Hospitality Properties Trust (NYSE: HPT) today announced the restructuring of its business management agreement with Reit Management & Research LLC (RMR) as follows:
- The base business management fees paid by HPT to RMR, which are included in HPT’s “G&A” expenses, are currently calculated at the annual rate of approximately 0.5% of the gross historical cost of HPT’s real estate assets. Beginning in 2014, these fees will be calculated on the basis of the lower of: (i) gross historical cost of HPT’s real estate assets or (ii) HPT’s total market capitalization. Market capitalization will include the market value of HPT’s common shares, plus the liquidation preference of preferred shares and the principal amount of debt. The market value of HPT’s common shares will be calculated based on the average shares outstanding multiplied by the average closing share price during the period in which the fees are earned. Accordingly, HPT’s fees paid to RMR may decline when the market value of HPT’s common shares declines.
- All of the base business management fees currently paid by HPT to RMR are paid in cash. Beginning in 2014, 10% of the base business management fees will be paid in common shares of HPT. The amount of HPT common shares granted as part of the base business management fee will be calculated based on the average closing share price during the period in which the fees are earned. Accordingly, RMR’s common share ownership of HPT is expected to increase over time.
- Annual incentive fees payable by HPT to RMR included in HPT’s “G&A” expenses are currently calculated based upon increases in cash available for distribution (CAD) per share and are paid in common shares of HPT which vest immediately. Beginning in 2014, the incentive fees which may be earned by RMR will be calculated based upon total returns realized by HPT common shareholders (i.e., share price appreciation plus dividends) in excess of benchmarks. The benchmarks will be set by the Compensation Committee of HPT’s Board (which is comprised solely of Independent Trustees) and will be disclosed in HPT’s annual meeting proxy statements. Incentive fees will be paid in common shares of HPT which will vest over a multiyear period and will be subject to a “claw back” in the event of certain material restatements of financial results. Accordingly, the incentive fees payable to RMR are expected to have a direct relationship to total returns realized by HPT common shareholders.
In June 2013, HPT announced that its Board of Trustees was recommending to shareholders that HPT’s Declaration of Trust be amended to allow for the annual election of all Trustees at the next annual shareholders’ meeting in the spring of 2014 and accelerating the termination of HPT’s shareholders’ rights plan (the “poison pill”) to December 31, 2013.