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

OVERVIEW

The majority of the properties owned by us, other than by SIR, or our wholly owned properties, are office buildings in CBD and suburban locations throughout the United States. Our wholly owned property portfolio also includes 12.3 million square feet of industrial and other space and 1.8 million square feet of office and industrial buildings located in Australia. Our consolidated subsidiary, SIR, owns 22.0 million square feet of primarily triple net leased, single tenant office and industrial properties, including 17.8 million square feet of primarily leasable industrial and commercial lands located on Oahu, Hawaii.

References to our properties in this Management's Discussion and Analysis of Financial Condition and Results of Operations include our consolidated properties, including SIR's properties, unless the context otherwise provides.

Property Operations

As of June 30, 2012, 84.5% of our total consolidated square feet was leased, compared to 84.3% leased as of June 30, 2011. These results reflect a 0.6% decline in occupancy at properties we owned continuously since January 1, 2011, offset by property acquisitions during 2011 and 2012. Occupancy data for 2012 and 2011 is as follows (square feet in thousands):

                     All Properties     Comparable Properties (1)
                     As of June 30,           As of June 30,
                     2012      2011        2012            2011
Total properties        519      513            492             492
Total square feet    74,753   69,044         65,465          65,465
Percent leased(2)      84.5 %   84.3 %         83.5 %          84.1 %

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

The average effective rental rate per square foot, as defined below, for our properties for the three and six months ended June 30, 2012 and 2011 is as follows:

                                            Average Effective Rental Rate Per Square Foot(1)
                                      Three Months Ended June 30,        Six Months Ended June 30,
                                         2012              2011            2012             2011
CBD office buildings                $         29.15    $      29.77    $       30.14    $      29.39
Suburban office buildings           $         21.29    $      20.69    $       21.07    $      20.91
Industrial properties (including
Hawaii land leases)                 $          5.70    $       5.73    $        5.83    $       5.66
Consolidated portfolio              $         16.42    $      15.29    $       16.52    $      15.09

During the three months ended June 30, 2012, we renewed leases for 1,020,000 square feet and entered new leases for 549,000 square feet, at weighted average rental rates that were 2% above rents previously charged for the same space. The average lease term for leases entered during 2012 was 10.0 years. Commitments for tenant improvements, leasing costs and concessions for leases entered during 2012 totaled $44.3 million, or $28.22 per square foot on average (approximately $2.82/sq. ft. per year of the lease term).

During the past twelve months, leasing market conditions in the majority of our markets appear to be stabilizing but remain weak. Required landlord funded tenant build outs, or tenant improvements, leasing commissions payable by landlords to tenant brokers for new leases and lease renewals and concessions granted to tenants, such as free rent, have increased in certain markets since 2008. Tenant improvements and leasing commissions are generally amortized during the terms of the affected leases. We believe that the current high unemployment rate and weak leasing market conditions in the U.S. may lead to stable or modest decreases in occupancy and effective rents, or gross rents less amortization of landlord funded tenant improvements and leasing costs, at our properties through the remainder of 2012, but we expect our occupancy may begin to improve in 2013. However, there are too many variables for us to reasonably project what the financial impact of changing market conditions will be on our occupancy or financial results for future periods.

As of June 30, 2012, approximately 14.4% of our leased square feet and 14.9% of our annualized rents, determined as set forth below, are included in leases scheduled to expire through December 31, 2013. Lease renewals and rental rates at which available space may be relet in the future will depend on prevailing market conditions at the times these renewals are negotiated. Lease expirations by year, as of June 30, 2012, are as follows (square feet and dollars in thousands):

                                                                                                  Cumulative
                                                                                        % of         % of
                                                        Cumulative     Annualized    Annualized   Annualized
                 Number       Square         % of       % of Square      Rental        Rental       Rental
               of Tenants      Feet       Square Feet      Feet          Income        Income       Income
 Year           Expiring    Expiring(1)    Expiring      Expiring     Expiring(2)     Expiring     Expiring
2012                  367         3,380           5.4 %         5.4 % $     53,007          5.4 %        5.4 %
2013                  418         5,710           9.0 %        14.4 %       92,817          9.5 %       14.9 %
2014                  323         4,893           7.7 %        22.1 %       72,676          7.4 %       22.3 %
2015                  325         4,906           7.8 %        29.9 %       99,661         10.2 %       32.5 %
2016                  280         6,950          11.0 %        40.9 %      107,015         10.9 %       43.4 %
2017                  238         4,252           6.7 %        47.6 %       96,199          9.8 %       53.2 %
2018                   83         4,014           6.4 %        54.0 %       78,332          8.0 %       61.2 %
2019                   67         4,166           6.6 %        60.6 %       51,227          5.2 %       66.4 %
2020                   56         3,101           4.9 %        65.5 %       76,215          7.8 %       74.2 %
2021                   46         2,331           3.7 %        69.2 %       40,246          4.1 %       78.3 %
Thereafter            333        19,470          30.8 %       100.0 %      212,595         21.7 %      100.0 %
                    2,536        63,173         100.0 %               $    979,990        100.0 %

Weighted
average
remaining
lease term
(in years):                         7.8                                        6.4

(2) Annualized rental income is annualized contractual rents from our tenants pursuant to existing leases as of June 30, 2012, plus straight-line rent adjustments and estimated recurring expense reimbursements; includes some triple net lease rents and excludes lease value amortization.

RMR employs a tenant review process for us. RMR assesses tenants on an individual basis and does not employ a uniform set of 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. RMR also often uses a third party service to monitor the credit ratings of debt securities of our existing tenants whose debt securities are rated by a nationally recognized statistical rating organization.

Our principal source of funds for our operations is rents from tenants at our properties. Rents are generally received from our tenants monthly in advance, except from our government tenants, who usually pay rents monthly in arrears. As of June 30, 2012, tenants responsible for 1% or more of our total annualized rental income were as follows (square feet in thousands):

                                                                   % of
                                                                Annualized
                                      Square     % of Total       Rental
Tenant                               Feet(1)     Square Feet    Income(2)      Expiration
 1.   Telstra Corporation Limited         311            0.5 %         2.0 %      2020
 2.   Office Depot, Inc.                  651            1.0 %         1.8 %  2016 and 2023
 3.   Expedia, Inc.                       365            0.6 %         1.5 %      2018
 4.   U.S. Government(3)                  598            0.9 %         1.5 %  2012 to 2032
      PNC Financial Services
 5.   Group                               591            0.9 %         1.5 %  2013 to 2021
 6.   John Wiley & Sons, Inc.     .       342            0.5 %         1.5 %      2017
 7.   Wells Fargo Bank                    569            0.9 %         1.4 %  2012 to 2022
 8.   GlaxoSmithKline plc                 608            1.0 %         1.3 %      2013
      United Healthcare Services
 9.   Inc.                                556            0.9 %         1.3 %  2012 to 2023
      The Bank of New York Mellon
10.   Corp.                               393            0.6 %         1.1 %  2015 to 2021
11.   Jones Day (law firm)                403            0.6 %         1.1 %  2012 and 2026
12.   Royal Dutch Shell plc               631            1.0 %         1.1 %      2016
      Ballard Spahr Andrews &                                                  2012, 2013
13.   Ingersoll, LLP                      269            0.4 %         1.0 %    and 2031
      Total                             6,287            9.8 %        18.1 %

(2) Annualized rental income is annualized contractual rents from our tenants pursuant to existing leases as of June 30, 2012, plus straight-line rent adjustments and estimated recurring expense reimbursements; includes some triple net lease rents and excludes lease value amortization.

(3) Including our 21.1% pro rata ownership of GOV as of June 30, 2012, the U.S. Government represents 1,826 square feet, or 2.8% of our total square feet, and 4.3% of our total rental income.

Investment Activities

Since January 1, 2012, we, excluding SIR, have acquired three office properties with a combined 2,048,387 square feet for an aggregate purchase price of $301.1 million, including the assumption of $176.9 million of mortgage debt and excluding closing costs. At the time of acquisition, these properties were 96.2% leased for a weighted average (by rents) term of 5.8 years and at rents which yielded approximately 9.1% of the aggregate gross purchase price, based on estimated annual NOI, which we define as GAAP rental income, excluding adjustments for above and below market lease value amortization, less property operating expenses, on the date of closing.

As of August 6, 2012, we, excluding SIR, have entered into agreements to acquire three office properties with a combined 1,391,966 square feet for an aggregate purchase price of $255.5 million, including the assumption of approximately $156.6 million of mortgage debt and excluding closing costs. We currently expect to acquire these properties during the third quarter of 2012; however, these acquisitions are subject to customary closing conditions, including the assumption of existing mortgage debt, and we can provide no assurance that we will acquire these properties in that time period or at all.

SIR was formerly our 100% owned subsidiary. On March 12, 2012, SIR completed the SIR IPO, in which it issued 9,200,000 of its common shares (including 1,200,000 common shares sold pursuant to the underwriters' over allotment option) for net proceeds (after deducting underwriters' discounts and commissions and estimated expenses) of $180.8 million. We are SIR's largest shareholder and, as of the date of this report, we owned 22,000,000 common shares of SIR, which represented approximately 70.5% of SIR's outstanding common shares. Our SIR common shares had a market value, based on quoted market prices, of $522.7 million ($23.76 per share) as of June 30, 2012.

Since the date of the SIR IPO, SIR has acquired five office properties with a combined 958,132 square feet for an aggregate purchase price of $151.0 million, excluding closing costs. At the time of acquisition, these properties were 100% leased for a weighted average (by rents) term of 11.3 years and at rents which yielded approximately 9.0% of the aggregate gross purchase price,

based on estimated annual NOI, as defined above. As of August 6, 2012, SIR has entered into agreements to acquire four properties with a combined 1,576,856 square feet for an aggregate purchase price of $109.7 million, including the assumption of approximately $26.0 million of mortgage debt and excluding closing costs. We understand that SIR expects it will acquire these properties during the remainder of 2012, however, these acquisitions are subject to SIR's satisfactory completion of diligence and other customary closing conditions. Accordingly, we can provide no assurance that SIR will acquire all or any of these properties in that time period or at all.

Financing Activities

In January 2012, we prepaid at par all $150.7 million of our 6.95% senior notes due 2012, using cash on hand and borrowings under our revolving credit facility. In connection with this prepayment, we recorded a loss on early extinguishment of debt of $67,000 from the write off of unamortized discounts and deferred financing fees.

In February 2012, we repaid at maturity $5.4 million of 7.31% mortgage debt using cash on hand.

In March 2012, SIR entered into a $500.0 million revolving credit facility that is available to SIR for general business purposes, including acquisitions. The SIR revolving credit facility is scheduled to mature on March 11, 2016 and, subject to SIR's paying a fee and meeting certain other conditions, SIR has the option to extend the stated maturity date by one year. Interest under the SIR revolving credit facility is calculated at floating rates based upon LIBOR plus premiums that vary depending upon certain factors, including SIR's leverage. The SIR revolving credit facility was amended in July 2012 to terminate the pledge of equity of certain of SIR's subsidiaries.

In May 2012, we prepaid at par $12.7 million of 6.06% mortgage debt using cash on hand. In connection with this prepayment, we recorded a loss on early extinguishment of debt of $1.6 million from the write off of unamortized discounts and deferred financing fees.

In July 2012, we prepaid at par all $191.0 million of our 6.50% unsecured senior notes due 2013, using cash on hand and borrowings under our revolving credit facility.

Also in July 2012, we issued $175.0 million of 5.75% unsecured senior notes due 2042 in a public offering, raising net proceeds of approximately $169.1 million. We used the net proceeds from these notes to repay amounts outstanding under our revolving credit facility and deposited the excess proceeds in short term investments. Shortly after the closing of this transaction, we issued a notice to redeem all 6,000,000 of our 7 1/8% series C preferred shares for $25.00 each plus accrued and unpaid distributions. We expect to fund this redemption in August 2012 with cash on hand and borrowings under our revolving credit facility.

Also in July 2012, SIR entered into a five year $350.0 million unsecured term loan with a group of institutional lenders. The SIR term loan matures on July 11, 2017 and is prepayable without penalty at any time. In addition, the SIR term loan includes a feature under which maximum borrowings may be increased to up to $700.0 million in certain circumstances. SIR used the net proceeds of the SIR term loan to repay amounts outstanding under the SIR revolving credit facility and for general business activities, including acquisitions. Interest on the SIR term loan will be calculated at floating rates based upon LIBOR plus premiums that vary based upon certain factors, including SIR's leverage.