Government Properties Income Trust (NYSE:GOV) today announced the restructuring of its management agreement with Reit Management & Research LLC (RMR) and the recommendation to shareholders to have annual election of all Trustees.
Restructuring of Management Agreement with RMR.
GOV and RMR have agreed to restructure their business management agreement as follows:
- The base business management fees paid by GOV to RMR, which are included in GOV’s “G&A” expenses, are currently calculated at the annual rate of approximately 0.5% of the gross historical cost of GOV’s real estate assets. Beginning in 2014, these fees will be calculated on the basis of the lower of: (i) gross historical cost of GOV’s real estate assets or (ii) GOV’s total market capitalization. Market capitalization will include the market value of GOV’s common shares, plus the liquidation preference of preferred shares and the principal amount of debt. The market value of GOV’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, GOV’s fees paid to RMR may decline when the market value of GOV’s common shares declines.
- All of the base business management fees currently paid by GOV to RMR are paid in cash. Beginning in 2014, 10% of the base business management fees will be paid in common shares of GOV. The amount of GOV 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 GOV is expected to increase over time.
- Annual incentive fees payable by GOV to RMR included in GOV’s “G&A” expenses are currently calculated based upon increases in funds from operations (FFO) per share and are paid in common shares of GOV which vest immediately. Beginning in 2014, the incentive fees which may be earned by RMR will be calculated based upon total returns realized by GOV common shareholders (i.e., share price appreciation plus dividends) in excess of benchmarks. The benchmarks will be set by the Compensation Committee of GOV’s Board (which is comprised solely of Independent Trustees) and will be disclosed in GOV’s annual meeting proxy statements. Incentive fees will be paid in common shares of GOV 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 GOV common shareholders.
Recommending Annual Election of All Trustees.The GOV Board of Trustees has determined to recommend to shareholders that GOV’s Declaration of Trust be amended to permit the annual election of all Trustees. GOV’s Trustees currently serve staggered, three year terms. The proposed amendment to GOV’s Declaration of Trust will be presented to GOV’s shareholders at GOV’s next annual shareholders’ meeting in the spring of 2014. If this amendment is approved by GOV’s shareholders, all Trustees will thereafter be elected for one year terms.