Our mortgage notes require monthly payments of interest only or payments of principal and interest through maturity. As these debts require interest to be paid at a fixed rate, changes in market interest rates during the term of these debts will not affect our interest obligations. If these debts were refinanced at interest rates which are one percentage point higher or lower than shown above, our annual interest cost would increase or decrease by approximately $20,333.

Changes in market interest rates would also 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 fair value of our fixed rate debt. In response to significant and prolonged increases in inflation, the U.S. Federal Reserve has raised interest rates multiple times since the beginning of 2022. Although the U.S. Federal Reserve has recently lowered interest rates and indicated that it may further lower interest rates in 2024, we cannot be sure that it will do so, and interest rates may remain at the current high levels or continue to increase. Based on the balances outstanding at September 30, 2024, 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 one percentage point increase in interest rates would change the fair value of those obligations by approximately $58,913.

Our fixed rate debt arrangements may allow 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. These prepayment rights may afford us opportunities to mitigate the risk of refinancing our debts at maturity at a higher rate by refinancing prior to maturity.

In addition to the fixed rate debt presented in the table above, at September 30, 2024, we had a noncontrolling ownership interest of 51% in an unconsolidated joint venture that owned two properties that were secured by fixed rate debt consisting of the following mortgage note:

(1) The principal balance and annual interest rate are the amounts stated in the applicable contracts. In accordance with GAAP, the joint venture’s recorded interest expense may differ from these amounts because of market conditions at the time it incurred the debt.

(2) Reflects the entire balance of the debt secured by the properties and is not adjusted to reflect the interest in the joint venture we do not own. None of the debt is recourse to us.

Floating Rate Debt

As of September 30, 2024, our floating rate debt consisted of $200,000 outstanding under our $325,000 secured revolving credit facility and $100,000 outstanding on our secured term loan, both of which are governed by our credit agreement. Our credit agreement matures on January 29, 2027. We can borrow, repay and reborrow funds available under our revolving credit facility, and no principal payments are due under our credit agreement until maturity. Subject to the payment of an extension fee and meeting certain other requirements, we can extend the stated maturity date of our revolving credit facility by one year.

Borrowings under our credit agreement are in U.S. dollars and require interest to be paid at a rate of SOFR plus a margin of 350 basis points. Accordingly, we are vulnerable to changes in U.S. dollar based short term rates, specifically SOFR. Generally, a change in interest rates would not affect the value of our floating rate debt but would affect our operating results.

The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of September 30, 2024:

(1) Based on SOFR plus a margin of 350 basis points per annum as of September 30, 2024.

(2) Based on the weighted average common shares outstanding (diluted) for the nine months ended September 30, 2024.

The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of September 30, 2024 if we were fully drawn on our revolving credit facility and term loan:

(1) Based on SOFR plus a margin of 350 basis points per annum as of September 30, 2024.

(2) Represents the maximum amount available under our revolving credit facility and term loan.

(3) Based on the weighted average common shares outstanding (diluted) for the nine months ended September 30, 2024.

The foregoing tables show the impact of an immediate increase in floating interest rates as of September 30, 2024. If interest rates were to increase gradually over time, the impact would be spread over time. Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amount under our revolving credit facility or our term loan, or our other floating rate debt, if any. Although we have no present plans to do so, we may in the future enter into hedge arrangements from time to time to mitigate our exposure to changes in interest rates.

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our Managing Trustees, our President and Chief Operating Officer and our

Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Managing Trustees, our President and Chief Operating Officer and our Chief Financial Officer and Treasurer 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, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Warning Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws that are subject to risks and uncertainties. These statements may include words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions. These forward-looking statements include, among others, statements about: our ability to continue as a going concern; our actions to address our near term capital needs and possible financing options; our leverage levels; demand for office space; our future leasing activity, commitments and obligations; economic and market conditions; our liquidity needs and sources; our capital expenditure plans and commitments; acquisitions and our pending or potential dispositions; our redevelopment and construction activities and plans; our joint ventures; and the amount and timing of future distributions.

Forward-looking statements reflect our current expectations, are based on judgments and assumptions, are inherently uncertain and are subject to risks, uncertainties and other factors, which could cause our actual results, performance or achievements to differ materially from expected future results, performance or achievements expressed or implied in those forward-looking statements. Some of the risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the following:

• Our ability to successfully take actions to address the current substantial doubt as to our ability to continue as a going concern,
• Our ability to make required payments on our debt or refinance our debts as they mature or otherwise become due,
• Our ability to maintain sufficient liquidity, including the availability of borrowings under our revolving credit facility and our ability to obtain new debt or equity financing, and otherwise manage leverage,
• Our ability to comply with the terms of our debt agreements and meet financial covenants,
• Our ability to effectively raise and balance our use of debt and equity capital,
• The possibility that we may reorganize through bankruptcy if we are unable to satisfy the 2025 Notes prior to their maturity,
• Whether our tenants will renew or extend their leases and not exercise early termination options pursuant to their leases or that we will obtain replacement tenants on terms as favorable to us as our prior leases,
• Our ability to increase or maintain occupancy at our properties on terms desirable to us, and our ability to increase rents when our leases expire or renew,
• The extent to which changes and trends in office space utilization and needs, including due to remote work arrangements, continue to impact demand for office space at our properties,
• Competition within the commercial real estate industry, particularly in those markets in which our properties are located,
• The impact of unfavorable market and commercial real estate industry conditions due to high interest rates, prolonged high inflation, labor market challenges, supply chain disruptions, volatility in the public equity and debt markets and in commercial real estate markets, generally and in the sectors we operate, geopolitical instability and tensions, economic downturns or a possible recession or changes in real estate utilization, among other things, on us and our tenants,
• The likelihood that our tenants will pay rent or be negatively impacted by continuing unfavorable market and commercial real estate industry conditions or government budget constraints,
• Our ability to sell properties at prices we target,
• Our ability to manage our capital expenditures and other operating costs effectively and to maintain and enhance our properties and their appeal to tenants,
• The financial strength of our tenants,
• Our tenant and geographic concentration,
• Risks and uncertainties regarding the costs and timing of development, redevelopment and repositioning activities, including as a result of prolonged high inflation, cost overruns, supply chain challenges, labor shortages, construction delays or inability to obtain necessary permits or volatility in the commercial real estate markets,
• Our credit ratings,
• Our ability to pay distributions to our shareholders and to maintain or increase the amount of such distributions,
• Our ability to acquire properties that realize our targeted returns,
• The ability of our manager, RMR, to successfully manage us,
• Compliance with, and changes to, federal, state and local laws and regulations, accounting rules, tax laws and similar matters,
• The impact of any U.S. government shutdown or failure to increase the government debt ceiling on our ability to collect rents and pay our operating expenses, debt obligations and distributions to shareholders on a timely basis,
• Actual and potential conflicts of interest with our related parties, including our Managing Trustees, RMR, Sonesta and others affiliated with them,
• Limitations imposed by and our ability to satisfy complex rules to maintain our qualification for taxation as a REIT for U.S. federal income tax purposes,
• Acts of terrorism, outbreaks of pandemics or other public health safety events or conditions, war or other hostilities, global climate change or other manmade or natural disasters beyond our control, and
• Other matters.

These risks, uncertainties, and other factors are not exhaustive and should be read in conjunction with other cautionary statements that are included in our periodic filings. The information contained in our filings with the SEC, including under the caption “Risk Factors” in this Quarterly Report on Form 10-Q and our other periodic reports, or incorporated herein or therein, identifies important factors that could cause differences from the forward-looking statements in this Quarterly Report on Form 10-Q. Our filings with the SEC are available on the SEC’s website at www.sec.gov (http://www.sec.gov).

You should not place undue reliance upon our forward-looking statements.

Except as required by law, we do not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

Statement Concerning Limited Liability

The amended and restated declaration of trust establishing Office Properties Income Trust, dated June 8, 2009, as amended, as filed with the State Department of Assessments and Taxation of Maryland, provides that no trustee, officer, shareholder, employee or agent of Office Properties Income Trust shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, Office Properties Income Trust. All persons dealing with Office Properties Income Trust in any way shall look only to the assets of Office Properties Income Trust for the payment of any sum or the performance of any obligation.

Our business is subject to risks and uncertainties, a number of which are described under the caption “Risk Factors” in our 2023 Annual Report. The risks described in our 2023 Annual Report and below may not be the only risks we face but are risks we believe may be material at this time. Other risks of which we are not yet aware, or that we currently believe are not material, 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 2023 Annual Report or included below occurs, our business, financial condition, liquidity, results of operations or ability to pay distributions to our shareholders could be adversely impacted and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in our 2023 Annual Report and below and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q before deciding whether to invest in our securities.

Risk Relating to Going Concern

We have concluded that there is substantial doubt about our ability to continue as a going concern.

Our portfolio has been adversely affected by shifts in office space utilization, including increased remote work arrangements and tenants consolidating their real estate footprint. Demand for office space continues to face headwinds and declining rents and increasing costs to relet space when tenants can be identified continue to impact the market. In addition, there are limited debt or equity financing alternatives available to us to refinance our debt and financing sources we have utilized have increased our cost of capital. The duration and ultimate impact of these factors on our properties and our business remains uncertain and subject to change; however, these conditions continue to have a significant negative impact on our results of operations, financial position and cash flows. As of October 30, 2024, our total available liquidity was comprised of $146,448 of cash and, in addition to long-term debt, the 2025 Notes are due within one year from the date of issuance of these financial statements.

As discussed in Note 1 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, based on these challenges and upcoming debt maturities, we have concluded that there is substantial doubt about our ability to continue as a going concern for at least one year after the date of issuance of such financial statements, or October 30, 2024. Our continuation as a going concern is dependent upon many factors, including our ability to meet our debt covenants, repay our debts and other obligations when due and our ability to successfully negotiate a note exchange with certain holders of the 2025 Notes.

While we believe a note exchange with certain holders of the 2025 Notes would alleviate the substantial doubt about our ability to continue as going concern, any exchange is subject to the approval and participation of holders of the 2025 Notes and other closing conditions and we cannot provide assurance that the 2025 Notes exchange will be completed. If we are unable to consummate a transaction that refinances the 2025 Notes on terms which, in our view, allow us to continue as a going concern, our Board of Trustees may consider a reorganization in a bankruptcy court. We cannot be sure that we will be able to obtain any future financing, and any such financing we may obtain may not be sufficient to repay our existing debt. If we are unable to obtain sufficient funds, we may be unable to continue as a going concern.