Investor Presentation

Government Properties Income Trust Investor Presentation

September 2015

50 West State Street, Trenton, NJ.

Square Feet: 266,995.

Primary Tenant: New Jersey Dept. of the Treasury.

Capitol Place, Sacramento, CA

Square Feet: 163,840

Primary Tenant: California Dept. of Finance

Government Properties Income Trust 2

Disclaimer.

THIS PRESENTATION CONTAINS CERTAIN FORWARD LOOKING STATEMENTS THAT ARE SUBJECT TO VARIOUS RISKS

AND UNCERTAINTIES. FORWARD LOOKING STATEMENTS ARE GENERALLY IDENTIFIABLE BY USE OF FORWARD

LOOKING TERMINOLOGY SUCH AS “MAY,” “WILL,” “SHOULD,” “POTENTIAL,” “INTEND,” “EXPECT,” “OUTLOOK,” “SEEK,”

“ANTICIPATE,” “ESTIMATE,” “APPROXIMATELY,” “BELIEVE,” “COULD,” “PROJECT,” “PREDICT,” OR OTHER SIMILAR WORDS

OR EXPRESSIONS. ALTHOUGH GOV BELIEVES THAT THE EXPECTATIONS REFLECTED IN THESE FORWARD LOOKING

STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, GOV’S ACTUAL RESULTS AND PERFORMANCE COULD

DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD LOOKING STATEMENTS. FOR A LIST OF FACTORS

THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON GOV’S BUSINESS, RESULTS OF OPERATIONS, FINANCIAL

CONDITION, FUNDS FROM OPERATIONS, NET OPERATING INCOME, CASH FLOWS, LIQUIDITY AND PROSPECTS,

PLEASE REFER TO GOV’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2014 AND

SUBSEQUENT FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. YOU SHOULD NOT PLACE UNDUE

RELIANCE UPON ANY FORWARD LOOKING STATEMENT. EXCEPT AS REQUIRED BY APPLICABLE LAW, WE UNDERTAKE

NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD LOOKING STATEMENT AS A RESULT OF NEW INFORMATION,

FUTURE EVENTS OR OTHERWISE.

THIS PRESENTATION CONTAINS NON-GAAP FINANCIAL MEASURES INCLUDING NORMALIZED FUNDS FROM

OPERATIONS (FFO), ADJUSTED EBITDA, NET OPERATING INCOME (NOI) AND CASH BASIS NOI. RECONCILIATIONS FOR

THESE METRICS TO THE CLOSEST U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, OR GAAP, METRICS ARE

INCLUDED IN THE APPENDIX.

Note: Unless otherwise noted, data is presented as of June 30, 2015 and excludes properties classified as discontinued operations.


• Government Properties Income Trust (NYSE: GOV)

is a real estate investment trust (REIT) focused on

owning and operating properties majority leased to

government tenants.

We are the U.S. Government’s largest landlord and own

71 properties located in 31 states and Washington D.C.

containing approximately 10.7 million square feet.

Properties are 94.3% leased.

93% of our annualized rental income is paid by the

U.S. Government (on behalf of 38 agencies), 12 state governments and the United Nations.

• Own 28% of the outstanding shares of Select Income REIT (NYSE: SIR).

• Dividend yield is currently more than twice that of most office REIT peers.

• Investment grade rated by Moody’s (Baa3) and S&P (BBB-).

Company overview.

Annualized Rental Income by Tenant(1)

(1) Source: Colliers International.

(2) Percentage of annualized rental income is calculated using annualized contractual base rents from our tenants pursuant to our lease agreements

with them as of 6/30/15, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excludes lease value

amortization.

U.S. Gov. 67.7%

State Govs. 20.7%

U.N. 4.4%

Non-Gov. 7.2%


A conservative strategy designed to provide secure and stable income. Enhancing security through leasing:

• Well over 90% of GOV’s rental income is paid by investment

grade tenants; significantly above the office REIT average.

• On average, government tenants remain in place significantly

longer than private sector tenants, with U.S. Government tenants

historically occupying the same space for more than 20 years.

• Tenant improvements upon renewal have historically been modest.

Enhancing security through fiscal management:

• We have been investment grade rated since 2010.

• As competition has intensified and capitalization rates have

compressed, we significantly slowed our acquisition pace and

initiated a capital recycling plan.

• We expect that our acquisitions and dispositions will be

reasonably balanced in the near term.

Representative GOV Tenants


GOV’s diversified portfolio today.

U.S. Government Tenant Diversity(1) State Government Tenant Diversity(1)

Geographic Diversity(1)(3)

(1) Amounts exclude properties classified as discontinued operations.

(2) Sq. ft. is pursuant to leases existing as of 6/30/15, and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease, if any, and rentable sq. ft. measurements are subject to modest changes when space is re-measured or re-

configured for new tenants.

(3) Percentage of annualized rental income is calculated using annualized contractual base rents from our tenants pursuant to our lease agreements with them as of 6/30/15, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excludes lease value

amortization.

(4) Agency occupant cannot be disclosed.

CA

VA

DC

GA

NY MD MA

Other


Government leasing dynamics. U.S. Government:

• General Services Administration (GSA) oversees virtually all U.S. Government real estate, entering gross

leases on behalf of agencies with flat rents and annual expense reimbursements over an established base as

determined by Consumer Price Index changes plus 100% of real estate tax increases over a base amount.

• GSA has focused on reducing the amount of space per federal employee, challenging lease renewals if

underutilized federally owned properties are available, and meeting security requirements and green initiatives.

• Primary lease terms tend to be for 10-20 years with renewal options for 5 years.

• While 3-5 year renewal terms have been favored recently, newly proposed legislation would require a minimum

lease term of 10 years for all new GSA leases.

State governments:

• Most leases are full service gross with periodic rent increases and no reimbursement of operating expenses.

• Some state leases are subject to annual budget appropriations, which in GOV’s experience rarely result in

early terminations.

Amid a challenging environment, GOV has managed to increase its occupancy and generate a 9%

weighted average roll-up in rent with government tenants over the past two years.


GOV has manageable lease expirations and a history of renewing a high percentage of its leases.

LEASE EXPIRATION SCHEDULE(1)

(dollars and sq. ft. in thousands)

As of June 30, 2015

Supplemental_MASTER.xlsx


• GOV typically begins to discuss renewals

with tenants at least two years prior to

lease expiration.

• As of June 30, 2015, leases contributing

approximately 20% of GOV’s annualized

rental income were set to expire over the

ensuing 24 months. Of this total, GOV

currently believes:

It will be able to renew or extend leases for

the vast majority of this expiring rent;

Tenants contributing 2.4% of GOV’s annualized

rent are expected to vacate; and

Tenants contributing 1.7% of GOV’s annualized rent are at risk of vacating or downsizing.

• GOV typically markets its unoccupied space to both government and non-government

tenants via separate brokers.

Lease Expirations(1)

Tenant retention expected to remain high.

2.4% 1.7%

16.2%

79.7%

Will VacateHigh RiskExpected to Renew

(1) Percentage of annualized rental income, which is calculated using annualized contractual base rents from our tenants pursuant to our lease agreements

with them as of 6/30/15, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excludes lease value

amortization.


$0

$100

$200

$300

$400

$500

2009 2010 2011 2012 2013 2014 2015

U.S. Government State Government United Nations

($ in millions)

Acquisition History Through June 30, 2015

Selectively targeting accretive acquisitions.

(1) Represents the ratio of (x) annual straight line rental income, excluding the impact of above and below market lease amortization, based on existing

leases at the acquisition date, less estimated annual property operating expenses as of the date of the acquisition, excluding depreciation and

amortization expense, to (y) the acquisition purchase price, excluding acquisition costs.

(2) Average remaining lease term weighted based on rental income as of the date of acquisition.

GOV has slowed its acquisition pace since the start of 2013, purchasing 9 properties for approximately

$260 million at a weighted avg. cap rate of 8.6%(1) and a weighted avg. remaining lease term of 7.3 years(2).


GOV’s capital recycling track record.

• Since 2013, GOV has identified properties for

disposition based upon the following criteria:

A property is vacant and the re-leasing prospects are

challenged either because of high potential capital costs

or a weak leasing environment; or

We are uncertain of the government’s long term commitment

to a property, and we believe the downtime to find a

replacement tenant is unacceptably long and/or the leasing

cost to retenant the space is uneconomical.

• From the start of 2013 through February 2015, GOV had sold five properties for an

aggregate sale price of $66.2 million, excluding closing costs.

• Two properties remain held for sale.

• Expect to continue adding to GOV’s capital recycling program.


GOV’s sustainability initiatives are enhancing portfolio metrics and earning accolades.

• The U.S. Government can favor buildings that are ENERGY STAR rated

or LEED designated. As a result, since becoming a public company in

2009, GOV has designated significant building improvement capital to

green building initiatives, reducing its carbon footprint and enhancing

relationships with tenants.

• 50 GOV properties already ENERGY STAR rated.

Buildings consume at least 25% less energy than the national median.

• 15 GOV properties already LEED designated.

Buildings consume less energy and water, have lower maintenance costs,

higher occupant satisfaction and lower greenhouse gas emissions.

• 7 GOV buildings already earning revenue through demand response

programs.

Reduces power consumption and greenhouse gas emissions.

• GOV has been recognized by the U.S. Department of Energy's Better

Buildings Alliance and the Institute for Market Transformation as an

inaugural “Green Lease Leader.”

http://ingramswaterandair.com/geothermal-heat-pump/the-u-s-green-building-council/leedlogo-2


SIR investment adds further stability to cash flows.

• GOV has established a 28% equity interest in Select Income REIT (NYSE: SIR).

• Like GOV, SIR’s business is focused on providing secure cash flows to service its

financial obligations and offering a safe and growing distribution to its shareholders.

• SIR recently enhanced all of its key metrics and more than doubled the size of its asset

base through its accretive acquisition of Cole Corporate Income Trust.

• GOV expects to receive approximately $50 million annually from SIR in the form of

dividends based upon SIR’s current distribution rate.

• SIR’s payout ratio remains low relative to its REIT peers, providing GOV with further

potential to grow its cash flows.

• GOV believes its SIR investment has a valuation upside based upon SIR’s low trading

multiple and the implied cap rate of its property investments.


Financials.

11411 E. Jefferson Avenue.


Tenant: U.S. Customs & Immigration Service.


Debt/total book cap. 52.6%

Adjusted EBITDA/interest expense(1) 6.1x

Debt/annualized adjusted EBITDA(1) 4.9x

Weighted average interest rate(2) 2.88%

GOV maintains a conservative financial profile.

25%

16%

9%

47%

Unsecured revolving credit facility $ 59,000

Unsecured term loans 550,000

Senior unsecured debt 347,702

Mortgage debt 185,401

Total debt 1,142,103

Shareholders' equity 1,027,243

Total capitalization $ 2,169,346

(1) See Appendix for the calculation of earnings before interest, taxes, depreciation and amortization, or EBITDA, and Adjusted EBITDA, and a

reconciliation of net income determined in accordance with GAAP to those amounts.

(2) Includes the effect of unamortized fair value premiums related to certain assumed mortgage debt and unamortized original issue discount on senior

notes.

Key Balance Sheet Metrics as of and

for the Quarter Ended June 30, 2015

Book Capitalization as of June 30, 2015

($ in 000s)

3%


$47,702

$107,933

$1,549 $1,671

$418,440

$301,619

$13,229

$250,000

$-

$150,000

$300,000

$450,000

2015 2016 2017 2018 2019 2020 2021 2022

GOV has manageable, laddered debt maturities.

Unsecured Revolving

Credit Facility

$750 million facility with $690

million available as of 6/30/15.

Matures in Jan. 2019 with a one

year extension option.

Unsecured Term Loans

$300 million loan which matures in

March 2020.

$250 million loan which matures in

March 2022.

Prepayable at any time.(1)

(1) Our $300,000 term loan is prepayable without penalty at any time. Our $250,000 term loan is prepayable at any time, subject to a

prepayment premium on the amount outstanding of 2% until 11/21/2015 and 1% for the period 11/22/2015 to 11/21/2016. There is no

premium due if prepaid after 11/21/2016.

Debt Maturity Schedule as of June 30, 2015

($ in 000s)

Unsecured Senior Notes

$350 million of fixed rate senior

unsecured debt.

Matures in Aug. 2019. Weighted average time to maturity is 4.4 years, in line with GOV’s

weighted average remaining lease term of 4.7 years.


Appendix. 15451 North 28th Avenue, Phoenix, AZ.


Tenant: Northern Arizona University.


Condensed consolidated balance sheets.

($ in 000s, except share data)


Condensed consolidated statements of income. ($ in 000s, except share data)


Calculation of property net operating income (NOI)

and cash basis NOI(1). ($ in 000s)

(1) Please see page 22 for a definition of NOI and Cash Basis NOI and reasons why management believes the presentation of these measures provides useful information to investors and any additional purposes for which

management uses NOI and Cash Basis NOI.

(2) Excludes properties classified as discontinued operations.

(3) We report rental income on a straight line basis over the terms of the respective leases; as a result, rental income includes non-cash straight line rent adjustments. Rental income also includes expense

reimbursements, tax escalations, parking revenues, service income and other fixed and variable charges paid to us by our tenants, as well as the net effect of non-cash amortization of intangible lease assets and liabilities.


Calculation of EBITDA and adjusted EBITDA(1).

(1) Please see page 22 for a definition of EBITDA and Adjusted EBITDA and reasons why management believes the presentation of these measures provides useful information to investors and any

additional purposes for which management uses EBITDA and Adjusted EBITDA.

(2) Amounts represent the portion of business management fees that are payable in our common shares as well as equity based compensation for our trustees, officers and certain employees of

RMR.

($ in 000s)


Calculation of funds from operations (FFO) and

normalized FFO(1).

($ in 000s, except per share amounts)

(1) Please see page 22 for a definition of FFO and Normalized FFO and reasons why management believes the presentation of these measures provides useful information to investors and any

additional purposes for which management uses FFO and Normalized FFO.


NON-GAAP financial measures definitions.

Government Properties Income Trust Investor Presentation

September 2015

50 West State Street, Trenton, NJ.


Primary Tenant: New Jersey Dept. of the Treasury.

Capitol Place, Sacramento, CA

Square Feet: 163,840

Primary Tenant: California Dept. of Finance

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