The following discussion and tables should be read in conjunction with our consolidated financial statements and notes thereto included in this quarterly report and our Annual Report on Form 10-K for the year ended December 31, 2008.

OVERVIEW

We primarily own office and industrial buildings located throughout the United States. We also own approximately 17 million square feet of leased industrial and commercial lands located in Oahu, Hawaii.

Property Operations

As of March 31, 2009, 89.5% of our total square feet was leased, compared to 91.4% leased as of March 31, 2008. These results reflect a 2.2 percentage point decrease in occupancy at properties we owned continuously since January 1, 2008. Occupancy data for 2009 and 2008 is as follows (square feet in thousands):

                       All Properties (1)      Comparable Properties (2)
                        As of March 31,             As of March 31,
                       2009         2008          2009            2008
Total properties           541          488            482             482
Total square feet       67,276       63,057         62,035          62,035
Percent leased (3)        89.5 %       91.4 %         89.4 %          91.6 %

During the three months ended March 31, 2009, we signed new leases for 190,000 square feet and lease renewals for 755,000 square feet, at weighted average rental rates that were 6% above rents previously charged for the same space. Average lease terms for leases signed during the three months ended March 31, 2009, were 5.0 years. Commitments for tenant improvement and leasing costs for leases signed during the three months ended March 31, 2009, totaled $6.7 million, or $7.12 per square foot (approximately $1.42/sq. ft. per year of the lease term).

During the past twelve months, leasing market conditions in the majority of our markets have continued to weaken. The pace of new leasing activity and the leasing of currently vacant space within our portfolio has slowed and completion of newly constructed office properties in certain markets has continued, causing our occupancy to decline. Required landlord funded tenant build outs and leasing commissions payable to tenant brokers for new leases and lease renewals have generally remained unchanged over the past twelve months but started to increase in certain markets since the second half of 2008. These build out costs and leasing commissions are generally amortized as a reduction of our income during the terms of the affected leases. Also, some tenants and prospective tenants have demonstrated reluctance to enter lease renewals or new leases for extended terms. We believe that some decreases in occupancy and effective rents may further reduce the financial results at some of our currently owned properties. However, there are too many variables for us to reasonably project what the financial impact of market conditions will be on our results for future periods.

Approximately 16.9% of our leased square feet and 18.4% of our rents are included in leases scheduled to expire through December 31, 2010. Lease renewals and rental rates at which available space may be relet in the future will depend on prevailing market conditions at that time. Lease expirations by year, as of March 31, 2009, are as follows (square feet and dollars in thousands):

                                                                                                   Cumulative
                                                                                        % of          % of
                                                     Cumulative      Annualized      Annualized    Annualized
                         Square          % of        % of Square       Rental          Rental        Rental
                          Feet        Square Feet       Feet           Income          Income        Income
Year                  Expiring (1)     Expiring       Expiring      Expiring (2)      Expiring      Expiring
2009                         3,438            5.7 %          5.7 %  $      60,562           6.8 %         6.8 %
2010                         6,727           11.2 %         16.9 %        103,151          11.6 %        18.4 %
2011                         6,110           10.2 %         27.1 %        107,335          12.1 %        30.5 %
2012                         5,892            9.8 %         36.9 %        115,298          13.0 %        43.5 %
2013                         6,036           10.0 %         46.9 %        107,380          12.1 %        55.6 %
2014                         3,365            5.6 %         52.5 %         61,818           7.0 %        62.6 %
2015                         3,815            6.3 %         58.8 %         70,779           8.0 %        70.6 %
2016                         2,776            4.6 %         63.4 %         46,395           5.2 %        75.8 %
2017                         2,200            3.7 %         67.1 %         45,891           5.2 %        81.0 %
2018                         1,743            2.9 %         70.0 %         31,865           3.6 %        84.6 %
2019 and
thereafter                  18,094           30.0 %        100.0 %        135,977          15.4 %       100.0 %
                            60,196          100.0 %                 $     886,451         100.0 %

Weighted average
remaining lease
term (in years):               8.1                                            5.8

Our principal source of funds for our operations is rents from tenants at our properties. Rents are generally received from our non-government tenants monthly in advance, and from our government tenants monthly in arrears. As of March 31, 2009, tenants responsible for 1% or more of our total rent were as follows (square feet in thousands):

                                                     % of
                                                     Total
                                       Square       Square        % of
Tenant                                Feet (1)     Feet (1)     Rent (2)      Expiration
1.  U. S. Government                      4,668          7.8 %       12.5 %  2009 to 2024
2.  PNC Financial Services Group            701          1.2 %        1.9 %  2011 to 2021
3.  GlaxoSmithKline plc                     608          1.0 %        1.7 %      2013
4.  Jones Day                               407          0.7 %        1.3 %   2012, 2019
5.  Wells Fargo Bank                        393          0.7 %        1.2 %  2009 to 2017
6.  Flextronics International Ltd.          894          1.5 %        1.2 %      2014
7.  ING                                     410          0.7 %        1.1 %   2011, 2018
8.  JDA Software Group, Inc.                283          0.5 %        1.0 %      2012
   Total                                  8,364         14.1 %       21.9 %

Investment Activities

During the three months ended March 31, 2009, we acquired four office properties with 392,000 square feet of space for $57.5 million, excluding closing costs. At the time of acquisition, these properties were 100% leased and yielded approximately 11.1% of the aggregate gross purchase price, based on estimated annual net operating income, or NOI, which we define as property GAAP rental income less property operating expenses on the date of closing.

In May 2008, we entered into a series of agreements to sell 48 medical office, clinic and biotech laboratory buildings to Senior Housing for an aggregate purchase price of approximately $565.0 million. To date, we have sold 38 of these properties containing 1,595,000 square feet of space for approximately $366.0 million, excluding closing costs, and recognized gains totaling $145.9 million. One of the remaining buildings with an allocated value of $3.0 million is no longer subject to the agreement for sale. We expect the closings of the remaining nine buildings to occur in 2010. We and Senior Housing may mutually agree to accelerate the closings of these acquisitions. In addition, Senior Housing acquired rights of first refusal from us to purchase any of 45 additional buildings (containing approximately 4,598,000 square feet of rental space) that are leased to tenants in medical related businesses which we will continue to own after these transactions. Senior Housing was formerly our subsidiary, and both we and Senior Housing are managed by RMR. Because we and Senior Housing are both managed by RMR, the terms of these transactions were negotiated by special committees of our and Senior Housing's boards of trustees composed solely of independent trustees who were not also independent trustees of both companies.

In June 2008, we also agreed to sell one additional property to a third party for approximately $15 million, excluding closing costs. We expect the closing of this building to occur in 2010.

Our obligations to complete the uncompleted sales are subject to various conditions typical of commercial real estate transactions. We can provide no assurance that we will sell any or all of these buildings or that the remaining sales will be completed in 2010 or sooner.

In February 2009, we invested $25,000 in an insurance company with RMR and other companies to which RMR provides management services, and in April 2009 we invested an additional $5.0 million in this insurance company. We currently own approximately 16.67% of this insurance company.

In March 2009, we purchased $8.0 million of marketable certificates which are backed by our mortgage notes payable due January 2011, for $6.8 million. We classify these certificates as investments held to maturity rather than available for sale or trading because we have the intent and ability to hold these certificates until maturity. These certificates are included in other assets in our condensed consolidated balance sheet as of March 31, 2009. These certificates had an estimated fair market value of $6.0 million as of March 31, 2009.

Financing Activities

During the three months ended March 31, 2009, we repurchased 4,050,000 of our common shares for $14.5 million, including transaction costs, using cash on hand.

In March 2009, we repurchased and retired $31.8 million of our floating rate senior notes due 2011, for $24.2 million, excluding accrued interest, and recognized a gain on early extinguishment of debt of $7.5 million, net of unamortized deferred financing fees.

As of May 7, 2009, we repurchased and retired $49.3 million of our 6.95% senior notes due 2012 for $41.5 million, $9.0 million of our 6.50% senior notes due 2013 for $7.3 million, $5.3 million of our 5.75% senior notes due 2014 for $4.3 million, and $4.0 million of our 6.40% senior notes due 2015 for $2.8 million, using cash on hand and borrowings under our revolving credit facility. In connection with these transactions, we expect to recognize gains of approximately $11.5 million, net of unamortized discounts and deferred financing fees during the second quarter of 2009.

In April 2009, our wholly owned subsidiary, GOV, entered into a new $250.0 million secured credit facility with a group of commercial banks. The maturity date of this facility is April 24, 2012, and we have the option to extend the facility, subject to certain conditions, for one year to April 24, 2013. Interest under the facility is generally set at LIBOR, subject to a floor, plus a spread which varies depending on the amount of debt leverage at the borrower subsidiary. The initial interest rate applicable to the loan is 5.25%. The $250.0 million proceeds of this credit facility were distributed to us and used by us to repay amounts outstanding under our existing unsecured revolving credit facility.

As previously disclosed and more fully described under "Item 1. Business" in our Annual Report on Form 10-K for the year ended December 31, 2008, GOV has filed a registration statement with the SEC for the initial public offering of 10,000,000 common shares of beneficial interest, or common shares. In connection with this initial public offering, we transferred to GOV in April 2009, 29 properties, 25 of which are leased primarily to the U.S. Government and four of which are leased to the States of California, Maryland, Minnesota and South Carolina. These properties contain approximately 3.3 million rentable square feet and are located in 14 states and the District of Columbia. If the GOV registration statement becomes effective and the initial public offering is completed, we expect to own 49.9%, or 9,950,000 common shares of GOV after the completion of the offering (46.4% if the underwriters' over allotment option is exercised in full). If the initial public offering of GOV is successfully completed, GOV will enter into management agreements with RMR on terms that are substantially similar to our management agreements with RMR; and our management fees to RMR will be reduced by the amount of the fees that we currently pay on the properties that we transferred to GOV.

GOV's registration statement for its offering of common shares is subject to review and comment by the SEC and the offering will not occur unless, among other things, the SEC has declared the registration statement to be effective, and underwriters have agreed to purchase and distribute the shares proposed to be offered by GOV. We may also determine, in our discretion, due to market conditions or otherwise, not to proceed with this offering. Accordingly, there can be no assurance when or if the offering will occur.

RESULTS OF OPERATIONS



Three Months Ended March 31, 2009, Compared to Three Months Ended March 31, 2008



                                                Three Months Ended March 31,
                                                                      $             %
                                       2009           2008          Change       Change
                                           (in thousands, except per share data)

Rental income                      $    216,923    $   201,172    $   15,751          7.8 %

Expenses:
Operating expenses                       91,739         81,217        10,522         13.0 %
Depreciation and amortization            48,390         44,813         3,577          8.0 %
General and administrative                9,487          8,862           625          7.1 %
Acquisition costs                           259              -           259        100.0 %
Total expenses                          149,875        134,892        14,983         11.1 %

Operating income                         67,048         66,280           768          1.2 %

Interest income                             145            329          (184 )      (55.9 )%
Interest expense                        (43,859 )      (45,040 )      (1,181 )       (2.6 )%
Gain on early extinguishment of
debt                                      7,513              -         7,513        100.0 %
Income from continuing
operations before income tax
expense                                  30,847         21,569         9,278         43.0 %
Income tax expense                         (152 )         (164 )          12          7.3 %
Income from continuing
operations                               30,695         21,405         9,290         43.4 %
Discontinued operations:
Income from discontinued
operations                                3,672          6,001        (2,329 )      (38.8 )%
Gain on sale of property                  8,745              -         8,745        100.0 %
Net income                               43,112         27,406        15,706         57.3 %
Preferred distributions                 (12,667 )      (12,667 )           -            - %
Net income available for common
shareholders                       $     30,445    $    14,739    $   15,706        106.6 %

Weighted average common shares
outstanding - basic                     225,619        225,444           175         0.08 %

Weighted average common shares
outstanding - diluted                   254,812        254,637           175         0.07 %

Earnings per common share:
Income from continuing
operations available for common
shareholders - basic and
diluted                            $       0.08    $      0.04    $     0.04        100.0 %
Income from discontinued
operations - basic and diluted     $       0.06    $      0.03    $     0.03        100.0 %
Net income available for common
shareholders - basic and
diluted                            $       0.13    $      0.07    $     0.06         85.7 %

Rental income. Rental income increased for the three months ended March 31, 2009, compared to the same period in 2008, primarily due to increases in rental income from our Other Markets and Oahu, HI segments, as described in the segment information footnote to our consolidated financial statements. Rental income from our Other Markets segment increased $13.5 million, or 12%, primarily because of the acquisition of four properties during 2009 and 54 properties during 2008. Rental income from our Oahu, HI market increased by $1.4 million, or 8%, due to an increase in weighted average rental rates, including rents from new leases and lease renewals signed during 2008. Rental income includes non-cash straight line rent adjustments totaling $608,000 in 2009 and $1.6 million in 2008 and amortization of acquired real estate leases and obligations totaling ($3.2) million in 2009 and ($2.4) million in 2008. Rental income also includes lease termination fees totaling $197,000 in 2009 and $1.0 million in 2008.

Total expenses. The increase in total expenses primarily reflects our acquisition of properties since January 1, 2008. The increase in depreciation and amortization expense also reflects building and tenant improvement costs incurred throughout our portfolio since January 1, 2008. Acquisition costs include certain costs related to property acquisitions that we now expense since our adoption of SFAS No. 141(R) in January 2009.

Interest expense. The decrease in interest expense in 2009 primarily reflects a decrease in interest rates on our floating rate debt.

Gain on early extinguishment of debt. The gain on early extinguishment of debt in 2009 relates to the repurchase and retirement of $31.8 million of our floating rate senior notes due 2011 for $24.2 million, net of unamortized deferred financing fees.

Income from continuing operations. The increase in income from continuing operations is due primarily to the gain on early extinguishment of debt, the decrease in floating interest rates, and income from acquisitions in 2009 and 2008, offset by an increase in depreciation and amortization expense and a decrease in rents resulting from the decline in occupancy.

Income from discontinued operations. Income from discontinued operations reflects operating results from one office property sold in 2009, 37 office properties sold during 2008 and 11 properties classified as held for sale as of March 31, 2009.

Gain on sale of property. Net sales proceeds and gain from the sale of one office property in 2009 were $19.2 million and $8.7 million, respectively.

Net income and net income available for common shareholders. The increase in net income and net income available for common shareholders is due primarily to the gain on early extinguishment of debt, the gain on sale of property, the decrease in floating interest rates, and income from acquisitions in 2009 and 2008, offset by an increase in depreciation and amortization expense and a decrease in rents resulting from the decline in occupancy. Net income available for common shareholders is net income reduced by preferred distributions.

LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources

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

†          control operating cost increases at our properties; and

†          purchase additional properties which produce positive cash flows from
operations.

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

Cash flows provided by (used in) operating, investing and financing activities were $62.8 million, ($57.4) million and $14.4 million, respectively, for the three months ended March 31, 2009, and $62.0 million, ($127.2) million and $77.3 million, respectively, for the three months ended March 31, 2008. Changes in all three categories between 2009 and 2008 are primarily related to property acquisitions and sales in 2009 and 2008, repayments and issuances of debt obligations, the repurchase of our common shares and debt securities in 2009, and the reduction in our quarterly common share distribution rate in 2009.

Our Investment and Financing Liquidity and Resources

In order to fund acquisitions and to accommodate cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions or pay operating or capital expenses, we maintain a $750 million unsecured revolving credit facility with a group of institutional lenders. The credit facility matures on August 22, 2010; subject to certain conditions, at our option, this facility's maturity date can be extended to August 22, 2011 upon our payment of a fee. At March 31, 2009, there was $297 million outstanding and $453 million available under our revolving credit facility, and we had cash and cash equivalents of $35.3 million. We expect to use cash balances, borrowings under our credit facility, proceeds from the sale of properties and net proceeds of offerings of equity or debt securities to fund possible repurchases of our equity and debt securities, continuing operations and future property acquisitions.

Our outstanding debt maturities and weighted average interest rates as of March 31, 2009, were as follows (dollars in thousands):

                           Scheduled Principal Payments During Period
                        Secured      Unsecured     Unsecured                    Weighted
                      Fixed Rate      Floating       Fixed                       Average
Year                     Debt        Rate Debt     Rate Debt     Total (1)    Interest Rate
2009                  $     6,647    $        -   $         -   $     6,647             6.7 %
2010                        9,507       297,000        50,000       356,507             2.3 %
2011                      260,302       168,219             -       428,521             4.9 %
2012                       32,335             -       200,000       232,335             7.0 %
2013                        5,080             -       200,000       205,080             6.5 %
2014                       17,119             -       250,000       267,119             5.7 %
2015                        5,415             -       450,000       455,415             6.0 %
2016                       59,219             -       400,000       459,219             6.2 %
2017                        4,345             -       250,000       254,345             6.3 %
2018                        4,632             -       250,000       254,632             6.6 %
2019                        4,938             -             -         4,938             6.4 %
2020 and thereafter        43,981             -             -        43,981             6.5 %
                      $   453,520    $  465,219   $ 2,050,000   $ 2,968,739             5.6 %

When significant amounts are outstanding under our revolving credit facility or as the maturity dates of our revolving credit facility and term debts approach, . . .