Senior Housing Properties Trust Amends Management Agreement with RMR
December 23 2013 - 7:11PM
Business Wire
Implements Changes Announced Earlier this Year
to Further Align Interests of Management with Shareholders While
Maintaining Low Cost Structure
New Incentive Fee Based on Three Year Total
Return per Share Relative to Performance of Other Healthcare
REITs
Eliminates Related Party Purchase Rights for
Property Sales
Senior Housing Properties Trust (NYSE: SNH) today announced that
it has amended its business management agreement with Reit
Management & Research LLC, or RMR, effective January 1, 2014.
The amended agreement implements the previously announced plan to
change the business management agreement, as follows:
New Base Management Fee:
- The new calculation of the base
management fee will be based on approximately 0.5% multiplied by
the lower of: (i) the historical cost
of SNH’s real estate assets or (ii) SNH’s total market
capitalization. The comparatively low level of general and
administrative, or G&A, expenses that SNH has historically
enjoyed will continue, but with this change it is possible that
G&A expenses may further decline if the market value of SNH’s
common shares declines.
- 10% of the base fee will be paid in
SNH’s common shares. As a result, management’s share ownership is
expected to increase over time.
New Incentive Fee:
- The new incentive fee will be
calculated based on total return per share (dividends and share
price changes) realized by SNH’s shareholders in comparison to the
total return of the SNL REIT Healthcare Index, or the Benchmark.
The incentive fee formula will be based on the amount of
outperformance, if any, realized by SNH’s shareholders during the
measurement periods compared to the Benchmark, multiplied by a 12%
participation rate. For example, if SNH’s shareholders’ total
return is 10% during the measurement period and the Benchmark’s
total return is 5% during that same period, the incentive fee will
be 12% of the 5% of total outperformance realized by SNH’s
shareholders.
- The measurement period for the new
incentive fee will be a rolling, cumulative three year period
starting January 1, 2014. In other words, the incentive fee payable
at the end of 2016 will be based upon the outperformance realized
by SNH’s shareholders compared to the Benchmark cumulatively during
2014, 2015 and 2016; the incentive fee payable at the end of the
2017 would be based upon the cumulative outperformance realized in
2015, 2016 and 2017; etc.
- No incentive fee will be payable by SNH
in the event the total return realized during any measurement
period is negative, even if the total return realized by SNH’s
shareholders exceeds the Benchmark. Also, the incentive fee formula
includes a “high performance modifier” so that, within specific
parameters, if the total return realized by SNH’s shareholders over
a three year period exceeds 36% an adjusted incentive fee may be
paid.
- The incentive fee will be paid in SNH’s
common shares. The annual payment of the incentive fee will be
limited, or capped, at 1.5% of the number of SNH’s common shares
outstanding at the end of each measurement period. Common shares
issued for payment of the incentive fees will vest over a
multi-year period and the shares will be subject to “claw back” in
the event of subsequent financial restatements. Also, because it
will take three years for the new incentive fee formula to become
fully effective, a one year interim fee may be paid at the end of
2014 and a two year cumulative interim fee may be paid at the end
of 2015 based on outperforming the pro-rata hurdles in each of
those periods.
The previous incentive fee arrangement was based on a percentage
of annual increases in funds from operations, or FFO, per share.
The new incentive fee formula is intended to more directly align
the fee paid with the total return realized by shareholders
relative to SNH’s Healthcare REIT peers.
The new incentive fee formula was established by the SNH Board
of Trustees’ Compensation Committee (which is comprised solely of
Independent Trustees) and it was developed by that Committee in
consultation with FTI Consulting, Inc., an independent compensation
consultant selected by the Committee.
Other Management Contract
Terms:
In addition to the new fee formulas described above, the amended
business management agreement eliminates the historical “right of
first offer” for property dispositions among SNH and other REITs
managed by RMR.
The amended business management agreement continues to require
RMR to provide all personnel and substantially all corporate office
functions typically included in G&A expenses, except certain
third party services and expenses such as outside counsel and
accountants as well as the fees and expenses of the Independent
Trustees.
Senior Housing Properties Trust is a real estate investment
trust, or REIT, which owns independent and assisted living
communities, medical office buildings, nursing homes and wellness
centers throughout the United States. SNH is headquartered in
Newton, MA.
WARNING REGARDING
FORWARD LOOKING STATEMENTS
THIS PRESS RELEASE INCLUDES FORWARD LOOKING STATEMENTS WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
AND OTHER SECURITIES LAWS. THESE FORWARD LOOKING STATEMENTS ARE
BASED UPON SNH’S AND ITS INDEPENDENT TRUSTEES’ PRESENT BELIEFS AND
EXPECTATIONS, BUT THEY ARE NOT GUARANTEED TO OCCUR AND MAY NOT
OCCUR FOR VARIOUS REASONS, INCLUDING SOME REASONS WHICH ARE BEYOND
SNH’S AND THE INDEPENDENT TRUSTEES’ CONTROL. FOR EXAMPLE: THIS
PRESS RELEASE REFERS TO THE COMPARATIVELY LOW LEVEL OF G&A
EXPENSES WHICH SNH HAS HISTORICALLY EXPERIENCED AND STATES THAT SNH
MAY CONTINUE TO RECEIVE HIGH QUALITY MANAGEMENT SERVICES AT BELOW
AVERAGE COSTS. THE COMPARATIVE AND AVERAGE COSTS OF MANAGEMENT
COSTS AND G&A EXPENSES MAY BE CALCULATED IN DIFFERENT WAYS: BY
AMOUNTS, AS A PERCENTAGE OF ASSETS, AS A PERCENTAGE OF REVENUES AND
OTHERWISE. SNH AND ITS INDEPENDENT TRUSTEES BELIEVE THAT THEIR
CALCULATIONS OF SUCH COSTS AND EXPENSES ARE APPROPRIATE. HOWEVER,
IT IS POSSIBLE THAT OTHERS MAY DISPUTE THESE CALCULATIONS TO ARGUE
THAT SUCH COSTS AND EXPENSE ARE NOT AT A LOW LEVEL OR BELOW
AVERAGE.
FOR THESE REASONS, AMONG OTHERS, INVESTORS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS IN THIS PRESS
RELEASE OR THEIR IMPLICATIONS.
A Maryland Real Estate Investment Trust with
transferable shares of beneficial interest listed on the New York
Stock Exchange.No shareholder, Trustee or officer is personally
liable for any act or obligation of the Trust.
Senior Housing Properties TrustTimothy A. Bonang,
617-796-8234Vice President, Investor Relationswww.snhreit.com
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